item 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules none required 3 exhibits filed incorporated reference report listed management contracts compensatory plans arrangements required identified item 14a3 b reports form 8k reports form 8k filed registrant last quarter fiscal year ended january 31 1997 c exhibits filed report form 10k identified item 14a3 financial statement schedules none required signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company sandrew b schmitt andrew b schmitt president dated april 22 1997 chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated incorporated herein referenceitem 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules financial statement schedules listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit description 41 restated certificate incorporation registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 31 incorporated herein reference 42 bylaws registrant filed amendment 2 registrants registration statement file 3348432 exhibit 32 incorporated herein reference 43 specimen common stock certificate filed amendment 3 registrants registration statement file 3348432 exhibit 41 incorporated herein reference 44 amended restated credit agreement dated july 25 1997 among company layne christensen australia pty limited national trust savings association various financial institutions bank america letter credit issuer bank america national trust savings association agent filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1012 incorporated herein reference 45 note agreement dated march 15 1996 company massachusetts mutual life insurance company purchaser issuance sale purchaser 25000000 aggregate principal amount 675 senior notes due march 15 2006 filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1014 incorporated herein reference 46 amendment note agreement dated july 25 1997 company massachusetts mutual life insurance company filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1014 incorporated herein reference 101 tax liability indemnification agreement registrant marley company filed amendment 3 registrants registration statement file 3348432 exhibit 102 incorporated herein reference 102 lease agreement registrant parkway partners llc dated december 21 1994 filed registrants annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 102 incorporated herein reference 1021 first modification ratification lease dated february 26 1996 parkway partners llc registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 0 20578 exhibit 1021 incorporated herein reference 103 form layne capital accumulation plan trust agreement filed registrants registration statement file 3348432 exhibit 105 incorporated herein reference 104 layne inc 1992 stock option plan filed amendment 3 registrants registration statement file 3348432 exhibit 106 incorporated herein reference 105 form stock option agreement company management company filed amendment 3 registrants registration statement file 3348432 exhibit 107 incorporated herein reference 106 form non qualified stock option agreement spinoff options company robert j dineen filed amendment 3 registrants registration statement file 33 48432as exhibit 109 incorporated herein reference 107 insurance liability indemnity agreement company marley company filed amendment 3 registrants registration statement file 3348432 exhibit 1010 incorporated herein reference 108 form layne inc executive incentive compensation plan filed registrants form 10q quarterly period ended july 31 1994 file 3348432 exhibit 102 incorporated herein reference 109 agreement marley company relating tradename filed registrants registration statement file no3348432 exhibit 1010 incorporated herein reference 1010 form subscription agreement management company filed amendment 3 registrants registration statement file 3348432 exhibit 1016 incorporated herein reference 1011 form subscription agreement company robert j dineen filed amendment 3 registrants registration statement file 3348432 exhibit 1017and incorporated herein reference 1012 amended restated credit agreement dated july 25 1997 among company layne christensen australia pty limited national trust savings association various financial institutions bank america letter credit issuer bank america national trust savings association agent filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1012 incorporated herein reference 1013 letter agreement andrew b schmitt company dated october 12 1993 filed companys annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 1013 incorporated herein reference 1014 note agreement dated march 15 1996 company massachusetts mutual life insurance company purchaser issuance sale purchaser 25000000 aggregate principal amount 675 senior notes due march 15 2006 filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1014 incorporated herein reference 1015 amendment note agreement dated july 25 1997 company massachusetts mutual life insurance company filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1014 incorporated herein reference 1016 form incentive stock option agreement company management company filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 1017 registration rights agreement dated november 30 1995 company marley holdings lp filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1017 incorporated herein reference 1018 stockholders agreement dated december 28 1995 among company marley holdings lp greylock investments limited partnership certain stockholders registrant identified therein filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1018 incorporated herein reference 111 statement regarding computation per share earnings 221 list subsidiaries 231 consent deloitte touche llp 271 financial data schedule management contracts compensatory plans arrangements required identified item 14a3 b reports form 8k reports form 8k filed registrant last quarter fiscal year ended january 31 1998 c exhibits filed report form 10k identified item 14a3 financial statement schedules none required signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company sandrew b schmitt andrew b schmitt president dated april 30 1998 chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date sandrew b schmitt april 30 1998 andrew b schmitt president chief executive officer director principal executive officer sjerry w fanska april 30 1998 jerry w fanska vice presidentfinance treasurer principal financial accounting officer srobert j dineen april 30 1998 robert j dineen director sedward gilhuly april 30 1998 edward gilhuly director stodd fisher april 30 1998 todd fisher director sdonald k miller april 30 1998 donald k miller director sheldon r erikson april 30 1998 sheldon r erikson director exhibit index exhibit description page 41 restated certificate incorporation registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 31 incorporated herein reference 42 bylaws registrant filed amendment 2 registrants registration statement file 3348432 exhibit 32 incorporated herein reference 43 specimen common stock certificate filed amendment 3 registrants registration statement file 3348432 exhibit 41 incorporated herein reference 44 amended restated credit agreement dated july 25 1997 among company layne christensen australia pty limited national trust savings association various financial institutions bank america letter credit issuer bank america national trust savings association agent filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1012 incorporated herein reference 45 note agreement dated march 15 1996 company massachusetts mutual life insurance company purchaser issuance sale purchaser 25000000 aggregate principal amount 675 senior notes due march 15 2006 filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1014 incorpo rated herein reference 46 amendment note agreement dated july 25 1997 company massachusetts mutual life insurance company filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1014 incorporated herein reference 101 tax liability indemnification agreement registrant marley company filed amendment 3 registrants registration statement file 3348432 exhibit 102 incorporated herein reference 102 lease agreement registrant parkway partners llc dated december 21 1994 filed registrants annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 102 incorporated herein reference 1021 first modification ratification lease dated february 26 1996 parkway partners llc registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1021 incorporated herein reference 103 form layne capital accumulation plan trust agreement filed registrants registration statement file 3348432 exhibit 105 incorporated herein reference 104 layne inc 1992 stock option plan filed amendment 3 registrants registration statement file 3348432 exhibit 106 incorporated herein reference 105 form stock option agreement company management company filed amendment 3 registrants registration statement file 3348432 exhibit 107 incorporated herein reference 106 form non qualified stock option agreement spinoff options company robert j dineen filed amendment 3 registrants registration statement file 3348432as exhibit 109 incorporated herein reference 107 insurance liability indemnity agreement company marley company filed amendment 3 registrants registration statement file 3348432 exhibit 1010 incorporated herein reference 108 form layne inc executive incentive compensation plan filed registrants form 10q quarterly period ended july 31 1994 file 3348432 exhibit 102 incorporated herein reference 109 agreement marley company relating tradename filed registrants registration statement file no3348432 exhibit 1010 incorporated herein reference 1010 form subscription agreement management companyfiled amendment 3 registrants registration statement file 3348432 exhibit 1016 incorporated herein reference 1011 form subscription agreement company robert j dineen filed amendment 3 registrants registration statement file 3348432 exhibit 1017and incorporated herein reference 1012 amended restated credit agreement dated july 25 1997 among company layne christensen australia pty limited national trust savings association various financial institutions bank america letter credit issuer bank america national trust savings association agent filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1012 incorporated herein reference 1013 letter agreement andrew b schmitt company dated october 12 1993 filed companys annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 1013 incorporated herein reference 1014 note agreement dated march 15 1996 company massachusetts mutual life insurance company purchaser issuance sale purchaser 25000000 aggregate principal amount 675 senior notes due march 15 2006 filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1014 incorporated herein reference 1015 amendment note agreement dated july 25 1997 company massachusetts mutual life insurance company filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1014 incorporated herein reference 1016 form incentive stock option agreement company management company filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 1017 registration rights agreement dated november 30 1995 company marley holdings lp filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1017 incorporated herein reference 1018 stockholders agreement dated december 28 1995 among company marley holdings lp greylock investments limited partnership certain stockholders registrant identified therein filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1018 incorporated herein reference 111 statement regarding computation per share earnings 62 221 list subsidiaries 64 231 consent deloitte touche llp 66 271 financial data schedule 68 incorporated herein referenceitem 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10 k 2 financial statement schedules financial statement schedules listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit description 41 restated certificate incorporation registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 31 incorporated herein reference 42 bylaws registrant filed amendment 2 registrants registration statement file 3348432 exhibit 32 incorporated herein reference 43 specimen common stock certificate filed amendment 3 registrants registration statement file 3348432 exhibit 41 incorporated herein reference 44 amended restated credit agreement dated july 25 1997 among company layne christensen australia pty limited national trust savings association various financial institutions bank america letter credit issuer bank america national trust savings association agent credit agreement filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1012 incorporated herein reference 441 first amendment credit agreement dated december 5 1997 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 441 incorporated herein reference 442 second amendment credit agreement dated february 23 1998 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 442and incorporated herein reference 443 third amendment credit agreement dated october 16 1998 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 443 incorporated herein reference 444 fourth amendment credit agreement dated april 20 1999 filed companys form 10q quarter ended april 30 1999 file 020578 exhibit 41 incorporated herein reference 445 fifth amendment credit agreement dated february 14 2000 45 note agreement dated march 15 1996 company massachusetts mutual life insurance company purchaser issuance sale purchaser 25000000 aggregate principal amount 675 senior notes due march 15 2006 filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1014 incorporated herein reference 46 amendment note agreement dated july 25 1997 company massachusetts mutual life insurance company filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1014 incorporated herein reference 47 rights agreement dated october 12 1998 layne christensen company national city bank includes form certificate designations series junior participating preferred stock layne christensen company exhibit form right certificate exhibit b summary rights purchase preferred shares exhibit c filed companys form 8k dated october 12 1998 file 020578 exhibit 41 incorporated herein reference 101 tax liability indemnification agreement registrant marley company filed amendment 3 registrants registration statement file 3348432 exhibit 102 incorporated herein reference 102 lease agreement registrant parkway partners llc dated december 21 1994 filed registrants annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 102 incorporated herein reference 1021 first modification ratification lease dated february 26 1996 parkway partners llc registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 0 20578 exhibit 1021 incorporated herein reference 1022 second modification ratification lease agreement parkway partners llc layne christensen company dated april 28 1997 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 1022 incorporated herein reference 1023 third modification extension agreement parkway partners llc layne christensen company dated november 3 1998 filed companys 10q quarter ended october 31 1998 file 020578 exhibit 101 incorporated herein reference 103 form layne capital accumulation plan trust agreement filed registrants registration statement file 3348432 exhibit 105 incorporated herein reference 104 layne inc 1992 stock option plan filed amendment 3 registrants registration statement file 3348432 exhibit 106 incorporated herein reference 105 form stock option agreement company management company filed amendment 3 registrants registration statement file 3348432 exhibit 107 incorporated herein reference 106 form non qualified stock option agreement spinoff options company robert j dineen filed amendment 3 registrants registration statement file 33 48432as exhibit 109 incorporated herein reference 107 insurance liability indemnity agreement company marley company filed amendment 3 registrants registration statement file 3348432 exhibit 1010 incorporated herein reference 108 form layne inc executive incentive compensation plan filed registrants form 10q quarterly period ended july 31 1994 file 3348432 exhibit 102 incorporated herein reference 109 agreement marley company relating tradename filed registrants registration statement file no3348432 exhibit 1010 incorporated herein reference 1010 form subscription agreement management company filed amendment 3 registrants registration statement file 3348432 exhibit 1016 incorporated herein reference registration statement file 33329581 exhibit 1014 incorporated herein reference 1016 form incentive stock option agreement company management company filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 1017 registration rights agreement dated november 30 1995 company marley holdings lp filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1017 incorporated herein reference 1018 stockholders agreement dated december 28 1995 among company marley holdings lp greylock investments limited partnership certain stockholders registrant identified therein filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1018 incorporated herein reference 1019 form stock option agreement company management company effective february 1 1998 filed companys form 10q quarter ended april 30 1998 file 020578 exhibit 101 incorporated herein reference 1020 form incentive stock option agreement company management company effective april 20 1999 filed companys form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 1021 form nonqualified stock option agreement company management company effective april 20 1999 filed companys form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 111 statement regarding computation per share earnings 221 list subsidiaries 231 consent deloitte touche llp 271 financial data schedule management contracts compensatory plans arrangements required identified item 14a3 b reports form 8k reports form 8k filed registrant last quarter fiscal year ended january 31 2000 c exhibits filed report form 10k identified item 14a3 financial statement schedules financial statement schedules filed report form 10k identified item 14a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company andrew b schmitt andrew b schmitt president dated april 27 2000 chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated incorporated herein referenceitem 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules financial statement schedules listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit description 41 restated certificate incorporation registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 31 incorporated herein reference 42 bylaws registrant filed amendment 2 registrants registration statement file 3348432 exhibit 32 incorporated herein reference 43 specimen common stock certificate filed amendment 3 registrants registration statement file 3348432 exhibit 41 incorporated herein reference 44 amended restated credit agreement dated july 25 1997 among company layne christensen australia pty limited national trust savings association various financial institutions bank america letter credit issuer bank america national trust savings association agent credit agreement filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1012 incorporated herein reference 441 first amendment credit agreement dated december 5 1997 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 441 incorporated herein reference 442 second amendment credit agreement dated february 23 1998 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 442and incorporated herein reference 443 third amendment credit agreement dated october 16 1998 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 443 incorporated herein reference 444 fourth amendment credit agreement dated april 20 1999 filed companys form 10q quarter ended april 30 1999 file 020578 exhibit 41 incorporated herein reference 445 fifth amendment credit agreement dated february 14 2000 filed registrants annual report form 10 k fiscal year ended january 31 2000 file 0 20578 exhibit 445 incorporated herein reference 45 note agreement dated march 15 1996 company massachusetts mutual life insurance company purchaser issuance sale purchaser 25000000 aggregate principal amount 675 senior notes due march 15 2006 filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1014 incorporated herein reference 46 amendment note agreement dated july 25 1997 company massachusetts mutual life insurance company filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1014 incorporated herein reference 47 rights agreement dated october 12 1998 layne christensen company national city bank includes form certificate designations series junior participating preferred stock layne christensen company exhibit form right certificate exhibit b summary rights purchase preferred shares exhibit c filed companys form 8k dated october 12 1998 file 020578 exhibit 41 incorporated herein reference 101 tax liability indemnification agreement registrant marley company filed amendment 3 registrants registration statement file 3348432 exhibit 102 incorporated herein reference 102 lease agreement registrant parkway partners llc dated december 21 1994 filed registrants annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 102 incorporated herein reference 1021 first modification ratification lease dated february 26 1996 parkway partners llc registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 0 20578 exhibit 1021 incorporated herein reference 1022 second modification ratification lease agreement parkway partners llc layne christensen company dated april 28 1997 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 1022 incorporated herein reference 1023 third modification extension agreement parkway partners llc layne christensen company dated november 3 1998 filed companys 10q quarter ended october 31 1998 file 020578 exhibit 101 incorporated herein reference 1024 fourth modification extension agreement parkway partners llc layne christensen company executed may 17 2000 effective december 29 1998 filed companys 10q quarter ended july 31 2000 file 020578 exhibit 101 incorporated herein reference 103 form layne capital accumulation plan trust agreement filed registrants registration statement file 3348432 exhibit 105 incorporated herein reference 104 layne inc 1992 stock option plan filed amendment 3 registrants registration statement file 3348432 exhibit 106 incorporated herein reference 105 form stock option agreement company management company filed amendment 3 registrants registration statement file 3348432 exhibit 107 incorporated herein reference 106 form non qualified stock option agreement spinoff options company robert j dineen filed amendment 3 registrants registration statement file 33 48432as exhibit 109 incorporated herein reference 107 insurance liability indemnity agreement company marley company filed amendment 3 registrants registration statement file 3348432 exhibit 1010 incorporated herein reference 108 form layne inc executive incentive compensation plan filed registrants form 10q quarterly period ended july 31 1994 file 3348432 exhibit 102 incorporated herein reference 109 agreement marley company relating tradename filed registrants registration statement file no3348432 exhibit 1010 incorporated herein reference 1010 form subscription agreement management company filed amendment 3 registrants registration statement file 3348432 exhibit 1016 incorporated herein reference 1011 form subscription agreement company robert j dineen filed amendment 3 registrants registration statement file 3348432 exhibit 1017and incorporated herein reference 1012 amended restated credit agreement dated july 25 1997 among company layne christensen australia pty limited national trust savings association various financial institutions bank america letter credit issuer bank america national trust savings association agent credit agreement filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1012 incorporated herein reference 10121 first amendment credit agreement dated december 5 1997 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 441 incorporated herein reference 10122 second amendment credit agreement dated february 23 1998 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 442and incorporated herein reference 10123 third amendment credit agreement dated october 16 1998 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 443 incorporated herein reference 10124 fourth amendment credit agreement dated april 20 1999 filed companys form 10q quarter ended april 30 1999 file 020578 exhibit 41 incorporated herein reference 10125 fifth amendment credit agreement dated february 14 2000 filed registrants annual report form 10 k fiscal year ended january 31 2000 file 0 20578 exhibit 445 incorporated herein reference 1013 letter agreement andrew b schmitt company dated october 12 1993 filed companys annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 1013 incorporated herein reference 1014 note agreement dated march 15 1996 company massachusetts mutual life insurance company purchaser issuance sale purchaser 25000000 aggregate principal amount 675 senior notes due march 15 2006 filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1014 incorporated herein reference 1015 amendment note agreement dated july 25 1997 company massachusetts mutual life insurance company filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1014 incorporated herein reference 1016 form incentive stock option agreement company management company filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 1017 registration rights agreement dated november 30 1995 company marley holdings lp filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1017 incorporated herein reference 1018 stockholders agreement dated december 28 1995 among company marley holdings lp greylock investments limited partnership certain stockholders registrant identified therein filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1018 incorporated herein reference 1019 form stock option agreement company management company effective february 1 1998 filed companys form 10q quarter ended april 30 1998 file 020578 exhibit 101 incorporated herein reference 1020 form incentive stock option agreement company management company effective april 20 1999 filed companys form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 1021 form nonqualified stock option agreement company management company effective april 20 1999 filed companys form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 111 statement regarding computation per share earnings 221 list subsidiaries 231 consent deloitte touche llp management contracts compensatory plans arrangements required identified item 14a3 b reports form 8k reports form 8k filed registrant last quarter fiscal year ended january 31 2001 c exhibits filed report form 10k identified item 14a3 financial statement schedules financial statement schedules filed report form 10k identified item 14a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company sandrew b schmitt andrew b schmitt president dated april 4 2001 chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date sandrew b schmitt april 4 2001 andrew b schmitt president chief executive officer director principal executive officer sjerry w fanska april 4 2001 jerry w fanska vice presidentfinance treasurer principal financial accounting officer srobert j dineen april 4 2001 robert j dineen director sedward gilhuly april 4 2001 edward gilhuly director stodd fisher april 4 2001 todd fisher director sdonald k miller april 4 2001 donald k miller director ssheldon r erikson april 4 2001 sheldon r erikson director incorporated herein referenceitem 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules financial statement schedules listed index item 8 form 10k 3 exhibits filed incorporated reference report listed management contracts compensatory plans arrangements required identified item 14a3 b reports form 8k reports form 8k filed registrant last quarter fiscal year ended january 31 2001 c exhibits filed report form 10k identified item 14a3 financial statement schedules financial statement schedules filed report form 10k identified item 14a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company andrew b schmitt andrew b schmitt president dated april 4 2002 chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date andrew b schmitt april 4 2002 andrew b schmitt president chief executive officer director principal executive officer jerry w fanska april 4 2002 jerry w fanska vice presidentfinance treasurer principal financial accounting officer robert j dineen april 4 2002 robert j dineen director edward gilhuly april 4 2002 edward gilhuly director todd fisher april 4 2002 todd fisher director donald k miller april 4 2002 donald k miller director sheldon r erikson april 4 2002 sheldon r erikson director exhibit index incorporated herein referenceitem 14 controls procedures based evaluation disclosure controls procedures period ended january 31 2003 conducted chief executive officer chief financial officer within last ninety 90 days concluded disclosure controls procedures effective based evaluation internal controls conducted management within last ninety 90 days significant deficiencies material weaknesses identified made significant changes internal controls factors could significantly affect internal controls since evaluation part iv item 15item 14 principal accounting fees services registrant’s proxy statement used connection annual meeting stockholders held june 9 2005 contains caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accounting fees services registrant’s proxy statement used connection annual meeting stockholders held june 8 2006 contains caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accounting fees services registrant’s proxy statement used connection annual meeting stockholders held june 7 2007 contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accounting fees services registrant’s proxy statement used connection annual meeting stockholders held june 5 2008 contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accounting fees services registrant’s proxy statement used connection annual meeting stockholders held june 3 2009 contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accounting fees services registrant’s proxy statement used connection annual meeting stockholders held june 3 2010 contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accounting fees services registrant’s proxy statement used connection annual meeting stockholders held june 9 2011 contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accounting fees services registrant’s proxy statement used connection annual meeting stockholders held june 7 2012 contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accounting fees services registrant’s proxy statement used connection annual meeting stockholders held june 6 2013 contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accountant fees services layne’s proxy statement used connection annual meeting stockholders held june 5 2015 contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accountant fees services proxy statement used connection annual meeting stockholders held june 2 2016 contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accountant fees services proxy statement used connection annual meeting stockholders held may 31 2017 contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules financial statement schedules listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit description 41 restated certificate incorporation registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 31 incorporated herein reference 42 bylaws registrant filed amendment 2 registrants registration statement file 3348432 exhibit 32 incorporated herein reference 43 specimen common stock certificate filed amendment 3 registrants registration statement file 3348432 exhibit 41 incorporated herein reference 44 amended restated credit agreement dated july 25 1997 among company layne christensen australia pty limited national trust savings association various financial institutions bank america letter credit issuer bank america national trust savings association agent credit agreement filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1012 incorporated herein reference 441 first amendment credit agreement dated december 5 1997 442 second amendment credit agreement dated february 23 1998 443 third amendment credit agreement dated october 16 1998 45 note agreement dated march 15 1996 company massachusetts mutual life insurance company purchaser issuance sale purchaser 25000000 aggregate principal amount 675 senior notes due march 15 2006 filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1014 incorporated herein reference 46 amendment note agreement dated july 25 1997 company massachusetts mutual life insurance company filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1014 incorporated herein reference 47 rights agreement dated october 12 1998 layne christensen company national city bank includes form certificate designations series junior participating preferred stock layne christensen company exhibit form right certificate exhibit b summary rights purchase preferred shares exhibit c filed companys form 8k dated october 12 1998 file 020578 exhibit 41 incorporated herein reference 101 tax liability indemnification agreement registrant marley company filed amendment 3 registrants registration statement file 3348432 exhibit 102 incorporated herein reference 102 lease agreement registrant parkway partners llc dated december 21 1994 filed registrants annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 102 incorporated herein reference 1021 first modification ratification lease dated february 26 1996 parkway partners llc registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1021 incorporated herein reference 1022 second modification ratification lease agreement parkway partners llc layne christensen company dated april 28 1997 1023 third modification extension agreement parkway partners llc layne christensen company dated november 3 1998 filed companys 10q quarter ended october 31 1998 file 020578 exhibit 101 incorporated herein reference 103 form layne capital accumulation plan trust agreement filed registrants registration statement file 3348432 exhibit 105 incorporated herein reference 104 layne inc 1992 stock option plan filed amendment 3 registrants registration statement file 3348432 exhibit 106 incorporated herein reference 105 form stock option agreement company management company filed amendment 3 registrants registration statement file 3348432 exhibit 107 incorporated herein reference 106 form non qualified stock option agreement spinoff options company robert j dineen filed amendment 3 registrants registration statement file 3348432as exhibit 109 incorporated herein reference 107 insurance liability indemnity agreement company marley company filed amendment 3 registrants registration statement file 3348432 exhibit 1010 incorporated herein reference 108 form layne inc executive incentive compensation plan filed registrants form 10q quarterly period ended july 31 1994 file 3348432 exhibit 102 incorporated herein reference 109 agreement marley company relating tradename filed registrants registration statement file no3348432 exhibit 1010 incorporated herein reference 1010 form subscription agreement management company filed amendment 3 registrants registration statement file 3348432 exhibit 1016 incorporated herein reference 1011 form subscription agreement company robert j dineen filed amendment 3 registrants registration statement file 3348432 exhibit 1017and incorporated herein reference 1012 amended restated credit agreement dated july 25 1997 among company layne christensen australia pty limited national trust savings association various financial institutions bank america letter credit issuer bank america national trust savings association agent credit agreement filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1012 incorporated herein reference 10121 first amendment credit agreement dated december 5 1997 10122 second amendment credit agreement dated february 23 1998 10123 third amendment credit agreement dated october 16 1998 1013 letter agreement andrew b schmitt company dated october 12 1993 filed companys annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 1013 incorporated herein reference 1014 note agreement dated march 15 1996 company massachusetts mutual life insurance company purchaser issuance sale purchaser 25000000 aggregate principal amount 675 senior notes due march 15 2006 filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1014 incorporated herein reference 1015 amendment note agreement dated july 25 1997 company massachusetts mutual life insurance company filed amendment 3 companys form s2 registration statement file 33329581 exhibit 1014 incorporated herein reference 1016 form incentive stock option agreement company management company filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 1017 registration rights agreement dated november 30 1995 company marley holdings lp filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1017 incorporated herein reference 1018 stockholders agreement dated december 28 1995 among company marley holdings lp greylock investments limited partnership certain stockholders registrant identified therein filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1018 incorporated herein reference 1019 form stock option agreement company management company effective february 1 1998 filed companys form 10q quarter ended april 30 1998 file 020578 exhibit 101 incorporated herein reference 1020 letter agreement company bank america national trust savings association dated may 8 1998 confirming terms conditions interest rate swap agreement filed companys form 10q quarter ended july 31 1998 file 020578 exhibit 101 incorporated herein reference 111 statement regarding computation per share earnings 221 list subsidiaries 231 consent deloitte touche llp 271 financial data schedule management contracts compensatory plans arrangements required identified item 14a3 b reports form 8k reports form 8k filed registrant last quarter fiscal year ended january 31 1999 c exhibits filed report form 10k identified item 14a3 financial statement schedules none required signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company sandrew b schmitt andrew b schmitt president dated april 23 1999 chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index incorporated herein referenceitem 14 principal accountant fees services layne’s proxy statement used connection annual meeting stockholders held june 6 2014 contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference index financial statements part iv item 15item 14 principal accountant fees services proxy statement used connection 2018 annual meeting stockholders contain caption “principal accounting fees services” information required item 14 form 10k information incorporated herein reference part iv item 15item 14 principal accounting fees services registrants proxy statement used connection annual meeting stockholders held june 3 2004 contains caption principal accounting fees services information required item 14 form 10k information incorporated herein reference part iv item 15 item 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction companys consolidated financial statements notes thereto item 8item 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction companys consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k contains forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements indicated words phrases anticipate estimate project believe intend expect plan similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various metals unanticipated slowdowns companys major markets impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements results operations company substantially consummated acquisition stanley end july 1997 stanley acquisition stanley reflected layne christensens results operations beginning august 1 1997 stanley acquisition accounted using purchase method accounting significant effect layne christensens future operations comparisons income expense items future periods relation fiscal 1997 first six months fiscal 1998 among things company incurred substantial increase longterm debt goodwill incur substantial increase interest expense goodwill amortization future periods recent stanley acquisition percentage companys revenues operating income tied mining industry increased substantially demand companys mineral exploration drilling services products depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely connection recent movement prices gold copper adversely impacted level mineral exploration development activities conducted mining companies turn adversely impacted companys results fourth quarter fiscal 1998 current trend price precious metals continue could material adverse impact companys operating results following table derived companys consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected companys statements income bear revenues percentage increase decrease dollar amount items period comparison fiscal 1998 fiscal 1997 results operations revenues fiscal 1998 294600000 322 increase compared 222853000 fiscal 1997 water well drilling maintenance revenues increased 74 117318000 fiscal 1998 109280000 fiscal 1997 increase primarily result acquisition louisiana drilling company strong demand services certain central southern areas united states mineral exploration drilling revenues increased 78736000 fiscal 1998 compared 49395000 fiscal 1997 increase primarily result stanley acquisition combined companys recent expansion africa geotechnical drilling revenues increased 44975000 fiscal 1998 compared 10553000 fiscal 1997 increase primarily result companys previously announced ground freeze project timmins ontario canada echo bay mines ltd timmins project excluding timmins project geotechnical drilling revenues increased 839 year due increased market penetration geotechnical drilling market product sales increased 150 fiscal 1998 30246000 26309000 fiscal 1997 increase primarily result strong demand companys mineral exploration drill rigs related products gross profit percentage revenues remained constant 275 years ended january 31 1998 1997 selling general administrative expenses increased 45908000 fiscal 1998 compared 38956000 fiscal 1997 depreciation amortization expense increased 15681000 fiscal 1998 compared 10974000 fiscal 1997 increases expenses primarily result stanley acquisition interest expense increased 3618000 fiscal 1998 compared 2447000 fiscal 1997 increase primarily result additional borrowings finance stanley acquisition equity earnings foreign affiliates decreased 3022000 fiscal 1998 compared 3895000 fiscal 1997 decrease primarily result difficult weather conditions chile peru well lower demand drilling products services due depressed minerals prices income taxes increased 7004000 fiscal 1998 compared 4913000 fiscal 1997 result higher income taxes companys effective tax rate 38 years comparison fiscal 1997 fiscal 1996 results operations companys 1997 results include effect december 1995 merger cbc merger world leader providing diamond core drilling services mineral exploration among largest manufacturers diamond core bits core barrels drilling rigs related equipment used mining industry merger treated purchase financial accounting purposes accordingly results operations include cbc acquisition date revenues fiscal 1997 increased 55582000 332 222853000 fiscal 1996 water well drilling maintenance revenues increased 87 109280000 fiscal 1997 compared revenues 100551000 fiscal 1996 company believes increase water well drilling revenues year mainly result continued increases domestic municipal spending certain areas united states combined increased sales water well equipment mineral exploration drilling revenues increased 1628 49395000 fiscal 1997 18794000 fiscal 1996 increase result addition merger cbcs domestic canadian drilling operations continued strong mining demand mexico environmental drilling revenues decreased 80 23260000 fiscal 1997 25278000 fiscal 1996 company believes decrease year mainly result continuing soft market environmental services offered company product sales increased 947 26309000 fiscal 1997 13516000 fiscal 1996 result domestic production facilities cbc acquired merger gross profit margin 275 1997 compared 270 1996 increase gross profit margin primarily attributable increased margins product sales result sales drilling equipment bits manufacturing facilities acquired merger higher gross profit margins associated companys products distribution business increase gross profit margin product sales partially offset lower gross profit margin cbcs service revenues selling general administrative expenses increased 38956000 fiscal 1997 compared 28260000 fiscal 1996 dollar increase selling general administrative expenses result merger compensation related expenses growth operations percentage revenues selling general administrative expenses 175 fiscal 1997 169 fiscal 1996 increase percentage revenue due increased requirements certain incentiverelated expenses generally higher percentage selling expenses product sales contracting revenues depreciation increased 10974000 fiscal 1997 compared 8233000 fiscal 1996 increase primarily result assets acquired merger capital expenditures made company last several years equity earnings foreign affiliates 3895000 fiscal 1997 earnings result investments foreign affiliates acquired connection merger affiliates reported one month lag therefore impact companys fiscal 1996 operations see note 3 notes consolidated financial statements additional information affiliates interest expense increased 1680000 fiscal 1997 compared fiscal 1996 increase result increased borrowings necessitated merger income taxes 4913000 fiscal 1997 increased 3753000 fiscal 1996 result higher income taxes compared prior year effective tax rate fiscal 1997 380 compared 450 fiscal 1996 improvement companys effective tax rate result tax treatment companys earnings foreign affiliates acquired merger us federal income taxes generally provided company equity earnings affiliates foreign tax credits become available current tax law significantly reduce eliminate resulting us income tax liability fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects companys revenues large drilling contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number companys contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect companys operating results particular quarter many companys contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover companys domestic drilling activities related revenues earnings tend decrease winter months adverse weather conditions interfere access drilling sites ability drill result companys revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see companys consolidated financial statements notes thereto inflation management believes companys operations periods discussed adversely affected inflation changing prices liquidity capital resources primary source companys liquidity fiscal 1998 1997 1996 cash operating activities 14270000 17116000 7268000 respectively change cash operating activities fiscal 1997 1998 primarily result improved net income offset increase accounts receivable inventories cash operations along borrowings companys revolving credit agreement secondary offering primarily utilized additions property equipment 22425000 acquisitions including stanley acquisition totaling 53942000 capital expenditures fiscal 1998 primarily directed toward international expansion upgrading companys equipment facilities company expects spend approximately 10000000 next fiscal year capital expenditures company anticipates fiscal 1999 capital expenditures used continue upgrade companys equipment capabilities january 31 1998 company material commitments outstanding capital assets july 1997 company amended existing credit agreement provide reducing revolving cash borrowing facility 100000000 new credit agreement borrowings new credit agreement used complete stanley acquisition see note 2 consolidated financial statements refinance indebtedness companys existing credit agreement companys borrowings outstanding letter credit commitments new credit agreement 32500000 5605000 respectively january 31 1998 leaving approximately 61895000 unused availability see note 8 notes consolidated financial statements august 19 1997 company completed sale 2756565 shares common stock public offering net proceeds company offering approximately 43510000 used reduce outstanding debt new credit agreement see note 2 notes consolidated financial statements companys working capital january 31 1998 1997 1996 39661000 29643000 26796000 respectively increase working capital fiscal 1998 fiscal 1997 primarily result stanley acquisition company believes borrowings available credit agreement cash operations sufficient meet companys seasonal cash requirements fund budgeted capital expenditures fiscal 1999 year company undergone internal assessment impact year 2000 issue process modifying systems necessary based review company presently believes year 2000 issue pose significant operational problems computer systems however company intends continue use internal resources test systems year 2000 compliance believes compliance process completed timely modification costs insignificant costs estimated incurred future employee medical benefits casualty insurance programs resulting claims occurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods see note 10 notes consolidated financial statements item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction companys consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k contains forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements indicated words phrases anticipate estimate project believe intend expect plan similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various metals unanticipated slowdowns companys major markets impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements results operations company substantially consummated acquisition stanley mining services pty limited stanley end july 1997 stanley acquisition stanley reflected layne christensens results operations beginning august 1 1997 stanley acquisition accounted using purchase method accounting stanley acquisition smaller acquisitions thereafter percentage companys revenues operating income tied mining industry increased substantially demand companys mineral exploration drilling services products depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely connection decline prices various metals continued adversely impact level mineral exploration development activities conducted mining companies could continue material adverse effect company end fiscal year potential impairment respect companys longlived assets reviewed comparing sum undiscounted projected future cash flows attributable business unit carrying value assets business unit projected future cash flows business unit estimated period approximating remaining lives units longlived assets based earnings history market conditions assumptions reflected internal operating plans strategies analysis company determined cash flows mineral exploration business would sufficient recover carrying value longlived assets therefore value assets impaired projected future cash flows represent managements best estimates based subjective assumptions impairment writedown may required future projected future cash flows decline following table derived companys consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected companys statements income bear revenues percentage increase decrease dollar amount items periodtoperiod fiscal 2000 company announced formation integrated groundwater services division intended vertically integrate companys water well drilling maintenance environmental drilling product lines conjunction formation division service revenues product lines 1999 1998 reclassified conform 2000 presentation following table comparisons fiscal 2000 fiscal 1999 thereafter meaningful comparison fiscal 2000 fiscal 1999 results operations revenues fiscal 2000 decreased 2803000 10 281445000 compared 284248000 fiscal 1999 integrated groundwater services revenues increased 52 165525000 fiscal 2000 compared revenues 157411000 fiscal 1999 yeartoyear increase integrated groundwater services revenues primarily result increased demand certain domestic waterrelated services mineral exploration drilling revenues decreased 171 64937000 fiscal 2000 78305000 fiscal 1999 decrease year primarily result lower demand companys services areas outside north america result decrease exploration development activities conducted mining companies areas geotechnical construction revenues increased 284 35190000 fiscal 2000 compared revenues 27409000 fiscal 1999 increase geotechnical revenues primarily result companys continued development recently purchased technologies serve market product sales decreased 280 15209000 fiscal 2000 21123000 fiscal 1999 decrease result lower demand companys products mining industry previously discussed gross profit percentage revenues 264 fiscal 2000 compared 279 fiscal 1999 decrease gross profit primarily attributable reduced profits companys manufacturing facility companys mineral exploration locations australasia africa selling general administrative expenses increased 53781000 fiscal 2000 compared 49938000 fiscal 1999 increase year primarily result expenses arising various operations acquired fiscal 2000 depreciation amortization increased 23016000 fiscal 2000 compared 22361000 fiscal 1999 increase depreciation amortization year attributable property additions various acquisitions occurred year partially offset lower capital spending mineral exploration division equity earnings losses foreign affiliates 27000 fiscal 2000 compared 1128000 last year decrease primarily result lower exploration development activities conducted mining companies latin america income taxes benefit zero fiscal 2000 compared expense 2486000 last year unusual effective rate year primarily result increased impact certain nondeductible expenses light lower taxable earnings respective periods combined reduction amount earnings certain foreign affiliates subsidiaries relative companys overall earnings comparison fiscal 1999 fiscal 1998 results operations revenues fiscal 1999 decreased 10352000 35 284248000 compared 294600000 fiscal 1998 water well drilling maintenance revenues increased 140 137095000 fiscal 1999 compared revenues 120280000 fiscal 1998 increase water well drilling maintenance revenues primarily result acquisition certain assets hydro group inc new jerseybased drilling contractor march 1998 hydro acquisition additionally company experienced stronger demand services various domestic locations mineral exploration drilling revenues decreased 18 78305000 fiscal 1999 79726000 fiscal 1998 decrease primarily result lower demand companys services result decrease exploration development activities conducted mining companies decrease less otherwise would fiscal 1999 included full year revenues following stanley acquisition geotechnical drilling revenues decreased 393 27409000 fiscal 1999 compared revenues 45191000 fiscal 1998 exclusive companys ground freeze project timmins ontario canada echo bay mines ltd timmins project completed first quarter fiscal 1999 geotechnical drilling revenues increased 240 fiscal 1999 increase base geotechnical business revenues primarily result increased activity market environmental drilling revenue increased 61 20316000 fiscal 1999 compared revenues 19157000 fiscal 1998 company believes improvement largely attributable increase number larger technically demanding projects substantially completed year product sales decreased 302 21123000 fiscal 1999 30246000 fiscal 1998 decrease result lower demand companys services mining industry previously discussed gross profit percentage revenues 279 fiscal 1999 compared 275 fiscal 1998 increase primarily attributed company realizing better previously expected gross profit margins certain complex international projects finalized year selling general administrative expenses increased 49938000 fiscal 1999 compared 45908000 fiscal 1998 increase primarily result hydro acquisition smaller acquisitions depreciation amortization increased 22361000 fiscal 1999 compared 15681000 fiscal 1998 increase depreciation amortization primarily result hydro acquisition additions property equipment since last year equity earnings foreign affiliates 1128000 fiscal 1999 compared 3022000 fiscal 1998 decrease previous period primarily result lower exploration development activities conducted mining companies latin america income tax expense 2486000 fiscal 1999 compared 7004000 fiscal 1998 effective tax rate year ended january 31 1999 increased 66 compared 38 year ended january 31 1998 primarily result combination reduction amount equity earnings foreign affiliates income tax normally provided foreign tax credits generally available offset tax liability increased impact certain nondeductible expenses resulting lower earnings fiscal year fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects companys revenues large drilling contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number companys contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect companys operating results particular quarter many companys contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover companys domestic drilling activities related revenues earnings tend decrease winter months adverse weather conditions interfere access drilling sites ability drill result companys revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see companys consolidated financial statements notes thereto inflation management believes companys operations periods discussed adversely affected inflation changing prices liquidity capital resources primary source companys liquidity fiscal 2000 1999 1998 cash operating activities 13162000 13637000 14270000 respectively cash operations borrowings companys revolving credit agreement utilized primarily additions property equipment 12816000 various acquisitions see note 2 consolidated financial statements capital expenditures fiscal 2000 directed primarily toward expansion upgrading companys equipment facilities company expects spend approximately 10000000 next fiscal year capital expenditures company anticipates fiscal 2001 capital expenditures used maintain companys equipment capabilities accelerate expansion oil gas services company also plans pursue consolidation opportunities mineral exploration market january 31 2000 company material commitments outstanding capital assets company maintains reducing revolving cash borrowing facility credit agreement january 31 2000 aggregate commitment facility 80000000 commitment voluntarily reduced company 64000000 effective february 14 2000 borrowings credit agreement used complete various acquisitions see note 2 consolidated financial statements companys borrowings outstanding letter credit commitments credit agreement 38500000 5147000 respectively january 31 2000 see note 8 consolidated financial statements companys working capital january 31 2000 1999 1998 45245000 46211000 39661000 respectively increase working capital fiscal 1999 primarily result hydro acquisition discussed note 2 consolidated financial statements company believes borrowings available credit agreement cash operations sufficient meet companys operating cash requirements fund budgeted capital expenditures fiscal 2001 costs estimated incurred future employee medical benefits casualty insurance programs resulting claims occurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods see note 10 consolidated financial statements year 2000 discussion year 2000 y2k problem relates fact many computer programs use two digits refer year result many computer programs properly recognize year begins 20 instead 19 y2k issue companys financial reporting systems nature companys business generally reliant upon date sensitive information technology noninformation technology nonit systems company believes issues related y2k compliance nonit systems material adverse impact business operations financial results date company experienced major disruptions related y2k date change addition aware significant y2k disruptions impacting customers suppliers continue monitor critical systems next several months anticipate significant impact result y2k date change company primarily utilized internal resources assess test remediate implement software equipment related y2k incremental cost directly related y2k issues company material item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction companys consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k contains forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements indicated words phrases anticipate estimate project believe intend expect plan similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various metals unanticipated slowdowns companys major markets impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements results operations demand companys mineral exploration drilling services products depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely connection decline prices various metals continued adversely impact level mineral exploration development activities conducted mining companies could continue material adverse effect company end fiscal year potential impairment respect companys longlived assets reviewed comparing sum undiscounted projected future cash flows attributable business unit carrying value assets business unit including goodwill projected future cash flows business unit estimated period approximating remaining lives units longlived assets based earnings history market conditions assumptions reflected internal operating plans strategies analysis company determined cash flows mineral exploration business would sufficient recover carrying value longlived assets therefore value assets impaired projected future cash flows represent managements best estimates based subjective assumptions impairment writedown may required future projected future cash flows decline following table derived companys consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected companys statements income bear revenues percentage increase decrease dollar amount items periodtoperiod meaningful comparison fiscal 2001 fiscal 2000 results operations revenues fiscal 2001 increased 32548000 116 313993000 compared 281445000 fiscal 2000 waterrelated services products revenues increased 47 173290000 fiscal 2001 compared revenues 165525000 fiscal 2000 yeartoyear increase waterrelated services products revenues primarily result increase demand companys waterrelated services central united states southern california florida mineral exploration drilling revenues increased 153 76318000 fiscal 2001 66189000 fiscal 2000 increase year primarily result increased demand canada east africa offset decision discontinue drill blast operations west africa australia combined reduced demand companys services united states geotechnical construction revenues increased 195 40572000 fiscal 2001 compared revenues 33938000 fiscal 2000 increase geotechnical revenues result two large projects northeast united states companys ground freezing project noranda inc quebec canada combined increased market penetration certain areas united states oil gas service revenues 4751000 fiscal 2001 compared 584000 fiscal 2000 increase revenue result increased capacity due companys continued investment market product sales increased 253 19062000 fiscal 2001 15209000 fiscal 2000 increase result increased activity mineral exploration market combined increased demand drilling products within water market gross profit percentage revenues 251 fiscal 2001 compared 264 fiscal 2000 decrease gross profit primarily attributable expenses associated companys domestic oil gas exploration activities pricing pressures african minerals market partially offset increased margins geotechnical construction business selling general administrative expenses increased 58757000 fiscal 2001 compared 53781000 fiscal 2000 increase year primarily result increased incentiverelated accruals companys domestic businesses combined expenses related continued expansion companys oil gas services division integrated groundwater services initiative depreciation amortization decreased 21337000 fiscal 2001 compared 23016000 fiscal 2000 decrease depreciation amortization year attributable certain mineral exploration assets becoming fully depreciated fourth quarter last year combined disposal drill blast divisions australia west africa equity earnings losses foreign affiliates 894000 fiscal 2001 compared 27000 last year increase earnings year result increased exploration development activities conducted mining companies latin america interest expense increased 6205000 fiscal 2001 compared 4818000 fiscal 2000 increase year attributable higher average borrowings combined higher interest rates period income taxes expense 382000 fiscal 2001 compared zero last year unusual effective rate year primarily result increased impact certain nondeductible expenses light lower taxable earnings respective periods combined reduction amount earnings certain foreign affiliates subsidiaries relative companys overall earnings comparison fiscal 2000 fiscal 1999 results operations revenues fiscal 2000 decreased 2803000 10 281445000 compared 284248000 fiscal 1999 waterrelated services products revenues increased 52 165525000 fiscal 2000 compared revenues 157411000 fiscal 1999 yeartoyear increase waterrelated services products revenues primarily result increased demand certain domestic waterrelated services mineral exploration drilling revenues decreased 155 66189000 fiscal 2000 78305000 fiscal 1999 decrease year primarily result lower demand companys services areas outside north america result decrease exploration development activities conducted mining companies areas geotechnical construction revenues increased 238 33938000 fiscal 2000 compared revenues 27409000 fiscal 1999 increase geotechnical revenues primarily result companys continued development recently purchased technologies serve market product sales decreased 280 15209000 fiscal 2000 21123000 fiscal 1999 decrease result lower demand companys products mining industry previously discussed gross profit percentage revenues 264 fiscal 2000 compared 279 fiscal 1999 decrease gross profit primarily attributable reduced profits companys manufacturing facility companys mineral exploration locations australasia africa selling general administrative expenses increased 53781000 fiscal 2000 compared 49938000 fiscal 1999 increase year primarily result expenses arising various operations acquired fiscal 2000 depreciation amortization increased 23016000 fiscal 2000 compared 22361000 fiscal 1999 increase depreciation amortization year attributable property additions various acquisitions occurred year partially offset lower capital spending mineral exploration division equity earnings losses foreign affiliates 27000 fiscal 2000 compared 1128000 last year decrease primarily result lower exploration development activities conducted mining companies latin america income taxes benefit zero fiscal 2000 compared expense 2486000 last year unusual effective rate year primarily result increased impact certain nondeductible expenses light lower taxable earnings respective periods combined reduction amount earnings certain foreign affiliates subsidiaries relative companys overall earnings fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects companys revenues large longterm drilling contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number companys contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect companys operating results particular quarter many companys contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover companys domestic drilling activities related revenues earnings tend decrease winter months adverse weather conditions interfere access drilling sites ability drill result companys revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see companys consolidated financial statements notes thereto inflation management believes companys operations periods discussed adversely affected inflation changing prices liquidity capital resources primary source companys liquidity fiscal 2001 2000 1999 cash operating activities 12952000 13162000 13637000 respectively fiscal 2001 cash operations borrowings companys revolving credit agreement utilized primarily additions property equipment 14302000 capital expenditures fiscal years directed primarily toward expansion upgrading companys equipment facilities company expects spend approximately 10000000 next fiscal year capital expenditures company anticipates fiscal 2002 capital expenditures used maintain companys equipment capabilities accelerate expansion oil gas services company also plans pursue consolidation opportunities mineral exploration market january 31 2001 company material commitments outstanding capital assets company maintains reducing revolving cash borrowing facility credit agreement january 31 2001 aggregate commitment facility 64000000 borrowings credit agreement used complete various acquisitions see note 2 consolidated financial statements companys borrowings outstanding letter credit commitments credit agreement 40500000 4667000 respectively january 31 2001 see note 8 consolidated financial statements companys working capital january 31 2001 2000 1999 46960000 45245000 46211000 respectively company believes borrowings available credit agreement cash operations sufficient meet companys operating cash requirements fund budgeted capital expenditures fiscal 2002 costs estimated incurred future employee medical benefits casualty insurance programs resulting claims occurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods see note 10 consolidated financial statements item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction companys consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k contains forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements indicated words phrases anticipate estimate project believe intend expect plan similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various metals unanticipated slowdowns companys major markets impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements results operations demand companys mineral exploration drilling services depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely connection decline prices various metals continued adversely impact level mineral exploration development activities conducted mining companies could continue material adverse effect company end fiscal year potential impairment respect companys longlived assets reviewed comparing sum undiscounted projected future cash flows attributable business unit carrying value assets business unit including goodwill projected future cash flows business unit estimated period approximating remaining lives units longlived assets based earnings history market conditions assumptions reflected internal operating plans strategies analysis company determined cash flows mineral exploration division would sufficient recover carrying value longlived assets therefore value assets impaired projected future cash flows represent managements best estimates based subjective assumptions impairment writedown may required future projected future cash flows decline see note 12 notes consolidated financial statements new accounting pronouncements related impairment pronouncements effective companys fiscal year 2003 overview reportable operating segments company multinational company provides sophisticated services related products variety markets fiscal 2002 management redefined companys operational organization structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices division example water resources division office performed geoconstruction services revenues would recorded water resources division rather geoconstruction services division offices primary responsibility move one division president another offices results going forward would reclassified divisions time companys reportable segments new operational structure defined follows water resources division provides full line waterrelated services products including hydrological studies site selection well design drilling well development pump installation repair maintenance divisions offerings include large diameter ranneyr collector wells design construction water treatment facilities manufacture sale products treat volatile inorganics groundwater division also offers environmental services assess monitor groundwater contaminants mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods geoconstruction services division focuses services improve soil stability primarily jet grouting vibratory ground improvement groundfreezing services division also manufactures line highpressure pumping equipment used grouting operations geotechnical drilling rigs used directional drilling energy services production division offers variety specialized services including shallow gas tar sands exploration drilling conventional oilfield fishing services coil tubing fishing services resonance technology solutions stuck tubulars landbased oil gas search development products grouping includes companys supply operation distributes drilling equipment parts supplies miscellaneous operations fall divisions historically also included manufacturing operation producing diamond drilling rigs diamond bits core barrels drill rods christensen products august 8 2001 company sold christensen products business subsidiary atlas copco see note 11 notes consolidated financial statements following table derived companys consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected companys statements income bear revenues percentage increase decrease dollar amount items periodtoperiod categorization revenues three fiscal years made consistent operational structure described financial comparison discussion fiscal 2002 versus fiscal 2001 follows table presented conformity new operational structure meaningful comparison fiscal 2002 fiscal 2001 revenues fiscal 2002 decreased 5605000 18 308388000 compared 313993000 fiscal 2001 decrease primarily result decreases companys mineral exploration geoconstruction services divisions partially offset increased revenues water resources energy services production divisions gross profit percentage revenues 272 fiscal 2002 compared 251 fiscal 2001 increase gross profit primarily attributable improved margins companys domestic water locations certain international mineral exploration locations combined reduced expenses associated companys domestic oil gas exploration activities increases partially offset reduced margins companys products locations united states selling general administrative expenses increased 59677000 fiscal 2002 compared 58757000 fiscal 2001 increase primarily result increased employee benefit insurance premium legal costs year depreciation amortization decreased 18160000 fiscal 2002 compared 21337000 fiscal 2001 decrease depreciation amortization attributable disposal assets certain international locations application purchase accounting resulting negative goodwill reducing assets associated purchase remaining 50 wads ausdrill see note 2 notes consolidated financial statements interest expense decreased 3934000 fiscal 2002 compared 6205000 fiscal 2001 decrease primarily result decreases companys average borrowings interest rates year income tax expense 2132000 recorded year ended january 31 2002 compared 382000 period last year effective rate excess statutory federal rate year ended january 31 2002 result impact nondeductible expenses tax treatment certain foreign operations water resources division thousands water resources revenue increased 31 175492000 170204000 years ended january 31 2002 2001 increase revenue primarily result companys igs project city azusa california combined increased demand companys waterrelated services partially due drought conditions certain areas united states operating income water resources division increased 493 23675000 year ended january 31 2002 compared 15857000 last year increase operating income primarily attributable improved pricing margins companys domestic water supply locations mineral exploration division thousands mineral exploration revenues decreased 124 57945000 66153000 years ended january 31 2002 2001 decrease revenue primarily result continued softness exploration market united states australia mexico partially offset increased activity certain areas africa operating loss mineral exploration division 5653000 year ended january 31 2002 compared operating loss 9149000 year ended january 31 2001 reduced losses division primarily result improved margins certain companys international locations cost reductions australia geoconstruction services division thousands geoconstruction services revenues decreased 290 27006000 year ended january 31 2002 compared 38010000 last year decrease revenues result slowing construction activity certain areas united states combined competitive pricing pressures certain markets served company geoconstruction services division operating income 1047000 year ended january 31 2002 compared 5932000 year ended january 31 2001 reduced profits primarily attributable lower revenues costs associated complications certain companys groundfreezing projects energy services production division thousands energy services revenues increased 272 27011000 year ended january 31 2002 compared revenues 21232000 year ended january 31 2001 increase primarily result increased oil gas exploration activity canada increased capacity companys service operations gulf mexico region united states operating income energy services production division 1013000 year ended january 31 2002 compared operating loss 2288000 year ended january 31 2001 improved profits result lower expenditures attributable companys oil gas exploration activities improved results companys oil gas service businesses united states combined increased levels activity canada products thousands products sales increased 138 20934000 year ended january 31 2002 compared 18394000 year ended january 31 2001 increase sales primarily result increased demand drill rigs manufactured company mineral exploration market two significant projects completed companys specialty products group operating losses products 1908000 year ended january 31 2002 compared 679000 year ended january 31 2001 increase operating losses result certain costs incurred connection sale companys christensen products business atlas copco corporate expenses allocated individual divisions 12074000 11052000 years ended january 31 2002 2001 respectively increase unallocated corporate expenses primarily result increased employee benefit insurance premium costs comparison fiscal 2001 fiscal 2000 financial comparison discussion fiscal 2001 versus fiscal 2000 reclassified conform new operational structure defined results operations revenues fiscal 2001 increased 32548000 116 313993000 compared 281445000 fiscal 2000 waterrelated services products revenues increased 47 173290000 fiscal 2001 compared revenues 165525000 fiscal 2000 yeartoyear increase waterrelated services products revenues primarily result increase demand companys waterrelated services central united states southern california florida mineral exploration drilling revenues increased 153 76318000 fiscal 2001 66189000 fiscal 2000 increase year primarily result increased demand canada east africa offset decision discontinue drillandblast operations west africa australia combined reduced demand companys services united states geotechnical construction revenues increased 195 40572000 fiscal 2001 compared revenues 33938000 fiscal 2000 increase geotechnical revenues result two large projects northeast united states companys groundfreezing project noranda inc quebec canada combined increased market penetration certain areas united states oil gas service revenues 4751000 fiscal 2001 compared 584000 fiscal 2000 increase revenue result increased capacity due companys continued investment market product sales increased 253 19062000 fiscal 2001 15209000 fiscal 2000 increase result increased activity mineral exploration market combined increased demand drilling products within water market gross profit percentage revenues 251 fiscal 2001 compared 264 fiscal 2000 decrease gross profit primarily attributable expenses associated companys domestic oil gas exploration activities pricing pressures african minerals market partially offset increased margins geotechnical construction business selling general administrative expenses increased 58757000 fiscal 2001 compared 53781000 fiscal 2000 increase year primarily result increased incentiverelated accruals companys domestic businesses combined expenses related continued expansion companys oil gas services division integrated groundwater services initiative depreciation amortization decreased 21337000 fiscal 2001 compared 23016000 fiscal 2000 decrease depreciation amortization year attributable certain mineral exploration assets becoming fully depreciated fourth quarter last year combined disposal drillandblast divisions australia west africa equity earnings losses foreign affiliates 894000 fiscal 2001 compared 27000 last year increase earnings year result increased exploration development activities conducted mining companies latin america interest expense increased 6205000 fiscal 2001 compared 4818000 fiscal 2000 increase year attributable higher average borrowings combined higher interest rates period income taxes expense 382000 fiscal 2001 compared zero last year unusual effective rate year primarily result increased impact certain nondeductible expenses light lower taxable earnings respective periods combined reduction amount earnings certain foreign affiliates subsidiaries relative companys overall earnings fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects companys revenues large longterm drilling contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number companys contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect companys operating results particular quarter many companys contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover companys domestic drilling activities related revenues earnings tend decrease winter months adverse weather conditions interfere access drilling sites ability drill result companys revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see companys consolidated financial statements notes thereto inflation management believes companys operations periods discussed adversely affected inflation changing prices liquidity capital resources primary source companys liquidity fiscal 2002 2001 2000 cash operating activities 25509000 12952000 13162000 respectively increase cash operations primarily attributable improved margins companys domestic water supply locations certain international mineral exploration locations lower expenditures related domestic oil gas exploration activities fiscal 2002 cash operations primarily used net repayments debt 27571000 additions property equipment 11205000 capital expenditures fiscal years directed primarily toward expansion upgrading companys equipment facilities company anticipates fiscal 2003 capital expenditures used maintain companys equipment capabilities accelerate expansion oil gas services exploration including production coalbed methane gas company expects spend approximately 16000000 next fiscal year capital expenditures january 31 2002 company material commitments outstanding capital assets company maintains reducing revolving cash borrowing facility credit agreement january 31 2002 aggregate lender commitment facility 57000000 borrowings credit agreement used complete various acquisitions see note 2 consolidated financial statements companys borrowings outstanding letter credit commitments credit agreement 16500000 4780000 respectively january 31 2002 see note 8 consolidated financial statements companys working capital january 31 2002 2001 2000 15513000 46960000 45245000 respectively reduction working capital january 31 2002 due reclassification borrowings credit agreement long term current sale christensen products measures taken contain working capital needs credit agreement reclassified current based scheduled expiration july 2002 company currently negotiating several lenders provide new borrowing facilities expects new agreement place early second quarter company believes sufficient cash operations access credit facilities meet companys operating cash requirements fund budgeted capital expenditures fiscal 2003 companys contractual obligations commercial commitments summarized follows costs estimated incurred future employee medical benefits casualty insurance programs resulting claims occurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods see note 10 consolidated financial statements item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction companys consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k contains forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements indicated words phrases anticipate estimate project believe intend expect plan similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various metals unanticipated slowdowns companys major markets impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements results operations demand companys mineral exploration drilling services depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely connection level mineral exploration development activities conducted mining companies could continue material adverse effect company overview reportable operating segments company multinational company provides sophisticated services related products variety markets fiscal 2002 management redefined companys operational organization structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices division example water resources division office performed geoconstruction services revenues would recorded water resources division rather geoconstruction services division offices primary responsibility move one division president another offices results going forward would reclassified divisions time companys reportable segments new operational structure defined follows water resources division provides full line waterrelated services products including hydrological studies site selection well design drilling well development pump installation repair maintenance divisions offerings include design construction water treatment facilities manufacture sale products treat volatile inorganics groundwater division also offers environmental services assess monitor groundwater contaminants mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods geoconstruction services division focuses services improve soil stability primarily jet grouting vibratory ground improvement groundfreezing services division also manufactures line highpressure pumping equipment used grouting operations geotechnical drilling rigs used directional drilling energy services production division offers variety specialized services including shallow gas tar sands exploration drilling conventional oilfield fishing services coil tubing fishing services resonance technology solutions stuck tubulars landbased oil gas search development divisions landbased oil gas search development activities focus primarily natural gas properties principally coalbed methane projects located midwest region united states products grouping historically included companys supply operation distributed drilling equipment parts supplies manufacturing operation producing diamond drilling rigs diamond bits core barrels drill rods christensen products miscellaneous operations fall divisions january 23 2003 company sold supply operations boart longyear upon sale results operations reclassified discontinued operations years presented see note 4 notes consolidated financial statements august 8 2001 company sold christensen products business subsidiary atlas copco see note 6 notes consolidated financial statements following table derived companys consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected companys statements income bear revenues percentage increase decrease dollar amount items periodtoperiod meaningful comparison fiscal 2003 fiscal 2002 revenues fiscal 2003 decreased 20036000 69 269922000 compared 289958000 fiscal 2002 decrease primarily result decreases companys water resources energy services production products divisions see discussion results operations division presented gross profit percentage revenues 289 fiscal 2003 compared 279 fiscal 2002 increase gross profit primarily attributable improved pricing margins companys domestic water locations partially offset expenses associated companys domestic oil gas exploration activities selling general administrative expenses decreased 55624000 fiscal 2003 compared 55877000 fiscal 2002 206 193 revenues respectively decrease primarily result lower incentiverelated accruals partially offset startup expenses related lwds expenses associated companys coalbed methane exploration development activities increase percentage revenues attributable startup expenses associated lwds relative level fixed costs companys operating divisions depreciation amortization decreased 14565000 fiscal 2003 compared 17956000 fiscal 2002 decrease depreciation amortization result less depreciation assets fully depreciated prior periods mineral exploration division ceasing amortize goodwill upon adoption sfas 142 see note 5 notes consolidated financial statements interest expense decreased 2490000 fiscal 2003 compared 3934000 fiscal 2002 decrease result decreases companys average borrowings interest rates year net increased 2089000 year ended january 31 2003 compared 224000 year ended january 31 2002 increase primarily due gain sale companys investment gold exploration project africa gains result company initiative monetize excess property equipment gains partially offset writedown companys former christensen products plant income tax expense related continuing operations 5171000 recorded year ended january 31 2003 effective rate 631 compared 2498000 period last year effective rate 591 effective rate excess statutory federal rate result impact nondeductible expenses tax treatment certain foreign operations net income loss 2003 included losses related discontinued operations 1202000 extraordinary loss 696000 due debt extinguishment costs incurred connection refinancing companys credit facilities 14429000 noncash impairment loss related goodwill recorded cumulative effect accounting change upon adoption sfas 142 water resources division thousands year ended january 31 2003 2002 revenues 167080 172806 income continuing operations 28654 27474 water resources revenues decreased 33 167080000 year ended january 31 2003 172806000 year ended january 31 2002 decrease revenues primarily result reduced municipal spending certain companys markets resulting competitive pressures partially offset increased demand companys services due increased infrastructure needs created population growth western united states income continuing operations water resources division increased 43 28654000 year ended january 31 2003 compared 27474000 last year increase primarily attributable improved pricing margins certain companys domestic water supply locations large drilling project performed oil gas sector certain gains sale property equipment partially offset startup expenses associated water development storage venture mineral exploration division thousands year ended january 31 2003 2002 revenues 55769 57945 loss continuing operations 1082 7313 mineral exploration revenues decreased 38 55769000 year ended january 31 2003 compared revenues 57945000 year ended january 31 2002 increased activity levels north america australia due rising precious metal prices sufficient offset reduced exploration activity certain areas africa loss continuing operations mineral exploration division 1082000 year ended january 31 2003 compared loss 7313000 year ended january 31 2002 results operations year ended january 31 2003 reflect losses africa partially offset improved operating performance increased activity levels north america australia included african losses impact losing two significant contracts approximately 1000000 costs associated relocating west african operations base division benefited fiscal 2003 reduced depreciation amortization 2753000 due assets fully depreciated prior periods ceasing amortize goodwill upon adoption sfas 142 also included year gain 901000 sale investment gold exploration project africa prior year loss includes 33 million charge related sale companys investment ausdrill limited see note 6 notes consolidated financial statements geoconstruction services division thousands year ended january 31 2003 2002 revenues 29621 27006 income continuing operations 2631 1194 geoconstruction services revenues increased 97 29621000 year ended january 31 2003 compared 27006000 last year increase revenues result two large construction projects hawaii large multidivisional project oil gas sector increased equipment sales result new product offerings companys manufacturing facility italy geoconstruction services division income continuing operations 2631000 year ended january 31 2003 compared 1194000 year ended january 31 2002 increased profits primarily attributable margins associated increased revenues elimination costs incurred prior year associated complications certain companys groundfreezing projects energy services production division thousands year ended january 31 2003 2002 revenues 17016 27011 income loss continuing operations 2621 1014 energy services revenues decreased 370 17016000 year ended january 31 2003 compared revenues 27011000 year ended january 31 2002 revenues division negatively impacted decreased oil gas exploration spending canada depressed market conditions oil gas services gulf mexico region united states division loss continuing operations 2621000 year ended january 31 2003 compared income continuing operations 1014000 year ended january 31 2002 decrease profits result expenses related companys energy exploration activities coalbed methane development efforts startup expenses new service location louisiana reduced profits due depressed market conditions products thousands year ended january 31 2003 2002 revenues 436 5190 income loss continuing operations 2142 1389 products revenues decreased 916 436000 year ended january 31 2003 compared 5190000 year ended january 31 2002 decrease revenues result sale christensen products subsidiary atlas copco third quarter last year two large specialty construction projects completed last year loss products 2142000 year ended january 31 2003 includes writedown christensen products land building reflect declines fair market value residual expenses associated closing christensen products income year ended january 31 2002 includes 40 million gain sale christensen products atlas copco see note 6 notes consolidated financial statements corporate expenses allocated individual divisions primarily included selling general administrative expenses 14759000 15596000 years ended january 31 2003 2002 respectively decrease unallocated corporate expenses primarily result lower incentiverelated accruals year comparison fiscal 2002 fiscal 2001 financial comparison discussion fiscal 2002 versus fiscal 2001 reclassified reflect discontinued operations conform 2003 presentation income measures results operations revenues fiscal 2002 decreased 4008000 14 289958000 compared 293966000 fiscal 2001 decrease primarily result decreases companys mineral exploration geoconstruction services divisions partially offset increased revenues water resources energy services production divisions gross profit percentage revenues 279 fiscal 2002 compared 253 fiscal 2001 increase gross profit primarily attributable improved margins companys domestic water locations certain international mineral exploration locations combined reduced expenses associated companys domestic oil gas exploration activities increases partially offset reduced margins companys products locations united states selling general administrative expenses increased 55877000 fiscal 2002 compared 55080000 fiscal 2001 increase primarily result increased employee benefit insurance premium legal costs year depreciation amortization decreased 17956000 fiscal 2002 compared 21065000 fiscal 2001 decrease depreciation amortization attributable disposal assets certain international locations application purchase accounting resulting negative goodwill reducing assets associated purchase remaining 50 wads ausdrill see note 2 notes consolidated financial statements interest expense decreased 3934000 fiscal 2002 compared 6205000 fiscal 2001 decrease primarily result decreases companys average borrowings interest rates year income tax expense 2498000 recorded year ended january 31 2002 effective rate 591 compared 238000 period last year effective rate 39 effective rate excess statutory federal rate year ended january 31 2002 result impact nondeductible expenses tax treatment certain foreign operations water resources division thousands year ended january 31 2002 2001 revenues 172806 164883 income continuing operations 27474 20650 water resources revenues increased 48 172806000 year ended january 31 2002 164883000 year ended january 31 2001 increase revenues primarily result companys project city azusa california combined increased demand companys waterrelated services partially due drought conditions certain areas united states income continuing operations water resources division increased 330 27474000 year ended january 31 2002 compared 20650000 last year increase primarily attributable improved pricing margins companys domestic water supply locations mineral exploration division thousands year ended january 31 2002 2001 revenues 57945 66153 loss continuing operations 7313 6898 mineral exploration revenues decreased 124 57945000 year ended january 31 2002 66153000 year ended january 31 2001 decrease revenue primarily result continued softness exploration market united states australia mexico partially offset increased activity certain areas africa loss continuing operations mineral exploration division 7313000 year ended january 31 2002 compared 6898000 year ended january 31 2001 increased losses division primarily result 3329000 charge related sale companys investment ausdrill limited fiscal 2002 partially offset improved margins certain companys international locations cost reductions australia geoconstruction services division thousands year ended january 31 2002 2001 revenues 27006 38010 income continuing operations 1194 5926 geoconstruction services revenues decreased 290 27006000 year ended january 31 2002 compared 38010000 last year decrease revenues result slowing construction activity certain areas united states combined competitive pricing pressures certain markets served company geoconstruction services division income continuing operations 1194000 year ended january 31 2002 compared 5926000 year ended january 31 2001 reduced profits primarily attributable lower revenues costs associated complications certain companys groundfreezing projects energy services production division thousands year ended january 31 2002 2001 revenues 27011 21232 income loss continuing operations 1014 1866 energy services revenues increased 272 27011000 year ended january 31 2002 compared revenues 21232000 year ended january 31 2001 increase primarily result increased oil gas exploration activity canada increased capacity companys service operations gulf mexico region united states income continuing operations energy services production division 1014000 year ended january 31 2002 compared loss continuing operating loss 1866000 year ended january 31 2001 improved profits result lower expenditures attributable companys oil gas exploration activities improved results companys oil gas service businesses united states combined increased levels activity canada products thousands year ended january 31 2002 2001 revenues 5190 3688 income loss continuing operations 1389 2454 products revenues increased 407 5190000 year ended january 31 2002 compared 3688000 year ended january 31 2001 increase revenues primarily result increased demand drill rigs manufactured company mineral exploration market two significant projects completed companys specialty products group income continuing operations products 1389000 year ended january 31 2002 compared loss continuing operations 2454000 year ended january 31 2001 improved results primarily result 40 million gain sale christensen products recorded 2002 corporate expenses allocated individual divisions primarily included selling general administrative expenses 15596000 15189000 years ended january 31 2002 2001 respectively increase unallocated corporate expenses primarily result increased employee benefit insurance premium costs fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects companys revenues large longterm drilling contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number companys contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect companys operating results particular quarter many companys contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover companys domestic drilling activities related revenues earnings tend decrease winter months adverse weather conditions interfere access drilling sites ability drill result companys revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see companys consolidated financial statements notes thereto inflation management believes companys operations periods discussed adversely affected inflation changing prices suppliers liquidity capital resources primary source companys liquidity fiscal 2003 2002 2001 cash operating activities 18818000 25509000 12952000 respectively decrease cash operations 2003 primarily attributable incentive compensation payments paid 2003 related fiscal 2002 note payments ausdrill limited payment closing costs related certain subsidiaries closed end fiscal 2002 fiscal 2003 cash operations primarily used pay debt issuance costs related credit agreement prepayment penalty early redemption senior notes additions property equipment 17505000 capital expenditures fiscal years directed primarily toward expansion upgrading companys equipment facilities companys expansion coalbed methane exploration production fiscal 2004 company expects accelerate expansion production coalbed methane gas capital expenditure estimates fiscal 2004 include 13000000 related companys coalbed methane development efforts approximately 8000000 upgrade equipment facilities companys water resources mineral exploration geoconstruction divisions january 31 2003 company material commitments outstanding capital assets company maintains cash borrowing facility credit agreement comprised term loan 35000000 revolving credit facility borrowings credit agreement used refinance borrowings outstanding companys previous credit facilities companys borrowings credit agreement 32370000 january 31 2003 see note 11 consolidated financial statements companys working capital january 31 2003 2002 2001 33675000 15513000 46960000 respectively working capital january 31 2002 reduced outstanding balances 16500000 previous revolving credit facility refinanced 2003 company believes sufficient cash operations access credit facilities meet companys operating cash requirements fund budgeted capital expenditures fiscal 2004 company also expects defray cash cost fiscal 2003 incentive compensation awards making portion payments common stock companys contractual obligations commercial commitments summarized follows critical accounting policies estimates managements discussion analysis financial condition results operations discusses companys consolidated financial statements prepared accordance accounting principles generally accepted united states preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments based historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions accounting policies fully described note 1 financial statements located elsewhere annual report form 10k year ended january 31 2003 believe following represent critical estimates assumptions used preparation consolidated financial statements revenue recognition revenue recognized large longterm contracts using percentage completion method based upon materials installed labor costs incurred changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined provisions estimated losses uncompleted contracts made period losses determined goodwill intangibles june 2001 financial accounting standards board issued sfas 142 effective company february 1 2002 sfas 142 substantially changes accounting goodwill requiring goodwill intangible assets indefinite useful lives cease amortized instead periodically tested impairment statement also requires within six months adoption goodwill tested impairment reporting unit level date adoption disclosed consolidated financial statements company goodwill 21884000 january 31 2002 goodwill primarily attributable companys mineral exploration division process evaluating goodwill impairment involves determination fair value companys reporting units inherent fair value determinations certain judgments estimates including interpretation current economic indicators market valuations assumptions companys strategic plans regard operations company completed initial assessment goodwill second quarter fiscal year 2003 determined transitional impairment charge required result company recorded noncash charge 14429000 recorded net taxes 5796000 cumulative effect change accounting principle accordance sfas 142 company completed annual impairment test december 31 2002 impairment indicated believe time carrying value remaining goodwill appropriate although extent additional information arises companys strategies change possible companys conclusions regarding impairment remaining goodwill could change result material effect financial position results operations longlived assets evaluating fair value future benefits longlived assets perform analysis anticipated future net cash flows related longlived assets reduce carrying value excess result calculation believe january 31 2003 longlived assets carrying values useful lives continue appropriate accrued insurance expense record estimates certain health welfare workers compensation casualty insurance costs selfinsured programs greater amount claims occur compared estimated costs medical profession increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee medical benefits workers compensation casualty insurance programs resulting claims occurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods see note 13 consolidated financial statements income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries foreign affiliates made amounts excess funds considered invested indefinitely see note 8 notes consolidated financial statements litigation contingencies company involved litigation incidental business disposition expected material effect companys financial position results operations possible however future results operations particular quarterly annual period could materially affected changes companys assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation outside counsel handling matters based upon combination litigation settlement strategies extent additional information arises companys strategies change possible companys estimate probable liability matters may change see note 15 notes consolidated financial statements discussion new accounting pronouncements impact company item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction company’s consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements management’s intentions hopes beliefs expectations predictions future forward looking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “goal” “forecast” “plan” “estimate” similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various commodities unanticipated slowdowns company’s major markets risks uncertainties normally incident exploration development production oil gas impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements management overview reportable operating segments company multinational company provides sophisticated services related products variety markets management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded office’s division example water resources division office performed geoconstruction services revenues would recorded water resources division rather geoconstruction division office’s primary responsibility move one division president another office’s results going forward would reclassified divisions time company’s reportable segments defined follows water resources division provides full line waterrelated services products including hydrological studies site selection well design drilling well development pump installation repair maintenance division’s offerings include design construction water treatment facilities manufacture sale products treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental services assess monitor groundwater contaminants effective february 1 2003 company’s ground freezing services included division prospective basis due change reporting responsibility division’s operations rely heavily municipal sector approximately 66 division’s fiscal 2005 revenues derived municipal market municipal sector adversely impacted economic slowdowns certain region country reduced tax revenues limited spending new development local municipalities generally spending levels municipal sector lag economic recovery expected certain regions country remain reduced levels first half next year addition reduced spending levels municipal market company also experienced reduced demand services industrial markets soft markets increased competitive challenges division competitors aggressive pricing division’s margins adversely affected result efforts maintain market share difficult environment us economy continues recover company expects activity levels within water markets improve division also expanding water treatment product offerings expects see continued growth water treatment sales fiscal 2006 mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods demand company’s mineral exploration drilling services depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely connection level mineral exploration development activities conducted mining companies could material adverse effect company fiscal 2004 mineral exploration division experienced first increase worldwide exploration spending since 1997 driven primarily increased gold base metal prices division relies heavily mining activity africa 54 total division revenues generated fiscal 2005 company believes concentration risk mitigated working larger international mining companies establishment permanent operating facilities africa operating difficulties including limited political instability workforce instability harsh environment disease remote locations create natural barriers entry market competitors company believes positioned market leader africa established infrastructure operate effectively division expects experience continued growth next year mining activity remains strong geoconstruction division focuses services improve soil stability primarily jet grouting vibratory ground improvement drilled micropiles stone columns anchors tiebacks division also manufactures line highpressure pumping equipment used grouting operations geotechnical drilling rigs used directional drilling since february 1 2003 division longer includes company’s ground freezing services due change reporting responsibility geoconstruction division frequently acts subcontractor heavy civil construction contractors governmental agencies many cases circumstances outside company’s control inherent subcontractor relationship consequently division could experience delays projects could material adverse effect division company expects volume large constructiontype projects utilizing company’s services improve next year conjunction us economic recovery energy division primarily focuses exploration production coalbed methane “cbm” properties united states date division concentrated projects midcontinent region united states historically division also included service businesses shallow gas tar sands exploration drilling conventional oilfield fishing services coil tubing fishing services fiscal 2004 division’s strategy shifted focus mainly resource development rather providing services external customers accordingly january 2004 company sold canadian drilling unit ensign drilling oilfield fishing services smith international results operations units reclassified discontinued operations years presented see note 4 notes consolidated financial statements division composed company’s cbm development activities two small specialty energy service companies following sale two businesses fiscal 2004 company repositioned division focus mainly exploration production activities associated cbm properties expansion company’s energy segment contingent upon significant cash investments develop company’s unproved acreage january 31 2005 company invested 30657000 oil gas related assets expects spend approximately 15000000 development activities associated cbm efforts fiscal 2006 production curve typical cbm well generally 1520 years accordingly company expects earn return investment proceeds gas production next 1520 years however future revenues profits dependent upon number factors including consumption levels natural gas commodity prices economic feasibility gas exploration production discovery rate new gas reserves company 134 gross producing wells online january 31 2005 division expected profitable fiscal 2006 sufficient production volumes generated offset division’s level fixed costs demand clear burning fuels continues favorable impact pricing products grouping historically included company’s supply operation distributed drilling equipment parts supplies manufacturing operation producing diamond drilling rigs diamond bits core barrels drill rods “christensen products” miscellaneous operations fall divisions january 23 2003 company sold supply operation boart longyear upon sale results operations reclassified discontinued operations years presented see note 4 notes consolidated financial statements following table derived company’s consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected company’s statements income bear revenues percentage increase decrease dollar amount items periodtoperiod revenues equity earnings affiliates income continuing operations income taxes pertaining company’s operating segments presented intersegment revenues accounted based fair market value services provided unallocated corporate expenses primarily consist general administrative functions previously unallocated corporate expenses included incentive compensation expenses divisionlevel personnel however beginning second quarter fiscal 2005 incentive compensation allocated segments reflect change evaluation divisional performance periods presented reclassified conform current presentation operating segment revenues income continuing operations income taxes summarized follows thousands comparison fiscal 2005 fiscal 2004 revenues fiscal 2005 increased 71409000 262 343462000 compared 272053000 fiscal 2004 increase revenues primarily resulted increased activity mineral exploration water resource divisions discussion results operations division presented gross profit percentage revenues 271 fiscal 2005 compared 278 fiscal 2004 decrease gross profit percentage year primarily attributable pricing pressures water resources division along reduced margins associated promotion certain new water treatment products decrease water resources division margins partially offset increased margins mineral exploration division due increased drilling activity higher gold base metal prices selling general administrative expenses increased 60214000 fiscal 2005 compared 53920000 fiscal 2004 175 198 revenues respectively dollar increase year primarily related incremental costs approximately 2200000 associated implementation sarbanesoxley requirements increased incentive compensation costs result company’s increased profitability increased expenses associated company’s cbm development efforts depreciation depletion amortization increased 14441000 fiscal 2005 compared 11877000 fiscal 2004 increase result increased depletion associated expansion company’s cbm operations increased depreciation new asset additions mineral exploration division due increased demand water resources division primarily assets purchased previously announced beylik acquisition interest expense increased 3221000 fiscal 2005 compared 2604000 fiscal 2004 increase result increase company’s average borrowings year company recorded loss extinguishment debt 2320000 fiscal 2004 loss represents prepayment penalties writeoff associated deferred fees connection refinancing company’s debts income included 1220000 fiscal 2005 358000 fiscal 2004 primarily related gains sales property equipment resulting company’s efforts monetize nonstrategic assets income tax expense 9215000 related continuing operations recorded fiscal 2005 effective rate 480 compared 4265000 period last year effective rate 644 improvement effective rate primarily attributable improved earnings international operations remaining difference effective rate versus statutory federal rate due primarily impact nondeductible expenses tax treatment certain foreign operations net income fiscal 2005 included loss discontinued operations 213000 net income tax benefit 127000 primarily due residual costs foreign exchange losses company’s subsidiary layne christensen canada sold fourth quarter fiscal 2004 company also sold subsidiary toledo oil gas fiscal 2004 entities historically reported part company’s energy segment connection sales company recorded gain fiscal 2004 1746000 net income taxes 1034000 gain related sale operations offset operating losses 1456000 net income taxes 215000 see note 4 notes consolidated financial statements water resources division thousands water resources revenues increased 170 198475000 year ended january 31 2005 169631000 year ended january 31 2004 increase revenues attributable increased infrastructure needs result population expansion metropolitan areas primarily western united states improvements municipal spending certain regions results company’s water treatment initiatives income continuing operations water resources division increased 232 23311000 year ended january 31 2005 compared 18927000 last year increase income continuing operations primarily combination increased gross profit associated volume increase revenues essentially flat selling general administrative expenses mineral exploration division thousands mineral exploration revenues increased 529 104299000 year ended january 31 2005 compared revenues 68218000 year ended january 31 2004 increase revenues primarily result increased exploration activity company’s markets due higher gold base metal prices income continuing operations mineral exploration division 11741000 year ended january 31 2005 compared income continuing operations 2753000 year ended january 31 2004 improved earnings division primarily due increased activity levels noted increased earnings company’s latin american affiliates equity earnings latin american affiliates 2764000 fiscal 2005 1442000 fiscal 2004 improvements earnings division partially offset increased incentive compensation costs additional depreciation new asset additions geoconstruction division thousands geoconstruction revenues increased 107 34636000 year ended january 31 2005 compared 31285000 year ended january 31 2004 increase revenues primarily attributable certain larger normal private sector projects geoconstruction division’s income continuing operations increased 118 2324000 2005 compared 2079000 prior year increase income continuing operations attributable improved profit margins larger private sector projects noted energy division thousands energy division revenues increased 1073 6052000 year ended january 31 2005 compared revenues 2919000 year ended january 31 2004 increase revenue resulted increased production company’s cbm projects midcontinent region united states division loss continuing operations 2072000 year ended january 31 2005 compared loss continuing operations 1528000 year ended january 31 2004 increased loss division result increased expenses related company’s development cbm properties loss current year partially offset gain sale well fracturing equipment approximately 906000 unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 12884000 10681000 years ended january 31 2005 2004 respectively increase unallocated corporate expenses primarily result increased costs associated sarbanesoxley implementation requirements higher travel expenses comparison fiscal 2004 fiscal 2003 revenues fiscal 2004 increased 16530000 65 272053000 compared 255523000 fiscal 2003 increase primarily result increases company’s mineral exploration division see discussion results operations division presented gross profit percentage revenues 278 fiscal 2004 compared 294 fiscal 2003 decrease gross profit percentage year primarily related negative impact competitive pricing pressures company’s water resources division municipal industrial energy agricultural market segments weak throughout year decreases gross profit water resources division partially offset improved margins company’s mineral exploration division due increased activity levels associated higher gold base metal prices selling general administrative expenses increased 53920000 fiscal 2004 compared 52425000 fiscal 2003 198 205 revenues respectively increase year primarily result severancerelated benefits 1244000 accrued second quarter see note 7 notes consolidated financial statements startup expenses related company’s groundwater transfer project texas increased insurance costs expenses partially offset lower incentive compensation expense cost savings associated workforce reductions completed second quarter depreciation amortization decreased 11877000 fiscal 2004 compared 13204000 fiscal 2003 decrease depreciation amortization result assets becoming fully depreciated prior periods primarily geoconstruction mineral exploration divisions interest expense increased 2604000 fiscal 2004 compared 2490000 fiscal 2003 increase result increase company’s average borrowings year company recorded debt extinguishment costs 2320000 fiscal 2004 1135000 fiscal 2003 losses periods represent prepayment penalties writeoff associated deferred fees connection refinancing company’s credit facilities net income 358000 fiscal 2004 compared income 1694000 fiscal 2003 variance income last year primarily due gains insurance proceeds fixed asset sales investment sales recurred levels current year income tax expense related continuing operations 4265000 recorded fiscal 2004 effective rate 644 compared 5084000 period last year effective rate 601 exclusive impact debt extinguishment costs effective rate would 577 compared 576 twelve months ended january 31 2004 2003 respectively remaining difference effective rate versus statutory federal rate due primarily impact nondeductible expenses tax treatment certain foreign operations net income fiscal 2004 included income related discontinued operations 290000 fourth quarter fiscal 2004 company sold layne christensen canada toledo oil gas subsidiaries entities historically reported part company’s energy segment connection sales company recorded gain 1746000 net income taxes 1034000 gains related sale operations offset operating losses 1456000 net income taxes 215000 see note 4 notes consolidated financial statements water resources division thousands water resources revenues increased 15 169631000 year ended january 31 2004 167080000 year ended january 31 2003 increase revenues primarily result concerted effort maintain market share division’s markets especially soft municipal market activity impacted competitive pressures reduced spending increase also attributable increased infrastructure needs result population expansion certain areas united states especially metropolitan areas california illinois income continuing operations water resources division decreased 228 18927000 year ended january 31 2004 compared 24524000 last year decrease income continuing operations twelve months ended january 31 2004 primarily attributable competitive pricing pressures municipal industrial energy agricultural market segments reduced margins due difficult winter drilling season earnings large multidivisional project prior year replaced fiscal 2004 mineral exploration division thousands mineral exploration revenues increased 223 68218000 year ended january 31 2004 compared revenues 55769000 year ended january 31 2003 increase revenues attributable increased exploration activity company’s markets result higher gold base metals prices increased activity levels greatest impact company’s locations africa income continuing operations mineral exploration division 2753000 year ended january 31 2004 compared loss continuing operations 1138000 year ended january 31 2003 improved profitability division primarily due increased activity levels noted division also benefited improved earnings latin american affiliates lower depreciation assets fully depreciated prior periods items partially offset increased expenses australia bring equipment compliance changes transportation regulations geoconstruction division thousands geoconstruction revenues increased 56 31285000 year ended january 31 2004 compared 29621000 year ended january 31 2003 increase revenues primarily result large project northwest united states department energy increased sales company’s manufacturing unit italy increased sales italy primarily result weakened value us dollar euro functional currency subsidiary movement euro versus dollar resulted increase approximately 1000000 upon conversion company’s reporting currency geoconstruction division income continuing operations 2079000 year ended january 31 2004 compared 2573000 year ended january 31 2003 decrease income continuing operations attributable delays work suspensions certain public sector projects partially offset reduced depreciation expense assets fully depreciated prior periods energy division thousands energy division revenues increased 115 2919000 year ended january 31 2004 compared revenues 2617000 year ended january 31 2003 increase revenues division primarily attributable increased market penetration company’s resonance technology process revenues division fiscal 2004 include approximately 73000 related company’s coalbed methane projects midcontinent region united states division loss continuing operations 1528000 year ended january 31 2004 compared loss continuing operations 1340000 year ended january 31 2003 increased loss division result increased expenses related company’s coalbed methane development activities unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 10681000 10398000 years ended january 31 2004 2003 respectively increase unallocated corporate expenses year ended january 31 2004 primarily result severancerelated costs see note 7 notes consolidated financial statements approximately 800000 incurred second quarter offset cost reduction measures implemented late fiscal 2003 fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects company’s revenues large longterm drilling contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number company’s contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect company’s operating results particular quarter many company’s contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover company’s domestic drilling activities related revenues earnings tend decrease winter months adverse weather conditions interfere access drilling sites ability drill result company’s revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see company’s consolidated financial statements notes thereto inflation management believes company’s operations periods discussed adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures company’s primary sources liquidity historically cash operations supplemented borrowings credit facilities company maintains agreement “master shelf agreement” whereby issue 60000000 unsecured notes company also holds revolving credit facility “credit agreement” composed unsecured 30000000 revolving facility borrowings master shelf credit agreements used refinance borrowings outstanding company’s previous credit facilities january 31 2005 company outstanding notes 60000000 master shelf agreement see note 12 notes consolidated financial statements company compliance financial covenants january 31 2005 expects remain compliance foreseeable future company’s working capital january 31 2005 2004 2003 54455000 52406000 33675000 respectively increase working capital january 31 2005 primarily attributable increased investment inventory necessary support company’s expanded operations payment certain lease termination costs related sale layne christensen canada additionally working capital january 31 2004 2003 includes receipt proceeds sale businesses near end january year excluding cash equivalents working capital january 31 2005 2004 2003 would 40047000 30804000 22905000 respectively january 31 2005 company material commitments outstanding capital assets company believes sufficient cash operations access credit facilities meet company’s operating cash requirements fund budgeted capital expenditures fiscal 2006 operating activities cash operating activities including discontinued operations increased 12184000 16954000 year ended january 31 2005 cash operating activities include 2969000 used discontinued operations primarily attributable payment lease termination liabilities closing costs related sale layne canada partially offset collection receivables also related layne canada cash continuing operations increased 19923000 4474000 prior year primarily due increased net income continuing operations less significant working capital increases compared 2004 investing activities company’s capital expenditures 27692000 fiscal 2005 directed primarily toward company’s expansion coalbed methane “cbm” exploration production expenditures related company’s cbm efforts totaled 12089000 fiscal 2005 including construction gas pipeline infrastructure near company’s development projects additionally company acquired two cbm oil gas projects totaling 2728000 acquired 75 interest gas transportation facilities equipment 654000 company also expanded water resources business acquisition assets beylik drilling pump service inc “beylik” total proceeds 14743000 see note 2 notes consolidated financial statements discussion acquisitions remaining capital expenditures directed towards expansion upgrading company’s equipment facilities primarily water resources mineral exploration divisions investing activities fiscal 2004 include proceeds sale businesses 18114000 business acquisitions 1150000 company sold layne canada january 30 2004 received 15914000 upon closing january 6 2004 company sold toledo oil gas “toledo” received 2200000 upon closing additional payment 300000 related sale toledo received february 2004 fiscal 2004 company acquired mohajir engineering group 1150000 see note 2 notes consolidated financial statements acquisition positioned company take advantage growth opportunities cbm development market financing activities company’s financing activities primarily related issuance 20000000 notes master shelf agreement fund acquisitions beylik cbmrelated assets totaling 18125000 addition borrowings used working capital requirements capital expenditures payment 1740000 drillcorp promissory note fiscal 2004 proceeds option exercises unusually high due increases company’s stock price large number options impending expiration dates proceeds issuance notes master shelf agreement 2004 used pay outstanding borrowings company’s previous credit facilities prepayment penalty related previous loan facilities issuance costs related master shelf agreement company’s new revolving credit facility financing activities 2004 also include payments 680000 related drillcorp promissory note contractual obligations commercial commitments company’s contractual obligations commercial commitments summarized follows thousands company expects meet contractual cash obligations ordinary course operations standby letters credit renewed connection annual insurance renewal process payments related credit facilities include interest payments credit facilities bear fixed interest rate 605 540 see note 12 notes consolidated financial statements company incurs additional obligations ordinary course operations obligations including limited interest payments debt income tax payments pension fundings expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discusses company’s consolidated financial statements prepared accordance accounting principles generally accepted united states preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments based historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions accounting policies fully described note 1 notes consolidated financial statements located elsewhere annual report form 10k company believes following represents critical estimates assumptions used preparation consolidated financial statements revenue recognition revenue recognized large longterm contracts using percentage completion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined provisions estimated losses uncompleted contracts made period losses determined goodwill intangibles june 2001 financial accounting standards board issued sfas 142 effective company february 1 2002 sfas 142 substantially changed accounting goodwill requiring goodwill intangible assets indefinite useful lives cease amortized instead periodically tested impairment company performs annual impairment test december 31 year process evaluating goodwill impairment involves determination fair value company’s reporting units inherent fair value determinations certain judgments estimates including interpretation current economic indicators market valuations assumptions company’s strategic plans regard operations company believes time carrying value remaining goodwill appropriate although extent additional information arises company’s strategies change possible company’s conclusions regarding impairment remaining goodwill could change result material effect financial position results operations longlived assets evaluating fair value future benefits longlived assets including company’s gas transportation facilities equipment company performs analysis anticipated future net cash flows related longlived assets reduces carrying value excess result calculation company believes time longlived assets’ carrying values useful lives continue appropriate accrued insurance expense company maintains insurance programs responsible certain amount claim deductible selfinsured limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based actuarially determined projections future payments programs greater amount claims occur compared estimated costs medical profession increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee medical benefits property casualty insurance programs resulting claims occurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods see note 15 notes consolidated financial statements income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely see note 9 notes consolidated financial statements reserve estimates company’s estimates coalbed methane gas reserves necessity projections base geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material company’s estimated proved reserves january 31 2005 prepared independent petroleum engineering consultants cawley gillespie associates inc due early stages completion company’s projects company sufficient production information reserves could established earlier periods oil gas properties mineral interests company follows fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized company required review carrying value oil gas properties quarter full cost accounting rules sec rules capitalized costs proved oil gas properties adjusted asset retirement obligations may exceed present value estimated future net revenues proved reserves discounted 10 application ceiling test generally requires pricing future revenue unescalated prices effect last day quarter effect given company’s cash flow hedge positions requires writedown accounting purposes ceiling exceeded unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows litigation contingencies company involved litigation incidental business disposition expected material effect company’s financial position results operations possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation outside counsel handling matters based upon combination litigation settlement strategies extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change see note 17 notes consolidated financial statements discussion new accounting pronouncements impact company item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction company’s consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements management’s intentions hopes beliefs expectations predictions future forward looking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “will” “will be” “goal” “forecast” “plan” “estimate” similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various commodities unanticipated slowdowns company’s major markets risks uncertainties normally incident exploration development production oil gas impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements management overview reportable operating segments company multinational company provides sophisticated drilling construction services related products variety markets well producer unconventional natural gas energy market management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded office’s division example water resources division office performed geoconstruction services revenues would recorded water resources division rather geoconstruction division office’s primary responsibility move one division president another office’s results going forward would reclassified divisions time company’s reportable segments defined follows water resources division provides full line waterrelated services products including hydrological studies site selection well design drilling well development pump installation repair maintenance division’s offerings include design construction water treatment facilities manufacture sale products treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental services assess monitor groundwater contaminants acquisition reynolds september 2005 division expanded capabilities areas design build water wastewater treatment plants ranney collector wells sewer rehabilitation water wastewater transmission lines division’s operations rely heavily municipal sector approximately 66 division’s fiscal 2006 revenues derived municipal market municipal sector adversely impacted economic slowdowns certain regions country reduced tax revenues limit spending new development local municipalities generally spending levels municipal sector lag economic recovery certain markets company experienced reduced spending levels municipal market reduced demand services industrial markets soft markets increased competitive challenges division competitors aggressive pricing company expects activity levels within water markets improve division also expanding water treatment product offerings expects see continued growth water treatment sales fiscal 2007 mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods demand company’s mineral exploration drilling services depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely connection level mineral exploration development activities conducted mining companies could material adverse effect company fiscal 2004 mineral exploration division experienced first increase worldwide exploration spending since 1997 driven primarily increased gold base metal prices division relies heavily mining activity africa 45 total division revenues generated fiscal 2006 company believes concentration risk mitigated working larger international mining companies establishment permanent operating facilities africa operating difficulties including limited political instability workforce instability harsh environment disease remote locations create natural barriers entry market competitors company believes positioned market leader africa established infrastructure operate effectively division expects experience continued growth next year mining activity remains strong geoconstruction division focuses services improve soil stability primarily jet grouting vibratory ground improvement drilled micropiles stone columns anchors tiebacks division also manufactures line highpressure pumping equipment used grouting operations geotechnical drilling rigs used directional drilling geoconstruction division frequently acts subcontractor heavy civil construction contractors governmental agencies many cases circumstances outside company’s control inherent subcontractor relationship consequently division could experience delays projects could material adverse effect division energy division focuses entirely exploration production unconventional gas properties united states date division concentrated projects midcontinent region united states historically division also included service businesses shallow gas tar sands exploration drilling conventional oilfield fishing services coil tubing fishing services fiscal 2004 division’s strategy shifted focus mainly resource development rather providing services external customers accordingly january 2004 division sold shallow gas tar sands exploration business oilfield fishing services results operations units reclassified discontinued operations years presented see note 4 notes consolidated financial statements fiscal 2006 division completed shift focus unconventional gas development activities reclassified results two small specialty energy service companies “other” division expansion company’s energy segment contingent upon significant cash investments develop company’s unproved acreage january 31 2006 company invested 55264000 oil gas related assets expects spend approximately 25000000 development activities fiscal 2007 production curve typical unconventional gas well company’s operating market generally 1520 years accordingly company expects earn return investment proceeds gas production next 1520 years however future revenues profits dependent upon number factors including consumption levels natural gas commodity prices economic feasibility gas exploration production discovery rate new gas reserves company 210 gross producing wells online january 31 2006 includes two small specialty energy service companies previously classified energy division specialty operations included one divisions following table derived company’s consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected company’s statements income bear revenues percentage increase decrease dollar amount items periodtoperiod meaningful revenues equity earnings affiliates income continuing operations income taxes pertaining company’s operating segments presented intersegment revenues accounted based fair market value services provided unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer general counsel board directors periods presented reclassified conform current presentation operating segment revenues income continuing operations income taxes summarized follows comparison fiscal 2006 fiscal 2005 revenues fiscal 2006 increased 119553000 348 463015000 compared 343462000 fiscal 2005 revenues across divisions main increases mineral exploration water resources divisions including impact acquisition reynolds inc ”reynolds” closed september 28 2005 discussion results operations division presented gross profit percentage revenues 256 fiscal 2006 compared 271 fiscal 2005 decreases gross profit percentage primarily result reduced margins water resources division arising change product mix acquisition reynolds higher expected costs certain water supply contracts especially california market competitive pricing pressures texas decreases partially offset improved margins energy division due increased sales natural gas result increased production pricing selling general administrative expenses increased 69979000 fiscal 2006 compared 60214000 fiscal 2005 151 175 revenues respectively increase primarily related acquisition reynolds september 2005 acquisition beylik drilling pump service inc “beylik” october 2004 expansion company’s water treatment capabilities additional accrued incentive compensation expense result improved profitability company depreciation depletion amortization increased 20024000 fiscal 2006 compared 14441000 fiscal 2005 increase primarily attributable increased depreciation associated property equipment purchased reynolds beylik acquisitions increased depletion expense resulting increase production unconventional gas company’s energy operations equity earnings affiliates increased 4345000 fiscal 2006 compared 2637000 fiscal 2005 reflecting increased activity company’s latin american affiliates joint venture geoconstruction division interest expense increased 5773000 fiscal 2006 compared 3221000 fiscal 2005 increase result increase company’s average borrowings year conjunction financing reynolds net 900000 fiscal 2006 1220000 fiscal 2005 primarily related gains sales property equipment resulting company’s efforts monetize nonstrategic assets company’s effective tax rate 471 year ended january 31 2006 compared 480 year ended january 31 2005 effective rate excess statutory federal rate periods due primarily impact nondeductible expenses tax treatment certain foreign operations water resources division water resources revenues increased 428 283337000 year ended january 31 2006 198475000 year ended january 31 2005 increase primarily attributable reynolds beylik acquisitions division’s water treatment initiatives income continuing operations water resources division decreased 38 22992000 year ended january 31 2006 compared 23905000 year ended january 31 2005 decrease income continuing operations primarily result higher expected costs certain water supply contracts especially california market competitive pricing pressures texas market additional costs approximately 1100000 associated introduction membrane technology division’s water treatment initiatives mineral exploration division mineral exploration revenues increased 191 124206000 year ended january 31 2006 compared revenues 104299000 year ended january 31 2005 increase revenues primarily result increased exploration activity company’s markets due higher gold base metal prices income continuing operations mineral exploration division increased 183 13947000 year ended january 31 2006 compared income continuing operations 11791000 year ended january 31 2005 improved earnings division primarily due increased activity levels noted increased earnings company’s latin american affiliates partially offset difficult operating conditions africa equity earnings latin american affiliates 3506000 fiscal 2006 2764000 fiscal 2005 improvements earnings division partially offset increased incentive compensation costs geoconstruction division geoconstruction revenues increased 87 37659000 year ended january 31 2006 compared 34636000 year ended january 31 2005 increase revenues primarily attributable strong sales fourth quarter company’s manufacturing operations italy geoconstruction division’s income continuing operations increased 1115 5263000 fiscal 2006 compared 2488000 fiscal 2005 increase income continuing operations attributable increase 966000 equity earnings joint venture substantially completed fiscal 2006 additional earnings manufacturing products described settlement several contract change orders energy division energy division revenues increased 2281 12536000 year ended january 31 2006 compared revenues 3821000 year ended january 31 2005 increase revenues primarily attributable increased production company’s unconventional gas properties higher natural gas prices division income continuing operations 2891000 year ended january 31 2006 compared loss continuing operations 1993000 year ended january 31 2005 increase income due increase production unconventional gas certain overhead cost reductions unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 12771000 13728000 years ended january 31 2006 2005 respectively decrease year primarily due lower professional fees sarbanesoxley requirements decrease incentive related expenses corporate personnel charges second quarter prior year related writedown nonstrategic assets 300000 comparison fiscal 2005 fiscal 2004 revenues fiscal 2005 increased 71409000 262 343462000 compared 272053000 fiscal 2004 increase revenues primarily resulted increased activity mineral exploration water resource divisions discussion results operations division presented gross profit percentage revenues 271 fiscal 2005 compared 278 fiscal 2004 decrease gross profit percentage year primarily attributable pricing pressures water resources division along reduced margins associated promotion certain new water treatment products decrease water resources division margins partially offset increased margins mineral exploration division due increased drilling activity higher gold base metal prices selling general administrative expenses increased 60214000 fiscal 2005 compared 53920000 fiscal 2004 175 198 revenues respectively dollar increase year primarily related incremental costs approximately 2200000 associated implementation sarbanesoxley requirements increased incentive compensation costs result company’s increased profitability increased expenses associated company’s unconventional gas development efforts depreciation depletion amortization increased 14441000 fiscal 2005 compared 11877000 fiscal 2004 increase result increased depletion associated expansion company’s energy operations increased depreciation new asset additions mineral exploration division due increased demand water resources division primarily assets purchased previously announced beylik acquisition interest expense increased 3221000 fiscal 2005 compared 2604000 fiscal 2004 increase result increase company’s average borrowings year company recorded loss extinguishment debt 2320000 fiscal 2004 loss represents prepayment penalties writeoff associated deferred fees connection refinancing company’s debts income included 1220000 fiscal 2005 358000 fiscal 2004 primarily related gains sales property equipment resulting company’s efforts monetize nonstrategic assets income tax expense 9215000 related continuing operations recorded fiscal 2005 effective rate 480 compared 4265000 period last year effective rate 644 improvement effective rate primarily attributable improved earnings international operations remaining difference effective rate versus statutory federal rate due primarily impact nondeductible expenses tax treatment certain foreign operations net income fiscal 2005 included loss discontinued operations 213000 net income tax benefit 127000 primarily due residual costs foreign exchange losses company’s subsidiary layne christensen canada sold fourth quarter fiscal 2004 company also sold subsidiary toledo oil gas fiscal 2004 entities historically reported part company’s energy segment connection sales company recorded gain fiscal 2004 1746000 net income taxes 1034000 gain related sale operations offset operating losses 1456000 net income taxes 215000 see note 4 notes consolidated financial statements water resources division water resources revenues increased 170 198475000 year ended january 31 2005 169631000 year ended january 31 2004 increase revenues attributable increased infrastructure needs result population expansion metropolitan areas primarily western united states improvements municipal spending certain regions results company’s water treatment initiatives income continuing operations water resources division increased 240 23905000 year ended january 31 2005 compared 19271000 last year increase income continuing operations primarily combination increased gross profit associated volume increase revenues essentially flat selling general administrative expenses mineral exploration division mineral exploration revenues increased 529 104299000 year ended january 31 2005 compared revenues 68218000 year ended january 31 2004 increase revenues primarily result increased exploration activity company’s markets due higher gold base metal prices income continuing operations mineral exploration division 11791000 year ended january 31 2005 compared income continuing operations 2778000 year ended january 31 2004 improved earnings division primarily due increased activity levels noted increased earnings company’s latin american affiliates equity earnings latin american affiliates 2764000 fiscal 2005 1442000 fiscal 2004 improvements earnings division partially offset increased incentive compensation costs additional depreciation new asset additions geoconstruction division geoconstruction revenues increased 107 34636000 year ended january 31 2005 compared 31285000 year ended january 31 2004 increase revenues primarily attributable certain larger normal private sector projects geoconstruction division’s income continuing operations increased 100 2488000 2005 compared 2261000 prior year increase income continuing operations attributable improved profit margins larger private sector projects noted energy division energy division revenues increased 3821000 year ended january 31 2005 compared revenues 73000 year ended january 31 2004 increase revenue resulted increased production company’s unconventional gas projects midcontinent region united states division loss continuing operations 1993000 year ended january 31 2005 compared loss continuing operations 1691000 year ended january 31 2004 increased loss division result increased expenses related company’s development unconventional gas properties unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 13728000 11281000 years ended january 31 2005 2004 respectively increase unallocated corporate expenses primarily result increased costs associated sarbanesoxley implementation requirements higher travel expenses fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects company’s revenues large longterm contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number company’s contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect company’s operating results particular quarter many company’s contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover company’s domestic drilling construction activities related revenues earnings tend decrease winter months adverse weather conditions interfere access project sites result company’s revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see company’s consolidated financial statements notes thereto inflation management believes company’s operations periods discussed adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures company’s primary sources liquidity historically cash operations supplemented borrowings credit facilities company maintains agreement “master shelf agreement” whereby 100000000 unsecured notes available issued september 15 2007 september 2005 company amended master shelf agreement increase notes available issued 60000000 100000000 january 31 2006 company 60000000 notes outstanding master shelf agreement additionally company holds unsecured 130000000 revolving credit facility “credit agreement” credit agreement amended september 2005 increase revolving loan commitment 40000000 130000000 january 31 2006 company 68900000 outstanding credit agreement company compliance financial covenants january 31 2006 expects remain compliance foreseeable future company’s working capital january 31 2006 2005 2004 69996000 54455000 52406000 respectively increase working capital january 31 2006 primarily attributable acquisition reynolds incrementally increased working capital approximately 26000000 increase partially offset approximately 6100000 accrued purchase price adjustments increase accounts payable due timing payments higher incentive compensation accruals due increased profitability company january 31 2006 company material commitments outstanding capital assets company believes sufficient cash operations access credit facilities meet company’s operating cash requirements fund budgeted capital expenditures fiscal 2007 operating activities cash operating activities 40869000 16954000 4770000 fiscal 2006 2005 2004 respectively growth primarily due increased earnings improved management working capital levels investing activities company’s capital expenditures 49066000 fiscal 2006 directed primarily toward company’s expansion unconventional gas exploration production expenditures related company’s unconventional gas efforts totaled 24639000 fiscal 2006 including construction gas pipeline infrastructure near company’s development projects part expenditures company acquired two unconventional gas projects totaling 4704000 acquired remaining 25 interest gas transportation facility 1445000 company’s remaining capital expenditures directed towards expansion upgrading equipment facilities primarily water resources mineral exploration divisions september 2005 company acquired outstanding stock reynolds total consideration 60000000 cash approximately 22 million shares common stock company reynolds major supplier products services water wastewater industries including designbuild water wastewater treatment plants water supply wells ranney collector wells water intakes water wastewater transmission lines investing activities fiscal 2005 include expansion company’s water resources business acquisition assets beylik total consideration 14743000 see note 2 notes consolidated financial statements discussion acquisitions additionally expenditures related company’s unconventional gas efforts totaled 12089000 fiscal 2005 including construction gas pipeline infrastructure near company’s development projects financing activities year ended january 31 2006 company borrowed 75500000 credit facilities primarily reynolds’ acquisition working capital requirements fund capital expenditures additionally proceeds received issuance common stock related exercise stock options increase exercise stock options due increases company’s stock price number options impending expiration dates financing activities also include payments 1080000 related drillcorp promissory note paid full fiscal 2006 fiscal 2005 company’s financing activities primarily related issuance 20000000 notes master shelf agreement fund acquisitions beylik unconventional gas related assets totaling 18125000 addition borrowings used working capital requirements capital expenditures payment 1740000 drillcorp promissory note fiscal 2004 proceeds option exercises unusually high due increases company’s stock price large number options impending expiration dates proceeds issuance notes master shelf agreement 2004 used pay outstanding borrowings company’s previous credit facilities prepayment penalty related previous loan facilities issuance costs related master shelf agreement company’s new revolving credit facility financing activities 2004 also include payments 680000 related drillcorp promissory note contractual obligations commercial commitments company’s contractual obligations commercial commitments january 31 2006 summarized follows company expects meet contractual cash obligation ordinary course operations standby letters credit renewed connection annual insurance renewal process payments related credit agreement senior notes include interest payments interest payable credit agreement variable interest rates equal company’s option libor rate plus 100 200 base rate defined credit agreement plus 050 depending company’s leverage ratio interest payable senior notes fixed interest rates 605 540 see note 12 notes consolidated financial statements company incurs additional obligations ordinary course operations obligations including limited interest payments debt income tax payments pension fundings expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discusses company’s consolidated financial statements prepared accordance accounting principles generally accepted united states preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments based historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions accounting policies fully described note 1 notes consolidated financial statements located item 8 form 10k believe following represent critical estimates assumptions used preparation consolidated financial statements although inclusive revenue recognition revenue recognized large longterm contracts using percentage completion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined revenue recognized smaller shortterm contracts using completed contract method provisions estimated losses uncompleted contracts made period losses determined goodwill intangibles company accounts goodwill intangible assets accordance statement financial accounting standards 142 goodwill intangible assets intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized estimated useful lives range two 40 years impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions longlived assets evaluating fair value future benefits longlived assets including company’s gas transportation facilities equipment company performs analysis anticipated future net cash flows related longlived assets reduces carrying value excess result calculation company believes time carrying values useful lives longlived assets continues appropriate accrued insurance expense company maintains insurance programs responsible certain amount claim selfinsured limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based actuarially determined projections future payments programs greater amount claims occur compared estimated medical costs increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee medical benefits property workers’ compensation casualty insurance programs resulting claims occurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely oil gas properties mineral interests company follows fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized company required review carrying value oil gas properties quarter full cost accounting rules sec rules capitalized costs proved oil gas properties adjusted asset retirement obligations may exceed present value estimated future net revenues proved reserves discounted 10 application ceiling test generally requires pricing future revenues unescalated prices effect last day period effect given company’s fixedprice physical delivery contracts requires writedown accounting purposes ceiling exceeded unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows reserve estimates company’s estimates natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material litigation contingencies company involved litigation incidental business disposition expected material effect company’s financial position results operations possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation outside counsel handling matters based upon combination litigation settlement strategies extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change see note 17 notes consolidated financial statements discussion new accounting pronouncements impact company item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction company’s consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements man agement’s intentions hopes beliefs expectations predictions future forward looking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “goal” “forecast” “plan” “estimate” similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various commodities unanticipated slowdowns company’s major markets risks uncertainties normally incident exploration development production oil gas impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forward looking statements update reasons actual results could differ materially anticipated forwardlooking statements management overview reportable operating segments company multinational company provides sophisticated drilling construction services related products variety markets well producer unconventional natural gas energy market management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded office’s division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water wastewater infrastructure division company’s reportable segments defined follows water wastewater infrastructure division provides full line waterrelated services products including hydrological studies site selection well design drilling well development pump installation well rehabilitation division’s offerings include design construction water treatment facilities provision filter media membranes treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental drilling services assess monitor groundwater contaminants acquisition reynolds september 2005 collector wells international june 2006 american water services underground infrastructure inc november 2006 division continued expand capabilities areas design build water wastewater treatment plants ranney collector wells sewer rehabilitation water wastewater transmission lines division’s operations rely heavily municipal sector approximately 58 division’s fiscal 2007 revenues derived municipal market municipal sector adversely impacted economic slowdowns certain regions country reduced tax revenues limit spending new development local municipalities generally spending levels municipal sector lag economic recovery mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods demand company’s mineral exploration drilling services depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely connection level mineral exploration development activities conducted mining companies could material adverse effect company division relies heavily mining activity africa 41 total division revenues generated fiscal 2007 company believes concentration risk mitigated working larger international mining companies establishment permanent operating facilities africa operating difficulties including limited political instability workforce instability harsh environment disease remote locations create natural barriers entry market competitors company believes positioned market leader africa established infrastructure operate effectively energy division focuses exploration production unconventional gas properties date division concentrated projects midcontinent region united states expansion company’s energy segment contingent upon significant cash investments develop company’s unproved acreage january 31 2007 company invested 95912000 oil gas related assets expects spend approximately 25000000 development activities fiscal 2008 production curve typical unconventional gas well company’s operating market generally 1520 years accordingly company expects earn return investment proceeds gas production next 1520 years however future revenues profits dependent upon number factors including consumption levels natural gas commodity prices economic feasibility gas exploration production discovery rate new gas reserves company 361 net producing wells online january 31 2007 includes two small specialty energy service companies specialty operations included one divisions following table derived company’s consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected company’s statements income bear revenues percentage increase decrease dollar amount items periodtoperiod meaningful used gross profit defined revenues less cost revenues excluding depreciation depletion amortization revenues equity earnings affiliates income continuing operations income taxes pertaining company’s operating segments presented intersegment revenues accounted based fair market value services provided unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reportinginternal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer general counsel board directors operating segment revenues income continuing operations income taxes summarized follows comparison fiscal 2007 fiscal 2006 revenues fiscal 2007 increased 259753000 561 722768000 compared 463015000 fiscal 2006 revenues across divisions main increase water wastewater infrastructure division primarily resulting acquisition reynolds inc “reynolds” closed september 28 2005 collector wells international “cwi” acquisition closed june 16 2006 acquisition american water services underground infrastructure inc “uig” closed november 20 2006 discussion results operations division presented gross profit adjusted percentage revenues 258 fiscal 2007 compared 256 fiscal 2006 increase percentage primarily result improved margins mineral exploration division due improved pricing efficiency energy division due increased production unconventional gas offset reduced margins water wastewater infrastructure division arising change product mix acquisition reynolds selling general administrative expenses increased 102603000 fiscal 2007 compared 69979000 fiscal 2006 142 151 revenues respectively increase primarily result 12653000 incremental expenses added acquired businesses additional incentive compensation expense 6300000 increased profitability wage benefit increases 4281000 increases compensation expense 2187000 associated stock options sfas 123r “share based payments” depreciation depletion amortization increased 32853000 fiscal 2007 compared 20024000 fiscal 2006 increase primarily result higher levels capital expenditures increased depreciation amortization 5930000 associated acquired businesses increased depletion expense 2896000 resulting increase production unconventional gas company’s energy operations equity earnings affiliates increased 4452000 fiscal 2007 compared 4345000 fiscal 2006 increase reflects increase earnings 946000 foreign affiliates mineral exploration offset decrease 839000 nonrecurring domestic joint venture water wastewater infrastructure division completed prior year interest expense increased 9781000 fiscal 2007 compared 5773000 fiscal 2006 increase primarily result increases company’s average borrowings year conjunction financing acquisitions net increased 2557000 fiscal 2007 900000 fiscal 2006 primarily due gain 920000 fiscal 2007 connection company’s sale interest minerals concession company’s effective tax rate 455 fiscal 2007 compared 471 fiscal 2006 improvement effective rate primarily attributable increase pretax earnings especially international operations effective rates excess statutory federal rate due primarily impact nondeductible expenses tax treatment certain foreign operations water wastewater infrastructure division water wastewater infrastructure revenues increased 657 531916000 year ended january 31 2007 320996000 year ended january 31 2006 increase revenues primarily attributable incremental increases 169124000 company’s acquisitions additional revenues 21064000 company’s continued expansion water treatment markets income continuing operations water wastewater infrastructure division increased 239 35000000 year ended january 31 2007 compared 28255000 year ended january 31 2006 increase income continuing operations primarily attributable incremental increases 8374000 acquired businesses increase earnings company’s water treatment initiatives 2678000 partially offset increase accrued incentive compensation 3219000 due higher profitability current year reduced operating earnings 4081000 result slowdown certain ground stabilization construction operations western united states decrease 839000 domestic joint venture completed prior year mineral exploration division mineral exploration revenues increased 199 148911000 year ended january 31 2007 compared revenues 124206000 year ended january 31 2006 increase revenues primarily attributable continued strength worldwide explorations activity result relatively high gold base metal prices income continuing operations mineral exploration division increased 904 26557000 year ended january 31 2007 compared 13947000 year ended january 31 2006 improved earnings attributable impact increased exploration activity company’s markets increased earnings company’s latin american affiliates 946000 addition january 2007 division recognized gain 920000 sale interest mineral concession improved earnings partially offset increase accrued incentive compensation 808000 due higher profitability current year energy division energy division revenues increased 1160 27081000 year ended january 31 2007 compared revenues 12536000 year ended january 31 2006 increase revenues primarily attributable increased production company’s unconventional gas properties division income continuing operations 10680000 year ended january 31 2007 compared 2891000 year ended january 31 2006 increase income continuing operations due increase production noted increases revenues income continuing operations compared prior year primarily due nonrecurring contract provide equipment supplies international oil exploration company revenues 8798000 recognized 2007 primarily second quarter equipment supplies delivered accepted unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 18383000 12771000 years ended january 31 2007 2006 respectively increase year primarily due recognition compensation expense sfas 123r 2187000 increases wage benefit costs 1077000 accrued incentive compensation 815000 consulting services 732000 comparison fiscal 2006 fiscal 2005 revenues fiscal 2006 increased 119553000 348 463015000 compared 343462000 fiscal 2005 revenues across divisions main increases mineral exploration water wastewater infrastructure divisions including impact acquisition reynolds inc ”reynolds” closed september 28 2005 discussion results operations division presented gross profit adjusted percentage revenues 256 fiscal 2006 compared 271 fiscal 2005 decrease percentage primarily result reduced margins water wastewater infrastructure division arising change product mix acquisition reynolds higher expected costs certain water supply contracts especially california market competitive pricing pressures texas decreases partially offset improved margins energy division due increased sales natural gas result increased production pricing selling general administrative expenses increased 69979000 fiscal 2006 compared 60214000 fiscal 2005 151 175 revenues respectively increase primarily related acquisition reynolds september 2005 acquisition beylik drilling pump service inc “beylik” october 2004 expansion company’s water treatment capabilities additional accrued incentive compensation expense result improved profitability company depreciation depletion amortization increased 20024000 fiscal 2006 compared 14441000 fiscal 2005 increase primarily attributable increased depreciation associated property equipment purchased acquired businesses increased depletion expense resulting increase production unconventional gas company’s energy operations equity earnings affiliates increased 4345000 fiscal 2006 compared 2637000 fiscal 2005 reflecting increased activity company’s latin american affiliates domestic joint venture water wastewater infrastructure division interest expense increased 5773000 fiscal 2006 compared 3221000 fiscal 2005 increase result increase company’s average borrowings year conjunction financing reynolds net 900000 fiscal 2006 1220000 fiscal 2005 primarily related gains sales property equipment resulting company’s efforts monetize nonstrategic assets company’s effective tax rate 471 year ended january 31 2006 compared 480 year ended january 31 2005 effective rate excess statutory federal rate periods due primarily impact nondeductible expenses tax treatment certain foreign operations water wastewater infrastructure division water wastewater infrastructure revenues increased 377 320996000 year ended january 31 2006 233111000 year ended january 31 2005 increase primarily attributable acquired businesses division’s water treatment initiatives strong sales fourth quarter company’s manufacturing operations italy income continuing operations water wastewater infrastructure division increased 71 28255000 year ended january 31 2006 compared 26393000 year ended january 31 2005 increase income continuing operations primarily result increase 966000 equity earnings domestic joint venture substantially completed fiscal 2006 additional earnings manufacturing products described settlement several contract change orders offset higher expected costs certain water supply contracts especially california market competitive pricing pressures texas market introduction membrane technology division’s water treatment initiatives mineral exploration division mineral exploration revenues increased 191 124206000 year ended january 31 2006 compared revenues 104299000 year ended january 31 2005 increase revenues primarily result increased exploration activity company’s markets due higher gold base metal prices income continuing operations mineral exploration division increased 183 13947000 year ended january 31 2006 compared income continuing operations 11791000 year ended january 31 2005 improved earnings division primarily due increased activity levels noted increased earnings company’s latin american affiliates partially offset difficult operating conditions africa equity earnings latin american affiliates 3506000 fiscal 2006 2764000 fiscal 2005 improvements earnings division partially offset increased incentive compensation costs energy division energy division revenues increased 2281 12536000 year ended january 31 2006 compared revenues 3821000 year ended january 31 2005 increase revenues primarily attributable increased production company’s unconventional gas properties higher natural gas prices division income continuing operations 2891000 year ended january 31 2006 compared loss continuing operations 1993000 year ended january 31 2005 increase income due increase production unconventional gas certain overhead cost reductions unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 12771000 13728000 years ended january 31 2006 2005 respectively decrease year primarily due lower professional fees sarbanesoxley requirements decrease incentive related expenses corporate personnel charges second quarter prior year related writedown nonstrategic assets 300000 fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects company’s revenues large longterm contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number company’s contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect company’s operating results particular quarter many company’s contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover company’s domestic drilling construction activities related revenues earnings tend decrease winter months adverse weather conditions interfere access project sites result company’s revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see company’s consolidated financial statements notes thereto inflation management believes company’s operations periods discussed adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures company’s primary sources liquidity historically cash operations supplemented borrowings credit facilities company maintains agreement “master shelf agreement” whereby 100000000 unsecured notes available issued september 15 2007 september 2005 company amended master shelf agreement increase notes available issued 60000000 100000000 january 31 2007 company 60000000 notes outstanding master shelf agreement additionally company holds unsecured 200000000 revolving credit facility “credit agreement” credit agreement amended november 2006 increase revolving loan commitment 130000000 200000000 january 31 2007 company 91600000 outstanding credit agreement company compliance financial covenants january 31 2007 expects remain compliance foreseeable future company’s working capital january 31 2007 2006 2005 66989000 69996000 54455000 respectively decrease working capital 3007000 current year attributable increase accrued compensation 9591000 primarily due increased incentive compensation increase income taxes payable partially offset working capital businesses acquired company year company believes sufficient cash operations access credit facilities meet company’s operating cash requirements fund budgeted capital expenditures fiscal 2008 operating activities cash operating activities 74676000 40869000 16954000 fiscal 2007 2006 2005 respectively growth last two years primarily due increased earnings increases accrued incentive compensation income taxes payable operating cash normally required first quarter subsequent fiscal year accrued items paid investing activities company’s capital expenditures net disposals 70166000 year ended january 31 2007 directed primarily toward company’s expansion unconventional gas exploration production expenditures related company’s unconventional gas efforts totaled 38662000 including construction gas pipeline infrastructure near company’s development projects also year company invested 27496000 acquire business uig 3809000 acquire business collector wells international inc 1988000 acquire certain producing oil gas properties mineral interests paid cash purchase price adjustments accordance reynolds purchase agreement 6120000 company’s capital expenditures net disposals 42025000 fiscal 2006 directed primarily toward company’s expansion unconventional gas exploration production expenditures related company’s unconventional gas efforts totaled 18490000 fiscal 2006 including construction gas pipeline infrastructure near company’s development projects company also acquired two unconventional gas projects totaling 4704000 acquired remaining 25 interest gas transportation facility 1445000 also fiscal 2006 company acquired outstanding stock reynolds total consideration 61542000 cash approximately 22 million shares common stock company reynolds major supplier products services water wastewater industries including designbuild water wastewater treatment plants water supply wells ranney collector wells water intakes water wastewater transmission lines see note 2 notes consolidated financial statements investing activities fiscal 2005 included expansion company’s water wastewater infrastructure division acquisition assets beylik total consideration 14743000 see note 2 notes consolidated financial statements additionally expenditures related company’s unconventional gas efforts totaled 12089000 fiscal 2005 including construction gas pipeline infrastructure near company’s development projects financing activities year ended january 31 2007 company net borrowings 22700000 credit facilities primarily fund acquisition uig working capital requirements capital expenditures additionally proceeds 3010000 received issuance common stock related exercise stock options fiscal 2006 company net borrowings 68900000 credit facilities primarily reynolds’ acquisition working capital requirements fund capital expenditures additionally proceeds 3324000 received issuance common stock related exercise stock options increase exercise stock options fiscal 2006 due increases company’s stock price number options impending expiration dates financing activities also include payments 1080000 related promissory note paid full fiscal 2006 fiscal 2005 company’s financing activities primarily related issuance 20000000 notes master shelf agreement fund acquisitions beylik unconventional gas related assets totaling 18125000 addition borrowings used working capital requirements capital expenditures payments 1740000 related promissory note contractual obligations commercial commitments company’s contractual obligations commercial commitments january 31 2007 summarized follows company expects meet contractual cash obligation ordinary course operations standby letters credit renewed connection annual insurance renewal process payments table related credit agreement senior notes include interest payments interest payable credit agreement variable interest rates equal company’s option libor rate plus 075 200 base rate defined credit agreement plus 050 depending company’s leverage ratio interest payable senior notes fixed interest rates 605 540 see note 11 notes consolidated financial statements company incurs additional obligations ordinary course operations obligations including limited interest payments debt income tax payments pension fundings expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discusses company’s consolidated financial statements prepared accordance accounting principles generally accepted united states preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments based historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions accounting policies fully described note 1 notes consolidated financial statements located item 8 form 10k believe following represent critical estimates assumptions used preparation consolidated financial statements although inclusive revenue recognition revenues recognized large longterm construction contracts meeting criteria statement position 811 accounting performance constructiontype certain productiontype contracts “sop 811” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined allowed sop 811 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur contracts company’s mineral exploration drilling services billable based quantity drilling performed thus revenues drilling contracts recognized basis actual footage meterage drilled revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes oil gas properties mineral interests company follows fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized company required review carrying value oil gas properties quarter full cost accounting rules sec rules capitalized costs proved oil gas properties adjusted asset retirement obligations may exceed present value estimated future net revenues proved reserves discounted 10 application ceiling test generally requires pricing future revenues unescalated prices effect last day period effect given company’s fixedprice physical delivery contracts requires writedown accounting purposes ceiling exceeded unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows reserve estimates company’s estimates natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill intangibles company accounts goodwill intangible assets accordance sfas 142 “goodwill intangible assets” intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized estimated useful lives range one 40 years impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions longlived assets event indication possible impairment company evaluates fair value future benefits longlived assets including company’s gas transportation facilities equipment performing analysis anticipated future net cash flows related longlived assets reducing carrying value excess result calculation company believes time carrying values useful lives longlived assets continues appropriate accrued insurance expense company maintains insurance programs responsible certain amount claim selfinsured limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based actuarially determined projections future payments programs greater amount claims occur compared estimated medical costs increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee health welfare benefits property workers’ compensation casualty insurance programs resulting claims occurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely litigation contingencies company involved litigation incidental business disposition expected material effect company’s financial position results operations possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation outside counsel handling matters based upon combination litigation settlement strategies extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change see note 16 notes consolidated financial statements discussion new accounting pronouncements impact company item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction company’s consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements management’s intentions hopes beliefs expectations predictions future forwardlooking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “goal” “forecast” “plan” “estimate” similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various commodities unanticipated slowdowns company’s major markets risks uncertainties normally incident exploration development production oil gas impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements management overview reportable operating segments company multinational company provides sophisticated drilling construction services related products variety markets well producer unconventional natural gas energy market management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded office’s division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water infrastructure division company’s reportable segments defined follows water infrastructure division provides full line waterrelated services products including hydrological studies site selection well design drilling well development pump installation well rehabilitation division’s offerings include design construction water treatment facilities provision filter media membranes treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental drilling services assess monitor groundwater contaminants internal growth several recent acquisitions division continued expand capabilities areas design build water wastewater treatment plants ranney collector wells water treatment product research development sewer rehabilitation water wastewater transmission lines division’s operations rely heavily municipal sector approximately 66 division’s fiscal 2008 revenues derived municipal market municipal sector adversely impacted economic slowdowns certain regions country reduced tax revenues limit spending new development local municipalities generally spending levels municipal sector lag economic recovery mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods demand company’s mineral exploration drilling services depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely connection level mineral exploration development activities conducted mining companies could material adverse effect company division relies heavily mining activity africa 35 total division revenues generated fiscal 2008 company believes concentration risk mitigated working larger international mining companies establishment permanent operating facilities africa operating difficulties including limited political instability workforce instability harsh environment disease remote locations create natural barriers entry market competitors company believes positioned market leader africa established infrastructure operate effectively energy division focuses exploration production unconventional gas properties division primarily concentrated projects midcontinent region united states however fiscal 2008 began exploration project chile expansion company’s energy segment contingent upon significant cash investments develop company’s unproved acreage january 31 2008 company invested 125275000 oil gas related assets expects spend approximately 25000000 development activities fiscal 2009 production curve typical unconventional gas well company’s operating market generally 1520 years accordingly company expects earn return investment proceeds gas production next 1520 years however future revenues profits dependent upon number factors including consumption levels natural gas commodity prices economic feasibility gas exploration production discovery rate new gas reserves company 465 net producing wells online january 31 2008 includes two small specialty energy service companies specialty operations included one divisions following table derived company’s consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected company’s statements income bear revenues percentage increase decrease dollar amount items periodtoperiod meaningful revenues equity earnings affiliates income continuing operations income taxes pertaining company’s operating segments presented next page intersegment revenues accounted based fair market value services provided unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer general counsel board directors operating segment revenues income continuing operations income taxes summarized follows comparison fiscal 2008 fiscal 2007 revenues fiscal 2008 increased 145506000 201 868274000 compared 722768000 fiscal 2007 revenues across divisions discussion results operations division presented selling general administrative expenses increased 119937000 fiscal 2008 compared 102603000 fiscal 2007 138 142 revenues respectively increase including increases acquisitions primarily result wage benefit increases 7731000 increased professional fees 1474000 primarily due several strategic consulting projects year additional incentive compensation expense 1193000 increased profitability depreciation depletion amortization increased 43620000 fiscal 2008 compared 32853000 fiscal 2007 increase primarily result increased depletion 3587000 resulting increase production unconventional gas company’s energy operations increased depreciation property additions acquisitions divisions equity earnings affiliates increased 8076000 fiscal 2008 compared 4452000 fiscal 2007 increase reflects continued strong performance mineral exploration affiliates latin america response continued high metals pricing interest expense decreased 8730000 fiscal 2008 compared 9781000 fiscal 2007 decrease primarily result debt paid proceeds company’s stock offering october 2007 net decreased 1229000 fiscal 2008 2557000 fiscal 2007 primarily due nonrecurring gain 920000 fiscal 2007 connection company’s sale interest minerals concession company’s effective tax rate 448 fiscal 2008 compared 455 fiscal 2007 improvement effective rate primarily attributable increase pretax earnings especially international operations effective rates excess statutory federal rate due primarily impact nondeductible expenses tax treatment certain foreign operations water infrastructure division water infrastructure revenues increased 202 639584000 fiscal 2008 531916000 fiscal 2007 increase revenues partially attributable incremental revenues 49313000 company’s acquisitions including full year’s impact collector wells international “cwi” acquisition closed june 16 2006 acquisition american water services underground infrastructure inc “uig” closed november 20 2006 addition revenues fiscal 2008 increased 16486000 sewer rehabilitation services balance revenue increases spread throughout group income water infrastructure division increased 228 42995000 fiscal 2008 compared 35000000 fiscal 2007 increase income primarily attributable incremental income approximately 5144000 company’s acquisitions backlog water infrastructure division 408404000 january 31 2008 compared 349200000 january 31 2007 mineral exploration division mineral exploration revenues increased 199 178482000 fiscal 2008 compared revenues 148911000 fiscal 2007 increase revenues primarily attributable continued strength worldwide exploration activity result relatively high gold base metal prices income mineral exploration division increased 410 37452000 fiscal 2008 compared 26557000 fiscal 2007 improved income attributable continued strong exploration activity company’s markets especially north america earnings increases 3624000 company’s latin american affiliates energy division energy division revenues increased 468 39749000 fiscal 2008 compared revenues 27081000 fiscal 2007 increase revenues primarily attributable increased production company’s unconventional gas properties division income increased 224 13075000 fiscal 2008 compared 10680000 fiscal 2007 year increased income primarily due increased production discussed offset expenses 947000 associated operations company’s concession chile included fiscal 2008 2007 revenues 4954000 10035000 respectively associated contracts provide consulting logistical support international projects canada africa excluding effects activities remainder operations included segment consistent year unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 21199000 18383000 fiscal 2008 2007 respectively increase year primarily due increases wage benefit costs 1028000 increased share based compensation employees 840000 comparison fiscal 2007 fiscal 2006 revenues fiscal 2007 increased 259753000 561 722768000 compared 463015000 fiscal 2006 revenues across divisions main increase water wastewater infrastructure division primarily resulting acquisition reynolds inc “reynolds” closed september 28 2005 cwi acquisition uig discussion results operations division presented selling general administrative expenses increased 102603000 fiscal 2007 compared 69979000 fiscal 2006 142 151 revenues respectively increase primarily result 12653000 incremental expenses added acquired businesses additional incentive compensation expense 6300000 increased profitability wage benefit increases 4281000 increases compensation expense 2187000 associated stock options sfas 123r “share based payments” depreciation depletion amortization increased 32853000 fiscal 2007 compared 20024000 fiscal 2006 increase primarily result higher levels capital expenditures increased depreciation amortization 5930000 associated acquired businesses increased depletion 2896000 resulting increase production unconventional gas company’s energy operations equity earnings affiliates increased 4452000 fiscal 2007 compared 4345000 fiscal 2006 increase reflects increase earnings 946000 foreign affiliates mineral exploration offset decrease 839000 nonrecurring domestic joint venture water infrastructure division completed prior year interest expense increased 9781000 fiscal 2007 compared 5773000 fiscal 2006 increase primarily result increases company’s average borrowings year conjunction financing acquisitions net increased 2557000 fiscal 2007 900000 fiscal 2006 primarily due gain 920000 fiscal 2007 connection company’s sale interest minerals concession company’s effective tax rate 455 fiscal 2007 compared 471 fiscal 2006 improvement effective rate primarily attributable increase pretax earnings especially international operations effective rates excess statutory federal rate due primarily impact nondeductible expenses tax treatment certain foreign operations water infrastructure division water infrastructure revenues increased 657 531916000 year ended january 31 2007 320996000 year ended january 31 2006 increase revenues primarily attributable incremental increases 169124000 company’s acquisitions additional revenues 21064000 company’s continued expansion water treatment markets income continuing operations water infrastructure division increased 239 35000000 year ended january 31 2007 compared 28255000 year ended january 31 2006 increase income continuing operations primarily attributable incremental increases 8374000 acquired businesses increase earnings company’s water treatment initiatives 2678000 partially offset increase accrued incentive compensation 3219000 due higher profitability current year reduced operating earnings 4081000 result slowdown certain ground stabilization construction operations western united states decrease 839000 domestic joint venture completed prior year backlog water infrastructure division 349200000 january 31 2007 compared 227444000 january 31 2006 mineral exploration division mineral exploration revenues increased 199 148911000 year ended january 31 2007 compared revenues 124206000 year ended january 31 2006 increase revenues primarily attributable continued strength worldwide explorations activity result relatively high gold base metal prices income continuing operations mineral exploration division increased 904 26557000 year ended january 31 2007 compared 13947000 year ended january 31 2006 improved earnings attributable impact increased exploration activity company’s markets increased earnings company’s latin american affiliates 946000 addition january 2007 division recognized gain 920000 sale interest mineral concession improved earnings partially offset increase accrued incentive compensation 808000 due higher profitability current year energy division revenues increased 1160 27081000 year ended january 31 2007 compared revenues 12536000 year ended january 31 2006 increase revenues primarily attributable increased production company’s unconventional gas properties division income continuing operations 10680000 year ended january 31 2007 compared 2891000 year ended january 31 2006 increase income continuing operations due increase production noted increases revenues income continuing operations compared prior year primarily due nonrecurring contract provide equipment supplies international oil exploration company revenues 8798000 recognized 2007 primarily second quarter equipment supplies delivered accepted unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 18383000 12771000 years ended january 31 2007 2006 respectively increase year primarily due recognition compensation expense sfas 123r 2187000 increases wage benefit costs 1077000 accrued incentive compensation 815000 consulting services 732000 fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects company’s revenues large longterm contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number company’s contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect company’s operating results particular quarter many company’s contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover company’s domestic drilling construction activities related revenues earnings tend decrease winter months adverse weather conditions interfere access project sites result company’s revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see company’s consolidated financial statements notes thereto inflation management believe company’s operations periods discussed significantly adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures company’s primary sources liquidity historically cash operations supplemented borrowings credit facilities company maintains agreement “master shelf agreement” whereby 105000000 unsecured notes available issued september 15 2009 january 31 2008 company 60000000 notes outstanding master shelf agreement additionally company holds unsecured 200000000 revolving credit facility “credit agreement” january 31 2008 company letters credits 12716000 borrowings outstanding credit agreement resulting available capacity 187284000 company compliance financial covenants january 31 2008 expects remain compliance foreseeable future company’s working capital january 31 2008 2007 2006 127696000 66989000 69996000 respectively increase working capital current year attributable remaining proceeds company’s october 2007 stock offering company believes sufficient cash operations access credit facilities meet company’s operating cash requirements fund budgeted capital expenditures fiscal 2009 operating activities cash operating activities 80163000 74676000 40869000 fiscal 2008 2007 2006 respectively growth last two years primarily due increased earnings related increases accounts payable accrued incentive compensation income taxes payable operating cash normally required first quarter subsequent fiscal year accrued items paid investing activities company’s capital expenditures net disposals 70037000 year ended january 31 2008 heavily weighted toward water infrastructure minerals divisions rather unconventional gas exploration production expenditures made two divisions year sustain capacity improve efficiency equipment unconventional gas expenditures declined 29193000 company maintained us operations carefully considering expansion efforts exploration concession chile also year company spent 20470000 complete two acquisitions complement water infrastructure division company’s capital expenditures net disposals 70166000 year ended january 31 2007 directed primarily toward company’s expansion unconventional gas exploration production expenditures related company’s unconventional gas efforts totaled 38662000 including construction gas pipeline infrastructure near company’s development projects also year company invested 27496000 acquire business uig 3809000 acquire business collector wells international inc 1988000 acquire certain producing oil gas properties mineral interests paid cash purchase price adjustments accordance reynolds purchase agreement 6120000 company’s capital expenditures net disposals 42025000 fiscal 2006 directed primarily toward company’s expansion unconventional gas exploration production expenditures related company’s unconventional gas efforts totaled 18490000 fiscal 2006 including construction gas pipeline infrastructure near company’s development projects company also acquired two unconventional gas projects totaling 4704000 acquired remaining 25 interest gas transportation facility 1445000 also fiscal 2006 company acquired outstanding stock reynolds total consideration 61542000 cash approximately 22 million shares common stock company reynolds major supplier products services water wastewater industries including designbuild water wastewater treatment plants water supply wells ranney collector wells water intakes water wastewater transmission lines see note 2 notes consolidated financial statements financing activities october 2007 company completed public offering common stock offering produced net proceeds approximately 160 million used repay outstanding borrowings company’s revolving bank credit facility build funds potential future acquisitions general corporate purposes year ended january 31 2007 company net borrowings 22700000 credit facilities primarily fund acquisition uig working capital requirements capital expenditures additionally proceeds 3010000 received issuance common stock related exercise stock options fiscal 2006 company net borrowings 68900000 credit facilities primarily reynolds’ acquisition working capital requirements fund capital expenditures additionally proceeds 3324000 received issuance common stock related exercise stock options increase exercise stock options fiscal 2006 due increases company’s stock price number options impending expiration dates financing activities also include payments 1080000 related promissory note paid full fiscal 2006 contractual obligations commercial commitments company’s contractual obligations commercial commitments january 31 2008 summarized follows company expects meet contractual cash obligation ordinary course operations standby letters credit renewed connection annual insurance renewal process interest payable credit agreement variable interest rates equal company’s option libor rate plus 075 200 base rate defined credit agreement plus 050 depending company’s leverage ratio interest payable senior notes fixed interest rates 605 540 see note 11 notes consolidated financial statements interest payments included table based outstanding balances interest rates january 31 2008 company income tax uncertainties amount 5997000 january 31 2008 classified noncurrent company’s balance sheet resolution matters expected take year ultimate timing resolution items uncertain accordingly amounts included table company incurs additional obligations ordinary course operations obligations including limited income tax payments pension fundings expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discusses company’s consolidated financial statements prepared accordance accounting principles generally accepted united states preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments based historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions accounting policies fully described note 1 notes consolidated financial statements located item 8 form 10k believe following represent critical estimates assumptions used preparation consolidated financial statements although inclusive revenue recognition revenues recognized large longterm construction contracts meeting criteria statement position 811 accounting performance constructiontype certain productiontype contracts “sop 811” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined allowed sop 811 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur contracts company’s mineral exploration drilling services billable based quantity drilling performed thus revenues drilling contracts recognized basis actual footage meterage drilled revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes oil gas properties mineral interests company follows fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized separate fullcost pools established country company exploration activities company required review carrying value oil gas properties quarter full cost accounting rules sec rules capitalized costs proved oil gas properties adjusted asset retirement obligations may exceed present value estimated future net revenues proved reserves discounted 10 application ceiling test generally requires pricing future revenues unescalated prices effect last day period effect given company’s fixedprice physical delivery contracts requires writedown accounting purposes ceiling exceeded unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows reserve estimates company’s estimates natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill intangibles company accounts goodwill intangible assets accordance sfas 142 “goodwill intangible assets” intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized estimated useful lives range one 40 years impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions longlived assets event indication possible impairment company evaluates fair value future benefits longlived assets including company’s gas transportation facilities equipment performing analysis anticipated future net cash flows related longlived assets reducing carrying value excess result calculation company believes time carrying values useful lives longlived assets continues appropriate accrued insurance expense company maintains insurance programs responsible certain amount claim selfinsured limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based actuarially determined projections future payments programs greater amount claims occur compared estimated medical costs increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee health welfare benefits property workers’ compensation casualty insurance programs resulting claims occurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely litigation contingencies company involved litigation incidental business disposition expected material effect company’s financial position results operations possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation outside counsel handling matters based upon combination litigation settlement strategies extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change see note 16 notes consolidated financial statements discussion new accounting pronouncements impact company item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction company’s consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements management’s intentions hopes beliefs expectations predictions future forwardlooking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “goal” “forecast” “plan” “estimate” similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various commodities unanticipated slowdowns company’s major markets risks uncertainties normally incident exploration development production oil gas impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements management overview reportable operating segments company multinational company provides sophisticated drilling construction services related products variety markets well operates producer unconventional natural gas energy market management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded office’s division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water infrastructure division company’s reportable segments defined follows water infrastructure division provides full line water wastewater related services products including hydrological studies site selection well design drilling well development pump installation well rehabilitation division’s offerings include design construction treatment facilities provision filter media membranes treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental drilling services assess monitor groundwater contaminants internal growth acquisitions division continued expand capabilities areas design build water wastewater treatment plants ranney collector wells water treatment product research development sewer rehabilitation water wastewater transmission lines division’s operations rely heavily municipal sector approximately 68 division’s fiscal 2009 revenues derived municipal market municipal sector adversely impacted economic slowdowns reduced tax revenues limit spending new development local municipalities generally spending levels municipal sector lag economic recession recovery mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods demand company’s mineral exploration drilling services depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely availability credit mining companies connection recent decline level mineral exploration development activities conducted mining companies expected material adverse effect company expected activity mining companies improve financial credit markets become readily available current market prices base metals also limited mining companies’ ability seek cash operations avenues traditionally available division relies heavily mining activity africa 33 total division revenues generated fiscal 2009 company believes concentration risk mitigated working larger international mining companies establishment permanent operating facilities africa operating difficulties including limited political instability workforce instability harsh environment disease remote locations create natural barriers entry market competitors company believes positioned market leader africa established infrastructure operate effectively energy division focuses exploration production unconventional gas properties division primarily concentrated projects midcontinent region united states expansion company’s energy segment contingent upon significant cash investments develop company’s unproved acreage january 31 2009 company invested 153570000 oil gas related assets expects spend approximately 15000000 development activities fiscal 2010 production curve typical unconventional gas well company’s operating market generally 1520 years accordingly company expects earn return investment proceeds gas production next 1520 years however future revenues profits dependent upon number factors including consumption levels natural gas commodity prices economic feasibility gas exploration production discovery rate new gas reserves company 581 net producing wells online january 31 2009 includes two small specialty energy service companies specialty operations included one divisions following table derived company’s consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected company’s statements income bear revenues percentage increase decrease dollar amount items periodtoperiod revenues equity earnings affiliates income taxes minority interest pertaining company’s operating segments presented next page unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer general counsel board directors operating segment revenues income taxes minority interest summarized follows comparison fiscal 2009 fiscal 2008 revenues fiscal 2009 increased 139789000 161 1008063000 compared 868274000 fiscal 2008 revenues across primary divisions discussion results operations division presented selling general administrative expenses increased 136687000 fiscal 2009 compared 119937000 fiscal 2008 136 138 revenues respectively increase primarily result 7497000 expenses added acquisitions start operations compensation related expense increases 3887000 remainder increase spread across various categories depreciation depletion amortization increased 52840000 fiscal 2009 compared 43620000 fiscal 2008 increase primarily result increased depletion 3232000 resulting increases production unconventional gas company’s energy operations increased depreciation property additions acquisitions divisions company recorded noncash impairments oil gas properties 28704000 fiscal 2009 including 26690000 ceiling test impairment fourth quarter result significant decline natural gas prices 2014000 related exploration project chile impairments fiscal 2008 equity earnings affiliates increased 14089000 fiscal 2009 compared 8076000 fiscal 2008 increase reflects strong performance mineral exploration affiliates latin america particularly chile fiscal year interest expense decreased 3614000 fiscal 2009 compared 8730000 fiscal 2008 decrease primarily result debt paid proceeds company’s stock offering october 2007 company’s effective tax rate 448 fiscal 2009 compared 448 fiscal 2008 effective rates excess statutory federal rate due primarily impact nondeductible expenses tax treatment certain foreign operations water infrastructure division water infrastructure revenues increased 199 766957000 fiscal 2009 639584000 fiscal 2008 increase revenues partially attributable incremental revenues 54458000 company’s acquisitions increases 25325000 water wastewater treatment plant construction 20389000 specialty geoconstruction 9396000 sewer rehabilitation income taxes water infrastructure division increased 126 48399000 fiscal 2009 compared 42995000 fiscal 2008 included fiscal 2008 results 1626000 nonrecurring income recovery previously writtenoff costs associated groundwater transfer project texas excluding item increase income primarily attributable increases earnings 3635000 specialty geoconstruction 2527000 water wastewater treatment plant construction 1135000 sewer rehabilitation backlog water infrastructure division 427863000 january 31 2009 compared 408404000 january 31 2008 mineral exploration division mineral exploration revenues increased 58 188918000 fiscal 2009 compared revenues 178482000 fiscal 2008 increase revenues primarily attributable strength exploration activity company’s markets result relatively high gold base metal prices first three quarters year revenues decreased fourth quarter fiscal 2009 mining companies extended holiday mine shutdowns delayed spending programs response tightening credit economic uncertainty expect revenue trend continue next year income taxes mineral exploration division increased 48 39260000 fiscal 2009 compared 37452000 fiscal 2008 included income equity earnings affiliates increased 6013000 fiscal 2008 excluding affiliate earnings division’s earnings decreased 4205000 earnings year primarily due fourth quarter exploration spending slowdowns noted energy division energy division revenues increased 166 46352000 fiscal 2009 compared revenues 39749000 fiscal 2008 increase revenues primarily attributable increased production company’s unconventional gas properties fourth quarter fiscal 2009 company completed annual determination oil gas reserves energy division determination made according sec guidelines uses year end gas prices gas prices january 31 2009 used determination 329 per mcf compared 753 per mcf used january 31 2008 result lower prices expected future cash flows gas reserve volumes significantly reduced accordingly fourth quarter company recorded noncash impairment charge 26690000 16081000 income tax carrying value assets excess future net cash flows excluding fourth quarter noncash impairment charge income taxes energy division increased 93 14289000 fiscal 2009 compared 13075000 fiscal 2008 increases attributable increased production partially offset reduced pricing second half year portion division’s production covered forward sales contracts also included fiscal 2009 two additional items recorded impairment oil gas properties 2014000 related company’s exploration project chile begun 2008 following initial core testing evaluation infrastructure requirements determined recovery investment likely costs written also recorded settlement income related litigation initiated current year former officers subsidiary associated energy production companies september 2008 company entered settlement agreement whereby receive certain payments period september 2009 settlement income 2173000 recorded year payments received net attorney fees included fiscal 2009 2008 revenues 470000 4954000 respectively associated contracts provide consulting logistical support international projects canada africa excluding effects activities remainder operations included segment consistent year unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 25486000 21199000 fiscal 2009 2008 respectively increase year primarily due compensation related expenses comparison fiscal 2008 fiscal 2007 revenues fiscal 2008 increased 145506000 201 868274000 compared 722768000 fiscal 2007 revenues across divisions discussion results operations division presented selling general administrative expenses increased 119937000 fiscal 2008 compared 102603000 fiscal 2007 138 142 revenues respectively increase including increases acquisitions primarily result wage benefit increases 7731000 increased professional fees 1474000 primarily due several strategic consulting projects year additional incentive compensation expense 1193000 increased profitability depreciation depletion amortization increased 43620000 fiscal 2008 compared 32853000 fiscal 2007 increase primarily result increased depletion 3587000 resulting increase production unconventional gas company’s energy operations increased depreciation property additions acquisitions divisions equity earnings affiliates increased 8076000 fiscal 2008 compared 4452000 fiscal 2007 increase reflects continued strong performance mineral exploration affiliates latin america response continued high metals pricing interest expense decreased 8730000 fiscal 2008 compared 9781000 fiscal 2007 decrease primarily result debt paid proceeds company’s stock offering october 2007 net decreased 1229000 fiscal 2008 2557000 fiscal 2007 primarily due nonrecurring gain 920000 fiscal 2007 connection company’s sale interest minerals concession company’s effective tax rate 448 fiscal 2008 compared 455 fiscal 2007 improvement effective rate primarily attributable increase pretax earnings especially international operations effective rates excess statutory federal rate due primarily impact nondeductible expenses tax treatment certain foreign operations water infrastructure division water infrastructure revenues increased 202 639584000 fiscal 2008 531916000 fiscal 2007 increase revenues partially attributable incremental revenues 49313000 company’s acquisitions addition revenues fiscal 2008 increased 16486000 sewer rehabilitation services balance revenue increases spread throughout group income taxes water infrastructure division increased 228 42995000 fiscal 2008 compared 35000000 fiscal 2007 increase income primarily attributable incremental income approximately 5144000 company’s acquisitions backlog water infrastructure division 408404000 january 31 2008 compared 349200000 january 31 2007 mineral exploration division mineral exploration revenues increased 199 178482000 fiscal 2008 compared revenues 148911000 fiscal 2007 increase revenues primarily attributable continued strength worldwide exploration activity result relatively high gold base metal prices income taxes mineral exploration division increased 410 37452000 fiscal 2008 compared 26557000 fiscal 2007 improved income attributable continued strong exploration activity company’s markets especially north america earnings increases 3624000 company’s latin american affiliates energy division energy division revenues increased 468 39749000 fiscal 2008 compared revenues 27081000 fiscal 2007 increase revenues primarily attributable increased production company’s unconventional gas properties division income taxes increased 224 13075000 fiscal 2008 compared 10680000 fiscal 2007 year increased income primarily due increased production discussed offset expenses 947000 associated operations company’s concession chile included fiscal 2008 2007 revenues 4954000 10035000 respectively associated contracts provide consulting logistical support international projects canada africa excluding effects activities remainder operations included segment consistent year unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 21199000 18383000 fiscal 2008 2007 respectively increase year primarily due increases wage benefit costs 1028000 increased share based compensation employees 840000 fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects company’s revenues large longterm contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number company’s contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect company’s operating results particular quarter many company’s contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover company’s domestic drilling construction activities related revenues earnings tend decrease winter months adverse weather conditions interfere access project sites result company’s revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see company’s consolidated financial statements notes thereto inflation management believe company’s operations periods discussed significantly adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures company’s primary sources liquidity historically cash operations supplemented borrowings credit facilities company maintains agreement “master shelf agreement” whereby 105000000 unsecured notes available issued september 15 2009 january 31 2009 company 46667000 notes outstanding master shelf agreement additionally company holds unsecured 200000000 revolving credit facility “credit agreement” extends november 15 2011 january 31 2009 company letters credits 15841000 borrowings outstanding credit agreement resulting available capacity 184159000 company’s master shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends provisions generally allow activity occur subject specific limitations continued compliance financial maintenance covenants significant financial maintenance covenants fixed charge coverage ratio maximum leverage ratio minimum tangible net worth covenant levels definitions consistent two agreements company compliance covenants january 31 2009 expects compliance fiscal 2010 compliance financial covenants required quarterly basis using recent four fiscal quarters company’s fixed charge coverage ratio leverage ratio covenants based ratios utilizing adjusted ebitda adjusted ebitdar defined agreements adjusted ebitda generally defined consolidated net income excluding net interest expense provision income taxes gains losses extraordinary items gains losses sale capital assets noncash items including depreciation amortization sharebased compensation equity earnings affiliates included extent dividends distributions received adjusted ebitdar defined adjusted ebitda plus rent expense company’s tangible net worth covenant based stockholders’ equity less intangible assets measures considered nongaap financial measures intended accordance accounting principles generally accepted united states company’s minimum fixed charge coverage ratio covenant ratio adjusted ebitdar sum fixed charges fixed charges consist rent expense interest expense principal payments longterm debt company’s leverage ratio covenant ratio total funded indebtedness adjusted ebitda total funded indebtedness generally consists outstanding debt capital leases unfunded pension liabilities asset retirement obligations escrow liabilities company’s tangible net worth covenant measured based stockholders’ equity less intangible assets compared threshold amount defined agreements threshold adjusted time based percentage net income proceeds issuance equity securities january 31 2009 2008 company’s actual required covenant levels follows company’s working capital january 31 2009 2008 2007 128610000 127696000 66989000 respectively increase working capital 2008 attributable remaining proceeds company’s october 2007 stock offering company believes sufficient cash operations access credit facilities meet company’s operating cash requirements fund budgeted capital expenditures fiscal 2010 currently believe draw credit facilities fiscal 2010 however believe lenders sufficiently capitalized meet needs required company also highly dependent availability surety bonding capacity particularly water infrastructure business company believes adequate access insurers meet business requirements growth opportunities operating activities cash operating activities 92026000 80163000 74676000 fiscal 2009 2008 2007 respectively growth last two years primarily due increased earnings related increases accounts payable accrued incentive compensation income taxes payable operating cash normally required first quarter subsequent fiscal year accrued items paid investing activities company’s capital expenditures net proceeds disposals 79851000 year ended january 31 2009 split 50244000 maintain upgrade construction equipment 29607000 toward company’s expansion unconventional gas exploration production including construction gas pipeline infrastructure near company’s development projects year company spent 7070000 complete acquisitions complement water infrastructure division company’s capital expenditures net proceeds disposals 70037000 year ended january 31 2008 heavily weighted toward water infrastructure minerals divisions rather unconventional gas exploration production expenditures made two divisions year sustain capacity improve efficiency equipment unconventional gas expenditures declined 29193000 company maintained us operations carefully considering expansion efforts exploration concession chile also year company spent 20470000 complete two acquisitions complement water infrastructure division company’s capital expenditures net proceeds disposals 70166000 year ended january 31 2007 directed primarily toward company’s expansion unconventional gas exploration production expenditures related company’s unconventional gas efforts totaled 38662000 including construction gas pipeline infrastructure near company’s development projects also year company invested 27496000 acquire business uig 3809000 acquire business collector wells international inc 1988000 acquire certain producing oil gas properties mineral interests paid cash purchase price adjustments accordance reynolds purchase agreement 6120000 financing activities company borrowings revolving credit facilities year ended january 31 2009 financing business operations available cash july company made first scheduled principal payment 13333000 senior notes october 2007 company completed public offering common stock offering produced net proceeds approximately 160 million used repay outstanding borrowings company’s revolving bank credit facility build funds potential future acquisitions general corporate purposes year ended january 31 2007 company net borrowings 22700000 credit facilities primarily fund acquisition uig working capital requirements capital expenditures contractual obligations commercial commitments company’s contractual obligations commercial commitments january 31 2009 summarized follows company expects meet contractual cash obligation ordinary course operations standby letters credit renewed connection annual insurance renewal process interest payable credit agreement variable interest rates equal company’s option libor rate plus 075 200 base rate defined credit agreement plus 050 depending company’s leverage ratio interest payable senior notes fixed interest rates 605 540 see note 11 notes consolidated financial statements interest payments included table based outstanding balances interest rates january 31 2009 company income tax uncertainties amount 7752000 january 31 2009 classified noncurrent company’s balance sheet resolution matters expected take year ultimate timing resolution items uncertain accordingly amounts included table company incurs additional obligations ordinary course operations obligations including limited income tax payments pension fundings expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discusses company’s consolidated financial statements prepared accordance accounting principles generally accepted united states preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments based historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions accounting policies fully described note 1 notes consolidated financial statements located item 8 form 10k believe following represent critical estimates assumptions used preparation consolidated financial statements although inclusive revenue recognition revenues recognized large longterm construction contracts meeting criteria statement position 811 accounting performance constructiontype certain productiontype contracts “sop 811” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined allowed sop 811 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur contracts company’s mineral exploration drilling services billable based quantity drilling performed thus revenues drilling contracts recognized basis actual footage meterage drilled revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes oil gas properties mineral interests company follows full cost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized separate fullcost pools established country company exploration activities company required review carrying value oil gas properties full cost accounting rules sec “ceiling test” ceiling limitation estimated aftertax future net revenues proved oil gas properties discounted 10 plus cost properties subject amortization net book value oil gas properties less related deferred income taxes excess calculated ceiling excess must written expense application ceiling test generally requires pricing future revenues unescalated prices effect last day period effect given company’s fixedprice physical delivery contracts requires writedown accounting purposes ceiling exceeded unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows reserve estimates company’s estimates natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill intangibles company accounts goodwill intangible assets accordance sfas 142 “goodwill intangible assets” intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized estimated useful lives range two 40 years impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions longlived assets event indication possible impairment company evaluates fair value future benefits longlived assets including company’s gas transportation facilities equipment performing analysis anticipated future net cash flows related longlived assets reducing carrying value excess result calculation company believes time carrying values useful lives longlived assets continue appropriate accrued insurance expense company maintains insurance programs responsible certain amount claim retention limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based actuarially determined projections future payments programs greater amount claims occur compared estimated medical costs increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee health welfare benefits property workers’ compensation casualty insurance programs resulting claims occurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely litigation contingencies company involved litigation incidental business disposition expected material effect company’s financial position results operations possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation counsel handling matters based upon combination litigation settlement strategies extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change new accounting pronouncements see note 16 notes consolidated financial statements discussion new accounting pronouncements impact company item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction company’s consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements management’s intentions hopes beliefs expectations predictions future forwardlooking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “goal” “forecast” “plan” “estimate” similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various commodities unanticipated slowdowns company’s major markets risks uncertainties normally incident exploration development production oil gas impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements management overview reportable operating segments company multinational company provides sophisticated drilling construction services related products variety markets well operates producer unconventional natural gas energy market management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded office’s division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water infrastructure division company’s reportable segments defined follows water infrastructure division provides full line water wastewater related services products including soil stabilization hydrological studies site selection well design drilling well development pump installation well rehabilitation division’s offerings include design construction treatment facilities provision filter media membranes treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental drilling services assess monitor groundwater contaminants internal growth acquisitions division continued expand capabilities areas design build water wastewater treatment plants ranney collector wells water treatment product research development sewer rehabilitation water wastewater transmission lines division’s operations rely heavily municipal sector approximately 67 division’s fiscal 2010 revenues derived municipal market municipal sector adversely impacted economic slowdowns reduced tax revenues limit spending new development local municipalities generally spending levels municipal sector lag economic recession recovery mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods demand company’s mineral exploration drilling services depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely availability credit mining companies connection recent decline level mineral exploration development activities conducted mining companies expected material adverse effect company expected activity mining companies improve financial credit markets become readily available current market prices base metals also limited mining companies’ ability seek cash operations avenues traditionally available division relies heavily mining activity africa 29 total division revenues generated fiscal 2010 company believes concentration risk mitigated working larger international mining companies establishment permanent operating facilities africa operating difficulties including limited political instability workforce instability harsh environment disease remote locations create natural barriers entry market competitors company believes positioned market leader africa established infrastructure operate effectively energy division focuses exploration production unconventional gas properties division primarily concentrated projects midcontinent region united states expansion company’s energy segment contingent upon significant cash investments develop company’s unproved acreage january 31 2010 company invested 157940000 oil gas related assets expects spend approximately 5000000 development activities fiscal 2011 production curve typical unconventional gas well company’s operating market generally 1520 years accordingly company expects earn return investment proceeds gas production extended period however future revenues profits dependent upon number factors including consumption levels natural gas commodity prices economic feasibility gas exploration production discovery rate new gas reserves company 586 net producing wells online january 31 2010 includes two small specialty energy service companies specialty operations included one divisions following table derived company’s consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected company’s statements income bear revenues percentage increase decrease dollar amount items periodtoperiod revenues equity earnings affiliates income taxes pertaining company’s operating segments presented next page unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer general counsel board directors operating segment revenues income taxes summarized follows comparison fiscal 2010 fiscal 2009 revenues fiscal 2010 decreased 141646000 141 866417000 compared 1008063000 fiscal 2009 discussion results operations division presented selling general administrative expenses decreased 128244000 fiscal 2010 compared 136687000 fiscal 2009 148 136 revenues respectively decrease primarily result decreased compensation related expenses lower legal professional consulting fees reduced travel reductions partially offset 4980000 settlement charges recorded elimination hourly pension plan liabilities increased nonincome tax expenses 2577000 compensation expenses declined based lower incentive compensation given company’s reduced earnings well headcount reductions expense reductions primarily due lower activity levels cost control measures increased nonincome tax expenses primarily due reassessment first quarter recoverability value added tax balances certain foreign jurisdictions given declines economies higher business tax expenses jurisdictions depreciation depletion amortization increased 57679000 fiscal 2010 compared 52840000 fiscal 2009 increase primarily due higher depletion energy division depreciation recent capital expenditures water infrastructure division higher depletion result reduced estimated proved oil gas reserves due lower spot gas prices used estimating future economic production company recorded noncash impairments oil gas properties 21642000 fiscal 2010 compared 28704000 fiscal 2009 including 2014000 related exploration project chile impairments primarily result low gas prices company’s markets noted expiration higher priced forward sales contracts tax basis impairments 13039000 17251000 2010 2009 respectively company recorded litigation settlement gains 3495000 2173000 years ended january 31 2010 2009 settlements 2010 included receipt land buildings valued 2828000 cash receipts 667000 net contingent attorney fees cash receipts net contingent attorney fees 2173000 received year ended january 31 2009 equity earnings affiliates decreased 8198000 fiscal 2010 compared 14089000 fiscal 2009 decrease reflects impact soft minerals exploration market latin america primarily gold copper interest expense decreased 2734000 fiscal 2010 compared 3614000 fiscal 2009 decrease primarily result scheduled debt reductions company recorded income tax expenses 5093000 effective rate 789 21266000 effective rate 448 fiscal 2010 2009 respectively effective rates exceeded statutory rates due impact nondeductible expenses taxation foreign income company’s effective rate years impacted lower pretax income result noncash impairment charges energy division excluding impairments related tax benefits company would recorded income tax expenses 13696000 adjusted effective rate 487 32719000 adjusted effective rate 430 year higher adjusted effective rate 2010 2009 resulted primarily impact nondeductible expenses adjusted pretax income declined water infrastructure division water infrastructure revenues decreased 89 698506000 fiscal 2010 766957000 fiscal 2009 decrease occurred across major product lines except ranney collector wells specialty geoconstruction services decreases partially offset revenues recently acquired businesses 30101000 although revenues across country affected locations western us weakness housing construction lower municipal government spending significantly impacted markets revenues specialty geoconstruction services strong second half year due contract assist flood control new orleans contract expected last first quarter fiscal 2011 income taxes water infrastructure division decreased 318 33017000 fiscal 2010 compared 48399000 fiscal 2009 reduced revenue levels margin pressures increased competition well difficulties several projects contributed decline profits new orleans project partially offset declines last six months cost control measures including headcount reductions continue seek match expenses lower activity levels product lines backlog water infrastructure division 554211000 january 31 2010 compared 427863000 january 31 2009 mineral exploration division mineral exploration revenues decreased 374 118188000 fiscal 2010 compared revenues 188918000 fiscal 2009 decreased activity levels began fourth quarter last year continued much year revenue declines virtually division’s markets driven economic uncertainty revenue improve somewhat fourth quarter revenue 7329000 higher fourth quarter last year increase primarily mexico west africa income taxes mineral exploration division decreased 716 11149000 fiscal 2010 compared 39260000 fiscal 2009 current year two unusual items receipt litigation settlement australia 2828000 increased nonincome tax expense 2577000 due reassessment recoverability value added taxes accruals certain business tax expenses foreign jurisdictions operations north america profitable partially offset losses africa australia equity earnings affiliates declined slower rate remainder division reflecting higher stability certain longer term contracts aggressively reduced staffing costs dealing reduced market activity increased revenue noted fourth quarter along effect cost reduction measures produced income taxes 3855000 compared 437000 fourth quarter last year energy division energy revenues decreased 09 45940000 fiscal 2010 compared revenues 46352000 fiscal 2009 revenue forward sales contracts place increased year although offset lower transportation revenue third party gas fiscal 2010 company recorded noncash impairment charges 21642000 carrying value assets excess future net cash flows fiscal 2009 company recorded noncash impairment charges 26690000 company also recorded 2014000 noncash impairment oil gas properties fiscal 2009 related company’s exploration project chile begun 2008 natural gas prices improve company able enter new forward sales contracts attractive prices additional impairments could occur fiscal 2011 january 31 2010 remaining net book value assets subject impairment 26699000 years ended january 31 2010 2009 recorded settlement gains net attorney fees 667000 2173000 respectively related litigation former officers subsidiary associated energy production companies excluding noncash impairment charges income taxes energy division decreased 65 15249000 fiscal 2010 compared 16303000 fiscal 2009 decrease income taxes primarily due 2176000 higher depletion based decreased proved oil gas reserves lower litigation settlement partially offset higher contract prices volume forward sales contracts place compared prior year steps taken reduce operating costs increase efficiency field operations activity specialty operations compared last year primarily due contracts canada africa last year repeat unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 28889000 25486000 fiscal 2010 2009 respectively increase year due 4980000 additional expense fiscal 2010 settlement pension benefit obligations see note 11 notes consolidated financial statements partially offset decreased expense legal professional fees compensation related expenses comparison fiscal 2009 fiscal 2008 revenues fiscal 2009 increased 139789000 161 1008063000 compared 868274000 fiscal 2008 revenues across primary divisions discussion results operations division presented selling general administrative expenses increased 136687000 fiscal 2009 compared 119937000 fiscal 2008 136 138 revenues respectively increase primarily result 7497000 expenses added acquisitions start operations compensation related expense increases 3887000 remainder increase spread across various categories depreciation depletion amortization increased 52840000 fiscal 2009 compared 43620000 fiscal 2008 increase primarily result increased depletion 3232000 resulting increases production unconventional gas company’s energy operations increased depreciation property additions acquisitions divisions company recorded noncash impairments oil gas properties 28704000 fiscal 2009 including 26690000 ceiling test impairment fourth quarter result significant decline natural gas prices 2014000 related exploration project chile impairments fiscal 2008 equity earnings affiliates increased 14089000 fiscal 2009 compared 8076000 fiscal 2008 increase reflects strong performance mineral exploration affiliates latin america particularly chile fiscal year interest expense decreased 3614000 fiscal 2009 compared 8730000 fiscal 2008 decrease primarily result debt paid proceeds company’s stock offering october 2007 company’s effective tax rate 448 fiscal 2009 compared 448 fiscal 2008 effective rates excess statutory federal rate due primarily impact nondeductible expenses tax treatment certain foreign operations water infrastructure division water infrastructure revenues increased 199 766957000 fiscal 2009 639584000 fiscal 2008 increase revenues partially attributable incremental revenues 54458000 company’s acquisitions increases 25325000 water wastewater treatment plant construction 20389000 specialty geoconstruction 9396000 sewer rehabilitation income taxes water infrastructure division increased 126 48399000 fiscal 2009 compared 42995000 fiscal 2008 included fiscal 2008 results 1626000 nonrecurring income recovery previously writtenoff costs associated groundwater transfer project texas excluding item increase income primarily attributable increases earnings 3635000 specialty geoconstruction 2527000 water wastewater treatment plant construction 1135000 sewer rehabilitation backlog water infrastructure division 427863000 january 31 2009 compared 408404000 january 31 2008 mineral exploration division mineral exploration revenues increased 58 188918000 fiscal 2009 compared revenues 178482000 fiscal 2008 increase revenues primarily attributable strength exploration activity company’s markets result relatively high gold base metal prices first three quarters year revenues decreased fourth quarter fiscal 2009 mining companies extended holiday mine shutdowns delayed spending programs response tightening credit economic uncertainty expect revenue trend continue next year income taxes mineral exploration division increased 48 39260000 fiscal 2009 compared 37452000 fiscal 2008 included income equity earnings affiliates increased 6013000 fiscal 2008 excluding affiliate earnings division’s earnings decreased 4205000 earnings year primarily due fourth quarter exploration spending slowdowns noted energy division energy division revenues increased 166 46352000 fiscal 2009 compared revenues 39749000 fiscal 2008 increase revenues primarily attributable increased production company’s unconventional gas properties fourth quarter fiscal 2009 company completed annual determination oil gas reserves energy division determination made according sec guidelines used year end gas prices gas prices january 31 2009 used determination 329 per mcf compared 753 per mcf used january 31 2008 result lower prices expected future cash flows gas reserve volumes significantly reduced accordingly fourth quarter company recorded noncash impairment charge 26690000 16081000 income tax carrying value assets excess future net cash flows fiscal 2009 also recorded impairment oil gas properties 2014000 related company’s exploration project chile begun 2008 following initial core testing evaluation infrastructure requirements determined recovery investment likely costs written also recorded settlement income related litigation initiated fiscal 2009 former officers subsidiary associated energy production companies september 2008 company entered settlement agreement whereby received certain payments period september 2009 settlement income 2173000 recorded fiscal 2009 payments received net attorney fees excluding noncash impairment charges income taxes energy division increased 247 16303000 fiscal 2009 compared 13075000 fiscal 2008 increases attributable settlement income increased production partially offset reduced pricing second half year portion division’s production covered forward sales contracts included fiscal 2009 2008 revenues 470000 4954000 respectively associated contracts provide consulting logistical support international projects canada africa excluding effects activities remainder operations included segment consistent year unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 25486000 21199000 fiscal 2009 2008 respectively increase year primarily due compensation related expenses fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects company’s revenues large longterm contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number company’s contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect company’s operating results particular quarter many company’s contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover company’s domestic drilling construction activities related revenues earnings tend decrease winter months adverse weather conditions interfere access project sites result company’s revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see company’s consolidated financial statements notes thereto inflation management believe company’s operations periods discussed significantly adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures company’s primary sources liquidity historically cash operations supplemented borrowings credit facilities company maintains agreement “master shelf agreement” whereby 50000000 unsecured notes available issued september 15 2012 january 31 2010 company 26667000 notes outstanding master shelf agreement additionally company holds unsecured 200000000 revolving credit facility “credit agreement” extends november 15 2011 january 31 2010 company letters credits 19805000 borrowings outstanding credit agreement resulting available capacity 180195000 anticipation expiration revolving credit facility november 2011 company expects begin negotiation extension new credit facility fiscal 2011 company’s master shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends provisions generally allow activity occur subject specific limitations continued compliance financial maintenance covenants significant financial maintenance covenants fixed charge coverage ratio maximum leverage ratio minimum tangible net worth covenant levels definitions consistent two agreements company compliance covenants january 31 2010 expects compliance fiscal 2011 compliance financial covenants required quarterly basis using recent four fiscal quarters company’s fixed charge coverage ratio leverage ratio covenants based ratios utilizing adjusted ebitda adjusted ebitdar defined agreements adjusted ebitda generally defined consolidated net income excluding net interest expense provision income taxes gains losses extraordinary items gains losses sale capital assets noncash items including depreciation amortization sharebased compensation equity earnings affiliates included extent dividends distributions received adjusted ebitdar defined adjusted ebitda plus rent expense company’s tangible net worth covenant based stockholders’ equity less intangible assets measures considered nongaap financial measures intended accordance accounting principles generally accepted united states company’s minimum fixed charge coverage ratio covenant ratio adjusted ebitdar sum fixed charges fixed charges consist rent expense interest expense principal payments longterm debt company’s leverage ratio covenant ratio total funded indebtedness adjusted ebitda total funded indebtedness generally consists outstanding debt capital leases unfunded pension liabilities asset retirement obligations escrow liabilities company’s tangible net worth covenant measured based stockholders’ equity less intangible assets compared threshold amount defined agreements threshold adjusted time based percentage net income proceeds issuance equity securities january 31 2010 2009 company’s actual required covenant levels follows company’s working capital january 31 2010 2009 2008 119649000 128610000 127696000 respectively decrease january 31 2010 primarily due increased levels billings contracts advance revenues recognized company believes sufficient cash operations access credit facilities meet company’s operating cash requirements fund budgeted capital expenditures fiscal 2011 currently believe draw credit facilities fiscal 2011 however believe lenders sufficiently capitalized meet needs required company also highly dependent availability surety bonding capacity particularly water infrastructure business company believes adequate access insurers meet business requirements growth opportunities operating activities cash operating activities 93955000 92026000 80163000 fiscal 2010 2009 2008 respectively although operating earnings declined prior year company able efficiently manage working capital levels generate additional cash flow investing activities company’s capital expenditures net proceeds disposals 44017000 year ended january 31 2010 split 39753000 maintain upgrade construction equipment 4264000 toward company’s unconventional gas exploration production including construction gas pipeline infrastructure near company’s development projects year company spent 14606000 net cash acquired complete acquisitions complement water infrastructure division spending company’s unconventional gas operations reduced significantly fiscal 2010 scaled back production reaction lower gas prices available market gas prices remain low intend continue hold back production spend capital primarily meet obligations leases company’s capital expenditures net proceeds disposals 79851000 year ended january 31 2009 split 50244000 maintain upgrade construction equipment 29607000 toward company’s expansion unconventional gas exploration production including construction gas pipeline infrastructure near company’s development projects year company spent 7103000 complete acquisitions complement water infrastructure division company’s capital expenditures net proceeds disposals 70037000 year ended january 31 2008 heavily weighted toward water infrastructure minerals divisions rather unconventional gas exploration production expenditures made two divisions year sustain capacity improve efficiency equipment unconventional gas expenditures declined 29193000 company maintained us operations carefully considering expansion efforts exploration concession chile also year company spent 22740000 complete acquisitions complement water infrastructure division financing activities company borrowings revolving credit facilities years ended january 31 2010 2009 financing business operations available cash company made scheduled principal payments senior notes 13333000 july 2009 6667000 september 2009 october 2007 company completed public offering common stock offering produced net proceeds approximately 160 million used repay outstanding borrowings company’s revolving bank credit facility build funds potential future acquisitions general corporate purposes contractual obligation commercial commitments company’s contractual obligations commercial commitments january 31 2010 summarized follows company expects meet cash contractual obligations ordinary course operations standby letters credit renewed connection annual insurance renewal process interest payable credit agreement variable interest rates equal company’s option libor rate plus 075 200 base rate defined credit agreement plus 050 depending company’s leverage ratio interest payable senior notes fixed interest rates 605 540 see note 12 notes consolidated financial statements interest payments included table based outstanding balances senior notes january 31 2010 company income tax uncertainties amount 10150000 january 31 2010 classified noncurrent company’s balance sheet resolution matters expected take year ultimate timing resolution items uncertain accordingly amounts included table company incurs additional obligations ordinary course operations obligations including limited income tax payments pension fundings expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discusses company’s consolidated financial statements prepared accordance accounting principles generally accepted united states preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments based historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions accounting policies fully described note 1 notes consolidated financial statements located item 8 form 10k believe following represent critical estimates assumptions used preparation consolidated financial statements although inclusive revenue recognition revenues recognized large longterm construction contracts meeting criteria accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” “asc topic 60535” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur contracts company’s mineral exploration drilling services billable based quantity drilling performed thus revenues drilling contracts recognized basis actual footage meterage drilled revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes oil gas properties mineral interests company follows full cost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized capitalized costs depleted based units production company required review carrying value oil gas properties full cost accounting rules sec “ceiling test” ceiling limitation estimated aftertax future net revenues proved oil gas properties discounted 10 plus cost properties subject amortization net book value oil gas properties less related deferred income taxes excess calculated ceiling excess must written expense accordance changes sec rules beginning fiscal 2010 year end application ceiling test requires pricing future revenues unweighted arithmetic average firstdayofthemonth price month within 12month period prior end reporting period unless prices defined contractual arrangements company’s fixedprice physical delivery forward sales contracts considerations ceiling test prior fiscal 2010 year end used period end price adjusted contractual arrangements unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows see note 4 discussion impairments recorded reserve estimates company’s estimates natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill intangibles company accounts goodwill intangible assets accordance asc topic 350 “intangibles goodwill other” intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized estimated useful lives range two 40 years impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions longlived assets event indication possible impairment company evaluates fair value future benefits longlived assets including company’s gas transportation facilities equipment performing analysis anticipated future net cash flows related longlived assets reducing carrying value excess result calculation company believes time carrying values useful lives longlived assets continue appropriate accrued insurance expense company maintains insurance programs responsible certain amount claim retention limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based actuarially determined projections future payments programs greater amount claims occur compared estimated medical costs increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee health welfare benefits property workers’ compensation casualty insurance programs resulting claims occurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely litigation contingencies company involved litigation incidental business disposition expected material effect company’s financial position results operations possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation counsel handling matters based upon combination litigation settlement strategies extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change new accounting pronouncements see note 18 notes consolidated financial statements discussion new accounting pronouncements impact company item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction company’s consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements management’s intentions hopes beliefs expectations predictions future forwardlooking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “goal” “forecast” “plan” “estimate” similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited outcome ongoing internal investigation among things legality fcpa local laws certain payments agents third parties interacting government officials certain countries africa relating payment taxes importing equipment including government enforcement action could arise matters review matters review may resulted higher dollar amount payments may greater financial business impact management currently anticipates prevailing prices various commodities unanticipated slowdowns company’s major markets availability credit risks uncertainties normally incident construction industry exploration development production oil gas impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements overview following management’s discussion analysis financial condition results operations “mda” intended help reader understand layne christensen company operations present business environment mda provided supplement read connection consolidated financial statements accompanying notes thereto contained item 8 report mda includes following sections ● business general description business key 2011 events ● consolidated review operations analysis consolidated results operations three years presented consolidated financial statements ● operating segment review operations analysis results operations three years presented consolidated financial statements three operating segments water infrastructure mineral exploration energy ● liquidity capital resources analysis cash flows aggregate financial commitments certain financial condition ratios ● critical accounting policies discussion critical accounting policies involve higher degree judgment complexity section also includes impact new accounting standards business company multinational company provides drilling construction services related products two principal markets water infrastructure mineral exploration well operates producer oil unconventional natural gas energy market operate throughout north america well africa australia brazil italy also operate affiliates south america layne christensen’s customers include municipalities investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies agribusiness management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded office’s division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water infrastructure division company’s reporting segments defined follows water infrastructure division provides full line water wastewater related services products including soil stabilization hydrological studies well design drilling well development pump installation sewer rehabilitation pipeline construction well rehabilitation division’s offerings include design construction treatment facilities provision filter media membranes treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental drilling services assess monitor groundwater contaminants internal growth acquisitions division continued expand capabilities areas design build water wastewater treatment plants water treatment product research development sewer rehabilitation water wastewater transmission lines soil stabilization division’s operations rely heavily municipal sector approximately 75 division’s fiscal 2011 revenues derived municipal market municipal sector adversely impacted economic slowdowns reduced tax revenues limit spending new development local municipalities generally spending levels municipal sector lag economic recession recovery mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods demand company’s mineral exploration drilling services depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely availability credit mining companies division relies heavily mining activity africa approximately 31 total division revenues generated fiscal 2011 company believes concentration risk mitigated working larger international mining companies establishment permanent operating facilities africa operating difficulties including limited political instability workforce instability harsh environment disease remote locations create natural barriers entry market competitors company believes positioned market leader africa established infrastructure operate effectively energy division focuses exploration production unconventional gas lesser extent oil properties division primarily concentrated projects midcontinent region united states expansion company’s energy division contingent upon significant cash investments develop company’s unproved acreage company expects spend approximately 5000000 development activities fiscal 2012 production curve typical unconventional gas well company’s operating market generally 1015 years accordingly company expects earn return investment proceeds gas production extended period however future revenues profits dependent upon number factors including consumption levels natural gas commodity prices economic feasibility gas exploration production discovery rate new gas reserves company 642 net producing wells online january 31 2011 includes small service companies specialty operations included one divisions key 2011 events completed three acquisitions fiscal 2011 bencor corporation america foundation specialist “bencor” third quarter diberil sociedad anónima “diberil” intevras technologies llc “intevras” second quarter acquisitions occurred water infrastructure division bencor foundation construction underground engineering company operating us purchased complement expand geoconstruction capabilities acquired 50 interest diberil specialty foundation marine geotechnical provider operating brazil uruguay investment made expand soil stabilization service capabilities geographic markets intevras texas based water treatment operation focusing treatment handling industrial wastewater expand offerings industrial water markets joint drilling operation affiliates chile personnel equipment succeeded reaching 33 trapped miners san jose mine chile rescue efforts completed two months ahead original estimates experienced continued improvements minerals exploration markets served wholly owned operations affiliates revenues increased 692 year pretax earnings improved 2135 company’s water supply contract afghanistan continued year recognized revenue 203 million contract recently informed drilling program curtailed expect involvement wind course first quarter fiscal 2012 majority company’s forward sales contracts energy division expired march 2010 result unfavorable natural gas pricing renewed revenues division accordingly dropped 439 year impact new federal legislation first quarter fiscal 2011 patient protection affordable care act health care education reconciliation act signed law company generally offer postemployment healthcare benefits company required recognize significant charge associated change tax treatment medicare part benefits internal investigation see part items 3 legal proceedings 1a risk factors form 10k additional information regarding internal investigation compliance fcpa consolidated review operations following table derived company’s selected financial data included item 6 presents periods indicated percentage relationship certain items reflected company’s statements income bear revenues percentage increase decrease dollar amount items periodtoperiod revenues equity earnings affiliates income taxes pertaining company’s operating segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief operating officer chief financial officer general counsel board directors comparison fiscal 2011 fiscal 2010 revenues increased 159242000 184 1025659000 fiscal 2011 compared 866417000 fiscal 2010 discussion results operations division presented cost revenues increased 125737000 190 787289000 768 revenues fiscal 2011 compared 661552000 763 revenues fiscal 2010 increase percentage revenues primarily due margin pressures heavy construction energy businesses partially offset higher margins mineral exploration work afghanistan certain soil stabilization projects selling general administrative expenses 142808000 fiscal 2011 compared 128244000 fiscal 2010 increase primarily result increased incentive compensation expenses 10399000 5578000 added expenses acquired operations increase consulting expenses 5023000 primarily related systems implementation merger acquisition projects increase compensation costs 737000 increases partially offset decrease prior year included 4980000 settlement charges recorded elimination hourly pension plan liabilities depreciation depletion amortization expenses 53468000 fiscal 2011 compared 57679000 fiscal 2010 decrease primarily due 8340000 lower depletion energy division result updated estimates economically recoverable gas reserves partially offset higher depreciation water infrastructure division acquired assets ongoing capital expenditures fiscal 2010 company recorded noncash impairment oil gas properties 21642000 13039000 income taxes primarily result significant continued decline natural gas prices expiration higher priced forward sales contracts impairments recorded fiscal 2011 fiscal 2010 company received litigation settlements valued 3495000 settlements included receipt land buildings valued 2828000 cash receipts 667000 net contingent attorney fees litigation settlement gains fiscal 2011 equity earnings affiliates 13153000 fiscal 2011 compared 8198000 fiscal 2010 increase reflects impact improved minerals exploration market latin america primarily gold copper chile peru interest expense decreased 1594000 fiscal 2011 compared 2734000 fiscal 2010 decrease result scheduled debt reductions income tax expense 22581000 effective rate 417 recorded fiscal 2011 compared income tax expense 5093000 effective rate 789 fiscal 2010 including 8603000 benefit related noncash impairment charge proved oil gas properties recorded discrete item three months ended july 31 2009 excluding impairment related tax benefit company would recorded income tax expense 13696000 adjusted effective rate 487 fiscal 2010 effective rate fiscal 2011 lower adjusted rate last year due reduced impact nondeductible expenses tax treatment certain foreign operations earnings increase factors reduced impact effective rate since relatively fixed operating segment review operations water infrastructure revenues increased 129 788397000 fiscal 2011 compared 698506000 fiscal 2010 increase primarily attributable additional revenues 88973000 operations acquired current prior year increase 15333000 sewer rehabilitation revenue increase revenue water supply contract afghanistan year recognized revenue 20269000 related water supply contract afghanistan compared 7332000 prior year informed drilling program afghanistan curtailed expect involvement wind course first quarter fiscal 2012 increased revenue sewer rehabilitation primarily concentrated eastern us texas increases partially offset reduction heavy construction revenue 34105000 primarily large utility contract colorado substantially completed last year income taxes water infrastructure division increased 403 46321000 fiscal 2011 compared 33017000 fiscal 2010 increase primarily attributable 6874000 operations acquired current prior year project afghanistan partially offset reduced earnings heavy construction operations overall increases 1054000 incentive compensation year afghanistan project contributed 14845000 income taxes compared 3300000 prior year backlog water infrastructure division 585225000 january 31 2011 compared 554211000 january 31 2010 mineral exploration revenues increased 692 199946000 fiscal 2011 compared 118188000 fiscal 2010 increase driven increased activity levels across locations largest africa western us mexico income taxes mineral exploration division increased 2135 34947000 fiscal 2011 compared 11149000 fiscal 2010 increase resulted primarily improved margins combined higher revenues equity earnings affiliates reduced earlier year customer driven project delay improved last half year projects caught increasing 4438000 year fiscal 2010 company received litigation settlement australia 2828000 earnings offset increase 4076000 incentive compensation costs incurred connection internal fcpa investigation energy revenues decreased 439 25754000 fiscal 2011 compared 45940000 fiscal 2010 decrease primarily attributable lower natural gas prices expiration favorably priced forward sales contracts first quarter year fiscal 2011 net gas production 4455 mmcf compared 4618 mmcf fiscal 2010 average net sales price per mcf production fiscal 2011 478 compared 853 fiscal 2010 net sales price excludes revenues generated third party gas fiscal 2010 company recorded noncash impairment charge 21642000 13039000 income tax carrying value assets excess future net cash flows also fiscal 2010 recorded settlement gains net attorney fees 667000 related litigation former officers subsidiary associated energy production companies excluding noncash impairment charge litigation gains income taxes energy division decreased 3291000 fiscal 2011 compared income 15249000 fiscal 2010 decrease income taxes due impact revenues lower natural gas prices expiration forward sales contracts noted partially offset depletion decreasing 8340000 revenues increased primarily result revenues 6471000 machining fabrication operations increase income tax resulted primarily energy service related projects unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 30267000 fiscal 2011 compared 28889000 fiscal 2010 increase primarily due increase incentive compensation 2950000 based increased earnings increase consulting fees 4000000 related systems implementation merger acquisition projects increases partially offset reduction 4980000 settlement charges recorded last year elimination hourly pension plan liabilities comparison fiscal 2010 fiscal 2009 revenues fiscal 2010 decreased 141646000 141 866417000 compared 1008063000 fiscal 2009 discussion results operations division presented selling general administrative expenses decreased 128244000 fiscal 2010 compared 136687000 fiscal 2009 148 136 revenues respectively decrease primarily result decreased compensation related expenses lower legal professional consulting fees reduced travel reductions partially offset 4980000 settlement charges recorded elimination hourly pension plan liabilities increased nonincome tax expenses 2577000 compensation expenses declined based lower incentive compensation given company’s reduced earnings well headcount reductions expense reductions primarily due lower activity levels cost control measures increased nonincome tax expenses primarily due reassessment first quarter recoverability value added tax balances certain foreign jurisdictions given declines economies higher business tax expenses jurisdictions depreciation depletion amortization increased 57679000 fiscal 2010 compared 52840000 fiscal 2009 increase primarily due higher depletion energy division depreciation capital expenditures water infrastructure division higher depletion result reduced estimated proved oil gas reserves due lower spot gas prices used estimating future economic production company recorded noncash impairments oil gas properties 21642000 fiscal 2010 compared 28704000 fiscal 2009 including 2014000 related exploration project chile impairments primarily result low gas prices company’s markets noted expiration higher priced forward sales contracts tax basis impairments 13039000 17251000 2010 2009 respectively company recorded litigation settlement gains 3495000 2173000 years ended january 31 2010 2009 settlements 2010 included receipt land buildings valued 2828000 cash receipts 667000 net contingent attorney fees cash receipts net contingent attorney fees 2173000 received year ended january 31 2009 equity earnings affiliates decreased 8198000 fiscal 2010 compared 14089000 fiscal 2009 decrease reflects impact soft minerals exploration market latin america primarily gold copper interest expense decreased 2734000 fiscal 2010 compared 3614000 fiscal 2009 decrease primarily result scheduled debt reductions company recorded income tax expense 5093000 effective rate 789 21266000 effective rate 448 fiscal 2010 2009 respectively effective rates exceeded statutory rates due impact nondeductible expenses taxation foreign income company’s effective rate years impacted lower pretax income result noncash impairment charges energy division excluding impairments related tax benefits company would recorded income tax expense 13696000 adjusted effective rate 487 32719000 adjusted effective rate 430 year higher adjusted effective rate 2010 2009 resulted primarily impact nondeductible expenses adjusted pretax income declined operating segment review operations water infrastructure revenues decreased 89 698506000 fiscal 2010 766957000 fiscal 2009 decrease occurred across major product lines except ranney collector wells specialty geoconstruction services decreases partially offset revenues recently acquired businesses 30101000 although revenues across country affected locations western us weakness housing construction lower municipal government spending significantly impacted markets revenues specialty geoconstruction services strong second half year due contract assist flood control new orleans contract expected last first quarter fiscal 2011 income taxes water infrastructure division decreased 318 33017000 fiscal 2010 compared 48399000 fiscal 2009 reduced revenue levels margin pressures increased competition well difficulties several projects contributed decline profits new orleans project partially offset declines last six months cost control measures including headcount reductions continue seek match expenses lower activity levels product lines backlog water infrastructure division 554211000 january 31 2010 compared 427863000 january 31 2009 mineral exploration revenues decreased 374 118188000 fiscal 2010 compared revenues 188918000 fiscal 2009 decreased activity levels began fourth quarter last year continued much year revenue declines virtually division’s markets driven economic uncertainty revenue improve somewhat fourth quarter revenue 7329000 higher fourth quarter last year increase primarily mexico west africa income taxes mineral exploration division decreased 716 11149000 fiscal 2010 compared 39260000 fiscal 2009 fiscal 2010 two unusual items receipt litigation settlement australia 2828000 increased nonincome tax expense 2577000 due reassessment recoverability value added taxes accruals certain business tax expenses foreign jurisdictions operations north america profitable partially offset losses africa australia equity earnings affiliates declined slower rate remainder division reflecting higher stability certain longer term contracts aggressively reduced staffing costs dealing reduced market activity increased revenue noted fourth quarter along effect cost reduction measures produced income taxes 3855000 compared 437000 fourth quarter last year energy revenues decreased 09 45940000 fiscal 2010 compared revenues 46352000 fiscal 2009 revenue forward sales contracts place increased year although offset lower transportation revenue third party gas fiscal 2010 company recorded noncash impairment charges 21642000 carrying value assets excess future net cash flows fiscal 2009 company recorded noncash impairment charges 26690000 company also recorded 2014000 noncash impairment oil gas properties fiscal 2009 related company’s exploration project chile begun 2008 natural gas prices improve company able enter new forward sales contracts attractive prices additional impairments could occur fiscal 2011 january 31 2010 remaining net book value assets subject impairment 26699000 years ended january 31 2010 2009 recorded settlement gains net attorney fees 667000 2173000 respectively related litigation former officers subsidiary associated energy production companies excluding noncash impairment charges income taxes energy division decreased 65 15249000 fiscal 2010 compared 16303000 fiscal 2009 decrease income taxes primarily due 2176000 higher depletion based decreased proved oil gas reserves lower litigation settlement partially offset higher contract prices volume forward sales contracts place compared prior year steps taken reduce operating costs increase efficiency field operations activity specialty operations compared last year primarily due contracts canada africa last year repeat unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 28889000 fiscal 2010 compared 25486000 fiscal 2010 increase year due 4980000 additional expense fiscal 2010 settlement pension benefit obligations see note 11 notes consolidated financial statements partially offset decreased expense legal professional fees compensation related expenses fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects company’s revenues large longterm contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number company’s contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect company’s operating results particular quarter many company’s contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover company’s domestic drilling construction activities related revenues earnings tend decrease winter months adverse weather conditions interfere access project sites result company’s revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see company’s consolidated financial statements notes thereto inflation management believe company’s operations periods discussed significantly adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures company’s primary source liquidity historically cash operations supplemented borrowings credit facilities company’s working capital january 31 2011 2010 93309000 119649000 respectively company’s cash equivalents january 31 2011 44985000 compared 84450000 january 31 2010 decreased amount cash equivalents primarily due cash payments 33452000 acquisitions net cash acquired 20000000 scheduled debt payments company believes sufficient cash operations access credit facilities meet operating cash requirements make required debt payments fund capital expenditures funding potential acquisitions evaluated based particular facts circumstances opportunity company maintains agreement “master shelf agreement” may issue unsecured notes master shelf agreement company additional 50000000 unsecured notes available issued september 15 2012 january 31 2011 company 6667000 notes outstanding master shelf agreement january 31 2011 company maintained unsecured 200000000 revolving credit facility “credit agreement” extended november 15 2011 january 31 2011 company letters credit 20400000 3000000 borrowings outstanding credit agreement resulting available capacity 176600000 company’s master shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends provisions generally allow activity occur subject specific limitations continued compliance financial maintenance covenants significant financial maintenance covenants fixed charge coverage ratio maximum leverage ratio minimum tangible net worth covenant levels definitions consistent two agreements company compliance covenants january 31 2011 expects remain compliance term agreements compliance financial covenants required quarterly basis using recent four fiscal quarters company’s fixed charge coverage ratio leverage ratio covenants based ratios utilizing adjusted ebitda adjusted ebitdar defined agreements adjusted ebitda generally defined consolidated net income excluding net interest expense provision income taxes gains losses extraordinary items gains losses sale capital assets noncash items including depreciation amortization sharebased compensation equity earnings affiliates included extent dividends distributions received adjusted ebitdar defined adjusted ebitda plus rent expense company’s tangible net worth covenant based stockholders’ equity less intangible assets measures considered nongaap financial measures intended accordance accounting principles generally accepted united states company’s minimum fixed charge coverage ratio covenant ratio adjusted ebitdar sum fixed charges fixed charges consist rent expense interest expense principal payments longterm debt company’s leverage ratio covenant ratio total funded indebtedness adjusted ebitda total funded indebtedness generally consists outstanding debt capital leases unfunded pension liabilities asset retirement obligations escrow liabilities company’s tangible net worth covenant measured based stockholders’ equity less intangible assets compared threshold amount defined agreements threshold adjusted time based percentage net income proceeds issuance equity securities january 31 2011 2010 company’s actual required covenant levels follows march 25 2011 company entered new revolving credit facility “new credit agreement” unsecured 300000000 facility extends march 25 2016 replaces credit agreement terminated master shelf agreement remains place new credit agreement contains similar financial maintenance covenants prior agreement although minimum tangible net worth required new credit agreement entered extend expiration period company’s debt facilities increase borrowing capacity operating activities cash provided operating activities 68880000 93955000 92026000 fiscal 2011 2010 2009 respectively decrease 2010 2011 primarily due working capital changes including changes customer receivables costs estimated earnings excess billings uncompleted contracts working capital items typically turnover average within 90day period therefore 184 increase revenues fiscal 2011 required higher levels working capital support negative impact working capital items partially offset increased levels accounts payable accrued expenses investing activities company’s capital expenditures net disposals 65539000 year ended january 31 2011 split 62665000 maintain upgrade equipment facilities 2874000 toward company’s unconventional natural gas exploration production compares equipment spending 39753000 natural gas exploration production spending 4264000 period last year increase equipment facilities spending due equipment purchased support company’s expansion injection well market florida facilities expansion southwest us support water treatment product capabilities spending company’s unconventional gas operations reduced fiscal 2011 scaled back production reaction lower gas prices available market gas prices remain low intend continue hold back production spend capital primarily meet obligations leases year ended january 31 2011 company invested 33452000 acquired businesses net cash acquired including 16150000 50 interest diberil 11376000 bencor 5500000 intevras investments offset part sale layne geobrazil wholly owned subsidiary cash payment 4800000 see note 3 notes consolidated financial statements compares acquisition related spending 14606000 last year company intends continue evaluate acquisition opportunities enhance existing service offerings expand geographic market company’s capital expenditures net proceeds disposals 44017000 year ended january 31 2010 split 39753000 maintain upgrade construction equipment 4264000 toward company’s unconventional gas exploration production including construction gas pipeline infrastructure near company’s development projects spending company’s unconventional gas operations reduced significantly fiscal 2010 scaled back production reaction lower gas prices available market company’s capital expenditures net proceeds disposals 79851000 year ended january 31 2009 split 50244000 maintain upgrade construction equipment 29607000 toward company’s expansion unconventional gas exploration production including construction gas pipeline infrastructure near company’s development projects year company spent 7103000 complete acquisitions complement water infrastructure division financing activities year ended january 31 2011 company incremental borrowings 3000000 revolving credit facility made 20000000 scheduled debt payments senior notes company borrowings revolving credit facilities years ended january 31 2010 2009 financing business operations available cash company made scheduled principal payments senior notes 20000000 13333000 fiscal 2010 2009 respectively contractual obligations commercial commitments company’s contractual obligations commercial commitments january 31 2011 summarized follows company expects meet cash contractual obligations ordinary course operations standby letters credit renewed connection annual insurance renewal process interest payable credit agreement variable interest rates equal company’s option libor rate plus 075 200 base rate defined credit agreement plus 050 depending company’s leverage ratio interest payable senior notes fixed interest rate 540 see note 12 notes consolidated financial statements interest payments included table based outstanding balances senior notes january 31 2011 company’s new credit agreement entered march 25 2011 replacing credit agreement variable interest payable libor rate plus 125 225 base rate plus 125 company income tax uncertainties amount 14329000 january 31 2011 classified noncurrent company’s balance sheet resolution matters expected take year ultimate timing resolution items uncertain accordingly amounts included table company incurs additional obligations ordinary course operations obligations including limited income tax payments expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discusses company’s consolidated financial statements prepared accordance accounting principles generally accepted united states preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments based historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions accounting policies fully described note 1 notes consolidated financial statements located item 8 form 10k believe following represent critical estimates assumptions used preparation consolidated financial statements although inclusive revenue recognition revenues recognized large longterm construction contracts meeting criteria accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” “asc topic 60535” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur contracts company’s mineral exploration drilling services billable based quantity drilling performed thus revenues drilling contracts recognized basis actual footage meterage drilled revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes oil gas properties mineral interests company follows full cost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized capitalized costs depleted based units production company required review carrying value oil gas properties full cost accounting rules sec “ceiling test” ceiling limitation estimated aftertax future net revenues proved oil gas properties discounted 10 plus cost properties subject amortization net book value oil gas properties less related deferred income taxes excess calculated ceiling excess must written expense accordance changes sec rules beginning fiscal 2010 year end application ceiling test requires pricing future revenues unweighted arithmetic average firstdayofthemonth price month within 12month period prior end reporting period unless prices defined contractual arrangements fixedprice physical delivery forward sales contracts considerations ceiling test prior fiscal 2010 year end used period end price adjusted contractual arrangements unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows see note 4 notes consolidated financial statements discussion impairments recorded fiscal 2010 2009 reserve estimates company’s estimates oil natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations oil gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable oil gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing oil natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities oil gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected therefrom may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill company accounts goodwill accordance asc topic 350 “intangibles goodwill other” impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference assumptions used estimates fair value first step generally consistent past performance reporting unit also consistent projections assumptions used current operating plans significant assumptions subject change result changing economic competitive conditions follows ● anticipated future cash flows longterm growth rates reporting unit income approach determining fair value relies timing estimates future cash flows including estimate longterm growth rates projections use management’s estimates economic market conditions projected period including growth rates sales estimates expected changes operating margins company’s projections future cash flows subject change actual results achieved differ anticipated actual results could vary significantly estimates ● selection appropriate discount rate income approach requires selection appropriate discount rate based weighted average cost capital analysis discount rate subject changes shortterm interest rates longterm yield well variances typical capital structure marketplace participants industry discount rate determined based assumptions would used marketplace participants reason capital structure selected marketplace participants used weighted average cost capital analysis given current volatile economic conditions possible discount rate could change company’s goodwill balance 103378000 january 31 2011 goodwill evaluated reporting unit level may reporting segment level reporting segment goodwill balance reporting segment reporting unit january 31 2011 follows fair value water resources reynolds geoconstruction energy reporting units substantially exceed carrying value 20 longlived assets longlived assets including amortizable intangible assets company’s gas transportation facilities equipment reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable factors consider important could trigger impairment review include limited following ● significant underperformance assets ● significant changes use assets ● significant negative industry economic trends company believes time carrying values useful lives longlived assets continue appropriate allowance uncollectible accounts receivable company makes ongoing estimates relating ability collect accounts receivable maintains allowance estimated losses resulting inability customers make required payments determining amount allowance company makes judgments creditworthiness significant customers based ongoing credit evaluations also considers review accounts receivable aging industry trends customer financial strength credit standing payment history assess probability collection since company cannot predict future changes financial stability customers actual future losses uncollectible accounts may differ estimates financial condition company’s customers deteriorate resulting inability make payments larger allowance might required could material impact company’s results operations financial position accrued insurance expense company maintains insurance programs responsible certain amount claim retention limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based actuarially determined projections future payments programs greater amount claims occur compared estimated medical costs increase beyond anticipated reserves recorded may sufficient additional costs could required costs estimated incurred future employee health welfare benefits property workers’ compensation casualty insurance programs resulting claims occurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely litigation contingencies company involved litigation incidental business disposition expected material effect company’s financial position results operations possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings accordance us gaap record liability probable liability incurred amount loss reasonably estimated provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change sharebased compensation company accounts sharebased awards accordance framework established sharebased compensation guidance sharebased compensation estimated equity awards fair value grant date company determines fair value option awards using blackscholes model blackscholes model requires various highly judgmental assumptions including expected life stock price volatility forfeiture rate assumptions used model change significantly sharebased compensation expense may differ materially future recorded current period new accounting pronouncements see note 18 notes consolidated financial statements discussion new accounting pronouncements impact company item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction company’s consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements management’s intentions hopes beliefs expectations predictions future forwardlooking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “goal” “forecast” “plan” “estimate” similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited outcome ongoing internal investigation among things legality fcpa local laws certain payments agents third parties interacting government officials certain countries africa relating payment taxes importing equipment including government enforcement action could arise matters review matters review may resulted higher dollar amount payments may greater financial business impact management currently anticipates prevailing prices various commodities unanticipated slowdowns company’s major markets availability credit risks uncertainties normally incident construction industry exploration development production oil gas impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements overview following management’s discussion analysis financial condition results operations “mda” intended help reader understand layne christensen company operations present business environment mda provided supplement read connection consolidated financial statements accompanying notes thereto contained item 8 report mda includes following sections · business general description business key fiscal 2012 events · consolidated review operations analysis consolidated results operations three years presented consolidated financial statements · operating segment review operations analysis results operations three years presented consolidated financial statements reporting segments fiscal 2012 changed reporting segments connection transition new leadership reporting relationships new one layne strategy previously reported results operations three reporting segments including water infrastructure division mineral exploration division energy division new reporting segments water resources division inliner division heavy civil division geoconstruction division mineral exploration division energy division reporting segment information comparisons operating segment review operations prior periods recast match new reporting segment structure · liquidity capital resources analysis cash flows aggregate financial commitments certain financial condition ratios · critical accounting policies discussion critical accounting policies involve higher degree judgment complexity section also includes impact new accounting standards business layne global water management construction drilling company provide responsible solutions water mineral energy challenges company’s operational organizational structure divided six divisions based primary service lines division comprised individual district offices primarily offer similar services serve similar markets periodically individual offices within division may perform services normally provided another division happens results services recorded originating offices’ division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water resources division company’s segments defined follows water resources division water resources division provides customers every aspect water supply system development technology including hydrologic design construction source supply exploration well intake construction well pump rehabilitation division also brings new technologies water wastewater markets offers water treatment equipment engineering services supports company’s historic municipal business providing systems treatment regulated “nuisance” contaminants specifically iron manganese hydrogen sulfide arsenic radium nitrate perchlorate volatile organic compounds water resources division provides water systems services regions us inliner division inliner division provides diverse range wastewater pipeline structure rehabilitation services clients focus proprietary inliner® curedinplace pipe “cipp” allows us rehabilitate aging sanitary sewer storm water process water infrastructure provide structural rebuilding well infiltration inflow reduction trenchless technology minimizes environmental impact reduces eliminates surface social disruption somewhat unique technology liner tube manufacturer largest installer inliner cipp technology housed within family companies focus cipp efforts also provide wide variety rehabilitative methods including janssen structural renewal service lateral connections mainlines slip lining traditional excavation replacement uliner highdensity polyethylene fold form variety products structure rebuilding coating heavy civil division heavy civil division serves needs government agencies industrial customers overseeing design construction water wastewater treatment plants well pipeline installation addition division designs builds integrated water supply wastewater treatment facilities provides filter media membranes solutions also provided connection collector wells surface water intakes pumping stations groundwater pump stations also design construct biogas facilities anaerobic digesters purpose generating capturing methane gas emerging renewable energy resource geoconstruction division geoconstruction division provides specialized foundation construction services heavy civil industrial commercial construction markets focused primarily soil stabilization subterranean structural support construction damslevees tunnels shafts water lines subways highways marine facilities services offered include jet grouting structural diaphragm slurry cutoff walls cement chemical grouting drilled piles vibratory ground improvement installation ground anchors mineral exploration division mineral exploration division conducts primarily aboveground drilling activities including phases core drilling reverse circulation dual tube hammer rotary airblast methods service offerings include exploratory definitional drilling global mining companies hire us extract samples sites mining companies analyze mineral content investing heavily development help determine minable mineral deposit site assess whether economical mine assist mapping mine layout primary markets western us mexico australia brazil africa also ownership interests foreign affiliates operating latin america form primary presence market energy division energy division focuses exploration production oil gas properties primarily concentrating projects midcontinent region united states includes small service companies specialty operations included one divisions key fiscal 2012 events fourth quarter fiscal 2012 connection annual assessment carrying value goodwill intangibles recorded impairment charges totaling 97529000 charges included 17084000 associated water resources division 23130000 associated inliner division 53731000 associated heavy civil division 950000 associated energy division 2634000 associated businesses charges heavy civil division include 9180000 related trade names largely due corporate strategy decision fourth quarter emphasize layne name company’s services worldwide result ceasing use trade names remainder charges heavy civil division charges divisions reflect writeoff substantially goodwill associated divisions writeoffs result projected continued weakness demand construction projects greater persistent originally anticipated continuing projected weakness economy adversely affecting spending government agencies resulting pressures margins increased competition goodwill charge water resources also impacted shift corporate strategy fourth quarter focus traditional water treatment services resulting writeoff goodwill associated acquired companies heavy research development focus tax effect impairment charges 12888000 also fourth quarter company recorded 3715000 liability related investigation fcpa see part items 3 legal proceedings 1a risk factors form 10k additional information regarding internal investigation compliance fcpa january 31 2012 company’s chief executive officer “ceo” andrew b schmitt retired rene j robichaud board member president assumed position ceo january 31 2012 connection mr schmitt’s retirement company recognized 2563000 retirement benefit costs fiscal 2012 august 23 2011 company appointed gernot penzhorn vice president operations mineral exploration division replace eric despain president division connection mr despain’s departure company recognized 820000 severance expenses fiscal 2012 company’s heavy civil division experienced increased competition municipal bid market throughout year additionally several division’s projects encountered delays cost overruns due adverse jobsite conditions weather related project delays fiscal 2012 division’s revenues decreased 27 pretax earnings decreased 1822 compared fiscal 2011 company experienced continued improvements minerals exploration markets served wholly owned operations latin america affiliates fiscal 2012 revenues mineral exploration division increased 345 pretax earnings improved 782 compared fiscal 2011 company recognized gain 5396000 inclusive 421000 amortization deferred gain sale facility fontana california facility sold march 21 2011 anticipation relocating existing operations different property february 28 2011 company acquired kansas colorado curedinplace pipe operations wildcat civil services sewer rehabilitation contractor wildcat company’s expansion geographic reach inliner group westward consolidated review operations following table derived company’s selected financial data included item 6 presents periods indicated percentage relationship certain items reflected company’s results operations bear revenues percentage increase decrease dollar amount items periodtoperiod revenues equity earnings affiliates income taxes pertaining company’s operating segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief operating officer chief financial officer general counsel board directors comparison fiscal 2012 fiscal 2011 revenues increased 107488000 105 1133147000 fiscal 2012 compared 1025659000 fiscal 2011 strong activity levels displayed across mineral exploration division locations largest increases africa western us mexico discussion results operations division presented cost revenues increased 93926000 119 881215000 778 revenues fiscal 2012 compared 787289000 768 revenues fiscal 2011 increase percentage revenues primarily due cost overruns project delays heavy civil business second half year margin pressures heavy civil water resources businesses due continuing weakness municipal spending selling general administrative expenses 167157000 fiscal 2012 compared 142808000 fiscal 2011 fourth quarter recorded 3715000 liability related investigation foreign corrupt practices act “fcpa” remaining increase primarily due additional expenses 4258000 acquired operations 5144000 increased compensation costs 4816000 associated transition chief executive officer executives 4700000 increased legal professional fees 2508000 increased travel expenses increases partially offset decrease consulting services 2431000 due higher costs fiscal 2011 associated systems implementation merger acquisition projects depreciation depletion amortization expenses 63124000 fiscal 2012 compared 53468000 fiscal 2011 increase primarily result increases assets acquisitions property additions fourth quarter fiscal 2012 connection annual assessment carrying value goodwill intangibles recorded impairment charges totaling 97529000 charges included 17084000 associated water resources division 23130000 associated inliner division 53731000 associated heavy civil division 950000 associated energy division 2634000 associated businesses charges heavy civil division include 9180000 related trade names largely due corporate strategy decision fourth quarter emphasize layne name company’s services worldwide result ceasing use trade names remainder charges heavy civil division charges divisions writeoff substantially goodwill associated divisions writeoffs result projected continued weakness demand construction projects greater persistent originally anticipated continuing projected weakness economy adversely affecting spending government agencies resulting pressures margins increased competition smaller competitors goodwill charge water resources also impacted shift corporate strategy fourth quarter focus traditional water treatment services resulting writeoff goodwill associated acquired companies heavy research development focus tax effect impairment charges benefit 12888000 equity earnings affiliates 24647000 fiscal 2012 compared 13153000 fiscal 2011 increase reflects impact improved minerals exploration market latin america primarily gold copper chile peru well full year operations geoconstruction affiliate brazil interest expense increased 2357000 fiscal 2012 compared 1594000 fiscal 2011 increase result increased borrowing revolving credit facilities fund operations income net fiscal 2012 consisted primarily gain 5396000 inclusive 421000 amortization deferred gain sale facility california gain 996000 sale certain investment securities australia gains 2851000 sale equipment company recorded income tax expense 9226000 loss income taxes 43956000 resulting effective rate negative 210 fiscal 2012 compared expense 22581000 effective rate 417 fiscal 2011 excluding impact impairment charges fiscal 2012 company would recorded income tax expense 22115000 adjusted effective rate 413 adjusted effective rate current year lower effective rate prior year due continued increase equity earnings affiliates percentage income taxes substantial part nondividend portion earnings considered indefinitely reinvested tends lower effective tax rate operating segment review operations purposes comparison discussion division operating results excludes impact impairment charges discussed water resources division revenue levels across product lines particularly water supply repair installation services deep wastewater injection well work power companies florida market increases partially offset decline 12137000 water supply project afghanistan substantially completed early year income impairments income taxes included gain 5396000 including 421000 amortization deferred gain sale facility fontana california decrease primarily attributable decline 9406000 afghanistan project fully replaced lower margins municipal bid work losses water treatment operations expect profit margins projects municipal sector remain pressure least next year backlog water resources division 102678000 january 31 2012 compared 107317000 january 31 2011 inliner division revenues increased primarily due impact acquired operations contributed revenues 14207000 increase income impairments income taxes largely due improved margins particularly southeast us acquired operations transitioned division large contributors earnings backlog inliner division 80407000 january 31 2012 compared 62939000 january 31 2011 decreases heavy civil division revenues due slight revenue declines across operations division encountered greater competition expansion southwestern us continued contributing revenues 23295000 decline income impairments income taxes reflect impact extensive project delays cost overruns well margin pressures municipal bid projects made operational overhead changes curtail losses including terminating certain project managers reducing administrative staff changing bidding practices expect low margins bidding pressures continue hold earnings near breakeven calendar 2012 backlog heavy civil division 308118000 january 31 2012 compared 358190000 january 31 2011 decline partially due efforts increase bid margins reduce levels low margin projects revenues include full year operations bencor acquired end third quarter fiscal 2011 revenue operations due large part time spent reallocating resources following completion large projects new orleans san francisco income taxes primarily attributable increase 7310000 acquired operations 2828000 increased equity earnings affiliates backlog geoconstruction division 47257000 january 31 2012 compared 58357000 january 31 2011 mineral exploration revenues increased due high activity levels across locations particularly strong mexico southern africa southwest us increase income taxes resulted primarily combination high activity levels continued improvement pricing substantially operations well equity earnings affiliates latin america although slowed fourth quarter due project startup expenses delays certain mine site locations partners strongest year ever significant increases copper mine sites chile increases partially offset increased legal professional expenses related fcpa investigation 3788000 accrual 3715000 fcpa investigation fourth quarter energy division revenues earnings continue impacted low natural gas prices average net sales price production fiscal 2012 316 compared 478 per mcf fiscal 2011 net sales price excludes revenues generated third party gas net gas production energy division fiscal 2012 4411 mmcf compared 4455 mmcf fiscal 2011 offset decline prices extent seeking increase oil production reducing overhead expenses expect natural gas prices remain low currently exploring strategic alternatives energy division exploit opportunities within current operating leases like shallow oil continue operate responsibly efficiently revenues increased primarily result increased revenues 1582000 energy services operations increase loss impairments income taxes resulted primarily acquisition integration related costs unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 30866000 fiscal 2012 compared 30224000 fiscal 2011 current year expenses include 3996000 related transition chief executive officer executives remaining decrease last year includes reductions 2431000 consulting costs systems implementation merger acquisition projects 2083000 incentive compensation expenses comparison fiscal 2011 fiscal 2010 revenues increased 159242000 184 1025659000 fiscal 2011 compared 866417000 fiscal 2010 discussion results operations division presented cost revenues increased 125737000 190 787289000 768 revenues fiscal 2011 compared 661552000 763 revenues fiscal 2010 increase percentage revenues primarily due margin pressures heavy civil energy businesses partially offset higher margins mineral exploration work afghanistan certain soil stabilization projects selling general administrative expenses 142808000 fiscal 2011 compared 128244000 fiscal 2010 increase primarily result increased incentive compensation expenses 10399000 5578000 added expenses acquired operations increase consulting expenses 5023000 primarily related systems implementation merger acquisition projects increase compensation costs 737000 increases partially offset decrease prior year included 4980000 settlement charges recorded elimination hourly pension plan liabilities depreciation depletion amortization expenses 53468000 fiscal 2011 compared 57679000 fiscal 2010 decrease primarily due 8340000 lower depletion energy division result updated estimates economically recoverable gas reserves partially offset higher depreciation water infrastructure division acquired assets ongoing capital expenditures fiscal 2010 company recorded noncash impairment oil gas properties 21642000 13039000 income taxes primarily result significant continued decline natural gas prices expiration higher priced forward sales contracts impairments recorded fiscal 2011 fiscal 2010 company received litigation settlements valued 3495000 settlements included receipt land buildings valued 2828000 cash receipts 667000 net contingent attorney fees litigation settlement gains fiscal 2011 equity earnings affiliates 13153000 fiscal 2011 compared 8198000 fiscal 2010 increase reflects impact improved minerals exploration market latin america primarily gold copper chile peru interest expense decreased 1594000 fiscal 2011 compared 2734000 fiscal 2010 decrease result scheduled debt reductions income tax expense 22581000 effective rate 417 recorded fiscal 2011 compared income tax expense 5093000 effective rate 789 fiscal 2010 including 8603000 benefit related noncash impairment charge proved oil gas properties recorded discrete item three months ended july 31 2009 excluding impairment related tax benefit company would recorded income tax expense 13696000 adjusted effective rate 487 fiscal 2010 effective rate fiscal 2011 lower adjusted rate last year due reduced impact nondeductible expenses tax treatment certain foreign operations earnings increase factors reduced impact effective rate since relatively fixed operating segment review operations water resources division revenues increased primarily due increase revenue 12937000 water supply project afghanistan increases revenue water supply operations concentrated central northeast us increases partially offset decreased revenues water supply operations southeast us result lower activity levels income taxes water resources division increased primarily due increased earnings 11545000 water supply project afghanistan improved results water supply operations central northeast us increases partially offset decreased earnings water supply operations southeast us result lower activity levels backlog water resources division 107317000 january 31 2011 compared 78195000 january 31 2010 inliner division revenues increased primarily due increased revenues operations northeast southeast east coast us regions 9057000 2196000 1221000 respectively increases result higher activity levels income taxes inliner division increased primarily due improved results operations northeast southeast east coast us regions 1103000 254000 178000 respectively backlog inliner division 62939000 january 31 2011 compared 76701000 january 31 2010 heavy civil division revenues increased primarily due increased revenue 68098000 water plant construction operations partially offset decreased revenue 35019000 utility pipeline construction businesses reduction utility pipeline construction revenue primarily due large utility contract colorado substantially completed fiscal 2010 income taxes heavy civil division decreased due downward pressure margins municipal bid projects large utility contract colorado substantially completed fiscal 2010 backlog heavy civil division 358190000 january 31 2011 compared 360863000 january 31 2010 geoconstruction division revenues increased primarily due additional revenues 20839000 acquired operations income taxes geoconstruction division increased 652 11708000 fiscal 2011 compared 7088000 fiscal 2010 increase primarily attributable 8731000 acquired operations partially offset decrease earnings nonacquisition related projects result lower activity levels backlog geoconstruction division 58357000 january 31 2011 compared 38630000 january 31 2010 mineral exploration revenues increased driven increased activity levels across locations largest africa western us mexico income taxes mineral exploration division increased primarily improved margins combined higher revenues equity earnings affiliates reduced earlier fiscal 2011 customer driven project delay improved last half year projects caught increasing 4438000 year fiscal 2010 company received litigation settlement australia 2828000 earnings offset increase 4076000 incentive compensation costs incurred connection internal fcpa investigation energy revenues decreased primarily due lower natural gas prices expiration favorably priced forward sales contracts first quarter fiscal 2011 fiscal 2010 company recorded noncash impairment charge 21642000 13039000 income tax carrying value assets excess future net cash flows also fiscal 2010 recorded settlement gains net attorney fees 667000 related litigation former officers subsidiary associated energy production companies remaining decrease income taxes fiscal 2011 11958000 due impact revenues lower natural gas prices expiration forward sales contracts noted partially offset depletion decreasing 8340000 fiscal 2011 net gas production 4455 mmcf compared 4618 mmcf fiscal 2010 average net sales price per mcf production fiscal 2011 478 compared 853 fiscal 2010 net sales price excludes revenues generated third party gas revenues increased primarily result revenues 1282000 energy services operations decrease income tax resulted primarily acquisition integration related costs unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 30224000 fiscal 2011 compared 29040000 fiscal 2010 increase primarily due increase incentive compensation 2950000 based increased earnings increase consulting fees 4000000 related systems implementation merger acquisition projects increases partially offset reduction 4980000 settlement charges recorded fiscal 2010 elimination hourly pension plan liabilities fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects company’s revenues large longterm contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number company’s contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect company’s operating results particular quarter many company’s contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover company’s domestic drilling construction activities related revenues earnings tend decrease winter months adverse weather conditions interfere access project sites result company’s revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see company’s consolidated financial statements notes thereto inflation management believe company’s operations periods discussed significantly adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs reportable segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures company’s primary source liquidity historically cash operations supplemented borrowings credit facilities company’s working capital january 31 2012 2011 136404000 93309000 respectively company’s cash equivalents january 31 2012 45916000 compared 44985000 january 31 2011 amounts cash equivalents held foreign subsidiaries january 31 2012 22657000 compared 20168000 january 31 2011 company believes sufficient cash operations access credit facilities meet operating cash requirements make required debt payments fund capital expenditures funding potential acquisitions evaluated based particular facts circumstances opportunity july 8 2011 company entered new private shelf agreement “shelf agreement” whereby issue 150000000 unsecured notes 150000000 private shelf agreement extends july 8 2021 replaced company’s prior master shelf agreement january 31 2012 company notes outstanding company also maintains unsecured 300000000 revolving credit facility “new credit agreement” extends march 25 2016 january 31 2012 company letters credit 18783000 borrowings 52500000 outstanding new credit agreement resulting available capacity 228717000 company’s shelf agreement new credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends provisions generally allow activity occur subject specific limitations continued compliance financial maintenance covenants significant financial maintenance covenants fixed charge coverage ratio maximum leverage covenant levels definitions consistent shelf agreement new credit agreement company compliance covenants january 31 2012 expects remain compliance term agreements noncash impairment charges recorded fourth quarter fiscal 2012 significant effect company’s covenants financial covenants based defined terms included agreements adjusted ebitda adjusted ebitdar compliance financial covenants required quarterly basis using recent four fiscal quarters adjusted ebitda generally defined consolidated net income excluding net interest expense provision income taxes gains losses extraordinary items gains losses sale capital assets noncash items including depreciation amortization sharebased compensation equity earnings affiliates included extent dividends distributions received adjusted ebitdar defined adjusted editda plus rent expense measures considered nongaap financial measures intended accordance accounting principles generally accepted united states company’s minimum fixed charge coverage ratio covenant ratio adjusted ebitdar sum fixed charges fixed charges consist rent expense interest expense principal payments longterm debt company’s leverage ratio covenant ratio total funded indebtedness adjusted ebitda total funded indebtedness generally consists outstanding debt capital leases unfunded pension liabilities asset retirement obligations escrow liabilities threshold adjusted time based percentage net income proceeds issuance equity securities january 31 2012 2011 company’s actual required covenant levels existing agreements follows operating activities cash provided operating activities 15712000 68880000 93955000 fiscal 2012 2011 2010 respectively decline operating cash flows 2012 primarily due two factors decline cash generated earnings increased working capital working capital excluding debt increased 143854000 january 31 2012 102976000 january 31 2011 decline earnings due margin pressures increased selling general administrative charges discussed ‘comparison fiscal 2012 fiscal 2011’ working capital increase due partially increased revenue primarily decreased billing collection efficiency water resources heavy civil divisions partially offset increased levels accounts payable accrued liabilities billing collection efficiency impacted negotiated contract terms several larger contracts extended milestones billings may submitted expect significant unfavorable impacts ultimate collectability contractual amounts investing activities company’s capital expenditures 70826000 fiscal 2012 split 66952000 maintain upgrade equipment facilities 3874000 toward company’s unconventional natural gas exploration production compares equipment spending 64329000 natural gas exploration production spending 2874000 fiscal 2011 equipment facilities spending fiscal 2012 included 9667000 purchase prepare new facility california completion second rig florida injection well market purchase rigs support geoconstruction projects spending company’s unconventional gas operations increased fiscal 2012 maintain natural gas production level fiscal 2012 company received 14055000 proceeds disposals property equipment 9000000 sale facility california remainder sale rigs various equipment categories compares proceeds received disposal property equipment 1664000 fiscal 2011 fiscal 2012 company invested 8855000 net cash acquired acquisition wildcat compares acquisition related spending 33452000 fiscal 2011 company intends continue evaluate acquisition opportunities enhance existing service offerings expand geographic market company’s capital expenditures 67203000 fiscal 2011 split 64329000 maintain upgrade equipment facilities 2874000 toward company’s unconventional natural gas exploration production compares equipment spending 40561000 natural gas exploration production spending 4264000 fiscal 2010 increase equipment facilities spending due equipment purchased support company’s expansion injection well market florida facilities expansion southwest us support water treatment product capabilities spending company’s unconventional gas operations reduced fiscal 2011 scaled back production reaction lower gas prices available market fiscal 2011 company invested 33452000 acquired businesses net cash acquired including 16150000 50 interest diberil 11376000 bencor 5500000 intevras 426000 cash purchase price adjustments prior year acquisitions investments offset part sale layne geobrazil wholly owned subsidiary cash payment 4800000 see note 3 notes consolidated financial statements compares acquisition related spending 14606000 fiscal 2010 financing activities fiscal 2012 company net borrowings 47784000 revolving credit facility also 7366000 outstanding shortterm notes payable january 31 2012 company made 6667000 scheduled debt payments senior notes fiscal 2012 company made distributions noncontrolling interest partners 2199000 share income generated joint projects distributions fiscal 2011 fiscal 2010 company borrowings 3000000 revolving credit facility fiscal 2011 borrowings fiscal 2010 financing business operations available cash company made scheduled principal payments senior notes 20000000 fiscal 2011 fiscal 2010 contractual obligations commercial commitments company’s contractual obligations commercial commitments january 31 2012 summarized follows company expects meet cash contractual obligations ordinary course operations standby letters credit renewed connection annual insurance renewal process interest payable credit agreement variable interest rates equal company’s option libor rate plus 125 225 base rate defined credit agreement plus 125 depending company’s leverage ratio see note 12 notes consolidated financial statements interest payments credit agreement uncertain due variable interest rates fluctuations outstanding balance accordingly included table company income tax uncertainties amount 12675000 january 31 2012 classified noncurrent company’s balance sheet resolution matters expected take year ultimate timing resolution items uncertain accordingly amounts included table company incurs additional obligations ordinary course operations obligations including limited income tax payments expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discusses company’s consolidated financial statements prepared accordance accounting principles generally accepted united states preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments based historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions accounting policies fully described note 1 notes consolidated financial statements located item 8 form 10k believe following represent critical estimates assumptions used preparation consolidated financial statements although inclusive revenue recognition revenues recognized large longterm construction contracts meeting criteria accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” “asc topic 60535” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur contracts company’s mineral exploration drilling services billable based quantity drilling performed thus revenues drilling contracts recognized basis actual footage meterage drilled revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes oil gas properties mineral interests company follows full cost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized capitalized costs depleted based units production company required review carrying value oil gas properties full cost accounting rules sec “ceiling test” ceiling limitation estimated aftertax future net revenues proved oil gas properties discounted 10 plus cost properties subject amortization net book value oil gas properties less related deferred income taxes excess calculated ceiling excess must written expense application ceiling test requires pricing future revenues unweighted arithmetic average firstdayofthemonth price month within 12month period prior end reporting period unless prices defined contractual arrangements fixedprice physical delivery forward sales contracts unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows see note 4 notes consolidated financial statements discussion impairment recorded fiscal 2010 reserve estimates company’s estimates oil natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations oil gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable oil gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing oil natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities oil gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected therefrom may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill company’s impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation impairment conducted reporting unit level company’s reporting units operating segments evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference assumptions used estimates fair value first step generally consistent past performance reporting unit also consistent projections assumptions used current operating plans significant assumptions subject change result changing economic competitive conditions follows · anticipated future cash flows longterm growth rates reporting unit income approach determining fair value relies timing estimates future cash flows including estimate longterm growth rates projections use management’s estimates economic market conditions projected period including growth rates sales estimates expected changes operating margins company’s projections future cash flows subject change actual results achieved differ anticipated actual results could vary significantly estimates · selection appropriate discount rate income approach requires selection appropriate discount rate based weightedaverage cost capital analysis discount rate subject changes shortterm interest rates longterm yield well variances typical capital structure marketplace participants industry discount rate determined based assumptions would used marketplace participants reason capital structure selected marketplace participants used weightedaverage cost capital analysis given current volatile economic conditions possible discount rate could change events circumstances change strategic direction change competitive economic environment could adversely affect fair value one reporting units additional goodwill intangibles consolidated balance sheet become impaired future period resulting impairment charge could material impact results operations financial condition company’s goodwill totaled 19536000 january 31 2012 amount 10621000 recorded within geoconstruction reporting unit 8915000 recorded within inliner reporting unit fair value geoconstruction reporting unit substantially exceeds carrying value decrease fair value inliner reporting unit holding variables constant could result incremental goodwill impairment 8915000 company’s intangible assets’ book value net amortization 12266000 january 31 2012 longlived assets longlived assets including amortizable intangible assets company’s gas transportation facilities equipment reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable factors consider important could trigger impairment review include limited following · significant underperformance assets · significant changes use assets · significant negative industry economic trends accrued insurance expense company maintains insurance programs responsible certain amount claim retention limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based actuarially determined projections future payments programs greater amount claims occur compared estimated medical costs increase beyond anticipated reserves recorded may sufficient additional costs could required costs estimated incurred future employee health welfare benefits property workers’ compensation casualty insurance programs resulting claims occurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely company’s estimate uncertainty income taxes based framework established accounting income taxes guidance addresses determination tax benefits claimed expected claimed tax return recorded financial statements company recognizes tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax positions meet recognition threshold company applies judgment taking account applicable tax laws experience managing tax audits relevant accounting guidance determine amount tax benefits recognize financial statements uncertain position difference benefit realized tax return benefit reflected financial statements recorded liability consolidated balance sheet liability updated financial statement date reflect impacts audit settlements resolution audit issues expiration statutes limitation developments tax law ongoing discussions taxing authorities litigation contingencies company involved litigation incidental business disposition expected material effect company’s financial position results operations possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings accordance us generally accepted accounting principles record liability probable liability incurred amount loss reasonably estimated provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change new accounting pronouncements see note 18 notes consolidated financial statements discussion new accounting pronouncements impact company item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction company’s consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements managements intentions hopes beliefs expectations predictions future forwardlooking statements often identified use forwardlooking terminology intended continue believe may hope anticipate goal forecast plan estimate similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited outcome ongoing internal investigation among things legality foreign corrupt practices act local laws certain payments agents third parties interacting government officials certain countries africa relating payment taxes importing equipment employment expatriates including government enforcement action could arise matters review matters review may resulted higher dollar amount payments may greater financial business impact management currently anticipates prevailing prices various commodities duration current slowdown mineral exploration market unanticipated slowdowns companys major markets availability credit risks uncertainties normally incident construction industry timing completion existing unprofitable contracts heavy civil division ability company successfully obtain profitable contracts heavy civil energy services divisions impact competition effectiveness operational changes expected increase efficiency productivity reduce costs worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations many factors determine items beyond companys ability control predict one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements overview following management’s discussion analysis financial condition results operations “mda” intended help reader understand layne christensen company operations present business environment mda provided supplement toand read connection withour consolidated financial statements accompanying notes thereto contained item 8 report mda includes following sections ● businessa general description business key fiscal year 2013 events ● consolidated review operationsan analysis consolidated results operations three years presented consolidated financial statements ● operating segment review operationsan analysis results operations three years presented consolidated financial statements reporting segments fiscal year 2012 changed reporting segments connection transition new leadership reporting relationships new one layne strategy previously reported results operations three reporting segments including water infrastructure division mineral exploration division energy division new reporting segments water resources division inliner division heavy civil division geoconstruction division mineral exploration division energy division fiscal 2013 company sold exploration production assets energy division reporting segment information comparisons operating segment review operations prior periods recast match new reporting segment structure ● liquidity capital resourcesan analysis cash flows aggregate financial commitments certain financial condition ratios ● critical accounting policiesa discussion critical accounting policies involve higher degree judgment complexity section also includes impact new accounting standards business layne global water management construction drilling company provide responsible solutions water mineral energy challenges company’s operational organizational structure divided divisions based primary service lines division comprised individual district offices primarily offer similar services serve similar markets periodically individual offices within division may perform services normally provided another division happens results services recorded originating offices’ division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water resources division company’s segments defined follows water resources division water resources division provides customers every aspect water supply system development technology including hydrologic design construction source supply exploration well intake construction well pump rehabilitation division also brings new technologies water wastewater markets offers water treatment equipment engineering services providing systems treatment regulated “nuisance” contaminants specifically iron manganese hydrogen sulfide arsenic radium nitrate perchlorate volatile organic compounds water resources division provides water systems services regions us inliner division inliner division provides wide range process sanitary storm water rehabilitation solutions municipalities industrial customers dealing aging infrastructure needs focus proprietary inliner® curedinplace pipe “cipp” allows us rehabilitate aging sanitary sewer storm water process water infrastructure provide structural rebuilding well infiltration inflow reduction trenchless technology minimizes environmental impact reduces eliminates surface social disruption somewhat unique technology liner tube manufacturer largest installer inliner cipp technology housed within family companies focus proprietary inliner cipp committed full system renewal also provide wide variety rehabilitative methods including janssen structural renewal service lateral connections mainlines slip lining traditional excavation replacement uliner highdensity polyethylene fold form manhole renewal cementitious epoxy products fiscal 2013 able obtain licensing new technology saertex uses ultraviolet light technology part process provides company uniquely different approach process storm sanitary water systems customers majority us heavy civil division heavy civil division delivers sustainable solutions government agencies industrial clients overseeing design construction water wastewater treatment plants pipeline installation addition heavy civil builds radial collector wells ranney method surface water intakes pumping stations hard rock tunnels marine construction services support world’s water infrastructure beyond water solutions heavy civil division also designs constructs biogas facilities anaerobic digesters purpose generating capturing methane gas emerging renewable energy resource customers predominantly us geoconstruction division provide specialized geotechnical foundation construction services heavy civil industrial commercial private construction markets around globe expertise equipment provide appropriate deep foundation system ground improvement earth support solution applied given highly variable geological site conditions addition offer extensive experience successful completion complex scheduledriven major underground construction projects provide services focused primarily foundation systems damslevees tunnel shafts utility systems subways transportation systems commercial building port facilities services offered include jet grouting structural diaphragm slurry cutoff walls cement chemical grouting drilled piles ground improvement earth retention systems geoconstruction division provides services regions us well brazil uruguay mineral exploration division mineral exploration division conducts primarily aboveground drilling activities including phases core drilling reverse circulation dual tube hammer rotary airblast methods service offerings include exploratory ‘greenfield’ definition ‘brownfield’ drilling global mining companies hire us extract samples sites analyze mineral content investing heavily development extract minerals provide information clients assists determining minable mineral deposit exists site economic viability mining site geological properties ground determination mine planning primary markets western us mexico australia brazil africa also ownership interests foreign affiliates operating latin america form primary presence market includes layne energy services initiative expanding water related services energy markets specialty operations included one divisions key fiscal year 2013 events margins water infrastructure businesses declined year producing overall cost revenues percentage revenue businesses 81 compared 78 year ago company’s heavy civil division particularly hard hit margin declines due lower prices municipal bid market well delays higher expected costs fiscal year 2013 heavy civil division’s revenues decreased 19 compared last year reduced activity levels continued costs certain projects excess administrative overhead cost resulted continuing losses heavy civil division heavy civil division focused reducing headcount completing low margin legacy projects expeditiously possible securing new business higher associated profit potential revenues mineral exploration division began decline second half fiscal year 2013 decreased 8 compared last year driven global mining expenditure slowdown anticipate revenues profit continue decline first half next fiscal year management taken steps reduce overhead costs however certain expenses depreciation previously acquired assets reduced combination lower activity levels fixed overhead costs resulted decrease pretax earnings fiscal year 2013 26 fy2013 recorded impairment charges totaling 84 million certain product lines concluded fit within overall strategic direction amount included 29 million related intangible assets remainder consisting adjustments record tangible assets expected realizable value charges associated water resources division 44 million 40 million associated specialty operations included main operating divisions may 30 2012 company acquired remaining 50 diberil sociedad anónima “diberil” uruguayan company parent company costa fortuna brazil uruguay 185 million diberil operations sao paulo brazil montevideo uruguay one largest providers specialty foundation specialized marine geotechnical services south america conjunction acquisition remaining 50 equity interest recording operation fully consolidated basis company remeasured previously held equity investment diberil fair value recognized loss 77 million second quarter fair value 50 noncontrolling interest estimated 158 million time adjustment third quarter fiscal year 2013 company completed sale exploration production assets energy division 150 million 135 million received quarter results energy division loss discontinued operations net tax 251 million fiscal year 2013 december 6 2012 layne’s board directors approved relocation company’s global corporate headquarters mission woods kansas woodlands suburb houston move expected commence spring 2013 completed winter 2013 move involve executive positions layne’s corporate leadership well certain management staff positions senior executives layne’s divisions ultimately consolidate houston headquarters connection relocation company expects incur pretax charges approximately 1417 million associated personnel relocation employee attrition replacement office relocation costs expenses 27 million related relocation incurred fourth quarter fiscal year 2013 substantial part remaining costs expected incurred fiscal year 2014 tax incentives totaling approximately 22 million expected received ten year period various state local agencies consolidated review operations following table derived company’s selected financial data included item 6 presents periods indicated percentage relationship certain items reflected company’s results operations bear revenues percentage increase decrease dollar amount items periodtoperiod revenues equity earnings affiliates income taxes pertaining company’s operating segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance executive management board directors comparison fiscal year 2013 fy2013 fiscal year 2012 fy2012 revenues decreased 371 million 33 10756 million fy2013 compared 11128 million fy2012 discussion results operations division presented cost revenues increased 47 million 05 8754 million 814 revenues fy2013 compared 8707 million 783 revenues fy2012 margin pressures across divisions especially exposed municipal sector higher anticipated costs heavy civil business increased cost revenues percentage revenues selling general administrative expenses 1640 million fy2013 compared 1649 million fy2012 decrease combination several changes cost last year recorded 37 million liability related investigation foreign corrupt practices act “fcpa” changed decreases costs due reductions short long term incentive compensation 48 million reduction operating taxes 46 million primarily due favorable audit settlement costs 49 million newly acquired operations increases 51 million related executive transition costs associated relocation corporate headquarters 20 million higher legal professional fees depreciation amortization expenses 614 million fy2013 compared 560 million fy2012 increase primarily result 30 million depreciation amortization assets acquired purchase diberil increases associated equipment additions second quarter fy2013 company acquired remaining 50 interest diberil company previously accounted equity method basis accordance accounting guidance moving acquired company fully consolidated basis company remeasured previously held equity investment fair value recognized noncash loss 77 million period fy2013 recorded impairment charges totaling 84 million certain product lines concluded fit within overall strategic direction amount included 29 million related intangible assets remainder consisting adjustments record tangible assets expected realizable value charges 44 million associated water resources division 40 million associated specialty operations included main operating divisions fourth quarter fy2012 connection annual assessment carrying value goodwill intangibles recorded impairment charges totaling 966 million charges included 171 million associated water resources division 231 million associated inliner division 537 million associated heavy civil division 27 million associated businesses charges heavy civil division include 92 million related trade names largely due corporate strategy decision fourth quarter emphasize layne name company’s services worldwide resulted ceasing use trade names remainder charges heavy civil division charges divisions writeoff substantially goodwill associated divisions writeoffs result projected continued weakness demand construction projects greater persistent originally anticipated continuing projected weakness economy adversely affecting spending government agencies resulting pressures margins increased competition smaller competitors goodwill charge water resources also impacted shift corporate strategy fourth quarter focus traditional water treatment services resulting writeoff goodwill associated acquired companies heavy research development focus tax effect impairment charges benefit 125 million equity earnings affiliates 206 million fy2013 compared 246 million fy2012 equity earnings comprised earnings diberil prior acquisition remaining 50 interest mineral exploration affiliates south america due purchase remaining 50 interest diberil may 30 2012 operations diberil subsequent acquisition consolidated longer recording equity earnings entity decrease equity earnings south american affiliates result similar slowdowns exploration activity mining clients experienced whollyowned operations interest expense increased 43 million fy2013 compared 24 million fy2012 increase result increased borrowing revolving credit facilities fund capital expenditures acquisitions working capital needs income net fy2013 consisted primarily combination gains sales surplus equipment 34 million recognition 10 million previously deferred gain sale operating facility california adjustment 05 million expected earnout liability prior acquisition income tax benefit 83 million recorded continuing operations fy2013 compared expense continuing operations 96 million fy2012 company several items impacting tax rate fy2013 tax benefit recorded previously disclosed loss associated equity investment diberil additionally certain company’s tax years us foreign jurisdictions closed adjustments resulting reversal previously established reserves uncertain tax positions totaling 42 million effective tax rate continuing operations fy2013 excluding items 351 fy2012 effective tax rate continuing operations impacted impairment charges excluding impairment charges company would recorded income tax expense 221 million adjusted effective rate 417 difference adjusted effective rate compared prior year primarily due change mix domestic foreign income along favorable tax treatment equity earnings affiliates permanently reinvested nongaap financial measures company uses certain financial measures assess performance defined generally accepted accounting principles gaap measures included complement results provided accordance gaap believe nongaap financial measures help us explain underlying performance trends business provide useful information management investors measures considered addition results prepared accordance gaap considered substitute superior gaap results include presentations division income certain charges effective income tax rates excluding charges operating segment review operations water resources division revenues increased 40 million 14 fy2013 compared fy2012 increase revenues due mainly project beginning ethiopia better performance southeast midwest groups due droughtrelated projects revenues generated contracts partially replaced revenues 111 million large project afghanistan prior year income loss income taxes heavily impacted impairments fy2013 44 million fy2012 171 million income taxes fy2012 included recognition deferred gain sale facility fontana california 54 million compared 10 million fy2013 apart impact impairments deferred gain income remaining activity division increased year ago due steps taken control overhead costs improve margins diversity work performed including water supply project executed customer mineral exploration division mexico backlog water resources division 631 million january 31 2013 compared 1027 million january 31 2012 decrease primarily due believe temporary slowdown deep injection well drilling projects florida inliner division inliner division revenues increased 11 million 09 fy2013 division experienced shifts geographic regions generate revenues overall steady activity levels well increased sales lining products third party contractors income loss income taxes heavily impacted impairments fy2012 231 million aside impairments income taxes basically flat last year backlog inliner division 662 million january 31 2013 compared 804 million january 31 2012 heavy civil division overall decline revenues heavy civil division primarily comprised decrease 774 million plant construction work fy2013 reflecting focus pursuing higher margin opportunities higher anticipated costs legacy projects inability cover administrative overhead costs lower activity levels resulted continuing losses division previously announced management replaced several division’s offices division focused completing low margin legacy projects expeditiously possible securing new business higher associated profit potential reducing overhead headcount division 225 less last year backlog heavy civil division 3957 million january 31 2013 compared 3081 million january 31 2012 backlog january 31 2013 includes 855 million remaining backlog previously announced project islamorada florida majority backlog islamorada expected proceed next two years although plant operating component could extend multiple years geoconstruction division may 30 2012 division acquired remaining 50 diberil results diberil reported consolidated basis date acquisition rather equity basis done previously accordance accounting guidance moving diberil fully consolidated basis remeasured previously held 50 noncontrolling interest diberil fair value recognized noncash loss 77 million second quarter fy2013 geoconstruction division revenues increased 440 million fy2013 reflected revenues diberil 316 million comparable amounts recorded last year progress ground stabilization projects washington dc florida new york indiana offset reduced revenues large dam stabilization project prior year winding including consolidated equity basis results diberil contributed 81 million income taxes fy2013 compared 33 million fy2012 results diberil improved last year due good performance river crossing project amazon income taxes decreased 123 million fy2013 compared prior year decrease includes noncash loss 77 million remeasurement equity investment diberil second quarter able replace revenue dam stabilization project noted margins new projects less resulting decreased operating results decreases partially offset diberil operating results discussed pursuing significant change orders several projects recognized estimates yet approved successful obtaining approval favorable impact period recognized backlog geoconstruction division 415 million january 31 2013 compared 473 million january 31 2012 mineral exploration division mineral exploration division revenues decreased 223 million 83 fy2013 compared last year decline revenues primarily africa 143 million canada 114 million australia 68 million offset partially increase 115 million revenues mexico declines africa australia reflect recent cut backs exploration programs customers adjust world economic changes cases work integration large acquisitions decline canada due shifting equipment canada opportunities better profit potential mexico brazil income taxes decreased 163 million 262 fy2013 compared last year division improved earnings locations favorable reductions legal expenses however able offset impact overall decreases revenues noted management taken steps react lower revenue levels however certain overhead expenses depreciation previously acquired assets could reduced short term combination lower activity levels fixed overhead costs produced earnings decline year equity earnings affiliates south america also impacted fy2013 slowdowns mineral exploration activity well temporary mine shutdown one clients earlier year revenues losses income taxes primarily layne energy services initiative expanding water related services energy markets increased loss income taxes fy2013 due impairment charges 40 million taken related noncore product lines severance costs replace certain senior executives unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 360 million fy2013 compared 309 million fy2012 increase primarily due 51 million related executive transition costs associated relocation corporate headquarters 22 million higher legal professional fees offset 23 million reductions short long term incentive compensation comparison fiscal year 2012 fy2012 fiscal year 2011 fy2011 revenues increased 1129 million 113 11128 million fy2012 compared 9999 million fy2011 strong activity levels displayed across mineral exploration division locations largest increases africa western us mexico discussion results operations division presented cost revenues increased 943 million 122 8707 million 783 revenues fy2012 compared 7764 million 776 revenues fy2011 increase percentage revenues primarily due cost overruns project delays heavy civil business second half year margin pressures heavy civil water resources businesses due continuing weakness municipal spending selling general administrative expenses 1649 million fy2012 compared 1399 million fy2011 fourth quarter recorded 37 million liability related investigation foreign corrupt practices act “fcpa” remaining increase primarily due additional expenses 43 million acquired operations 51 million increased compensation costs 48 million associated transition chief executive officer executives 47 million increased legal professional fees 25 million increased travel expenses increases partially offset decrease consulting services 24 million due higher costs fy2011 associated systems implementation merger acquisition projects depreciation amortization expenses 560 million fy2012 compared 448 million fy2011 increase primarily result increases assets acquisitions property additions fourth quarter fy2012 connection annual assessment carrying value goodwill intangibles recorded impairment charges totaling 966 million charges included 171 million associated water resources division 231 million associated inliner division 537 million associated heavy civil division 27 million associated businesses charges heavy civil division include 92 million related trade names largely due corporate strategy decision fourth quarter emphasize layne name company’s services worldwide result ceasing use trade names remainder charges heavy civil division charges divisions writeoff substantially goodwill associated divisions writeoffs result projected continued weakness demand construction projects greater persistent originally anticipated continuing projected weakness economy adversely affecting spending government agencies resulting pressures margins increased competition smaller competitors goodwill charge water resources also impacted shift corporate strategy fourth quarter focus traditional water treatment services resulting writeoff goodwill associated acquired companies heavy research development focus tax effect impairment charges benefit 125 million equity earnings affiliates 246 million fy2012 compared 132 million fy2011 increase reflects impact improved minerals exploration market latin america primarily gold copper chile peru well full year operations geoconstruction affiliate brazil interest expense increased 24 million fy2012 compared 16 million fy2011 increase result increased borrowing revolving credit facilities fund operations income net fy2012 consisted primarily gain 54 million inclusive 04 million amortization deferred gain sale facility california gain 10 million sale certain investment securities australia gains 29 million sale equipment company recorded income tax expense 96 million loss income taxes 435 million resulting effective rate negative 220 fy2012 compared expense 216 million effective rate 424 fy2011 excluding impact impairment charges fy2012 company would recorded income tax expense 225 million adjusted effective rate 416 adjusted effective rate current year lower effective rate prior year due continued increase equity earnings affiliates percentage income taxes substantial part nondividend portion earnings considered indefinitely reinvested tends lower effective tax rate operating segment review operations water resources division water resources division revenue levels across product lines particularly water supply repair installation services deep wastewater injection well work power companies florida market increases partially offset decline 121 million water supply project afghanistan substantially completed early year income impairments income taxes included gain 54 million including 04 million amortization deferred gain sale facility fontana california decrease primarily attributable decline 94 million afghanistan project fully replaced lower margins municipal bid work losses water treatment operations expect profit margins projects municipal sector remain pressure least next year backlog water resources division 1027 million january 31 2012 compared 1073 million january 31 2011 inliner division inliner division revenues increased primarily due impact acquired operations contributed revenues 142 million increase income impairments income taxes largely due improved margins particularly southeast us acquired operations transitioned division large contributors earnings backlog inliner division 804 million january 31 2012 compared 629 million january 31 2011 heavy civil division decreases heavy civil division revenues due slight revenue declines across operations division encountered greater competition expansion southwestern us continued contributing revenues 233 million decline income impairments income taxes reflect impact extensive project delays cost overruns well margin pressures municipal bid projects made operational overhead changes curtail losses including terminating certain project managers reducing administrative staff changing bidding practices expect low margins bidding pressures continue hold earnings near breakeven calendar 2012 backlog heavy civil division 3081 million january 31 2012 compared 3582 million january 31 2011 decline partially due efforts increase bid margins reduce levels low margin projects geoconstruction division revenues include full year operations bencor acquired end third quarter fy2011 revenue operations due large part time spent reallocating resources following completion large projects new orleans san francisco income taxes primarily attributable increase 73 million acquired operations 28 million increased equity earnings affiliates backlog geoconstruction division 473 million january 31 2012 compared 584 million january 31 2011 mineral exploration division mineral exploration revenues increased due high activity levels across locations particularly strong mexico southern africa southwest us increase income taxes resulted primarily combination high activity levels continued improvement pricing substantially operations well equity earnings affiliates latin america although slowed fourth quarter due project startup expenses delays certain mine site locations partners strongest year ever significant increases copper mine sites chile increases partially offset increased legal professional expenses related fcpa investigation 38 million accrual 37 million fcpa investigation fourth quarter revenues increased primarily result increased revenues 16 million energy services operations increase loss impairments income taxes resulted primarily acquisition integration related costs unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 309 million fy2012 compared 302 million fy2011 current year expenses include 40 million related transition chief executive officer executives remaining decrease last year includes reductions 24 million consulting costs systems implementation merger acquisition projects 21 million incentive compensation expenses fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects company’s revenues large longterm contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number company’s contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect company’s operating results particular quarter many company’s contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover company’s domestic drilling construction activities related revenues earnings tend decrease winter months adverse weather conditions interfere access project sites result company’s revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see company’s consolidated financial statements notes thereto inflation management believe company’s operations periods discussed significantly adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs reportable segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures company’s primary source liquidity historically cash operations supplemented borrowings credit facilities company’s working capital january 31 2013 2012 1251 million 1364 million respectively company’s cash equivalents january 31 2013 272 million compared 419 million january 31 2012 company believes sufficient cash operations access credit facilities meet operating cash requirements make required debt payments fund capital expenditures funding potential acquisitions evaluated based particular facts circumstances opportunity cash equivalents amounts held foreign subsidiaries january 31 2013 142 million compared 227 million january 31 2012 repatriation cash balances companys foreign subsidiaries could result withholding taxes local jurisdictions restrictions transfer foreign cash equivalents significantly impacted company’s overall liquidity continue monitor developments foreign countries operate changes currency regulation regard certain countries africa begin require companies transact local currency rather us dollar assessing necessary changes operations response changes believe new requirements significantly impact liquidity subsequent year end company notified one banks restricted access funds certain dollar amount also received information bank may ceasing operations company process engaging local legal counsel assist recovering funds time company able estimate amount funds unable recover time closure company held 29 million closed facility see note 19 company maintains unsecured 300 million revolving credit facility “credit agreement” extends march 25 2016 well private shelf agreement “shelf agreement” whereby issue 150 million unsecured notes shelf agreement extends july 8 2021 unsecured notes issued shelf agreement january 31 2013 january 31 2013 letters credit 223 million borrowings 950 million outstanding credit agreement resulting available capacity 1827 million company’s shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends provisions generally allow activity occur subject specific limitations continued compliance financial maintenance covenants significant financial maintenance covenants fixed charge coverage ratio maximum leverage ratio covenant levels definitions generally consistent two agreements financial covenants based defined terms included agreements adjusted ebitda adjusted ebitdar compliance financial covenants required quarterly basis using recent four fiscal quarters adjusted ebitda generally defined consolidated net income excluding discontinued operations net interest expense provision income taxes gains losses extraordinary items gains losses sale capital assets noncash items including depreciation amortization sharebased compensation equity earnings affiliates included extent dividends distributions received adjusted ebitdar defined adjusted editda plus rent expense measures considered nongaap financial measures intended accordance accounting principles generally accepted united states company’s minimum fixed charge coverage ratio covenant ratio adjusted ebitdar sum fixed charges fixed charges consist rent expense interest expense principal payments longterm debt company’s leverage ratio covenant ratio total funded indebtedness adjusted ebitda total funded indebtedness generally consists outstanding debt capital leases asset retirement obligations escrow liabilities january 31 2013 2012 company’s actual required covenant levels existing agreements follows company compliance financial covenants january 31 2013 however recent weakness markets operations continues may compliance ratio total debt adjusted ebitda future periods believe alternative actions within control could taken enhance ability remain compliance fail continue meet ratio total debt adjusted ebitda loan covenants future would pursue bank waivers compliance amend revolving credit facility allow us become compliant operating activities cash provided operating activities 248 million 157 million 689 million fy2013 fy2012 fy2011 respectively primary drivers cash operating activities results operations management working capital levels working capital excluding debt 1379 million january 31 2013 1439 million january 31 2012 working capital decreased fy2013 particularly fourth quarter revenue levels declined due collection efforts declines offset extent inventory levels increased primarily due large material purchases two projects investing activities company’s capital expenditures 775 million fy2013 split 758 million maintain upgrade equipment facilities 17 million spent company’s unconventional natural gas exploration production prior sale third quarter compares equipment spending 669 million natural gas exploration production spending 39 million fy2012 spending fy2012 included 97 million purchase prepare new facility california company’s remaining capital expenditures continuing operations fy2013 fy2012 primarily spent maintaining upgrading equipment facilities fy2013 company received 62 million proceeds disposals property equipment compared proceeds 141 million fy2012 included proceeds 90 million sale facility california fy2013 company invested 175 million net cash acquired acquisition remaining 50 diberil well invested 09 million acquire 100 stock fursol informatica srl fursol additional 01 million paid fursol october 4 2013 pursuant terms purchase agreement compares acquisition related spending 89 million fy2012 company intends continue evaluate acquisition opportunities enhance existing service offerings expand geographic market financing activities fy2013 fy2012 fy2011 company net borrowings 436 million 552 million 30 million credit facilities borrowings primarily used fund company’s capital expenditures acquisitions working capital needs company made scheduled debt payments senior notes 67 million fy2012 200 million fy2011 fy2013 fy2012 company distributed 42 million 22 million noncontrolling interest partners either distributions joint project income case mineral exploration subsidiary brazil buy noncontrolling interest contractual obligations commercial commitments company’s contractual obligations commercial commitments january 31 2013 summarized follows company expects meet cash contractual obligations ordinary course operations standby letters credit renewed connection annual insurance renewal process interest payable credit agreement variable interest rates equal company’s option libor rate plus 125 225 base rate defined credit agreement plus 125 depending company’s leverage ratio see note 7 notes consolidated financial statements interest payments credit agreement uncertain due variable interest rates fluctuations outstanding balance accordingly included table company income tax uncertainties amount 158 million january 31 2013 classified noncurrent company’s balance sheet resolution matters expected take year ultimate timing resolution items uncertain accordingly amounts included table company incurs additional obligations ordinary course operations obligations including limited income tax payments expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discuss company’s consolidated financial statements prepared accordance accounting principles generally accepted united states preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments based historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions accounting policies fully described note 1 notes consolidated financial statements located item 8 form 10k believe following represent critical estimates assumptions used preparation consolidated financial statements although inclusive revenue recognition revenues recognized large longterm construction contracts meeting criteria accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” “asc topic 60535” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised nature accounting contracts refinements estimating process changing conditions new developments continuous characteristic process many factors change contract performance period result change contract profitability one financial reporting period another factors change estimate total contract revenue cost include differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revision costs income recognized period revisions determined provisions estimated losses uncompleted construction contracts made period losses determined company many contracts process given time changes estimates offset minimizing impact overall profitability however large changes cost estimates larger complex construction projects material impact company’s financial statements reflected results operations become known changes appropriate timely adequately supported changes include changes expected cost materials labor productivity weather changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements factors may result revisions costs income recognized period revisions determined allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method contracts company’s mineral exploration drilling services billable based quantity drilling performed thus revenues drilling contracts recognized basis actual footage meterage drilled revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur revenues sale oil gas company’s discontinued energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes goodwill company’s impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation impairment conducted reporting unit level company’s reporting units operating segments evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference consider market approach income approach estimating fair value reporting unit analysis market approach may include use guideline transaction method guideline company method guideline transaction method makes use available transaction price data companies engaged similar lines business respective reporting unit guideline company method uses market multiples publically traded companies operating characteristics similar respective reporting unit income approach uses projections reporting unit’s estimated cash flows discounted using weighted average cost capital reflects current market conditions also compare aggregate fair value reporting units market capitalization plus control premium significant assumptions used income approach subject change result changing economic competitive conditions follows ● anticipated future cash flows longterm growth rates reporting unit income approach determining fair value relies timing estimates future cash flows including estimate longterm growth rates projections use management’s estimates economic market conditions projected period including growth rates sales estimates expected changes operating margins company’s projections future cash flows subject change actual results achieved differ anticipated actual results could vary significantly estimates ● selection appropriate discount rate income approach requires selection appropriate discount rate based weightedaverage cost capital analysis discount rate subject changes shortterm interest rates longterm yield well variances typical capital structure marketplace participants industry discount rate determined based assumptions would used marketplace participants reason capital structure selected marketplace participants used weightedaverage cost capital analysis given current volatile economic conditions possible discount rate could change events circumstances change strategic direction change competitive economic environment could adversely affect fair value one reporting units additional goodwill intangibles consolidated balance sheet become impaired future period resulting impairment charge could material impact results operations financial condition january 31 2013 book value company’s intangible assets net amortization 88 million goodwill totaled 236 million goodwill amount 146 million recorded within geoconstruction reporting unit 89 million recorded within inliner reporting unit annual valuation date fair value geoconstruction inliner reporting units exceed carrying value 19 63 respectively decrease fair value reporting units holding variables constant could result incremental goodwill impairment valuation date increase discount rates used income approach geoconstruction 13 rate used 16 inliner 115 155 would reduce estimated fair value income approach equal carrying value longlived assets longlived assets including amortizable intangible assets company’s gas transportation facilities equipment reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable factors consider important could trigger impairment review include limited following ● significant underperformance assets ● significant changes use assets ● significant negative industry economic trends accrued insurance expense company maintains insurance programs responsible certain amount claim retention limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based actuarially determined projections future payments programs greater amount claims occur compared estimated medical costs increase beyond anticipated reserves recorded may sufficient additional costs could required costs estimated incurred future employee health welfare benefits property workers’ compensation casualty insurance programs resulting claims occurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities company reviews deferred tax assets recoverability jurisdictional basis assessing need valuation allowance company considers positive negative evidence related likelihood realization deferred tax assets weight given positive negative evidence commensurate extent evidence may objectively verified accounting guidance states cumulative loss recent years significant piece negative evidence difficult overcome determining valuation allowance needed deferred tax assets generally difficult positive evidence regarding projected future taxable income exclusive reversing taxable temporary differences outweigh objective negative evidence recent financial reporting losses preparing future taxable income projections company considers periods future reversals existing taxable deductible temporary differences likely occur future taxable income taxable income available prior carry back years availability taxplanning strategies determining realizability recorded deferred tax assets provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely company’s estimate uncertainty income taxes based framework established accounting income taxes guidance addresses determination tax benefits claimed expected claimed tax return recorded financial statements company recognizes tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax positions meet recognition threshold company applies judgment taking account applicable tax laws experience managing tax audits relevant accounting guidance determine amount tax benefits recognize financial statements uncertain position difference benefit realized tax return benefit reflected financial statements recorded liability consolidated balance sheet liability updated financial statement date reflect impacts audit settlements resolution audit issues expiration statutes limitation developments tax law ongoing discussions taxing authorities litigation contingencies company involved litigation incidental business disposition expected material effect company’s financial position results operations possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings accordance us generally accepted accounting principles record liability probable liability incurred amount loss reasonably estimated provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change new accounting pronouncements see note 17 notes consolidated financial statements discussion new accounting pronouncements impact company item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction layne’s consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements management’s intentions hopes beliefs expectations predictions future forwardlooking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “goal” “forecast” “plan” “estimate” similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various commodities including gold copper crude oil natural gas duration current slowdown mineral drilling services market unanticipated slowdowns layne’s major markets availability credit risks uncertainties normally incident construction industry timing completion existing unprofitable contracts heavy civil ability successfully obtain profitable contracts energy services impact competition effectiveness operational changes expected increase efficiency productivity reduce costs worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations many factors determine items beyond layne’s ability control predict one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing layne assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements overview following management’s discussion analysis financial condition results operations “mda” intended help reader understand layne operations present business environment mda provided supplement read connection consolidated financial statements accompanying notes thereto contained item 8 report mda includes following sections · businessa general description layne’s business key fy 2015 events · consolidated review operationsan analysis layne’s consolidated results operations three years presented consolidated financial statements · operating segment review operationsan analysis layne’s results operations three years presented consolidated financial statements layne’s reporting segments water resources inliner heavy civil geoconstruction mineral services energy services · liquidity capital resourcesan analysis cash flows aggregate financial commitments certain financial condition ratios · critical accounting policies estimatesa discussion layne’s critical accounting policies estimates involve higher degree judgment complexity business layne global water management construction drilling company layne provides responsible solutions water mineral energy challenges layne manages reports operations six segments water resources inliner heavy civil geoconstruction mineral services energy services key fiscal year 2015 events january 2 2015 layne hired michael caliel president chief executive officer mr caliel replaced david brown current chairman board serving ceo interim basis mineral services continues impacted global slowdown spending mineral drilling services markets served layne’s whollyowned operations layne’s latin american affiliates global spending minerals drilling services decreased significantly past two years every geographic region reduced revenues generated mineral services adversely affected results operations cash flows fy 2015 revenues decreased 305 period last year fy2016 likely see reductions time market becomes stabilized given assets within division good working order geographically diversified division ability deploy rapidly new sites requested layne believes able react expedient manner market improves heavy civil’s revenues decreased 225 fy 2015 compared fy 2014 previously reported segment selective pursuit municipal bid projects strategy may result lower revenues future anticipated provide stable margins decreased risk segment heavy civil continued experience cost overruns associated completion certain contracts geoconstruction announced august 2014 awarded 1325 million contract us army corps engineers east branch dam located pennsylvania project commenced expected completed end fy 2019 energy services loss continuing operations increased fy 2015 compared fy 2014 140 recent decrease oil gas prices expected result slower growth rate segment previously expected expansion business beyond current operations permian basin west texas undertaken cautiously market conditions favorable august 6 2014 layne notified doj inquiry potential violations fcpa discussed note 14 consolidated financial statements closed october 27 2014 layne entered settlement sec resolve allegations concerning potential violations fcpa settlement sec resolved outstanding government investigations respect layne concerning potential fcpa violations terms settlement without admitting denying sec’s allegations layne consented entry administrative ceaseanddesist order books records internal controls antibribery provisions fcpa connection settlement layne paid sec 47 million disgorgement prejudgment interest 04 million penalties november 6 2014 layne also agreed undertake certain compliance reporting cooperation obligations sec two years following settlement date board directors approved restructuring plan “plan” june 2014 designed generate series short long term cost reductions management substantially implemented plan savings generated plan derived various areas within layne including workforce reductions operational functional reorganization redesign company processes full year impact savings become realized fy 2016 addition layne continuing undertake strategic review operations evaluate alternatives underperforming divisions service lines noncore assets improve profitability andor liquidity july 31 2014 layne sold costa fortuna operation within geoconstruction part assessment underperforming assets costa fortuna sold aldo corda original owner current manager business time disposal continuation assessment underperforming assets layne sold tecniwell line business within geoconstruction october 31 2014 dispositions discussed note 15 consolidated financial statements layne entered five year assetbased credit facility april 15 2014 assetbased credit facility provides aggregate principal amount 1350 million subject borrowing base requirement aggregate principal amount 750 million available form letters credit aggregate principal amount 150 million available shortterm swingline borrowings layne terminated previous credit agreement april 15 2014 see liquidity capital resources additional information february 4 2015 layne announced entered exchange subscription agreements certain investors held approximately 555 million 425 convertible notes investors exchanged 425 convertible notes owned approximately 499 million new 80 convertible notes purchased approximately 499 million additional new 80 convertible notes transaction closed march 2 2015 layne received net cash proceeds sale new 80 convertible notes net expenses related offering approximately 450 million layne used portion net cash proceeds repay amounts outstanding assetbased credit facility remainder net cash proceeds used future working capital purposes nongaap financial measures layne uses certain financial measures assess performance defined generally accepted accounting principles gaap measures included complement results provided accordance gaap management believes nongaap financial measures help us explain underlying performance trends business provide useful information management investors measures considered addition results prepared accordance gaap considered substitute superior gaap results nongaap measures include presentations division income certain charges effective income tax rates excluding charges consolidated review operations following table derived layne’s consolidated financial statements included item 8 presents periods indicated percentage relationship certain items reflected layne’s results operations bear revenues percentage increase decrease dollar amount items periodtoperiod meaningful revenues equity earnings losses affiliates income loss income taxes pertaining layne’s operating segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance executive management board directors comparison fiscal year 2015 fy 2015 fiscal year 2014 fy 2014 revenues remained relatively flat fy 2015 decreasing 07 million 01 7976 million compared 7983 million fy 2014 however significant variation segment discussion results operations segment presented cost revenues increased 163 million 24 6826 million 856 revenues fy 2015 compared 6663 million 835 revenues fy 2014 cost revenues contains direct costs increased 179 million 6146 million 900 cost revenues fy 2015 5967 million fy 2014 896 cost revenues field expenses decreased slightly fy 2015 97 cost revenues compared fy 2014 101 cost revenues direct costs primarily include material costs labor costs associated specific projects increase direct costs primarily due increase costs complete projects heavy civil selling general administrative expenses 1222 million fy 2015 compared 1343 million fy 2014 decrease primarily related decreases relocation expenses 67 million fcpa investigation related expenses 118 million temporary services 09 million compensation expenses 06 million decreases relocation temporary services fy 2014 result costs incurred fy 2014 layne’s move mission kansas woodlands texas net decrease fcpa investigation related expenses result investigation mostly completed end fy 2014 reversal prior accrual result doj declining take action layne discussed note 14 consolidated financial statements decreases offset increases legal professional fees 50 million 26 million incentive compensation 03 million safety expenses 01 million dues subscriptions depreciation amortization 493 million fy 2015 compared 563 million fy 2014 decrease primarily due reductions capital expenditures layne continued restrict capital spending connection management’s restructuring plan approved board directors june 2014 layne incurred restructuring costs 27 million fy 2015 primarily consisted severance related costs associated workforce reductions costs move consolidate equipment inventories fy 2015 layne · identified completed sale costa fortuna tecniwell discussed note 15 consolidated financial statements · implemented workforce reductions · consolidated certain offices within us · consolidated closed certain african locations mineral services equity earnings losses affiliates improved earnings 14 million fy 2015 compared loss 30 million fy 2014 layne’s international affiliates recorded losses 20 million due primarily severance costs operations downsized response market conditions layne’s domestic affiliates consisting joint ventures formed specific geoconstruction projects earnings 34 million fy 2015 compared earnings fy 2014 interest expense increased 137 million fy 2015 compared 71 million fy 2014 included interest expense fy 2015 fy 2014 amortization debt issuance costs 14 million 02 million respectively amortization discount related 425 convertible notes 33 million 08 million respectively remaining increase interest expense primarily due 425 convertible notes outstanding full period fy 2015 income net fy 2015 consisted primarily gains sale noncore assets including real estate income tax benefit 39 million recorded continuing operations fy 2015 compared income tax expense 532 million fy 2014 fy 2015 tax benefit primarily due carryback prior year tax losses upon tax benefit previously recorded valuation allowance recorded fy 2014 cash refund 39 million received early fy 2016 excluding prior year tax loss carryback fy 2015 provision zero due primarily valuation allowances provided deferred tax assets generated current year tax expense recorded fy 2014 resulted primarily 544 million tax charge due valuation allowance provided deferred tax assets established prior year total 783 million valuation allowance deferred tax assets recorded fy 2014 amount 544 million related deferred tax assets established prior year resulting change income tax expense 239 million related deferred tax assets established current year net tax expenses recorded zero tax expense 37 million recorded discontinued operations 71 million tax expense recorded equity connection 425 convertible notes issuance operating segment review operations water resources meaningful water resources revenues increased 204 million 1962 million fy 2015 1759 million fy 2014 income taxes increased 133 million 144 million 73 revenues fy 2015 10 million 06 revenues fy 2014 water resources experienced growth primarily result projects western portion us inadequate water infrastructure regions combined lingering drought conditions resulted additional opportunities provide water management services particularly agribusiness market direct costs percentage revenue decreased 674 fy 2014 634 fy 2015 growth revenues combined slight margin improvements across operations better leverage fixed costs resulted improved earnings water resources carefully analyzing locations overhead expenses increase efficiencies lower costs still provide locations best service areas projects located result selling costs fy 2015 reduced 13 million 146 revenues 171 revenues fy 2014 inliner revenues increased 266 million 1750 million fy 2015 1484 million fy 2014 income taxes increased 52 million 229 million 131 revenues fy 2015 compared 177 million 119 revenues fy 2014 inliner’s revenues continued grow across markets also benefited introductions fiberglass based lining products accounted approximately 61 million revenue fy 2015 overall direct costs improved percentage revenues 784 fy 2014 767 fy 2015 continued leverage fixed costs plus slight margin improvements resulted improved earnings last fiscal year heavy civil meaningful heavy civil experienced decrease revenues 602 million 2070 million fy 2015 compared 2672 million fy 2014 loss income taxes increased 137 million 215 million 104 revenues fy 2015 78 million 29 revenues fy 2014 low gross profit margins resulted operating results sufficient offset overhead costs projects already experiencing cost overruns delayed even anticipated several jobs northeastern portion us experienced adverse weather conditions first quarter fy 2015 january 2015 adverse weather conditions cause increase expenses projects due crew equipment standby costs weather subsides work may restarted sequence try meet time constraints implicit within contracts certain projects reducing profitability delays completing projects led additional costs estimated costs complete projects updated reflect best information available us time estimated future losses recorded remains possible reach completion projects could encounter unforeseen conditions events would cause us revise estimates could result losses fy 2015 estimated losses recorded larger revenue contracts approximately 135 million fy 2014 estimated losses approximately 93 million recorded larger revenue contracts heavy civil continues strategic decision reduce volume fixed bid type contracts concentrate increasing opportunities negotiated alternative delivery contracts layne believes less risk accordingly previously discussed expected revenue levels decline compared prior periods appropriate mix contracts margins continue suppressed contracts executed implementation strategic shift completed management involved monitoring low margin contracts management also involved contract bidding guidelines segment ensure previously communicated strategic decision move away fixed price bid municipal contracts negotiated alternative delivery contracts achieved geoconstruction experienced increase revenues 508 million 770 million fy 2015 compared 262 million fy 2014 loss income taxes decreased 204 million loss income taxes 44 million 58 revenues fy 2015 248 million 945 revenues fy 2014 comparison loss income taxes impacted goodwill impairment charge 146 million second quarter fy 2014 equity earnings affiliates 34 million associated joint venture projects seattle wa iowa geoconstruction revenues earnings positively impacted multiple projects san francisco hawaii awarded third quarter fy 2014 results negatively impacted additional costs incurred project san francisco currently claims dispute due dispute revenues associated potential recovery costs recognized current amount claims sought approximately 70 million layne continues work general contractor towards resolution dispute additional fy 2015 results impacted noncash writedowns inventory 12 million fourth quarter 35 million settlement second quarter fy 2015 longstanding contract dispute mineral services revenues decreased 527 million 1202 million fy 2015 1730 million fy 2014 loss income taxes increased 54 million 95 million 55 revenues 149 million 124 revenues included loss income taxes fy 2015 decrease accrual related fcpa investigation 52 million result doj’s decision close investigation without bringing charges layne compared increase accrual 67 million fy 2014 equity losses affiliates south america also continued impacted market conditions fy 2015 equity losses affiliates decreased 10 million 20 million fy 2015 30 million fy 2014 reductions workforce occurred fy 2014 lesser degree fy 2015 response depressed mineral drilling services market resulted slightly better results fy 2015 mineral services continues impacted global slowdown mineral drilling services markets served layne’s wholly owned operations layne’s latin american affiliates mineral drilling services cyclical industry global spending decreased significantly past two years every geographic region global slowdown attributed part several factors commodity prices gold copper decreased significantly last several years supply copper exceeded demand driving price future copper prices expected continue volatile likely influenced demand china economic activity us gold prices fluctuated level full cost production many mines decreasing prices gold copper led material decrease rate mineral exploration development within industry second factor involves regulatory actions taken government authorities impose additional taxes mining companies taxes severe impact mining regions imposed companies react increased taxation reducing stopping production third factor contributing decline mineral services financial results labor issues areas outside us labor groups request additional pay concessions mining companies reacted reducing halting production another factor ebola outbreak africa caused mining activity decline halt affected regions factors reduced revenues generated mineral services adversely affected results operations cash flows believe trough current industry cycle downturn expected improve time market factors stabilize believe occur end fy 2016 activity trough cycle frequently shorter duration involving frequent work stoppages extended mine shutdowns particularly around yearend holidays causes mineral services experience higher costs due frequent mobilization demobilization labor equipment locations requirements overhead costs much harder predict may covered lower activity levels mineral services reacted slowdown number ways labor costs monitored react level work within region offices locations consolidated improve efficiencies certain locations africa closed noncore assets sold redeployed areas within layne mineral services utilized customer relationships engage revenue producing activities water supply drilling time mineral drilling services market rebounds energy services energy services revenue increased 139 million 202 million fy 2015 63 million fy 2014 loss income taxes remained relatively flat fy 2015 fy 2014 results fy 2015 negatively impacted payment 08 million associated intellectual property agreement 06 million settlement costs associated one contract recent decline oil gas prices led decline production delays energy services customers delays decline production slowed growth energy services experienced previous quarters fy 2015 energy services carefully analyzing planned future growth different geographies conjunction slowdown industry energy services continues market capabilities endtoend provider water solutions within energy industry comparison management believes many energy services competitors ability perform portion services energy services able deliver division’s entry marketplace taken longer expected part due time needed market portfolio services within industry revenues loss income taxes primarily small specialty purchasing operations majority revenues eliminated segments operation produce positive earnings purchasing discounts third party sales decrease revenues 07 million 192 million fy 2015 199 million fy 2014 due segments within layne taking advantage purchasing expertise within operation able centralize layne’s purchasing order take advantage purchase discounts offered various vendors unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 498 million fy 2015 compared 430 million fy 2014 68 million increase corporate expenses primarily due increases legal professional fees 52 million 34 million consulting expenses 07 million restructuring expenses 19 million rent expense partially offset reductions 20 million relocation expense 11 million temporary services expenses 15 million compensation expense comparison fiscal year 2014 fy 2014 fiscal year 2013 fy 2013 revenues decreased 2156 million 213 7983 million fy 2014 compared 10139 million fy 2013 discussion results operations segment presented cost revenues decreased 1701 million 203 6663 million 835 revenues fy 2014 compared 8364 million 825 revenues fy 2013 cost revenues contains direct costs decreased 1474 million 5967 million 896 cost revenues fy 2014 7441 million fy 2013 890 cost revenues field expenses relatively flat percentage revenue fy 2014 101 cost revenues compared fy 2013 109 cost revenues change expenses related reduction revenue fy 2014 due reduction number contracts corresponding reduction revenues workforce segments worked reduced hours certain areas reduced workforce positions became vacant result natural attrition filled contracts executed additional personnel needed additional contracts negotiated throughout year layne reduce workforce order retain knowledge expertise key members within organization selling general administrative expenses 1343 million fy 2014 compared 1521 million fy 2013 decrease due part decreases 73 million compensation expense 105 million incentive compensation expense 12 million travel expenses 48 million legal expenses 67 million fringe benefits expenses partially offset increase relocation expenses associated move headquarters woodlands texas 59 million increase accrual related fcpa investigation 67 million decreases compensation incentive compensation fringe benefits due changes workforce reduction revenues loss continuing operations depreciation amortization expenses 563 million fy 2014 compared 576 million fy 2013 decrease result sales noncore assets fy 2014 fy 2013 impairment charges 146 million recorded fy 2014 associated geoconstruction determined carrying value goodwill exceeded fair value impairment charge amount recorded fy 2013 layne recorded impairment charges totaling 84 million certain product lines concluded fit within overall strategic direction layne amount included 29 million related intangible assets remainder consisting adjustments record tangible assets expected realizable value charges 44 million associated water resources 40 million associated energy services loss remeasurement equity investments 77 million fy 2013 due purchase remaining 50 costa fortuna year previously layne owned 50 reported earnings equity method accounting equity losses earnings affiliates 30 million fy 2014 compared 206 million fy 2013 decrease equity earnings layne’s latin american affiliates result similar reduction use mineral drilling services mining clients layne experienced whollyowned operations addition second quarter fy 2013 layne acquired remaining 50 interest costa fortuna resulting costa fortuna changing equity method investment consolidated whollyowned subsidiary costa fortuna provided 39 million equity earnings affiliates fy 2013 interest expense increased 71 million fy 2014 compared 33 million fy 2013 increase result increased borrowing layne’s revolving credit facility fund operations result higher interest rate borrowings result certain amendments revolving credit facility fy 2014 07 million fees connection june 2013 september 2013 amendments revolving credit facility written due reduction amount credit available borrowing income net fy 2014 relatively flat 68 million compared 60 million fy 2013 income tax expense 532 million recorded continuing operations fy 2014 compared income tax benefit continuing operations 100 million fy 2013 tax expense recorded fy 2014 resulted primarily 544 million tax charge due valuation allowance provided deferred tax assets established prior year tax benefit 108 million recorded continuing operations offsetting 37 million tax expense recorded discontinued operations 71 million tax expense recorded equity connection 425 convertible notes issuance effective tax rate continuing operations fy 2014 excluding items 187 difference adjusted tax rate statutory rate primarily due certain nondeductible expenses taxation layne’s foreign subsidiaries layne several items impacting tax rate fy 2013 tax benefit recorded previously disclosed loss associated equity investment costa fortuna additionally certain layne’s tax years us foreign jurisdictions closed adjustments resulting reversal previously established reserves uncertain tax positions totaling 42 million effective tax rate continuing operations fy 2013 excluding items 335 see note 9 consolidated financial statements operating segment review operations water resources meaningful water resources revenues decreased 382 million 1759 million fy 2014 compared 2141 million fy 2013 water resources experienced decline revenues throughout fy 2014 comparison fy 2013 also affected income impairments income taxes decline revenues due part reduction number bid opportunities markets segment operates reduction bid opportunities turn resulted pricing pressure increased competition pricing pressure resulted lower margins jobs awarded division awarded prior year portion water resources’ projects involve various state local municipalities early part fy 2014 state local municipalities struggled effects sequestration forced entities place projects hold uncertain length federal action addition entities continued balance constrained budgets need improvement infrastructure another portion water resources business involves fabrication minerals industry downturn market water resources saw reduction revenue 31 million associated business injection well operation included water resources saw decrease revenues 186 million fy 2014 compared fy 2013 work specialized nature often subject complex technical environmental requirements projects nature large projects sometimes take year complete contracts involved type work virtually nonexistent fy 2014 due tight governmental spending operation incurred costs mobilized site new contract february 2013 cancelled shortly mobilization complete another 70 million contract awarded august 2013 subsequently placed hold competitor bidding process protested protest ultimately withdrawn water resources began work project fy 2015 response lower revenue levels water resources reduced selling expenses 51 million fy 2014 fy 2013 result strategic consolidation offices within segment reduction expenses helped provide offset overall reduction revenues inliner revenues increased 151 million 1484 million fy 2014 1333 million fy 2013 income taxes increased 77 million 177 million 119 revenues fy 2014 compared 99 million 74 revenues fy 2013 inliner’s increase revenues resultant increase income taxes due increased work performed projects northeast region us excluding projects results inliner fy 2014 would consistent fy 2013 management segment seeks opportunities allow reasonable consistent profit among projects heavy civil heavy civil experienced decrease revenues 109 million 2672 million fy 2014 compared 2781 million fy 2013 loss income taxes decreased 245 million 78 million 29 revenues fy 2014 323 million 116 revenues fy 2013 strategic shift heavy civil implemented early fy 2013 continued fy 2014 primary component shift involves moving away projects fit layne’s strategic profile including selected types fixed price bid municipal contracts projects often extremely complex difficult nature expending multiple years reduced revenues experienced fy 2014 fy 2013 109 million result moving away fixed price bid municipal contracts heavy civil acknowledges shortterm revenues may reduced profitable contracts executed fy 2014 losses recorded jobs nature 93 million fy 2013 losses 246 million recorded secondary component fy 2013 strategic shift involved realignment management reduction number personnel realignment allowed heavy civil reduced number personnel match capabilities workforce type contracts would begin actively seek reduction occurred fy 2013 involved 225 workforce full effects reduction personnel recognized fy 2014 reduction compensation expenses 28 million selling expenses decreased fy 2014 49 million result changes reduction loss income taxes 78 million fy 2014 compared 323 million fy 2013 demonstrates impact moving towards profitable contracts heavy civil completes remaining fixed price bid municipal contracts backlog profitable fourth quarter fy 2014 heavy civil’s revenues lower result project delays due extreme weather conditions experienced december 2013 january 2014 particularly northeastern part us geoconstruction meaningful geoconstruction experienced decrease revenues 518 million 262 million fy 2014 compared 780 million fy 2013 loss income taxes increased 207 million loss income taxes 248 million 945 revenues fy 2014 loss 41 million 53 revenues fy 2013 geoconstruction experienced weakness fy 2014 compared fy 2013 division predicted significant contracts would executed second quarter fy 2014 certain cases contracts delayed even cancelled final bid awarded due effects sequestration earlier half fy 2014 government spending reduced eliminated causing effect certain projects response factors layne concluded indicator impairment related goodwill associated segment based conclusion interim recoverability test performed determined carrying value goodwill exceeded fair value noncash impairment charge 146 million recorded second quarter fy 2014 representing total carrying value segment’s goodwill third quarter fy 2014 geoconstruction executed two contracts totaling 760 million work performed san francisco first contract consists specialized foundation work transbay tower new sixtyone story building located adjacent transbay transit center second san francisco project construction foundations three new underground subway stations central subway project mineral services revenues decreased 1292 million 1730 million fy 2014 3021 million fy 2013 loss income taxes decreased 589 million 494 million 164 revenues fy 2013 95 million 55 revenues fy 2014 equity losses earnings affiliates latin america also impacted fy 2014 equity losses earnings affiliates decreased 197 million 30 million fy 2014 167 million fy 2013 chile locale largest operations affiliates employment laws chile extremely favorable workforce requiring significant separation expenses incurred employer large layoff affiliates reacted slowdowns shutdowns incurred large labor costs associated workforce laid included loss income taxes fy 2014 increases accrued liabilities related fcpa investigation 67 million 39 revenues mineral services well affiliates attempted control costs consolidating operations possible managing expenses however decreased earnings caused continued market declines exceeded cost reductions resulting loss income taxes fy 2014 revenues decreased 428 compared fy 2013 equity earnings layne’s affiliates decreased 1178 fy 2014 compared fy 2013 mineral services continued impacted global slowdown demand mineral drilling services markets served layne’s whollyowned operations layne’s latin american affiliates global spending minerals drilling services decreased significantly fy 2014 every geographic region global slowdown attributed part several factors first factor involves regulatory actions taken government authorities impose additional taxes mining companies taxes severe impact mining regions imposed companies react increased taxation reducing stopping production second factor contributing decline mineral services financial results labor issues areas us imposed economic stresses mining companies labor groups request additional pay concessions mining companies reacted reducing halting production another economic factor involves layne’s customers multiple businesses capital needs may cause adjust activities within mining divisions impacts layne customers react strategic process layne believes mineral drilling services industry cyclical business commodity prices decreased significantly calendar years 2012 2013 continued decline calendar 2014 supply copper exceeded demand driving price future copper prices expected continue volatile likely influenced demand china economic activity us gold prices decreased level full cost production many mines decreasing prices gold copper led material decrease rate mineral exploration development within industry reduced revenues generated mineral services adversely affected results operations cash flows energy services energy services revenue increased 04 million 63 million fy 2014 59 million fy 2013 division continues market capabilities endtoend provider water solutions within energy industry comparison management believes many energy services’ competitors ability perform portion services energy services able deliver segment’s entry marketplace taken longer expected part due time needed market portfolio services within industry entry marketplace continues develop management committed growing segment loss impairments income taxes remained relatively flat fy 2013 fy 2014 fy 2013 layne recorded impairment charge related nonproducing assets totaling 40 million revenues income taxes primarily small specialty purchasing operation majority revenues eliminated segments operation produce positive earnings purchasing discounts third party sales increase revenues 84 million 199 million fy 2014 115 million fy 2013 due segments within layne taking advantage purchasing expertise within operation able centralize layne’s purchasing order take advantage purchase discounts offered various vendors unallocated corporate expenses corporate expenses allocated individual segments primarily included selling general administrative expenses 430 million fy 2014 compared 360 million fy 2013 70 million increase corporate expenses primarily due 59 million increase expenses related relocation corporate headquarters inflation management believe operations periods discussed significantly adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures layne’s primary sources liquidity historically cash operations supplemented borrowings credit facilities cash flow affected number factors beyond layne’s control factors include prices demand layne’s services operational risks volatility commodity prices industry economic conditions financial markets factors layne’s financial performance challenged tempered variety risks inherent industries geographies serves among cyclical nature minerals mining affected significantly quickly factors beyond layne’s control fy 2015 global slowdown minerals drilling services continued factors mining company exploration budgets commodity prices changes taxation policy increasing labor costs global credit markets affected mineral services financial performance management expects trend continue fy 2016 heavy civil experienced significant losses certain longterm construction contracts fy 2013 fy 2014 fy 2015 due schedule delays cost overruns contracts layne’s financial results adversely impacted management continues face operational challenges contracts approach final completion january 31 2015 layne provided estimated future losses contracts although layne strives improve ability estimate contract costs profitability associated projects reasonably possible current estimates could change adjustments overall contract costs may continue significant future periods material changes would put significant additional strain liquidity could material adverse impact layne’s financial position results operations cash flows geoconstruction weak demand infrastructure projects us fy 2015 impacted results new projects awarded geoconstruction third quarter fy 2014 continuing fy 2015 however certain projects experienced delays initial stages delays controllable layne rather owner jobs resumed second quarter fy 2015 delays significant adverse effect geoconstruction’s financial results operating segment often mobilized sites unable continue work august 2014 layne announced geoconstruction awarded 1325 million contract us army corps engineers east branch dam located pennsylvania project commenced fourth quarter fy 2015 expected completed end fy 2019 due recent operating results layne tightly managing cash liquidity position layne continues discuss additional initiatives could implemented enhance liquidity position discussed note 17 consolidated financial statements board directors approved management’s restructuring plan implement series shortterm longterm cost reduction actions order improve layne’s liquidity results operations actions expected generate annual savings approximately 200 million total expected cost implement 27 million plan substantially implemented january 31 2015 management believes restructuring plan assist layne sufficient funds adequate financial resources available meet anticipated liquidity needs layne may incur material charges currently anticipated due events could beyond layne’s control occur result materially associated restructuring plan related activities actual results could differ materially current estimates layne continuing global strategic review operations evaluate underperforming divisions service lines noncore assets expects review continue fy 2016 part reassessment layne examined strategy expanding geoconstruction operating segment brazil south american markets subsidiary operation costa fortuna due sluggish economy brazil weak infrastructure project demand need additional capital fund business management recommended board directors approved disposition costa fortuna necessary shift away geoconstruction business south america july 31 2014 layne disposed costa fortuna business aldo corda former owner current manager costa fortuna layne sold issued outstanding shares costa fortuna’s parent company holub sa uruguay sociedad anonima subsidiaries exchange 44 million consideration conjunction transaction layne acquired certain equipment estimated value 21 million reducing intercompany receivable owed costa fortuna remaining intercompany receivable due costa fortuna assigned part transaction exchange 13 million purchase price shares remaining intercompany receivable payable future years beginning calendar year ended december 31 2015 based 3333 costa fortuna’s income taxes year unpaid portion purchase price accrue interest rate 25 per annum unpaid balance purchase price plus accrued interest due payable layne july 31 2024 transaction generate immediate cash time transaction layne expects realize cash benefits funding operations costa fortuna future third quarter fy 2015 layne examined operations italy tecniwell business within geoconstruction segment business manufactured equipment ground stabilization industry management considered expected operating income well expected imminent future financing needs business determined expected return investment business insufficient warrant continued involvement october 31 2014 layne disposed tecniwell alberto battini 50 paolo trubini 50 employee tecniwell time disposal transaction sale layne quotas representing 100 corporate capital tecniwell exchange 09 million cash layne received 05 million october 31 2014 remaining 04 million received january 22 2015 layne expects realize cash benefits funding operations tecniwell future third quarter fy 2015 layne also sold certain real estate noncore assets items totaling 19 million third quarter reflected gain sale assets consolidated financial statements items considered management’s strategic evaluation noncore assets layne expects evaluate additional assets coming months part strategic evaluation working capital layne’s working capital january 31 2015 2014 1048 million 1213 million respectively decrease working capital january 31 2015 compared january 31 2014 165 million due variety factors increases 226 million customer receivables 14 million net contract receivables due increases revenue volume fourth quarter heightened emphasis billings increase accounts payable 216 million partially due increase volume revenue partially due extending vendor payment terms significant items affecting working capital liquidation 106 million cash surrender value life insurance policies increase accrued costs related departure former chief executive officer well individuals costs related restructuring efforts decrease 104 million accrual related potential fcpa liability reflecting settlement sec 52 million represented cash payment net effect working capital changes net decrease cash 92 million available cash equivalents layne’s cash equivalents january 31 2015 217 million compared 309 million january 31 2014 layne’s cash equivalents amounts held foreign subsidiaries january 31 2015 117 million compared 250 million january 31 2014 repatriation cash balances layne’s foreign subsidiaries could result withholding taxes local jurisdictions amounts held foreign subsidiaries january 31 2015 11 million could subject repatriation restrictions amounts needed domestic operations amounts subject repatriation needed domestic operations would subject us federal state income taxes less applicable foreign tax credits however layne’s intention permanently reinvest funds outside us current plans demonstrate need repatriate fund us operations restrictions transfer foreign cash equivalents significantly impacted layne’s overall liquidity certain countries africa begun require companies transact local currency rather us dollar new requirements significantly impact layne’s liquidity layne continues monitor developments foreign countries operates changes currency regulation layne’s assetbased facility see discussion limits amount cash may hold foreign jurisdictions 300 million layne expect applicable foreign cash balances exceed 300 million unlikely event foreign cash balances reach 300 million management would take action repatriate amounts sufficient comply covenant financing agreements 425 convertible notes bear interest payable semiannually arrears cash may 15 november 15 year began may 15 2014 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted 425 convertible notes convertible option holders consideration consisting layne’s election cash shares layne’s common stock combination cash shares layne’s common stock cash lieu fractional shares close business scheduled trading day immediately preceding may 15 2018 except must settle conversion shares common stock obtain necessary stockholder approval required nasdaq’s listing standards november 15 2016 prior maturity date layne may redeem less 425 convertible notes cash sale price layne’s common stock equals exceeds 130 applicable conversion price specified time period ending trading day immediately prior date layne delivers notice redemption price equal 100 principal amount 425 convertible notes redeemed plus accrued unpaid interest excluding redemption date addition upon occurrence fundamental change defined indenture holders 425 convertible notes right option require layne repurchase 425 convertible notes cash price equal 100 principal amount 425 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date march 2 2015 layne completed offering approximately 1000 million aggregate principal amount 80 convertible notes 80 convertible notes offered certain investors held approximately 555 million layne’s 425 convertible notes pursuant terms investors agreed exchange 425 convertible notes owned approximately 499 million 80 convertible notes ii purchase approximately 499 million aggregate principal amount 80 convertible notes cash price equal principal amount thereof amount accrued interest 425 convertible notes delivered investors exchange credited cash purchase price payable investors purchase sale 80 convertible notes generated net cash proceeds approximately 450 million deducting discounts commissions estimated offering expenses accrued interest 425 convertible notes exchanged layne used portion net cash proceeds repay outstanding balance assetbased facility 182 million remainder proceeds used future working capital needs march 31 2015 layne’s cash equivalents 655 million borrowings outstanding assetbased facility layne’s assetbased facility provides revolving credit borrowings 1350 million aggregate principal amount 750 million available form letters credit aggregate principal amount 150 million available shortterm swingline borrowings availability assetbased facility lesser 1350 million ii borrowing base defined assetbased facility agreement january 31 2015 borrowing base approximately 1083 million 219 million borrowed assetbased facility outstanding letters credit totaled 313 million leaving excess availability 551 million assetbased facility guaranteed layne’s direct indirectly whollyowned domestic subsidiaries subject certain exceptions described assetbased facility obligations assetbased facility secured lien substantially assets layne guarantor subsidiaries subject certain exceptions described assetbased facility include pledge 65 equity interest layne’s first tier foreign subsidiaries layne must maintain cumulative minimum cash flow defined agreement less negative 450 million twelve consecutive month period march 31 2015 cumulative period may 1 2014 minimum cash flow less negative 250 million · period 30 consecutive days excess availability greater 175 total availability 250 million · two consecutive fiscal quarters closing date fixed charge coverage ratio tested trailing four fiscal quarter basis excess 10 minimum cash flow defined consolidated ebitda minus sum · capital expenditures · cash interest expense · regularly scheduled amortized principal payments indebtedness · cash taxes paid · amount excess 100 million paid respect fcpa investigation comparison required covenants assetbased facility current compliance follows excess availability generally defined amount total availability lesser layne’s borrowing based maximum credit exceeds outstanding loans letters credit assetbased facility less greater 175 total availability 250 million one business day “covenant compliance period” defined assetbased facility agreement exist excess availability equal greater 175 total availability 250 million period 30 consecutive days covenant compliance period layne must maintain minimum fixed charge coverage ratio less 10 maximum first lien leverage ratio greater 50 10 four fiscal quarters ended immediately preceding covenant compliance period four fiscal quarter period ending covenant compliance period layne covenant compliance period fy 2015 would compliance minimum fixed charge coverage ratio assetbased facility amended march 2 2015 permit issuance 80 convertible notes exchange approximately 555 million 425 convertible notes approximately 499 million 80 convertible notes grant second liens securing 80 convertible notes addition amendment among things · reduced maximum amount may borrowed assetbased facility 1350 million 1200 million layne delivered agent assetbased facility financial statements compliance certificate fiscal quarter commencing date amendment demonstrating fiscal quarter immediately preceding fiscal quarter consolidated fixed charge coverage ratio defined assetbased credit agreement least 100 four consecutive quarters ending fiscal quarters · increase quarterly commitment fee unused commitments 0375 05 daily average total revolving exposure defined assetbased facility quarter exceeds 50 total revolving commitments defined assetbased facility · eliminated layne’s owned real estate borrowing base real estate accounted approximately 42 million layne’s borrowing base time amendment · requires layne deliver month forecast cash flows following 13weeks · end business day layne coborrowers assetbased facility cash equivalents less outstanding checks electronic funds transfers excess 150 million excluding amounts bank accounts used solely payroll employee benefits withholding taxes requires layne use excess amounts prepay revolving loans outstanding end following business day · accelerate maturity date may 15 2018 following yet occurred date either 80 convertible notes permitted refinancing indebtedness defined assetbased facility respect thereof converted b maturity date 80 convertible notes permitted refinancing indebtedness respect thereof extended date october 15 2019 ii either 425 convertible notes permitted refinancing indebtedness respect thereof converted b maturity date 425 convertible notes permitted refinancing indebtedness respect thereof extended date october 15 2019 c 425 convertible notes effectively discharged 425 convertible notes effectively discharged among things layne irrevocably deposited trustee 425 convertible notes cash amount sufficient pay remaining interest principal payments due remaining unconverted 425 convertible notes irrevocable instructions trustee make payments holders 425 convertible notes become due assetbased facility amended march 2015 permit layne make certain voluntary prepayments payments repurchases redemptions retirements defeasances acquisitions value 80 convertible notes following payment conditions satisfied · default action · supplemental reserve defined assetbased credit agreement zero · thirtyday excess availability excess availability defined assetbased credit agreement pro forma basis equal exceeds greater 225 total availability b 300 million · layne pro forma basis consolidated fixed charge coverage ratio less 110100 assetbased facility also contains subjective acceleration clause triggered lenders determine layne experienced material adverse change triggered lenders clause would create event default turn would permit lenders accelerate repayment outstanding obligations general covenant compliance period event default occurred continuing layne’s funds received daily basis applied reduce amounts owing assetbased facility based current projections layne anticipate covenant compliance period next twelve months event default defined assetbased facility agreement occurs continuing interest rate assetbased facility increase 2 per annum lenders may accelerate amounts owing assetbased facility customary construction business layne required provide surety bonds secure performance certain construction contracts layne’s continued ability obtain surety bonds primarily depend upon layne’s capitalization working capital past performance management expertise reputation certain external factors including overall capacity surety market surety companies consider factors relationship amount backlog underwriting standards may change time layne’s reimbursement obligation surety providers secured security interest certain assets including certain accounts receivable inventory equipment documents contract rights instruments well explicit right utilize certain layne’s specialized construction equipment claims made certain surety bonds addition surety providers may future require us provide additional collateral security sufficient discharge claim made anticipated claim surety bond respect layne’s joint ventures ability obtain bond may also depend credit performance risks joint venture partners addition events generally affect insurance bonding markets may result bonding becoming difficult obtain future available significantly greater cost available layne unable obtain performance bonds future projects results operations would materially adversely affected amount layne’s surety bonds january 31 2015 3595 million measured amount contract revenue remaining recognized layne’s ability maintain sufficient liquidity next twelve months fund operations contingent improving current trend operating results realizing cost savings executing restructuring plan managing capital expenditures reviewing working capital practices focusing reducing costs strategic bid acceptance contract management heavy civil risks associated plans substantial increase projected cash outflow operating losses could material adverse impact ability secure surety bonds necessary substantial portion work several divisions access assetbased facility ability amend extend refinance credit agreements operating losses continue decline layne required borrow additional amounts assetbased facility make reductions capital expenditures make additional reductions operating cost structure actions improve liquidity could include seeking raise additional capital selling underperforming assets divesting certain businesses action layne elects take may require lender approval assetbased facility management believes ability implement execute measures sufficient adequate funds meet anticipated liquidity needs next twelve months layne compliance covenants january 31 2015 expects remain compliance covenants next twelve months operating activities cash used provided operating activities 231 million 11 million 248 million fy 2015 fy 2014 fy 2013 respectively layne’s cash used operating activities fy 2015 primarily due increase working capital components 128 million operating losses investing activities capital expenditures 162 million 344 million fy 2015 fy 2014 respectively maintain upgrade layne’s equipment facilities spending compares spending fy 2013 758 million maintain upgrade equipment facilities 17 million spent unconventional natural gas exploration production prior sale third quarter fy 2013 since first quarter layne reduced capital expenditures minimal levels increased collection activities extended payment terms vendors manage liquidity layne received 59 million 87 million fy 2015 fy 2014 respectively proceeds disposals property equipment compared proceeds 62 million fy 2013 fy 2015 layne sold tecniwell business receiving proceeds 09 million along cash divested 39 million corporate owned life insurance policies certain management level employees determined longer necessary redeemed redemption resulted net proceeds 106 million fy 2015 36 million fy 2014 additional 05 million insurance proceeds received death benefits fy 2015 fy 2014 layne sold solmetex operations 106 million received final proceeds sale energy segment 15 million fy 2013 layne invested 175 million net cash acquired acquisition remaining 50 costa fortuna well invested 08 million acquire 100 stock fursol informatica srl fursol layne paid additional 02 million fursol october 4 2013 pursuant terms purchase agreement layne sold energy segment october 2013 received 135 million proceeds fy 2013 financing activities discussed note 7 condensed consolidated financial statements layne entered assetbased facility 1350 million april 2014 layne capitalized amortizing associated cash expenditure assetbased facility 43 million fourth quarter fy 2014 layne entered purchase agreement sale 425 convertible notes total amount 1250 million see note 7 consolidated financial statements additional discussion 425 convertible notes layne also capitalized amortizing associated expenses purchase agreement discount commission paid initial purchaser 50 million fy 2015 fy 2014 fy 2013 layne net repayments borrowings 191 million 916 million 425 million longterm revolving agreement net borrowings sources longterm debt primarily used fund capital expenditures acquisitions working capital needs fy 2015 layne decreased amount capital expenditures also engaged acquisitions thus lowering net borrowings additionally proceeds convertible notes issuance 1054 million 106 million sale solmetex used pay balances outstanding credit agreement fy 2014 fy 2015 fy 2014 fy 2013 layne distributed 16 million 17 million 42 million respectively noncontrolling interest partners either distribution joint project income case mineral services subsidiary brazil buy noncontrolling interest contractual obligations commercial commitments contractual obligations commercial commitments january 31 2015 summarized follows layne expects meet cash contractual obligations ordinary course operations standby letters credit renewed connection annual insurance renewal process 425 convertible notes bear interest rate 425 per year payable semiannually arrears cash may 15 november 15 year 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted terms purchase agreement capitalized leases obligations certain vehicles equipment interest rates obligations fixed range 11 31 annually depending lease layne income tax uncertainties amount 133 million january 31 2015 classified noncurrent balance sheet resolution matters expected take year ultimate timing resolution items uncertain accordingly amounts included table additional obligations ordinary course operations also incurred obligations including limited income tax payments expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discuss consolidated financial statements prepared accordance us gaap preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period layne’s accounting policies fully described note 1 consolidated financial statements located item 8 form 10k layne believes following accounting policies represent management’s critical policies critical accounting policies practices estimates subset significant accounting policies considered important description layne’s financial condition results require management’s difficult subjective complex judgments often result need make estimates effects matters inherently uncertain revenue recognition significant estimates regard consolidated financial statements relate estimation total forecasted construction contract revenues costs profits accordance criteria established accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” based experience current processes layne produces materially reliable estimates total contract revenue cost accounting period however many factors change contract performance period result change contract profitability one financial reporting period another factors change estimate total contract revenue cost include differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revision costs income recognized period revisions costs revenues become known provisions estimated losses uncompleted construction contracts made period become known large changes cost estimates larger complex construction projects material impact consolidated financial statements reflected results operations become known smaller contracts smaller changes estimates usually material impact consolidated financial statements nature accounting contracts refinements estimating process changing conditions new developments continuous characteristic process prior execution contract related costs expensed period incurred generally early stages contract cost estimates relating purchases materials subcontractors subject revisions contract moves productive phase execution change orders project cost estimate revisions claims frequently sources changes estimates contract’s final phase remaining estimated costs complete provisions claims closed adjusted based actual costs incurred impact operating margin reporting period future periods change estimate depend stage contract completion generally contract early stage completion current period impact smaller change estimate made contract later stage completion fy 2014 layne’s income continuing operations increased due estimated recovery projected contract geoconstruction due negotiated change orders agreed customer amount 84 million material change orders fy 2015 fy 2014 fy 2013 material contract penalties claims settlements changes contract estimates fy 2015 fy 2014 fy 2013 amounts netted revenue fy 2015 fy 2014 fy 2013 layne provided estimated costs complete ongoing contracts however possible current estimates could change due unforeseen events could result adjustments overall contract costs variances estimated contract performance could result material adjustments operating results fiscal quarter year contracts current estimate total contract cost indicates loss projected loss recognized full losses become known fy 2015 fy 2014 fy 2013 approximately 252 million 178 million 286 million contract losses recorded respectively current provision loss contracts 33 million 15 million fy 2015 fy 2014 respectively january 31 2015 individual material loss contracts january 31 2015 contracts individually could reasonably estimated material loss position future management focuses evaluating performance contracts individually ordinary course business minimum quarterly basis based changes facts approved scope change estimate projected total contract revenue cost profit loss layne’s contracts updated normal recurring changes estimates include limited · changes estimated scope result unapproved unpriced customer change orders · changes estimated productivity assumptions based experience date · changes estimated materials costs based experience date · changes estimated subcontractor costs based subcontractor experience · changes timing scheduled work may impact future costs determining likelihood recovering unapproved change orders claims layne considers history experience similar projects applies judgment estimate amount eventual recovery settlement events take several years depending easily claim able resolved customer whether arbitration litigation necessary reach settlement new facts become known adjustment estimated recovery made reflected period becomes known cumulative effect revisions estimates total revenues costs including unapproved change orders claims course work reflected accounting period facts caused revision become known financial impact revisions one contract function amount revision percentage completion contract revenues recognized large longterm construction contracts meeting criteria asc topic 60535 using percentageofcompletion method based upon ratio cost incurred total estimated costs completion layne’s contracts utilize percentage completion method revenue recognition terms six months four years contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimate revisions become known estimate contract indicates loss entire loss recorded accounting period becomes known ordinary course business management prepares updated estimates total forecasted revenue cost profit loss contract cumulative effects updated estimates reflected period become known financial impact revisions individual contract function amount revision percentage completion contract amount costs incurred involving unapproved change orders claims included total estimated revenue realization probable amount unapproved change orders claim revenues included consolidated balance sheets part costs estimated earnings excess billings profit result change orders claims recorded period change order claim resolved costs estimated earnings excess billings represents excess contract costs contract revenue recognized date percentage completion accounting method contract billings date costs estimated earnings excess billings occur · costs related unapproved change orders claims incurred · portion revenue recorded cannot billed currently due billing terms contract allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method layne’s contracts utilize completed contract method revenue recognition contract terms twelve months less layne considers contracts completed upon acceptance customer contracts mineral drilling services within mineral services billable based quantity drilling performed revenues recognized terms value total work performed date basis actual footage meterage drilled revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur percentage layne’s revenues recognized percentage completion mineral drilling services completed contract direct sales total revenues fiscal years presented consolidated statements operations impairment goodwill longlived assets equity method investments layne reviews carrying value goodwill longlived assets equity method investments whenever events changes circumstances indicate carrying values may recoverable least annually goodwill evaluation goodwill impairment conducted reporting unit level layne’s reporting units operating segments layne option performing qualitative quantitative assessment determine impairment occurred qualitative assessment indicates likely fair value reporting unit less carrying amount would required perform quantitative impairment test goodwill december 31 2014 annual impairment date performed qualitative assessment annual goodwill impairment test layne’s inliner segment reporting unit remaining goodwill balance 89 million assessment indicated layne experienced triggering events indicators would require analysis december 31 2013 2012 quantitative assessment determination impairment made comparing carrying amount reporting unit fair value evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference inliner reporting unit remaining goodwill january 31 2014 fair value reporting unit significantly exceeded carrying value 89 million layne considers market approach income approach estimating fair value reporting unit analysis market approach may include use guideline transaction method guideline company method layne considers guideline company method using market multiples publically traded companies operating characteristics similar respective reporting unit income approach uses projections reporting unit’s estimated cash flows discounted using weighted average cost capital reflects current market conditions management also compares aggregate fair value reporting units market capitalization plus control premium management uses judgment determine significant assumptions used income approach subject change result changing economic competitive conditions follows · anticipated future cash flows longterm growth rates reporting unit income approach determining fair value relies timing estimates future cash flows including estimate longterm growth rates projections use management’s estimates economic market conditions projected period including growth rates sales estimates expected changes operating margins layne’s projections future expected cash flows subject change actual results achieved differ anticipated actual results could vary significantly estimates develop cash flows future operating margins new contract awards layne tracks prospective work reporting units contract basis well estimating time work would bid awarded started completed · selection appropriate discount rate income approach requires selection appropriate discount rate based weightedaverage cost capital analysis discount rate subject changes shortterm interest rates longterm yield well variances typical capital structure marketplace participants industry discount rate determined based assumptions would used marketplace participants reason capital structure selected marketplace participants used weightedaverage cost capital analysis given current volatile economic conditions possible discount rate could change quarterly basis layne considers whether events changes circumstances indicate assets including goodwill might impaired conjunction analysis evaluates whether current market capitalization less equity specifically consider 1 changes macroeconomic conditions 2 changes general economic conditions industry including declines marketdependent multiples 3 cost factors increases materials labor costs negative effect earnings cash flows analyses 4 impact current market conditions forecast future cash flows including consideration specific projects backlog pending awards large prospect opportunities layne also evaluates recent assessment fair value reporting units considering whether current forecast future cash flows line used annual impairment assessment whether significant changes trends material assumptions used result process layne determined carrying value geoconstruction’s goodwill exceeded fair value recorded impairment charge 146 million second quarter fy 2014 see note 5 consolidated financial statements discussion impairment charges recorded longlived assets including amortizable intangible assets reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable factors management considers important could trigger impairment review include limited following · significant underperformance assets · significant changes use assets · significant negative industry economic trends impairment loss recognized carrying amount longlived asset recoverable exceeds fair value carrying amount longlived asset recoverable exceeds sum undiscounted cash flows expected result use eventual disposition asset impairment loss shall measured amount carrying amount longlived asset exceeds fair value generally calculated using combination market comparable transaction discounted cash flow approaches based declines operating performance fy 2015 heavy civil mineral services energy services layne reviewed recoverability asset values equipment segments equipment heavy civil mineral services determined recoverable based undiscounted cash flows using undiscounted cash flow model indicated carrying value property equipment energy services may fully recoverable analysis based fair value property equipment determined impairment charges necessary fy 2015 fair value property equipment based orderly liquidation value property equipment consider level 2 fair value measurement property equipment energy services carrying value 185 million considered fair value 191 million january 31 2015 fy 2014 fy 2013 impairments indicated analysis loss value equity method investment recognized decline deemed temporary unforeseen events changes market conditions could material effect value equity method investments due changes estimated sales growth rates estimates expected changes operating margins could result impairment charge impairment charges indicated analysis impairment charges fy 2015 fy 2014 fy 2013 investment affiliates balance january 31 2015 637 million income taxes income taxes provided using asset liability method deferred taxes recognized difference financial statement carrying amounts tax basis existing assets liabilities assessing need valuation allowance layne considers positive negative evidence related likelihood realization deferred tax assets critical estimates assumptions related deferred taxes include items uncertainty future taxable income ongoing prudent feasible tax planning strategies high number tax jurisdictions layne operates related complexities uncertain outcome audits reviews foreign tax officials weight given positive negative evidence commensurate extent evidence may objectively verified accounting guidance states cumulative loss recent years significant piece negative evidence difficult overcome determining valuation allowance needed deferred tax assets generally difficult positive evidence regarding projected future taxable income exclusive reversing taxable temporary differences outweigh objective negative evidence recent financial reporting losses fy 2015 fy 2014 layne cumulative three year loss us certain foreign jurisdictions therefore gave little consideration forecasted book income future years source positive evidence layne considered periods future reversals existing taxable deductible temporary differences likely occur taxable income available prior carryback years availability taxplanning strategies determining realization recorded deferred tax assets tax benefit recorded u tax losses certain foreign tax losses generated year valuation allowances provided current year losses tax benefit 39 million recorded fy 2015 result carryback prior year tax loss upon tax benefit previously recorded valuation allowance recorded fy 2014 tax expense 544 million recorded fy 2014 valuation allowances deferred tax assets established prior years january 31 2015 layne maintains 10 million foreign deferred tax asset relating certain foreign subsidiaries order realize remaining deferred tax assets layne’s foreign subsidiaries need generate taxable income approximately 34 million respective jurisdictions deferred tax assets recorded layne continue monitor results foreign subsidiaries unable generate sufficient taxable income may additional valuation allowances recorded future periods item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements management’s intentions hopes beliefs expectations predictions future forwardlooking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “goal” “forecast” “plan” “estimate” similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various commodities including gold copper crude oil natural gas duration current slowdown mineral drilling services market unanticipated slowdowns layne’s major markets availability credit risks uncertainties normally incident construction industry timing completion existing unprofitable contracts heavy civil impact competition effectiveness operational changes expected increase efficiency productivity reduce costs worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations many factors determine items beyond layne’s ability control predict one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing layne assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements overview following management’s discussion analysis financial condition results operations “mda” intended help reader understand layne operations present business environment mda provided supplement read connection consolidated financial statements accompanying notes thereto contained item 8 report mda includes following sections · businessa general description business key fiscal year 2016 events · consolidated review operationsan analysis consolidated results operations three years presented consolidated financial statements · operating segment review operationsan analysis results operations three years presented consolidated financial statements reporting segments water resources inliner heavy civil mineral services · liquidity capital resourcesan analysis cash flows aggregate financial commitments certain financial condition ratios · critical accounting policies estimatesa discussion critical accounting policies estimates involve higher degree judgment complexity business layne global water management construction drilling company provide responsible solutions water mineral energy challenges manage report operations four segments water resources inliner heavy civil mineral services key fiscal year 2016 events march 2 2015 completed offering approximately 1000 million aggregate principal amount 80 convertible notes 80 convertible notes offered par certain investors held approximately 555 million 425 convertible notes pursuant terms investors agreed exchange 425 convertible notes owned approximately 499 million 80 convertible notes ii purchase approximately 499 million aggregate principal amount 80 convertible notes cash price equal principal amount thereof received net cash proceeds issuance 80 convertible notes net expenses related offering approximately 450 million used portion net cash proceeds repay amounts outstanding assetbased credit facility remainder net cash proceeds held general working capital purposes see part ii item 7 liquidity capital resources additional information mineral services continues impacted global slowdown spending mineral drilling services markets served whollyowned operations latin american affiliates global spending minerals drilling services decreased significantly past three years every geographic region reduced revenues generated mineral services adversely affected results operations cash flows fy2016 response continuing decline global minerals market implemented plan exit operations africa australia restructuring expected completed first quarter fy2017 designed optimize cost structure involved reduction workforce disposition assets may 20 2015 signed definitive agreement sell geoconstruction business transaction closed august 17 2015 total consideration 423 million including preliminary estimate business segment’s working capital subject postclosing reconciliation postclosing adjustments total purchase price increased 477 million adjust estimated share profits one contracts assumed buyer final working capital adjustments expect use net proceeds sale general corporate purposes growth opportunities core businesses disposition discussed note 14 consolidated financial statements concurrent closing sale geoconstruction business segment august 17 2015 existing assetbased facility amended among things 1 reduce maximum amount may borrowed assetbased facility 1200 million 1000 million 2 eliminate 150 million availability block defined assetbased facility agreement 3 reduce minimum excess availability 250 million 175 million 4 revise borrowing base calculation 5 increase annual commitment fee unused commitments 050 075 third quarter fy2016 realigned operating structure combining energy services segment water resources segment realignment expected increase efficiencies terms asset management operations appointed j michael anderson senior vice president chief financial officer effective july 20 2015 mr anderson brings 25 years experience senior management roles publiclytraded companies water energy industries commercial investment banking effective november 9 2015 appointed jami phillips principal accounting officer ms phillips worked us various finance positions since 2013 served controller since october 9 2014 prior working us ms phillips worked cbiz inc financial services company 2010 2013 consolidated review operations following table derived consolidated financial statements included item 8 presents periods indicated percentage relationship certain items reflected results operations bear revenues percentage increase decrease dollar amount items periodtoperiod meaningful revenues equity earnings losses affiliates income loss income taxes pertaining operating segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit treasury legal tax compliance information technology executive management board directors comparison fiscal year 2016 fy 2016 fiscal year 2015 fy 2015 revenues decreased 376 million 52 6830 million fiscal year ended january 31 2016 compared 7206 million fiscal year ended january 31 2015 decrease revenues primarily due lower revenues mineral services heavy civil partially offset increases revenues water resources inliner cost revenues exclusive depreciation amortization impairment charges decreased 408 million 5701 million 835 revenues fiscal year ended january 31 2016 compared 6108 million 848 revenues fiscal year ended january 31 2015 cost revenues fiscal year ended january 31 2016 included 79 million 12 revenues writedown inventory part restructuring activities africa australia cost revenues percentage revenues fiscal year ended january 31 2016 decreased prior year primarily due improved margins heavy civil water resources selling general administrative expenses decreased 89 million 76 1082 million fiscal year ended january 31 2016 compared 1171 million fiscal year ended january 31 2015 decreases primarily due overall effort reduce overhead costs including reductions consulting expenses compensation expenses due fy2015 restructuring plan relocation costs office rent depreciation amortization decreased 93 million 221 327 million fiscal year ended january 31 2016 compared 420 million fiscal year ended january 31 2015 decrease primarily due reductions capital expenditures past several years disposal underutilized assets impairment certain fixed assets current fiscal year asset impairment charge 46 million recorded fiscal year ended january 31 2016 energy services segment previously reported separate segment prior combined water resources segment beginning third quarter fy2016 impairment charge recorded reflect reductions estimated fair value certain longlived assets restructuring costs 100 million recorded fiscal year ended january 31 2016 compared 27 million fiscal year ended january 31 2015 fiscal year ended january 31 2016 restructuring costs related 39 million asset writedown combined 61 million severance costs part restructuring activities africa australia restructuring costs fiscal year ended january 31 2015 primarily consisted severance related costs associated fy2015 restructuring plan equity losses affiliates decreased 14 million 694 06 million fiscal year ended january 31 2016 compared 20 million fiscal year ended january 31 2015 gain extinguishment debt 42 million recognized fiscal year ended january 31 2016 connection partial redemption 425 convertible notes exchange 80 convertible notes discussed note 6 consolidated financial statements interest expense increased 43 million 314 180 million fiscal year ended january 31 2016 compared 137 million fiscal year ended january 31 2015 increase interest expense mainly due higher debt balance higher average interest rate issuance 80 convertible notes first quarter fy2016 income tax benefit continuing operations 16 million recorded fiscal year ended january 31 2016 compared 39 million fiscal year ended january 31 2015 fy2016 tax benefit included 36 million benefit recorded offset equal amount tax expense discontinued operations less 20 million tax expense relating items continuing operations fy2015 tax benefit primarily due carryback prior year tax losses upon tax benefit previously recorded cash refund 39 million received early fy2016 result operations fiscal year ended january 31 2016 included net income discontinued operations 81 million primarily related gain sale geoconstruction business net loss discontinued operations 469 million recorded fiscal year ended january 31 2015 primarily related operating losses geoconstruction business segment loss sale costa fortuna tecniwell businesses included geoconstruction business segment operating segment review operations water resources revenues water resources increased 111 million 51 2275 million fiscal year ended january 31 2016 compared 2165 million fiscal year ended january 31 2015 revenue growth water resources driven mainly drilling projects western portion us related lingering drought conditions revenue growth western region partially offset declines water management services energy market result decline oil natural gas prices income continuing operations income taxes decreased 53 million 498 54 million fiscal year ended january 31 2016 compared 107 million fiscal year ended january 31 2015 asset impairment charge 46 million recorded second quarter fy2016 reflect reductions estimated fair value longlived assets serving energy industry inliner revenues inliner increased 187 million 107 1937 million fiscal year ended january 31 2016 compared 1750 million fiscal year ended january 31 2015 revenues increased primarily due growth number crews associated equipment increased 34 prior year 38 end current fiscal year income continuing operations income taxes increased 16 million 70 245 million fiscal year ended january 31 2016 compared 229 million fiscal year ended january 31 2015 increase income continuing operations income taxes attributed growth revenues heavy civil revenues heavy civil decreased 313 million 151 1758 million fiscal year ended january 31 2016 compared 2070 million fiscal year ended january 31 2015 decline revenues heavy civil due continuing strategic shift towards selective opportunities including negotiated alternative delivery contracts less emphasis traditional fixedprice contracts negotiated alternative delivery contracts typically lower risk contributing improved margins furthermore certain large projects closed nearing completion reduced revenues recognized current period loss continuing operations income taxes improved 169 million 785 46 million fiscal year ended january 31 2016 compared 215 million fiscal year ended january 31 2015 decrease loss continuing operations income taxes due less cost degradation fixedprice troubled contracts improving performance alternative delivery projects contributing reduction loss continuing operations income taxes lower selling general administrative expenses heavy civil focuses effectively managing cost structure reduced depreciation expense segment continues reduce capital expenditures dispose underutilized assets mineral services revenues mineral services decreased 343 million 285 859 million fiscal year ended january 31 2016 compared 1202 million fiscal year ended january 31 2015 revenues declined primarily result continuation declining global commodity prices significant reductions mining activities around world revenues outside united states declined dramatically foreign locations severely impacted drop commodity prices due higher costs production activity united states benefited growth mine water management services loss continuing operations income taxes deteriorated 131 million 280 million fiscal year ended january 31 2016 compared 149 million fiscal year ended january 31 2015 fy2016 response continuing decline global minerals market implemented plan exit minerals services operations africa australia costs incurred related restructuring activities approximately 168 million consisted 79 million writedown inventory 39 million writedown fixed assets 50 million severance costs january 31 2016 operations wound africa australia primary activity remaining locations relate complying statutory audit regulatory requirements equity losses affiliates slightly improved 14 million 06 million year ended january 31 2016 compared 20 million year ended january 31 2015 revenues loss continuing operations income taxes primarily purchasing operations majority revenues eliminated segments decrease revenues 15 million 177 million fiscal year ended january 31 2016 192 million fiscal year ended january 31 2015 due segments within layne taking advantage purchasing expertise within operation unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 377 million fiscal year ended january 31 2016 compared 498 million fiscal year ended january 31 2015 121 million decrease corporate expenses primarily due decrease compensation expenses workforce reduction part fy2015 restructuring plan well decreases consulting fees legal professional fees relocation expenses comparison fiscal year 2015 fy 2015 fiscal year 2014 fy 2014 revenues decreased 515 million 67 7206 million fiscal year ended january 31 2015 compared 7721 million fiscal year ended january 31 2014 decrease revenues primarily due lower revenues mineral services heavy civil partially offset increases revenues water resources inliner cost revenues exclusive depreciation amortization impairment charges decreased 342 million 6108 million 848 revenues fiscal year ended january 31 2015 compared 6451 million 835 revenues fiscal year ended january 31 2014 cost revenues percentage revenues fiscal year ended january 31 2015 increased prior year primarily due increase costs complete fixedprice projects heavy civil selling general administrative expenses decreased 92 million 73 1171 million fiscal year ended january 31 2015 compared 1263 million fiscal year ended january 31 2014 decrease primarily related decreases relocation expenses fcpa investigation related expenses decrease relocation expenses fy2014 result costs incurred fy2014 layne’s move mission kansas woodlands texas net decrease fcpa investigation related expenses result investigation mostly completed end fy2014 reversal prior accrual result doj declining take action layne discussed note 14 consolidated financial statements decreases offset increases legal professional fees incentive compensation consulting expenses depreciation amortization decreased 68 million 140 420 million fiscal year ended january 31 2015 compared 488 million fiscal year ended january 31 2014 decrease primarily due reductions capital expenditures layne continued restrict capital spending restructuring costs 27 million recorded fiscal year ended january 31 2015 connection fy 2015 restructuring plan primarily consisted severance related costs associated workforce reductions costs move consolidate equipment inventories equity losses affiliates decreased 10 million 327 20 million fiscal year ended january 31 2015 compared 30 million fiscal year ended january 31 2014 layne’s international affiliates recorded losses 20 million due primarily severance costs operations downsized response market conditions interest expense increased 66 million 922 137 million fiscal year ended january 31 2015 compared 71 million fiscal year ended january 31 2014 included interest expense fiscal years ended january 31 2015 2014 amortization debt issuance costs 14 million 02 million respectively amortization discount related 425 convertible notes 33 million 08 million respectively remaining increase interest expense primarily due 425 convertible notes outstanding full period fy2015 income tax benefit 39 million recorded continuing operations fiscal year ended january 31 2015 compared income tax expense continuing operations 569 million fiscal year ended january 31 2014 fy2015 tax benefit primarily due carryback prior year tax losses upon tax benefit previously recorded tax expense recorded fy2014 resulted primarily 544 million tax charge due valuation allowance provided deferred tax assets established prior year tax benefit 71 million recorded continuing operations offsetting equal amount tax expense recorded equity connection issuance 425 convertible notes net loss discontinued operations 469 million recorded fiscal year ended january 31 2015 primarily related operating losses geoconstruction business segment loss sale costa fortuna tecniwell businesses included geoconstruction business segment fiscal year ended january 31 2014 net loss discontinued operations 197 million recorded primarily related operating losses geoconstruction business segment including costa fortuna tecniwell partially offset gain sale solmetex business operating segment review operations water resources revenues water resources increased 342 million 188 2165 million fiscal year ended january 31 2015 compared 1822 million fiscal year ended january 31 2014 water resources experienced growth primarily result projects western portion us inadequate water infrastructure regions combined lingering drought conditions resulted additional opportunities provide water management services particularly agribusiness market income loss continuing operations income taxes improved 107 million fiscal year ended january 31 2015 compared 22 million loss fiscal year ended january 31 2014 water resources carefully analyzing locations overhead expenses increase efficiencies lower costs still provide locations best service areas projects located direct costs percentage revenue decreased 771 year ended january 31 2014 742 year ended january 31 2015 growth revenues combined slight margin improvements across operations better leverage fixed costs resulted improved earnings inliner revenues inliner increased 266 million 179 1750 million fiscal year ended january 31 2015 compared 1484 million fiscal year ended january 31 2014 revenues continued grow across markets also benefited introductions fiberglassbased lining products accounted approximately 61 million revenue year ended january 31 2015 income continuing operations income taxes increased 52 million 296 229 million fiscal year ended january 31 2015 compared 177 million fiscal year ended january 31 2014 overall direct costs improved percentage revenues 799 year ended january 31 2014 785 year ended january 31 2015 continued leverage fixed costs plus slight margin improvements resulted improved earnings last fiscal year heavy civil revenues heavy civil decreased 602 million 225 2070 million fiscal year ended january 31 2015 compared 2672 million fiscal year ended january 31 2014 revenues heavy civil declined due strategic decision reduce volume fixed bid type contracts concentrate increasing opportunities negotiated alternative delivery contracts typically lower risk loss continuing operations income taxes increased 137 million 1763 215 million fiscal year ended january 31 2015 compared 78 million fiscal year ended january 31 2014 low gross profit margins resulted operating results sufficient offset overhead costs projects already experiencing cost overruns delayed even anticipated several jobs northeastern portion us experienced adverse weather conditions first quarter fy2015 january 2015 adverse weather conditions cause increase expenses projects due crew equipment standby costs weather subsides work may restarted sequence order meet time constraints implicit within contracts certain projects thereby reducing profitability delays completing projects led additional costs estimated costs complete projects updated reflect best information available us time estimated future losses recorded remains possible reach completion projects could encounter unforeseen conditions events would cause us revise estimates could result losses fy2015 estimated losses recorded larger revenue contracts approximately 135 million fy2014 estimated losses approximately 93 million recorded larger revenue contracts mineral services revenues mineral services decreased 527 million 305 1202 million fiscal year ended january 31 2015 compared 1730 million fiscal year ended january 31 2014 revenues continued impacted significant slowdown global mining exploration activity loss continuing operations income taxes deteriorated 54 million 149 million fiscal year ended january 31 2015 compared 95 million fiscal year ended january 31 2014 included loss continuing operations income taxes fiscal year ended january 31 2015 decrease accrual related fcpa investigation 52 million result doj’s decision close investigation without bringing charges layne compared increase accrual 67 million fiscal year ended january 31 2014 equity losses affiliates south america also continued impacted market conditions fy 2015 equity losses affiliates decreased 10 million 20 million fiscal year ended january 31 2015 30 million fiscal year ended january 31 2014 reductions workforce occurred fy2014 lesser degree fy 2015 response depressed mineral drilling services market resulted slightly better results fy2015 revenues loss income continuing operations income taxes primarily purchasing operation majority revenues eliminated segments decrease revenues fiscal year ended january 31 2015 due segments within layne taking advantage purchasing expertise within operation unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 498 million fiscal year ended january 31 2015 compared 427 million fiscal year ended january 31 2014 71 million increase corporate expenses primarily due increases legal professional fees 52 million 34 million consulting expenses 07 million restructuring expenses 19 million rent expense partially offset reductions 20 million relocation expense 11 million temporary services expenses 15 million compensation expense inflation management believe operations periods discussed significantly adversely affected inflation changing prices suppliers liquidity capital resources improved liquidity past twelve months primary sources liquidity historically cash operations supplemented borrowings credit facilities issuances convertible notes sale assets financial performance affected variety risks inherent industries geographies serve among cyclical nature minerals mining affected significantly quickly factors beyond control global slowdown minerals drilling services continued fy2016 factors mining company exploration budgets commodity prices changes taxation policy increasing labor costs global credit markets affected financial performance mineral services management expects trend continue fy2017 response conditions undertaken several actions detailed effort improve liquidity financial position · march 2 2015 completed 80 convertible notes offering improved liquidity approximately 408 million · august 17 2015 closed sale geoconstruction business provided proceeds approximately 423 million · second half fy2016 implemented plan exit operations africa australia restructuring expected reduce compensation expenses operating expenses within regions management also taken several steps improve preserve liquidity position steps include managing capital expenditures reviewing working capital practices focusing reducing overall costs january 31 2016 total liquidity 1317 million consisting excess availability assetbased facility total cash equivalents cash equivalents january 31 2016 656 million compared 217 million january 31 2015 cash equivalents held foreign subsidiaries january 31 2016 108 million compared 119 million january 31 2015 amounts held foreign subsidiaries january 31 2016 02 million could subject repatriation restrictions amounts needed domestic operations intention permanently reinvest funds outside us current plans demonstrate need repatriate fund us operations restrictions transfer foreign cash equivalents significantly impacted overall liquidity january 31 2016 working capital 1313 million compared 1048 million january 31 2015 working capital increased fiscal year 2016 primarily due improved cash flows operations cash generated issuance 80 convertible notes well proceeds sale geoconstruction business resulting increase cash equivalents 217 million january 31 2015 656 million january 31 2016 cash flows cash used operating activities 03 million 231 million 11 million fiscal years ended january 31 2016 2015 2014 respectively decrease cash outflow primarily due improved operating results well reduction customer receivables inventories accounts payable accrued expenses result efforts improve working capital practices cash provided used investing activities 224 million 36 million 150 million fiscal years ended january 31 2016 2015 2014 respectively cash provided investing activities fiscal year ended january 31 2016 primarily relates proceeds sale geoconstruction business segment partially offset capital expenditures cash used investing activities fiscal years ended january 31 2015 2014 consisted primarily capital expenditures partially offset sales assets selectively investing capital expenditures growth businesses continuing dispose underutilized assets cash flows provided financing activities 219 million 149 million 251 million fiscal years ended january 31 2016 2015 2014 respectively cash provided financing activities fiscal year ended january 31 2016 primarily relates proceeds issuance 80 convertible notes partially offset net payments assetbased credit facility cash provided financing activities fiscal year ended january 31 2015 primarily relates net borrowings assetbased credit facility cash provided financing activities fiscal year ended january 31 2014 primarily relates proceeds sale issuance 425 convertible notes used pay balances outstanding previous credit agreement financing agreements summary certain provisions credit facility debt instruments information indebtedness see note 6 consolidated financial statements form 10k 425 convertible senior notes due 2018 outstanding 695 million aggregate principal amount 425 convertible notes january 31 2016 425 convertible notes bear interest payable semiannually arrears cash may 15 november 15 year 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted 425 convertible notes convertible option holders consideration consisting election cash shares common stock combination cash shares common stock cash lieu fractional shares close business scheduled trading day immediately preceding may 15 2018 november 15 2016 prior maturity date may redeem less 425 convertible notes cash sale price common stock equals exceeds 130 applicable conversion price specified time period ending trading day immediately prior date deliver notice redemption price equal 100 principal amount 425 convertible notes redeemed plus accrued unpaid interest excluding redemption date addition upon occurrence fundamental change defined indenture holders 425 convertible notes right option require us repurchase 425 convertible notes cash price equal 100 principal amount 425 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date 80 senior secured second lien convertible notes outstanding 999 million aggregate principal amount 80 convertible notes january 31 2016 80 convertible notes issued pursuant 80 convertible notes indenture bear interest rate 80 per annum payable semiannually arrears may 1 november 1 year 80 convertible notes mature may 1 2019 provided however unless 425 convertible notes permitted refinancing indebtedness respect thereof redeemed repurchased otherwise retired discharged accordance terms converted common stock effectively discharged case prior august 15 2018 scheduled maturity date 425 convertible notes permitted refinancing indebtedness incurred respect thereof extended date october 15 2019 80 convertible notes mature august 15 2018 time prior maturity date may redeem cash less 80 convertible notes provided however may redeem 80 convertible notes redemption date outside open redemption period defined 80 convertible notes indenture unless last reported sale price common stock equals exceeds 140 conversion price 80 convertible notes effect least 20 trading days 30 consecutive trading day period ending including trading day immediately preceding date deliver redemption notice addition upon occurrence “fundamental change” defined 80 convertible notes indenture holders 80 convertible notes right option require us repurchase 80 convertible notes cash price equal 100 principal amount 80 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date assetbased revolving credit facility january 31 2016 availability assetbased facility approximately 1000 million outstanding letters credit amounting 339 million leaving excess availability 661 million assetbased facility guaranteed direct indirectly whollyowned domestic subsidiaries subject certain exceptions described assetbased facility obligations assetbased facility secured lien substantially assets guarantor subsidiaries subject certain exceptions described assetbased facility including pledge 650 equity interest first tier foreign subsidiaries must maintain cumulative minimum cash flow defined agreement less negative 450 million twelve consecutive month period minimum cash flow less negative 250 million ● period 30 consecutive days excess availability greater 175 total availability 175 million ● two consecutive fiscal quarters closing date fixed charge coverage ratio tested trailing four fiscal quarter basis excess 10 minimum cash flow defined consolidated ebitda minus sum ● capital expenditures ● cash interest expense ● regularly scheduled amortized principal payments indebtedness ● cash taxes comparison required covenants assetbased facility current compliance follows excess availability less greater 175 total availability 175 million one business day “covenant compliance period” defined assetbased facility agreement exist excess availability equal greater 175 total availability 175 million period 30 consecutive days must maintain minimum fixed charge coverage ratio less 10 maximum first lien leverage ratio greater 50 10 four fiscal quarters ended immediately preceding covenant compliance period four fiscal quarter period ending covenant compliance period would compliance fixed charge coverage ratio covenant compliance period fiscal quarter ending july 31 2014 april 30 2015 fiscal quarter ending january 31 2016 assetbased facility also contains subjective acceleration clause triggered lenders determine experienced material adverse change triggered lenders clause would create event default period defined assetbased facility agreement turn would permit lenders accelerate repayment outstanding obligations general covenant compliance event default occurred continuing funds received daily basis applied reduce amounts owing assetbased facility based current projections anticipate covenant compliance period next twelve months management believes ability implement execute measures continue sufficient adequate funds meet anticipated liquidity needs next twelve months compliance covenants related outstanding indebtedness january 31 2016 expect remain compliance covenants next twelve months contractual obligations commercial commitments contractual obligations commercial commitments january 31 2016 summarized follows expect meet cash contractual obligations ordinary course operations standby letters credit renewed connection annual insurance renewal process 425 convertible notes bear interest rate 425 per year payable semiannually arrears cash may 15 november 15 year 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted terms 425 convertible notes indenture 80 convertible notes bear interest rate 80 per annum payable semiannually arrears may 1 november 1 year 80 convertible notes mature may 1 2019 subject certain provisions 80 convertible notes indenture capitalized leases obligations certain vehicles equipment interest rates obligations fixed range 36 62 annually depending lease income tax uncertainties amount 104 million january 31 2016 classified noncurrent balance sheet resolution matters expected take year ultimate timing resolution items uncertain accordingly amounts included table surety bonds secure performance projects amounting 2597 million january 31 2016 amount included table information timing resolution amounts available additional obligations ordinary course operations also incurred obligations including limited income tax payments expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discuss consolidated financial statements prepared accordance us gaap preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period accounting policies fully described note 1 consolidated financial statements located item 8 form 10k believe following accounting policies represent management’s critical policies critical accounting policies practices estimates subset significant accounting policies considered important description financial condition results require management’s difficult subjective complex judgments often result need make estimates effects matters inherently uncertain revenue recognition significant estimates regard consolidated financial statements relate estimation total forecasted construction contract revenues costs profits accordance criteria established accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” based experience current processes produce materially reliable estimates total contract revenue cost accounting period however many factors change contract performance period result change contract profitability one financial reporting period another factors change estimate total contract revenue cost include differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revisions costs income recognized period revisions costs revenues become known provisions estimated losses uncompleted construction contracts made period become known large changes cost estimates larger complex construction projects material impact consolidated financial statements reflected results operations become known smaller contracts smaller changes estimates usually material impact consolidated financial statements nature accounting contracts refinements estimating process changing conditions new developments continuous characteristic process prior execution contract related costs expensed period incurred generally early stages contract cost estimates relating purchases materials subcontractors subject revisions contract moves productive phase execution change orders project cost estimate revisions claims frequently sources changes estimates contract’s final phase remaining estimated costs complete provisions claims closed adjusted based actual costs incurred impact operating margin reporting period future periods change estimate depend stage contract completion generally contract early stage completion current period impact smaller change estimate made contract later stage completion material change orders fiscal years ended january 31 2016 2015 2014 material contract penalties claims settlements changes contract estimates fiscal years ended january 31 2016 2015 2014 amounts netted revenue fiscal years ended january 31 2016 2015 2014 provided estimated costs complete ongoing contracts however possible current estimates could change due unforeseen events could result adjustments overall contract costs variances estimated contract performance could result material adjustments operating results fiscal quarter year contracts current estimate total contract cost indicates loss projected loss recognized full losses become known fiscal years ended january 31 2016 2015 2014 approximately 222 million 252 million 175 million losses open contracts recorded respectively current provision loss contracts 15 million 33 million january 31 2016 2015 respectively january 31 2016 two material contracts loss position located southeast region contracts expected completed fy2017 provided expected costs complete january 31 2016 january 31 2016 contracts individually could reasonably estimated material loss position future management focuses evaluating performance contracts individually ordinary course business minimum quarterly basis based changes facts approved scope change estimate projected total contract revenue cost profit loss contracts updated normal recurring changes estimates include limited · changes estimated scope result unapproved unpriced customer change orders · changes estimated productivity assumptions based experience date · changes estimated materials costs based experience date · changes estimated subcontractor costs based subcontractor experience · changes timing scheduled work may impact future costs determining likelihood recovering unapproved change orders claims consider history experience similar projects apply judgment estimate amount eventual recovery settlement events take several years depending easily claim able resolved customer whether arbitration litigation necessary reach settlement new facts become known adjustment estimated recovery made reflected period becomes known cumulative effect revisions estimates total revenues costs including unapproved change orders claims course work reflected accounting period facts caused revisions become known financial impact revisions one contract function amount revision percentage completion contract revenues recognized large longterm construction contracts meeting criteria asc topic 60535 using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contracts utilize percentageofcompletion method revenue recognition terms six months four years contract price cost estimates reviewed periodically work progresses adjustments proportionate percentageofcompletion reflected contract revenues reporting period estimate revisions become known estimate contract indicates loss entire loss recorded accounting period becomes known ordinary course business management prepares updated estimates total forecasted revenue cost profit loss contract cumulative effects updated estimates reflected period become known financial impact revisions individual contract function amount revision percentage completion contract amount costs incurred involving unapproved change orders claims included total estimated revenue realization probable amount unapproved change orders claim revenues included consolidated balance sheets part costs estimated earnings excess billings profit result change orders claims recorded period change order claim resolved costs estimated earnings excess billings represents excess contract costs contract revenue recognized date percentage completion accounting method contract billings date costs estimated earnings excess billings occur · costs related unapproved change orders claims incurred · portion revenue recorded cannot billed currently due billing terms contract allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method contracts utilize completed contract method revenue recognition contract terms twelve months less consider contracts completed upon acceptance customer contracts mineral drilling services within mineral services billable based quantity drilling performed revenues recognized terms value total work performed date basis actual footage meterage drilled percentage revenues recognized percentage completion mineral drilling services completed contract total revenues fiscal years presented consolidated statements operations impairment goodwill longlived assets equity method investments review carrying value goodwill longlived assets equity method investments whenever events changes circumstances indicate carrying values may recoverable least annually goodwill evaluation goodwill impairment conducted reporting unit level reporting units operating segments option performing qualitative quantitative assessment determine impairment occurred qualitative assessment indicates likely fair value reporting unit less carrying amount would required perform quantitative impairment test goodwill december 31 2015 annual impairment date performed qualitative assessment annual goodwill impairment test inliner segment reporting unit remaining goodwill balance 89 million assessment indicated experienced triggering events indicators would require analysis quantitative assessment determination impairment made december 31 2013 comparing carrying amount reporting unit fair value evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference inliner reporting unit remaining goodwill january 31 2014 fair value reporting unit significantly exceeded carrying value 89 million consider market approach income approach estimating fair value reporting unit analysis market approach may include use guideline transaction method guideline company method layne considers guideline company method using market multiples publically traded companies operating characteristics similar respective reporting unit income approach uses projections reporting unit’s estimated cash flows discounted using weighted average cost capital reflects current market conditions management also compares aggregate fair value reporting units market capitalization plus control premium management uses judgment determine significant assumptions used income approach subject change result changing economic competitive conditions assumptions include · anticipated future cash flows longterm growth rates reporting unit income approach determining fair value relies timing estimates future cash flows including estimate longterm growth rates projections use management’s estimates economic market conditions projected period including growth rates sales estimates expected changes operating margins projections future expected cash flows subject change actual results achieved differ anticipated actual results could vary significantly estimates develop cash flows future operating margins new contract awards track prospective work reporting units contract basis well estimating time work would bid awarded started completed · selection appropriate discount rate income approach requires selection appropriate discount rate based weightedaverage cost capital analysis discount rate subject changes shortterm interest rates longterm yield well variances typical capital structure marketplace participants industry discount rate determined based assumptions would used marketplace participants reason capital structure selected marketplace participants used weightedaverage cost capital analysis given current volatile economic conditions possible discount rate could change quarterly basis consider whether events changes circumstances indicate assets including goodwill might impaired conjunction analysis evaluate whether current market capitalization less equity specifically consider 1 changes macroeconomic conditions 2 changes general economic conditions industry including declines marketdependent multiples 3 cost factors increases materials labor costs negative effect earnings cash flows analyses 4 impact current market conditions forecast future cash flows including consideration specific projects backlog pending awards large prospect opportunities also evaluate recent assessment fair value reporting units considering whether current forecast future cash flows line used annual impairment assessment whether significant changes trends material assumptions used result process determined carrying value geoconstruction’s goodwill exceeded fair value recorded impairment charge 146 million fiscal year ended january 31 2014 see note 14 consolidated financial statements discussion impairment charge recorded part loss discontinued operations longlived assets including amortizable intangible assets reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable factors management considers important could trigger impairment review include limited following · significant underperformance assets · significant changes use assets · significant negative industry economic trends impairment loss recognized carrying amount longlived asset recoverable exceeds fair value carrying amount longlived asset recoverable exceeds sum undiscounted cash flows expected result use eventual disposition asset impairment loss shall measured amount carrying amount longlived asset exceeds fair value generally calculated using combination market comparable transaction third party quoted prices asset appraisals discounted cash flow approaches fiscal year ended january 31 2016 result decision exit operations africa australia performed assessment property equipment located locations based assessment property equipment africa australia carrying value 104 million adjusted reflect estimated fair value 65 million resulting charge approximately 39 million recorded part restructuring costs consolidated statement operations fiscal year ended january 31 2016 fair value assets determined based available thirdparty quoted prices appraisals assets fiscal year ended january 31 2016 due continued prolonged depression commodity prices decreased activity levels consecutive quarterly operating losses reviewed recoverability asset values longlived assets heavy civil mineral services segments based analysis sum undiscounted cash flows expected use eventual disposal assets end useful life exceeded carrying value assets respective segments indication impairment existed prior segment realignment third quarter fiscal year ended january 31 2016 reviewed recoverability asset values longlived assets energy services segment july 31 2015 using undiscounted cash flow model concluded carrying value assets energy services fully recoverable july 31 2015 performed assessment fair value assets energy services based orderly liquidation value property equipment assessment resulted recording impairment charge approximately 46 million shown impairment charges consolidated statements operations fiscal year ended january 31 2016 fiscal years ending january 31 2015 2014 impairments indicated analysis loss value equity method investment recognized decline deemed temporary unforeseen events changes market conditions could material effect value equity method investments due changes estimated sales growth rates estimates expected changes operating margins could result impairment charge fiscal year ended january 31 2016 due extended downturn minerals market negative impact operating results affiliates reviewed equity method investments impairment based weighted approach discounted cash flow method market approach concluded fair value exceeds carrying amount equity investments accordingly impairment charge recorded fiscal year ended january 31 2016 additionally considered sensitivity fair value estimates changes certain valuation assumptions key assumptions used valuation include discount rate revenue growth rate including estimated timing minerals market recovery based following independent sensitivity analyses increase assumed discount rate 300 basis points decrease revenue growth rate 500 basis points independent timing minerals market recovery delay approximately seven years timing minerals market recovery would result impairment charge change one assumptions listed could change valuation investments 24 million 34 million could result impairment investments effect variation particular assumption fair value equity investments calculated without changing assumption reality changes one factor may associated changes another may magnify counteract sensitivities investment affiliates balance january 31 2016 574 million income taxes income taxes provided using asset liability method deferred taxes recognized difference financial statement carrying amounts tax basis existing assets liabilities assessing need valuation allowance consider positive negative evidence related likelihood realization deferred tax assets critical estimates assumptions related deferred taxes include items uncertainty future taxable income ongoing prudent feasible tax planning strategies high number tax jurisdictions operate related complexities uncertain outcome audits reviews foreign tax officials weight given positive negative evidence commensurate extent evidence may objectively verified accounting guidance states cumulative loss recent years significant piece negative evidence difficult overcome determining valuation allowance needed deferred tax assets generally difficult positive evidence regarding projected future taxable income exclusive reversing taxable temporary differences outweigh objective negative evidence recent financial reporting losses fiscal years ended january 31 2016 2015 cumulative three year loss us certain foreign jurisdictions therefore gave little consideration forecasted book income future years source positive evidence considered periods future reversals existing taxable deductible temporary differences likely occur taxable income available prior carryback years availability taxplanning strategies determining realization recorded deferred tax assets tax benefit recorded u tax losses certain foreign tax losses generated year valuation allowances provided current year losses item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements management’s intentions hopes beliefs expectations predictions future forwardlooking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “goal” “forecast” “plan” “estimate” similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited estimates assumptions regarding strategic direction business strategy timely effective execution turnaround strategy water resources extent timing recovery mining industry prevailing prices various commodities longer term weather patterns unanticipated slowdowns major markets availability credit risks uncertainties normally incident construction industries impact competition effect deregulation initiatives trump administration effectiveness operational changes expected reduce operating expenses increase efficiency productivity profitability satisfaction closing conditions sale heavy civil business segment timely manner availability equity debt capital needed business including refinancing existing indebtedness matures worldwide economic political conditions foreign currency fluctuations may affect results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing assume obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements management’s overview provide wide range diverse waterrelated products services pipe rehabilitation solutions mineral services throughout north america brazil foreign affiliates latin america customers diverse ranging governmental agencies investorowned utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies power companies agribusiness past several years strategy divest noncore business lines realign strategy around core water businesses reduce overall cost structure within mineral services business offer unique technologies mineral exploration mine water management services business highly cyclical based commodity prices movements influenced global industrial demand depressed commodity prices recent years restructured reducing overall cost structure refocused business north south america exiting australia africa positioned capitalize future opportunities commodity prices return higher levels key fiscal year 2017 events effective first quarter fiscal year ended january 31 2017 changes made simplify business streamline operating reporting structure collector wells group shifted heavy civil water resources better align operational expertise also shifted certain smaller operations “other” segment four reporting segments longer report “other” segment changes better reflect business managed performance evaluated information prior periods recast conform current presentation second quarter fiscal year ended january 31 2017 continued efforts initiating plan reduce costs improve profitability water resources segment “water resources business performance initiative” water resources business performance initiative involves cost rationalization increased standardization functions sales pricing estimation disposal underutilized assets process improvements drive efficiencies recorded approximately 32 million restructuring costs related water resources business performance initiative fiscal year ended january 31 2017 fiscal year ended january 31 2017 continued implementation fy2016 restructuring plan involves exit operations africa australia actions support strategic focus simplifying business improving profitability “fy2016 restructuring plan” fiscal year ended january 31 2017 recognized approximately 141 million restructuring expenses fy2016 restructuring plan primarily related closure australian african entities resulting impairment assets held sale calculating impairment carrying amount assets included cumulative currency translation adjustment related australian african entities also included severance costs personnelrelated costs support business focus strategy october 27 2014 entered settlement securities exchange commission sec resolve allegations concerning potential violations foreign corrupt practices act terms settlement among things agreed undertake certain compliance reporting cooperation obligations sec two years following settlement date november 9 2016 made final report sec reporting obligations sec settlement effective april 15 2016 appointed lisa curtis vice president chief accounting officer prior joining us ms curtis worked cameron international corporation since november 2009 time cameron served positions increasing responsibility recently controller external reporting accounting policies internal controls october 2008 november 2009 ms curtis served chief accounting officer trico marine services inc subsequent event disclosed note 21 consolidated financial statements february 8 2017 entered asset purchase agreement asset purchase agreement sell substantially assets heavy civil business 101 million subject certain working capital adjustments purchaser heavy civil business reycon partners llc buyer owned group private investors including members current heavy civil senior management team buyer option pay 37 million consideration form layne common stock currently owned owners buyer valued weighted average price laynes common stock 10 trading days immediately prior closing date total purchase price assets increase decrease dollarfordollar basis extent heavy civil divisions working capital less agreed upon target working capital amount addition layne buyer agreed split equally amounts received respect 35 million outstanding receivable related job contract substantially completed subject satisfaction closing conditions including obtaining required consents approvals transaction expected close within 90 days date asset purchase agreement expect recognize loss sale heavy civil business first half fiscal year ended january 31 2018 nongaap financial measures use adjusted ebitda assess performance defined generally accepted accounting principles gaap measure adjusted ebitda may comparable companies’ measure adjusted ebitda represents income loss continuing operations interest taxes depreciation amortization noncash equitybased compensation equity earnings losses affiliates certain nonrecurring items impairment charges restructuring costs gain extinguishment debt certain gains losses plus dividends received affiliates adjusted ebitda included complement results provided accordance gaap management believes nongaap financial measure helps us understand evaluate operating performance trends provides useful information management investors addition use adjusted ebitda factor incentive compensation decisions credit facility agreement uses measures similar adjusted ebitda assess compliance certain covenants adjusted ebitda considered addition results prepared accordance gaap considered substitute superior gaap results see note 17 consolidated financial statements reconciliation adjusted ebitda income loss continuing operations income taxes consider directly comparable gaap financial measure adjusted ebitda consolidated results operations following table derived consolidated financial statements included item 8 presents periods indicated percentage relationship certain items reflected results operations bear revenues certain financial information pertaining operating segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit treasury legal tax compliance executive management board directors comparison fiscal year 2017 fiscal year 2016 consolidated results revenues decreased 810 million 119 6020 million fiscal year ended january 31 2017 compared 6830 million fiscal year ended january 31 2016 decrease revenues primarily due declines heavy civil resulting continuing strategic shift towards selective opportunities mineral services reflecting exit operations africa australia weak market conditions first half year decreased drilling activity levels western us water resources due significant precipitation levels region cost revenues exclusive depreciation amortization impairment charges decreased 680 million 5021 million 834 revenues fiscal year ended january 31 2017 compared 5701 million 835 revenues fiscal year ended january 31 2016 cost revenues percentage revenues fiscal year ended january 31 2017 decreased prior year primarily due 79 million write inventory prior year combined improved margins heavy civil inliner heavy civil margins improved result strategic focus towards selective opportunities inliner’s margins increased primarily due product mix contracts combined increased crew efficiency fiscal year ended january 31 2017 selling general administrative expenses decreased 110 million 101 972 million fiscal year ended january 31 2017 compared 1082 million fiscal year ended january 31 2016 decrease primarily due reduced corporate overhead costs including reductions legal professional fees compensation expenses depreciation amortization decreased 58 million 177 269 million fiscal year ended january 31 2017 compared 327 million fiscal year ended january 31 2016 decrease represents reductions capital expenditures disposal write assets decreases partially offset increased depreciation related additional capital expenditures inliner expand crews manufacturing capabilities equity earnings losses affiliates improved earnings 27 million fiscal year ended january 31 2017 compared loss 06 million fiscal year ended january 31 2016 primarily due increased margins affiliates chile restructuring costs 173 million recorded fiscal year ended january 31 2017 compared 100 million fiscal year ended january 31 2016 restructuring costs fiscal year ended january 31 2017 primarily related closure australian african entities resulting impairment assets held sale calculating impairment carrying amount assets included cumulative currency translation adjustment related australian african entities also included restructuring costs associated water resources business performance initiative discussed note 18 consolidated financial statements fiscal year ended january 31 2016 restructuring costs related 39 million asset writedowns combined 61 million severance costs part exit africa australia interest expense decreased 11 million 63 169 million fiscal year ended january 31 2017 compared 180 million fiscal year ended january 31 2016 decrease interest expense mainly due 10 million writeoff unamortized deferred financing fees result reduction borrowing base available assetbased facility third quarter fiscal year ended january 31 2016 income tax expense benefit continuing operations 14 million recorded fiscal year ended january 31 2017 compared 16 million fiscal year ended january 31 2016 currently record tax benefit domestic deferred tax assets certain foreign deferred tax assets effective tax rate fiscal year ended january 31 2017 28 compared 30 fiscal year ended january 31 2016 differences effective tax rates statutory tax rate resulted primarily valuation allowances recorded period current year losses result operations fiscal year ended january 31 2016 included net income discontinued operations 81 million primarily related gain sale geoconstruction business segment operating results water resources revenues water resources decreased 353 million 147 2046 million fiscal year ended january 31 2017 compared 2399 million fiscal year ended january 31 2016 decline revenues primarily due reduced activity agricultural drilling projects western us stemming largely increased precipitation course past year lower pump wellrelated equipment sales adjusted ebitda decreased 263 million 24 million fiscal year ended january 31 2017 compared 239 million fiscal year ended january 31 2016 decrease adjusted ebitda primarily due reduced drilling activity described higher maintenance costs equipment higher costs margin degradation several large water well injection well drilling projects inliner revenues inliner increased 31 million 16 1968 million fiscal year ended january 31 2017 compared 1937 million fiscal year ended january 31 2016 revenues increased due part increase number crews 34 start fiscal year ended january 31 2016 38 crews end fiscal year ended january 31 2017 increased activity favorable product mix higher volume larger diameter pipe projects also contributed increase revenues adjusted ebitda increased 41 million 146 320 million fiscal year ended january 31 2017 compared 279 million fiscal year ended january 31 2016 increase adjusted ebitda represents improved results across operating regions compared prior year increase adjusted ebitda percentage revenues attributable higher volume large diameter pipe installations combined increased crew efficiency heavy civil revenues heavy civil decreased 277 million 168 1372 million fiscal year ended january 31 2017 compared 1649 million fiscal year ended january 31 2016 decline revenues heavy civil primarily result reduced volume contracts due continuing strategic shift towards selective opportunities adjusted ebitda improved 08 million 200 32 million fiscal year ended january 31 2017 compared 40 million fiscal year ended january 31 2016 increase adjusted ebitda despite reduction revenues primarily due improved job margins mineral services revenues mineral services decreased 226 million 262 638 million fiscal year ended january 31 2017 compared 864 million fiscal year ended january 31 2016 revenues declined primarily due exit operations africa australia fiscal year ended january 31 2016 contributed approximately 124 million revenue decline fiscal year ended january 31 2017 compared prior year lower activity levels united states mexico first half year also contributed decline revenues adjusted ebitda increased 67 million 86 million fiscal year ended january 31 2017 compared 19 million fiscal year ended january 31 2016 increase adjusted ebitda due 22 million value added tax recovery current year 11 million increased dividends received latin american affiliates increased margins brazil mexico unallocated corporate expenses unallocated corporate expenses reflected adjusted ebitda 238 million fiscal year ended january 31 2017 compared 293 million fiscal year ended january 31 2016 improvement primarily due reductions legal professional fees compensation expenses related reduced headcount comparison fiscal year 2016 fiscal year 2015 consolidated results revenues decreased 376 million 52 6830 million fiscal year ended january 31 2016 compared 7206 million fiscal year ended january 31 2015 decrease revenues primarily due lower revenues mineral services heavy civil partially offset increases revenues water resources inliner cost revenues exclusive depreciation amortization impairment charges decreased 408 million 5701 million 835 revenues fiscal year ended january 31 2016 compared 6108 million 848 revenues fiscal year ended january 31 2015 cost revenues percentage revenues fiscal year ended january 31 2016 decreased prior year primarily due improved margins heavy civil water resources partially offset 79 million 12 revenues writedown inventory part restructuring activities africa australia selling general administrative expenses decreased 89 million 76 1082 million fiscal year ended january 31 2016 compared 1171 million fiscal year ended january 31 2015 decreases primarily due overall effort reduce overhead costs including reductions consulting expenses compensation expenses office rent due fy2015 restructuring plan relocation costs included fiscal year ended january 31 2015 repeated fiscal year ended january 31 2016 depreciation amortization decreased 93 million 221 327 million fiscal year ended january 31 2016 compared 420 million fiscal year ended january 31 2015 decrease primarily due reductions capital expenditures past several years disposal underutilized assets impairment certain fixed assets fiscal year ended january 31 2016 asset impairment charge 46 million recorded fiscal year ended january 31 2016 energy services segment previously reported separate segment prior combined water resources beginning third quarter fiscal year ended january 31 2016 impairment charge recorded reflect reductions estimated fair value certain longlived assets restructuring costs 100 million recorded fiscal year ended january 31 2016 compared 27 million fiscal year ended january 31 2015 fiscal year ended january 31 2016 restructuring costs related 39 million asset writedown combined 61 million severance costs part restructuring activities africa australia restructuring costs fiscal year ended january 31 2015 primarily consisted severance cost reduction efforts associated fy2015 restructuring plan gain extinguishment debt 42 million recognized fiscal year ended january 31 2016 connection partial redemption 425 convertible notes exchange 80 convertible notes discussed note 8 consolidated financial statements interest expense increased 43 million 314 180 million fiscal year ended january 31 2016 compared 137 million fiscal year ended january 31 2015 increase interest expense mainly due higher debt balance higher average interest rate issuance 80 convertible notes first quarter fiscal year ended january 31 2016 income tax benefit continuing operations 16 million recorded fiscal year ended january 31 2016 compared 39 million fiscal year ended january 31 2015 income tax benefit continuing operations fiscal year ended january 31 2016 included 36 million benefit recorded offset equal amount tax expense discontinued operations less 20 million tax expense relating items continuing operations income tax benefit continuing operations fiscal year ended january 31 2015 primarily due carryback prior year tax losses upon tax benefit previously recorded cash refund 39 million received first quarter fiscal year ended january 31 2016 result operations fiscal year ended january 31 2016 included net income discontinued operations 81 million primarily related gain sale geoconstruction business net loss discontinued operations 469 million recorded fiscal year ended january 31 2015 primarily related operating losses geoconstruction business segment loss sale costa fortuna tecniwell businesses included geoconstruction business segment operating results water resources revenues water resources increased 123 million 54 2399 million fiscal year ended january 31 2016 compared 2276 million fiscal year ended january 31 2015 revenue growth water resources driven mainly drilling projects western us related drought conditions revenue growth western region partially offset declines water management services energy market result decline oil natural gas prices adjusted ebitda increased 11 million 50 239 million fiscal year ended january 31 2016 compared 227 million fiscal year ended january 31 2015 increase adjusted ebitda primarily due margin improvements projects western region partially offset operating losses generated energy market inliner revenues inliner increased 187 million 107 1937 million fiscal year ended january 31 2016 compared 1750 million fiscal year ended january 31 2015 revenues increased primarily due increase activity work orders longer term multiyear contracts adjusted ebitda remained flat 279 million fiscal year ended january 31 2016 compared fiscal year ended january 31 2015 revenue increase offset margin decrease due higher subcontractor work heavy civil revenues heavy civil decreased 336 million 169 1649 million fiscal year ended january 31 2016 compared 1985 million fiscal year ended january 31 2015 decline revenues heavy civil due continuing strategic shift towards selective opportunities including negotiated alternative delivery contracts less emphasis traditional fixedprice contracts negotiated alternative delivery contracts typically lower risk contributed improved margins furthermore certain large projects closed neared completion reduced revenues recognized current period adjusted ebitda increased 165 million 804 40 million fiscal year ended january 31 2016 compared 206 million fiscal year ended january 31 2015 improvement adjusted ebitda due less cost degradation fixedprice troubled contracts improving performance alternative delivery projects lower selling general administrative expenses heavy civil focused effectively managing cost structure mineral services revenues mineral services decreased 349 million 287 864 million fiscal year ended january 31 2016 compared 1212 million fiscal year ended january 31 2015 primarily result continuation declining global commodity prices significant reductions mining activities around world revenues outside united states declined dramatically foreign locations severely impacted drop commodity prices due higher costs production activity united states benefited growth mine water management services adjusted ebitda decreased 83 million 19 million fiscal year ended january 31 2016 compared 102 million fiscal year ended january 31 2015 decrease adjusted ebitda primarily due lower activity levels result extended downturn minerals market well exit operations africa australia unallocated corporate expenses unallocated corporate expenses reflected adjusted ebitda 293 million fiscal year ended january 31 2016 compared 418 million fiscal year ended january 31 2015 decrease corporate expenses primarily due decrease compensation expenses workforce reduction part fy2015 restructuring plan well decreases consulting fees legal professional fees relocation expenses inflation management believe operations periods discussed significantly adversely affected inflation changing prices suppliers liquidity capital resources primary sources liquidity historically cash operations supplemented borrowings credit facilities issuances convertible notes sale assets january 31 2017 total liquidity 1413 million consisting excess availability assetbased facility total cash equivalents cash equivalents january 31 2017 690 million compared 656 million january 31 2016 cash equivalents held foreign subsidiaries january 31 2017 82 million compared 108 million january 31 2016 amounts held foreign subsidiaries january 31 2017 01 million could subject repatriation restrictions amounts needed domestic operations cash held foreign subsidiaries repatriated us would required accrue pay us income taxes funds based unremitted amount consequence exit operations africa australia brought back residual cash us intercompany debt repayment believe cash remitted subsidiaries africa australia would result repatriation earnings therefore result us tax liability respect remaining foreign subsidiaries mexico canada south america intention permanently reinvest earnings except extent 26 million expect repatriate fiscal year ended january 31 2018 expected withholding tax obligation repatriation accrued january 31 2017 expect incur us income tax dividend due net operating loss carryforward current plans demonstrate need repatriate fund us operations january 31 2017 working capital 1055 million compared 1313 million january 31 2016 adjusted working capital working capital excluding cash equivalents 690 million 656 million january 31 2017 2016 respectively decreased 292 million 365 million january 31 2017 657 million january 31 2016 primarily due improved cash flows operations lower customer receivables costs estimated earnings excess billings uncompleted contracts result lower activity levels fiscal year ended january 31 2017 cash flows cash provided used operating activities 130 million 03 million 231 million fiscal years ended january 31 2017 2016 2015 respectively improvement cash flow primarily due better working capital management cash used provided investing activities 84 million 224 million 36 million fiscal years ended january 31 2017 2016 2015 respectively cash used investing activities fiscal years ended january 31 2017 2015 consisted primarily capital expenditures partially offset sales assets selectively investing capital expenditures growth businesses continuing dispose underutilized assets cash provided investing activities fiscal year ended january 31 2016 primarily relates proceeds sale geoconstruction business segment august 2015 cash flows used provided financing activities 01 million 219 million 149 million fiscal years ended january 31 2017 2016 2015 respectively cash provided financing activities fiscal year ended january 31 2016 primarily relates proceeds issuance 80 convertible notes partially offset net payments assetbased credit facility cash provided financing activities fiscal year ended january 31 2015 primarily relates net borrowings assetbased credit facility financing agreements summary certain provisions debt instruments credit facility information indebtedness see note 8 consolidated financial statements form 10k 425 convertible senior notes due 2018 outstanding 695 million aggregate principal amount 425 convertible notes january 31 2017 425 convertible notes bear interest payable semiannually arrears cash may 15 november 15 year 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted 425 convertible notes contingently convertible option holders consideration consisting election cash shares common stock combination cash shares common stock cash lieu fractional shares close business scheduled trading day immediately preceding may 15 2018 initial conversion rate 436072 shares common stock per 1000 principal amount 425 convertible notes equivalent initial conversion price approximately 2293 per share common stock conversion rate subject adjustment upon occurrence certain events addition may obligated increase conversion rate conversion occurs connection certain corporate events including call 425 convertible notes redemption november 15 2016 prior maturity date may redeem less 425 convertible notes cash sale price common stock equals exceeds 130 applicable conversion price specified time period ending trading day immediately prior date deliver notice redemption price equal 100 principal amount 425 convertible notes redeemed plus accrued unpaid interest excluding redemption date addition upon occurrence fundamental change defined indenture holders 425 convertible notes right option require us repurchase 425 convertible notes cash price equal 100 principal amount 425 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date 80 senior secured second lien convertible notes outstanding 999 million aggregate principal amount 80 convertible notes january 31 2017 80 convertible notes issued pursuant 80 convertible notes indenture bear interest rate 80 per annum payable semiannually arrears may 1 november 1 year 80 convertible notes mature may 1 2019 provided however unless 425 convertible notes permitted refinancing indebtedness respect thereof redeemed repurchased otherwise retired discharged accordance terms converted common stock effectively discharged case prior august 15 2018 scheduled maturity date 425 convertible notes permitted refinancing indebtedness incurred respect thereof extended date october 15 2019 80 convertible notes mature august 15 2018 80 convertible notes convertible option holders consideration consisting shares common stock cash lieu fractional shares close business scheduled trading day immediately preceding maturity date holder right convert 80 convertible notes shares common stock extent conversion would cause holder beneficially 99 shares common stock outstanding giving effect proposed conversion initial conversion rate 854701 shares common stock per 1000 principal amount 80 convertible notes equivalent initial conversion price approximately 1170 per share common stock conversion rate subject adjustment upon occurrence certain events addition may obligated increase conversion rate conversion occurs connection certain corporate events including call 80 convertible notes redemption time prior maturity date may redeem cash less 80 convertible notes provided however may redeem 80 convertible notes redemption date outside open redemption period defined 80 convertible notes indenture unless last reported sale price common stock equals exceeds 140 conversion price 80 convertible notes effect least 20 trading days 30 consecutive trading day period ending including trading day immediately preceding date deliver redemption notice addition upon occurrence “fundamental change” defined 80 convertible notes indenture holders 80 convertible notes right option require us repurchase 80 convertible notes cash price equal 100 principal amount 80 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date assetbased revolving credit facility january 31 2017 availability assetbased facility approximately 1000 million outstanding letters credit amounting 277 million leaving excess availability 723 million assetbased facility guaranteed direct indirectly whollyowned domestic subsidiaries subject certain exceptions described assetbased facility obligations assetbased facility secured lien substantially assets guarantor subsidiaries subject certain exceptions described assetbased facility including pledge 650 equity interest first tier foreign subsidiaries excess availability less greater 175 total availability 175 million one business day “covenant compliance period” defined assetbased facility agreement exist excess availability equal greater 175 total availability 175 million period 30 consecutive days must maintain minimum fixed charge coverage ratio less 10 maximum first lien leverage ratio greater 50 10 four fiscal quarters ended immediately preceding covenant compliance period four fiscal quarter period ending covenant compliance period would compliance fixed charge coverage ratio covenant compliance period fiscal years ended january 31 2017 2016 fiscal year ended january 31 2016 two consecutive fourquarter periods fixed charge coverage ratio less 10 therefore longer required maintain cumulative minimum cash flow defined assetbased facility agreement less negative 450 million minimum cash flow less negative 250 million twelve consecutive month period assetbased facility also contains subjective acceleration clause triggered lenders determine experienced material adverse change triggered lenders clause would create event default period defined assetbased facility agreement turn would permit lenders accelerate repayment outstanding obligations general covenant compliance event default occurred continuing funds received daily basis applied reduce amounts owing assetbased facility based current projections anticipate covenant compliance period next twelve months management believes cash flows operations current reserves cash equivalents availability assetbased facility sources liquidity capital resources described sufficient adequate meet anticipated liquidity needs next twelve months compliance covenants related outstanding indebtedness january 31 2017 expect remain compliance covenants next twelve months contractual obligations commercial commitments contractual obligations commercial commitments january 31 2017 summarized follows expect meet cash contractual obligations ordinary course operations standby letters credit renewed connection annual insurance renewal process 425 convertible notes bear interest rate 425 per year payable semiannually arrears cash may 15 november 15 year 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted terms 425 convertible notes indenture 80 convertible notes bear interest rate 80 per annum payable semiannually arrears may 1 november 1 year 80 convertible notes mature may 1 2019 subject certain provisions 80 convertible notes indenture capitalized leases obligations certain equipment bearing interest rate 62 annually income tax uncertainties amount 131 million january 31 2017 classified noncurrent balance sheet resolution matters expected take year ultimate timing resolution items uncertain accordingly amounts included table surety bonds secure performance projects amounting 2238 million january 31 2017 amount included table information timing resolution amounts available additional obligations ordinary course operations also incurred obligations including limited income tax payments expected met normal course operations offbalance sheet arrangements offbalance sheet arrangements reasonably likely current future effect financial condition changes financial condition revenues expenses results operations liquidity capital expenditures capital resources material investors critical accounting policies estimates management’s discussion analysis financial condition results operations discuss consolidated financial statements prepared accordance us gaap preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period accounting policies fully described note 1 consolidated financial statements located item 8 form 10k believe following accounting policies represent management’s critical policies critical accounting policies practices estimates subset significant accounting policies considered important description financial condition results require management’s difficult subjective complex judgments often result need make estimates effects matters inherently uncertain revenue recognition significant estimates regard consolidated financial statements relate estimation total forecasted construction contract revenues costs profits accordance criteria established accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” based experience current processes produce materially reliable estimates total contract revenue cost accounting period however many factors change contract performance period result change contract profitability one financial reporting period another factors change estimate total contract revenue cost include differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revisions costs income recognized period revisions costs revenues become known provisions estimated losses uncompleted construction contracts made period become known large changes cost estimates larger complex construction projects material impact consolidated financial statements reflected results operations become known smaller contracts smaller changes estimates usually material impact consolidated financial statements nature accounting contracts refinements estimating process changing conditions new developments continuous characteristic process prior execution contract related costs expensed period incurred generally early stages contract cost estimates relating purchases materials subcontractors subject revisions contract moves productive phase execution change orders project cost estimate revisions claims frequently sources changes estimates contract’s final phase remaining estimated costs complete provisions claims closed adjusted based actual costs incurred impact operating margin reporting period future periods change estimate depend stage contract completion generally contract early stage completion current period impact smaller change estimate made contract later stage completion revenues recognized large longterm construction contracts meeting criteria asc topic 60535 using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contracts utilize percentageofcompletion method revenue recognition terms six months four years contract price cost estimates reviewed periodically work progresses adjustments proportionate percentageofcompletion reflected contract revenues reporting period estimate revisions become known estimate contract indicates loss entire loss recorded accounting period becomes known ordinary course business management prepares updated estimates total forecasted revenue cost profit loss contract cumulative effects updated estimates reflected period become known financial impact revisions individual contract function amount revision percentage completion contract amount costs incurred involving unapproved change orders claims included total estimated revenue realization probable amount unapproved change orders claim revenues included consolidated balance sheets part costs estimated earnings excess billings profit result change orders claims recorded period change order claim resolved management focuses evaluating performance contracts individually ordinary course business minimum quarterly basis based changes facts approved scope change estimate projected total contract revenue cost profit loss contracts updated normal recurring changes estimates include limited • changes estimated scope result unapproved unpriced customer change orders • changes estimated productivity assumptions based experience date • changes estimated materials costs based experience date • changes estimated subcontractor costs based subcontractor experience • changes timing scheduled work may impact future costs determining likelihood recovering unapproved change orders claims consider history experience similar projects apply judgment estimate amount eventual recovery settlement events take several years depending easily claim able resolved customer whether arbitration litigation necessary reach settlement new facts become known adjustment estimated recovery made reflected period becomes known cumulative effect revisions estimates total revenues costs including unapproved change orders claims course work reflected accounting period facts caused revisions become known financial impact revisions one contract function amount revision percentage completion contract material change orders fiscal years ended january 31 2017 2016 2015 material contract penalties claims settlements changes contract estimates fiscal years ended january 31 2017 2016 2015 amounts netted revenue fiscal years ended january 31 2017 2016 2015 provided estimated costs complete ongoing contracts however possible current estimates could change due unforeseen events could result adjustments overall contract costs variances estimated contract performance could result material adjustments operating results fiscal quarter year contracts current estimate total contract cost indicates loss projected loss recognized full losses become known fiscal years ended january 31 2017 2016 2015 approximately 129 million 222 million 252 million losses open contracts recorded respectively current provision loss contracts 22 million 15 million january 31 2017 2016 respectively january 31 2017 contracts individually could reasonably estimated material loss position future costs estimated earnings excess billings represents excess contract costs contract revenue recognized date percentage completion accounting method contract billings date costs estimated earnings excess billings occur • costs related unapproved change orders claims incurred • portion revenue recorded cannot billed currently due billing terms contract allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method contracts utilize completed contract method revenue recognition contract terms twelve months less consider contracts completed upon acceptance customer contracts mineral drilling services within mineral services billable based quantity drilling performed revenues recognized terms value total work performed date basis actual footage meterage drilled percentage revenues recognized percentage completion mineral drilling services completed contract total revenues fiscal years presented consolidated statements operations impairment longlived assets equity method investments review carrying value longlived assets equity method investments whenever events changes circumstances indicate carrying values may recoverable longlived assets longlived assets including amortizable intangible assets reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable factors management considers important could trigger impairment review include limited following • significant underperformance assets • significant changes use assets • significant negative industry economic trends impairment loss recognized carrying amount longlived asset recoverable exceeds fair value carrying amount longlived asset recoverable exceeds sum undiscounted cash flows expected result use eventual disposition asset impairment loss shall measured amount carrying amount longlived asset exceeds fair value generally calculated using combination market comparable transaction third party quoted prices asset appraisals discounted cash flow approaches fiscal year ended january 31 2016 result decision exit operations africa australia performed assessment property equipment located locations based assessment property equipment africa australia carrying value 104 million adjusted reflect estimated fair value 65 million resulting charge approximately 39 million recorded part restructuring costs consolidated statement operations fiscal year ended january 31 2016 additionally fiscal year ended january 31 2017 reviewed recoverability assets still held sale australia recorded additional charge 129 million part restructuring costs consolidated statement operations adjust carrying values assets held sale estimated fair values less costs sell calculating impairment carrying amount assets included cumulative currency translation adjustment related australian african entities fair value assets determined based available thirdparty quoted prices appraisals assets fiscal year ended january 31 2017 performed following longlived assets reviews • due significant negative operating results reviewed recoverability asset values longlived assets water resources segment • reviewed recoverability asset values longlived assets heavy civil segment due expected loss subsequent sale heavy civil business first quarter fiscal year 2018 • due ongoing softness commodity prices reviewed recoverability asset values longlived assets mineral services segment based analysis sum undiscounted cash flows expected use eventual disposal assets end useful life exceeded carrying value assets respective segments indication impairment identified prior segment realignment third quarter fiscal year ended january 31 2016 reviewed recoverability asset values longlived assets energy services segment july 31 2015 using undiscounted cash flow model concluded carrying value assets energy services fully recoverable july 31 2015 performed assessment fair value assets energy services based orderly liquidation value property equipment assessment resulted recording impairment charge approximately 46 million shown impairment charges consolidated statements operations fiscal year ended january 31 2016 equity method investments loss value equity method investment recognized decline deemed temporary unforeseen events changes market conditions could material effect value equity method investments due changes estimated sales growth rates estimates expected changes operating margins could result impairment charge fiscal year ended january 31 2017 extended downturn minerals market due lower commodity prices past years reviewed equity method investments impairment based weighted approach discounted cash flow method market approach concluded fair value exceeds carrying amount equity investments accordingly impairment charge recorded fiscal year ended january 31 2017 additionally considered sensitivity fair value estimates changes certain valuation assumptions key assumptions used valuation include discount rate revenue growth rate including estimated timing minerals market recovery effect variation particular assumption fair value equity investments calculated without changing assumption reality changes one factor may associated changes another may magnify counteract sensitivities investment affiliates balance january 31 2017 553 million income taxes income taxes provided using asset liability method deferred taxes recognized difference financial statement carrying amounts tax basis existing assets liabilities assessing need valuation allowance consider positive negative evidence related likelihood realization deferred tax assets critical estimates assumptions related deferred taxes include items uncertainty future taxable income ongoing prudent feasible tax planning strategies high number tax jurisdictions operate related complexities uncertain outcome audits reviews foreign tax officials weight given positive negative evidence commensurate extent evidence may objectively verified accounting guidance states cumulative loss recent years significant piece negative evidence difficult overcome determining valuation allowance needed deferred tax assets generally difficult positive evidence regarding projected future taxable income exclusive reversing taxable temporary differences outweigh objective negative evidence recent financial reporting losses fiscal years ended january 31 2017 2016 cumulative three year loss us certain foreign jurisdictions therefore gave little consideration forecasted book income future years source positive evidence considered periods future reversals existing taxable deductible temporary differences likely occur taxable income available prior carryback years availability taxplanning strategies determining realization recorded deferred tax assets tax benefit recorded u tax losses certain foreign tax losses generated year valuation allowances provided current year losses item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction companys consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k contains forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements indicated words phrases anticipate estimate project believe intend expect plan similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various metals unanticipated slowdowns companys major markets impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements results operations company substantially consummated acquisition stanley mining services pty limited stanley end july 1997 stanley acquisition stanley reflected layne christensens results operations beginning august 1 1997 stanley acquisition accounted using purchase method accounting significant effect layne christensens future operations comparisons income expense items periods date acquisition prior among things company incurred substantial increase longterm debt goodwill incur substantial increase interest expense goodwill amortization current future periods stanley acquisition smaller acquisitions thereafter percentage companys revenues operating income tied mining industry increased substantially demand companys mineral exploration drilling services products depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely connection decline prices various metals continued adversely impact level mineral exploration development activities conducted mining companies could continue material adverse effect company following table derived companys consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected companys statements income bear revenues percentage increase decrease dollar amount items period certain 1998 1997 service revenues product line reclassified conform 1999 presentation following table comparisons thereafter meaningful comparison fiscal 1999 fiscal 1998 results operations revenues fiscal 1999 decreased 10352000 35 284248000 compared 294600000 fiscal 1998 water well drilling maintenance revenues increased 140 137094000 fiscal 1999 compared revenues 120280000 fiscal 1998 increase water well drilling maintenance revenues primarily result acquisition certain assets hydro group inc new jerseybased drilling contractor march 1998 hydro acquisition additionally company experienced stronger demand services various domestic locations mineral exploration drilling revenues decreased 18 78305000 fiscal 1999 79726000 fiscal 1998 decrease primarily result lower demand companys services result decrease exploration development activities conducted mining companies decrease less otherwise would fiscal 1999 included full year revenues following stanley acquisition geotechnical drilling revenues decreased 393 27409000 fiscal 1999 compared revenues 45191000 fiscal 1998 exclusive companys ground freeze project timmins ontario canada echo bay mines ltd timmins project completed first quarter fiscal 1999 geotechnical drilling revenues increased 240 fiscal 1999 increase base geotechnical business revenues primarily result increased activity market environmental drilling revenue increased 61 20316000 fiscal 1999 compared revenues 19157000 fiscal 1998 company believes improvement largely attributable increase number larger technically demanding projects substantially completed year product sales decreased 302 21124000 fiscal 1999 30246000 fiscal 1998 decrease result lower demand companys services mining industry previously discussed gross profit percentage revenues 279 fiscal 1999 compared 275 period last year increase primarily attributed company realizing better previously expected gross profit margins certain complex international projects finalized year selling general administrative expenses increased 49938000 fiscal 1999 compared 45908000 fiscal 1998 increase primarily result hydro acquisition smaller acquisitions depreciation amortization increased 22361000 fiscal 1999 compared 15681000 fiscal 1998 increase depreciation amortization primarily result hydro acquisition additions property equipment since last year equity earnings foreign affiliates 1128000 fiscal 1999 compared 3022000 fiscal 1998 decrease previous period primarily result lower exploration development activities conducted mining companies latin america income tax expense 2333000 fiscal 1999 compared 7004000 fiscal 1998 effective tax rate year ended january 31 1999 increased 66 compared 38 year ended january 31 1998 primarily result combination reduction amount equity earnings foreign affiliates income tax normally provided foreign tax credits generally available offset tax liability increased impact certain nondeductible expenses resulting lower earnings fiscal year comparison fiscal 1998 fiscal 1997 results operations revenues fiscal 1998 294600000 322 increase compared 222853000 fiscal 1997 water well drilling maintenance revenues increased 79 120280000 fiscal 1998 111462000 fiscal 1997 increase primarily result acquisition louisiana drilling company strong demand services certain central southern areas united states mineral exploration drilling revenues increased 79726000 fiscal 1998 compared 51142000 fiscal 1997 increase primarily result stanley acquisition combined companys recent expansion africa geotechnical drilling revenues increased 45191000 fiscal 1998 compared 10536000 fiscal 1997 increase primarily result timmins project excluding timmins project geotechnical drilling revenues increased 862 year due increased market penetration geotechnical drilling market product sales increased 150 fiscal 1998 30246000 26309000 fiscal 1997 increase primarily result strong demand companys mineral exploration drill rigs related products gross profit percentage revenues remained constant 275 years ended january 31 1998 1997 selling general administrative expenses increased 45908000 fiscal 1998 compared 38956000 fiscal 1997 depreciation amortization expense increased 15681000 fiscal 1998 compared 10974000 fiscal 1997 increases expenses primarily result stanley acquisition interest expense increased 3618000 fiscal 1998 compared 2447000 fiscal 1997 increase primarily result additional borrowings finance stanley acquisition equity earnings foreign affiliates decreased 3022000 fiscal 1998 compared 3895000 fiscal 1997 decrease primarily result difficult weather conditions chile peru well lower demand drilling products services due depressed minerals prices income taxes increased 7004000 fiscal 1998 compared 4913000 fiscal 1997 result higher income taxes companys effective tax rate 38 years fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects companys revenues large drilling contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number companys contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect companys operating results particular quarter many companys contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover companys domestic drilling activities related revenues earnings tend decrease winter months adverse weather conditions interfere access drilling sites ability drill result companys revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see companys consolidated financial statements notes thereto inflation management believes companys operations periods discussed adversely affected inflation changing prices liquidity capital resources primary source companys liquidity fiscal 1999 1998 1997 cash operating activities 13637000 14270000 17116000 respectively cash operations borrowings companys revolving credit agreement utilized primarily additions property equipment 16817000 various acquisitions see note 2 notes consolidated financial statements capital expenditures fiscal 1999 directed primarily toward expansion upgrading companys equipment facilities company expects spend approximately 10000000 next fiscal year capital expenditures company anticipates fiscal 2000 capital expenditures used maintain companys equipment capabilities continue international expansion january 31 1999 company material commitments outstanding capital assets july 1997 company amended existing credit agreement provide reducing revolving cash borrowing facility 100000000 credit agreement january 31 1999 borrowing facility credit agreement reduced 93000000 borrowings credit agreement used complete various acquisitions see note 2 notes consolidated financial statements companys borrowings outstanding letter credit commitments credit agreement 38500000 4591000 respectively january 31 1999 leaving approximately 49909000 unused availability see note 8 notes consolidated financial statements companys working capital january 31 1999 1998 1997 46211000 39661000 29643000 respectively increases working capital fiscal 1999 fiscal 1998 primarily result hydro stanley acquisitions company believes borrowings available credit agreement cash operations sufficient meet companys seasonal cash requirements fund budgeted capital expenditures fiscal 2000 year costs estimated incurred future employee medical benefits casualty insurance programs resulting claims occurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods see note 10 notes consolidated financial statements year 2000 discussion year 2000 y2k problem relates fact many computer programs use two digits refer year result many computer programs properly recognize year begins 20 instead 19 y2k issue company believes issues related y2k compliance information technology noninformation technology nonit systems material adverse impact business operations financial results company believes estimated costs y2k compliance material companys financial reporting systems nature companys business generally reliant upon date sensitive nonit systems readiness fall 1995 company initiated efforts become y2k compliant efforts included part review six types nonit systems company believed might subject y2k issue identified systems included personal computers networks mainframes telecommunication equipment automated controlmanufacturing equipment facility securityenvironmental control equipment review conducted company evaluated operating systems application software nonit hardware used six types identified systems company estimates approximately 75 y2k testing remediation plan completed company expects complete balance y2k testing remediation plan end second quarter 1999 conducting business company rely upon limited number third party vendors customers single vendor customer accounts 10 companys purchases sales respectively addition generally number alternative vendors company obtain supplies services result company believe y2k problems experienced third parties material adverse impact companys business operations financial results nevertheless company process conducting review y2k readiness major vendors products services customers companys belief adversely impacted y2k readiness third parties conducts business based upon number diversity customer vendor base also upon y2k compliance anticipated achieved majority customers vendors light fact companys position based part upon information supplied third parties necessity element uncertainty companys assessment costs company primarily relying upon internal resources implement y2k readiness plan upgrade andor replace nonit systems company believes might subject y2k issue accordingly much cost associated y2k efforts incurred reallocation companys internal resources approximately past three fiscal years end fiscal year ended january 31 1999 company expended approximately 15 million allocated internal resources incremental costs routine nonit hardware software replacements hardware software replacements y2k compliant company continue routine upgrading nonit hardware software calendar 1999 also y2k compliant estimated costs allocated internal resources routine systems upgrades year ending january 31 2000 approximately 500000 company believes prospective costs y2k compliance material adverse impact financial position results operations conclusion based part upon companys belief incur significant y2k related costs behalf third parties company conducts business company expects cash flows operations sufficient fund costs associated y2k compliance risks nature companys business generally dependent upon date sensitive data production goods services company believes problems associated y2k issue material adverse impact companys business operations financial results spite presumptions inherent uncertainty associated y2k issue makes impossible company reach definitive conclusion actual impact y2k issue business operations financial results result company continue review update necessary y2k strategy develop y2k contingency plans costs timetables company plans complete y2k readiness activities well potential outcomes noncompliance based managements best estimates derived using numerous assumptions occurrence future events including actions third parties company control contingency plans companys y2k efforts ongoing overall plan well consideration contingency plans applicable continue evolve new information becomes available currently company believes internal y2k problems occur could addressed use alternative resources manual processes without significant interruption companys business operations company believes nature business make exclusively reliant upon limited number third party vendors customers addition company believes third party vendor y2k problems occur could mitigated utilizing alternative third party resources without adversely impacting companys business operations financial results item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction layne’s consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements managements intentions hopes beliefs expectations predictions future forwardlooking statements often identified use forwardlooking terminology intended continue believe may hope anticipate goal forecast plan estimate similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited outcome ongoing internal investigation among things legality fcpa local laws certain payments agents third parties interacting government officials certain countries africa relating payment taxes importing equipment employment expatriates including government enforcement action could arise matters review matters review may resulted higher dollar amount payments may greater financial business impact management currently anticipates prevailing prices various commodities duration current slowdown mineral exploration market unanticipated slowdowns laynes major markets availability credit risks uncertainties normally incident construction industry timing completion existing unprofitable contracts heavy civil ability successfully obtain profitable contracts energy services impact competition effectiveness operational changes expected increase efficiency productivity reduce costs worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations many factors determine items beyond laynes ability control predict one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing layne assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements index financial statements overview following management’s discussion analysis financial condition results operations “mda” intended help reader understand layne operations present business environment mda provided supplement read connection consolidated financial statements accompanying notes thereto contained item 8 report mda includes following sections • businessa general description layne’s business key fy2014 events • consolidated review operationsan analysis layne’s consolidated results operations three years presented consolidated financial statements • operating segment review operationsan analysis layne’s results operations three years presented consolidated financial statements layne’s reporting segments water resources inliner heavy civil geoconstruction mineral services energy services • liquidity capital resourcesan analysis cash flows aggregate financial commitments certain financial condition ratios • critical accounting policies estimatesa discussion layne’s critical accounting policies estimates involve higher degree judgment complexity business layne global water management construction drilling company layne provides responsible solutions water mineral energy challenges layne’s operational organizational structure divided divisions based primary service lines division comprised individual district offices primarily offer similar services serve similar markets key fiscal year 2014 events contracts state local governments contributed decline revenues fy2014 municipalities continue balance constrained budgets need improvement infrastructure water resources heavy civil geoconstruction segments affected mineral services continues impacted global mining exploration slowdown minerals exploration markets served layne’s wholly owned operations layne’s latin america affiliates global exploration spending decreased significantly past year every geographic region reduced revenues generated mineral services adversely affected results operations cash flows fy2015 likely see trend continue time market becomes stabilized given assets within division good working order geographically diversified division ability deploy rapidly new sites requested layne believes able react expedient manner market improves fy2014 revenues decreased 428 period last year equity earnings layne’s affiliates decreased 1178 previous year geoconstruction experienced weakness fy2014 compared fy2013 division operates us brazil uruguay italy due delay executing contracts continued weakness division layne determined indicator impairment related goodwill associated segment based analysis interim recoverability test performed determined carrying value goodwill exceeded fair value response factors impairment charge 146 million recorded second quarter fy2014 representing total carrying value division’s goodwill third quarter fy2014 geoconstruction executed two contracts totaling 760 million work performed san francisco first contract consists specialized foundation work transbay tower new sixtyone story building located adjacent trans bay transit center second san francisco project construction foundations three new underground subway stations central subway index financial statements project third contract executed third quarter fy2014 punta del tigre combined cycle power station uruguay fourth quarter layne announced awarding another specialized foundation construction project punto sayago uruguay lng liquefied natural gas terminal work uruguay work performed one brazilian subsidiaries 813 million valuation allowance deferred tax assets recorded fy2014 813 million valuation allowance 544 million related deferred tax assets established prior year 269 million related deferred tax assets established current year layne maintains 13 million deferred tax assets certain international jurisdictions management believes realization likely see note 9 consolidated financial statements july 31 2013 layne sold solmetex operation within water resources primarily involved dental wastewater treatment market total sales price 111 million consisted cash preferred units solmetex llc results solmetex operation presented discontinued operations periods presented impact fy2014 discontinued operations income 58 million net tax layne entered amendment credit agreement november 4 2013 allow relief covenants also allow enter convertible notes offering layne previously entered amendments credit agreement allow covenant relief june september 2013 see liquidity capital resources additional information november 12 2013 layne issued 1100 million aggregate principal amount 425 convertible senior notes due 2018 “convertible notes” private offering qualified institutional buyers pursuant rule 144a securities act jefferies llc “initial purchaser” also granted option purchase additional 150 million aggregate principal amount convertible notes cover overallotments initial purchaser exercised option amount 150 million december 5 2013 see liquidity capital resources additional information layne entered five year abl facility april 15 2014 abl facility provides aggregate principal amount 1350 million aggregate principal amount 750 million available form letters credit aggregate principal amount 150 million available shortterm swingline borrowings layne terminated existing credit agreement april 15 2014 see liquidity capital resources additional information index financial statements consolidated review operations following table derived layne’s consolidated financial statements included item 8 presents periods indicated percentage relationship certain items reflected layne’s results operations bear revenues percentage increase decrease dollar amount items periodtoperiod meaningful index financial statements revenues equity earnings affiliates income taxes pertaining layne’s operating segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance executive management board directors comparison fiscal year 2014 fy2014 fiscal year 2013 fy2013 revenues decreased 2098 million 196 8593 million fy2014 compared 10691 million fy2013 discussion results operations division presented cost revenues decreased 1620 million 185 7118 million 828 revenues fy2014 compared 8738 million 817 revenues fy2013 cost revenues contains direct costs decreased 1382 million 6236 million 876 cost revenues fy2014 7618 million fy2013 872 cost revenues field expenses relatively flat fy2014 100 cost revenues compared fy2013 107 cost revenues change expenses related reduction revenue fy2014 due reduction number contracts corresponding reduction revenues workforce divisions worked reduced hours certain areas reduced workforce positions became vacant result natural attrition filled certain divisions contracts executed additional personnel needed additional contracts negotiated throughout year layne reduce workforce order retain knowledge expertise key members within organization selling general administrative expenses 1465 million fy2014 compared 1615 million fy2013 decrease due decrease compensation expense 68 million decrease incentive compensation expense 105 million decrease travel expense 15 million decrease legal expenses index financial statements 11 million decrease fringe benefits expense 74 million partially offset increase relocation expenses associate move headquarters woodlands tx 59 million increase accrual fcpa 67 million 27 million overhead expenses diberil consolidated second quarter fy2013 decreases compensation incentive compensation fringe benefits due changes workforce reduction revenues loss continuing operations depreciation amortization expenses 610 million fy2014 compared 612 million fy2013 decrease result sales surplus assets fy2014 fy2013 impairment charges 146 million recorded fy2014 associated geoconstruction determined carrying value goodwill exceeded fair value impairment charge amount recorded fy2013 layne recorded impairment charges totaling 84 million certain product lines concluded fit within overall strategic direction amount included 29 million related intangible assets remainder consisting adjustments record tangible assets expected realizable value charges 44 million associated water resources 40 million associated energy services equity losses earnings affiliates 30 million fy2014 compared 206 million fy2013 decrease equity earnings layne’s latin american affiliates result similar slowdowns exploration activity mining clients layne experienced whollyowned operations addition second quarter fy2013 layne acquired remaining 50 interest diberil resulting diberil changing equity method investment consolidated whollyowned subsidiary diberil provided 39 million equity earnings affiliates fy2013 interest expense increased 89 million fy2014 compared 43 million fy2013 increase result increased borrowing layne’s revolving credit facilities fund operations result higher interest rate borrowings result amendments credit agreement fy2014 07 million fees connection june 2013 september 2013 amendments credit agreement written due reduction amount credit available borrowing income net fy 2014 relatively flat 56 million fy2014 58 million fy2013 income tax expense 530 million recorded continuing operations fy2014 compared income tax benefit continuing operations 91 million fy2013 tax expense recorded fy2014 primarily related 813 million valuation allowance 544 million related deferred tax assets established prior year 269 million related deferred tax assets established current year tax benefit 108 million recorded continuing operations offsetting 37 million tax expense recorded discontinued operations 71 million tax expense recorded equity connection convertible notes issuance effective tax rate continuing operations fy2014 excluding items 217 difference adjusted tax rate statutory rate primarily due certain nondeductible expenses taxation layne’s foreign subsidiaries layne several items impacting tax rate fy2013 tax benefit recorded previously disclosed loss associated equity investment diberil additionally certain layne’s tax years us foreign jurisdictions closed adjustments resulting reversal previously established reserves uncertain tax positions totaling 42 million effective tax rate continuing operations fy2013 excluding items 357 see note 9 consolidated financial statements nongaap financial measures layne uses certain financial measures assess performance defined generally accepted accounting principles gaap measures included complement results provided accordance gaap management believes nongaap financial measures help us explain underlying performance trends business provide useful information management investors measures considered addition results prepared accordance gaap considered substitute superior gaap results nongaap measures include presentations division income certain charges effective income tax rates excluding charges index financial statements operating segment review operations water resources division meaningful water resources revenues decreased 382 million 1759 million fy2014 2141 million fy2013 income impairments income taxes decreased 21 million 10 million 06 revenues fy2014 31 million 14 revenues fy2013 water resources experienced decline revenues throughout fy2014 comparison fy2013 also affected income impairments income taxes decline revenues due part reduction number bid opportunities markets division operates reduction bid opportunities turn resulted pricing pressure increased competition pricing pressure resulted decrease earnings jobs awarded division current year lower margins awarded prior year portion water resources projects involve various state local municipalities early part fy2014 state local municipalities struggled effects sequestration forced entities place projects hold uncertain length federal action addition entities continue balance constrained budgets need improvement infrastructure another portion water resources business involves fabrication minerals industry downturn market water resources seen reduction revenue 31 million associated business injection well operation included water systems product line seen decrease revenues 186 million fy2014 compared fy2013 work specialized nature often subject complex technical environmental requirements projects nature large projects sometimes take year complete contracts involved type work virtually nonexistent fy2014 due tight government spending operation incurred costs mobilized site new contract february 2013 cancelled shortly mobilization complete another 70 million contract awarded august 2013 subsequently placed hold competitor bidding process protested protest ultimately withdrawn water resources begun work project fy2015 response lower revenue levels water resources reduced selling expenses 51 million fy2014 fy2013 result strategic consolidation offices within division reduction expenses helped provide offset overall reduction revenues inliner division index financial statements inliner revenues increased 151 million 1484 million fy2014 1333 million fy2013 income taxes increased 77 million 177 million 119 revenues fy2014 compared 99 million 74 revenues fy2013 inliner’s increase revenues resultant increase income taxes due increased work performed projects northeast region us excluding projects results inliner fy2014 would consistent fy2013 management division seeks opportunities allow reasonable consistent profit among projects heavy civil division meaningful heavy civil experienced decrease revenues 109 million 2672 million fy2014 compared 2781 million fy2013 loss income taxes decreased 245 million 78 million 29 revenues fy2014 323 million 116 revenues fy2013 strategic shift heavy civil implemented early fy2013 continues started producing favorable results primary component shift involved moving away projects fit layne’s strategic profile including selected types hard bid contracts projects often extremely complex difficult nature extending multiple years reduced revenues experienced fy2014 fy2013 109 million result moving away hard bid contracts heavy civil acknowledges shortterm revenues may reduced profitable contracts executed fy2014 losses recorded jobs nature 93 million fy2013 losses 246 million recorded remaining contracts backlog nature completed fy2015 secondary component fy2013 strategic shift involved realignment management reduction number personnel realignment allowed heavy civil place managers key positions ability execute upon change strategy heavy civil reduced number personnel better match capabilities workforce type contracts would begin actively seek reduction occurred fy2013 involved 225 workforce full effects reduction personnel recognized fy2014 reduction compensation expenses 28 million selling expenses decreased fy2014 49 million result changes reduction loss income taxes 78 million fy2014 compared 323 million fy2013 demonstrates impact moving towards profitable contracts heavy civil completes remaining hard bid contracts backlog profitable fourth quarter fy2014 heavy civil’s revenues lower result project delays due extreme weather conditions experienced december 21013 january 2014 particularly northeastern part us index financial statements geoconstruction division meaningful geoconstruction experienced decrease revenues 461 million 872 million fy2014 compared 1332 million fy2013 income loss income taxes decreased 282 million loss income taxes 277 million 318 revenues fy2014 05 million 04 revenues fy2013 geoconstruction experienced weakness fy2014 compared fy2013 division operates us brazil uruguay italy fy2013 layne acquired remaining shares diberil believed presence brazil would assist obtaining contracts country well within countries south america particularly considering amount infrastructure needed upcoming olympics world cup soccer games brazil currently suffering sluggish economy second quarter fy2014 brazilian government released statistics verified spending funds budget originally planned contributing poor economy government provide timeframe spending would resume time us contracting sector geoconstruction realize level executed contracts forecasted division predicted significant contracts would executed second quarter fy2014 certain cases contracts delayed even cancelled final bid awarded due effects sequestration earlier half fy2014 government spending reduced eliminated causing effect certain projects response factors layne concluded indicator impairment related goodwill associated segment based conclusion interim recoverability test performed determined carrying value goodwill exceeded fair value noncash impairment charge 146 million recorded second quarter fy2014 representing total carrying value segment’s goodwill third quarter fy2014 geoconstruction executed two contracts totaling 760 million work performed san francisco first contract consists specialized foundation work transbay tower new sixtyone story building located adjacent trans bay transit center second san francisco project construction foundations three new underground subway stations central subway project third contract executed third quarter fy2014 punta del tigre combined cycle power station uruguay fourth quarter layne announced awarding another specialized foundation construction project punto sayago uruguay lng liquefied natural gas terminal work uruguay work performed one brazilian subsidiaries contracts awarded geoconstruction provide strong backlog future revenues january 31 2014 mineral services division index financial statements revenues decreased 1292 million 1730 million fy2014 3021 million fy2013 loss income taxes decreased 589 million 494 million 164 revenues 95 million 55 revenues equity losses earnings affiliates latin america also impacted fy2014 equity losses earnings affiliates decreased 197 million 30 million fy2014 167 million fy2013 chile locale largest operations affiliates employment laws chile extremely favorable workforce requiring significant separation expenses incurred employer large layoff affiliates reacted slowdowns shutdowns incurred large labor costs laid associated workforce included loss income taxes fy2014 increases accrued liabilities related fcpa investigation 67 million 39 revenues mineral services well affiliates attempted control costs consolidating operations possible managing expenses however decreased earnings caused continued market declines exceeded cost reductions resulting increased loss income taxes fy2014 revenues decreased 428 period last year equity earnings layne’s affiliates decreased 1178 previous year mineral services continues impacted global mining exploration slowdown minerals exploration markets served layne’s wholly owned operations layne’s latin america affiliates global exploration spending decreased significantly past year every geographic region global slowdown attributed part several factors first factor involves regulatory actions taken government authorities impose additional taxes mining companies taxes severe impact mining regions imposed companies react increased taxation reducing stopping production second factor contributing decline mineral services financial results labor issues areas us imposed economic stresses mining companies labor groups request additional pay concessions mining companies reacted reducing halting production another economic factor involves layne’s customers multiple businesses capital needs may cause adjust activities within mining divisions impacts layne customers react strategic process layne believes mineral exploration industry cyclical business commodity prices decreased significantly calendar year 2012 continued decline calendar 2013 supply copper exceeded demand driving price future copper prices expected continue volatile likely influenced demand china economic activity us gold prices decreased level full cost production many mines decreasing prices gold copper led material decrease rate mineral exploration development within industry reduced revenues generated mineral services adversely affected results operations cash flows fy2015 likely see trend continue time market becomes stabilized given assets within division good working order geographically diversified division ability deploy rapidly new sites requested layne believes able react expedient manner market improves energy services division energy services revenue increased 05 million 63 million fy2014 59 million fy2013 division continues market capabilities endtoend provider water solutions within energy industry unique capability many companies provide services e p industry ability perform portion services energy services able deliver division’s entry index financial statements marketplace taken longer expected part due time needed market portfolio services within industry entry marketplace continues develop management committed growing segment loss impairments income taxes remained relatively flat fy2013 fy2014 fy2013 layne recorded impairment charge related nonproducing assets totaling 40 million revenues income taxes primarily small specialty purchasing operation majority revenues eliminated segments operation produce positive earnings purchasing discounts third party sales increase revenues 84 million 199 million fy2014 115 million fy2013 due segments within layne taking advantage purchasing expertise within operation able centralize layne’s purchasing order take advantage purchase discounts offered various vendors unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 426 million fy2014 compared 360 million fy2013 66 million increase corporate expenses primarily due 59 million increase expenses related relocation corporate headquarters relocation expense fy2014 86 million compared 27 million fy2013 comparison fiscal year 2013 fy2013 fiscal year 2012 fy2012 revenues decreased 369 million 33 10691 million fy2013 compared 11060 million fy2012 discussion results operations division presented cost revenues increased 47 million 05 8738 million 817 revenues fy2013 compared 8691 million 786 revenues fy2012 within cost revenues field expenses increased 25 million 937 million 107 cost revenues fy2013 913 million 105 cost revenues fy2012 direct costs flat 7618 million 872 cost revenues fy2013 7617 million 876 cost revenues fy2012 margin pressures across divisions especially exposed municipal sector higher anticipated costs heavy civil increased cost revenues percentage revenues selling general administrative expenses 1615 million fy2013 compared 1627 million fy2012 decrease combination several changes cost layne decreases costs due reductions short long term incentive compensation 48 million reduction operating taxes 46 million primarily due favorable audit settlement layne increased costs 49 million newly acquired operations increases 51 million related executive transition costs associated relocation corporate headquarters 20 million higher legal professional fees depreciation amortization expenses 612 million fy2013 compared 556 million fy2012 increase primarily result 30 million depreciation amortization assets acquired purchase diberil increases associated equipment additions second quarter fy2013 layne acquired remaining 50 interest diberil company previously accounted equity method basis accordance accounting guidance moving acquired company fully consolidated basis layne remeasured previously held equity investment fair value recognized noncash loss 77 million period index financial statements fy2013 layne recorded impairment charges totaling 84 million certain product lines concluded fit within overall strategic direction amount included 29 million related intangible assets remainder consisting adjustments record tangible assets expected realizable value charges 44 million associated water resources 40 million associated energy services fourth quarter fy2012 connection layne’s annual assessment carrying value goodwill intangibles layne recorded impairment charges totaling 966 million charges included 171 million associated water resources 231 million associated inliner 537 million associated heavy civil 27 million associated energy services charges heavy civil include 91 million related trade names largely due layne’s corporate strategy decision fourth quarter emphasize layne name services worldwide resulted layne ceasing use trade names remainder charges heavy civil charges divisions writeoff substantially goodwill associated divisions writeoffs result projected continued weakness demand construction projects greater persistent originally anticipated continuing projected weakness economy adversely affecting spending government agencies resulting pressures margins increased competition smaller competitors goodwill charge water resources also impacted shift corporate strategy fourth quarter focus traditional water treatment services resulting writeoff goodwill associated acquired companies heavy research development focus tax effect impairment charges benefit 125 million equity earnings affiliates 206 million fy2013 compared 246 million fy2012 equity earnings comprised earnings diberil prior layne’s acquisition remaining 50 interest layne’s mineral exploration affiliates latin america due purchase remaining 50 interest diberil may 30 2012 operations diberil subsequent acquisition consolidated layne longer recording equity earnings entity decrease equity earnings layne’s latin american affiliates result similar slowdowns exploration activity mining clients layne experienced whollyowned operations interest expense increased 43 million fy2013 compared 24 million fy2012 increase result increased borrowing layne’s revolving credit facilities fund capital expenditures acquisitions working capital needs income net fy2013 consisted primarily gains sales surplus equipment 34 million recognition 10 million previously deferred gain sale operating facility california adjustment 05 million expected earnout liability prior acquisition income tax benefit 91 million recorded continuing operations fy2013 compared expense continuing operations 86 million fy2012 layne several items impacting tax rate fy2013 tax benefit recorded previously disclosed loss associated equity investment diberil additionally certain layne’s tax years us foreign jurisdictions closed adjustments resulting reversal previously established reserves uncertain tax positions totaling 42 million effective tax rate continuing operations fy2013 excluding items 357 fy2012 effective tax rate continuing operations impacted impairment charges excluding impairment charges layne would recorded income tax expense 211 million adjusted effective rate 418 difference adjusted effective rate compared prior year primarily due change mix domestic foreign income along favorable tax treatment equity earnings affiliates permanently reinvested operating segment review operations water resources division meaningful index financial statements water resources revenues decreased 05 million 2141 million fy2013 compared 2146 million fy2012 income loss impairments income taxes increased 42 million 31 million 15 revenues 10 million 05 revenues fy2012 due part cost cutting measures control overhead costs selling field expenses decreased 10 million fy2012 fy2013 part measures water resources sought improve margins diversity work performed including water supply project executed customer mineral services mexico loss income taxes heavily impacted impairments fy2013 fy2012 fy2013 impairment charges 44 million 21 revenues recorded certain trademarks equipment fy2012 water resources recorded impairment charge goodwill amount 171 million 80 revenues also fy2012 water resources recognized deferred gain sale facility fontana california 54 million compared 10 million fy2013 inliner division meaningful inliner revenues increased 11 million 1333 million fy2013 1321 million fy2012 income loss income taxes increased 99 million 74 revenues 132 million 100 revenues income loss income taxes fy2012 heavily impacted impairment goodwill recorded 231 million 175 revenues excluding impairment charge income impairments income taxes 99 million fy2013 fy2012 activity level within division remained steady fy2013 fy2012 heavy civil division meaningful revenues heavy civil decreased 656 million 2781 million fy2013 3438 million fy2012 loss income taxes decreased 323 million 116 revenues 616 million 179 revenues loss income taxes fy2012 affected goodwill impairment charge recorded 446 million 130 revenues impairment charges recorded 91 million 26 revenues related trade names excluding effect impairment charges income impairments income taxes decreased 244 million 323 million 116 revenues fy2013 79 million 23 revenues fy2012 fy2013 selling expenses decreased 11 million sales equipment also increased 14 million results fy2012 index financial statements higher anticipated costs legacy projects decreased overall margins projects fy2013 compared fy2012 fy 2013 losses 246 million recorded compared losses 60 million fy2012 heavy civil spent much fy2013 trying complete legacy projects involving hard bid contracts began focus efforts seeking new projects bid match change strategy geoconstruction division geoconstruction revenues increased 440 million 1332 million fy2013 892 million fy2012 income taxes decreased 123 million 05 million 04 revenues fy2013 128 million 143 revenues fy2012 may 30 2012 layne acquired remaining 50 diberil accordance accounting guidance report diberil consolidated basis within geoconstruction layne remeasured previously held 50 noncontrolling interest diberil fair value recognized noncash loss 77 million 58 revenues second quarter fy2013 prior acquiring remaining 50 diberil results reported equity basis increase revenues 316 million related revenues diberil fy2013 diberil also contributed 81 million income taxes fy2013 comparable amounts recorded fy2012 addition revenues increased fy2013 result additional projects however projects much lower margin amount evidenced decline income taxes decreases partially offset diberil operating results discussed mineral services division mineral services revenues decreased 200 million 3021 million fy2013 3221 million fy2012 income taxes decreased 221 million 494 million 164 revenues fy2013 716 million 222 revenues fy2012 equity earnings affiliates latin america also impacted fy2013 slowdowns mineral exploration activity well temporary mine shutdown one layne’s clients earlier year equity earnings affiliates decreased 46 million 167 million 55 revenues fy2013 213 million 66 revenues fy2012 decline revenues result global cutbacks exploration programs customers adjusted world economic changes cases worked integration large acquisitions management reacted lower revenue levels however certain overhead expenses depreciation previously acquired assets could reduced short term combination lower revenues fixed overhead costs produced earnings decline year index financial statements energy services division energy services layne’s initiative expanding water related services energy market startup phase energy services’ revenues increased 17 million 59 million fy2013 42 million fy2012 impairment charges 40 million 678 revenues fy2013 26 million 619 revenues fy2012 recorded longlived assets loss income taxes increased 26 million 74 million fy2013 49 million fy2012 division markets capabilities endtoend provider water solutions within energy industry unique capability many companies provide services e p industry ability perform portion services energy services able deliver makes energy services unique within industry may involve time effectively market capabilities revenues income taxes primarily small specialty purchasing operations majority revenues eliminated segments operation produce positive earnings purchasing discounts third party sales unallocated corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 360 million fy2013 compared 309 million fy2012 increase primarily due 51 million related executive transition costs associated relocation corporate headquarters 22 million higher legal professional fees offset 23 million reductions short long term incentive compensation inflation management believe operations periods discussed significantly adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures layne’s primary sources liquidity historically cash operations supplemented borrowings credit facilities index financial statements cash flow affected number factors beyond layne’s control factors include prices demand layne’s services operational risks volatility commodity prices industry economic conditions financial markets factors layne’s financial performance challenged tempered variety risks inherent industries geographies serves among cyclical nature minerals mining affected significantly quickly factors beyond layne’s control fy2014 global mining exploration slowdown continued factors mining company exploration budgets commodity prices changes taxation policy increasing labor costs global credit markets affected mineral services financial performance geoconstruction layne experienced delays cases cancellations bid opportunities due unexpected results obtained regulatory reviews also weak demand infrastructure projects overall us brazil fy2014 weak demand coupled adverse weather conditions winter contributed delays many projects water resources heavy civil also impacted hesitancy government agencies move forward needed infrastructure rehabilitation continue balance needs lower overall budgets fy2014 encountered operational slowdowns due factors indicated adverse impacts layne’s operating results result layne’s financial performance layne negotiated lenders secure favorable financial covenants amending credit agreement layne also issued convertible notes used net proceeds offering pay outstanding balance credit agreement fund working capital general corporate purposes subsequent year end layne terminated credit agreement entered abl facility please read description amendments layne entered respect credit agreement well details related issuance convertible notes abl facility order improve layne’s liquidity alleviate possible future cash flow constraints layne continues analyze new markets identify additional opportunities within markets includes emphasizing multidivisional projects consistent one layne strategy also continue focus bidding efforts opportunities expect provide us acceptable levels margin additional contracts subsequent january 31 2014 executed heavy civil water resources geoconstruction totaling 809 million management continues believe layne sufficient funds adequate financial resources available meet anticipated liquidity needs layne believes cash balances available capacity layne’s abl facility cash flow operations sufficient next twelve months foreseeable future finance anticipated working capital requirements capital expenditures debt services requirements management continues develop initiatives increase revenues reduce costs otherwise improve liquidity fy2015 management limited capital expenditures although layne made significant progress reducing costs signing new contracts future cash flows depend us executing contracts consistent forecasts assurance forecasts met layne’s working capital january 31 2014 2013 1213 million 1251 million respectively decrease working capital january 31 2014 compared january 31 2013 38 million due decrease accounts receivable 492 million reduction costs estimated earnings excess billings uncompleted contracts 118 million due reduction earned revenue inventories decreased 33 million due layne managing inventory levels proportion revenue activity also contributing decrease working capital fy2014 reduction deferred income taxes 210 million reduction due part valuation allowance recorded fy2014 miscellaneous current assets decreased 03 million decreases current assets partially offset increase related company owned life insurance 107 million income taxes receivable increased 23 million due reduced income taxes fy2014 cash also increased 78 million due focus accounts receivable collection outstanding balances reductions current assets partially offset following current liabilities accrued compensation 343 million layne adjusts effects reduction earnings reducing incentive compensation reducing total headcount areas layne seeing less projects reduction accounts payable 170 million due cost cutting measures reduction revenues reduction accrued expenses 143 million reduction accrued expenses includes reduction tax liabilities 70 million reduction index financial statements accrued legal fees 46 million reduction customer deposits 33 million increase supplemental retirement benefits 03 million increase interest payable 03 million layne also reduction billings excess costs estimated earnings 36 million due reduced revenues fy2014 accrued insurance decreased 29 million due realization lower claims result increased focus safety past two years offsetting reductions increase accrued fcpa liability 67 million increase current maturities long term debt 15 million increase escrow obligations 29 million layne’s cash equivalents january 31 2014 350 million compared 272 million january 31 2013 layne’s cash equivalents amounts held foreign subsidiaries january 31 2014 291 million compared 142 million january 31 2013 repatriation cash balances layne’s foreign subsidiaries could result withholding taxes local jurisdictions amounts held foreign subsidiaries january 31 2014 65 million could subject repatriation restrictions amounts needed domestic operations amounts subject repatriation needed domestic operations would subject us federal state income taxes less applicable foreign tax credits however layne’s intention permanently reinvest funds outside us current plans demonstrate need repatriate fund us operations restrictions transfer foreign cash equivalents significantly impacted layne’s overall liquidity certain countries africa began require companies transact local currency rather us dollar new requirements significantly impact layne’s liquidity layne continues monitor developments foreign countries operates changes currency regulation subsequent year end layne notified taxing authorities mauritania seized 12 million cash layne’s bank account country seizure response assessment issued taxing authorities yearend layne accrued current liability amount consolidated balance sheet layne intends protest assessment seizure cash see note 20 consolidated financial statements form 10k june 4 2013 layne lenders amended credit agreement suspend minimum fixed charge coverage ratio maximum leverage ratio covenants fiscal quarters ending july 31 october 31 2013 amendment provided waiver financial covenants quarter ending july 31 2013 also temporarily added minimum ebitda covenant maximum capital expenditure covenant quarterly fiscal yeartodate basis amendment also modified definition adjusted ebitda exclude 30 million per quarter relocation expense related move headquarters woodlands texas layne also terminated private shelf agreement conjunction amendment outstanding notes time termination connection june 2013 amendment layne domestic subsidiaries granted liens substantially assets subject certain exceptions including pledge 650 equity interests firsttier foreign subsidiaries secure obligations credit agreement term credit agreement changed due continued deterioration operating results quarter ended july 31 2013 layne lenders amended credit agreement september 5 2013 september 2013 amendment credit agreement provided waiver financial covenants quarter ended july 31 2013 effective september 2013 amendment credit agreement provided interest variable rates equal layne’s option libor rate plus 15 30 base rate defined credit agreement plus 05 20 depending layne’s leverage ratio november 4 2013 layne lenders amended credit agreement among things reduce commitments credit agreement 2000 million 1800 million eliminate accordion feature credit agreement ii temporarily increase interest rate credit agreement libor plus 60 base rate plus 50 iii relax suspend certain layne’s financial covenants shortterm basis iv reduce amount capital expenditures permitted quarter v require proceeds asset sales ordinary course used repay amounts outstanding credit agreement vi decrease amount permitted investments vii permit offering convertible notes resulting gross proceeds least 750 million “permitted convertible notes offering” viii eliminate ability layne incur additional priority indebtedness defined credit agreement index financial statements consummate certain acquisitions make certain restricted payments ix addback certain accruals related fcpa settlement computing consolidated ebitda defined credit agreement november 2013 amendment provided effective upon closing permitted convertible notes offering described net proceeds offering must applied repay amounts outstanding credit agreement pursuant terms november 2013 amendment november 12 2013 date permitted convertible notes offering closed among things commitments credit agreement reduced 1800 million 1500 million ii interest rate credit agreement reduced layne’s option either libor rate plus 40 base rate plus 30 delivery financial statements fiscal year ended january 31 2015 time interest rate vary based leverage ratio iii minimum asset coverage ratio generally defined ratio accounts receivable inventory layne subsidiaries outstanding borrowings letters credit agreement 200 100 added credit agreement iv covenant added requiring layne minimum liquidity generally defined remaining amount available borrowing revolving credit facility plus 150 million unrestricted cash least 500 million v amount priority indebtedness investments acquisitions restricted payments permitted credit agreement increased although amounts lower amounts permitted prior credit agreement amendment vi financial covenants amended follows 1 maximum capital expenditures presented include rollover feature allows unused portion previous quarter’s capital expenditures carried forward utilized next quarter november 5 2013 connection private offering layne entered purchase agreement “purchase agreement” initial purchaser relating sale layne 1100 million aggregate principal amount 425 convertible notes due 2018 private placement “qualified institutional buyers” us defined rule 144a securities act purchase agreement contained customary representations warranties covenants layne together customary closing conditions terms purchase agreement layne agreed indemnify initial purchaser certain liabilities offering convertible notes completed november 12 2013 accordance terms purchase agreement sale convertible notes generated net proceeds approximately 1054 million deducting initial purchaser’s discount commission estimated offering expenses payable layne purchase agreement also included option purchase additional 150 million aggregate principal amount convertible notes december 5 2013 initial purchaser exercised option generated proceeds net initial purchaser’s discount commission amount 146 million convertible notes bear interest rate 425 per year payable semiannually arrears cash may 15 november 15 year beginning may 15 2014 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted initial conversion rate 436072 shares layne’s common stock per 1000 principal amount convertible notes equivalent initial conversion price approximately 2293 per share layne’s common stock conversion rate subject adjustment upon occurrence certain events addition layne may obligated increase conversion rate conversion occurs connection certain corporate events including layne’s calling convertible notes redemption november 15 2016 prior maturity date layne may redeem less convertible notes cash sale price layne’s common stock equals exceeds 130 applicable conversion price specified time period ending trading day immediately prior date layne delivers notice redemption price equal 100 principal amount convertible notes redeemed plus accrued unpaid interest excluding redemption date index financial statements addition upon occurrence fundamental change defined indenture holders convertible notes right option require layne repurchase convertible notes cash price equal 100 principal amount convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date april 15 2014 layne entered five year senior secured credit agreement credit agreement provides abl facility aggregate principal amount 1350 million aggregate principal amount 750 million available form letters credit aggregate principal amount 150 million available shortterm swingline borrowings availability abl facility lesser 1350 million ii borrowing base defined abl facility agreement april 15 2014 initial borrowing base approximately 1310 million 390 million borrowed abl facility amount 326 million deposited cash collateral existing outstanding letters credit issued layne’s existing credit agreement 15 million paid terminate existing credit agreement 40 million commissions discounts fees associated transaction layne right request lenders increase principal amount 1350 million 2000 million certain conditions satisfied layne currently commitments lenders increase abl facility guaranteed layne’s direct indirectly whollyowned domestic subsidiaries subject certain exceptions described abl facility obligations abl facility secured lien substantially assets layne defined subsidiaries subject certain exceptions described abl facility abl facility contains various restrictions covenants general provided company maintains certain level excess availability company restricted incurring additional unsecured indebtedness making investments distributions capital expenditures acquisitions excess availability generally defined amount total availability exceeds outstanding loans letters credit abl facility total availability equal companys borrowing base abl facility amount commitments abl facility general excess availability less either • 200 million • period 5 consecutive business days greater 175 total availability 250 million covenant compliance period exist excess availability equal greater 175 total availability 250 million period 30 consecutive days two consecutive fiscal quarters closing date covenant compliance period company subsidiaries coborrowers guarantors loan parties must maintain minimum fixed charge coverage ratio less 10 maximum first lien leverage ratio greater 50 10 tested trailing four fiscal quarter basis general covenant compliance period event default occurred continuing company funds received daily basis applied reduce amounts owing abl facility based current projections company anticipate covenant compliance period next twelve months company continues focus ways enhance overall liquidity managing capital expenditures reviewing noncore assets potential sale assessing possible realization cash proceeds overfunding companyowned life insurance reviewing working capital practices focusing reducing costs corporate field appropriate steps currently taken management could reduce potential covenant compliance period beginning closing date abl facility company must maintain cumulative minimum cash flow defined agreement less negative 450 million twelve consecutive month period minimum cash flow less negative 250 million last occur • period 30 consecutive days excess availability greater 175 total availability 250 million index financial statements • two consecutive fiscal quarters closing date fixed charge coverage ratio tested trailing four fiscal quarter basis excess 10 event default defined abl facility agreement occurs continuing interest rate abl facility increase 2 per annum lenders may accelerate amounts owing abl facility operating activities cash used provided operating activities 11 million 248 million 157 million fy2014 fy2013 fy2012 respectively primary drivers layne’s cash operating activities results net loss increasing 1281 million deferred income tax expense increased 843 million primarily due effect recording 813 million valuation allowance recorded fy2014 accounts receivable decreased fy2014 revenue levels declined due management’s collection efforts inventories also declined fy2014 result management reacting reduction revenues increase current assets due part increase 107 million company owned life insurance declines offset extent decrease accounts payable accrued expenses 530 million layne’s working capital january 31 2014 1213 million 1251 million january 31 2013 investing activities capital expenditures 344 million fy2014 maintain upgrade layne’s equipment facilities spending compares spending fy2013 758 million maintain upgrade equipment facilities 17 million spent unconventional natural gas exploration production prior sale third quarter fy2013 fy2014 layne received 87 million proceeds disposals property equipment compared proceeds 62 million fy2013 additionally fy2014 layne sold solmetex operations 106 million received final proceeds sale energy 15 million fy2013 layne invested 175 million net cash acquired acquisition remaining 50 diberil well invested 08 million acquire 100 stock fursol informatica srl fursol layne paid additional 02 million fursol october 4 2013 pursuant terms purchase agreement financing activities fourth quarter fy2014 layne entered purchase agreement sale convertible notes total amount 1250 million see note 7 consolidated financial statements additional discussion convertible notes layne also capitalized amortizing associated expenses purchase agreement discount commission paid initial purchaser 50 million fy2014 fy2013 fy2012 layne net repayments borrowings 916 million 425 million 478 million credit agreement notes payable decreased increased 13 million 11 million 74 million fy2014 fy2013 fy2012 respectively net borrowings sources longterm debt primarily used fund capital expenditures acquisitions working capital needs fy2014 layne decreased amount capital expenditures also engaged acquisitions thus lowering net borrowings additionally proceeds convertible notes issuance 1054 million 106 million sale solmetex used pay balances outstanding credit agreement fy2014 layne made scheduled debt payments senior notes 67 million fy2012 fy2014 fy2013 fy2012 layne distributed 17 million 42 million 22 million respectively noncontrolling interest partners either distribution joint project income case mineral services subsidiary brazil buy noncontrolling interest index financial statements contractual obligations commercial commitments contractual obligations commercial commitments january 31 2014 summarized follows layne expects meet cash contractual obligations ordinary course operations standby letters credit renewed connection annual insurance renewal process convertible notes bear interest rate 425 per year payable semiannually arrears cash may 15 november 15 year beginning may 15 2014 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted terms purchase agreement layne certain notes payable equipment loans interest rates notes payable fixed vary among instrument average interest rate amount notes payable 958 capitalized leases obligations certain vehicles equipment interest rates obligations fixed range 5 25 annually depending lease layne income tax uncertainties amount 181 million january 31 2014 classified noncurrent balance sheet resolution matters expected take year ultimate timing resolution items uncertain accordingly amounts included table additional obligations ordinary course operations also incurred obligations including limited income tax payments expected met normal course operations critical accounting policies estimates management’s discussion analysis financial condition results operations discuss consolidated financial statements prepared accordance us gaap preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period layne’s accounting policies fully described note 1 consolidated financial statements located item 8 form 10k layne believes following accounting policies represent management’s critical policies critical accounting policies practices estimates subset significant accounting policies considered important description layne’s financial condition results require management’s difficult subjective complex judgments often result need make estimates effects matters inherently uncertain index financial statements use changes estimates layne uses estimates assumptions preparation consolidated financial statements conformity us gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period businesses involve making significant estimates assumptions normal course business revenue recognition significant estimates regard consolidated financial statements relate estimation total forecasted construction contract revenues costs profits accordance criteria established accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” based experience current processes layne produces materially reliable estimates total contract revenue cost accounting period however many factors change contract performance period result change contract profitability one financial reporting period another factors change estimate total contract revenue cost include differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revision costs income recognized period revisions costs revenues become known provisions estimated losses uncompleted construction contracts made period become known layne many contracts process given time changes estimates offset minimizing impact overall profitability however large changes cost estimates larger complex construction projects material impact consolidated financial statements reflected results operations become known nature accounting contracts refinements estimating process changing conditions new developments continuous characteristic process prior execution contract related costs expensed period incurred generally early stages contract cost estimates relating purchases materials subcontractors subject revisions contract moves productive phase execution change orders project cost estimate revisions claims frequently sources changes estimates contract’s final phase remaining estimated costs complete provisions claims closed adjusted based actual costs incurred impact operating margin reporting period future periods change estimate depend stage contract completion generally contract early stage completion current period impact smaller change estimate made contract later stage completion fy2014 layne’s income continuing operations increased due estimated recovery projected contract geoconstruction due negotiated change orders agreed customer amount 84 million material change orders fy2014 fy2013 fy2012 material contract penalties claims settlements changes contract estimates fy2014 fy2013 fy2012 amounts netted revenue fy2014 fy2013 fy2012 layne provided estimated costs complete ongoing contracts however possible current estimates could change due unforeseen events could result adjustments overall contract costs variances estimated contract performance could result material adjustments operating results fiscal quarter year contracts current estimate total contract cost indicates loss projected loss recognized full losses become known fy2014 fy2013 fy2012 approximately 178 million 286 million 174 million contract losses recorded respectively january 31 2014 material loss contracts january 31 2014 contracts could reasonably estimated material loss position future management focuses evaluating performance contracts individually ordinary course business minimum quarterly basis based changes facts approved scope change estimate projected total contract revenue cost profit loss layne’s contracts updated normal recurring changes estimates include limited • changes estimated scope result unapproved unpriced customer change orders index financial statements • changes estimated productivity assumptions based experience date • changes estimated materials costs based experience date • changes estimated subcontractor costs based subcontractor experience • changes timing scheduled work may impact future costs determining likelihood recovering unapproved change orders claims layne considers history experience similar projects applies judgment estimate amount eventual recovery settlement events take several years depending easily claim able resolved customer whether arbitration litigation necessary reach settlement new facts become known adjustment estimated recovery made reflected period becomes known cumulative effect revisions estimates total revenues costs including unapproved change orders claims course work reflected accounting period facts caused revision become known financial impact revisions one contract function amount revision percentage completion contract revenues recognized large longterm construction contracts meeting criteria asc topic 60535 using percentageofcompletion method based upon ratio cost incurred total estimated costs completion layne’s contracts utilize percentage completion method revenue recognition terms six months four years contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimate revisions become known estimate contract indicates loss entire loss recorded accounting period becomes known ordinary course business management prepares updated estimates total forecasted revenue cost profit loss contract cumulative effects updated estimates reflected period become known financial impact revisions individual contract function amount revision percentage completion contract amount costs incurred involving unapproved change orders claims included total estimated revenue realization probable amount unapproved change orders claim revenues included consolidated balance sheet part costs estimated earnings excess billings profit result change orders claims recorded period change order claim resolved costs estimated earnings excess billings represents excess contract costs contract revenue recognized date percentage completion accounting method contract billings date costs estimated earnings excess billings occur • costs related unapproved change orders claims incurred • portion revenue recorded cannot billed currently due billing terms contract allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method layne’s contracts utilize completed contract method revenue recognition contract terms twelve months less layne determines contracts completed upon acceptance customer contracts mineral exploration drilling services within mineral services billable based quantity drilling performed revenues recognized terms value total work performed date basis actual footage meterage drilled revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur index financial statements percentage layne’s revenues recognized percentage completion mineral drilling services completed contract direct sales total revenues fiscal years presented consolidated statements operations impairment goodwill longlived assets equity method investments layne reviews carrying value goodwill equity method investments whenever events changes circumstances indicate carrying values may recoverable least annually goodwill evaluation goodwill impairment conducted reporting unit level layne’s reporting units operating segments evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference layne considers market approach income approach estimating fair value reporting unit analysis market approach may include use guideline transaction method guideline company method layne considers guideline company method using market multiples publically traded companies operating characteristics similar respective reporting unit income approach uses projections reporting unit’s estimated cash flows discounted using weighted average cost capital reflects current market conditions management also compares aggregate fair value reporting units market capitalization plus control premium management uses judgment determine significant assumptions used income approach subject change result changing economic competitive conditions follows • anticipated future cash flows longterm growth rates reporting unit income approach determining fair value relies timing estimates future cash flows including estimate longterm growth rates projections use management’s estimates economic market conditions projected period including growth rates sales estimates expected changes operating margins layne’s projections future expected cash flows subject change actual results achieved differ anticipated actual results could vary significantly estimates develop cash flows future operating margins new contract awards layne tracks prospective work reporting units contract basis well estimating time work would bid awarded started completed • selection appropriate discount rate income approach requires selection appropriate discount rate based weightedaverage cost capital analysis discount rate subject changes shortterm interest rates longterm yield well variances typical capital structure marketplace participants industry discount rate determined based assumptions would used marketplace participants reason capital structure selected marketplace participants used weightedaverage cost capital analysis given current volatile economic conditions possible discount rate could change index financial statements quarterly basis layne considers whether events changes circumstances indicate assets including goodwill might impaired conjunction analysis evaluates whether current market capitalization less equity specifically consider 1 changes macroeconomic conditions 2 changes general economic conditions industry including declines marketdependent multiples 3 cost factors increases materials labor costs negative effect earnings cash flows analyses 4 impact current market conditions forecast future cash flows including consideration specific projects backlog pending awards large prospect opportunities layne also evaluates recent assessment fair value reporting units considering whether current forecast future cash flows line used annual impairment assessment whether significant changes trends material assumptions used result process layne determined carrying value geoconstruction’s goodwill exceeded fair value recorded impairment charge 146 million second quarter fy2014 see note 5 consolidated financial statements discussion impairment charges recorded january 31 2014 layne concluded impairment remaining goodwill inliner reporting unit remaining goodwill january 31 2014 fair value reporting unit significantly exceeded carrying value 89 million longlived assets including amortizable intangible assets reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable factors management considers important could trigger impairment review include limited following • significant underperformance assets • significant changes use assets • significant negative industry economic trends impairment loss recognized carrying amount longlived asset recoverable exceeds fair value carrying amount longlived asset recoverable exceeds sum undiscounted cash flows expected result use eventual disposition asset impairment loss shall measured amount carrying amount longlived asset exceeds fair value generally calculated using combination market comparable transaction discounted cash flow approaches based declines operating performance fy2014 heavy civil geoconstruction mineral services layne reviewed recoverability asset values equipment impairments indicated analysis loss value equity method investment recognized decline deemed temporary unforeseen events changes market conditions could material effect value equity method investments due changes estimated sales growth rates estimates expected changes operating margins could result impairment charge impairment charges recorded equity method investments fy2014 fy2013 fy2012 investment affiliates balance january 31 2014 673 million income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax basis existing assets liabilities deferred tax assets reviewed recoverability jurisdictional basis assessing need valuation allowance layne considers positive negative evidence related likelihood realization deferred tax assets critical estimates assumptions related deferred taxes include items uncertainty future taxable income ongoing prudent feasible tax planning strategies high number tax jurisdictions layne operates related complexities uncertain outcome audits reviews foreign tax officials weight given positive negative evidence commensurate extent evidence may objectively verified accounting guidance states cumulative loss recent years significant piece negative evidence difficult overcome determining valuation allowance needed deferred tax assets generally difficult positive evidence regarding projected future taxable income exclusive reversing taxable temporary differences outweigh objective negative evidence recent financial reporting losses index financial statements year ended january 31 2014 layne reached cumulative domestic three year loss therefore gave little consideration forecasted book income future years source positive evidence layne also considered periods future reversals existing taxable deductible temporary differences likely occur future taxable income taxable income available prior carryback years availability taxplanning strategies determining realizability recorded deferred tax assets layne performed similar analysis foreign subsidiaries deferred tax assets order assess realizability result fiscal year ended january 31 2014 layne recorded valuation allowance 813 million 544 million related deferred tax assets established prior year 269 million related deferred tax assets established current year layne 37 million domestic deferred tax liability recorded january 31 2014 basis difference relating certain minority equity interest timing basis reversal cannot controlled due minority ownership interest tax planning strategy identified realize basis difference period would offset operation losses deductible temporary differences january 31 2014 layne maintains 13 million foreign deferred tax asset relating certain foreign subsidiaries order realize remaining deferred tax assets layne’s foreign subsidiaries need generate taxable income approximately 47 million respective jurisdictions deferred tax assets recorded layne continue monitor results foreign subsidiaries unable generate sufficient operation profits may additional valuation allowances recorded future periods item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k may contain forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements may include limited statements plans objectives statements future economic performance statements assumptions underlying statements management’s intentions hopes beliefs expectations predictions future forwardlooking statements often identified use forwardlooking terminology “should” “intended” “continue” “believe” “may” “hope” “anticipate” “goal” “forecast” “plan” “estimate” similar words phrases convey uncertainty future events outcomes statements based current expectations subject certain risks uncertainties assumptions including limited estimates assumptions regarding strategic direction business strategy timely effective execution turnaround strategy water resources continuing recovery mining industry prevailing prices various commodities timing extent future oil gas drilling production delaware basin longer term weather patterns unanticipated slowdowns major markets availability credit risks uncertainties normally incident drilling infrastructure services industries impact competition availability equity debt capital needed business including refinancing existing indebtedness matures worldwide economic political conditions foreign currency fluctuations may affect results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected many factors impact risk factors beyond ability control predict one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing assume obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements overview global water management infrastructure services drilling company providing responsible solutions world essential natural resources water minerals energy offer innovative sustainable products services enduring commitment safety excellence integrity primarily operate north america brazil customers include government agencies investorowned utilities industrial companies global mining companies consulting engineering firms oil gas companies power companies agribusinesses ownership interest certain foreign affiliates operating latin america manage report operations three segments water resources inliner mineral services operations cyclical subject seasonality drilling infrastructure services activities revenues tend decrease months november january key fiscal year 2018 events first quarter fiscal year ended january 31 2018 sold heavy civil business operating results heavy civil business presented discontinued operations excluded continuing operations segment results periods presented see note 16 consolidated financial statements discussion sale heavy civil business closed april 30 2017 fiscal year ended january 31 2018 made significant progress developing expanding new water midstream business reported water resources segment year completed initial water pipeline infrastructure system serving energy producers delaware basin west texas refer hermosa pipeline new water midstream business anchored nearly 1000 acres companyowned waterproducing land near pecos tx consists high capacity 22inch diameter pipeline 26 miles length 750000 barrels storage two lined inground storage ponds near water wells associated pump stations ability deliver water multiple points along pipeline route system production delivery capacity 175000 barrels per day nonpotable water capacity support anticipated expansion additional water sources delivery points capital investment hermosa pipeline system extension including land right way costs approximately 220 million additionally fiscal year ended january 31 2018 entered longterm agreement texas general land office “glo” provides layne exclusive right develop glo nonpotable water resources oil gas drilling completion activities approximately 88000 acres interspersed across reeves culberson counties delaware basin oil gas producing region texas consolidated results operations comparison fiscal year 2018 fiscal year 2017 consolidated results revenues increased 107 million 23 4755 million fiscal year ended january 31 2018 compared 4648 million fiscal year ended january 31 2017 increase revenues primarily due increased drilling activity mineral services western us mexico increased activity levels inliner increase partially offset water resources’ reduced drilling primarily western midwestern us stemming increased precipitation region lower levels collector well activity cost revenues exclusive depreciation amortization decreased 73 million 3748 million 788 revenues fiscal year ended january 31 2018 compared 3821 million 822 revenues fiscal year ended january 31 2017 cost revenues percentage revenues fiscal year ended january 31 2018 decreased prior year primarily result water resources’ completion certain loss projects prior year improved margins mineral services due increase market activity selling general administrative expenses decreased 22 million 28 744 million fiscal year ended january 31 2018 compared 766 million fiscal year ended january 31 2017 prior year included 22 million value added tax recovery mineral services excluding tax recovery prior year selling general administrative expenses decreased 44 million reflecting lower costs inliner water resources primary reduction reflected unallocated corporate overhead costs 32 million included lower legal professional fees compensation related expenses partially offset increase incentive compensation expense related improved operating performance depreciation amortization increased 14 million 55 267 million fiscal year ended january 31 2018 compared 253 million fiscal year ended january 31 2017 increase primarily due higher capital expenditures past year restructuring costs 49 million fiscal year ended january 31 2018 compared 169 million fiscal year ended january 31 2017 restructuring costs primarily related finalizing tax issues exit costs africa australia costs associated water resources business performance initiative initiated fiscal year ended january 31 2017 income tax benefit expense continuing operations 104 million recorded fiscal year ended january 31 2018 compared 14 million fiscal year ended january 31 2017 currently record tax benefit domestic deferred tax assets certain foreign deferred tax assets effective tax rate fiscal year ended january 31 2018 681 compared 31 fiscal year ended january 31 2017 income tax benefit fiscal year ended january 31 2018 included 88 million tax benefit recorded reversal accrued foreign taxes recorded prior years fourth quarter foreign jurisdiction issued tax ruling confirming exemption certain income taxation resulted reversal prior tax accrual result reduction foreign taxes also reduced domestic foreign tax credit carryforward 53 million however reduction carryforward resulted impact tax expense since full valuation allowance recorded net domestic deferred tax asset additionally fourth quarter recorded 26 million deferred tax benefit net effect tax law changes included tax cuts jobs act 2017 enacted december 22 2017 taking account related adjustments valuation allowance remaining 11 million tax expense primarily related foreign withholding taxes dividends tax expense recorded mexican subsidiary differences effective tax rates statutory tax rate fiscal years ended january 31 2018 exclusive items noted january 31 2017 resulted primarily valuation allowances recorded period current year losses net loss discontinued operations 224 million recorded fiscal year ended january 31 2018 compared net loss discontinued operations 52 million fiscal year ended january 31 2017 discontinued operations current year included loss sale heavy civil business 190 million segment operating results water resources revenues water resources decreased 322 million 157 1724 million fiscal year ended january 31 2018 compared 2046 million fiscal year ended january 31 2017 decline revenues primarily due decrease agricultural drilling projects related increased precipitation western midwestern us course past two years adjusted ebitda increased 77 million 3193 53 million fiscal year ended january 31 2018 compared 24 million fiscal year ended january 31 2017 increase adjusted ebitda primarily reflects better performance projects less project execution issues inliner revenues inliner increased 90 million 46 2059 million fiscal year ended january 31 2018 compared 1968 million fiscal year ended january 31 2017 revenues higher compared prior year period due overall increased business primarily midwest increase large diameter pipe installation adjusted ebitda increased 07 million 20 327 million fiscal year ended january 31 2018 compared 320 million fiscal year ended january 31 2017 increase adjusted ebitda driven primarily revenue increase compared prior year mineral services revenues mineral services increased 335 million 525 972 million fiscal year ended january 31 2018 compared 638 million fiscal year ended january 31 2017 revenues increased prior year period due increased market activity western us mexico adjusted ebitda increased 87 million 1010 174 million fiscal year ended january 31 2018 compared 86 million fiscal year ended january 31 2017 increase adjusted ebitda primarily due increased activity profitability western us mexico compared prior year period unallocated corporate expenses unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include expenses related accounting financial reporting internal audit treasury legal tax compliance executive management board directors unallocated corporate expenses reflected adjusted ebitda 203 million fiscal year ended january 31 2018 compared 238 million fiscal year ended january 31 2017 improvement primarily due reductions legal professional consulting fees partially offset increase incentive compensation expense due improved performance comparison fiscal year 2017 fiscal year 2016 consolidated results revenues decreased 533 million 103 4648 million fiscal year ended january 31 2017 compared 5181 million fiscal year ended january 31 2016 decrease revenues primarily due declines mineral services reflecting exit operations africa australia weak market conditions first half year decreased drilling activity levels western us water resources due significant precipitation levels region cost revenues exclusive depreciation amortization impairment charges decreased 378 million 3821 million 822 revenues fiscal year ended january 31 2017 compared 4199 million 810 revenues fiscal year ended january 31 2016 cost revenues percentage revenues fiscal year ended january 31 2017 increased prior year primarily due 79 million write inventory prior year combined improved margins inliner’s margins increased primarily due product mix contracts combined increased crew efficiency fiscal year ended january 31 2017 selling general administrative expenses decreased 126 million 141 766 million fiscal year ended january 31 2017 compared 892 million fiscal year ended january 31 2016 decrease primarily due reduced corporate overhead costs including reductions legal professional fees compensation expenses depreciation amortization decreased 48 million 159 253 million fiscal year ended january 31 2017 compared 301 million fiscal year ended january 31 2016 decrease represents reductions capital expenditures disposal write assets decreases partially offset increased depreciation related additional capital expenditures inliner expand crews manufacturing capabilities equity earnings losses affiliates improved earnings 27 million fiscal year ended january 31 2017 compared loss 06 million fiscal year ended january 31 2016 primarily due increased margins affiliates chile restructuring costs 169 million recorded fiscal year ended january 31 2017 compared 92 million fiscal year ended january 31 2016 restructuring costs fiscal year ended january 31 2017 primarily related closure australian african entities resulting impairment assets held sale calculating impairment carrying amount assets included cumulative currency translation adjustment related australian african entities also included restructuring costs associated water resources business performance initiative discussed note 18 consolidated financial statements fiscal year ended january 31 2016 restructuring costs related 39 million asset writedowns combined 53 million severance costs part exit africa australia interest expense decreased 11 million 63 169 million fiscal year ended january 31 2017 compared 180 million fiscal year ended january 31 2016 decrease interest expense mainly due 10 million writeoff unamortized deferred financing fees result reduction borrowing base available assetbased credit facility third quarter fiscal year ended january 31 2016 income tax expense continuing operations 14 million recorded fiscal year ended january 31 2017 compared 07 million fiscal year ended january 31 2016 recorded tax benefit domestic deferred tax assets certain foreign deferred tax assets effective tax rate fiscal year ended january 31 2017 31 compared 15 fiscal year ended january 31 2016 differences effective tax rates statutory tax rate resulted primarily valuation allowances recorded period current year losses net loss discontinued operations 52 million fiscal year ended january 31 2017 primarily related loss operations heavy civil operations net income discontinued operations 35 million fiscal year ended january 31 2016 primarily related gain sale geoconstruction business segment operating results water resources revenues water resources decreased 353 million 147 2046 million fiscal year ended january 31 2017 compared 2399 million fiscal year ended january 31 2016 decline revenues primarily due reduced activity agricultural drilling projects western us stemming largely increased precipitation fiscal year ended january 31 2017 lower pump wellrelated equipment sales adjusted ebitda decreased 263 million 24 million fiscal year ended january 31 2017 compared 239 million fiscal year ended january 31 2016 decrease adjusted ebitda primarily due reduced drilling activity described higher maintenance costs equipment higher costs margin degradation several large water well injection well drilling projects inliner revenues inliner increased 31 million 16 1968 million fiscal year ended january 31 2017 compared 1937 million fiscal year ended january 31 2016 revenues increased due part increase number crews 34 start fiscal year ended january 31 2016 38 crews end fiscal year ended january 31 2017 increased activity favorable product mix higher volume larger diameter pipe projects also contributed increase revenues adjusted ebitda increased 41 million 146 320 million fiscal year ended january 31 2017 compared 279 million fiscal year ended january 31 2016 increase adjusted ebitda represents improved results across operating regions compared prior year increase adjusted ebitda percentage revenues attributable higher volume large diameter pipe installations combined increased crew efficiency mineral services revenues mineral services decreased 226 million 262 638 million fiscal year ended january 31 2017 compared 864 million fiscal year ended january 31 2016 revenues declined primarily due exit operations africa australia fiscal year ended january 31 2016 contributed approximately 124 million revenue decline fiscal year ended january 31 2017 compared prior year lower activity levels united states mexico first half fiscal year ended january 31 2017 also contributed decline revenues adjusted ebitda increased 67 million 3598 86 million fiscal year ended january 31 2017 compared 19 million fiscal year ended january 31 2016 increase adjusted ebitda due 22 million value added tax recovery current year 11 million increased dividends received latin american affiliates increased margins brazil mexico unallocated corporate expenses unallocated corporate expenses reflected adjusted ebitda 238 million fiscal year ended january 31 2017 compared 293 million fiscal year ended january 31 2016 improvement primarily due reductions legal professional fees compensation expenses related reduced headcount inflation management believe operations periods discussed significantly adversely affected inflation changing prices suppliers liquidity capital resources primary source liquidity cash flow generated operations ability supplement cash flow borrowings credit facilities issuances debt cash flow affected prices raw materials demand services weather seasonal conditions operational risks volatility commodity prices industry economic conditions global markets january 31 2018 total liquidity 1075 million consisting excess availability assetbased credit facility total cash equivalents cash equivalents january 31 2018 320 million compared 690 million january 31 2017 decrease cash primarily reflects investments operations capital expenditures year primarily water midstream business cash equivalents held foreign subsidiaries january 31 2018 58 million compared 82 million january 31 2017 amounts held foreign subsidiaries january 31 2018 subject repatriation restrictions cash held foreign subsidiaries repatriated us may subject withholding taxes jurisdiction subsidiary incorporated remittance subject additional us taxation continue wind subsidiaries africa australia expect remaining residual cash treated repayment intercompany loans working capital 47 million january 31 2018 1055 million january 31 2017 adjusted working capital working capital excluding cash equivalents 320 million 690 million january 31 2018 2017 respectively working capital discontinued operations january 31 2017 196 million decreased 536 million 367 million january 31 2018 169 million january 31 2017 primarily due 425 convertible notes becoming current cash used investing activities capital expenditures fiscal year ended january 31 2018 see key fiscal year 2018 events discussion cash flows fiscal year ended january 31 2018 cash provided operating activities primarily reflected net loss adjusted noncash items changes components working capital fluctuations working capital normal business working capital impacted size projects timing project start dates completion dates achievement billing milestones backlog complete certain phases project cash provided operating activities 70 million fiscal year ended january 31 2018 compared 138 million fiscal year ended january 31 2017 primary impact change working capital items cash provided 182 million prior year compared use cash 136 million current year change driven accounts receivable costs estimated earnings excess billings uncompleted contracts activity levels change accounts receivable compared prior year heavily weighted mineral services partially offsetting use cash working capital lower net loss excluding noncash items 277 million due lower unallocated corporate expenses combined improved earnings inliner mineral services cash provided used operating activities 138 million fiscal year ended january 31 2017 compared 18 million prior year increase primarily due higher cash inflows changes customer receivables costs estimated earnings excess billings uncompleted contracts 358 million due improved working capital management combined lower activity levels completion projects increases partially offset higher use cash accounts payable accrued expenses 62 million primarily timing vendors combined higher net loss excluding noncash items 152 million compared prior year cash used provided investing activities 424 million 119 million 232 million fiscal years ended january 31 2018 2017 2016 respectively cash used investing activities fiscal years ended january 31 2018 2017 2016 consisted primarily capital expenditures partially offset sale fixed assets selectively investing capital continuing dispose underutilized assets discussed key fiscal year 2018 events fiscal year ended january 31 2018 completed initial water pipeline infrastructure system water midstream business additional capital expenditures implementing accounting system upgrade uses partially offset proceeds sale heavy civil business 35 million also discussed key fiscal year 2018 events cash used investing activities fiscal year ended january 31 2016 also includes proceeds sale geoconstruction business 423 million cash flows used provided financing activities 02 million 01 million 219 million fiscal years ended january 31 2018 2017 2016 respectively cash provided financing activities fiscal year ended january 31 2016 primarily relates proceeds issuance 80 convertible notes partially offset net payments assetbased credit facility financing agreements summary certain provisions credit facility debt instruments information indebtedness see note 8 consolidated financial statements form 10k 425 convertible senior notes due 2018 outstanding 695 million aggregate principal amount 425 convertible notes january 31 2018 425 convertible notes bear interest payable semiannually arrears cash may 15 november 15 year see “110 unsecured notes” 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted 425 convertible notes contingently convertible option holders consideration consisting election cash shares common stock combination cash shares common stock cash lieu fractional shares close business scheduled trading day immediately preceding may 15 2018 initial conversion rate 436072 shares common stock per 1000 principal amount 425 convertible notes equivalent initial conversion price approximately 2293 per share common stock conversion rate subject adjustment upon occurrence certain events addition may obligated increase conversion rate conversion occurs connection “fundamental change” defined 425 convertible notes indenture november 15 2016 prior maturity date may redeem less 425 convertible notes cash sale price common stock equals exceeds 130 applicable calculated conversion price specified time period ending trading day immediately prior date deliver notice redemption price equal 100 principal amount 425 convertible notes redeemed plus accrued unpaid interest excluding redemption date addition upon occurrence fundamental change holders 425 convertible notes right option require us repurchase 425 convertible notes cash price equal 100 principal amount 425 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date pending merger granite fundamental change indenture governing 425 convertible notes merger agreement granite agreed conversions 425 convertible notes closing merger would settled solely cash 80 senior secured second lien convertible notes outstanding 999 million aggregate principal amount 80 convertible notes january 31 2018 80 convertible notes bear interest rate 80 per annum payable semiannually arrears may 1 november 1 year 80 convertible notes mature may 1 2019 provided however unless 425 convertible notes permitted refinancing indebtedness respect thereof redeemed repurchased otherwise retired discharged accordance terms converted common stock effectively discharged case prior august 15 2018 scheduled maturity date 425 convertible notes permitted refinancing indebtedness incurred respect thereof extended date october 15 2019 80 convertible notes mature august 15 2018 see 110 unsecured notes 80 convertible notes convertible option holders consideration consisting shares common stock cash lieu fractional shares close business scheduled trading day immediately preceding maturity date holder right convert 80 convertible notes shares common stock extent conversion would cause holder beneficially 99 shares common stock outstanding giving effect proposed conversion initial conversion rate 854701 shares common stock per 1000 principal amount 80 convertible notes equivalent initial conversion price approximately 1170 per share common stock conversion rate subject adjustment upon occurrence certain events addition may obligated increase conversion rate conversion occurs connection “fundamental change” defined 80 convertible notes indenture call 80 convertible notes redemption time prior maturity date may redeem cash less 80 convertible notes provided however may redeem 80 convertible notes redemption date outside open redemption period defined 80 convertible notes indenture unless last reported sale price common stock equals exceeds 140 conversion price 80 convertible notes effect least 20 trading days 30 consecutive trading day period ending including trading day immediately preceding date deliver redemption notice addition upon occurrence “fundamental change” holders 80 convertible notes right option require us repurchase 80 convertible notes cash price equal 100 principal amount 80 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date pending merger granite fundamental change indenture governing 800 convertible notes merger granite consummated future conversions 80 convertible notes would settled solely shares common stock granite cash lieu fractional shares assetbased revolving credit facility january 31 2018 availability assetbased credit facility 1000 million outstanding letters credit amounting 246 million borrowing outstanding leaving excess availability approximately 754 million assetbased credit facility guaranteed direct indirectly whollyowned domestic subsidiaries subject certain exceptions described assetbased credit facility obligations assetbased credit facility secured lien substantially assets guarantor subsidiaries subject certain exceptions described assetbased credit facility including pledge 650 equity interest first tier foreign subsidiaries excess availability less greater 175 total availability 175 million one business day “covenant compliance period” defined assetbased credit facility agreement exist excess availability equal greater 175 total availability 175 million period 30 consecutive days must maintain minimum fixed charge coverage ratio less 10 maximum first lien leverage ratio greater 50 10 four fiscal quarters ended immediately preceding covenant compliance period four fiscal quarter period ending covenant compliance period subject covenant compliance period three fiscal years ended january 31 2018 covenant compliance period three year period ended january 31 2018 would compliance minimum fixed charge coverage ratio march 30 2018 assetbased credit facility agreement amended revise acceleration provision included definition maturity date july 16 2018 delivered administrative agent assetbased credit facility evidence july 15 2018 425 convertible notes effectively discharged proceeds issuance 110 unsecured notes b may 15 2018 issuance 110 unsecured notes cancelled reason ii proceeds 110 unsecured notes used purpose effectively discharge 425 convertible notes full provided event described clause ii occurs may 15 2018 maturity date assetbased credit facility date event occurred assetbased credit facility also contains subjective acceleration clause triggered lenders determine experienced material adverse change triggered lenders clause would create event default turn would permit lenders accelerate repayment outstanding obligations general covenant compliance event default occurred continuing funds received daily basis applied reduce amounts owing assetbased credit facility based current projections anticipate covenant compliance period next twelve months 11 unsecured notes march 19 2018 entered note purchase agreement two investments funds advised corre partners management llc purchase 710 million 11 unsecured notes corre partners management affiliated funds including purchasers 110 unsecured notes portion 425 convertible notes 800 convertible notes note purchase agreement purchasers committed purchase 710 million 11 unsecured notes due october 16 2019 110 unsecured notes purchase price equal 100 principal amount 110 unsecured notes closing purchase sale 110 unsecured notes earlier occur october 1 2018 ii fifth business day delivery funding notice us purchasers result proceeds 110 unsecured notes used effectively discharge 425 convertible notes prior july 16 2018 would need refinance 1 assetbased credit facility prior april 14 2019 2 extent converted common stock 80 convertible notes may 1 2019 3 110 unsecured notes prior october 16 2019 commitment purchasers purchase 110 unsecured notes terminates upon earliest occur change control including closing pending merger granite ii delivery purchasers notice termination us may option prepay 110 unsecured notes whole part time 110 unsecured notes subject mandatory prepayment upon closing change control 110 unsecured notes subject early payment event fee 110 unsecured notes repaid less 90 days 110 unsecured notes issued amount early payment event fee equal excess x 90 days accrued interest principal amount repaid amount interest accrued paid payable respect principal amount repaid date issuance including date repayment covenants applicable us note purchase agreement long 110 unsecured notes issued ii 800 convertible notes outstanding iii none provisions indenture governing 800 convertible notes amended waived 110 unsecured notes issued subject certain covenants including delivery financial statements reports compliance material contracts applicable laws maintenance corporate existence insurance properties addition earliest date none 800 convertible notes outstanding ii provisions indenture governing 800 convertible notes longer effect amended waived subject negative covenants related indebtedness liens sale leaseback transactions asset sales dividends restricted payments transactions affiliates maximum ratio funded indebtedness ebitda potential refinancing convertible notes prior august 15 2018 may elect issue 110 unsecured notes use proceeds issuance 110 unsecured notes effectively discharge 425 convertible notes case maturity date 80 convertible notes would remain may 1 2019 result proceeds 110 unsecured notes used effectively discharge 425 convertible notes prior july 16 2018 would need refinance 1 assetbased credit facility prior april 14 2019 2 extent converted common stock 80 convertible notes may 1 2019 3 110 unsecured notes prior october 16 2019 alternatively market price common stock prior august 15 2018 1170 per share could elect take action respect 425 convertible notes case maturity date 80 convertible notes would become august 15 2018 believe circumstances holders 80 convertible notes would convert notes common stock remaining unconverted amounts could refinanced available cash drawings assetbased credit facility could issue 110 unsecured notes october 1 2018 order repay 425 convertible notes maturity case would seek extend refinance assetbased credit facility prior july 16 2018 contractual obligations commercial commitments contractual obligations commercial commitments january 31 2018 summarized follows expect meet cash contractual obligations ordinary course operations letters credit renewed connection annual insurance renewal process 425 convertible notes bear interest rate 425 per year payable semiannually arrears cash may 15 november 15 year 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted terms 425 convertible notes indenture 80 convertible notes bear interest rate 80 per annum payable semiannually arrears may 1 november 1 year 80 convertible notes mature may 1 2019 subject certain provisions 80 convertible notes indenture see financing agreementspotential refinancing convertible notes capitalized leases obligations certain equipment income tax uncertainties amount 155 million january 31 2018 classified noncurrent balance sheet resolution matters expected take year ultimate timing resolution items uncertain accordingly amounts included table surety bonds secure performance projects amounting 1483 million january 31 2018 484 million related surety bonds contracts assumed purchasers heavy civil business amount included table information timing resolution amounts available see note 8 consolidated financial statements discussion additional obligations ordinary course operations also incurred obligations including limited income tax payments expected met normal course operations offbalance sheet arrangements offbalance sheet arrangements reasonably likely current future effect financial condition changes financial condition revenues expenses results operations liquidity capital expenditures capital resources material investors critical accounting policies estimates management’s discussion analysis financial condition results operations discuss consolidated financial statements prepared accordance gaap preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period accounting policies fully described note 1 consolidated financial statements located item 8 form 10k believe following accounting policies represent management’s critical policies critical accounting policies practices estimates subset significant accounting policies considered important description financial condition results require management’s difficult subjective complex judgments often result need make estimates effects matters inherently uncertain revenue recognition significant estimates regard consolidated financial statements relate estimation total forecasted drilling infrastructure services contract revenues costs profits accordance criteria established asc topic 60535 “constructiontype productiontype contracts” based experience current processes produce materially reliable estimates total contract revenue cost accounting period however many factors change contract performance period result change contract profitability one financial reporting period another factors change estimate total contract revenue cost include differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revisions costs income recognized period revisions costs revenues become known provisions estimated losses uncompleted drilling infrastructure services contracts made period become known large changes cost estimates larger complex drilling infrastructure services projects material impact consolidated financial statements reflected results operations become known smaller contracts smaller changes estimates usually material impact consolidated financial statements nature accounting contracts refinements estimating process changing conditions new developments continuous characteristic process prior execution contract related costs expensed period incurred generally early stages contract cost estimates relating purchases materials subcontractors subject revisions contract moves productive phase execution change orders project cost estimate revisions claims frequently sources changes estimates contract’s final phase remaining estimated costs complete provisions claims closed adjusted based actual costs incurred impact operating margin reporting period future periods change estimate depend stage contract completion generally contract early stage completion current period impact smaller change estimate made contract later stage completion revenues recognized large longterm drilling infrastructure services contracts meeting criteria asc topic 60535 using percentage completion method based upon ratio costs incurred total estimated costs completion contracts utilize percentage completion method revenue recognition terms six months four years contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimate revisions become known estimate contract indicates loss entire loss recorded accounting period becomes known ordinary course business management prepares updated estimates total forecasted revenue cost profit loss contract cumulative effects updated estimates reflected period become known financial impact revisions individual contract function amount revision percentage completion contract amount costs incurred involving unapproved change orders claims included total estimated revenue realization probable amount unapproved change orders claim revenues included consolidated balance sheets part costs estimated earnings excess billings profit result change orders claims recorded period change order claim resolved management focuses evaluating performance contracts individually ordinary course business minimum quarterly basis based changes facts approved scope change estimate projected total contract revenue cost profit loss contracts updated normal recurring changes estimates include limited • changes estimated scope result unapproved unpriced customer change orders • changes estimated productivity assumptions based experience date • changes estimated materials costs based experience date • changes estimated subcontractor costs based subcontractor experience • changes timing scheduled work may impact future costs determining likelihood recovering unapproved change orders claims consider history experience similar projects apply judgment estimate amount eventual recovery settlement events take several years depending easily claim able resolved customer whether arbitration litigation necessary reach settlement new facts become known adjustment estimated recovery made reflected period becomes known cumulative effect revisions estimates total revenues costs including unapproved change orders claims course work reflected accounting period facts caused revisions become known financial impact revisions one contract function amount revision percentage completion contract material change orders fiscal years ended january 31 2018 2017 2016 material contract penalties claims settlements changes contract estimates fiscal years ended january 31 2018 2017 2016 amounts netted revenue fiscal years ended january 31 2018 2017 2016 provided estimated costs complete ongoing contracts however possible current estimates could change due unforeseen events could result adjustments overall contract costs variances estimated contract performance could result material adjustments operating results fiscal quarter year contracts current estimate total contract cost indicates loss projected loss recognized full losses become known fiscal years ended january 31 2018 2017 2016 approximately 63 million 98 million 29 million losses open contracts recorded respectively current provision loss contracts 07 million 19 million january 31 2018 2017 respectively january 31 2018 contracts individually could reasonably estimated material loss position future costs estimated earnings excess billings represents excess contract costs contract revenue recognized date percentage completion accounting method contract billings date costs estimated earnings excess billings occur • costs related unapproved change orders claims incurred • portion revenue recorded cannot billed currently due billing terms contract allowed asc topic 60535 revenue recognized smaller shortterm drilling infrastructure services contracts using completed contract method contracts utilize completed contract method revenue recognition contract terms twelve months less consider contracts completed upon acceptance customer contracts mineral drilling services within mineral services billable based quantity drilling performed revenues recognized terms value total work performed date basis actual footage meterage drilled percentage revenues recognized percentage completion mineral drilling services completed contract total revenues fiscal years presented consolidated statements operations impairment longlived assets equity method investments review carrying value longlived assets equity method investments whenever events changes circumstances indicate carrying values may recoverable longlived assets longlived assets including amortizable intangible assets reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable factors management considers important could trigger impairment review include limited following • significant underperformance assets • significant changes use assets • significant negative industry economic trends impairment loss recognized carrying amount longlived asset recoverable exceeds fair value carrying amount longlived asset recoverable exceeds sum undiscounted cash flows expected result use eventual disposition asset impairment loss shall measured amount carrying amount longlived asset exceeds fair value generally calculated using combination market comparable transaction third party quoted prices asset appraisals discounted cash flow approaches fiscal year ended january 31 2016 result decision exit operations africa australia performed assessment property equipment located locations based assessment property equipment africa australia carrying value 104 million adjusted reflect estimated fair value 65 million resulting charge approximately 39 million recorded part restructuring costs consolidated statement operations fiscal year ended january 31 2016 additionally fiscal year ended january 31 2017 reviewed recoverability assets held sale australia recorded additional charge 129 million part restructuring costs consolidated statement operations adjust carrying values assets held sale estimated fair values less costs sell calculating impairment carrying amount assets included cumulative currency translation adjustment related australian african entities fair value assets determined based available thirdparty quoted prices appraisals assets fiscal year ended january 31 2018 reviewed recoverability asset values longlived assets water resources segment based analysis sum undiscounted cash flows expected use eventual disposal assets end useful life exceeded carrying value assets respective segments indication impairment identified prior segment realignment third quarter fiscal year ended january 31 2016 reviewed recoverability asset values longlived assets energy services segment july 31 2015 using undiscounted cash flow model concluded carrying value assets energy services fully recoverable july 31 2015 performed assessment fair value assets energy services based orderly liquidation value property equipment assessment resulted recording impairment charge approximately 46 million shown impairment charges consolidated statements operations fiscal year ended january 31 2016 equity method investments evaluate equity method investments impairment least annually events changes circumstances indicate loss value investment temporary decline performed qualitative assessment determine existence events circumstances would lead determination triggering event occurred would indicate loss value investment conclusion reached would required perform quantitative impairment assessment value investments however assessment leads determination fair value investments greater carrying amount assessments required improving market condition minerals market strong earnings continued payment dividends equity affiliates determined triggering event occurred would indicate loss value equity method investments january 31 2018 investment affiliates balance january 31 2018 533 million item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read conjunction companys consolidated financial statements notes thereto item 8 cautionary language regarding forwardlooking statements form 10k contains forwardlooking statements within meaning section 27a securities act 1933 section 21e exchange act 1934 statements concerning strategic plans expectations objectives future operations generally indicated words phrases anticipate estimate project believe intend expect plan similar words phrases statements based current expectations subject certain risks uncertainties assumptions including limited prevailing prices various commodities unanticipated slowdowns companys major markets risks uncertainties normally incident exploration development production oil gas impact competition effectiveness operational changes expected increase efficiency productivity worldwide economic political conditions foreign currency fluctuations may affect worldwide results operations one risks uncertainties materialize underlying assumptions prove incorrect actual results may vary materially adversely anticipated estimated projected forwardlooking statements made date filing company assumes obligation update forwardlooking statements update reasons actual results could differ materially anticipated forwardlooking statements management overview reportable operating segments company multinational company provides sophisticated services related products variety markets management defines companys operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices division example water resources division office performed geoconstruction services revenues would recorded water resources division rather geoconstruction division offices primary responsibility move one division president another offices results going forward would reclassified divisions time companys reportable segments defined follows water resources division provides full line waterrelated services products including hydrological studies site selection well design drilling well development pump installation repair maintenance divisions offerings include design construction water treatment facilities manufacture sale products treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental services assess monitor groundwater contaminants effective february 1 2003 companys ground freezing services included division prospective basis due change reporting responsibility divisions operations rely heavily municipal sector approximately 63 divisions fiscal 2004 revenues derived municipal market municipal sector adversely impacted slow us economy reduced tax revenues limited spending new development local municipalities generally spending levels municipal sector lag economic recovery expected remain reduced levels first half next year addition reduced spending levels municipal market company also experienced reduced demand services industrial markets soft markets increased competitive challenges division competitors aggressive pricing divisions margins adversely affected result focused effort maintain market share difficult environment us economy begins recover company expects activity levels within water markets improve along pricing division also expanding water treatment product offerings expects see growth water treatment sales fiscal 2005 mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods demand companys mineral exploration drilling services depends upon level mineral exploration development activities conducted mining companies particularly respect gold copper mineral exploration highly speculative influenced variety factors including prevailing prices various metals often fluctuate widely connection level mineral exploration development activities conducted mining companies could material adverse effect company fiscal 2004 mineral exploration division experienced first increase worldwide exploration spending since 1997 driven primarily increased gold base metals prices division relies heavily mining activity africa 57 total division revenues fiscal 2004 generated africa company believes concentration risk mitigated working larger international mining companies establishment permanent operating facilities africa operating difficulties africa including limited political instability workforce instability harsh environment disease remote locations create natural barriers entry market competitors company believes positioned market leader africa established infrastructure operate effectively division expects experience continued growth next year mining activity accelerates geoconstruction division focuses services improve soil stability primarily jet grouting vibratory ground improvement drilled micropiles stone columns anchors tie backs division also manufactures line highpressure pumping equipment used grouting operations geotechnical drilling rigs used directional drilling effective february 1 2003 division longer includes companys ground freezing services due change reporting responsibility geoconstruction division frequently acts subcontractor heavy civil construction contractors governmental agencies many cases circumstances outside companys control inherent subcontractor relationship consequently division could experience delays projects could material adverse effect division company expects volume large constructiontype projects utilizing companys services improve next year conjunction us economic recovery energy division primarily focuses exploration production coalbed methane cbm properties united states date concentrated projects midcontinent region united states historically division also included service businesses shallow gas tar sands exploration drilling conventional oilfield fishing services coil tubing fishing services fiscal 2004 divisions strategy shifted focus mainly resource development rather providing services external customers accordingly january 2004 company sold canadian drilling unit ensign drilling oilfield fishing services smith international results operations units reclassified discontinued operations years presented see note 4 notes consolidated financial statements division composed companys cbm development activities two small specialty energy service companies upon sale two businesses fiscal 2004 company repositioned division focus mainly exploration production activities associated cbm properties expansion companys energy segment contingent upon significant cash investments develop companys unproved acreage january 31 2004 company invested 14084000 oil gas related assets expects spend approximately 8000000 development activities associated cbm efforts fiscal 2005 production curve typical cbm well generally 1520 years accordingly company expects earn return investment production proceeds next 1520 years however future revenues profits dependent upon number factors including consumption levels natural gas commodity prices economic feasibility gas exploration production discovery rate new gas reserves company expects approximately 80 gross producing wells online end first quarter fiscal 2005 operating losses division expected third quarter fiscal 2005 sufficient production volumes generated offset divisions level fixed costs products grouping historically included companys supply operation distributed drilling equipment parts supplies manufacturing operation producing diamond drilling rigs diamond bits core barrels drill rods christensen products miscellaneous operations fall divisions january 23 2003 company sold supply operation boart longyear upon sale results operations reclassified discontinued operations years presented see note 4 notes consolidated financial statements august 8 2001 company sold christensen products business subsidiary atlas copco see note 6 notes consolidated financial statements following table derived companys consolidated financial statements discussed item 6 presents periods indicated percentage relationship certain items reflected companys statements income bear revenues percentage increase decrease dollar amount items periodtoperiod meaningful comparison fiscal 2004 fiscal 2003 revenues fiscal 2004 increased 16530000 65 272053000 compared 255523000 fiscal 2003 increase primarily result increases companys mineral exploration division see discussion results operations division presented gross profit percentage revenues 278 fiscal 2004 compared 294 fiscal 2003 decrease gross profit percentage year primarily related negative impact competitive pricing pressures companys water resources division municipal industrial energy agricultural market segments weak throughout year decreases gross profit water resources division partially offset improved margins companys mineral exploration division due increased activity levels associated higher gold base metal prices selling general administrative expenses increased 53920000 fiscal 2004 compared 52425000 fiscal 2003 198 205 revenues respectively increase year primarily result severancerelated benefits 1244000 accrued second quarter see note 7 notes consolidated financial statements startup expenses related companys groundwater transfer project texas increased insurance costs expenses partially offset lower incentive compensation expense cost savings associated workforce reductions completed second quarter depreciation amortization decreased 11877000 fiscal 2004 compared 13204000 fiscal 2003 decrease depreciation amortization result assets becoming fully depreciated prior periods primarily geoconstruction mineral exploration divisions interest expense increased 2604000 fiscal 2004 compared 2490000 fiscal 2003 increase result increase companys average borrowings year company recorded debt extinguishment costs 2320000 fiscal 2004 1135000 fiscal 2003 losses periods represent prepayment penalties writeoff associated deferred fees connection refinancing companys credit facilities net income 358000 fiscal 2004 compared income 1694000 fiscal 2003 variance income last year primarily due gains insurance proceeds fixed asset sales investment sales recurred levels current year income tax expense related continuing operations 4265000 recorded fiscal 2004 effective rate 644 compared 5084000 period last year effective rate 601 exclusive impact debt extinguishment costs effective rate would 577 compared 576 twelve months ended january 31 2004 2003 respectively remaining difference effective rate versus statutory federal rate due primarily impact nondeductible expenses tax treatment certain foreign operations net income fiscal 2004 included income related discontinued operations 290000 fourth quarter fiscal 2004 company sold layne christensen canada toledo oil gas subsidiaries entities historically reported part companys energy segment connection sales company recorded gain 1746000 net income taxes 1034000 gains related sale operations offset operating losses 1456000 net income taxes 215000 see note 4 notes consolidated financial statements water resources division thousands water resources revenues increased 15 169631000 year ended january 31 2004 167080000 year ended january 31 2003 increase revenues primarily result concerted effort maintain market share divisions markets especially soft municipal market activity impacted competitive pressures reduced spending increase also attributable increased infrastructure needs result population expansion certain areas united states especially metropolitan areas california illinois income continuing operations water resources division decreased 269 20942000 year ended january 31 2004 compared 28654000 last year decrease income continuing operations twelve months ended january 31 2004 primarily attributable competitive pricing pressures municipal industrial energy agricultural market segments reduced margins due difficult winter drilling season earnings large multidivisional project prior year replaced fiscal 2004 mineral exploration division thousands mineral exploration revenues increased 223 68218000 year ended january 31 2004 compared revenues 55769000 year ended january 31 2003 increase revenues attributable increased exploration activity companys markets result higher gold base metals prices increased activity levels greatest impact companys locations africa income continuing operations mineral exploration division 3343000 year ended january 31 2004 compared loss continuing operations 1082000 year ended january 31 2003 improved profitability division primarily due increased activity levels noted division also benefited improved earnings latin american affiliates lower depreciation assets fully depreciated prior periods items partially offset increased expenses australia bring equipment compliance changes transportation regulations geoconstruction division thousands geoconstruction revenues increased 56 31285000 year ended january 31 2004 compared 29621000 year ended january 31 2003 increase revenues primarily result large project northwest united states department energy increased sales companys manufacturing unit italy increased sales italy primarily result weakened value us dollar euro functional currency subsidiary movement euro versus dollar resulted increase approximately 1000000 upon conversion companys reporting currency geoconstruction division income continuing operations 2246000 year ended january 31 2004 compared 2631000 year ended january 31 2003 decrease income continuing operations attributable delays work suspensions certain public sector projects partially offset reduced depreciation expense assets fully depreciated prior periods energy division thousands energy division revenues increased 115 2919000 year ended january 31 2004 compared revenues 2617000 year ended january 31 2003 increase revenues division primarily attributable increased market penetration companys resonance technology process revenues division fiscal 2004 include approximately 73000 related companys coalbed methane projects midcontinent region united states division loss continuing operations 1500000 year ended january 31 2004 compared loss continuing operations 1223000 year ended january 31 2003 increased loss division result increased expenses related companys coalbed methane development activities corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 13481000 14759000 years ended january 31 2004 2003 respectively decrease corporate expenses year ended january 31 2004 primarily result lower division incentiverelated accruals year workforce reductions second quarter see note 7 notes consolidated financial statements cost reduction measures implemented late fiscal 2003 decreases noted partially offset severancerelated costs see note 7 notes consolidated financial statements approximately 800000 incurred second quarter comparison fiscal 2003 fiscal 2002 financial comparison discussion fiscal 2003 versus fiscal 2002 reclassified reflect discontinued operations results operations revenues fiscal 2003 decreased 11091000 42 255523000 compared 266614000 fiscal 2002 decrease primarily result decreases companys water resources products divisions see discussion results operations division presented gross profit percentage revenues 294 fiscal 2003 compared 284 fiscal 2002 increase gross profit primarily attributable improved pricing margins companys domestic water locations partially offset expenses associated companys domestic oil gas exploration activities selling general administrative expenses decreased 52425000 fiscal 2003 compared 53069000 fiscal 2002 205 199 revenues respectively decrease primarily result lower incentiverelated accruals partially offset startup expenses related water development storage venture expenses associated companys coalbed methane exploration development activities increase percentage revenues attributable startup expenses associated water development storage venture relative level fixed costs companys operating divisions depreciation amortization decreased 13204000 fiscal 2003 compared 16711000 fiscal 2002 decrease depreciation amortization result assets becoming fully depreciated prior periods mineral exploration division ceasing amortize goodwill upon adoption sfas 142 see note 5 notes consolidated financial statements interest expense decreased 2490000 fiscal 2003 compared 3934000 fiscal 2002 decrease result decreases companys average borrowings interest rates year company recorded debt extinguishment costs 1135000 year ended january 31 2003 prepayment penalties associated refinancing companys credit facilities loss initially recorded fiscal 2003 extraordinary item reclassified income continuing operations fiscal 2004 upon adoption sfas 145 rescission fasb statement 4 44 64 amendment fasb statement 13 technical corrections net increased income 1694000 year ended january 31 2003 compared income 71000 year ended january 31 2002 increase primarily due gain sale companys investment gold exploration project africa gains result company initiative monetize excess property equipment gains partially offset writedown companys former christensen products plant income tax expense related continuing operations 5084000 recorded year ended january 31 2003 effective rate 601 compared 1837000 effective rate 622 period last year effective rate excess statutory federal rate result impact nondeductible expenses tax treatment certain foreign operations net loss fiscal 2003 included losses related discontinued operations 2248000 14429000 noncash impairment loss related goodwill recorded cumulative effect accounting change upon adoption sfas 142 water resources division thousands water resources revenues decreased 33 167080000 year ended january 31 2003 172806000 year ended january 31 2002 decrease revenues primarily result reduced municipal spending certain companys markets resulting competitive pressures partially offset increased demand companys services due increased infrastructure needs created population growth western united states income continuing operations water resources division increased 43 28654000 year ended january 31 2003 compared 27474000 last year increase primarily attributable improved pricing margins certain companys domestic water supply locations large multidivisional drilling project performed oil gas sector certain gains sale property equipment partially offset startup expenses associated water development storage venture mineral exploration division thousands mineral exploration revenues decreased 38 55769000 year ended january 31 2003 compared revenues 57945000 year ended january 31 2002 increased activity levels north america australia due rising precious metal prices sufficient offset reduced exploration activity certain areas africa loss continuing operations mineral exploration division 1082000 year ended january 31 2003 compared loss 7313000 year ended january 31 2002 results operations year ended january 31 2003 reflect losses africa partially offset improved operating performance increased activity levels north america australia included african losses impact losing two significant contracts approximately 1000000 costs associated relocating west african operations base division benefited fiscal 2003 reduced depreciation amortization 2753000 due assets fully depreciated prior periods ceasing amortize goodwill upon adoption sfas 142 also included year gain 901000 sale investment gold exploration project africa prior year loss includes 33 million charge related sale companys investment ausdrill limited see note 6 notes consolidated financial statements geoconstruction division thousands geoconstruction revenues increased 97 29621000 year ended january 31 2003 compared 27006000 last year increase revenues result two large construction projects hawaii large multidivisional project oil gas sector increased equipment sales result new product offerings companys manufacturing facility italy geoconstruction division income continuing operations 2631000 year ended january 31 2003 compared 1194000 year ended january 31 2002 increased profits primarily attributable margins associated increased revenues elimination costs incurred prior year associated complications certain companys groundfreezing projects energy division thousands energy revenues decreased 286 2617000 year ended january 31 2003 compared revenues 3667000 year ended january 31 2002 revenues division negatively impacted depressed market conditions oil gas services gulf mexico region united states division loss continuing operations 1223000 year ended january 31 2003 compared loss continuing operations 260000 year ended january 31 2002 increased loss result expenses related companys energy exploration activities coalbed methane development efforts reduced income due depressed market conditions products thousands products revenues decreased 916 436000 year ended january 31 2003 compared 5190000 year ended january 31 2002 decrease revenues result sale christensen products subsidiary atlas copco third quarter last year two large specialty construction projects completed last year loss products 2142000 year ended january 31 2003 includes writedown christensen products land building reflect declines fair market value residual expenses associated closing christensen products income year ended january 31 2002 includes 40 million gain sale christensen products atlas copco see note 6 notes consolidated financial statements corporate expenses corporate expenses allocated individual divisions primarily included selling general administrative expenses 14759000 15596000 years ended january 31 2003 2002 respectively decrease unallocated corporate expenses primarily result lower incentiverelated accruals year fluctuation quarterly results company historically experienced fluctuations quarterly results arising timing award completion contracts recording related revenues unanticipated additional costs incurred projects companys revenues large longterm drilling contracts recognized percentage completion basis individual contracts based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined significant number companys contracts contain fixed prices assign responsibility company cost overruns subject projects result revenues gross margin may vary originally estimated depending upon size project variations estimated contract performance could affect companys operating results particular quarter many companys contracts also subject cancellation customer upon short notice limited damages payable company addition adverse weather conditions natural disasters force majeure similar events curtail company operations various regions world throughout year resulting performance delays increased costs moreover companys domestic drilling activities related revenues earnings tend decrease winter months adverse weather conditions interfere access drilling sites ability drill result companys revenues earnings second third quarters tend higher revenues earnings first fourth quarters accordingly result foregoing well factors quarterly results considered indicative results expected quarter full fiscal year see companys consolidated financial statements notes thereto inflation management believes companys operations periods discussed adversely affected inflation changing prices suppliers liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding capital expenditures companys primary sources liquidity historically cash operations supplemented borrowings credit facilities cash operating activities 4770000 19083000 25509000 fiscal 2004 2003 2002 respectively cash operations borrowings credit facilities 2004 used fund capital spending 20628000 year fiscal 2005 company expects continue expansion production coalbed methane gas capital expenditure estimates fiscal 2005 include approximately 8000000 related coalbed methane development 14000000 upgrade equipment facilities companys divisions january 31 2004 company material commitments outstanding capital assets company maintains agreement master shelf agreement whereby issue 60000000 unsecured notes company also holds revolving credit facility credit agreement composed unsecured 30000000 revolving facility borrowings master shelf credit agreements used refinance borrowings outstanding companys previous credit facilities january 31 2004 company outstanding notes 40000000 master shelf agreement borrowings 2000000 credit agreement see note 12 notes consolidated financial statements remaining 20000000 notes master shelf agreement available issuance market rates july 2005 issuance notes contingent among things compliance financial covenants master shelf credit agreements company compliance financial covenants january 31 2004 expects remain compliance foreseeable future companys working capital january 31 2004 2003 2002 52406000 33675000 15513000 respectively portion reason increases working capital january 31 2004 2003 receipt proceeds sale businesses near end january year excluding cash equivalents working capital january 31 2004 2003 2002 would 30804000 22905000 12530000 respectively working capital also comparatively lower january 31 2002 due 16500000 current maturities existing credit facilities refinanced longterm basis fiscal 2003 increased working capital january 31 2004 discussed detail company believes sufficient cash operations access credit facilities meet companys operating cash requirements fund budgeted capital expenditures fiscal 2005 operating activities cash operating activities including discontinued operations decreased 14313000 4770000 year ended january 31 2004 decrease cash operations 2004 primarily attributable increased working capital primarily caused increased receivable balances companys operating divisions increased receivables fiscal 2004 primarily result increased balances related layne canada due busier winter drilling season compared last year increased activity levels mineral exploration division slowing collections water resources geoconstruction division customers increased receivables also attributable receivables joint interest partners coalbed methane projects increased receivable balances partially offset increase accounts payable due increased activity levels minerals division costs related companys pipeline construction cbm project midwest closing accruals lease termination liabilities associated sale layne canada investing activities companys capital expenditures 20628000 fiscal 2004 directed primarily toward companys expansion coalbed methane exploration production including construction gas pipeline infrastructure near companys development projects expenditures related companys cbm efforts totaled 10539000 fiscal 2004 remaining capital expenditures directed towards expansion upgrading companys equipment facilities primarily water resources mineral exploration divisions investing activities fiscal 2004 also include proceeds sale businesses 18114000 business acquisitions 1150000 company sold layne canada january 30 2004 received 15914000 upon closing january 6 2004 company sold toledo oil gas received 2200000 upon closing additional payment 300000 related sale toledo received february 2004 fiscal 2004 company acquired mohajir engineering group 1150000 see note 2 notes consolidated financial statements acquisition positioned company take advantage growth opportunities coalbed methane development market financing activities companys financing activities primarily related issuance 40000000 notes master shelf agreement borrowings 2000000 companys revolving credit facility proceeds issuance common stock related exercise stock options year proceeds option exercises unusually high fiscal 2004 due increases companys stock price large number options impending expiration dates proceeds issuance notes used pay outstanding borrowings companys previous credit facilities prepayment penalty related previous loan facilities issuance costs related master shelf agreement companys new revolving credit facility financing activities also include note payments related companys acquisition drillcorp assets november 2003 see note 2 notes consolidated financial statements contractual obligations commercial commitments companys contractual obligations commercial commitments summarized follows thousands company expects meet contractual cash obligations ordinary course operations standby letters credit renewed connection annual insurance renewal process company incurs additional obligations ordinary course operations obligations including limited interest payments debt income tax payments pension fundings expected met normal course operations critical accounting policies estimates managements discussion analysis financial condition results operations discusses companys consolidated financial statements prepared accordance accounting principles generally accepted united states preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments based historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions accounting policies fully described note 1 notes consolidated financial statements located elsewhere annual report form 10k company believes following represents critical estimates assumptions used preparation consolidated financial statements revenue recognition revenue recognized large longterm contracts using percentage completion method based upon materials installed labor costs incurred changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined provisions estimated losses uncompleted contracts made period losses determined goodwill intangibles june 2001 financial accounting standards board issued sfas 142 effective company february 1 2002 sfas 142 substantially changed accounting goodwill requiring goodwill intangible assets indefinite useful lives cease amortized instead periodically tested impairment company performs annual impairment test december 31 year process evaluating goodwill impairment involves determination fair value companys reporting units inherent fair value determinations certain judgments estimates including interpretation current economic indicators market valuations assumptions companys strategic plans regard operations company believes time carrying value remaining goodwill appropriate although extent additional information arises companys strategies change possible companys conclusions regarding impairment remaining goodwill could change result material effect financial position results operations longlived assets evaluating fair value future benefits longlived assets including companys coalbed methane assets company performs analysis anticipated future net cash flows related longlived assets reduce carrying value excess result calculation company believes january 31 2004 longlived assets carrying values useful lives continue appropriate accrued insurance expense company maintains insurance programs responsible certain amount claim selfinsured limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based actuarially determined projections future payments programs greater amount claims occur compared estimated costs medical profession increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee medical benefits property casualty insurance programs resulting claims occurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods see note 15 notes consolidated financial statements income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries foreign affiliates made amounts excess funds considered invested indefinitely see note 9 notes consolidated financial statements litigation contingencies company involved litigation incidental business disposition expected material effect companys financial position results operations possible however future results operations particular quarterly annual period could materially affected changes companys assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation outside counsel handling matters based upon combination litigation settlement strategies extent additional information arises companys strategies change possible companys estimate probable liability matters may change see note 17 notes consolidated financial statements discussion new accounting pronouncements impact company item 7a nanitem 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rates variable rate debt equity risk investments foreign exchanges rates giving rise translation transaction gains losses company centrally manages debt investment portfolios considering overall financing strategies tax consequences company generally use derivative financial instruments part overall strategies instruments outstanding present time companys variable rate debt described note 8 notes consolidated financial statements appearing page 46 form 10k incorporated herein reference assuming january 31 1998 debt levels instantaneous change interest rates one percentage point would impact companys interest expense 325000 companys investments described note 1 notes consolidated financial statements appearing page 35 form 10k incorporated herein reference investments carried market value held longterm investing purposes rather trading purposes operating international markets involves exposure possible volatile movements currency exchange rates currently companys primary international operations australia africa mexico canada indonesia thailand operations described notes 1 11 notes consolidated financial statements appearing pages 35 49 respectively form 10k incorporated herein reference majority companys contracts africa mexico us dollar based providing natural reduction exposure currency fluctuations currency exchange rates change translation income statements companys international operations us dollars may affect yeartoyear comparability operating results estimate ten percent change foreign exchange rates would impacted operating income year ended january 31 1998 approximately 100000 represents approximately ten percent international segment operating profit adjusting primarily us dollar based operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes companys financing operating strategies foreign exchange gains losses companys statements income reflect transaction gains losses translation gains losses companys mexican subsidiary uses us dollar functional currency net foreign exchange gains losses 1998 1997 1996 significant item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rates variable rate debt equity risk investments foreign exchange rates giving rise translation transaction gains losses company centrally manages debt investment portfolios considering overall financing strategies tax consequences description companys variable rate debt note 8 notes consolidated financial statements appearing page 46 form 10k assuming existing debt levels instantaneous change interest rates one percentage point would impact companys interest expense 385000 135000 january 31 2000 1999 respectively companys investments described note 1 consolidated financial statements investments carried market value held longterm investing purposes rather trading purposes operating international markets involves exposure possible volatile movements currency exchange rates currently companys primary international operations australia africa mexico canada indonesia italy thailand operations described notes 1 11 consolidated financial statements majority companys contracts africa mexico us dollar based providing natural reduction exposure currency fluctuations currency exchange rates change translation income statements companys international operations us dollars may affect yeartoyear comparability operating results estimate ten percent change foreign exchange rates would impacted operating income years ended january 31 2000 1999 approximately 426000 222000 respectively represents approximately ten percent international segment operating income adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes companys financing operating strategies foreign exchange gains losses companys consolidated statements income reflect transaction gains losses translation gains losses companys mexican african operations use us dollar functional currency net foreign exchange gains losses 2000 1999 1998 significant item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt equity risk marketable investments foreign exchange rate risk could give rise translation transaction gains losses company centrally manages debt investment portfolios considering overall financing strategies tax consequences description companys variable rate debt note 8 notes consolidated financial statements form 10k assuming existing debt levels instantaneous change interest rates one percentage point would impact companys annual interest expense 405000 385000 january 31 2001 2000 respectively companys investments described note 1 consolidated financial statements marketable investments carried market value held longterm investing purposes rather trading purposes operating international markets involves exposure possible volatile movements currency exchange rates currently companys primary international operations australia africa mexico canada italy thailand operations described notes 1 11 consolidated financial statements majority companys contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations currency exchange rates change translation income statements companys international operations us dollars may affect yeartoyear comparability operating results estimate ten percent change foreign exchange rates would impacted operating income years ended january 31 2001 2000 approximately 244000 426000 respectively represents approximately ten percent international segment operating income adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes companys financing operating strategies foreign exchange gains losses companys consolidated statements income reflect transaction gains losses translation gains losses companys mexican african operations use us dollar functional currency net foreign exchange gains losses 2001 2000 1999 significant item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt equity risk marketable investments foreign exchange rate risk could give rise translation transaction gains losses company centrally manages debt investment portfolios considering overall financing strategies tax consequences description companys variable rate debt note 8 notes consolidated financial statements form 10k assuming existing debt levels instantaneous change interest rates one percentage point would impact companys annual interest expense 165000 405000 january 31 2002 2001 respectively companys investments described note 1 consolidated financial statements marketable investments carried market value held longterm investing purposes rather trading purposes operating international markets involves exposure possible volatile movements currency exchange rates currently companys primary international operations australia africa mexico canada italy operations described notes 1 11 consolidated financial statements majority companys contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations currency exchange rates change translation income statements companys international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impacted operating income years ended january 31 2002 2001 approximately 146000 244000 respectively represents approximately 10 operating income international locations adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes companys financing operating strategies foreign exchange gains losses companys consolidated statements income reflect transaction gains losses translation gains losses companys mexican african operations use us dollar functional currency net foreign exchange gains losses 2002 2001 2000 significant item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt equity risk marketable investments foreign exchange rate risk could give rise translation transaction gains losses company centrally manages debt investment portfolios considering overall financing strategies tax consequences description companys variable rate debt associated interest rate swap agreement appear note 11 consolidated financial statements form 10k assuming existing debt levels swap agreement instantaneous change interest rates one percentage point would impact companys annual interest expense 157000 165000 january 31 2003 2002 respectively companys investments described note 1 consolidated financial statements marketable investments carried market value held longterm investing purposes rather trading purposes operating international markets involves exposure possible volatile movements currency exchange rates currently companys primary international operations australia africa mexico canada italy operations described notes 1 14 consolidated financial statements companys affiliates also operate chile peru mexico panama see note 3 notes consolidated financial statements majority companys contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations currency exchange rates change translation income statements companys international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would significantly impact income continuing operations years ended january 31 2003 2002 quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes companys financing operating strategies foreign exchange gains losses companys consolidated statements income reflect transaction gains losses translation gains losses companys mexican african operations use us dollar functional currency net foreign exchange gains losses 2003 2002 2001 significant item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses fluctuations price natural gas company centrally manages debt portfolio considering overall financing strategies tax consequences description company’s debt included note 12 notes consolidated financial statements form 10k january 31 2005 company’s longterm debt outstanding carries fixedrate accordingly instantaneous change interest rates one percentage point would significantly impact company’s annual interest expense operating international markets involves exposure possible volatile movements currency exchange rates currently company’s primary international operations australia africa mexico italy operations described notes 1 16 consolidated financial statements company’s affiliates also operate south america mexico see note 3 notes consolidated financial statements majority company’s contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations company also may utilize various hedge instruments primarily foreign currency option contracts manage exposures associated fluctuating currency exchange rates see note 13 notes consolidated financial statements january 31 2005 company held option contracts currency exchange rates change translation income statements company’s international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income continuing operations income taxes approximately 59000 240000 45000 years ended january 31 2005 2004 2003 respectively represents approximately ten percent income continuing operations international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes company’s financing operating strategies foreign exchange gains losses company’s consolidated statements income reflect transaction gains losses translation gains losses company’s mexican african operations use us dollar functional currency net foreign exchange losses years ended january 31 2005 2004 2003 342000 232000 52000 respectively company also exposed fluctuations price natural gas result sale energy division’s natural gas production price natural gas volatile company entered fixedprice physical contracts covering portion production manage price fluctuations achieve predictable cash flow january 31 2005 company held contracts physical delivery 439000 million british thermal units “mmbtu” natural gas prices ranging 630 965 per mmbtu estimated fair value contracts january 31 2005 213000 estimate 10 change price natural gas would impact income continuing operations taxes approximately 382000 year ended january 31 2005 item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses fluctuations price natural gas company centrally manages debt portfolio considering overall financing strategies tax consequences description company’s debt included note 12 notes consolidated financial statements form 10k january 31 2006 instantaneous change interest rates one percentage point would change company’s annual interest expense 689000 operating international markets involves exposure possible volatile movements currency exchange rates currently company’s primary international operations australia africa mexico italy operations described notes 1 16 consolidated financial statements company’s affiliates also operate south america mexico see note 3 notes consolidated financial statements majority company’s contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations company also may utilize various hedge instruments primarily foreign currency option contracts manage exposures associated fluctuating currency exchange rates see note 13 notes consolidated financial statements january 31 2006 company held hedge instruments currency exchange rates change translation income statements company’s international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income continuing operations income taxes approximately 270000 59000 240000 years ended january 31 2006 2005 2004 respectively represents approximately ten percent income continuing operations international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes company’s financing operating strategies foreign exchange gains losses company’s consolidated statements income reflect transaction gains losses translation gains losses company’s mexican african operations use us dollar functional currency net foreign exchange losses years ended january 31 2006 2005 2004 290000 342000 232000 respectively company also exposed fluctuations price natural gas affect sale energy division’s unconventional gas production price natural gas volatile company entered fixedprice physical delivery contracts covering portion production manage price fluctuations achieve predictable cash flow january 31 2006 company held contracts physical delivery 1836000 million british thermal units “mmbtu” natural gas prices ranging 772 965 per mmbtu march 2007 estimated fair value contracts january 31 2006 2337000 company generally targets contracts place cover 50 production estimate 10 change price natural gas would impacted income continuing operations taxes approximately 336000 year ended january 31 2006 item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses fluctuations price natural gas company centrally manages debt portfolio considering overall financing strategies tax consequences description company’s debt included note 11 notes consolidated financial statements form 10k january 31 2007 instantaneous change interest rates one percentage point would change company’s annual interest expense 916000 operating international markets involves exposure possible volatile movements currency exchange rates currently company’s primary international operations australia africa mexico italy operations described notes 1 15 consolidated financial statements company’s affiliates also operate south america mexico see note 3 notes consolidated financial statements majority company’s contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations company also may utilize various hedge instruments primarily foreign currency option contracts manage exposures associated fluctuating currency exchange rates see note 12 notes consolidated financial statements january 31 2007 company held hedge instruments currency exchange rates change translation income statements company’s international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income continuing operations income taxes approximately 416000 276000 59000 years ended january 31 2007 2006 2005 respectively represents approximately 10 income continuing operations international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes company’s financing operating strategies foreign exchange gains losses company’s consolidated statements income reflect transaction gains losses translation gains losses company’s mexican african operations use us dollar functional currency net foreign exchange gains losses years ended january 31 2007 2006 2005 95000 290000 342000 respectively company also exposed fluctuations price natural gas affect sale energy division’s unconventional gas production price natural gas volatile company entered fixedprice physical delivery contracts covering portion production manage price fluctuations achieve predictable cash flow january 31 2007 company held contracts physical delivery 3825000 million british thermal units “mmbtu” natural gas prices ranging 774 1015 per mmbtu march 31 2008 estimated fair value contracts january 31 2007 1918000 company generally intends maintain contracts place cover 50 75 production estimate 10 change price natural gas would impacted income continuing operations taxes approximately 1137000 year ended january 31 2007 item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses fluctuations price natural gas company centrally manages debt portfolio considering overall financing strategies tax consequences description company’s debt included note 11 notes consolidated financial statements form 10k january 31 2008 instantaneous change interest rates one percentage point would change company’s annual interest expense variable rate debt outstanding operating international markets involves exposure possible volatile movements currency exchange rates currently company’s primary international operations australia africa mexico italy operations described notes 1 15 consolidated financial statements company’s affiliates also operate south america mexico see note 3 notes consolidated financial statements majority company’s contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations company also may utilize various hedge instruments primarily foreign currency option contracts manage exposures associated fluctuating currency exchange rates see note 12 notes consolidated financial statements january 31 2008 company held hedge instruments currency exchange rates change translation income statements company’s international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income continuing operations income taxes approximately 511000 416000 276000 years ended january 31 2008 2007 2006 respectively represents approximately 10 income continuing operations international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes company’s financing operating strategies foreign exchange gains losses company’s consolidated statements income reflect transaction gains losses translation gains losses company’s mexican african operations use us dollar functional currency net foreign exchange gains losses years ended january 31 2008 2007 2006 430000 95000 290000 respectively company also exposed fluctuations price natural gas affect sale energy division’s unconventional gas production price natural gas volatile company entered fixedprice physical delivery contracts covering portion production manage price fluctuations achieve predictable cash flow january 31 2008 company held contracts physical delivery 4190000 million british thermal units “mmbtu” natural gas march 31 2010 prices ranging 749 905 per mmbtu march 2008 764 per mmbtu april 2008 march 2010 estimated fair value contracts january 31 2008 loss 99000 company generally intends maintain contracts place cover 50 75 production estimate 10 change price natural gas would impacted income continuing operations taxes approximately 1350000 year ended january 31 2008 item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses fluctuations price natural gas company centrally manages debt portfolio considering overall financing strategies tax consequences description company’s debt included note 11 notes consolidated financial statements form 10k january 31 2009 instantaneous change interest rates one percentage point would change company’s annual interest expense variable rate debt outstanding operating international markets involves exposure possible volatile movements currency exchange rates currently company’s primary international operations australia africa mexico canada italy operations described notes 1 15 consolidated financial statements company’s affiliates also operate south america mexico see note 3 notes consolidated financial statements majority company’s contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations company also may utilize various hedge instruments primarily foreign currency option contracts manage exposures associated fluctuating currency exchange rates see note 12 notes consolidated financial statements january 31 2009 company held option contracts aggregate us dollar notional value 9800000 intended hedge exposure australian dollar fluctuations january 31 2010 currency exchange rates change translation income statements company’s international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income taxes approximately 585000 511000 416000 years ended january 31 2009 2008 2007 respectively represents approximately 10 income taxes international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes company’s financing operating strategies foreign exchange gains losses company’s consolidated statements income reflect transaction gains losses translation gains losses company’s mexican african operations use us dollar functional currency net foreign exchange gains losses years ended january 31 2009 2008 2007 91000 430000 95000 respectively company also exposed fluctuations price natural gas affect sale energy division’s unconventional gas production price natural gas volatile company entered fixedprice physical delivery forward sales contracts covering portion production manage price fluctuations achieve predictable cash flow january 31 2009 company held contracts physical delivery 6183000 million british thermal units “mmbtu” natural gas march 31 2010 prices ranging 768 852 per mmbtu march 2009 761 1067 per mmbtu april 2009 march 2010 estimated fair value contracts january 31 2009 27950000 company generally intends maintain contracts place cover 50 75 production although gas prices remain low company may slow production cover 100 gas sold 2010 estimate 10 change price natural gas would impacted income taxes approximately 1652000 year ended january 31 2009 item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses fluctuations price natural gas company centrally manages debt portfolio considering overall financing strategies tax consequences description company’s debt included note 12 notes consolidated financial statements form 10k january 31 2010 instantaneous change interest rates one percentage point would change company’s annual interest expense variable rate debt outstanding operating international markets involves exposure possible volatile movements currency exchange rates currently company’s primary international operations australia africa mexico canada brazil italy operations described notes 1 17 consolidated financial statements company’s affiliates also operate south america mexico see note 3 notes consolidated financial statements majority company’s contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations company also may utilize various hedge instruments primarily foreign currency option contracts manage exposures associated fluctuating currency exchange rates see note 13 notes consolidated financial statements january 31 2010 company held option contracts aggregate us dollar notional value 7600000 intended hedge exposure australian dollar fluctuations january 31 2011 currency exchange rates change translation income statements company’s international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income taxes approximately 131000 585000 511000 years ended january 31 2010 2009 2008 respectively represents approximately 10 income taxes international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes company’s financing operating strategies foreign exchange gains losses company’s consolidated statements income reflect transaction gains losses translation gains losses company’s mexican african operations use us dollar functional currency net foreign exchange losses gains years ended january 31 2010 2009 2008 802000 91000 430000 respectively company also exposed fluctuations price natural gas affect sale energy division’s unconventional gas production price natural gas volatile company entered fixedprice physical delivery forward sales contracts covering portion production manage price fluctuations achieve predictable cash flow january 31 2010 company held contracts physical delivery 885000 million british thermal units “mmbtu” natural gas march 31 2010 prices ranging 768 1067 per mmbtu march 2010 estimated fair value contracts january 31 2010 2831000 due continued low prices forward sales markets company yet extended forward sales contracts beyond march 2010 intend continue monitoring forward sales prices reevaluate forward sales commitments accordingly course fiscal 2011 estimate 10 change price natural gas would impacted income taxes approximately 225000 year ended january 31 2010 exclusive potential impact ceiling test computation item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses fluctuations prices oil natural gas interest rate risk company centrally manages debt portfolio considering overall financing strategies tax consequences description company’s debt included note 12 notes consolidated financial statements form 10k january 31 2011 instantaneous change interest rates one percentage point would impact company’s annual interest expense approximately 30000 company variable rate debt outstanding january 31 2010 2009 foreign currency risk operating international markets involves exposure possible volatile movements currency exchange rates currently company’s primary international operations australia africa mexico canada brazil italy operations described notes 1 3 consolidated financial statements company’s affiliates also operate south america mexico see note 3 notes consolidated financial statements majority company’s contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations company also may utilize various hedge instruments primarily foreign currency option contracts manage exposures associated fluctuating currency exchange rates see note 13 notes consolidated financial statements january 31 2011 company outstanding foreign currency option contracts currency exchange rates change translation income statements company’s international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income taxes approximately 394000 131000 585000 years ended january 31 2011 2010 2009 respectively represents approximately 10 income taxes international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes company’s financing operating strategies foreign exchange gains losses company’s consolidated statements income reflect transaction gains losses translation gains losses company’s mexican african operations use us dollar functional currency net foreign exchange losses gains years ended january 31 2011 2010 2009 458000 802000 91000 respectively commodity price risk company exposed fluctuations prices oil natural gas impact sale energy division’s oil unconventional gas production prices oil natural gas volatile company enters fixedprice physical contracts available attractive prices cover portion production manage price fluctuations achieve predictable cash flow company generally intends maintain contracts place cover 50 75 production january 31 2011 company contracts place due continued low prices forward sales markets company intends continue monitoring forward sales prices reevaluate forward sales commitments accordingly course fiscal 2012 company estimates 10 change prices oil natural gas would impacted income taxes approximately 252000 year ended january 31 2011 based company’s production sold spot market basis year measure exclusive potential impact impairment computation item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses fluctuations prices oil natural gas interest rate risk company centrally manages debt portfolio considering overall financing strategies tax consequences description company’s debt included note 12 notes consolidated financial statements form 10k january 31 2012 instantaneous change interest rates one percentage point would impact company’s annual interest expense approximately 525000 foreign currency risk operating international markets involves exposure possible volatile movements currency exchange rates currently company’s primary international operations australia africa mexico canada brazil italy operations described notes 1 3 consolidated financial statements company’s affiliates also operate south america mexico see note 3 notes consolidated financial statements majority company’s contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations company also may utilize various hedge instruments primarily foreign currency option contracts manage exposures associated fluctuating currency exchange rates see note 13 notes consolidated financial statements january 31 2012 company outstanding foreign currency option contracts currency exchange rates change translation income statements company’s international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income taxes approximately 215000 394000 131000 years ended january 31 2012 2011 2010 respectively represents approximately 10 income taxes international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes company’s financing operating strategies foreign exchange gains losses company’s consolidated results operations reflect transaction gains losses translation gains losses company’s mexican african operations use us dollar functional currency net foreign exchange losses years ended january 31 2012 2011 2010 310000 458000 802000 respectively commodity price risk company exposed fluctuations prices oil natural gas impact sale energy division’s oil unconventional gas production prices oil natural gas volatile company may enter fixedprice physical contracts available attractive prices cover portion production manage price fluctuations achieve predictable cash flow january 31 2012 company contracts place due continued low prices forward sales markets company intends continue monitoring forward sales prices reevaluate forward sales commitments accordingly course fiscal 2013 company estimates 10 change prices oil natural gas would impacted income taxes approximately 425000 year ended january 31 2012 based company’s production sold spot market basis year measure exclusive potential impact impairment computation item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses interest rate risk company centrally manages debt portfolio considering overall financing strategies tax consequences description company’s debt included note 7 notes consolidated financial statements form 10k january 31 2013 instantaneous change interest rates one percentage point would impact company’s annual interest expense approximately 10 million foreign currency risk operating international markets involves exposure possible volatile movements currency exchange rates currently company’s primary international operations australia africa mexico canada brazil italy operations described notes 1 3 consolidated financial statements company’s affiliates also operate south america mexico see note 3 notes consolidated financial statements majority company’s contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations company may also utilize various hedge instruments primarily foreign currency option contracts manage exposures associated fluctuating currency exchange rates january 31 2013 company outstanding foreign currency option contracts currency exchange rates change translation income statements company’s international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income taxes approximately 03 million 02 million 04 million years ended january 31 2013 2012 2011 respectively represents approximately 10 income taxes international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes company’s financing operating strategies foreign exchange gains losses company’s consolidated results operations reflect transaction gains losses translation gains losses company’s mexican african operations use us dollar functional currency net foreign exchange losses years ended january 31 2013 2012 2011 14 million 03 million 05 million respectively item 8item 7a quantitative qualitative disclosures market risk principal market risks layne exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses interest rate risk layne centrally manages debt portfolio considering overall financing strategies tax consequences description debt included note 7 consolidated financial statements form 10k january 31 2015 instantaneous change interest rates one percentage point would impact annual interest expense approximately 13 million foreign currency risk operating international markets involves exposure possible volatile movements currency exchange rates currently layne’s primary international operations australia africa mexico canada south america operations described notes 1 3 consolidated financial statements layne’s affiliates also operate latin america see note 3 consolidated financial statements majority contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations currency exchange rates change translation income statements international operations us dollars may affect yeartoyear comparability operating results layne estimates 10 change foreign exchange rates would impact income loss income taxes approximately 07 million 02 million 01 million fy 2015 fy 2014 fy 2013 respectively represents approximately 10 income taxes international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes layne’s financing operating strategies item 8item 7a quantitative qualitative disclosures market risk principal market risks layne exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses interest rate risk centrally manage debt portfolio considering overall financing strategies tax consequences description debt included note 6 consolidated financial statements form 10k january 31 2016 instantaneous change interest rates one percentage point would impact annual interest expense approximately 16 million foreign currency risk operating international markets involves exposure possible volatile movements currency exchange rates fiscal year ended january 31 2016 primary international operations australia africa mexico canada south america operations described notes 1 2 consolidated financial statements affiliates also operate latin america see note 2 consolidated financial statements majority contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations currency exchange rates change translation income statements international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income loss income taxes approximately 05 million 07 million 02 million fiscal years ended january 31 2016 2015 2014 respectively represents approximately 10 income taxes international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes financing operating strategies item 8item 7a quantitative qualitative disclosures market risk principal market risks layne exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses interest rate risk centrally manage debt portfolio considering overall financing strategies tax consequences description debt included note 8 consolidated financial statements form 10k january 31 2017 instantaneous change interest rates one percentage point would impact annual interest expense approximately 16 million foreign currency risk operating international markets involves exposure possible volatile movements currency exchange rates primary international operations mexico canada south america operations described notes 1 5 consolidated financial statements affiliates also operate latin america see note 5 consolidated financial statements majority contracts mexico us dollarbased providing natural reduction exposure currency fluctuations currency exchange rates change translation income statements international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income loss income taxes approximately 03 million 09 million 07 million fiscal years ended january 31 2017 2016 2015 respectively represents approximately 10 income taxes international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes financing operating strategies item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rates variable rate debt equity risk investments foreign exchange rates giving rise translation transaction gains losses company centrally manages debt investment portfolios considering overall financing strategies tax consequences company uses derivative financial instruments part overall strategies description instruments well companys variable rate debt described note 8 notes consolidated financial statements appearing page 46 form 10k assuming january 31 1999 debt levels instantaneous change interest rates one percentage point would impact companys interest expense 135000 compared 325000 assuming january 31 1998 debt levels companys investments described note 1 notes consolidated financial statements appearing page 35 form 10 k investments carried market value held longterm investing purposes rather trading purposes operating international markets involves exposure possible volatile movements currency exchange rates currently companys primary international operations australia africa mexico canada indonesia thailand operations described notes 1 11 notes consolidated financial statements appearing pages 35 50 respectively form 10k majority companys contracts africa mexico us dollar based providing natural reduction exposure currency fluctuations currency exchange rates change translation income statements companys international operations us dollars may affect yeartoyear comparability operating results estimate ten percent change foreign exchange rates would impacted operating income years ended january 31 1999 1998 approximately 222000 100000 respectively represents approximately ten percent international segment operating profit adjusting primarily us dollar based operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes companys financing operating strategies foreign exchange gains losses companys consolidated statements income reflect transaction gains losses translation gains losses companys mexican subsidiary uses us dollar functional currency net foreign exchange gains losses 1999 1998 1997 significant item 8item 7a quantitative qualitative disclosures market risk principal market risks layne exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses interest rate risk layne centrally manages debt portfolio considering overall financing strategies tax consequences description debt included note 7 consolidated financial statements form 10k january 31 2014 instantaneous change interest rates one percentage point would impact annual interest expense approximately 12 million foreign currency risk operating international markets involves exposure possible volatile movements currency exchange rates currently layne’s primary international operations australia africa mexico canada south america italy operations described notes 1 3 consolidated financial statements layne’s affiliates also operate latin america see note 3 consolidated financial statements majority contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations currency exchange rates change translation income statements international operations us dollars may affect yeartoyear comparability operating results layne estimates 10 change foreign exchange rates would impact income loss income taxes approximately 08 million 03 million 02 million years ended january 31 2014 2013 2012 respectively represents approximately 10 income taxes international businesses adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes layne’s financing operating strategies index financial statements item 8item 7a quantitative qualitative disclosures market risk principal market risks layne exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses interest rate risk centrally manage debt portfolio considering overall financing strategies tax consequences description debt included note 8 consolidated financial statements form 10k january 31 2018 instantaneous change interest rates one percentage point would impact annual interest expense approximately 17 million foreign currency risk operating international markets involves exposure possible volatile movements currency exchange rates primary international operations mexico canada brazil operations described notes 1 5 consolidated financial statements affiliates also operate latin america see note 5 consolidated financial statements majority contracts mexico us dollarbased providing natural reduction exposure currency fluctuations result historically hedged foreign currency exchange risk january 31 2018 outstanding foreign currency option contracts foreign currency exchange rates change translation income statements international operations us dollars may affect yeartoyear comparability operating results estimate ten percent change foreign exchange rates would impact income loss income taxes approximately 01 million 03 million 09 million fiscal years ended january 31 2018 2017 2016 respectively quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes financing operating strategies item 8item 7a quantitative qualitative disclosures market risk principal market risks company exposed interest rate risk variable rate debt foreign exchange rate risk could give rise translation transaction gains losses company centrally manages debt portfolio considering overall financing strategies tax consequences description companys debt included notes 12 notes consolidated financial statements form 10k january 31 2004 40000000 companys debt outstanding fixedrate debt 2000000 variable rate debt accordingly instantaneous change interest rates one percentage point would significantly impact companys annual interest expense operating international markets involves exposure possible volatile movements currency exchange rates currently companys primary international operations australia africa mexico italy operations described notes 1 16 consolidated financial statements companys affiliates also operate south america mexico see note 3 notes consolidated financial statements majority companys contracts africa mexico us dollarbased providing natural reduction exposure currency fluctuations company also may utilize various hedge instruments primarily foreign currency option contracts manage exposures associated fluctuating currency exchange rates see note 13 notes consolidated financial statements january 31 2004 company held option contracts aggregate us dollar notional value 16140000 currency exchange rates change translation income statements companys international operations us dollars may affect yeartoyear comparability operating results estimate 10 change foreign exchange rates would impact income continuing operations approximately 240000 45000 184000 years ended january 31 2004 2003 2002 respectively represents approximately ten percent international segment operating income adjusting primarily us dollarbased operations quantitative measure inherent limitations take account governmental actions changes customer purchasing patterns changes companys financing operating strategies foreign exchange gains losses companys consolidated statements income reflect transaction gains losses translation gains losses companys mexican african operations use us dollar functional currency net foreign exchange gains losses years ended january 31 2004 2003 2002 232000 52000 112000 respectively item 8 item 8 financial statements supplementary data index consolidated financial statements financial statement schedules omitted applicable required information included consolidated financial statements company notes thereto independent auditors report layne christensen company audited accompanying consolidated balance sheets layne christensen company subsidiaries together company january 31 1997 1996 related consolidated statements income stockholders equity cash flows three years period ended january 31 1997 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company january 31 1997 1996 results operations cash flows three years period ended january 31 1997 conformity generally accepted accounting principles deloitte touche llp deloitte touche llp kansas city missouri march 7 1997 layne christensen company subsidiaries consolidated balance sheets january 31 1997 1996 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated balance sheetscontinued january 31 1997 1996 thousands dollars except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income years ended january 31 1997 1996 1995 thousands dollars except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders equity years ended january 31 1997 1996 1995 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows years ended january 31 1997 1996 1995 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows continued years ended january 31 1997 1996 1995 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 1 summary significant accounting policies description businesslayne christensen company subsidiaries together company provides comprehensive services water well drilling including related equipment sales well pump repair maintenance environmental drilling regions united states provides mineral exploration drilling services primarily western united states mexico canada customers include municipalities industrial companies mining companies environmental consulting engineering firms lesser extent agribusiness addition company manufactures diamond core bits drilling rigs equipment utilized mineral exploration mine development preconstruction analysis markets throughout united states internationally fiscal year references years fiscal years ended investment affiliated companies investments affiliates 33 50 owned company exercises significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions eliminated financial information companys foreign subsidiaries affiliates reported companys consolidated financial statements one month lag use estimates preparing financial statements preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities companys mexican subsidiary primarily denominated us dollar accordingly subsidiary uses us dollar functional currency translates monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate average rates prevailing year translation adjustments reported separate component stockholders equity layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 1 summary significant accounting policiescontinued net foreign currency transaction gains losses 1997 1996 significant included consolidated statement income 1995 net losses 474000 revenue recognition revenue recognized large longterm contracts using percentage completion method based upon materials installed labor costs incurred changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined revenue recognized smaller shortterm contracts using completed contract method provisions estimated losses uncompleted contracts made period losses determined inventories company values inventories lower cost firstin firstout including material labor manufacturing overhead costs market thousands dollars property equipment related depreciation property equipment including major renewals improvements recorded cost property equipment held sale carried lower depreciated cost estimated net realizable value depreciation provided using straightline method lives used significant items within property classification follows intangible assets intangible assets consist purchased technical manuals well records assets amortized estimated economic lives significant items range three thirtyfive years amortization expense intangible assets 116000 125000 144000 1997 1996 1995 respectively accumulated amortization intangible assets january 31 1997 1996 709000 593000 respectively impairment longlived assets balance sheet date determination made management whether value longlived assets including intangible assets disposed impaired determination based several criteria including limited revenue trends undiscounted operating cash flows operating factors layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 1 summary significant accounting policiescontinued effective february 1 1996 company adopted provisions statement financial accounting standards sfas 121 accounting impairment longlived assets longlived assets disposed adoption material effect consolidated financial statements accrued insurance expense costs estimated incurred future employee medical benefits casualty insurance programs resulting claims occurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies see note 10 fair value financial instruments sfas 107 disclosures fair value financial instruments requires disclosure fair value certain financial instruments practicable estimate value carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 1997 1996 relatively short maturity instruments see note 8 disclosure regarding indebtedness company consolidated statements cash flows highly liquid investments remaining maturity three months less time purchase considered cash equivalents companys cash equivalents consist principally funds deposited shortterm asset management account carried cost approximates market amounts paid income taxes interest follows thousands dollars supplemental noncash transactionsin 1996 company issued 1506194 shares common stock connection acquisition business see note 2 following table summarizes companys acquisition 1996 thousands dollars 1997 1996 company issued 31622 32649 shares respectively common stock employees related 1996 1995 compensation awards total value awards approximately 340000 216000 respectively accrued january 31 1996 1995 respectively income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities see note 5 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 1 summary significant accounting policiescontinued earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method except effect antidilutive stockbased compensation effective february 1 1996 company adopted disclosure provisions sfas 123 accounting stockbased compensation sfas 123 stockcompensation would accounted based estimated fair value awards date granted permitted statement company continue account stockbased compensation programs see note 9 apb opinion 25 requires compensation cost recognized based difference market price stock date grant amount employee must pay acquire stock pro forma net income earnings per share 1997 determined new method applied would 7842000 086 respectively options granted 1996 pro forma effect 1996 results sfas 123 method accounting applied options granted prior 1996 pro forma compensation cost may representative expected pro forma basis future years reclassifications certain 1996 1995 amounts reclassified conform 1997 presentation 2 acquisitions pursuant agreement plan merger agreement december 28 1995 company purchased outstanding shares options common stock christensen boyles corporation cbc approximately 1506000 shares restricted common stock company approximately 9056000 cash accrued 2800000 related tax benefits 1081000 integration costs 460000 transaction costs restricted common stock company issued connection merger valued 609 per share determined fair marketvalue analysis conducted independent investment banking firm acquisition referred merger company also paidoff approximately 13971000 assumed 1491000 cbcs existing indebtedness portion cost merger financed 25000000 term loan see note 8 companys consolidated results include operations cbc date acquisition merger accounted using purchase method accounting purchase price 20408000 allocated based estimated fair values date merger pursuant merger agreement january 31 1997 total 646187 shares companys common stock remain deposited escrow independent escrow agent provide security company accuracy performance covenants warranties made parties merger agreement company shares shown outstanding issued date merger shares released escrow second third anniversary merger pending claims filed layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 2 acquisitionscontinued integration costs accrued connection acquisition included costs consolidating certain cbc facilities company facilities closing one cbc manufacturing facility remaining balance 787000 january 31 1997 consists primarily lease termination costs employee termination benefits asset relocation costs actions expected substantially completed 1998 3 investments foreign affiliates primarily result merger see note 2 company investments foreign affiliates companys investments foreign affiliates carried companys equity underlying net assets plus additional 4753000 result purchase accounting additional amount amortized remaining useful lives applicable underlying assets ranging 2035 years accumulated amortization january 31 1997 130000 affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows financial information foreign affiliates reported one month lag company investments foreign affiliates prior december 28 1995 equity earnings recorded period december 28 1995 cbc acquisition date january 31 1996 amount considered significant summarized financial information companys foreign affiliates january 31 1997 1996 year ended january 31 1997 follows thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 3 investments foreign affiliatescontinued company transactions balances foreign affiliates resulted following amounts included consolidated financial statements january 31 1997 1996 years ended thousands dollars undistributed equity earnings foreign affiliates totaled 1905000 january 31 1997 4 costs estimated earnings uncompleted contracts company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 5 income taxes income taxes follows thousands dollars deferred income taxes result temporary differences financial statement tax basis companys assets liabilities sources differences cumulative tax effects thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 5 income taxescontinued year ended january 31 1997 deferred income tax assets net deferred income tax liabilities decreased 1710000 decrease 1614000 recorded deferred income tax expense income tax provision 96000 recorded stockholders equity pursuant application sfas 87 employers accounting pensions see note 7 management determined valuation allowance deferred tax assets necessary based available evidence federal income tax purposes company tax net operating loss carryforward 1862000 relating company acquired merger see note 2 therefore subject certain restrictions expires years ending 2008 2009 2010 january 31 1997 undistributed earnings foreign subsidiaries foreign affiliates include 11375000 us federal income foreign withholding taxes provided foreign tax credits become available current tax law significantly reduce eliminate resulting us income tax liability reconciliation total income tax expense statutory federal rate follows thousands dollars 6 leases future minimum rental payments required operating leases initial remaining noncancellable lease terms excess one year january 31 1997 follows thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 6 leasescontinued principal operating leases equipment office shop facilities equipment leases primarily automobiles small trucks leased independent leasing companies master lease arrangements rent expense operating leases including minor amounts contingent rental payments 5010000 3298000 2749000 1997 1996 1995 respectively 7 employee benefits plans company sponsors pension plans covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plans substantially equal amounts required maintain qualified status plans contributions intended provide benefits related past current service company assets plans consist primarily stocks bonds government securities following table sets forth plans funded status december 31 1996 1995 measurement dates amounts recognized companys balance sheets january 31 1997 1996 thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 7 employee benefits planscontinued accordance sfas 87 january 31 1997 1996 company recognized full amount actuarially determined pension liability related intangible asset 92000 128000 respectively unrecognized pension cost recorded charge stockholders equity giving effect related future tax benefit projected benefit obligation 1997 1996 1995 computed using discount rate 750 725 825 respectively estimated longterm rate return assets 875 benefit level assumptions 1997 1996 1995 based fixed amounts per year credited service company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 638000 517000 474000 1997 1996 1995 respectively information regarding assets accumulated benefits plans made available company companys salaried certain hourly employees participate companysponsored defined contribution plans company contributions determined annually discretion board directors company total expense companys portion plans 1264000 802000 862000 1997 1996 1995 respectively company reserves right amend terminate plans company cannot recover contributions already paid 8 indebtedness march 15 1996 company executed credit agreement credit agreement bank group replaced previous credit agreement previous credit agreement credit agreement provides revolving cash borrowing facility 30000000 less outstanding letter credit commitments bank group january 31 1997 letters credit aggregate amount 4904000 issued behalf company credit agreement unsecured guaranteed certain companys domestic subsidiaries credit agreement limits amount available payment cash dividends 1000000 plus 25 cumulative net income january 31 1995 january 31 1997 companys retained earnings available cash dividends 4151000 based limitation credit agreement also contains significant covenants including restrictions incurrence additional indebtedness liens sale assets dispositions transactions affiliates certain financial maintenance covenants including among others minimum interest coverage minimum net worth maximum leverage ratios addition credit agreement contains provision providing accelerated maturities outstanding balances unapproved change control company credit agreement expires march 15 1999 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 8 indebtednesscontinued credit agreement provides interest variable rates equal companys option bank america illinois bai interbank eurodollar rate generally approximately equal libor 54375 january 31 1997 plus 75 125 depending interest coverage debt ratios bai alternate reference rate defined loan agreement 825 january 31 1997 variable interest rates outstanding balances approximate current market rates maximum borrowings outstanding companys existing credit agreements 1997 1996 1995 7500000 18000000 2500000 respectively average outstanding borrowings 4875000 6042000 675000 respectively weighted average interest rate 75 79 85 respectively december 28 1995 company executed amendment previous credit agreement provide 25000000 term loan facility term loan company finance merger see note 2 term loan provided interest rates equal credit agreement except margin interbank eurodollar loans 125 term loan replaced march 15 1996 private placement unsecured note agreement issuance sale 25000000 aggregate principal amount senior notes senior notes senior notes bear fixed interest rate 675 due march 15 2006 annual installments 3571000 beginning march 15 2000 january 31 1997 1996 interest rate approximates market similar securities financial guarantees covenants similar credit agreement connection merger see note 2 company assumed mortgage loan insurance company secured companys manufacturing facility salt lake city utah mortgage loan provides monthly installments 19000 september 2000 final payment october 2000 963000 interest rate fixed term mortgage loan 864 january 31 1997 1996 interest rate approximates market similar securities loan costs incurred securing longterm financing amortized term respective loan agreement amortization costs 1997 1996 1995 171000 34000 92000 respectively amortization loan costs included interest expense statements income longterm debt follows thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 8 indebtednesscontinued january 31 1997 longterm debt matures follows thousands dollars 9 stock option plans company reserved 500000 shares common stock issuance employee incentive compensation plans issuance shares plans based performance determined annually committee appointed companys board directors 1997 1996 31622 32649 shares respectively issued 1075 663 per share respectively company also two stock option plans provide granting options purchase aggregate 1000000 shares common stock price fixed board directors committee january 31 1997 range exercise prices outstanding options 58 13375 weighted average remaining contractual term 68 years options generally ten year term date grant vest ratably five years layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 10 contingencies company provides environmental drilling consulting services related cleanup hazardous substances toxic wastes pollutants rendering services exposes company potential significant liability claims related costs environmental remediation damages company obtained claims made pollution liability policy limited 20000000 individual claim 20000000 claims aggregate made policy policys three year term company believes cost effective level environmental insurance coverage light risks associated business assurance given amount scope coverage adequate companys former parent corporation marley company marley maintains insurance reserves company financial statements cover expected losses various casualty insurance policies occurrences prior april 30 1992 reserves funded intercompany charges company calculated basis estimated insured losses incurred company indemnified marley claims retroactive insurance premiums policies exceed amount reserves attributable companys estimated losses april 30 1992 company believes amount reserves sufficient cover reasonably anticipated insured losses past insurance policies pursuant agreement marley july 1997 marley make payment company amount remaining reserves date company responsible remaining incurred unpaid claims losses company involved various matters litigation claims disputes arisen ordinary course companys business resolution matters may impact financial results period matter resolved company believes ultimate disposition matters aggregate material adverse effect upon business consolidated financial position 11 segment information foreign operations company multinational company operating predominantly two industry segments drilling company whollyowned operations united states mexico canada thailand manufacturer supplier drilling equipment parts supplies manufacturing supply operations primarily united states refer note 3 information foreign investments layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 11 segment information foreign operationscontinued revenues operating income identifiable assets capital expenditures depreciation amortization pertaining segments company operates presented thousands dollars intersegment sales accounted based estimated fair market value products sold computing operating income foreign subsidiaries allocations general corporate expenses made identifiable assets foreign subsidiaries assets related operations subsidiaries corporate assets company directly associated operating segment consist primarily cash deferred income taxes investments foreign affiliates see note 3 26309000 manufacturing supply sales unaffiliated customers 1997 10023000 export sales principally latin south america layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1997 1996 1995 12 investment domestic affiliate result merger see note 2 company owned 50 limited liability company cbc welnav lc welnav engaged primarily surveying directional drilling services manufacturing selling survey tools hydraulic hole motors mineral energy exploration mine development preconstruction testing welnav dissolved terminated november 30 1996 loss incurred company connection dissolution companys investment welnav carried companys equity underlying net assets plus advances welnav summarized financial information january 31 1996 period ended approximately thousands dollars company 1155000 advances welnav january 31 1996 company transactions welnav years ended january 31 1997 1996 amounts significant 13 quarterly results unaudited quarterly financial data follows see note 2 regarding merger cbc thousands dollars except per share data item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules page layne christensen company subsidiaries independent auditors report 27 financial statements consolidated balance sheets january 31 1998 1997 28 consolidated statements income years ended january 31 1998 1997 1996 30 consolidated statements stockholders equity years ended january 31 1998 1997 1996 31 consolidated statements cash flows years ended january 31 1998 1997 1996 32 notes consolidated financial statements 34 financial statement schedule ii 51 schedules omitted applicable required information included consolidated financial statements company notes thereto independent auditors report layne christensen company audited accompanying consolidated balance sheets layne christensen company subsidiaries together company january 31 1998 1997 related consolidated statements income stockholders equity cash flows three years period ended january 31 1998 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company january 31 1998 1997 results operations cash flows three years period ended january 31 1998 conformity generally accepted accounting principles deloitte touche llp deloitte touche llp kansas city missouri march 31 1998 layne christensen company subsidiaries consolidated balance sheets january 31 1998 1997 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated balance sheetscontinued january 31 1998 1997 thousands dollars except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income years ended january 31 1998 1997 1996 thousands dollars except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders equity years ended january 31 1998 1997 1996 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows years ended january 31 1998 1997 1996 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows continued years ended january 31 1998 1997 1996 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 1 summary significant accounting policies description businesslayne christensen company subsidiaries together company provides comprehensive services water well drilling including related equipment sales well pump repair maintenance environmental drilling regions united states provides mineral exploration drilling services primarily western united states australia africa mexico canada indonesia customers include municipalities industrial companies mining companies environmental consulting engineering firms lesser extent agribusiness addition company manufactures diamond core bits drilling rigs equipment utilized mineral exploration mine development preconstruction analysis markets throughout united states internationally fiscal year references years fiscal years ended investment affiliated companies investments affiliates 33 50 owned company exercises significant influence operating financial policies accounted equity method financial information companys foreign affiliates reported companys consolidated financial statements one month lag principles consolidation consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions eliminated use estimates preparing financial statements preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities companys mexican subsidiary primarily denominated us dollar accordingly subsidiary uses us dollar functional currency translates monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate average rates prevailing year translation adjustments reported separate component layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 stockholders equity result acquisition australian company 1998 see note 2 company reflected substantial change cumulative translation account net taxes 2174000 attributed devaluation australian dollar net foreign currency transaction gains losses 1998 1997 1996 significant revenue recognition revenue recognized large longterm contracts using percentage completion method based upon materials installed labor costs incurred changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined revenue recognized smaller shortterm contracts using completed contract method provisions estimated losses uncompleted contracts made period losses determined inventories company values inventories lower cost firstin firstout including material labor manufacturing overhead costs market thousands dollars property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method lives used significant items within property classification follows intangible assets intangible assets consist goodwill related acquisitions purchased technical manuals well records assets amortized estimated economic lives range thirty thirtyfive years amortization expense intangible assets 626000 116000 125000 1998 1997 1996 respectively accumulated amortization intangible assets january 31 1998 1997 1335000 709000 respectively investments 1998 company wholly owned subsidiary layne christensen australia pty limited layne australia purchased common stock publicly traded company australian stock exchange company classified investment availableforsale noncurrent investment layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 cost basis 3111000 reported fair value approximately 3514000 january 31 1998 gross unrealized gain 403000 net deferred taxes 153000 recorded component stockholders equity impairment longlived assets balance sheet date determination made management whether value longlived assets including intangible assets disposed impaired determination based several criteria including limited revenue trends undiscounted operating cash flows operating factors accrued insurance expense costs estimated incurred future employee medical benefits casualty insurance programs resulting claims incurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies see note 10 fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 1998 1997 relatively short maturity instruments investments equity securities carried quoted market values see note 8 disclosure regarding fair value indebtedness company consolidated statements cash flows highly liquid investments remaining maturity three months less time purchase considered cash equivalents companys cash equivalents consist principally funds deposited shortterm asset management account carried cost approximates market amounts paid income taxes interest follows thousands dollars supplemental noncash transactionsin 1996 company issued 1506194 shares common stock connection acquisition business see note 2 following table summarizes companys acquisition 1996 thousands dollars 1998 company issued 3524 shares common stock 15727 stock options related 1997 compensation awards 1997 1996 company layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 issued 31622 32649 shares respectively common stock employees related 1996 1995 compensation awards total value awards approximately 113000 340000 216000 respectively accrued january 31 1997 1996 1995 respectively income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities see note 5 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive february 1997 financial accounting standards board issued statement 128 earnings per share sfas 128 sfas 128 simplifies standards computing presenting earnings per share became effective periods ending december 15 1997 accordingly earnings per share previously reported restated conform new standard adjustments made companys net income used compute basic diluted per share earnings 1998 1997 1996 weighted average share calculation respect diluted earnings 1998 1997 1996 includes dilutive impact options stockbased compensation stockbased compensation may accounted either based estimated fair value awards date granted sfas 123 method based difference market price stock date grant amount employee must pay acquire stock apb 25 method company uses apb 25 method account stockbased compensation programs see note 9 pro forma net income 1998 1997 determined sfas 123 method applied would 11204000 7842000 respectively basic dilutive earnings per share would 111 106 respectively 1998 088 086 respectively 1997 options granted 1996 pro forma effect 1996 results sfas 123 method accounting applicable companys options granted prior 1996 pro forma compensation cost may representative expected pro forma basis future years new accounting standards june 1997 financial accounting standards board issued statement 130 reporting comprehensive income sfas 130 statement 131 disclosures segments enterprise related information sfas 131 sfas 130 sfas 131 effective periods beginning december 15 1997 sfas 130 establishes standards reporting displaying comprehensive income components sfas 131 establishes standards way public business enterprises report information operating segments interim annual financial statements company expect statements material effect consolidated financial statements layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 reclassifications certain 1997 1996 amounts reclassified conform 1998 presentation 2 acquisitions may 20 1997 company whollyowned subsidiary layne christensen australia pty limited layne australia made tender offer security holders stanley mining services limited stanley company listed australian stock exchange stanley acquisition stanley australian mineral exploration drilling company provides services predominantly gold mining companies australia africa october 1 1996 stanley purchased 51 glindemann kitching pty ltd gk drilling contractor based operating western australia specializes diamond core exploration drilling gold projects remaining 49 gk acquired stanley july 1 1997 purchase price 7814000 purchase price paid september 5 1997 stanley acquisition substantially consummated july 25 1997 purchase price approximately 50070000 consisting cash purchase price tender offer 48337000 1733000 transaction costs company also assumed approximately 12523000 stanleys existing indebtedness company accounted acquisition using purchase method accounting stanley reflected companys results operations beginning august 1 1997 purchase price allocated based fair values assets liabilities july 31 1997 august 19 1997 company completed sale 2756565 shares common stock public offering net proceeds company offering approximately 43510000 used reduce debt incurred new credit agreement connection stanley acquisition following unaudited pro forma information presents summary consolidated results operations company acquisitions stanley gk stock offering occurred beginning fiscal year 1997 pro forma adjustments give effect interest expense acquisition debt amortization goodwill certain adjustments together related income tax effects pro forma financial information necessarily indicative operating results would occurred acquisition consummated layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 february 1 1997 necessarily indicative future operating results july 1997 company also acquired outstanding stock stamm scheele inc stammscheele water well drilling maintenance company louisiana approximately 2574000 cash acquisition accounted using purchase method accounting acquisition taken place february 1 1997 pro forma operating results would significantly different reported october 1997 company also acquired certain assets afridrill limited mineral exploration company located east africa approximately 3700000 cash certain contingent future payments approximately 684000 acquisition accounted using purchase method accounting acquisition taken place february 1 1997 pro forma operating results would significantly different reported acquisitions following effect companys fiscal 1998 consolidated financial position thousands dollars pursuant agreement plan merger agreement december 28 1995 company purchased outstanding shares options common stock christensen boyles corporation cbc approximately 1506000 shares restricted common stock company approximately 9056000 cash accrued 2800000 related tax benefits 1081000 integration costs 460000 transaction costs restricted common stock company issued connection merger valued 609 per share determined fair marketvalue analysis conducted independent investment banking firm acquisition referred merger company also paidoff approximately 13971000 assumed 1491000 cbcs existing indebtedness portion cost merger financed 25000000 term loan see note 8 companys consolidated results include operations cbc date acquisition merger accounted using purchase method accounting purchase price 20408000 allocated based estimated fair values date merger pursuant merger agreement total 349303 shares companys common stock remain deposited escrow independent escrow agent provide security company accuracy performance covenants warranties made parties merger agreement company shares shown outstanding issued date layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 merger shares released escrow third anniversary merger pending claims filed integration costs accrued connection acquisition included costs consolidating certain cbc facilities company facilities closing one cbc manufacturing facility actions substantially completed 1998 3 investments foreign affiliates companys investments foreign affiliates carried companys equity underlying net assets plus additional 4753000 result purchase accounting additional amount amortized remaining useful lives applicable underlying assets ranging 20 35 years accumulated amortization january 31 1998 1997 259000 130000 respectively affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows financial information foreign affiliates reported one month lag company investments foreign affiliates prior december 28 1995 equity earnings recorded period december 28 1995 cbc acquisition date january 31 1996 amount considered significant summarized financial information companys foreign affiliates january 31 1998 1997 years ended january 31 1998 1997 follows thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 company transactions balances foreign affiliates resulted following amounts included consolidated financial statements january 31 1998 1997 years ended january 31 1998 1997 1996 thousands dollars undistributed equity earnings foreign affiliates totaled 4171000 1905000 january 31 1998 1997 respectively 4 costs estimated earnings uncompleted contracts thousands dollars company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year 5 income taxes income taxes follows thousands dollars components income tax expense thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 deferred income taxes result temporary differences financial statement tax basis companys assets liabilities sources differences cumulative tax effects thousands dollars federal income tax purposes company net operating loss carryforward 1689000 relating company acquired merger see note 2 therefore subject certain restrictions expires years ending 2008 2009 2010 australian tax purposes company loss carryforward 1700000 january 31 1998 relating company acquired stanley acquisition see note 2 approximately 700000 carryforward layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 generated prior acquisition restrictions utilization loss carryforward period indefinite one companys african operations generated 2500000 loss carryforward result tax rules permitted accelerated deductions 3000000 losses carried forward indefinitely january 31 1998 undistributed earnings foreign subsidiaries foreign affiliates include 15300000 us federal income foreign withholding taxes provided foreign tax credits become available current tax law significantly reduce eliminate resulting us income tax liability reconciliation total income tax expense statutory federal rate follows thousands dollars 6 leases future minimum rental payments required operating leases initial remaining noncancellable lease terms excess one year january 31 1998 follows thousands dollars operating leases primarily automobiles small trucks office shop facilities rent expense operating leases including insignificant layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 amounts contingent rental payments 4605000 5010000 3298000 1998 1997 1996 respectively 7 employee benefits plans company sponsors pension plans covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plans substantially equal amounts required maintain qualified status plans contributions intended provide benefits related past current service company assets plans consist primarily stocks bonds government securities following table sets forth plans funded status december 31 1997 1996 measurement dates amounts recognized companys balance sheets january 31 1998 1997 thousands dollars net periodic pension cost 1998 1997 1996 includes following components thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 company recognized full amount actuarially determined pension liability related intangible asset 82000 92000 january 31 1998 1997 respectively unrecognized pension cost recorded charge stockholders equity giving effect related future tax benefit projected benefit obligation 1998 1997 1996 computed using discount rate 725 750 725 respectively estimated longterm rate return assets 875 benefit level assumptions 1998 1997 1996 based fixed amounts per year credited service company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 646000 638000 517000 1998 1997 1996 respectively information regarding assets accumulated benefits plans made available company companys salaried certain hourly employees participate company sponsored defined contribution plans company contributions determined annually discretion board directors company total expense companys portion plans 1349000 1264000 802000 1998 1997 1996 respectively company reserves right amend terminate plans company cannot recover contributions already paid 8 indebtedness july 1997 contemporaneously consummation stanley acquisition see note 2 company amended existing credit agreement provide 100000000 reducing revolving credit facility new credit agreement new credit agreement used finance stanley acquisition refinance companys existing indebtedness 30000000 credit facility available working capital expenditures general corporate purposes new credit agreement provides reducing revolving cash borrowing facility 100000000 less outstanding letter credit commitments 20000000 sublimit january 31 1998 letters credit aggregate amount 5605000 issued behalf company new credit agreement terminate july 2002 borrowings thereunder mature time layne australia eligible draw 30000000 new credit agreement new credit agreement provides guarantees certain companys domestic subsidiaries contains certain covenants including restrictions incurrence additional indebtedness liens sale assets dispositions transactions affiliates mandatory prepayments based proceeds sale assets debt equity securities certain financial maintenance covenants including among others minimum interest coverage maximum leverage ratios new credit agreement provides interest variable rates equal loans australian dollars australian bill rate plus 50 875 depending upon debt capitalization ratios ii layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 loans united states dollars companys option eurodollar rate plus 50 875 depending upon debt capitalization ratios alternate reference rate defined new credit agreement january 31 1998 32500000 outstanding borrowings new credit agreement average interest rate 6253 variable interest rates outstanding balance approximate current market rates maximum borrowings outstanding companys existing credit agreements 1998 1997 1996 58000000 7500000 18000000 respectively average outstanding borrowings 21250000 4875000 6042000 respectively weighted average interest rates 73 75 79 respectively march 1996 company completed private placement unsecured note agreement subsequently amended 25000000 senior notes replace term loan company previously obtained one lenders senior notes bear fixed interest rate 675 due march 15 2006 annual installments 3571000 beginning march 15 2000 january 31 1998 1997 interest rate approximates market similar securities financial guarantees covenants similar new credit agreement loan costs incurred securing longterm financing amortized term respective loan agreement amortization costs 1998 1997 1996 180000 171000 34000 respectively amortization loan costs included interest expense statements income longterm debt follows thousands dollars january 31 1998 longterm debt matures follows thousands dollars 9 stock option plans company reserved 500000 shares common stock issuance employee incentive compensation plans issuance shares plans based layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 performance determined annually committee appointed companys board directors 1998 1997 1996 3524 31622 32649 shares respectively issued 1500 1075 663 per share respectively company also two stock option plans provide granting options purchase aggregate 1000000 shares common stock price fixed board directors committee significant option groups outstanding january 31 1998 related weighted average price life information follows options granted exercise price equal fair market value companys common stock date grant weighted average fair value date grant options granted fiscal year 1998 1997 802 698 per option respectively options granted 1996 weighted average fair value options presented options generally ten year term date grant vest ratably five years fair value options date grant estimated using black scholes model following weighted average assumptions layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 10 contingencies companys drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice turnkey basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection provision services products litigation arising occurrences may result companys named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance business interruption insurance respect foreign operations companys former parent corporation marley company marley maintained insurance reserves company financial statements cover expected losses various casualty insurance policies occurrences prior april 30 1992 reserves funded intercompany charges company calculated basis estimated insured losses incurred company indemnified marley claims retroactive insurance premiums policies exceeded amount reserves attributable companys estimated losses april 30 1992 pursuant agreement marley november 1997 company received payment marley amount remaining unpaid reserves responsible remaining incurred unpaid claims losses arrangement date payment company established reserves consolidated balance sheet claims losses company believes amount reserves sufficient cover reasonably anticipated losses company involved various matters litigation claims disputes arisen ordinary course companys business resolution matters may impact financial layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 results period matter resolved company believes ultimate disposition matters aggregate material adverse effect upon business consolidated financial position results operations cash flows 11 segment information foreign operations company multinational company operating predominantly two industry segments drilling company whollyowned operations united states australia africa mexico canada indonesia thailand manufacturer supplier drilling equipment parts supplies manufacturing supply operations primarily united states refer note 3 information foreign investments revenues operating income identifiable assets capital expenditures depreciation amortization pertaining segments company operates presented thousands dollars intersegment sales accounted based estimated fair market value products sold computing operating income foreign subsidiaries allocations general corporate expenses made identifiable assets foreign subsidiaries assets related operations subsidiaries including goodwill associated stanley acquisition corporate assets company directly associated operating segment consist primarily cash deferred income taxes investments foreign affiliates see note 3 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1998 1997 1996 30246000 manufacturing supply sales unaffiliated customers 1998 approximately 9581000 export sales principally latin south america 12 quarterly results unaudited quarterly financial data follows see note 2 regarding stanley acquisition thousands dollars except per share data first second third fourth 1998 revenues 57750 67683 90335 78832 gross profit 15605 19005 25387 20886 net income 1683 3183 4879 1682 basic earnings per share 019 036 044 014 diluted earnings per share 018 034 042 014 first second third fourth 1997 revenues 53773 56312 60212 52556 gross profit 14070 15975 17172 14034 net income 1103 2552 3200 1162 basic earnings per share 012 029 036 013 diluted earnings per share 012 028 035 013 schedule ii layne christensen company subsidiaries valuation qualifying accounts thousands dollars item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules omitted applicable required information included consolidated financial statements company notes thereto independent auditors report layne christensen company audited accompanying consolidated balance sheets layne christensen company subsidiaries together company january 31 2000 1999 related consolidated statements income stockholders equity cash flows three years period ended january 31 2000 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company january 31 2000 1999 results operations cash flows three years period ended january 31 2000 conformity accounting principles generally accepted united states america deloitte touche llp deloitte touche llp kansas city missouri march 30 2000 layne christensen company subsidiaries consolidated balance sheets january 31 2000 1999 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated balance sheetscontinued january 31 2000 1999 thousands dollars except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income years ended january 31 2000 1999 1998 thousands dollars except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders equity years ended january 31 2000 1999 1998 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows years ended january 31 2000 1999 1998 thousands dollars see notes consolidated financial statements continued layne christensen company subsidiaries consolidated statements cash flows continued years ended january 31 2000 1999 1998 thousands dollars see notes consolidated financial statements concluded layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 1 summary significant accounting policies description business layne christensen company subsidiaries together company provides comprehensive water supply services geotechnical construction services regions united states provides mineral exploration drilling services primarily western united states australia africa mexico canada indonesia customers include municipalities industrial companies mining companies environmental consulting engineering firms lesser extent agribusinesses addition company manufactures diamond core bits drilling rigs equipment utilized mineral exploration mine development preconstruction analysis markets throughout united states internationally fiscal year references years fiscal years ended investment affiliated companies investments affiliates 33 50 owned company exercises significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company subsidiaries significant intercompany transactions eliminated financial information companys foreign affiliates certain foreign subsidiaries reported companys consolidated financial statements onemonth lag reporting periods effect one month lag companys financial results significant use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities companys mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency translate monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 exchange rates approximate average rates prevailing year translation adjustments reported separate component accumulated comprehensive income loss result acquisition australian company 1998 see note 2 company reflected substantial changes cumulative translation account 2000 1999 1998 primarily attributed devaluation australian dollar net foreign currency transaction gains losses 2000 1999 1998 significant revenue recognition revenue recognized large longterm contracts using percentage completion method based upon materials installed labor costs incurred changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined revenue recognized smaller shortterm contracts using completed contract method provisions estimated losses uncompleted contracts made period losses determined inventories company values inventories lower cost first firstout including material labor manufacturing overhead costs market thousands dollars property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 21721000 21454000 15123000 fiscal 2000 1999 1998 respectively lives used significant items within property classification follows years buildings 15 35 machinery equipment 3 10 intangible assets intangible assets consist goodwill related acquisitions purchased technical manuals assets amortized estimated economic lives range 10 35 years amortization expense intangible assets 1295000 1058000 626000 2000 1999 1998 respectively investments 2000 1999 1998 company wholly owned subsidiary layne christensen australia pty limited layne australia layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 purchased certain common stock publicly traded companies australian stock exchange company classified investments availablefor sale noncurrent investments cost basis 3723000 3538000 reported fair values approximately 1766000 2200000 january 31 2000 1999 respectively gross unrealized losses 1957000 1338000 net taxes 780000 516000 january 31 2000 1999 respectively recorded component accumulated comprehensive income loss impairment longlived assets balance sheet date determination made management whether value longlived assets including intangible assets disposed impaired determination based several criteria including limited revenue trends undiscounted operating cash flows operating factors accrued insurance expense costs estimated incurred future employee medical benefits casualty insurance programs resulting claims incurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies see note 10 fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2000 1999 relatively short maturity instruments investments equity securities carried quoted market values see note 8 disclosure regarding fair value indebtedness company consolidated statements cash flows highly liquid investments remaining maturity three months less time purchase considered cash equivalents amounts paid income taxes interest follows thousands dollars supplemental noncash transactions 2000 1999 company issued 5845 9636 shares common stock respectively 57812 21504 stock options respectively related 1999 1998 compensation awards income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities see note 5 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive stockbased compensation stockbased compensation may accounted either based estimated fair value awards date granted sfas 123 method based difference market price stock date grant amount employee must pay acquire stock apb 25 method company uses apb 25 method account stockbased compensation programs see note 9 pro forma net income loss 2000 1999 1998 determined sfas 123 method applied would 8732000 363000 11204000 respectively basic diluted earnings loss per share would 075 2000 003 1999 111 106 respectively 1998 comprehensive income accumulated balances comprehensive loss follows thousands dollars reclassifications certain 1999 1998 amounts reclassified conform 2000 presentation 2 acquisitions june 1 1999 company acquired outstanding stock toledo oil gas service inc oil gas services company based broussard louisiana 169000 cash 287000 common stock contingent payment 100000 contingent payment held company escrow one year date acquisition provide security company accuracy performance certain covenants guaranteed acquired company payment made end contingency period common stock company contingent stock valued 650 per share average trading price ten trading days immediately preceding acquisition accounted using purchase method accounting operations toledo oil gas service inc included date acquisition layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 june 4 1999 company purchased certain assets vibration technology oil gas services company based shreveport louisiana 253000 cash acquisition accounted using purchase method accounting august 26 1999 company wholly owned subsidiary layne christensen canada limited layne canada purchased substantially assets basal drilling inc based alberta canada 469000 cash issuance oneyear promissory note 270000 basal drilling multiservices drilling company acquisition accounted using purchase method accounting acquisitions fiscal 2000 taken place february 1 1999 pro forma operating results would vary significantly reported march 26 1998 company completed transaction purchase certain assets hydro group inc new jerseybased drilling contractor hydro acquisition approximately 6293000 cash acquisition accounted using purchase method accounting accordingly operations hydro group inc included date acquisition december 31 1998 company also acquired certain assets colog inc geophysical services company based golden colorado approximately 800000 cash acquisition accounted using purchase method accounting january 20 1999 company acquired outstanding stock tecniwell srl manufacturer pumps accessories used geotechnical construction industry based podenzano italy approximately 1285000 cash contingent payment 500000 contingent payment held company escrow period five years date acquisition provide security company accuracy performance certain covenants guaranteed acquired company payment made end contingency period common stock company contingent stock valued 985 per share average trading price ten trading days immediately preceding acquisition accounted using purchase method accounting acquisitions fiscal 1999 taken place february 1 1998 pro forma operating results would significantly different reported may 20 1997 company wholly owned subsidiary layne christensen australia pty limited layne australia made tender offer security holders stanley mining services limited stanley company listed australian stock exchange stanley acquisition stanley australian mineral exploration drilling company provides services predominantly mining companies australia africa october 1 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 1996 stanley purchased 51 glindemann kitching pty ltd gk drilling contractor based operating western australia specializes diamond core exploration drilling gold projects remaining 49 gk acquired stanley july 1 1997 purchase price 7814000 purchase price paid september 5 1997 stanley acquisition substantially consummated july 25 1997 purchase price approximately 50070000 consisting cash purchase price tender offer 48337000 1733000 transaction costs company also assumed approximately 12523000 stanleys existing indebtedness company accounted acquisition using purchase method accounting stanley reflected companys results operations beginning august 1 1997 purchase price allocated based fair values assets liabilities july 31 1997 august 19 1997 company completed sale 2756565 shares common stock public offering net proceeds company offering approximately 43510000 used reduce debt incurred credit agreement connection stanley acquisition following unaudited pro forma information presents summary consolidated results operations company acquisitions stanley gk stock offering occurred beginning fiscal year 1998 pro forma adjustments give effect interest expense acquisition debt amortization goodwill certain adjustments together related income tax effects thousands except per share data 1998 revenues 323565 net income 12638 basic earnings per share 109 diluted earnings per share 105 pro forma financial information necessarily indicative operating results would occurred acquisition consummated february 1 1998 necessarily indicative future operating results july 1997 company also acquired outstanding stock stamm scheele inc water well drilling maintenance company louisiana approximately 2574000 cash acquisition accounted using purchase method accounting october 1997 company also acquired certain assets afridrill limited mineral exploration company located east africa approximately 3700000 cash certain contingent future cash payments approximately 684000 acquisition accounted using purchase method accounting acquisitions taken place february 1 1997 pro forma operating results would significantly different reported layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 acquisitions following effect companys consolidated financial position thousands dollars 3 investments foreign affiliates companys investments foreign affiliates carried companys equity underlying net assets plus additional 4753000 result purchase accounting additional amount amortized remaining useful lives applicable underlying assets ranging 20 35 years accumulated amortization january 31 2000 1999 519000 389000 respectively affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows percentage owned christensen chile sa chile 4999 christensen commercial sa chile 5000 geotec boyles bros sa chile 4975 boyles bros diamantina sa peru 2949 christensen commercial sa peru 5000 geotec sa peru 3538 boytec sa panama 4999 technidrill ltd france 4900 christensen boyles gmbh germany 3335 plantel industrial sa chile 5000 boytec sondajes de mexico sa de cv mexico 4999 boyles bros brazil sa brazil 4000 geoductos chile sa chile 5000 financial information foreign affiliates reported onemonth lag reporting period summarized financial information companys foreign affiliates january 31 2000 1999 1998 years ended follows thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 company transactions balances foreign affiliates resulted following amounts included consolidated financial statements january 31 2000 1999 1998 years ended thousands dollars undistributed equity earnings foreign affiliates totaled 4043000 4447000 4171000 january 31 2000 1999 1998 respectively 4 costs estimated earnings uncompleted contracts thousands dollars company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 5 income taxes income taxes follows thousands dollars components income tax expense thousands dollars deferred income taxes result temporary differences financial statement tax bases companys assets liabilities sources differences cumulative tax effects thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 company several australian african subsidiaries generated tax losses majority losses utilized reduce companys us federal state income tax expense federal income tax purposes company net operating loss carryforwards totaling 5100000 january 31 2000 net operating loss carryforwards expire 2010 2015 company also generated state net operating losses carried forward january 31 2000 undistributed earnings foreign subsidiaries foreign affiliates included 13450000 us federal income foreign withholding taxes provided foreign tax credits become available current tax law significantly reduce eliminate resulting us income tax liability reconciliation total income tax expense statutory federal rate follows thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 6 leases future minimum rental payments required operating leases initial remaining noncancellable lease terms excess one year january 31 2000 follows thousands dollars 2001 4049 2002 3423 2003 2502 2004 1900 2005 1226 operating leases primarily automobiles light trucks office shop facilities rent expense operating leases including insignificant amounts contingent rental payments 5163000 5742000 4605000 2000 1999 1998 respectively 7 employee benefit plans company sponsors pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plan substantially equal amounts required maintain qualified status plans contributions intended provide benefits related past current service company assets plan consist primarily stocks bonds government securities following table sets forth plans funded status december 31 1999 1998 measurement dates amounts recognized companys balance sheets january 31 2000 1999 thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 amounts recognized companys balance sheets january 31 2000 1999 thousands dollars consist net periodic pension cost 2000 1999 1998 includes following components thousands dollars company recognized full amount actuarially determined pension liability related intangible asset unrecognized pension cost recorded charge stockholders equity giving effect related future tax benefit projected benefit obligation 2000 1999 1998 computed using discount rate 80 675 725 respectively estimated longterm rate return assets 875 benefit level assumptions 2000 1999 1998 based fixed amounts per year credited service layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 992000 683000 646000 2000 1999 1998 respectively information regarding assets accumulated benefits plans made available company companys salaried certain hourly employees participate company sponsored defined contribution plans company contributions determined annually discretion board directors company total expense companys portion plans 791000 808000 1349000 2000 1999 1998 respectively company reserves right amend terminate plans company cannot recover contributions already paid 8 indebtedness july 1997 contemporaneously consummation stanley acquisition see note 2 company amended existing credit agreement provide reducing revolving credit facility credit agreement january 31 2000 commitment credit agreement reduced 80000000 less outstanding letter credit commitments 20000000 sublimit effective amendment credit agreement dated february 14 2000 company voluntarily reduced outstanding commitment amount 64000000 credit agreement used finance stanley acquisition refinance companys existing indebtedness 30000000 credit facility available working capital expenditures general corporate purposes january 31 2000 letters credit aggregate amount 5147000 issued behalf company credit agreement terminate july 2002 borrowings thereunder mature time layne australia eligible draw 30000000 15000000 effective amendment credit agreement dated february 14 2000 credit agreement credit agreement provides guarantees certain companys domestic subsidiaries contains certain covenants including restrictions incurrence additional indebtedness liens payment dividends sale assets dispositions transactions affiliates mandatory prepayments based proceeds sale assets debt equity securities certain financial maintenance covenants including among others minimum interest coverage maximum leverage ratios credit agreement provides interest variable rates equal loans australian dollars australian bill rate plus 50 875 depending upon debt capitalization ratios ii loans united states dollars companys option eurodollar rate plus 50 875 depending upon debt capitalization ratios alternate reference rate defined credit agreement january 31 2000 outstanding borrowings credit agreement 38500000 average interest rate 7190 variable interest rates outstanding balance approximate current market rates maximum borrowings outstanding companys existing credit agreements 2000 1999 1998 44000000 49000000 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 58000000 respectively average outstanding borrowings 40583000 42458000 21250000 respectively weighted average interest rates 70 73 respectively march 1996 company completed private placement unsecured note agreement subsequently amended 25000000 senior notes senior notes bear fixed interest rate 675 due march 15 2006 annual installments 3571000 beginning march 15 2000 january 31 2000 1999 interest rate approximates market similar securities financial guarantees covenants similar credit agreement loan costs incurred securing longterm financing amortized term respective loan agreement amortization costs 2000 1999 1998 221000 252000 180000 respectively amortization loan costs included interest expense statements income longterm debt follows thousands dollars january 31 2000 longterm debt mature follows thousands dollars 2001 3571 2002 3571 2003 42071 2004 3571 2005 3571 thereafter 7145 9 stock option plans october 1998 company adopted rights agreement whereby company authorized declared dividend one preferred share purchase right outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 25 companys common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 4500 company entitled redeem right 01 per right time person acquired 25 companys outstanding common stock rights expire 10 years date grant layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 company reserved 500000 shares common stock issuance employee incentive compensation plans issuance shares plans based performance determined annually committee appointed companys board directors 2000 1999 1998 5845 9636 3524 shares respectively issued 550 1372 1520 per share respectively company also two stock option plans provide granting options purchase aggregate 2000000 shares common stock price fixed board directors committee significant option groups outstanding january 31 2000 related weighted average price life information follows options granted exercise price equal fair market value companys common stock date grant weighted average fair value date grant options granted fiscal year 2000 1999 1998 395 957 1268 per option respectively options ten year term date grant vest ratably periods four five years fair value options date grant estimated using black scholes model following weighted average assumptions layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 10 contingencies companys drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice turnkey basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection provision services products litigation arising occurrences may result companys named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance business interruption insurance respect foreign operations company involved various matters litigation claims disputes arisen ordinary course companys business resolution matters may impact financial results period matter resolved company believes ultimate disposition matters aggregate layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 material adverse effect upon business consolidated financial position results operations cash flows 11 operating segments foreign operations company multinational company operating predominantly two operating segments first operating segment includes companys service operations wholly owned operations united states australia east africa mexico canada indonesia thailand well 50 owned joint venture west africa consolidated companys january 31 2000 financial statements service segment primarily derives revenues following product lines integrated groundwater services mineral exploration drilling geotechnical construction second operating segment products includes manufacturing supply drilling equipment parts supplies product operations primarily united states refer note 3 information foreign investments revenues operating income total assets capital expenditures depreciation amortization pertaining companys operating segments presented thousands dollars total revenues foreign subsidiaries revenues related operations subsidiaries intersegment sales accounted based estimated fair market value products sold computing operating income foreign subsidiaries allocations general corporate expenses made total assets foreign subsidiaries assets related operations subsidiaries including goodwill corporate assets company directly associated operating segment consist primarily cash deferred income taxes investments foreign affiliates see note 3 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2000 1999 1998 products sales unaffiliated customers approximately 2117000 3090000 9581000 2000 1999 1998 respectively export sales principally latin south america 12 quarterly results unaudited quarterly financial data follows see note 2 regarding stanley acquisition thousands dollars except per share data schedule ii layne christensen company subsidiaries valuation qualifying accounts thousands dollars represents reserves recorded connection various acquisitions see note 2 consolidated financial statements item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules omitted applicable required information included consolidated financial statements company notes thereto independent auditors report layne christensen company audited accompanying consolidated balance sheets layne christensen company subsidiaries january 31 2001 2000 related consolidated statements income stockholders equity cash flows three years period ended january 31 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position companies january 31 2001 2000 results operations cash flows three years period ended january 31 2001 conformity accounting principles generally accepted united states america deloitte touche llp deloitte touche llp kansas city missouri march 9 2001 layne christensen company subsidiaries consolidated balance sheets january 31 2001 2000 thousands dollars see notes consolidated financial statements continued layne christensen company subsidiaries consolidated balance sheetscontinued january 31 2001 2000 thousands dollars except per share data see notes consolidated financial statements concluded layne christensen company subsidiaries consolidated statements income years ended january 31 2001 2000 1999 thousands dollars except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders equity years ended january 31 2001 2000 1999 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows years ended january 31 2001 2000 1999 thousands dollars see notes consolidated financial statements continued layne christensen company subsidiaries consolidated statements cash flows continued years ended january 31 2001 2000 1999 thousands dollars see notes consolidated financial statements concluded layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 1 summary significant accounting policies description business layne christensen company subsidiaries together company provide comprehensive water supply services geotechnical construction services regions united states provide mineral exploration drilling services primarily western united states australia africa mexico canada customers include municipalities industrial companies mining companies environmental consulting engineering firms lesser extent agribusinesses addition company manufactures diamond core bits drilling rigs equipment utilized mineral exploration mine development preconstruction analysis markets throughout united states internationally fiscal year references years fiscal years ended investment affiliated companies investments affiliates 29 50 owned company exercises significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company subsidiaries significant intercompany transactions eliminated financial information companys foreign affiliates certain foreign subsidiaries reported companys consolidated financial statements onemonth lag reporting periods effect one month lag companys financial results significant use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities companys mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency translate monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate average rates prevailing layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 year translation adjustments reported separate component accumulated comprehensive loss result acquisition australian company 1998 company reflected substantial changes cumulative translation account 2001 2000 1999 primarily attributed devaluation australian dollar net foreign currency transaction gains losses 2001 2000 1999 significant revenue recognition revenue recognized large longterm contracts using percentage completion method based upon materials installed labor costs incurred changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined revenue recognized smaller shortterm contracts using completed contract method provisions estimated losses uncompleted contracts made period losses determined inventories company values inventories lower cost first firstout including material labor manufacturing overhead costs market thousands dollars 2001 2000 raw materials 1101 1422 work process 1639 547 finished products parts supplies 28022 28005 total 30762 29974 property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 20121000 21721000 21454000 fiscal 2001 2000 1999 respectively lives used significant items within property classification follows years buildings 15 35 machinery equipment 3 10 intangible assets intangible assets consist goodwill related acquisitions purchased technical manuals assets amortized estimated economic lives range 10 35 years amortization expense intangible assets 1216000 1295000 1058000 2001 2000 1999 respectively investments 2001 2000 1999 company wholly owned subsidiary layne christensen australia pty limited layne australia purchased certain common stock publicly traded companies australian stock exchange company classified investments availablefor layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 sale noncurrent investments cost basis 3723000 reported fair values approximately 514000 1766000 january 31 2001 2000 respectively gross unrealized losses 3209000 1957000 net taxes 1284000 780000 january 31 2001 2000 respectively recorded component accumulated comprehensive loss impairment longlived assets balance sheet date determination made management whether value longlived assets including intangible assets disposed impaired determination based several criteria including limited revenue trends undiscounted operating cash flows operating factors accrued insurance expense costs estimated incurred future employee medical benefits casualty insurance programs resulting claims incurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies see note 10 fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2001 2000 relatively short maturity instruments investments equity securities carried quoted market values see note 8 disclosure regarding fair value indebtedness company consolidated statements cash flows highly liquid investments remaining maturity three months less time purchase considered cash equivalents amounts paid income taxes interest follows thousands dollars 2001 2000 1999 income taxes 582 7645 interest 5632 4892 4406 supplemental noncash transactions 2001 2000 company issued 1181 5845 shares common stock respectively 42532 39812 stock options respectively related 2000 1999 compensation awards income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities see note 5 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive stockbased compensation stockbased compensation may accounted either based estimated fair value awards date granted sfas 123 method based difference market price stock date grant amount employee must pay acquire stock apb 25 method company uses apb 25 method account stockbased compensation programs see note 9 pro forma net income loss 2001 2000 1999 determined sfas 123 method applied would 66870008582000 363000 respectively basic diluted earnings loss per share would 057 2001 074 2000 003 1999 comprehensive loss accumulated balances comprehensive loss follows thousands dollars reclassifications certain 2000 1999 amounts reclassified conform 2001 presentation 2 acquisitions june 1 1999 company acquired outstanding stock toledo oil gas service inc oil gas services company based broussard louisiana 169000 cash 387000 common stock acquisition accounted using purchase method accounting operations toledo oil gas service inc included date acquisition june 4 1999 company purchased certain assets vibration technology oil gas services company based shreveport louisiana 253000 cash acquisition accounted using purchase method accounting august 26 1999 company wholly owned subsidiary layne christensen canada limited layne canada purchased substantially assets basal drilling inc based alberta canada 469000 cash issuance oneyear promissory note 270000 basal drilling multiservices drilling company acquisition accounted using purchase method accounting layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 acquisitions fiscal 2000 taken place february 1 1999 pro forma operating results would vary significantly reported march 26 1998 company completed transaction purchase certain assets hydro group inc new jerseybased drilling contractor hydro acquisition approximately 6293000 cash acquisition accounted using purchase method accounting accordingly operations hydro group inc included date acquisition december 31 1998 company also acquired certain assets colog inc geophysical services company based golden colorado approximately 800000 cash acquisition accounted using purchase method accounting january 20 1999 company acquired outstanding stock tecniwell srl manufacturer pumps accessories used geotechnical construction industry based podenzano italy approximately 1285000 cash contingent payment 500000 contingent payment held company escrow period five years date acquisition provide security company accuracy performance certain covenants guaranteed acquired company payment made end contingency period common stock company contingent stock valued 985 per share average trading price ten trading days immediately preceding acquisition accounted using purchase method accounting acquisitions fiscal 1999 taken place february 1 1998 pro forma operating results would significantly different reported acquisitions following effect companys consolidated financial position thousands dollars 2000 1999 property equipment 1328 8435 working capital 396 1046 intangible assets 420 1608 noncurrent deferred liabilities 461 619 total purchase price net cash acquired 891 8378 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 3 investments foreign affiliates companys investments foreign affiliates carried companys equity underlying net assets plus additional 4753000 result purchase accounting additional amount amortized remaining useful lives applicable underlying assets ranging 20 35 years accumulated amortization january 31 2001 2000 649000 519000 respectively affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows percentage owned christensen chile sa chile 4999 christensen commercial sa chile 5000 geotec boyles bros sa chile 4975 boyles bros diamantina sa peru 2949 christensen commercial sa peru 5000 geotec sa peru 3538 boytec sa panama 4999 technidrill ltd france 4900 christensen boyles gmbh germany 3335 plantel industrial sa chile 5000 boytec sondajes de mexico sa de cv mexico 4999 boyles bros brazil sa brazil 4000 geoductos chile sa chile 5000 supply direct south africa south africa 5000 financial information foreign affiliates reported onemonth lag reporting period summarized financial information companys foreign affiliates january 31 2001 2000 1999 years ended follows thousands dollars 2001 2000 1999 total assets 60526 57645 65303 total liabilities 21741 17932 23634 revenues 66217 51552 75088 gross profit 10423 6094 13406 operating income 5393 1282 4446 net income 2392 152 2613 company transactions balances foreign affiliates resulted following amounts included consolidated financial statements january 31 2001 2000 1999 years ended thousands dollars 2001 2000 1999 accounts receivable 1563 566 173 notes receivable 149 1333 2568 revenues 3231 1374 3045 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 undistributed equity earnings foreign affiliates totaled 3904000 4043000 4447000 january 31 2001 2000 1999 respectively 4 costs estimated earnings uncompleted contracts thousands dollars 2001 2000 costs incurred uncompleted contracts 99810 80153 estimated earnings 40972 29591 140782 109744 less billings date 141201 108759 419 985 included accompanying balance sheets following captions costs estimated earnings excess billings uncompleted contracts 10371 11086 billings excess costs estimated earnings uncompleted contracts 10790 10101 419 985 company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year 5 income taxes income taxes follows thousands dollars 2001 2000 1999 domestic 5570 4825 6758 foreign 11232 12235 2992 5662 7410 3766 components income tax expense thousands dollars 2001 2000 1999 currently due us federal 192 118 366 state local 236 188 537 foreign 1344 1017 2726 1772 711 3629 deferred us federal 2531 672 355 state local 193 79 11 foreign 3728 1462 777 1390 711 1143 382 2486 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 deferred income taxes result temporary differences financial statement tax bases companys assets liabilities sources differences cumulative tax effects thousands dollars company several australian african subsidiaries generated tax losses majority losses utilized reduce companys us federal state income tax expense federal income tax purposes company net operating loss carryforwards totaling 170000 january 31 2001 net operating loss carryforwards expire 2010 2015 company also generated state net operating losses carried forward january 31 2001 undistributed earnings foreign subsidiaries foreign affiliates included 13740000 us federal income foreign withholding taxes provided foreign tax credits become available current tax law significantly reduce eliminate resulting us income tax liability reconciliation total income tax expense statutory federal rate follows thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 6 leases future minimum rental payments required operating leases initial remaining noncancellable lease terms excess one year january 31 2001 follows thousands dollars 2002 4956 2003 4072 2004 3035 2005 2094 2006 944 operating leases primarily automobiles light trucks office shop facilities rent expense operating leases including insignificant amounts contingent rental payments 5972000 5163000 5742000 2001 2000 1999 respectively 7 employee benefit plans company sponsors pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plan substantially equal amounts required maintain qualified status plans contributions intended provide benefits related past current service company assets plan consist primarily stocks bonds government securities following table sets forth plans funded status december 31 2000 1999 measurement dates amounts recognized companys balance sheets january 31 2001 2000 thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 amounts recognized companys balance sheets january 31 2001 2000 thousands dollars consist net periodic pension cost 2001 2000 1999 includes following components thousands dollars company recognized full amount actuarially determined pension liability related intangible asset unrecognized pension cost recorded charge stockholders equity giving effect related future tax benefit projected benefit obligation 2001 2000 1999 computed using discount rate 775 80 675 respectively estimated longterm rate return assets 875 benefit level assumptions 2001 2000 1999 based fixed amounts per year credited service layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 1236000 992000 683000 2001 2000 1999 respectively information regarding assets accumulated benefits plans made available company companys salaried certain hourly employees participate company sponsored defined contribution plans company contributions determined annually discretion board directors company total expense companys portion plans 1178000 791000 808000 2001 2000 1999 respectively effective january 1 2000 company increased company matching contribution certain plans 100 employees deferral contributions exceed 3 compensation 50 employees deferral contributions exceed 3 exceed 5 compensation maximum matching contribution 4 previously maximum matching contribution allowed plans 3 company reserves right amend terminate plans company cannot recover contributions already paid 8 indebtedness july 1997 contemporaneously acquisition stanley mining services stanley acquisition australian african based drilling contractor company amended existing credit agreement provide reducing revolving credit facility credit agreement january 31 2001 commitment credit agreement reduced 64000000 less outstanding letter credit commitments 20000000 sublimit credit agreement used finance stanley acquisition refinance companys existing indebtedness 30000000 credit facility available working capital expenditures general corporate purposes january 31 2001 letters credit aggregate amount 4667000 issued behalf company credit agreement terminate july 2002 borrowings thereunder mature time layne australia eligible draw 15000000 credit agreement credit agreement provides guarantees certain companys domestic subsidiaries contains certain covenants including restrictions incurrence additional indebtedness liens payment dividends sale assets dispositions transactions affiliates mandatory prepayments based proceeds sale assets debt equity securities certain financial maintenance covenants including among others minimum interest coverage maximum leverage ratios credit agreement provides interest variable rates equal loans australian dollars australian bill rate plus 100 175 depending upon debt capitalization ratios ii loans united states dollars companys option eurodollar rate plus 100 175 depending upon debt capitalization ratios alternate reference rate defined credit agreement january 31 2001 outstanding borrowings credit agreement 40500000 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 average interest rate 8093 variable interest rates outstanding balance approximate current market rates maximum borrowings outstanding companys existing credit agreements 2001 2000 1999 53000000 44000000 49000000 respectively average outstanding borrowings 47708000 40583000 42458000 respectively weighted average interest rates 90 70 respectively march 1996 company completed private placement unsecured note agreement subsequently amended 25000000 senior notes senior notes bear fixed interest rate 675 due march 15 2006 annual installments 3571000 began march 15 2000 january 31 2001 2000 interest rate approximates market similar securities financial guarantees covenants similar credit agreement loan costs incurred securing longterm financing amortized term respective loan agreement amortization costs 2001 2000 1999 351000 221000 252000 respectively amortization loan costs included interest expense consolidated statements income longterm debt follows thousands dollars 2001 2000 senior notes 21428 25000 revolving credit facility 40500 38500 total longterm debt 61928 63500 less current maturities 3571 58357 59929 january 31 2001 longterm debt mature follows thousands dollars 2002 3571 2003 44071 2004 3571 2005 3571 2006 3571 thereafter 3573 9 stock option plans october 1998 company adopted rights agreement whereby company authorized declared dividend one preferred share purchase right outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 25 companys common stock right entitle shareholders buy one onehundredth share newly created series layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 junior participating preferred stock company exercise price 4500 company entitled redeem right 01 per right time person acquired 25 companys outstanding common stock rights expire 10 years date grant company reserved 500000 shares common stock issuance employee incentive compensation plans issuance shares plans based performance determined annually committee appointed companys board directors 2001 2000 1999 1181 5845 9636 shares respectively issued 466 550 1372 per share respectively company also two stock option plans provide granting options purchase aggregate 2000000 shares common stock price fixed board directors committee significant option groups outstanding january 31 2001 related weighted average price life information follows options granted exercise price equal fair market value companys common stock date grant weighted average fair value date grant options granted 2001 2000 1999 221 395 957 per option respectively options terms five ten years date grant vest ratably periods four five years fair value options date grant estimated using black scholes model fair values based expected life years equal full option term dividend yield following weighted average assumptions 2001 2000 1999 interest rate 50 65 volatility 39 59 47 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 10 contingencies companys drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice turnkey basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection provision services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance business interruption insurance respect foreign operations company involved various matters litigation claims disputes arisen ordinary course companys business resolution matters may impact financial results period matter resolved company believes ultimate disposition matters aggregate layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 material adverse effect upon business consolidated financial position results operations cash flows 11 operating segments foreign operations company multinational company operating predominantly two operating segments first operating segment includes companys service operations wholly owned operations united states australia east africa mexico canada italy thailand well 50 owned joint venture west africa consolidated companys january 31 2001 financial statements service segment primarily derives revenues following product lines waterrelated services products mineral exploration drilling geotechnical construction oil gas services exploration second operating segment products includes manufacturing supply drilling equipment parts supplies product operations primarily united states refer note 3 information foreign investments revenues operating income total assets capital expenditures depreciation amortization pertaining companys operating segments presented thousands dollars total revenues foreign subsidiaries revenues related operations subsidiaries intersegment revenues accounted based estimated fair market value products sold services provided computing operating income foreign subsidiaries allocations general corporate expenses made total assets foreign subsidiaries assets related operations subsidiaries including goodwill corporate assets company directly associated operating segment consist primarily cash deferred income taxes investments foreign affiliates see note 3 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2001 2000 1999 products sales unaffiliated customers approximately 1884000 2117000 3090000 2001 2000 1999 respectively export sales principally latin south america operating income 2001 2000 includes 2313000 177000 expenses related companys oil gas exploration activities gulf coast region united states 12 new accounting pronouncements june 1998 financial accounting standards board issued statement financial accounting standard sfas 133 accounting derivative instruments hedging activites statement amended sfas nos 137 138 requires companies record derivatives balance sheet assets liabilities measured fair value gains losses resulting changes values derivatives would accounted depending use derivative whether qualifies hedge accounting statement effective company beginning first day fiscal 2002 expected minimal impact companys consolidated financial statements 13 quarterly results unaudited quarterly financial data follows thousands dollars except per share data schedule ii layne christensen company subsidiaries valuation qualifying accounts thousands dollars represents reserves recorded connection various acquisitions see note 2 consolidated financial statements item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules independent auditors report layne christensen company audited accompanying consolidated balance sheets layne christensen company subsidiaries january 31 2002 2001 related consolidated statements income stockholders equity cash flows three years period ended january 31 2002 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position companies january 31 2002 2001 results operations cash flows three years period ended january 31 2002 conformity accounting principles generally accepted united states america deloitte touche llp deloitte touche llp kansas city missouri march 22 2002 layne christensen company subsidiaries consolidated balance sheets january 31 2002 2001 thousands see notes consolidated financial statements continued layne christensen company subsidiaries consolidated balance sheetscontinued january 31 2002 2001 thousands except share data see notes consolidated financial statements concluded layne christensen company subsidiaries consolidated statements income years ended january 31 2002 2001 2000 thousands except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders equity years ended january 31 2002 2001 2000 thousands except share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows years ended january 31 2002 2001 2000 thousands see notes consolidated financial statements continued layne christensen company subsidiaries consolidated statements cash flows continued years ended january 31 2002 2001 2000 thousands see notes consolidated financial statements concluded layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 1 summary significant accounting policies description business layne christensen company subsidiaries together company provide comprehensive services products water resources mineral exploration geoconstruction energy markets four primary operating divisions see note 11 company operates throughout north america well africa australia europe customers include municipalities industrial companies mining companies environmental consulting engineering firms heavy civil construction contractors lesser extent agribusiness fiscal year references years fiscal years ended investment affiliated companies investments affiliates 29 50 owned company exercises significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company subsidiaries significant intercompany transactions eliminated financial information companys foreign affiliates certain foreign subsidiaries reported companys consolidated financial statements onemonth lag reporting periods effect onemonth lag companys financial results significant use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities companys mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency translate monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses translated historical rates gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate weighted average rates prevailing year translation adjustments reported separate component accumulated comprehensive loss result acquisition australian company 1998 company reflected substantial changes cumulative translation account 2001 primarily attributed devaluation australian dollar layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 net foreign currency transaction gains losses 2002 2001 2000 significant revenue recognition revenue recognized large longterm contracts using percentage completion method based upon materials installed labor costs incurred changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined revenue recognized smaller shortterm contracts using completed contract method provisions estimated losses uncompleted contracts made period losses determined inventories company values inventories lower cost firstin firstout including material labor manufacturing overhead costs market thousands property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 17035000 20121000 21721000 fiscal 2002 2001 2000 respectively lives used significant items within property classification follows intangible assets intangible assets consist goodwill related acquisitions purchased technical manuals assets amortized estimated economic lives range 10 35 years amortization expense intangible assets 1125000 1216000 1295000 2002 2001 2000 respectively investments 2002 2001 2000 company wholly owned subsidiary layne christensen australia pty limited layne australia owned certain common stock publicly traded companies australian stock exchange company classified investments availableforsale noncurrent investments cost basis 188000 3723000 reported fair values approximately 107000 514000 january 31 2002 2001 respectively gross unrealized losses 81000 3209000 net taxes 36000 1284000 january 31 2002 2001 respectively recorded component accumulated comprehensive loss layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 2002 company wholly owned subsidiary layne australia sold investment ausdrill limited publicly traded company australian stock exchange investment classified availableforsale cost basis 3535000 company recorded loss sale approximately 3329000 net 2002 consolidated statements income removed related net tax loss 1880000 accumulated comprehensive loss consolidated statements stockholders equity impairment longlived assets balance sheet date determination made management whether value longlived assets including intangible assets disposed impaired determination based several criteria including limited revenue trends undiscounted operating cash flows operating factors accrued insurance expense costs estimated incurred future employee medical benefits casualty insurance programs resulting claims incurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies see note 10 fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2002 2001 relatively short maturity instruments investments equity securities carried quoted market values see note 8 disclosure regarding fair value indebtedness company consolidated statements cash flows highly liquid investments remaining maturity three months less time purchase considered cash equivalents amounts paid income taxes interest follows thousands supplemental noncash transactions 2001 2000 company issued 1181 5845 shares common stock respectively 42532 39812 stock options respectively related 2000 1999 compensation awards 2002 company issue shares common stock options related compensation awards income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities see note 5 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive stockbased compensation stockbased compensation may accounted either based estimated fair value awards date granted sfas 123 method based difference market price stock date grant amount employee must pay acquire stock apb 25 method company uses apb 25 method account stockbased compensation programs see note 9 pro forma net income loss 2002 2001 2000 determined sfas 123 method applied would 155000 6687000 8582000 respectively basic diluted earnings loss per share would 01 2002 057 2001 074 2000 comprehensive loss accumulated balances comprehensive loss follows thousands reclassifications certain 2001 2000 amounts reclassified conform 2002 presentation 2 acquisitions september 25 2001 company acquired remaining 50 ownership west african drilling services wads joint venture partner ausdrill limited ausdrill effective june 30 2001 company issued twentyfive month noninterestbearing promissory note 2500000 surrendered way ausdrill share repurchase agreement 6014615 shares ausdrill company owned promissory note included accrued expenses longterm liabilities consolidated balance sheets shares fair value approximately 206000 acquisition accounted using purchase method accounting acquisition taken place february 1 2001 pro forma operating results would significantly different reported june 1 1999 company acquired outstanding stock toledo oil gas service inc oil gas services company based broussard louisiana 169000 cash 387000 common stock acquisition accounted using purchase method accounting operations toledo oil gas service inc included date acquisition layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 june 4 1999 company purchased certain assets vibration technology oil gas services company based shreveport louisiana 253000 cash acquisition accounted using purchase method accounting august 26 1999 company wholly owned subsidiary layne christensen canada limited layne canada purchased substantially assets basal drilling inc based alberta canada 469000 cash issuance oneyear promissory note 270000 basal drilling multiservices drilling company acquisition accounted using purchase method accounting acquisitions fiscal 2000 taken place february 1 1999 pro forma operating results would significantly different reported acquisitions following effect companys consolidated financial position thousands 3 investments foreign affiliates companys investments foreign affiliates carried companys equity underlying net assets plus additional 4753000 result purchase accounting additional amount amortized remaining useful lives applicable underlying assets ranging 20 35 years accumulated amortization january 31 2002 2001 779000 649000 respectively affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 financial information foreign affiliates reported onemonth lag reporting period summarized financial information companys foreign affiliates january 31 2002 2001 2000 years ended follows thousands company transactions balances foreign affiliates resulted following amounts included consolidated financial statements january 31 2002 2001 2000 years ended thousands undistributed equity earnings foreign affiliates totaled 3925000 3904000 4043000 january 31 2002 2001 2000 respectively 4 costs estimated earnings uncompleted contracts thousands company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 5 income taxes income loss income taxes follows thousands components income tax expense thousands deferred income taxes result temporary differences financial statement tax bases companys assets liabilities sources differences cumulative tax effects thousands company several australian african subsidiaries generated tax losses majority losses utilized reduce companys us federal state income tax expense layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 january 31 2002 undistributed earnings foreign subsidiaries foreign affiliates included 13331000 us federal income foreign withholding taxes provided earnings considered invested indefinitely would become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings reconciliation total income tax expense statutory federal rate follows thousands 6 leases future minimum rental payments required operating leases initial remaining noncancellable lease terms excess one year january 31 2002 follows thousands 2003 5431 2004 4423 2005 2552 2006 1639 2007 1001 operating leases primarily automobiles light trucks office shop facilities rent expense operating leases including insignificant amounts contingent rental payments 6475000 5972000 5163000 2002 2001 2000 respectively layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 7 employee benefit plans company sponsors pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plan substantially equal amounts required maintain qualified status plans contributions intended provide benefits related past current service company assets plan consist primarily stocks bonds government securities following table sets forth plans funded status december 31 2001 2000 measurement dates amounts recognized companys consolidated balance sheets january 31 2002 2001 thousands amounts recognized companys consolidated balance sheets january 31 2002 2001 thousands consist net periodic pension cost 2002 2001 2000 includes following components thousands company recognized full amount actuarially determined pension liability related intangible asset unrecognized pension cost layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 recorded charge consolidated stockholders equity giving effect related future tax benefit projected benefit obligation 2002 2001 2000 computed using discount rate 725 775 80 respectively estimated longterm rate return assets 875 benefit level assumptions 2002 2001 2000 based fixed amounts per year credited service company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 1285000 1236000 992000 2002 2001 2000 respectively information regarding assets accumulated benefits plans made available company companys salaried certain hourly employees participate companysponsored defined contribution plans company contributions determined annually discretion board directors company total expense companys portion plans 1205000 1178000 791000 2002 2001 2000 respectively effective january 1 2000 company increased matching contribution certain plans 100 employees deferral contributions exceed 3 compensation 50 employees deferral contributions exceed 3 exceed 5 compensation maximum matching contribution 4 previously maximum matching contribution allowed plans 3 company reserves right amend terminate plans company cannot recover contributions already paid 8 indebtedness july 1997 contemporaneously acquisition stanley mining services stanley acquisition australian africanbased drilling contractor company amended existing credit agreement provide reducing revolving credit facility credit agreement january 31 2002 commitment credit agreement reduced 57000000 less outstanding letter credit commitments 20000000 sublimit credit agreement used finance stanley acquisition refinance companys existing indebtedness 30000000 credit facility available working capital expenditures general corporate purposes january 31 2002 letters credit aggregate amount 4780000 issued behalf company credit agreement terminate july 2002 borrowings thereunder mature time layne australia eligible draw 15000000 credit agreement credit agreement provides guarantees certain companys domestic subsidiaries contains certain covenants including restrictions incurrence additional indebtedness liens payment dividends sale assets dispositions transactions affiliates mandatory prepayments based proceeds sale assets debt equity securities certain financial maintenance covenants including among others minimum interest coverage maximum leverage ratios credit agreement provides interest variable rates equal loans australian dollars australian bill rate plus 100 175 depending upon debt capitalization ratios ii loans us dollars companys option eurodollar rate plus 100 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 175 depending upon debt capitalization ratios alternate reference rate defined credit agreement january 31 2002 outstanding borrowings credit agreement 16500000 average interest rate 3381 variable interest rates outstanding balance approximate current market rates maximum borrowings outstanding companys thenexisting credit agreements 2002 2001 2000 47000000 53000000 44000000 respectively average outstanding borrowings 33292000 47708000 40583000 respectively weighted average interest rates 70 90 70 respectively march 1996 company completed private placement unsecured note agreement subsequently amended 25000000 senior notes senior notes bear fixed interest rate 675 due march 15 2006 annual installments 3571000 began march 15 2000 january 31 2002 2001 interest rate approximates market similar securities financial guarantees covenants similar credit agreement loan costs incurred securing longterm financing amortized term respective loan agreement amortization costs 2002 2001 2000 312000 351000 221000 respectively amortization loan costs included interest expense consolidated statements income july 2001 outstanding borrowings credit agreement reclassified current liabilities agreement expire within twelve months company intends negotiate new credit agreement prior time debt outstanding january 31 2002 2001 follows thousands january 31 2002 debt outstanding mature follows thousands 2003 20071 2004 3571 2005 3571 2006 3571 2007 3573 thereafter layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 9 stock option plans october 1998 company adopted rights agreement whereby company authorized declared dividend one preferred share purchase right outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 25 companys common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 4500 company entitled redeem right 01 per right time person acquired 25 companys outstanding common stock rights expire 10 years date grant company reserved 500000 shares common stock issuance employee incentive compensation plans issuance shares plans based performance determined annually committee appointed companys board directors 2001 2000 1181 5845 shares respectively issued 466 550 per share respectively company also two stock option plans provide granting options purchase aggregate 1900000 shares common stock price fixed board directors committee significant option groups outstanding january 31 2002 related weighted average price life information follows options granted exercise price equal fair market value companys common stock date grant options terms five ten years date grant vest ratably periods four five years purposes pro forma disclosure weighted average fair value date grant options granted 2002 2001 2000 416 221 395 per option respectively fair value options date grant estimated using blackscholes model fair values based layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 expected life years equal full option term dividend yield following weighted average assumptions 10 contingencies companys drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice turnkey basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection provision services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance business interruption insurance respect foreign operations layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 company involved various matters litigation claims disputes arisen ordinary course companys business resolution matters may impact financial results period matter resolved company believes ultimate disposition matters aggregate material adverse effect upon business consolidated financial position results operations cash flows 11 operating segments foreign operations financial information companys operating segments presented thousands intersegment revenues accounted based fair market value products sold services provided corporate operating loss consists unallocated corporate expenses primarily general administrative functions incentive compensation corporate assets company directly associated operating segment consist primarily cash deferred income taxes investments foreign affiliates see note 3 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 products sales unaffiliated customers approximately 640000 1884000 2117000 2002 2001 2000 respectively export sales principally latin america august 8 2001 company signed definitive agreement sell christensen products business subsidiary atlas copco company received 8165000 third quarter recorded gain sale 3991000 gain recorded net companys consolidated statements income part definitive agreement company agreed repurchase certain inventory items remain unsold atlas copco august 8 2002 repurchase obligation approximately 1600000 recorded connection sale approximately 1800000 additional cash received february 1 2002 upon sale certain assets inventory book value christensen products plant closed first quarter fiscal 2003 company intends sell land building net book value 3378000 january 31 2002 products segment revenues years ended january 31 2002 2001 2000 respectively include 13531000 12280000 9672000 revenue christensen products intersegment revenues year ended january 31 2002 2001 2000 respectively include 5282000 5912000 5341000 christensen products segment operating loss year ended january 31 2002 2001 2000 respectively includes 1745000 723000 1979000 christensen products layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2002 2001 2000 operating income 2002 2001 2000 respectively includes 53000 2313000 177000 expenses related companys oil gas exploration activities gulf mexico region united states 12 new accounting pronouncements financial accounting standards board issued statement financial accounting standards sfas 141 business combinations sfas 142 goodwill intangible assets sfas 143 accounting asset retirement obligations sfas 144 accounting impairment disposal longlived assets sfas 141 requires business combinations accounted purchase method certain acquired intangible assets business combination recognized assets apart goodwill sfas 141 effective business combinations july 1 2001 applied companys acquisition remaining 50 wads see note 2 sfas 142 requires ratable amortization goodwill replaced periodic tests goodwills impairment intangible assets goodwill amortized useful lives sfas 142 effective companys fiscal year beginning february 1 2002 sfas 143 establishes accounting standards recognition measurement liability asset retirement obligation associated asset retirement cost sfas 143 effective companys fiscal year beginning february 1 2003 sfas 144 supercedes sfas 121 establishes accounting standards longlived assets disposed sfas 144 effective companys fiscal year beginning february 1 2002 management currently assessing impact sfas nos 143 144 companys results operations expect material effect adoption sfas 142 result company ceasing amortize goodwill expense totaled 1125000 2002 management currently assessing additional impact adoption sfas 142 13 quarterly results unaudited quarterly financial data follows thousands dollars except per share data schedule ii layne christensen company subsidiaries valuation qualifying accounts thousands item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules page layne christensen company subsidiaries independent auditors report 34 financial statements consolidated balance sheets january 31 2003 2002 35 consolidated statements income years ended january 31 2003 2002 2001 37 consolidated statements stockholders equity years ended january 31 2003 2002 2001 39 consolidated statements cash flows years ended january 31 2003 2002 2001 40 notes consolidated financial statements 42 financial statement schedule ii 64 schedules omitted applicable required information included consolidated financial statements company notes thereto independent auditors report layne christensen company audited accompanying consolidated balance sheets layne christensen company subsidiaries january 31 2003 2002 related consolidated statements income stockholders equity cash flows three years period ended january 31 2003 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company january 31 2003 2002 results operations cash flows three years period ended january 31 2003 conformity accounting principles generally accepted united states america discussed note 5 financial statements 2003 company changed method accounting goodwill conform statement financial accounting standards 142 goodwill intangible assets deloitte touche llp deloitte touche llp kansas city missouri march 31 2003 layne christensen company subsidiaries consolidated balance sheets january 31 2003 2002 thousands see notes consolidated financial statements continued layne christensen company subsidiaries consolidated balance sheetscontinued january 31 2003 2002 thousands except share data see notes consolidated financial statements concluded layne christensen company subsidiaries consolidated statements income years ended january 31 2003 2002 2001 thousands except per share data continued see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income continued years ended january 31 2003 2002 2001 thousands except per share data concluded see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders equity years ended january 31 2003 2002 2001 thousands except share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows years ended january 31 2003 2002 2001 thousands see notes consolidated financial statements continued layne christensen company subsidiaries consolidated statements cash flows continued years ended january 31 2003 2002 2001 thousands see notes consolidated financial statements concluded layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 1 summary significant accounting policies description business layne christensen company subsidiaries together company provide comprehensive services products water resources mineral exploration geoconstruction energy markets four primary operating divisions see note 14 company operates throughout north america well africa australia europe customers include municipalities industrial companies mining companies environmental consulting engineering firms heavy civil construction contractors lesser extent agribusiness mineral exploration company ownership interest certain foreign affiliates operating south america facilities chile peru see note 3 fiscal year references years fiscal years ended investment affiliated companies investments affiliates 20 50 owned company ability exercise significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions eliminated financial information companys foreign affiliates certain foreign subsidiaries reported companys consolidated financial statements onemonth lag reporting periods effect onemonth lag companys financial results significant use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities companys mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency translate monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses translated historical rates gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate weighted average rates prevailing year translation adjustments reported separate component layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 accumulated comprehensive loss result acquisition australian company stanley mining services 1998 company reflected substantial changes cumulative translation account 2001 primarily attributed devaluation australian dollar net foreign currency transaction gains losses 2003 2002 2001 significant revenue recognition revenue recognized large longterm contracts using percentage completion method based upon materials installed labor costs incurred changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined revenue recognized smaller shortterm contracts using completed contract method provisions estimated losses uncompleted contracts made period losses determined inventories company values inventories lower cost firstin firstout market allowances recorded inventory considered excess obsolete inventories consist primarily parts supplies property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 14565000 16848000 19867000 fiscal 2003 2002 2001 respectively lives used items within property classification follows years buildings 15 35 machinery equipment 3 10 energy services production division company engages operation development production acquisition oil gas properties principally focusing coalbed methane gas projects company follows fullcost method accounting properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells including salaries benefits internal costs directly attributable activities costs associated production general corporate activities expensed period incurred january 31 2003 company capitalized 3545000 related uncompleted wells equipment facilities land acquisition costs unevaluated properties therefore amortized reserves yet established goodwill relates acquisitions completed company fiscal year 2003 company adopted statement financial accounting standards sfas 142 goodwill intangible assets resulted company layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 ceasing amortize goodwill amortization expense goodwill 1108000 1198000 2002 2001 respectively least annually december 31 goodwill tested impairment applying fair value based test assessing value goodwill assets liabilities assigned reporting units discounted cash flow analysis used determine fair value investments company whollyowned subsidiaries owns certain common stock publicly traded companies australia canada company classifies investments availableforsale noncurrent investments cost basis 172000 188000 reported fair values approximately 12000 107000 january 31 2003 2002 respectively gross unrealized losses 160000 81000 net taxes 62000 36000 january 31 2003 2002 respectively recorded component accumulated comprehensive loss impairment longlived assets balance sheet date circumstances indicate necessary determination made management whether value longlived assets including assets disposed impaired determination based several criteria including limited revenue trends undiscounted operating cash flows operating factors effective february 1 2002 company adopted sfas 144 accounting impairment disposal longlived assets adoption sfas 144 significant effect companys impairment policy accrued insurance expense costs estimated incurred future employee medical benefits workers compensation benefits casualty insurance programs resulting claims incurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies see note 13 fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2003 2002 relatively short maturity instruments investments equity securities carried quoted market values see note 11 disclosure regarding fair value indebtedness interest rate swap company consolidated statements cash flows highly liquid investments remaining maturity three months less time purchase considered cash equivalents amounts paid income taxes interest follows thousands 2003 2002 2001 income taxes 3348 3471 582 interest 2498 4092 5632 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 supplemental noncash transactions 2001 company issued 1181 shares common stock related compensation awards 15384 shares common stock connection acquisition made 2000 2003 2002 company issue shares common stock options related compensation awards income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries foreign affiliates made amounts excess funds considered invested indefinitely see note 8 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive options purchase 390900 398454 1097619 shares excluded weighted average shares 2003 2002 2001 respectively effect antidilutive stockbased compensation stockbased compensation may accounted either based estimated fair value awards date granted sfas 123 method based difference market price stock date grant amount employee must pay acquire stock apb 25 method company uses apb 25 method account stockbased compensation programs see note 12 pro forma net income loss earnings per share 2003 2002 2001 determined sfas 123 method applied presented following table thousands except per share amounts layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 comprehensive loss accumulated balances comprehensive loss follows thousands reclassifications certain 2002 2001 amounts primarily related discontinued operations reclassified conform 2003 presentation 2 acquisitions december 13 2002 company acquired remaining 35 ownership international directional services ids joint venture partner silver states survey inc approximately 246000 cash acquisition accounted using purchase method accounting significant effect companys consolidated financial position effective june 30 2001 company acquired remaining 50 ownership west african drilling services wads joint venture partner ausdrill limited ausdrill company issued twentyfive month promissory note 2500000 surrendered way ausdrill share repurchase agreement 6014615 shares ausdrill company owned promissory note included accrued expenses consolidated balance sheets shares fair value approximately 206000 acquisition accounted using purchase method accounting acquisition taken place february 1 2001 pro forma operating results would significantly different reported 2002 acquisition following effect companys consolidated financial position thousands property equipment 3906 working capital 1389 intangible assets 548 noncurrent deferred liabilities 5843 total purchase price net cash acquired layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 3 investments affiliates companys investments affiliates carried companys equity underlying net assets plus additional 4607000 result purchase accounting additional amount amortized lives ranging 20 35 years however amortization ceased effective february 1 2002 upon adoption sfas 142 affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows january 31 2003 percentage owned christensen chile sa chile 4999 christensen commercial sa chile 5000 geotec boyles bros sa chile 4975 boyles bros diamantina sa peru 2949 christensen commercial sa peru 5000 geotec sa peru 3538 boytec sa panama 4999 plantel industrial sa chile 5000 boytec sondajes de mexico sa de cv mexico 4999 geoductos chile sa chile 5000 2003 company sold investment technidrill ltd christensen boyles gmbh 860000 time sale investment cost basis 845000 financial information foreign affiliates reported onemonth lag reporting period summarized financial information companys foreign affiliates january 31 2003 2002 2001 years ended follows thousands 2003 2002 2001 total assets 52332 51146 60526 total liabilities 17039 13442 21741 revenues 51629 61720 66217 gross profit 8318 8401 10423 operating income 3839 3905 5393 net income 2206 1988 2392 company transactions balances foreign affiliates resulted following amounts included consolidated financial statements january 31 2003 2002 2001 years ended thousands 2003 2002 2001 accounts receivable 77 282 1563 notes receivable 149 revenues 167 2691 3231 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 undistributed equity earnings foreign affiliates totaled 2820000 3925000 3904000 january 31 2003 2002 2001 respectively september 2002 company invested joint venture privatelyheld limited partnership develop water storage bank property located california company invested 1059000 acquire 10 ownership joint venture joint venture total assets 10294000 january 31 2003 investment accounted using equity method company exercises significant influence operating financial policies venture 4 discontinued operations december 10 2002 company sold ranneyr collector well business reynolds inc 1575000 ranneyr business component companys water resources division see note 14 company recorded gain sale approximately 827000 net taxes 520000 year ended january 31 2003 january 23 2003 company sold drilling equipment supply inc desi division boart longyear desi supply operation distributed drilling equipment parts supplies last remaining component companys products segment see note 14 company recorded loss disposal 850000 net taxes 535000 year ended january 31 2003 accordance sfas 144 accounting impairment disposal longlived assets results operations ranneyr desi classified discontinued operations revenues net income loss discontinued operations 2003 2002 2001 follows thousands 5 goodwill effective february 1 2002 company adopted sfas 142 sfas 142 requires upon adoption least annually thereafter goodwill tested impairment applying fair value based test periodic amortization goodwill longer permitted sfas 142 thus companys consolidated statements income fiscal year 2003 include periodic amortization goodwill layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 sfas 142 requires companies make initial assessment goodwill impairment reporting units within six months adoption company completed initial assessment goodwill second quarter fiscal year 2003 determined transitional impairment charge required february 1 2002 company 21884000 goodwill recorded consolidated balance sheet consisting primarily goodwill associated mineral exploration segment assessing goodwill company assigned assets liabilities reporting units developed discounted cash flow analysis determine fair value reporting units based model company determined mineral exploration goodwill impaired result company recorded noncash charge 14429000 net taxes 5796000 cumulative effect change accounting principle february 1 2002 accordance sfas 142 company completed annual impairment test december 31 2002 impairment indicated carrying amount goodwill attributed operating segment goodwill balances follows thousands proforma results operations 2002 2001 company applied nonamortization provisions sfas 142 periods follows thousands except per share amounts layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 6 income expense income expense consisted following fiscal years ended january 31 thousands gain disposal property equipment 2003 includes gains approximately 1419000 result company initiative monetize excess property equipment well gains disposals ordinary course business gains partially offset 1800000 writedown companys former christensen products plant reflect current estimates net realizable value 2003 company whollyowned subsidiary layne christensen australia pty limited layne australia recognized gain 901000 sale investment gold exploration project africa 2002 company sold christensen products business subsidiary atlas copco company received 8165000 recorded gain sale 3991000 approximately 1800000 additional cash received february 1 2002 upon sale certain additional assets inventory book value 2002 company layne australia sold investment ausdrill limited publicly traded company australian stock exchange investment classified availableforsale cost basis 3535000 company recorded loss sale 3329000 removed related net tax loss 1880000 accumulated comprehensive income consolidated statement stockholders equity 2002 company closed certain unprofitable locations recognized loss 1697000 2003 company received higher expected proceeds final settlement certain assets recorded gain 517000 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 7 costs estimated earnings uncompleted contracts thousands company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year 8 income taxes income loss income taxes follows thousands components income tax expense thousands deferred income taxes result temporary differences financial statement tax bases companys assets liabilities sources differences cumulative tax effects thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 company several australian african subsidiaries generated tax losses majority losses utilized reduce companys federal state income tax expense company tax loss carryforwards mexican subsidiary 1800000 expire 2010 2013 january 31 2003 undistributed earnings foreign subsidiaries certain foreign affiliates included 10300000 federal income foreign withholding taxes provided earnings considered invested indefinitely become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred taxes provided undistributed earnings certain foreign affiliates earnings considered invested indefinitely income taxes foreign withholding taxes also provided dividends received gains recognized sale certain affiliates year reconciliation total income tax expense statutory federal rate follows thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 9 leases future minimum rental payments required operating leases initial remaining noncancellable lease terms excess one year january 31 2003 follows thousands 2004 5975 2005 3408 2006 3149 2007 2013 2008 1253 operating leases primarily automobiles light trucks office shop facilities rent expense operating leases including insignificant amounts contingent rental payments 10632000 6475000 5972000 2003 2002 2001 respectively 10 employee benefit plans company sponsors pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plan substantially equal amounts required maintain qualified status plans contributions intended provide benefits related past current service company assets plan consist primarily stocks bonds government securities following table sets forth plans funded status december 31 2002 2001 measurement dates amounts recognized companys consolidated balance sheets january 31 2003 2002 thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 amounts recognized companys consolidated balance sheets january 31 2003 2002 thousands consist net periodic pension cost 2003 2002 2001 includes following components thousands company recognized full amount actuarially determined pension liability related intangible asset unrecognized pension cost recorded charge consolidated stockholders equity giving effect related future tax benefit projected benefit obligation 2003 2002 2001 computed using discount rate 65 725 775 respectively estimated longterm rate return assets 80 875 respectively benefit level assumptions 2003 2002 2001 based fixed amounts per year credited service layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 1316000 1285000 1236000 2003 2002 2001 respectively information regarding assets accumulated benefits plans made available company companys salaried certain hourly employees participate companysponsored defined contribution plans total expense companys portion plans 1560000 1205000 1178000 2003 2002 2001 respectively 11 indebtedness july 9 2002 company entered new credit facility credit agreement general electric capital corporation agent group banks credit agreement used refinance borrowings outstanding companys previous revolving credit facility previous credit agreement pay outstanding balance companys note agreement senior notes credit agreement provides 35000000 revolving credit facility available working capital expenditures general corporate purposes maximum available revolving credit facility 35000000 less outstanding letter credit commitments subject 15000000 sublimit availability revolving credit facility dependent borrowing base consisting primarily domestic customer receivables inventories january 31 2003 availability revolving credit facility 26381000 less outstanding letters credit 6911000 although borrowings outstanding credit agreement also includes 35000000 term loan term loan payable increasing quarterly installments began october 2002 end july 2007 credit agreement includes penalty 2 event prepayment prior first anniversary agreement 1 first anniversary prior second anniversary prepayment penalty thereafter credit agreement secured majority assets company certain subsidiaries including limited accounts receivable inventory equipment credit agreement contains certain covenants including restrictions incurrence additional indebtedness liens transactions affiliates sale assets dispositions lease transactions certain financial maintenance covenants including among others maximum capital expenditures minimum ebitda minimum interest coverage maximum leverage company compliance covenants january 31 2003 credit agreement provides interest variable rates equal company option libor rate plus 275 325 depending upon leverage ratios alternate reference rate defined credit agreement january 31 2003 outstanding borrowings credit agreement average interest rate 418 companys floating rate debt exposes changes interest rates going forward september 2002 company entered interest rate layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 swap agreement swap agreement designated accounted cash flow hedge effectively convert portion term loan fixed rate basis thus reducing impact interest rate changes company pay counterparties interest 253 receive interest based variable libor rate 138 january 31 2003 notional principal swap 16625000 january 31 2003 notional principal reduced quarter based 50 scheduled principal payments companys term loan swap agreement calls quarterly interest payments commenced october 1 2002 terminate september 9 2004 swap agreement recorded fair market value 219000 january 31 2003 maximum borrowings outstanding companys thenexisting credit agreements 2003 2002 2001 37000000 47000000 53000000 respectively average outstanding borrowings 30062000 33292000 47708000 respectively weighted average interest rates 66 70 90 respectively loan costs incurred securing longterm financing amortized term respective loan agreement amortization costs 2003 2002 2001 345000 312000 351000 respectively amortization loan costs included interest expense consolidated statements income company recorded extraordinary loss 696000 net taxes 006 per share result early redemption balance outstanding senior notes loss consisted prepayment penalty unamortized fees associated senior notes net tax benefits 439000 debt outstanding january 31 2003 2002 whose carrying value approximates fair market value follows thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 january 31 2003 debt outstanding mature follows thousands 2004 3938 2005 4813 2006 6125 2007 7438 2008 10056 12 stock option plans october 1998 company adopted rights agreement whereby company authorized declared dividend one preferred share purchase right outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 25 companys common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 4500 company entitled redeem right 01 per right time person acquired 25 companys outstanding common stock rights expire 10 years date grant company reserved 500000 shares common stock issuance employee incentive compensation plans issuance shares plans based performance determined annually committee appointed companys board directors company also two stock option plans provide granting options purchase aggregate 1250000 shares common stock price fixed board directors committee significant option groups outstanding january 31 2003 related weighted average price life information follows layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 options granted exercise price equal fair market value companys common stock date grant options terms five ten years date grant vest ratably periods four five years purposes pro forma disclosure weighted average fair value date grant options granted 2002 2001 416 221 per option respectively options granted 2003 fair value options date grant estimated using blackscholes model fair values based expected life years equal full option term dividend yield following weighted average assumptions 2002 2001 interest rate 49 50 volatility 38 39 13 contingencies companys drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice turnkey basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection provision services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance respect foreign operations company involved various matters litigation claims disputes arisen ordinary course companys business resolution matters may impact financial results period matter resolved company believes ultimate disposition matters aggregate material adverse effect upon business consolidated financial position results operations cash flows 14 operating segments foreign operations company organized around discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices division example water resources division office performed geoconstruction services revenues would recorded water resources division rather geoconstruction services division offices primary responsibility move one division president another offices results going forward would reclassified divisions time companys reportable segments defined follows water resources division provides full line waterrelated services products including hydrological studies site selection well design drilling well development pump installation repair maintenance divisions offerings include design construction water treatment facilities manufacture sale products treat volatile inorganics groundwater division also offers environmental services assess monitor groundwater contaminants mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 geoconstruction services division focuses services improve soil stability primarily jet grouting vibratory ground improvement groundfreezing services division also manufactures line highpressure pumping equipment used grouting operations geotechnical drilling rigs used directional drilling energy services production division offers variety specialized services including shallow gas tar sands exploration drilling conventional oilfield fishing services coil tubing fishing services resonance technology solutions stuck tubulars landbased oil gas search development divisions landbased oil gas search development activities focus primarily natural gas properties principally coalbed methane projects located midwest region united states products grouping historically included companys supply operation distributes drilling equipment parts supplies manufacturing operation producing diamond drilling rigs diamond bits core barrels drill rods christensen products miscellaneous operations fall divisions january 23 2003 company sold supply operations boart longyear upon sale results operations reclassified discontinued operations see note 4 notes consolidated financial statements august 8 2001 company sold christensen products business subsidiary atlas copco financial information companys operating segments presented thousands intersegment revenues accounted based fair market value products sold services provided corporate loss continuing operations consists unallocated corporate expenses primarily general administrative functions incentive compensation corporate assets company directly associated operating segment consist primarily cash deferred income taxes layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 products sales unaffiliated customers approximately 640000 1884000 2002 2001 respectively export sales principally latin america layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 income continuing operations energy services production segment 2003 2002 2001 respectively includes 815000 53000 2313000 expenses related companys energy exploration activities gulf mexico region united states activities unrelated companys coalbed methane exploration development efforts charged expense reserves identified company longer pursuing exploration activities 15 new accounting pronouncements financial accounting standards board issued several statements effective future fiscal years sfas 143 accounting asset retirement obligations establishes accounting standards recognition measurement liability asset retirement obligation associated asset retirement cost sfas 143 effective companys fiscal year beginning february 1 2003 management expect significant effect companys financial position results operations upon adoption sfas 143 sfas 145 rescission fasb statement 4 44 64 amendment fasb statement 13 technical corrections provides new guidance accounting early extinguishments debt extraordinary items specific technical changes existing literature sfas 145 effective companys fiscal year beginning february 1 2003 upon adoption february 1 2003 sfas 145 require reclassification 696000 extraordinary loss recognized fiscal 2003 income continuing operations sfas 148 accounting stockbased compensation amends sfas 123 provide alternative methods transition voluntary change fair value based method accounting stockbased employee compensation addition statement amends disclosure requirements sfas 123 require prominent disclosures annual interim financial statements method accounting stockbased employee compensation effect method used reported results sfas 148 effective companys fiscal year beginning february 1 2004 management currently assessing impact sfas 148 companys financial position results operations interpretation 46 consolidation variable interest entities fin 46 requires consolidation certain variable interest entities certain conditions met management currently assessing impact fin 46 companys results operations layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2003 2002 2001 16 quarterly results unaudited quarterly financial data follows thousands dollars except per share data fourth quarter 2003 company sold certain operations classified results operations discontinued operations see note 4 revenues first three quarters 2003 reduced 3658000 2638000 2366000 respectively related discontinued operations gross profit first three quarters 2003 reduced 689000 469000 488000 respectively related discontinued operations revenues four quarters 2002 reduced 4310000 4070000 5557000 4493000 respectively related discontinued operations gross profit four quarters 2002 reduced 871000 937000 938000 345000 respectively related discontinued operations schedule ii layne christensen company subsidiaries valuation qualifying accounts thousands item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules omitted applicable required information included consolidated financial statements company notes thereto statement management responsibility consolidated financial statements layne christensen company subsidiaries “company” prepared conformity accounting principles generally accepted united states integrity objectivity data financial statements responsibility management information included annual report form 10k management believes information presented annual report consistent financial statements financial statements contain material misstatements due fraud error appropriate financial statements reflect management’s best estimates judgments management also responsible maintaining system internal accounting controls objectives providing reasonable assurance company’s assets safeguarded material loss unauthorized use disposition authorized transactions properly recorded permit preparation accurate financial data however limitations exist systems internal controls based recognition cost system exceed benefits company believes system accounting controls internal auditing function integral part accomplishes stated objectives audit committee board directors composed outside directors meets periodically management company’s independent accountants internal audit review matters related company’s financial statements internal audit activities internal accounting controls nonaudit services provided independent accountants independent accountants internal audit full access audit committee meet without management present discuss scope results audits including internal controls audit financial matters sandrew b schmitt sjerry w fanska andrew b schmitt jerry w fanska president chief vice president chief executive officer financial officer report independent registered public accounting firm board directors stockholders layne christensen company mission woods kansas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2005 2004 related consolidated statements income stockholders’ equity cash flows three years period ended january 31 2005 audits also included financial statement schedule listed index item 8 financial statements responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2005 2004 results operations cash flows three years period ended january 31 2005 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states effectiveness company’s internal control financial reporting january 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated april 14 2005 expressed unqualified opinion management’s assessment effectiveness company’s internal control financial reporting unqualified opinion effectiveness company’s internal control financial reporting sdeloitte touche llp deloitte touche llp kansas city missouri april 14 2005 layne christensen company subsidiaries consolidated balance sheets january 31 2005 2004 thousands see notes consolidated financial statements continued layne christensen company subsidiaries consolidated balance sheets continued january 31 2005 2004 thousands except share data see notes consolidated financial statements concluded layne christensen company subsidiaries consolidated statements income years ended january 31 2005 2004 2003 thousands except per share data continued see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income continued years ended january 31 2005 2004 2003 thousands except per share data concluded see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders’ equity years ended january 31 2005 2004 2003 thousands except share data continued see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders’ equity years ended january 31 2005 2004 2003 thousands except share data concluded see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows years ended january 31 2005 2004 2003 thousands see notes consolidated financial statements continued layne christensen company subsidiaries consolidated statements cash flows continued years ended january 31 2005 2004 2003 thousands see notes consolidated financial statements concluded layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 1 summary significant accounting policies description business layne christensen company subsidiaries together “company” provide comprehensive services products water resources mineral exploration geoconstruction energy markets four primary operating divisions see note 16 company operates throughout north america well africa australia europe customers include municipalities investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors lesser extent agribusiness mineral exploration company ownership interest certain foreign affiliates operating south america facilities chile peru see note 3 fiscal year references years fiscal years ended investment affiliated companies investments affiliates 20 50 owned company ability exercise significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions eliminated financial information company’s affiliates certain foreign subsidiaries reported company’s consolidated financial statements onemonth lag reporting periods use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities company’s mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency translate monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses translated historical rates gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate weighted average rates prevailing year translation adjustments reported separate component accumulated comprehensive loss layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 net foreign currency transaction losses 2005 2004 2003 342000 232000 52000 respectively revenue recognition revenue recognized large longterm contracts using percentage completion method based upon ratio costs incurred total estimated costs completion contract prices costs estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined revenue recognized smaller shortterm contracts using completed contract method provisions estimated losses uncompleted contracts made period losses determined inventories company values inventories lower cost firstin firstout market allowances recorded inventory considered excess obsolete inventories consist primarily parts supplies property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 13561000 11847000 13204000 2005 2004 2003 respectively lives used items within property classification follows energy division company engages operation development production acquisition oil gas properties principally focusing coalbed methane gas projects company follows fullcost method accounting properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells including salaries benefits internal costs directly attributable activities capitalized costs associated company’s oil gas properties depleted using units production method costs associated production general corporate activities expensed period incurred january 31 2005 2004 company capitalized 24244000 11817000 respectively related oil gas properties land acquisition costs depletion expense 880000 30000 2005 2004 respectively goodwill relates acquisitions completed company 2003 company adopted statement financial accounting standards “sfas” 142 “goodwill intangible assets” resulted company layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 ceasing amortize goodwill least annually december 31 goodwill tested impairment applying fair value based test assessing value goodwill assets liabilities assigned reporting units discounted cash flow analysis used determine fair value impairment longlived assets balance sheet date circumstances indicate necessary determination made management whether value longlived assets including assets disposed impaired determination based several criteria including limited revenue trends undiscounted operating cash flows operating factors company required review carrying value oil gas properties quarter full cost accounting rules sec rules capitalized costs proved oil gas properties adjusted asset retirement obligations may exceed present value estimated future net revenues proved reserves discounted 10 application ceiling test generally requires pricing future revenue unescalated prices effect last day quarter effect given company’s cash flow hedge positions requires writedown accounting purposes ceiling exceeded unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows accrued insurance expense costs estimated incurred future employee medical benefits property casualty insurance programs resulting claims incurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies see note 15 fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2005 2004 relatively short maturity instruments see note 12 disclosure regarding fair value indebtedness company follows sfas 133 “accounting derivative instruments hedging activities” “sfas 133” amended requires derivative financial instruments recorded balance sheet fair value establishes criteria designation effectiveness hedging relationships sfas 133 company accounts unrealized hedges forecasted costs cash flow hedges changes fair value effective portion hedge contracts material recorded accumulated comprehensive income stockholders’ equity changes fair value effective portion hedge contracts recognized accumulated comprehensive income hedged item recognized operations ineffective portion derivatives change fair value immediately recognized operations company’s fixedprice natural gas contracts result layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 physical delivery gas result exempt requirements sfas 133 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts see note 13 disclosure regarding fair value derivative instruments consolidated statements cash flows highly liquid investments original maturity three months less time purchase considered cash equivalents january 31 2004 cash equivalents included approximately 8000000 related sale layne canada held escrow pending final settlement lease termination costs incurred connection sale see note 4 amounts paid income taxes interest follows thousands supplemental noncash transactions connection beylik acquisition see note 2 company issued 24576 shares restricted common stock year ended january 31 2005 shares fair market value 375000 vest two years 2004 company issued 217504 shares common stock related compensation awards 2003 company issue shares common stock options related compensation awards income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely see note 9 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive options purchase 310000 313597 390900 shares excluded weighted average shares 2005 2004 2003 respectively effect antidilutive unearned compensation unearned compensation expense associated issuance restricted stock amortized straightline basis restrictions stock expire stockbased compensation stockbased compensation may accounted either based estimated fair value awards date granted “sfas 123 method” based difference layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 market price stock date grant amount employee must pay acquire stock “apb 25 method” company uses apb 25 method account stockbased compensation programs see notes 14 17 recognized compensation expense method 2005 2004 2003 pro forma net income loss earnings per share 2005 2004 2003 determined sfas 123 method applied presented following table thousands except per share amounts comprehensive loss accumulated balances net income taxes comprehensive loss follows thousands reclassifications certain 2004 2003 amounts reclassified conform 2005 presentation 2 acquisitions october 1 2004 company acquired substantially assets beylik drilling pump service inc “beylik” water drilling business located california cash 13750000 plus acquisition costs 993000 conjunction company’s current california locations acquisition significantly strengthened company’s water resources presence west coast based company’s preliminary allocation purchase price layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 acquisition following effect company’s consolidated financial position thousands assuming beylik acquired beginning period included accompanying consolidated statements income unaudited pro forma consolidated revenues net income continuing operations net income net income per share would follows thousands except per share amounts pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future pro forma results includes adjustments interest expense portion 20000000 additional senior notes issued master shelf agreement fund acquisition depreciation acquisition adjustments related acquired property equipment september 2004 company purchased 75 various gas wells saltwater disposal wells pipeline colt natural gas llc colt pipeline llc affiliates working interest partner consideration purchase company paid approximately 2382000 cash concurrent acquisition company contributed acquired pipeline assets 685000 existing gas gathering assets newly formed pipeline company owned 75 company 25 working interest partner company consolidates newly formed entity accordingly recorded initial minority interest liability 446000 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 april 2004 company acquired remaining 50 working interest oil gas properties including mineral interests held glna llc working interest partner august 2002 development agreement 1000000 cash forgiveness approximately 489000 joint interest receivables partner september april acquisitions company’s expansion energy presence midcontinent region united states acquisitions significant effect company’s results operations cash flows acquisitions following effect company’s consolidated financial position thousands november 10 2003 company acquired certain assets inventory drillcorp tanzania ltd “drillcorp” mineral exploration drilling operation tanzania 3500000 company issued noninterest bearing promissory note 3500000 related entity drillcorp finance acquisition made expand company’s capital equipment resources assist meeting needs recently awarded drilling contracts june 3 2003 company acquired substantially assets mohajir engineering group inc full service engineering geophysical geological consulting firm serving energy industry acquisition significant effect company’s financial position results operations cash flows 2004 acquisitions taken place february 1 2003 pro forma operating results would significantly different reported 2004 acquisitions following effect company’s consolidated financial position thousands 3 investments affiliates company’s investments affiliates carried company’s equity underlying net assets plus additional 4607000 result purchase layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 accounting additional amount amortized lives ranging 20 35 years however amortization ceased effective february 1 2002 upon adoption sfas 142 affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows january 31 2005 may 2004 company entered joint venture nicholson construction company complete construction project company invested 200000 acquire 50 ownership joint venture financial information affiliates reported onemonth lag reporting period summarized financial information affiliates january 31 2005 2004 2003 years ended follows thousands company transactions balances affiliates resulted following amounts included consolidated financial statements january 31 2005 2004 2003 years ended thousands undistributed equity earnings affiliates totaled 4870000 3419000 2820000 january 31 2005 2004 2003 respectively layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 september 2002 company invested joint venture privatelyheld limited partnership develop water storage bank property located california company invested 1059000 acquire 10 ownership joint venture investment accounted using equity method june 2003 company exercised significant influence joint venture management contract june 2003 investment accounted using cost method management contract terminated company longer exercises significant influence joint venture 4 discontinued operations third quarter 2004 company reclassified results operations toledo oil gas “toledo” business discontinued operations toledo historically reported company’s energy segment offered conventional oilfield fishing services coil tubing fishing services see note 16 january 6 2004 company sold toledo operation 2500000 recorded gain sale 57000 net income taxes 30000 year ended january 31 2004 company received 2200000 upon sale additional 300000 february 2004 end contingency period connection sale toledo company recorded contract termination liability longterm lease toledo facilities contract termination liability represents present value rental payments specified lease reduced estimate sublease rentals based market value similar properties company record accretion expense due passage time difference expected lease obligations net sublease rentals present value operations contract termination costs included loss discontinued operations company’s consolidated statements income summary lease liability follows thousands lease obligations 135000 net sublease rentals expected paid remaining term lease extends 2008 january 30 2004 company sold layne christensen canada ltd “layne canada” subsidiary 15914000 layne canada component company’s energy segment see note 16 provided drilling services shallow unconventional oil gas market company recorded gain sale 1652000 net income taxes 994000 year ended january 31 2004 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 december 10 2002 company sold ranney® collector well business reynolds inc 1575000 ranney® business component company’s water resources division see note 16 company recorded gain sale approximately 827000 net income taxes 520000 year ended january 31 2003 january 23 2003 company sold drilling equipment supply inc “desi” division boart longyear 2616000 desi supply operation distributed drilling equipment parts supplies last remaining component company’s products segment see note 16 company recorded loss disposal 850000 net income taxes 535000 year ended january 31 2003 accordance sfas 144 “accounting impairment disposal longlived assets” results operations layne canada toledo ranney® desi classified discontinued operations revenues income loss discontinued operations income taxes 2005 2004 2003 follows thousands effective february 1 2002 company adopted sfas 142 sfas 142 requires upon adoption least annually thereafter goodwill tested impairment applying fair value based test sfas 142 required companies make initial assessment goodwill impairment reporting units within six months adoption company completed initial assessment goodwill second quarter 2003 determined transitional impairment charge required february 1 2002 company 21884000 goodwill recorded consolidated balance sheet consisting primarily goodwill associated mineral exploration segment assessing goodwill company assigned assets liabilities reporting units developed discounted cash flow analysis determine fair value layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 reporting units based model company determined mineral exploration goodwill impaired result company recorded noncash charge 14429000 net income taxes 5796000 cumulative effect change accounting principle february 1 2002 accordance sfas 142 company completed annual impairment test remaining goodwill businesses december 31 2002 impairment indicated connection decision reclassify toledo oil gas business discontinued operations third quarter 2004 company reassessed recoverability goodwill associated business recorded impairment charge 160000 company completed annual impairment test remaining goodwill businesses december 31 2003 2004 impairment indicated carrying amount goodwill attributed operating segment goodwill balances follows thousands 6 income expense income expense consisted following years ended january 31 thousands gain disposal property equipment 2005 relates company’s efforts monetize nonstrategic assets well gains disposals ordinary course business gain disposal property equipment 2004 includes gains approximately 1419000 result company initiative monetize excess property equipment well gains disposals ordinary course business gains reduced 1800000 writedown company’s layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 former christensen products plant reflect current estimates net realizable value 2003 company wholly owned subsidiary layne christensen australia pty limited “layne australia” recognized gain 901000 sale investment gold exploration project africa second quarter 2004 company announced involuntary workforce reductions 189 employees actions primarily necessary align company’s cost structure current market conditions july 31 2003 company notified applicable employees affected actions company recorded severance benefit charges approximately 530000 related actions second quarter 2004 accordance sfas 146 “accounting costs associated exit disposal activities” severance costs recorded company’s consolidated statements income selling general administrative expenses year ended january 31 2004 reconciliation severance costs segment follows thousands january 31 2005 company paid costs associated workforce reductions summary severance costs related activity follows 2004 company also provided termination benefits certain employees exchange employees’ voluntary termination service benefits offered align company’s cost structure current market conditions company recorded charges approximately 714000 selling general administrative expenses consolidated statements income related voluntary termination benefits accordance sfas 88 “employers accounting settlement curtailments defined benefit pension plans termination benefits” layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 8 costs estimated earnings uncompleted contracts thousands company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year income loss continuing operations income taxes follows thousands components income tax expense follows thousands deferred income taxes result temporary differences financial statement tax bases company’s assets liabilities layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 sources differences cumulative tax effects follows thousands company several australian african subsidiaries generated tax losses majority losses utilized reduce company’s federal state income tax liabilities company certain state tax loss carryforwards totaling 12200000 2500000 expire 2013 9000000 expire 2016 700000 expire 2021 january 31 2005 undistributed earnings foreign subsidiaries certain foreign affiliates included 11100000 federal income foreign withholding taxes provided earnings considered invested indefinitely become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 deferred income taxes provided undistributed earnings certain foreign affiliates earnings considered invested indefinitely income taxes foreign withholding taxes also provided dividends received gains recognized sale certain affiliates year reconciliation total income tax expense statutory federal rate follows thousands company’s federal income tax returns years ended january 31 2000 2001 examined january 31 2002 return currently examination internal revenue service “irs” company received notice proposed adjustments january 31 2000 2001 included notice proposed adjustments respect deductions certain nonus subsidiaries based inadvertent failure file election form respect deductions file annual certification statements respect multiple subsidiaries treasury regulations irs discretionary authority grant relief failures make certain types elections taxpayer establish acted reasonably good faith grant relief prejudice interests government company believes relief granted ultimate outcome federal audits result material impact company’s consolidated results operations financial position future minimum rental payments required operating leases initial remaining noncancellable lease terms excess one year january 31 2005 follows thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 operating leases primarily automobiles light trucks office shop facilities rent expense operating leases including insignificant amounts contingent rental payments 11992000 12383000 10632000 2005 2004 2003 respectively company sponsors pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plan substantially equal amounts required maintain qualified status plans contributions intended provide benefits related past current service company effective december 31 2003 company froze pension plan recorded curtailment loss approximately 20000 benefits longer accrued december 31 2003 employees added plan company expects maintain assets plan pay normal benefits accrued december 31 2003 assets plan consist primarily stocks bonds government securities following table sets forth plan’s funded status december 31 2004 2003 measurement dates amounts recognized company’s consolidated balance sheets january 31 2005 2004 thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 amounts recognized company’s consolidated balance sheets january 31 2005 2004 thousands consist net periodic pension cost 2005 2004 2003 includes following components thousands company recognized full amount actuarially determined pension liability related intangible asset applicable unrecognized pension cost recorded charge consolidated stockholders’ equity giving effect related future tax benefit weighted average assumptions used determine benefit obligation net periodic pension cost years ending january 31 2005 2004 2003 follows estimated longterm rate return assets developed based historical returns future expectations returns asset class well target asset allocation pension portfolio benefit level assumptions 2005 2004 2003 based fixed amounts per year credited service percentage fair value total plan assets major category plan assets measurement date follows layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 company’s investment policy includes following asset allocation guidelines effective periods presented asset allocation policy developed consideration following longterm investment objectives achieve longterm inflationadjusted growth asset values investments common stock fixed income obligations minimize risk maintaining allocation cash equivalents manage portfolio conform erisa requirements manage plan assets total return basis maximize total returns consistent appropriate level risk controlled via diversification investments among within asset classes company contracts financial institution provide investment management services full discretion portfolio investments given investment manager subject asset allocation guidelines following additional guidelines • equity securities allowable equity securities include common stocks listed us stock exchange overthecounter common stocks preferred convertible securities equity holdings single issuer aggregate 10 total market value plan • international securities allowable international securities include common stocks preferred stocks warrants convertible securities well government corporate debt securities • mutual funds mutual funds may utilized investments fixed income equity international securities enhance diversification performance • fixed income securities allowable fixed income securities include us treasury securities us agency securities corporate bonds fixed income securities shall rated “a” better time purchase fixed income security shall continue held rating falls “bbb” securities single issuer layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 exception us treasuries agencies aggregate 10 total market value plan fixed income segment portfolio generally intermediate average maturity five ten years maximum permitted maturity individual issue fifteen years company’s policy respect funding qualified pension plan fund least minimum required erisa maximum deductible tax purposes contribution expected required erisa january 1 december 31 2005 plan year company expects calendar year 2005 contributions plan approximately 1000000 estimated benefit payments expected paid next five fiscal years aggregate five fiscal years thereafter follows thousands company also provides supplemental retirement benefits chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent chief executive’s defined contribution plan balance company contribute plan maintain investment assets related expected benefit obligation company recognized full amount actuarially determined pension liability january 31 2005 2004 respectively amounts recognized company’s consolidated balance sheets january 31 2005 2004 1359000 1190000 net periodic pension cost supplemental retirement benefits 2005 2004 2003 include following components thousands company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 1530000 1368000 1316000 2005 2004 2003 respectively information regarding assets accumulated benefits plans made available company’s salaried certain hourly employees participate companysponsored defined contribution plans total expense company’s portion layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 plans 2061000 1576000 1560000 2005 2004 2003 respectively 12 indebtedness july 31 2003 company entered agreement “master shelf agreement” whereby could issue 60000000 unsecured notes upon closing company issued 40000000 notes “senior notes” master shelf agreement senior notes bear fixed interest rate 605 due july 31 2010 annual principal payments 13333000 beginning july 31 2008 proceeds issuance senior notes used refinance borrowings outstanding company’s previous term loan revolving credit facility “previous loan facilities” company issued additional 20000000 notes master shelf agreement october 2004 additional senior notes bear fixed interest rate 540 due september 29 2009 proceeds issuance used finance acquisition beylik drilling pump services inc see note 2 general corporate purposes concurrent signing master shelf agreement company closed new bank revolving credit facility “credit agreement” credit agreement unsecured 30000000 revolving facility used working capital requirements general corporate purposes maximum available credit agreement 30000000 less outstanding letter credit commitments subject 15000000 sublimit credit agreement provides interest variable rates equal company’s option eurodollar rate plus 175 275 depending upon certain ratios alternative reference rate defined credit agreement credit agreement due payable july 31 2006 january 31 2005 10971000 letters credit outstanding credit agreement master shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends certain financial maintenance covenants including among others fixed charge coverage maximum debt calculation earnings interest depreciation taxes minimum tangible net worth minimum asset coverage company compliance covenants january 31 2005 connection refinancing previous loan facilities july 31 2003 company recorded debt extinguishment costs 2320000 costs included prepayment penalty 671000 writeoff deferred loan costs related previous loan facilities 1447000 writeoff unrealized loss company’s interest rate swap 202000 debt extinguishment costs 1135000 recorded july 2002 result refinancing previous credit facility company’s previous floating rate debt exposed changes interest rates september 2002 company entered interest rate swap layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 agreement “swap agreement” required previous loan facilities swap agreement effectively converted portion previous term loan fixed rate basis thus reducing impact interest rate changes upon entering master shelf agreement fixed interest rate contract swap agreement longer qualified hedge accounting gains losses related swap agreement included net company’s consolidated statements income incurred swap agreement terminated september 2004 swap agreement fair market value 127000 january 31 2004 included accrued expenses company’s consolidated balance sheets maximum borrowings outstanding company’s thenexisting credit agreements 2005 2004 2003 64000000 42000000 37000000 respectively average outstanding borrowings 50250000 37838000 30062000 respectively weighted average interest rates 58 57 66 respectively loan costs incurred securing longterm financing amortized using method approximates effective interest method term respective loan agreement amortization costs 2005 2004 2003 61000 205000 345000 respectively amortization loan costs included interest expense consolidated statements income debt outstanding january 31 2005 2004 whose carrying value approximates fair market value follows thousands january 31 2005 debt outstanding mature follows thousands 13 derivatives company’s energy division exposed fluctuations price natural gas entered fixedprice physical delivery collar contracts manage natural gas price risk portion production january 31 2005 company committed deliver 439000 million british thermal units “mmbtu” natural gas october 2005 floor ceiling prices contracts range 630 965 per mmbtu layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 fixedprice physical delivery contracts result physical delivery natural gas result exempt requirements sfas 133 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts estimated fair value contracts january 31 2005 213000 additionally company foreign operations significant costs denominated foreign currencies thus exposed risks associated changes foreign currency exchange rates point time company might use various hedge instruments primarily foreign currency option contracts manage exposures associated forecasted expatriate labor costs purchases operating supplies company enter foreign currency derivative financial instruments speculative trading purposes year company held option contracts hedge risks associated forecasted australian dollar denominated costs african operations january 31 2005 option contracts longer outstanding contracts settled various increments january 2005 aggregate losses 51000 hedging losses recognized 2005 forecasted transactions hedged occurred recorded primarily cost revenues company’s consolidated statements income 14 stock option plans october 1998 company adopted rights agreement whereby company authorized declared dividend one preferred share purchase right “right” outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 25 company’s common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 4500 company entitled redeem right 01 per right time person acquired 25 company’s outstanding common stock rights expire 10 years date grant company reserved 750000 shares common stock issuance employee incentive compensation plans issuance shares plans based performance determined annually committee appointed company’s board directors company also stock option plans provide granting options purchase aggregate 1250000 shares common stock price fixed board directors committee january 31 2005 476231 shares available granted plans significant option groups outstanding january 31 2005 related weighted average price life information follows layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 options granted exercise price equal fair market value company’s common stock date grant options terms five ten years date grant vest ratably periods four five years purposes pro forma disclosure weighted average fair value date grant options granted 2005 909 per option options granted 2004 2003 fair value options date grant estimated using blackscholes model fair values based expected life years equal full option term dividend yield weighted average interest rate 40 assumed volatility 37 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 15 contingencies company’s drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice “turnkey” basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance respect foreign operations company involved various matters litigation claims disputes arisen ordinary course company’s business resolution matters may impact financial results period matter resolved company believes ultimate disposition matters aggregate material adverse effect upon business consolidated financial position results operations cash flows 16 operating segments foreign operations company multinational company provides sophisticated services related products variety markets management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices’ division example water resources division office performed geoconstruction services revenues would recorded water resources division rather geoconstruction division office’s primary responsibility move one division president another office’s results going forward would reclassified divisions time company’s reportable segments defined follows layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 water resources division provides full line waterrelated services products including hydrological studies site selection well design drilling well development pump installation repair maintenance division’s offerings include design construction water treatment facilities manufacture sale products treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental services assess monitor groundwater contaminants effective february 1 2003 company’s ground freezing services included division prospective basis due change reporting responsibility mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods geoconstruction division focuses services improve soil stability primarily jet grouting vibratory ground improvement drilled micropiles stone columns anchors tiebacks division also manufactures line highpressure pumping equipment used grouting operations geotechnical drilling rigs used directional drilling effective february 1 2003 division longer includes company’s ground freezing services due change reporting responsibility energy division primarily focuses exploration production coalbed methane “cbm” properties united states date concentrated projects midcontinent region united states historically division also included service businesses shallow gas tar sands exploration drilling conventional oilfield fishing services coil tubing fishing services fiscal 2004 division’s strategy shifted focus mainly resource development rather providing services external customers accordingly january 2004 company sold canadian drilling unit ensign drilling oilfield fishing services smith international results operations units reclassified discontinued operations years presented see note 4 division composed company’s cbm development activities two small specialty energy service companies products grouping historically included company’s supply operation distributed drilling equipment parts supplies manufacturing operation layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 producing diamond drilling rigs diamond bits core barrels drill rods “christensen products” miscellaneous operations fall divisions january 23 2003 company sold supply operation boart longyear upon sale results operations reclassified discontinued operations see note 4 august 8 2001 company sold christensen products business subsidiary atlas copco financial information thousands company’s operating segments presented intersegment revenues accounted based fair market value services provided unallocated corporate expenses primarily consist general administrative functions previously unallocated corporate expenses included incentive compensation expenses divisionlevel personnel however beginning second quarter fiscal 2005 incentive compensation allocated segments reflect change evaluation divisional performance periods presented reclassified conform current presentation corporate assets company directly associated operating segment consist primarily cash deferred income taxes layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 loss continuing operations energy segment 2003 includes 815000 expenses related company’s energy exploration activities gulf mexico region united states expenses incurred 2005 2004 activities unrelated company’s coalbed methane exploration development efforts charged expense reserves identified company longer pursuing exploration activities 17 new accounting pronouncements financial accounting standards board issued several statements effective current year effective future years april 30 2004 fasb staff issued fasb staff position fsp fas 1411 fas 1421 amends fasb statement 141 “business combinations” 142 “goodwill intangible assets” fsp clarifies mineral rights oil gas properties classified tangible assets amendment effective first reporting period beginning april 29 2004 adoption amendment significant impact company’s results operations financial position company’s mineral interests oil gas properties recorded tangible assets september 2004 securities exchange commission issued staff accounting bulletin 106 “sab 106” regarding application fasb statement 143 “accounting asset retirement obligations” “sfas 143” oil gas producing companies following full cost accounting method sab 106 provides interpretive responses related 1 computing full cost ceiling avoid doublecounting expected future outflows associated asset retirement obligations 2 required disclosures relating interaction sfas 143 full cost rules 3 impact sfas 143 calculation depreciation amortization sab 106 effective beginning first fiscal quarter beginning october 4 2004 adoption sab 106 significant impact company’s results operations financial position december 2004 fasb issued sfas 123r revised december 2004 “sharebased payment” requires recognition sharebased payments financial statements establishes fairvalue measurement associated costs sfas 123r effective third quarter fiscal 2006 company currently evaluating impact results operations financial position december 2004 fasb issued sfas 151 “inventory costs amendment arb 43 chapter 4” sfas 151 clarifies allocation fixed production overhead inventory based normal capacity abnormal amounts idle facility excess freight handling costs spoilage recognized current period charge sfas 151 effective january 1 2006 expected significant impact results operations financial position company layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 18 quarterly results unaudited quarterly financial data follows thousands dollars except per share data layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 supplemental information oil gas producing activities unaudited company’s oil gas activities conducted united states see note 1 additional information regarding company’s oil gas properties capitalized costs related oil gas producing activities capitalized costs associated depreciation depletion amortization relating oil gas producing activities follows january 31 2005 2004 2003 thousands unproved oil gas property mineral interest costs january 31 2005 totaled 4793000 1858000 respectively unevaluated mineral interest costs excluded depreciation depletion amortization january 31 2005 2004 totaled 1858000 1433000 respectively company produce coalbed methane gas fiscal 2003 capitalized costs associated depreciation relating gas transportation facilities equipment follows january 31 2005 2004 thousands costs incurred oil gas producing activities capitalized costs incurred oil gas producing activities follows 2005 2004 2003 thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 capitalized costs incurred 2005 include acquisition costs 1728000 associated purchase various gas saltwater disposal wells working interest partner september 2004 acquisition costs 1489000 associated purchase oil gas properties mineral interests held working interest partner april 2004 see note 2 additional information regarding acquisitions capitalized costs incurred gas transportation facilities equipment 2005 2004 totaled 4146000 2259000 respectively results operations oil gas producing activities results operations relating oil gas producing activities set forth following table years ended january 31 2005 2004 thousands includes revenues operating costs directly attributable oil gas producing activities results operations gas transportation facilities equipment activities general corporate overhead non oil gas producing activities excluded production natural gas wells sold company’s pipeline operation turn sells gas primarily gas marketing firms income tax expense calculated applying statutory tax rates revenues deducting costs include depreciation depletion amortization allowances proved oil gas reserve quantities proved gas reserve quantities january 31 2005 based estimates prepared company’s engineers accordance rule 410 regulation sx reserve quantities prepared independent petroleum engineers cawley gillespie associates inc company’s reserves located within united states due early stages completion company’s projects company sufficient production information reserves could established earlier periods proved gas reserves estimated quantities natural gas geological engineering data demonstrate reasonable certainty recovered future years known reservoirs existing economic layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2005 2004 2003 operating conditions proved developed reserves expected recovered existing wells existing equipment operating methods company cautions many inherent uncertainties estimating quantities proved reserves projecting future rates production timing development expenditures accordingly estimates likely change future information becomes available estimated quantities proved developed total proved reserves natural gas january 31 2005 follows mmcf standardized measure discounted future net cash flows relating proved oil gas reserve quantities future cash inflows based yearend gas prices without escalation future production development costs represent estimated future expenditures incurred developing producing proved reserves assuming continuation existing economic conditions future income tax expense computed applying statutory rates less estimated tax credits difference pretax cash flows relating company’s estimated proved reserves tax basis proved properties information purport present fair market value company’s natural gas assets present standardized disclosure concerning possible future net cash flows would result assumptions used following table sets forth unaudited information concerning future net cash flows natural gas reserves net income tax expense thousands schedule ii layne christensen company subsidiaries valuation qualifying accounts thousands item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules omitted applicable required information included consolidated financial statements company notes thereto statement management responsibility consolidated financial statements layne christensen company subsidiaries “company” prepared conformity accounting principles generally accepted united states integrity objectivity data financial statements responsibility management information included annual report form 10k management believes information presented annual report consistent financial statements financial statements contain material misstatements due fraud error appropriate financial statements reflect management’s best estimates judgments management also responsible maintaining system internal accounting controls objectives providing reasonable assurance company’s assets safeguarded material loss unauthorized use disposition authorized transactions properly recorded permit preparation accurate financial data however limitations exist system internal controls based recognition cost system exceed benefits company believes system accounting controls internal auditing function integral part accomplishes stated objectives audit committee board directors composed outside directors meets periodically management company’s independent accountants internal auditors review matters related company’s financial statements internal audit activities internal accounting controls nonaudit services provided independent accountants independent accountants internal auditors full access audit committee meet without management present discuss scope results audits including internal controls audit financial matters sandrew b schmitt sjerry w fanska andrew b schmitt jerry w fanska president chief senior vice president chief executive officer financial officer report independent registered public accounting firm board directors stockholders layne christensen company mission woods kansas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2006 2005 related consolidated statements income stockholders’ equity cash flows three years period ended january 31 2006 audits also included financial statement schedule listed index item 8 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2006 2005 results operations cash flows three years period ended january 31 2006 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states effectiveness company’s internal control financial reporting january 31 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated april 14 2006 expressed unqualified opinion management’s assessment effectiveness company’s internal control financial reporting unqualified opinion effectiveness company’s internal control financial reporting sdeloitte touche llp deloitte touche llp kansas city missouri april 14 2006 layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders’ equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows see notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “company” provide drilling construction services related products three principal markets water resources mineral exploration geoconstruction well producer unconventional natural gas energy market four primary operating divisions see note 16 company operates throughout north america well africa australia europe customers include municipalities investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies lesser extent agribusiness mineral exploration company ownership interest certain foreign affiliates operating south america facilities chile peru see note 3 fiscal year references years fiscal years ended investment affiliated companies investments affiliates 20 50 owned company ability exercise significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions eliminated financial information company’s affiliates certain foreign subsidiaries reported company’s consolidated financial statements onemonth lag reporting periods use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities company’s mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency translate monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses translated historical rates gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate weighted average rates prevailing year translation adjustments reported separate component accumulated comprehensive loss net foreign currency transaction losses 2006 2005 2004 290000 342000 232000 respectively revenue recognition revenue recognized large longterm contracts using percentage completion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues gross profit reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined revenue recognized smaller shortterm contracts using completed contract method provisions estimated losses uncompleted contracts made period losses determined inventories company values inventories lower cost firstin firstout market allowances recorded inventory considered excess obsolete inventories consist primarily parts supplies property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 18003000 13561000 11847000 2006 2005 2004 respectively lives used items within property classification follows oil gas properties mineral interests company follows fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized depletion expense 2021000 880000 30000 2006 2005 2004 respectively company required review carrying value oil gas properties quarter full cost accounting rules sec rules capitalized costs proved oil gas properties adjusted asset retirement obligations may exceed present value estimated future net revenues proved reserves discounted 10 application ceiling test generally requires pricing future revenue unescalated prices effect last day quarter effect given company’s fixedprice physical delivery natural gas contracts requires writedown accounting purposes ceiling exceeded unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows reserve estimates company’s estimates natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill intangibles company accounts goodwill intangible assets accordance statement financial accounting standards 142 goodwill intangible assets intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized estimated useful lives range two 40 years impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions impairment longlived assets balance sheet date circumstances indicate necessary determination made management whether value longlived assets including assets disposed impaired determination based several criteria including limited revenue trends undiscounted operating cash flows operating factors accrued insurance expense costs estimated incurred future employee medical benefits property casualty insurance programs resulting claims incurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies see note 15 fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2006 2005 relatively short maturity instruments see note 12 disclosure regarding fair value indebtedness company litigation contingencies company involved litigation incidental business disposition expected material effect company’s business financial position results operations cash flows possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation outside counsel handling matters based upon combination litigation settlement strategies extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change derivatives company follows sfas 133 “accounting derivative instruments hedging activities” “sfas 133” amended requires derivative financial instruments recorded balance sheet fair value establishes criteria designation effectiveness hedging relationships sfas 133 company accounts unrealized hedges forecasted costs cash flow hedges changes fair value effective portion hedge contracts material recorded accumulated comprehensive income stockholders’ equity changes fair value effective portion hedge contracts recognized accumulated comprehensive income hedged item recognized operations ineffective portion derivatives change fair value immediately recognized operations addition company entered fixedprice natural gas contracts manage fluctuations price natural gas contracts result company physically delivering gas result exempt requirements sfas 133 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts see note 13 disclosure regarding fair value derivative instruments company enter derivative financial instruments speculative trading purposes consolidated statements cash flows highly liquid investments original maturity three months less time purchase considered cash equivalents amounts paid income taxes interest follows supplemental noncash transactions connection beylik acquisition see note 2 company issued 24576 shares restricted common stock year ended january 31 2005 shares fair market value 375000 vest two years 2004 company issued 217504 shares common stock related compensation awards connection reynolds acquisition see note 2 company issued 2222216 shares common stock year ended january 31 2006 shares valued 45053000 based upon fiveday average closing price stock two days two days terms acquisition agreed publicly announced income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely see note 9 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive options purchase 460231 310000 313597 shares excluded weighted average shares 2006 2005 2004 respectively effect antidilutive unearned compensation unearned compensation expense associated issuance restricted stock amortized straightline basis restrictions stock expire stockbased compensation stockbased compensation may accounted either based estimated fair value awards date granted “sfas 123 method” based difference market price stock date grant amount employee must pay acquire stock “apb 25 method” company uses apb 25 method account stockbased compensation programs see notes 14 17 recognized compensation expense method 2006 2005 2004 pro forma net income earnings per share 2006 2005 2004 determined sfas 123 method applied presented following table comprehensive loss accumulated balances net income taxes comprehensive loss follows reclassifications certain 2005 2004 amounts reclassified conform 2006 presentation 2 acquisitions september 28 2005 “closing date” company acquired 100 outstanding stock reynolds inc “reynolds” privately held company major supplier products services water wastewater industries acquisition expand capabilities company’s water resources division areas water wastewater infrastructure reynolds’ primary service lines include design building water wastewater treatment plants water wastewater transmission lines cured place pipe “cipp” services sewer rehabilitation water supply wells ranney collector wells purchase price reynolds 112356000 consisting 60000000 cash 2222216 shares layne common stock valued 45053000 cash purchase price adjustments 6120000 paid future periods costs 1183000 layne common stock valued transaction based upon fiveday average closing price stock two days two days terms acquisition agreed publicly announced cash purchase price adjustments consist primarily adjustment paid based amount working capital closing date exceeded threshold amount established purchase agreement amount paid reynolds shareholders based collection certain contract retainage amounts beginning twenty four months following closing date cash stock consideration 9000000 333333 shares layne common stock placed escrow secure certain representations warranties indemnifications purchase agreement “escrow fund” escrow fund released reynolds shareholders twenty four months following closing date subject pending claims cash portion escrow fund related obligation reynolds’ shareholders recorded company’s consolidated balance sheet “restricted cash” “acquisition escrow obligation” addition contingent consideration maximum 15000000 “earnout amount” based reynolds operating performance period thirtysix months following closing date “earnout period” earnout payment based multiple reynolds’ earnings interest taxes depreciation amortization exceed threshold amount earnout period earned contingent payment paid 60 cash 40 layne common stock subject stockholder approval shares issued required shares approved issuance paid cash portion earnout amount ultimately paid accounted additional purchase consideration purchase price allocated based fair value assets liabilities acquired determined based reynolds’ historical cost basis assets liabilities appraisals analyses amounts may subject revision reynolds integrated company revisions may significant recorded company adjustments purchase price allocation based company’s allocation purchase price acquisition following effect company’s consolidated financial position results operations reynolds included company’s consolidated statements income closing date assuming reynolds acquired beginning period unaudited pro forma consolidated revenues net income continuing operations net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future october 2005 company purchased remaining 25 working interest various gas wells saltwater disposal wells pipeline colt natural gas llc colt pipeline llc “colt” affiliates working interest partner 6149000 cash additional 257000 payable company upon satisfaction certain conditions colt acquisition furthers company’s expansion energy presence midcontinent region united states acquisition significant effect company’s results operations cash flows following effect company’s consolidated financial position company made two acquisitions march june 2005 broaden membrane technologies capabilities total purchase price acquisitions 453000 consisted cash payments 359000 note payable shareholder one entities acquisitions significant effect company’s results operations cash flows following effect company’s consolidated financial position october 1 2004 company acquired substantially assets beylik drilling pump service inc “beylik” water drilling business located california cash 13750000 plus acquisition costs 993000 conjunction company’s current california locations acquisition significantly strengthened company’s water resources presence west coast based company’s allocation purchase price acquisition following effect company’s consolidated financial position september 2004 company purchased 75 various gas wells saltwater disposal wells pipeline colt consideration purchase company paid approximately 2382000 cash concurrent acquisition company contributed acquired pipeline assets 685000 existing gas gathering assets newly formed pipeline company owned 75 company 25 working interest partner company consolidated newly formed entity accordingly recorded initial minority interest liability 446000 april 2004 company acquired remaining 50 working interest oil gas properties including mineral interests held glna llc working interest partner august 2002 development agreement 1000000 cash forgiveness approximately 489000 joint interest receivables partner september april acquisitions furthered company’s expansion energy presence midcontinent region united states acquisitions significant effect company’s results operations cash flows following effect company’s consolidated financial position 3 investments affiliates company’s investments affiliates carried company’s equity underlying net assets plus additional 4607000 result purchase accounting additional amount amortized lives ranging 20 35 years however amortization ceased effective february 1 2002 upon adoption sfas 142 affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows january 31 2006 may 2004 company entered corporate joint venture nicholson construction company complete construction project company invested 200000 acquire 50 ownership joint venture financial information affiliates reported onemonth lag reporting period summarized financial information affiliates january 31 2006 2005 2004 years ended follows company transactions balances affiliates resulted following amounts included consolidated financial statements january 31 2006 2005 2004 years ended undistributed equity earnings affiliates totaled 7096000 4870000 3419000 january 31 2006 2005 2004 respectively september 2002 company invested joint venture privatelyheld limited partnership develop water storage bank property located california company invested 1059000 acquire 10 ownership joint venture investment accounted using equity method june 2003 company exercised significant influence joint venture management contract june 2003 investment accounted using cost method management contract terminated company longer exercised significant influence joint venture investment sold october 2005 resulting gain 1289000 recorded “other income” statement income 4 discontinued operations third quarter fiscal 2004 company reclassified results operations toledo oil gas “toledo” business discontinued operations toledo historically reported company’s energy segment offered conventional oilfield fishing services coil tubing fishing services january 6 2004 company sold toledo operation 2500000 recorded gain sale 57000 net income taxes 30000 year ended january 31 2004 company received 2200000 upon sale additional 300000 february 2004 end contingency period accordance sfas 144 “accounting impairment disposal longlived assets” results operations layne canada toledo classified discontinued operations revenues income loss discontinued operations income taxes 2006 2005 2004 follows 5 goodwill intangible assets goodwill intangible assets consist following january 31 amortizable intangible assets amortized estimated useful lives two 40 years weighted average amortization period 30 years total amortization expense intangible assets 387000 43000 28000 2006 2005 2004 respectively aggregate amortization expense january 31 2006 747000 amortization expense subsequent five fiscal years estimated follows carrying amount goodwill attributed operating segment goodwill balances follows 6 income expense income expense consisted following years ended january 31 gains disposals property equipment 2006 2005 relate company’s efforts monetize nonstrategic assets well gains disposals ordinary course business october 2005 company sold investment joint venture develop water bank gain 1289000 see note 3 gain disposal property equipment 2004 includes gains approximately 1419000 result company initiative monetize excess property equipment well gains disposals ordinary course business gains reduced 1800000 writedown company’s former christensen products plant reflect current estimates net realizable value 7 severance costs second quarter 2004 company announced involuntary workforce reductions 189 employees actions primarily necessary align company’s cost structure current market conditions july 31 2003 company notified applicable employees affected actions company recorded severance benefit charges approximately 530000 related actions second quarter 2004 accordance sfas 146 “accounting costs associated exit disposal activities” severance costs recorded company’s consolidated statements income selling general administrative expenses year ended january 31 2004 reconciliation severance costs segment follows january 31 2006 company paid costs associated workforce reductions 2004 company also provided termination benefits certain employees exchange employees’ voluntary termination service benefits offered align company’s cost structure current market conditions company recorded charges approximately 714000 selling general administrative expenses consolidated statements income related voluntary termination benefits accordance sfas 88 “employers accounting settlement curtailments defined benefit pension plans termination benefits” 8 costs estimated earnings uncompleted contracts company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year january 31 2006 2005 company held unbilled contract retainage amounts 19350000 3410000 respectively 9 income taxes income loss continuing operations income taxes follows components income tax expense follows deferred income taxes result temporary differences financial statement tax bases company’s assets liabilities sources differences cumulative tax effects follows company several australian african subsidiaries generated tax losses majority losses utilized reduce company’s federal state income tax liabilities company certain state tax loss carryforwards totaling 3800000 expire 2013 2021 company alternative minimum tax amt credit carried forward reduce federal taxes future years carryforward period unlimited january 31 2006 undistributed earnings foreign subsidiaries certain foreign affiliates included 12500000 federal income foreign withholding taxes provided earnings considered invested indefinitely become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign affiliates earnings considered invested indefinitely income taxes foreign withholding taxes also provided dividends received gains recognized sale certain affiliates year reconciliation total income tax expense statutory federal rate follows company’s federal income tax returns years ended january 31 2000 2001 examined january 31 2002 2003 returns currently examination internal revenue service “irs” company received notices proposed adjustment respect losses certain nonus subsidiaries adjustments resulted inadvertent failure file election form respect losses annual certification statements respect multiple subsidiaries company recently obtained favorable private letter ruling irs granting extension time file election certification forms accordingly proposed adjustments withdrawn additionally company routinely involved state local foreign jurisdiction income tax audits expected material effect company’s consolidated financial statements 10 operating leases future minimum rental payments required operating leases initial remaining noncancellable lease terms excess one year january 31 2006 follows operating leases primarily automobiles light trucks office shop facilities rent expense operating leases including insignificant amounts contingent rental payments 14603000 11992000 12383000 2006 2005 2004 respectively 11 employee benefit plans company sponsors pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plan substantially equal amounts required maintain qualified status plans contributions intended provide benefits related past current service company effective december 31 2003 company froze pension plan recorded curtailment loss approximately 20000 benefits longer accrued december 31 2003 employees added plan company expects maintain assets plan pay normal benefits accrued december 31 2003 assets plan consist primarily stocks bonds government securities following table sets forth plan’s funded status december 31 2005 2004 measurement dates amounts recognized company’s consolidated balance sheets january 31 2006 2005 amounts recognized company’s consolidated balance sheets january 31 2006 2005 consist net periodic pension cost 2006 2005 2004 includes following components company recognized full amount actuarially determined pension liability related intangible asset applicable unrecognized pension cost recorded charge consolidated stockholders’ equity giving effect related future tax benefit weighted average assumptions used determine benefit obligation net periodic pension cost years ending january 31 2006 2005 2004 follows estimated longterm rate return assets developed based historical returns future expectations returns asset class well target asset allocation pension portfolio benefit level assumptions 2006 2005 2004 based fixed amounts per year credited service percentage fair value total plan assets major category plan assets measurement date follows company’s investment policy includes following asset allocation guidelines effective periods presented asset allocation policy developed consideration following longterm investment objectives achieve longterm inflationadjusted growth asset values investments common stock fixed income obligations minimize risk maintaining allocation cash equivalents manage portfolio conform erisa requirements manage plan assets total return basis maximize total returns consistent appropriate level risk controlled via diversification investments among within asset classes company contracts financial institution provide investment management services full discretion portfolio investments given investment manager subject asset allocation guidelines following additional guidelines • equity securities allowable equity securities include common stocks listed us stock exchange overthecounter common stocks preferred convertible securities equity holdings single issuer aggregate 10 total market value plan • international securities allowable international securities include common stocks preferred stocks warrants convertible securities well government corporate debt securities • mutual funds mutual funds may utilized investments fixed income equity international securities enhance diversification performance • fixed income securities allowable fixed income securities include us treasury securities us agency securities corporate bonds fixed income securities shall rated “a” better time purchase fixed income security shall continue held rating falls “bbb” securities single issuer exception us treasuries agencies aggregate 10 total market value plan fixed income segment portfolio generally intermediate average maturity five ten years maximum permitted maturity individual issue fifteen years company’s policy respect funding qualified pension plan fund least minimum required erisa maximum deductible tax purposes contribution expected required erisa january 1 december 31 2006 plan year company expects calendar year 2006 contributions plan approximately 1000000 estimated benefit payments expected paid next five fiscal years aggregate five fiscal years thereafter follows company also provides supplemental retirement benefits chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent chief executive’s defined contribution plan balance company contribute plan maintain investment assets related expected benefit obligation company recognized full amount actuarially determined pension liability january 31 2006 2005 respectively amounts recognized company’s consolidated balance sheets january 31 2006 2005 1554000 1359000 net periodic pension cost supplemental retirement benefits 2006 2005 2004 include following components company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 2009000 1530000 1368000 2006 2005 2004 respectively information regarding assets accumulated benefits plans made available company’s salaried certain hourly employees participate companysponsored defined contribution plans total expense company’s portion plans 2588000 2061000 1576000 2006 2005 2004 respectively january 2006 company initiated deferred compensation plan certain management employees participants may elect defer 25 salaries beginning january 2007 50 bonuses plan company matching contributions vesting period contributions established discretion company employee deferrals vested times total amount deferred including company matching 2006 59000 12 indebtedness july 31 2003 company entered agreement “master shelf agreement” whereby could issue 60000000 unsecured notes upon closing company issued 40000000 notes “series senior notes” master shelf agreement series senior notes bear fixed interest rate 605 due july 31 2010 annual principal payments 13333000 beginning july 31 2008 proceeds issuance used refinance borrowings outstanding company’s previous term loan revolving credit facility company issued additional 20000000 notes master shelf agreement october 2004 “series b senior notes” series b senior notes bear fixed interest rate 540 due september 29 2011 annual principal payments 6667000 beginning september 29 2009 proceeds issuance used finance acquisition beylik general corporate purposes concurrent acquisition reynolds company amended master shelf agreement increase amount senior notes available issued 60000000 100000000 thus creating available facility amount 40000000 reinstated extended available issuance period september 15 2007 also concurrent acquisition reynolds company expanded existing revolving credit facility lasalle bank national association administrative agent group additional banks entering amended restated loan agreement “credit agreement” lasalle bank national association administrative agent lender “administrative agent” lenders listed therein “lenders” increased company’s revolving loan commitment 40000000 130000000 less outstanding letter credit commitments subject 30000000 sublimit approximately 80 million facility used pay cash portion acquisition reynolds refinance outstanding borrowings previous credit agreement credit agreement provides interest variable rates equal company’s option libor rate plus 100 200 base rate defined credit agreement plus 050 depending upon company’s leverage ratio credit agreement unsecured due payable september 24 2010 january 31 2006 letters credit 8926000 borrowings 68900000 outstanding credit agreement resulting available capacity 52174000 master shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends certain financial maintenance covenants including among others fixed charge coverage maximum debt ebitda minimum tangible net worth company compliance covenants january 31 2006 connection refinancing previous loan facilities july 31 2003 company recorded debt extinguishment costs 2320000 costs included prepayment penalty 671000 writeoff deferred loan costs related previous loan facilities 1447000 writeoff unrealized loss company’s interest rate swap 202000 debt extinguishment costs 1135000 recorded july 2002 result refinancing previous credit facility maximum borrowings outstanding company’s thenexisting credit agreements 2005 2004 64000000 42000000 respectively average outstanding borrowings 50250000 37838000 respectively weighted average interest rates 58 57 respectively loan costs incurred securing longterm financing amortized using method approximates effective interest method term respective loan agreement amortization costs 2006 2005 2004 96000 61000 205000 respectively amortization loan costs included interest expense consolidated statements income debt outstanding january 31 2006 2005 whose carrying value approximates fair market value follows january 31 2006 debt outstanding mature follows 13 derivatives company’s energy division exposed fluctuations price natural gas entered fixedprice physical delivery contracts manage natural gas price risk portion production january 31 2006 company committed deliver 1836000 million british thermal units “mmbtu” natural gas march 2007 prices contracts range 772 965 per mmbtu fixedprice physical delivery contracts result physical delivery natural gas result exempt requirements sfas 133 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts estimated fair value contracts january 31 2006 2337000 additionally company foreign operations significant costs denominated foreign currencies thus exposed risks associated changes foreign currency exchange rates point time company might use various hedge instruments primarily foreign currency option contracts manage exposures associated forecasted expatriate labor costs purchases operating supplies company enter foreign currency derivative financial instruments speculative trading purposes year company held option contracts hedge risks associated forecasted australian dollar denominated costs african operations january 31 2006 option contracts longer outstanding contracts settled various increments january 2006 aggregate losses 127000 hedging losses recognized 2006 forecasted transactions hedged occurred recorded primarily cost revenues company’s consolidated statements income 14 stock option plans october 1998 company adopted rights agreement whereby company authorized declared dividend one preferred share purchase right “right” outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 25 company’s common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 4500 company entitled redeem right 01 per right time person acquired 25 company’s outstanding common stock rights expire 10 years date grant company reserved 750000 shares common stock issuance employee incentive compensation plans issuance shares plans based performance determined annually committee appointed company’s board directors company also stock option plans provide granting options purchase aggregate 1250000 shares common stock price fixed board directors committee january 31 2006 shares available granted plans significant option groups outstanding january 31 2006 related price life information follows options granted exercise price equal fair market value company’s common stock date grant options terms five ten years date grant generally vest ratably periods four five years purposes pro forma disclosure weighted average fair value date grant options granted 2006 2005 1047 909 per option respectively fair value options date grant estimated using blackscholes model fair values based expected life ranging six ten years dividend yield weighted average interest rate 397 46 assumed volatility 34 15 contingencies company’s drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice “turnkey” basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance respect foreign operations company involved various matters litigation claims disputes arisen ordinary course company’s business company believes ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows 16 operating segments foreign operations company multinational company provides sophisticated services related products variety markets well producer unconventional natural gas energy market management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices’ division example water resources division office performed geoconstruction services revenues would recorded water resources division rather geoconstruction division office’s primary responsibility move one division president another office’s results going forward would reclassified divisions time company’s reportable segments defined follows water resources division provides full line waterrelated services products including hydrological studies site selection well design drilling well development pump installation repair maintenance division’s offerings include design construction water treatment facilities manufacture sale products treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental services assess monitor groundwater contaminants acquisition reynolds september 2005 division expanded capabilities area design build water wastewater treatment plants ranney collector wells sewer rehabilitation water wastewater transmission lines mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods geoconstruction division focuses services improve soil stability primarily jet grouting vibratory ground improvement drilled micropiles stone columns anchors tiebacks division also manufactures line highpressure pumping equipment used grouting operations geotechnical drilling rigs used directional drilling energy division focuses entirely exploration production unconventional gas properties united states date division concentrated projects midcontinent region united states historically division also included service businesses shallow gas tar sands exploration drilling conventional oilfield fishing services coil tubing fishing services fiscal 2004 division’s strategy shifted focus mainly resource development rather providing services external customers accordingly january 2004 company sold canadian drilling unit ensign drilling oilfield fishing services smith international results operations units reclassified discontinued operations years presented see note 4 notes consolidated financial statements fiscal 2006 division completed shift focus unconventional gas development activities reclassified results two small specialty energy service companies “other” division includes two small specialty energy service companies previously classified energy division specialty operations included one divisions financial information thousands company’s operating segments presented intersegment revenues accounted based fair market value services provided unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer general counsel board directors periods presented reclassified conform current presentation corporate assets company directly associated operating segment consist primarily cash deferred income taxes assets associated discontinued operations 17 new accounting pronouncements financial accounting standards board issued several statements effective current year effective future years december 2004 fasb issued sfas 123r revised december 2004 “sharebased payment” requires recognition sharebased payments financial statements establishes fairvalue measurement associated costs sfas 123r effective first quarter fiscal 2007 company elected use modified prospective application method based current outstanding options company expects recognize approximately 1800000 expense 2007 december 2004 fasb issued sfas 151 “inventory costs amendment arb 43 chapter 4” sfas 151 clarifies allocation fixed production overhead inventory based normal capacity abnormal amounts idle facility excess freight handling costs spoilage recognized current period charge sfas 151 effective february 1 2006 expected significant impact results operations financial position company 18 quarterly results unaudited quarterly financial data follows supplemental information oil gas producing activities unaudited company’s oil gas activities conducted united states see note 1 additional information regarding company’s oil gas properties capitalized costs related oil gas producing activities capitalized costs associated depreciation depletion amortization relating oil gas producing activities follows january 31 2006 2005 2004 unproved oil gas property mineral interest costs january 31 2006 totaled 5524000 2926000 respectively unevaluated mineral interest costs excluded depreciation depletion amortization january 31 2006 2005 totaled 2926000 1858000 respectively capitalized costs associated depreciation relating gas transportation facilities equipment follows january 31 2006 2005 2004 cost incurred oil gas producing activities capitalized costs incurred oil gas producing activities follows 2006 2005 2004 capitalized costs incurred 2005 include acquisition costs 1728000 associated purchase various gas saltwater disposal wells working interest partner september 2004 acquisition costs 1489000 associated purchase oil gas properties mineral interests held working interest partner april 2004 see note 2 additional information regarding acquisitions capitalized costs incurred gas transportation facilities equipment 2006 2005 2004 totaled 6570000 3014000 2259000 respectively results operations oil gas producing activities results operations relating oil gas producing activities set forth following table years ended january 31 2006 2005 2004 includes revenues operating costs directly attributable oil gas producing activities results operations gas transportation facilities equipment activities general corporate overhead non oil gas producing activities excluded production natural gas wells sold company’s pipeline operation turn sells gas primarily gas marketing firms income tax expense calculated applying statutory tax rates revenues deducting costs include depreciation depletion amortization allowances proved oil gas reserve quantities proved gas reserve quantities january 31 2006 2005 based estimates prepared company’s engineers accordance rule 410 regulation sx reserve quantities prepared independent petroleum engineers cawley gillespie associates inc company’s reserves located within united states due early stages completion company’s projects company sufficient production information reserves could established earlier periods proved gas reserves estimated quantities natural gas geological engineering data demonstrate reasonable certainty recovered future years known reservoirs existing economic operating conditions proved developed reserves expected recovered existing wells existing equipment operating methods company cautions many inherent uncertainties estimating quantities proved reserves projecting future rates production timing development expenditures accordingly estimates likely change future information becomes available estimated quantities total proved developed reserves natural gas follows standardized measure discounted future net cash flows relating proved oil gas reserve quantities future cash inflows based yearend gas prices without escalation future production development costs represent estimated future expenditures incurred developing producing proved reserves assuming continuation existing economic conditions future income tax expense computed applying statutory rates pretax cash flows relating company’s estimated proved reserves difference book tax basis proved properties information purport present fair market value company’s natural gas assets present standardized disclosure concerning possible future net cash flows would result assumptions used following table sets forth unaudited information concerning future net cash flows natural gas reserves net income tax expense principal sources change standardized measure discounted future net cash flows layne christensen company subsidiaries schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules layne christensen company subsidiaries schedules omitted applicable required information included consolidated financial statements company notes thereto statement management responsibility consolidated financial statements layne christensen company subsidiaries “company” prepared conformity accounting principles generally accepted united states integrity objectivity data financial statements responsibility management information included annual report form 10k management believes information presented annual report consistent financial statements financial statements contain material misstatements due fraud error appropriate financial statements reflect management’s best estimates judgments management also responsible maintaining system internal accounting controls objectives providing reasonable assurance company’s assets safeguarded material loss unauthorized use disposition authorized transactions properly recorded permit preparation accurate financial data however limitations exist system internal controls based recognition cost system exceed benefits company believes system accounting controls internal auditing function integral part accomplishes stated objectives audit committee board directors composed outside directors meets periodically management company’s independent accountants internal auditors review matters related company’s financial statements internal audit activities internal accounting controls nonaudit services provided independent accountants independent accountants internal auditors full access audit committee meet without management present discuss scope results audits including internal controls audit financial matters sa b schmitt sjerry w fanska andrew b schmitt jerry w fanska president chief senior vice president chief executive officer financial officer report independent registered public accounting firm board directors stockholders layne christensen company mission woods kansas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2007 2006 related consolidated statements income stockholders’ equity cash flows three years period ended january 31 2007 audits also included financial statement schedule listed index item 8 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2007 2006 results operations cash flows three years period ended january 31 2007 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed method accounting sharebased compensation upon adoption statement financial accounting standards “sfas” 123r sharebased payment february 1 2006 also discussed note 10 consolidated financial statements company changed method accounting pension post retirement benefits january 31 2007 conform sfas 158 employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r also audited accordance standards public company accounting oversight board united states effectiveness company’s internal control financial reporting january 31 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated april 16 2007 expressed unqualified opinion management’s assessment effectiveness company’s internal control financial reporting unqualified opinion effectiveness company’s internal control financial reporting sdeloitte touche llp kansas city missouri april 16 2007 layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders’ equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows see notes consolidated financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “company” provide drilling construction services related products two principal markets water wastewater infrastructure mineral exploration well producer unconventional natural gas energy market company operates throughout north america well africa australia europe customers include municipalities investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies lesser extent agribusiness mineral exploration company ownership interest certain foreign affiliates operating south america facilities chile peru see note 3 fiscal year references years fiscal years ended investment affiliated companies investments affiliates 20 50 owned company ability exercise significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions eliminated financial information company’s affiliates certain foreign subsidiaries reported company’s consolidated financial statements onemonth lag reporting periods use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities company’s mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency translate monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses translated historical rates gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate weighted average rates prevailing year translation adjustments reported separate component accumulated comprehensive loss net foreign currency transaction gains losses 2007 2006 2005 95000 290000 342000 respectively revenue recognition revenues recognized large longterm construction contracts meeting criteria statement position 811 accounting performance constructiontype certain productiontype contracts “sop 811” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined allowed sop 811 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur contracts company’s mineral exploration drilling services billable based quantity drilling performed thus revenues drilling contracts recognized basis actual footage meterage drilled revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories company values inventories lower cost firstin firstout market allowances recorded inventory considered excess obsolete inventories consist primarily parts supplies property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 26825000 17589000 13561000 2007 2006 2005 respectively lives used items within property classification follows oil gas properties mineral interests company follows fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized depletion expense 4917000 2021000 880000 2007 2006 2005 respectively company required review carrying value oil gas properties quarter full cost accounting rules sec rules capitalized costs proved oil gas properties adjusted asset retirement obligations may exceed present value estimated future net revenues proved reserves discounted 10 application ceiling test generally requires pricing future revenues unescalated prices effect last day quarter effect given company’s fixedprice physical delivery natural gas contracts requires writedown accounting purposes ceiling exceeded unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows reserve estimates company’s estimates natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill intangibles company accounts goodwill intangible assets accordance sfas 142 “goodwill intangible assets” intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized estimated useful lives range two 40 years impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions longlived assets event indication possible impairment company evaluates carrying value longlived assets including company’s gas transportation facilities equipment performing analysis anticipated future net cash flows related longlived assets reducing carrying value excess result calculation company believes time carrying value useful lives longlived assets continues appropriate restricted cash restricted cash consists escrow funds associated acquisition reynolds described note 2 notes consolidated financial statements accrued insurance expense costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2007 2006 relatively short maturity instruments see note 11 disclosure regarding fair value indebtedness company note 12 disclosure regarding fair value derivative instruments litigation contingencies company involved litigation incidental business disposition expected material effect company’s business financial position results operations cash flows possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation outside counsel handling matters based upon combination litigation settlement strategies extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change derivatives company follows sfas 133 “accounting derivative instruments hedging activities” “sfas 133” amended requires derivative financial instruments recorded balance sheet fair value establishes criteria designation effectiveness hedging relationships sfas 133 company accounts unrealized hedges forecasted costs cash flow hedges changes fair value effective portion hedge contracts material recorded accumulated comprehensive income stockholders’ equity changes fair value effective portion hedge contracts recognized accumulated comprehensive income hedged item recognized operations ineffective portion derivatives change fair value immediately recognized operations addition company entered fixedprice natural gas contracts manage fluctuations price natural gas contracts result company physically delivering gas result exempt requirements sfas 133 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts company enter derivative financial instruments speculative trading purposes consolidated statements cash flows highly liquid investments original maturity three months less time purchase considered cash equivalents amounts paid income taxes interest follows supplemental noncash transactions company earnings restricted cash 252000 143000 2007 2006 treated noncash item restricted account escrow beneficiaries connection collector wells acquisition see note 2 company issued 45563 shares common stock year ended january 31 2007 shares valued 1263000 based upon fiveday average closing price stock two days two days terms acquisition agreed publicly announced connection reynolds acquisition see note 2 company issued 2222216 shares common stock year ended january 31 2006 shares valued 45053000 based upon fiveday average closing price stock two days two days terms acquisition agreed publicly announced connection beylik acquisition see note 2 company issued 24576 shares restricted common stock year ended january 31 2005 shares fair market value 375000 vested two years income taxes income taxes provided using asset liability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely see note 8 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive options purchase 311344 460231 310000 shares excluded weighted average shares 2007 2006 2005 respectively effect antidilutive sharebased compensation company adopted sfas 123r revised december 2004 “sharebased compensation” effective february 1 2006 requires recognition sharebased instruments financial statements establishes fairvalue measurement associated costs company elected adopt new standard using modified prospective method requires recognition compensation expense related unvested sharebased instruments effective date remaining term instrument result adopting sfas 123r february 1 2006 income taxes 2186000 lower year ended january 31 2007 net income 1509000 lower year ended january 31 2007 continued account sharebased compensation apb 25 impact adoption sfas 123r lower basic diluted earnings per share year ended january 31 2007 010 per share modified prospective method financial impact prior fiscal years january 31 2007 company unrecognized compensation expense 5034000 recognized weighted average period 265 years company determines fair value sharebased compensation using blackscholes model november 2005 fasb issued fasb staff position fas 123r3 “transition election related accounting tax effects sharebased payment awards” company elected adopt alternative transition method provided fasb staff position calculating tax effects sharebased compensation pursuant sfas 123r alternative transition method includes simplified methods establish beginning balance additional paidin capital pool “apic pool” related tax effects employee sharebased compensation determine subsequent impact apic pool consolidated statements cash flows tax effects employee sharebased compensation awards outstanding upon adoption sfas 123r sharebased compensation prior effective date sfas 123r may accounted based either estimated fair value awards date granted “sfas 123 method” difference market price stock date grant amount employee must pay acquire stock “apb 25 method” company used apb 25 method account sharebased compensation programs vested prior effective date sfas 123r recognized compensation expense method pro forma net income earnings per share 2006 2005 determined sfas 123 method applied presented following table unearned compensation unearned compensation expense associated issuance unvested shares amortized straightline basis restrictions stock expire required sfas 123r unearned compensation 44000 previously reflected reduction shareholders’ equity january 31 2006 reclassified reduction additional paid capital comprehensive loss accumulated balances net income taxes comprehensive loss follows 2 acquisitions november 20 2006 company acquired 100 stock american water services underground infrastructure inc “uig” whollyowned subsidiary american water usa inc uig engaged business providing trenchless pipeline rehabilitation services sewer stormwater systems combined similar service line acquired acquisition reynolds inc purchase price uig 27662000 consisting cash 27524000 costs 138000 cash portion purchase price net certain purchase price adjustments based amount tangible net worth closing date 1101000 received company february 2007 purchase price allocated based fair value assets liabilities acquired determined based uig’s historical cost basis assets liabilities appraisals analyses amounts may subject revision uig integrated company revisions may significant recorded company adjustments purchase price allocation based company’s preliminary allocation purchase price acquisition following effect company’s consolidated financial position results operations uig included company’s consolidated statements income commencing closing date assuming uig acquired beginning period unaudited pro forma consolidated revenues net income continuing operations net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future pro forma results include adjustments interest expense cash purchase price depreciation amortization expense acquisition adjustments property equipment intangible assets july 2006 january 2007 company purchased certain gas wells mineral interests oil gas properties unrelated operators totaling 1988000 cash acquisitions complemented company’s existing operation midcontinent region united states purchase price allocated 1376000 oil gas properties 612000 mineral interests oil gas properties june 16 2006 “cwi closing date” company acquired 100 stock collector wells international inc “cwi” privately held specialty water services company designs constructs water supply systems cwi combined similar service line acquired acquisition reynolds inc purchase price cwi 5442000 consisting 3150000 cash 45563 shares layne common stock valued 1263000 cash purchase price adjustments costs 1029000 240000 paid future periods layne common stock valued transaction based upon fiveday average closing price stock two days two days cwi closing date stock placed escrow secure certain representations warranties indemnifications purchase agreement released three annual installments cash purchase price adjustments based amount working capital cwi closing date exceeded threshold amount established purchase agreement addition contingent consideration maximum 1400000 “cwi earnout amount” based percentage amount cwi’s earnings interest taxes depreciation amortization exceed threshold amount thirtysix months following acquisition earned 20 cwi earnout amount may paid layne common stock company’s discretion portion cwi earnout amount ultimately paid accounted additional purchase consideration purchase price allocated based fair value assets liabilities acquired determined based cwi’s historical cost basis assets liabilities analyses amounts may subject revision cwi integrated company revisions may significant recorded company adjustments purchase price allocation based company’s allocation purchase price acquisition following effect company’s consolidated financial position thousands results operations cwi included company’s consolidated statements income commencing cwi closing date acquisition significant effect company’s results operations cash flows september 28 2005 “closing date” company acquired 100 outstanding stock reynolds inc “reynolds” privately held company major supplier products services water wastewater industries acquisition expanded capabilities company’s water wastewater infrastructure division areas water wastewater infrastructure reynolds’ primary service lines include design building water wastewater treatment plants water wastewater transmission lines cured place pipe “cipp” services sewer rehabilitation water supply wells ranney collector wells purchase price reynolds 112356000 consisting 60000000 cash 2222216 shares layne common stock valued 45053000 cash purchase price adjustments 6120000 paid 2007 costs 1183000 layne common stock valued transaction based upon fiveday average closing price stock two days two days terms acquisition agreed publicly announced cash stock consideration 9000000 333333 shares layne common stock placed escrow secure certain representations warranties indemnifications purchase agreement “escrow fund” escrow fund released reynolds shareholders twenty four months following closing date subject pending claims cash portion escrow fund related obligation reynolds’ shareholders recorded company’s consolidated balance sheet “restricted cash” “acquisition escrow obligation” cash purchase price adjustments consist primarily adjustment paid based amount working capital closing date exceeded threshold amount established purchase agreement terms agreement portion cash purchase price adjustments paid reynolds shareholders escrow fund 2007 escrow fund replenished amount based collection certain contract retainage amounts twentyfour months following closing date addition contingent consideration maximum 15000000 “earnout amount” based reynolds operating performance period thirtysix months following closing date “earnout period” earnout payment based multiple reynolds’ earnings interest taxes depreciation amortization exceed threshold amount earnout period earned contingent payment paid 60 cash 40 layne common stock subject stockholder approval shares issued required shares approved issuance paid cash portion earnout amount ultimately paid accounted additional purchase consideration purchase price allocated based fair value assets liabilities acquired determined based reynolds’ historical cost basis assets liabilities appraisals analyses based company’s allocation purchase price acquisition following effect company’s consolidated financial position results operations reynolds included company’s consolidated statements income commencing closing date assuming reynolds acquired beginning period unaudited pro forma consolidated revenues net income continuing operations net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future pro forma results include adjustments interest expense cash purchase price depreciation amortization expense acquisition adjustments property equipment intangible assets additional shares outstanding october 2005 company purchased remaining 25 working interest various gas wells saltwater disposal wells pipeline colt natural gas llc colt pipeline llc “colt” affiliates working interest partner 6149000 cash additional 257000 payable company upon satisfaction certain conditions colt acquisition furthers company’s expansion energy presence midcontinent region united states acquisition significant effect company’s results operations cash flows following effect company’s consolidated financial position company made two acquisitions march june 2005 broaden membrane technologies capabilities total purchase price acquisitions 453000 consisted cash payments 359000 note payable shareholder one entities acquisitions significant effect company’s results operations cash flows following effect company’s consolidated financial position october 1 2004 company acquired substantially assets beylik drilling pump service inc “beylik” water drilling business located california cash 13750000 plus acquisition costs 993000 conjunction company’s current california locations acquisition strengthened company’s water resources presence west coast based company’s allocation purchase price acquisition following effect company’s consolidated financial position september 2004 company purchased 75 various gas wells saltwater disposal wells pipeline colt consideration purchase company paid approximately 2382000 cash concurrent acquisition company contributed acquired pipeline assets 685000 existing gas gathering assets newly formed pipeline company owned 75 company 25 working interest partner company consolidated newly formed entity accordingly recorded initial minority interest liability 446000 april 2004 company acquired remaining 50 working interest oil gas properties including mineral interests held glna llc working interest partner august 2002 development agreement 1000000 cash forgiveness approximately 489000 joint interest receivables partner september april acquisitions furthered company’s expansion energy presence midcontinent region united states acquisitions significant effect company’s results operations cash flows following effect company’s consolidated financial position 3 investments affiliates company’s investments affiliates carried company’s equity underlying net assets plus additional 4607000 result purchase accounting affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows january 31 2007 may 2004 company entered domestic corporate joint venture nicholson construction company complete construction project company invested 200000 acquire 50 ownership joint venture project substantially completed 2006 joint venture liquidated 2007 financial information affiliates reported onemonth lag reporting period summarized financial information affiliates january 31 2007 2006 2005 years ended follows company transactions balances affiliates resulted following amounts included consolidated financial statements january 31 2007 2006 2005 years ended undistributed equity earnings affiliates totaled 9635000 7096000 4870000 january 31 2007 2006 2005 respectively september 2002 company invested joint venture privatelyheld limited partnership develop water storage bank property located california company invested 1059000 acquire 10 ownership joint venture investment accounted using equity method june 2003 company exercised significant influence joint venture management contract june 2003 investment accounted using cost method management contract terminated company longer exercised significant influence joint venture investment sold october 2005 resulting gain 1289000 recorded “other income” statement income 4 discontinued operations 2004 company sold two businesses reclassified results operations businesses discontinued operations accordance sfas 144 “accounting impairment disposal longlived assets” revenues businesses 2007 2006 2005 losses discontinued operations income taxes 2006 2005 2000 340000 respectively 5 goodwill intangible assets goodwill intangible assets consist following january 31 amortizable intangible assets amortized estimated useful lives two 40 years weighted average amortization period 30 years total amortization expense intangible assets 1068000 387000 43000 2007 2006 2005 respectively accumulated amortization expense january 31 2007 1815000 amortization expense subsequent five fiscal years estimated follows carrying amount goodwill attributed operating segment follows thousands 6 income expense income expense consisted following years ended january 31 gain loss disposal property equipment relate company’s efforts monetize nonstrategic assets well gains disposals ordinary course business january 2007 company sold interest minerals concession gain 920000 october 2005 company sold investment joint venture develop water bank gain 1289000 see note 3 7 costs estimated earnings uncompleted contracts company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year january 31 2007 2006 company held unbilled contract retainage amounts 26652000 19350000 respectively 8 income taxes income loss continuing operations income taxes follows components income tax expense follows deferred income taxes result temporary differences financial statement tax bases company’s assets liabilities sources differences cumulative tax effects follows company several australian african subsidiaries generated tax losses majority losses utilized reduce company’s federal state income tax liabilities company certain state tax loss carryforwards totaling 4500000 expire 2013 2021 january 31 2007 undistributed earnings foreign subsidiaries certain foreign affiliates included 21600000 federal income foreign withholding taxes provided earnings considered invested indefinitely become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign affiliates earnings considered invested indefinitely income taxes foreign withholding taxes also provided dividends received gains recognized sale certain affiliates year reconciliation total income tax expense statutory federal rate follows company recorded reserves uncertain tax positions involve income deductions credits reported prior year income tax returns company believes treated properly tax returns either current examination subject possible examination internal revenue service tax authorities ultimate resolution items uncertain tax positions taken returns ultimately upheld challenged resulting tax reserves released tax benefits positions taken returns determined inappropriate company may required make cash payments taxes interest penalties reserves established using company’s best estimates adjusted time based changing circumstances 9 operating leases future minimum rental payments required operating leases initial remaining noncancellable lease terms excess one year january 31 2007 follows operating leases primarily light medium duty trucks equipment rent expense operating leases including insignificant amounts contingent rental payments 22866000 14603000 11992000 2007 2006 2005 respectively 10 employee benefit plans company sponsors pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plan substantially equal amounts required maintain qualified status plan contributions intended provide benefits related past current service company effective december 31 2003 company froze pension plan recorded curtailment loss approximately 20000 benefits longer accrued december 31 2003 employees added plan company expects maintain assets plan pay normal benefits accrued december 31 2003 assets plan consist primarily stocks bonds government securities january 31 2007 company adopted recognition disclosure provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” sfas 158 required company recognize funded status ie difference fair value plan assets projected benefit obligations pension plans january 31 2007 balance sheet corresponding adjustment accumulated comprehensive income net tax adjustment accumulated comprehensive income adoption represents net unrecognized actuarial losses previously netted plan’s funded status company’s balance sheet pursuant provisions sfas 87 amounts subsequently recognized net periodic pension cost pursuant company’s historical accounting policy amortizing amounts actuarial gains losses arise subsequent periods recognized net periodic pension costs periods recognized component comprehensive income amounts subsequently recognized component net periodic pension cost basis amounts recognized accumulated comprehensive income adoption sfas 158 incremental effects adopting provisions sfas 158 company’s consolidated balance sheet january 31 2007 presented following table adoption sfas 158 effect company’s consolidated statement operations year ended january 31 2007 prior period presented effect company’s operating results future periods following table illustrates effect applying sfas 158 january 31 2007 thousands dollars following table sets forth plan’s funded status december 31 2006 2005 measurement dates amounts recognized company’s consolidated balance sheets january 31 2007 2006 net periodic pension cost 2007 2006 2005 includes following components company recognized full amount actuarially determined pension liability estimated net loss plan expected amortized accumulated comprehensive income net periodic benefit cost 2008 122000 weighted average assumptions used determine benefit obligation net periodic pension cost years ending january 31 2007 2006 2005 follows estimated longterm rate return assets developed based historical returns future expectations returns asset class well target asset allocation pension portfolio benefit level assumptions 2007 2006 2005 based fixed amounts per year credited service percentage fair value total plan assets major category plan assets measurement date follows company’s investment policy includes following asset allocation guidelines effective periods presented asset allocation policy developed consideration following longterm investment objectives achieve longterm inflationadjusted growth asset values investments common stock fixed income obligations minimize risk maintaining allocation cash equivalents manage portfolio conform erisa requirements manage plan assets total return basis maximize total returns consistent appropriate level risk controlled via diversification investments among within asset classes company contracts financial institution provide investment management services full discretion portfolio investments given investment manager subject asset allocation guidelines following additional guidelines • equity securities allowable equity securities include common stocks listed us stock exchange overthecounter common stocks preferred convertible securities equity holdings single issuer aggregate 10 total market value plan • international securities allowable international securities include common stocks preferred stocks warrants convertible securities well government corporate debt securities • mutual funds mutual funds may utilized investments fixed income equity international securities enhance diversification performance • fixed income securities allowable fixed income securities include us treasury securities us agency securities corporate bonds fixed income securities shall rated “a” better time purchase fixed income security shall continue held rating falls “bbb” securities single issuer exception us treasuries agencies aggregate 10 total market value plan fixed income segment portfolio generally intermediate average maturity five ten years maximum permitted maturity individual issue fifteen years company’s policy respect funding qualified pension plan fund least minimum required erisa maximum deductible tax purposes contribution expected required erisa january 1 december 31 2007 plan year company expect make contributions plan 2007 calendar year estimated benefit payments expected paid next five fiscal years aggregate five fiscal years thereafter follows company also provides supplemental retirement benefits chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent chief executive’s defined contribution plan balance company contribute plan maintain investment assets related expected benefit obligation company recognized full amount actuarially determined pension liability amounts recognized company’s consolidated balance sheets january 31 2007 2006 1742000 1554000 net periodic pension cost supplemental retirement benefits 2007 2006 2005 include following components company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 3062000 2009000 1530000 2007 2006 2005 respectively information regarding assets accumulated benefits plans made available company’s salaried certain hourly employees participate companysponsored defined contribution plans total expense company’s portion plans 2996000 2588000 2061000 2007 2006 2005 respectively january 2006 company initiated deferred compensation plan certain management employees participants may elect defer 25 salaries beginning january 2007 50 bonuses plan company matching contributions vesting period contributions established discretion company employee deferrals vested times total amount deferred including company matching 2007 2006 1458000 60000 11 indebtedness july 31 2003 company entered agreement “master shelf agreement” whereby could issue 60000000 unsecured notes upon closing company issued 40000000 notes “series senior notes” master shelf agreement series senior notes bear fixed interest rate 605 due july 31 2010 annual principal payments 13333000 beginning july 31 2008 proceeds issuance used refinance borrowings outstanding company’s previous term loan revolving credit facility company issued additional 20000000 notes master shelf agreement october 2004 “series b senior notes” series b senior notes bear fixed interest rate 540 due september 29 2011 annual principal payments 6667000 beginning september 29 2009 proceeds issuance used finance acquisition beylik general corporate purposes concurrent acquisition reynolds company amended master shelf agreement increase amount senior notes available issued 60000000 100000000 thus creating available facility amount 40000000 reinstated extended available issuance period september 15 2007 also concurrent acquisition reynolds company expanded existing revolving credit facility lasalle bank national association administrative agent group additional banks entering amended restated loan agreement “credit agreement” lasalle bank national association administrative agent lender “administrative agent” lenders listed therein “lenders” increased company’s revolving loan commitment 70000000 130000000 less outstanding letter credit commitments subject 30000000 sublimit approximately 80000000 facility used pay cash portion acquisition reynolds refinance outstanding borrowings previous credit agreement credit agreement also amended november 2006 concurrent acquisition uig revolving loan commitment increased 200000000 credit agreement provides interest variable rates equal company’s option libor rate plus 075 200 base rate defined credit agreement plus 050 depending upon company’s leverage ratio credit agreement unsecured due payable november 15 2011 january 31 2007 letters credit 9844000 borrowings 91600000 outstanding credit agreement resulting available capacity 98556000 master shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends certain financial maintenance covenants including among others fixed charge coverage maximum debt ebitda minimum tangible net worth company compliance covenants january 31 2007 maximum borrowings outstanding company’s thenexisting credit agreements 2007 2006 155000000 64000000 respectively average outstanding borrowings 141850000 50250000 respectively weighted average interest rates 67 58 respectively loan costs incurred securing longterm financing amortized using method approximates effective interest method term respective loan agreement amortization costs 2007 2006 2005 161000 96000 61000 respectively amortization loan costs included interest expense consolidated statements income debt outstanding january 31 2007 2006 whose carrying value approximates fair market value follows january 31 2007 debt outstanding mature fiscal years follows 12 derivatives company’s energy division exposed fluctuations price natural gas entered fixedprice physical delivery contracts manage natural gas price risk portion production january 31 2007 company committed deliver 3825000 million british thermal units “mmbtu” natural gas march 2008 prices contracts range 774 1015 per mmbtu fixedprice physical delivery contracts result physical delivery natural gas result exempt requirements sfas 133 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts estimated fair value contracts january 31 2007 1918000 additionally company foreign operations significant costs denominated foreign currencies thus exposed risks associated changes foreign currency exchange rates point time company might use various hedge instruments primarily foreign currency option contracts manage exposures associated forecasted expatriate labor costs purchases operating supplies company enter foreign currency derivative financial instruments speculative trading purposes year company held option contracts hedge risks associated forecasted australian dollar denominated costs african operations january 31 2007 option contracts longer outstanding contracts settled various increments january 2007 aggregate losses 12000 hedging losses recognized 2007 forecasted transactions hedged occurred recorded primarily cost revenues company’s consolidated statements income 13 stock option plans october 1998 company adopted rights agreement whereby company authorized declared dividend one preferred share purchase right “right” outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 25 company’s common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 4500 company entitled redeem right 01 per right time person acquired 25 company’s outstanding common stock rights expire 10 years date grant company stock option employee incentive plans provide granting options purchase issuance shares common stock aggregate 2600000 shares common stock price fixed board directors committee january 31 2007 513000 shares available granted plans company ability issue shares plans either new issuances treasury although previously always issued new shares expects continue issue new shares future significant option groups outstanding january 31 2007 related exercise price remaining contractual term follows options granted exercise price equal fair market value company’s common stock date grant options terms five ten years date grant generally vest ratably periods four five years certain option awards provide accelerated vesting change control defined plans equitable adjustments event changes company’s equity structure company expect unvested shares forfeited fair value options date grant estimated using blackscholes model weighted average fair value date grant options granted 2007 12679 fair value based expected life six years dividend yield average interest rate 495 assumed volatility 35 purposes pro forma disclosure weighted average fair value date grant options granted 2006 2005 1047 909 per option respectively fair value options date grant estimated using blackscholes model fair values based expected life ranging six ten years dividend yield weighted average interest rate 397 46 assumed volatility 34 transactions stock options 2007 2006 2005 follows 14 contingencies company’s drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice “turnkey” basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance respect foreign operations company involved various matters litigation claims disputes arisen ordinary course company’s business company believes ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows 15 operating segments foreign operations company multinational company provides sophisticated services related products variety markets well producer unconventional natural gas energy market management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices’ division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water wastewater infrastructure division company’s reportable segments defined follows water wastewater infrastructure division provides full line waterrelated services products including hydrological studies site selection well design drilling development pump installation well rehabilitation division’s offerings include design construction water treatment facilities provision filter media membranes treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental services assess monitor groundwater contaminants acquisition reynolds september 2005 cwi june 2006 uig november 2006 division expanded capabilities area design build water wastewater treatment plants ranney collector wells sewer rehabilitation water wastewater transmission lines mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods energy division focuses exploration production unconventional gas properties date division concentrated projects midcontinent region united states includes two small specialty energy service companies specialty operations included one divisions financial information thousands company’s operating segments presented intersegment revenues accounted based fair market value services provided unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting operating segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer general counsel board directors corporate assets company directly associated operating segment consist primarily cash deferred income taxes assets associated discontinued operations 16 new accounting pronouncements december 2004 financial accounting standards board “fasb” issued statement financial accounting standards 123r “share based payment” “sfas 123r” became effective company february 1 2006 see note 1 discussion impact adopting sfas 123r april 2006 fasb issued fasb staff position fin 46r6 “determining variability considered applying fasb interpretation 46r” “fsp fin 46r6” became effective company second quarter 2007 fsp fin 46r6 clarifies variability considered applying fasb interpretation 46r shall based analysis design variable interest entity adoption interpretation material effect company’s consolidated financial statements june 2006 fasb ratified emerging issues task force issue 063 “how taxes collected customers remitted governmental authorities presented income statement gross versus net presentation” eitf 063 company adopted fourth quarter fiscal year ending january 31 2007 eitf 063 requires companies disclose accounting policy regarding gross net presentation certain taxes within scope eitf 063 tax assessed governmental authority directly imposed revenueproducing transaction seller customer may include limited sales use value added excise taxes company presents transactions net basis intends continue presentation future therefore adoption standard impact consolidated financial statements july 2006 fasb released fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” fin 48 establishes comprehensive model financial statement recognition measurement presentation disclosure uncertain tax positions taken expected taken income tax returns interpretation effective company february 1 2007 company yet completed evaluation impact adoption company’s financial position results operations september 2006 securities exchange commission “sec” issued staff accounting bulletin 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” “sab 108” states registrants use balance sheet “iron curtain” approach income statement “rollover” approach quantifying evaluating materiality misstatement sab 108 also provides guidance correcting errors dual approach well transition guidance correcting previously immaterial errors considered material based approach bulletin company adopted bulletin fourth quarter fiscal year ending january 31 2007 adoption statement material impact consolidated financial statements september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” defines fair value establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements sfas 157 require new fair value measurements provides guidance measure fair value providing fair value hierarchy used classify source information company required adopt standard first quarter fiscal year ending january 31 2009 company anticipate adoption statement material impact consolidated financial statements september 2006 fasb issued sfas 158 “employers’ accounting defined benefit pension postretirement plans” “sfas 158” requires company sponsors postretirement benefit plan fully recognize asset liability overfunded underfunded status benefit plans yearend balance sheet provisions sfas 158 effective company’s fiscal year ended january 31 2007 impact adopting sfas 158 shown note 10 addition sfas 158 also generally requires company measure plan assets benefit obligations fiscal yearend balance sheet date company required adopt provisions standard fiscal year ending january 31 2009 adoption measurement provisions expected material impact consolidated financial statements february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities “sfas 159” sfas 159 permits measurement specified financial instruments warranty insurance contracts fair value contractbycontract basis changes fair value recognized earnings reporting period company required adopt standard first quarter fiscal year ending january 31 2009 company anticipate adoption statement material impact consolidated financial statements 17 quarterly results unaudited quarterly financial data follows supplemental information oil gas producing activities unaudited company’s oil gas activities conducted united states see note 1 additional information regarding company’s oil gas properties capitalized costs related oil gas producing activities capitalized costs associated depreciation depletion amortization relating oil gas producing activities follows january 31 2007 2006 2005 unproved oil gas property mineral interest costs january 31 2007 totaled 3631000 4153000 respectively unevaluated mineral interest costs excluded depreciation depletion amortization january 31 2007 2006 totaled 4153000 2926000 respectively capitalized costs associated depreciation relating gas transportation facilities equipment follows january 31 2007 2006 2005 cost incurred oil gas producing activities capitalized costs incurred oil gas producing activities follows 2007 2006 2005 capitalized costs incurred 2005 include acquisition costs 1728000 associated purchase various gas saltwater disposal wells working interest partner september 2004 acquisition costs 1489000 associated purchase oil gas properties mineral interests held working interest partner april 2004 see note 2 additional information regarding acquisitions capitalized costs incurred gas transportation facilities equipment 2007 2006 2005 totaled 14401000 6570000 3014000 respectively results operations oil gas producing activities results operations relating oil gas producing activities set forth following table years ended january 31 2007 2006 2005 includes revenues operating costs directly attributable oil gas producing activities results operations gas transportation facilities equipment activities general corporate overhead non oil gas producing activities excluded production natural gas wells sold company’s pipeline operation turn sells gas primarily gas marketing firms income tax expense calculated applying statutory tax rates revenues deducting costs include depreciation depletion amortization allowances proved oil gas reserve quantities proved gas reserve quantities january 31 2007 2006 based estimates prepared company’s engineers accordance rule 410 regulation sx reserve quantities prepared independent petroleum engineers cawley gillespie associates inc company’s reserves located within united states due early stages completion company’s projects company sufficient production information reserves could established earlier periods proved gas reserves estimated quantities natural gas geological engineering data demonstrate reasonable certainty recovered future years known reservoirs existing economic operating conditions proved developed reserves expected recovered existing wells existing equipment operating methods company cautions many inherent uncertainties estimating quantities proved reserves projecting future rates production timing development expenditures accordingly estimates likely change future information becomes available estimated quantities total proved developed reserves natural gas follows proved developed undeveloped reserves standardized measure discounted future net cash flows relating proved oil gas reserve quantities future cash inflows based yearend gas prices without escalation weighted average yearend spot price used estimating future net revenues 689 731 per mcf 2007 2006 respectively future production development costs represent estimated future expenditures incurred developing producing proved reserves assuming continuation existing economic conditions future income tax expense computed applying statutory rates pretax cash flows relating company’s estimated proved reserves difference book tax basis proved properties information purport present fair market value company’s natural gas assets present standardized disclosure concerning possible future net cash flows would result assumptions used following table sets forth unaudited information concerning future net cash flows natural gas reserves net income tax expense principal sources change standardized measure discounted future net cash flows layne christensen company subsidiaries schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules layne christensen company subsidiaries schedules omitted applicable required information included consolidated financial statements company notes thereto statement management responsibility consolidated financial statements layne christensen company subsidiaries “company” prepared conformity accounting principles generally accepted united states integrity objectivity data financial statements responsibility management information included annual report form 10k management believes information presented annual report consistent financial statements financial statements contain material misstatements due fraud error appropriate financial statements reflect management’s best estimates judgments management also responsible maintaining system internal accounting controls objectives providing reasonable assurance company’s assets safeguarded material loss unauthorized use disposition authorized transactions properly recorded permit preparation accurate financial data however limitations exist system internal controls based recognition cost system exceed benefits company believes system accounting controls internal auditing function integral part accomplishes stated objectives audit committee board directors composed outside directors meets periodically management company’s independent accountants internal auditors review matters related company’s financial statements internal audit activities internal accounting controls nonaudit services provided independent accountants independent accountants internal auditors full access audit committee meet without management present discuss scope results audits including internal controls audit financial matters sa b schmitt sjerry w fanska andrew b schmitt jerry w fanska president senior vice president chief executive officer chief financial officer report independent registered public accounting firm board directors stockholders layne christensen company mission woods kansas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2008 2007 related consolidated statements income stockholders’ equity cash flows three years period ended january 31 2008 audits also included financial statement schedule listed index item 8 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2008 2007 results operations cash flows three years period ended january 31 2008 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein discussed note 8 consolidated financial statements company adopted provisions financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 february 1 2007 additionally discussed note 1 consolidated financial statements company changed method accounting sharebased compensation upon adoption statement financial accounting standards “sfas” 123r sharebased payments february 1 2006 discussed note 10 consolidated financial statements company changed method accounting pension post retirement benefits january 31 2007 conform sfas 158 employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated april 15 2008 expressed unqualified opinion company’s internal control financial reporting sdeloitte touche llp kansas city missouri april 15 2008 layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders’ equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows see notes consolidated financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “company” provide drilling construction services related products two principal markets water infrastructure mineral exploration well producer unconventional natural gas energy market company operates throughout north america well africa australia europe customers include municipalities investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies lesser extent agribusiness mineral exploration company ownership interest certain foreign affiliates operating south america facilities chile peru see note 3 fiscal year references years fiscal years ended investment affiliated companies investments affiliates 20 50 owned company ability exercise significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions eliminated financial information company’s affiliates certain foreign subsidiaries reported company’s consolidated financial statements onemonth lag reporting periods use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities company’s mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency translate monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses translated historical rates gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate weighted average rates prevailing year translation adjustments reported separate component accumulated comprehensive loss net foreign currency transaction gains losses 2008 2007 2006 430000 95000 290000 respectively revenue recognition revenues recognized large longterm construction contracts meeting criteria statement position 811 accounting performance constructiontype certain productiontype contracts “sop 811” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined allowed sop 811 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur contracts company’s mineral exploration drilling services billable based quantity drilling performed thus revenues drilling contracts recognized basis actual footage meterage drilled revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories company values inventories lower cost firstin firstout market allowances recorded inventory considered excess obsolete inventories consist primarily parts supplies property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 33933000 26825000 17589000 2008 2007 2006 respectively lives used items within property classification follows oil gas properties mineral interests company follows fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized separate fullcost pools established country company exploration activities depletion expense 8504000 4917000 2021000 2008 2007 2006 respectively company required review carrying value oil gas properties quarter full cost accounting rules sec rules capitalized costs proved oil gas properties adjusted asset retirement obligations may exceed present value estimated future net revenues proved reserves discounted 10 application ceiling test generally requires pricing future revenues unescalated prices effect last day quarter effect given company’s fixedprice physical delivery natural gas contracts requires writedown accounting purposes ceiling exceeded unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows reserve estimates company’s estimates natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill intangibles company accounts goodwill intangible assets accordance sfas 142 “goodwill intangible assets” intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized estimated useful lives range two 40 years impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions longlived assets event indication possible impairment company evaluates carrying value longlived assets including company’s gas transportation facilities equipment performing analysis anticipated future net cash flows related longlived assets reducing carrying value excess result calculation company believes time carrying value useful lives longlived assets continues appropriate restricted cash restricted cash consists escrow funds associated acquisitions described note 2 notes consolidated financial statements accrued insurance expense costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2008 2007 relatively short maturity instruments see note 11 disclosure regarding fair value indebtedness company note 12 disclosure regarding fair value derivative instruments litigation contingencies company involved litigation incidental business disposition expected material effect company’s business financial position results operations cash flows possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation outside counsel handling matters based upon combination litigation settlement strategies extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change derivatives company follows sfas 133 “accounting derivative instruments hedging activities” “sfas 133” amended requires derivative financial instruments recorded balance sheet fair value establishes criteria designation effectiveness hedging relationships sfas 133 company accounts unrealized hedges forecast costs cash flow hedges changes fair value effective portion hedge contracts material recorded accumulated comprehensive income stockholders’ equity changes fair value effective portion hedge contracts recognized accumulated comprehensive income hedged item recognized operations ineffective portion derivatives change fair value immediately recognized operations addition company entered fixedprice natural gas contracts manage fluctuations price natural gas contracts result company physically delivering gas result exempt requirements sfas 133 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts company enter derivative financial instruments speculative trading purposes consolidated statements cash flows highly liquid investments original maturity three months less time purchase considered cash equivalents amounts paid income taxes interest follows supplemental noncash transactions company earnings restricted cash 287000 252000 2008 2007 treated noncash item restricted account escrow beneficiaries connection reynolds acquisition see note 2 company settled earnout amount discounted basis 13252000 consisting 2270000 cash 249023 shares common stock valued 10982000 year ended january 31 2008 connection collector wells acquisition see note 2 company issued 45563 shares common stock year ended january 31 2007 shares valued 1263000 based upon fiveday average closing price stock two days two days terms acquisition agreed publicly announced connection reynolds acquisition see note 2 company issued 2222216 shares common stock year ended january 31 2006 shares valued 45053000 based upon fiveday average closing price stock two days two days terms acquisition agreed publicly announced income taxes income taxes provided using asset liability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely see note 8 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive options purchase 3000 460231 shares excluded weighted average shares 2008 2007 2006 respectively effect antidilutive sharebased compensation company adopted sfas 123r revised december 2004 “sharebased compensation” effective february 1 2006 requires recognition sharebased instruments financial statements establishes fairvalue measurement associated costs company adopted standard using modified prospective method required recognition compensation expense related unvested sharebased instruments effective date remaining term instrument result adopting sfas 123r february 1 2006 income taxes 2186000 lower year ended january 31 2007 net income 1509000 lower year ended january 31 2007 continued account sharebased compensation apb 25 impact adoption sfas 123r lower basic diluted earnings per share year ended january 31 2007 010 per share modified prospective method financial impact prior fiscal years january 31 2008 company unrecognized compensation expense 4813000 recognized weighted average period 236 years company determines fair value sharebased compensation using blackscholes model november 2005 fasb issued fasb staff position fas 123r3 “transition election related accounting tax effects sharebased payment awards” company elected adopt alternative transition method provided fasb staff position calculating tax effects sharebased compensation pursuant sfas 123r alternative transition method includes simplified methods establish beginning balance additional paidin capital pool “apic pool” related tax effects employee sharebased compensation determine subsequent impact apic pool consolidated statements cash flows tax effects employee sharebased compensation awards outstanding upon adoption sfas 123r sharebased compensation prior effective date sfas 123r may accounted based either estimated fair value awards date granted “sfas 123 method” difference market price stock date grant amount employee must pay acquire stock “apb 25 method” company used apb 25 method account sharebased compensation programs vested prior effective date sfas 123r recognized compensation expense method pro forma net income earnings per share 2006 determined sfas 123 method applied presented following table unearned compensation unearned compensation expense associated issuance unvested shares amortized straightline basis restrictions stock expire required sfas 123r unearned compensation 44000 previously reflected reduction shareholders’ equity january 31 2006 reclassified reduction additional paid capital comprehensive loss accumulated balances net income taxes comprehensive loss follows 2 acquisitions december 31 2007 “tierdael closing date” company acquired certain assets liabilities tierdael construction “tierdael” pipeline utility construction contractor denver combined similar service line acquired acquisition reynolds inc purchase price tierdael 7110000 consisting cash 6646000 assumed liabilities 226000 costs 238000 cash portion purchase price subject certain adjustments based value working capital closing date settlement expected april 2008 adjustment treated adjustment total purchase price preliminary purchase price allocated based fair value assets liabilities acquired determined based company’s internal operational assessments analyses amounts may subject revision tierdael integrated company revisions may significant recorded company adjustments purchase price allocation based company’s preliminary allocation purchase price acquisition following effect company’s consolidated financial position results operations tierdael included company’s consolidated statements income commencing tierdael closing date assuming tierdael acquired beginning period unaudited pro forma consolidated revenues net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future pro forma results include adjustments interest expense cash purchase price november 30 2007 “solmetex closing date” company acquired certain assets liabilities solmetex inc “solmetex” water wastewater research development business supplier wastewater filtration products dental market purchase price solmetex 13586000 consisting cash 13500000 costs 86000 addition contingent consideration maximum 1000000 “solmetex earnout amount” based percentage amount solmetex’s revenues 36 months following acquisition portion solmetex earnout amount ultimately paid accounted additional purchase consideration purchase price allocated based fair value assets liabilities acquired determined based company’s internal operational assessments appraisals analyses amounts may subject revision solmetex integrated company revisions may significant recorded company adjustments purchase price allocation based company’s preliminary allocation purchase price acquisition following effect company’s consolidated financial position 6056000 acquired intangible assets 21000 assigned research development assets written selling general administrative expenses date acquisition accordance fasb interpretation 4 applicability fasb statement 2 business combinations accounted purchase method remaining 6035000 acquired intangible assets weightedaverage useful life approximately 154 years comprised tradenames 15year weightedaverage useful life patents 15year weightedaverage useful life assets 20year average useful life 7270000 goodwill assigned water infrastructure segment total amount 7053000 expected deductible tax purposes results operations solmetex included company’s consolidated statements income commencing solmetex closing date assuming solmetex acquired beginning period unaudited pro forma consolidated revenues net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future pro forma results include adjustments interest expense cash purchase price november 20 2006 company acquired 100 stock american water services underground infrastructure inc “uig” wholly owned subsidiary american water usa inc uig engaged business providing trenchless pipeline rehabilitation services sewer storm water systems combined similar service line acquired acquisition reynolds inc purchase price uig 27662000 consisting cash 27524000 costs 138000 cash portion purchase price net certain purchase price adjustments based amount tangible net worth closing date 1101000 received company february 2007 purchase price allocated based fair value assets liabilities acquired determined based uig’s historical cost basis assets liabilities appraisals analyses based company’s allocation purchase price acquisition following effect company’s consolidated financial position results operations uig included company’s consolidated statements income commencing november 20 2006 assuming uig acquired beginning period unaudited pro forma consolidated revenues net income continuing operations net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future pro forma results include adjustments interest expense cash purchase price depreciation amortization expense acquisition adjustments property equipment intangible assets july 2006 january 2007 company purchased certain gas wells mineral interests oil gas properties unrelated operators totaling 1988000 cash acquisitions complemented company’s existing operation midcontinent region united states purchase price allocated 1376000 oil gas properties 612000 mineral interests oil gas properties june 16 2006 “cwi closing date” company acquired 100 stock collector wells international inc “cwi” privately held specialty water services company designs constructs water supply systems cwi combined similar service line acquired acquisition reynolds inc purchase price cwi 5442000 consisting 3150000 cash 45563 shares layne common stock valued 1263000 cash purchase price adjustments costs 1029000 240000 paid future periods layne common stock valued transaction based upon fiveday average closing price stock two days two days cwi closing date stock placed escrow secure certain representations warranties indemnifications purchase agreement released three annual installments cash purchase price adjustments based amount working capital cwi closing date exceeded threshold amount established purchase agreement addition contingent consideration maximum 1400000 “cwi earnout amount” based percentage amount cwi’s earnings interest taxes depreciation amortization exceed threshold amount thirtysix months following acquisition earned 20 cwi earnout amount may paid layne common stock company’s discretion portion cwi earnout amount ultimately paid accounted additional purchase consideration purchase price allocated based fair value assets liabilities acquired determined based cwi’s historical cost basis assets liabilities analyses based company’s allocation purchase price acquisition following effect company’s consolidated financial position results operations cwi included company’s consolidated statements income commencing cwi closing date acquisition significant effect company’s results operations cash flows september 28 2005 “reynolds closing date” company acquired 100 outstanding stock reynolds inc “reynolds” privately held company major supplier products services water wastewater industries acquisition expanded capabilities company’s water infrastructure division reynolds’ primary service lines include design building water wastewater treatment plants water wastewater transmission lines curedinplace pipe “cipp” services sewer rehabilitation water supply wells ranney collector wells purchase price reynolds 112356000 consisting 60000000 cash 2222216 shares layne common stock valued 45053000 cash purchase price adjustments 6120000 paid 2007 costs 1183000 layne common stock valued transaction based upon fiveday average closing price stock two days two days terms acquisition agreed publicly announced cash stock consideration 9000000 333333 shares layne common stock placed escrow secure certain representations warranties indemnifications purchase agreement “escrow fund” terms agreement portion cash purchase price adjustments paid reynolds shareholders escrow fund april june 2007 remainder escrow fund released reynolds shareholders september 30 2007 purchase price allocated based fair value assets liabilities acquired determined based reynolds’ historical cost basis assets liabilities appraisals analyses based company’s allocation purchase price acquisition following effect company’s consolidated financial position january 31 2006 16586000 acquired intangible assets weightedaverage useful life approximately 301 years comprised tradenames 32year weightedaverage useful life assets 27year weightedaverage useful life 49832000 goodwill assigned water infrastructure segment deductible tax purposes results operations reynolds included company’s consolidated statements income commencing reynolds closing date assuming reynolds acquired beginning year acquisition unaudited pro forma consolidated revenues net income continuing operations net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future pro forma results include adjustments interest expense cash purchase price depreciation amortization expense acquisition adjustments property equipment intangible assets additional shares outstanding terms purchase contingent consideration maximum 15000000 “earnout amount” based reynolds operating performance period 36 months following reynolds closing date “earnout period” july 2007 company determined probable maximum consideration would achieved agreed settle earnout amount discounted basis 13252000 consisting 2270000 cash 10982000 layne common stock valued based average closing price five trading days ending july 31 2007 company paid cash portion settlement july 31 2007 issued 249023 shares layne common stock august 2007 payment stock portion earnout amount accounted additional purchase consideration accordingly company recorded 13252000 additional goodwill july 2007 october 2005 company purchased remaining 25 working interest various gas wells saltwater disposal wells pipeline colt natural gas llc colt pipeline llc “colt” affiliates working interest partner 6149000 cash additional 257000 payable company upon satisfaction certain conditions colt acquisition furthers company’s expansion energy presence midcontinent region united states acquisition significant effect company’s results operations cash flows following effect company’s consolidated financial position company made two acquisitions march june 2005 broaden membrane technologies capabilities total purchase price acquisitions 453000 consisted cash payments 359000 note payable shareholder one entities acquisitions significant effect company’s results operations cash flows following effect company’s consolidated financial position 3 investments affiliates company’s investments affiliates carried company’s equity underlying net assets plus additional 4607000 result purchase accounting affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows january 31 2008 may 2004 company entered domestic corporate joint venture nicholson construction company complete construction project company invested 200000 acquire 50 ownership joint venture project substantially completed 2006 joint venture liquidated 2007 financial information affiliates reported onemonth lag reporting period summarized financial information affiliates january 31 2008 2007 2006 years ended follows company transactions balances affiliates resulted following amounts included consolidated financial statements january 31 2008 2007 2006 years ended undistributed equity earnings affiliates totaled 15190000 9635000 7096000 january 31 2008 2007 2006 respectively september 2002 company invested joint venture privatelyheld limited partnership develop water storage bank property located california company invested 1059000 acquire 10 ownership joint venture investment accounted using equity method june 2003 company exercised significant influence joint venture management contract june 2003 investment accounted using cost method management contract terminated company longer exercised significant influence joint venture investment sold october 2005 resulting gain 1289000 recorded “other income” statement income 4 discontinued operations 2004 company sold two businesses reclassified results operations businesses discontinued operations accordance sfas 144 “accounting impairment disposal longlived assets” revenues businesses 2008 2007 2006 losses discontinued operations income taxes 2006 2000 5 goodwill intangible assets goodwill intangible assets consisted following january 31 amortizable intangible assets amortized estimated useful lives two 40 years weighted average amortization period 26 years total amortization expense intangible assets 1123000 1068000 387000 2008 2007 2006 respectively amortization expense subsequent five fiscal years estimated follows total goodwill january 31 2008 2007 13578000 6526000 respectively expected tax deductible carrying amount goodwill attributed operating segment follows thousands 6 income expense income expense consisted following years ended january 31 gain loss disposal property equipment relate company’s efforts monetize nonstrategic assets well gains disposals ordinary course business january 2007 company sold interest minerals concession gain 920000 october 2005 company sold investment joint venture develop water bank gain 1289000 see note 3 7 costs estimated earnings uncompleted contracts company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year january 31 2008 2007 company held unbilled contract retainage amounts 33201000 26652000 respectively 8 income taxes income loss continuing operations income taxes follows components income tax expense follows deferred income taxes result temporary differences financial statement tax bases company’s assets liabilities sources differences cumulative tax effects follows company several australian african subsidiaries generated tax losses majority losses utilized reduce company’s federal state income tax liabilities company certain state tax loss carryforwards totaling 1300000 expire 2013 2021 january 31 2008 undistributed earnings foreign subsidiaries certain foreign affiliates included 33400000 federal income foreign withholding taxes provided earnings considered invested indefinitely become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign affiliates earnings considered invested indefinitely income taxes foreign withholding taxes also provided dividends received gains recognized sale certain affiliates year reconciliation total income tax expense statutory federal rate follows company adopted provisions fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” effective february 1 2007 interpretation clarifies accounting uncertainty income taxes recognized entity’s financial statements fin 48 prescribes morelikelythannot threshold financial statement recognition measurement tax position taken expected taken tax return company’s adoption fin 48 resulted cumulative effect adjustment increasing retained earnings 465000 february 1 2007 prior adoption fin 48 company classified income tax uncertainties current liabilities upon adoption fin 48 approximately 4600000 reclassified noncurrent liabilities resolution tax uncertainties expected resolved within 12 months reconciliation beginning ending amount unrecognized tax benefits follows substantially unrecognized tax benefits recorded january 31 2008 february 1 2007 would affect effective rate recognized expected amount unrecognized tax benefits change next year however company expect change significant impact results operations financial position company classifies interest penalties related income taxes component income tax expense consistent recognition items prior years february 1 2007 company 1782000 interest penalties accrued associated unrecognized tax benefits liability interest penalties increased 970000 year ended january 31 2008 2752000 company files income tax returns us federal jurisdiction various state jurisdictions certain foreign jurisdictions company settled irs examinations year ended january 31 2008 relating tax years ended january 31 1999 2003 examinations result material adjustments statue limitations expired tax year ended january 31 2004 year ended january 31 2008 company currently irs examination remaining open tax years statue limitations expire years 2008 2010 company currently examination state local jurisdictions state local tax years open examination close 2008 2011 company files tax returns foreign jurisdictions operates returns subject examination numerous tax audits may ongoing point time tax liabilities recorded based estimates additional taxes due upon settlement audits tax years subject examination foreign tax authorities vary jurisdiction generally tax years 2003 2008 remain open examination 9 operating leases obligations future minimum rental payments required operating leases initial remaining noncancelable lease terms excess one year january 31 2008 follows operating leases primarily light medium duty trucks equipment rent expense operating leases including insignificant amounts contingent rental payments 27977000 22866000 14603000 2008 2007 2006 respectively asset retirement obligations consist estimated costs dismantlement removal site reclamation similar activities associated oil gas properties asset retirement obligation related asset retirement cost recorded well drilled completed asset retirement cost determined based expected costs complete reclamation end well’s economic life discounted present value using creditadjusted riskfree rate initial recording liability increased passage time increase reflected consolidated statements income depreciation depletion amortization asset retirement costs capitalized part oil gas properties depleted accordingly additions asset retirement obligations years ended january 31 2008 2007 2006 170000 243000 224000 respectively accretion periods 60000 43000 27000 respectively carrying value asset retirement obligations january 31 2008 1043000 recorded long term liabilities 10 employee benefit plans company sponsors pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plan substantially equal amounts required maintain qualified status plan contributions intended provide benefits related past current service company effective december 31 2003 company froze pension plan ceased accrual benefits employees added plan company expects maintain assets plan pay normal benefits accrued december 31 2003 assets plan consist primarily stocks bonds government securities january 31 2007 company adopted recognition disclosure provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” sfas 158 required company recognize funded status ie difference fair value plan assets projected benefit obligations pension plans january 31 2007 balance sheet corresponding adjustment accumulated comprehensive income net tax adjustment accumulated comprehensive income adoption represents net unrecognized actuarial losses previously netted plan’s funded status company’s balance sheet pursuant provisions sfas 87 amounts subsequently recognized net periodic pension cost pursuant company’s historical accounting policy amortizing amounts actuarial gains losses arise subsequent periods recognized net periodic pension costs periods recognized component comprehensive income amounts subsequently recognized component net periodic pension cost basis amounts recognized accumulated comprehensive income adoption sfas 158 incremental effects adopting provisions sfas 158 company’s consolidated balance sheet january 31 2007 presented following table adoption sfas 158 effect company’s consolidated statements income period presented see note 16 discussion provisions sfas 158 required adopted year ended january 31 2009 following table illustrates effect applying sfas 158 january 31 2007 thousands dollars following table sets forth plan’s funded status december 31 2007 2006 measurement dates amounts recognized company’s consolidated balance sheets january 31 2008 2007 net periodic pension cost 2008 2007 2006 includes following components company recognized full amount actuarially determined pension liability estimated net loss plan expected amortized accumulated comprehensive income net periodic benefit cost 2009 120000 weighted average assumptions used determine benefit obligation net periodic pension cost years ending january 31 2008 2007 2006 follows estimated longterm rate return assets developed based historical returns future expectations returns asset class well target asset allocation pension portfolio benefit level assumptions 2008 2007 2006 based fixed amounts per year credited service percentage fair value total plan assets major category plan assets measurement date follows company’s investment policy includes following asset allocation guidelines effective periods presented asset allocation policy developed consideration following longterm investment objectives achieve longterm inflationadjusted growth asset values investments common stock fixed income obligations minimize risk maintaining allocation cash equivalents manage portfolio conform erisa requirements manage plan assets total return basis maximize total returns consistent appropriate level risk controlled via diversification investments among within asset classes company contracts financial institution provide investment management services full discretion portfolio investments given investment manager subject asset allocation guidelines following additional guidelines • equity securities allowable equity securities include common stocks listed us stock exchange overthecounter common stocks preferred convertible securities equity holdings single issuer aggregate 10 total market value plan • international securities allowable international securities include common stocks preferred stocks warrants convertible securities well government corporate debt securities • mutual funds mutual funds may utilized investments fixed income equity international securities enhance diversification performance • fixed income securities allowable fixed income securities include us treasury securities us agency securities corporate bonds fixed income securities shall rated “a” better time purchase fixed income security shall continue held rating falls “bbb” securities single issuer exception us treasuries agencies aggregate 10 total market value plan fixed income segment portfolio generally intermediate average maturity five 10 years maximum permitted maturity individual issue 15 years december 31 2007 response changing market conditions investment manager sought minimize portfolio risk asset allocations cash equivalents debt securities outside established policy range allowed discretion granted investment company percentage fair value total plan assets major category plan assets expected return amounts within established policy range 2009 company’s policy respect funding qualified pension plan fund least minimum required erisa maximum deductible tax purposes contribution expected required erisa january 1 december 31 2008 plan year company expect make contributions plan 2008 calendar year estimated benefit payments expected paid next five fiscal years aggregate five fiscal years thereafter follows company also provides supplemental retirement benefits chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent chief executive’s defined contribution plan balance company contribute plan maintain investment assets related expected benefit obligation company recognized full amount actuarially determined pension liability amounts recognized company’s consolidated balance sheets january 31 2008 2007 2021000 1742000 net periodic pension cost supplemental retirement benefits 2008 2007 2006 include following components company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 2961000 3062000 2009000 2008 2007 2006 respectively information regarding assets accumulated benefits plans made available company’s salaried certain hourly employees participate companysponsored defined contribution plans total expense company’s portion plans 3777000 2996000 2588000 2008 2007 2006 respectively january 2006 company initiated deferred compensation plan certain management employees participants may elect defer 25 salaries beginning january 2007 50 bonuses plan company matching contributions vesting period contributions established discretion company employee deferrals vested times total amount deferred including company matching 2008 2007 2237000 1257000 total liability deferred compensation 3500946 1498804 59158 january 31 2008 2007 2006 respectively 11 indebtedness july 31 2003 company entered agreement “master shelf agreement” whereby could issue 60000000 unsecured notes upon closing company issued 40000000 notes “series senior notes” master shelf agreement series senior notes bear fixed interest rate 605 due july 31 2010 annual principal payments 13333000 beginning july 31 2008 company issued additional 20000000 notes master shelf agreement october 2004 “series b senior notes” series b senior notes bear fixed interest rate 540 due september 29 2011 annual principal payments 6667000 beginning september 29 2009 october 15 2007 company amended master shelf agreement increase amount senior notes available issued 105000000 created available facility amount 45000000 reinstated extended available issuance period september 15 2009 company also maintains revolving credit facility amended restated loan agreement “credit agreement” lasalle bank national association administrative agent lender “administrative agent” lenders listed therein “lenders” contains revolving loan commitment 200000000 less outstanding letter credit commitments subject 30000000 sublimit credit agreement provides interest variable rates equal company’s option libor rate plus 075 200 base rate defined credit agreement plus 050 depending upon company’s leverage ratio credit agreement unsecured due payable november 15 2011 january 31 2008 letters credit 12716000 borrowings outstanding credit agreement resulting available capacity 187284000 master shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends certain financial maintenance covenants including among others fixed charge coverage maximum debt ebitda minimum tangible net worth company compliance covenants january 31 2008 maximum borrowings outstanding company’s thenexisting credit agreements 2008 2007 186000000 155000000 respectively average outstanding borrowings 127300000 141850000 respectively weighted average interest rates 67 respectively loan costs incurred securing longterm financing amortized using method approximates effective interest method term respective loan agreement amortization costs 2008 2007 2006 169000 161000 96000 respectively amortization loan costs included interest expense consolidated statements income debt outstanding january 31 2008 2007 whose carrying value approximates fair market value follows january 31 2008 debt outstanding mature fiscal year follows 12 derivatives company’s energy division exposed fluctuations price natural gas entered fixedprice physical delivery contracts manage natural gas price risk portion production january 31 2008 company committed deliver 4190000 million british thermal units “mmbtu” natural gas march 2010 prices ranging 749 905 per mmbtu march 2008 764 per mmbtu april 2008 march 2010 fixedprice physical delivery contracts result physical delivery natural gas result exempt requirements sfas 133 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts estimated fair value contracts january 31 2008 loss 99000 additionally company foreign operations significant costs denominated foreign currencies thus exposed risks associated changes foreign currency exchange rates point time company might use various hedge instruments primarily foreign currency option contracts manage exposures associated forecast expatriate labor costs purchases operating supplies january 31 2008 2007 instruments outstanding company enter foreign currency derivative financial instruments speculative trading purposes 13 stock option plans october 2007 company completed public stock offering 3105000 common shares proceeds offering net issuance costs 9344000 159879000 october 1998 company adopted rights agreement whereby company authorized declared dividend one preferred share purchase right “right” outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 25 company’s common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 4500 company entitled redeem right 01 per right time person acquired 25 company’s outstanding common stock rights expire 10 years date grant company stock option employee incentive plans provide granting options purchase issuance shares common stock aggregate 1450000 shares common stock price fixed board directors committee january 31 2008 586000 shares available granted plans company ability issue shares plans either new issuances treasury although previously always issued new shares expects continue issue new shares future company recognized 638000 10000 compensation cost nonvested shares years ended january 31 2008 2007 respectively summary nonvested share activity 2008 2007 2006 follows significant option groups outstanding january 31 2008 related exercise price remaining contractual term follows options granted exercise price equal fair market value company’s common stock date grant options terms five 10 years date grant generally vest ratably periods four five years certain option awards provide accelerated vesting change control defined plans equitable adjustments event changes company’s equity structure company expect unvested shares forfeited fair value options date grant estimated using blackscholes model weighted average fair value date grant options granted 2008 2007 2082 1268 respectively fair value based expected life six years dividend yield average interest rate 479 495 respectively assumed volatility 38 35 respectively purposes pro forma disclosure weighted average fair value date grant options granted 2006 1047 per option fair value options date grant estimated using blackscholes model fair values based expected life ranging six ten years dividend yield weighted average interest rate 397 assumed volatility 34 transactions stock options 2008 2007 2006 follows 14 contingencies company’s drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice “turnkey” basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance respect foreign operations company involved various matters litigation claims disputes arisen ordinary course company’s business company believes ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows 15 segments foreign operations company multinational company provides sophisticated services related products variety markets well producer unconventional natural gas energy market management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices’ division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water infrastructure division company’s segments defined follows water infrastructure division provides full line waterrelated services products including hydrological studies site selection well design drilling development pump installation well rehabilitation division’s offerings include design construction water treatment facilities provision filter media membranes treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental services assess monitor groundwater contaminants acquisition reynolds september 2005 cwi june 2006 uig november 2006 division expanded capabilities area design build water wastewater treatment plants ranney collector wells sewer rehabilitation water wastewater transmission lines mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods energy division focuses exploration production unconventional gas properties division primarily concentrated projects midcontinent region united states however fiscal 2008 division began exploration project chile includes two small specialty energy service companies specialty operations included one divisions financial information company’s segments presented intersegment revenues accounted based fair market value services provided unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer general counsel board directors corporate assets company directly associated segment consist primarily cash deferred income taxes assets associated discontinued operations 16 new accounting pronouncements july 2006 fasb released fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” fin 48 prescribes morelikelythannot threshold financial statement recognition measurement tax position taken expected taken tax return fin 48 also provides guidance derecognition income tax assets liabilities classification current deferred income tax assets liabilities accounting interest penalties associated tax positions accounting income taxes interim periods income tax disclosures company adopted provisions fin 48 february 1 2007 cumulative effects applying fin 48 recorded increase retained earnings decrease income taxes payable 465000 february 1 2007 september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” defines fair value establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements sfas 157 require new fair value measurements provides guidance measure fair value providing fair value hierarchy used classify source information company required adopt standard first quarter fiscal year ending january 31 2009 cumulative effect change accounting principles recorded adjustment opening retained earnings company anticipate adoption statement material impact consolidated financial statements september 2006 fasb issued sfas 158 “employers’ accounting defined benefit pension postretirement plans” “sfas 158” requires company sponsors postretirement benefit plan fully recognize asset liability overfunded underfunded status benefit plans yearend balance sheet provisions sfas 158 effective company’s fiscal year ended january 31 2007 impact adopting sfas 158 shown note 10 addition sfas 158 also generally requires company measure plan assets benefit obligations fiscal yearend balance sheet date company elected apply transition option 13month measurement determined december 31 2007 covers period fiscal yearend measurement required january 31 2009 result company estimates record approximate 44000 decrease retained earnings fiscal year ending january 31 2009 february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” “sfas 159” sfas 159 permits measurement specified financial instruments warranty insurance contracts fair value contractbycontract basis changes fair value recognized earnings reporting period company required adopt standard first quarter fiscal year ending january 31 2009 company anticipate adoption statement material impact consolidated financial statements december 2007 fasb issued sfas 141 revised 2007 “business combinations” “sfas 141r” sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree goodwill acquired sfas 141r also establishes disclosure requirements enable evaluation nature financial effects business combination company required adopt standard first quarter fiscal year ending january 31 2010 company currently evaluating potential impact adoption sfas 141r consolidated results operations financial condition december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statement amendment accounting research bulletin 51” “sfas 160” sfas 160 required noncontrolling interests previously referred minority interests treated separate component equity liability item outside permanent equity applies accounting noncontrolling interest holders consolidated financial statements company required adopt standard first quarter fiscal year ending january 31 2010 company anticipate adoption sfas 160 material impact results operations financial condition march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activities amendment fasb statement 133” “sfas 161” sfas 161 requires qualitative disclosures objectives strategies using derivatives quantitative disclosures fair value amounts gains losses derivative instruments disclosures creditriskrelated contingent features derivative agreements company required adopt standard first quarter fiscal year ending january 31 2010 company currently evaluating potential impact adoption sfas 161 consolidated results operations financial condition 17 quarterly results unaudited quarterly financial data follows supplemental information oil gas producing activities unaudited company’s oil gas activities conducted united states chile see note 1 additional information regarding company’s oil gas properties capitalized costs related oil gas producing activities capitalized costs associated depreciation depletion amortization relating oil gas producing activities follows january 31 2008 2007 2006 unproved oil gas property mineral interest costs january 31 2008 totaled 8131000 8405000 respectively total 1498000 relates exploration project chile unevaluated mineral interest costs excluded depreciation depletion amortization january 31 2008 2007 totaled 8405000 4153000 respectively capitalized costs associated depreciation relating gas transportation facilities equipment follows january 31 2008 2007 2006 capitalized costs incurred gas transportation facilities equipment 2008 2007 2006 totaled 5327000 12413000 6570000 respectively cost incurred oil gas producing activities capitalized costs incurred oil gas producing activities follows 2008 2007 2006 exploration costs 1498000 2008 associated exploration project chile results operations oil gas producing activities results operations relating oil gas producing activities set forth following table years ended january 31 2008 2007 2006 includes revenues operating costs directly attributable oil gas producing activities results operations gas transportation facilities equipment activities general corporate overhead non oil gas producing activities excluded production natural gas wells sold company’s pipeline operation turn sells gas primarily gas marketing firms income tax expense calculated applying statutory tax rates revenues deducting costs include depreciation depletion amortization allowances proved oil gas reserve quantities proved gas reserve quantities january 31 2008 2007 based estimates prepared company’s engineers accordance rule 410 regulation sx reserve quantities prepared independent petroleum engineers cawley gillespie associates inc company’s reserves located within united states company’s project chile moved production phase reserves established chile proved gas reserves estimated quantities natural gas geological engineering data demonstrate reasonable certainty recovered future years known reservoirs existing economic operating conditions proved developed reserves expected recovered existing wells existing equipment operating methods company cautions many inherent uncertainties estimating quantities proved reserves projecting future rates production timing development expenditures accordingly estimates likely change future information becomes available estimated quantities total proved developed reserves natural gas follows proved developed undeveloped reserves standardized measure discounted future net cash flows relating proved oil gas reserve quantities future cash inflows based yearend gas prices without escalation weighted average yearend spot price used estimating future net revenues 753 689 per mcf 2008 2007 respectively future production development costs represent estimated future expenditures incurred developing producing proved reserves assuming continuation existing economic conditions future income tax expense computed applying statutory rates pretax cash flows relating company’s estimated proved reserves difference book tax basis proved properties information purport present fair market value company’s natural gas assets present standardized disclosure concerning possible future net cash flows would result assumptions used following table sets forth unaudited information concerning future net cash flows natural gas reserves net income tax expense principal sources change standardized measure discounted future net cash flows layne christensen company subsidiaries schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules layne christensen company subsidiaries schedules omitted applicable required information included consolidated financial statements company notes thereto statement management responsibility consolidated financial statements layne christensen company subsidiaries “company” prepared conformity accounting principles generally accepted united states integrity objectivity data financial statements responsibility management information included annual report form 10k management believes information presented annual report consistent financial statements financial statements contain material misstatements due fraud error appropriate financial statements reflect management’s best estimates judgments management also responsible maintaining system internal accounting controls objectives providing reasonable assurance company’s assets safeguarded material loss unauthorized use disposition authorized transactions properly recorded permit preparation accurate financial data however limitations exist system internal controls based recognition cost system exceed benefits company believes system accounting controls internal auditing function integral part accomplishes stated objectives audit committee board directors composed outside directors meets periodically management company’s independent accountants internal auditors review matters related company’s financial statements internal audit activities internal accounting controls nonaudit services provided independent accountants independent accountants internal auditors full access audit committee meet without management present discuss scope results audits including internal controls audit financial matters b schmitt jerry w fanska andrew b schmitt president chief executive officer jerry w fanska senior vice president chief financial officer report independent registered public accounting firm board directors stockholders layne christensen company mission woods kansas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2009 2008 related consolidated statements income stockholders’ equity cash flows three years period ended january 31 2009 audits also included financial statement schedule listed index item 8 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2009 2008 results operations cash flows three years period ended january 31 2009 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 8 consolidated financial statements company adopted provisions financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 february 1 2007 additionally discussed note 1 consolidated financial statements company changed method accounting sharebased compensation upon adoption statement financial accounting standard “sfas” 123r “sharebased payments” february 1 2006 discussed note 10 consolidated financial statements company changed method accounting pension post retirement benefits january 31 2007 conform sfas 158 employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2009 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated march 31 2009 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp kansas city missouri march 31 2009 layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders’ equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows see notes consolidated financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “company” provide drilling construction services related products two principal markets water infrastructure mineral exploration well producer unconventional natural gas energy market company operates throughout north america well africa australia europe brazil customers include municipalities investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies lesser extent agribusiness mineral exploration company ownership interest certain foreign affiliates operating south america facilities chile peru see note 3 fiscal year references years fiscal years ended investment affiliated companies investments affiliates 20 50 owned company ability exercise significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries intercompany transactions eliminated financial information company’s affiliates certain foreign subsidiaries reported company’s consolidated financial statements onemonth lag reporting periods use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities company’s mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency remeasure monetary assets liabilities yearend exchange rates nonmonetary items remeasured historical rates income expense accounts remeasured average rates effect year except depreciation certain cost revenues selling expenses remeasured historical rates gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate weighted average rates prevailing year translation adjustments reported separate component accumulated comprehensive loss net foreign currency transaction gains losses 2009 2008 2007 91000 430000 95000 respectively revenue recognition revenues recognized large longterm construction contracts meeting criteria statement position 811 accounting performance constructiontype certain productiontype contracts “sop 811” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined allowed sop 811 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur contracts company’s mineral exploration drilling services billable based quantity drilling performed thus revenues drilling contracts recognized basis actual footage meterage drilled revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories company values inventories lower cost firstin firstout market allowances recorded inventory considered excess obsolete inventories consist primarily parts supplies property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 39432000 33933000 26825000 2009 2008 2007 respectively lives used items within property classification follows oil gas properties mineral interests company follows fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized separate fullcost pools established country company exploration activities depletion expense 11816000 8504000 4917000 2009 2008 2007 respectively company required review carrying value oil gas properties full cost accounting rules sec “ceiling test” ceiling limitation estimated aftertax future net revenues proved oil gas properties discounted 10 plus cost properties subject amortization net book value oil gas properties less related deferred income taxes excess calculated ceiling excess must written expense application ceiling test generally requires pricing future revenues unescalated prices effect last day quarter effect given company’s fixedprice physical delivery forward sales contracts requires writedown accounting purposes ceiling exceeded unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows see note 4 discussion impairments recorded 2009 reserve estimates company’s estimates natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill intangibles company accounts goodwill intangible assets accordance sfas 142 “goodwill intangible assets” intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized estimated useful lives range two 40 years impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation result ing implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions longlived assets event indication possible impairment company evaluates carrying value longlived assets including company’s gas transportation facilities equipment performing analysis anticipated future net cash flows related longlived assets reducing carrying value excess result calculation company believes time carrying value useful lives longlived assets continue appropriate cash equivalents company considers investments original maturity three months less purchased cash equivalents company’s cash equivalents included 56000000 short term commercial paper january 31 2008 none held january 31 2009 company’s cash equivalents subject potential credit risk company’s cash management investment policies restrict investments investment grade highly liquid securities carrying value cash equivalents approximates fair value restricted deposits restricted deposits consist escrow funds associated acquisitions described note 2 notes consolidated financial statements accrued insurance expense costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2009 2008 relatively short maturity instruments see note 11 disclosure regarding fair value indebtedness company note 12 disclosure regarding fair value derivative instruments litigation contingencies company involved litigation incidental business disposition expected material effect company’s business financial position results operations cash flows possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation counsel handling matters based upon combination litigation settlement strategies extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change derivatives company follows sfas 133 “accounting derivative instruments hedging activities” “sfas 133” amended requires derivative financial instruments recorded balance sheet fair value establishes criteria designation effectiveness hedging relationships sfas 133 company accounts unrealized hedges forecast costs cash flow hedges changes fair value effective portion hedge contracts material recorded accumulated comprehensive income stockholders’ equity changes fair value effective portion hedge contracts recognized accumulated comprehensive income hedged item recognized operations ineffective portion derivatives change fair value immediately recognized operations addition company entered fixedprice natural gas contracts manage fluctuations price natural gas contracts result company physically delivering gas result exempt requirements sfas 133 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts company enter derivative financial instruments speculative trading purposes supplemental cash flow information amounts paid income taxes interest follows company earnings restricted deposits 30000 287000 2009 2008 treated noncash item restricted account escrow beneficiaries year ended january 31 2009 company entered financing obligations software licenses amounting 1298000 payable three years associated assets recorded intangible assets balance sheet connection reynolds acquisition see note 2 year ended january 31 2008 company settled earnout amount discounted basis 13252000 consisting 2270000 cash 249023 shares common stock valued 10982000 connection collector wells acquisition see note 2 year ended january 31 2007 company issued 45563 shares common stock shares valued 1263000 based upon fiveday average closing price stock two days two days terms acquisition agreed publicly announced income taxes income taxes provided using asset liability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely see note 8 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive options purchase 176149 3000 shares excluded weighted average shares 2009 2008 2007 respectively effect antidilutive total 73587 none 668 unvested shares excluded weighted average shares 2009 2008 2007 respectively effect antidilutive sharedbased compensation company adopted sfas 123r revised december 2004 “sharebased compensation” effective february 1 2006 requires recognition sharebased instruments financial statements establishes fairvalue measurement associated costs company adopted standard using modified prospective method required recognition compensation expense related unvested sharebased instruments effective date remaining term instrument result adopting sfas 123r february 1 2006 income taxes 2186000 lower year ended january 31 2007 net income 1509000 010 per share basic diluted earnings lower year ended january 31 2007 continued account sharebased compensation apb 25 january 31 2009 company unrecognized compensation expense 6024000 recognized weighted average period 194 years company determines fair value sharebased compensation using blackscholes model unearned compensation expense associated issuance unvested shares amortized straightline basis restrictions stock expire required sfas 123r unearned compensation 44000 previously reflected reduction shareholders’ equity january 31 2006 reclassified reduction additional paid capital february 1 2006 comprehensive loss accumulated balances net income taxes comprehensive loss follows 2 acquisitions fiscal year 2009 company completed three acquisitions fiscal 2009 described • october 24 2008 company acquired 100 stock meadors construction co inc “meadors” construction company operating primarily florida operation combined similar service lines serve foster expansion florida southeast • august 7 2008 company acquired certain assets liabilities moore tabor geotechnical construction firm operating california • may 5 2008 company acquired certain assets liabilities wittman hydro planning associates “whpa” water consulting firm specializing hydrologic systems modeling analysis aggregate purchase price 8926000 comprised cash 8815000 1150000 placed escrow secure certain representations warranties idemnifications purchage agreements expenses 111000 reflected preliminary purchase price acquisition allocated based fair value assets liabilities acquired determined based company’s internal operational assessments analyses amounts may subject revision acquired entities integrated company revisions may significant recorded company adjustments purchase price allocation based company’s preliminary allocations purchase price acquisitions following effect company’s consolidated financial position respective closing dates thousands identifiable intangible assets associated meadors consist noncompete agreements valued 60000 weightedaverage useful life two years identifiable intangible assets associated whpa consist patents valued 250000 weightedaverage life 15 years 4290000 aggregate goodwill assigned water infrastructure segment expected deductible tax purposes results operations acquired entities included company’s consolidated statements income commencing respective closing dates pro forma amounts prior periods presented acquisitions would significant effect company’s consolidated revenues net income addition initial purchase price contingent consideration maximum 2500000 “whpa earnout amount” based percentage amount whpa’s earnings interest taxes depreciation amortization exceed threshold amount 36 months following acquisition earned 80 whpa earnout amount may paid layne common stock company’s discretion portion whpa earnout amount ultimately paid accounted additional purchase consideration fiscal year 2008 company completed two acquistions fiscal 2008 described • december 31 2007 “tierdael closing date” company acquired certain assets liabilities tierdael construction “tierdael” pipeline utility construction contractor denver combined similar service lines • november 30 2007 “solmetex closing date” company acquired certain assets liabilities solmetex inc “solmetex” water wastewater research development business supplier wastewater filtration products dental market aggregate purchase price 20696000 comprised cash 20146000 1665000 placed escrow secure certain representations warranties idemnifications purchage agreements assumed liabilites 226000 expenses 324000 reflected addition contingent consideration maximum 1000000 “solmetex earnout amount” based percentage amount solmetex’s revenues 36 months following acquisition portion solmetex earnout amount ultimately paid accounted additional purchase consideration january 31 2009 contingent earnout consideration earned solmetex 33000 paid march 2008 purchase price acquisition allocated based fair value assets liabilities acquired determined based company’s internal operational assessments analyses based company’s allocations purchase price acquisitions following effect company’s consolidated financial position respective closing dates thousands 6056000 identifiable intangible assets associated solmetex 21000 assigned research development assets written selling general administrative expenses date acquisition accordance fasb interpretation 4 applicability fasb statement 2 business combinations accounted purchase method remaining 6035000 acquired intangible assets weightedaverage useful life approximately 154 years comprised tradenames 15year weightedaverage useful life patents 15year weightedaverage useful life assets 20year average useful life 7270000 goodwill assigned water infrastructure segment total amount 7053000 expected deductible tax purposes results operations tierdael included company’s consolidated statements income commencing tierdael closing date assuming tierdael acquired beginning period unaudited pro forma consolidated revenues net income net income per share would follows results operations solmetex included company’s consolidated statements income commencing solmetex closing date assuming solmetex acquired beginning period unaudited pro forma consolidated revenues net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisitions made dates results may occur future pro forma results include adjustments interest expense cash purchase price depreciation amortization expense acquisition adjustments property equipment intangible assets september 28 2005 company acquired 100 outstanding stock reynolds inc “reynolds” privately held company major supplier products services water wastewater industries terms purchase contingent consideration maximum 15000000 “earnout amount” based reynolds operating performance period 36 months july 2007 company determined probable maximum consideration would achieved agreed settle earnout amount discounted basis 13252000 consisting 2270000 cash 10982000 layne common stock valued based average closing price five trading days ending july 31 2007 company paid cash portion settlement july 31 2007 issued 249023 shares layne common stock august 2007 payment stock portion earnout amount accounted additional purchase consideration accordingly company recorded 13252000 additional goodwill july 2007 fiscal year 2007 company completed two acquisitions fiscal 2007 described • november 20 2006 company acquired 100 stock american water services underground infrastructure inc “uig” wholly owned subsidiary american water usa inc uig engaged business providing trenchless pipeline rehabilitation services sewer storm water systems combined similar service line acquired • june 16 2006 “cwi closing date” company acquired 100 stock collector wells international inc “cwi” privately held specialty water services company designs constructs water supply systems cwi combined similar service line aggregate purchase price 33104000 comprised cash 30674000 45563 shares layne common stock valued 1263000 cash purchase price adjustments costs 1167000 240000 paid subsequent periods reflected cash portion uig purchase price net certain purchase price adjustments based amount tangible net worth closing date 1101000 received company february 2007 layne common stock valued transaction based upon fiveday average closing price stock two days two days cwi closing date stock placed escrow secure certain representations warranties indemnifications purchase agreement 10570 9400 shares released years ended january 31 2008 2009 respectively remaining 25593 shares released fiscal year 2010 cash purchase price adjustments based amount working capital cwi closing date exceeded threshold amount established purchase agreement addition contingent consideration maximum 1400000 “cwi earnout amount” based percentage amount cwi’s earnings interest taxes depreciation amortization exceed threshold amount thirtysix months following acquisition earned 20 cwi earnout amount may paid layne common stock company’s discretion portion cwi earnout amount ultimately paid accounted additional purchase consideration purchase price acquisition allocated based fair value assets liabilities acquired determined based historical cost basis assets liabilities appraisals analyses based company’s allocations purchase price acquisitions following effect company’s consolidated financial position results operations uig included company’s consolidated statements income commencing november 20 2006 assuming uig acquired beginning year unaudited pro forma consolidated revenues net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future pro forma results include ad justments interest expense cash purchase price depreciation amortization expense acquisition adjustments property equipment intangible assets results operations cwi included company’s consolidated statements income commencing cwi closing date pro forma amounts prior periods presented since acquisition significant effect company’s consolidated revenues net income july 2006 january 2007 company purchased certain gas wells mineral interests oil gas properties unrelated operators totaling 1988000 cash acquisitions complemented company’s existing operation midcontinent region united states purchase price allocated 1376000 oil gas properties 612000 mineral interests oil gas properties 3 investments affiliates company’s investments affiliates carried fair value investment considered date acquired plus company’s equity undistributed earnings date affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows january 31 2009 financial information affiliates reported onemonth lag reporting period summarized financial information affiliates january 31 2009 2008 2007 years ended follows company significant transactions balances affiliates resulted amounts included consolidated financial statements january 31 2009 2008 2007 years ended company’s equity undistributed earnings affiliates totaled 26328000 15190000 9635000 january 31 2009 2008 2007 respectively 4 impairment oil gas properties fourth quarter fiscal year 2009 company completed annual determination oil gas reserves energy division determination made according sec guidelines uses year end gas prices gas prices january 31 2009 used determination 329 per mcf compared 753 per mcf used january 31 2008 result lower prices expected future cash flows gas reserve volumes significantly reduced accordingly fourth quarter company recorded noncash impairment charge 26690000 16081000 income tax carrying value assets excess future net cash flows also recorded impairment 2014000 third quarter fiscal 2009 related company’s exploration project chile begun fiscal 2008 following initial core testing evaluation infrastructure requirements determined recovery investment likely costs written ceiling test oil gas property impairments years ended january 31 2008 2007 5 goodwill intangible assets goodwill intangible assets consisted following january 31 amortizable intangible assets amortized estimated useful lives two 40 years weighted average amortization period 25 years total amortization expense intangible assets 1536000 1123000 1068000 2009 2008 2007 respectively amortization expense subsequent five fiscal years estimated follows total goodwill january 31 2009 2008 19451000 13578000 respectively expected tax deductible carrying amount goodwill attributed operating segment follows thousands 6 income expense income expense consisted following years ended january 31 2009 company initiated litigation former officers subsidiary associated energy production companies september 2008 company entered settlement agreement whereby receive certain payments period september 2009 payments received net attorney fees recorded settlement income 2009 gain disposal property equipment relate company’s efforts monetize nonstrategic assets well gains disposals ordinary course business january 2007 company sold interest minerals concession gain 920000 7 costs estimated earnings uncompleted contracts company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year january 31 2009 2008 company held unbilled contract retainage amounts 39149000 33201000 respectively 8 income taxes income loss income taxes follows components income tax expense follows deferred income taxes result temporary differences financial statement tax bases company’s assets liabilities sources differences cumulative tax effects follows company several australian african subsidiaries generated tax losses majority losses utilized reduce company’s federal state income tax liabilities company certain state tax loss carryforwards totaling 400000 expire 2013 2021 january 31 2009 undistributed earnings foreign subsidiaries certain foreign affiliates included 45800000 federal income foreign withholding taxes provided earnings considered vested indefinitely become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign affiliates earnings considered invested indefinitely reconciliation total income tax expense statutory federal rate follows company adopted provisions fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” effective february 1 2007 interpretation clarifies accounting uncertainty income taxes recognized entity’s financial statements fin 48 prescribes morelikelythannot threshold financial statement recognition measurement tax position taken expected taken tax return company’s adoption fin 48 resulted cumulative effect adjustment increasing retained earnings 465000 february 1 2007 prior adoption fin 48 company classified income tax uncertainties current liabilities upon adoption fin 48 approximately 4600000 reclassified noncurrent liabilities resolution tax uncertainties expected resolved within 12 months reconciliation beginning ending amount unrecognized tax benefits follows substantially unrecognized tax benefits recorded january 31 2009 2008 would affect effective rate recognized expected amount unrecognized tax benefits change next year however company expect change significant impact results operations financial position company classifies interest penalties related income taxes component income tax expense consistent recognition items prior years january 31 2009 2008 company 2872000 2752000 respectively interest penalties accrued associated unrecognized tax benefits liability interest penalties increased 120000 970000 years ended january 31 2009 2008 respectively company files income tax returns us federal jurisdiction various state jurisdictions certain foreign jurisdictions company settled irs examinations year ended january 31 2008 relating tax years ended january 31 1999 2003 examinations result material adjustments statue limitations expired tax year ended january 31 2005 year ended january 31 2009 company currently irs examination remaining open tax years statutes limitation expire years 2010 2012 company currently examination state local jurisdictions state local tax years open examination close 2010 2012 company files tax returns foreign jurisdictions operates returns subject examination numerous tax audits may ongoing point time tax liabilities recorded based estimates additional taxes due upon settlement audits tax years subject examination foreign tax authorities vary jurisdiction generally tax years 2004 2009 remain open examination 9 operating leases obligations future minimum rental payments required operating leases initial remaining noncancelable lease terms excess one year january 31 2009 follows operating leases primarily light medium duty trucks equipment rent expense operating leases including insignificant amounts contingent rental payments 31660000 27977000 22866000 2009 2008 2007 respectively asset retirement obligations consist estimated costs dismantlement removal site reclamation similar activities associated oil gas properties asset retirement obligation related asset retirement cost recorded well drilled completed asset retirement cost determined based expected costs complete reclamation end well’s economic life discounted present value using creditadjusted riskfree rate initial recording liability increased passage time increase reflected consolidated statements income depreciation depletion amortization asset retirements costs capitalized part oil gas properties depleted accordingly additions asset retirement obligations years ended january 31 2009 2008 2007 185000 170000 243000 respectively accretion periods 77000 60000 43000 respectively carrying values asset retirement obligations january 31 2009 2008 1305000 1043000 respectively recorded long term liabilities 10 employee benefit plans company sponsors pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plan substantially equal amounts required maintain qualified status plan contributions intended provide benefits related past current service company effective december 31 2003 company froze pension plan ceased accrual benefits employees added plan depending market conditions company expects use assets plan settle benefit obligation 2010 january 31 2007 company adopted recognition disclosure provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” sfas 158 required company recognize funded status ie difference fair value plan assets projected benefit obligations pension plans january 31 2007 balance sheet corresponding adjustment accumulated comprehensive income net tax adjustment accumulated comprehensive income adoption represents net unrecognized actuarial losses previously netted plan’s funded status company’s balance sheet pursuant provisions sfas 87 amounts recognized net periodic pension cost pursuant company’s historical accounting policy amortizing amounts actuarial gains losses arise subsequent periods recognized net periodic pension costs periods recognized component comprehensive income amounts recognized component net periodic pension cost basis amounts recognized accumulated comprehensive income adoption sfas 158 adoption sfas 158 effect company’s consolidated statements income period presented incremental effects adopting provisions sfas 158 company’s consolidated balance sheet january 31 2007 presented following table beginning company’s fiscal year ended january 31 2009 sfas 158 also requires company measure plan assets benefit obligations fiscal balance sheet date company previously used december 31 measurement date company elected apply transition option 13month measurement determined december 31 2007 covers period fiscal yearend measurement required january 31 2009 result company recorded 47000 decrease retained earnings february 1 2008the following table sets forth plan’s funded status measurement dates amounts recognized company’s consolidated balance sheets january 31 2009 2008 net periodic pension cost 2009 2008 2007 includes following components company recognized full amount actuarially determined pension liability estimated net loss plan expected amortized accumulated comprehensive income net periodic benefit cost 2010 105000 weighted average assumptions used determine benefit obligation net periodic pension cost years ending january 31 2009 2008 2007 follows estimated longterm rate return assets developed based historical returns future expectations returns asset class well target asset allocation pension portfolio benefit level assumptions 2009 2008 2007 based fixed amounts per year credited service percentage fair value total plan assets major category plan assets measurement date follows company’s investment policy includes following asset allocation guidelines effective periods presented december 31 2007 response changing market conditions investment manager sought minimize portfolio risk asset allocations cash equivalents debt securities outside established policy range allowed discretion granted investment manager company january 31 2009 anticipation company’s decision settle obligations plan 2010 asset allocation shifted equity securities shortterm bonds asset allocation policy developed consideration following longterm investment objectives achieve longterm inflationadjusted growth asset values investments common stock fixed income obligations minimize risk maintaining allocation cash equivalents manage portfolio conform erisa requirements manage plan assets total return basis maximize total returns consistent appropriate level risk controlled via diversification investments among within asset classes company contracts financial institution provide investment management services full discretion portfolio investments given investment manager subject asset allocation guidelines following additional guidelines • equity securities allowable equity securities include common stocks listed us stock exchange overthecounter common stocks preferred convertible securities equity holdings single issuer aggregate 10 total market value plan • international securities allowable international securities include common stocks preferred stocks warrants convertible securities well government corporate debt securities • mutual funds mutual funds may utilized investments fixed income equity international securities enhance diversification performance • fixed income securities allowable fixed income securities include us treasury securities us agency securities corporate bonds fixed income securities shall rated “a” better time purchase fixed income security shall continue held rating falls “bbb” securities single issuer exception us treasuries agencies aggregate 10 total market value plan fixed income segment portfolio generally intermediate average maturity five 10 years maximum permitted maturity individual issue 15 years company’s policy respect funding qualified pension plan fund least minimum required erisa maximum deductible tax purposes contribution expected required erisa january 1 december 31 2009 plan year company expect make contributions plan 2009 calendar year estimated benefit payments expected paid next five fiscal years aggregate five fiscal years thereafter follows company also provides supplemental retirement benefits chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent chief executive’s defined contribution plan balance company contribute plan maintain investment assets related expected benefit obligation company recognized full amount actuarially determined pension liability amounts recognized company’s consolidated balance sheets january 31 2009 2008 2432000 2021000 net periodic pension cost supplemental retirement benefits 2009 2008 2007 include following components company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 3780000 2961000 3062000 2009 2008 2007 respectively information regarding assets accumulated benefits plans made available company’s salaried certain hourly employees participate companysponsored defined contribution plans total expense company’s portion plans 4215000 3777000 2996000 2009 2008 2007 respectively january 2006 company initiated deferred compensation plan certain management employees participants may elect defer 25 salaries beginning january 2007 50 bonuses plan company matching contributions vesting period contributions established discretion company employee deferrals vested times total amount deferred including company matching 2009 2008 2007 1939000 2237000 1257000 respectively total liability deferred compensation 4229000 3501000 january 31 2009 2008 respectively 11 indebtedness company maintains agreement “master shelf agreement” whereby issue 105000000 unsecured notes september 15 2009 july 31 2003 company issued 40000000 notes “series senior notes” master shelf agreement series senior notes bear fixed interest rate 605 due july 31 2010 annual principal payments 13333000 beginning july 31 2008 company issued additional 20000000 notes master shelf agreement october 2004 “series b senior notes” series b senior notes bear fixed interest rate 540 due september 29 2011 annual principal payments 6667000 beginning september 29 2009 company also maintains revolving credit facility amended restated loan agreement “credit agreement” bank america administrative agent lender “administrative agent” lenders listed therein “lenders” contains revolving loan commitment 200000000 less outstanding letter credit commitments subject 30000000 sublimit credit agreement provides interest variable rates equal company’s option libor rate plus 075 200 base rate defined credit agreement plus 050 depending upon company’s leverage ratio credit agreement unsecured due payable november 15 2011 january 31 2009 letters credit 15841000 borrowings outstanding credit agreement resulting available capacity 184159000 master shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends certain financial maintenance covenants including among others fixed charge coverage maximum debt ebitda minimum tangible net worth company compliance covenants january 31 2009 compliance financial covenants required quarterly basis using recent four fiscal quarters company’s fixed charge coverage ratio leverage ratio covenants based ratios utilizing adjusted ebitda adjusted ebitdar defined agreements adjusted ebitda generally defined consolidated net income excluding net interest expense provision income taxes gains losses extraordinary items gains losses sale capital assets noncash items including depreciation amortization sharebased compensation equity earnings affiliates included extent dividends distributions received adjusted ebitdar defined adjusted ebitda plus rent expense company’s tangible net worth covenant based stockholders’ equity less intangible assets measures considered nongaap financial measures intended accordance accounting principles generally accepted united states company’s minimum fixed charge coverage ratio covenant ratio adjusted ebitdar sum fixed charges fixed charges consist rent expense interest expense principal payments longterm debt company’s leverage ratio covenant ratio total funded indebtedness adjusted ebitda total funded indebtedness generally consists outstanding debt capital leases unfunded pension liabilities asset retirement obligations escrow liabilities company’s tangible net worth covenant measured based stockholders’ equity less intangible assets compared threshold amount defined agreements threshold adjusted time based percentage net income proceeds issuance equity securities january 31 2009 2008 company’s actual required covenant levels follows maximum borrowings outstanding company’s credit agreements 2009 2008 60000000 186000000 respectively average outstanding borrowings 52200000 127300000 respectively weighted average interest rates including amortization loan costs 64 67 respectively loan costs incurred securing longterm financing amortized using method approximates effective interest method term respective loan agreement amortization costs 2009 2008 2007 183000 169000 161000 respectively amortization loan costs included interest expense consolidated statements income debt outstanding january 31 2009 2008 whose carrying value approximates fair market value follows january 31 2009 debt outstanding mature fiscal year follows 12 derivatives company’s energy division exposed fluctuations price natural gas entered fixedprice physical delivery contracts manage natural gas price risk portion production january 31 2009 company committed deliver 6183000 million british thermal units “mmbtu” natural gas march 2010 prices ranging 768 852 per mmbtu march 2009 761 1067 per mmbtu april 2009 march 2010 fixedprice physical delivery forward sales contracts result physical delivery natural gas result exempt requirements sfas 133 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts estimated fair value contracts january 31 2009 27950000 additionally company foreign operations significant costs denominated foreign currencies thus exposed risks associated changes foreign currency exchange rates point time company might use various hedge instruments primarily foreign currency option contracts manage exposures associated forecast expatriate labor costs purchases operating supplies company enter foreign currency derivative financial instruments speculative trading purposes january 31 2009 company held option contracts aggregate us dollar notional value 9800000 intended hedge exposure australian dollar fluctuations contracts settle various increments january 31 2010 fair value instruments 158000 january 31 2009 recorded current liabilities net income taxes 62000 accumulated comprehensive income 13 stock option plans october 2008 company amended rights agreement signed october 1998 whereby company authorized declared dividend one preferred share purchase right “right” outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 20 company’s common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 7500 company entitled redeem right 01 per right time person acquired 20 company’s outstanding common stock rights expire three years date grant october 2007 company completed public stock offering 3105000 common shares proceeds offering net issuance costs 9344000 159879000 company stock option employee incentive plans provide granting options purchase issuance shares common stock price fixed board directors committee january 31 2009 aggregate 1450000 shares registered plans 467000 remain available granted plans amount 250000 shares may granted stock payment bonuses 217000 may issued stock options subsequent january 31 2009 company issued substantially remaining available options company ability issue shares plans either new issuances treasury although previously always issued new shares expects continue issue new shares future year ended january 31 2009 company purchased subsequently cancelled 5357 shares stock related settlement withholding obligations company recognized 1369000 638000 compensation cost nonvested shares years ended january 31 2009 2008 respectively summary nonvested share activity 2009 2008 2007 follows significant option groups outstanding january 31 2009 related exercise price remaining contractual term follows options granted exercise price equal fair market value company’s common stock date grant options terms 10 years date grant generally vest ratably periods three five years certain option awards provide accelerated vesting change control defined plans equitable adjustments event changes company’s equity structure company expect unvested shares forfeited fair value options date grant estimated using blackscholes model weighted average fair value date grant options granted 2009 2008 2007 1630 2082 1268 respectively fair value based expected life six years dividend yield average riskfree rate 248 479 495 respectively assumed volatility 48 38 35 respectively stock option transactions 2009 2008 2007 follows 14 contingencies company’s drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice bundled basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protec tion considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance respect foreign operations company involved various matters litigation claims disputes arisen ordinary course company’s business company believes ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows april 30 2008 levellandhockley county ethanol llc “levelland” filed complaint company district court hockley county texas may 28 2008 company removed case united states district court northern district texas lubbock division june 2 2008 levelland filed first amended complaint company federal district court northern district texas lubbock division levelland owns ethanol plant located levelland texas july 2007 levelland entered lease agreement company certain water treatment equipment ethanol plant levelland alleges equipment leased company fails treat water coming ethanol plant required levels first amended complaint seeks damages breach contract breach warranty violation texas deceptive trade practices act negligence negligent misrepresentation fraud connection design construction water treatment facility company believes meritorious defenses claims intends vigorously defend believe claims material adverse effect upon business consolidated financial position results operations cash flows 15 segments foreign operations company multinational company provides sophisticated services related products variety markets well producer unconventional natural gas energy market management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices’ division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water infrastructure division company’s segments defined follows water infrastructure division provides full line waterrelated services products including hydrological studies site selection well design drilling development pump installation well rehabilitation division’s offerings include design construction water wastewater treatment facilities provision filter media membranes treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater ranney collector wells sewer rehabilitation water wastewater transmission lines division also offers environmental services assess monitor groundwater contaminants mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods energy division focuses exploration production unconventional gas properties primarily concentrating projects midcontinent region united states includes two small specialty energy service companies specialty operations included one divisions financial information company’s segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer general counsel board directors corporate assets company directly associated segment consist primarily cash deferred income taxes 16 new accounting pronouncements september 2006 financial accounting standards board “fasb” issued sfas 157 “fair value measurements” “sfas 157” defines fair value establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements sfas 157 require new value measurements provides guidance measure fair value providing fair value hierarchy used classify source information february 1 2008 company adopted sfas 157 financial assets liabilities adoption sfas 157 impact company’s financial position results operations liquidity disclosures february 2008 fasb issued staff position 1572 “effective date fasb statement 157” “fsp 1572” delays effective date sfas 157 nonfinancial assets nonfinancial liabilities except recognized disclosed fair value financial statements recurring basis least annually fiscal years beginning november 15 2008 interim periods within fiscal years nonfinancial items include assets liabilities reporting units measured fair value goodwill impairment test nonfinancial assets acquired liabilities assumed business combination purchased intangible assets adoption sfas 157 nonfinancial assets within scope fsp 1572 expected material impact company’s financial position results operations liquidity october 2008 fasb issued staff position 1573 “determining fair value asset market asset active” “fsp 1573” intent clarify application sfas 157 market active providing example illustrate key considerations application guidance emphasizes use reporting entity’s assumptions future cash flows appropriately riskadjusted discount rate determining fair value financial asset acceptable relevant observable inputs available fsp 1573 effective upon issuance impact company’s financial position results operations liquidity disclosures september 2006 fasb issued sfas 158 “employers’ accounting defined benefit pension postretirement plans” “sfas 158” requires company sponsors postretirement benefit plan fully recognize asset liability overfunded underfunded status benefit plans yearend balance sheet provisions sfas 158 effective company’s fiscal year ended january 31 2007 addition beginning company’s fiscal year ending january 31 2009 sfas 158 requires company measure plan assets benefit obligations fiscal yearend balance sheet date company elected apply transition option 13month measurement determined december 31 2007 covers period fiscal yearend measurement required january 31 2009 result company recorded 47000 decrease retained earnings february 1 2008 february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” “sfas 159” sfas 159 permits measurement specified financial instruments warranty insurance contracts fair value contractbycontract basis changes fair value recognized earnings reporting period company adopted standard prospective basis february 1 2008 adoption sfas 159 impact consolidated financial statements since elect apply fair value option eligible financial instruments items february 1 2008 effective date december 2007 fasb issued sfas 141 revised 2007 “business combinations” “sfas 141r” sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree goodwill acquired sfas 141r also establishes disclosure requirements enable evaluation nature financial effects business combination company required adopt standard beginning first quarter fiscal year ending january 31 2010 company expect adoption sfas 141r significant impact consolidated results operations financial condition december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statement amendment accounting research bulletin 51” “sfas 160” sfas 160 required noncontrolling interests previously referred minority interests treated separate component equity liability item outside permanent equity applies accounting noncontrolling interest holders consolidated financial statements company required adopt standard beginning first quarter fiscal year ending january 31 2010 adoption sfas 160 result reclassification 75000 minority interest equity march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activities amendment fasb statement 133” “sfas 161” sfas 161 requires qualitative disclosures objectives strategies using derivatives quantitative disclosures fair value amounts gains losses derivative instruments disclosures creditriskrelated contingent features derivative agreements company required adopt standard first quarter fiscal year ending january 31 2010 company currently evaluating impact new rules accounting disclosure december 29 2008 sec adopted new rules related modernizing accounting disclosure requirements oil natural gas companies new disclosure requirements include provisions permit use new technologies determine proved reserves technologies demonstrated empirically lead reliable conclusions reserve volumes new rules also allow companies option disclose probable possible reserves addition existing requirement disclose proved reserves new disclosure requirements also require companies report independence qualifications third party preparers reserves file reports third party relied upon prepare reserves estimates significant change rules involves pricing reserves measured new rules utilize 12month average price using beginning month pricing february 1 january 1 report oil gas reserves rather yearend prices addition 12month average also used test cost center ceilings impairment compute depreciation depletion amortization company required adopt rules fiscal year ending january 31 2010 early adoption permitted company currently evaluating impact new rules accounting disclosure 17 quarterly results unaudited quarterly financial data follows fourth quarter 2009 company recorded noncash impairment charge 26690000 16081000 income tax related energy operations result annual determination oil gas reserves supplemental information oil gas producing activities unaudited company’s oil gas activities primarily conducted united states see note 1 additional information regarding company’s oil gas properties capitalized costs related oil gas producing activities capitalized costs associated depletion relating oil gas producing activities follows january 31 2009 2008 2007 included accumulated depletion january 31 2009 noncash ceiling test impairments 26690000 impairments january 31 2008 2007 see note 4 additional information regarding impairment oil gas properties unproved oil gas property mineral interest costs january 31 2009 totaled 10348000 9305000 respectively unevaluated mineral interest costs excluded depreciation depletion amortization january 31 2009 2008 totaled 9305000 8405000 respectively capitalized costs associated depreciation relating gas transportation facilities equipment follows january 31 2009 2008 2007 capitalized costs incurred gas transportation facilities equipment 2009 2008 2007 totaled 6739000 5327000 12413000 respectively fiscal 2009 transferred 2820000 oil gas properties gas transportation facilities equipment company began use facilities transport third party natural gas market cost incurred oil gas producing activities capitalized costs incurred oil gas producing activities follows 2009 2008 2007 exploration costs 1498000 2008 associated exploration project chile costs considered impaired written 2009 results operations oil gas producing activities results operations relating oil gas producing activities set forth following table years ended january 31 2009 2008 2007 include revenues operating costs directly attributable oil gas producing activities results operations gas transportation facilities equipment activities general corporate overhead non oil gas producing activities excluded production natural gas wells sold company’s pipeline operation turn sells gas primarily gas marketing firms income tax expense calculated applying statutory tax rates revenues deducting costs include depletion allowances proved oil gas reserve quantities proved gas reserve quantities january 31 2009 2008 based estimates prepared company’s independent petroleum engineers cawley gillespie associates inc accordance rule 410 regulation sx company’s reserves located within united states proved gas reserves estimated quantities natural gas geological engineering data demonstrate reasonable certainty recovered future years known reservoirs existing economic operating conditions proved developed reserves expected recovered existing wells existing equipment operating methods company cautions many inherent uncertainties estimating quantities proved reserves projecting future rates production timing development expenditures accordingly estimates likely change future information becomes available estimated quantities total proved developed reserves natural gas follows standardized measure discounted future net cash flows relating proved oil gas reserve quantities future cash inflows based yearend gas prices without escalation weighted average yearend spot price used estimating future net revenues 329 753 per mcf 2009 2008 respectively future production development costs represent estimated future expenditures incurred developing producing proved reserves assuming continuation existing economic conditions future income tax expense computed applying statutory rates pretax cash flows relating company’s estimated proved reserves difference book tax basis proved properties information purport present fair market value company’s natural gas assets present standardized disclosure concerning possible future net cash flows would result assumptions used following table sets forth unaudited information concerning future net cash flows natural gas reserves net income tax expense principal sources change standardized measure discounted future net cash flows layne christensen company subsidiaries schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules omitted applicable required information included consolidated financial statements company notes thereto statement management responsibility consolidated financial statements layne christensen company subsidiaries “company” prepared conformity accounting principles generally accepted united states integrity objectivity data financial statements responsibility management information included annual report form 10k management believes information presented annual report consistent financial statements financial statements contain material misstatements due fraud error appropriate financial statements reflect management’s best estimates judgments management also responsible maintaining system internal accounting controls objectives providing reasonable assurance company’s assets safeguarded material loss unauthorized use disposition authorized transactions properly recorded permit preparation accurate financial data however limitations exist system internal controls based recognition cost system exceed benefits company believes system accounting controls internal auditing function integral part accomplishes stated objectives audit committee board directors composed outside directors meets periodically management company’s independent accountants internal auditors review matters related company’s financial statements internal audit activities internal accounting controls nonaudit services provided independent accountants independent accountants internal auditors full access audit committee meet without management present discuss scope results audits including internal controls audit financial matters b schmitt jerry w fanska andrew b schmitt jerry w fanska president senior vice president chief executive officer chief financial officer report independent registered public accounting firm board directors stockholders layne christensen company mission woods kansas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2010 2009 related consolidated statements income stockholders’ equity cash flows three years period ended january 31 2010 audits also included financial statement schedule listed index item 8 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2010 2009 results operations cash flows three years period ended january 31 2010 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed method accounting oil gas reserve estimation related required disclosures january 31 2010 implementation new accounting guidance also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2010 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated april 1 2010 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp kansas city missouri april 1 2010 layne christensen company subsidiaries consolidated balance sheets thousands except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income thousands except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders’ equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows see notes consolidated financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “company” provide drilling construction services related products two principal markets water infrastructure mineral exploration well producer unconventional natural gas energy market company operates throughout north america well africa australia europe brazil customers include municipalities investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies lesser extent agribusiness mineral exploration company ownership interest certain foreign affiliates operating south america facilities chile peru see note 3 fiscal year references years fiscal years ended investment affiliated companies investments affiliates 20 50 owned company ability exercise significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries intercompany transactions eliminated financial information company’s affiliates certain foreign subsidiaries reported company’s consolidated financial statements onemonth lag reporting periods company evaluated subsequent events time filing consolidated financial statements use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities company’s mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency remeasure monetary assets liabilities yearend exchange rates nonmonetary items remeasured historical rates income expense accounts remeasured exchange rates approximate weighted average prevailing exchange rates effect year except depreciation certain cost revenues selling expenses translated historical rates gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities remeasured us dollars yearend exchange rates income expense items translated exchange rates approximate weighted average rates prevailing year translation adjustments reported separate component accumulated comprehensive income loss net foreign currency transaction gains losses 2010 2009 2008 802000 91000 430000 respectively recorded income expense accompanying consolidated statements income revenue recognition revenues recognized large longterm construction contracts meeting criteria accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” “asc topic 60535” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined contracts company’s mineral exploration drilling services billable based quantity drilling performed revenues drilling contracts recognized basis actual footage meterage drilled allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories company values inventories lower cost firstin firstout market allowances recorded inventory considered excess obsolete inventories consist primarily parts supplies property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 42059000 39432000 33933000 2010 2009 2008 respectively lives used items within property classification follows oil gas properties mineral interests company follows fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized capitalized costs depleted based units production depletion expense 13992000 11816000 8504000 2010 2009 2008 respectively company required review carrying value oil gas properties full cost accounting rules sec “ceiling test” ceiling limitation estimated aftertax future net revenues proved oil gas properties discounted 10 plus cost properties subject amortization net book value oil gas properties less related deferred income taxes excess calculated ceiling excess must written expense beginning fiscal 2010 year end application ceiling test requires pricing future revenues unweighted arithmetic average firstdayofthemonth price month within 12month period end reporting period unless prices defined contractual arrangements company’s fixedprice physical delivery forward sales contracts considerations ceiling test prior fiscal 2010 year end used period end price adjusted contractual arrangements unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows see note 4 discussion impairments recorded reserve estimates company’s estimates natural gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing natural gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material december 31 2008 sec adopted final rules interpretations updating oil gas reserves reporting requirements many revisions updates definitions existing oil gas rules make consistent petroleum resource management system widely accepted set evaluation guidelines designed support assessment processes throughout resource asset lifecycle guidelines prepared society petroleum engineers “spe” oil gas reserves committee cooperation many industry organizations one key changes previous sec rules relates using 12month average commodity price calculate value proved reserves versus prior method using yearend prices key revisions include ability include nontraditional resources reserves use new technology determining reserves opportunity establish proved undeveloped reserves without requirement adjacent producing well permitting disclosure probable possible reserves amended disclosure requirements effective registration statements filed january 1 2010 annual reports fiscal years ending december 31 2009 early adoption permitted new sec rules incorporated asc topic 932 effective filing reflected herein change accounting principle inseparable change accounting estimate goodwill intangibles company accounts goodwill intangible assets accordance asc topic 350 “intangibles goodwill other” intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized estimated useful lives range two 40 years impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions longlived assets event indication possible impairment company evaluates carrying value longlived assets including company’s gas transportation facilities equipment performing analysis anticipated future net cash flows related longlived assets reducing carrying value excess result calculation company believes time carrying value useful lives longlived assets continue appropriate cash equivalents company considers investments original maturity three months less purchased cash equivalents company’s cash equivalents subject potential credit risk company’s cash management investment policies restrict investments investment grade highly liquid securities carrying value cash equivalents approximates fair value restricted deposits restricted deposits consist escrow funds associated acquisitions described note 2 notes consolidated financial statements accrued insurance expense costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2010 2009 relatively short maturity instruments see note 12 disclosure regarding fair value indebtedness company note 13 disclosure regarding fair value derivative instruments litigation contingencies company involved litigation incidental business disposition expected material effect company’s business financial position results operations cash flows possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings company accrues best estimate probable cost resolution legal claims estimates developed consultation counsel handling matters based upon combination litigation settlement strategies extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change derivatives company follows guidance within asc topic 815 “derivatives hedging” “acs topic 815” requires derivative financial instruments recorded balance sheet fair value establishes criteria designation effectiveness hedging relationships company accounts hedges certain forecasted foreign currency costs cash flow hedges changes fair value effective portion hedge contracts recorded accumulated comprehensive income loss stockholders’ equity hedged item recognized operations ineffective portion derivatives’ change fair value immediately recognized operations addition company entered fixedprice natural gas contracts manage fluctuations price natural gas contracts result company physically delivering gas result exempt requirements asc topic 815 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts see note 13 disclosure regarding fair value derivative instruments company enter derivative financial instruments speculative trading purposes supplemental cash flow information amounts paid income taxes interest follows company earnings restricted deposits 2000 30000 287000 2010 2009 2008 respectively treated noncash item restricted account escrow beneficiaries also fiscal 2010 company received land buildings valued 2828000 noncash settlement legal dispute australia made noncash distribution 280000 common stock prior year acquisition see note 6 discussion legal settlements note 2 discussion acquisition activity fiscal year 2009 company entered financing obligations software licenses amounting 1298000 payable three years associated assets recorded intangible assets balance sheet connection reynolds acquisition see note 2 year ended january 31 2008 company settled earnout amount discounted basis 13252000 consisting 2270000 cash 249023 shares common stock valued 10982000 income taxes income taxes provided using asset liability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely see note 9 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive options purchase 453630 176149 3000 shares excluded weighted average shares 2010 2009 2008 respectively effect antidilutive total 67975 73587 nonvested shares excluded weighted average shares 2010 2009 respectively effect antidilutive sharebased compensation company follows guidance codified within asc topic 718 “compensationstock compensation” “asc topic 718” modified prospective method recognizes cost sharebased instruments financial statements using fairvalue measurement compensation expense related sharebased instruments term expected benefited instrument january 31 2010 company unrecognized compensation expense 3347000 recognized weighted average period 155 years company determines fair value sharebased compensation using blackscholes model unearned compensation expense associated issuance nonvested shares amortized straightline basis restrictions stock expire comprehensive loss accumulated balances net income taxes comprehensive loss follows 2 acquisitions fiscal year 2010 company completed three acquisitions fiscal 2010 described • december 9 2009 company acquired certain assets mcl technology corporation “mcl” arizonabased provider commercial industrial reverse osmosis deionization filtration services • october 30 2009 company acquired 100 stock wl hailey company inc “hailey” water wastewater solutions firm tennessee operation combined similar service lines serves foster company’s expansion product lines southeast • may 1 2009 company acquired equipment assets meadow equipment sales service inc “meadow” construction company operating primarily midwestern united states aggregate cash purchase price 16961000 comprised cash 3150000 placed escrow secure certain representations warranties idemnifications follows purchase price acquisition allocated based fair value assets liabilities acquired determined based company’s internal operational assessments analyses accordance new accounting guidance beginning fiscal 2010 acquisition related costs recorded expense periods costs incurred based company’s allocations purchase price acquisitions following effect company’s consolidated financial position respective closing dates identifiable intangible assets associated meadow consist noncompete agreements valued 25000 weightedaverage life three years identifiable intangible assets associated mcl consist design efficiencies provide margin advantage competitors valued 164000 weightedaverage life five years 858000 aggregate goodwill assigned water infrastructure segment expected deductible tax purposes results operations acquired entities included company’s consolidated statements income commencing respective closing dates hailey contributed revenues income taxes company period october 30 2009 january 31 2010 11581000 149000 respectively revenue income taxes meadow mcl since respective closing dates significant pro forma amounts related meadow mcl prior periods presented since acquisitions would significant effect company’s consolidated revenues net income assuming hailey acquired beginning period unaudited pro forma consolidated revenues net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future june 16 2006 company acquired 100 outstanding stock collector wells international inc “cwi” privately held specialty water services company designs constructs water supply systems terms purchase contingent consideration maximum 1400000 “earnout amount” based percentage amount cwi’s earnings interest taxes depreciation amortization exceeded threshold amount 36 months following acquisition june 2009 company determined maximum consideration achieved settled earnout amount consisting 1120000 cash 280000 layne common stock valued based average closing price five trading days ending june 9 2009 company paid cash portion settlement july 10 2009 issued 12677 shares layne common stock payment stock portion earnout amount accounted additional purchase consideration accordingly july 2009 company recorded 1400000 additional goodwill expected deductible tax purposes november 30 2007 company acquired certain assets liabilities solmetex inc “solmetex” water wastewater research development business supplier wastewater filtration products dental market addition initial purchase price contingent consideration maximum 1000000 “solmetex earnout amount” based percentage amount solmetex’s revenues 36 months following acquisition portion solmetex earnout amount ultimately paid accounted additional purchase consideration january 31 2010 contingent earnout consideration earned solmetex 262000 33000 paid march 2008 229000 paid april 2009 fiscal year 2009 company completed three acquisitions fiscal 2009 year described • october 24 2008 company acquired 100 stock meadors construction co inc “meadors” construction company operating primarily florida operation combined similar service lines serves foster expansion florida southeast • august 7 2008 company acquired certain assets liabilities moore tabor geotechnical construction firm operating california • may 5 2008 company acquired certain assets liabilities wittman hydro planning associates “whpa” water consulting firm specializing hydrologic systems modeling analysis aggregate purchase price 8925000 comprised cash 8815000 1150000 placed escrow secure certain representations warranties idemnifications purchase agreements expenses 110000 follows purchase price acquisition allocated based fair value assets liabilities acquired determined based company’s internal operational assessments analyses based company’s allocations purchase price acquisitions following effect company’s consolidated financial position respective closing dates identifiable intangible assets associated meadors consist noncompete agreements valued 60000 weightedaverage life two years identifiable intangible assets associated whpa consist patents valued 250000 weightedaverage life 15 years 4290000 aggregate goodwill assigned water infrastructure segment expected deductible tax purposes results operations acquired entities included company’s consolidated statements income commencing respective closing dates pro forma amounts prior periods presented acquisitions would significant effect company’s consolidated revenues net income addition initial purchase price contingent consideration maximum 2500000 “whpa earnout amount” based percentage amount whpa’s earnings interest taxes depreciation amortization exceed threshold amount 36 months following acquisition earned 80 whpa earnout amount may paid layne common stock company’s discretion portion whpa earnout amount ultimately paid accounted additional purchase consideration fiscal year 2008 company completed two acquisitions fiscal 2008 described • december 31 2007 “tierdael closing date” company acquired certain assets liabilities tierdael construction “tierdael” pipeline utility construction contractor denver combined similar service lines • november 30 2007 “solmetex closing date” company acquired certain assets liabilities solmetex inc water wastewater research development business supplier wastewater filtration products dental market aggregate purchase price 20696000 comprised cash 20146000 1665000 placed escrow secure certain representations warranties idemnifications purchase agreements assumed liabilites 226000 expenses 324000 reflected purchase price acquisition allocated based fair value assets liabilities acquired determined based company’s internal operational assessments analyses based company’s allocations purchase price acquisitions following effect company’s consolidated financial position respective closing dates 6056000 identifiable intangible assets associated solmetex 21000 assigned research development assets written selling general administrative expenses date acquisition remaining 6035000 acquired intangible assets weightedaverage useful life approximately 154 years comprised tradenames 15year weightedaverage useful life patents 15year weightedaverage useful life assets 20year average useful life 7270000 goodwill assigned water infrastructure segment total amount 7053000 expected deductible tax purposes results operations tierdael included company’s consolidated statements income commencing tierdael closing date assuming tierdael acquired beginning fiscal 2008 unaudited pro forma consolidated revenues net income net income per share would follows results operations solmetex included company’s consolidated statements income commencing solmetex closing date assuming solmetex acquired beginning fiscal 2008 unaudited pro forma consolidated revenues net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisitions made dates results may occur future pro forma results include adjustments interest expense cash purchase price depreciation amortization expense acquisition adjustments property equipment intangible assets september 28 2005 company acquired 100 outstanding stock reynolds inc “reynolds” privately held company major supplier products services water wastewater industries terms purchase contingent consideration maximum 15000000 “earnout amount” based reynolds operating performance period 36 months july 2007 company determined probable maximum consideration would achieved agreed settle earnout amount discounted basis 13252000 consisting 2270000 cash 10982000 layne common stock valued based average closing price five trading days ending july 31 2007 company paid cash portion settlement july 31 2007 issued 249023 shares layne common stock august 2007 payment stock portion earnout amount accounted additional purchase consideration accordingly company recorded 13252000 additional goodwill july 2007 3 investments affiliates company’s investments affiliates carried fair value investment considered date acquired plus company’s equity undistributed earnings date affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows january 31 2010 financial information affiliates reported onemonth lag reporting period summarized financial information affiliates january 31 2010 2009 2008 years ended follows company significant transactions balances affiliates resulted amounts included consolidated financial statements january 31 2010 2009 2008 years ended company’s equity undistributed earnings affiliates totaled 29428000 26328000 15190000 january 31 2010 2009 2008 respectively 4 impairment oil gas properties end reporting period company required assess carrying value oil gas properties guidelines sec fully described note 1 ceiling test gas prices per mcf used determinations january 31 2010 2009 2008 324 329 753 respectively result ceiling test recorded impairments oil gas properties 21642000 second quarter fiscal 2010 26690000 fourth quarter fiscal 2009 impairment second quarter fiscal 2010 based gas price 289 per mcf also recorded impairment 2014000 third quarter fiscal 2009 related company’s exploration project chile begun 2008 following initial core testing evaluation infrastructure requirements determined recovery company’s investment likely costs written 5 goodwill intangible assets goodwill intangible assets consisted following january 31 amortizable intangible assets amortized estimated useful lives two 40 years weighted average amortization period 26 years total amortization expense intangible assets 1542000 1536000 1123000 2010 2009 2008 respectively amortization expense subsequent five fiscal years estimated follows total goodwill january 31 2010 2009 20618000 19451000 respectively expected tax deductible carrying amount goodwill attributed operating segment follows thousands 6 litigation settlement gains fiscal 2000 company initiated litigation former owner subsidiary associated partners action stemmed alleged competition violation noncompetition agreements sought damages lost profits recovery legal expenses first quarter fiscal 2010 company entered agreement whereby received certain land buildings settlement claims settlement valued 2828000 based management’s estimate fair market value land buildings received considering current market conditions information provided third party appraisal fiscal 2008 company initiated litigation former officers subsidiary associated energy production companies september 2008 company entered settlement agreement whereby received certain payments period september 2009 payments 667000 2173000 received years ended january 31 2010 2009 respectively net contingent attorney fees 7 income consisted following years ended january 31 8 costs estimated earnings uncompleted contracts company bills customers based specific contract terms substantially billed amounts collectible within one year january 31 2010 2009 company held unbilled contract retainage amounts 40601000 39149000 respectively 9 income taxes income taxes consists following components income tax expense follows deferred income taxes result temporary differences financial statement tax bases company’s assets liabilities sources differences cumulative tax effects follows company several australian african subsidiaries generated tax losses majority losses utilized reduce company’s federal state income tax liabilities january 31 2010 undistributed earnings foreign subsidiaries certain foreign affiliates included 45500000 federal income foreign withholding taxes provided earnings considered invested indefinitely become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign subsidiaries foreign affiliates earnings considered invested indefinitely reconciliation total income tax expense statutory federal rate follows effective february 1 2007 company adopted amended guidance uncertain tax positions codified within asc topic 740 “income taxes” amendments clarified accounting uncertainty income taxes recognized entity’s financial statements asc topic 740 prescribes morelikelythannot threshold financial statement recognition measurement tax position taken expected taken tax return company’s adoption amendments relating uncertain tax positions resulted cumulative effect adjustment increasing retained earnings 465000 february 1 2007 prior adoption company classified income tax uncertainties current liabilities upon adoption approximately 4600000 reclassified noncurrent liabilities resolution tax uncertainties expected within 12 months reconciliation beginning ending amount unrecognized tax benefits follows substantially unrecognized tax benefits recorded would affect effective rate recognized expected amount unrecognized tax benefits change next year however company expect change significant impact results operations financial position company classifies interest penalties related income taxes component income tax expense consistent recognition items prior years january 31 2010 2009 2008 company 3686000 2872000 2752000 respectively interest penalties accrued associated unrecognized tax benefits liability interest penalties increased 814000 120000 970000 years ended january 31 2010 2009 2008 respectively company files income tax returns us federal jurisdiction various state jurisdictions certain foreign jurisdictions statute limitations expired tax year ended january 31 2006 year ended january 31 2010 company currently irs examination tax year ended january 31 2008 tax years ended january 31 2007 2009 2010 remain open examination company several state examinations currently progress company files tax returns foreign jurisdictions operates returns subject examination income tax examinations may ongoing point time tax liabilities recorded based estimates additional taxes due upon settlement examinations tax years subject examination foreign tax authorities vary jurisdiction generally tax years 2005 2010 remain open examination 10 operating leases obligations future minimum rental payments required operating leases initial remaining noncancelable lease terms excess one year january 31 2010 follows operating leases primarily light medium duty trucks equipment rent expense operating leases including insignificant amounts contingent rental payments 28816000 31660000 27977000 2010 2009 2008 respectively asset retirement obligations consist estimated costs dismantlement removal site reclamation similar activities associated oil gas properties asset retirement obligation related asset retirement cost recorded well drilled completed asset retirement cost determined based expected costs complete reclamation end well’s economic life discounted present value using creditadjusted riskfree rate initial recording liability increased passage time increase reflected consolidated statements income depreciation depletion amortization asset retirement costs capitalized part oil gas properties depleted accordingly additions asset retirement obligations years ended january 31 2010 2009 2008 106000 185000 170000 respectively accretion periods 87000 77000 60000 respectively carrying values asset retirement obligations january 31 2010 2009 1498000 1305000 respectively recorded long term liabilities 11 employee benefit plans company sponsored pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company made annual contributions plan substantially equal amounts required maintain qualified status plan contributions intended provide benefits related past current service company effective december 31 2003 company froze pension plan ceased accrual benefits employees added plan january 29 2010 company terminated plan distributed 10054000 annuity provider fulfilled remaining obligations approximately 300000 cash distributions triggered settlement guidance within asc topic 715 “compensation retirement benefits” “asc topic 715” resulted recognized settlement loss 4980000 fiscal 2010 beginning company’s fiscal year ended january 31 2009 asc topic 715 “compensation retirement benefits” “asc topic 715” requires company measure plan assets benefit obligations fiscal balance sheet date company previously used december 31 measurement date company elected apply transition option 13month measurement determined december 31 2007 covers period fiscal yearend measurement required january 31 2009 result company recorded 47000 decrease retained earnings february 1 2008 following table sets forth plan’s funded status measurement dates amounts recognized company’s consolidated balance sheets january 31 2010 2009 net periodic pension cost 2010 2009 2008 includes following components company recognized full amount actuarially determined pension liability weighted average assumptions used determine benefit obligation net periodic pension cost years ending january 31 2010 2009 2008 follows estimated longterm rate return assets developed based historical returns future expectations returns asset class well target asset allocation pension portfolio benefit level assumptions 2010 2009 2008 based fixed amounts per year credited service percentage fair value total plan assets major category plan assets measurement date follows company’s investment policy included following asset allocation guidelines effective periods presented january 31 2009 anticipation company’s decision settle obligations plan 2010 asset allocation shifted equity securities shortterm bonds asset allocation policy developed consideration following longterm investment objectives achieve longterm inflationadjusted growth asset values investments common stock fixed income obligations minimize risk maintaining allocation cash equivalents manage portfolio conform erisa requirements manage plan assets total return basis maximize total returns consistent appropriate level risk controlled via diversification investments among within asset classes company contracted financial institution provide investment management services full discretion portfolio investments given investment manager subject asset allocation guidelines following additional guidelines • equity securities allowable equity securities include common stocks listed us stock exchange overthecounter common stocks preferred convertible securities equity holdings single issuer aggregate 10 total market value plan • international securities allowable international securities include common stocks preferred stocks warrants convertible securities well government corporate debt securities • mutual funds mutual funds may utilized investments fixed income equity international securities enhance diversification performance • fixed income securities allowable fixed income securities include us treasury securities us agency securities corporate bonds fixed income securities shall rated “a” better time purchase fixed income security shall continue held rating falls “bbb” securities single issuer exception us treasuries agencies aggregate 10 total market value plan fixed income segment portfolio generally intermediate average maturity five 10 years maximum permitted maturity individual issue 15 years company’s policy respect funding qualified pension plan fund least minimum required erisa maximum deductible tax purposes contribution required erisa january 1 december 31 2010 plan year plan settled company also provides supplemental retirement benefits chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent chief executive’s defined contribution plan balance company contribute plan maintain investment assets related expected benefit obligation company recognized full amount actuarially determined pension liability amounts recognized company’s consolidated balance sheets january 31 2010 2009 2899000 2432000 net periodic pension cost supplemental retirement benefits 2010 2009 2008 include following components company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 3427000 3780000 2961000 2010 2009 2008 respectively information regarding assets accumulated benefits plans made available company’s salaried certain hourly employees participate companysponsored defined contribution plans total expense company’s portion plans 3920000 4215000 3777000 2010 2009 2008 respectively company deferred compensation plan certain management employees participants may elect defer 25 salaries 50 bonuses plan company matching contributions vesting period contributions established discretion company employee deferrals vested times total amount deferred including company matching 2010 2009 2008 1658000 1939000 2237000 respectively total liability deferred compensation 7042000 4229000 january 31 2010 2009 respectively 12 indebtedness company maintains agreement “master shelf agreement” whereby issue 50000000 additional unsecured notes september 15 2012 july 31 2003 company issued 40000000 notes “series senior notes” master shelf agreement series sen ior notes bear fixed interest rate 605 due july 31 2010 annual principal payments 13333000 company issued additional 20000000 notes master shelf agreement october 2004 “series b senior notes” series b senior notes bear fixed interest rate 540 due september 29 2011 annual principal payments 6667000 company also maintains revolving credit facility amended restated loan agreement “credit agreement” bank america administrative agent lender “administrative agent” lenders listed therein “lenders” contains revolving loan commitment 200000000 less outstanding letter credit commitments subject 30000000 sublimit credit agreement provides interest variable rates equal company’s option libor rate plus 075 200 base rate defined credit agreement plus 050 depending upon company’s leverage ratio credit agreement unsecured due payable november 15 2011 january 31 2010 letters credit 19805000 borrowings outstanding credit agreement resulting available capacity 180195000 master shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends certain financial maintenance covenants including among others fixed charge coverage maximum debt ebitda minimum tangible net worth company compliance covenants january 31 2010 compliance financial covenants required quarterly basis using recent four fiscal quarters company’s fixed charge coverage ratio leverage ratio covenants based ratios utilizing adjusted ebitda adjusted ebitdar defined agreements adjusted ebitda generally defined consolidated net income excluding net interest expense provision income taxes gains losses extraordinary items gains losses sale capital assets noncash items including depreciation amortization sharebased compensation equity earnings affiliates included extent dividends distributions received adjusted ebitdar defined adjusted ebitda plus rent expense company’s tangible net worth covenant based stockholders’ equity less intangible assets measures considered nongaap financial measures intended accordance accounting principles generally accepted united states company’s minimum fixed charge coverage ratio covenant ratio adjusted ebitdar sum fixed charges fixed charges consist rent expense interest expense principal payments longterm debt company’s leverage ratio covenant ratio total funded indebtedness adjusted ebitda total funded indebtedness generally consists outstanding debt capital leases unfunded pension liabilities asset retirement obligations escrow liabilities company’s tangible net worth covenant measured based stockholders’ equity less intangible assets compared threshold amount defined agreements threshold adjusted time based percentage net income proceeds issuance equity securities january 31 2010 2009 company’s actual required covenant levels follows maximum borrowings outstanding company’s credit agreements 2010 2009 46667000 60000000 respectively average outstanding borrowings 36100000 52200000 respectively weighted average interest rates including amortization loan costs 68 64 respectively loan costs incurred securing longterm financing amortized using method approximates effective interest method term respective loan agreement amortization costs 2010 2009 2008 170000 183000 169000 respectively amortization loan costs included interest expense consolidated statements income debt outstanding january 31 2010 2009 whose carrying value approximates fair market value follows january 31 2010 debt outstanding mature fiscal year follows 13 derivatives company’s energy division exposed fluctuations price natural gas entered fixedprice physical delivery contracts manage natural gas price risk portion production january 31 2010 company committed deliver 885000 million british thermal units “mmbtu” natural gas march 2010 prices ranging 768 1067 per mmbtu fixedprice physical delivery forward sales contracts result physical delivery natural gas result exempt requirements asc topic 815 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts estimated fair value contracts january 31 2010 2831000 additionally company foreign operations significant costs denominated foreign currencies thus exposed risks associated changes foreign currency exchange rates point time company might use various hedge instruments primarily foreign currency option contracts manage exposures associated forecast expatriate labor costs purchases operating supplies company enter foreign currency derivative financial instruments speculative trading purposes january 31 2010 company held option contracts aggregate us dollar notional value 7600000 intended hedge exposure australian dollar fluctuations contracts settle various increments january 31 2011 january 31 2010 2009 respectively fair value outstanding derivatives loss 102000 158000 recorded accrued expenses balance sheet net income taxes 40000 62000 accumulated comprehensive income fair value foreign currency contracts estimated based comparable quotes brokers 14 fair value measurements september 2006 fasb issued guidance codified within asc topic 820 “fair value measurements disclosures” defines fair value establishes threelevel fair value hierarchy based upon assumptions inputs used price assets liabilities expands disclosures fair value measurements hierarchy requires company maximize use observable inputs minimize use unobservable inputs three levels inputs used measure fair value listed level 1 unadjusted quoted prices active markets identical assets liabilities level 2 observable inputs included level 1 quoted market prices similar assets liabilities active markets quoted prices identical assets inactive markets level 3 unobservable inputs reflecting assumptions best estimate inputs market participants would use pricing asset liability company’s assessment significance particular input fair value entirety requires judgment considers factors specific asset liability company’s financial instruments held fair value include restricted deposits held acquisition escrow accounts foreign currency option contracts presented january 31 2010 january 31 2009 thousands 15 stock option plans october 2008 company amended rights agreement signed october 1998 whereby company authorized declared dividend one preferred share purchase right “right” outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 20 company’s common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 7500 company entitled redeem right 01 per right time person acquired 20 company’s outstanding common stock rights expire three years date grant october 2007 company completed public stock offering 3105000 common shares proceeds offering net issuance costs 9344000 159879000 company stock option employee incentive plans provide granting options purchase issuance shares common stock price fixed board directors committee january 31 2010 aggregate 2850000 shares registered plans 1537000 remain available granted plans amount 250000 shares may granted stock payment bonuses 1287000 may issued stock options company ability issue shares plans either new issuances treasury although previously always issued new shares expects continue issue new shares future years ended january 31 2010 2009 company purchased subsequently cancelled 5374 5357 respectively shares stock related settlement withholding obligations company recognized 4841000 4084000 3026000 compensation cost sharebased plans years ended january 31 2010 2009 2008 respectively amounts 603000 1369000 638000 respectively related nonvested stock determined fiscal 2010 33825 nonvested shares issued fiscal 2009 unlikely vest contingent upon meeting performance requirements fiscal 2011 likely met accordingly company reversed 805000 compensation cost fiscal 2010 related shares total income tax benefit recognized sharebased compensation arrangements 1888000 1578000 1170000 years ended january 31 2010 2009 2008 respectively summary nonvested share activity 2010 2009 2008 follows significant option groups outstanding january 31 2010 related exercise price remaining contractual term follows options granted exercise price equal fair market value company’s common stock date grant options terms 10 years date grant generally vest ratably periods one month five years certain option awards provide accelerated vesting change control defined plans equitable adjustments event changes company’s equity structure company expect nonvested options forfeited fair value options date grant estimated using blackscholes model weighted average fair value date grant options granted 2010 2009 2008 992 1630 2082 respectively fair value based expected life six years dividend yield average riskfree rate 214 248 479 respectively assumed volatility 62 48 38 respectively stock option transactions 2010 2009 2008 follows 16 contingencies company’s drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice bundled basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance respect foreign operations company involved various matters litigation claims disputes arisen ordinary course company’s business company believes ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows april 30 2008 levellandhockley county ethanol llc “levelland” filed complaint company district court hockley county texas may 28 2008 company removed case united states district court northern district texas lubbock division june 2 2008 levelland filed first amended complaint company federal district court northern district texas lubbock division levelland owns ethanol plant located levelland texas july 2007 levelland entered lease agreement company certain water treatment equipment ethanol plant levelland alleges equipment leased company fails treat water coming ethanol plant required levels first amended complaint seeks damages breach contract breach warranty violation texas deceptive trade practices act negligence negligent misrepresentation fraud connection design construction water treatment facility company levelland reached agreement settlement matter fiscal 2010 additional expense necessary result settlement 17 segments foreign operations company multinational company provides sophisticated services related products variety markets well producer unconventional natural gas energy market management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices’ division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water infrastructure division company’s segments defined follows water infrastructure division provides full line waterrelated services products including soil stabilization hydrological studies site selection well design drilling development pump installation well rehabilitation division’s offerings include design construction water wastewater treatment facilities provision filter media membranes treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater ranney collector wells sewer rehabilitation water wastewater transmission lines division also offers environmental services assess monitor groundwater contaminants mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods energy division focuses exploration production oil gas properties primarily concentrating projects midcontinent region united states includes two small specialty energy service companies specialty operations included one divisions financial information company’s segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit safety treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer general counsel board directors corporate assets company directly associated segment consist primarily cash deferred income taxes 18 new accounting pronouncements june 2009 financial accounting standards board “fasb” issued guidance codified within fasb accounting standards codification “asc” topic 105 “generally accepted accounted principles” establishing asc single source authoritative nongovernmental us generally accepted accounting principles “gaap” superseding existing fasb american institute certified public accountants emerging issues task force related accounting literature asc reorganizes thousands gaap pronouncements roughly 90 accounting topics displays using consistent structure also included relevant securities exchange commission guidance organized using topical structure separate sections guidance effective financial statements issued reporting periods ended september 15 2009 adoption impact company’s financial position results operations liquidity january 2010 fasb issued guidance amending asc topic 820 require new disclosures concerning transfers levels 1 2 fair value measurement hierarchy activity level 3 measurements addition guidance clarifies certain existing disclosure requirements regarding level disaggregation inputs valuation techniques makes conforming amendments guidance employers’ disclosures postretirement benefit plans assets guidance effective interim annual reporting periods beginning december 15 2009 however requirements disclose separately purchases sales issuances settlements level 3 reconciliation effective fiscal years beginning december 15 2010 interim periods within years company expect adoption material impact financial position results operations cash flows june 2009 fasb issued guidance yet codified asc amending consolidation guidance applicable variable interest entities amendments affect overall consolidation analysis asc topic 810 “consolidation” guidance effective beginning company’s fiscal year ending january 31 2011 company expect adoption material impact financial position results operations cash flows december 2007 fasb issued guidance codified within asc topic 810 “consolidation” guidance requires us classify noncontrolling interests previously referred “minority interest” part consolidated net earnings include accumulated amount noncontrolling interests previously classified minority interest outside equity part stockholders’ equity presentation consolidated income stockholders’ equity distinguish amounts attributable layne christensen company amounts attributable noncontrolling interests addition financial reporting changes guidance provides significant changes accounting related noncontrolling interests specifically increases decreases controlling financial interests consolidated subsidiaries reported equity similar treasury stock transactions change ownership consolidated subsidiary results loss control deconsolidation retained ownership interests remeasured gain loss reported net earnings company adopted standard applied retrospectively february 1 2009 reclassified minority interest amounts 75000 february 1 2009 398000 february 1 2008 component stockholders’ equity 19 quarterly results unaudited quarterly financial data follows second quarter 2010 fourth quarter fiscal 2009 company recorded noncash impairment charge 21642000 13039000 income tax 26690000 16081000 income tax respectively related energy operations result determinations oil gas reserves supplemental information oil gas producing activities unaudited company’s oil gas activities primarily conducted united states see note 1 additional information regarding company’s oil gas properties capitalized costs related oil gas producing activities capitalized costs associated depletion relating oil gas producing activities follows january 31 2010 2009 2008 included accumulated depletion january 31 2010 2009 noncash ceiling test impairments 21642000 26690000 recorded 2010 2009 respectively impairments january 31 2008 see note 4 additional information regarding impairment oil gas properties unproved oil gas properties january 31 2010 2009 2008 totaled 3851000 10348000 8131000 respectively unevaluated mineral interest costs excluded depletion january 31 2010 2009 2008 totaled 9527000 9305000 8405000 respectively capitalized costs associated depreciation relating gas transportation facilities equipment follows january 31 2010 2009 2008 capitalized costs incurred gas transportation facilities equipment 2010 2009 2008 totaled 923000 6739000 5327000 respectively fiscal 2009 transferred 2820000 oil gas properties gas transportation facilities equipment company began use facilities transport third party natural gas market cost incurred oil gas producing activities capitalized costs incurred oil gas producing activities follows 2010 2009 2008 exploration costs 1498000 2008 associated exploration project chile costs considered impaired written 2009 results operations oil gas producing activities results operations relating oil gas producing activities set forth following tables years ended january 31 2010 2009 2008 dollar per mcf basis include revenues operating costs directly attributable oil gas producing activities general corporate overhead interest costs transportation third party gas non oil gas producing activities excluded income tax expense calculated applying statutory tax rates revenues deducting costs include depletion allowances proved oil gas reserve quantities proved gas reserve quantities january 31 2010 2009 based estimates prepared company’s independent petroleum engineers cawley gillespie associates inc accordance requirements sec company’s reserves located within united states proved gas reserves estimated quantities natural gas geological engineering data demonstrate reasonable certainty recoverable future years known reservoirs economic operating conditions effect estimates made proved developed reserves expected recovered wells equipment operating methods existing estimates made proved undeveloped reserves expected recovered new wells undrilled acreage existing wells relatively major expenditure required recompletion company cautions many inherent uncertainties estimating quantities proved reserves projecting future rates production timing development expenditures accordingly estimates likely change future information becomes available estimated quantities total proved gas reserves follows declines reserves 2009 particularly undeveloped reserves result significantly lower prices used estimates lower prices decrease economic lives underlying properties decrease estimated future reserves standardized measure discounted future net cash flows relating proved oil gas reserve quantities beginning fiscal 2010 year end price used determining future cash inflows purposes standardized measure discounted future net cash flows unweighted arithmetic average firstdayofthemonth spot price month within 12month period end reporting period previously spot price end reporting period used cases future cash inflows also incorporate effect contractual arrangements fixedprice physical delivery forward sales contracts prices used determinations january 31 2010 2009 324 329 per mcf respectively future production development costs represent estimated future expenditures incurred developing producing proved reserves assuming continuation existing economic conditions future income tax expense computed applying statutory rates pretax cash flows relating company’s estimated proved reserves difference book tax basis proved properties information purport present fair market value company’s natural gas assets present standardized disclosure concerning possible future net cash flows would result assumptions used following table sets forth unaudited information concerning future net cash flows natural gas reserves net income tax expense principal sources change standardized measure discounted future net cash flows layne christensen company subsidiaries schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules omitted applicable required information included consolidated financial statements company notes thereto statement management responsibility consolidated financial statements layne christensen company subsidiaries “company” prepared conformity accounting principles generally accepted united states integrity objectivity data financial statements responsibility management information included annual report form 10k management believes information presented annual report consistent financial statements financial statements contain material misstatements due fraud error appropriate financial statements reflect management’s best estimates judgments management also responsible maintaining system internal accounting controls objectives providing reasonable assurance company’s assets safeguarded material loss unauthorized use disposition authorized transactions properly recorded permit preparation accurate financial data however limitations exist system internal controls based recognition cost system exceed benefits company believes system accounting controls internal auditing function integral part accomplishes stated objectives audit committee board directors composed outside directors meets periodically management company’s independent accountants internal auditors review matters related company’s financial statements internal audit activities internal accounting controls nonaudit services provided independent accountants independent accountants internal auditors full access audit committee meet without management present discuss scope results audits including internal controls audit financial matters sa b schmitt sjerry w fanska andrew b schmitt jerry w fanska president senior vice president chief executive officer chief financial officer report independent registered public accounting firm board directors stockholders layne christensen company mission woods kansas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2011 2010 related consolidated statements income stockholders’ equity cash flows three years period ended january 31 2011 audits also included financial statement schedule listed index item 8 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2011 2010 results operations cash flows three years period ended january 31 2011 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed method accounting oil gas reserve estimation related required disclosures january 31 2010 implementation new accounting guidance also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated april 15 2011 expressed unqualified opinion company’s internal control financial reporting sdeloitte touche llp kansas city missouri april 15 2011 layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements continued layne christensen company subsidiaries consolidated balance sheets continued see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income see notes consolidated financial statements layne christensen company subsidiaries consolidated statement stockholders’ equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flow see notes consolidated financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “company” provide drilling construction services related products two principal markets water infrastructure mineral exploration well producer oil unconventional natural gas energy market company operates throughout north america well africa australia brazil italy customers include municipalities investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies agribusiness company ownership interest certain foreign affiliates operating south america facilities chile peru uruguay brazil see note 3 fiscal year references years fiscal years ended investment affiliated companies investments affiliates 20 50 owned company ability exercise significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries intercompany transactions eliminated financial information company’s affiliates certain foreign subsidiaries reported company’s consolidated financial statements onemonth lag reporting periods use december 31 yearend primarily match local countries’ statutory reporting requirements effect onemonth lag company’s financial position results operations significant company evaluated subsequent events time filing consolidated financial statements use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities company’s mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency remeasure monetary assets liabilities yearend exchange rates nonmonetary items remeasured historical rates income expense accounts remeasured exchange rates approximate weighted average prevailing exchange rates effect year except depreciation certain cost revenues selling expenses translated historical rates gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities remeasured us dollars yearend exchange rates income expense items translated exchange rates approximate weighted average rates prevailing year translation adjustments reported separate component accumulated comprehensive income loss net foreign currency transaction losses gains 2011 2010 2009 458000 802000 91000 respectively recorded income expense net accompanying consolidated statements income revenue recognition revenues recognized large longterm construction contracts meeting criteria accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” “asc topic 60535” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined contracts company’s mineral exploration drilling services billable based quantity drilling performed revenues drilling contracts recognized basis actual footage meterage drilled allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories company values inventories lower cost firstin firstout market allowances recorded inventory considered excess obsolete inventories consist primarily parts supplies property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 45540000 42059000 39432000 2011 2010 2009 respectively lives used items within property classification follows oil gas properties mineral interests company follows fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized capitalized costs depleted based units production depletion expense 5652000 13992000 11816000 2011 2010 2009 respectively company required review carrying value oil gas properties full cost accounting rules sec “ceiling test” ceiling limitation estimated aftertax future net revenues proved oil gas properties discounted 10 plus cost properties subject amortization net book value oil gas properties less related deferred income taxes excess calculated ceiling excess must written expense beginning fiscal 2010 year end application ceiling test requires pricing future revenues unweighted arithmetic average firstdayofthemonth price month within 12month period end reporting period unless prices defined contractual arrangements fixedprice physical delivery forward sales contracts considerations ceiling test prior fiscal 2010 year end used period end price adjusted contractual arrangements unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows see note 4 discussion impairments recorded reserve estimates company’s estimates oil gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations oil gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing oil gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities oil gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material december 31 2008 sec adopted final rules interpretations updating oil gas reserves reporting requirements many revisions updates definitions existing oil gas rules make consistent petroleum resource management system widely accepted set evaluation guidelines designed support assessment processes throughout resource asset lifecycle guidelines prepared society petroleum engineers “spe” oil gas reserves committee cooperation many industry organizations one key changes previous sec rules relates using 12month average commodity price calculate value proved reserves versus prior method using yearend prices key revisions include ability include nontraditional resources reserves use new technology determining reserves opportunity establish proved undeveloped reserves without requirement adjacent producing well permitting disclosure probable possible reserves new sec rules incorporated asc topic 932 effective january 31 2010 reflected herein change accounting principle inseparable change accounting estimate goodwill company accounts goodwill accordance asc topic 350 “intangibles goodwill other” impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference assumptions used estimates fair value first step generally consistent past performance reporting unit also consistent projections assumptions used current operating plans significant assumptions subject change result changing economic competitive conditions follows ● anticipated future cash flows longterm growth rates reporting unit income approach determining fair value relies timing estimates future cash flows including estimate longterm growth rates projections use management’s estimates economic market conditions projected period including growth rates sales estimates expected changes operating margins company’s projections future cash flows subject change actual results achieved differ anticipated actual results could vary significantly estimates ● selection appropriate discount rate income approach requires selection appropriate discount rate based weighted average cost capital analysis discount rate subject changes shortterm interest rates longterm yield well variances typical capital structure marketplace participants industry discount rate determined based assumptions would used marketplace participants reason capital structure selected marketplace participants used weighted average cost capital analysis given current volatile economic conditions possible discount rate could change intangible assets intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized using straightline method estimated useful lives range one 40 years impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions longlived assets longlived assets including amortizable intangible assets company’s gas transportation facilities equipment reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable factors consider important could trigger impairment review include limited following ● significant underperformance assets ● significant changes use assets ● significant negative industry economic trends company believes time carrying values useful lives longlived assets continue appropriate cash equivalents company considers investments original maturity three months less purchased cash equivalents company’s cash equivalents subject potential credit risk company’s cash management investment policies restrict investments investment grade highly liquid securities carrying value cash equivalents approximates fair value restricted deposits restricted deposits consist escrow funds associated acquisitions described note 2 notes consolidated financial statements allowance uncollectible accounts receivable company makes ongoing estimates relating collectibility accounts receivable maintains allowance estimated losses resulting inability customers make required payments determining amount allowance company makes judgments creditworthiness significant customers based ongoing credit evaluations also considers review accounts receivable aging industry trends customer financial strength credit standing payment history assess probability collection accrued insurance expense costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2011 2010 relatively short maturity instruments see note 12 disclosure regarding fair value indebtedness company note 13 disclosure regarding fair value derivative instruments note 14 fair value disclosures litigation contingencies company involved litigation incidental business disposition expected material effect company’s business financial position results operations cash flows possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings record liability probable liability incurred amount loss reasonably estimated provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change derivatives company follows guidance within asc topic 815 “derivatives hedging” “asc topic 815” requires derivative financial instruments recorded balance sheet fair value establishes criteria designation effectiveness hedging relationships company accounts hedges certain forecasted foreign currency costs cash flow hedges changes fair value effective portion hedge contracts recorded accumulated comprehensive income loss stockholders’ equity hedged item recognized operations ineffective portion derivatives’ change fair value immediately recognized operations addition company periodically enters fixedprice natural gas contracts manage fluctuations price natural gas contracts result company physically delivering gas result exempt requirements asc topic 815 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts see note 13 disclosure regarding fair value derivative instruments company enter derivative financial instruments speculative trading purposes supplemental cash flow information amounts paid income taxes interest follows company earnings restricted deposits 9000 2000 30000 2011 2010 2009 respectively treated noncash item restricted account escrow beneficiaries also fiscal 2010 company received land buildings valued 2828000 noncash settlement legal dispute australia made noncash distribution 280000 common stock prior year acquisition see note 6 discussion legal settlements note 2 discussion acquisition activity fiscal year 2009 company entered financing obligations software licenses amounting 1298000 payable three years associated assets recorded intangible assets net balance sheet income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely see note 9 company’s estimate uncertainty income taxes based framework established accounting income taxes guidance addresses determination tax benefits claimed expected claimed tax return recorded financial statements company recognizes tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax positions meet recognition threshold company applies judgment taking account applicable tax laws experience managing tax audits relevant gaap determine amount tax benefits recognize financial statements position difference benefit realized tax return benefit reflected financial statements recorded liability consolidated balance sheet liability updated financial statement date reflect impacts audit settlements resolution audit issues expiration statutes limitation developments tax law ongoing discussions taxing authorities earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive options purchase 421270 453630 176149 shares excluded weighted average shares 2011 2010 2009 respectively effect antidilutive total 49076 67975 73587 nonvested shares excluded weighted average shares 2011 2010 2009 respectively effect antidilutive sharebased compensation company follows guidance codified within asc topic 718 “compensationstock compensation” “asc topic 718” modified prospective method recognizes cost sharebased instruments financial statements using fairvalue measurement compensation expense related sharebased instruments term expected benefited instrument january 31 2011 company unrecognized compensation expense 1647000 recognized weighted average period 129 years company determines fair value sharebased compensation using blackscholes model unearned compensation expense associated issuance nonvested shares amortized straightline basis restrictions stock expire comprehensive loss accumulated balances net income taxes comprehensive loss follows 2 acquisitions fiscal year 2011 company completed three acquisitions fiscal 2011 described ● july 15 2010 company acquired 50 interest diberil sociedad anónima “diberil” uruguayan company parent company costa fortuna brazil uruguay diberil operations sao paulo brazil montevideo uruguay one largest providers specialty foundation specialized marine geotechnical services south america expand geoconstruction capabilities geographic markets company account diberil equity method investment see note 3 ● july 27 2010 company acquired certain assets intevras technologies llc “intevras” texas based company focused treatment filtration handling evaporative crystallization disposal industrial wastewaters expand offerings industrial water market ● october 22 2010 company purchased 100 outstanding stock bencor corporation america foundation specialist “bencor” leading contractor foundation underground engineering complement expand geoconstruction capabilities aggregate purchase price intevras bencor 38673000 comprised cash 3550000 placed escrow secure certain representations warranties indemnifications contingent consideration follows addition intevras cash purchase price contingent consideration maximum 10000000 “intevras earnout amount” based percentage revenues earned intevras products fixed amounts per barrel water treated intevras products 60 months following acquisition accordance accounting guidance company treated intevras earnout amount contingent consideration estimated liability fair value acquisition date included consideration component total purchase price noted potential undiscounted amount future payments company could required make agreement 0 10000000 fair value contingent consideration arrangement 1100000 estimated applying market approach measure based significant inputs observable market also referred level 3 inputs key assumptions include discount rate 412 estimated level annual revenues intevras ranging 1500000 6100000 acquisition related costs 381000 bencor 65000 intevras recorded expense periods costs incurred purchase price acquisition allocated based assessment fair value assets liabilities acquired based company’s internal operational assessments analyses level 3 measurements bencor purchase price allocation estimated fair value identifiable intangible assets noncontrolling interests provisional pending completion valuation analyses revisions recorded company adjustments purchase price allocation based company’s allocations purchase price acquisitions following effect company’s consolidated financial position respective closing dates provisional amounts intangible assets intevras consist patents valued 3840000 weightedaverage useful life 9 years tradename valued 200000 useful life 10 years intangible assets bencor consist customer backlog valued 3220000 weighted average useful life 18 months tradename valued 1140000 useful life 10 years noncompete agreements valued 680000 useful life 6 years 10420000 aggregate goodwill assigned water infrastructure division purchase prices excess value intevras’ bencor’s net assets reflect strategic value company placed businesses company believes benefit synergies acquired businesses integrated company’s existing operations goodwill associated intevras acquisition expected deductible tax purposes goodwill associated bencor acquisition deductible tax purposes results operations acquired entities included company’s consolidated statements income commencing closing date bencor contributed revenues income taxes company period october 22 2010 january 31 2011 20839000 8214000 respectively revenue income taxes intevras since respective closing date significant pro forma amounts related intevras prior periods presented since acquisition would significant effect company’s consolidated revenues net income assuming bencor acquired beginning period unaudited pro forma consolidated revenues net income net income per share company would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future addition acquisitions company paid 426000 contingent earnout consideration prior year acquisitions november 30 2007 company acquired certain assets liabilities solmetex inc “solmetex” water wastewater research development business supplier wastewater filtration products dental market addition initial purchase price contingent consideration maximum 1000000 “solmetex earnout amount” based percentage amount solmetex’s revenues 36 months following acquisition amounts paid pursuant solmetex earnout amount accounted additional purchase consideration contingent earnout consideration earned solmetex 689000 33000 paid fiscal 2009 229000 paid fiscal 2010 426000 paid fiscal 2011 fiscal year 2010 company completed three acquisitions fiscal 2010 described ● december 9 2009 company acquired certain assets mcl technology corporation “mcl” arizonabased provider commercial industrial reverse osmosis deionization filtration services ● october 30 2009 company acquired 100 stock wl hailey company inc “hailey” water wastewater solutions firm tennessee operation combined similar service lines serves foster company’s expansion product lines southeast ● may 1 2009 company acquired equipment assets meadow equipment sales service inc “meadow” construction company operating primarily midwestern united states aggregate cash purchase price 16961000 comprised cash 3150000 placed escrow secure certain representations warranties idemnifications follows purchase price acquisition allocated based fair value assets liabilities acquired determined based company’s internal operational assessments analyses accordance new accounting guidance beginning fiscal 2010 acquisition related costs 5000 recorded expense periods costs incurred based company’s allocations purchase price acquisitions following effect company’s consolidated financial position respective closing dates identifiable intangible assets associated meadow consist noncompete agreements valued 25000 weightedaverage life three years identifiable intangible assets associated mcl consist design efficiencies provide margin advantage competitors valued 164000 weightedaverage life five years 858000 aggregate goodwill assigned water infrastructure division expected deductible tax purposes results operations acquired entities included company’s consolidated statements income commencing respective closing dates hailey contributed revenues income taxes company period october 30 2009 january 31 2010 11581000 149000 respectively year ended january 31 2011 78719000 942000 respectively revenue income taxes meadow mcl since respective closing dates significant pro forma amounts related meadow mcl periods prior acquisitions presented since acquisitions would significant effect company’s consolidated revenues net income assuming hailey acquired beginning period unaudited pro forma consolidated revenues net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future june 16 2006 company acquired 100 outstanding stock collector wells international inc “cwi” privately held specialty water services company designs constructs water supply systems terms purchase contingent consideration maximum 1400000 “earnout amount” based percentage amount cwi’s earnings interest taxes depreciation amortization exceeded threshold amount 36 months following acquisition june 2009 company determined maximum consideration achieved settled earnout amount consisting 1120000 cash 280000 layne common stock valued based average closing price five trading days ending june 9 2009 company paid cash portion settlement july 10 2009 issued 12677 shares layne common stock payment stock portion earnout amount accounted additional purchase consideration accordingly july 2009 company recorded 1400000 additional goodwill expected deductible tax purposes fiscal year 2009 company completed three acquisitions fiscal 2009 year described ● october 24 2008 company acquired 100 stock meadors construction co inc “meadors” construction company operating primarily florida operation combined similar service lines serves foster expansion florida southeast ● august 7 2008 company acquired certain assets liabilities moore tabor geotechnical construction firm operating california ● may 5 2008 company acquired certain assets liabilities wittman hydro planning associates “whpa” water consulting firm specializing hydrologic systems modeling analysis aggregate purchase price 8925000 comprised cash 8815000 1150000 placed escrow secure certain representations warranties idemnifications purchase agreements expenses 110000 follows purchase price acquisition allocated based fair value assets liabilities acquired determined based company’s internal operational assessments analyses based company’s allocations purchase price acquisitions following effect company’s consolidated financial position respective closing dates identifiable intangible assets associated meadors consist noncompete agreements valued 60000 weightedaverage life two years identifiable intangible assets associated whpa consist patents valued 250000 weightedaverage life 15 years 4290000 aggregate goodwill assigned water infrastructure division expected deductible tax purposes results operations acquired entities included company’s consolidated statements income commencing respective closing dates pro forma amounts prior periods presented acquisitions would significant effect company’s consolidated revenues net income addition initial purchase price contingent consideration maximum 2500000 “whpa earnout amount” based percentage amount whpa’s earnings interest taxes depreciation amortization exceed threshold amount 36 months following acquisition earned 80 whpa earnout amount may paid layne common stock company’s discretion portion whpa earnout amount ultimately paid accounted additional purchase consideration 3 investments affiliates july 15 2010 company acquired 50 interest diberil sociedad anónima “diberil” uruguayan company parent company costa fortuna brazil uruguay diberil operations sao paulo brazil montevideo uruguay one largest providers specialty foundation marine geotechnical services south america interest acquired total cash consideration 14900000 10100000 paid diberil shareholders 4800000 paid diberil purchase newly issued diberil stock concurrent investment diberil purchased layne geobrazil equipment leasing company brazil wholly owned company cash payment 4800000 subsequent acquisition company invested additional 1250000 diberil proportionate share capital contribution company’s investments affiliates carried fair value investment considered date acquired plus company’s equity undistributed earnings date affiliates diberil generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies summary affiliates percentages owned follows january 31 2011 financial information affiliates reported onemonth lag reporting period summarized financial information affiliates january 31 2011 2010 2009 years ended follows company significant transactions balances affiliates resulted amounts included consolidated financial statements january 31 2011 2010 2009 years ended company’s equity undistributed earnings affiliates totaled 38358000 29428000 26328000 january 31 2011 2010 2009 respectively 4 impairment oil gas properties end reporting period company required assess carrying value oil gas properties guidelines sec fully described note 1 “the ceiling test” gas prices per mcf used determinations january 31 2011 2010 2009 394 324 329 respectively result ceiling test recorded impairments oil gas properties 21642000 second quarter fiscal 2010 26690000 fourth quarter fiscal 2009 impairment second quarter fiscal 2010 based gas price 289 per mcf impairments 2011 fiscal year also recorded impairment 2014000 third quarter fiscal 2009 related company’s exploration project chile begun 2008 following initial core testing evaluation infrastructure requirements determined recovery company’s investment likely costs written 5 goodwill intangible assets intangible assets consisted following january 31 total amortization expense intangible assets 2276000 1542000 1536000 2011 2010 2009 respectively amortization expense subsequent five fiscal years estimated follows total goodwill january 31 2011 2010 22089000 20618000 respectively expected tax deductible carrying amount goodwill attributed operating segment follows 6 litigation settlement gains fiscal 2000 company initiated litigation former owner subsidiary associated partners action stemmed alleged competition violation noncompetition agreements sought damages lost profits recovery legal expenses first quarter fiscal 2010 company entered agreement whereby received certain land buildings settlement claims settlement valued 2828000 based management’s estimate fair market value land buildings received considering current market conditions information provided third party appraisal fiscal 2008 company initiated litigation former officers subsidiary associated energy production companies september 2008 company entered settlement agreement whereby received certain payments period september 2009 payments 667000 2173000 received years ended january 31 2010 2009 respectively net contingent attorney fees 7 income consisted following 8 costs estimated earnings uncompleted contracts costs estimated earnings uncompleted contracts consisted following company bills customers based specific contract terms substantially billed amounts collectible within one year january 31 2011 2010 company held unbilled contract retainage amounts 35351000 40601000 respectively 9 income taxes income taxes consisted following components income tax expense follows deferred income taxes result temporary differences financial statement tax bases company’s assets liabilities sources differences cumulative tax effects follows january 31 company’s deferred tax assets likely realized exception certain canadian net operating losses foreign tax credit carryovers cannot forecast sufficient future canadian income foreign source income realize deferred tax assets valuation allowance provided carryovers canadian loss carryovers expire 2030 2031 us foreign tax credit carryovers expire 2017 2021 january 31 2011 undistributed earnings foreign subsidiaries certain foreign affiliates included 53300000 federal income foreign withholding taxes provided earnings considered invested indefinitely become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign subsidiaries foreign affiliates earnings considered invested indefinitely reconciliation total income tax expense statutory federal rate follows years ended january 31 reconciliation beginning ending amount unrecognized tax benefits follows substantially unrecognized tax benefits recorded would affect effective rate recognized expected amount unrecognized tax benefits change next year however company expect change significant impact results operations financial position company classifies interest penalties related income taxes component income tax expense january 31 2011 2010 2009 company 5251000 3686000 2872000 respectively interest penalties accrued associated unrecognized tax benefits liability interest penalties increased 1565000 814000 120000 years ended january 31 2011 2010 2009 respectively company files income tax returns us federal jurisdiction various state jurisdictions certain foreign jurisdictions tax year ended january 31 2011 statute limitations expired tax year ended january 31 2007 also current year company settled irs examination tax year ended january 31 2008 substantial assessment additional taxes tax years ended january 31 2009 2010 2011 open examination irs company state examinations currently progress company files tax returns foreign jurisdictions operates returns subject examination income tax examinations may ongoing point time tax liabilities recorded based estimates additional taxes due upon settlement examinations tax years subject examination foreign tax authorities vary jurisdiction generally tax years 2006 2011 remain open examination 10 operating leases obligations future minimum rental payments required operating leases initial remaining noncancelable lease terms excess one year january 31 2011 follows operating leases primarily light medium duty trucks equipment rent expense operating leases including insignificant amounts contingent rental payments 29106000 28816000 31660000 2011 2010 2009 respectively asset retirement obligations consist estimated costs dismantlement removal site reclamation similar activities associated oil gas properties asset retirement obligation related asset retirement cost recorded well drilled completed asset retirement cost determined based expected costs complete reclamation end well’s economic life discounted present value using creditadjusted riskfree rate initial recording liability increased passage time increase reflected consolidated statements income depreciation depletion amortization asset retirement costs capitalized part oil gas properties depleted accordingly additions asset retirement obligations years ended january 31 2011 2010 2009 71000 106000 185000 respectively accretion 98000 87000 77000 2011 2010 2009 respectively carrying values asset retirement obligations january 31 2011 2010 1667000 1498000 respectively recorded long term liabilities 11 employee benefit plans company sponsored pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company made annual contributions plan substantially equal amounts required maintain qualified status plan contributions intended provide benefits related past current service company effective december 31 2003 company froze pension plan ceased accrual benefits employees added plan january 29 2010 company terminated plan distributed 10054000 annuity provider fulfilled remaining obligations approximately 300000 cash distributions triggered settlement guidance within asc topic 715 “compensation retirement benefits” “asc topic 715” resulted recognized settlement loss 4980000 fiscal 2010 beginning company’s fiscal year ended january 31 2009 asc topic 715 “compensation retirement benefits” “asc topic 715” requires company measure plan assets benefit obligations fiscal balance sheet date company previously used december 31 measurement date company elected apply transition option 13month measurement determined december 31 2007 covers period fiscal yearend measurement required january 31 2009 result company recorded 47000 decrease retained earnings february 1 2008 following table sets forth plan’s funded status measurement dates amounts recognized company’s consolidated balance sheets january 31 2010 net periodic pension cost fiscal 2010 2009 included following components weighted average assumptions used determine benefit obligation net periodic pension cost fiscal 2010 2009 follows estimated longterm rate return assets developed based historical returns future expectations returns asset class well target asset allocation pension portfolio benefit level assumptions 2010 2009 based fixed amounts per year credited service company’s policy respect funding qualified pension plan fund least minimum required erisa maximum deductible tax purposes contribution required erisa january 1 december 31 2010 plan year plan settled company also provides supplemental retirement benefits chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent chief executive’s defined contribution plan balance company contribute plan maintain investment assets related expected benefit obligation company recognized full amount actuarially determined pension liability amounts recognized company’s consolidated balance sheets january 31 2011 2010 3420000 2899000 net periodic pension cost supplemental retirement benefits 2011 2010 2009 include following components company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 3568000 3427000 3780000 2011 2010 2009 respectively information regarding assets accumulated benefits plans made available company’s salaried certain hourly employees participate companysponsored defined contribution plans total expense company’s portion plans 4347000 3920000 4215000 2011 2010 2009 respectively company deferred compensation plan certain management employees participants may elect defer 25 salaries 50 bonuses plan company matching contributions vesting period contributions established discretion company employee deferrals vested times total amount deferred including company matching 2011 2010 2009 1499000 1658000 1939000 respectively total liability deferred compensation 9388000 7042000 january 31 2011 2010 respectively 12 indebtedness company maintains agreement “master shelf agreement” whereby issue 50000000 additional unsecured notes september 15 2012 july 31 2003 company issued 40000000 notes “series senior notes” master shelf agreement series senior notes bear fixed interest rate 605 annual principal payments 13333000 final payment series senior notes made august 2 2010 company issued additional 20000000 notes master shelf agreement october 2004 “series b senior notes” series b senior notes bear fixed interest rate 540 remaining balance due september 29 2011 company also maintains revolving credit facility amended restated loan agreement “credit agreement” bank america administrative agent lender “administrative agent” lenders listed therein “lenders” contains revolving loan commitment 200000000 less outstanding letter credit commitments subject 30000000 sublimit credit agreement provides interest variable rates equal company’s option libor rate plus 075 200 base rate defined credit agreement plus 050 depending upon company’s leverage ratio credit agreement unsecured due payable november 15 2011 january 31 2011 letters credit 20400000 3000000 borrowings outstanding credit agreement resulting available capacity 176600000 master shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends certain financial maintenance covenants including among others fixed charge coverage maximum debt ebitda minimum tangible net worth company compliance covenants january 31 2011 compliance financial covenants required quarterly basis using recent four fiscal quarters company’s fixed charge coverage ratio leverage ratio covenants based ratios utilizing adjusted ebitda adjusted ebitdar defined agreements adjusted ebitda generally defined consolidated net income excluding net interest expense provision income taxes gains losses extraordinary items gains losses sale capital assets noncash items including depreciation amortization sharebased compensation equity earnings affiliates included extent dividends distributions received adjusted ebitdar defined adjusted ebitda plus rent expense company’s tangible net worth covenant based stockholders’ equity less intangible assets measures considered nongaap financial measures intended accordance accounting principles generally accepted united states company’s minimum fixed charge coverage ratio covenant ratio adjusted ebitdar sum fixed charges fixed charges consist rent expense interest expense principal payments longterm debt company’s leverage ratio covenant ratio total funded indebtedness adjusted ebitda total funded indebtedness generally consists outstanding debt capital leases unfunded pension liabilities asset retirement obligations escrow liabilities company’s tangible net worth covenant measured based stockholders’ equity less intangible assets compared threshold amount defined agreements threshold adjusted time based percentage net income proceeds issuance equity securities january 31 2011 2010 company’s actual required covenant levels follows march 25 2011 company entered new revolving credit facility “new credit agreement” unsecured 300000000 facility extends march 25 2016 replaces credit agreement terminated master shelf agreement remains place new credit agreement contains similar financial maintenance covenants prior agreement although minimum tangible net worth required new credit agreement entered extend expiration period company’s debt facilities increase borrowing capacity maximum borrowings outstanding company’s credit agreements 2011 2010 26667000 46667000 respectively average outstanding borrowings 18167000 36100000 respectively weighted average interest rates including amortization loan costs 73 68 respectively loan costs incurred securing longterm financing amortized using method approximates effective interest method term respective loan agreement amortization costs 2011 2010 2009 167000 170000 183000 respectively amortization loan costs included interest expense consolidated statements income debt outstanding january 31 2011 2010 whose carrying value approximates fair market value follows debt outstanding mature fiscal year 2012 13 derivatives company’s energy division exposed fluctuations price natural gas periodically enters fixedprice physical delivery contracts manage natural gas price risk portion production available attractive prices january 31 2010 company committed deliver 885000 million british thermal units “mmbtu” natural gas march 2010 prices ranging 768 1067 per mmbtu january 31 2011 company held contracts company entered physical delivery contracts order facilitate normal recurring sales natural gas purchasing counterparty january 31 2011 company committed deliver total 708000 million british thermal units “mmbtu” natural gas march 2011 contract price resets daily based weighted average price reported trades deliveries following day additionally company foreign operations significant costs denominated foreign currencies thus exposed risks associated changes foreign currency exchange rates point time company might use various hedge instruments primarily foreign currency option contracts manage exposures associated forecasted expatriate labor costs purchases operating supplies company enter foreign currency derivative financial instruments speculative trading purposes january 31 2010 company held option contracts aggregate us dollar notional value 7600000 intended hedge exposure australian dollar fluctuations january 31 2010 fair value outstanding derivatives loss 102000 recorded accrued expenses balance sheet january 31 2011 company held contracts foreign currency contracts designed cash flow hedging instruments change fair value foreign currency contracts recorded component accumulated comprehensive income loss “aoci” reclassified earnings periods earnings impacted hedge item foreign currency contracts company uses marktomarket valuation technique based observable foreign currency exchange rates company’s policy enter derivative instruments terms match underlying exposure hedged company’s derivative instruments considered highly effective net gain loss hedge ineffectiveness material realized gains losses hedging instruments occur portion hedge settles probable forecasted transaction occur 14 fair value measurements september 2006 fasb issued guidance codified within asc topic 820 “fair value measurements disclosures” defines fair value establishes threelevel fair value hierarchy based upon assumptions inputs used price assets liabilities expands disclosures fair value measurements hierarchy requires company maximize use observable inputs minimize use unobservable inputs three levels inputs used measure fair value listed level 1 unadjusted quoted prices active markets identical assets liabilities level 2 observable inputs included level 1 quoted market prices similar assets liabilities active markets quoted prices identical assets inactive markets level 3 unobservable inputs reflecting company’s assumptions best estimate inputs market participants would use pricing asset liability company’s assessment significance particular input fair value entirety requires judgment considers factors specific asset liability company’s financial instruments held fair value include restricted deposits held acquisition escrow accounts foreign currency option contracts contingent earnout acquired businesses presented periods ended january 31 2011 2010 1 fair value contingent earnout acquired businesses determined using marktomarket modeling technique based significant unobservable inputs calculated using discounted future cash flows approach key assumptions include discount rate 412 annual revenues acquired businesses ranging 1500000 6100000 life earnout 2 fair value foreign currency contracts determined using marktomarket technique based observable foreign currency exchange rates 15 stock option plans october 2008 company amended rights agreement signed october 1998 whereby company authorized declared dividend one preferred share purchase right “right” outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 20 company’s common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 7500 company entitled redeem right 01 per right time person acquired 20 company’s outstanding common stock rights expire three years date grant company stock option employee incentive plans provide granting options purchase issuance shares common stock price fixed board directors committee january 31 2011 aggregate 2850000 shares registered plans 1390000 remain available granted plans amount 250000 shares may granted stock payment bonuses 1140000 may issued stock options company ability issue shares plans either new issuances treasury although previously always issued new shares expects continue issue new shares future years ended january 31 2011 2010 company purchased subsequently cancelled 5441 5374 respectively shares stock related settlement withholding obligations company recognized 3499000 4841000 4084000 compensation cost sharebased plans years ended january 31 2011 2010 2009 respectively amounts 1057000 603000 1369000 respectively related nonvested stock determined fiscal 2010 33825 nonvested shares issued fiscal 2009 unlikely vest contingent upon meeting performance requirements fiscal 2011 likely met accordingly company reversed 805000 compensation cost fiscal 2010 related shares total income tax benefit recognized sharebased compensation arrangements 1365000 1888000 1578000 years ended january 31 2011 2010 2009 respectively summary nonvested share activity 2011 2010 2009 follows significant option groups outstanding january 31 2011 related exercise price remaining contractual term follows options granted exercise price equal fair market value company’s common stock date grant options terms 10 years date grant generally vest ratably periods one month five years certain option awards provide accelerated vesting change control defined plans equitable adjustments event changes company’s equity structure company expect nonvested options forfeited fair value options date grant estimated using blackscholes model weighted average fair value date grant options granted 2011 2010 2009 1608 992 1630 respectively fair value based expected life approximately six years dividend yield average riskfree rate 243 214 248 respectively assumed volatility 65 62 48 respectively stock option transactions 2011 2010 2009 follows 16 contingencies company’s drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice bundled basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance respect foreign operations connection company updating foreign corrupt practices act fcpa policy questions raised internally late september 2010 among things legality certain payments company agents third parties interacting government officials certain countries africa audit committee board directors engaged outside counsel conduct internal investigation review payments assistance outside accounting firm internal investigation continuing found documents information suggesting improper payments may violate fcpa local laws made considerable period time behalf certain foreign subsidiaries company third parties interacting government officials africa relating payment taxes importing equipment company contacted securities exchange commission sec us department justice doj voluntarily inform matter fully cooperating governmental authorities investigation continues review matter stage internal investigation company unable predict potential remedies actions agencies may pursue additional potential fcpa violations laws regulations may uncovered investigation company involved various matters litigation claims disputes arisen ordinary course company’s business company believes ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows 17 segments foreign operations company multinational company provides sophisticated services related products variety markets well producer oil unconventional natural gas energy market management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices’ division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water infrastructure division company’s segments defined follows water infrastructure division provides full line waterrelated services products including soil stabilization hydrological studies well design drilling development pump installation sewer rehabilitation pipeline construction well rehabilitation division’s offerings include design construction water wastewater treatment facilities provision filter media membranes treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental services assess monitor groundwater contaminants mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods energy division focuses exploration production oil gas properties primarily concentrating projects midcontinent region united states includes small service companies specialty operations included one divisions financial information company’s segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer general counsel board directors corporate assets company directly associated segment consist primarily cash deferred income taxes 18 new accounting pronouncements december 2007 fasb issued guidance codified within asc topic 810 “consolidation” guidance requires us classify noncontrolling interests previously referred “minority interest” part consolidated net earnings include accumulated amount noncontrolling interests previously classified minority interest outside equity part stockholders’ equity presentation consolidated income stockholders’ equity distinguish amounts attributable layne christensen company amounts attributable noncontrolling interests addition financial reporting changes guidance provides significant changes accounting related noncontrolling interests specifically increases decreases controlling financial interests consolidated subsidiaries reported equity similar treasury stock transactions change ownership consolidated subsidiary results loss control deconsolidation retained ownership interests remeasured gain loss reported net earnings company adopted standard applied retrospectively february 1 2009 reclassified noncontrolling interests amount 75000 february 1 2009 component stockholders’ equity 19 quarterly results unaudited quarterly financial data follows second quarter 2010 company recorded noncash impairment charge 21642000 13039000 income tax related energy operations result determinations oil gas reserves impairments fiscal 2011 supplemental information oil gas producing activities unaudited company’s oil gas activities primarily conducted united states see note 1 additional information regarding company’s oil gas properties capitalized costs related oil gas producing activities capitalized costs associated depletion relating oil gas producing activities follows january 31 2011 2010 2009 included accumulated depletion noncash ceiling test impairments 21642000 26690000 recorded 2010 2009 respectively impairments january 31 2011 see note 4 additional information regarding impairment oil gas properties unproved oil gas properties january 31 2011 2010 2009 totaled 3002000 3851000 10348000 respectively unevaluated mineral interest costs excluded depletion january 31 2011 2010 2009 totaled 6960000 9527000 9305000 respectively capitalized costs associated depreciation relating gas transportation facilities equipment follows january 31 2011 2010 2009 capitalized costs incurred gas transportation facilities equipment 2011 2010 2009 totaled 138000 923000 6739000 respectively fiscal 2009 transferred 2820000 oil gas properties gas transportation facilities equipment company began use facilities transport third party natural gas market cost incurred oil gas producing activities capitalized costs incurred oil gas producing activities follows 2011 2010 2009 results operations oil gas producing activities results operations relating oil gas producing activities set forth following tables years ended january 31 2011 2010 2009 dollar per mcf basis include revenues operating costs directly attributable oil gas producing activities general corporate overhead interest costs transportation third party gas nonoil gas producing activities excluded income tax expense calculated applying statutory tax rates revenues deducting costs include depletion allowances proved oil gas reserve quantities proved oil gas reserve quantities january 31 2011 2010 based estimates prepared company’s independent petroleum engineers cawley gillespie associates inc accordance requirements sec company’s reserves located within united states proved oil gas reserves estimated quantities oil natural gas geological engineering data demonstrate reasonable certainty recoverable future years known reservoirs economic operating conditions effect estimates made proved developed reserves expected recovered wells equipment operating methods existing estimates made proved undeveloped reserves expected recovered new wells undrilled acreage existing wells relatively major expenditure required recompletion company cautions many inherent uncertainties estimating quantities proved reserves projecting future rates production timing development expenditures accordingly estimates likely change future information becomes available estimated quantities total proved oil gas reserves follows standardized measure discounted future net cash flows relating proved oil gas reserve quantities price used determining future cash inflows purposes standardized measure discounted future net cash flows unweighted arithmetic average firstdayofthemonth spot price month within 12month period end reporting period future cash inflows also incorporate effect contractual arrangements fixedprice physical delivery forward sales contracts prices used determinations january 31 2011 2010 394 324 per mcf respectively future production development costs represent estimated future expenditures incurred developing producing proved reserves assuming continuation existing economic conditions future income tax expense computed applying statutory rates pretax cash flows relating company’s estimated proved reserves difference book tax basis proved properties information purport present fair market value company’s oil gas assets present standardized disclosure concerning possible future net cash flows would result assumptions used following table sets forth unaudited information concerning future net cash flows oil gas reserves net income tax expense principal sources change standardized measure discounted future net cash flows layne christensen company subsidiaries schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules layne christensen company subsidiaries page statement management responsibility report independent registered public accounting firm financial statements consolidated balance sheets january 31 2012 2011 consolidated statements operations years ended january 31 2012 2011 2010 consolidated statements comprehensive loss income years ended january 31 2012 2011 2010 consolidated statements stockholders’ equity years ended january 31 2012 2011 2010 consolidated statements cash flows years ended january 31 2012 2011 2010 notes consolidated financial statements supplemental information oil gas producing activities financial statement schedule ii valuation qualifying accounts schedules omitted applicable required information included consolidated financial statements company notes thereto statement management responsibility consolidated financial statements layne christensen company subsidiaries “company” prepared conformity accounting principles generally accepted united states integrity objectivity data financial statements responsibility management information included annual report form 10k management believes information presented annual report consistent financial statements financial statements contain material misstatements due fraud error appropriate financial statements reflect management’s best estimates judgments management also responsible maintaining system internal accounting controls objectives providing reasonable assurance company’s assets safeguarded material loss unauthorized use disposition authorized transactions properly recorded permit preparation accurate financial data however limitations exist system internal controls based recognition cost system exceed benefits company believes system accounting controls internal auditing function integral part accomplishes stated objectives audit committee board directors composed outside directors meets periodically management company’s independent registered public accountants internal auditors review matters related company’s financial statements internal audit activities internal accounting controls nonaudit services provided independent accountants independent registered public accountants internal auditors full access audit committee meet without management present discuss scope results audits including internal controls audit financial matters srene j robichaud sjerry w fanska rene j robichaud jerry w fanska president senior vice president chief executive officer chief financial officer report independent registered public accounting firm board directors stockholders layne christensen company mission woods kansas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2012 2011 related consolidated statements operations comprehensive loss income stockholders’ equity cash flows three years period ended january 31 2012 audits also included financial statement schedule listed index item 8 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2012 2011 results operations cash flows three years period ended january 31 2012 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed method presenting comprehensive income due adoption fasb accounting standards update 201105 presentation comprehensive income change presentation applied retrospectively periods presented also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2012 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated april 27 2012 expressed unqualified opinion company’s internal control financial reporting sdeloitte touche llp kansas city missouri april 27 2012 layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements continued layne christensen company subsidiaries consolidated balance sheets continued see notes consolidated financial statements layne christensen company subsidiaries consolidated statements operations see notes consolidated financial statements layne christensen company subsidiaries consolidated statements comprehensive loss income see notes consolidated financial statements layne christensen company subsidiaries consolidated statement stockholders’ equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flow see notes consolidated financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “company” global water management construction drilling company operates throughout north america well africa australia brazil italy customers include government agencies investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies agribusiness company ownership interest certain foreign affiliates operating south america facilities chile peru uruguay brazil see note 3 fiscal year references years fiscal years ended investment affiliated companies investments affiliates 20 50 owned company ability exercise significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries intercompany transactions eliminated financial information company’s affiliates certain foreign subsidiaries reported company’s consolidated financial statements onemonth lag reporting periods use december 31 yearend primarily match local countries’ statutory reporting requirements effect onemonth lag company’s financial position results operations significant company evaluated subsequent events time filing consolidated financial statements presentation company changed method presenting comprehensive income due adoption fasb accounting standards update 201105 presentation comprehensive income change presentation applied retrospectively periods presented use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities company’s mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency measure monetary assets liabilities yearend exchange rates nonmonetary items measured historical rates income expense accounts measured exchange rates approximate weighted average prevailing exchange rates effect year except depreciation certain cost revenues selling expenses translated historical rates gains losses changes exchange rates recognized consolidated results operations year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities measured us dollars yearend exchange rates income expense items translated exchange rates approximate weighted average rates prevailing year translation adjustments reported separate component accumulated comprehensive income loss net foreign currency transaction losses 2012 2011 2010 310000 458000 802000 respectively recorded income expense net accompanying consolidated results operations revenue recognition revenues recognized large longterm construction contracts meeting criteria accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” “asc topic 60535” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised changes job performance job conditions estimated profitability including arising contract penalty provisions change orders final contract settlements may result revisions costs income recognized period revisions determined contracts company’s mineral exploration drilling services billable based quantity drilling performed revenues drilling contracts recognized basis actual footage meterage drilled allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur revenues sale oil gas company’s energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories company values inventories lower cost determined using firstin firstout “fifo” basis market allowances recorded inventory considered excess obsolete inventories consist primarily finished goods parts supplies raw materials 2536000 2685000 included inventories consolidated balance sheet january 31 2012 2011 respectively property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 54989000 45540000 42059000 2012 2011 2010 respectively lives used items within property classification follows oil gas properties mineral interests company follows fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized capitalized costs depleted based units production depletion expense 4026000 5652000 13992000 2012 2011 2010 respectively company required review carrying value oil gas properties full cost accounting rules sec “ceiling test” ceiling limitation estimated aftertax future net revenues proved oil gas properties discounted 10 plus cost properties subject amortization net book value oil gas properties less related deferred income taxes excess calculated ceiling excess must written expense application ceiling test requires pricing future revenues unweighted arithmetic average firstdayofthemonth price month within 12month period end reporting period unless prices defined contractual arrangements fixedprice physical delivery forward sales contracts unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows see note 4 discussion impairment recorded fiscal 2010 reserve estimates company’s estimates oil gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations oil gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing oil gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities oil gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill company’s impairment evaluation goodwill conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit generally determined basis discounted future cash flows market approach based guideline public companies andor corporate transactions observed marketplace estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference see note 5 discussion impairments recorded fiscal 2012 assumptions used estimates fair value using discounted cash flow approach first step generally consistent past performance reporting unit also consistent projections assumptions used current operating plans significant assumptions subject change result changing economic competitive conditions follows · anticipated future cash flows longterm growth rates reporting unit income approach determining fair value relies timing estimates future cash flows including estimate longterm growth rates projections use management’s estimates economic market conditions projected period including growth rates sales estimates expected changes operating margins company’s projections future cash flows subject change actual results achieved differ anticipated actual results could vary significantly estimates · selection appropriate discount rate income approach requires selection appropriate discount rate based weighted average cost capital analysis discount rate subject changes shortterm interest rates longterm yield well variances typical capital structure marketplace participants industry discount rate determined based assumptions would used marketplace participants reason capital structure selected marketplace participants used weighted average cost capital analysis given current volatile economic conditions possible discount rate could change intangible assets intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized using straightline method estimated useful lives range two 35 years impairment evaluation carrying amount intangible assets indefinite lives conducted annually frequently events changes circumstances indicate asset might impaired evaluation performed comparing carrying amount assets estimated fair value estimated fair value less carrying amount intangible assets indefinite lives impairment charge recorded reduce asset estimated fair value estimated fair value generally determined basis discounted future cash flows assumptions used estimate fair value generally consistent past performance reporting unit also consistent projections assumptions used current operating plans assumptions subject change result changing economic competitive conditions see note 5 discussion impairments recorded fiscal 2012 longlived assets longlived assets including amortizable intangible assets company’s gas transportation facilities equipment reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable factors consider important could trigger impairment review include limited following · significant underperformance assets · significant changes use assets · significant negative industry economic trends cash equivalents company considers investments original maturity three months less purchased cash equivalents company’s cash equivalents subject potential credit risk company’s cash management investment policies restrict investments investment grade highly liquid securities carrying value cash equivalents approximates fair value restricted deposits restricted deposits consist 3586000 escrow funds associated primarily acquisitions bencor wildcat allowance uncollectible accounts receivable company makes ongoing estimates relating collectibility accounts receivable maintains allowance estimated losses resulting inability customers make required payments determining amount allowance company makes judgments creditworthiness significant customers based ongoing credit evaluations also considers review accounts receivable aging industry trends customer financial strength credit standing payment history assess probability collection company establish allowance credit losses longterm contract unbilled receivables adjustments unbilled receivables related credit quality occur accounted reduction revenue accrued insurance expense company maintains insurance programs responsible certain amount claim selfinsured limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based part actuarially determined projections future payments programs greater amount claims occur compared estimated costs medical profession increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2012 2011 relatively short maturity instruments see note 12 disclosure regarding fair value indebtedness company note 13 disclosure regarding fair value derivative instruments note 14 fair value disclosures litigation contingencies company involved litigation incidental business disposition expected material effect company’s business financial position results operations cash flows possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings record liability probable liability incurred amount loss reasonably estimated provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change derivatives company periodically enters hedge contracts recorded fair value related certain forecasted foreign currency costs accounted cash flow hedges changes fair value effective portion hedge contracts recorded accumulated comprehensive income loss stockholders’ equity hedged item recognized operations ineffective portion derivatives’ change fair value immediately recognized operations addition company may enter fixedprice natural gas contracts manage fluctuations price natural gas contracts would result company physically delivering gas result exempt requirements asc topic 815 normal purchases sales exception accordingly contracts reflected balance sheet fair value revenues contracts recognized natural gas delivered terms contracts see note 13 disclosure regarding fair value derivative instruments company enter derivative financial instruments speculative trading purposes supplemental cash flow information amounts paid income taxes interest noncash investing financing activities follows fiscal year 2012 company entered financing obligations software licenses amounting 1289000 payable three years associated assets recorded intangible assets net balance sheet company funded 1716000 debt issuance costs borrowings new credit agreement costs amortized life credit agreement see note 12 discussion company’s credit facility agreement company incurred capital lease obligation 300000 lease new equipment fiscal 2010 company received land buildings valued 2828000 noncash settlement legal dispute australia made noncash distribution 280000 common stock prior year acquisition see note 6 discussion legal settlements note 2 discussion acquisition activity income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely see note 9 company’s estimate uncertainty income taxes based framework established accounting income taxes guidance addresses determination tax benefits claimed expected claimed tax return recorded financial statements company recognizes tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax positions meet recognition threshold company applies judgment taking account applicable tax laws experience managing tax audits relevant gaap determine amount tax benefits recognize financial statements uncertain position difference benefit realized tax return benefit reflected financial statements recorded liability consolidated balance sheet liability updated financial statement date reflect impacts audit settlements resolution audit issues expiration statutes limitation developments tax law ongoing discussions taxing authorities earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive options purchase 1133211 421270 453630 shares excluded weighted average shares 2012 2011 2010 respectively effect antidilutive total 226919 49076 67975 nonvested shares excluded weighted average shares 2012 2011 2010 respectively effect antidilutive sharebased compensation company recognizes cost sharebased instruments financial statements using fairvalue measurement compensation expense related sharebased instruments term expected benefited instrument january 31 2012 company unrecognized compensation expense 3617000 recognized weighted average period 25 years company determines fair value sharebased compensation using blackscholes model unearned compensation expense associated issuance nonvested shares amortized straightline basis restrictions stock expire research development costs research development costs charged expense 2012 2011 2010 1560000 281000 respectively recorded selling general administrative expenses accompanying consolidated results operations accumulated comprehensive loss accumulated balances net income taxes accumulated comprehensive loss follows changes components comprehensive loss income reported net income taxes follows 2 acquisitions fiscal year 2012 february 28 2011 company acquired kansas colorado curedinplace pipe “cipp” operations wildcat civil services “wildcat” sewer rehabilitation contractor acquisition company’s expansion geographic reach inliner division westward aggregate purchase price wildcat 8855000 comprised cash 442000 placed escrow secure certain representations warranties indemnifications purchase price allocation based assessment fair value assets acquired liabilities assumed using company’s internal operational assessments analyses level 3 measurements based company’s allocations purchase price acquisition following effect company’s consolidated financial position closing date 2318000 goodwill assigned water infrastructure division purchase price excess value wildcat’s net assets reflects strategic value company placed business company believed would benefit synergies acquired operations integrated company’s existing operations goodwill associated acquisition expected deductible tax purposes fiscal 2012 company changed structure reporting segments reallocated goodwill new reporting units based relative fair value reporting unit december 31 2011 see note 5 discussion change reporting segments reallocation goodwill results operations acquired entity included company’s consolidated statements income commencing closing date wildcat contributed revenues loss income taxes company period february 28 2011 january 31 2012 14207000 925000 pro forma amounts related wildcat prior periods presented acquisition would significant effect company’s consolidated revenues net income fiscal year 2011 company completed three acquisitions fiscal 2011 described · july 15 2010 company acquired 50 interest diberil sociedad anónima “diberil” uruguayan company parent company costa fortuna brazil uruguay diberil operations sao paulo brazil montevideo uruguay one largest providers specialty foundation specialized marine geotechnical services south america expand geoconstruction capabilities geographic markets company accounts diberil equity method investment see note 3 · july 27 2010 company acquired certain assets intevras technologies llc “intevras” texas based company focused treatment filtration handling evaporative crystallization disposal industrial wastewaters expanded company’s offerings industrial water market · october 22 2010 company purchased 100 outstanding stock bencor corporation america foundation specialist “bencor” leading contractor foundation underground engineering complemented expanded company’s geoconstruction capabilities aggregate purchase price intevras bencor 38673000 comprised cash 3550000 placed escrow secure certain representations warranties indemnifications contingent consideration follows addition intevras cash purchase price contingent consideration maximum 10000000 “intevras earnout amount” based percentage revenues earned intevras products fixed amounts per barrel water treated intevras products 60 months following acquisition accordance accounting guidance company treated intevras earnout amount contingent consideration estimated liability fair value acquisition date included consideration component total purchase price noted potential undiscounted amount future payments company could required make agreement 0 10000000 fair value contingent consideration arrangement 1100000 estimated applying market approach measure based significant inputs observable market also referred level 3 inputs key assumptions include discount rate 412 estimated level annual revenues intevras ranging 1500000 6100000 fiscal year 2012 reassessed intevras earnout amount paid future 541000 acquisition related costs 381000 bencor 65000 intevras recorded expense periods costs incurred purchase price acquisition allocated based assessment fair value assets liabilities acquired based company’s internal operational assessments analyses level 3 measurements based company’s allocations purchase price acquisitions following effect company’s consolidated financial position respective closing dates intangible assets intevras consist patents valued 3840000 weighted average useful life nine years trade name valued 200000 useful life ten years intangible assets bencor consist customer backlog valued 3220000 weighted average useful life 18 months trade name valued 1140000 useful life ten years noncompete agreements valued 680000 useful life six years 10420000 aggregate goodwill assigned water infrastructure division purchase prices excess value intevras’ bencor’s net assets reflect strategic value company placed businesses company believed would benefit synergies acquired businesses integrated company’s existing operations goodwill associated intevras acquisition expected deductible tax purposes goodwill associated bencor acquisition deductible tax purposes fiscal 2012 company changed structure reporting segments reallocated goodwill new reporting units based relative fair value reporting unit december 31 2011 see note 5 discussion change reporting segments reallocation goodwill results operations acquired entities included company’s consolidated results operations commencing closing date bencor contributed revenues income taxes company period october 22 2010 january 31 2011 20839000 8214000 respectively fiscal year 2011 revenue income taxes intevras since closing date significant pro forma amounts related intevras prior periods presented acquisition would significant effect company’s consolidated revenues net income assuming bencor acquired beginning period unaudited pro forma consolidated revenues net income net income per share company would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future addition acquisitions company paid 426000 contingent earnout consideration prior year acquisitions november 30 2007 company acquired certain assets liabilities solmetex inc “solmetex” water wastewater research development business supplier wastewater filtration products dental market addition initial purchase price contingent consideration maximum 1000000 “solmetex earnout amount” based percentage amount solmetex’s revenues 36 months following acquisition amounts paid pursuant solmetex earnout amount accounted additional purchase consideration contingent earnout consideration earned solmetex 689000 426000 paid fiscal 2011 remainder paid previous years fiscal year 2010 company completed three acquisitions fiscal 2010 described · december 9 2009 company acquired certain assets mcl technology corporation “mcl” arizonabased provider commercial industrial reverse osmosis deionization filtration services · october 30 2009 company acquired 100 stock wl hailey company inc “hailey” water wastewater solutions firm tennessee operation combined similar service lines serves foster company’s expansion product lines southeast · may 1 2009 company acquired equipment assets meadow equipment sales service inc “meadow” construction company operating primarily midwestern united states aggregate cash purchase price 16961000 comprised cash 3150000 placed escrow secure certain representations warranties idemnifications follows purchase price acquisition allocated based fair value assets liabilities acquired determined based company’s internal operational assessments analyses accordance new accounting guidance beginning fiscal 2010 acquisition related costs 5000 recorded expense periods costs incurred based company’s allocations purchase price acquisitions following effect company’s consolidated financial position respective closing dates identifiable intangible assets associated meadow consist noncompete agreements valued 25000 weighted average life three years identifiable intangible assets associated mcl consist design efficiencies provide margin advantage competitors valued 164000 weighted average life five years 858000 aggregate goodwill assigned water infrastructure group expected deductible tax purposes fiscal 2012 company changed structure reporting segments reallocated goodwill new reporting segments based relative fair value reporting segment december 31 2011 see note 1 note 5 discussion change reporting segments reallocation goodwill results operations acquired entities included company’s consolidated results operations commencing respective closing dates hailey contributed revenues income taxes company period october 30 2009 january 31 2010 11581000 149000 respectively fiscal year 2010 revenue income taxes meadow mcl since respective closing dates significant pro forma amounts related meadow mcl periods prior acquisitions presented since acquisitions would significant effect company’s consolidated revenues net income assuming hailey acquired beginning fiscal 2010 unaudited pro forma consolidated revenues net income net income per share would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future june 16 2006 company acquired 100 outstanding stock collector wells international inc “cwi” privately held specialty water services company designs constructs water supply systems terms purchase contingent consideration maximum 1400000 “earnout amount” based percentage amount cwi’s earnings interest taxes depreciation amortization exceeded threshold amount 36 months following acquisition june 2009 company determined maximum consideration achieved settled earnout amount consisting 1120000 cash 280000 layne common stock valued based average closing price five trading days ending june 9 2009 company paid cash portion settlement july 10 2009 issued 12677 shares layne common stock payment stock portion earnout amount accounted additional purchase consideration accordingly july 2009 company recorded 1400000 additional goodwill expected deductible tax purposes 3 investments affiliates july 15 2010 company acquired 50 interest diberil sociedad anónima “diberil” uruguayan company parent company costa fortuna brazil uruguay diberil operations sao paulo brazil montevideo uruguay one largest providers specialty foundation marine geotechnical services south america interest acquired total cash consideration 14900000 10100000 paid diberil shareholders 4800000 paid diberil purchase newly issued diberil stock concurrent investment diberil purchased layne geobrazil equipment leasing company brazil wholly owned company cash payment 4800000 subsequent acquisition company invested additional 1250000 diberil proportionate share capital contribution company’s investments affiliates carried fair value investment considered date acquired plus company’s equity undistributed earnings date affiliates diberil generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies summary affiliates percentages owned follows january 31 2012 financial information affiliates reported onemonth lag reporting period summarized financial information affiliates january 31 2012 2011 2010 years ended follows company significant transactions balances affiliates resulted amounts included consolidated financial statements january 31 2012 2011 2010 years ended company’s equity undistributed earnings affiliates totaled 57633000 38358000 29428000 january 31 2012 2011 2010 respectively 4 impairment oil gas properties end reporting period company required assess carrying value oil gas properties guidelines sec fully described note 1 “the ceiling test” gas prices per mcf used determinations january 31 2012 2011 2010 382 394 324 respectively result ceiling test recorded impairment oil gas properties 21642000 fiscal 2010 impairment based gas price 289 per mcf impairments fiscal year 2012 2011 5 intangible assets goodwill intangible assets fourth quarter fiscal 2012 due change corporate strategy emphasize layne name company’s services worldwide decided cease using certain trade names company recorded impairment charge 9352000 related trade names additionally due significant underperformance certain water treatment businesses assessed certain definitelived intangible assets’ book value recorded impairment charge 2017000 intangible assets consisted following january 31 total amortization expense intangible assets 4108000 2276000 1542000 2012 2011 2010 respectively amortization expense subsequent five fiscal years estimated follows goodwill fourth quarter fiscal 2012 company changed reporting segments connection transition new leadership reporting relationships new one layne strategy resulted change reporting units used testing goodwill impairment company previously reported results operations three reporting segments including water infrastructure division mineral exploration division energy division reporting units prior segment structure water resources reynolds geoconstruction mineral exploration energy new reporting segments reporting units water resources division inliner division heavy civil division geoconstruction division mineral exploration division energy division result change reporting segments units goodwill reallocated within affected reporting units based relative fair value affected reporting units date realignment fourth quarter fiscal 2012 connection annual goodwill impairment test result ongoing weakness municipal spending due poor economic environment changes corporate strategy revision reporting units segments declining natural gas prices company reassessed estimates fair value reporting units circumstances indicated potential impairment goodwill assessed fair value goodwill determine book value exceeded fair value result assessment determined book value goodwill exceeded fair value recorded impairment charge 86160000 charge 17084000 related water resources division 23130000 inliner division 44551000 heavy civil division 950000 energy division 445000 businesses carrying amount goodwill attributed reporting segment follows goodwill expected tax deductible january 31 2012 2011 1534000 22089000 respectively 6 litigation settlement gains fiscal 2000 company initiated litigation former owner subsidiary associated partners action stemmed alleged competition violation noncompetition agreements sought damages lost profits recovery legal expenses fiscal 2010 company entered agreement whereby received certain land buildings settlement claims settlement valued 2828000 based management’s estimate fair market value land buildings received considering current market conditions information provided third party appraisal fiscal 2008 company initiated litigation former officers subsidiary associated energy production companies september 2008 company entered settlement agreement whereby received certain payments period september 2009 payment 667000 received year ended january 31 2010 net contingent attorney fees 7 income consisted following march 21 2011 company sold operating facility fontana california intent acquiring relocating new facility interim new facility could purchased company entered leasehold agreement existing facility total gain sale facility 6354000 1379000 deferred match expected lease payments leasehold agreement deferred gain recognized 36 month term lease company recognized 421000 deferred gain fiscal year ended january 31 2012 fiscal 2012 company recognized gain 996000 sale certain investment securities australia securities received settlement previously written accounts receivable 8 costs estimated earnings uncompleted contracts costs estimated earnings uncompleted contracts consisted following company bills customers based specific contract terms substantially billed amounts collectible within one year january 31 2012 2011 company held unbilled contract retainage amounts 25134000 35351000 respectively 9 income taxes income loss income taxes consisted following components income tax expense follows deferred income taxes result temporary differences financial statement tax bases company’s assets liabilities sources differences cumulative tax effects follows january 31 company’s deferred tax assets likely realized exception certain canadian net operating losses foreign tax credit carryovers cannot forecast sufficient future canadian income foreign source income realize deferred tax assets valuation allowance provided carryovers canadian loss carryovers expire varying amounts used 2030 2032 us foreign tax credit carryovers expire varying amounts used 2018 2022 january 31 2012 undistributed earnings foreign subsidiaries certain foreign affiliates included 69500000 federal income foreign withholding taxes provided earnings considered invested indefinitely become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign subsidiaries foreign affiliates earnings considered invested indefinitely reconciliation total income tax expense statutory federal rate follows years ended january 31 reconciliation beginning ending amount unrecognized tax benefits follows substantially unrecognized tax benefits recorded would affect effective rate recognized expected amount unrecognized tax benefits change next year however company expect change significant impact results operations financial position company classifies interest penalties related income taxes component income tax expense january 31 2012 2011 2010 company 6810000 5251000 3686000 respectively interest penalties accrued associated unrecognized tax benefits liability interest penalties increased 1559000 1565000 814000 years ended january 31 2012 2011 2010 respectively company files income tax returns us federal jurisdiction various state jurisdictions certain foreign jurisdictions tax year ended january 31 2012 statute limitations expired tax year ended january 31 2008 tax years ended january 31 2009 2010 2011 2012 open examination irs company one state examination currently progress company files tax returns foreign jurisdictions operates returns subject examination income tax examinations may ongoing point time tax liabilities recorded based estimates additional taxes due upon settlement examinations tax years subject examination foreign tax authorities vary jurisdiction generally tax years 2007 2012 remain open examination 10 operating lease assets retirement obligations future minimum lease payments required operating leases initial remaining noncancelable lease terms excess one year january 31 2012 follows company’s operating leases primarily light medium duty trucks equipment rent expense operating leases including insignificant amounts contingent rental payments 28924000 29106000 28816000 2012 2011 2010 respectively asset retirement obligations consist estimated costs dismantlement removal site reclamation similar activities associated oil gas properties asset retirement obligation related asset retirement cost recorded well drilled completed asset retirement cost determined based expected costs complete reclamation end well’s economic life discounted present value using credit adjusted riskfreerate initial recording liability increased passage time increase reflected consolidated results operations depreciation depletion amortization asset retirement costs capitalized part oil gas properties depleted accordingly asset retirement obligations recorded longterm liabilities january 31 2012 2011 2010 follows 11 employee benefit plans company sponsored pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company made annual contributions plan substantially equal amounts required maintain qualified status plan contributions intended provide benefits related past current service company effective december 31 2003 company froze pension plan ceased accrual benefits employees added plan january 29 2010 company terminated plan distributed 10054000 annuity provider fulfilled remaining obligations approximately 300000 cash distributions triggered settlement guidance within asc topic 715 “compensation retirement benefits” “asc topic 715” resulted recognized settlement loss 4980000 fiscal 2010net periodic pension cost fiscal 2010 included following components weighted average assumptions used determine benefit obligation net periodic pension cost fiscal 2010 follows year ended january 31 2010 discount rate 692 expected longterm return plan assets 35 expected return assets smoothed value estimated longterm rate return assets developed based historical returns future expectations returns asset class well target asset allocation pension portfolio benefit level assumptions 2010 based fixed amounts per year credited service company also provides supplemental retirement benefits former chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent defined contribution plan balance company contribute plan maintain investment assets related expected benefit obligation company recognized full amount actuarially determined pension liability amount recognized company’s consolidated balance sheets january 31 2012 2011 4553000 3420000 respectively net periodic pension cost supplemental retirement benefits 2012 2011 2010 included following components increase service costs fiscal 2012 due change actuarial assumptions connection planned retirement company’s former chief executive officer january 31 2012 payments totaling 339000 annually commence august 2012 company’s salaried certain hourly employees participate company sponsored defined contribution plans total expense company’s portion plans 4107000 4347000 3920000 2012 2011 2010 respectively company deferred compensation plan certain management employees participants may elect defer 25 salaries 50 bonuses plan company matching contributions vesting period contributions established discretion company employee deferrals vested times total amount deferred including company matching 2012 2011 2010 1974000 1499000 1658000 respectively total liability deferred compensation 11201000 9388000 january 31 2012 2011 respectively company contributes 29 multiemployer defined benefit pension plans terms collectivebargaining agreements cover unionrepresented employees risks participating multiemployer plans different singleemployer plans following aspects · assets contributed multiemployer plan one employer may used provide benefits employees participating employers · participating employer stops contributing plan unfunded obligations plan may borne remaining participating employers · company chooses stop participating multiemployer plans company may required pay plans amount based underfunded status plan referred withdrawal liability accordance new accounting guidance company evaluated multiemployer plans determine individually significant company evaluation based following criteria · company’s total employees participating multiemployer plan compared total employees covered plan · company’s total contributions multiemployer plan percentage total contributions plan participating employers · amount potential liability could incurred due company’s withdrawal multiemployer plan underfunded status plan participating employers’ withdrawal plan january 31 2012 2011 2010 company participate multiemployer plans would considered individually significant company makes contributions plans equal amounts accrued pension expense total contributions union pension expense plans 3133000 3568000 3427000 2012 2011 2010 respectively information regarding assets accumulated benefits plans made available company 12 indebtedness july 31 2003 company issued 40000000 notes “series senior notes” master shelf agreement series senior notes bear fixed interest rate 605 annual principal payments 13333000 final payment series senior notes made august 2 2010 company issued additional 20000000 notes master shelf agreement october 2004 “series b senior notes” series b senior notes bear fixed interest rate 540 final payment 6667000 made september 29 2011 july 8 2011 company entered new private shelf agreement “shelf agreement” whereby issue 150000000 unsecured notes shelf agreement extends july 8 2021 replaces prior master shelf agreement unsecured notes issued new shelf agreement january 31 2012 march 25 2011 company entered new revolving credit facility “new credit agreement” contains revolving loan commitment 300000000 less outstanding letter credit commitments subject 100000000 sublimit unsecured 300000000 facility extends march 25 2016 replaces company’s prior credit agreement terminated new credit agreement entered extend expiration period company’s debt facilities increase borrowing capacity company funded 1716000 debt issuance costs borrowings new credit agreement costs amortized life new credit agreement new credit agreement provides interest variable rates equal company’s option libor rate plus 125 225 base rate defined new credit agreement plus 125 depending company’s leverage ratio january 31 2012 letters credit 18783000 borrowings 52500000 outstanding new credit agreement resulting available capacity 228717000 weighted average interest rate borrowings outstanding january 31 2012 16 company’s shelf agreement new credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends provisions generally allow activity occur subject specific limitations continued compliance financial maintenance covenants significant financial maintenance covenants fixed charge coverage ratio maximum leverage covenant levels definitions consistent shelf agreement new credit agreement company compliance covenants january 31 2012 expects remain compliance term agreements financial covenants based defined terms included agreements adjusted ebitda adjusted ebitdar compliance financial covenants required quarterly basis using recent four fiscal quarters adjusted ebitda generally defined consolidated net income excluding net interest expense provision income taxes gains losses extraordinary items gains losses sale capital assets noncash items including depreciation amortization sharebased compensation equity earnings affiliates included extent dividends distributions received adjusted ebitdar defined adjusted editda plus rent expense measures considered nongaap financial measures intended accordance accounting principles generally accepted united states company’s minimum fixed charge coverage ratio covenant ratio adjusted ebitdar sum fixed charges fixed charges consist rent expense interest expense principal payments longterm debt company’s leverage ratio covenant ratio total funded indebtedness adjusted ebitda total funded indebtedness generally consists outstanding debt capital leases unfunded pension liabilities asset retirement obligations escrow liabilities threshold adjusted time based percentage net income proceeds issuance equity securities january 31 2012 2011 company’s actual required covenant levels existing agreements follows maximum borrowings outstanding company’s credit agreements 2012 2011 71667000 26667000 respectively average outstanding borrowings 49444000 18167000 respectively weighted average interest rates including amortization loan costs 33 73 respectively loan costs incurred securing longterm financing amortized using method approximates effective interest method term respective loan agreement amortization costs 2012 2011 2010 442000 167000 170000 respectively amortization loan costs included interest expense consolidated results operations january 31 2012 company outstanding notes payable 7366000 notes bear interest rates varying 25 48 issued shortterm unsecured borrowing arrangements wholly owned subsidiary notes stated maturities less one year repayable demand option either company lender average borrowings 2012 approximately 6759000 debt outstanding january 31 2012 2011 whose carrying value approximates fair market value follows january 31 2012 debt outstanding mature fiscal year follows 13 derivatives company’s energy division exposed fluctuations price natural gas periodically enters fixedprice physical delivery contracts manage natural gas price risk portion production available attractive prices january 31 2012 2011 company held contracts company entered physical delivery contracts order facilitate normal recurring sales natural gas purchasing counterparty january 31 2012 company committed deliver total 662000 million british thermal units “mmbtu” natural gas march 2012 contract price resets daily based weighted average price reported trades deliveries following day company foreign operations significant costs denominated foreign currencies thus exposed risks associated changes foreign currency exchange rates point time company might use various hedge instruments primarily foreign currency option contracts manage exposures associated forecasted expatriate labor costs purchases operating supplies january 31 2012 2011 company held contracts 14 fair value measurements company’s estimates fair value financial assets financial liabilities based framework established fair value accounting guidance framework based inputs used valuation gives highest priority quoted prices active markets requires observable inputs used valuations available three levels hierarchy follows level 1 unadjusted quoted prices active markets identical assets liabilities level 2 observable inputs included level 1 quoted market prices similar assets liabilities active markets quoted prices identical assets inactive markets level 3 unobservable inputs reflecting company’s assumptions best estimate inputs market participants would use pricing asset liability company’s assessment significance particular input fair value entirety requires judgment considers factors specific asset liability company’s financial instruments held fair value include restricted deposits held acquisition escrow accounts contingent earnout acquired businesses presented january 31 2012 2011 1 fair value contingent earnout acquired businesses determined using marktomarket modeling technique based significant unobservable inputs calculated using discounted future cash flows approach key assumptions include discount rate 412 annual revenues acquired businesses ranging 1500000 6100000 life earnout 15 stock option plans company previously adopted rights agreement whereby company authorized declared dividend one preferred share purchase right “right” outstanding common share company rights agreement expired october 2011 renewed company stock option employee incentive plans provide granting options purchase issuance shares common stock price fixed board directors committee january 31 2012 846691 shares remain available granted plan stock options company ability issue shares plans either new issuances treasury although previously always issued new shares expects continue issue new shares future years ended january 31 2012 2011 company purchased subsequently cancelled 5382 5441 respectively shares stock related settlement withholding obligations company recognized 3796000 3499000 4841000 compensation cost sharebased plans years ended january 31 2012 2011 2010 respectively amounts 1655000 1057000 603000 respectively related nonvested stock total income tax benefit recognized sharebased compensation arrangements 1480000 1365000 1888000 years ended january 31 2012 2011 2010 respectively stock option transactions fiscal 2012 2011 2010 follows options granted exercise price equal fair market value company’s common stock date grant options contractual terms 10 years date grant generally vest ratably periods one month five years options outstanding expected vest certain option awards provide accelerated vesting change control defined plans equitable adjustments event changes company’s equity structure fair value options date grant estimated using blackscholes option valuation model uses assumptions noted following table expected volatilities based historical volatility company’s stock price company uses historical data estimate expected term employee termination within valuation model riskfree interest rate periods within expected term option based us treasury yield curve effect time grant weightedaverage fair value date grant options granted fiscal 2012 2011 2010 1870 1608 992 respectively nonvested share transactions fiscal 2012 2011 2010 follows nonvested stock awards valued grant date closing stock price generally vest ratably service periods one five years certain nonvested stock awards vest based upon company meeting various performance goals certain nonvested stock awards provide accelerated vesting change control defined plans equitable adjustments event changes company’s equity structure 16 contingencies company’s drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice bundled basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance respect foreign operations connection company updating foreign corrupt practices act fcpa policy questions raised internally late september 2010 among things legality certain payments company agents third parties interacting government officials certain countries africa audit committee board directors engaged outside counsel conduct internal investigation review payments assistance outside accounting firms internal investigation found documents information suggesting improper payments may violate fcpa local laws made considerable period time behalf certain foreign subsidiaries company third parties interacting government officials africa relating payment taxes importing equipment employment expatriates made voluntary disclosure united states department justice “doj” securities exchange commission sec regarding results investigation cooperating doj sec connection review matter february 2012 held preliminary discussions doj sec regarding potential resolution matter discussions government early stage company currently unable assess whether government accept voluntary settlement terms would acceptable company january 31 2012 company accrued 3715000 liability representing companys initial estimate based among things results internal investigation analysis recent similar fcpa settlements amount may required disgorge sec estimated benefits plus interest thereon sec doj requested company perform additional analysis regarding estimated benefits company may received intended receive interest payments question accordingly assurance made given government accept estimated disgorgement interest amount investors cautioned rely upon presently accrued liability accurately reflecting ultimate amount company may required pay disgorgement interest thereon addition ultimate liability disgorgement related interest company believes could liable fines penalties part settlement time company able reasonably estimate amount fine penalty may pay part possible settlement furthermore company cannot currently assess potential liability might incurred settlement reached government litigate matter based information available time additional liability related matter reasonably estimable company continue evaluate amount liability pending final resolution investigation related settlement discussions government amount actual liability fines penalties disgorgement interest may recorded connection final settlement could significantly higher liability accrued date company involved various matters litigation claims disputes arisen ordinary course company’s business company believes ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows 17 segments foreign operations company global solutions provider world essential natural resources water minerals energy management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices’ division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water resources division fiscal 2012 company changed reporting segments connection transition new leadership reporting relationships new one layne strategy company previously reported segment information three reporting segments including water infrastructure group mineral exploration division energy division company’s new reporting segments include water resources division inliner division heavy civil division geoconstruction division mineral exploration division energy division reporting segment information prior periods recast match new reporting segment structure company’s segments defined follows water resources division water resources division provides every aspect water supply system development technology including hydrologic design construction source supply exploration well intake construction well pump rehabilitation division also brings new technologies water wastewater markets offers water treatment equipment engineering services supports company’s historic municipal business providing systems treatment regulated “nuisance” contaminants specifically iron manganese hydrogen sulfide arsenic radium nitrate perchlorate volatile organic compounds water resources division provides water systems services regions us inliner division inliner division provides diverse range wastewater pipeline structure rehabilitation services focus proprietary inliner® curedinplace pipe “cipp” allows us rehabilitate aging sanitary sewer storm water process water infrastructure provide structural rebuilding well infiltration inflow reduction focus cipp efforts also provide wide variety rehabilitative methods including janssen structural renewal service lateral connections mainlines slip lining traditional excavation replacement uliner highdensity polyethylene fold form variety products structure rebuilding coating heavy civil division heavy civil division provides oversees design construction water wastewater treatment plants well pipeline installation addition division designs builds integrated water supply wastewater treatment facilities provides filter media membranes services also provided connection collector wells surface water intakes pumping stations groundwater pump stations also design construct biogas facilities anaerobic digesters purpose generating capturing methane gas emerging renewable energy resource geoconstruction division geoconstruction division provides specialized foundation construction services focused primarily soil stabilization subterranean structural support construction damslevees tunnels shafts water lines subways highways marine facilities services offered include jet grouting structural diaphragm slurry cutoff walls cement chemical grouting drilled piles vibratory ground improvement installation ground anchors mineral exploration division mineral exploration division conducts primarily aboveground drilling activities including phases core drilling reverse circulation dual tube hammer rotary airblast methods service offerings include exploratory definitional drilling global mining companies hire us extract samples sites mining companies analyze mineral content investing heavily development help determine minable mineral deposit site assess whether economical mine assist mapping mine layout primary markets western us mexico australia brazil africa also ownership interests foreign affiliates operating latin america form primary presence market energy division energy division focuses exploration production oil gas properties primarily concentrating projects midcontinent region united states includes small energy service companies specialty operations included one divisions financial information company’s segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit treasury corporate securities law tax compliance certain executive management chief executive officer chief financial officer chief operating officer general counsel board directors corporate assets company directly associated segment consist primarily cash deferred income taxes 18 new accounting pronouncements september 2011 fasb issued asu 201108 “testing goodwill impairment” “asu 201108” effective annual reporting periods interim periods within years beginning december 15 2011 provisions asu 201108 gives entities testing goodwill impairment option performing qualitative assessment calculating fair value reporting unit step 1 goodwill impairment test entities determine basis qualitative factors fair value reporting unit likely less carrying amount twostep impairment test would required otherwise testing would needed since company chose perform optional qualitative assessment adoption asu 201108 significant impact company’s consolidated financial statements may 2011 fasb issued asu 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrs asu 201104 effective annual reporting periods beginning december 15 2011 guidance amends certain accounting disclosure requirements related fair value measurements adoption asu 201104 expected significant impact companys consolidated financial statements 19 quarterly results unaudited quarterly results follows fourth quarter fiscal 2012 company recorded noncash goodwill definitelived intangible asset impairment charges 97529000 84641000 income tax see note 5 discussion impairments recorded supplemental information oil gas producing activities unaudited company’s oil gas activities primarily conducted united states see note 1 additional information regarding company’s oil gas properties capitalized costs related oil gas producing activities capitalized costs associated depletion relating oil gas producing activities follows january 31 2012 2011 2010 included accumulated depletion noncash ceiling test impairments 21642000 recorded 2010 impairments recorded earlier impairments years ended january 31 2012 2011 see note 4 additional information regarding impairment oil gas properties unproved oil gas properties january 31 2012 2011 2010 totaled 153000 3002000 3851000 respectively unevaluated mineral interest costs excluded depletion january 31 2012 2011 2010 totaled 6185000 6960000 9527000 respectively capitalized costs associated depreciation relating gas transportation facilities equipment follows january 31 2012 2011 2010 capitalized costs incurred gas transportation facilities equipment 2012 2011 2010 totaled 109000 138000 923000 respectively cost incurred oil gas producing activities capitalized costs incurred oil gas producing activities follows 2012 2011 2010 results operations oil gas producing activities results operations relating oil gas producing activities set forth following tables years ended january 31 2012 2011 2010 dollar per mcf basis include revenues operating costs directly attributable oil gas producing activities general corporate overhead interest costs transportation third party gas nonoil gas producing activities excluded income tax expense calculated applying statutory tax rates revenues deducting costs include depletion allowances proved oil gas reserve quantities proved oil gas reserve quantities january 31 2012 2011 based estimates prepared company’s independent petroleum engineers cawley gillespie associates inc accordance requirements sec company’s reserves located within united states proved oil gas reserves estimated quantities oil natural gas geological engineering data demonstrate reasonable certainty recoverable future years known reservoirs economic operating conditions effect estimates made proved developed reserves expected recovered wells equipment operating methods existing estimates made proved undeveloped reserves expected recovered new wells undrilled acreage existing wells relatively major expenditure required recompletion company cautions many inherent uncertainties estimating quantities proved reserves projecting future rates production timing development expenditures accordingly estimates likely change future information becomes available estimated quantities total proved oil gas reserves follows 1proved developed reserves january 31 2012 2011 included 398 587 gas equivalents oil mmcfe respectively standardized measure discounted future net cash flows relating proved oil gas reserve quantities price used determining future cash inflows purposes standardized measure discounted future net cash flows unweighted arithmetic average firstdayofthemonth spot price month within 12month period end reporting period future cash inflows also incorporate effect contractual arrangements fixedprice physical delivery forward sales contracts prices used determinations january 31 2012 2011 382 394 per mcf respectively future production development costs represent estimated future expenditures incurred developing producing proved reserves assuming continuation existing economic conditions future income tax expense computed applying statutory rates pretax cash flows relating company’s estimated proved reserves difference book tax basis proved properties information purport present fair market value company’s oil gas assets present standardized disclosure concerning possible future net cash flows would result assumptions used following table sets forth unaudited information concerning future net cash flows oil gas reserves net income tax expense principal sources change standardized measure discounted future net cash flows layne christensen company subsidiaries schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules layne christensen company subsidiaries page statement management responsibility report independent registered public accounting firm financial statements consolidated balance sheets january 31 2013 2012 consolidated statements operations years ended january 31 2013 2012 2011 consolidated statements comprehensive loss income years ended january 31 2013 2012 2011 consolidated statements stockholders’ equity years ended january 31 2013 2012 2011 consolidated statements cash flows years ended january 31 2013 2012 2011 notes consolidated financial statements supplemental information oil gas producing activities financial statement schedule ii valuation qualifying accounts schedules omitted applicable required information included consolidated financial statements company notes thereto statement management responsibility consolidated financial statements layne christensen company subsidiaries “company” prepared conformity accounting principles generally accepted united states integrity objectivity data financial statements responsibility management information included annual report form 10k management believes information presented annual report consistent financial statements financial statements contain material misstatements due fraud error appropriate financial statements reflect management’s best estimates judgments management also responsible maintaining system internal accounting controls objectives providing reasonable assurance company’s assets safeguarded material loss unauthorized use disposition authorized transactions properly recorded permit preparation accurate financial data however limitations exist system internal controls based recognition cost system exceed benefits company believes system accounting controls internal auditing function integral part accomplishes stated objectives audit committee board directors composed outside directors meets periodically management company’s independent registered public accountants internal auditors review matters related company’s financial statements internal audit activities internal accounting controls nonaudit services provided independent accountants independent registered public accountants internal auditors full access audit committee meet without management present discuss scope results audits including internal controls audit financial matters srene j robichaud sjerry w fanska rene j robichaud jerry w fanska president senior vice president chief executive officer chief financial officer report independent registered public accounting firm board directors stockholders layne christensen company mission woods kansas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2013 2012 related consolidated statements operations comprehensive loss income stockholders’ equity cash flows three years period ended january 31 2013 audits also included financial statement schedule listed index item 8 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2013 2012 results operations cash flows three years period ended january 31 2013 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2013 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated april 16 2013 expressed unqualified opinion company’s internal control financial reporting sdeloitte touche llp kansas city missouri april 16 2013 layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements continued layne christensen company subsidiaries consolidated balance sheets continued see notes consolidated financial statements layne christensen company subsidiaries consolidated statements operations see notes consolidated financial statements layne christensen company subsidiaries consolidated statements comprehensive loss income see notes consolidated financial statements layne christensen company subsidiaries consolidated statement stockholders’ equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flow see notes consolidated financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “company” global water management construction drilling company operates throughout north america well parts africa australia brazil italy customers include government agencies investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies agribusiness company ownership interest certain foreign affiliates operating south america facilities chile peru uruguay brazil see note 3 fiscal year company’s fiscal year end january 31 references fiscal years twelve months ended investment affiliated companies investments affiliates 20 50 owned company ability exercise significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries intercompany transactions eliminated financial information company’s affiliates certain foreign subsidiaries reported company’s consolidated financial statements onemonth lag reporting periods use december 31 yearend primarily match local countries’ statutory reporting requirements effect onemonth lag company’s financial position results operations significant company evaluated subsequent events time filing consolidated financial statements see note 19 discussion subsequent events presentation discussed note 15 second quarter fiscal year 2013 company reclassified energy division discontinued operation sale completed october 1 2012 use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities company’s mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency measure monetary assets liabilities yearend exchange rates nonmonetary items measured historical rates income expense accounts measured exchange rates approximate exchange rate dates elements recognized except depreciation certain cost revenues selling expenses translated historical rates gains losses changes exchange rates recognized consolidated results operations year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities measured us dollars yearend exchange rates income expense items translated weighted average rates prevailing year approximates exchange rate dates elements recognized translation adjustments reported separate component accumulated comprehensive income loss net foreign currency transaction losses 2013 2012 2011 1379000 310000 458000 respectively recorded income expense net accompanying consolidated results operations revenue recognition revenues recognized large longterm construction contracts meeting criteria accounting standards codification “asc” topic 60535 “constructiontype productiontype contracts” “asc topic 60535” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised nature accounting contracts refinements estimating process changing conditions new developments continuous characteristic process many factors change contract performance period result change contract profitability one financial reporting period another factors change estimate total contract revenue cost include differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revision costs income recognized period revisions determined provisions estimated losses uncompleted construction contracts made period losses determined company many contracts process given time changes estimates offset minimizing impact overall profitability however large changes cost estimates larger complex construction projects material impact company’s financial statements reflected results operations become known allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined contracts company’s mineral exploration drilling services billable based quantity drilling performed revenues drilling contracts recognized basis actual footage meterage drilled revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur revenues sale oil gas company’s discontinued energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders company’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories company values inventories lower cost determined using firstin firstout “fifo” basis market adjustments value recorded inventory considered excess obsolete inventories consist primarily finished goods parts supplies raw materials 1752000 2536000 included inventories consolidated balance sheet january 31 2013 2012 respectively property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 59484000 54989000 45540000 2013 2012 2011 respectively lives used items within property classification follows oil gas properties mineral interests company sold assets energy division october 1 2012 prior sale company followed fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized capitalized costs depleted based units production depletion expense 2946000 4026000 5652000 2013 2012 2011 respectively company required review carrying value oil gas properties full cost accounting rules sec “ceiling test” ceiling limitation estimated aftertax future net revenues proved oil gas properties discounted 10 plus cost properties subject amortization net book value oil gas properties less related deferred income taxes excess calculated ceiling excess must written expense application ceiling test requires pricing future revenues unweighted arithmetic average firstdayofthemonth price month within 12month period end reporting period unless prices defined contractual arrangements fixedprice physical delivery forward sales contracts unproved oil gas properties amortized assessed impairment either individually aggregated basis using comparison carrying values unproved properties net future cash flows reserve estimates prior sale assets energy division company’s estimates oil gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations oil gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing oil gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities oil gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions could materially affect estimated quantity value reserves could affect carrying value company’s oil gas properties rate depletion oil gas properties actual production revenues expenditures respect company’s reserves likely vary estimates variances may material goodwill company’s impairment evaluation goodwill conducted annually december 31 frequently events changes circumstances indicate goodwill might impaired evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference based results fiscal year 2013 evaluation goodwill impairment identified see note 5 discussion impairments recorded fiscal year 2012 consider market approach income approach estimating fair value reporting unit analysis market approach may include use guideline transaction method guideline company method guideline transaction method makes use available transaction price data companies engaged similar lines business respective reporting unit guideline company method uses market multiples publically traded companies operating characteristics similar respective reporting unit income approach uses projections reporting unit’s estimated cash flows discounted using weighted average cost capital reflects current market conditions also compare aggregate fair value reporting units market capitalization plus control premium significant assumptions used income approach subject change result changing economic competitive conditions follows ● anticipated future cash flows longterm growth rates reporting unit income approach determining fair value relies timing estimates future cash flows including estimate longterm growth rates projections use management’s estimates economic market conditions projected period including growth rates sales estimates expected changes operating margins company’s projections future cash flows subject change actual results achieved differ anticipated actual results could vary significantly estimates ● selection appropriate discount rate income approach requires selection appropriate discount rate based weighted average cost capital analysis discount rate subject changes shortterm interest rates longterm yield well variances typical capital structure marketplace participants industry discount rate determined based assumptions would used marketplace participants reason capital structure selected marketplace participants used weighted average cost capital analysis given current volatile economic conditions possible discount rate could change intangible assets intangible assets primarily consist trademarks customerrelated intangible assets patents obtained business acquisitions amortizable intangible assets amortized using straightline method estimated useful lives range one 35 years longlived assets longlived assets including amortizable intangible assets company’s gas transportation facilities equipment reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable see note 5 discussion impairments recorded fiscal year 2013 2012 factors could trigger impairment review include limited following ● significant underperformance assets ● significant changes use assets ● significant negative industry economic trends based declines operating performance fy2013 fy2012 heavy civil division fourth quarter fy2013 mineral exploration division reviewed recoverability asset values equipment periods impairments indicated analyses cash equivalents company considers investments original maturity three months less purchased cash equivalents company’s cash equivalents subject potential credit risk company’s cash management investment policies restrict investments investment grade highly liquid securities carrying value cash equivalents approximates fair value restricted deposits restricted deposits consist escrow funds associated primarily acquisitions allowance uncollectible accounts receivable company makes ongoing estimates relating collectability accounts receivable maintains allowance estimated losses resulting inability customers make required payments determining amount allowance company makes judgments creditworthiness significant customers based ongoing credit evaluations also considers review accounts receivable aging industry trends customer financial strength credit standing payment history assess probability collection company establish allowance credit losses longterm contract unbilled receivables adjustments unbilled receivables related credit quality occur accounted reduction revenue accrued insurance expense company maintains insurance programs responsible certain amount claim selfinsured limit estimates recorded health welfare property casualty insurance costs associated programs costs estimated based part actuarially determined projections future payments programs greater amount claims occur compared estimated costs medical profession increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms company’s agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2013 2012 relatively short maturity instruments see note 7 disclosure regarding fair value indebtedness company note 13 fair value disclosures litigation contingencies company involved litigation incidental business disposition expected material effect company’s business financial position results operations cash flows possible however future results operations particular quarterly annual period could materially affected changes company’s assumptions related proceedings record liability probable liability incurred amount loss reasonably estimated provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case extent additional information arises company’s strategies change possible company’s estimate probable liability matters may change derivatives company foreign operations significant costs denominated foreign currencies thus exposed risks associated changes foreign currency exchange rates company periodically enters hedge contracts related certain forecasted foreign currency costs contracts recorded fair value accounted cash flow hedges changes fair value effective portion hedge contracts recorded accumulated comprehensive income loss hedged item recognized operations ineffective portion derivatives’ change fair value immediately recognized operations company enter derivative financial instruments speculative trading purposes supplemental cash flow information amounts paid income taxes interest noncash investing financing activities follows additionally fiscal year 2012 company entered financing obligations software licenses amounting 1289000 payable three years associated assets recorded intangible assets net balance sheet income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities company reviews deferred tax assets recoverability jurisdictional basis assessing need valuation allowance company considers positive negative evidence related likelihood realization deferred tax assets weight given positive negative evidence commensurate extent evidence may objectively verified accounting guidance states cumulative loss recent years significant piece negative evidence difficult overcome determining valuation allowance needed deferred tax assets generally difficult positive evidence regarding projected future taxable income exclusive reversing taxable temporary differences outweigh objective negative evidence recent financial reporting losses preparing future taxable income projections company considers periods future reversals existing taxable deductible temporary differences likely occur future taxable income taxable income available prior carry back years availability taxplanning strategies determining realizability recorded deferred tax assets provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely see note 9 company’s estimate uncertainty income taxes based framework established accounting income taxes guidance addresses determination tax benefits claimed expected claimed tax return recorded financial statements company recognizes tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax positions meet recognition threshold company applies judgment taking account applicable tax laws experience managing tax audits determine amount tax benefits recognize financial statements uncertain position difference benefit realized tax return benefit reflected financial statements recorded liability consolidated balance sheet liability updated financial statement date reflect impacts audit settlements resolution audit issues expiration statutes limitation developments tax law ongoing discussions taxing authorities income per share income per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive options purchase 1285303 1133211 421270 shares excluded weighted average shares 2013 2012 2011 respectively effect antidilutive total 275666 226919 49076 nonvested shares excluded weighted average shares 2013 2012 2011 respectively effect antidilutive sharebased compensation company recognizes cost sharebased instruments financial statements using fairvalue measurement compensation expense related sharebased instruments term expected benefited instrument january 31 2013 company unrecognized compensation expense 4346000 recognized weighted average period 21 years company determines fair value sharebased compensation granted form stock options using lattice valuation model blackscholes valuation model unearned compensation expense associated issuance nonvested shares amortized straightline basis restrictions stock expire subject achievement certain contingencies research development costs research development costs charged expense 2013 2012 2011 310000 1560000 281000 respectively recorded selling general administrative expenses accompanying consolidated results operations 2 acquisitions fiscal year 2013 october 4 2012 company acquired 100 stock fursol informatica srl “fursol” italian company fursol active business production marketing installation maintenance software electronic devices company believes benefit fursol’s technology improve performance efficiency geoconstruction operations aggregate purchase price 1000000 850000 paid acquisition date remainder 150000 paid october 4 2013 purchase price allocated identifiable intangible asset associated computer software valued 1458000 weightedaverage life three years noncurrent liability 458000 results operations fursol included company’s consolidated statements operations commencing closing date significant pro forma amounts related fursol periods prior acquisition presented since acquisition would significant effect company’s consolidated revenues net income loss may 30 2012 company acquired remaining 50 interest diberil sociedad anónima “diberil” uruguayan company parent company costa fortuna brazil uruguay expect diberil expand geoconstruction capabilities brazil market well serve platform expansion south america aggregate purchase price remaining 50 diberil 16150000 comprised cash 2422000 placed escrow secure certain representations warranties indemnifications company acquired initial 50 interest diberil july 15 2010 accordance accounting guidance moving diberil fully consolidated basis company remeasured previously held equity investment fair value recognized loss 7705000 second quarter fair value 50 noncontrolling interest estimated 15794000 time adjustment fair value assessment determined based value current year transactions discounted reflect initial interest noncontrolling ready public market interest discounts lack control marketability 5 10 respectively determined based control premiums seen recent transactions construction contractors engineering services market estimate value put option restricted stock using blackscholes valuation method acquisition related costs 228000 recorded expense periods costs incurred purchase price allocation based assessment fair value assets required liabilities assumed using company’s internal operational assessments analyses level 3 measurements preliminary purchase allocation recorded second quarter adjusted valuation analysis progressed result adjustment goodwill decreased 530000 initial amount adjustments made retrospectively applied acquisition date significant effect financial statements based company’s allocation purchase price acquisition following effect company’s consolidated financial position closing date 4025000 goodwill assigned geoconstruction division time acquisition purchase price excess value diberil’s net assets reflects strategic value company placed business company believes benefit synergies acquired operations integrated company’s existing operations goodwill associated acquisition expected deductible tax purposes diberil purchase agreement also provided purchase price adjustment based levels working capital debt closing adjustment resulted additional purchase price 2323000 paid third quarter fiscal year 2013 total purchase price consists 16150000 cash purchase price 2323000 purchase price adjustment 15794000 adjusted basis existing investment diberil results operations diberil included company’s consolidated statements operations commencing closing date including consolidated equity basis results diberil contributed 8052000 income taxes fiscal year 2013 compared 3345000 fiscal year 2012 assuming remaining 50 diberil acquired beginning period unaudited pro forma consolidated revenues net loss net loss per share company would follows march 5 2012 company acquired remaining shares layne brazil previously held noncontrolling interests shares acquired cash payments totaling 2743000 conjunction acquisition company eliminated noncontrolling interests 87000 recorded adjustment equity 2656000 accordance accounting guidance fiscal year 2012 february 28 2011 company acquired kansas colorado curedinplace pipe “cipp” operations wildcat civil services “wildcat” sewer rehabilitation contractor acquisition company’s expansion geographic reach inliner division westward aggregate purchase price wildcat 8855000 comprised cash 442000 placed escrow secure certain representations warranties indemnifications purchase price allocation based assessment fair value assets acquired liabilities assumed using company’s internal operational assessments analyses level 3 measurements based company’s allocations purchase price acquisition following effect company’s consolidated financial position closing date 2318000 goodwill assigned water infrastructure division purchase price excess value wildcat’s net assets reflects strategic value company placed business company believed would benefit synergies acquired operations integrated company’s existing operations goodwill associated acquisition expected deductible tax purposes results operations acquired entity included company’s consolidated statements income commencing closing date wildcat contributed revenues loss income taxes company period february 28 2011 january 31 2012 14207000 925000 pro forma amounts related wildcat prior periods presented acquisition would significant effect company’s consolidated revenues net income fiscal year 2011 company completed three acquisitions fiscal year 2011 described ● july 15 2010 company acquired 50 interest diberil sociedad anónima “diberil” uruguayan company parent company costa fortuna brazil uruguay diberil operations sao paulo brazil montevideo uruguay one largest providers specialty foundation specialized marine geotechnical services south america expand geoconstruction capabilities geographic markets company accounted diberil equity method investment see note 3 company acquired remaining 50 may 30 2012 see note 2 ● july 27 2010 company acquired certain assets intevras technologies llc “intevras” texas based company focused treatment filtration handling evaporative crystallization disposal industrial wastewaters expanded company’s offerings industrial water market ● october 22 2010 company purchased 100 outstanding stock bencor corporation america foundation specialist “bencor” leading contractor foundation underground engineering complemented expanded company’s geoconstruction capabilities aggregate purchase price intevras bencor 38673000 comprised cash 3550000 placed escrow secure certain representations warranties indemnifications contingent consideration follows addition intevras cash purchase price contingent consideration maximum 10000000 “intevras earnout amount” based percentage revenues earned intevras products fixed amounts per barrel water treated intevras products 60 months following acquisition accordance accounting guidance company treated intevras earnout amount contingent consideration estimated liability fair value acquisition date included consideration component total purchase price noted potential undiscounted amount future payments company could required make agreement 0 10000000 fair value contingent consideration arrangement 1100000 estimated applying market approach measure based significant inputs observable market also referred level 3 inputs key assumptions include discount rate 412 estimated level annual revenues intevras ranging 1500000 6100000 july 31 2012 intevras earnout amount reassessed based estimates likelihood future revenues subject earnout provisions assigned value acquisition related costs 381000 bencor 65000 intevras recorded expense periods costs incurred purchase price acquisition allocated based assessment fair value assets liabilities acquired based company’s internal operational assessments analyses level 3 measurements based company’s allocations purchase price acquisitions following effect company’s consolidated financial position respective closing dates intangible assets intevras consist patents valued 3840000 weighted average useful life nine years trade name valued 200000 useful life ten years intangible assets bencor consist customer backlog valued 3220000 weighted average useful life 18 months trade name valued 1140000 useful life ten years noncompete agreements valued 680000 useful life six years 10420000 aggregate goodwill assigned water infrastructure division purchase prices excess value intevras’ bencor’s net assets reflect strategic value company placed businesses company believed would benefit synergies acquired businesses integrated company’s existing operations goodwill associated intevras acquisition expected deductible tax purposes goodwill associated bencor acquisition deductible tax purposes fiscal year 2012 company changed structure reporting segments reallocated goodwill new reporting units based relative fair value reporting unit december 31 2011 see note 6 discussion change reporting segments reallocation goodwill results operations acquired entities included company’s consolidated results operations commencing closing date bencor contributed revenues income taxes company period october 22 2010 january 31 2011 20839000 8214000 respectively fiscal year 2011 revenue income taxes intevras since closing date significant pro forma amounts related intevras prior periods presented acquisition would significant effect company’s consolidated revenues net income assuming bencor acquired beginning period unaudited pro forma consolidated revenues net income net income per share company would follows pro forma information provided necessarily indicative results operations would actually resulted acquisition made dates results may occur future addition acquisitions company paid 426000 contingent earnout consideration prior year acquisitions november 30 2007 company acquired certain assets liabilities solmetex inc “solmetex” water wastewater research development business supplier wastewater filtration products dental market addition initial purchase price contingent consideration maximum 1000000 “solmetex earnout amount” based percentage amount solmetex’s revenues 36 months following acquisition amounts paid pursuant solmetex earnout amount accounted additional purchase consideration contingent earnout consideration earned solmetex 689000 426000 paid fiscal year 2011 remainder paid previous years 3 investments affiliates july 15 2010 company acquired 50 interest diberil sociedad anónima “diberil” uruguayan company parent company costa fortuna brazil uruguay diberil operations sao paulo brazil montevideo uruguay one largest providers specialty foundation marine geotechnical services south america interest acquired total cash consideration 14900000 10100000 paid diberil shareholders 4800000 paid diberil purchase newly issued diberil stock concurrent investment diberil purchased layne geobrazil equipment leasing company brazil wholly owned company cash payment 4800000 subsequent acquisition company invested additional 1250000 diberil proportionate share capital contribution see note 2 discussion acquisition remaining 50 interest diberil may 2012 company’s investments affiliates carried fair value investment consideration date acquired plus company’s equity undistributed earnings date affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies summary directly owned affiliates well primary operating subsidiaries applicable percentages directly indirectly owned company follows january 31 2013 financial information affiliates reported onemonth lag reporting period summarized financial information affiliates including diberil subsidiaries date acquisition remaining 50 equity interest follows company significant transactions balances affiliates january 31 2013 2012 2011 years ended company’s equity undistributed earnings affiliates totaled 73684000 57633000 38358000 january 31 2013 2012 2011 respectively 4 costs estimated earnings uncompleted contracts costs estimated earnings uncompleted contracts consisted following company bills customers based specific contract terms substantially billed amounts collectible within one year january 31 2013 2012 company held unbilled contract retainage amounts 50533000 25134000 respectively 5 impairment charges fiscal year 2013 due underperformance certain product lines within water resources division energy services business assessed value certain longlived assets within businesses also assessed value certain trademarks light strategic decisions product lines result assessments concluded certain impairments value occurred recorded impairment charges impaired assets included certain patents trademarks certain property equipment carrying value assets impairment 15752000 impairments totaled 8431000 4433000 associated water resources division 3998000 associated energy services business charges consisted 2910000 associated intangible assets remainder consisting adjustments record tangible assets expected sales value none operations associated goodwill recorded total assessed fair value 7321000 amount determined based level 1 inputs 3600000 remainder based level 3 inputs see note 13 additional discussion level 1 2 3 inputs defined fiscal year 2012 connection annual goodwill impairment test result ongoing weakness municipal spending due poor economic environment changes corporate strategy revision reporting units segments declining natural gas prices company reassessed estimates fair value reporting units circumstances indicated potential impairment goodwill assessed fair value goodwill determine book value exceeded fair value result assessment determined carrying value goodwill 105696000 exceeded fair value recorded impairment charge 86160000 charge 17084000 related water resources division 23130000 inliner division 44551000 heavy civil division 950000 discontinued energy division 445000 businesses total assessed fair value 19536000 determined based level 3 inputs writeoffs result projected continued weakness demand construction projects greater persistent originally anticipated continuing projected weakness economy adversely affecting spending government agencies resulting pressures margins increased competition smaller competitors goodwill charge water resources division also impacted shift corporate strategy fourth quarter focus traditional water treatment services resulting writeoff goodwill associated acquired companies heavy research development focus also fiscal year 2012 due change corporate strategy emphasize layne name company’s services worldwide decided cease using certain trade names company recorded impairment charge 9352000 related trade names 9180000 associated heavy civil division additionally due significant underperformance certain water treatment businesses assessed value certain definitelived intangible assets recorded impairment charge 2017000 water resources division carrying value trademarks intangibles impairment 12589000 total assessed fair value 1220000 determined based level 3 inputs 6 goodwill intangible assets goodwill carrying amount goodwill attributed reporting segment follows goodwill expected tax deductible 1534000 january 31 2013 2012 intangible assets intangible assets consisted following january 31 total amortization expense intangible assets 3453000 4108000 2276000 fiscal years 2013 2012 2011 respectively amortization expense subsequent five fiscal years estimated follows 7 indebtedness company maintains unsecured 300000000 revolving credit facility “credit agreement” extends march 25 2016 well private shelf agreement “shelf agreement” whereby issue 150000000 unsecured notes shelf agreement extends july 8 2021 unsecured notes issued shelf agreement january 31 2013 company issued 20000000 notes previous shelf agreement october 2004 final payment 6667000 made september 29 2011 fiscal year 2012 company funded 1716000 debt issuance costs borrowings credit agreement costs amortized life agreement credit agreement provides interest variable rates equal company’s option libor rate plus 125 225 base rate defined credit agreement plus 125 depending company’s leverage ratio january 31 2013 letters credit 22273000 borrowings 95000000 outstanding credit agreement resulting available capacity 182727000 weighted average interest rate borrowings outstanding january 31 2013 23 company’s shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends provisions generally allow activity occur subject specific limitations continued compliance financial maintenance covenants significant financial maintenance covenants fixed charge coverage ratio maximum leverage ratio covenant levels definitions generally consistent two agreements company compliance covenants january 31 2013 financial covenants based defined terms included agreements adjusted ebitda adjusted ebitdar compliance financial covenants required quarterly basis using recent four fiscal quarters adjusted ebitda generally defined consolidated net income excluding discontinued operations net interest expense provision income taxes gains losses extraordinary items gains losses sale capital assets noncash items including depreciation amortization sharebased compensation equity earnings affiliates included extent dividends distributions received adjusted ebitdar defined adjusted editda plus rent expense measures considered nongaap financial measures intended accordance accounting principles generally accepted united states company’s minimum fixed charge coverage ratio covenant ratio adjusted ebitdar sum fixed charges fixed charges consist rent expense interest expense principal payments longterm debt company’s leverage ratio covenant ratio total funded indebtedness adjusted ebitda total funded indebtedness generally consists outstanding debt capital leases asset retirement obligations escrow liabilities january 31 2013 2012 company’s actual required covenant levels existing agreements follows maximum borrowings outstanding company’s credit agreements fiscal years 2013 2012 124500000 71667000 respectively average outstanding borrowings 97292000 49444000 respectively weighted average interest rates including amortization loan costs 30 33 respectively loan costs incurred securing longterm financing amortized using method approximates effective interest method term respective loan agreement amortization costs fiscal years 2013 2012 2011 392000 442000 167000 respectively amortization loan costs included interest expense consolidated results operations january 31 2013 2012 company outstanding notes payable 11676000 7366000 respectively notes issued shortterm unsecured borrowing arrangements wholly owned foreign subsidiaries notes bear interest average rate 56 stated maturities less one year repayable demand option either company lender average outstanding borrowings 2013 2012 7677000 6759000 respectively debt outstanding january 31 2013 2012 whose carrying value approximates fair market value follows january 31 2013 debt outstanding mature fiscal year follows 8 income consisted following march 21 2011 company sold operating facility fontana california intent acquiring relocating new facility interim new facility could purchased company entered leasehold agreement existing facility total gain sale facility 6354000 1379000 deferred match expected lease payments leasehold agreement company recognized 421000 deferred gain fiscal year ended january 31 2012 deferred gain recognized 36 month term lease september 2012 company terminated leasehold agreement recognized remaining 651000 deferred gain sale facility fiscal year 2012 company recognized gain 996000 sale certain investment securities australia securities received settlement previously written accounts receivable 9 income taxes loss income continuing operations income taxes consisted following components income tax benefit expense continuing operations follows company’s provision income taxes allocated continuing operations discontinued operations net loss income discontinued operations fiscal years 2013 2012 2011 25076000 53000 2263000 respectively amounts net income tax benefits expense 16178000 395000 1028000 respectively effective tax rate discontinued operations 392 882 312 fiscal years 2013 2012 2011 respectively deferred income taxes result temporary differences financial statement tax bases company’s assets liabilities sources differences cumulative tax effects follows january 31 assessing need valuation allowance company considered positive negative evidence related likelihood realization deferred tax assets weight given positive negative evidence commensurate extent evidence could objectively verified management determined company cumulative loss position january 31 2013 2012 2011 respectively based analysis income current prior two fiscal years adjusting significant nonrecurring charges company considered periods future reversals existing taxable deductible temporary differences likely occur future taxable income taxable income available prior carry back years availability taxplanning strategies determining realizability recorded deferred tax assets company determined morelikelythannot deferred tax asset realizable january 31 2013 2012 2011 respectively valuation allowance needed time portion foreign tax credit carry forwards company past continues conclude carry forward benefits may used expire company us federal loss carry forwards expire used prior january 31 2033 canadian loss carry forwards expire used january 31 2030 january 31 2032 company also foreign tax credit carry forwards expire used january 31 2018 2023 january 31 2013 undistributed earnings foreign subsidiaries certain foreign affiliates included 80800000 federal income foreign withholding taxes provided earnings considered invested indefinitely become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign subsidiaries foreign affiliates earnings considered invested indefinitely reconciliation total income tax benefit expense continuing operations statutory federal rate follows years ended january 31 reconciliation beginning ending amount unrecognized tax benefits follows substantially unrecognized tax benefits recorded january 31 2013 2012 2011 would affect effective rate recognized reasonably possible amount unrecognized tax benefits decrease next year approximately 2000000 due settlements audit issues expiration statutes limitation company classifies interest penalties related income taxes component income tax expense january 31 2013 2012 2011 company 8809000 6810000 5251000 respectively interest penalties accrued associated unrecognized tax benefits liability interest penalties increased 1999000 1559000 1565000 fiscal years 2013 2012 2011 respectively company files income tax returns us federal jurisdiction various state jurisdictions certain foreign jurisdictions tax year ended january 31 2013 us federal statute limitations expired tax year ended january 31 2009 statute limitations remains open tax years ended january 31 2010 2013 tax years ended january 31 2011 2012 currently examination company two state examinations currently progress company files income tax returns foreign jurisdictions operates returns subject examination may ongoing point time tax liabilities recorded based estimates additional taxes due upon settlement examinations tax years subject examination foreign tax authorities vary jurisdiction generally tax years 2008 2013 remain open examination 10 operating lease asset retirement obligations future minimum lease payments required operating leases initial remaining noncancelable lease terms excess one year january 31 2013 follows company’s operating leases primarily light medium duty trucks equipment rent expense operating leases including insignificant amounts contingent rental payments 23873000 28924000 29106000 2013 2012 2011 respectively asset retirement obligations consist estimated costs dismantlement removal site reclamation similar activities associated oil gas properties asset retirement obligation related asset retirement cost recorded well drilled completed asset retirement cost determined based expected costs complete reclamation end well’s economic life discounted present value using credit adjusted riskfreerate initial recording liability increased passage time increase reflected consolidated results operations depreciation depletion amortization asset retirement costs capitalized part oil gas properties depleted accordingly fiscal year 2013 company sold assets energy division obligations included part sale asset retirement obligations recorded longterm liabilities january 31 2013 2012 2011 follows 11 employee benefit plans company’s salaried certain hourly employees participate company sponsored defined contribution plans total expense company’s portion plans 3962000 4107000 4347000 fiscal years 2013 2012 2011 respectively company deferred compensation plan certain management employees participants may elect defer 25 salaries 50 bonuses plan company matching contributions vesting period contributions established discretion company employee deferrals vested times total amount deferred including company matching fiscal years 2013 2012 2011 1273000 1974000 1499000 respectively total liability deferred compensation 12377000 11201000 january 31 2013 2012 respectively liabilities included longterm liabilities company contributes 33 multiemployer defined benefit pension plans terms collectivebargaining agreements cover unionrepresented employees risks participating multiemployer plans different singleemployer plans following aspects ● assets contributed multiemployer plan one employer may used provide benefits employees participating employers ● participating employer stops contributing plan unfunded obligations plan may borne remaining participating employers ● company chooses stop participating multiemployer plans company may required pay plans amount based underfunded status plan referred withdrawal liability accordance accounting guidance company evaluated multiemployer plans determine individually significant company evaluation based following criteria ● company’s total employees participating multiemployer plan compared total employees covered plan ● company’s total contributions multiemployer plan percentage total contributions plan participating employers ● amount potential liability could incurred due company’s withdrawal multiemployer plan underfunded status plan participating employers’ withdrawal plan january 31 2013 2012 company participate multiemployer plans would considered individually significant company makes contributions multiemployer plans equal amounts accrued pension expense total contributions union pension expense plans 3157000 3133000 3568000 fiscal years 2013 2012 2011 respectively information regarding assets accumulated benefits plans made available company also provides supplemental retirement benefits former chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent defined contribution plan balance company contribute plan maintain investment assets related expected benefit obligation company recognized full amount actuarially determined pension liability amount recognized company’s consolidated balance sheets january 31 2013 2012 5644000 4553000 respectively included longterm liabilities net periodic pension cost supplemental retirement benefits fiscal years 2013 2012 2011 1430000 1133000 521000 respectively 12 stock option plans company previously adopted rights agreement whereby company authorized declared dividend one preferred share purchase right “right” outstanding common share company rights agreement expired october 2011 renewed company stock option employee incentive plans provide granting options purchase issuance shares common stock price fixed board directors committee january 31 2013 558714 shares remain available granted plan stock options company ability issue shares plans either new issuances treasury although previously always issued new shares expects continue issue new shares future years ended january 31 2012 2011 company purchased subsequently cancelled 5382 5441 respectively shares stock related settlement withholding obligations treasury stock transactions year ended january 31 2013 company recognized 2924000 3796000 3499000 compensation cost sharebased plans years ended january 31 2013 2012 2011 respectively amounts 905000 1655000 1057000 respectively related nonvested stock total income tax benefit recognized sharebased compensation arrangements 1140000 1480000 1365000 years ended january 31 2013 2012 2011 respectively options outstanding january 31 2013 well related exercise price remaining contractual term follows options granted exercise price equal fair market value company’s common stock date grant options contractual terms 10 years date grant generally vest ratably periods one month five years options outstanding expected vest certain option awards provide accelerated vesting change control defined plans equitable adjustments event changes company’s equity structure company determines fair value sharebased compensation granted form stock options using lattice valuation model blackscholes valuation model valuations respective year made using assumptions noted following table expected volatilities based historical volatility company’s stock price company uses historical data estimate expected term employee termination within valuation model riskfree interest rate periods within expected term option based us treasury yield curve effect time grant weightedaverage fair value date grant options granted fiscal years 2013 2012 2011 1093 1870 1608 respectively stock option transactions fiscal years 2013 2012 2011 follows nonvested share transactions fiscal years 2013 2012 2011 follows nonvested stock awards valued grant date closing stock price generally vest ratably service periods one five years certain nonvested stock awards vest based upon company meeting various performance goals certain nonvested stock awards provide accelerated vesting change control defined plans equitable adjustment event changes company’s equity structure 13 fair value measurements company’s estimates fair value financial assets financial liabilities based framework established fair value accounting guidance framework based inputs used valuation gives highest priority quoted prices active markets requires observable inputs used valuations available three levels hierarchy follows · level 1 unadjusted quoted prices active markets identical assets liabilities · level 2 observable inputs included level 1 quoted market prices similar assets liabilities active markets quoted prices identical assets inactive markets · level 3 unobservable inputs reflecting company’s assumptions best estimate inputs market participants would use pricing asset liability company’s assessment significance particular input fair value entirety requires judgment considers factors specific asset liability company’s financial instruments held fair value include restricted deposits held acquisition escrow accounts contingent earnout acquired businesses presented january 31 2013 2012 1 fair value contingent earnout acquired businesses determined using marktomarket modeling technique based significant unobservable inputs calculated using discounted future cash flows approach key assumptions include discount rate 412 annual revenues acquired businesses ranging 1500000 6100000 life earnout july 31 2012 contingent earnout reassessed based estimates likelihood future revenues subject earnout provisions assigned value conclusions changed january 31 2013 14 contingencies company’s drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice bundled basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance respect foreign operations connection company updating foreign corrupt practices act fcpa policy questions raised internally late september 2010 among things legality certain payments company agents third parties interacting government officials certain countries africa audit committee board directors engaged outside counsel conduct internal investigation review payments assistance outside accounting firms internal investigation found documents information suggesting improper payments may violate fcpa local laws made considerable period time behalf certain foreign subsidiaries company third parties interacting government officials africa relating payment taxes importing equipment employment expatriates made voluntary disclosure united states department justice “doj” securities exchange commission sec regarding results investigation cooperating doj sec connection review matter february 2012 began discussions doj sec regarding potential resolution matter held followup discussions doj sec since time discussions government ongoing company currently unable assess whether government accept voluntary settlement terms would acceptable company january 31 2012 company accrued 3715000 liability representing companys initial estimate based among things results internal investigation analysis recent similar fcpa settlements amount may required disgorge sec estimated benefits plus interest thereon request sec doj company performed provided government additional analysis regarding estimated benefits company may received intended receive interest payments question accordingly assurance made given government accept estimated disgorgement interest amount estimated disgorgement amount recorded january 31 2013 remains 3715000 investors cautioned rely upon presently accrued liability accurately reflecting ultimate amount company may required pay disgorgement interest thereon addition ultimate liability disgorgement related interest company believes could liable fines penalties part settlement time company able reasonably estimate amount fine penalty may pay part possible settlement furthermore company cannot currently assess potential liability might incurred settlement reached government litigate matter based information available time additional liability related matter reasonably estimable company continue evaluate amount liability pending final resolution investigation related settlement discussions government amount actual liability fines penalties disgorgement interest may recorded connection final settlement could significantly higher liability accrued date company involved various matters litigation claims disputes arisen ordinary course company’s business company believes ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows 15 discontinued operations weighing alternatives second quarter fiscal year 2013 company authorized sale energy division entered negotiations sale substantially energy division assets third party july 31 2012 company considered energy division discontinued operation reflected retrospectively consolidated financial statements recorded loss 32589000 july 31 2012 based difference carrying value continuing operation expected selling price less costs sell tax benefit related loss 12541000 october 1 2012 company completed sale exploration production assets energy division 15000000 additional loss disposal net assets recognized pursuant sale agreement company received 13500000 expects receive additional 1500000 october 2013 certain conditions met sale agreement provides additional proceeds 2000000 contingent natural gas futures prices exceeding 525 per mmbtu five months given six consecutive months occurring 36 months following closing amount recorded additional proceeds conditions met financial results discontinued operations include accrual 3900000 recorded fourth quarter fiscal 2013 associated certain litigation claims related energy division retained company financial results follows 16 segments foreign operations company global solutions provider world essential natural resources water minerals energy management defines company’s operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices’ division example mineral exploration division office performed water well drilling services revenues would recorded mineral exploration division rather water resources division company’s segments defined follows water resources division water resources division provides customers every aspect water supply system development technology including hydrologic design construction source supply exploration well intake construction well pump rehabilitation division also brings new technologies water wastewater markets offers water treatment equipment engineering services providing systems treatment regulated “nuisance” contaminants specifically iron manganese hydrogen sulfide arsenic radium nitrate perchlorate volatile organic compounds water resources division provides water systems services regions us inliner division inliner division provides wide range process sanitary storm water rehabilitation solutions municipalities industrial customers dealing aging infrastructure needs focus proprietary inliner® curedinplace pipe “cipp” allows us rehabilitate aging sanitary sewer storm water process water infrastructure provide structural rebuilding well infiltration inflow reduction trenchless technology minimizes environmental impact reduces eliminates surface social disruption somewhat unique technology liner tube manufacturer largest installer inliner cipp technology housed within family companies focus proprietary inliner cipp committed full system renewal also provide wide variety rehabilitative methods including janssen structural renewal service lateral connections mainlines slip lining traditional excavation replacement uliner highdensity polyethylene fold form manhole renewal cementitious epoxy products inliner division provides services regions us heavy civil division heavy civil division delivers sustainable solutions government agencies industrial clients overseeing design construction water wastewater treatment plants pipeline installation addition heavy civil builds radial collector wells ranney method surface water intakes pumping stations hard rock tunnels marine construction services support world’s water infrastructure beyond water solutions heavy civil division also designs constructs biogas facilities anaerobic digesters purpose generating capturing methane gas emerging renewable energy resource heavy civil division provides services regions us geoconstruction division provide specialized geotechnical foundation construction services heavy civil industrial commercial private construction markets around globe expertise equipment provide appropriate deep foundation system ground improvement earth support solution applied given highly variable geological site conditions addition offer extensive experience successful completion complex scheduledriven major underground construction projects provide services focused primarily foundation systems damslevees tunnel shafts utility systems subways transportation systems commercial building port facilities services offered include jet grouting structural diaphragm slurry cutoff walls cement chemical grouting drilled piles ground improvement earth retention systems geoconstruction division provides services regions us well brazil uruguay mineral exploration division mineral exploration division conducts primarily aboveground drilling activities including phases core drilling reverse circulation dual tube hammer rotary airblast methods service offerings include exploratory ‘greenfield’ definition ‘brownfield’ drilling global mining companies hire us extract samples sites analyze mineral content investing heavily development extract minerals help clients determine minable mineral deposit exists site economic viability mining site geological properties ground helps determination mine planning primary markets western us mexico australia brazil africa also ownership interests foreign affiliates operating latin america form primary presence market includes layne energy services initiative expanding water related services energy markets specialty operations included one divisions financial information company’s segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit treasury corporate securities law tax compliance executive management board directors corporate assets company directly associated segment consist primarily cash deferred income taxes 17 new accounting pronouncements fasb recently issued two accounting standards updates first asu 201301 “clarifying scope disclosures offsetting assets liabilities” effective fiscal years beginning january 1 2013 limits scope offsetting disclosures recognized derivative instruments accounted accordance asc 815 company expect impact consolidated financial statements february 5 2013 fasb issued asu 201302 “reporting amounts reclassified accumulated comprehensive income” effective fiscal years interim periods within years beginning december 15 2012 requires company present information significant items reclassified accumulated comprehensive income aoci either face income statement separate disclosure notes financial statements expected material impact company’s consolidated financial statements july 2012 fasb issued asu 201202 “testing indefinitelived intangible assets impairment” “asu 201202” effective annual interim impairment tests performed fiscal years beginning september 15 2012 guidance permits entity first assess qualitative factors determine whether likely indefinitelived intangible asset impaired basis determining whether necessary perform quantitative impairment test accordance subtopic 35030 intangiblesgoodwill othergeneral intangibles goodwill morelikely thannot threshold defined likelihood 50 percent company determines likely asset impaired company option calculate annually fair value indefinitelived intangible asset adoption asu 201202 expected significant impact company’s consolidated financial statements september 2011 fasb issued asu 201108 “testing goodwill impairment” “asu 201108” effective annual reporting periods interim periods within years beginning december 15 2011 provisions asu 201108 gives entities testing goodwill impairment option performing qualitative assessment calculating fair value reporting unit step 1 goodwill impairment test entities determine basis qualitative factors fair value reporting unit likely less carrying amount twostep impairment test would required otherwise testing would needed since company chose perform optional qualitative assessment adoption asu 201108 significant impact company’s consolidated financial statements may 2011 fasb issued asu 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrs asu 201104 effective annual reporting periods beginning december 15 2011 guidance amends certain accounting disclosure requirements related fair value measurements adoption asu 201104 significant impact companys consolidated financial statements 18 quarterly results unaudited quarterly results follows fourth quarter fiscal year 2013 company recorded noncash impairment charges 7292000 4357000 income tax see note 5 discussion impairments recorded fourth quarter fiscal year 2012 company recorded noncash goodwill definitelived intangible asset impairment charges 97529000 84641000 income tax see note 5 discussion impairments recorded 19 subsequent events january 31 2013 company maintained bank account country mauritania recorded balance approximately 2600000 subsequently company received information dispute bank central regulatory body mauritania bank may ceasing operations company’s balance bank account dispute arose 2900000 company process engaging local counsel protect interests assist recovering funds time company able estimate amount funds unable recover supplemental information oil gas producing activities unaudited discussed note 15 consolidated financial statements fiscal year 2013 completed sale substantially assets energy division january 31 2013 oil gas producing activities accordingly information presented includes information operations completion sale october 1 2012 company’s oil gas activities primarily conducted united states capitalized costs related oil gas producing activities capitalized costs associated depletion relating oil gas producing activities january 31 2012 follows accumulated depletion includes noncash ceiling test impairments recorded 2010 earlier impairments year ended january 31 2012 unproved oil gas properties january 31 2012 totaled 153000 unevaluated mineral interest costs excluded depletion january 31 2012 totaled 6185000 capitalized costs associated depreciation relating gas transportation facilities equipment january 31 2012 follows capitalized costs incurred gas transportation facilities equipment fiscal years 2013 2012 totaled 58000 109000 respectively cost incurred oil gas producing activities capitalized costs incurred oil gas producing activities follows fiscal years 2013 2012 2011 results operations oil gas producing activities results operations relating oil gas producing activities set forth following tables years ended january 31 2013 2012 2011 dollar per mcf basis include revenues operating costs directly attributable oil gas producing activities general corporate overhead interest costs transportation third party gas nonoil gas producing activities excluded income tax expense calculated applying statutory tax rates revenues deducting costs include depletion allowances proved oil gas reserve quantities proved oil gas reserve quantities january 31 2012 based estimates prepared accordance requirements sec company’s reserves located within united states proved oil gas reserves estimated quantities oil natural gas geological engineering data demonstrate reasonable certainty recoverable future years known reservoirs economic operating conditions effect estimates made proved developed reserves expected recovered wells equipment operating methods existing estimates made proved undeveloped reserves expected recovered new wells undrilled acreage existing wells relatively major expenditure required recompletion company cautions many inherent uncertainties estimating quantities proved reserves projecting future rates production timing development expenditures estimates subject change january 31 2012 total proved reserves 22465 mmcf including proved developed reserves 19294 mmcf proved undeveloped reserves 3171 mmcf proved developed reserves included 398 mmcfe gas equivalents oil estimated quantities total proved oil gas reserves follows standardized measure discounted future net cash flows relating proved oil gas reserve quantities price used determining future cash inflows purposes standardized measure discounted future net cash flows unweighted arithmetic average firstdayofthemonth spot price month within 12month period end reporting period future cash inflows also incorporate effect contractual arrangements fixedprice physical delivery forward sales contracts price used determinations january 31 2012 382 per mcf future production development costs represent estimated future expenditures incurred developing producing proved reserves assuming continuation existing economic conditions future income tax expense computed applying statutory rates pretax cash flows relating company’s estimated proved reserves difference book tax basis proved properties information purport present fair market value company’s oil gas assets present standardized disclosure concerning possible future net cash flows would result assumptions used following table sets forth unaudited information concerning future net cash flows oil gas reserves net income tax expense principal sources change standardized measure discounted future net cash flows layne christensen company subsidiaries schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedule schedules omitted applicable required information included consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders layne christensen company woodlands texas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2015 2014 related consolidated statements operations comprehensive loss equity cash flows three years period ended january 31 2015 audits also included financial statement schedule listed index item 8 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2015 2014 results operations cash flows three years period ended january 31 2015 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated april 13 2015 expressed unqualified opinion company’s internal control financial reporting sdeloitte touche llp houston texas april 13 2015 layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements continued see notes consolidated financial statements layne christensen company subsidiaries consolidated statements operations see notes consolidated financial statements layne christensen company subsidiaries consolidated statements comprehensive loss see notes consolidated financial statements layne christensen company subsidiaries consolidated statements equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flow see notes consolidated financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “layne” “our” global water management construction drilling company layne operates throughout north america well parts africa australia south america customers include government agencies investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies agribusinesses layne ownership interest certain foreign affiliates operating latin america see note 3 consolidated financial statements fiscal year layne’s fiscal year end january 31 references fiscal years twelve months ended investment affiliated companies investments affiliates 20 50 owned layne ability exercise significant influence hold controlling interest operating financial policies accounted equity method layne evaluates equity method investments impairment least annually events changes circumstances indicate loss value investment temporary decline principles consolidation consolidated financial statements include accounts layne subsidiaries exercises control investments subsidiaries whollyowned layne exercises control equity held minority owners portions net income loss reflected noncontrolling interests significant intercompany accounts transactions eliminated consolidation notes consolidated financial statements dollar share amounts tabulations thousands dollars shares respectively unless otherwise indicated presentation discussed note 15 consolidated financial statements layne sold two components fy 2015 costa fortuna “costa fortuna” sold july 31 2014 tecniwell sold october 31 2014 previously reported geonstruction operating segment layne reclassified components discontinued operations fy 2015 fy 2014 fy 2013 amounts presented consolidated balance sheets also reclassified business segments layne reports financial results six reporting segments consisting water resources inliner heavy civil geoconstruction mineral services energy services layne also reports certain smaller operations “other” corporate activities title ”unallocated corporate” unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit treasury corporate securities law tax compliance executive management board directors corporate assets directly associated segment consist primarily cash deferred income taxes use changes estimates preparation financial statements conformity accounting principles generally accepted us requires management make estimates assumptions affect reported amounts assets liabilities disclosure assets liabilities date financial statements reported amounts revenues expenses reporting period estimates assumptions future events effects cannot perceived certainty accordingly estimates may change new events occur experience acquired additional information obtained layne’s operating environment changes layne believes estimates assumptions used preparation consolidated financial statements appropriate actual results could differ estimates foreign currency transactions translation accordance asc topic 830 “foreign currency matters” gains losses resulting foreign currency transactions included consolidated statements operations assets liabilities nonus subsidiaries whose functional currency local currency translated us dollars exchange rates prevailing balance sheet date revenues expenses translated average exchange rates year net exchange differences resulting translations reported accumulated comprehensive income loss monetary assets liabilities remeasured period end exchange rates nonmonetary items measured historical exchange rates cash flows financing activities layne’s mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency net foreign currency transaction losses fy 2015 fy 2014 fy 2013 immaterial fy 2015 01 million 12 million fy 2014 fy 2013 respectively recorded income expense net accompanying consolidated statements operations revenue recognition revenues recognized large longterm construction contracts meeting criteria asc topic 60535 “constructiontype productiontype contracts” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised nature accounting contracts refinements estimating process changing conditions new developments continuous characteristic process many factors change contract performance period result change contract profitability one financial reporting period another factors change estimate total contract revenue cost include differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revision costs income recognized period revisions become known provisions estimated losses uncompleted construction contracts made period losses become known estimate contract indicates loss entire loss recorded accounting period facts caused revision become known management focuses evaluating performance contracts individually ordinary course business least quarterly layne prepares updated estimates cost profit loss contract cumulative effect revisions estimates total forecasted estimates total forecasted revenue costs including unapproved change orders claims course contract reflected accounting period facts caused revision become known large changes cost estimates larger complex construction projects material impact financial statements reflected results operations become known fy 2015 fy 2014 fy 2013 approximately 252 million 178 million 286 million contract losses recorded respectively layne records revenue contracts relating unapproved change orders claims including revenue amount less equal amount costs incurred us date contract price adjustments layne seeks collect customers delays errors specifications designs change orders dispute unapproved scope price unanticipated additional costs case recovery costs considered probable amount unapproved change orders claim revenues included consolidated balance sheets part costs estimated earnings excess billings see note 4 consolidated financial statements determining likelihood eventual recovery layne considers factors experience similar projects experience customer new facts become known adjustment estimated recovery made reflected current period allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses become known layne determines contracts completed based acceptance customer contracts mineral drilling services within mineral services billable based quantity drilling performed revenues recognized terms value total work performed date basis actual footage meterage drilled revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur revenues sale oil gas layne’s discontinued energy segment recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders layne’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories layne values inventories lower cost market cost us inventories majority foreign operations determined using average cost method approximates fifo inventories consist primarily supplies raw materials supplies 278 million 293 million raw materials 23 million 22 million included inventories consolidated balance sheets january 31 2015 2014 respectively property equipment related depreciation property equipment including major renewals improvements recorded cost less accumulated depreciation provided using straightline method depreciation expense 480 million 548 million 551 million fy 2015 fy 2014 fy 2013 respectively useful lives used items within property classification follows property equipment reviewed impairment whenever events changes circumstances indicate carrying value may recoverable recoverability evaluated comparing carrying value assets undiscounted associated cash flows comparison indicates carrying value asset greater undiscounted cash flows loss recognized difference carrying value estimated fair value fair value determined based either market quotes appropriate valuation techniques goodwill accordance asc topic 35020 “intangiblesgoodwill other” layne required test impairment goodwill least annual basis layne conducts evaluation annually december 31 frequently events changes circumstances indicate goodwill might impaired reporting units based organizational reporting structure six reportable segments corporate assets liabilities allocated reporting units extent relate operations reporting units determining carrying amount option first performing qualitative assessment determine existence events circumstances would lead determination likely fair value reporting unit less carrying amount conclusion reached would required perform quantitative impairment assessment goodwill however assessment leads determination likely fair value reporting unit greater carrying amount assessments required december 31 2014 performed qualitative assessment annual goodwill impairment test december 31 2013 2012 quantitative assessment determination impairment made comparing carrying amount reporting unit fair value calculated using combination marketrelated valuation models discounted cash flow see note 5 consolidated financial statements discussion impairment charges recorded fy 2014 prior periods intangible assets intangible assets finite lives primarily consist tradenames patents software licenses intangible assets amortized using straightline method estimated useful lives range three thirtyfive years finitelived intangible assets reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable see note 5 consolidated financial statements discussion impairments recorded fy 2013 cash equivalents layne considers investments original maturity three months less purchased cash equivalents layne’s cash equivalents subject potential credit risk cash management investment policies restrict investments investment grade highly liquid securities carrying value cash equivalents approximates fair value restricted deposits restricted deposits consist escrow funds associated primarily acquisitions amounts associated certain letters credit ongoing projects allowance uncollectible accounts receivable layne makes ongoing estimates relating collectability accounts receivable maintains allowance estimated losses resulting inability customers make required payments determining amount allowance layne makes judgments creditworthiness significant customers based ongoing credit evaluations also considers review accounts receivable aging industry trends customer financial strength credit standing payment history assess probability collection bad debt expensed selling general administrative costs layne establish allowance credit losses longterm contract unbilled receivables adjustments unbilled receivables related credit quality occur accounted reduction revenue concentration credit risk layne grants credit customers may include concentrations state local governments although concentration could affect overall exposure credit risk management believes portfolio accounts receivable sufficiently diversified thus spreading credit risk manage risk management performs periodic credit evaluations layne’s customers’ financial condition including monitoring customers’ payment history current credit worthiness layne generally require collateral support trade receivables may require payment advance security form letter credit bank guarantee fy 2015 fy 2014 fy 2013 individual customer accounted 10 layne’s consolidated revenues accrued insurance expense layne maintains insurance programs responsible amount claim selfinsured limit estimates recorded health welfare workers’ compensation property casualty insurance costs associated programs costs estimated based part actuarially determined projections future payments programs include amounts incurred reported greater amount claims occur compared estimated costs medical profession increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms agreement various insurance carriers administering claims layne required remit total premium claims actually paid insurance companies fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2015 2014 due relatively short maturity instruments see note 13 consolidated financial statements fair value disclosures litigation contingencies layne involved litigation incidental business disposition expected material effect business financial position results operations cash flows addition layne’s contracts contain provisions require payment liquidated damages layne responsible failure meet specified contractual milestone dates applicable customer asserts claim provisions contracts define conditions customers may make claims layne liquidated damages many cases layne historically potential exposure liquidated damages ultimately asserted customers possible however future results operations particular quarter annual period could materially affected changes layne’s assumptions related proceedings contingencies assessment contingency indicates probable material loss incurred amount liability estimated liability accrued layne’s consolidated financial statements assessment indicates potentially material loss contingency probable reasonably possible probable cannot estimated nature contingent liability estimate range possible losses determinable material disclosed provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case supplemental cash flow information amounts paid income taxes interest noncash investing financing activities follows income taxes income taxes provided using asset liability method deferred taxes recognized difference financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely general layne records income tax expense interim periods based best estimate full year’s effective tax rate however income tax expense relating adjustments layne’s liabilities uncertainty income tax positions prior reporting periods accounted discretely interim period occurs income tax expense relating adjustments current year uncertain tax positions accounted component adjusted annualized effective tax rate assessing need valuation allowance layne considers positive negative evidence related likelihood realization deferred tax assets weight given positive negative evidence commensurate extent evidence may objectively verified accounting guidance states cumulative loss recent years significant piece negative evidence difficult overcome determining valuation allowance needed deferred tax assets generally difficult positive evidence regarding projected future taxable income exclusive reversing taxable temporary differences outweigh objective negative evidence recent financial reporting losses preparing future taxable income projections layne considers periods future reversals existing taxable deductible temporary differences likely occur future taxable income taxable income available prior carryback years availability taxplanning strategies determining ability realize recorded deferred tax assets layne’s estimate uncertainty income taxes based framework established accounting income taxes guidance layne recognizes tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax positions meet recognition threshold layne applies judgment taking account applicable tax laws experience managing tax audits determine amount tax benefits recognize financial statements position difference benefit realized layne’s tax return benefit reflected financial statements recorded liability consolidated balance sheets liability updated financial statement date reflect impacts audit settlements resolution audit issues expiration statutes limitation developments tax law ongoing discussions taxing authorities income loss per share income loss per share computed dividing net earnings available common stockholders weighted average number common shares outstanding period periods layne recognizes losses calculation diluted loss per share calculation basic loss per share periods layne recognizes net income diluted earnings per share computed way basic earnings per share except denominator increased include number additional shares would outstanding potential common shares issued dilutive options purchase common stock included based treasury stock method dilutive earnings losses per share except effect antidilutive 425 convertible notes defined note 7 consolidated financial statements included calculation diluted earnings loss per share inclusion dilutive ifconverted method options purchase 1015514 1105812 1285303 shares excluded weighted average shares fy 2015 fy 2014 fy 2013 respectively effect antidilutive total 487292 292423 275666 nonvested shares excluded weighted average shares fy 2015 fy 2014 fy 2013 respectively effect antidilutive sharebased compensation layne recognizes cost sharebased instruments financial statements using fairvalue measurement associated costs fair value sharebased compensation granted form stock options determined using lattice valuation model addition layne granted certain market based awards fy 2015 fy 2014 valued using monte carlo simulation model see note 12 consolidated financial statements unearned compensation expense associated issuance nonvested shares amortized straightline basis restrictions stock expire subject achievement certain contingencies research development costs research development costs charged expense fy 2015 fy 2014 fy 2013 01 million 02 million 03 million respectively recorded selling general administrative expenses new accounting pronouncements see note 19 consolidated financial statements discussion new accounting pronouncements impact 2 acquisitions fiscal year 2013 october 4 2012 layne acquired 100 stock fursol informatica srl “fursol” italian company fursol active business production marketing installation maintenance software electronic devices layne viewed acquisition opportunity benefit fursol’s technology improve performance efficiency geoconstruction operations aggregate purchase price 10 million 08 million paid acquisition date remainder 02 million paid october 4 2013 purchase price allocated identifiable intangible asset associated computer software valued 15 million weightedaverage life three years noncurrent liability 05 million results operations fursol included consolidated statements operations commencing closing date significant pro forma amounts related fursol periods prior acquisition presented since acquisition would significant effect consolidated revenues net loss july 15 2010 layne acquired 50 interest diberil sociedad anónima “costa fortuna” uruguayan company parent company costa fortuna brazil uruguay accounted investment affiliate using equity method may 30 2012 layne acquired remaining 50 interest costa fortuna layne expected costa fortuna expand geoconstruction capabilities brazil market well serve platform expansion south america aggregate purchase price remaining 50 costa fortuna 162 million comprised cash 24 million placed escrow secure certain representations warranties indemnifications accordance accounting guidance moving costa fortuna fully consolidated basis layne remeasured previously held equity investment fair value recognized loss 77 million second quarter fy 2013 fair value 50 noncontrolling interest estimated 158 million time adjustment fair value assessment determined based value current year transaction discounted reflect initial interest noncontrolling ready public market interest discounts lack control marketability 5 10 respectively determined based control premiums seen recent transactions construction contractor engineering services market estimate value put option restricted stock using blackscholes valuation method acquisition related costs 02 million recorded expense periods costs incurred purchase price allocation based assessment fair value assets acquired liabilities assumed using internal operational assessments analyses level 3 measurements preliminary purchase allocation recorded second quarter adjusted valuation analysis progressed result adjustment goodwill decreased 05 million initial amount adjustments made retrospectively applied acquisition date significant effect consolidated financial statements based allocation purchase price acquisition following effect layne’s consolidated financial position closing date 40 million goodwill assigned geoconstruction purchase price excess value costa fortuna’s net assets reflects strategic value layne placed business time acquisition layne believed would benefit synergies acquired operations integrated existing operations layne hoped presence brazil would assist obtaining contracts country well south america second quarter fy 2014 based continued decline revenues forecasted results experienced due sluggish economy brazil calendar year 2013 layne reassessed estimates fair value goodwill associated costa fortuna result reassessment 40 million impairment charge recorded costa fortuna purchase agreement provided purchase price adjustment based levels working capital debt closing adjustment resulted additional purchase price 23 million paid third quarter fy 2013 total purchase price consisted 162 million cash purchase price 23 million purchase price adjustment 158 million adjusted basis layne’s existing investment costa fortuna july 31 2014 layne sold costa fortuna described note 15 consolidated financial statements layne determined discontinued operation reported form 10k 3 investments affiliates layne’s investments affiliates generally engaged mineral drilling services manufacture supply drilling equipment parts supplies investment affiliates may include construction joint ventures time july 15 2010 layne acquired 50 interest costa fortuna interest acquired total cash consideration 149 million 101 million paid costa fortuna shareholders 48 million paid costa fortuna purchase newly issued costa fortuna stock concurrent investment costa fortuna purchased layne geobrazil equipment leasing company brazil wholly owned layne cash payment 48 million subsequent acquisition layne invested additional 13 million costa fortuna proportionate share capital contribution see note 2 consolidated financial statements discussion layne’s acquisition remaining 50 interest costa fortuna may 2012 layne sold costa fortuna july 31 2014 summary material jointlyowned affiliates well primary operating subsidiaries applicable percentages directly indirectly owned layne follows january 31 2015 financial information affiliates reported onemonth lag reporting period summarized financial information affiliates including costa fortuna subsidiaries may 30 2012date acquisition remaining 50 interest costa fortuna layne significant transactions balances affiliates january 31 2015 2014 2013 fiscal years ended layne’s equity undistributed earnings affiliates totaled 591 million 627 million 737 million january 31 2015 2014 2013 respectively additional 46 million investment affiliates recorded equity method goodwill certain investments time acquisition 4 costs estimated earnings uncompleted contracts costs estimated earnings uncompleted contracts consisted following layne bills customers based specific contract terms substantially billed amounts collectible within one year january 31 2015 2014 layne’s costs estimated earnings excess billings uncompleted contracts included unbilled contract retainage amounts 496 million 458 million respectively 5 impairment charges second quarter fy 2014 based continued decline revenues forecasted results layne reassessed estimates fair value reporting units circumstances indicated potential impairment goodwill geoconstruction layne assessed fair value goodwill determine carrying value exceeded fair value result analysis layne determined carrying value geoconstruction goodwill amount 146 million exceeded fair value impairment charge equal amount recorded second quarter fy 2014 total assessed fair value zero determined based level 3 inputs fy 2013 due underperformance certain product lines within water resources energy services layne assessed value certain longlived assets within businesses layne also assessed value certain tradenames light strategic decisions product lines result assessments layne concluded impairments value occurred layne recorded impairment charges impaired assets included specific patents tradenames property equipment carrying value assets impairment 158 million impairments totaled 84 million 44 million associated water resources 40 million associated energy services charges consisted 29 million associated intangible assets remainder consisting adjustments record tangible assets expected sales value none operations associated goodwill recorded total assessed fair value 74 million amount determined based income market approach 36 million remainder based level 3 inputs see note 13 consolidated financial statements discussion level 1 2 3 inputs 6 goodwill intangible assets goodwill carrying amount goodwill attributed reporting segment follows goodwill expected tax deductible 09 million 09 million january 31 2015 2014 intangible assets intangible assets consisted following january 31 total amortization expense intangible assets 13 million 15 million 25 million fy 2015 fy 2014 fy 2013 respectively amortization expense subsequent five fiscal years estimated follows 7 indebtedness debt outstanding january 31 2015 2014 follows january 31 2015 debt outstanding mature follows assetbased revolving credit facility april 15 2014 layne entered fiveyear 1350 million senior secured assetbased facility aggregate principal amount 750 million available form letters credit aggregate principal amount 150 million available shortterm swingline borrowings assetbased facility amended july 29 2014 september 15 2014 october 28 2014 january 23 2015 1 permit dispositions costa fortuna tecniwell businesses within geoconstruction segment 2 restrict prepayment indebtedness subordinate assetbased facility certain permitted refinancings indebtedness 3 change thresholds applicable grace period covenant compliance period commence described 4 impose certain additional monthly reporting requirements 5 provide additional security interests certain assets surety providers equipment utilization agreements also provides use specified assets surety provider certain circumstances additional reserve established based value assets subject equipment utilization agreement listed “equipment reserve” definition borrowing based amendments fixed applicable margin 325 libor rate loans 225 alternate base rate loans fixed charge coverage ratio measured trailing four fiscal quarter period least 10 two consecutive fiscal quarters time applicable margin revert determined based usage assetbased facility availability assetbased facility lesser 1350 million ii borrowing base defined assetbased facility agreement borrowing base defined · 85 book value eligible accounts receivable unbilled receivables plus · 60 eligible unbilled receivables plus · real property availability plus · equipment availability minus · supplemental reserve minus · equipment reserve minus · additional reserves established time cocollateral agents january 31 2015 borrowing base approximately 1083 million 219 million borrowed assetbased facility 313 million outstanding letters credit leaving excess availability described 551 million balance sheet classification borrowings assetbased facility determined accordance asc topic 4701045 “balance sheet classification borrowings outstanding revolving credit agreements include subjective acceleration clause lockbox arrangement” accordingly borrowings classified longterm liability accompanying consolidated balance sheet layne right request lenders increase assetbased facility additional 650 million default agreement however commitments lenders increase assetbased facility guaranteed assets layne’s direct indirect wholly owned domestic subsidiaries subject certain exceptions described assetbased facility obligations assetbased facility secured lien substantially assets layne subsidiary guarantors subject certain exceptions described assetbased facility including pledge 65 equity interest layne’s first tier foreign subsidiaries advances assetbased facility subject certain conditions precedent including accuracy certain representations warranties absence default event default future advances may used general corporate working capital purposes pay fees expenses associated assetbased facility pursuant assetbased facility agreement revolving loans bear interest either · alternate base rate plus applicable margin alternate base rate equal highest base rate b sum federal funds open rate plus 05 c sum daily libor rate plus 1 · libor rate defined assetbased facility agreement interest period effect borrowing plus applicable margin swingline loans bear interest alternate base rate plus applicable margin connection letters credit issued assetbased facility layne pay participation fee lenders equal applicable margin time used determine interest rate eurodollar loans defined assetbased facility agreement average daily amount lender’s letter credit exposure well issuing bank’s customary fees charges assetbased facility contains various restrictions covenants including restrictions dispositions certain assets incurrence indebtedness investments distributions capital expenditures acquisitions prepayment certain indebtedness general provided layne maintains certain level excess availability layne restricted incurring additional unsecured indebtedness making investments distributions capital expenditures acquisitions layne must maintain cumulative minimum cash flow defined agreement less negative 450 million twelve consecutive month period march 31 2015 cumulative period may 1 2014 minimum cash flow less negative 250 million · period 30 consecutive days excess availability greater 175 total availability 250 million · two consecutive fiscal quarters closing date fixed charge coverage ratio tested trailing four fiscal quarter basis excess 10 minimum cash flow defined consolidated ebitda minus sum · capital expenditures · cash interest expense · regularly scheduled amortized principal payments indebtedness · cash taxes · amount excess 100 million paid respect fcpa investigation giving effect amendments excess availability less greater 175 total availability 250 million one business day “covenant compliance period” defined assetbased facility agreement exist excess availability equal greater 175 total availability 250 million period 30 consecutive days layne must maintain minimum fixed charge coverage ratio less 10 maximum first lien leverage ratio greater 50 10 four fiscal quarters ended immediately preceding covenant compliance period four fiscal quarter period ending covenant compliance period layne covenant compliance period fy 2015 would compliance minimum fixed charge coverage ratio layne also would compliance maximum first lien leverage ratio fiscal quarters ending july 31 2014 january 31 2015 covenant compliance period effect quarters assetbased facility also contains subjective acceleration clause triggered lenders determine layne experienced material adverse change triggered clause would create event default defined assetbased facility turn would permit lenders accelerate repayment outstanding obligations general covenant compliance period event default occurred continuing layne’s funds received daily basis applied reduce amounts owing assetbased facility based current projections layne anticipate covenant compliance period next twelve months event default defined assetbased facility agreement occurs continuing interest rate assetbased facility increase 2 per annum lenders may accelerate amounts owing assetbased facility defaults assetbased facility include limited following · nonpayment principal interest fees amounts assetbased facility · failure comply negative covenants certain specified affirmative covenants assetbased facility · failure pay certain indebtedness due · specified events bankruptcy insolvency · one judgments 50 million covered insurance paid within specified period · change control defined assetbased facility excess availability currently expected next twelve months sufficient trigger covenant compliance period layne anticipates compliance applicate debt covenants associated assetbased facility next twelve months assetbased facility subsequently amended march 2 2015 permit issuance 80 senior secured second lien convertible notes 80 convertible notes offering described exchange portion 425 convertible notes related exchange grant subordinated liens securing 80 convertible notes issued offering addition amendment among things · reduced maximum amount may borrowed assetbased facility 1350 million 1200 million layne delivered agent assetbased facility financial statements compliance certificate fiscal quarter commencing date amendment demonstrating fiscal quarter immediately preceding fiscal quarter consolidated fixed charge coverage ratio defined assetbased facility agreement least 100 four consecutive quarters ending fiscal quarters · increased applicable interest rate margin assetbased facility agreement 05 · increased quarterly commitment fee unused commitments 0375 05 daily average total revolving exposure defined assetbased credit agreement quarter exceeds 50 total revolving commitments defined assetbased facility agreement · eliminated layne’s owned real estate borrowing base accounted approximately 42 million layne’s borrowing base time amendment · requires delivery monthly forecast cash flows following 13weeks · end business day layne coborrowers assetbased facility cash equivalents less outstanding checks electronic funds transfers excess 150 million excluding amounts bank accounts used solely payroll employee benefits withholding taxes require layne use excess amounts prepay revolving loans outstanding end following business day · accelerate maturity date may 15 2018 following yet occurred date either 80 convertible notes permitted refinancing indebtedness defined assetbased facility agreement respect thereof converted b maturity date 80 convertible notes permitted refinancing indebtedness respect thereof extended date october 15 2019 ii either 425 convertible notes permitted refinancing indebtedness respect thereof converted b maturity date 425 convertible notes permitted refinancing indebtedness respect thereof extended date october 15 2019 c 425 convertible notes effectively discharged 425 convertible notes effectively discharged among things layne irrevocably deposited trustee 425 convertible notes cash amount sufficient pay remaining interest principal payments due remaining unconverted 425 convertible notes irrevocable instructions trustee make payments holders 425 convertible notes become due assetbased facility amended march 2015 permit layne make certain voluntary prepayments payments repurchases redemptions retirements defeasances acquisitions value 80 convertible notes following payment conditions satisfied · default action · supplemental reserve defined assetbased facility agreement zero · thirtyday excess availability excess availability defined assetbased facility pro forma basis equal exceeds greater 225 total availability b 300 million · layne pro forma basis consolidated fixed charge coverage ratio less 1110 425 convertible senior notes november 5 2013 layne entered purchase agreement “purchase agreement” jefferies llc “initial purchaser” relating sale layne 1100 million aggregate principal amount 425 convertible notes due 2018 “425 convertible notes” private placement “qualified institutional buyers” us defined rule 144a securities act purchase agreement contained customary representations warranties covenants layne together customary closing conditions terms purchase agreement layne agreed indemnify initial purchaser certain liabilities offering 425 convertible notes completed november 12 2013 accordance terms purchase agreement sale 425 convertible notes generated net proceeds approximately 1054 million deducting initial purchaser’s discount commission estimated offering expenses payable layne proceeds used pay existing balance existing revolving credit agreement purchase agreement also provided initial purchaser option purchase additional 150 million aggregate principal amount 425 convertible notes december 5 2013 initial purchaser exercised option generated proceeds net initial purchaser’s discount commission amount 146 million layne used proceeds primarily increase cash hand 425 convertible notes issued pursuant indenture dated november 12 2013 “425 convertible notes indenture” layne us bank national association trustee 425 convertible notes senior unsecured obligations layne 425 convertible notes convertible option holders consideration consisting layne’s election cash shares layne’s common stock combination cash shares layne’s common stock cash lieu fractional shares close business scheduled trading day immediately preceding may 15 2018 however may 15 2018 425 convertible notes convertible except following circumstances 1 calendar quarter commencing calendar quarter ending december 31 2013 calendar quarter last reported sale price layne’s common stock least 20 trading days whether consecutive 30 consecutive trading days ending including last trading day immediately preceding calendar quarter greater 130 conversion price trading day 2 consecutive five business day period immediately five consecutive trading day period five consecutive trading day period referred “measurement period” trading price defined indenture per 1000 principal amount 425 convertible notes determined following request holder 425 convertible notes manner required 425 convertible notes indenture trading day measurement period less 98 product last reported sale price layne’s common stock conversion rate trading day 3 upon occurrence specified corporate events described 425 convertible notes indenture 4 layne called 425 convertible notes redemption layne required settle conversions shares layne’s common stock together cash lieu fractional shares obtained stockholder approval settle 425 convertible notes cash combination cash shares layne’s common stock january 31 2015 ifconverted value exceed principal amount 425 convertible notes bear interest rate 425 per year payable semiannually arrears cash may 15 november 15 year beginning may 15 2014 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted initial conversion rate 436072 shares layne’s common stock per 1000 principal amount 425 convertible notes equivalent initial conversion price approximately 2293 per share layne’s common stock conversion rate subject adjustment upon occurrence certain events addition layne may obligated increase conversion rate conversion occurs connection certain corporate events including layne’s calling 425 convertible notes redemption november 15 2016 prior maturity date layne may redeem less 425 convertible notes cash sale price layne’s common stock equals exceeds 130 applicable conversion price specified time period ending trading day immediately prior date layne delivers notice redemption price equal 100 principal amount 425 convertible notes redeemed plus accrued unpaid interest excluding redemption date addition upon occurrence fundamental change defined 425 convertible notes indenture holders 425 convertible notes right option require layne repurchase 425 convertible notes cash price equal 100 principal amount 425 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date accordance asc 47020 “debt conversion options” layne separately accounts liability equity conversion components 425 convertible notes principal amount liability component 425 convertible notes 1060 million date issuance based present value cash flows using discount rate 80 layne’s approximate borrowing rate date issuance similar debt instrument without conversion feature carrying value equity conversion component 190 million portion initial purchaser’s discount commission offering costs totaling 08 million deferred taxes totaling 71 million allocated equity conversion component liability component accreted principal amount 425 convertible notes using effective interest method five years accordance guidance asc 47020 asc 81515 “embedded derivatives” layne determined embedded conversion components embedded derivatives 425 convertible notes require bifurcation separate accounting following table presents carrying value 425 convertible notes 1 january 31 2015 remaining period unamortized debt discount amortized 45 months using effective interest rate 9 80 senior secured second lien convertible notes march 2 2015 layne completed offering approximately 1000 million aggregate principal amount 80 senior secured second lien convertible notes “80 convertible notes” 80 convertible notes offered certain investors held approximately 555 million layne’s 425 convertible notes due 2018 pursuant terms investors agreed exchange 425 convertible notes owned approximately 499 million 80 convertible notes ii purchase approximately 499 million aggregate principal amount 80 convertible notes cash price equal principal amount thereof amount accrued interest 425 convertible notes delivered investors exchange credited cash purchase price payable investors purchase sale 80 convertible notes generated net cash proceeds approximately 450 million deducting discounts commissions estimated offering expenses accrued interest 425 convertible notes exchanged layne used net cash proceeds repay outstanding balance assetbased facility 182 million remainder proceeds held general working capital purposes 80 convertible notes issued pursuant indenture dated march 2 2015 “80 convertible notes indenture” among layne guarantor parties thereto us bank national association trustee collateral agent 80 convertible notes senior secured obligations layne interest payable may 1 november 1 year beginning may 1 2015 rate 80 per annum 80 convertible notes mature may 1 2019 provided however unless 425 convertible notes permitted refinancing indebtedness respect thereof redeemed repurchased otherwise retired discharged accordance terms converted layne’s common stock effectively discharged case prior august 15 2018 scheduled maturity date 425 convertible notes permitted refinancing indebtedness incurred respect thereof extended date october 15 2019 80 convertible notes mature august 15 2018 80 convertible notes layne’s senior secured obligations · rank senior right payment layne’s existing future indebtedness specifically subordinated 80 convertible notes · effectively rank senior right payment layne’s existing future senior unsecured indebtedness extent assets securing 80 convertible notes subject rights holders first priority liens defined · effectively subordinated debt layne’s foreign subsidiaries · effectively subordinated layne’s first priority debt defined extent assets securing debt 80 convertible notes guaranteed layne’s subsidiaries currently coborrowers guarantors layne’s assetbased facility well layne’s future whollyowned us restricted subsidiaries certain cases certain subsidiaries layne guarantee 80 convertible notes senior secured obligation applicable subsidiary guarantor · ranks senior right payment existing future indebtedness subsidiary guarantor specifically subordinated guarantee · effectively ranks senior right payment existing future senior unsecured indebtedness subsidiary guarantor extent assets securing guarantee subject rights holders first priority liens · effectively subordinated first priority debt subsidiary guarantor extent assets securing debt 80 convertible notes secured lien substantially assets layne subsidiary guarantors subject certain exceptions liens assets securing 80 convertible notes junior priority liens “first priority liens” assets securing debt “first priority debt” layne subsidiary guarantors layne’s assetbased facility certain specified existing future obligations time prior maturity date layne may redeem cash less 80 convertible notes provided however layne may redeem 80 convertible notes redemption date outside open redemption period defined unless last reported sale price layne’s common stock equals exceeds 140 conversion price 80 convertible notes effect least 20 trading days 30 consecutive trading day period ending including trading day immediately preceding date layne delivers redemption notice purposes “open redemption period” means periods commencing february 15 2018 ending including august 14 2018 ii commencing november 1 2018 ending april 30 2019 redemption price equal 100 principal amount 80 convertible notes redeemed plus accrued unpaid interest excluding applicable redemption date ii redemption date open redemption period additional payment equal present value redemption date following · case open redemption period ending august 14 2018 regularly scheduled interest payments due 80 convertible notes redeemed interest payment date occurring redemption date august 15 2018 assuming solely purposes august 15 2018 interest payment date · case open redemption period ending april 30 2019 regularly scheduled interest payments due 80 convertible notes redeemed interest payment date occurring redemption date may 1 2019 addition upon occurrence “fundamental change” defined indenture holders 80 convertible notes right option require layne repurchase 80 convertible notes cash price equal 100 principal amount 80 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date 80 convertible notes convertible option holders consideration consisting shares layne’s common stock cash lieu fractional shares close business scheduled trading day immediately preceding maturity date holder right convert 80 convertible notes shares common stock extent conversion would cause holder beneficially 99 shares layne’s common stock outstanding giving effect proposed conversion initial conversion rate 854701 shares layne’s common stock per 1000 principal amount 80 convertible notes equivalent initial conversion price approximately 1170 per share layne’s common stock representing 400 conversion premium last reported sale price per share layne’s common stock nasdaq global select market february 4 2015 date 80 convertible notes priced conversion rate subject adjustment upon occurrence certain events addition layne may obligated increase conversion rate conversion occurs connection certain corporate events including layne’s calling 80 convertible notes redemption 80 convertible notes indenture contains covenants among things restrict ability layne restricted subsidiaries subject certain exceptions 1 incur additional indebtedness 2 create liens 3 declare pay dividends make distributions respect purchase redeem layne’s restricted subsidiaries equity interests make certain payments subordinated unsecured indebtedness make certain investments 4 enter certain transactions affiliates 5 engage certain asset sales unless specified conditions satisfied 6 designate certain subsidiaries unrestricted subsidiaries 80 convertible notes indenture also contains events default occurrence 80 convertible notes may accelerated become immediately due payable 8 income net income net consisted following fy 2015 gain disposal property equipment 18 million includes gain sale real estate 10 million sale noncore assets included gain disposal property equipment fy 2014 surplus assets sold throughout fy 2014 including items former corporate headquarters mission woods kansas also included gain disposal property equipment gain sale building massachusetts 07 million used geoconstruction operations consolidated dallas texas insurance proceeds received totaling 07 million payment equipment lost fire july 2013 layne determined investment joint venture longer viable related investment 06 million determined unrecoverable written included table 9 income taxes loss income continuing operations income taxes consisted following components income tax benefit expense continuing operations follows reconciliation total income tax benefit expense continuing operations statutory federal rate follows years ended january 31 fy 2015 benefit nondeductible expenses resulted reversal prior year penalty accrual related fcpa investigation see note 14 consolidated financial statements tax effect pretax income loss continuing operations generally determined computation consider tax effect categories income loss example comprehensive income discontinued operations additional paid capital etc exception general rule provided pretax loss continuing operations pretax income categories income pursuant exception fy 2014 layne recorded income tax benefit continuing operations offsets income tax provision discontinued operations additional paid capital impact 425 convertible notes layne recorded 279 million 783 million valuation allowances continuing operations net domestic certain foreign deferred tax assets fy 2015 fy 2014 respectively 279 million valuation allowance recorded fy 2015 recorded deferred tax assets generated year deferred tax assets primarily related tax loss tax credit carryforwards generated current year 783 million valuation allowance recorded fy 2014 544 million related deferred tax assets established prior year 239 million related deferred tax assets established current year total valuation allowance january 31 2015 1150 million comprised domestic valuation allowance 1036 million foreign valuation allowance 114 million assessing need valuation allowance layne concluded cumulative loss domestic operations adjusting significant nonrecurring charges three year periods ended january 31 2015 january 31 2014 layne considered periods future reversals existing taxable deductible temporary differences likely occur taxable income available prior carry back years availability taxplanning strategies determining ability realize recorded deferred tax assets based assessment layne concluded likely realization domestic deferred tax assets would occur future periods accordingly valuation allowance provided similar consideration given foreign deferred tax assets layne concluded certain foreign deferred tax assets also likely realized valuation allowance recorded establishment valuation allowance impact cash allowance preclude layne using loss carryforwards utilizing deferred tax assets future layne cumulative three year loss position january 31 2013 based analysis income current prior two fiscal years adjusting significant nonrecurring charges layne determined likely deferred tax asset realizable january 31 2013 valuation allowance needed time portion foreign tax credit carryforwards layne continues conclude carryforward benefits may used expire layne maintains 10 million deferred tax assets various foreign jurisdictions january 31 2015 management believes realization likely layne’s foreign subsidiaries need generate taxable income approximately 34 million respective jurisdictions deferred tax assets recorded order fully realize deferred tax asset management continue evaluate evidence future periods make determination whether likely deferred tax assets realized future periods net loss income discontinued operations fy 2015 fy 2014 fy 2013 424 million 17 million 210 million respectively amounts net income tax expense benefits 07 million 35 million 144 million respectively effective tax rates discontinued operations 16 674 407 fy 2015 fy 2014 fy 2013 respectively credit recognized additional paid capital relating 425 convertible notes issued fy 2014 111 million net income tax expense 71 million recorded effective rate 39 deferred income taxes result temporary differences financial statement tax bases layne’s assets liabilities sources differences cumulative tax effects follows layne following tax losses tax credit carryforwards january 31 2015 january 31 2015 undistributed earnings foreign subsidiaries certain foreign affiliates included 531 million federal income foreign withholding taxes provided earnings considered invested indefinitely would become subject income tax remitted dividends layne sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign subsidiaries foreign affiliates earnings considered invested indefinitely september 13 2013 us treasury internal revenue service issued final tangible property regulations “tpr” internal revenue code “irc” section 162 irc section 263a regulations effective tax years beginning january 1 2014 however certain portions may require accounting method change retroactive basis thus requiring irc section 481a adjustment related buildings machinery equipment deferred taxes layne analyzed expected impact tpr concluded expected impact minimal reconciliation beginning ending amount gross unrecognized tax benefits excluding penalties interest follows substantially unrecognized tax benefits recorded january 31 2015 2014 2013 would affect effective rate recognized reasonably possible amount unrecognized tax benefits decrease next year approximately 59 million due settlements audit issues expiration statutes limitation layne classifies interest penalties related income taxes component income tax expense january 31 2015 2014 2013 company 85 million 84 million 71 million respectively interest penalties accrued associated unrecognized tax benefits liability interest penalties increased decreased 01 million 13 million 03 million fy 2015 fy 2014 fy 2013 respectively layne files income tax returns us various state jurisdictions certain foreign jurisdictions tax year ended january 31 2015 us statute limitations expired tax year ended january 31 2011 statute limitations remains open tax years ended january 31 2012 2015 layne currently examination federal purposes tax year ended january 31 2013 several state examinations currently progress layne files income tax returns foreign jurisdictions operates returns subject examination may ongoing point time tax liabilities recorded based estimates additional taxes due upon settlement examinations tax years subject examination foreign tax authorities vary jurisdiction generally tax years 2012 2015 remain open examination 10 operating lease obligations future minimum lease payments required operating leases initial remaining noncancelable lease terms excess one year january 31 2015 follows layne’s operating leases primarily light medium duty trucks buildings equipment rent expense operating leases including insignificant amounts contingent rental payments 197 million 221 million 229 million fy 2015 fy 2014 fy 2013 respectively 11 employee benefit plans layne’s salaried certain hourly employees participate layne’s sponsored defined contribution plans total expense recorded selling general administrative costs layne’s portion plans 32 million 34 million 40 million fy 2015 fy 2014 fy 2013 respectively layne deferred compensation plan certain management employees participants may elect defer 25 salaries 50 bonuses plan matching contributions vesting period contributions established discretion layne employee deferrals vested times total amount deferred including matching fy 2015 fy 2014 fy 2013 02 million 08 million 13 million respectively total liability deferred compensation 86 million 97 million january 31 2015 2014 respectively liabilities primarily included longterm liabilities except amounts due next twelve months liabilities recorded current liabilities layne contributes number multiemployer defined benefit pension plans terms collectivebargaining agreements cover unionrepresented employees risks participating multiemployer plans different singleemployer plans following aspects · assets contributed multiemployer plan one employer may used provide benefits employees participating employers · participating employer stops contributing plan unfunded obligations plan may borne remaining participating employers · layne chooses stop participating multiemployer plans layne may required pay plans amount based underfunded status plan referred withdrawal liability accordance accounting guidance layne evaluated multiemployer plans determine individually significant evaluation based following criteria · total employees participating multiemployer plan compared total employees covered plan · total contributions multiemployer plan percentage total contributions plan participating employers · amount potential liability could incurred due layne’s withdrawal multiemployer plan underfunded status plan participating employers’ withdrawal plan january 31 2015 2014 layne participate multiemployer plans would considered individually significant layne makes contributions multiemployer plans equal amounts accrued pension expense total contributions union pension expense plans 29 million 23 million 32 million fy 2015 fy 2014 fy 2013 respectively information regarding assets accumulated benefits plans made available layne also provides supplemental retirement benefits former chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent defined contribution plan balance layne contribute plan maintain investment assets related expected benefit obligation layne recognized full amount actuarially determined pension liability current portion recognized layne’s consolidated balance sheets accrued expenses 03 million january 31 2015 2014 longterm portion recognized layne’s consolidated balance sheets january 31 2015 2014 59 million 50 million respectively noncurrent liabilities net periodic pension cost supplemental retirement benefits fy 2015 fy 2014 fy 2013 13 million 00 million 14 million respectively 12 equitybased compensation layne equitybased compensation plan provides granting options purchase issuance shares common stock price fixed board directors committee january 31 2015 1539950 shares remain available granted plan stock options restricted stock awards layne ability issue shares plans either new issuances treasury although previously always issued new shares expects continue issue new shares future layne recognized 26 million 32 million 29 million compensation cost sharebased plans fy 2015 fy 2014 fy 2013 respectively amounts 12 million 15 million 09 million respectively related nonvested stock total income tax benefit recognized sharebased compensation arrangements 10 million 13 million 11 million fy 2015 fy 2014 fy 2013 respectively options granted exercise price equal fair market value layne’s common stock date grant options terms ten years date grant generally vest ratably periods one month five years fair value sharebased compensation granted form stock options determined using lattice blackscholes valuation model valuations respective year made using assumptions noted following table expected volatilities based historical volatility stock price layne uses historical data estimate early exercise postvesting forfeiture rates applied within valuation model riskfree interest rate periods within expected term option based us treasury yield curve effect time grant weightedaverage fair value per share date grant options granted fy 2015 fy 2014 fy 2013 559 811 1093 respectively stock option transactions fy 2015 fy 2014 fy 2013 follows aggregate intrinsic value calculated using difference current market price exercise price options exercise price less current market price nonvested stock awards service requirements valued grant date closing stock price generally vest ratably service periods one five years nonvested stock awards vest based upon layne meeting various performance goals certain nonvested stock awards provide accelerated vesting change control defined plans disability death executive equitable adjustment event changes layne’s equity structure layne granted certain performance based nonvested stock awards fy 2015 fy 2014 valued using monte carlo simulation model assumptions used monte carlo simulation model fy 2015 fy 2014 follows nonvested share transactions fy 2015 fy 2014 fy 2013 follows 13 fair value measurements layne’s estimates fair value financial assets financial liabilities based framework established fair value accounting guidance framework based inputs used valuation gives highest priority quoted prices active markets requires observable inputs used valuations available three levels hierarchy follows · level 1 unadjusted quoted prices active markets identical assets liabilities · level 2 observable inputs included level 1 quoted market prices similar assets liabilities active markets quoted prices identical assets inactive markets · level 3 unobservable inputs reflecting layne’s assumptions best estimate inputs market participants would use pricing asset liability layne’s assessment significance particular input fair value entirety requires judgment considers factors specific asset liability layne’s financial instruments held fair value presented january 31 2015 2014 1 fair value contingent earnout acquired businesses determined using marktomarket modeling technique based significant unobservable inputs calculated using discounted future cash flows approach key assumptions include discount rate 412 annual revenues acquired business intevras technologies llc ranging 15 million 61 million life earnout business acquired july 2010 contingent earnout period expires july 2015 july 31 2012 contingent earnout reassessed based estimates likelihood future revenues subject earnout provisions assigned value conclusions changed january 31 2015 2 fair value cash surrender value companyowned life insurance based quoted prices similar assets actively traded markets financial instruments layne uses following methods assumptions estimating fair value disclosures financial instruments cash carrying amounts reported accompanying consolidated balance sheets approximates fair values classified level 1 within fair value hierarchy shortterm longterm debt 425 convertible notes fair value debt instruments classified level 2 within fair value hierarchy valued using market approach based quoted prices similar instruments traded active markets quoted prices available income approach used value instruments based present value future cash flows discounted estimated borrowing rates similar debt instruments estimated prices based current yields debt issues similar quality terms following table summarizes carrying values estimated fair values longterm debt 425 convertible notes measured nonrecurring basis using level 1 inputs based upon observable quoted prices 425 convertible notes accordance asc topic 36010 “accounting impairment disposal longlived assets” assess fair value certain nonfinancial assets nonrecurring basis indicator carrying value assets may recoverable using undiscounted cash flow model fy 2015 indicated carrying value property equipment energy services segment may fully recoverable analysis based fair value property equipment determined impairment charges necessary fy 2015 fair value property equipment based orderly liquidation value property equipment consider level 2 fair value measurement property equipment carrying value 185 million considered fair value 191 million january 31 2015 14 contingencies layne’s drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified frequently case layne conducts project fixedprice bundled basis layne delegates certain functions subcontractors remains responsible customer subcontracted work addition layne exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result layne named defendant lawsuits asserting large claims although layne maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards layne may subject layne able continue obtain insurance protection successful claim damage resulting hazard layne fully insured could material adverse effect layne addition layne maintain political risk insurance respect foreign operations previously reported audit committee board directors conducted internal investigation among things legality certain payments layne agents third parties interacting government officials certain countries africa internal investigation suggested potential violations fcpa certain local laws layne made voluntary disclosure united states department justice “doj” securities exchange commission “sec” regarding results investigation cooperated doj sec connection review matter doj’s inquiry closed january 31 2014 layne accrued 104 million representing best estimate time settlement matters second quarter fy 2015 layne reduced accrual 52 million connection doj’s closure investigation october 27 2014 layne entered settlement sec resolve allegations concerning potential violations fcpa settlement sec resolves outstanding government investigations respect layne concerning potential fcpa violations terms settlement without admitting denying sec’s allegations layne consented entry administrative ceaseanddesist order books records internal controls antibribery provisions fcpa layne agreed pay sec 47 million disgorgement prejudgment interest 04 million penalties layne also agreed undertake certain compliance reporting cooperation obligations sec two years following settlement date amounts connection settlement paid november 6 2014 april 17 2013 individual person filed purported class action suit three layne’s subsidiaries two companies supposedly behalf lessors royalty owners 2004 present plaintiff essentially alleges layne two companies allocated market mineral leasing rights restrained trade mineral leasing within state kansas plaintiff seeks certification class unquantified damages april 1 2014 plaintiff voluntarily dismissed one two company defendants without prejudice since litigation early state layne currently unable predict outcome estimate exposure layne involved various matters litigation claims disputes arisen ordinary course business layne believes ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows however possible future results operations particular quarterly annual period could materially affected changes assumptions related proceedings accordance us generally accepted accounting principles layne records liability probable liability incurred amount loss reasonably estimated provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case extent additional information arises strategies change possible layne’s estimate probable liability matters may change 15 discontinued operations tecniwell october 31 2014 layne disposed tecniwell alberto battini 50 paolo trubini 50 employee tecniwell time disposal transaction sale layne quotas representing 100 corporate capital tecniwell exchange 09 million purchase price quotas paid two equal payments layne received 05 million october 31 2014 remainder january 22 2015 loss layne sale business 08 million loss included consolidated statements operations loss discontinued operations costa fortuna july 31 2014 layne disposed costa fortuna aldo corda original owner current manager business time disposal transaction structured sale layne issued outstanding shares holub sa uruguay sociedad anonima costa fortuna’s parent company subsidiaries exchange 44 million payable layne described conjunction transaction layne acquired certain equipment estimated value 21 million reducing intercompany receivable owed costa fortuna remaining intercompany receivable due costa fortuna assigned part transaction exchange 13 million purchase price shares remaining intercompany receivable payable future years beginning year ended december 31 2015 based 3333 costa fortuna’s income taxes year unpaid portion purchase price accrue interest rate 25 per annum unpaid balance purchase price plus accrued interest due payable layne july 31 2024 loss layne sale business 383 million loss included consolidated statements operations loss discontinued operations prior may 30 2012 date acquisition remaining 50 costa fortuna layne accounted costa fortuna using equity method operations prior may 30 2012 included discontinued operations major classes assets liabilities tecniwell costa fortuna follows solmetex layne authorized sale solmetex operations first quarter fy 2014 part strategic analysis businesses april 30 2013 layne considered solmetex discontinued operation reflected consolidated financial statements july 30 2013 layne completed sale solmetex operations third party pursuant sale agreement layne received 750000 preferred units solmetex llc received 106 million cash august 1 2013 preferred units 4 yield accruing daily compounded quarterly unreturned capital unpaid preferred yield layne valued units 04 million based redemption timeline stated yield preferred units recorded valuation amount consolidated balance sheets part assets second quarter fy 2014 gain sale operation 83 million included consolidated statements operations income discontinued operations july 2014 layne sold preferred units solmetex llc 05 million recorded valuation energy weighing alternatives second quarter fy 2013 layne authorized sale energy segment entered negotiations sale substantially energy segment assets third party july 31 2012 layne considered energy segment discontinued operation reflected consolidated financial statements layne recorded loss 326 million july 31 2012 based difference carrying value continuing operation expected selling price less costs sell tax benefit related loss 125 million october 1 2012 layne completed sale exploration production assets energy segment 150 million additional loss disposal net assets recognized pursuant sale agreement layne received 135 million time sale received 15 million october 2013 upon termination indemnification escrow fund established closing sale agreement provides additional proceeds 20 million contingent natural gas futures prices exceeding 525 per mmbtu five months given six consecutive months occurring 36 months following closing amount recorded additional proceeds conditions met financial results discontinued operations include accrual 39 million recorded fourth quarter fy 2013 associated certain litigation claims related discontinued energy segment retained layne financial results discontinued operations follows 16 segments foreign operations layne global solutions provider world essential natural resources water minerals energy chief operating decision maker codm reviews operating results determine appropriate allocation resources within organization codm defines operational organizational structure discrete segments based primary product lines layne’s segments defined follows water resources water resources provides customers every aspect water supply system development technology including hydrologic design construction source supply exploration well intake construction well pump rehabilitation segment also brings new technologies water wastewater markets offers water treatment equipment engineering services providing systems treatment regulated “nuisance” contaminants specifically iron manganese hydrogen sulfide arsenic radium nitrate perchlorate volatile organic compounds water resources drill deep injection wells industrial primarily power municipal clients need dispose wastewater associated processes water resources provides water systems services regions us inliner provides wide range process sanitary storm water rehabilitation solutions municipalities industrial customers dealing aging infrastructure needs inliner focuses proprietary inliner® curedinplace pipe “cipp” allows us rehabilitate aging sanitary sewer storm water process water infrastructure provide structural rebuilding well infiltration inflow reduction inliner’s trenchless technology minimizes environmental impact reduces eliminates surface social disruption inliner ability supply traditional felt based cipp lining tubes cured water steam well fiberglass based lining tubes cured ultraviolet light inliner focuses inliner cipp committed full system renewal inliner also provides wide variety rehabilitative methods including janssen structural renewal service lateral connections mainlines slip lining traditional excavation replacement form manhole renewal cementitious epoxy products inliner provides services regions us heavy civil heavy civil delivers sustainable solutions government agencies industrial clients overseeing design construction water wastewater treatment plants pipeline installation addition heavy civil builds radial collector wells ranney method surface water intakes pumping stations hard rock tunnels marine construction services support world’s water infrastructure beyond water solutions heavy civil also designs constructs biogas facilities anaerobic digesters purpose generating capturing methane gas emerging renewable energy resource heavy civil provides services regions us geoconstruction provides specialized geotechnical foundation construction services heavy civil industrial commercial private construction markets around globe geoconstruction expertise equipment provide appropriate deep foundation system ground improvement earth support solution applied given highly variable geological site conditions addition extensive experience completing complex scheduledriven major underground construction projects geoconstruction provides services focused primarily foundation systems damslevees tunnel shafts utility systems subways transportation systems commercial building port facilities services offered include jet grouting structural diaphragm slurry cutoff walls cement chemical grouting drilled piles ground improvement earth retention systems geoconstruction provides services regions us mineral services mineral services conducts primarily aboveground drilling activities including phases core drilling reverse circulation dual tube hammer rotary airblast methods service offerings include exploratory ‘greenfield’ definition ‘brownfield’ drilling global mining companies hire mineral services extract samples sites analyze mineral content investing heavily development extract minerals mineral services helps clients determine minable mineral deposit exists site economic viability mining site geological properties ground helps determination mine planning mineral services also offers water management expertise primary markets western us mexico australia south america africa mineral services also ownership interests foreign affiliates operating latin america form primary presence market energy services energy services focuses efforts provide closed loop water management solution energy companies involved hydraulic fracturing initial focus waterstressed permian basin west texas oil provenance energy services providing water sourcing transfer treatment layne’s expertise water well drilling coupled flathose transfer solution water source well site hydraulic fracturing occurs followed treatment produced water recapture recycling water reuse hydraulic fracturing operations provides sustainable environmentally responsible solution energy companies operating part country significant water shortages drought system designed virtually surface discharge formation produced treated water energy services provides services regions us includes specialty purchasing operations included one segments financial information layne’s segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit treasury corporate securities law tax compliance executive management board directors corporate assets directly associated segment consist primarily cash deferred income taxes 17 restructuring costs layne commenced restructuring plan “plan” quarter ended july 31 2014 plan involved among things reductions global workforce asset relocation disposal process improvements plan designed achieve short longterm cost reductions january 31 2015 implementation plan substantially complete accrued liability costs associated restructuring approximately 10 million january 31 2015 18 relocation layne moved new corporate headquarters woodlands texas suburb houston september 2013 move involved executive positions layne’s corporate leadership well certain management staff positions relocation complete expenses 18 million 86 million 27 million incurred fy 2015 fy 2014 fy 2013 respectively expenses included selling general administrative expenses consolidated statements operations consist primarily employee relocation costs severance employee retention arrangements 19 new accounting pronouncements april 7 2015 financial accounting standards board “fasb” issued asu 201503 “simplifying presentation debt issuance costs” guidance effective fiscal years beginning december 15 2015 interim periods beginning december 15 2016 changes presentation debt issuance costs financial statements direct deduction related debt liability rather asset layne believe adoption asu material effect financial statements february 18 2015 fasb issued asu 201502 “consolidation topic 810 amendments consolidation analysis” guidance effective annual periods interim periods within annual periods beginning december 15 2015 changes consolidation analysis required us gaap limited partnerships variable interest entities “vie” layne believe adoption asu material effect financial statements august 27 2014 fasb issued asu 201415 “disclosure uncertainties entity’s ability continue going concern” guidance effective annual reporting periods ending december 15 2016 extends responsibility performing goingconcern assessment management contains guidance perform goingconcern assessment goingconcern disclosures would required gaap layne believe adoption asu material effect financial statements june 2014 fasb issued asu 201412 “accounting sharebased payment terms award provide performance target could achieved requisite service period” guidance effective annual periods interim periods within annual periods beginning december 15 2015 contains explicit guidance treat performance target affects vesting could achieved requisite service period performance condition layne believe adoption asu material effect financial statements fasb issued asu 201409 “revenue contracts customers” may 28 2014 guidance announced effective annual reporting periods beginning december 15 2016 april 1 2015 announced tentative decision reached fasb delay implementation year guidance defines steps recognize revenue entities contracts customers well requiring significantly expanded disclosures regarding qualitative quantitative information nature amount timing uncertainty revenue cash flows arising contracts early adoption guidance permitted guidance provides companies choice applying retrospectively reporting period presented recognizing cumulative effect applying date initial application february 1 2017 layne adjusting comparative information point layne currently evaluating requirements yet determined impact new guidance april 2014 fasb issued asu 201408 “reporting discontinued operations disclosures disposals components entity” asu amends definition discontinued operation requires entities provide additional disclosure disposal transactions meet discontinued operations criteria new guidance discontinued operation defined disposal component group components disposed classified held sale represents strategic shift major effect entity’s operations financial results layne adopt asu beginning february1 2015 future discontinued operations layne believe adoption asu material impact financial statements adoption impact additional disclosure required future discontinued operations 20 quarterly results unaudited quarterly results follows 1 discussed note 1 consolidated financial statements layne utilizes multiple methods revenue recognition based nature work performed result practical allocate portion depreciation amortization cost revenues presentation gross profit 2 loss per share computed independently quarters presented sum quarters may equal total year amount due impact changes average quarterly shares outstanding 1 discussed note 1 consolidated financial statements layne utilizes multiple methods revenue recognition based nature work performed result practical allocate portion depreciation amortization cost revenues presentation gross profit 2 loss per share computed independently quarters presented sum quarters may equal total year amount due impact changes average quarterly shares outstanding fourth quarter fy 2014 impacted changes estimate incentive compensation 74 million result decrease results operations experienced year plans discretionary nature subject board approval expense reduced fourth quarter results year reviewed executive team also fourth quarter fy 2014 layne modified vacation policy resulting decrease expense 45 million change estimate second quarter fy 2014 impacted 146 million impairment charge recorded geoconstruction representing total carrying value goodwill layne reassessed estimates fair value goodwill segment result continuing weakness discussed note 5 consolidated financial statements based analysis determined carrying value goodwill exceeded fair value also second quarter fy 2014 layne recorded 506 million valuation allowance us deferred tax assets discussed note 9 consolidated financial statements allowance recorded result continued weakness mineral services geoconstruction 21 subsequent events discussed note 7 consolidated financial statements march 2 2015 layne completed exchange subscription agreements certain investors currently hold approximately 555 million layne’s 425 convertible notes agreements investors agreed exchange 425 convertible notes approximately 499 million 80 convertible notes ii purchase approximately 499 million aggregate principal amount additional 80 convertible notes amount accrued interest 425 convertible notes delivered investors exchange credited cash purchase price payable investors purchase 80 convertible notes 80 convertible notes bear interest rate 80 per year payable may 1 november 1 year beginning may 1 2015 see note 7 consolidated financial statements additional discussion layne expects recognize gain extinguishment debt quarter ending april 30 2015 supplemental information oil gas producing activities unaudited discussed note 15 consolidated financial statements fy 2013 layne completed sale substantially assets energy segment january 31 2015 2014 layne oil gas producing activities accordingly information presented includes information operations completion sale october 1 2012 layne’s oil gas activities primarily conducted us results operations oil gas producing activities results operations relating oil gas producing activities set forth following tables year ended january 31 2013 dollar per mcf basis include revenues operating costs directly attributable oil gas producing activities general corporate overhead interest costs transportation third party gas nonoil gas producing activities excluded income tax expense calculated applying statutory tax rates revenues deducting costs include depletion allowances schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedule schedules omitted applicable required information included consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders layne christensen company woodlands texas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2016 2015 related consolidated statements operations comprehensive loss equity cash flows three years period ended january 31 2016 audits also included financial statement schedule listed index item 8 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2016 2015 results operations cash flows three years period ended january 31 2016 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated april 12 2016 expressed unqualified opinion company’s internal control financial reporting sdeloitte touche llp houston texas april 12 2016 layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements continued see notes consolidated financial statements layne christensen company subsidiaries consolidated statements operations see notes consolidated financial statements layne christensen company subsidiaries consolidated statements comprehensive loss see notes consolidated financial statements layne christensen company subsidiaries consolidated statements equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows see notes consolidated financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “layne” “company” “we” “our” “us” global water management construction drilling company primarily operate north america south america fiscal year ended january 31 2016 implemented plan exit operations africa australia customers include government agencies investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies agribusinesses ownership interests certain foreign affiliates operating latin america see note 2 consolidated financial statements fiscal year layne’s fiscal year end january 31 references fiscal years “fy” twelve months ended investment affiliated companies investments affiliates 20 50 owned ability exercise significant influence hold controlling interest operating financial policies accounted equity method evaluate equity method investments impairment least annually events changes circumstances indicate loss value investment temporary decline fiscal year ended january 31 2016 due extended downturn minerals market negative impact operating results affiliates reviewed equity method investments impairment based weighted approach discounted cash flow method market approach concluded fair value exceeds carrying amount equity investments accordingly impairment charge recorded fiscal year ended january 31 2016 principles consolidation consolidated financial statements include accounts layne subsidiaries exercise control investments subsidiaries whollyowned exercise control equity held minority owners portions net income loss reflected noncontrolling interests intercompany accounts transactions eliminated consolidation notes consolidated financial statements dollar share amounts tabulations thousands dollars shares respectively unless otherwise indicated presentation discussed note 14 consolidated financial statements third quarter fy2016 completed sale geoconstruction business segment fy2015 sold costa fortuna tecniwell previously reported geoconstruction operating segment results operations related geoconstruction business segment classified discontinued operations periods presented date sale unless noted otherwise discussion notes consolidated financial statements pertains continuing operations amounts presented consolidated balance sheets also reclassified business segments third quarter fy2016 realigned operating structure combine energy services segment water resources segment “segment realignment” report financial results four reporting segments consisting water resources inliner heavy civil mineral services historical information recast conform realigned operating segments disposition geoconstruction business segment also report certain smaller operations “other” corporate activities title “unallocated corporate” unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit treasury legal tax compliance information technology executive management board directors corporate assets directly associated segment consist primarily cash deferred income taxes use changes estimates preparation financial statements conformity accounting principles generally accepted us requires management make estimates assumptions affect reported amounts assets liabilities disclosure assets liabilities date financial statements reported amounts revenues expenses reporting period estimates assumptions future events effects cannot perceived certainty accordingly estimates may change new events occur experience acquired additional information obtained layne’s operating environment changes believe estimates assumptions used preparation consolidated financial statements appropriate actual results could differ estimates foreign currency transactions translation accordance asc topic 830 “foreign currency matters” gains losses resulting foreign currency transactions included consolidated statements operations assets liabilities nonus subsidiaries whose functional currency local currency translated us dollars exchange rates prevailing balance sheet date revenues expenses translated average exchange rates year net exchange differences resulting translations reported accumulated comprehensive loss monetary assets liabilities remeasured period end exchange rates nonmonetary items measured historical exchange rates cash flows financing activities operations mexico africa primarily denominated us dollars accordingly operations use us dollar functional currency net foreign currency transaction losses 01 million 02 million less 01 million fiscal years ended january 31 2016 2015 2014 respectively recorded income expense net accompanying consolidated statements operations revenue recognition revenues recognized large longterm construction contracts meeting criteria asc topic 60535 “constructiontype productiontype contracts” “asc topic 60535” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised nature accounting contracts refinements estimating process changing conditions new developments continuous characteristic process many factors change contract performance period result change contract profitability including differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revision costs income recognized period revisions become known provisions estimated losses uncompleted construction contracts made period losses become known estimate contract indicates loss entire loss recorded accounting period facts caused revision become known management evaluates performance contracts individual basis ordinary course business least quarterly prepare updated estimates cost profit loss contract cumulative effect revisions estimates total forecasted revenue costs including unapproved change orders claims course contract reflected accounting period facts caused revision become known large changes cost estimates larger complex construction projects material impact financial statements reflected results operations become known fiscal years ended january 31 2016 2015 2014 approximately 222 million 252 million 175 million losses open contracts recorded respectively record revenue contracts relating unapproved change orders claims including revenue amount less equal amount costs incurred us date contract price adjustments seek collect customers delays errors specifications designs change orders dispute unapproved scope price unanticipated additional costs case recovery costs considered probable amount unapproved change orders claims revenues included consolidated balance sheets part costs estimated earnings excess billings uncompleted contracts see note 3 consolidated financial statements determining likelihood eventual recovery consider factors experience similar projects experience customer new facts become known adjustment estimated recovery made reflected current period allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses become known determine contracts completed based acceptance customer revenues drilling contracts within mineral services recognized terms value total work performed date basis actual footage meterage drilled revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories value inventories lower cost market cost us inventories majority foreign operations determined using average cost method approximates fifo inventories consist primarily supplies raw materials supplies 168 million 268 million raw materials 27 million 23 million included inventories consolidated balance sheets january 31 2016 2015 respectively discussed note 16 consolidated financial statements part restructuring activities africa australia recorded writedown inventory fiscal year ended january 31 2016 amounting 79 million included part cost revenues consolidated statement operations property equipment related depreciation property equipment including major renewals improvements recorded cost less accumulated depreciation provided using straightline method depreciation expense 322 million 414 million 479 million fiscal years ended january 31 2016 2015 2014 respectively useful lives used items within property classification follows property equipment reviewed impairment whenever events changes circumstances indicate carrying value may recoverable recoverability evaluated comparing carrying value assets undiscounted associated cash flows comparison indicates carrying value asset greater undiscounted cash flows loss recognized difference carrying value estimated fair value fair value determined based either market quotes appropriate valuation techniques see note 4 consolidated financial statements discussion fixed asset impairments recognized year ended january 31 2016 discussed note 16 consolidated financial statements fiscal year ended january 31 2016 implemented plan exit operations africa australia result decision determined likely certain fixed assets sold otherwise disposed end estimated useful lives fiscal year ended january 31 2016 recorded charges approximately 39 million adjust carrying values property equipment africa australia estimated fair values based upon valuation information includes available thirdparty quoted prices appraisals assets charges shown part restructuring costs consolidated statement operations consider property assets held sale management authority approve action commits plan sell asset sale probable within one year asset available immediate sale present condition also consider whether active program locate buyer initiated whether asset marketed actively sale price reasonable relation current fair value whether actions required complete plan indicate unlikely significant changes plan made plan withdrawn upon designation asset held sale record carrying value asset lower carrying value estimated fair value less estimated costs sell cease recording depreciation fourth quarter fiscal year ended january 31 2016 determined assets ethiopian location part mineral services segment met held sale criteria classified held sale consolidated balance sheet january 31 2016 fourth quarter fiscal year ended january 31 2015 assets redlands california location part water resources segment classified held sale due unforeseen circumstances sale completed fiscal year ended january 31 2016 however assets continue meet held sale criteria january 31 2016 disposition expected completed within next twelve months discontinued operations adopted accounting standards update 201408 reporting discontinued operations disclosures disposals components entity february 1 2015 new guidance discontinued operation defined disposal component group components disposed classified held sale represents strategic shift major effect entity’s operations financial results prior february 1 2015 property classified discontinued operation operations cash flows property could clearly distinguished would eliminated ongoing operations ii property either disposed classified held sale iii would significant continuing involvement operations property disposal transaction see note 14 consolidated financial statements discussion discontinued operations goodwill accordance asc topic 35020 “intangiblesgoodwill other” required test impairment goodwill least annual basis conduct evaluation annually december 31 frequently events changes circumstances indicate goodwill might impaired reporting units based organizational reporting structure four reportable segments corporate assets liabilities allocated reporting units extent relate operations reporting units determining carrying amount option first performing qualitative assessment determine existence events circumstances would lead determination likely fair value reporting unit less carrying amount conclusion reached would required perform quantitative impairment assessment goodwill however assessment leads determination likely fair value reporting unit greater carrying amount assessments required december 31 2015 2014 performed qualitative assessment annual goodwill impairment test determined likely fair value reporting unit would exceed carrying value january 31 2016 2015 89 million goodwill consolidated balance sheets goodwill attributable inliner reporting segment goodwill expected tax deductible 09 january 31 2016 2015 cumulative goodwill impairment losses water resources inliner heavy civil mineral services 175 million 231 million 446 million 202 million respectively recorded fiscal year ended january 31 2012 intangible assets intangible assets finite lives primarily consist tradenames patents intangible assets amortized using straightline method estimated useful lives range ten thirtyfive years finitelived intangible assets reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable cash equivalents consider investments original maturity three months less purchased cash equivalents cash equivalents subject potential credit risk cash management investment policies restrict investments investment grade highly liquid securities carrying value cash equivalents approximates fair value restricted deposits restricted deposits consist escrow funds associated sale geoconstruction business segment amounts associated certain letters credit ongoing projects allowance uncollectible accounts receivable make ongoing estimates relating collectability accounts receivable maintain allowance estimated losses resulting inability customers make required payments determining amount allowance make judgments creditworthiness customers based ongoing credit evaluations also consider review accounts receivable aging industry trends customer financial strength credit standing payment history assess probability collection bad debt expensed selling general administrative costs establish allowance credit losses longterm contract unbilled receivables adjustments unbilled receivables related credit quality occur accounted reduction revenue concentration credit risk grant credit customers may include concentrations state local governments although concentration could affect overall exposure credit risk believe portfolio accounts receivable sufficiently diversified thus spreading credit risk manage risk perform periodic credit evaluations customers’ financial condition including monitoring customers’ payment history current credit worthiness generally require collateral support trade receivables may require payment advance security form letter credit bank guarantee fiscal years ended january 31 2016 2015 2014 individual customer accounted 10 consolidated revenues accrued insurance expense maintain insurance programs responsible amount claim selfinsured limit estimates recorded health welfare workers’ compensation property casualty insurance costs associated programs costs estimated based part actuarially determined projections future payments programs include amounts incurred reported greater amount claims occur compared estimated costs medical profession increase beyond anticipated accruals recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms agreement various insurance carriers administering claims required remit total premium claims actually paid insurance companies fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximated fair value january 31 2016 2015 relatively short maturity instruments see note 12 consolidated financial statements fair value disclosures litigation contingencies involved litigation incidental business disposition expected material effect business financial position results operations cash flows addition contracts contain provisions require payment liquidated damages responsible failure meet specified contractual milestone dates applicable customer asserts claim provisions contracts define conditions customers may make claims layne liquidated damages many cases historically potential exposure liquidated damages ultimately asserted customers possible however future results operations particular quarterly annual period could materially affected changes assumptions related proceedings assessment contingency indicates probable material loss incurred amount liability estimated liability accrued consolidated financial statements assessment indicates potentially material loss contingency probable reasonably possible probable cannot estimated nature contingent liability estimate range possible losses determinable material disclosed provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case supplemental cash flow information amounts paid refunded income taxes interest noncash investing financing activities follows income taxes income taxes provided using asset liability method deferred taxes recognized difference financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely general record income tax expense interim periods based best estimate full year’s effective tax rate however income tax expense relating adjustments layne’s liabilities uncertainty income tax positions prior reporting periods accounted discretely interim period occurs income tax expense relating adjustments current year uncertain tax positions accounted component adjusted annualized effective tax rate assessing need valuation allowance consider positive negative evidence related likelihood realization deferred tax assets weight given positive negative evidence commensurate extent evidence may objectively verified accounting guidance states cumulative loss recent years significant piece negative evidence difficult overcome determining valuation allowance needed deferred tax assets generally difficult positive evidence regarding projected future taxable income exclusive reversing taxable temporary differences outweigh objective negative evidence recent financial reporting losses preparing future taxable income projections consider periods future reversals existing taxable deductible temporary differences likely occur future taxable income taxable income available prior carryback years availability taxplanning strategies determining ability realize recorded deferred tax assets estimate uncertainty income taxes based framework established accounting income taxes guidance recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax positions meet recognition threshold apply judgment taking account applicable tax laws experience managing tax audits determine amount tax benefits recognize financial statements position difference benefit realized tax return benefit reflected financial statements recorded liability consolidated balance sheets liability updated financial statement date reflect impacts audit settlements resolution audit issues expiration statutes limitation developments tax law ongoing discussions taxing authorities income loss per share income loss per share computed dividing net earnings available common shareholders weighted average number common shares outstanding period periods recognize losses calculation diluted loss per share calculation basic loss per share periods recognize net income diluted earnings per common share computed way basic earnings per common share except denominator increased include number additional common shares would outstanding potential common shares issued dilutive options purchase common stock nonvested shares included based treasury stock method dilutive earnings per share except effect antidilutive 425 convertible notes 80 convertible notes defined note 6 consolidated financial statements included calculation diluted loss per share inclusion dilutive ifconverted method options purchase 839715 1015514 1105812 shares excluded weighted average shares fiscal years ended january 31 2016 2015 2014 respectively effect antidilutive total 1407170 487292 292423 nonvested shares excluded weighted average shares fiscal years ended january 31 2016 2015 2014 respectively effect antidilutive sharebased compensation recognize cost sharebased instruments financial statements using fairvalue measurement associated costs fair value sharebased compensation granted form stock options determined using lattice valuation model addition granted certain market based awards years ended january 31 2016 2015 2014 valued using monte carlo simulation model see note 11 consolidated financial statements unearned compensation expense associated issuance nonvested shares amortized straightline basis restrictions stock expire subject achievement certain contingencies research development costs research development costs charged expense fiscal years ended january 31 2016 2015 2014 01 million 01 million 02 million respectively recorded selling general administrative expenses 2 investments affiliates investments affiliates engaged mineral drilling services manufacture supply drilling equipment parts supplies investment affiliates may include construction joint ventures time summary material jointlyowned affiliates well primary operating subsidiaries applicable percentages directly indirectly owned layne follows january 31 2016 financial information affiliates reported onemonth lag reporting period impacts lag investment results operations significant summarized financial information affiliates follows significant transactions balances affiliates january 31 2016 2015 2014 fiscal years ended equity undistributed earnings affiliates totaled 528 million 572 million 626 million january 31 2016 2015 2014 respectively additional 46 million investment affiliates recorded equity method goodwill certain investments time acquisition 3 costs estimated earnings uncompleted contracts costs estimated earnings uncompleted contracts consisted following bill customers based specific contract terms substantially billed amounts collectible within one year january 31 2016 2015 costs estimated earnings excess billings uncompleted contracts included unbilled contract retainage amounts 384 million 447 million respectively 4 impairment charges prior segment realignment third quarter fy2016 reviewed recoverability asset values longlived assets energy services segment second quarter fy2016 using undiscounted cash flow model concluded carrying value assets energy services fully recoverable july 31 2015 performed assessment fair value assets energy services based orderly liquidation value property equipment considered level 2 fair value measurement assessment resulted recording impairment charge approximately 46 million second quarter fy2016 shown impairment charges consolidated statements operations also performed assessment property equipment located africa australia fiscal year ended january 31 2016 recorded asset writedown 39 million included part restructuring costs consolidated statement operations please refer notes 12 16 discussion 5 intangible assets intangible assets consisted following january 31 total amortization expense intangible assets 05 million 06 million 09 million fiscal years ended january 31 2016 2015 2014 respectively amortization expense subsequent five fiscal years estimated follows 6 indebtedness debt outstanding january 31 2016 2015 follows january 31 2016 debt outstanding mature follows assetbased revolving credit facility april 15 2014 entered fiveyear 1350 million senior secured assetbased facility aggregate principal amount 750 million available form letters credit aggregate principal amount 150 million available shortterm swingline borrowings assetbased facility guaranteed assets direct indirect wholly owned domestic subsidiaries subject certain exceptions described assetbased facility obligations assetbased facility secured lien substantially assets subsidiary guarantors subject certain exceptions described assetbased facility including pledge 65 equity interests first tier foreign subsidiaries assetbased facility amended july 29 2014 september 15 2014 october 28 2014 january 23 2015 permit among things dispositions costa fortuna tecniwell businesses within geoconstruction business segment assetbased facility amended march 2 2015 permit issuance 80 senior secured second lien convertible notes 80 convertible notes offering described well exchange portion 425 convertible notes grant subordinated liens securing 80 convertible notes issued offering addition amendment among things · reduced maximum amount may borrowed assetbased facility 1350 million 1200 · increased applicable interest rate margin assetbased facility agreement 05 · end business day layne coborrowers assetbased facility cash equivalents less outstanding checks electronic funds transfers excess 150 million excluding amounts bank accounts used solely payroll employee benefits withholding taxes requires layne use excess amounts prepay revolving loans outstanding end following business day march 2015 amendment also permits us make certain voluntary prepayments payments repurchases redemptions retirements defeasances acquisitions value 80 convertible notes provided would default action certain payment conditions satisfied concurrent closing sale geoconstruction business segment august 17 2015 sixth amendment restatement existing assetbased facility “sixth amendment” became effective sixth amendment among things ● reduced total commitments 1200 million 1000 million ● reduced dollar amount excess availability must maintained order avoid cash dominion period covenant compliance period defined assetbased facility agreement 250 million 175 million ● revised manner borrowing base calculated ● increased annual commitment fee unused commitments 050 075 payable quarterly availability assetbased facility currently lesser 1000 million ii borrowing base defined assetbased facility agreement availability assetbased facility january 31 2016 approximately 1000 million borrowing base exceeded total commitments approximately 339 million letters credit issued assetbased facility january 31 2016 resulting excess availability described 661 million advances assetbased facility subject certain conditions precedent including accuracy certain representations warranties absence default event default future advances may used general corporate working capital purposes pay fees expenses associated assetbased facility pursuant assetbased facility agreement revolving loans bear interest either · alternate base rate plus applicable margin alternate base rate equal highest base rate b sum federal funds open rate plus 05 c sum daily libor rate plus 1 · libor rate defined assetbased facility agreement interest period effect borrowing plus applicable margin assetbased facility contains various restrictions covenants including restrictions dispositions certain assets incurrence indebtedness investments distributions capital expenditures acquisitions prepayment certain indebtedness general provided maintain certain level excess availability restricted incurring additional unsecured indebtedness making investments distributions capital expenditures acquisitions must maintain cumulative minimum cash flow defined asset based facility agreement less negative 450 million twelve consecutive month period minimum cash flow less negative 250 million · period 30 consecutive days excess availability greater 175 total availability 175 million · two consecutive fiscal quarters closing date fixed charge coverage ratio tested trailing four fiscal quarter basis excess 10 minimum cash flow defined consolidated ebitda minus sum · capital expenditures · cash interest expense · regularly scheduled amortized principal payments indebtedness · cash taxes excess availability less greater 175 total availability 175 million one business day “covenant compliance period” defined assetbased facility agreement exist excess availability equal greater 175 total availability 175 million period 30 consecutive days must maintain minimum fixed charge coverage ratio less 10 maximum first lien leverage ratio greater 50 10 four fiscal quarters ended immediately preceding covenant compliance period four fiscal quarter period ending covenant compliance period would compliance fixed charge coverage ratio covenant compliance period fiscal quarter ending july 31 2014 april 30 2015 fiscal quarter ending january 31 2016 assetbased facility also contains subjective acceleration clause triggered lenders determine experienced material adverse change triggered lenders clause would create event default defined assetbased facility agreement turn would permit lenders accelerate repayment outstanding obligations balance sheet classification borrowings assetbased facility determined accordance asc topic 4701045 “balance sheet classification borrowings outstanding revolving credit agreements include subjective acceleration clause lockbox arrangement” accordingly borrowings classified longterm liability accompanying consolidated balance sheet general covenant compliance period event default occurred continuing layne’s funds received daily basis applied reduce amounts owing assetbased facility based current projections layne anticipate covenant compliance period next twelve months also excess availability currently expected next twelve months sufficient trigger covenant compliance period anticipate compliance applicable debt covenants associated assetbased facility next twelve months defaults assetbased facility include limited following · nonpayment principal interest fees amounts assetbased facility · failure comply negative covenants certain specified affirmative covenants assetbased facility · failure pay certain indebtedness due · specified events bankruptcy insolvency · one judgments 50 million covered insurance paid within specified period · change control defined assetbased facility maturity date asset based facility april 15 2019 however maturity date accelerate may 15 2018 following yet occurred date either 80 convertible notes permitted refinancing indebtedness defined assetbased facility agreement respect thereof converted b maturity date 80 convertible notes permitted refinancing indebtedness respect thereof extended date october 15 2019 ii either 425 convertible notes permitted refinancing indebtedness respect thereof converted b maturity date 425 convertible notes permitted refinancing indebtedness respect thereof extended date october 15 2019 c 425 convertible notes effectively discharged 425 convertible notes effectively discharged among things irrevocably deposited trustee 425 convertible notes cash amount sufficient pay remaining interest principal payments due remaining unconverted 425 convertible notes irrevocable instructions trustee make payments holders 425 convertible notes become due 425 convertible senior notes november 12 2013 completed issuance sale 1100 million aggregate principal amount 425 convertible notes due 2018 “425 convertible notes” accordance terms purchase agreement “purchase agreement” entered jefferies llc “initial purchaser” december 5 2013 initial purchaser exercised option purchase additional 150 million aggregate principal amount 425 convertible notes part purchase agreement 425 convertible notes issued pursuant indenture dated november 12 2013 “425 convertible notes indenture” layne us bank national association trustee 425 convertible notes senior unsecured obligations layne 425 convertible notes convertible option holders consideration consisting election cash shares common stock combination cash shares common stock cash lieu fractional shares close business scheduled trading day immediately preceding may 15 2018 however may 15 2018 425 convertible notes convertible except certain circumstances provided 425 convertible notes indenture 425 convertible notes bear interest rate 425 per year payable semiannually arrears cash may 15 november 15 year beginning may 15 2014 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted initial conversion rate 436072 shares common stock per 1000 principal amount 425 convertible notes equivalent initial conversion price approximately 2293 per share common stock conversion rate subject adjustment upon occurrence certain events addition may obligated increase conversion rate conversion occurs connection certain corporate events including call 425 convertible notes redemption november 15 2016 prior maturity date pursuant 425 convertible note indenture may redeem less 425 convertible notes cash sale price common stock equals exceeds 130 applicable conversion price specified time period ending trading day immediately prior date deliver notice redemption price equal 100 principal amount 425 convertible notes redeemed plus accrued unpaid interest excluding redemption date addition upon occurrence fundamental change defined 425 convertible notes indenture holders 425 convertible notes right option require us repurchase 425 convertible notes cash price equal 100 principal amount 425 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date amount payable 425 convertible note including principal interest fundamental change repurchase redemption paid us due payable amount accrue interest rate equal 525 per annum payment date paid accordance asc topic 47020 “debt conversion options” separately account liability equity conversion components 425 convertible notes principal amount liability component 425 convertible notes 1060 million date issuance based present value cash flows using discount rate 80 approximate borrowing rate date issuance similar debt instrument without conversion feature carrying value equity conversion component 190 million portion initial purchaser’s discount commission offering costs totaling 08 million deferred taxes totaling 71 million allocated equity conversion component liability component accreted principal amount 425 convertible notes using effective interest method five years accordance guidance asc topic 47020 asc topic 81515 “embedded derivatives” determined embedded conversion components embedded derivatives 425 convertible notes require bifurcation separate accounting march 2 2015 exchanged approximately 555 million aggregate principal amount 425 convertible notes approximately 499 million aggregate principal amount 80 convertible notes described accordance derecognition guidance convertible instruments exchange transaction asc topic 47020 fair value 80 convertible notes “the exchange consideration” transaction costs incurred allocated liability equity components 425 convertible notes 499 million exchange consideration 421 million represents fair value 425 convertible notes immediately prior derecognition allocated extinguishment liability component transaction costs 09 million also allocated liability component result recognized gain extinguishment debt 42 million first quarter fy2016 remaining 78 million exchange consideration 02 million transaction costs allocated reacquisition equity component recognized reduction stockholders’ equity following table presents carrying value 425 convertible notes 1 january 31 2016 remaining period unamortized debt discount amortized 33 months using effective interest rate 9 80 senior secured second lien convertible notes march 2 2015 completed offering approximately 1000 million aggregate principal amount 80 senior secured second lien convertible notes “80 convertible notes” 80 convertible notes offered par certain investors held approximately 555 million 425 convertible notes due 2018 pursuant terms investors agreed exchange 425 convertible notes owned approximately 499 million 80 convertible notes ii purchase approximately 499 million aggregate principal amount 80 convertible notes cash price equal principal amount thereof amount accrued interest 425 convertible notes delivered investors exchange credited cash purchase price payable investors purchase sale 80 convertible notes generated net cash proceeds approximately 450 million deducting discounts commissions estimated offering expenses accrued interest 425 convertible notes exchanged used net cash proceeds repay outstanding balance assetbased facility 182 million remainder proceeds held general working capital purposes 80 convertible notes issued pursuant indenture dated march 2 2015 “80 convertible notes indenture” among layne guarantor parties thereto us bank national association trustee collateral agent 80 convertible notes senior secured obligations layne interest payable may 1 november 1 year beginning may 1 2015 rate 80 per annum 80 convertible notes mature may 1 2019 provided however unless 425 convertible notes permitted refinancing indebtedness respect thereof redeemed repurchased otherwise retired discharged accordance terms converted common stock effectively discharged case prior august 15 2018 scheduled maturity date 425 convertible notes permitted refinancing indebtedness incurred respect thereof extended date october 15 2019 80 convertible notes mature august 15 2018 80 convertible notes senior secured obligations guaranteed subsidiaries currently coborrowers guarantors assetbased facility well future whollyowned us restricted subsidiaries certain cases certain subsidiaries 80 convertible notes secured lien substantially assets subsidiary guarantors subject certain exceptions liens assets securing 80 convertible notes junior priority liens “first priority liens” assets securing debt “first priority debt” subsidiary guarantors assetbased facility certain specified existing future obligations time prior maturity date may redeem cash less 80 convertible notes provided however may redeem 80 convertible notes redemption date outside open redemption period defined 80 convertible notes indenture unless last reported sale price common stock equals exceeds 140 conversion price 80 convertible notes effect least 20 trading days 30 consecutive trading day period ending including trading day immediately preceding date deliver redemption notice addition upon occurrence “fundamental change” defined 80 convertible notes indenture holders 80 convertible notes right option require us repurchase 80 convertible notes cash price equal 100 principal amount 80 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date 80 convertible notes indenture permits us reinvest net proceeds certain “asset sales” defined 80 convertible notes indenture reinvestments subject criteria time periods 80 convertible notes indenture net proceeds “asset sales” reinvested within applicable time period constitute “excess proceeds” defined 80 convertible notes indenture aggregate amount “excess proceeds” exceeds 100 million must within 30 days make offer holders 80 convertible notes holders certain pari passu debt obligations company together “qualifying indebtedness” repurchase qualifying indebtedness maximum amount available “excess proceeds” qualifying indebtedness repurchase price equal 100 principal amount plus accrued unpaid interest excluding repurchase date holders qualifying indebtedness may option elect accept repurchase offer aggregate amount qualifying indebtedness tendered repurchase exceeds amount “excess proceeds” qualifying indebtedness tendered repurchased pro rata basis may use “excess proceeds” remaining result insufficient amount qualifying indebtedness tendered repurchase purpose otherwise prohibited 80 convertible notes indenture 80 convertible notes convertible option holders consideration consisting shares common stock cash lieu fractional shares close business scheduled trading day immediately preceding maturity date holder right convert 80 convertible notes shares common stock extent conversion would cause holder beneficially 99 shares common stock outstanding giving effect proposed conversion initial conversion rate 854701 shares common stock per 1000 principal amount 80 convertible notes equivalent initial conversion price approximately 1170 per share common stock conversion rate subject adjustment upon occurrence certain events addition may obligated increase conversion rate conversion occurs connection certain corporate events including call 80 convertible notes redemption 80 convertible notes indenture contains covenants among things restrict ability restricted subsidiaries subject certain exceptions 1 incur additional indebtedness 2 create liens 3 declare pay dividends make distributions respect purchase redeem equity interests equity interests restricted subsidiaries make certain payments subordinated unsecured indebtedness make certain investments 4 enter certain transactions affiliates 5 engage certain asset sales unless specified conditions satisfied 6 designate certain subsidiaries unrestricted subsidiaries 80 convertible notes indenture also contains events default occurrence 80 convertible notes may accelerated become immediately due payable amount payable 80 convertible note including principal interest fundamental change repurchase redemption paid us due payable amount accrue interest rate equal 90 per annum payment date paid accordance guidance asc topic 81515 determined embedded conversion components embedded derivatives 80 convertible notes require bifurcation separate accounting accounted 80 convertible notes debt conversion features beneficial asc topic 47020 accordingly proceeds issuance 80 convertible notes recorded liability consolidated balance sheets following table presents carrying value 80 convertible notes surety bonds january 31 2016 2015 surety bonds issued secure performance projects amounted 2597 million 3595 million respectively 7 income net income net consisted following gain disposal property equipment 11 million fiscal year ended january 31 2016 relates sale noncore assets fiscal year ended january 31 2015 gain disposal property equipment 23 million includes gain sale real estate 10 million sale noncore assets included gain disposal property equipment year ended january 31 2014 surplus assets sold throughout fiscal year ended january 31 2014 including items former corporate headquarters mission woods kansas 8 income taxes loss continuing operations income taxes consisted following components income tax benefit expense continuing operations follows reconciliation total income tax benefit expense continuing operations statutory federal rate follows fiscal years ended january 31 benefit nondeductible expenses fiscal year ended january 31 2015 resulted reversal prior year penalty accrual related fcpa investigation see note 13 consolidated financial statements tax effect pretax loss continuing operations generally determined computation consider tax effect categories income loss example comprehensive loss discontinued operations additional paid capital etc exception general rule provided pretax loss continuing operations pretax income categories income pursuant exception recorded tax benefit continuing operations fiscal years ended january 31 2016 2014 fiscal year ended january 31 2016 tax benefit 36 million recorded continuing operations offset tax expense recorded discontinued operations fiscal year ended january 31 2014 recorded tax benefit 71 million continuing operations offsets tax provision recorded additional paid capital result issuance 425 convertible notes recorded 351 million 260 million 734 million valuation allowances continuing operations net domestic certain foreign deferred tax assets fiscal years ended january 31 2016 2015 2014 respectively valuation allowances recorded fy2016 fy2014 recorded deferred tax assets generated respective years primarily related tax losses tax credit carryforwards valuation allowance recorded fy2014 included 544 million related deferred tax assets established prior year 190 million related deferred tax assets established current year total valuation allowance january 31 2016 1401 million comprised domestic valuation allowance 1215 million foreign valuation allowance 186 million assessing need valuation allowance concluded cumulative loss domestic operations adjusting significant nonrecurring charges beginning fy2014 continuing fy2016 based assessment concluded likely realization domestic deferred tax assets would occur future periods accordingly valuation allowance provided similar consideration given foreign deferred tax assets concluded certain foreign deferred tax assets also likely realized valuation allowance recorded establishment valuation allowance impact cash allowance preclude us using loss carryforwards utilizing deferred tax assets future maintain 10 million deferred tax assets various foreign jurisdictions january 31 2016 management believes realization likely foreign subsidiaries need generate taxable income approximately 33 million respective jurisdictions deferred tax assets recorded order fully realize deferred tax asset management continue evaluate evidence future periods make determination whether likely deferred tax assets realized future periods net income loss discontinued operations fiscal years ended january 31 2016 2015 2014 81 million 469 million 197 million respectively amounts net income tax expense benefit 36 million 07 million 02 million respectively effective tax rates discontinued operations 311 15 11 fiscal years ended january 31 2016 2015 2014 respectively deferred income taxes result temporary differences financial statement tax bases assets liabilities sources differences cumulative tax effects follows following tax losses tax credit carryforwards january 31 2016 january 31 2016 undistributed earnings foreign subsidiaries certain foreign affiliates included 459 million federal income foreign withholding taxes provided earnings considered invested indefinitely would become subject income tax remitted dividends sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign subsidiaries foreign affiliates earnings considered invested indefinitely reconciliation beginning ending amount gross unrecognized tax benefits excluding penalties interest follows substantially unrecognized tax benefits recorded january 31 2016 2015 2014 would affect effective rate recognized reasonably possible amount unrecognized tax benefits decrease next year approximately 87 million due settlements audit issues expiration statutes limitation classify interest penalties related income taxes component income tax expense january 31 2016 2015 2014 78 million 85 million 84 million respectively interest penalties accrued associated unrecognized tax benefits liability interest penalties decreased increased 07 million 01 million 13 million fiscal years ended january 31 2016 2015 2014 respectively file income tax returns us various state jurisdictions certain foreign jurisdictions statute limitations remains open tax years ended january 31 2013 2016 currently examination federal purposes tax year ended january 31 2014 several state examinations currently progress file income tax returns foreign jurisdictions operate returns subject examination may ongoing point time tax liabilities recorded based estimates additional taxes due upon settlement examinations tax years subject examination foreign tax authorities vary jurisdiction generally tax years 2013 2016 remain open examination 9 operating lease obligations operating leases primarily buildings light medium duty trucks equipment sublease certain portion facilities noncancelable sublease agreements rent expense operating leases including insignificant amounts contingent rental payments sublease rental income 73 million 96 million 147 million fiscal years ended january 31 2016 2015 2014 respectively future minimum lease payments required operating leases initial remaining noncancelable lease terms related subleases excess one year january 31 2016 follows 10 employee benefit plans salaried certain hourly employees participate sponsored defined contribution plans total expense recorded selling general administrative costs portion plans 30 million 32 million 34 million fiscal years ended january 31 2016 2015 2014 respectively deferred compensation plan certain management employees participants may elect defer 25 salaries 50 bonuses plan matching contributions vesting period contributions established discretion employee deferrals vested times total amount deferred including matching fiscal years ended january 31 2016 2015 2014 00 million 02 million 08 million respectively total liability deferred compensation 63 million 86 million january 31 2016 2015 respectively liabilities primarily included noncurrent liabilities except amounts due next twelve months recorded accrued compensation consolidated balance sheet contribute number multiemployer defined benefit pension plans terms collectivebargaining agreements cover unionrepresented employees risks participating multiemployer plans different singleemployer plans following aspects · assets contributed multiemployer plan one employer may used provide benefits employees participating employers · participating employer stops contributing plan unfunded obligations plan may borne remaining participating employers · choose stop participating multiemployer plans may required pay plans amount based underfunded status plan referred withdrawal liability accordance accounting guidance evaluated multiemployer plans determine individually significant evaluation based following criteria · total employees participating multiemployer plan compared total employees covered plan · total contributions multiemployer plan percentage total contributions plan participating employers · amount potential liability could incurred due withdrawal multiemployer plan underfunded status plan participating employers’ withdrawal plan january 31 2016 2015 participate multiemployer plans would considered individually significant make contributions multiemployer plans equal amounts accrued pension expense total contributions union pension expense plans 21 million 19 million 22 million fiscal years ended january 31 2016 2015 2014 respectively information regarding assets accumulated benefits plans made available us also provide supplemental retirement benefits former chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent defined contribution plan balance contribute plan maintain investment assets related expected benefit obligation recognized full amount actuarially determined pension liability current portion recognized consolidated balance sheets accrued expenses 03 million january 31 2016 2015 respectively longterm portion recognized consolidated balance sheets january 31 2016 2015 52 million 59 million respectively noncurrent liabilities net periodic pension cost supplemental retirement benefits fiscal years ended january 31 2016 2015 2014 04 million 13 million 00 million respectively 11 equitybased compensation layne equitybased compensation plan provides granting options purchase issuance shares common stock price fixed board directors committee january 31 2016 750137 shares remain available granted plan stock options restricted stock awards ability issue shares plans either new issuances treasury although previously always issued new shares expect continue issue new shares future granted 154372 restricted stock units 973681 performance vesting restricted stock units layne christensen company 2006 equity incentive plan fiscal year ended january 31 2016 grants consist servicebased awards marketbased awards july 20 2015 issued total 10000 stock options 61728 restricted stock units newly appointed senior vice president chief financial officer part inducement grant awards granted outside 2006 equity incentive plan include service period market performance vesting condition inducement grant awards made pursuant nasdaq inducement grant exception material component employment compensation recognized 39 million 26 million 32 million compensation cost sharebased plans fiscal years ended january 31 2016 2015 2014 respectively amounts 30 million 12 million 15 million respectively related nonvested stock total income tax benefit recognized sharebased compensation arrangements 15 million 10 million 13 million fiscal years ended january 31 2016 2015 2014 respectively options granted exercise price equal fair market value common stock date grant options terms ten years date grant generally vest ratably periods one month five years january 31 2016 total unrecognized compensation cost related unvested stock options approximately 06 million expected recognized weightedaverage period 16 years january 31 2016 approximately 36 million total unrecognized compensation cost related nonvested restricted stock awards restricted stock units expected recognized weightedaverage period 19 years fair value sharebased compensation granted form stock options determined using lattice blackscholes valuation model valuations respective year made using assumptions noted following table expected volatilities based historical volatility stock price use historical data estimate early exercise postvesting forfeiture rates applied within valuation model riskfree interest rate periods within expected term option based us treasury yield curve effect time grant weightedaverage fair value per share date grant options granted fiscal years ended january 31 2016 2015 2014 160 559 811 respectively stock option transactions fiscal years ended january 31 2016 2015 2014 follows aggregate intrinsic value calculated using difference current market price exercise price options exercise price less current market price nonvested stock awards service requirements valued grant date closing stock price generally vest ratably service periods one five years nonvested stock awards vest based upon layne meeting various performance goals certain nonvested stock awards provide accelerated vesting change control defined plans disability death executive equitable adjustment event changes equity structure granted certain performance based nonvested stock awards years ended january 31 2016 2015 2014 valued using monte carlo simulation model assumptions used monte carlo simulation model fiscal years ended january 31 2016 2015 2014 follows nonvested share transactions fiscal years ended january 31 2016 2015 2014 follows 12 fair value measurements estimates fair value financial assets financial liabilities based framework established fair value accounting guidance framework based inputs used valuation gives highest priority quoted prices active markets requires observable inputs used valuations available three levels hierarchy follows · level 1 unadjusted quoted prices active markets identical assets liabilities · level 2 observable inputs included level 1 quoted market prices similar assets liabilities active markets quoted prices identical assets inactive markets · level 3 unobservable inputs reflecting assumptions best estimate inputs market participants would use pricing asset liability assessment significance particular input fair value entirety requires judgment considers factors specific asset liability financial instruments held fair value presented january 31 2016 2015 1 contingent consideration receivable represents share profits one contracts assumed purchaser part sale geoconstruction business august 17 2015 amount estimated based projected profits contract changes estimated fair value since closing date sale agreement financial instruments use following methods assumptions estimating fair value disclosures financial instruments cash carrying amounts reported accompanying consolidated balance sheets approximates fair values classified level 1 within fair value hierarchy shortterm longterm debt convertible notes fair value debt instruments classified level 2 within fair value hierarchy valued using market approach based quoted prices similar instruments traded active markets quoted prices available income approach used value instruments based present value future cash flows discounted estimated borrowing rates similar debt instruments estimated prices based current yields debt issues similar quality terms convertible notes convertible notes measured nonrecurring basis using level 1 inputs based upon observable quoted prices 425 convertible notes 80 convertible notes following table summarizes carrying values estimated fair values longterm debt fiscal year ended january 31 2016 performed assessment property equipment located africa australia based assessment recorded charge approximately 39 million adjust certain property equipment carrying value 104 million estimated fair value 65 million fair value assets determined primarily using level 2 inputs includes available thirdparty quoted prices appraisals assets 13 contingencies drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified frequently case conduct project fixedprice bundled basis delegate certain functions subcontractors remain responsible customer subcontracted work addition exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result layne named defendant lawsuits asserting large claims although maintain insurance protection consider economically prudent assurance insurance sufficient effective circumstances claims hazards may subject able continue obtain insurance protection successful claim damage resulting hazard fully insured could material adverse effect us addition maintain political risk insurance respect foreign operations previously reported audit committee board directors conducted internal investigation among things legality certain payments layne agents third parties interacting government officials certain countries africa internal investigation suggested potential violations fcpa certain local laws layne made voluntary disclosure united states department justice “doj” securities exchange commission “sec” regarding results investigation cooperated doj sec connection review matter doj’s inquiry closed january 31 2014 accrued 104 million representing best estimate time settlement matters second quarter fy2015 reduced accrual 52 million connection doj’s closure investigation october 27 2014 layne entered settlement sec resolve allegations concerning potential violations fcpa settlement sec resolves outstanding government investigations respect layne concerning potential fcpa violations terms settlement without admitting denying sec’s allegations consented entry administrative ceaseanddesist order books records internal controls antibribery provisions fcpa agreed pay sec 47 million disgorgement prejudgment interest 04 million penalties also agreed undertake certain compliance reporting cooperation obligations sec two years following settlement date amounts connection settlement paid november 6 2014 april 17 2013 individual person filed purported class action suit three subsidiaries two companies supposedly behalf lessors royalty owners 2004 present plaintiff essentially alleges layne two companies allocated market mineral leasing rights restrained trade mineral leasing within state kansas plaintiff seeks certification class unquantified damages march 25 2016 plaintiff voluntarily dismissed suit without prejudice involved various matters litigation claims disputes arisen ordinary course business contracts contain provisions require us pay liquidated damages responsible failure meet specified contractual milestone dates applicable customer asserts claim provisions contracts define conditions customers may make claims us liquidated damages many cases historically potential exposure liquidated damages ultimately asserted customers believe ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows however possible future results operations particular quarterly annual period could materially affected changes assumptions related proceedings accordance us generally accepted accounting principles record liability probable liability incurred amount loss reasonably estimated provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case extent additional information arises strategies change possible estimate probable liability matters may change 14 discontinued operations fiscal year ended january 31 2016 continued strategic review aspects portfolio businesses operations reshape operating portfolio concentrate core competencies part developing strategy announced decision exit geoconstruction business second quarter fiscal year ended january 31 2016 costa fortuna tecniwell lines business within geoconstruction segment sold fiscal year ended january 31 2015 geoconstruction august 17 2015 sold geoconstruction business segment subsidiary keller foundations llc member keller group plc “keller” total 423 million including preliminary estimate business segment’s working capital postclosing adjustments total purchase price increased 477 million adjust estimated share profits one contracts assumed keller final working capital adjustments january 31 2016 approximately 15 million amounts held escrow account part assets consolidated balance sheet paid later date upon satisfaction certain conditions addition january 31 2016 recognized 42 million contingent consideration receivable included assets condensed consolidated balance sheet contingent consideration represents best estimate share profits one contracts assumed keller recognized pretax gain sale approximately 129 million third quarter fiscal year ended january 31 2016 recorded part net income discontinued operations consolidated statement operations tecniwell october 31 2014 disposed tecniwell alberto battini 50 paolo trubini 50 employee tecniwell time disposal transaction sale layne quotas representing 100 corporate capital tecniwell exchange 09 million purchase price quotas paid two equal payments layne received 05 million october 31 2014 remainder january 22 2015 recorded loss sale business amounting 08 million included consolidated statements operations loss discontinued operations costa fortuna july 31 2014 disposed costa fortuna aldo corda original owner current manager business time disposal transaction structured sale layne issued outstanding shares holub sa uruguay sociedad anonima costa fortuna’s parent company subsidiaries exchange 44 million payable layne described conjunction transaction acquired certain equipment estimated value 21 million reducing intercompany receivable owed costa fortuna remaining intercompany receivable due costa fortuna assigned part transaction exchange 13 million purchase price shares remaining intercompany receivable payable future years beginning year ended december 31 2015 based 3333 costa fortuna’s income taxes year unpaid portion purchase price accrue interest rate 25 per annum unpaid balance purchase price plus accrued interest due payable layne july 31 2024 loss sale business 383 million included consolidated statements operations fiscal year ended january 31 2015 loss discontinued operations fiscal year ended january 31 2016 wrote balance receivable sale costa fortuna amounting 32 million included income expense line loss discontinued operations consolidated statement operations major classes assets liabilities geoconstruction business segment classified discontinued operations consolidated balance sheets follows noncontrolling interests include ownership equity entities part geoconstruction business segment discontinued result sale noncontrolling interests amounted 444 thousand january 31 2015 396 thousand related discontinued operations prior completion sale geoconstruction business segment owned 65 50 casebencor joint venture washington casebencor joint venture iowa respectively included part geoconstruction business segment investments affiliates discontinued result sale summarized financial information entities accounted equity method investments date sale follows accordance adoption asu 201408 effective february 1 2015 additional disclosure relating cash flow required discontinued operations cash flow information costa fortuna tecniwell required since accounted based previous accounting guidance cash flow data relating geoconstruction business segment presented solmetex authorized sale solmetex operations first quarter fiscal year ended january 31 2014 part strategic analysis businesses april 30 2013 considered solmetex discontinued operation reflected consolidated financial statements july 30 2013 completed sale solmetex operations third party pursuant sale agreement received 750000 preferred units solmetex llc received 106 million cash august 1 2013 preferred units 4 yield accruing daily compounded quarterly unreturned capital unpaid preferred yield valued units 04 million based redemption timeline stated yield preferred units recorded valuation amount consolidated balance sheets part assets second quarter fiscal year ended january 31 2014 gain sale operation 83 million included consolidated statements operations income discontinued operations july 2014 sold preferred units solmetex llc 05 million recorded valuation financial results discontinued operations follows 1 fy2014 determined carrying value goodwill attributable geoconstruction amounting 146 million exceeded fair value impairment charge equal amount recorded total assessed fair value zero determined based level 3 inputs 15 segments foreign operations global solutions provider world essential natural resources water minerals energy chief operating decision maker codm reviews operating results determine appropriate allocation resources within organization codm defines operational organizational structure discrete segments based primary product lines second quarter fiscal year ended january 31 2016 entered definitive agreement sell geoconstruction business segment operating results geoconstruction business presented discontinued operations excluded continuing operations segment results periods presented see note 14 consolidated financial statements discussion third quarter fiscal year ended january 31 2016 result strategic review aspects operations realigned operating structure combine energy services segment water resources segment determined given similar nature equipment services energy services water resources effectively manage cost structure serve customer base combined segment manage report operations four segments water resources inliner heavy civil mineral services historical segment numbers recast conform new operating structure layne’s segments defined follows water resources water resources provides customers sustainable solutions water supply system development technology including hydrologic design construction source supply exploration well intake construction well pump rehabilitation segment also brings new technologies water wastewater markets offers water treatment equipment engineering services providing systems treatment regulated nuisance contaminants specifically iron manganese hydrogen sulfide arsenic radium nitrate perchlorate volatile organic compounds water resources drill deep injection wells industrial primarily power municipal clients need dispose wastewater associated processes also provide closed loop water management solution energy companies involved hydraulic fracturing water resources provides water systems services regions us inliner provides wide range process sanitary storm water rehabilitation solutions municipalities industrial customers dealing aging infrastructure needs inliner focuses proprietary inliner® curedinplace pipe “cipp” allows us rehabilitate aging sanitary sewer storm water process water infrastructure provide structural rebuilding well infiltration inflow reduction inliner’s trenchless technology minimizes environmental impact reduces eliminates surface social disruption inliner ability supply traditional felt based cipp lining tubes cured water steam well fiberglass based lining tubes cured ultraviolet light inliner focuses inliner cipp committed full system renewal inliner also provides wide variety rehabilitative methods including janssen structural renewal service lateral connections mainlines slip lining traditional excavation replacement form manhole renewal cementitious epoxy products inliner provides services regions us heavy civil heavy civil delivers sustainable solutions government agencies industrial clients overseeing design construction water wastewater treatment plants pipeline installation addition heavy civil builds radial collector wells ranney® method surface water intakes pumping stations hard rock tunnels marine construction services support world’s water infrastructure heavy civil differentiates offering broad range construction services involving traditional alternative delivery methods significant portion recent water supply treatment pipeline experience performed utilizing alternative project delivery methods incorporating benefits single source responsibility improved schedule control potential cost savings sector business steadily increased layne experience following alternative project delivery methods designbuild designbuildoperate construction management risk engineer procure construct beyond water solutions heavy civil also designs constructs biogas facilities anaerobic digesters purpose generating capturing methane gas emerging renewable energy resource heavy civil provides services regions us mineral services mineral services conducts primarily aboveground drilling activities including phases core drilling reverse circulation dual tube hammer rotary airblast methods service offerings include exploratory definition drilling global mining companies hire mineral services extract samples sites analyze mineral content investing heavily development extract minerals mineral services helps clients determine minable mineral deposit exists site economic viability mining site geological properties ground helps determination mine planning mineral services also offers water management expertise primary markets western us mexico south america discussed note 16 consolidated financial statements fiscal year ended january 31 2016 implemented plan exit operations africa australia mineral services also ownership interests foreign affiliates operating latin america form primary presence market includes purchasing operations included one segments financial information layne’s segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit treasury legal tax compliance information technology executive management board directors corporate assets directly associated segment consist primarily cash deferred income taxes 16 restructuring costs fiscal year ended january 31 2016 taken steps move towards focused strategy simplify business build upon history water management “fy2016 restructuring plan” response steps due continuing decline global minerals market implemented plan exit operations africa australia fy2016 restructuring plan expected completed end fy2017 additionally company incurred costs supporting strategic focus simplifying business fiscal year ended january 31 2016 recognized approximately 163 million restructuring expenses fy2016 restructuring plan consisting primarily severance costs personnelrelated costs writedown carrying value inventory fixed assets well certain external support costs support business focus strategy 79 million writedown carrying value inventory reflected cost revenues consolidated statement operations fiscal year ended january 31 2016 approximately 84 million included restructuring costs consolidated statements operations fiscal year ended january 31 2016 fy2016 restructuring plan related segments follows 156 million mineral services 07 million heavy civil estimate remaining amounts incurred fy2016 restructuring plan approximately 02 million previously implemented restructuring plan second quarter fiscal year ended january 31 2015 “fy2015 restructuring plan” fy2015 restructuring plan involved among things reductions global workforce asset relocation disposal process improvements fy2015 restructuring plan designed achieve short longterm cost reductions completed first quarter fy2016 years ended january 31 2016 2015 approximately 16 million 27 million recorded restructuring costs consolidated statement operations related fy2015 restructuring plan consisted severance costs fy2015 restructuring plan related segments follows 12 million mineral service 01 million heavy civil 03 million unallocated corporate following table summarizes carrying amount accrual restructuring plans discussed 17 relocation layne relocated corporate headquarters woodlands texas suburb houston september 2013 move involved executive positions layne’s corporate leadership well certain management staff positions relocation complete expenses 01 million 18 million 86 million incurred fiscal years ended january 31 2016 2015 2014 respectively expenses included selling general administrative expenses consolidated statements operations consist primarily employee relocation costs severance employee retention arrangements 18 new accounting pronouncements march 2016 financial accounting standards board “fasb” issued accounting standards update “asu” 201606 “derivatives hedging contingent put call options debt instruments” clarify steps required assess whether call put option meets criteria bifurcation embedded derivative asu 201606 effective interim annual periods beginning december 15 2016 requires modified retrospective approach adoption early adoption permitted currently evaluating impact adoption asu believe effect material financial statements february 2016 fasb issued asu 201602 “leases” establishes rightofuse rou model requires lessee record rou asset lease liability balance sheet leases terms longer 12 months leases classified either finance operating classification affecting pattern expense recognition income statement asu effective fiscal years beginning december 15 2018 including interim periods within fiscal years early adoption permitted asu 201602 requires modified retrospective adoption leases existing entered date initial application option use certain transition relief currently evaluating effect adoption asu believe effect material financial statements november 20 2015 fasb issued asu 201517 “balance sheet classification deferred taxes” simplify presentation deferred income taxes asu 201517 requires deferred tax liabilities assets classified noncurrent classified balance sheet asu effective periods beginning december 15 2016 earlier application permitted beginning interim annual reporting period guidance may applied prospectively deferred tax liabilities assets retrospectively periods presented adopted asu beginning fourth quarter fiscal year ended january 31 2016 elected prospective approach therefore deferred taxes january 31 2016 recorded longterm deferred tax assets longterm deferred tax liabilities consolidated balance sheet balances january 31 2015 recast adoption asu material effect consolidated financial position results operations july 22 2015 fasb issued asu 201511 “inventory simplifying measurement inventory” applies inventory measured using firstin firstout average cost guidance update states inventory within scope shall measured lower cost net realizable value net realizable value inventory lower cost difference shall recognized loss earnings new standard effective us beginning february 1 2017 applied prospective basis currently evaluating effect adoption asu 201511 believe effect material financial statements april 7 2015 fasb issued asu 201503 “simplifying presentation debt issuance costs” changes presentation debt issuance costs financial statements direct deduction related debt liability rather asset guidance effective fiscal years beginning december 15 2015 interim periods beginning december 15 2016 required applied retrospectively periods presented beginning year adoption august 18 2015 fasb issued asu 201515 “presentation subsequent measurement debt issuance costs associated lineofcredit arrangements amendments sec paragraphs pursuant staff announcement june 18 2015 eitf meeting” clarified sec would object entity deferring presenting debt issuance costs asset subsequently amortizing deferred debt issuance costs ratably term lineofcredit arrangement adopted asu january 31 2016 asu required deferred financing fees associated 425 convertible notes 80 convertible notes shown deduction related longterm debt january 31 2016 2015 deferred financing fees associated assetbased credit facility 27 million 36 million respectively included part assets consolidated balance sheets february 18 2015 fasb issued asu 201502 “consolidation topic 810 amendments consolidation analysis” guidance effective annual periods interim periods within annual periods beginning december 15 2015 changes consolidation analysis required us gaap limited partnerships variable interest entities “vie” guidance may applied retrospectively reporting period presented using modified retrospective approach recognizing cumulative effect adjustment beginning fiscal year adoption believe adoption asu material impact financial statements fasb issued asu 201409 “revenue contracts customers” may 28 2014 august 12 2015 fasb issued asu 201514 defers adoption asu 201409 annual reporting periods beginning december 15 2017 including interim reporting periods within reporting period earlier application permitted annual reporting periods beginning december 15 2016 including interim reporting periods within reporting period guidance defines steps recognize revenue entities contracts customers well requiring significantly expanded disclosures regarding qualitative quantitative information nature amount timing uncertainty revenue cash flows arising contracts guidance provides companies choice applying retrospectively reporting period presented recognizing cumulative effect applying date initial application february 1 2018 case adjusting comparative information point currently evaluating requirements yet determined impact new guidance april 2014 fasb issued asu 201408 “reporting discontinued operations disclosures disposals components entity” asu amends definition discontinued operation requires entities provide additional disclosure disposal transactions meet discontinued operations criteria new guidance discontinued operation defined disposal component group components disposed classified held sale represents strategic shift major effect entity’s operations financial results adopted asu beginning february 1 2015 applied current fiscal year 2016 disposition adoption required additional disclosures discontinued operations however impact results operations financial position cash flows 19 quarterly results unaudited quarterly results follows 1 discussed note 1 consolidated financial statements utilize multiple methods revenue recognition based nature work performed result practical allocate portion depreciation amortization cost revenues presentation gross profit 2 loss per share computed independently quarters presented sum quarters may equal total year amount due impact changes average quarterly shares outstanding 1 discussed note 1 consolidated financial statements utilize multiple methods revenue recognition based nature work performed result practical allocate portion depreciation amortization cost revenues presentation gross profit 2 loss per share computed independently quarters presented sum quarters may equal total year amount due impact changes average quarterly shares outstanding second quarter fy2016 impacted 46 million impairment charge energy services segment previously reported separate segment prior segment combined water resources segment effective third quarter fy2016 discussed note 4 consolidated financial statements impairment charge recorded reflect reductions estimated fair value certain longlived assets part plan exit operations africa australia incurred restructuring costs consisting primarily severance costs personnelrelated costs well writedown carrying value inventory fixed assets total impact restructuring costs 106 million 21 million 29 million second quarter third quarter fourth quarter fy2016 respectively discontinued operations certain financial data presented vary amounts previously reported form 10q result discontinued operations second quarter fiscal year ended january 31 2016 reclassified historical operation geoconstruction business segment discontinued operations following summarizes results geoconstruction business segment reclassified income discontinued operations quarterly periods fiscal years 2016 2015 schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedule schedules omitted applicable required information included consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders layne christensen company woodlands texas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2017 2016 related consolidated statements operations comprehensive loss equity cash flows three years period ended january 31 2017 audits also included financial statement schedule listed index item 8 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2017 2016 results operations cash flows three years period ended january 31 2017 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting january 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated april 10 2017 expressed unqualified opinion company’s internal control financial reporting sdeloitte touche llp houston texas april 10 2017 layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements layne christensen company subsidiaries consolidated statements operations see notes consolidated financial statements layne christensen company subsidiaries consolidated statements comprehensive loss see notes consolidated financial statements layne christensen company subsidiaries consolidated statements equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows see notes consolidated financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “layne” “company” “we” “our” “us” global water management construction drilling company primarily operate north america south america customers include government agencies investorowned utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies power companies agribusinesses ownership interests certain foreign affiliates operating latin america see note 5 consolidated financial statements fiscal year layne’s fiscal year end january 31 references fiscal years “fy” twelve months ended investment affiliated companies investments affiliates 20 50 owned ability exercise significant influence hold controlling interest operating financial policies accounted equity method evaluate equity method investments impairment least annually events changes circumstances indicate loss value investment temporary decline fiscal year ended january 31 2017 due extended downturn minerals market due lower commodity prices past years reviewed equity method investments impairment based weighted approach discounted cash flow method market approach concluded fair value exceeds carrying amount equity investments accordingly impairment charge recorded fiscal year ended january 31 2017 principles consolidation consolidated financial statements include accounts layne subsidiaries exercise control investments subsidiaries whollyowned exercise control equity held minority owners portions net income loss reflected noncontrolling interests intercompany accounts transactions eliminated consolidation notes consolidated financial statements dollar share amounts tabulations thousands dollars shares respectively unless otherwise indicated presentation beginning first quarter fiscal year ended january 31 2017 excluding nonvested restricted stock units “rsu” total shares issued outstanding consolidated balance sheets since shares actually issued shares vested longer restricted restriction lapses rsus units converted unrestricted shares common stock par value stock reclassified additional paidincapital common stock rsu shares prior periods reclassified conform presentation discussed note 16 consolidated financial statements third quarter fiscal year ended january 31 2016 completed sale geoconstruction business segment fiscal year ended january 31 2015 sold costa fortuna tecniwell previously reported geoconstruction operating segment results operations related geoconstruction business segment classified discontinued operations periods presented date sale unless noted otherwise discussion notes consolidated financial statements pertains continuing operations amounts presented consolidated balance sheets also reclassified business segments report financial results four reporting segments consisting water resources inliner heavy civil mineral services first quarter fiscal year ended january 31 2017 changes made simplify business streamline operating reporting structure collector wells group shifted heavy civil water resources better align operational expertise also shifted certain smaller operations “other” segment four reporting segments longer report “other” segment information prior periods recast conform new presentation also report corporate activities title “unallocated corporate” unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit treasury legal tax compliance executive management board directors corporate assets directly associated segment consist primarily cash deferred income taxes use changes estimates preparation financial statements conformity accounting principles generally accepted us requires management make estimates assumptions affect reported amounts assets liabilities disclosure assets liabilities date financial statements reported amounts revenues expenses reporting period estimates assumptions future events effects cannot perceived certainty accordingly estimates may change new events occur experience acquired additional information obtained layne’s operating environment changes believe estimates assumptions used preparation consolidated financial statements appropriate actual results could differ estimates foreign currency transactions translation accordance asc topic 830 “foreign currency matters” gains losses resulting foreign currency transactions included consolidated statements operations assets liabilities nonus subsidiaries whose functional currency local currency translated us dollars exchange rates prevailing balance sheet date net foreign currency exchange differences resulting translations reported accumulated comprehensive loss revenues expenses translated average foreign currency exchange rates year cash flows financing activities operations mexico primarily denominated us dollars accordingly operations use us dollar functional currency monetary assets liabilities remeasured period end foreign currency exchange rates nonmonetary items measured historical foreign currency exchange rates exchange rate differences reported consolidated statement operations net foreign currency transaction losses 02 million 01 million 02 million fiscal years ended january 31 2017 2016 2015 respectively recorded income net accompanying consolidated statements operations revenue recognition revenues recognized large longterm construction contracts meeting criteria asc topic 60535 “constructiontype productiontype contracts” “asc topic 60535” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised nature accounting contracts refinements estimating process changing conditions new developments continuous characteristic process many factors change contract performance period result change contract profitability including differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revision costs income recognized period revisions become known provisions estimated losses uncompleted construction contracts made period losses become known estimate contract indicates loss entire loss recorded accounting period facts caused revision become known management evaluates performance contracts individual basis ordinary course business least quarterly prepare updated estimates cost profit loss contract cumulative effect revisions estimates total forecasted revenue costs including unapproved change orders claims course contract reflected accounting period facts caused revision become known large changes cost estimates larger complex construction projects material impact financial statements reflected results operations become known fiscal years ended january 31 2017 2016 2015 approximately 129 million 222 million 252 million losses open contracts recorded respectively record revenue contracts relating unapproved change orders claims including revenue amount less equal amount costs incurred us date contract price adjustments seek collect customers delays errors specifications designs change orders dispute unapproved scope price unanticipated additional costs case recovery costs considered probable amount unapproved change orders claims revenues included consolidated balance sheets part costs estimated earnings excess billings uncompleted contracts see note 2 consolidated financial statements determining likelihood eventual recovery consider factors experience similar projects experience customer new facts become known adjustment estimated recovery made reflected current period allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses become known determine contracts completed based acceptance customer revenues drilling contracts within mineral services recognized terms value total work performed date basis actual footage meterage drilled revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories value inventories lower cost market cost us inventories majority foreign operations determined using average cost method approximates fifo inventories consist primarily supplies raw materials supplies 188 million 168 million raw materials 23 million 27 million included inventories net reserves 09 million 12 million consolidated balance sheets january 31 2017 2016 respectively discussed note 18 consolidated financial statements part restructuring activities africa australia recorded writedown inventory fiscal year ended january 31 2016 amounting 79 million included part cost revenues consolidated statement operations property equipment property equipment including major renewals improvements recorded cost less accumulated depreciation provided using straightline method useful lives used items within property classification follows property equipment reviewed impairment whenever events changes circumstances indicate carrying value may recoverable recoverability evaluated comparing carrying value assets undiscounted associated cash flows comparison indicates carrying value asset greater undiscounted cash flows loss recognized difference carrying value estimated fair value fair value determined based either market quotes appropriate valuation techniques see note 4 consolidated financial statements discussion fixed asset impairments recognized fiscal year ended january 31 2016 discussed note 18 consolidated financial statements fiscal year ended january 31 2016 implemented plan exit operations africa australia result decision determined likely certain fixed assets sold otherwise disposed end estimated useful lives recorded charges approximately 129 million 39 million fiscal years ended january 31 2017 2016 respectively adjust carrying values property equipment africa australia estimated fair values based upon valuation information includes available thirdparty quoted prices appraisals assets calculating impairment fiscal year ended january 31 2017 carrying amount assets included cumulative currency translation adjustment related african australian entities charges shown part restructuring costs consolidated statement operations reflect property assets held sale management authority approve action commits plan sell asset sale probable within one year asset available immediate sale present condition also consider whether active program locate buyer initiated whether asset marketed actively sale price reasonable relation current fair value whether actions required complete plan indicate unlikely significant changes plan made plan withdrawn upon designation asset held sale record carrying value asset lower carrying value estimated fair value less estimated costs sell cease recording depreciation fourth quarter fiscal year ended january 31 2017 determined assets australia amounting 25 million part mineral services segment met held sale criteria classified held sale consolidated balance sheet january 31 2017 recorded reserve assets held sale related australia 124 million january 31 2017 reserve included part current liabilities consolidated balance sheet fourth quarter fiscal year ended january 31 2016 determined assets ethiopian location amounting 08 million part mineral services segment met held sale criteria classified held sale consolidated balance sheet january 31 2017 2016 fourth quarter fiscal year ended january 31 2015 assets redlands california location amounting 14 million part water resources segment classified held sale due unforeseen circumstances foregoing sale completed past two fiscal years however assets continue meet held sale criteria january 31 2017 disposition expected completed within next twelve months discontinued operations adopted accounting standards update 201408 reporting discontinued operations disclosures disposals components entity february 1 2015 new guidance discontinued operation defined disposal component group components disposed classified held sale represents strategic shift major effect entity’s operations financial results see note 16 consolidated financial statements discussion discontinued operations goodwill accordance asc topic 35020 “intangiblesgoodwill other” required test impairment goodwill least annual basis conduct evaluation annually december 31 frequently events changes circumstances indicate goodwill might impaired reporting units based organizational reporting structure four reportable segments corporate assets liabilities allocated reporting units extent relate operations reporting units determining carrying amount option first performing qualitative assessment determine existence events circumstances would lead determination likely fair value reporting unit less carrying amount conclusion reached would required perform quantitative impairment assessment goodwill however assessment leads determination likely fair value reporting unit greater carrying amount assessments required december 31 2016 2015 performed qualitative assessment annual goodwill impairment test determined likely fair value inliner reporting unit goodwill would exceed carrying value january 31 2017 2016 89 million goodwill consolidated balance sheets goodwill attributable inliner reporting segment goodwill expected tax deductible 09 million january 31 2017 2016 cumulative goodwill impairment losses water resources inliner heavy civil mineral services 175 million 231 million 446 million 202 million respectively recorded fiscal year ended january 31 2012 intangible assets intangible assets finite lives primarily consist tradenames patents intangible assets amortized using straightline method estimated useful lives range ten thirtyfive years finitelived intangible assets reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable cash equivalents consider investments original maturity three months less purchased cash equivalents cash equivalents subject potential credit risk cash management investment policies restrict investments investment grade highly liquid securities carrying value cash equivalents approximates fair value restricted deposits restricted deposits consist escrow funds related certain disposition judicial deposits associated tax related legal proceedings brazil restricted deposits current 35 million january 31 2016 included current assets consolidated balance sheet restricted deposits noncurrent 50 million 43 million january 31 2017 2016 respectively included assets consolidated balance sheets allowance uncollectible accounts receivable make ongoing estimates relating collectability accounts receivable maintain allowance estimated losses resulting inability customers make required payments determining amount allowance make judgments creditworthiness customers based ongoing credit evaluations also consider review accounts receivable aging industry trends customer financial strength credit standing payment history assess probability collection bad debt expense recorded part selling general administrative expenses consolidated statement operations amounted 19 million 06 million 08 million fiscal years ended january 31 2017 2016 2015 respectively establish allowance credit losses longterm contract unbilled receivables adjustments unbilled receivables related credit quality occur accounted reduction revenue concentration credit risk grant credit customers may include concentrations state local governments although concentration could affect overall exposure credit risk believe portfolio accounts receivable sufficiently diversified thus spreading credit risk manage risk perform periodic credit evaluations customers’ financial condition including monitoring customers’ payment history current credit worthiness generally require collateral support trade receivables may require payment advance security form letter credit bank guarantee fiscal years ended january 31 2017 2016 2015 individual customer accounted 10 consolidated revenues accrued insurance maintain insurance programs responsible amount claim selfinsured limit estimates recorded health welfare workers’ compensation property casualty insurance costs associated programs costs estimated based part actuarially determined projections future payments programs include amounts incurred reported greater amount claims occur compared estimated costs medical profession increase beyond anticipated accruals recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms agreement various insurance carriers administering claims required remit total premium claims actually paid insurance companies fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximated fair value january 31 2017 2016 relatively short maturity instruments see note 14 consolidated financial statements fair value disclosures litigation contingencies involved litigation incidental business disposition expected material effect business financial position results operations cash flows addition contracts contain provisions require payment liquidated damages responsible failure meet specified contractual milestone dates applicable customer asserts claim provisions contracts define conditions customers may make claims layne liquidated damages many cases historically potential exposure liquidated damages ultimately asserted customers possible however future results operations particular quarterly annual period could materially affected changes assumptions related proceedings assessment contingency indicates probable material loss incurred amount liability estimated liability accrued consolidated financial statements assessment indicates potentially material loss contingency probable reasonably possible probable cannot estimated nature contingent liability estimate range possible losses determinable material disclosed provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case supplemental cash flow information amounts paid refunded income taxes interest noncash investing financing activities follows income taxes income taxes provided using asset liability method deferred taxes recognized difference financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely general record income tax expense interim periods based best estimate full year’s effective tax rate however income tax expense relating adjustments layne’s liabilities uncertainty income tax positions prior reporting periods accounted discretely interim period occurs income tax expense relating adjustments current year uncertain tax positions accounted component adjusted annualized effective tax rate assessing need valuation allowance consider positive negative evidence related likelihood realization deferred tax assets weight given positive negative evidence commensurate extent evidence may objectively verified accounting guidance states cumulative loss recent years significant piece negative evidence difficult overcome determining valuation allowance needed deferred tax assets generally difficult positive evidence regarding projected future taxable income exclusive reversing taxable temporary differences outweigh objective negative evidence recent financial reporting losses preparing future taxable income projections consider periods future reversals existing taxable deductible temporary differences likely occur future taxable income taxable income available prior carryback years availability taxplanning strategies determining ability realize recorded deferred tax assets estimate uncertainty income taxes based framework established accounting income taxes guidance recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax positions meet recognition threshold apply judgment taking account applicable tax laws experience managing tax audits determine amount tax benefits recognize financial statements position difference benefit realized tax return benefit reflected financial statements recorded liability consolidated balance sheets liability updated financial statement date reflect impacts audit settlements resolution audit issues expiration statutes limitation developments tax law ongoing discussions taxing authorities income loss per share income loss per share computed dividing net earnings available common shareholders weighted average number common shares outstanding period periods recognize losses calculation diluted loss per share calculation basic loss per share periods recognize net income diluted earnings per common share computed way basic earnings per common share except denominator increased include number additional common shares would outstanding potential common shares issued dilutive options purchase common stock nonvested shares included based treasury stock method dilutive earnings per share except effect antidilutive 425 convertible notes 80 convertible notes defined note 8 consolidated financial statements included calculation diluted loss per share inclusion dilutive ifconverted method options purchase 750044 839715 1015514 shares excluded weighted average shares fiscal years ended january 31 2017 2016 2015 respectively effect antidilutive total 1871640 1407170 487292 nonvested shares excluded weighted average shares fiscal years ended january 31 2017 2016 2015 respectively effect antidilutive sharebased compensation recognize cost sharebased instruments financial statements based calculated fair value award fair value sharebased compensation granted form stock options determined using lattice valuation model addition granted certain marketbased awards years ended january 31 2017 2016 2015 valued using monte carlo simulation model see note 13 consolidated financial statements unearned compensation expense associated issuance awards amortized straightline basis restrictions stock expire subject achievement certain contingencies research development costs research development costs charged expense fiscal years ended january 31 2017 2016 2015 01 million three fiscal years recorded selling general administrative expenses 2 costs estimated earnings uncompleted contracts costs estimated earnings uncompleted contracts consisted following bill customers based specific contract terms substantially billed amounts collectible within one year january 31 2017 2016 costs estimated earnings excess billings uncompleted contracts included unbilled contract retainage amounts 331 million 384 million respectively 3 property equipment property equipment consisted following depreciation expense 265 million 322 million 414 million fiscal years ended january 31 2017 2016 2015 respectively 4 impairment charges prior segment realignment third quarter fiscal year ended january 31 2016 reviewed recoverability asset values longlived assets energy services segment second quarter fiscal year ended january 31 2016 using undiscounted cash flow model concluded carrying value assets energy services fully recoverable july 31 2015 performed assessment fair value assets energy services based orderly liquidation value property equipment considered level 2 fair value measurement assessment resulted recording impairment charge approximately 46 million second quarter fiscal year ended january 31 2016 shown impairment charges consolidated statements operations 5 investments affiliates investments affiliates engaged mineral drilling services manufacture supply drilling equipment parts supplies investment affiliates may include construction joint ventures time summary material jointlyowned affiliates well primary operating subsidiaries applicable percentages directly indirectly owned layne follows january 31 2017 financial information affiliates reported onemonth lag reporting period impacts lag investment results operations significant summarized financial information affiliates follows significant transactions balances affiliates january 31 2017 2016 2015 fiscal years ended equity undistributed earnings affiliates totaled 507 million 528 million 572 million january 31 2017 2016 2015 respectively additional 46 million investment affiliates recorded equity method goodwill certain investments time acquisition 6 intangible assets intangible assets consisted following january 31 total amortization expense intangible assets 04 million 05 million 06 million fiscal years ended january 31 2017 2016 2015 respectively amortization expense subsequent five fiscal years estimated follows 7 balance sheet information table presents comparative detailed information current assets january 31 2017 2016 table presents comparative detailed information noncurrent assets january 31 2017 2016 table presents comparative detailed information current liabilities january 31 2017 2016 1 reserve assets held sale represents impairment assets held sale australia africa calculating impairment carrying amount assets included cumulative currency translation adjustment related australian african entities 8 indebtedness debt outstanding january 31 2017 2016 follows january 31 2017 debt outstanding mature follows assetbased revolving credit facility 1000 million senior secured assetbased facility expires april 14 2019 aggregate principal amount 750 million available form letters credit aggregate principal amount 150 million available shortterm swingline borrowings assetbased facility guaranteed assets direct indirect wholly owned domestic subsidiaries subject certain exceptions described assetbased facility obligations assetbased facility secured lien substantially assets subsidiary guarantors subject certain exceptions described assetbased facility including pledge 65 equity interests first tier foreign subsidiaries availability assetbased facility currently lesser 1000 million ii borrowing base defined assetbased facility agreement availability assetbased facility january 31 2017 approximately 1000 million borrowing base exceeded total commitments approximately 277 million letters credit issued assetbased facility january 31 2017 resulting excess availability described 723 million advances assetbased facility subject certain conditions precedent including accuracy certain representations warranties absence default event default future advances may used general corporate working capital purposes pay fees expenses associated assetbased facility pursuant assetbased facility agreement revolving loans bear interest either • alternate base rate plus applicable margin alternate base rate equal highest base rate b sum federal funds open rate plus 05 c sum daily libor rate plus 1 • libor rate defined assetbased facility agreement interest period effect borrowing plus applicable margin assetbased facility contains various restrictions covenants including restrictions dispositions certain assets incurrence indebtedness investments distributions capital expenditures acquisitions prepayment certain indebtedness general provided maintain certain level excess availability restricted incurring additional unsecured indebtedness making investments distributions capital expenditures acquisitions compliance terms assetbased facility obtained asset sale consent lenders january 25 2017 connection sale heavy civil business segment excess availability less greater 175 total availability 175 million one business day “covenant compliance period” defined assetbased facility agreement exist excess availability equal greater 175 total availability 175 million period 30 consecutive days must maintain minimum fixed charge coverage ratio less 10 maximum first lien leverage ratio greater 50 10 four fiscal quarters ended immediately preceding covenant compliance period four fiscal quarter period ending covenant compliance period would compliance fixed charge coverage ratio covenant compliance period fiscal years ended january 31 2017 2016 fiscal year ended january 31 2016 two consecutive fourquarter periods fixed charge coverage ratio less 10 therefore longer required maintain cumulative minimum cash flow defined assetbased facility agreement less negative 450 million minimum cash flow less negative 250 million twelve consecutive month period assetbased facility also contains subjective acceleration clause triggered lenders determine experienced material adverse change triggered lenders clause would create event default defined assetbased facility agreement turn would permit lenders accelerate repayment outstanding obligations balance sheet classification borrowings assetbased facility determined accordance asc topic 4701045 “balance sheet classification borrowings outstanding revolving credit agreements include subjective acceleration clause lockbox arrangement” accordingly borrowings classified longterm liability accompanying consolidated balance sheet general covenant compliance period event default occurred continuing layne’s funds received daily basis applied reduce amounts owing assetbased facility based current projections layne anticipate covenant compliance period next twelve months also excess availability currently expected next twelve months sufficient trigger covenant compliance period anticipate compliance applicable debt covenants associated assetbased facility next twelve months defaults assetbased facility include limited following • nonpayment principal interest fees amounts assetbased facility • failure comply negative covenants certain specified affirmative covenants assetbased facility • failure pay certain indebtedness due • specified events bankruptcy insolvency • one judgments 50 million covered insurance paid within specified period • change control defined assetbased facility maturity date asset based facility april 15 2019 however maturity date accelerate may 15 2018 following yet occurred date either 80 convertible notes permitted refinancing indebtedness defined assetbased facility agreement respect thereof converted b maturity date 80 convertible notes permitted refinancing indebtedness respect thereof extended date october 15 2019 ii either 425 convertible notes permitted refinancing indebtedness respect thereof converted b maturity date 425 convertible notes permitted refinancing indebtedness respect thereof extended date october 15 2019 c 425 convertible notes effectively discharged 425 convertible notes effectively discharged among things irrevocably deposited trustee 425 convertible notes cash amount sufficient pay remaining interest principal payments due remaining unconverted 425 convertible notes irrevocable instructions trustee make payments holders 425 convertible notes become due 425 convertible senior notes november 12 2013 completed issuance sale 1100 million aggregate principal amount 425 convertible notes due 2018 “425 convertible notes” accordance terms purchase agreement “purchase agreement” entered jefferies llc “initial purchaser” december 5 2013 initial purchaser exercised option purchase additional 150 million aggregate principal amount 425 convertible notes part purchase agreement 425 convertible notes issued pursuant indenture dated november 12 2013 “425 convertible notes indenture” layne us bank national association trustee 425 convertible notes senior unsecured obligations layne 425 convertible notes convertible option holders consideration consisting election cash shares common stock combination cash shares common stock cash lieu fractional shares close business scheduled trading day immediately preceding may 15 2018 however may 15 2018 425 convertible notes convertible except certain circumstances provided 425 convertible notes indenture 425 convertible notes bear interest rate 425 per year payable semiannually arrears cash may 15 november 15 year beginning may 15 2014 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted initial conversion rate 436072 shares common stock per 1000 principal amount 425 convertible notes equivalent initial conversion price approximately 2293 per share common stock conversion rate subject adjustment upon occurrence certain events addition may obligated increase conversion rate conversion occurs connection certain corporate events including call 425 convertible notes redemption november 15 2016 prior maturity date pursuant 425 convertible note indenture may redeem less 425 convertible notes cash sale price common stock equals exceeds 130 applicable conversion price specified time period ending trading day immediately prior date deliver notice redemption price equal 100 principal amount 425 convertible notes redeemed plus accrued unpaid interest excluding redemption date addition upon occurrence fundamental change defined 425 convertible notes indenture holders 425 convertible notes right option require us repurchase 425 convertible notes cash price equal 100 principal amount 425 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date amount payable 425 convertible note including principal interest fundamental change repurchase redemption paid us due payable amount accrue interest rate equal 525 per annum payment date paid accordance asc topic 47020 “debt conversion options” separately account liability equity conversion components 425 convertible notes principal amount liability component 425 convertible notes 1060 million date issuance based present value cash flows using discount rate 80 approximate borrowing rate date issuance similar debt instrument without conversion feature carrying value equity conversion component 190 million portion initial purchaser’s discount commission offering costs totaling 08 million deferred taxes totaling 71 million allocated equity conversion component liability component accreted principal amount 425 convertible notes using effective interest method five years accordance guidance asc topic 47020 asc topic 81515 “embedded derivatives” determined embedded conversion components embedded derivatives 425 convertible notes require bifurcation separate accounting march 2 2015 exchanged approximately 555 million aggregate principal amount 425 convertible notes approximately 499 million aggregate principal amount 80 convertible notes described accordance derecognition guidance convertible instruments exchange transaction asc topic 47020 fair value 80 convertible notes “the exchange consideration” transaction costs incurred allocated liability equity components 425 convertible notes 499 million exchange consideration 421 million represents fair value 425 convertible notes immediately prior derecognition allocated extinguishment liability component transaction costs 09 million also allocated liability component result recognized gain extinguishment debt 42 million first quarter fiscal year ended january 31 2016 remaining 78 million exchange consideration 02 million transaction costs allocated reacquisition equity component recognized reduction stockholders’ equity following table presents carrying value 425 convertible notes 1 january 31 2017 remaining period unamortized debt discount amortized 21 months using effective interest rate 9 80 senior secured second lien convertible notes march 2 2015 completed offering approximately 1000 million aggregate principal amount 80 senior secured second lien convertible notes “80 convertible notes” 80 convertible notes offered par certain investors held approximately 555 million 425 convertible notes due 2018 pursuant terms investors agreed exchange 425 convertible notes owned approximately 499 million 80 convertible notes ii purchase approximately 499 million aggregate principal amount 80 convertible notes cash price equal principal amount thereof amount accrued interest 425 convertible notes delivered investors exchange credited cash purchase price payable investors purchase sale 80 convertible notes generated net cash proceeds approximately 450 million deducting discounts commissions estimated offering expenses accrued interest 425 convertible notes exchanged used net cash proceeds repay outstanding balance assetbased facility 182 million remainder proceeds held general working capital purposes 80 convertible notes issued pursuant indenture dated march 2 2015 “80 convertible notes indenture” among layne guarantor parties thereto us bank national association trustee collateral agent 80 convertible notes senior secured obligations layne interest payable may 1 november 1 year beginning may 1 2015 rate 80 per annum 80 convertible notes mature may 1 2019 provided however unless 425 convertible notes permitted refinancing indebtedness respect thereof redeemed repurchased otherwise retired discharged accordance terms converted common stock effectively discharged case prior august 15 2018 scheduled maturity date 425 convertible notes permitted refinancing indebtedness incurred respect thereof extended date october 15 2019 80 convertible notes mature august 15 2018 80 convertible notes senior secured obligations guaranteed subsidiaries currently coborrowers guarantors assetbased facility well future whollyowned us restricted subsidiaries certain cases certain subsidiaries 80 convertible notes secured lien substantially assets subsidiary guarantors subject certain exceptions liens assets securing 80 convertible notes junior priority liens “first priority liens” assets securing debt “first priority debt” subsidiary guarantors assetbased facility certain specified existing future obligations time prior maturity date may redeem cash less 80 convertible notes provided however may redeem 80 convertible notes redemption date outside open redemption period defined 80 convertible notes indenture unless last reported sale price common stock equals exceeds 140 conversion price 80 convertible notes effect least 20 trading days 30 consecutive trading day period ending including trading day immediately preceding date deliver redemption notice addition upon occurrence “fundamental change” defined 80 convertible notes indenture holders 80 convertible notes right option require us repurchase 80 convertible notes cash price equal 100 principal amount 80 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date 80 convertible notes indenture permits us reinvest net proceeds certain “asset sales” defined 80 convertible notes indenture reinvestments subject criteria time periods 80 convertible notes indenture net proceeds “asset sales” reinvested within applicable time period constitute “excess proceeds” defined 80 convertible notes indenture aggregate amount “excess proceeds” exceeds 100 million must within 30 days make offer holders 80 convertible notes holders certain pari passu debt obligations company together “qualifying indebtedness” repurchase qualifying indebtedness maximum amount available “excess proceeds” qualifying indebtedness repurchase price equal 100 principal amount plus accrued unpaid interest excluding repurchase date holders qualifying indebtedness may option elect accept repurchase offer aggregate amount qualifying indebtedness tendered repurchase exceeds amount “excess proceeds” qualifying indebtedness tendered repurchased pro rata basis may use “excess proceeds” remaining result insufficient amount qualifying indebtedness tendered repurchase purpose otherwise prohibited 80 convertible notes indenture 80 convertible notes convertible option holders consideration consisting shares common stock cash lieu fractional shares close business scheduled trading day immediately preceding maturity date holder right convert 80 convertible notes shares common stock extent conversion would cause holder beneficially 99 shares common stock outstanding giving effect proposed conversion initial conversion rate 854701 shares common stock per 1000 principal amount 80 convertible notes equivalent initial conversion price approximately 1170 per share common stock conversion rate subject adjustment upon occurrence certain events addition may obligated increase conversion rate conversion occurs connection certain corporate events including call 80 convertible notes redemption 80 convertible notes indenture contains covenants among things restrict ability restricted subsidiaries subject certain exceptions 1 incur additional indebtedness 2 create liens 3 declare pay dividends make distributions respect purchase redeem equity interests equity interests restricted subsidiaries make certain payments subordinated unsecured indebtedness make certain investments 4 enter certain transactions affiliates 5 engage certain asset sales unless specified conditions satisfied 6 designate certain subsidiaries unrestricted subsidiaries 80 convertible notes indenture also contains events default occurrence 80 convertible notes may accelerated become immediately due payable amount payable 80 convertible note including principal interest fundamental change repurchase redemption paid us due payable amount accrue interest rate equal 90 per annum payment date paid accordance guidance asc topic 81515 determined embedded conversion components embedded derivatives 80 convertible notes require bifurcation separate accounting accounted 80 convertible notes debt conversion features beneficial asc topic 47020 accordingly proceeds issuance 80 convertible notes recorded liability consolidated balance sheets following table presents carrying value 80 convertible notes surety bonds january 31 2017 2016 surety bonds issued secure performance projects amounted 2238 million 2597 million respectively amount surety bonds based expected amount revenues remaining recognized projects 9 income net income net consisted following gain disposal property equipment 42 million fiscal year ended january 31 2017 primarily relates sale assets africa australia fiscal year ended january 31 2016 gain disposal property equipment 11 million relates sale noncore assets fiscal year ended january 31 2015 gain disposal property equipment 23 million includes gain sale real estate 10 million sale noncore assets 10 income taxes loss continuing operations income taxes consisted following components income tax benefit expense continuing operations follows reconciliation total income tax benefit expense continuing operations statutory federal rate follows fiscal years ended january 31 benefit nondeductible expenses fiscal year ended january 31 2015 resulted reversal prior year penalty accrual related fcpa investigation see note 15 consolidated financial statements tax effect pretax loss continuing operations generally determined computation consider tax effect categories income loss example comprehensive loss discontinued operations additional paid capital etc exception general rule provided pretax loss continuing operations pretax income categories income pursuant exception recorded tax benefit continuing operations fiscal year ended january 31 2016 fiscal year ended january 31 2016 tax benefit 36 million recorded continuing operations offset tax expense recorded discontinued operations recorded 194 million 351 million 260 million valuation allowances continuing operations net domestic certain foreign deferred tax assets fiscal years ended january 31 2017 2016 2015 respectively valuation allowance recorded fiscal year ended january 31 2017 recorded deferred tax assets generated year primarily related tax losses tax credit carryforwards total valuation allowance january 31 2017 1577 million comprised domestic valuation allowance 1403 million foreign valuation allowance 174 million assessing need valuation allowance concluded cumulative loss domestic operations adjusting significant nonrecurring charges beginning fiscal year ended january 31 2014 continuing fiscal year ended january 31 2017 based assessment concluded likely realization domestic deferred tax assets would occur future periods accordingly valuation allowance provided similar consideration given foreign deferred tax assets concluded certain foreign deferred tax assets also likely realized valuation allowance recorded establishment valuation allowance impact cash allowance preclude us using loss carryforwards utilizing deferred tax assets future net income loss discontinued operations fiscal years ended january 31 2016 2015 81 million 469 million respectively amounts net income tax expense benefit 36 million 07 million respectively effective tax rates discontinued operations 311 15 fiscal years ended january 31 2016 2015 respectively deferred income taxes result temporary differences financial statement tax bases assets liabilities sources differences cumulative tax effects follows following tax losses tax credit carryforwards january 31 2017 january 31 2017 undistributed earnings foreign subsidiaries certain foreign affiliates included 444 million federal income foreign withholding taxes provided earnings considered invested indefinitely would become subject income tax remitted dividends sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign subsidiaries foreign affiliates earnings considered invested indefinitely reconciliation beginning ending amount gross unrecognized tax benefits excluding penalties interest follows substantially unrecognized tax benefits recorded january 31 2017 2016 2015 would affect effective rate recognized reasonably possible amount unrecognized tax benefits decrease next year approximately 72 million due settlements audit issues expiration statutes limitation classify interest penalties related income taxes component income tax expense january 31 2017 2016 2015 87 million 78 million 85 million respectively interest penalties accrued associated unrecognized tax benefits liability interest penalties increased decreased 09 million 07 million 01 million fiscal years ended january 31 2017 2016 2015 respectively file income tax returns us various state jurisdictions certain foreign jurisdictions statute limitations remains open tax years ended january 31 2013 2017 currently examination federal purposes tax year ended january 31 2013 several state examinations currently progress file income tax returns foreign jurisdictions operate returns subject examination may ongoing point time tax liabilities recorded based estimates additional taxes due upon settlement examinations tax years subject examination foreign tax authorities vary jurisdiction generally tax years 2014 2017 remain open examination 11 operating lease obligations operating leases primarily buildings light medium duty trucks equipment sublease certain portion facilities noncancelable sublease agreements rent expense operating leases including insignificant amounts contingent rental payments sublease rental income 49 million 73 million 96 million fiscal years ended january 31 2017 2016 2015 respectively future minimum lease payments required operating leases initial remaining noncancelable lease terms related subleases excess one year january 31 2017 follows 12 employee benefit plans salaried certain hourly employees eligible participate sponsored defined contribution plans total expense recorded selling general administrative costs portion plans 31 million 30 million 32 million fiscal years ended january 31 2017 2016 2015 respectively deferred compensation plan certain management employees however plan suspended fiscal year ended january 31 2015 participants could elect defer 25 salaries 50 bonuses plan matching contributions vesting period contributions established discretion employee deferrals vested times total amount deferred including matching fiscal year ended january 31 2015 02 million total liability deferred compensation 51 million 63 million january 31 2017 2016 respectively liabilities primarily included noncurrent liabilities except amounts due next twelve months recorded accrued compensation consolidated balance sheet contribute number multiemployer defined benefit pension plans terms collectivebargaining agreements cover unionrepresented employees risks participating multiemployer plans different singleemployer plans following aspects • assets contributed multiemployer plan one employer may used provide benefits employees participating employers • participating employer stops contributing plan unfunded obligations plan may borne remaining participating employers • choose stop participating multiemployer plans may required pay plans amount based underfunded status plan referred withdrawal liability accordance accounting guidance evaluated multiemployer plans determine individually significant evaluation based following criteria • total employees participating multiemployer plan compared total employees covered plan • total contributions multiemployer plan percentage total contributions plan participating employers • amount potential liability could incurred due withdrawal multiemployer plan underfunded status plan participating employers’ withdrawal plan january 31 2017 2016 participate multiemployer plans would considered individually significant make contributions multiemployer plans equal amounts accrued pension expense total contributions union pension expense plans 19 million 21 million 19 million fiscal years ended january 31 2017 2016 2015 respectively information regarding assets accumulated benefits plans made available us also provide supplemental retirement benefits former chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent defined contribution plan balance contribute plan maintain investment assets related expected benefit obligation recognized full amount actuarially determined pension liability current portion recognized consolidated balance sheets accrued expenses 03 million january 31 2017 2016 longterm portion recognized consolidated balance sheets january 31 2017 2016 51 million 52 million respectively noncurrent liabilities net periodic pension cost benefit supplemental retirement benefits fiscal years ended january 31 2017 2016 2015 02 million 04 million 13 million respectively 13 equitybased compensation layne equitybased compensation plan provides granting options purchase issuance shares common stock price fixed board directors committee january 31 2017 348949 shares remain available granted plan stock options restricted stock awards ability issue shares plans either new issuances treasury although previously always issued new shares expect continue issue new shares future granted 13495 shares restricted stock 199352 restricted stock units 447903 performance vesting restricted stock units layne christensen company 2006 equity incentive plan fiscal year ended january 31 2017 grants consist servicebased awards marketbased awards also granted total 134333 stock options fiscal year ended january 31 2017 layne christensen company 2006 equity incentive plan options granted exercise price equal fair market value common stock date grant options terms ten years date grant generally vest ratably periods one month five years recognized 35 million 39 million 26 million compensation cost sharebased plans fiscal years ended january 31 2017 2016 2015 respectively amounts 30 million 30 million 12 million respectively related nonvested stock total income tax benefit recognized sharebased compensation arrangements 14 million 15 million 10 million fiscal years ended january 31 2017 2016 2015 respectively january 31 2017 tax benefit expected realized equitybased compensation arrangements due full valuation allowance domestic deferred tax assets january 31 2017 total unrecognized compensation cost related unvested stock options approximately 02 million expected recognized weightedaverage period 09 years january 31 2017 approximately 36 million total unrecognized compensation cost related nonvested restricted stock awards restricted stock units expected recognized weightedaverage period 17 years fair value sharebased compensation granted form stock options determined using lattice valuation model valuations respective year made using assumptions noted following table expected volatilities based historical volatility stock price use historical data estimate early exercise postvesting forfeiture rates applied within valuation model riskfree interest rate periods within expected term option based us treasury yield curve effect time grant weightedaverage fair value per share date grant options granted fiscal years ended january 31 2017 2016 2015 159 160 559 respectively stock option transactions fiscal years ended january 31 2017 2016 2015 follows aggregate intrinsic value calculated using difference current market price exercise price options exercise price less current market price nonvested stock awards service requirements valued grant date closing stock price generally vest ratably service periods one five years nonvested stock awards vest based upon layne meeting various performance goals certain nonvested stock awards provide accelerated vesting change control defined plans disability death executive equitable adjustment event changes equity structure granted certain performance based nonvested stock awards years ended january 31 2017 2016 2015 valued using monte carlo simulation model assumptions used monte carlo simulation model fiscal years ended january 31 2017 2016 2015 follows nonvested share transactions fiscal years ended january 31 2017 2016 2015 follows 14 fair value measurements estimates fair value financial assets financial liabilities based framework established fair value accounting guidance framework based inputs used valuation gives highest priority quoted prices active markets requires observable inputs used valuations available three levels hierarchy follows • level 1 unadjusted quoted prices active markets identical assets liabilities • level 2 observable inputs included level 1 quoted market prices similar assets liabilities active markets quoted prices identical assets inactive markets • level 3 unobservable inputs reflecting assumptions best estimate inputs market participants would use pricing asset liability assessment significance particular input fair value entirety requires judgment considers factors specific asset liability financial instruments held fair value presented january 31 2017 2016 1 contingent consideration receivable represents share profits one contracts assumed purchaser part sale geoconstruction business august 17 2015 amount estimated based projected profits contract changes estimated fair value since closing date sale agreement financial instruments use following methods assumptions estimating fair value disclosures financial instruments cash equivalents carrying amounts reported accompanying consolidated balance sheets approximates fair values classified level 1 within fair value hierarchy shortterm longterm debt convertible notes fair value debt instruments classified level 2 within fair value hierarchy valued using market approach based quoted prices similar instruments traded active markets quoted prices available income approach used value instruments based present value future cash flows discounted estimated borrowing rates similar debt instruments estimated prices based current yields debt issues similar quality terms convertible notes convertible notes measured nonrecurring basis using level 1 inputs based upon observable quoted prices 425 convertible notes 80 convertible notes following table summarizes carrying values estimated fair values longterm debt fiscal year ended january 31 2016 performed assessment property equipment located africa australia based assessment recorded charge approximately 39 million adjust certain property equipment carrying value 104 million estimated fair value 65 million fair value assets determined primarily using level 2 inputs include available thirdparty quoted prices appraisals assets 15 contingencies drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified frequently case conduct project fixedprice bundled basis delegate certain functions subcontractors remain responsible customer subcontracted work addition exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result layne named defendant lawsuits asserting large claims although maintain insurance protection consider economically prudent assurance insurance sufficient effective circumstances claims hazards may subject able continue obtain insurance protection successful claim damage resulting hazard fully insured could material adverse effect us addition maintain political risk insurance respect foreign operations layne geoconstruction discontinued segment subcontractor foundation office building california 2013 2014 geoconstructions work project completed september 2014 certain anomalies subsequently discovered structural concrete remediated general contractor 2015 participated discussions owner general contractor project regarding potential causes anomalies fiscal year ended january 31 2016 owner general contractor layne submitted claim project’s insurers cover cost remedial work claim denied november 2 2016 owner general contractor filed legal proceeding insurers seeking coverage insurance policy management believe liable remediation costs related project date report action filed us accordingly provision made consolidated financial statements previously reported beginning october 2010 audit committee board directors conducted internal investigation among things legality certain payments layne agents third parties interacting government officials certain countries africa internal investigation suggested potential violations fcpa certain local laws layne made voluntary disclosure doj sec regarding results investigation cooperated doj sec connection review matter doj’s inquiry closed 2014 october 27 2014 layne entered settlement sec resolve allegations concerning potential violations fcpa settlement sec resolves outstanding government investigations respect layne concerning potential fcpa violations terms settlement without admitting denying sec’s allegations consented entry administrative ceaseanddesist order books records internal controls antibribery provisions fcpa agreed pay sec 47 million disgorgement prejudgment interest 04 million penalties amounts connection settlement paid november 6 2014 also agreed undertake certain compliance reporting cooperation obligations sec two years following settlement date november 9 2016 made final report sec reporting obligations sec settlement involved various matters litigation claims disputes arisen ordinary course business believe ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows however possible future results operations particular quarterly annual period could materially affected changes assumptions related proceedings accordance us generally accepted accounting principles record liability probable liability incurred amount loss reasonably estimated provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case extent additional information arises strategies change possible estimate probable liability matters may change 16 discontinued operations geoconstruction august 17 2015 sold geoconstruction business segment subsidiary keller foundations llc member keller group plc “keller” total 423 million including preliminary estimate business segment’s working capital postclosing adjustments total purchase price increased 477 million adjust estimated share profits one contracts assumed keller final working capital adjustments january 31 2016 approximately 15 million held escrow account part assets consolidated balance sheet paid fourth quarter fiscal year ended january 31 2017 satisfaction certain conditions addition january 31 2017 2016 recognized 42 million contingent consideration receivable included assets condensed consolidated balance sheet contingent consideration represents best estimate share profits one contracts assumed keller tecniwell october 31 2014 disposed tecniwell alberto battini 50 paolo trubini 50 employee tecniwell time disposal transaction sale layne quotas representing 100 corporate capital tecniwell exchange 09 million purchase price quotas paid two equal payments layne received 05 million october 31 2014 remainder january 22 2015 recorded loss sale business amounting 08 million included consolidated statements operations fiscal year ended january 31 2015 loss discontinued operations costa fortuna july 31 2014 disposed costa fortuna aldo corda original owner current manager business time disposal transaction structured sale layne issued outstanding shares holub sa uruguay sociedad anonima costa fortuna’s parent company subsidiaries exchange 44 million payable layne described purchase price shares remaining intercompany receivable payable future years beginning year ended december 31 2015 based 3333 costa fortuna’s income taxes year unpaid portion purchase price accrue interest rate 25 per annum unpaid balance purchase price plus accrued interest due payable layne july 31 2024 loss sale business 383 million included consolidated statements operations fiscal year ended january 31 2015 loss discontinued operations fiscal year ended january 31 2016 wrote balance receivable sale costa fortuna amounting 32 million included income expense line loss discontinued operations consolidated statement operations financial results discontinued operations follows prior completion sale geoconstruction business segment owned 65 50 casebencor joint venture washington casebencor joint venture iowa respectively included part geoconstruction business segment investments affiliates discontinued result sale summarized financial information entities accounted equity method investments date sale follows accordance adoption asu 201408 effective february 1 2015 additional disclosure relating cash flow required discontinued operations cash flow information costa fortuna tecniwell required since accounted based previous accounting guidance cash flow data relating geoconstruction business segment presented 17 segments foreign operations global solutions provider world essential natural resources water minerals energy chief operating decision maker codm reviews operating results determine appropriate allocation resources within organization codm defines operational organizational structure discrete segments based primary product lines first quarter fiscal year ended january 31 2017 changes made simplify business streamline operating reporting structure collector wells group shifted heavy civil water resources better align operational expertise also shifted certain smaller operations “other” segment four reporting segments longer report “other” segment information prior periods recast conform new presentation third quarter fiscal year ended january 31 2016 result strategic review aspects operations realigned operating structure combine energy services segment water resources segment determined given similar nature equipment services energy services water resources effectively manage cost structure serve customer base combined segment manage report operations four segments water resources inliner heavy civil mineral services historical segment numbers recast conform new operating structure second quarter fiscal year ended january 31 2016 entered definitive agreement sell geoconstruction business segment operating results geoconstruction business presented discontinued operations excluded continuing operations segment results periods presented see note 16 consolidated financial statements discussion layne’s segments defined follows water resources water resources provides customers array water management solutions including discovery defining water sources hydrologic studies water supply development water well drilling intake construction water delivery pipeline pumping infrastructure water resources also brings technologies water wastewater markets offers water treatment equipment engineering services providing systems treatment regulated nuisance contaminants specifically iron manganese hydrogen sulfide arsenic radium nitrate perchlorate volatile organic compounds water resources drills deep injection wells industrial municipal clients need dispose wastewater associated processes water resources also performs complete diagnostic rehabilitation services existing wells pumps related equipment including conducting downhole closed circuit televideo inspections investigate resolve water well pump performance problems addition water resources constructs radial collector wells ranney® collector wells technology alternative conventional vertical wells utilized develop moderate high capacities groundwater water resources provides water systems services regions us inliner provides wide range process sanitary storm water rehabilitation solutions municipalities industrial customers dealing aging infrastructure needs inliner focuses proprietary inliner ® curedinplace pipe “cipp” allows rehabilitate aging sanitary sewer storm water process water infrastructure provide structural rebuilding well infiltration inflow reduction inliner’s trenchless technology minimizes environmental impact reduces eliminates surface social disruption inliner ability supply traditional feltbased cipp lining tubes cured water steam well fiberglassbased lining tubes cured ultraviolet light inliner owns north american rights inliner cipp technology owns operates liner manufacturer also provides installation inliner cipp product inliner focuses proprietary inliner cipp provides full system renewal including wide variety rehabilitative methods including janssen structural renewal service lateral connections mainlines slip lining traditional excavation replacement form manhole renewal cementitious epoxy products inliner provides services regions us heavy civil heavy civil performs design build services water wastewater treatment plants well pipeline installation government agencies industrial clients addition heavy civil builds surface water intakes pumping stations hard rock tunnels marine construction servicesall support water infrastructure us beyond water solutions heavy civil also designs constructs biogas facilities purpose generating capturing methane gas emerging renewable energy resource heavy civil provides services regions us disclosed note 21 consolidated financial statements february 8 2017 entered asset purchase agreement sell substantially assets heavy civil business mineral services mineral services conducts primarily ground drilling activities including phases core drilling reverse circulation dual tube hammer rotary airblast methods service offerings include exploratory definitional drilling global mining companies engage companies mineral services extract samples sites mining companies analyze mineral content investing heavily development extract minerals mineral services helps clients determine minable mineral deposit site economic viability mining site geological properties ground helps determination mine planning mineral services also offers customers water management soil stabilization expertise mine water management consists vertical large diameter wells sourcing dewatering horizontal drains slope depressurization primary markets western us mexico south america discussed note 18 consolidated financial statements fiscal year ended january 31 2016 implemented plan exit operations africa australia mineral services also ownership interests foreign affiliates operating latin america form primary presence chile peru financial information segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit treasury legal tax compliance executive management board directors corporate assets consist assets directly associated segment consist primarily cash deferred income taxes management evaluates segment performance based primarily revenues adjusted ebitda adjusted ebitda represents income loss continuing operations interest taxes depreciation amortization noncash equitybased compensation equity earnings losses affiliates certain nonrecurring items impairment charges restructuring costs gain extinguishment debt certain gains losses plus dividends received affiliates refer discussion nongaap financial measures included part ii item 7 form 10k 1 restructuring costs fiscal year ended january 31 2016 includes 79 million relating writedown carrying value inventory african australian operations reflected part cost revenues consolidated statement operations following table presents various financial information segment 18 restructuring costs second quarter fiscal year ended january 31 2017 initiated plan reduce costs improve profitability water resources segment “water resources business performance initiative” water resources business performance initiative involves cost rationalization increased standardization functions sales pricing estimation disposal underutilized assets process improvements drive efficiencies recorded approximately 32 million restructuring costs related water resources business performance initiative fiscal year ended january 31 2017 includes costs related office closures severance costs estimate remaining amounts incurred water resources business performance initiative approximately 01 million fiscal year ended january 31 2017 continued implementation fy2016 restructuring plan involves exit operations africa australia actions support strategic focus simplifying business build upon capabilities water “fy2016 restructuring plan” fiscal year ended january 31 2017 recognized approximately 141 million restructuring expenses fy2016 restructuring plan primarily related closure australian african entities resulting impairment assets held sale calculating impairment carrying amount assets included cumulative currency translation adjustment related australian african entities also included severance costs personnelrelated costs support business focus strategy fiscal year ended january 31 2017 fy2016 restructuring plan related segments follows 133 million mineral services 04 million heavy civil 03 million corporate 01 million inliner fy2016 restructuring plan substantially completed january 31 2017 estimate remaining amounts incurred fy2016 restructuring plan approximately 01 million previously implemented restructuring plan second quarter fiscal year ended january 31 2015 “fy2015 restructuring plan” fy2015 restructuring plan involved among things reductions global workforce asset relocation disposal process improvements fy2015 restructuring plan designed achieve short longterm cost reductions completed first quarter fiscal year ended january 31 2016 following table summarizes carrying amount accrual restructuring plans discussed 1 fiscal year ended january 31 2017 recognized impairment assets held sale australia africa calculating impairment carrying amount assets included cumulative currency translation adjustment 124 million associated closure australian african entities 19 new accounting pronouncements january 26 2017 financial accounting standards board “fasb” issued accounting standards update “asu” 201704 “intangiblesgoodwill simplifying test goodwill impairment” simplifies manner entity required test goodwill impairment eliminating step 2 goodwill impairment test step 2 measures goodwill impairment loss comparing implied fair value reporting unit’s goodwill carrying amount goodwill however amendments asu entity 1 perform annual interim goodwill impairment test comparing fair value reporting unit carrying amount 2 recognize impairment charge amount carrying amount exceeds reporting unit’s fair value understanding loss recognized exceed total amount goodwill allocated reporting unit guidance effective us beginning february 1 2020 applied prospective basis currently evaluating effect adoption asu financial statements december 22 2016 fasb issued asu 201620 “technical corrections improvements revenue contracts customers” amendments asu 201620 include thirteen technical corrections improvements affect narrow aspects guidance issued asu 201409 narrow aspects include 1 preproduction costs related longterm supply arrangements 2 contract costsimpairment testing 3 contract costsinteraction impairment testing guidance topics 4 provisions losses productiontype constructiontype contracts 5 scope fasb asc 606 6 disclosure remaining performance obligations 7 contract modifications example 8 fixedodds wagering contracts casino industry 9 cost capitalization advisors private public funds 10 loan guarantee fees 11 contract asset versus receivable 12 refund liability 13 advertising costs asu 201620 become effective guidance asu 201409 becomes effective beginning february 1 2018 layne currently evaluating effect adoption asu financial statements november 2016 fasb issued asu 201618 “statement cash flows restricted cash” provides guidance presentation changes restricted cash restricted cash equivalents statement cash flows asu effective us beginning february 1 2018 applied using retrospective transition method period presented currently evaluating effect adoption asu financial statements august 2016 fasb issued asu 201615 “statement cash flows classification certain cash receipts cash payments” asu provides guidance clarification regards classification eight types receipts payments statement cash flows including debt repayment extinguishment costs settlement zerocoupon bonds proceeds settlement insurance claims distributions received equity method investees cash receipts beneficial interest securitization transactions guidance effective us beginning february 1 2018 applied using retrospective transition method period presented currently evaluating effect adoption asu financial statements february 2016 fasb issued asu 201602 “leases” establishes rightofuse rou model requires lessee record rou asset lease liability balance sheet leases terms longer 12 months leases classified either finance operating classification affecting pattern expense recognition income statement asu effective fiscal years beginning december 15 2018 including interim periods within fiscal years early adoption permitted asu 201602 requires modified retrospective adoption leases existing entered date initial application option use certain transition relief anticipate adopting asu beginning february 1 2019 currently evaluating effect adoption asu financial statements see note 11 consolidated financial statements discussion operating leases july 22 2015 fasb issued asu 201511 “inventory simplifying measurement inventory” applies inventory measured using firstin firstout average cost guidance update states inventory within scope shall measured lower cost net realizable value net realizable value inventory lower cost difference shall recognized loss earnings new standard effective us beginning february 1 2017 applied prospective basis adoption asu material impact financial statements august 27 2014 fasb issued asu 201415 “disclosure uncertainties entity’s ability continue going concern” guidance effective annual reporting periods ending december 15 2016 extends responsibility performing goingconcern assessment management contains guidance perform goingconcern assessment goingconcern disclosures would required gaap adopted guidance fourth quarter fiscal year ended january 31 2017 material effect financial statements fasb issued asu 201409 “revenue contracts customers” may 28 2014 august 12 2015 fasb issued asu 201514 defers adoption asu 201409 annual reporting periods beginning december 15 2017 including interim reporting periods within reporting period earlier application permitted annual reporting periods beginning december 15 2016 including interim reporting periods within reporting period guidance defines steps recognize revenue entities contracts customers well requiring significantly expanded disclosures regarding qualitative quantitative information nature amount timing uncertainty revenue cash flows arising contracts completed initial assessment asu anticipate adopting new guidance beginning february 1 2018 using full retrospective method result restatement comparative periods presented process preparing implement changes accounting policies controls business processes information systems support new revenue recognition disclosure requirements continuing evaluate potential impact asu financial position results operations 20 quarterly results unaudited quarterly results follows 1 discussed note 1 consolidated financial statements utilize multiple methods revenue recognition based nature work performed result practical allocate portion depreciation amortization cost revenues presentation gross profit 2 loss per share computed independently quarters presented sum quarters may equal total year amount due impact changes average quarterly shares outstanding incurred restructuring costs part water resources business performance initiative fy2016 restructuring plan consisting primarily costs related office closures severance costs impairment assets held sale related closure australian african entities costs support business focus strategy total impact restructuring costs 05 million 10 million 17 million 142 million first quarter second quarter third quarter fourth quarter fiscal year ended january 31 2017 respectively 1 discussed note 1 consolidated financial statements utilize multiple methods revenue recognition based nature work performed result practical allocate portion depreciation amortization cost revenues presentation gross profit 2 loss per share computed independently quarters presented sum quarters may equal total year amount due impact changes average quarterly shares outstanding second quarter fiscal year ended january 31 2016 impacted 46 million impairment charge energy services segment previously reported separate segment prior segment combined water resources segment effective third quarter fiscal year ended january 31 2016 discussed note 4 consolidated financial statements impairment charge recorded reflect reductions estimated fair value certain longlived assets part exit operations africa australia incurred restructuring costs consisting primarily severance costs personnelrelated costs well writedown carrying value inventory fixed assets total impact restructuring costs 106 million 21 million 29 million second quarter third quarter fourth quarter fiscal year ended january 31 2016 respectively 21 subsequent event february 8 2017 entered asset purchase agreement sell substantially assets heavy civil business 101 million subject certain working capital adjustments purchaser heavy civil business reycon partners llc buyer owned group private investors including members current heavy civil senior management team buyer option pay 37 million consideration form layne common stock currently owned owners buyer valued weighted average price laynes common stock 10 trading days immediately prior closing date total purchase price assets increase decrease dollarfordollar basis extent heavy civil divisions working capital less agreed upon target working capital amount addition layne buyer agreed split equally amounts received respect 35 million outstanding receivable related job contract substantially completed subject satisfaction closing conditions including obtaining required consents approvals transaction expected close within 90 days date asset purchase agreement expect recognize loss sale heavy civil business first half fiscal year ended january 31 2018 schedule ii valuation qualifying accounts 1 fiscal year ended january 31 2015 deductions allowance customer receivables primarily relates writeoff invoices certain customer well collections receivables previously reserved item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules omitted applicable required information included consolidated financial statements company notes thereto independent auditors report layne christensen company audited accompanying consolidated balance sheets layne christensen company subsidiaries together company january 31 1999 1998 related consolidated statements income stockholders equity cash flows three years period ended january 31 1999 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company january 31 1999 1998 results operations cash flows three years period ended january 31 1999 conformity generally accepted accounting principles deloitte touche llp deloitte touche llp kansas city missouri march 19 1999 layne christensen company subsidiaries consolidated balance sheets january 31 1999 1998 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated balance sheetscontinued january 31 1999 1998 thousands dollars except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income years ended january 31 1999 1998 1997 thousands dollars except per share data see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders equity years ended january 31 1999 1998 1997 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows years ended january 31 1999 1998 1997 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows continued years ended january 31 1999 1998 1997 thousands dollars see notes consolidated financial statements layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 1 summary significant accounting policies description business layne christensen company subsidiaries together company provide comprehensive services water well drilling including related equipment sales well pump repair maintenance geotechnical construction services environmental drilling regions united states provides mineral exploration drilling services primarily western united states australia africa mexico canada indonesia customers include municipalities industrial companies mining companies environmental consulting engineering firms lesser extent agribusinesses addition company manufactures diamond core bits drilling rigs equipment utilized mineral exploration mine development preconstruction analysis markets throughout united states internationally fiscal year references years fiscal years ended investment affiliated companies investments affiliates 33 50 owned company exercises significant influence operating financial policies accounted equity method financial information companys foreign affiliates reported companys consolidated financial statements one month lag reporting periods effect one month lag companys financial results significant principles consolidation consolidated financial statements include accounts company subsidiaries significant intercompany transactions eliminated use estimates preparing financial statements preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities companys mexican subsidiary primarily denominated us dollar accordingly subsidiary uses us dollar functional currency translates monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate average rates prevailing layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 year translation adjustments reported separate component accumulated comprehensive income loss result acquisition australian company 1998 see note 2 company reflected substantial changes cumulative translation account 1999 1998 primarily attributed devaluation australian dollar net foreign currency transaction gains losses 1999 1998 1997 significant revenue recognition revenue recognized large longterm contracts using percentage completion method based upon materials installed labor costs incurred changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined revenue recognized smaller shortterm contracts using completed contract method provisions estimated losses uncompleted contracts made period losses determined inventories company values inventories lower cost firstin firstout including material labor manufacturing overhead costs market thousands dollars property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 21454000 15123000 10974000 fiscal 1999 1998 1997 respectively lives used significant items within property classification follows intangible assets intangible assets consist goodwill related acquisitions purchased technical manuals assets amortized estimated economic lives range thirty thirtyfive years amortization expense intangible assets 1058000 626000 116000 1999 1998 1997 respectively investments 1999 1998 company wholly owned subsidiary layne christensen australia pty limited layne australia purchased common stock publicly traded company australian stock exchange company classified investment availableforsale layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 noncurrent investment cost basis 3538000 reported fair value approximately 1708000 january 31 1999 gross unrealized loss 1830000 net taxes 706000 january 31 1999 recorded component accumulated comprehensive income loss impairment longlived assets balance sheet date determination made management whether value longlived assets including intangible assets disposed impaired determination based several criteria including limited revenue trends undiscounted operating cash flows operating factors accrued insurance expense costs estimated incurred future employee medical benefits casualty insurance programs resulting claims incurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies see note 10 fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 1999 1998 relatively short maturity instruments investments equity securities carried quoted market values see note 8 disclosure regarding fair value indebtedness company consolidated statements cash flows highly liquid investments remaining maturity three months less time purchase considered cash equivalents amounts paid income taxes interest follows thousands dollars supplemental noncash transactions 1999 1998 company issued 9636 3524 shares common stock respectively 21504 15727 stock options respectively related 1998 1997 compensation awards 1997 company issued 31622 shares common stock employees related 1996 compensation awards total value awards approximately 206000 113000 339000 respectively accrued january 31 1998 1997 1996 respectively income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities see note 5 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive stockbased compensation stockbased compensation may accounted either based estimated fair value awards date granted sfas 123 method based difference market price stock date grant amount employee must pay acquire stock apb 25 method company uses apb 25 method account stockbased compensation programs see note 9 pro forma net income 1999 1998 1997 determined sfas 123 method applied would 936000 11204000 7842000 respectively basic diluted earnings per share would 008 1999 111 106 respectively 1998 088 086 respectively 1997 comprehensive income accumulated balances comprehensive income follows thousands dollars reclassifications certain 1998 1997 amounts reclassified conform 1999 presentation 2 acquisitions march 26 1998 company completed transaction purchase certain assets hydro group inc new jerseybased drilling contractor hydro acquisition approximately 6293000 cash acquisition accounted using purchase method accounting accordingly operations hydro group inc included date acquisition taken place february 1 1998 pro forma operating results would significantly different reported december 31 1998 company also acquired certain assets colog inc geophysical services company based golden colorado approximately 800000 cash acquisition accounted using purchase method accounting acquisition taken place february 1 1998 pro forma operating results would significantly different reported layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 january 20 1999 company acquired outstanding stock tecniwell srl manufacturer pumps accessories used geotechnical construction industry based podenzano italy approximately 1285000 cash contingent payment 500000 contingent payment held company escrow period five years date acquisition provide security company accuracy performance certain covenants guaranteed acquired company payment made end contingency period common stock company contingent stock valued 985 per share average trading price ten trading days immediately preceding acquisition accounted using purchase method accounting acquisition taken place february 1 1998 pro forma operating results would significantly different reported fiscal 1999 acquisitions following effect companys 1999 consolidated financial position thousands dollars may 20 1997 company wholly owned subsidiary layne christensen australia pty limited layne australia made tender offer security holders stanley mining services limited stanley company listed australian stock exchange stanley acquisition stanley australian mineral exploration drilling company provides services predominantly gold mining companies australia africa october 1 1996 stanley purchased 51 glindemann kitching pty ltd gk drilling contractor based operating western australia specializes diamond core exploration drilling gold projects remaining 49 gk acquired stanley july 1 1997 purchase price 7814000 purchase price paid september 5 1997 stanley acquisition substantially consummated july 25 1997 purchase price approximately 50070000 consisting cash purchase price tender offer 48337000 1733000 transaction costs company also assumed approximately 12523000 stanleys existing indebtedness company accounted acquisition using purchase method accounting stanley reflected companys results operations beginning august 1 1997 purchase price allocated based fair values assets liabilities july 31 1997 august 19 1997 company completed sale 2756565 shares common stock public offering net proceeds company offering approximately 43510000 used reduce debt incurred credit agreement connection stanley acquisition layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 following unaudited pro forma information presents summary consolidated results operations company acquisitions stanley gk stock offering occurred beginning fiscal year 1997 pro forma adjustments give effect interest expense acquisition debt amortization goodwill certain adjustments together related income tax effects pro forma financial information necessarily indicative operating results would occurred acquisition consummated february 1 1997 necessarily indicative future operating results july 1997 company also acquired outstanding stock stamm scheele inc stammscheele water well drilling maintenance company louisiana approximately 2574000 cash acquisition accounted using purchase method accounting acquisition taken place february 1 1997 pro forma operating results would significantly different reported october 1997 company also acquired certain assets afridrill limited mineral exploration company located east africa approximately 3700000 cash certain contingent future payments approximately 684000 acquisition accounted using purchase method accounting acquisition taken place february 1 1997 pro forma operating results would significantly different reported fiscal 1998 acquisitions following effect companys fiscal 1998 consolidated financial position thousands dollars 3 investments foreign affiliates companys investments foreign affiliates carried companys equity underlying net assets plus additional 4753000 result purchase accounting additional amount amortized remaining useful lives applicable underlying assets ranging 20 35 years accumulated amortization january 31 1999 1998 389000 259000 respectively affiliates generally engaged layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 mineral exploration drilling manufacture supply drilling equipment parts supplies follows financial information foreign affiliates reported one month lag reporting period summarized financial information companys foreign affiliates january 31 1999 1998 1997 years ended follows thousands dollars company transactions balances foreign affiliates resulted following amounts included consolidated financial statements january 31 1999 1998 1997 years ended thousands dollars undistributed equity earnings foreign affiliates totaled 4447000 4171000 1905000 january 31 1999 1998 1997 respectively layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 4 costs estimated earnings uncompleted contracts thousands dollars company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year 5 income taxes income taxes follows thousands dollars components income tax expense thousands dollars deferred income taxes result temporary differences financial statement tax bases companys assets liabilities sources differences cumulative tax effects thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 federal income tax purposes company net operating loss carryforward 837000 relating company acquired fiscal 1996 subject certain restrictions expires fiscal 2010 company several australian subsidiaries tax loss carryforwards totaling 5000000 january 31 1999 restrictions utilization loss carryforward period indefinite companys subsidiary mexico 200000 loss carryforward losses carried forward five years january 31 1999 undistributed earnings foreign subsidiaries foreign affiliates included 14900000 us federal income foreign withholding taxes provided foreign tax credits become available current tax law significantly reduce eliminate resulting us income tax liability reconciliation total income tax expense statutory federal rate follows thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 6 leases future minimum rental payments required operating leases initial remaining noncancellable lease terms excess one year january 31 1999 follows thousands dollars operating leases primarily automobiles small trucks office shop facilities rent expense operating leases including insignificant amounts contingent rental payments 5742000 4605000 5010000 1999 1998 1997 respectively 7 employee benefit plans company sponsors pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plan substantially equal amounts required maintain qualified status plans contributions intended provide benefits related past current service company assets plan consist primarily stocks bonds government securities following table sets forth plans funded status december 31 1998 1997 measurement dates amounts recognized companys balance sheets january 31 1999 1998 thousands dollars layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 amounts recognized companys balance sheets january 31 1999 1998 thousands dollars consist net periodic pension cost 1999 1998 1997 includes following components thousands dollars company recognized full amount actuarially determined pension liability related intangible asset unrecognized pension cost recorded charge stockholders equity giving effect related future tax benefit projected benefit obligation 1999 1998 1997 computed using discount rate 675 725 750 respectively estimated longterm rate return assets 875 benefit level assumptions 1999 1998 1997 based fixed amounts per year credited service company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 amounts accrued pension expense total union pension expense plans 683000 646000 638000 1999 1998 1997 respectively information regarding assets accumulated benefits plans made available company companys salaried certain hourly employees participate companysponsored defined contribution plans company contributions determined annually discretion board directors company total expense companys portion plans 808000 1349000 1264000 1999 1998 1997 respectively company reserves right amend terminate plans company cannot recover contributions already paid 8 indebtedness july 1997 contemporaneously consummation stanley acquisition see note 2 company amended existing credit agreement provide 100000000 reducing revolving credit facility credit agreement less outstanding letter credit commitments 20000000 sublimit january 31 1999 commitment credit agreement reduced 93000000 credit agreement used finance stanley acquisition refinance companys existing indebtedness 30000000 credit facility available working capital expenditures general corporate purposes may 1998 company entered interest rate swap agreement swap agreement bank america national trust savings association swap agreement effectively fixes interest rate 5965 plus margin currently 5 defined companys credit agreement 25000000 companys outstanding indebtedness credit agreement calls quarterly interest payments commenced august 15 1998 swap agreement terminate may 2002 january 31 1999 letters credit aggregate amount 4591000 issued behalf company credit agreement terminate july 2002 borrowings thereunder mature time layne australia eligible draw 30000000 credit agreement credit agreement provides guarantees certain companys domestic subsidiaries contains certain covenants including restrictions incurrence additional indebtedness liens sale assets dispositions transactions affiliates mandatory prepayments based proceeds sale assets debt equity securities certain financial maintenance covenants including among others minimum interest coverage maximum leverage ratios credit agreement provides interest variable rates equal loans australian dollars australian bill rate plus 50 875 depending upon debt capitalization ratios ii loans united states dollars companys option eurodollar rate plus 50 875 depending upon debt capitalization ratios alternate reference rate defined credit agreement january 31 1999 outstanding borrowings credit agreement 38500000 average interest rate 6135 variable interest rates outstanding balance approximate current market rates layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 maximum borrowings outstanding companys existing credit agreements 1999 1998 1997 49000000 58000000 7500000 respectively average outstanding borrowings 42458000 21250000 4875000 respectively weighted average interest rates 70 73 75 respectively march 1996 company completed private placement unsecured note agreement subsequently amended 25000000 senior notes senior notes bear fixed interest rate 675 due march 15 2006 annual installments 3571000 beginning march 15 2000 january 31 1999 1998 interest rate approximates market similar securities financial guarantees covenants similar credit agreement loan costs incurred securing longterm financing amortized term respective loan agreement amortization costs 1999 1998 1997 252000 180000 171000 respectively amortization loan costs included interest expense statements income longterm debt follows thousands dollars january 31 1999 longterm debt mature follows thousands dollars 9 stock option plans october 1998 company adopted rights agreement whereby company authorized declared dividend one preferred share purchase right outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 25 companys common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 4500 company entitled redeem right 01 per right time person acquired 25 companys outstanding common stock rights expire 10 years date grant layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 company reserved 500000 shares common stock issuance employee incentive compensation plans issuance shares plans based performance determined annually committee appointed companys board directors 1999 1998 1997 9636 3524 31622 shares respectively issued 1372 1520 1075 per share respectively company also two stock option plans provide granting options purchase aggregate 2000000 shares common stock price fixed board directors committee significant option groups outstanding january 31 1999 related weighted average price life information follows options granted exercise price equal fair market value companys common stock date grant weighted average fair value date grant options granted fiscal year 1999 1998 1997 543 802 698 per option respectively options generally ten year term date grant vest ratably five years fair value options date grant estimated using blackscholes model following weighted average assumptions layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 10 contingencies companys drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice turnkey basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection provision services products litigation arising occurrences may result companys named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance business interruption insurance respect foreign operations company involved various matters litigation claims disputes arisen ordinary course companys business resolution matters may impact financial results period matter resolved company believes ultimate disposition matters aggregate layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 material adverse effect upon business consolidated financial position results operations cash flows 11 operating segments foreign operations company multinational company operating predominantly two operating segments first operating segment includes companys drilling operations wholly owned operations united states australia east africa mexico canada indonesia thailand well 50 owned joint venture west africa consolidated companys january 31 1999 financial statements drilling operation segment derives revenues water well drilling maintenance mineral exploration drilling geotechnical drilling environmental drilling services second operating segment includes manufacturing supply drilling equipment parts supplies manufacturing supply operations primarily united states refer note 3 information foreign investments revenues operating income total assets capital expenditures depreciation amortization pertaining companys operating segments presented thousands dollars total revenues foreign subsidiaries revenues related operations subsidiaries intersegment sales accounted based estimated fair market value products sold computing operating income foreign subsidiaries allocations general corporate expenses made total assets foreign subsidiaries assets related operations subsidiaries including goodwill associated stanley acquisition corporate assets company directly associated operating segment consist primarily cash deferred income taxes investments foreign affiliates see note 3 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 1999 1998 1997 manufacturing supply sales unaffiliated customers approximately 3909000 9581000 10023000 1999 1998 1997 respectively export sales principally latin south america 12 quarterly results unaudited quarterly financial data follows see note 2 regarding stanley acquisition thousands dollars except per share data schedule ii layne christensen company subsidiaries valuation qualifying accounts thousands dollars represents reserves recorded connection dissolution investment domestic affiliate see note 12 consolidated financial statements b represents reserves recorded connection various acquisitions see note 2 consolidated financial statements item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedule layne christensen company subsidiaries page schedules omitted applicable required information included consolidated financial statements notes thereto index financial statements report independent registered public accounting firm board directors stockholders layne christensen company woodlands texas audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2014 2013 related consolidated statements operations comprehensive loss equity cash flows three years period ended january 31 2014 audits also included financial statement schedule listed index item 8 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2014 2013 results operations cash flows three years period ended january 31 2014 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states companys internal control financial reporting january 31 2014 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission report dated may 1 2014 expressed unqualified opinion companys internal control financial reporting sdeloitte touche llp houston texas may 1 2014 index financial statements layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements continued index financial statements layne christensen company subsidiaries consolidated balance sheets continued see notes consolidated financial statements index financial statements layne christensen company subsidiaries consolidated statements operations see notes consolidated financial statements index financial statements layne christensen company subsidiaries consolidated statements comprehensive loss see notes consolidated financial statements index financial statements layne christensen company subsidiaries consolidated statements equity see notes consolidated financial statements index financial statements layne christensen company subsidiaries consolidated statements cash flow see notes consolidated financial statements index financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “layne” “our” global water management construction drilling company layne operates throughout north america well parts africa australia south america italy customers include government agencies investorowned water utilities industrial companies global mining companies consulting engineering firms heavy civil construction contractors oil gas companies agribusinesses layne ownership interest certain foreign affiliates operating mexico latin america see note 3 consolidated financial statements fiscal year layne’s fiscal year end january 31 references fiscal years twelve months ended investment affiliated companies investments affiliates 20 50 owned layne ability exercise significant influence hold controlling interest operating financial policies accounted equity method layne’s investments affiliates carried cost investment consideration date acquired plus layne’s equity undistributed earnings losses date layne evaluates equity method investments impairment least annually events changes circumstances indicate loss value investment temporary decline principles consolidation consolidated financial statements include accounts layne subsidiaries exercises control investments subsidiaries whollyowned layne exercises control equity held minority owners portions net income loss reflected noncontrolling interests significant intercompany accounts transactions eliminated consolidation notes consolidated financial statements dollar share amounts tabulations thousands dollars shares respectively unless otherwise indicated presentation borrowings payments revolving loan facilities previously reported net borrowings revolving loan facilities net repayments revolving loan facilities within consolidated statement cash flows rather gross amounts required asc 230 “statement cash flows” presentation years ended january 31 2013 2012 corrected accompanying consolidated financial statements present borrowing payments revolving loan facilities gross basis rather net basis conform requirement change presentation effect net cash provided used financing activities affect layne’s consolidated balance sheets statements operations accordingly layne’s historical net loss per share total assets cash equivalents remain unchanged use changes estimates preparation financial statements conformity accounting principles generally accepted us requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period estimates assumptions future events effects cannot perceived certainty accordingly estimates may change new events occur experience acquired additional information obtained layne’s operating environment changes layne believes estimates assumptions used preparation consolidated financial statements appropriate actual results could differ estimates foreign currency transactions translation accordance asc topic 830 “foreign currency matters” gains losses resulting foreign currency transactions included consolidated statements operations assets liabilities nonus subsidiaries whose functional currency local index financial statements currency translated us dollars exchange rates prevailing balance sheet date revenues expenses translated average exchange rates year net exchange differences resulting translations reported accumulated comprehensive income loss cash flows financing activities layne’s mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency foreign subsidiaries affiliates use local currencies functional currency net foreign currency transaction losses fy2014 fy2013 fy2012 11 million 14 million 03 million respectively recorded income expense net accompanying consolidated statements operations revenue recognition revenues recognized large longterm construction contracts meeting criteria asc topic 60535 “constructiontype productiontype contracts” using percentageofcompletion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised nature accounting contracts refinements estimating process changing conditions new developments continuous characteristic process many factors change contract performance period result change contract profitability one financial reporting period another factors change estimate total contract revenue cost include differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revision costs income recognized period revisions determined provisions estimated losses uncompleted construction contracts made period losses determined estimate contract indicates loss entire loss recorded accounting period estimated management focuses evaluating performance contracts individually ordinary course business least quarterly layne prepares updated estimates total forecasted revenue cost profit loss contract cumulative effect revisions estimates total forecasted estimates total forecasted revenue costs including unapproved change orders claims course contract reflected accounting period facts caused revision become known layne many contracts process given time changes estimates offset minimizing impact overall profitability however large changes cost estimates larger complex construction projects material impact financial statements reflected results operations become known layne records revenue contracts relating unapproved change orders claims including revenue amount less equal amount costs incurred us date contract price adjustments layne seeks collect customers delays errors specifications designs change orders dispute unapproved scope price unanticipated additional costs case recovery costs considered probable amount unapproved change orders claim revenues included consolidated balance sheets part costs estimated earnings excess billings determining likelihood eventual recovery layne considers factors experience similar projects experience customer new facts become known adjustment estimated recovery made reflected current period allowed asc topic 60535 revenue recognized smaller shortterm construction contracts using completed contract method provisions estimated losses uncompleted construction contracts made period losses determined layne determines contracts completed based acceptance customer contracts mineral exploration drilling services within mineral services billable based quantity drilling performed revenues recognized terms value total work performed date basis actual footage meterage drilled revenues direct sales equipment ancillary products provided conjunction performance construction contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur index financial statements revenues sale oil gas layne’s discontinued energy division recognized basis volumes sold time delivery end user interstate pipeline net amounts attributable royalty working interest holders layne’s revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories layne values inventories lower cost market cost us inventories majority foreign operations determined using average cost method approximates fifo inventories consist primarily finished goods supplies raw materials finished goods 40 million 32 million supplies 396 million 449 million raw materials 31 million 18 million included inventories consolidated balance sheet january 31 2014 2013 respectively property equipment related depreciation property equipment including major renewals improvements recorded cost less accumulated depreciation provided using straightline method depreciation expense 599 million 595 million 550 million fy2014 fy2013 fy2012 respectively useful lives used items within property classification follows oil gas properties mineral interests layne sold assets energy division october 1 2012 prior sale layne followed fullcost method accounting oil gas properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs included lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells salaries benefits internal salaryrelated costs directly attributable activities costs associated production general corporate activities expensed period incurred normal dispositions oil gas properties accounted adjustments capitalized costs gain loss recognized capitalized costs depleted based units production depletion expense 29 million fy2013 reserve estimates prior sale assets energy division layne’s estimates oil gas reserves necessity projections based geologic engineering data uncertainties inherent interpretation data well projection future rates production timing development expenditures reserve engineering subjective process estimating underground accumulations oil gas difficult measure accuracy reserve estimate function quality available data engineering geological interpretation judgment estimates economically recoverable gas reserves future net cash flows necessarily depend upon number variable factors assumptions historical production area compared production producing areas assumed effects regulations governmental agencies assumptions governing oil gas prices future operating costs severance ad valorem excise taxes development costs workover remedial costs may fact vary considerably actual results reasons estimates economically recoverable quantities oil gas attributable particular group properties classifications reserves based risk recovery estimates future net cash flows expected may vary substantially significant variance assumptions would materially affected estimated quantity value reserves would affected carrying value oil gas properties rate depletion oil gas properties actual production revenues expenditures respect reserves could varied estimates variances could material goodwill accordance asc topic 35020 “intangiblesgoodwill other” layne required test impairment goodwill least annual basis layne conducts evaluation annually december 31 frequently events changes circumstances indicate goodwill might impaired index financial statements evaluation performed using twostep process first step fair value reporting unit compared carrying amount reporting unit including goodwill estimated fair value reporting unit less carrying amount reporting unit second step must completed order determine amount goodwill impairment recorded second step implied fair value reporting unit’s goodwill determined allocating reporting unit’s fair value assets liabilities goodwill including unrecognized intangible assets manner similar purchase price allocation resulting implied fair value goodwill results application second step compared carrying amount goodwill impairment charge recorded difference fair value estimated using discounted cash flows reporting unit marketrelated valuation models including earnings multiples comparable asset market values would level 3 valuation see note 13 consolidated financial statements discussion level 1 2 3 inputs making assessment fair value layne relies current past experience concerning industry cycles rates used discount future cash flows dependent upon interest rates cost capital point time inherent uncertainties related factors management’s judgment applying analysis goodwill impairment layne considers market approach income approach estimating fair value reporting unit analysis market approach may include use guideline transaction method guideline company method guideline transaction method makes use available transaction price data companies engaged similar lines business respective reporting unit guideline company method uses market multiples publicly traded companies operating characteristics similar respective reporting unit income approach uses projections reporting unit’s estimated cash flows discounted using weighted average cost capital reflects current market conditions layne also compares aggregate fair value reporting units market capitalization plus control premium assumptions used income approach subject change result changing economic competitive conditions follows • anticipated future cash flows longterm growth rates reporting unit income approach determining fair value relies timing estimates future cash flows including estimate longterm growth rates projections use management’s estimates economic market conditions projected period including growth rates sales estimates expected changes operating margins layne’s projections future cash flows subject change actual results achieved differ anticipated actual results could vary significantly estimates • selection appropriate discount rate income approach requires selection appropriate discount rate based weighted average cost capital analysis discount rate subject changes shortterm interest rates longterm yield well variances typical capital structure marketplace participants layne’s industry discount rate determined based assumptions would used marketplace participants reason capital structure selected marketplace participants used weighted average cost capital analysis given current volatile economic conditions possible discount rate could change see note 5 consolidated financial statements discussion impairment charges recorded fy2014 fy2012 intangible assets intangible assets primarily consist trademarks software licenses intangible assets amortized using straightline method estimated useful lives range three thirtyfive years longlived assets longlived assets including amortizable intangible assets reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable see note 5 consolidated financial statements discussion impairments recorded fy2013 fy2012 index financial statements cash equivalents layne considers investments original maturity three months less purchased cash equivalents layne’s cash equivalents subject potential credit risk cash management investment policies restrict investments investment grade highly liquid securities carrying value cash equivalents approximates fair value restricted deposits restricted deposits consist escrow funds associated primarily acquisitions allowance uncollectible accounts receivable layne makes ongoing estimates relating collectability accounts receivable maintains allowance estimated losses resulting inability customers make required payments determining amount allowance layne makes judgments creditworthiness significant customers based ongoing credit evaluations also considers review accounts receivable aging industry trends customer financial strength credit standing payment history assess probability collection bad debt expensed selling general administrative costs layne establish allowance credit losses longterm contract unbilled receivables adjustments unbilled receivables related credit quality occur accounted reduction revenue concentration credit risk layne grants credit customers may include concentrations state local governments although concentration could affect overall exposure credit risk management believes portfolio accounts receivable sufficiently diversified thus spreading credit risk manage risk management performs periodic credit evaluations layne’s customers’ financial condition including monitoring customers’ payment history current credit worthiness layne generally require collateral support trade receivables may require payment advance security form letter credit bank guarantee fy2014 fy2013 fy2012 individual customer accounted 10 layne’s consolidated revenues accrued insurance expense layne maintains insurance programs responsible certain amount claim selfinsured limit estimates recorded health welfare workers’ compensation property casualty insurance costs associated programs costs estimated based part actuarially determined projections future payments programs greater amount claims occur compared estimated costs medical profession increase beyond anticipated reserves recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms agreement various insurance carriers administering claims layne required remit total premium claims actually paid insurance companies costs expected significantly impact liquidity future periods fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2014 2013 relatively short maturity instruments see note 7 consolidated financial statements disclosure regarding fair value indebtedness layne note 13 consolidated financial statements fair value disclosures litigation contingencies layne involved litigation incidental business disposition expected material effect business financial position results operations cash flows possible however future results operations particular quarter annual period could materially affected changes layne’s assumptions related proceedings assessment contingency indicates probable material loss incurred amount liability estimated liability accrued layne’s consolidated financial statements index financial statements assessment indicates potentially material loss contingency probable reasonably possible probable cannot estimated nature contingent liability estimate range possible losses determinable material disclosed provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case supplemental cash flow information amounts paid income taxes interest noncash investing financing activities follows additionally fy2012 layne entered financing obligations software licenses amounting 13 million payable three years associated assets recorded intangible assets net balance sheet income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely general layne records income tax expense interim periods based best estimate full year’s effective tax rate however income tax expense relating adjustments layne’s liabilities uncertainty income tax positions prior reporting periods accounted discretely interim period occurs income tax expense relating adjustments current year uncertain tax positions accounted component adjusted annualized effective tax rate assessing need valuation allowance layne considers positive negative evidence related likelihood realization deferred tax assets weight given positive negative evidence commensurate extent evidence may objectively verified accounting guidance states cumulative loss recent years significant piece negative evidence difficult overcome determining valuation allowance needed deferred tax assets generally difficult positive evidence regarding projected future taxable income exclusive reversing taxable temporary differences outweigh objective negative evidence recent financial reporting losses preparing future taxable income projections layne considers periods future reversals existing taxable deductible temporary differences likely occur future taxable income taxable income available prior carryback years availability taxplanning strategies determining ability realize recorded deferred tax assets see note 9 consolidated financial statements additional disclosures related realization deferred tax assets layne’s estimate uncertainty income taxes based framework established accounting income taxes guidance addresses determination tax benefits claimed expected claimed tax return recorded financial statements layne recognizes tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax positions meet recognition threshold layne applies judgment taking account applicable tax laws experience managing tax index financial statements audits determine amount tax benefits recognize financial statements position difference benefit realized layne’s tax return benefit reflected financial statements recorded liability consolidated balance sheet liability updated financial statement date reflect impacts audit settlements resolution audit issues expiration statutes limitation developments tax law ongoing discussions taxing authorities income loss per share income loss per common share computed dividing net earnings available common stockholders weighted average number common shares outstanding period periods layne recognizes net income diluted earnings per common share computed way basic earnings per common share except denominator increased include number additional common shares would outstanding potential common shares issued dilutive periods company recognizes losses calculation diluted earnings per share calculation basic earnings per share options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive convertible notes included calculation diluted loss per share inclusion dilutive ifconverted method options purchase 1311764 1285303 1133211 shares excluded weighted average shares fy2014 fy2013 fy2012 respectively effect antidilutive total 292423 275666 226919 nonvested shares excluded weighted average shares fy2014 fy2013 fy2012 respectively effect antidilutive sharebased compensation layne recognizes cost sharebased instruments financial statements using fairvalue measurement associated costs fair value sharebased compensation granted form stock options determined using lattice valuation model addition layne granted certain market based awards first second third quarters fy2014 valued using monte carlo simulation model unearned compensation expense associated issuance nonvested shares amortized straightline basis restrictions stock expire subject achievement certain contingencies research development costs research development costs charged expense fy2014 fy2013 fy2012 02 million 03 million 16 million respectively recorded selling general administrative expenses accompanying consolidated results operations new accounting pronouncements see note 17 consolidated financial statements discussion new accounting pronouncements impact 2 acquisitions fiscal year 2013 october 4 2012 layne acquired 100 stock fursol informatica srl “fursol” italian company fursol active business production marketing installation maintenance software electronic devices layne believes benefit fursol’s technology improve performance efficiency geoconstruction operations aggregate purchase price 10 million 08 million paid acquisition date remainder 02 million paid october 4 2013 purchase price allocated identifiable intangible asset associated computer software valued 15 million weightedaverage life three years noncurrent liability 05 million results operations fursol included consolidated statements operations commencing closing date significant pro forma amounts related fursol periods prior acquisition presented since acquisition would significant effect consolidated revenues net income loss index financial statements may 30 2012 layne acquired remaining 50 interest diberil sociedad anónima “diberil” uruguayan company parent company costa fortuna brazil uruguay layne expects diberil expand geoconstruction capabilities brazil market well serve platform expansion south america aggregate purchase price remaining 50 diberil 162 million comprised cash 24 million placed escrow secure certain representations warranties indemnifications layne acquired initial 50 interest diberil july 15 2010 accordance accounting guidance moving diberil fully consolidated basis layne remeasured previously held equity investment fair value recognized loss 77 million second quarter fy2013 fair value 50 noncontrolling interest estimated 158 million time adjustment fair value assessment determined based value current year transaction discounted reflect initial interest noncontrolling ready public market interest discounts lack control marketability 5 10 respectively determined based control premiums seen recent transactions construction contractor engineering services market estimate value put option restricted stock using blackscholes valuation method acquisition related costs 02 million recorded expense periods costs incurred purchase price allocation based assessment fair value assets acquired liabilities assumed using internal operational assessments analyses level 3 measurements preliminary purchase allocation recorded second quarter adjusted valuation analysis progressed result adjustment goodwill decreased 05 million initial amount adjustments made retrospectively applied acquisition date significant effect financial statements based allocation purchase price acquisition following effect layne’s consolidated financial position closing date 40 million goodwill assigned geoconstruction purchase price excess value diberil’s net assets reflects strategic value layne placed business time acquisition layne believed would benefit synergies acquired operations integrated existing operations layne hoped presence brazil would assist obtaining contracts country well south america second quarter fy2014 based continued decline revenues forecasted results experienced due sluggish economy brazil calendar year 2013 layne reassessed estimates fair value goodwill associated diberil result reassessment 40 million impairment charge recorded diberil purchase agreement provided purchase price adjustment based levels working capital debt closing adjustment resulted additional purchase price 23 million paid third quarter fy2013 total purchase price consists 162 million cash purchase price 23 million purchase price adjustment 158 million adjusted basis layne’s existing investment diberil results operations diberil included layne’s consolidated statements operations commencing closing date including consolidated equity basis results diberil contributed 81 million income taxes fy2013 compared 33 million fy2012 index financial statements assuming remaining 50 diberil acquired beginning period unaudited pro forma consolidated revenues net loss net loss per share layne would follows march 5 2012 layne acquired remaining shares layne brazil previously held noncontrolling interests shares acquired cash payments totaling 27 million conjunction acquisition layne eliminated noncontrolling interests 01 million recorded adjustment equity 27 million accordance accounting guidance fiscal year 2012 february 28 2011 layne acquired kansas colorado curedinplace pipe “cipp” operations wildcat civil services “wildcat” sewer rehabilitation contractor acquisition layne’s expansion geographic reach inliner division westward aggregate purchase price wildcat 89 million comprised cash 04 million placed escrow secure certain representations warranties indemnifications purchase price allocation based assessment fair value assets acquired liabilities assumed using internal operational assessments analyses level 3 measurements based layne’s allocations purchase price acquisition following effect layne’s consolidated financial position closing date 23 million goodwill assigned inliner purchase price excess value wildcat’s net assets reflects strategic value layne placed business layne believed would benefit synergies acquired operations integrated existing operations goodwill associated acquisition expected deductible tax purposes results operations acquired entity included consolidated statements operations commencing closing date wildcat contributed revenues loss income taxes layne period february 28 2011 january 31 2012 142 million 09 million respectively pro forma amounts related wildcat prior periods presented acquisition would significant effect consolidated revenues net income 3 investments affiliates layne’s investments affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies index financial statements july 15 2010 layne acquired 50 interest diberil sociedad anónima “diberil” uruguayan company parent company costa fortuna brazil uruguay diberil operations sao paulo brazil montevideo uruguay one largest providers specialty foundation marine geotechnical services south america interest acquired total cash consideration 149 million 101 million paid diberil shareholders 48 million paid diberil purchase newly issued diberil stock concurrent investment diberil purchased layne geobrazil equipment leasing company brazil wholly owned layne cash payment 48 million subsequent acquisition layne invested additional 13 million diberil proportionate share capital contribution see note 2 consolidated financial statements discussion layne’s acquisition remaining 50 interest diberil may 2012 summary materially jointlyowned affiliates well primary operating subsidiaries applicable percentages directly indirectly owned layne follows january 31 2014 financial information affiliates reported onemonth lag reporting period summarized financial information affiliates including diberil subsidiaries may 30 2012 layne significant transactions balances affiliates january 31 2014 2013 2012 fiscal years ended layne’s equity undistributed earnings affiliates totaled 627 million 737 million 576 million january 31 2014 2013 2012 respectively additional 46 million investment affiliates recorded equity method goodwill certain investments time acquisition index financial statements 4 costs estimated earnings uncompleted contracts costs estimated earnings uncompleted contracts consisted following layne bills customers based specific contract terms substantially billed amounts collectible within one year january 31 2014 2013 layne’s costs estimated earnings excess billings uncompleted contracts included unbilled contract retainage amounts 473 million 505 million respectively 5 impairment charges second quarter fy2014 based continued decline revenues forecasted results experienced many layne’s division layne reassessed estimates fair value reporting units circumstances indicated potential impairment goodwill geoconstruction layne assessed fair value goodwill determine carrying value exceeded fair value result analysis layne determined carrying value geoconstruction goodwill amount 146 million exceeded fair value impairment charge equal amount recorded second quarter fy2014 total assessed fair value zero determined based level 3 inputs fy2013 due underperformance certain product lines within water resources energy services layne assessed value certain longlived assets within businesses layne also assessed value certain trademarks light strategic decisions product lines result assessments layne concluded impairments value occurred layne recorded impairment charges impaired assets included specific patents trademarks property equipment carrying value assets impairment 158 million impairments totaled 84 million 44 million associated water resources 40 million associated energy services charges consisted 29 million associated intangible assets remainder consisting adjustments record tangible assets expected sales value none operations associated goodwill recorded total assessed fair value 74 million amount determined based level 1 inputs 36 million remainder based level 3 inputs see note 13 consolidated financial statements discussion level 1 2 3 inputs fy2012 connection annual goodwill impairment test result ongoing weakness municipal spending due poor economic environment changes corporate strategy revision reporting units segments declining natural gas prices layne reassessed estimates fair value reporting units circumstances indicated potential impairment goodwill index financial statements layne assessed fair value goodwill determine book value exceeded fair value result assessment layne determined carrying value goodwill 1057 million exceeded fair value layne recorded impairment charge 862 million charge 171 million related water resources 231 million inliner 446 million heavy civil 10 million discontinued energy division 04 million businesses total assessed fair value 195 million determined based level 3 inputs writeoffs result projected continued weakness demand construction projects greater persistent originally anticipated continuing projected weakness economy adversely affecting spending government agencies resulting pressures margins increased competition smaller competitors goodwill charge water resources also impacted shift corporate strategy fourth quarter focus traditional water treatment services resulting writeoff goodwill associated acquired companies heavy research development focus also fy2012 due change corporate strategy emphasize layne name layne’s services worldwide layne decided cease using certain trade names layne recorded impairment charge 94 million related trade names 91 million associated heavy civil additionally due significant underperformance certain water treatment businesses layne assessed value certain definitelived intangible assets recorded impairment charge 20 million energy services carrying value trademarks intangibles impairment 126 million total assessed fair value 12 million determined based level 3 inputs 6 goodwill intangible assets goodwill carrying amount goodwill attributed reporting segment follows 1 energy sold october 1 2012 goodwill expected tax deductible 09 million 15 million january 31 2014 2013 index financial statements intangible assets intangible assets consisted following january 31 total amortization expense intangible assets 11 million 34 million 40 million fiscal years fy2014 fy2013 fy2012 respectively amortization expense subsequent five fiscal years estimated follows 7 indebtedness debt outstanding january 31 2014 2013 whose carrying value approximates fair market value follows index financial statements january 31 2014 debt outstanding mature follows layne maintained revolving credit facility “credit agreement” extended march 25 2016 fy2014 credit agreement amended unlikely layne would compliance covenants quarters ended april 30 2013 july 31 2013 october 31 2013 details amendment fully described june 4 2013 layne lenders amended credit agreement suspend minimum fixed charge coverage ratio maximum leverage ratio covenants fiscal quarters ending july 31 october 31 2013 amendment also temporarily added minimum ebitda defined credit agreement maximum capital expenditure covenant quarterly fiscal yeartodate basis amendment also modified definition adjusted ebitda defined credit agreement exclude 30 million per quarter relocation expense related move layne’s headquarters woodlands texas connection june 2013 amendment layne domestic subsidiaries granted liens substantially assets subject certain exceptions including pledge 650 equity interests firsttier foreign subsidiaries secure obligations credit agreement amendment change term credit agreement prior june 2013 amendment credit agreement layne also maintained private shelf agreement whereby could issue 1500 million unsecured notes july 8 2021 connection june 2013 amendment credit agreement shelf agreement terminated outstanding notes time termination due continued deterioration operating results quarter ended july 31 2013 layne lenders amended credit agreement september 5 2013 september 2013 amendment credit agreement provided waiver financial covenants quarter ended july 31 2013 effective september 2013 amendment credit agreement reduced commitments 3000 million 2000 million provided interest variable rates equal layne’s option libor rate plus 15 30 base rate defined credit agreement plus 05 20 depending leverage ratio november 4 2013 layne lenders amended credit agreement among things reduce commitments credit agreement 2000 million 1800 million eliminate accordion feature credit agreement ii temporarily increase interest rate credit agreement libor plus 60 base rate plus 50 iii relax suspend certain financial covenants shortterm basis iv reduce amount capital expenditures permitted quarter v require proceeds asset sales ordinary course used repay amounts outstanding credit agreement vi decrease amount permitted investments vii permit offering convertible notes results gross proceeds least 750 million “permitted convertible notes offering” viii eliminate ability incur additional priority indebtedness defined credit agreement consummate certain acquisitions make certain restricted payments ix addback certain accruals related fcpa settlement computing consolidated ebitda defined credit agreement november 2013 amendment also provided effective upon closing permitted convertible notes offering described net proceeds offering must applied repay amounts index financial statements outstanding credit agreement pursuant terms november 2013 amendment november 12 2013 date permitted convertible notes offering closed among things commitments credit agreement reduced 1800 million 1500 million ii interest rate credit agreement reduced layne’s option either libor rate plus 40 base rate plus 30 delivery financial statements fiscal year ended january 31 2015 time interest rate vary based layne’s leverage iii minimum asset coverage ratio generally defined ratio accounts receivable inventory layne subsidiaries outstanding borrowings letters credit agreement 200 100 added credit agreement iv covenant added requiring minimum liquidity generally defined remaining amount available borrowing revolving credit facility plus 150 million unrestricted cash least 500 million v amount priority indebtedness investments acquisitions restricted payments permitted credit agreement increased although amounts lower amounts permitted prior november 2013 amendment vi financial covenants amended follows 1 maximum capital expenditures presented include rollover feature allows unused portion previous quarter’s capital expenditures carried forward utilized next quarter november 2013 convertible notes offering generated net proceeds approximately 1054 million deducting initial purchaser’s discount commission estimated offering expenses payable layne november 15 2013 layne paid outstanding balance credit agreement full proceeds offering total fees 15 million incurred connection june 2013 september 2013 november 2013 amendments amount 07 million written year ending january 31 2014 portion fee associated reduction revolver capacity associated september 2013 november 2013 amendments credit agreement remaining portion fees amortized life agreement january 31 2014 layne 299 million letters credit outstanding amount available borrowing credit agreement 1201 million january 31 2014 april 15 2014 layne entered abl facility discussed note consolidated financial statements balance owed credit agreement 15 million april 15 2014 layne used portion proceeds abl facility pay outstanding balance credit agreement cash collateralize existing outstanding letters credit 326 million credit agreement letters credit transitioned abl facility april 15 2014 layne terminated credit agreement 425 convertible senior notes due 2018 november 5 2013 layne entered purchase agreement “purchase agreement” jefferies llc “initial purchaser” relating sale layne 1100 million aggregate principal amount 425 convertible notes due 2018 “convertible notes” private placement “qualified institutional buyers” us defined rule 144a securities act purchase agreement contained customary representations warranties covenants layne together customary closing conditions terms purchase agreement layne agreed indemnify initial purchaser certain liabilities offering convertible notes completed november 12 2013 accordance index financial statements terms purchase agreement sale convertible notes generated net proceeds approximately 1054 million deducting initial purchaser’s discount commission estimated offering expenses payable layne proceeds used pay existing balance credit agreement purchase agreement also provided initial purchaser option purchase additional 150 million aggregate principal amount convertible notes december 5 2013 initial purchaser exercised option generated proceeds net initial purchaser’s discount commission amount 146 million layne used proceeds primarily increase cash hand convertible notes issued pursuant indenture dated november 12 2013 “indenture” layne us bank national association trustee convertible notes senior unsecured obligations layne convertible notes convertible option holders consideration consisting layne’s election cash shares layne’s common stock combination cash shares layne’s common stock cash lieu fractional shares close business scheduled trading day immediately preceding may 15 2018 however may 15 2018 convertible notes convertible except following circumstances 1 calendar quarter commencing calendar quarter ending december 31 2013 calendar quarter last reported sale price layne’s common stock least 20 trading days whether consecutive 30 consecutive trading days ending including last trading day immediately preceding calendar quarter greater 130 conversion price trading day 2 consecutive five business day period immediately five consecutive trading day period five consecutive trading day period referred “measurement period” trading price defined indenture per 1000 principal amount convertible notes determined following request holder convertible notes manner required indenture trading day measurement period less 98 product last reported sale price layne’s common stock conversion rate trading day 3 upon occurrence specified corporate events described indenture 4 layne called convertible notes redemption layne required settle conversions shares layne’s common stock together cash lieu fractional shares obtained stockholder approval january 31 2014 ifconverted value exceed principal amount convertible notes bear interest rate 425 per year payable semiannually arrears cash may 15 november 15 year beginning may 15 2014 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted initial conversion rate 436072 shares layne’s common stock per 1000 principal amount convertible notes equivalent initial conversion price approximately 2293 per share layne’s common stock conversion rate subject adjustment upon occurrence certain events addition layne may obligated increase conversion rate conversion occurs connection certain corporate events including layne’s calling convertible notes redemption november 15 2016 prior maturity date layne may redeem less convertible notes cash sale price layne’s common stock equals exceeds 130 applicable conversion price specified time period ending trading day immediately prior date layne delivers notice redemption price equal 100 principal amount convertible notes redeemed plus accrued unpaid interest excluding redemption date addition upon occurrence fundamental change defined indenture holders convertible notes right option require layne repurchase convertible notes cash price equal 100 principal amount convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date accordance asc 47020 “debt conversion options” layne separately accounts liability equity conversion components convertible notes principal amount liability component convertible notes 1060 million date issuance based present value cash flows using discount rate 80 layne’s approximate borrowing rate date issuance similar debt instrument without conversion feature carrying value equity conversion component 190 million portion initial purchaser’s discount commission offering costs totaling index financial statements 08 million deferred taxes totaling 71 million allocated equity conversion component liability component accreted principal amount convertible notes using effective interest method five years accordance guidance asc 47020 asc 81515 “embedded derivatives” layne determined embedded conversion components embedded derivatives convertible notes require bifurcation separate accounting following table presents carrying value convertible notes january 31 2014 thousands 1 january 31 2014 remaining period unamortized debt discount amortized 57 months using effective interest rate 9 assetbacked revolving credit facility april 15 2014 layne entered fiveyear 1350 million “maximum credit” senior secured abl facility aggregate principal amount 750 million available form letters credit aggregate principal amount 150 million available shortterm swingline borrowings availability abl facility lesser 1350 million ii borrowing base defined abl facility agreement borrowing base defined sum • 85 book value eligible accounts receivable unbilled receivables plus • 60 eligible unbilled receivables plus • real property availability plus • equipment availability minus • supplemental reserve minus • reserves established time cocollateral agents april 15 2014 initial borrowing base approximately 1310 million 390 million borrowed abl facility amount 326 million cash collateralized existing outstanding letters credit issued existing credit agreement 15 million paid terminate existing credit agreement 40 million pay commissions expenses related facility remainder working capital needs layne right request lenders increase maximum additional 650 million certain conditions satisfied currently commitments lenders increase advances abl facility subject certain conditions precedent including accuracy certain representations warranties absence default event default advances may used refinance existing credit agreement general corporate working capital purposes pay fees expenses associated abl facility index financial statements pursuant abl facility agreement revolving loans bear interest either • alternate base rate plus applicable margin alternate base rate equal highest base rate b sum federal funds open rate plus 05 c sum daily libor rate plus 1 • libor rate defined abl facility agreement interest period effect borrowing plus applicable margin swingline loans bear interest alternate base rate plus applicable margin connection letters credit issued abl facility layne pay participation fee lenders equal applicable margin time used determine interest rate eurodollar loans defined abl facility agreement average daily amount lender’s letter credit exposure well issuing bank’s customary fees changes applicable margin quarter varies based average undrawn availability abl facility prior quarter abl facility contains various restrictions covenants general provided layne maintains certain level excess availability layne restricted incurring additional unsecured indebtedness making investments distributions capital expenditures acquisitions excess availability generally defined amount total availability exceeds outstanding loans letters credit abl facility total availability equal layne’s borrowing base abl facility amount commitments abl facility general excess availability less either • 200 million • period 5 consecutive business days greater 175 total availability 250 million covenant compliance period exist excess availability equal greater 175 total availability 250 million period 30 consecutive days covenant compliance period layne subsidiaries coborrowers guarantors loan parties must maintain minimum fixed charge coverage ratio less 10 maximum first lien leverage ratio greater 50 10 tested trailing four fiscal quarter basis general covenant compliance period event default occurred continuing layne’s funds received daily basis applied reduce amounts owing abl facility based current projections layne anticipate covenant compliance period next twelve months layne continues focus ways enhance overall liquidity managing capital expenditures reviewing noncore assets potential sale assessing possible realization cash proceeds overfunding companyowned life insurance reviewing working capital practices focusing reducing costs corporate field appropriate steps currently taken management could reduce potential covenant compliance period beginning closing date abl facility layne must maintain cumulative minimum cash flow defined agreement less negative 450 million twelve consecutive month period minimum cash flow less negative 250 million last occur • period 30 consecutive days excess availability greater 175 total availability 250 million • two consecutive fiscal quarters closing date fixed charge coverage ratio tested trailing four fiscal quarter basis excess 10 index financial statements minimum cash flow defined consolidated ebitda minus sum • capital expenditures • cash interest expense • regularly scheduled amortized principal payments indebtedness • cash taxes paid • amount excess 100 million paid respect fcpa investigation event default defined abl facility agreement occurs continuing interest rate abl facility increase 2 per annum lenders may accelerate amounts owing abl facility defaults abl facility would permit lenders accelerate required payment would increase applicable interest rate 2 per annum include limited following • nonpayment principal interest fees amounts abl facility • failure comply negative covenants certain specified affirmative covenants abl facility • failure pay certain indebtedness due • specified events bankruptcy insolvency • one judgments 50 million covered insurance paid within specified period • change control defined abl facility 8 income net income net consisted following included gain disposal property surplus assets sold throughout fiscal year including items former corporate headquarters mission woods kansas also included gain disposal property equipment gain sale building massachusetts 07 million used geoconstruction operations consolidated dallas texas year april 2013 insurance proceeds received totaling 07 million payment equipment lost fire proceeds included gain disposal property equipment index financial statements july 2013 layne determined investment joint venture longer viable related investment 06 million determined unrecoverable written included table march 21 2011 layne sold operating facility fontana california intent acquiring relocating new facility interim new facility could purchased layne entered leasehold agreement existing facility total gain sale facility 64 million 14 million deferred match expected lease payments leasehold agreement fiscal year ended january 31 2012 04 million deferred gain recognized deferred gain recognized 36 month term lease september 2012 layne terminated leasehold agreement recognized remaining 07 million deferred gain sale facility fy2012 layne recognized gain 10 million sale certain investment securities australia securities received settlement previously written accounts receivable 9 income taxes loss income continuing operations income taxes consisted following components income tax benefit expense continuing operations follows index financial statements reconciliation total income tax benefit expense continuing operations statutory federal rate follows years ended january 31 tax effect pretax income loss continuing operations generally determined computation consider tax effect categories income loss example comprehensive income discontinued operations additional paid capital etc exception general rule provided pretax loss continuing operations pretax income categories income pursuant exception layne recorded income tax benefit continuing operations offsets income tax provision discontinued operations additional paid capital impact convertible notes net income loss discontinued operations fy2014 fy2013 fy2012 58 million 238 million 15 million respectively amounts net income tax expense benefits 37 million 153 million 06 million respectively effective tax rate discontinued operations 389 392 284 fy2014 fy2013 fy2012 respectively credit recognized additional paid capital relating convertible notes issued fy2014 111 million net income tax expense 71 million recorded effective rate 39 layne recorded 813 million valuation allowance continuing operations net domestic certain foreign deferred tax assets fy2014 813 million increase valuation allowance 544 million related deferred tax assets established prior year 269 million related deferred tax assets established current year total valuation allowance january 31 2014 755 million comprised domestic valuation allowance 709 million foreign valuation allowance 46 million assessing need valuation allowance layne concluded cumulative loss domestic operations adjusting significant nonrecurring charges three year period ended january 31 2014 layne considered periods future reversals existing taxable deductible temporary differences likely occur future taxable income taxable income available prior carry back years availability taxplanning strategies determining realizability recorded deferred tax assets based assessment layne concluded longer likely realization domestic deferred tax assets would occur future periods remaining net domestic deferred tax asset fully valued similar consideration given foreign deferred tax assets layne concluded certain foreign deferred tax assets longer likely realizable resulting valuation allowance recorded establishment valuation allowance impact cash allowance preclude layne using loss carryforwards utilizing deferred tax assets future index financial statements layne maintains 13 million deferred tax assets various foreign jurisdictions january 31 2014 management believes realization likely layne’s foreign subsidiaries need generate taxable income approximately 47 million respective jurisdictions deferred tax assets recorded order fully realize deferred tax asset management continue evaluate evidence future periods make determination whether likely deferred tax assets realized future periods layne cumulative three year loss position january 31 2013 2012 respectively based analysis income current prior two fiscal years adjusting significant nonrecurring charges layne determined likely deferred tax asset realizable january 31 2013 2012 respectively valuation allowance needed time portion foreign tax credit carryforwards layne continues conclude carryforward benefits may used expire deferred income taxes result temporary differences financial statement tax bases layne’s assets liabilities sources differences cumulative tax effects follows difference 813 million valuation allowance reflected fy2014 effective rate reconciliation continuing operations 661 million increase valuation allowance fy2014 reflected deferred income tax table primarily result net deferred tax liabilities established current fiscal year impact income continuing operations index financial statements layne following tax losses tax credit carryforwards january 31 2014 january 31 2014 undistributed earnings foreign subsidiaries certain foreign affiliates included 670 million federal income foreign withholding taxes provided earnings considered invested indefinitely become subject income tax remitted dividends layne sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign subsidiaries foreign affiliates earnings considered invested indefinitely september 13 2013 us treasury internal revenue service issued final tangible property regulations “tpr” internal revenue code “irc” section 162 irc section 263a regulations effective tax years beginning january 1 2014 however certain portions may require accounting method change retroactive basis thus requiring irc section 481a adjustment related buildings machinery equipment deferred taxes layne analyzed expected impact tpr concluded expected impact minimal reconciliation total income tax benefit expense continuing operations statutory federal rate follows years ended january 31 reconciliation beginning ending amount gross unrecognized tax benefits excluding penalties interest follows substantially unrecognized tax benefits recorded january 31 2014 2013 2012 would affect effective rate recognized reasonably possible amount unrecognized tax benefits decrease next year approximately 55 million due settlements audit issues expiration statutes limitation layne classifies interest penalties related income taxes component income tax expense january 31 2014 2013 2012 company 85 million 88 million 68 million respectively interest penalties accrued associated unrecognized tax benefits liability interest penalties decreased increased 03 million 20 million 16 million fy2014 fy2013 fy2012 respectively layne files income tax returns us federal jurisdiction various state jurisdictions certain foreign jurisdictions tax year ended january 31 2014 us federal statute limitations expired tax year ended january 31 2010 statute limitations remains open tax years ended january 31 2011 index financial statements 2014 layne currently examination federal purposes several state examinations currently progress layne files income tax returns foreign jurisdictions operates returns subject examination may ongoing point time tax liabilities recorded based estimates additional taxes due upon settlement examinations tax years subject examination foreign tax authorities vary jurisdiction generally tax years 2010 2014 remain open examination 10 operating lease asset retirement obligations future minimum lease payments required operating leases initial remaining noncancelable lease terms excess one year january 31 2014 follows layne’s operating leases primarily light medium duty trucks buildings equipment rent expense operating leases including insignificant amounts contingent rental payments 247 million 237 million 287 million fy2014 fy2013 fy2012 respectively january 31 2014 2013 asset retirement obligations existed asset retirement obligations consisted estimated costs dismantlement removal site reclamation similar activities associated layne’s prior oil gas properties asset retirement obligation related asset retirement cost recorded well drilled completed asset retirement cost determined based expected costs complete reclamation end well’s economic life discounted present value using credit adjusted riskfreerate initial recording liability increased passage time increase reflected consolidated results operations depreciation depletion amortization asset retirement costs capitalized part oil gas properties depleted accordingly fy2013 layne sold assets energy obligations assumed purchaser part sale asset retirement obligations recorded longterm liabilities january 31 2013 2012 follows 11 employee benefit plans layne’s salaried certain hourly employees participate layne’s sponsored defined contribution plans total expense recorded selling general administrative costs layne’s portion plans 34 million 40 million 41 million fy2014 fy2013 fy2012 respectively index financial statements layne deferred compensation plan certain management employees participants may elect defer 25 salaries 50 bonuses plan matching contributions vesting period contributions established discretion layne employee deferrals vested times total amount deferred including matching fy2014 fy2013 fy2012 08 million 13 million 20 million respectively total liability deferred compensation 97 million 124 million january 31 2014 2013 respectively liabilities included longterm liabilities layne contributes number multiemployer defined benefit pension plans terms collectivebargaining agreements cover unionrepresented employees risks participating multiemployer plans different singleemployer plans following aspects • assets contributed multiemployer plan one employer may used provide benefits employees participating employers • participating employer stops contributing plan unfunded obligations plan may borne remaining participating employers • layne chooses stop participating multiemployer plans layne may required pay plans amount based underfunded status plan referred withdrawal liability accordance accounting guidance layne evaluated multiemployer plans determine individually significant evaluation based following criteria • total employees participating multiemployer plan compared total employees covered plan • total contributions multiemployer plan percentage total contributions plan participating employers • amount potential liability could incurred due layne’s withdrawal multiemployer plan underfunded status plan participating employers’ withdrawal plan january 31 2014 2013 layne participate multiemployer plans would considered individually significant layne makes contributions multiemployer plans equal amounts accrued pension expense total contributions union pension expense plans 23 million 32 million 31 million fy2014 fy2013 fy2012 respectively information regarding assets accumulated benefits plans made available layne also provides supplemental retirement benefits former chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent defined contribution plan balance layne contribute plan maintain investment assets related expected benefit obligation layne recognized full amount actuarially determined pension liability current portion recognized layne’s consolidated balance sheet current liabilities 03 million january 31 2014 longterm portion recognized layne’s consolidated balance sheet january 31 2014 2013 50 million 56 million respectively presented separately noncurrent liabilities included longterm liabilities net periodic pension cost supplemental retirement benefits fy2014 fy2013 fy2012 00 million 14 million 11 million respectively 12 stock option plans layne stock option employee incentive plans provide granting options purchase issuance shares common stock price fixed board directors committee january 31 2014 572624 shares remain available granted plan stock options layne ability issue shares plans either new issuances treasury although previously index financial statements always issued new shares expects continue issue new shares future layne granted 22289 restricted stock units layne christensen company 2006 equity incentive plan fy2014 layne also granted 80613 performance vesting shares layne christensen company 2006 equity incentive plan fy2014 layne recognized 32 million 29 million 38 million compensation cost sharebased plans fy2014 fy2013 fy2012 respectively amounts 15 million 09 million 17 million respectively related nonvested stock total income tax benefit recognized sharebased compensation arrangements 13 million 11 million 15 million fy2014 fy2013 fy2012 respectively options granted exercise price equal fair market value layne’s common stock date grant options terms ten years date grant generally vest ratably periods one month five years fair value sharebased compensation granted form stock options determined using binomial lattice blackscholes valuation model valuations respective year made using assumptions noted following table expected volatilities based historical volatility stock price layne uses historical data estimate early exercise postvest forfeiture rates applied within valuation model riskfree interest rate periods within expected term option based us treasury yield curve effect time grant weightedaverage fair value date grant options granted fy2014 fy2013 fy2012 811 1093 1870 respectively stock option transactions fy2014 fy2013 fy2012 follows index financial statements aggregate intrinsic value calculated using difference current market price exercise price options exercise price less current market price nonvested share transactions fy2014 fy2013 fy2012 follows nonvested stock awards valued grant date closing stock price generally vest ratably service periods one five years certain nonvested stock awards vest based upon layne meeting various performance goals certain nonvested stock awards provide accelerated vesting change control defined plans equitable adjustment event changes layne’s equity structure 13 fair value measurements layne’s estimates fair value financial assets financial liabilities based framework established fair value accounting guidance framework based inputs used valuation gives highest priority quoted prices active markets requires observable inputs used valuations available three levels hierarchy follows • level 1 unadjusted quoted prices active markets identical assets liabilities • level 2 observable inputs included level 1 quoted market prices similar assets liabilities active markets quoted prices identical assets inactive markets • level 3 unobservable inputs reflecting layne’s assumptions best estimate inputs market participants would use pricing asset liability layne’s assessment significance particular input fair value entirety requires judgment considers factors specific asset liability layne’s financial instruments held fair value include index financial statements restricted deposits held acquisition escrow accounts contingent earnout acquired businesses convertible notes presented january 31 2014 2013 1 fair value contingent earnout acquired businesses determined using marktomarket modeling technique based significant unobservable inputs calculated using discounted future cash flows approach key assumptions include discount rate 412 annual revenues acquired business intevras technologies llc ranging 15 million 61 million life earnout business acquired july 2010 contingent earnout period expires july 2015 july 31 2012 contingent earnout reassessed based estimates likelihood future revenues subject earnout provisions assigned value conclusions changed january 31 2014 2 fair value convertible notes based upon observable inputs layne’s underlying stock price time value conversion option since observable quoted prices 425 convertible notes readily available 3 fair value cash surrender value companyowned life insurance based quoted prices similar assets actively traded markets financial instruments layne uses following methods assumptions estimating fair value disclosures financial instruments cash carrying amounts reported accompanying consolidated balance sheets approximates fair values classified level 1 within fair value hierarchy shortterm longterm debt fair value debt instruments classified level 2 within fair value hierarchy valued using market approach based quoted prices similar instruments traded active markets quoted prices available income approach used value instruments based present value future cash flows discounted estimated borrowing rates similar debt instruments estimated prices based current yields debt issues similar quality terms 14 contingencies layne’s drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified frequently index financial statements case layne conducts project fixedprice bundled basis layne delegates certain functions subcontractors remains responsible customer subcontracted work addition layne exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result layne named defendant lawsuits asserting large claims although maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards layne may subject able continue obtain insurance protection successful claim damage resulting hazard layne fully insured could material adverse effect layne addition layne maintain political risk insurance respect foreign operations connection updating foreign corrupt practices act fcpa policy questions raised internally late september 2010 among things legality certain payments layne agents third parties interacting government officials certain countries africa audit committee board directors engaged outside counsel conduct internal investigation review payments assistance outside accounting firms internal investigation found documents information suggesting improper payments may violate fcpa local laws made considerable period time behalf certain foreign subsidiaries layne third parties interacting government officials africa relating payment taxes importing equipment employment expatriates layne made voluntary disclosure us doj sec regarding results investigation cooperating doj sec connection review matter layne engaged discussions doj sec regarding potential resolution matters layne believes likely settlement include payment monetary fine disgorgement improper benefits may 2013 staff sec orally advised calculated estimated benefits layne allegedly improper payments plus interest thereon approximately 48 million amount accrued first quarter fy2014 based results layne’s internal investigation analysis resolution recent similar fcpa resolutions layne currently estimates potential settlement range resolving matters including amount monetary penalty disgorgement improper benefits plus interest 104 million 160 million third quarter fy2014 layne increased reserve settlement matters 48 million 104 million representing best estimate time layne provide assurances whether layne able settle amount equal current reserve within estimated settlement range whether sec doj accept voluntary settlement terms would acceptable layne furthermore layne cannot currently assess potential liability might incurred settlement reached government litigate matter based information available time additional liability related matter reasonably estimable layne continue evaluate amount liability pending final resolution investigation related settlement discussions government amount actual liability fines penalties disgorgement interest may recorded connection final settlement could significantly higher liability accrued date indication estimated disgorgement amount noted layne received proposed settlement offers sec doj assurance discussions doj sec result final settlement issues settlement reached timing settlement terms settlement would material adverse effect layne april 17 2013 individual person filed purported class action suit three layne’s subsidiaries two companies supposedly behalf lessors royalty owners 2004 present plantiff esssentially alleges layne two companies allocated market mineral leasing rights restrained trade mineral leasing within state kansas plantiff’s suit initially filed district court wilson county kansas july 3 2013 case removed codefendant us district court district kansas case still early stages proceedings layne believes meritorious legal positions continue represent defend layne’s interests vigorously matter index financial statements layne involved various matters litigation claims disputes arisen ordinary course business layne believes ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows however possible future results operations particular quarterly annual period could materially affected changes assumptions related proceedings accordance us generally accepted accounting principles layne records liability probable liability incurred amount loss reasonably estimated provisions reveiwed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case extent additional information arises strategies change possible layne’s estimate probable liability matters may change 15 discontinued operations july 31 2013 layne completed sale solmetex operation third party layne previously announced plans sell substantially assets solmetex part one layne strategy solmetex previously reported part water resources pursuant sale agreement layne received 750000 preferred units solmetex llc received 106 million cash august 1 2013 preferred units 4 yield accruing daily compounded quarterly unreturned capital unpaid preferred yield layne valued units 04 million based redemption timeline stated yield preferred units recorded valuation amount consolidated balance sheet part assets gain sale assets 83 million gain included consolidated statement operations income discontinued operations weighing alternatives second quarter fy2013 layne authorized sale energy division entered negotiations sale substantially energy division assets third party july 31 2012 layne considered energy division discontinued operation reflected retrospectively consolidated financial statements layne recorded loss 326 million july 31 2012 based difference carrying value continuing operation expected selling price less costs sell tax benefit related loss 125 million october 1 2012 layne completed sale exploration production assets energy division 150 million additional loss disposal net assets recognized pursuant sale agreement layne received 135 million time sale received 15 million october 2013 upon termination indemnification escrow fund established closing sale agreement provides additional proceeds 20 million contingent natural gas futures prices exceeding 525 per mmbtu five months given six consecutive months occurring 36 months following closing amount recorded additional proceeds conditions met financial results discontinued operations include accrual 39 million recorded fourth quarter fy2013 associated certain litigation claims related energy division retained layne financial results two discontinued operations follows index financial statements 16 segments foreign operations layne global solutions provider world essential natural resources water minerals energy management defines operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets layne’s segments defined follows water resources division water resources provides customers every aspect water supply system development technology including hydrologic design construction source supply exploration well intake construction well pump rehabilitation division also brings new technologies water wastewater markets offers water treatment equipment engineering services providing systems treatment regulated “nuisance” contaminants specifically iron manganese hydrogen sulfide arsenic radium nitrate perchlorate volatile organic compounds water resources drill deep injection wells industrial primarily power municipal clients need dispose wastewater associated processes water resources provides water systems services regions us inliner division inliner provides wide range process sanitary storm water rehabilitation solutions municipalities industrial customers dealing aging infrastructure needs inliner focuses proprietary inliner® curedinplace pipe “cipp” allows us rehabilitate aging sanitary sewer storm water process water infrastructure provide structural rebuilding well infiltration inflow reduction inliner’s trenchless technology minimizes environmental impact reduces eliminates surface social disruption construction new wetout facility completed inliner ability supply traditional felt based cipp lining tubes cured water steam well fiberglass based lining tubes cured ultraviolet light inliner somewhat unique technology liner tube manufacturer largest installer inliner cipp technology housed within layne’s family companies inliner focuses proprietary inliner cipp committed full system renewal inliner also provides wide variety rehabilitative methods including janssen structural renewal service lateral connections mainlines slip lining traditional excavation replacement uliner highdensity polyethylene fold form manhole renewal cementitious epoxy products inliner provides services regions us heavy civil division heavy civil delivers sustainable solutions government agencies industrial clients overseeing design construction water wastewater treatment plants pipeline installation addition heavy civil builds radial collector wells ranney method surface water intakes pumping stations hard rock tunnels marine construction services support world’s water infrastructure beyond water solutions heavy civil also designs constructs biogas facilities anaerobic digesters purpose generating capturing methane gas emerging renewable energy resource heavy civil provides services regions us geoconstruction division geoconstruction provides specialized geotechnical foundation construction services heavy civil industrial commercial private construction markets around globe geoconstruction expertise equipment provide appropriate deep foundation system ground improvement earth support solution applied given highly variable geological site conditions addition offers extensive experience index financial statements successful completion complex scheduledriven major underground construction projects geoconstruction provides services focused primarily foundation systems damslevees tunnel shafts utility systems subways transportation systems commercial building port facilities services offered include jet grouting structural diaphragm slurry cutoff walls cement chemical grouting drilled piles ground improvement earth retention systems geoconstruction provides services regions us well brazil uruguay italy mineral services division mineral services conducts primarily aboveground drilling activities including phases core drilling reverse circulation dual tube hammer rotary airblast methods service offerings include exploratory ‘greenfield’ definition ‘brownfield’ drilling global mining companies hire mineral services extract samples sites analyze mineral content investing heavily development extract minerals mineral services helps clients determine minable mineral deposit exists site economic viability mining site geological properties ground helps determination mine planning mineral services also offers water management expertise well soil stabilization expertise primary markets western us mexico australia south america africa mineral services also ownership interests foreign affiliates operating latin america form primary presence market energy services division energy services focuses efforts provide closed loop water management solution energy companies involved hydraulic fracturing initial focus waterstressed permian basin west texas oil provenance energy services providing water sourcing transfer treatment layne’s expertise water well drilling coupled flathose transfer solution water source well site hydraulic fracturing occurs followed treatment produced water recapture recycling water reuse hydraulic fracturing operations provides sustainable environmentally responsible solution energy companies operating part country significant water shortages drought system designed virtually surface discharge formation produced treated water energy services provide services regions us includes specialty purchasing operations included one divisions financial information layne’s segments presented unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include accounting financial reporting internal audit treasury corporate securities law tax compliance executive management board directors corporate assets directly associated segment consist primarily cash deferred income taxes index financial statements index financial statements index financial statements 17 new accounting pronouncements july 2013 fasb issued asu 201311 “presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists” effective fiscal years beginning december 15 2013 pronouncement provides explicit guidance presentation unrecognized tax benefits nol carryforwards tax credit carryforwards tax losses occur layne elected adopt pronouncement effective quarter ending july 31 2013 adoption pronouncement material impact consolidated financial statements february 2013 fasb issued asu 201302 “reporting amounts reclassified accumulated comprehensive income” effective fiscal years interim periods within years beginning december 15 2012 requires layne present information significant items reclassified accumulated comprehensive income aoci either face income statement well additional disclosures changes aoci component separate disclosure notes consolidated financial statements adoption pronouncement material impact consolidated financial statements july 2012 fasb issued asu 201202 “testing indefinitelived intangible assets impairment” “asu 201202” effective annual interim impairment tests performed fiscal years beginning september 15 2012 guidance permits entity first assess qualitative factors determine whether likely indefinitelived intangible asset impaired basis determining whether necessary perform quantitative impairment test accordance subtopic 35030 intangiblesgoodwill othergeneral intangibles goodwill morelikely thannot threshold defined likelihood 50 percent layne determines likely asset impaired option calculate annually fair value indefinitelived intangible asset adoption asu 201202 significant impact consolidated financial statements fasb issued asu 201108 “testing goodwill impairment” “asu 201108” effective annual reporting periods interim periods within years beginning december 15 2011 provisions asu 201108 gives entities testing goodwill impairment option performing qualitative assessment calculating fair value reporting unit step 1 goodwill impairment test entities determine basis qualitative factors fair value reporting unit likely less carrying amount twostep impairment test would required otherwise testing would index financial statements needed since layne chosen perform optional qualitative assessment adoption asu 201108 significant impact consolidated financial statements 18 relocation september 2013 layne moved new corporate headquarters woodlands texas suburb houston move involved executive positions layne’s corporate leadership well certain management staff positions senior executives layne’s six divisions ultimately consolidate houston headquarters relocation substantially complete expenses 86 million 27 million incurred fiscal years ended january 31 2014 2013 respectively expenses included selling general administrative expenses consolidated statements operations consist primarily employee relocation costs severance employee retention arrangements 19 quarterly results unaudited quarterly results follows 1 discussed note 1 consolidated financial statements layne utilizes multiple methods revenue recognition based nature work performed result practical allocate portion depreciation amortization cost revenues presentation gross profit 2 earnings loss per share computed independently quarters presented sum quarters may equal total year amount due impact changes average quarterly shares outstanding fourth quarter fy2014 impacted changes estimate incentive compensation 74 million result decrease results operations experienced year plans discretionary nature subject board approval expense reduced fourth quarter results year reviewed executive team also fourth quarter fy2014 layne modified vacation policy resulting decrease expense 45 million change estimate second quarter fy2014 impacted 146 million impairment charge recorded geoconstruction representing total carrying value goodwill layne reassessed estimates fair value goodwill division result continuing weakness discussed note 5 consolidated financial statements based analysis determined carrying value goodwill exceeded fair value also second quarter fy2014 company recorded 506 million valuation allowance us deferred tax assets discussed note 9 consolidated financial statements allowance recorded result continued weakness mineral services geoconstruction index financial statements 1 discussed note 1to consolidated financial statements layne utilizes multiple methods revenue recognition based nature work performed result practical allocate portion depreciation amortization cost revenues presentation gross profit 2 earnings loss per share computed independently quarters presented sum quarters may equal total year amount due impact changes average quarterly shares outstanding second quarter fy2013 impacted 200 million net tax write energy upon classification discontinued operations upon entry negotiations sell assets division third party additionally layne acquired remaining 50 diberil sociedad anónima diberil” previously accounted equity investment accordance accounting guidance moving diberil fully consolidated basis layne remeasured previously held equity investment fair value recognized loss 77 million period fourth quarter fy2013 impacted decrease global prices precious metals drove significant decrease demand services offered mineral services additionally revenues generated heavy civil decreased focus shifted pursue higher margin opportunities higher anticipated costs legacy projects inability cover administrative overhead costs lower activity levels fourth quarter resulted decrease operating results noncash impairment charge 84 million also recorded period long lived assets 20 subsequent events january 31 2014 layne maintained bank account country mauritania recorded balance approximately 16 million subsequent year end country’s taxing authorities issued tax assessment primarily related income taxes approximately 14 million company advisors engaged process obtain relief assessment including making payment approximately 02 million proposal remit additional funds course following two years company continued efforts contest certain aspects assessment taxing authorities instead seized funds remaining company’s bank account totaling approximately 12 million satisfaction assessed taxes january 31 2014 layne accrued amount current liabilities discussed note 7 consolidated financial statements april 15 2014 layne entered new fiveyear 1350 million senior secured abl facility aggregate principal amount 750 million available form letters credit aggregate principal amount 150 million available shortterm swingline borrowings abl facility bear interest rate libor plus 275 325 depending average utilization determined quarterly layne ability request increase index financial statements borrowing capacity additional 650 million initial borrowing base calculated approximately 1310 million amount 390 million initially borrowed pay fees 40 million conjunction transaction cash collateralization 326 million existing outstanding letters credit pay outstanding balance existing credit agreement 15 million remainder initial working capital needs conjunction entering agreement layne terminated prior 1500 million credit agreement index financial statements supplemental information oil gas producing activities unaudited discussed note 15 consolidated financial statements fy2013 layne completed sale substantially assets energy division january 31 2014 2013 layne oil gas producing activities accordingly information presented includes information operations completion sale october 1 2012 layne’s oil gas activities primarily conducted us results operations oil gas producing activities results operations relating oil gas producing activities set forth following tables years ended january 31 2013 2012 dollar per mcf basis include revenues operating costs directly attributable oil gas producing activities general corporate overhead interest costs transportation third party gas nonoil gas producing activities excluded income tax expense calculated applying statutory tax rates revenues deducting costs include depletion allowances proved oil gas reserve quantities proved oil gas reserve quantities january 31 2012 based estimates prepared accordance requirements sec layne’s reserves located within u proved oil gas reserves estimated quantities oil natural gas geological engineering data demonstrate reasonable certainty recoverable future years known reservoirs economic operating conditions effect estimates made proved developed reserves expected recovered wells equipment operating methods existing estimates index financial statements made proved undeveloped reserves expected recovered new wells undrilled acreage existing wells relatively major expenditure required recompletion january 31 2012 layne total proved reserves 22465 mmcf including proved developed reserves 19294 mmcf proved undeveloped reserves 3171 mmcf proved developed reserves included 398 mmcfe gas equivalents oil estimated quantities total proved oil gas reserves follows standardized measure discounted future net cash flows relating proved oil gas reserve quantities price used determining future cash inflows purposes standardized measure discounted future net cash flows unweighted arithmetic average firstdayofthemonth spot price month within 12month period end reporting period future cash inflows also incorporate effect contractual arrangements fixedprice physical delivery forward sales contracts price used determinations january 31 2012 382 per mcf future production development costs represent estimated future expenditures incurred developing producing proved reserves assuming continuation existing economic conditions future income tax expense computed applying statutory rates pretax cash flows relating estimated proved reserves difference book tax basis proved properties information purport present fair market value oil gas assets present standardized disclosure concerning possible future net cash flows would result assumptions used following table sets forth unaudited information concerning future net cash flows oil gas reserves net income tax expense index financial statements principal sources change standardized measure discounted future net cash flows index financial statements layne christensen company subsidiaries schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedule schedules omitted applicable required information included consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders layne christensen company opinion financial statements audited accompanying consolidated balance sheets layne christensen company subsidiaries “company” january 31 2018 2017 related consolidated statements operations comprehensive loss equity cash flows three years period ended january 31 2018 related notes financial statement schedule listed index item 8 collectively referred financial statements opinion financial statements present fairly material respects financial position layne christensen company subsidiaries january 31 2018 2017 results operations cash flows three years period ended january 31 2018 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states pcaob companys internal control financial reporting january 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated april 10 2018 expressed unqualified opinion companys internal control financial reporting basis opinion financial statements responsibility companys management responsibility express opinion financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion deloitte touche llp houston texas april 10 2018 served companys auditor since least 1990 however specific date determined layne christensen company subsidiaries consolidated balance sheets see notes consolidated financial statements layne christensen company subsidiaries consolidated statements operations see notes consolidated financial statements layne christensen company subsidiaries consolidated statements comprehensive loss see notes consolidated financial statements layne christensen company subsidiaries consolidated statements equity see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows see notes consolidated financial statements notes consolidated financial statements 1 summary significant accounting policies description business layne christensen company subsidiaries together “layne” “company” “we” “our” “us” global water management drilling infrastructure services drilling company providing responsible solutions world essential natural resources water minerals energy offer innovative sustainable products services enduring commitment safety excellence integrity primarily operate north america brazil affiliates latin america customers include government agencies investorowned utilities industrial companies global mining companies consulting engineering firms oil gas companies power companies agribusinesses ownership interest certain foreign affiliates operating latin america see note 5 consolidated financial statements fiscal year fiscal year end january 31 references fiscal years “fy” twelve months ended january 31 year principles consolidation consolidated financial statements include accounts subsidiaries exercise control investments subsidiaries whollyowned exercise control equity held minority owners portions net income loss reflected noncontrolling interests intercompany accounts transactions eliminated consolidation notes consolidated financial statements dollar share amounts tabulations thousands dollars shares respectively unless otherwise indicated investment affiliated companies investments affiliates 20 50 owned ability exercise significant influence hold controlling interest operating financial policies accounted equity method performed qualitative assessment determine existence events circumstances would lead determination triggering event occurred would indicate loss value investment conclusion reached would required perform quantitative impairment assessment value investments however assessment leads determination fair value investments greater carrying amount assessments required fiscal year ended january 31 2017 performed quantitative assessment january 31 2018 performed qualitative assessment concluded triggering events occurred would indicate loss value accordingly impairment charge recorded either year distributions equity method investees accounted using cumulative earnings approach consolidated statement cash flows distributions received considered returns investment classified cash inflows operating activities unless investor’s cumulative distribution received less distributions received prior periods determined returns investment exceed cumulative equity earnings recognized investor excess occurs currentperiod distribution excess considered return investment classified cash inflows operating activities presentation discussed note 16 consolidated financial statements first quarter fy2018 completed sale substantially assets heavy civil businesses third quarter fiscal year ended january 31 2016 completed sale geoconstruction business segment results operations related heavy civil geoconstruction business classified discontinued operations periods presented unless noted otherwise discussion notes consolidated financial statements pertain continuing operations business segments report financial results three reporting segments consisting water resources inliner mineral services report corporate expenses title “unallocated corporate” unallocated corporate expenses primarily consist general administrative functions performed companywide basis benefiting segments costs include expenses related accounting financial reporting internal audit treasury legal tax compliance executive management board directors use changes estimates preparation consolidated financial statements conformity gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure assets liabilities date financial statements reported amounts revenues expenses reporting period estimates assumptions future events effects cannot perceived certainty accordingly estimates may change new events occur experience acquired additional information obtained operating environment changes believe estimates assumptions used preparation consolidated financial statements appropriate actual results could differ estimates foreign currency transactions translation accordance asc topic 830 “foreign currency matters” gains losses resulting foreign currency transactions included consolidated statements operations assets liabilities nonus subsidiaries whose functional currency local currency translated us dollars exchange rates prevailing balance sheet date net foreign currency exchange differences resulting translations reported accumulated comprehensive loss revenues expenses translated average foreign currency exchange rates year cash flows financing activities operations mexico primarily denominated us dollars accordingly operations use us dollar functional currency monetary assets liabilities remeasured period end foreign currency transactions measured current exchange rate nonmonetary items measured historical foreign currency exchange rates exchange rate differences reported consolidated statement operations net foreign currency transaction losses 02 million 02 million 01 million fiscal years ended january 31 2018 2017 2016 respectively recorded expense income net accompanying consolidated statements operations revenue recognition revenues recognized large longterm drilling infrastructure services contracts meeting criteria asc topic 60535 using percentage completion method based upon ratio costs incurred total estimated costs completion contract price cost estimates reviewed periodically work progresses adjustments proportionate percentage completion reflected contract revenues reporting period estimates revised nature accounting contracts using percentage completion method refinements estimating process changing conditions new developments may occur characteristic process many factors change contract performance period result change contract profitability including differing site conditions extent contract remedies unavailable availability skilled contract labor performance major material suppliers performance major subcontractors unusual weather conditions unexpected changes material costs factors may result revisions costs income recognized period revisions become known provisions estimated losses uncompleted drilling infrastructure services contracts made period losses become known estimate contract indicates loss entire loss recorded accounting period facts caused revision become known management evaluates performance contracts individual basis ordinary course business least quarterly prepare updated estimates cost profit loss contract cumulative effect revisions estimates total forecasted revenue costs including unapproved change orders claims course contract reflected accounting period facts caused revision become known large changes cost estimates larger complex drilling infrastructure services projects material impact financial statements reflected results operations become known fiscal years ended january 31 2018 2017 2016 approximately 63 million 98 million 29 million losses open contracts recorded respectively record revenue contracts relating unapproved change orders claims including revenue amount less equal amount costs incurred us date contract price adjustments seek collect customers delays errors specifications designs change orders dispute unapproved scope price unanticipated additional costs case recovery costs considered probable amount unapproved change orders claims revenues included consolidated balance sheets part costs estimated earnings excess billings uncompleted contracts see note 2 consolidated financial statements determining likelihood eventual recovery consider factors experience similar projects experience customer new facts become known adjustment estimated recovery made reflected current period allowed asc topic 60535 revenue recognized smaller shortterm drilling infrastructure services contracts using completed contract method provisions estimated losses uncompleted drilling infrastructure services contracts made period losses become known reported cost revenues consolidated statements operations determine shortterm contracts completed based acceptance customer revenues drilling contracts within mineral services primarily recognized terms value total work performed date basis actual footage drilled meterage drilled services performed revenues direct sales equipment ancillary products provided conjunction performance drilling infrastructure services contracts recognized date delivery acceptance customer provisions estimated warranty obligations made period sales occur revenues presented net taxes imposed revenueproducing transactions customers limited sales use valueadded excise taxes inventories february 2017 adopted accounting standards update “asu” 201511 “inventory simplifying measurement inventory” issued financial accounting standards board “fasb” july 22 2015 prospective basis january 31 2017 inventories valued lower cost net realizable value inventories january 31 2017 valued lower cost market implementation result material difference reported inventory values cost us inventories majority foreign operations determined using average cost method inventories consist primarily supplies raw materials supplies 177 million 164 million raw materials 23 million 23 million included inventories net reserves 08 million 09 million consolidated balance sheets january 31 2018 2017 respectively discussed note 18 consolidated financial statements part restructuring activities africa australia recorded writedown inventory fiscal year ended january 31 2016 amounting 79 million included part cost revenues consolidated statement operations property equipment property equipment including major renewals improvements recorded cost less accumulated depreciation provided using straightline method useful lives used items within property classification follows property equipment reviewed impairment whenever events changes circumstances indicate carrying value may recoverable recoverability evaluated comparing carrying value assets undiscounted associated cash flows comparison indicates carrying value asset greater undiscounted cash flows loss recognized difference carrying value estimated fair value fair value determined based either market quotes appropriate valuation techniques see note 4 consolidated financial statements discussion fixed asset impairments recognized fiscal year ended january 31 2016 discussed note 18 consolidated financial statements fiscal year ended january 31 2016 implemented plan exit operations africa australia result decision determined likely certain fixed assets sold otherwise disposed end estimated useful lives recorded charges approximately 129 million 39 million fiscal years ended january 31 2017 2016 respectively adjust carrying values property equipment africa australia estimated fair values based upon valuation information includes available thirdparty quoted prices appraisals assets calculating impairment fiscal year ended january 31 2017 carrying amount assets included cumulative currency translation adjustment related african australian entities charges shown part restructuring costs consolidated statement operations reflect property assets held sale management authority approve action commits plan sell asset sale probable within one year asset available immediate sale present condition also consider whether active program locate buyer initiated whether asset marketed actively sale price reasonable relation current fair value whether actions required complete plan indicate unlikely significant changes plan made plan withdrawn upon designation asset held sale record carrying value asset lower carrying value estimated fair value less estimated costs sell cease recording depreciation discontinued operations adopted accounting standards update 201408 reporting discontinued operations disclosures disposals components entity february 1 2015 guidance discontinued operation defined disposal component group components disposed classified held sale represents strategic shift major effect entity’s operations financial results see note 16 consolidated financial statements discussion discontinued operations goodwill accordance asc topic 35020 “intangiblesgoodwill other” required test impairment goodwill least annual basis conduct evaluation annually december 31 frequently events changes circumstances indicate goodwill might impaired reporting units based organizational reporting structure three reportable segments corporate assets liabilities allocated reporting units extent relate operations reporting units determining carrying amount option first performing qualitative assessment determine existence events circumstances would lead determination likely fair value reporting unit less carrying amount conclusion reached would required perform quantitative impairment assessment goodwill however assessment leads determination likely fair value reporting unit greater carrying amount assessments required december 31 2017 2016 performed qualitative assessment annual goodwill impairment test determined likely fair value inliner reporting unit goodwill would exceed carrying value january 31 2018 2017 89 million goodwill consolidated balance sheets goodwill attributable inliner reporting segment goodwill expected tax deductible 09 million january 31 2018 2017 intangible assets intangible assets finite lives primarily consist tradenames patents rightofways intangible assets amortized using straightline method estimated useful lives range ten thirtyfive years finitelived intangible assets reviewed recoverability whenever events changes circumstances indicate carrying amount asset may recoverable cash equivalents restricted deposits consider investments original maturity three months less purchased cash equivalents cash equivalents subject potential credit risk cash management investment policies restrict investments investment grade highly liquid securities carrying value cash equivalents approximates fair value restricted deposits consist escrow funds related certain disposition judicial deposits associated tax related legal proceedings brazil statement cash flows explains change total cash equivalents restricted deposits following table provides reconciliation cash equivalents restricted deposits reported within consolidated balance sheet sum total amounts consolidated statements cash flows january 31 2018 2017 2016 allowance uncollectible accounts receivable make ongoing estimates relating collectability accounts receivable maintain allowance estimated losses resulting inability customers make required payments determining amount allowance make judgments creditworthiness customers based ongoing credit evaluations also consider review accounts receivable aging industry trends customer financial strength credit standing payment history assess probability collection bad debt expense recorded part selling general administrative expenses consolidated statement operations amounted 02 million 07 million 04 million fiscal years ended january 31 2018 2017 2016 respectively establish allowance credit losses longterm contract unbilled receivables adjustments unbilled receivables related credit quality occur accounted reduction revenue concentration credit risk grant credit customers may include concentrations state local governments although concentration could affect overall exposure credit risk believe portfolio accounts receivable sufficiently diversified thus spreading credit risk manage risk perform periodic credit evaluations customers’ financial condition including monitoring customers’ payment history current credit worthiness generally require collateral support trade receivables may require payment advance security form letter credit bank guarantee fiscal years ended january 31 2018 2017 2016 individual customer accounted 10 consolidated revenues accrued insurance maintain insurance programs responsible amount claim selfinsured limit estimates recorded health welfare workers’ compensation property casualty insurance costs associated programs costs estimated based part actuarially determined projections future payments programs include amounts incurred reported greater amount claims occur compared estimated costs medical profession increase beyond anticipated accruals recorded may sufficient additional costs consolidated financial statements could required costs estimated incurred future employee health welfare benefits workers’ compensation property casualty insurance programs resulting claims incurred accrued currently terms agreement various insurance carriers administering claims required remit total retained risk amounts claims actually paid insurance companies fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximated fair value january 31 2018 2017 relatively short maturity instruments see note 14 consolidated financial statements fair value disclosures litigation contingencies involved litigation incidental business disposition expected material effect business financial position results operations cash flows addition contracts contain provisions require payment liquidated damages responsible failure meet specified contractual milestone dates applicable customer asserts claim provisions contracts define conditions customers may make claims layne liquidated damages many cases historically potential exposure liquidated damages ultimately asserted customers possible however future results operations particular quarterly annual period could materially affected changes assumptions related proceedings assessment contingency indicates probable material loss incurred amount liability estimated liability accrued consolidated financial statements assessment indicates potentially material loss contingency probable reasonably possible probable cannot estimated nature contingent liability estimate range possible losses determinable material disclosed provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case supplemental cash flow information amounts paid refunded income taxes interest noncash investing financing activities follows income taxes income taxes provided using asset liability method deferred taxes recognized difference financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries affiliates made amounts excess funds considered invested indefinitely general record income tax expense interim periods based best estimate full year’s effective tax rate however income tax expense relating adjustments layne’s liabilities uncertainty income tax positions prior reporting periods accounted discretely interim period occurs income tax expense relating adjustments current year uncertain tax positions accounted component adjusted annualized effective tax rate assessing need valuation allowance consider positive negative evidence related likelihood realization deferred tax assets weight given positive negative evidence commensurate extent evidence may objectively verified accounting guidance states cumulative loss recent years significant piece negative evidence difficult overcome determining valuation allowance needed deferred tax assets generally difficult positive evidence regarding projected future taxable income exclusive reversing taxable temporary differences outweigh objective negative evidence recent financial reporting losses preparing future taxable income projections consider periods future reversals existing taxable deductible temporary differences likely occur future taxable income taxable income available prior carryback years availability taxplanning strategies determining ability realize recorded deferred tax assets estimate uncertainty income taxes based framework established accounting income taxes guidance recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax positions meet recognition threshold apply judgment taking account applicable tax laws experience managing tax audits determine amount tax benefits recognize financial statements position difference benefit realized tax return benefit reflected financial statements recorded liability consolidated balance sheets liability updated financial statement date reflect impacts audit settlements resolution audit issues expiration statutes limitation developments tax law ongoing discussions taxing authorities income loss per share income loss per share computed dividing net earnings available common shareholders weighted average number common shares outstanding period periods recognize losses calculation diluted loss per share calculation basic loss per share periods recognize net income diluted earnings per common share computed way basic earnings per common share except denominator increased include number additional common shares would outstanding potential common shares issued dilutive options purchase common stock nonvested shares included based treasury stock method dilutive earnings per share except effect antidilutive 425 convertible notes 80 convertible notes defined note 8 consolidated financial statements included calculation diluted loss per share inclusion dilutive ifconverted method options purchase 659086 750044 839175 shares excluded weighted average shares fiscal years ended january 31 2018 2017 2016 respectively effect antidilutive total 1957803 1871640 1407170 nonvested shares excluded weighted average shares fiscal years ended january 31 2018 2017 2016 respectively effect antidilutive equitybased compensation recognize cost equitybased instruments consolidated financial statements based calculated fair value award fair value equitybased compensation granted form stock options determined using lattice valuation model addition granted certain marketbased awards years ended january 31 2018 2017 2016 valued using monte carlo simulation model see note 13 consolidated financial statements unearned compensation expense associated issuance awards amortized straightline basis restrictions stock expire subject achievement certain contingencies new accounting pronouncements fasb issued asu 201409 “revenue contracts customers” may 28 2014 issued related update 201620 “technical corrections improvements topic 606 revenue contracts customers” december 2016 effective dates asu 201409 august 12 2015 fasb issued asu 201514 defers adoption asu 201409 annual reporting periods beginning december 15 2017 including interim reporting periods within reporting period collective guidance asus defines steps recognize revenue entities contracts customers well requiring significantly expanded disclosures regarding qualitative quantitative information nature amount timing uncertainty revenue cash flows arising contracts adopt new guidance beginning february 1 2018 using full retrospective method result retrospective application first quarter fiscal year ended 2019 record cumulative adjustment retained earnings retrospective application provided guidance expanded disclosures required new guidance included notes consolidated financial statements quarterly reports form 10q annual report form 10k year ending january 31 2019 primary impact guidance financial statements elimination completed contract method recognizing revenues mostly prevalent water resources segment elimination segmentation treatment related certain customer contracts inliner segment updated accounting policies internal controls implemented changes business processes information systems support new revenue recognition disclosure requirements based assessment impact adoption estimate net cumulative reduction retained earnings less 10 million february 2016 fasb issued asu 201602 “leases” establishes rightofuse “rou” model requires lessee record rou asset lease liability balance sheet leases terms longer twelve months january 2018 fasb issued asu 201801 leases topic 842 land easement practical expedient transition topic 842 leases classified either finance operating classification affecting pattern expense recognition income statement asu effective fiscal years beginning december 15 2018 including interim periods within fiscal years early adoption permitted asu 201602 requires modified retrospective adoption leases existing entered date initial application option use certain transition relief preparing implement changes accounting policies controls business processes information systems support new accounting disclosure requirements effective us beginning february 1 2019 currently evaluating significance adoption asu currently based limited number leases believe effect material financial statements january 2017 fasb issued asu 201704 “intangiblesgoodwill topic 350 simplifying test goodwill impairment” amendments update entity perform annual interim goodwill impairment test comparing fair value reporting unit carrying amount entity recognize impairment charge amount carrying amount exceeds reporting unit’s fair value however loss recognized exceed total amount goodwill allocated reporting unit additionally entity consider income tax effects tax deductible goodwill carrying amount reporting unit measuring goodwill impairment loss applicable public business adoption amendments update required prospectively annual interim goodwill impairment tests fiscal years beginning december 15 2019 early adoption permitted testing dates january 1 2017 anticipate adopting asu beginning february 1 2020 believe adoption material impact financial statements november 2016 fasb issued asu 201618 “statement cash flows restricted cash” provides guidance presentation changes restricted cash restricted cash equivalents statement cash flows early adopted asu january 31 2018 applying retrospective transition method period presented adoption asu involved removing restricted deposits cash provided operating investments reconcile net income cash equivalents restricted deposits year presented consolidated statement cash flows material impact financial statements august 2016 fasb issued asu 201615 “statement cash flows classification certain cash receipts cash payments” asu provides guidance clarification regards classification eight types receipts payments statement cash flows including debt repayment extinguishment costs settlement zerocoupon bonds proceeds settlement insurance claims distributions received equity method investees cash receipts beneficial interest securitization transactions formally adopted asu january 31 2018 latin american affiliates issue dividends account using cumulative earnings approach accounting transition necessary see “investment affiliated companies” 2 costs estimated earnings uncompleted contracts costs estimated earnings uncompleted contracts consisted following bill customers based specific contract terms substantially billed amounts collectible within one year january 31 2018 2017 costs estimated earnings excess billings uncompleted contracts included unbilled contract retainage amounts 160 million 191 million respectively 3 property equipment property equipment consisted following depreciation expense 261 million 249 million 296 million fiscal years ended january 31 2018 2017 2016 respectively 4 impairment charges prior segment realignment third quarter fiscal year ended january 31 2016 reviewed recoverability asset values longlived assets energy services segment second quarter fiscal year ended january 31 2016 using undiscounted cash flow model concluded carrying value assets energy services fully recoverable july 31 2015 performed assessment fair value assets energy services based orderly liquidation value property equipment considered level 2 fair value measurement assessment resulted recording impairment charge approximately 46 million second quarter fiscal year ended january 31 2016 5 investments affiliates investments affiliates engaged mineral drilling services manufacture supply drilling equipment parts supplies investment affiliates may include drilling infrastructure services related joint ventures time equity method investments part mineral services segment summary material jointlyowned affiliates well primary operating subsidiaries applicable percentages directly indirectly owned layne follows january 31 2018 financial information affiliates reported onemonth lag reporting period impact lag investment results operations significant summarized financial information affiliates follows significant transactions balances affiliates january 31 2018 2017 2016 fiscal years ended equity undistributed earnings affiliates totaled 487 million 507 million 528 million january 31 2018 2017 2016 respectively additional 46 million investment affiliates recorded equity method goodwill certain investments time acquisition 6 intangible assets intangible assets consisted following january 31 total amortization expense intangible assets 06 million 04 million 05 million fiscal years ended january 31 2018 2017 2016 respectively amortization expense subsequent five fiscal years estimated follows 7 balance sheet information table presents comparative detailed information current assets table presents comparative detailed information noncurrent assets table presents comparative detailed information current liabilities 1 reserve assets held sale represents impairment assets held sale australia africa calculating impairment carrying amount assets included cumulative currency translation adjustment related australian african entities 8 indebtedness debt outstanding january 31 2018 2017 follows 1 primarily represents 425 convertible notes maturity date november 15 2018 january 31 2018 debt outstanding mature follows assetbased revolving credit facility 1000 million senior secured assetbased credit facility expires april 14 2019 aggregate principal amount 750 million available form letters credit aggregate principal amount 150 million available shortterm swingline borrowings maturity date assetbased credit facility april 15 2019 however maturity date accelerate may 15 2018 following yet occurred date either 80 convertible notes permitted refinancing indebtedness defined assetbased credit facility agreement respect thereof converted b maturity date 80 convertible notes permitted refinancing indebtedness respect thereof extended date october 15 2019 ii either 425 convertible notes permitted refinancing indebtedness respect thereof converted b maturity date 425 convertible notes permitted refinancing indebtedness respect thereof extended date october 15 2019 c 425 convertible notes effectively discharged 425 convertible notes effectively discharged among things irrevocably deposited trustee 425 convertible notes cash amount sufficient pay remaining interest principal payments due remaining unconverted 425 convertible notes irrevocable instructions trustee make payments holders 425 convertible notes become due assetbased credit facility guaranteed assets direct indirect wholly owned domestic subsidiaries subject certain exceptions described assetbased credit facility obligations assetbased credit facility secured lien substantially assets subsidiary guarantors subject certain exceptions described assetbased credit facility including pledge 65 equity interests first tier foreign subsidiaries availability assetbased credit facility currently lesser 1000 million ii borrowing base defined assetbased credit facility agreement availability assetbased credit facility january 31 2018 approximately 1000 million borrowing base exceeded total commitments approximately 246 million letters credit issued assetbased credit facility borrowings outstanding january 31 2018 resulting excess availability described 754 million advances assetbased credit facility subject certain conditions precedent including accuracy certain representations warranties absence default event default future advances may used general corporate working capital purposes pay fees expenses associated assetbased credit facility pursuant assetbased credit facility agreement revolving loans bear interest either • alternate base rate plus applicable margin alternate base rate equal highest base rate b sum federal funds open rate plus 05 c sum daily libor rate plus 1 • libor rate defined assetbased credit facility agreement interest period effect borrowing plus applicable margin assetbased credit facility contains various restrictions covenants including restrictions dispositions certain assets incurrence indebtedness investments distributions capital expenditures acquisitions prepayment certain indebtedness general provided maintain certain level excess availability restricted incurring additional unsecured indebtedness making investments distributions capital expenditures acquisitions compliance terms assetbased credit facility obtained asset sale consent lenders january 25 2017 connection sale heavy civil business segment excess availability less greater 175 total availability 175 million one business day “covenant compliance period” defined assetbased credit facility agreement exist excess availability equal greater 175 total availability 175 million period 30 consecutive days must maintain minimum fixed charge coverage ratio less 10 maximum first lien leverage ratio greater 50 10 four fiscal quarters ended immediately preceding covenant compliance period four fiscal quarter period ending covenant compliance period would compliance fixed charge coverage ratio covenant compliance period fiscal years ended january 31 2018 2017 fiscal year ended january 31 2016 two consecutive fourquarter periods fixed charge coverage ratio less 10 therefore longer required maintain cumulative minimum cash flow defined assetbased credit facility agreement less negative 450 million minimum cash flow less negative 250 million twelve consecutive month period assetbased credit facility also contains subjective acceleration clause triggered lenders determine experienced material adverse change triggered lenders clause would create event default defined assetbased credit facility agreement turn would permit lenders accelerate repayment outstanding obligations balance sheet classification borrowings assetbased credit facility determined accordance asc topic 4701045 “balance sheet classification borrowings outstanding revolving credit agreements include subjective acceleration clause lockbox arrangement” accordingly borrowings classified longterm liability accompanying consolidated balance sheet general covenant compliance period event default occurred continuing layne’s funds received daily basis applied reduce amounts owing assetbased credit facility based current projections layne anticipate covenant compliance period next twelve months also excess availability currently expected next twelve months sufficient trigger covenant compliance period anticipate compliance applicable debt covenants associated assetbased credit facility next twelve months defaults assetbased credit facility include limited following • nonpayment principal interest fees amounts assetbased credit facility • failure comply negative covenants certain specified affirmative covenants assetbased credit facility • failure pay certain indebtedness due • specified events bankruptcy insolvency • one judgments 50 million covered insurance paid within specified period • change control defined assetbased credit facility march 30 2018 assetbased credit facility agreement amended revise acceleration provision included definition maturity date july 16 2018 delivered administrative agent assetbased credit facility evidence july 15 2018 425 convertible notes effectively discharged proceeds issuance 110 unsecured notes b may 15 2018 issuance 110 unsecured notes cancelled reason ii proceeds 110 unsecured notes used purpose effectively discharge 425 convertible notes full provided event described clause ii occurs may 15 2018 maturity date assetbased credit facility date event occurred 425 convertible senior notes november 12 2013 completed issuance sale 1100 million aggregate principal amount 425 convertible notes due 2018 “425 convertible notes” accordance terms purchase agreement “purchase agreement” entered jefferies llc “initial purchaser” december 5 2013 initial purchaser exercised option purchase additional 150 million aggregate principal amount 425 convertible notes part purchase agreement 425 convertible notes issued pursuant indenture dated november 12 2013 “425 convertible notes indenture” layne us bank national association trustee 425 convertible notes senior unsecured obligations layne 425 convertible notes convertible option holders consideration consisting election cash shares common stock combination cash shares common stock cash lieu fractional shares close business scheduled trading day immediately preceding may 15 2018 however may 15 2018 425 convertible notes convertible except certain circumstances provided 425 convertible notes indenture 425 convertible notes bear interest rate 425 per year payable semiannually arrears cash may 15 november 15 year beginning may 15 2014 425 convertible notes mature november 15 2018 unless earlier repurchased redeemed converted see “potential refinancing convertible notes” initial conversion rate 436072 shares common stock per 1000 principal amount 425 convertible notes equivalent initial conversion price approximately 2293 per share common stock conversion rate subject adjustment upon occurrence certain events addition may obligated increase conversion rate conversion occurs connection certain corporate events including call 425 convertible notes redemption november 15 2016 prior maturity date pursuant 425 convertible note indenture may redeem less 425 convertible notes cash sale price common stock equals exceeds 130 applicable conversion price specified time period ending trading day immediately prior date deliver notice redemption price equal 100 principal amount 425 convertible notes redeemed plus accrued unpaid interest excluding redemption date addition upon occurrence fundamental change defined 425 convertible notes indenture holders 425 convertible notes right option require us repurchase 425 convertible notes cash price equal 100 principal amount 425 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date amount payable 425 convertible note including principal interest fundamental change repurchase redemption paid us due payable amount accrue interest rate equal 525 per annum payment date paid pending merger granite fundamental change indenture governing 425 convertible notes merger agreement granite agreed conversions 425 convertible notes closing merger would settled solely cash accordance asc topic 47020 “debt conversion options” separately account liability equity conversion components 425 convertible notes principal amount liability component 425 convertible notes 1060 million date issuance based present value cash flows using discount rate 80 approximate borrowing rate date issuance similar debt instrument without conversion feature carrying value equity conversion component 190 million portion initial purchaser’s discount commission offering costs totaling 08 million deferred taxes totaling 71 million allocated equity conversion component liability component accreted principal amount 425 convertible notes using effective interest method five years accordance guidance asc topic 47020 asc topic 81515 “embedded derivatives” determined embedded conversion components embedded derivatives 425 convertible notes require bifurcation separate accounting march 2 2015 exchanged approximately 555 million aggregate principal amount 425 convertible notes approximately 499 million aggregate principal amount 80 convertible notes described accordance derecognition guidance convertible instruments exchange transaction asc topic 47020 fair value 80 convertible notes “the exchange consideration” transaction costs incurred allocated liability equity components 425 convertible notes 499 million exchange consideration 421 million represents fair value 425 convertible notes immediately prior derecognition allocated extinguishment liability component transaction costs 09 million also allocated liability component result recognized gain extinguishment debt 42 million first quarter fiscal year ended january 31 2016 remaining 78 million exchange consideration 02 million transaction costs allocated reacquisition equity component recognized reduction stockholders’ equity following table presents carrying value 425 convertible notes 1 january 31 2018 remaining period unamortized debt discount amortized nine months using effective interest rate 9 80 senior secured second lien convertible notes march 2 2015 completed offering approximately 1000 million aggregate principal amount 80 senior secured second lien convertible notes “80 convertible notes” 80 convertible notes offered par certain investors held approximately 555 million 425 convertible notes due 2018 pursuant terms investors agreed exchange 425 convertible notes owned approximately 499 million 80 convertible notes ii purchase approximately 499 million aggregate principal amount 80 convertible notes cash price equal principal amount thereof amount accrued interest 425 convertible notes delivered investors exchange credited cash purchase price payable investors purchase sale 80 convertible notes generated net cash proceeds approximately 450 million deducting discounts commissions estimated offering expenses accrued interest 425 convertible notes exchanged used net cash proceeds repay outstanding balance assetbased credit facility 182 million remainder proceeds held general working capital purposes 80 convertible notes issued pursuant indenture dated march 2 2015 “80 convertible notes indenture” among layne guarantor parties thereto us bank national association trustee collateral agent 80 convertible notes senior secured obligations layne interest payable may 1 november 1 year beginning may 1 2015 rate 80 per annum 80 convertible notes mature may 1 2019 provided however unless 425 convertible notes permitted refinancing indebtedness respect thereof redeemed repurchased otherwise retired discharged accordance terms converted common stock effectively discharged case prior august 15 2018 scheduled maturity date 425 convertible notes permitted refinancing indebtedness incurred respect thereof extended date october 15 2019 80 convertible notes mature august 15 2018 see potential refinancing convertible notes 80 convertible notes senior secured obligations guaranteed subsidiaries currently coborrowers guarantors assetbased credit facility well future whollyowned us restricted subsidiaries certain cases certain subsidiaries 80 convertible notes secured lien substantially assets subsidiary guarantors subject certain exceptions liens assets securing 80 convertible notes junior priority liens “first priority liens” assets securing debt “first priority debt” subsidiary guarantors assetbased credit facility certain specified existing future obligations time prior maturity date may redeem cash less 80 convertible notes provided however may redeem 80 convertible notes redemption date outside open redemption period defined 80 convertible notes indenture unless last reported sale price common stock equals exceeds 140 conversion price 80 convertible notes effect least 20 trading days 30 consecutive trading day period ending including trading day immediately preceding date deliver redemption notice addition upon occurrence “fundamental change” defined 80 convertible notes indenture holders 80 convertible notes right option require us repurchase 80 convertible notes cash price equal 100 principal amount 80 convertible notes repurchased plus accrued unpaid interest excluding fundamental change repurchase date 80 convertible notes indenture permits us reinvest net proceeds certain “asset sales” defined 80 convertible notes indenture reinvestments subject criteria time periods 80 convertible notes indenture net proceeds “asset sales” reinvested within applicable time period constitute “excess proceeds” defined 80 convertible notes indenture aggregate amount “excess proceeds” exceeds 100 million must within 30 days make offer holders 80 convertible notes holders certain pari passu debt obligations company together “qualifying indebtedness” repurchase qualifying indebtedness maximum amount available “excess proceeds” qualifying indebtedness repurchase price equal 100 principal amount plus accrued unpaid interest excluding repurchase date holders qualifying indebtedness may option elect accept repurchase offer aggregate amount qualifying indebtedness tendered repurchase exceeds amount “excess proceeds” qualifying indebtedness tendered repurchased pro rata basis may use “excess proceeds” remaining result insufficient amount qualifying indebtedness tendered repurchase purpose otherwise prohibited 80 convertible notes indenture 80 convertible notes convertible option holders consideration consisting shares common stock cash lieu fractional shares close business scheduled trading day immediately preceding maturity date holder right convert 80 convertible notes shares common stock extent conversion would cause holder beneficially 99 shares common stock outstanding giving effect proposed conversion initial conversion rate 854701 shares common stock per 1000 principal amount 80 convertible notes equivalent initial conversion price approximately 1170 per share common stock conversion rate subject adjustment upon occurrence certain events addition may obligated increase conversion rate conversion occurs connection certain corporate events including call 80 convertible notes redemption 80 convertible notes indenture contains covenants among things restrict ability restricted subsidiaries subject certain exceptions 1 incur additional indebtedness 2 create liens 3 declare pay dividends make distributions respect purchase redeem equity interests equity interests restricted subsidiaries make certain payments subordinated unsecured indebtedness make certain investments 4 enter certain transactions affiliates 5 engage certain asset sales unless specified conditions satisfied 6 designate certain subsidiaries unrestricted subsidiaries 80 convertible notes indenture also contains events default occurrence 80 convertible notes may accelerated become immediately due payable amount payable 80 convertible note including principal interest fundamental change repurchase redemption paid us due payable amount accrue interest rate equal 90 per annum payment date paid pending merger granite fundamental change indenture governing 800 convertible notes merger granite consummated future conversions 80 convertible notes would settled solely shares common stock granite cash lieu fractional shares accordance guidance asc topic 81515 determined embedded conversion components embedded derivatives 80 convertible notes require bifurcation separate accounting accounted 80 convertible notes debt conversion features beneficial asc topic 47020 accordingly proceeds issuance 80 convertible notes recorded liability consolidated balance sheets following table presents carrying value 80 convertible notes 11 unsecured notes march 19 2018 entered note purchase agreement two investments funds advised corre partners management llc purchase 710 million 11 unsecured notes corre partners management affiliated funds including purchasers 110 unsecured notes portion 425 convertible notes 800 convertible notes note purchase agreement purchasers committed purchase 710 million 11 unsecured notes due october 16 2019 110 unsecured notes purchase price equal 100 principal amount 110 unsecured notes closing purchase sale 110 unsecured notes earlier occur october 1 2018 ii fifth business day delivery funding notice us purchasers result proceeds 110 unsecured notes used effectively discharge 425 convertible notes prior july 16 2018 would need refinance 1 assetbased credit facility prior april 14 2019 2 extent converted common stock 80 convertible notes may 1 2019 3 110 unsecured notes prior october 16 2019 commitment purchasers purchase 110 unsecured notes terminates upon earliest occur change control including closing pending merger granite ii delivery purchasers notice termination us may option prepay 110 unsecured notes whole part time 110 unsecured notes subject mandatory prepayment upon closing change control 110 unsecured notes subject early payment event fee 110 unsecured notes repaid less 90 days 110 unsecured notes issued amount early payment event fee equal excess x 90 days accrued interest principal amount repaid amount interest accrued paid payable respect principal amount repaid date issuance including date repayment covenants applicable us note purchase agreement long 110 unsecured notes issued ii 800 convertible notes outstanding iii none provisions indenture governing 800 convertible notes amended waived 110 unsecured notes issued subject certain covenants including delivery financial statements reports compliance material contracts applicable laws maintenance corporate existence insurance properties addition earliest date none 800 convertible notes outstanding ii provisions indenture governing 800 convertible notes longer effect amended waived subject negative covenants related indebtedness liens sale leaseback transactions asset sales dividends restricted payments transactions affiliates maximum ratio funded indebtedness ebitda potential refinancing convertible notes prior august 15 2018 may elect issue 110 unsecured notes use proceeds issuance 110 unsecured notes effectively discharge 425 convertible notes case maturity date 80 convertible notes would remain may 1 2019 result proceeds 110 unsecured notes used effectively discharge 425 convertible notes prior july 16 2018 would need refinance 1 assetbased credit facility prior april 14 2019 2 extent converted common stock 80 convertible notes may 1 2019 3 110 unsecured notes prior october 16 2019 alternatively market price common stock prior august 15 2018 1170 per share could elect take action respect 425 convertible notes case maturity date 80 convertible notes would become august 15 2018 believe circumstances holders 80 convertible notes would convert notes common stock remaining unconverted amounts could refinanced available cash drawings assetbased credit facility could issue 110 unsecured notes october 1 2018 order repay 425 convertible notes maturity case would seek extend refinance assetbased credit facility prior july 16 2018 surety bonds january 31 2018 2017 surety bonds issued secure performance contracted projects amounted 1483 million 2238 million respectively amount surety bonds based expected amount revenues remaining recognized projects amount outstanding january 31 2018 484 million related surety bonds contracts assumed purchasers heavy civil business successful negotiating early release layne bonds 4 36 jobs expect obtain releases remaining jobs completed 9 expense income net expense income net consisted following 10 income taxes december 22 2017 united states enacted tax reform legislation commonly known tax cuts jobs act “the act” resulting significant modifications existing us tax law including limited 1 lowering corporate federal income tax rate 35 21 effective january 1 2018 2 implementing territorial tax system 3 imposing onetime repatriation tax deemed repatriated earnings foreign subsidiaries based fiscal year blended federal tax rate 328 applies fiscal year ended january 31 2018 deferred tax assets liabilities determined based differences financial statement carrying amounts tax bases assets liabilities measured enacted tax rates expected effect differences reverse deferred tax expense benefit generally result changes assets liabilities deferred taxes result reduction us corporate income tax rate 35 21 act remeasured ending net domestic deferred tax asset january 31 2018 recognized provisional tax expense 311 million following remeasurement net deferred tax asset recorded offsetting tax benefit reduction valuation allowance income expense benefit recorded result change tax rate act provides onetime deemed repatriation post1986 undistributed foreign subsidiary earnings profits year ended january 31 2018 “deemed dividend” estimated provisional deemed dividend 173 million resulting 57 million tax expense recognized 37 million tax benefit upon reversal previously recorded deferred tax liability relating unremitted earnings less 50 owned affiliates also adjusted valuation allowance result deemed dividend resulting 46 million tax benefit net tax benefit resulting adjustments deferred taxes 26 million fiscal year ended january 31 2018 act provides new requirement beginning 2018 certain income earned controlled foreign corporations excess allowable return foreign subsidiary’s tangible assets subject us income tax global intangible lowtaxed income “gilti” provision also beginning 2018 act provides new base erosion antiabuse tax provision “beat” eliminates deduction certain baseerosion payments made related foreign corporations imposes minimum tax greater regular tax expect gilti beat provisions material impact financial statements sec staff issued staff accounting bulletin 118 “sab 118” provides additional clarification regarding situations company necessary information available prepared analyzed reasonable detail complete accounting certain income tax effects act reporting period act enacted recognized provisional tax impacts based reasonable estimates related deemed dividend revaluation deferred tax assets liabilities included amounts consolidated financial statements year ended january 31 2018 ultimate impact may differ provisional amounts possibly materially due among things additional analysis changes interpretations assumptions made additional regulatory guidance may issued actions may take result act intend complete accounting act within measurement period set forth sab 118 loss continuing operations income taxes consisted following components income tax benefit expense continuing operations follows reconciliation total income tax benefit expense continuing operations statutory federal rate follows fiscal years ended january 31 effective tax rate reconciliation includes 35 million income tax benefit resulting foreign jurisdiction issuing tax ruling exempting certain income taxation fourth quarter fiscal year ended january 31 2018 recorded 88 million tax benefit reducing previously accrued foreign taxes interest partially offset tax expense 53 million recorded related reduction us foreign tax credit carryforward included deferred tax asset reduction deferred tax asset resulted offsetting reduction valuation allowance 53 million included 379 million adjustment valuation allowance included tax rate reconciliation net impact income tax benefit 88 million tax effect pretax loss continuing operations generally determined computation consider tax effect categories income loss example comprehensive loss discontinued operations additional paid capital etc exception general rule provided pretax loss continuing operations pretax income categories income pursuant exception recorded tax benefit continuing operations fiscal year ended january 31 2016 fiscal year ended january 31 2016 tax benefit 12 million recorded continuing operations offset tax expense recorded discontinued operations recorded 379 million 175 million 327 million valuation allowances continuing operations net domestic certain foreign deferred tax assets fiscal years ended january 31 2018 2017 2016 respectively valuation allowance recorded fiscal year ended january 31 2018 recorded deferred tax assets generated year primarily related impact deferred taxes resulting passage act total valuation allowance january 31 2018 1306 million comprised domestic valuation allowance 1137 million foreign valuation allowance 169 million assessing need valuation allowance concluded cumulative loss domestic operations adjusting significant nonrecurring charges beginning fiscal year ended january 31 2016 continuing fiscal year ended january 31 2018 based assessment concluded likely realization domestic deferred tax assets would occur future periods accordingly valuation allowance provided similar consideration given foreign deferred tax assets concluded certain foreign deferred tax assets also likely realized valuation allowance recorded establishment valuation allowance impact cash allowance preclude us using loss carryforwards utilizing deferred tax assets future net income loss discontinued operations fiscal years ended january 31 2018 2017 2016 224 million 52 million 35 million respectively amounts net income tax expense benefit 00 million 00 million 13 million respectively effective tax rates discontinued operations 00 264 fiscal years ended january 31 2018 2016 2015 respectively deferred income taxes result temporary differences financial statement tax bases assets liabilities sources differences cumulative tax effects follows following tax losses tax credit carryforwards january 31 2018 intend indefinitely reinvest certain earnings foreign subsidiaries affiliates january 31 2018 accumulated undistributed earnings considered indefinitely reinvested totaled 403 million act generally eliminates us federal income taxes dividends foreign subsidiaries january 31 2018 result accumulated undistributed earnings would subject taxes withholding taxes local taxes distribution earnings practicable determine amount income withholding tax would payable upon remittance earnings deferred foreign withholding taxes provided undistributed earnings certain foreign subsidiaries foreign affiliates earnings considered invested indefinitely reconciliation beginning ending amount gross unrecognized tax benefits excluding penalties interest follows substantially unrecognized tax benefits recorded january 31 2018 2017 2016 would affect effective rate recognized reasonably possible amount unrecognized tax benefits decrease next year approximately 45 million due settlements audit issues expiration statutes limitation classify interest penalties related income taxes component income tax expense january 31 2018 2017 2016 90 million 87 million 78 million respectively interest penalties accrued associated unrecognized tax benefits liability interest penalties increased decreased 03 million 09 million 07 million fiscal years ended january 31 2018 2017 2016 respectively file income tax returns us various state jurisdictions certain foreign jurisdictions statute limitations remains open tax years ended january 31 2011 2013 2015 2018 recently completed irs exam tax year ended january 31 2013 significant change income tax expense several state examinations currently progress file income tax returns foreign jurisdictions operate returns subject examination may ongoing point time tax liabilities recorded based estimates additional taxes due upon settlement examinations tax years subject examination foreign tax authorities vary jurisdiction generally tax years 2015 2018 remain open examination 11 operating lease obligations operating leases primarily buildings light medium duty trucks equipment sublease certain portions facilities noncancelable sublease agreements rent expense operating leases including insignificant amounts contingent rental payments sublease rental income 33 million 43 million 70 million fiscal years ended january 31 2018 2017 2016 respectively future minimum lease payments required operating leases initial remaining noncancelable lease terms related subleases excess one year january 31 2018 follows 12 employee benefit plans salaried certain hourly employees eligible participate sponsored defined contribution plans total expense recorded selling general administrative costs portion plans 27 million 31 million 30 million fiscal years ended january 31 2018 2017 2016 respectively deferred compensation plan certain management employees however plan suspended fiscal year ended january 31 2015 participants could elect defer 25 salaries 50 bonuses plan matching contributions vesting period contributions established discretion employee deferrals vested times total liability deferred compensation 41 million 51 million january 31 2018 2017 respectively liabilities primarily included noncurrent liabilities except amounts due next twelve months recorded accrued compensation consolidated balance sheet contribute number multiemployer defined benefit pension plans terms collectivebargaining agreements cover unionrepresented employees risks participating multiemployer plans different singleemployer plans following aspects • assets contributed multiemployer plan one employer may used provide benefits employees participating employers • participating employer stops contributing plan unfunded obligations plan may borne remaining participating employers • choose stop participating multiemployer plans may required pay plans amount based underfunded status plan referred withdrawal liability accordance accounting guidance evaluated multiemployer plans determine individually significant evaluation based following criteria • total employees participating multiemployer plan compared total employees covered plan • total contributions multiemployer plan percentage total contributions plan participating employers • amount potential liability could incurred due withdrawal multiemployer plan underfunded status plan participating employers’ withdrawal plan january 31 2018 2017 participate multiemployer plans would considered individually significant make contributions multiemployer plans equal amounts accrued pension expense total contributions union pension expense plans 11 million 19 million 21 million fiscal years ended january 31 2018 2017 2016 respectively information regarding assets accumulated benefits plans made available us also provide supplemental retirement benefits former chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent defined contribution plan balance contribute plan maintain investment assets related expected benefit obligation recognized full amount actuarially determined pension liability current portion recognized consolidated balance sheets accrued expenses 03 million january 31 2018 2017 longterm portion recognized consolidated balance sheets january 31 2018 2017 51 million noncurrent liabilities net periodic pension cost benefit supplemental retirement benefits fiscal years ended january 31 2018 2017 2016 03 million 02 million 04 million respectively 13 equitybased compensation layne equitybased compensation plan provides granting options purchase issuance shares common stock price fixed board directors committee january 31 2018 787247 shares remain available granted plan stock options restricted stock awards ability issue shares plan either new issuances treasury although previously always issued new shares expect continue issue new shares future granted 263946 restricted stock units 277799 performance vesting restricted stock units layne christensen company 2006 equity incentive plan fiscal year ended january 31 2018 grants consist servicebased awards marketbased awards granted twelve month period ended january 31 2018 may settled cash shares compensation committee’s discretion except 36725 restricted stock units granted board directors required settled shares intention settle awards shares recognized 31 million 35 million 39 million compensation cost equitybased plans fiscal years ended january 31 2018 2017 2016 respectively amounts 29 million 30 million 30 million respectively related nonvested stock income tax benefit recognized equitybased compensation full valuation allowance provided deferred tax asset january 31 2018 total unrecognized compensation cost related unvested stock options approximately 01 million expected recognized weightedaverage period 04 years january 31 2018 approximately 39 million total unrecognized compensation cost related nonvested restricted stock awards restricted stock units expected recognized weightedaverage period 18 years fair value equitybased compensation granted form stock options determined using lattice valuation model valuations respective year made using assumptions noted following table expected volatilities based historical volatility stock price use historical data estimate early exercise postvesting forfeiture rates applied within valuation model riskfree interest rate periods within expected term option based us treasury yield curve effect time grant weightedaverage fair value per share date grant options granted fiscal years ended january 31 2017 2016 159 160 respectively stock option transactions fiscal years ended january 31 2018 2017 2016 follows aggregate intrinsic value calculated using difference current market price exercise price options exercise price less current market price nonvested stock awards service requirements valued grant date closing stock price generally vest ratably service periods one five years nonvested stock awards vest based upon layne meeting various performance goals certain nonvested stock awards provide accelerated vesting change control defined plans termination employment without cause retirement disability death executive equitable adjustment event changes equity structure granted certain performance based nonvested stock awards years ended january 31 2018 2017 2016 valued using monte carlo simulation model assumptions used monte carlo simulation model fiscal years ended january 31 2018 2017 2016 follows nonvested share transactions fiscal years ended january 31 2018 2017 2016 follows 14 fair value measurements estimates fair value financial assets financial liabilities based framework established fair value accounting guidance framework based inputs used valuation gives highest priority quoted prices active markets requires observable inputs used valuations available three levels hierarchy follows • level 1 unadjusted quoted prices active markets identical assets liabilities • level 2 observable inputs included level 1 quoted market prices similar assets liabilities active markets quoted prices identical assets inactive markets • level 3 unobservable inputs reflecting assumptions best estimate inputs market participants would use pricing asset liability assessment significance particular input fair value entirety requires judgment considers factors specific asset liability financial instruments held fair value presented january 31 2018 2017 1 contingent consideration receivable represents share profits one contracts assumed purchaser part sale geoconstruction business august 17 2015 amount estimated based projected profits contract changes estimated fair value since closing date sale agreement financial instruments use following methods assumptions estimating fair value disclosures financial instruments cash equivalents carrying amounts reported accompanying consolidated balance sheets approximates fair values classified level 1 within fair value hierarchy shortterm longterm debt convertible notes fair value debt instruments classified level 2 within fair value hierarchy valued using market approach based quoted prices similar instruments traded active markets quoted prices available income approach used value instruments based present value future cash flows discounted estimated borrowing rates similar debt instruments estimated prices based current yields debt issues similar quality terms convertible notes convertible notes measured nonrecurring basis using level 1 inputs based upon observable quoted prices 425 convertible notes 80 convertible notes following table summarizes carrying values estimated fair values debt 15 contingencies drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified frequently case conduct project fixedprice turnkey basis delegate certain functions subcontractors remain responsible customer subcontracted work addition exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result layne named defendant lawsuits asserting large claims although maintain insurance protection consider economically prudent assurance insurance sufficient effective circumstances claims hazards may subject able continue obtain insurance protection successful claim damage resulting hazard fully insured could material adverse effect us addition maintain political risk insurance respect foreign operations one discontinued segments geoconstruction subcontractor foundation salesforce tower office building san francisco california 2013 2014 certain anomalies discovered march 2014 foundation’s structural concrete remediated general contractor 2015 participated discussions project owner general contractor regarding potential causes anomalies assigned claims projects builders risk insurance policy general contractor fiscal year ended january 31 2016 project owner general contractor submitted claim project’s builder’s risk insurers cover cost remedial work related damages claim denied builder’s risk insurers project owner general contractor subsequently filed legal proceeding insurers seeking coverage builder’s risk insurance policy although party legal proceeding believe based court filings legal proceeding project owner general contractor asserting claim damages project’s builder’s risk insurers approximately 100 million management believe liable remediation costs claims related project date report action filed us accordingly provision made consolidated financial statements involved various matters litigation claims disputes arisen ordinary course business believe ultimate disposition matters individually aggregate material adverse effect upon business consolidated financial position results operations cash flows however possible future results operations particular quarterly annual period could materially affected changes assumptions related proceedings accordance gaap record liability probable liability incurred amount loss reasonably estimated provisions reviewed least quarterly adjusted reflect impacts negotiations settlements rulings advice legal counsel information events pertaining particular case extent additional information arises strategies change possible estimate probable liability matters may change litigation relating merger april 3 2018 two putative class actions captioned malka raul v layne christensen company et al colleen witmer v layne christensen company et al filed us district court southern district texas layne’s directors granite merger sub complaints generally allege layne directors granite disseminated false misleading registration statement regarding proposed merger violation section 14a exchange act sec rule 14a9 specifically complaints allege registration statement misstated omitted material information regarding parties’ financial projections valuation analysis performed greentech support fairness opinion potential conflicts interest greentech complaints allege layne directors andor granite liable violations “controlling persons” layne section 20a exchange act complaints seek injunctive relief including enjoin andor rescind merger rescission rescissory damages event merger consummated award attorneys’ fees addition relief additional lawsuits arising merger may filed future assurance defendants successful outcome pending potential future lawsuits preliminary injunction could delay jeopardize completion merger adverse judgment granting permanent injunctive relief could indefinitely enjoin completion merger layne granite believe lawsuits without merit intend defend vigorously lawsuits future lawsuits challenging transaction 16 discontinued operations heavy civil april 30 2017 completed sale substantially assets heavy civil business reycon partners llc buyer owned group private investors including members former heavy civil senior management team purchase price 101 million less estimate amount business’s working capital less agreed upon target amount final working capital adjustments purchase price 35 million january 31 2017 performed asset impairment test heavy civil reporting segment impairment indicated geoconstruction august 17 2015 sold geoconstruction business segment subsidiary keller foundations llc member keller group plc “keller” total 423 million including preliminary estimate business segment’s working capital postclosing adjustments total purchase price increased 477 million adjust estimated share profits one contracts assumed keller final working capital adjustments addition january 31 2018 2017 42 million contingent consideration receivable included assets consolidated balance sheet contingent consideration represents best estimate share profits one contracts assumed keller components assets liabilities discontinued operations condensed consolidated balance sheets follows financial results discontinued operations follows prior completion sale geoconstruction business segment owned 65 50 casebencor joint venture washington casebencor joint venture iowa respectively included part geoconstruction business segment investments affiliates discontinued result sale summarized financial information entities accounted equity method investments date sale follows cash flow data relating discontinued operations presented 17 segments foreign operations global solutions provider world essential natural resources water minerals energy chief operating decision maker codm reviews operating results determine appropriate allocation resources within organization codm defines operational organizational structure discrete segments based primary product lines first quarter fiscal year ended january 31 2018 completed sale substantially assets heavy civil business operating results related heavy civil business presented discontinued operations excluded continuing operations segment results periods presented see note 16 consolidated financial statements discussion first quarter fiscal year ended january 31 2017 changes made simplify business streamline operating reporting structure collector wells group shifted former heavy civil business water resources better align operational expertise also shifted certain smaller operations “other” segment remaining reporting segments longer report “other” segment information prior periods recast conform new presentation third quarter fiscal year ended january 31 2016 result strategic review aspects operations realigned operating structure combine energy services segment water resources segment determined given similar nature equipment services energy services water resources could effectively manage cost structure serve customer base combined segment historical segment numbers recast conform new operating structure second quarter fiscal year ended january 31 2016 entered definitive agreement sell geoconstruction business segment operating results geoconstruction business presented discontinued operations excluded continuing operations segment results periods presented see note 16 consolidated financial statements discussion segments defined follows water resources water resources provides customers array water management solutions including discovery defining water sources hydrologic studies water supply development water well drilling intake construction new water midstream business provide water delivery pipeline pumping infrastructure ability deliver nonpotable water multiple points along pipeline route water resources also brings technologies water wastewater markets offers water treatment equipment engineering services providing systems treatment regulated nuisance contaminants specifically iron manganese hydrogen sulfide arsenic radium nitrate perchlorate volatile organic compounds water resources drills deep injection wells industrial municipal clients need dispose wastewater associated processes water resources also performs complete diagnostic rehabilitation services existing wells pumps related equipment including conducting downhole closed circuit televideo inspections investigate resolve water well pump performance problems addition water resources constructs radial collector wells ranney® collector wells technology alternative conventional vertical wells utilized develop moderate high capacities groundwater water resources provides water systems services regions us inliner provides wide range process sanitary storm water rehabilitation techniques services municipalities industrial customers dealing aging infrastructure needs inliner focuses proprietary inliner ® curedinplace pipe “cipp” allows rehabilitate aging sanitary sewer storm water process water infrastructure provide structural rebuilding well infiltration inflow reduction inliner’s trenchless technology minimizes environmental impact reduces eliminates surface social disruption inliner ability supply traditional feltbased cipp lining tubes cured water steam well fiberglassbased lining tubes cured ultraviolet light inliner owns north american rights inliner cipp technology owns operates liner manufacturer also provides installation inliner cipp product inliner focuses proprietary inliner cipp provides full system renewal including janssen structural renewal service lateral connections mainlines slip lining traditional excavation replacement form manhole renewal cementitious epoxy products inliner provides services regions us mineral services mineral services conducts primarily ground drilling activities including phases core drilling reverse circulation dual tube hammer rotary airblast methods service offerings include exploratory definitional drilling global mining companies engage companies mineral services extract samples sites mining companies analyze mineral content investing heavily development extract minerals mineral services helps clients determine minable mineral deposit site economic viability mining site geological properties ground helps determination mine planning mineral services also offers customers water management soil stabilization expertise mine water management consists vertical large diameter wells sourcing dewatering horizontal drains slope depressurization primary markets western us mexico brazil discussed note 18 consolidated financial statements fiscal year ended january 31 2016 implemented plan exit operations africa australia mineral services also ownership interests foreign affiliates operating latin america form primary presence chile peru see note 5 consolidated financial statements discussion mineral services’ equity method investments financial information segments presented unallocated corporate expenses primarily consist interest expense tax expense expenses general administrative functions performed companywide basis benefiting segments costs include expenses related accounting financial reporting internal audit treasury legal tax compliance executive management board directors corporate assets consist assets directly associated segment consist primarily cash deferred income taxes measure total adjusted ebitda may comparable companies’ measure total adjusted ebitda represents net loss discontinued operations taxes interest depreciation amortization gain loss sale fixed assets noncash equitybased compensation equity earnings losses affiliates certain nonrecurring items restructuring costs certain gains losses plus dividends received affiliates chief operating decision maker evaluates segment performance based segment’s revenues adjusted ebitda among factors addition use total adjusted ebitda factor incentive compensation decisions credit facility agreement uses measures similar total adjusted ebitda measure compliance certain covenants 1 restructuring costs fiscal year ended january 31 2016 include 79 million relating writedown carrying value inventory african australian operations reflected part cost revenues consolidated statement operations following table presents various financial information segment 18 restructuring costs second quarter fiscal year ended january 31 2017 initiated plan reduce costs improve profitability water resources segment “water resources business performance initiative” water resources business performance initiative involves cost rationalization increased standardization functions sales pricing estimation disposal underutilized assets process improvements drive efficiencies recorded approximately 27 million restructuring costs related water resources business performance initiative fiscal year ended january 31 2018 includes costs related office closures severance costs estimate remaining amounts incurred water resources business performance initiative approximately 16 million fiscal year ended january 31 2018 continued implementation fy2016 restructuring plan involves exit operations africa australia actions support strategic focus simplifying business build upon capabilities water “fy2016 restructuring plan” fiscal year ended january 31 2018 recognized approximately 22 million restructuring expenses fy2016 restructuring plan primarily related wind costs closure australian african entities fiscal year ended january 31 2018 fy2016 restructuring plan related segments follows 11 million mineral services 10 million corporate 01 million inliner fy2016 restructuring plan substantially completed january 31 2018 estimate remaining amounts incurred fy2016 restructuring plan approximately 01 million previously implemented restructuring plan second quarter fiscal year ended january 31 2015 “fy2015 restructuring plan” fy2015 restructuring plan involved among things reductions global workforce asset relocation disposal process improvements fy2015 restructuring plan designed achieve short longterm cost reductions completed first quarter fiscal year ended january 31 2016 following table summarizes carrying amount accrual restructuring plans discussed 1 fiscal year ended january 31 2017 recognized impairment assets held sale australia africa calculating impairment carrying amount assets included cumulative currency translation adjustment 124 million associated closure australian african entities 19 quarterly results unaudited quarterly results follows 1 periods retrospectively presented reflect sale heavy civil business discontinued operations 2 discussed note 1 consolidated financial statements utilize multiple methods revenue recognition based nature work performed result practical allocate portion depreciation amortization cost revenues presentation gross profit 3 loss per share computed independently quarters presented sum quarters may equal total year amount due impact changes average quarterly shares outstanding 1 periods retrospectively presented reflect sale heavy civil business discontinued operations 2 discussed note 1 consolidated financial statements utilize multiple methods revenue recognition based nature work performed result practical allocate portion depreciation amortization cost revenues presentation gross profit 3 loss per share computed independently quarters presented sum quarters may equal total year amount due impact changes average quarterly shares outstanding 20 subsequent event february 13 2018 entered definitive agreement whereby granite construction incorporated acquire outstanding shares layne stockforstock transaction share layne common stock exchanged 027 shares granite common stock transaction subject approval layne’s shareholders customary closing conditions schedule ii valuation qualifying accounts item 9item 8 financial statements supplementary data index consolidated financial statements financial statement schedules omitted applicable required information included consolidated financial statements company notes thereto independent auditors report layne christensen company audited accompanying consolidated balance sheets layne christensen company subsidiaries january 31 2004 2003 related consolidated statements income stockholders equity cash flows three years period ended january 31 2004 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position companies january 31 2004 2003 results operations cash flows three years period ended january 31 2004 conformity accounting principles generally accepted united states america discussed notes 1 5 financial statements fiscal 2003 company changed method accounting goodwill conform statement financial accounting standards 142 goodwill intangible assets deloitte touche llp deloitte touche llp kansas city missouri april 12 2004 layne christensen company subsidiaries consolidated balance sheets january 31 2004 2003 thousands see notes consolidated financial statements continued layne christensen company subsidiaries consolidated balance sheetscontinued january 31 2004 2003 thousands except share data see notes consolidated financial statements concluded layne christensen company subsidiaries consolidated statements income years ended january 31 2004 2003 2002 thousands except per share data continued see notes consolidated financial statements layne christensen company subsidiaries consolidated statements income continued years ended january 31 2004 2003 2002 thousands except per share data concluded see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders equity years ended january 31 2004 2003 2002 thousands except share data continued see notes consolidated financial statements layne christensen company subsidiaries consolidated statements stockholders equity continued years ended january 31 2004 2003 2002 thousands except share data concluded see notes consolidated financial statements layne christensen company subsidiaries consolidated statements cash flows years ended january 31 2004 2003 2002 thousands see notes consolidated financial statements continued layne christensen company subsidiaries consolidated statements cash flows continued years ended january 31 2004 2003 2002 thousands see notes consolidated financial statements concluded layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 1 summary significant accounting policies description business layne christensen company subsidiaries together company provide comprehensive services products water resources mineral exploration geoconstruction energy markets four primary operating divisions see note 16 company operates throughout north america well africa australia europe customers include municipalities industrial companies mining companies environmental consulting engineering firms heavy civil construction contractors lesser extent agribusiness mineral exploration company ownership interest certain foreign affiliates operating south america facilities chile peru see note 3 fiscal year references years fiscal years ended investment affiliated companies investments affiliates 20 50 owned company ability exercise significant influence operating financial policies accounted equity method principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions eliminated financial information companys foreign affiliates certain foreign subsidiaries reported companys consolidated financial statements onemonth lag reporting periods effect onemonth lag companys financial results significant use estimates preparing financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates foreign currency transactions translation cash flows financing activities companys mexican african operations primarily denominated us dollar accordingly operations use us dollar functional currency translate monetary assets liabilities yearend exchange rates nonmonetary items translated historical rates income expense accounts translated average rates effect year except depreciation certain cost revenues selling expenses translated historical rates gains losses changes exchange rates recognized consolidated income year occurrence foreign subsidiaries affiliates use local currencies functional currency assets liabilities translated us dollars yearend exchange rates income expense items translated exchange rates approximate weighted average rates prevailing layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 year translation adjustments reported separate component accumulated comprehensive loss net foreign currency transaction gains losses 2004 2003 2002 232000 52000 112000 respectively revenue recognition revenue recognized large longterm contracts using percentage completion method based upon materials installed labor costs incurred changes job performance job conditions estimated profitability including arising contract penalty provisions final contract settlements may result revisions costs income recognized period revisions determined revenue recognized smaller shortterm contracts using completed contract method provisions estimated losses uncompleted contracts made period losses determined inventories company values inventories lower cost firstin firstout market allowances recorded inventory considered excess obsolete inventories consist primarily parts supplies property equipment related depreciation property equipment including major renewals improvements recorded cost depreciation provided using straightline method depreciation expense 11877000 13204000 15672000 2004 2003 2002 respectively lives used items within property classification follows energy division company engages operation development production acquisition oil gas properties principally focusing coalbed methane gas projects company follows fullcost method accounting properties method productive nonproductive costs incurred connection exploration development oil gas reserves capitalized costs include lease acquisition geological geophysical work delay rentals drilling completing equipping oil gas wells including salaries benefits internal costs directly attributable activities capitalized costs associated companys oil gas properties depleted using units production method costs associated production general corporate activities expensed period incurred january 31 2004 2003 company capitalized 11817000 3545000 respectively related oil gas properties land acquisition costs company also capitalized 2267000 january 31 2004 related gas transportation facilities equipment companys projects early stages completion company sufficient production information reserves established layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 goodwill relates acquisitions completed company 2003 company adopted statement financial accounting standards sfas 142 goodwill intangible assets resulted company ceasing amortize goodwill amortization expense goodwill 1039000 2002 least annually december 31 goodwill tested impairment applying fair value based test assessing value goodwill assets liabilities assigned reporting units discounted cash flow analysis used determine fair value investments company wholly owned subsidiaries owned certain common stock publicly traded companies australia mexico company classified investments availableforsale noncurrent investments cost basis 172000 reported fair values approximately 12000 january 31 2003 2004 company sold certain investments 167000 recorded net gain 138000 gain included net companys consolidated statements income year ended january 31 2004 year management determined companys remaining investments fair value decline value otherthantemporary accordingly company recognized impairment loss 130000 investments included net companys consolidated statements income impairment longlived assets balance sheet date circumstances indicate necessary determination made management whether value longlived assets including assets disposed impaired determination based several criteria including limited revenue trends undiscounted operating cash flows operating factors effective february 1 2002 company adopted sfas 144 accounting impairment disposal longlived assets adoption sfas 144 significant effect companys impairment policy accrued insurance expense costs estimated incurred future employee medical benefits property casualty insurance programs resulting claims incurred accrued currently terms companys agreement various insurance carriers administering claims company required remit total premium claims actually paid insurance companies see note 15 fair value financial instruments carrying amounts financial instruments including cash equivalents customer receivables accounts payable approximate fair value january 31 2004 2003 relatively short maturity instruments investments equity securities carried quoted market values see note 12 disclosure regarding fair value indebtedness interest rate swap company follows sfas 133 accounting derivative instruments hedging activities sfas 133 amended requires derivative layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 financial instruments recorded balance sheet fair value establishes criteria designation effectiveness hedging relationships sfas 133 company accounts unrealized hedges forecasted costs cash flow hedges changes fair value effective portion hedge contracts material recorded accumulated comprehensive income stockholders equity changes fair value effective portion hedge contracts recognized accumulated comprehensive income hedged item recognized operations ineffective portion derivatives change fair value immediately recognized operations see note 13 disclosure regarding fair value foreign currency derivative instruments consolidated statements cash flows highly liquid investments original maturity three months less time purchase considered cash equivalents january 31 2004 cash equivalents included approximately 8000000 related sale layne canada held escrow pending final settlement lease termination costs incurred connection sale see note 4 amounts paid income taxes interest follows thousands supplemental noncash transactions 2004 company issued 217504 shares common stock related compensation awards 50761 shares connection acquisition made 1999 2003 2002 company issue shares common stock options related compensation awards income taxes income taxes provided using assetliability method deferred taxes recognized tax consequences temporary differences financial statement carrying amounts tax bases existing assets liabilities deferred tax assets reviewed recoverability valuation allowances provided necessary provision us income taxes undistributed earnings foreign subsidiaries foreign affiliates made amounts excess funds considered invested indefinitely see note 9 earnings per share earnings per common share based upon weighted average number common dilutive equivalent shares outstanding options purchase common stock included based treasury stock method dilutive earnings per share except effect antidilutive options purchase 313597 390900 398454 shares excluded weighted average shares 2004 2003 2002 respectively effect antidilutive stockbased compensation stockbased compensation may accounted either based estimated fair value awards date granted sfas 123 method based difference market price stock date grant amount employee must layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 pay acquire stock apb 25 method company uses apb 25 method account stockbased compensation programs see note 14 pro forma net income loss earnings per share 2004 2003 2002 determined sfas 123 method applied presented following table thousands except per share amounts comprehensive loss accumulated balances net income taxes comprehensive loss follows thousands reclassifications certain 2003 2002 amounts primarily related discontinued operations reclassified conform 2004 presentation 2 acquisitions june 3 2003 company acquired substantially assets mohajir engineering group inc full service engineering geophysical geological consulting firm serving energy industry 1150000 acquisition made enhance companys internal coalbed methane resources november 10 2003 company acquired certain assets inventory drillcorp tanzania ltd drillcorp mineral exploration drilling operation tanzania 3500000 company issued noninterest bearing promissory note 3500000 related entity drillcorp finance layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 acquisition made expand companys capital equipment resources assist meeting needs recently awarded drilling contracts 2004 acquisitions taken place february 1 2003 pro forma operating results would significantly different reported 2004 acquisitions following effect companys consolidated financial position thousands december 13 2002 company acquired remaining 35 ownership international directional services ids joint venture partner silver states survey inc approximately 246000 cash acquisition accounted using purchase method accounting significant effect companys consolidated financial position results operations 3 investments affiliates companys investments affiliates carried companys equity underlying net assets plus additional 4607000 result purchase accounting additional amount amortized lives ranging 20 35 years however amortization ceased effective february 1 2002 upon adoption sfas 142 affiliates generally engaged mineral exploration drilling manufacture supply drilling equipment parts supplies follows january 31 2004 2003 company sold investment technidrill ltd christensen boyles gmbh 860000 time sale investment cost basis 845000 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 financial information foreign affiliates reported onemonth lag reporting period summarized financial information companys foreign affiliates january 31 2004 2003 2002 years ended follows thousands company transactions balances foreign affiliates resulted following amounts included consolidated financial statements january 31 2004 2003 2002 years ended thousands undistributed equity earnings foreign affiliates totaled 3419000 2820000 3925000 january 31 2004 2003 2002 respectively september 2002 company invested joint venture privatelyheld limited partnership develop water storage bank property located california company invested 1059000 acquire 10 ownership joint venture joint venture total assets 10824000 january 31 2004 investment accounted using equity method june 2003 company exercised significant influence joint venture management contract june 2003 investment accounted using cost method management contract terminated company longer exercises significant influence joint venture 4 discontinued operations third quarter 2004 company reclassified results operations toledo oil gas toledo business discontinued operations toledo historically reported companys energy segment offered conventional oilfield fishing services coil tubing fishing services see note 16 january 6 2004 company sold toledo operation 2500000 recorded gain sale 57000 net income taxes 30000 year ended january 31 2004 company received 2200000 upon sale additional 300000 february 2004 end contingency period connection sale toledo company recorded contract termination liability longterm lease toledo facilities contract termination liability represents present value rental payments specified lease reduced estimate sublease rentals based layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 market value similar properties company record accretion expense due passage time difference expected lease obligations net sublease rentals present value operations contract termination costs included loss discontinued operations companys consolidated statements income summary lease liability follows thousands lease obligations 135000 net sublease rentals expected paid term lease extends 2008 january 30 2004 company sold layne christensen canada ltd layne canada subsidiary 15914000 layne canada component companys energy segment see note 16 provided drilling services shallow unconventional oil gas market company recorded gain sale 1652000 net income taxes 994000 year ended january 31 2004 december 10 2002 company sold ranneyr collector well business reynolds inc 1575000 ranneyr business component companys water resources division see note 16 company recorded gain sale approximately 827000 net income taxes 520000 year ended january 31 2003 january 23 2003 company sold drilling equipment supply inc desi division boart longyear 2616000 desi supply operation distributed drilling equipment parts supplies last remaining component companys products segment see note 16 company recorded loss disposal 850000 net income taxes 535000 year ended january 31 2003 accordance sfas 144 accounting impairment disposal longlived assets results operations layne canada toledo ranneyr desi classified discontinued operations revenues income loss discontinued operations income taxes 2004 2003 2002 follows thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 5 goodwill effective february 1 2002 company adopted sfas 142 sfas 142 requires upon adoption least annually thereafter goodwill tested impairment applying fair value based test periodic amortization goodwill longer permitted sfas 142 thus companys consolidated statements income 2004 2003 include periodic amortization goodwill sfas 142 required companies make initial assessment goodwill impairment reporting units within six months adoption company completed initial assessment goodwill second quarter 2003 determined transitional impairment charge required february 1 2002 company 21884000 goodwill recorded consolidated balance sheet consisting primarily goodwill associated mineral exploration segment assessing goodwill company assigned assets liabilities reporting units developed discounted cash flow analysis determine fair value reporting units based model company determined mineral exploration goodwill impaired result company recorded noncash charge 14429000 net income taxes 5796000 cumulative effect change accounting principle february 1 2002 accordance sfas 142 company completed annual impairment test remaining goodwill businesses december 31 2002 impairment indicated connection decision reclassify toledo oil gas business discontinued operations third quarter 2004 company reassessed recoverability goodwill associated business recorded impairment charge 160000 company completed annual impairment test remaining goodwill businesses december 31 2003 impairment indicated carrying amount goodwill attributed operating segment goodwill balances follows thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 pro forma results operations 2004 2003 2002 company applied nonamortization provisions sfas 142 periods follows thousands except per share amounts 6 income expense income expense consisted following years ended january 31 thousands gain disposal property equipment 2003 includes gains approximately 1419000 result company initiative monetize excess property equipment well gains disposals ordinary course business gains partially offset 1800000 writedown companys former christensen products plant reflect current estimates net realizable value 2003 company wholly owned subsidiary layne christensen australia pty limited layne australia recognized gain 901000 sale investment gold exploration project africa 2002 company sold christensen products business subsidiary atlas copco company received 8165000 recorded gain sale layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 3991000 approximately 1800000 additional cash received february 1 2002 upon sale certain additional assets inventory book value 2002 company layne australia sold investment ausdrill limited publicly traded company australian stock exchange investment classified availableforsale cost basis 3535000 company recorded loss sale 3329000 removed related loss 1880000 net income taxes accumulated comprehensive income consolidated statement stockholders equity 2002 company closed certain unprofitable locations recognized loss 1697000 2003 company received higher expected proceeds final settlement certain assets recorded gain 517000 7 severance costs second quarter 2004 company announced involuntary workforce reductions 189 employees actions primarily necessary align companys cost structure current market conditions july 31 2003 company notified applicable employees affected actions company recorded severance benefit charges approximately 530000 related actions second quarter 2004 accordance sfas 146 accounting costs associated exit disposal activities severance costs recorded companys consolidated statements income selling general administrative expenses year ended january 31 2004 reconciliation severance costs segment follows thousands january 31 2004 company paid 502000 costs associated workforce reductions summary severance costs related activity follows company also provided termination benefits certain employees exchange employees voluntary termination service benefits layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 offered align companys cost structure current market conditions company recorded charges approximately 714000 selling general administrative expenses consolidated statements income related voluntary termination benefits accordance sfas 88 employers accounting settlement curtailments defined benefit pension plans termination benefits 8 costs estimated earnings uncompleted contracts thousands company generally bill contract retainage amounts contract completed company bills customers based specific contract terms substantially billed amounts collectible within one year 9 income taxes income loss continuing operations income taxes follows thousands components income tax expense follows thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 deferred income taxes result temporary differences financial statement tax bases companys assets liabilities sources differences cumulative tax effects follows thousands company several australian african subsidiaries generated tax losses majority losses utilized reduce companys federal state income tax expense company tax loss carryforwards mexican subsidiary 1500000 expire 2010 2013 canadian subsidiary 800000 expires 2011 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 january 31 2004 undistributed earnings foreign subsidiaries certain foreign affiliates included 9460000 federal income foreign withholding taxes provided earnings considered invested indefinitely become subject income tax remitted dividends company sell stock affiliates subsidiaries practicable determine amount income withholding tax would payable upon remittance earnings deferred income taxes provided undistributed earnings certain foreign affiliates earnings considered invested indefinitely income taxes foreign withholding taxes also provided dividends received gains recognized sale certain affiliates year companys federal income tax returns years ended january 31 2000 2001 currently examination internal revenue service irs company received notice proposed adjustments irs years examination process challenging adjustments company believes ultimate outcome examination result material impact companys consolidated results operations financial position reconciliation total income tax expense statutory federal rate follows thousands 10 operating leases future minimum rental payments required operating leases initial remaining noncancellable lease terms excess one year january 31 2004 follows thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 operating leases primarily automobiles light trucks office shop facilities rent expense operating leases including insignificant amounts contingent rental payments 12383000 10632000 6475000 2004 2003 2002 respectively 11 employee benefit plans company sponsors pension plan covering certain hourly employees covered unionsponsored multiemployer plans benefits computed based mainly years service company makes annual contributions plan substantially equal amounts required maintain qualified status plans contributions intended provide benefits related past current service company effective december 31 2003 company froze pension plan recorded curtailment loss approximately 20000 benefits longer accrued december 31 2003 employees added plan company expects maintain assets plan pay normal benefits accrued december 31 2003 assets plan consist primarily stocks bonds government securities following table sets forth plans funded status december 31 2003 2002 measurement dates amounts recognized companys consolidated balance sheets january 31 2004 2003 thousands layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 amounts recognized companys consolidated balance sheets january 31 2004 2003 thousands consist net periodic pension cost 2004 2003 2002 includes following components thousands company recognized full amount actuarially determined pension liability related intangible asset applicable unrecognized pension cost recorded charge consolidated stockholders equity giving effect related future tax benefit weighted average assumptions used determine benefit obligation net periodic pension cost years ending january 31 2004 2003 2002 follows estimated longterm rate return assets developed based historical returns future expectations returns asset class well target asset allocation pension portfolio benefit level assumptions 2004 2003 2002 based fixed amounts per year credited service percentage fair value total plan assets major category plan assets measurement date follows layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 companys investment policy includes following asset allocation guidelines effective periods presented asset allocation policy developed consideration following longterm investment objectives achieve longterm inflationadjusted growth asset values investments common stock fixed income obligations minimize risk maintaining allocation cash equivalents manage portfolio conform erisa requirements manage plan assets total return basis maximize total returns consistent appropriate level risk controlled via diversification investments among within asset classes company contracts financial institution provide investment management services full discretion portfolio investments given investment manager subject asset allocation guidelines following additional guidelines equity securities allowable equity securities include common stocks listed us stock exchange overthecounter common stocks preferred convertible securities equity holdings single issuer aggregate 10 total market value plan international securities allowable international securities include common stocks preferred stocks warrants convertible securities well government corporate debt securities mutual funds mutual funds may utilized investments fixed income equity international securities enhance diversification performance fixed income securities allowable fixed income securities include us treasury securities us agency securities corporate bonds fixed income securities shall rated better time purchase fixed income security shall continue held rating falls bbb securities single issuer layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 exception us treasuries agencies aggregate 10 total market value plan fixed income segment portfolio generally intermediate average maturity five ten years maximum permitted maturity individual issue fifteen years companys policy respect funding qualified pension plan fund least minimum required erisa maximum deductible tax purposes contribution expected required erisa january 1 december 31 2004 plan year company expects calendar year 2004 contributions plan approximately 850000 company also provides supplemental retirement benefits chief executive officer benefits computed based compensation earned highest five consecutive years employment reduced portion social security benefits annuity equivalent chief executives defined contribution plan balance company contribute plan maintain investment assets related expected benefit obligation company recognized full amount actuarially determined pension liability january 31 2004 2003 respectively amounts recognized companys consolidated balance sheets january 31 2004 2003 1190000 1023000 net periodic pension cost supplemental retirement benefits 2004 2003 2002 include following components thousands company also participates number defined benefit multiemployer plans unionsponsored company makes contributions equal amounts accrued pension expense total union pension expense plans 1368000 1316000 1285000 2004 2003 2002 respectively information regarding assets accumulated benefits plans made available company companys salaried certain hourly employees participate companysponsored defined contribution plans total expense companys portion plans 1576000 1560000 1205000 2004 2003 2002 respectively 12 indebtedness july 31 2003 company entered agreement master shelf agreement whereby could issue 60000000 unsecured notes upon closing company issued 40000000 notes senior notes master shelf agreement remaining 20000000 subject terms conditions acceptance lender available issuance company market rates july 31 2005 senior notes bear fixed interest rate 605 due july 31 2010 annual principal payments layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 13333000 beginning july 31 2008 proceeds issuance senior notes used refinance borrowings outstanding companys previous term loan revolving credit facility previous loan facilities concurrent signing master shelf agreement company closed new bank revolving credit facility credit agreement credit agreement unsecured 30000000 revolving facility used working capital requirements general corporate purposes maximum available credit agreement 30000000 less outstanding letter credit commitments subject 15000000 sublimit credit agreement provides interest variable rates equal companys option eurodollar rate plus 175 275 depending upon certain ratios alternative reference rate defined credit agreement credit agreement due payable july 31 2006 january 31 2004 loans 2000000 average interest rate 40 letters credit 8958000 outstanding credit agreement master shelf agreement credit agreement contain certain covenants including restrictions incurrence additional indebtedness liens investments acquisitions transfer sale assets transactions affiliates payment dividends certain financial maintenance covenants including among others fixed charge coverage maximum debt ebitda minimum tangible net worth minimum asset coverage company compliance covenants january 31 2004 connection refinancing previous loan facilities july 31 2003 company recorded debt extinguishment costs 2320000 costs included prepayment penalty 671000 writeoff deferred loan costs related previous loan facilities 1447000 writeoff unrealized loss companys interest rate swap 202000 debt extinguishment costs 1135000 recorded july 2002 result refinancing previous credit facility july 2002 loss previously reported extraordinary item reclassified income continuing operations upon adoption sfas 145 rescission fasb statement 4 44 64 amendment fasb statement 13 technical corrections february 1 2003 companys previous floating rate debt exposed changes interest rates going forward september 2002 company entered interest rate swap agreement swap agreement required previous loan facilities swap agreement effectively converted portion previous term loan fixed rate basis thus reducing impact interest rate changes upon entering master shelf agreement fixed interest rate contract swap agreement longer qualified hedge accounting gains losses related swap agreement included net companys consolidated statements income incurred swap agreement calls quarterly interest payments commenced october 1 2002 terminate september 9 2004 swap agreement recorded fair market value 127000 january 31 2004 accrued expenses companys consolidated balance sheets layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 maximum borrowings outstanding companys thenexisting credit agreements 2004 2003 2002 42000000 37000000 47000000 respectively average outstanding borrowings 37838000 30062000 33292000 respectively weighted average interest rates 57 66 70 respectively loan costs incurred securing longterm financing amortized using method approximates effective interest method term respective loan agreement amortization costs 2004 2003 2002 205000 345000 312000 respectively amortization loan costs included interest expense consolidated statements income debt outstanding january 31 2004 2003 whose carrying value approximates fair market value follows thousands january 31 2004 debt outstanding mature follows thousands 13 foreign currency derivatives company foreign operations significant costs denominated foreign currencies thus exposed risks associated changes foreign currency exchange rates point time company might use various hedge instruments primarily foreign currency option contracts manage exposures associated forecasted expatriate labor costs purchases operating supplies company enter foreign currency derivative financial instruments speculative trading purposes january 31 2004 company held option contracts aggregate us dollar notional value 16140000 hedge risks associated forecasted australian dollar denominated costs african operations contracts settle various increments january 2005 fair value instruments 1395000 january 31 2004 recorded current layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 assets net income taxes 539000 accumulated comprehensive income aggregate gains 219000 foreign currency hedging transactions recognized 2004 forecasted transactions hedged occurred recorded primarily cost revenues companys consolidated statements income 14 stock option plans october 1998 company adopted rights agreement whereby company authorized declared dividend one preferred share purchase right outstanding common share company subject limited exceptions rights exercisable person group acquires announces tender offer 25 companys common stock right entitle shareholders buy one onehundredth share newly created series junior participating preferred stock company exercise price 4500 company entitled redeem right 01 per right time person acquired 25 companys outstanding common stock rights expire 10 years date grant company reserved 500000 shares common stock issuance employee incentive compensation plans issuance shares plans based performance determined annually committee appointed companys board directors company also stock option plans provide granting options purchase aggregate 2500000 shares common stock price fixed board directors committee january 31 2004 784981 shares available granted plans significant option groups outstanding january 31 2004 related weighted average price life information follows options granted exercise price equal fair market value companys common stock date grant options terms five ten years date grant vest ratably periods four layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 five years purposes pro forma disclosure weighted average fair value date grant options granted 2002 416 per option options granted 2004 2003 fair value options date grant estimated using blackscholes model fair values based expected life years equal full option term dividend yield following weighted average assumptions 15 contingencies companys drilling activities involve certain operating hazards result personal injury loss life damage destruction property equipment damage surrounding areas release hazardous substances wastes damage environment interruption suspension drill site operations loss revenues future business magnitude operating risks amplified company frequently case conducts project fixedprice turnkey basis company delegates certain functions subcontractors remains responsible customer subcontracted work addition company exposed potential liability foreign federal state local laws regulations contractual indemnification agreements otherwise connection services products litigation arising occurrences may result company named defendant lawsuits asserting large claims although company maintains insurance protection considers economically prudent assurance insurance sufficient effective circumstances claims hazards company may layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 subject company able continue obtain insurance protection successful claim damage resulting hazard company fully insured could material adverse effect company addition company maintain political risk insurance respect foreign operations company involved various matters litigation claims disputes arisen ordinary course companys business resolution matters may impact financial results period matter resolved company believes ultimate disposition matters aggregate material adverse effect upon business consolidated financial position results operations cash flows 16 operating segments foreign operations company multinational company provides sophisticated services related products variety markets management defines companys operational organizational structure discrete divisions based primary product lines division comprises combination individual district offices primarily offer similar types services serve similar types markets although individual offices within division may periodically perform services normally provided another division results services recorded offices division example water resources division office performed geoconstruction services revenues would recorded water resources division rather geoconstruction division offices primary responsibility move one division president another offices results going forward would reclassified divisions time companys reportable segments defined follows water resources division provides full line waterrelated services products including hydrological studies site selection well design drilling well development pump installation repair maintenance divisions offerings include design construction water treatment facilities manufacture sale products treat volatile organics contaminants nitrates iron manganese arsenic radium radon groundwater division also offers environmental services assess monitor groundwater contaminants effective february 1 2003 companys ground freezing services included division prospective basis due change reporting responsibility mineral exploration division provides complete range drilling services mineral exploration industry aboveground underground drilling activities include phases core drilling diamond reverse circulation dual tube hammer rotary airblast methods layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 geoconstruction division focuses services improve soil stability primarily jet grouting vibratory ground improvement drilled micropiles stone columns anchors tiebacks division also manufactures line highpressure pumping equipment used grouting operations geotechnical drilling rigs used directional drilling effective february 1 2003 division longer includes companys ground freezing services due change reporting responsibility energy division primarily focuses exploration production coalbed methane cbm properties united states date concentrated projects midwest region united states historically division also included service businesses shallow gas tar sands exploration drilling conventional oilfield fishing services coil tubing fishing services fiscal 2004 divisions strategy shifted focus mainly resource development rather providing services external customers accordingly january 2004 company sold canadian drilling unit ensign drilling oilfield fishing services smith international results operations units reclassified discontinued operations years presented see note 4 division composed companys cbm development activities two small specialty energy service companies products grouping historically included companys supply operation distributed drilling equipment parts supplies manufacturing operation producing diamond drilling rigs diamond bits core barrels drill rods christensen products miscellaneous operations fall divisions january 23 2003 company sold supply operation boart longyear upon sale results operations reclassified discontinued operations see note 4 august 8 2001 company sold christensen products business subsidiary atlas copco financial information companys operating segments presented thousands intersegment revenues accounted based fair market value products sold services provided corporate loss continuing operations consists unallocated corporate expenses primarily general administrative functions incentive compensation corporate assets company directly associated operating segment consist primarily cash deferred income taxes layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 income continuing operations energy segment 2003 2002 respectively includes 815000 53000 expenses related companys energy exploration activities gulf mexico region united states expenses incurred 2004 activities unrelated companys coalbed methane exploration development efforts charged expense reserves identified company longer pursuing exploration activities 17 new accounting pronouncements financial accounting standards board issued several statements effective current year effective future years sfas 149 amendments statement 133 derivative instruments hedging activities summary amends clarifies financial reporting derivative instruments including certain derivative instruments embedded contacts hedging activities sfas 133 accounting derivative instruments hedging activities sfas 149 effective contracts entered modified june 30 2003 sfas 150 accounting certain financial instruments characteristics liabilities equity establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity statement effective financial instruments entered modified may 31 2003 interpretation 46 revised consolidation variable interest entities fin 46r requires consolidation certain variable interest entities certain conditions met adoption sfas 149 150 fin 46r significant impacts companys results operations financial position company adopted disclosure requirements sfas 132 revised employers disclosures pensions postretirement benefits 2004 related pensions postretirement benefits see note 11 layne christensen company subsidiaries notes consolidated financial statements years ended january 31 2004 2003 2002 18 quarterly results unaudited quarterly financial data follows thousands dollars except per share data 2004 2003 company sold certain operations classified results operations discontinued operations see note 4 revenues first three quarters 2004 reduced 6602000 3353000 2915000 respectively related discontinued operations gross profit first three quarters 2004 reduced 952000 893000 157000 respectively related discontinued operations revenues four quarters 2003 reduced 4796000 2604000 2164000 4174000 respectively related discontinued operations gross profit four quarters 2003 reduced 946000 535000 281000 688000 respectively related discontinued operations schedule ii layne christensen company subsidiaries valuation qualifying accounts thousands item 9 nannannannannanitem 15 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit description 41 restated certificate incorporation registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 31 incorporated herein reference 42 bylaws registrant filed amendment 2 registrants registration statement file 3348432 exhibit 32 incorporated herein reference 43 specimen common stock certificate filed amendment 3 registrants registration statement file 3348432 exhibit 41 incorporated herein reference 44 rights agreement dated october 12 1998 layne christensen company national city bank includes form certificate designations series junior participating preferred stock layne christensen company exhibit form right certificate exhibit b summary rights purchase preferred shares exhibit c filed companys form 8k dated october 12 1998 file 020578 exhibit 41 incorporated herein reference 45 credit agreement dated july 9 2002 among company boyles bros drilling company christensen boyles corporation layne water development storage llc layne texas incorporated midcontinent drilling company shawnee oil gas llc stammscheele incorporated toledo oil gas services inc vibration technology inc various financial institutions lasalle bank national association revolving credit agent lender letter credit issuer general electric capital corporation agent lender filed companys form 10q quarter ended october 31 2002 file 020578 incorporated herein reference 101 tax liability indemnification agreement registrant marley company filed amendment 3 registrants registration statement file 3348432 exhibit 102 incorporated herein reference 102 lease agreement registrant parkway partners llc dated december 21 1994 filed registrants annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 102 incorporated herein reference 1021 first modification ratification lease dated february 26 1996 parkway partners llc registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1021 incorporated herein reference 1022 second modification ratification lease agreement parkway partners llc layne christensen company dated april 28 1997 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 1022 incorporated herein reference 1023 third modification extension agreement parkway partners llc layne christensen company dated november 3 1998 filed companys 10q quarter ended october 31 1998 file 020578 exhibit 101 incorporated herein reference 1024 fourth modification extension agreement parkway partners llc layne christensen company executed may 17 2000 effective december 29 1998 filed companys 10q quarter ended july 31 2000 file 020578 exhibit 101 incorporated herein reference 1025 fifth modification extension agreement parkway partners llc layne christensen company dated march 1 2003 103 form stock option agreement company management company filed amendment 3 registrants registration statement file 3348432 exhibit 107 incorporated herein reference 104 form non qualified stock option agreement spinoff options company robert j dineen filed amendment 3 registrants registration statement file 3348432 exhibit 109 incorporated herein reference 105 insurance liability indemnity agreement company marley company filed amendment 3 registrants registration statement file 3348432 exhibit 1010 incorporated herein reference 106 form layne inc executive incentive compensation plan filed registrants form 10q quarterly period ended july 31 1994 file 3348432 exhibit 102 incorporated herein reference 107 agreement marley company relating tradename filed registrants registration statement file no3348432 exhibit 1010 incorporated herein reference 108 form subscription agreement management company filed amendment 3 registrants registration statement file 3348432 exhibit 1016 incorporated herein reference 109 form subscription agreement company robert j dineen filed amendment 3 registrants registration statement file 3348432 exhibit 1017 incorporated herein reference 1010 credit agreement dated july 9 2002 among company boyles bros drilling company christensen boyles corporation layne water development storage llc layne texas incorporated midcontinent drilling company shawnee oil gas llc stammscheele incorporated toledo oil gas services inc vibration technology inc various financial institutions lasalle bank national association revolving credit agent lender letter credit issuer general electric capital corporation agent lender filed companys form 10q quarter ended october 31 2002 file 020578 incorporated herein reference 1011 letter agreement andrew b schmitt company dated october 12 1993 filed companys annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 1013 incorporated herein reference 1012 form incentive stock option agreement company management company filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 1013 registration rights agreement dated november 30 1995 company marley holdings lp filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1017 incorporated herein reference 1014 form stock option agreement company management company effective february 1 1998 filed companys form 10q quarter ended april 30 1998 file 020578 exhibit 101 incorporated herein reference 1015 form incentive stock option agreement company management company effective april 20 1999 filed companys form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 1016 form non qualified stock option agreement company management company effective april 20 1999 filed companys form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 1017 layne christensen company district incentive compensation plan revised effective february 1 2000 1018 layne inc corporate staff incentive compensation plan 111 statement regarding computation per share earnings 211 list subsidiaries 231 consent deloitte touche llp 991 section 906 certification chief executive officer company 992 section 906 certification chief financial officer company management contracts compensatory plans arrangements required identified item 14a3 b reports form 8k form 8k filed december 6 2002 related companys section 906 certifications c exhibits filed report form 10k identified item 14a3 financial statement schedules financial statement schedule filed report form 10k identified item 14a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company andrew b schmitt andrew b schmitt president dated april 3 2003 chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date andrew b schmitt april 3 2003 andrew b schmitt president chief executive officer director principal executive officer jerry w fanska april 3 2003 jerry w fanska vice presidentfinance treasurer principal financial accounting officer robert j dineen april 3 2003 robert j dineen director edward gilhuly april 3 2003 edward gilhuly director todd fisher april 3 2003 todd fisher director donald k miller april 3 2003 donald k miller director sheldon r erikson april 3 2003 sheldon r erikson director certifications andrew b schmitt certify 1 reviewed annual report form 10k layne christensen company 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date april 3 2003 ab schmitt ab schmitt president chief executive officer jerry w fanska certify 1 reviewed annual report form 10k layne christensen company 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls e fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated quarterly report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date april 3 2003 jerry w fanska jerry w fanska vice president finance treasurer exhibit index exhibit description page 41 restated certificate incorporation registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 31 incorporated herein reference 42 bylaws registrant filed amendment 2 registrants registration statement file 3348432 exhibit 32 incorporated herein reference 43 specimen common stock certificate filed amendment 3 registrants registration statement file 3348432 exhibit 41 incorporated herein reference 44 rights agreement dated october 12 1998 layne christensen company national city bank includes form certificate designations series junior participating preferred stock layne christensen company exhibit form right certificate exhibit b summary rights purchase preferred shares exhibit c filed companys form 8k dated october 12 1998 file 020578 exhibit 41 incorporated herein reference 45 credit agreement dated july 9 2002 among company boyles bros drilling company christensen boyles corporation layne water development storage llc layne texas incorporated midcontinent drilling company shawnee oil gas llc stammscheele incorporated toledo oil gas services inc vibration technology inc various financial institutions lasalle bank national association revolving credit agent lender letter credit issuer general electric capital corporation agent lender filed companys form 10q quarter ended october 31 2002 file 020578 incorporated herein reference 101 tax liability indemnification agreement registrant marley company filed amendment 3 registrants registration statement file 3348432 exhibit 102 incorporated herein reference 102 lease agreement registrant parkway partners llc dated december 21 1994 filed registrants annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 102 incorporated herein reference 1021 first modification ratification lease dated february 26 1996 parkway partners llc registrant filed registrants annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1021 incorporated herein reference 1022 second modification ratification lease agreement parkway partners llc layne christensen company dated april 28 1997 filed registrants annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 1022 incorporated herein reference 1023 third modification extension agreement parkway partners llc layne christensen company dated november 3 1998 filed companys 10q quarter ended october 31 1998 file 020578 exhibit 101 incorporated herein reference 1024 fourth modification extension agreement parkway partners llc layne christensen company executed may 17 2000 effective december 29 1998 filed companys 10q quarter ended july 31 2000 file 020578 exhibit 101 incorporated herein reference 1025 fifth modification extension agreement parkway partners llc layne christensen company dated march 1 2003 78 103 form stock option agreement company management company filed amendment 3 registrants registration statement file 3348432 exhibit 107 incorporated herein reference 104 form non qualified stock option agreement spinoff options company robert j dineen filed amendment 3 registrants registration statement file 3348432 exhibit 109 incorporated herein reference 105 insurance liability indemnity agreement company marley company filed amendment 3 registrants registration statement file 3348432 exhibit 1010 incorporated herein reference 106 form layne inc executive incentive compensation plan filed registrants form 10q quarterly period ended july 31 1994 file 3348432 exhibit 102 incorporated herein reference 107 agreement marley company relating tradename filed registrants registration statement file no3348432 exhibit 1010 incorporated herein reference 108 form subscription agreement management company filed amendment 3 registrants registration statement file 3348432 exhibit 1016 incorporated herein reference 109 form subscription agreement company robert j dineen filed amendment 3 registrants registration statement file 3348432 exhibit 1017and incorporated herein reference 1010 credit agreement dated july 9 2002 among company boyles bros drilling company christensen boyles corporation layne water development storage llc layne texas incorporated midcontinent drilling company shawnee oil gas llc stammscheele incorporated toledo oil gas services inc vibration technology inc various financial institutions lasalle bank national association revolving credit agent lender letter credit issuer general electric capital corporation agent lender filed companys form 10q quarter ended october 31 2002 file 020578 incorporated herein reference 1011 letter agreement andrew b schmitt company dated october 12 1993 filed companys annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 1013 incorporated herein reference 1012 form incentive stock option agreement company management company filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 1013 registration rights agreement dated november 30 1995 company marley holdings lp filed companys annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1017 incorporated herein reference 1014 form stock option agreement company management company effective february 1 1998 filed companys form 10q quarter ended april 30 1998 file 020578 exhibit 101 incorporated herein reference 1015 form incentive stock option agreement company management company effective april 20 1999 filed companys form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 1016 form non qualified stock option agreement company management company effective april 20 1999 filed companys form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 1017 layne christensen company district incentive compensation plan revised effective february 1 2000 85 1018 layne inc corporate staff incentive compensation plan 91 111 statement regarding computation per share earnings 95 211 list subsidiaries 96 231 consent deloitte touche llp 97 991 section 906 certification chief executive officer company 98 992 section 906 certification chief financial officer company 99 incorporated herein referenceitem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit description 41 restated certificate incorporation registrant filed registrant’s annual report form 10k management contracts compensatory plans arrangements required identified item 14a3 b exhibits filed report form 10k identified item 15a3 c financial statement schedules financial statement schedule filed report form 10k identified item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed item 15 exhibits financial statement schedules continued 1022 second modification ratification lease agreement parkway partners llc layne christensen company dated april 28 1997 filed registrant’s annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 1022 incorporated herein reference 1023 third modification extension agreement parkway partners llc layne christensen company dated november 3 1998 filed company’s 10q quarter ended october 31 1998 file 020578 exhibit 101 incorporated herein reference 1024 fourth modification extension agreement parkway partners llc layne christensen company executed may 17 2000 effective december 29 1998 filed company’s 10q quarter ended july 31 2000 file 020578 exhibit 101 incorporated herein reference 1025 fifth modification extension agreement parkway partners llc layne christensen company dated march 1 2003 filed exhibit 1025 registrant’s annual report form 10k fiscal year ended january 31 2003 file 020578 incorporated herein reference 103 form stock option agreement company management company filed amendment 3 registrant’s registration statement file 3348432 exhibit 107 incorporated herein reference 104 insurance liability indemnity agreement company marley company filed amendment 3 registrant’s registration statement file 3348432 exhibit 1010 incorporated herein reference 105 agreement marley company relating tradename filed registrant’s registration statement file no3348432 exhibit 1010 incorporated herein reference 106 form subscription agreement management company filed amendment 3 registrant’s registration statement file 3348432 exhibit 1016 incorporated herein reference 107 form subscription agreement company robert j dineen filed amendment 3 registrant’s registration statement file 3348432 exhibit 1017 incorporated herein reference 108 master shelf agreement dated july 31 2003 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed registrant’s 10q quarter ending july 31 2003 file 020578 exhibit 46 incorporated herein reference 109 letter agreement andrew b schmitt company dated october 12 1993 filed company’s annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 1013 incorporated herein reference 1010 form incentive stock option agreement company management company filed company’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 1011 registration rights agreement dated november 30 1995 company marley holdings lp filed company’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1017 incorporated herein reference 1012 form incentive stock option agreement company management company effective february 1 1998 filed company’s form 10q quarter ended april 30 1998 file 020578 exhibit 101 incorporated herein reference 1013 form incentive stock option agreement company management company effective april 20 1999 filed company’s form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 1014 form non qualified stock option agreement company management company effective april 20 1999 filed company’s form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 1015 layne christensen company district incentive compensation plan revised effective february 1 2000filed exhibit 1017 registrant’s annual report form 10k fiscal year ended january 31 2003 file 020578 incorporated herein reference item 15 exhibits financial statement schedules continued 1016 layne christensen company executive incentive compensation plan revised effective may 1 1997 filed exhibit 1017 registrant’s annual report form 10k fiscal year ended january 31 2004 file 020578 incorporated herein reference 1017 layne christensen company corporate staff incentive compensation plan revised effective october 10 2003 filed exhibit 1018 registrant’s annual report form 10k fiscal year ended january 31 2004 file 020578 incorporated herein reference 1018 standstill agreement dated march 26 2004 among layne christensen company wynnefield partners small cap value lp wynnefield small cap value offshore fund ltd wynnefield partners small cap value lpi channel partnership ii lp wynnefield capital management llc wynnefield capital inc wynnefield capital inc profit sharing’s money purchase plan nelson obus joshua landes filed exhibit 1019 registrant’s annual report form 10k fiscal year ended january 31 2004 file 020578 incorporated herein reference 1019 summary 2006 salaries named executive officers 1020 agreement plan merger dated august 30 2005 among layne christensen company layne merger sub 1 inc reynolds inc stockholders reynolds inc listed signature pages thereto filed exhibit 102 company’s form 8k dated september 28 2005 incorporated herein reference 1021 layne christensen company key management deferred compensation plan effective january 1 2006 filed exhibit 101 company’s form 8k dated january 20 2006 incorporated herein reference 1022 reynolds division layne christensen company cash bonus plan dated september 28 2005 filed exhibit 101 company’s form 8k dated september 28 2005 incorporated herein reference 1023 settlement agreement dated march 31 2006 among layne christensen company steel partners ii lp steel partners llc warren g lichtenstein filed exhibit 101 company’s form 8k dated april 5 2006 incorporated herein reference 211 list subsidiaries 231 consent deloitte touche llp 232 consent cawley gillespie associates inc 311 section 302 certification principal executive officer company 312 section 302 certification principal financial officer company 321 section 906 certification principal executive officer company 322 section 906 certification principal financial officer company management contracts compensatory plans arrangements required identified item 14a3 b exhibits filed report form 10k identified item 15a3 c financial statement schedules financial statement schedule filed report form 10k identified item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company andrew b schmitt andrew b schmitt president chief executive officer dated april 14 2006 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed item 15 exhibits financial statement schedules continued item 15 exhibits financial statement schedules continued item 15 exhibits financial statement schedules continued management contracts compensatory plans arrangements required identified item 14a3 b exhibits filed report form 10k identified item 15a3 c financial statement schedules financial statement schedule filed report form 10k identified item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company b schmitt andrew b schmitt president chief executive officer dated april 16 2007 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules applicable financial statement schedule listed index item 8 form 10k exhibits filed incorporated reference report listed item 15 exhibits financial statement schedules continued 411 letter amendment 1 master shelf agreement dated may 15 2004 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed exhibit 46 company’s form 10k fiscal year ended january 31 2006 incorporated herein reference 412 letter amendment 2 master shelf agreement dated september 28 2005 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed exhibit 42 company’s form 8k dated september 28 2005 incorporated herein reference 413 letter amendment 3 master shelf agreement dated june 16 2006 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed exhibit 102 company’s form 10q quarter ended july 31 2006 incorporated herein reference 414 letter amendment 4 master shelf agreement dated november 20 2006 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed exhibit 42 company’s form 8k dated november 20 2006 incorporated herein reference 415 letter amendment 5 master shelf agreement dated october 15 2007 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed exhibit 102 company’s form 10q quarter ended october 31 2007 incorporated herein reference 101 tax liability indemnification agreement registrant marley company filed amendment 3 registrant’s registration statement file 3348432 exhibit 102 incorporated herein reference 102 lease agreement registrant parkway partners llc dated december 21 1994 filed registrant’s annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 102 incorporated herein reference 1021 first modification ratification lease dated february 26 1996 parkway partners llc registrant filed registrant’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1021 incorporated herein reference 1022 second modification ratification lease agreement parkway partners llc layne christensen company dated april 28 1997 filed registrant’s annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 1022 incorporated herein reference 1023 third modification extension agreement parkway partners llc layne christensen company dated november 3 1998 filed company’s 10q quarter ended october 31 1998 file 020578 exhibit 101 incorporated herein reference 1024 fourth modification extension agreement parkway partners llc layne christensen company executed may 17 2000 effective december 29 1998 filed company’s 10q quarter ended july 31 2000 file 020578 exhibit 101 incorporated herein reference 1025 fifth modification extension agreement parkway partners llc layne christensen company dated march 1 2003 filed exhibit 1025 registrant’s annual report form 10k fiscal year ended january 31 2003 file 020578 incorporated herein reference 1026 sixth modification agreement dated february 29 2008 1900 associates llc company 103 form stock option agreement company management company filed amendment 3 registrant’s registration statement file 3348432 exhibit 107 incorporated herein reference item 15 exhibits financial statement schedules continued 104 insurance liability indemnity agreement company marley company filed amendment 3 registrant’s registration statement file 3348432 exhibit 1010 incorporated herein reference 105 agreement marley company relating tradename filed registrant’s registration statement file no3348432 exhibit 1010 incorporated herein reference 106 form subscription agreement management company filed amendment 3 registrant’s registration statement file 3348432 exhibit 1016 incorporated herein reference 107 form subscription agreement company robert j dineen filed amendment 3 registrant’s registration statement file 3348432 exhibit 1017 incorporated herein reference 108 letter agreement andrew b schmitt company dated october 12 1993 filed company’s annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 1013 incorporated herein reference 109 form incentive stock option agreement company management company filed company’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 1010 registration rights agreement dated november 30 1995 company marley holdings lp filed company’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1017 incorporated herein reference 1011 form incentive stock option agreement company management company effective february 1 1998 filed company’s form 10q quarter ended april 30 1998 file 020578 exhibit 101 incorporated herein reference 1012 form incentive stock option agreement company management company effective april 20 1999 filed company’s form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 1013 form non qualified stock option agreement company management company effective april 20 1999 filed company’s form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 1014 layne christensen company district incentive compensation plan revised effective february 1 2000 filed exhibit 1017 registrant’s annual report form 10k fiscal year ended january 31 2003 file 020578 incorporated herein reference 1015 layne christensen company executive incentive compensation plan amended restated effective february 1 2008 filed exhibit 101 registrant’s current report form 8k filed february 11 2008 incorporated herein reference 1016 layne christensen company corporate staff incentive compensation plan revised effective october 10 2003 filed exhibit 1018 registrant’s annual report form 10k fiscal year ended january 31 2004 file 020578 incorporated herein reference 1017 standstill agreement dated march 26 2004 among layne christensen company wynnefield partners small cap value lp wynnefield small cap value offshore fund ltd wynnefield partners small cap value lpi channel partnership ii lp wynnefield capital management llc wynnefield capital inc wynnefield capital inc profit sharing’s money purchase plan nelson obus joshua landes filed exhibit 1019 registrant’s annual report form 10k fiscal year ended january 31 2004 file 020578 incorporated herein reference 1018 layne christensen company 2006 equity incentive plan amended filed exhibit 101 company’s form 8k filed june 14 2006 incorporated herein reference 1019 form incentive stock option agreement company management company use 2006 equity incentive plan filed exhibit 4e company’s form s8 file 333135683 filed july 10 2006 incorporated herein reference item 15 exhibits financial statement schedules continued 1020 form nonqualified stock option agreement company management company use 2006 equity incentive plan filed exhibit 4f company’s form s8 file 333135683 filed july 10 2006 incorporated herein reference 1021 form nonqualified stock option agreement company nonemployee directors company use 2006 equity incentive plan filed exhibit 4g company’s form s8 file 333135683 filed july 10 2006 incorporated herein reference 1022 form restricted stock award agreement company management company use 2006 equity incentive plan filed exhibit 107 company’s form 10q quarter ended july 31 2006 incorporated herein reference 1023 form restricted stock award agreement management nonemployee directors company’s 2006 equity incentive plan incorporated reference exhibit 101 company’s current report form 8k filed september 17 2007 1024 layne christensen company water infrastructure division incentive compensation plan amended restated effective february 1 2008 1025 layne energy inc 2007 stock option plan incorporated reference exhibit 101 company’s current report form 8k filed june 13 2007 1026 form nonqualified stock option agreement layne energy inc 2007 stock option plan incorporated reference exhibit 102 company’s current report form 8k filed june 13 2007 1027 layne christensen company mineral exploration division incentive compensation plan amended restated effective february 1 2008 1028 severance agreement dated march 13 2008 andrew b schmitt layne christensen company incorporated reference exhibit 101 company’s current report form 8k filed march 19 2008 1029 severance agreement dated march 13 2008 gregory f aluce layne christensen company incorporated reference exhibit 102 company’s current report form 8k filed march 19 2008 1030 severance agreement dated march 13 2008 steven f crooke layne christensen company incorporated reference exhibit 103 company’s current report form 8k filed march 19 2008 1031 severance agreement dated march 13 2008 jerry w fanska layne christensen company incorporated reference exhibit 104 company’s current report form 8k filed march 19 2008 1032 severance agreement dated march 13 2008 jeffrey j reynolds layne christensen company incorporated reference exhibit 105 company’s current report form 8k filed march 19 2008 1033 summary 2008 salaries named executive officers 1034 agreement plan merger dated august 30 2005 among layne christensen company layne merger sub 1 inc reynolds inc stockholders reynolds inc listed signature pages thereto filed exhibit 102 company’s form 8k dated september 28 2005 incorporated herein reference 1035 amendment agreement plan merger dated july 30 2007 among company jeffrey reynolds individually agent stockholders listed signature pages thereto incorporated reference exhibit 101 company’s current report form 8k filed august 3 2007 1036 layne christensen company key management deferred compensation plan effective january 1 2006 filed exhibit 101 company’s form 8k dated january 20 2006 incorporated herein reference 1037 reynolds division layne christensen company cash bonus plan dated september 28 2005 filed exhibit 101 company’s form 8k dated september 28 2005 incorporated herein reference 1038 settlement agreement dated march 31 2006 among layne christensen company steel partners ii lp steel partners llc warren g lichtenstein filed exhibit 101 company’s form 8k dated april 5 2006 incorporated herein reference 211 list subsidiaries 231 consent deloitte touche llp item 15 exhibits financial statement schedules continued 232 consent cawley gillespie associates inc 311 section 302 certification principal executive officer company 312 section 302 certification principal financial officer company 321 section 906 certification principal executive officer company 322 section 906 certification principal financial officer company management contracts compensatory plans arrangements required identified item 14a3 b exhibits filed report form 10k identified item 15a3 c financial statement schedules financial statement schedule filed report form 10k identified item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company b schmitt andrew b schmitt president chief executive officer dated april 14 2008 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed item 15 exhibits financial statement schedules continued item 15 exhibits financial statement schedules continued item 15 exhibits financial statement schedules continued item 15 exhibits financial statement schedules continued management contracts compensatory plans arrangements required identified item 14a3 b exhibits filed report form 10k identified item 15a3 c financial statement schedules signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules applicable financial statement schedule listed index item 8 form 10k exhibits filed incorporated reference report listed item 15 exhibits financial statement schedules continued item 15 exhibits financial statement schedules continued item 15 exhibits financial statement schedules continued item 15 exhibits financial statement schedules continued management contracts compensatory plans arrangements required identified item 14a3 exhibits filed report form 10k identified item 15a3 c financial statement schedules financial statements geotec boyles bros sa included exhibit 992 item 15a3 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit number description 31 corrected certificate restated certificate incorporation registrant filed exhibit 31 registrant’s registration statement form s1 filed september 20 2007 file no333146184 incorporated herein reference 32 amended restated bylaws registrant adopted october 9 2008 filed exhibit 32 registrant’s form 8k filed october 14 2008 incorporated herein reference 41 certificate designations series junior participating preferred stock layne christensen company filed registrant’s annual report form 10k fiscal year ended january 31 2007 exhibit 42 incorporated herein reference 42 rights agreement dated october 14 2008 registrant national city bank rights agent includes exhibit c summary rights purchase preferred shares filed exhibit 41 registrant’s form 8k filed october 14 2008 incorporated herein reference 43 specimen common stock certificate filed amendment 3 registrant’s registration statement form s1 file 3348432 exhibit 41 incorporated herein reference 44 credit agreement dated march 25 2011 among layne christensen company borrower lenders party thereto jpmorgan chase bank na administrative agent bank america na syndication agent pnc bank national association us bank national association codocumentation agents 45 master shelf agreement dated july 31 2003 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed registrant’s 10q quarter ended july 31 2003 file 020578 exhibit 45 incorporated herein reference 46 letter amendment 1 master shelf agreement dated may 15 2004 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed exhibit 46 company’s form 10k fiscal year ended january 31 2006 incorporated herein reference 47 letter amendment 2 master shelf agreement dated september 28 2005 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed exhibit 42 company’s form 8k dated september 28 2005 incorporated herein reference 48 letter amendment 3 master shelf agreement dated june 16 2006 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed exhibit 102 company’s form 10q quarter ended july 31 2006 incorporated herein reference 49 letter amendment 4 master shelf agreement dated november 20 2006 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed exhibit 42 company’s form 8k dated november 20 2006 incorporated herein reference 410 letter amendment 5 master shelf agreement dated october 15 2007 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed exhibit 102 company’s form 10q quarter ended october 31 2007 incorporated herein reference 411 letter amendment 6 master shelf agreement dated march 31 2009 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company time insurance company physicians mutual insurance company incorporated reference exhibit 102 company’s current report form 8k filed april 2 2009 412 letter amendment 7 master shelf agreement dated effective october 1 2009 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company prudential annuities life assurance corporate prudential retirement insurance annuity company purchasers notes may named master shelf agreement time incorporated reference exhibit 41 company’s current report form 8k filed october 16 2009 413 letter amendment 8 limited consent master shelf agreement dated march 25 2011 among layne christensen company noteholders listed therein filed exhibit 102 company’s current report form 8k filed march 31 2011 101 tax liability indemnification agreement registrant marley company filed amendment 3 registrant’s registration statement file 3348432 exhibit 102 incorporated herein reference 102 lease agreement registrant parkway partners llc dated december 21 1994 filed registrant’s annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 102 incorporated herein reference 1021 first modification ratification lease dated february 26 1996 parkway partners llc registrant filed registrant’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1021 incorporated herein reference 1022 second modification ratification lease agreement parkway partners llc layne christensen company dated april 28 1997 filed registrant’s annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 1022 incorporated herein reference 1023 third modification extension agreement parkway partners llc layne christensen company dated november 3 1998 filed company’s 10q quarter ended october 31 1998 file 020578 exhibit 101 incorporated herein reference 1024 fourth modification extension agreement parkway partners llc layne christensen company executed may 17 2000 effective december 29 1998 filed company’s 10q quarter ended july 31 2000 file 020578 exhibit 101 incorporated herein reference 1025 fifth modification extension agreement parkway partners llc layne christensen company dated march 1 2003 filed exhibit 1025 registrant’s annual report form 10k fiscal year ended january 31 2003 file 020578 incorporated herein reference 1026 sixth modification agreement dated february 29 2008 1900 associates llc company filed exhibit 1026 registrant’s annual report form 10k fiscal year ended january 31 2008 filed april 15 2008 incorporated herein reference 103 insurance liability indemnity agreement company marley company filed amendment 3 registrant’s registration statement file 3348432 exhibit 1010 incorporated herein reference 104 agreement marley company relating tradename filed registrant’s registration statement file no3348432 exhibit 1010 incorporated herein reference 105 letter agreement andrew b schmitt company amended restated comply section 409a dated december 2 2008 incorporated reference exhibit 108 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 106 form incentive stock option agreement company management company filed company’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 107 form incentive stock option agreement company management company effective february 1 1998 filed company’s form 10q quarter ended april 30 1998 file 020578 exhibit 101 incorporated herein reference 108 form incentive stock option agreement company management company effective april 20 1999 filed company’s form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 109 form non qualified stock option agreement company management company effective april 20 1999 filed company’s form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 1010 layne christensen company executive incentive compensation plan amended restated effective november 3 2008 incorporated reference exhibit 1015 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1011 layne christensen company corporate staff incentive compensation plan amended effective february 1 2010 incorporated reference exhibit 1016 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1012 layne christensen company 2006 equity incentive plan amended filed appendix b company’s definitive proxy statement filed sec may 6 2009 incorporated herein reference 1013 form incentive stock option agreement company management company use 2006 equity incentive plan filed exhibit 4e company’s form s8 file 333135683 filed july 10 2006 incorporated herein reference 1014 form nonqualified stock option agreement company management company use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1020 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1015 form nonqualified stock option agreement company nonemployee directors company use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1021 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1016 form restricted stock award agreement company management company use 2006 equity incentive plan amended effective january 23 2008 incorporated reference exhibit 1022 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1017 form restricted stock award agreement company management company use 2006 equity incentive plan performance vesting incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended april 30 2009 filed june 3 2009 1018 form restricted stock award agreement company nonemployee directors company use company’s 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1023 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1019 layne christensen company water infrastructure division incentive compensation plan amended restated effective february 1 2008 incorporated reference exhibit 1024 company’s annual report form 10k fiscal year ended january 31 2008 filed april 15 2008 1020 layne christensen company mineral exploration division incentive compensation plan amended restated effective february 1 2008 incorporated reference exhibit 1027 company’s annual report form 10k fiscal year ended january 31 2008 filed april 15 2008 1021 severance agreement dated march 13 2008 andrew b schmitt layne christensen company incorporated reference exhibit 101 company’s current report form 8k filed march 19 2008 1022 severance agreement dated march 13 2008 steven f crooke layne christensen company incorporated reference exhibit 103 company’s current report form 8k filed march 19 2008 1023 severance agreement dated march 13 2008 jerry w fanska layne christensen company incorporated reference exhibit 104 company’s current report form 8k filed march 19 2008 1024 severance agreement dated march 13 2008 jeffrey j reynolds layne christensen company incorporated reference exhibit 105 company’s current report form 8k filed march 19 2008 1025 severance agreement dated july 10 2008 eric r despain layne christensen company incorporated reference exhibit 101 company’s current report form 8k filed july 14 2008 1026 summary 2011 salaries named executive officers compensation directors 1027 layne christensen company deferred compensation plan directors amended restated effective january 1 2009 incorporated reference exhibit 1037 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1028 amended restated layne christensen company key management deferred compensation plan effective january 1 2008 incorporated reference exhibit 1038 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 211 list subsidiaries 231 consent deloitte touche llp 232 consent deloitte 233 consent cawley gillespie associates inc 311 section 302 certification principal executive officer company 312 section 302 certification principal financial officer company 321 section 906 certification principal executive officer company 322 section 906 certification principal financial officer company 991 report cawley gillespie associates inc 992 financial statements equity affiliate geotec boyles bros sa management contracts compensatory plans arrangements required identified item 14a3 b exhibits filed report form 10k identified item 15a3 c financial statement schedules financial statements geotec boyles bros sa included exhibit 992 item 15a3 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date sa b schmitt april 15 2011 andrew b schmitt president chief executive officer director principal executive officer sjerry w fanska april 15 2011 jerry w fanska senior vice presidentfinance treasurer principal financial accounting officer sjeff reynolds april 15 2011 jeffrey j reynolds director sdavid b brown april 15 2011 david b brown director sj samuel butler april 15 2011 j samuel butler director santhony b helfet april 15 2011 anthony b helfet director snelson obus april 15 2011 nelson obus director srene robichaud april 15 2011 rene robichaud director srobert gilmore april 15 2011 robert gilmore directoritem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit number description 31 corrected certificate restated certificate incorporation registrant filed exhibit 31 registrant’s registration statement form s1 filed september 20 2007 file no333146184 incorporated herein reference 32 amended restated bylaws registrant adopted october 10 2011 filed exhibit 31 registrant’s form 8k filed october 14 2011 incorporated herein reference 41 certificate designations series junior participating preferred stock layne christensen company filed registrant’s annual report form 10k fiscal year ended january 31 2007 exhibit 42 incorporated herein reference 42 specimen common stock certificate filed amendment 3 registrant’s registration statement form s1 file 3348432 exhibit 41 incorporated herein reference 43 credit agreement dated march 25 2011 among layne christensen company borrower lenders party thereto jpmorgan chase bank na administrative agent bank america na syndication agent pnc bank national association us bank national association codocumentation agents filed exhibit 101 companys current report form 8k filed march 31 2011 45 master shelf agreement dated july 31 2003 among layne christensen company prudential investment management inc prudential insurance company america pruco life insurance company security life denver insurance company purchasers notes may named master shelf agreement time filed registrant’s 10q quarter ended july 31 2003 file 020578 exhibit 45 incorporated herein reference 44 private shelf agreement dated july 8 2011 among layne christensen company prudential investment management inc prudential affiliate defined therein filed exhibit 101 companys current report form 8k filed july 13 2011 101 tax liability indemnification agreement registrant marley company filed amendment 3 registrant’s registration statement file 3348432 exhibit 102 incorporated herein reference 102 lease agreement registrant parkway partners llc dated december 21 1994 filed registrant’s annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 102 incorporated herein reference 1021 first modification ratification lease dated february 26 1996 parkway partners llc registrant filed registrant’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1021 incorporated herein reference 1022 second modification ratification lease agreement parkway partners llc layne christensen company dated april 28 1997 filed registrant’s annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 1022 incorporated herein reference 1023 third modification extension agreement parkway partners llc layne christensen company dated november 3 1998 filed company’s 10q quarter ended october 31 1998 file 020578 exhibit 101 incorporated herein reference 1024 fourth modification extension agreement parkway partners llc layne christensen company executed may 17 2000 effective december 29 1998 filed company’s 10q quarter ended july 31 2000 file 020578 exhibit 101 incorporated herein reference 1025 fifth modification extension agreement parkway partners llc layne christensen company dated march 1 2003 filed exhibit 1025 registrant’s annual report form 10k fiscal year ended january 31 2003 file 020578 incorporated herein reference 1026 sixth modification agreement dated february 29 2008 1900 associates llc company filed exhibit 1026 registrant’s annual report form 10k fiscal year ended january 31 2008 filed april 15 2008 incorporated herein reference 103 insurance liability indemnity agreement company marley company filed amendment 3 registrant’s registration statement file 3348432 exhibit 1010 incorporated herein reference 104 agreement marley company relating tradename filed registrant’s registration statement file no3348432 exhibit 1010 incorporated herein reference 105 letter agreement andrew b schmitt company amended restated comply section 409a dated december 2 2008 incorporated reference exhibit 108 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 106 form incentive stock option agreement company management company filed company’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 107 form incentive stock option agreement company management company effective february 1 1998 filed company’s form 10q quarter ended april 30 1998 file 020578 exhibit 101 incorporated herein reference 108 form incentive stock option agreement company management company effective april 20 1999 filed company’s form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 109 form nonqualified stock option agreement company management company effective april 20 1999 filed company’s form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 1010 layne christensen company executive incentive compensation plan amended restated effective july 29 2011 incorporated reference exhibit 104 company’s current report form 8k filed august 1 2011 1011 layne christensen company corporate staff incentive compensation plan amended effective february 1 2010 incorporated reference exhibit 1011 company’s annual report form 10k fiscal year ended january 31 2011 filed april 15 2011 1012 layne christensen company 2006 equity incentive plan amended filed appendix b company’s definitive proxy statement filed sec may 6 2009 incorporated herein reference 1013 form incentive stock option agreement company management company use 2006 equity incentive plan filed exhibit 4e company’s form s8 file 333135683 filed july 10 2006 incorporated herein reference 1014 form nonqualified stock option agreement company management company use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1020 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1015 form nonqualified stock option agreement company nonemployee directors company use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1021 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1016 form restricted stock award agreement company management company use 2006 equity incentive plan amended effective january 23 2008 incorporated reference exhibit 1022 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1017 form restricted stock award agreement company management company use 2006 equity incentive plan performance vesting incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended april 30 2009 filed june 3 2009 1018 form restricted stock award agreement company nonemployee directors company use company’s 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1023 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1019 layne christensen company water infrastructure division incentive compensation plan amended restated effective february 1 2008 incorporated reference exhibit 1024 company’s annual report form 10k fiscal year ended january 31 2008 filed april 15 2008 1020 layne christensen company mineral exploration division incentive compensation plan amended restated effective february 1 2008 incorporated reference exhibit 1027 company’s annual report form 10k fiscal year ended january 31 2008 filed april 15 2008 1021 severance agreement dated march 13 2008 andrew b schmitt layne christensen company incorporated reference exhibit 101 company’s current report form 8k filed march 19 2008 1022 severance agreement dated march 13 2008 steven f crooke layne christensen company incorporated reference exhibit 103 company’s current report form 8k filed march 19 2008 1023 severance agreement dated march 13 2008 jeffrey j reynolds layne christensen company incorporated reference exhibit 105 company’s current report form 8k filed march 19 2008 1024 severance agreement dated july 10 2008 eric r despain layne christensen company incorporated reference exhibit 101 company’s current report form 8k filed july 14 2008 1025 summary 2012 salaries named executive officers compensation directors 1026 layne christensen company deferred compensation plan directors amended restated effective january 1 2009 incorporated reference exhibit 1037 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1027 amended restated layne christensen company key management deferred compensation plan effective january 1 2008 incorporated reference exhibit 1038 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1028 offer letter dated july 29 2011 layne christensen company rene j robichaud filed exhibit 101 companys current report form 8k filed august 1 2011 1029 severance agreement dated july 29 2011 rene j robichaud layne christensen company filed exhibit 102 companys current report form 8k filed august 1 2011 1030 restricted stock agreement dated july 29 2011 rene j robichaud layne christensen company filed exhibit 103 companys current report form 8k filed august 1 2011 1031 retirement agreement dated july 29 2011 andrew b schmitt layne christensen company filed exhibit 105 companys current report form 8k filed august 1 2011 211 list subsidiaries 231 consent deloitte touche llp 232 consent deloitte 233 consent cawley gillespie associates inc 311 section 302 certification principal executive officer company 312 section 302 certification principal financial officer company 321 section 906 certification principal executive officer company pursuant rule 406t regulation st interactive data files deemed filed part registration statement prospectus purposes sections 11 12 securities act 1933 amended deemed filed purposes section 18 securities exchange act 1934 amended otherwise subject liability sections signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company srene j robichaud rene j robichaud president chief executive officer dated april 27 2012 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date srene j robichaud april 27 2012 rene j robichaud president chief executive officer director principal executive officer sjerry w fanska april 27 2012 jerry w fanska senior vice presidentfinance treasurer principal financial accounting officer sjeff reynolds april 27 2012 jeffrey j reynolds director sdavid b brown april 27 2012 david b brown director sj samuel butler april 27 2012 j samuel butler director santhony b helfet april 27 2012 anthony b helfet director snelson obus april 27 2012 nelson obus director sa b schmitt april 27 2012 andrew b schmitt director srobert gilmore april 27 2012 robert gilmore directoritem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit number description 31 corrected certificate restated certificate incorporation registrant filed exhibit 31 registrant’s registration statement form s1 filed september 20 2007 file no333146184 incorporated herein reference 32 amended restated bylaws registrant adopted october 10 2011 filed exhibit 31 registrant’s form 8k filed october 14 2011 incorporated herein reference 41 certificate designations series junior participating preferred stock layne christensen company filed registrant’s annual report form 10k fiscal year ended january 31 2007 exhibit 42 incorporated herein reference 42 specimen common stock certificate filed amendment 3 registrant’s registration statement form s1 file 3348432 exhibit 41 incorporated herein reference 43 credit agreement dated march 25 2011 among layne christensen company borrower lenders party thereto jpmorgan chase bank na administrative agent bank america na syndication agent pnc bank national association us bank national association codocumentation agents filed exhibit 101 companys current report form 8k filed march 31 2011 incorporated herein reference 44 private shelf agreement dated july 8 2011 among layne christensen company prudential investment management inc prudential affiliate defined therein filed exhibit 101 companys current report form 8k filed july 13 2011 101 tax liability indemnification agreement registrant marley company filed amendment 3 registrant’s registration statement file 3348432 exhibit 102 incorporated herein reference 102 lease agreement registrant parkway partners llc dated december 21 1994 filed registrant’s annual report form 10k fiscal year ended january 31 1995 file 020578 exhibit 102 incorporated herein reference 1021 first modification ratification lease dated february 26 1996 parkway partners llc registrant filed registrant’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1021 incorporated herein reference 1022 second modification ratification lease agreement parkway partners llc layne christensen company dated april 28 1997 filed registrant’s annual report form 10k fiscal year ended january 31 1999 file 020578 exhibit 1022 incorporated herein reference 1023 third modification extension agreement parkway partners llc layne christensen company dated november 3 1998 filed company’s 10q quarter ended october 31 1998 file 020578 exhibit 101 incorporated herein reference 1024 fourth modification agreement 1900 associates llc layne christensen company dated december 29 1998 filed company’s 10q quarter ended july 31 2000 file 020578 exhibit 101 incorporated herein reference 1025 fifth modification agreement 1900 associates llc layne christensen company dated march 1 2003 filed exhibit 1025 registrant’s annual report form 10k fiscal year ended january 31 2003 file 020578 incorporated herein reference 1026 sixth modification agreement dated february 29 2008 1900 associates llc company filed exhibit 1026 registrant’s annual report form 10k fiscal year ended january 31 2008 filed april 15 2008 incorporated herein reference 103 insurance liability indemnity agreement company marley company filed amendment 3 registrant’s registration statement file 3348432 exhibit 1010 incorporated herein reference 104 agreement marley company relating tradename filed registrant’s registration statement file no3348432 exhibit 1010 incorporated herein reference 105 form incentive stock option agreement company management company filed company’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 106 form incentive stock option agreement company management company effective february 1 1998 filed company’s form 10q quarter ended april 30 1998 file 020578 exhibit 101 incorporated herein reference 107 form incentive stock option agreement company management company effective april 20 1999 filed company’s form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 108 form nonqualified stock option agreement company management company effective april 20 1999 filed company’s form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 109 layne christensen company executive incentive compensation plan amended restated effective july 29 2011 incorporated reference exhibit 104 company’s current report form 8k filed august 1 2011 1010 layne christensen company corporate staff incentive compensation plan amended effective february 1 2010 incorporated reference exhibit 1011 company’s annual report form 10k fiscal year ended january 31 2011 filed april 15 2011 1011 layne christensen company 2006 equity incentive plan amended restated filed appendix b company’s definitive proxy statement filed sec may 6 2009 incorporated herein reference 1012 form incentive stock option agreement company management company use 2006 equity incentive plan filed exhibit 4e company’s form s8 file 333135683 filed july 10 2006 incorporated herein reference 1013 form nonqualified stock option agreement company management company use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1020 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1014 form nonqualified stock option agreement company nonemployee directors company use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1021 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1015 form restricted stock award agreement company management company use 2006 equity incentive plan amended effective january 23 2008 incorporated reference exhibit 1022 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1016 form restricted stock award agreement company management company use 2006 equity incentive plan performance vesting incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended april 30 2009 filed june 3 2009 1017 form restricted stock award agreement company nonemployee directors company use company’s 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1023 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1018 layne christensen company water infrastructure division incentive compensation plan amended restated effective february 1 2008 incorporated reference exhibit 1024 company’s annual report form 10k fiscal year ended january 31 2008 filed april 15 2008 1019 layne christensen company mineral exploration division incentive compensation plan amended restated effective february 1 2008 incorporated reference exhibit 1027 company’s annual report form 10k fiscal year ended january 31 2008 filed april 15 2008 1020 severance agreement dated march 13 2008 steven f crooke layne christensen company incorporated reference exhibit 103 company’s current report form 8k filed march 19 2008 1021 severance agreement dated march 13 2008 jeffrey j reynolds layne christensen company incorporated reference exhibit 105 company’s current report form 8k filed march 19 2008 1022 severance agreement dated july 10 2008 eric r despain layne christensen company incorporated reference exhibit 101 company’s current report form 8k filed july 14 2008 1023 summary 2013 salaries named executive officers compensation directors 1024 layne christensen company deferred compensation plan directors amended restated effective january 1 2009 incorporated reference exhibit 1037 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1025 amended restated layne christensen company key management deferred compensation plan effective january 1 2008 incorporated reference exhibit 1038 company’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1026 offer letter dated july 29 2011 layne christensen company rene j robichaud filed exhibit 101 companys current report form 8k filed august 1 2011 1027 severance agreement dated july 29 2011 rene j robichaud layne christensen company filed exhibit 102 companys current report form 8k filed august 1 2011 1028 restricted stock agreement dated july 29 2011 rene j robichaud layne christensen company filed exhibit 103 companys current report form 8k filed august 1 2011 1029 retirement agreement dated july 29 2011 andrew b schmitt layne christensen company filed exhibit 105 companys current report form 8k filed august 1 2011 1030 amendment offer letter dated july 29 2012 layne christensen company rene j robichaud filed exhibit 1032 companys quarterly report form 10q quarter ended october 31 2012 filed december 11 2012 211 list subsidiaries 231 consent deloitte touche llp 232 consent deloitte auditores consultores limitada 233 consent deloitte inc 311 section 302 certification principal executive officer company 312 section 302 certification principal financial officer company 321 section 906 certification principal executive officer company 322 section 906 certification principal financial officer company mine safety disclosures 991 financial statements equity affiliate geotec boyles bros sa 992 financial statements equity affiliate boyles bros servicios tecnicos geologicos sa 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document management contracts compensatory plans arrangements required identified item 14a3 pursuant rule 406t regulation st interactive data files deemed filed part registration statement prospectus purposes sections 11 12 securities act 1933 amended deemed filed purposes section 18 securities exchange act 1934 amended otherwise subject liability sections b exhibits filed report form 10k identified item 15a3 c financial statement schedules financial statements geotec boyles bros sa boyles bros servicios tecnicos geologicos sa included exhibits 991 992 respectively item 15a3 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company rene j robichaud rene j robichaud president chief executive officer dated april 16 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedule applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit number description 31 amended restated certificate incorporation layne 32 amended restated bylaws layne effective april 15 2014 filed exhibit 31 layne’s form 8k filed april 16 2014 incorporated herein reference 41 specimen common stock certificate filed amendment 3 layne’s registration statement form s1 file 3348432 exhibit 41 incorporated herein reference 42 credit agreement dated april 15 2014 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association “pnc bank” administrative agent jefferies finance llc syndication agent lead arranger book running manager pnc bank wells fargo bank na cocollateral agents pnc bank swingline lender issuing bank filed exhibit 43 laynes form 10k fiscal year ended january 31 2014 filed may 1 2014 incorporated herein reference 43 first amendment credit agreement dated july 29 2014 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association wells fargo bank na jfin business credit fund llc filed exhibit 41 laynes form 8k filed september 18 2014 incorporated herein reference 44 second amendment credit agreement dated september 15 2014 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association wells fargo bank na jfin business credit fund llc filed exhibit 42 laynes form 8k filed september 18 2014 incorporated herein reference 45 third amendment credit agreement dated october 28 2014 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association wells fargo bank na jfin business credit fund llc filed exhibit 43 laynes quarterly report form 10q quarter ended october 31 2014 incorporated herein reference 46 fourth amendment credit agreement dated january 30 2015 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association wells fargo bank na jfin business credit fund llc filed exhibit 44 laynes form 8k filed march 2 2015 incorporated herein reference 47 fifth amendment credit agreement dated march 2 2015 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association wells fargo bank na jfin business credit fund llc filed exhibit 45 laynes form 8k filed march 2 2015 incorporated herein reference 48 indenture relating 425 convertible senior notes due 2018 dated november 12 2013 layne christensen company us bank national association including form global note attached exhibit thereto filed exhibit 41 layne’s form 8k filed november 12 2013 incorporated herein reference 49 form exchange subscription agreement dated february 4 2015 exhibit number description 410 form amendment exchange subscription agreement dated february 27 2015 411 notice regarding issuance sale 80 senior secured second lien convertible notes layne christensen company dated february 27 2015 412 indenture relating 80 second lien senior secured convertible notes dated march 2 2015 among layne christensen company guarantor parties thereto us bank national association including form global note attached exhibit thereto filed exhibit 41 laynes form 8k filed march 2 2015 incorporated herein reference 413 security agreement dated march 2 2015 among layne christensen company certain subsidiaries pledgers us bank national association collateral agent filed exhibit 42 laynes form 8k filed march 2 2015 incorporated herein reference 414 intercreditor subordination agreement dated march 2 2015 pnc bank national association us bank national association acknowledged company subsidiary guarantors filed exhibit 43 laynes form 8k filed march 2 2015 incorporated herein reference 101 form incentive stock option agreement layne management layne filed layne’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 102 form incentive stock option agreement layne management layne effective february 1 1998 filed layne’s form 10q quarter ended april 30 1998 file 020578 exhibit 10 incorporated herein reference 103 form incentive stock option agreement layne management layne effective april 20 1999 filed layne’s form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 104 form nonqualified stock option agreement layne management layne effective april 20 1999 filed layne’s form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 105 layne christensen company 2006 equity incentive plan amended restated 106 form incentive stock option agreement layne management layne use 2006 equity incentive plan filed exhibit 4e company’s form s8 file 333135683 filed july 10 2006 incorporated herein reference 107 form nonqualified stock option agreement layne management layne use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1020 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 108 form nonqualified stock option agreement layne nonemployee directors layne use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1021 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 109 form restricted stock agreement layne management layne use 2006 equity incentive plan amended effective january 23 2008 incorporated reference exhibit 1022 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1010 form restricted stock agreement layne management layne use 2006 equity incentive plan performance vesting incorporated reference exhibit 101 layne’s quarterly report form 10q quarter ended april 30 2009 filed june 3 2009 1011 form restricted stock agreement layne nonemployee directors layne use layne’s 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1023 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1012 severance agreement dated march 13 2008 steven f crooke layne christensen company incorporated reference exhibit 103 layne’s current report form 8k filed march 19 2008 exhibit number description 1013 severance agreement dated march 13 2008 jerry fanska layne christensen company incorporated reference exhibit 104 layne’s current report form 8k filed march 19 2008 1014 layne christensen company deferred compensation plan directors amended restated effective january 1 2009 incorporated reference exhibit 1037 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1015 layne christensen company key management deferred compensation plan amended restated effective january 1 2008 incorporated reference exhibit 1038 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1016 severance agreement dated july 29 2011 rene j robichaud layne christensen company incorporated reference exhibit 102 layne’s current report form 8k filed august 1 2011 1017 layne christensen company executive shortterm incentive plan effective april 15 2014 filed exhibit 1022 laynes form 10k fiscal year ended january 31 2014 filed may 1 2014 incorporated herein reference 1018 layne christensen company longterm incentive plan effective april 15 2014 filed exhibit 1023 laynes form 10k fiscal year ended january 31 2014 filed may 1 2014 incorporated herein reference 1019 form restricted stock unit agreement layne management layne use 2006 equity incentive plan filed exhibit 102 layne’s current report form 8k filed april 4 2013 incorporated herein reference 1020 form performance shares agreement layne management layne use 2006 equity incentive plan filed exhibit 101 quarterly report form 10q quarter ended april 30 2013 incorporated herein reference 1021 offer letter layne christensen company accepted david ab brown dated june 25 2014 filed exhibit 101 layne’s form 8k filed june 25 2014 incorporated herein reference 1022 general agreement indemnity dated september 2 2014 layne christensen company indemnitor travelers casualty surety company america company filed exhibit 102 laynes form 10q fiscal quarter ended july 31 2014 filed september 9 2014 incorporated herein reference 1023 layne christensen company division incentive compensation plan effective february 1 2014 filed exhibit 103 laynes form 10q fiscal quarter ended july 31 2014 filed september 9 2014 incorporated herein reference 1024 acceptance release favor company gernot penzhorn dated january 23 2015 filed exhibit 101 laynes form 8k filed january 23 2015 incorporated herein reference 1025 letter agreement company gernot penzhorn dated january 23 2015 filed exhibit 102 laynes form 8k filed january 23 2015 incorporated herein reference 1026 offer letter dated december 8 2014 company michael j caliel 1027 severance agreement dated december 8 2014 company michael j caliel 211 list subsidiaries 231 consent deloitte touche llp 232 consent deloitte auditores consultores limitada 233 consent deloitte inc 311 section 302 certification principal executive officer layne 312 section 302 certification principal financial officer layne 321 section 906 certification principal executive officer layne exhibit number description 322 section 906 certification principal financial officer layne mine safety disclosures 991 financial statements equity affiliate geotec boyles bros sa 992 financial statements equity affiliate boyles bros servicios tecnicos geologicos sa 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document management contracts compensatory plans arrangements required identified item 14a3 pursuant rule 406t regulation st interactive data files deemed filed part registration statement prospectus purposes sections 11 12 securities act 1933 amended deemed filed purposes section 18 securities exchange act 1934 amended otherwise subject liability sections b exhibits filed report form 10k identified item 15a3 c financial statement schedules financial statements geotec boyles bros sa boyles bros servicios tecnicos geologicos sa included exhibits 991 992 respectively item 15a3 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company michael j caliel michael j caliel president chief executive officer dated april 13 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date smichael j caliel april 13 2015 michael j caliel president chief executive officer director principal executive officer sandy atchison april 13 2015 andy atchison senior vice president chief financial officer principal financial accounting officer sdavid b brown april 13 2015 david b brown director sj samuel butler april 13 2015 j samuel butler director srobert gilmore april 13 2015 robert gilmore director sjohn nesser iii april 13 2015 john nesser iii director snelson obus april 13 2015 nelson obus directoritem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedule applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit number description 31 amended restated certificate incorporation layne filed exhibit 31 laynes form 10k fiscal year ended january 31 2015 filed april 13 2015 incorporated herein reference 32 amended restated bylaws layne effective april 15 2014 filed exhibit 31 layne’s form 8k filed april 16 2014 incorporated herein reference 41 specimen common stock certificate filed amendment 3 layne’s registration statement form s1 file 3348432 exhibit 41 incorporated herein reference 42 indenture relating 425 convertible senior notes due 2018 dated november 12 2013 layne christensen company us bank national association including form global note attached exhibit thereto filed exhibit 41 layne’s form 8k filed november 12 2013 incorporated herein reference 43 form exchange subscription agreement dated february 4 2015 filed exhibit 49 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 44 form amendment exchange subscription agreement dated february 27 2015 filed exhibit 410 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 45 notice regarding issuance sale 80 senior secured second lien convertible notes layne christensen company dated february 27 2015 filed exhibit 411 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 46 indenture relating 80 second lien senior secured convertible notes dated march 2 2015 among layne christensen company guarantor parties thereto us bank national association including form global note attached exhibit thereto filed exhibit 41 laynes form 8k filed march 2 2015 incorporated herein reference 47 security agreement dated march 2 2015 among layne christensen company certain subsidiaries pledgers us bank national association collateral agent filed exhibit 42 laynes form 8k filed march 2 2015 incorporated herein reference 48 intercreditor subordination agreement dated march 2 2015 pnc bank national association us bank national association acknowledged company subsidiary guarantors filed exhibit 43 laynes form 8k filed march 2 2015 incorporated herein reference 49 amended restated credit agreement dated august 17 2015 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association “pnc bank” administrative agent jefferies finance llc syndication agent lead arranger book running manager pnc bank wells fargo bank na cocollateral agents pnc bank swingline lender issuing bank filed exhibit 41 laynes form 8k filed august 19 2015 incorporated herein reference 101 form incentive stock option agreement layne management layne filed layne’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 102 form incentive stock option agreement layne management layne effective february 1 1998 filed layne’s form 10q quarter ended april 30 1998 file 020578 exhibit 10 incorporated herein reference 103 form incentive stock option agreement layne management layne effective april 20 1999 filed layne’s form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 104 form nonqualified stock option agreement layne management layne effective april 20 1999 filed layne’s form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 105 layne christensen company 2006 equity incentive plan amended restated filed exhibit 105 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 106 form incentive stock option agreement layne management layne use 2006 equity incentive plan filed exhibit 4e company’s form s8 file 333135683 filed july 10 2006 incorporated herein reference 107 form nonqualified stock option agreement layne management layne use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1020 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 108 form nonqualified stock option agreement layne nonemployee directors layne use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1021 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 109 form restricted stock agreement layne management layne use 2006 equity incentive plan amended effective january 23 2008 incorporated reference exhibit 1022 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1010 form restricted stock agreement layne management layne use 2006 equity incentive plan performance vesting incorporated reference exhibit 101 layne’s quarterly report form 10q quarter ended april 30 2009 filed june 3 2009 1011 form restricted stock agreement layne nonemployee directors layne use layne’s 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1023 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1012 severance agreement dated march 13 2008 steven f crooke layne christensen company incorporated reference exhibit 103 layne’s current report form 8k filed march 19 2008 1013 severance agreement dated march 13 2008 jerry fanska layne christensen company incorporated reference exhibit 104 layne’s current report form 8k filed march 19 2008 1014 layne christensen company deferred compensation plan directors amended restated effective january 1 2009 incorporated reference exhibit 1037 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1015 layne christensen company key management deferred compensation plan amended restated effective january 1 2008 incorporated reference exhibit 1038 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1016 severance agreement dated july 29 2011 rene j robichaud layne christensen company incorporated reference exhibit 102 layne’s current report form 8k filed august 1 2011 1017 layne christensen company executive shortterm incentive plan amended restated july 6 2015 1018 layne christensen company longterm incentive plan effective february 1 2015 1019 form restricted stock unit agreement layne management layne use 2006 equity incentive plan filed exhibit 102 layne’s current report form 8k filed april 4 2013 incorporated herein reference 1020 form performance shares agreement layne management layne use 2006 equity incentive plan filed exhibit 101 quarterly report form 10q quarter ended april 30 2013 incorporated herein reference 1021 general agreement indemnity dated september 2 2014 layne christensen company indemnitor travelers casualty surety company america company filed exhibit 102 laynes form 10q fiscal quarter ended july 31 2014 filed september 9 2014 incorporated herein reference 1022 layne christensen company division incentive compensation plan effective february 1 2014 filed exhibit 103 laynes form 10q fiscal quarter ended july 31 2014 filed september 9 2014 incorporated herein reference 1023 acceptance release favor company gernot penzhorn dated january 23 2015 filed exhibit 101 laynes form 8k filed january 23 2015 incorporated herein reference 1024 letter agreement company gernot penzhorn dated january 23 2015 filed exhibit 102 laynes form 8k filed january 23 2015 incorporated herein reference 1025 offer letter dated december 8 2014 company michael j caliel filed exhibit 1026 laynes form 10k fiscal year ended january 31 2015 filed april 13 2015 incorporated herein reference 1026 severance agreement dated december 8 2014 company michael j caliel filed exhibit 1027 laynes form 10k fiscal year ended january 31 2015 filed april 13 2015 incorporated herein reference 1027 offer letter dated july 6 2015 layne christensen company j michael anderson filed exhibit 101 laynes form 10q quarter ended july 31 2015 filed september 9 2015 incorporated herein reference 1028 severance agreement dated july 6 2015 layne christensen company j michael anderson filed exhibit 102 laynes form 10q quarter ended july 31 2015 filed september 9 2015 incorporated herein reference 1029 general agreement indemnity dated february 4 2015 layne christensen company indemnitor liberty mutual group company filed exhibit 101 laynes form 10q quarter ended april 30 2015 filed june 9 2015 incorporated herein reference 211 list subsidiaries 231 consent deloitte touche llp 311 section 302 certification chief executive officer company 312 section 302 certification chief financial officer company 321 section 906 certification chief executive officer company 322 section 906 certification chief financial officer company mine safety disclosures 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document management contracts compensatory plans arrangements required identified item 14a3 pursuant rule 406t regulation st interactive data files deemed filed part registration statement prospectus purposes sections 11 12 securities act 1933 amended deemed filed purposes section 18 securities exchange act 1934 amended otherwise subject liability sections b exhibits filed report form 10k identified item 15a3 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company michael j caliel michael j caliel president chief executive officer dated april 12 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date smichael j caliel april 12 2016 michael j caliel president chief executive officer director principal executive officer sj michael anderson april 12 2016 j michael anderson senior vice president chief financial officer principal financial officer sjami phillips april 12 2016 jami phillips vice president controller principal accounting officer sdavid b brown april 12 2016 david b brown director sj samuel butler april 12 2016 j samuel butler director srobert r gilmore april 12 2016 robert r gilmore director sjohn nesser iii april 12 2016 john nesser iii director snelson obus april 12 2016 nelson obus director salan p krusi alan p krusi director april 12 2016item 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedule applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit number description 21 asset purchase agreement dated february 8 2017 among layne christensen company certain subsidiaries sellers reycon partners llc buyer 31 amended restated certificate incorporation layne filed exhibit 31 laynes form 10k fiscal year ended january 31 2015 filed april 13 2015 incorporated herein reference 32 amended restated bylaws layne effective april 15 2014 filed exhibit 31 layne’s form 8k filed april 16 2014 incorporated herein reference 41 specimen common stock certificate filed amendment 3 layne’s registration statement form s1 file 3348432 exhibit 41 incorporated herein reference 42 indenture relating 425 convertible senior notes due 2018 dated november 12 2013 layne christensen company us bank national association including form global note attached exhibit thereto filed exhibit 41 layne’s form 8k filed november 12 2013 incorporated herein reference 43 form exchange subscription agreement dated february 4 2015 filed exhibit 49 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 44 form amendment exchange subscription agreement dated february 27 2015 filed exhibit 410 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 45 notice regarding issuance sale 80 senior secured second lien convertible notes layne christensen company dated february 27 2015 filed exhibit 411 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 46 indenture relating 80 second lien senior secured convertible notes dated march 2 2015 among layne christensen company guarantor parties thereto us bank national association including form global note attached exhibit thereto filed exhibit 41 laynes form 8k filed march 2 2015 incorporated herein reference 47 security agreement dated march 2 2015 among layne christensen company certain subsidiaries pledgers us bank national association collateral agent filed exhibit 42 laynes form 8k filed march 2 2015 incorporated herein reference 48 intercreditor subordination agreement dated march 2 2015 pnc bank national association us bank national association acknowledged company subsidiary guarantors filed exhibit 43 laynes form 8k filed march 2 2015 incorporated herein reference 49 amended restated credit agreement dated august 17 2015 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association “pnc bank” administrative agent jefferies finance llc syndication agent lead arranger book running manager pnc bank wells fargo bank na cocollateral agents pnc bank swingline lender issuing bank filed exhibit 41 laynes form 8k filed august 19 2015 incorporated herein reference 410 first amendment consent amended restated credit agreement dated june 9 2016 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association administrative agent filed exhibit 41 laynes form 10q fiscal quarter ended july 31 2016 filed september 6 2016 incorporated herein reference 101 form incentive stock option agreement layne management layne filed layne’s annual report form 10k fiscal year ended january 31 1996 file 020578 exhibit 1015 incorporated herein reference 102 form incentive stock option agreement layne management layne effective february 1 1998 filed layne’s form 10q quarter ended april 30 1998 file 020578 exhibit 10 incorporated herein reference 103 form incentive stock option agreement layne management layne effective april 20 1999 filed layne’s form 10q quarter ended april 30 1999 file 020578 exhibit 102 incorporated herein reference 104 form nonqualified stock option agreement layne management layne effective april 20 1999 filed layne’s form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 105 layne christensen company 2006 equity incentive plan amended restated filed exhibit 105 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 106 form incentive stock option agreement layne management layne use 2006 equity incentive plan filed exhibit 4e company’s form s8 file 333135683 filed july 10 2006 incorporated herein reference 107 form nonqualified stock option agreement layne management layne use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1020 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 108 form nonqualified stock option agreement layne nonemployee directors layne use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1021 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 109 form restricted stock agreement layne management layne use 2006 equity incentive plan amended effective january 23 2008 incorporated reference exhibit 1022 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1010 form restricted stock agreement layne management layne use 2006 equity incentive plan performance vesting incorporated reference exhibit 101 layne’s quarterly report form 10q quarter ended april 30 2009 filed june 3 2009 1011 form restricted stock agreement layne nonemployee directors layne use layne’s 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1023 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1012 severance agreement dated march 13 2008 steven f crooke layne christensen company incorporated reference exhibit 103 layne’s current report form 8k filed march 19 2008 1013 layne christensen company deferred compensation plan directors amended restated effective january 1 2009 incorporated reference exhibit 1037 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1014 layne christensen company key management deferred compensation plan amended restated effective january 1 2008 incorporated reference exhibit 1038 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 1015 layne christensen company executive shortterm incentive plan amended restated february 1 2016 1016 layne christensen company longterm incentive plan effective february 1 2015 filed exhibit 1018 laynes form 10k fiscal year ended january 31 2016 filed april 12 2016 incorporated herein reference 1017 form restricted stock unit agreement layne management layne use 2006 equity incentive plan filed exhibit 102 layne’s current report form 8k filed april 4 2013 incorporated herein reference 1018 form performance shares agreement layne management layne use 2006 equity incentive plan filed exhibit 101 quarterly report form 10q quarter ended april 30 2013 incorporated herein reference 1019 general agreement indemnity dated september 2 2014 layne christensen company indemnitor travelers casualty surety company america company filed exhibit 102 laynes form 10q fiscal quarter ended july 31 2014 filed september 9 2014 incorporated herein reference 1020 offer letter dated december 8 2014 company michael j caliel filed exhibit 1026 laynes form 10k fiscal year ended january 31 2015 filed april 13 2015 incorporated herein reference 1021 severance agreement dated december 8 2014 company michael j caliel filed exhibit 1027 laynes form 10k fiscal year ended january 31 2015 filed april 13 2015 incorporated herein reference 1022 offer letter dated july 6 2015 layne christensen company j michael anderson filed exhibit 101 laynes form 10q quarter ended july 31 2015 filed september 9 2015 incorporated herein reference 1023 severance agreement dated july 6 2015 layne christensen company j michael anderson filed exhibit 102 laynes form 10q quarter ended july 31 2015 filed september 9 2015 incorporated herein reference 1024 general agreement indemnity dated february 4 2015 layne christensen company indemnitor liberty mutual group company filed exhibit 101 laynes form 10q quarter ended april 30 2015 filed june 9 2015 incorporated herein reference 1025 form indemnification agreement layne directors officers filed exhibit 101 laynes form 10q quarter ended july 31 2016 filed september 6 2016 incorporated herein reference 211 list subsidiaries 231 consent deloitte touche llp 311 section 302 certification chief executive officer company 312 section 302 certification chief financial officer company 321 section 906 certification chief executive officer company 322 section 906 certification chief financial officer company mine safety disclosures 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document management contracts compensatory plans arrangements required identified item 14a3 schedules exhibits omitted pursuant item 601b2 regulation sk layne christensen company undertakes furnish supplemental copies omitted schedules exhibits upon request securities exchange commission b exhibits filed report form 10k identified item 15a3 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company michael j caliel michael j caliel president chief executive officer dated april 10 2017 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date smichael j caliel april 10 2017 michael j caliel president chief executive officer director principal executive officer sj michael anderson april 10 2017 j michael anderson senior vice president chief financial officer principal financial officer slisa curtis april 10 2017 lisa curtis vice president chief accounting officer principal accounting officer sdavid b brown april 10 2017 david b brown director sj samuel butler april 10 2017 j samuel butler director srobert r gilmore april 10 2017 robert r gilmore director sjohn nesser iii april 10 2017 john nesser iii director snelson obus april 10 2017 nelson obus director salan p krusi alan p krusi director april 10 2017nanitem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedule applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed index financial statements index financial statements 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document index financial statements management contracts compensatory plans arrangements required identified item 14a3 pursuant rule 406t regulation st interactive data files deemed filed part registration statement prospectus purposes sections 11 12 securities act 1933 amended deemed filed purposes section 18 securities exchange act 1934 amended otherwise subject liability sections b exhibits filed report form 10k identified item 15a3 c financial statement schedules financial statements geotec boyles bros sa boyles bros servicios tecnicos geologicos sa included exhibits 991 992 respectively item 15a3 index financial statements signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedule applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed exhibit number description 21 asset purchase agreement dated february 8 2017 among layne christensen company certain subsidiaries sellers reycon partners llc buyer guarantors buyer named therein filed exhibit 21 laynes form 10k fiscal year ended january 31 2017 filed april 10 2017 incorporated herein reference 22 amendment 1 asset purchase agreement dated march 20 2017 among layne christensen company certain subsidiaries sellers reycon partners llc buyer guarantors buyer named therein filed exhibit 22 laynes form 8k filed may 4 2017 incorporated herein reference 23 amendment 2 asset purchase agreement dated april 28 2017 among layne christensen company certain subsidiaries sellers reycon partners llc buyer guarantors buyer named therein filed exhibit 23 laynes form 8k filed may 4 2017 incorporated herein reference 24 agreement plan merger dated february 13 2018 among layne christensen company granite construction incorporated lowercase merger sub incorporated filed exhibit 21 laynes form 8k filed february 14 2018 incorporated herein reference 31 amended restated certificate incorporation layne filed exhibit 31 laynes form 10k fiscal year ended january 31 2015 filed april 13 2015 incorporated herein reference 32 amended restated bylaws layne effective april 15 2014 filed exhibit 31 layne’s form 8k filed april 16 2014 incorporated herein reference 41 specimen common stock certificate filed amendment 3 layne’s registration statement form s1 file 3348432 exhibit 41 incorporated herein reference p 42 indenture relating 425 convertible senior notes due 2018 dated november 12 2013 layne christensen company us bank national association including form global note attached exhibit thereto filed exhibit 41 layne’s form 8k filed november 12 2013 incorporated herein reference 43 form exchange subscription agreement dated february 4 2015 filed exhibit 49 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 44 form amendment exchange subscription agreement dated february 27 2015 filed exhibit 410 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 45 notice regarding issuance sale 80 senior secured second lien convertible notes layne christensen company dated february 27 2015 filed exhibit 411 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 46 indenture relating 80 second lien senior secured convertible notes dated march 2 2015 among layne christensen company guarantor parties thereto us bank national association including form global note attached exhibit thereto filed exhibit 41 laynes form 8k filed march 2 2015 incorporated herein reference 47 security agreement dated march 2 2015 among layne christensen company certain subsidiaries pledgers us bank national association collateral agent filed exhibit 42 laynes form 8k filed march 2 2015 incorporated herein reference 48 intercreditor subordination agreement dated march 2 2015 pnc bank national association us bank national association acknowledged company subsidiary guarantors filed exhibit 43 laynes form 8k filed march 2 2015 incorporated herein reference 49 amended restated credit agreement dated august 17 2015 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association “pnc bank” administrative agent jefferies finance llc syndication agent lead arranger book running manager pnc bank wells fargo bank na cocollateral agents pnc bank swingline lender issuing bank filed exhibit 41 laynes form 8k filed august 19 2015 incorporated herein reference 410 first amendment consent amended restated credit agreement dated june 9 2016 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association administrative agent filed exhibit 41 laynes form 10q fiscal quarter ended july 31 2016 filed september 6 2016 incorporated herein reference 411 second amendment amended restated credit agreement dated march 30 2018 among layne christensen company borrower certain subsidiaries layne christensen company coborrowers guarantors party thereto lenders party thereto pnc bank national association administrative agent 412 agreement dated march 19 2018 among layne christensen company purchasers listed therein relating issuance laynes 110 senior unsecured notes due october 16 2019 413 notice substitution dated march 28 2018 respect purchasers laynes 110 senior unsecured notes due october 16 2019 101 form nonqualified stock option agreement layne management layne effective april 20 1999 filed layne’s form 10q quarter ended april 30 1999 file 020578 exhibit 103 incorporated herein reference 102 layne christensen company 2006 equity incentive plan amended restated filed exhibit 105 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 103 form incentive stock option agreement layne management layne use 2006 equity incentive plan filed exhibit 4e company’s form s8 file 333135683 filed july 10 2006 incorporated herein reference 104 form nonqualified stock option agreement layne management layne use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1020 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 105 form nonqualified stock option agreement layne nonemployee directors layne use 2006 equity incentive plan amended effective january 26 2009 incorporated reference exhibit 1021 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 106 severance agreement dated march 13 2008 steven f crooke layne christensen company incorporated reference exhibit 103 layne’s current report form 8k filed march 19 2008 107 layne christensen company deferred compensation plan directors amended restated effective january 1 2009 incorporated reference exhibit 1037 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 108 layne christensen company key management deferred compensation plan amended restated effective january 1 2008 incorporated reference exhibit 1038 layne’s annual report form 10k fiscal year ended january 31 2009 filed march 31 2009 109 layne christensen company executive shortterm incentive plan amended restated february 1 2017 1010 form restricted stock unit agreement layne management layne use 2006 equity incentive plan filed exhibit 102 layne’s current report form 8k filed april 4 2013 incorporated herein reference 1011 form performance shares agreement layne management layne use 2006 equity incentive plan filed exhibit 101 quarterly report form 10q quarter ended april 30 2013 incorporated herein reference 1012 general agreement indemnity dated september 2 2014 layne christensen company indemnitor travelers casualty surety company america company filed exhibit 102 laynes form 10q fiscal quarter ended july 31 2014 filed september 9 2014 incorporated herein reference 1013 offer letter dated december 8 2014 company michael j caliel filed exhibit 1026 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 1014 severance agreement dated december 8 2014 company michael j caliel filed exhibit 1027 laynes form 10k fiscal year ended january 31 2015 filed april 14 2015 incorporated herein reference 1015 offer letter dated july 6 2015 layne christensen company j michael anderson filed exhibit 101 laynes form 10q quarter ended july 31 2015 filed september 9 2015 incorporated herein reference 1016 severance agreement dated july 6 2015 layne christensen company j michael anderson filed exhibit 102 laynes form 10q quarter ended july 31 2015 filed september 9 2015 incorporated herein reference 1017 general agreement indemnity dated february 4 2015 layne christensen company indemnitor liberty mutual group company filed exhibit 101 laynes form 10q quarter ended april 30 2015 filed june 9 2015 incorporated herein reference 1018 form indemnification agreement layne directors officers filed exhibit 101 laynes form 10q quarter ended july 31 2016 filed september 6 2016 incorporated herein reference 1019 retention bonus agreement dated february 5 2018 layne christensen company kevin maher 1020 retention bonus agreement dated january 31 2018 layne christensen company larry purlee 1021 layne christensen company 2006 equity incentive plan amended restated filed exhibit 101 laynes form 8k filed june 2 2017 incorporated herein reference 1022 severance agreement dated march 29 2016 layne christensen company kevin maher 1023 2017 form restricted stock unit agreement employees use 2006 equity incentive plan filed exhibit 101 layne’s quarterly report form 10q filed september 11 2107 incorporated herein reference 1024 2017 form performance shares agreement layne management layne use 2006 equity incentive plan 1025 layne christensen company longterm incentive plan amended restated february 1 2017 211 list subsidiaries 231 consent deloitte touche llp 311 section 302 certification chief executive officer company 312 section 302 certification chief financial officer company 321 section 906 certification chief executive officer company 322 section 906 certification chief financial officer company mine safety disclosures 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document management contracts compensatory plans arrangements required identified item 14a3 schedules exhibits omitted pursuant item 601b2 regulation sk layne christensen company undertakes furnish supplemental copies omitted schedules exhibits upon request securities exchange commission b exhibits filed report form 10k identified item 15a3 item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company michael j caliel michael j caliel president chief executive officer dated april 10 2018 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date smichael j caliel april 10 2018 michael j caliel president chief executive officer director principal executive officer sj michael anderson april 10 2018 j michael anderson senior vice president chief financial officer principal financial officer slisa curtis april 10 2018 lisa curtis vice president chief accounting officer principal accounting officer sdavid b brown april 10 2018 david b brown director sj samuel butler april 10 2018 j samuel butler director srobert r gilmore april 10 2018 robert r gilmore director sjohn nesser iii april 10 2018 john nesser iii director snelson obus april 10 2018 nelson obus director salan p krusi alan p krusi director april 10 2018item 15 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 financial statements financial statements listed index item 8 form 10k 2 financial statement schedules applicable financial statement schedule listed index item 8 form 10k 3 exhibits filed incorporated reference report listed management contracts compensatory plans arrangements required identified item 14a3 b reports form 8k form 8k filed february 17 2004 related companys press release reporting blackout period certain employee benefit plans c exhibits filed report form 10k identified item 14a3 financial statement schedules financial statement schedule filed report form 10k identified item 14a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized layne christensen company sandrew b schmitt andrew b schmitt president dated april 13 2004 chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated