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Layne Christensen (NASDAQ:LAYN)

Q4 2012 Earnings Call

April 19, 2012 11:00 am ET

Executives

Devin Sullivan - Senior Vice President

Rene J. Robichaud - Chief Executive Officer, President, Director, Member of Nominating & Corporate Governance Committee and Member of Compensation Committee

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

Analysts

Brandon Verblow - UBS Investment Bank, Research Division

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

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

Jonathan P. Braatz - Kansas City Capital Associates

Operator

Good day, ladies and gentlemen, and welcome to the Layne Christensen Fourth Quarter and Fiscal Year 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce our host for today, Mr. Devin Sullivan of Equity Group. Sir, please go ahead.

Devin Sullivan

Thank you, Karen. Good morning, everyone, and thank you for joining us today for Layne Christensen's Fourth Quarter and Fiscal Year End 2012 Conference Call. Our speakers today will be Rene Robichaud, President and Chief Executive Officer of Layne Christensen; and Jerry Fanska, Senior Vice President of Finance.

Before we get started, I'd like to remind everyone that statements made during today's call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. Such statements may include, but are not limited to, statements of plans and objectives, statements of future economic performance and statements of assumptions underlying such statements and statements of management's intentions, hopes, beliefs, expectations or predictions of the future.

Forward-looking statements can often be identified by the use of forward-looking terminology such as should, intended, continue, believe, may, hope, anticipate, goal, forecast, plans, estimates and similar words or phrases. Such statements are based on current expectations and are subject to risks and uncertainties and assumptions, including, but not limited to, the outcome of the ongoing internal investigation into, among other things, the legality under the FCPA and local laws of certain payments to agents and other third parties interacting with government officials in certain countries in Africa relating to the payment of taxes and the importing of equipment, including any government enforcement action, which could arise out of the matters under review or that the matters under review may have resulted in a higher dollar amount of payments or may have greater financial or business impact that and management currently anticipates; prevailing prices for various commodities and unanticipated slowdowns in the company's major markets; the availability of credit; the risks and uncertainties normally incident to the construction industry and exploration for and development and production of oil and gas; the impact of competition; the effectiveness of operational changes expected to increase efficiency and productivity; worldwide economic political condition; and foreign currency fluctuations that may affect worldwide results of operations. Should one or more of these risks and uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, estimated or projected.

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

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

Rene J. Robichaud

Thanks, Devin, and good morning, everyone. By now you've had a chance to review our results for the fourth quarter of fiscal 2012. We had strong performances in our Mineral Exploration, Geoconstruction and Inliner business segments. This was offset by poor results in our Heavy Civil and Water Resources division due to persistent weakness in the municipal markets and various execution issues. We were also weak in our Energy division, which continue to be impacted by very low natural gas prices. The significant non-cash charges we incurred in the fourth quarter should not mask the considerable progress we are making in our efforts to reorganize, rebrand and refocus Layne. We've spent a significant amount of resources, human, capital and technological, in creating a new operating paradigm we call One Layne. This new strategy and focus will allow us to operate across divisions and throughout our organization with the goal of providing one-stop solution to our clients' most challenging water management, construction and drilling projects. I will provide a brief overview of our results and then turn things over to Jerry.

[indiscernible] led by increased revenues at Water Resources, Inliner and Mineral Exploration. Annual revenues rose to $1.1 billion. We recorded $84.6 million net of income tax of non-cash impairment charges in the fourth quarter to reduce the carrying value of goodwill and other intangible assets at our Water Resources, Inliner, Heavy Civil, Energy and Other divisions. These charges were associated with the lingering weakness in the municipal water market and the general economy, as well as our recent corporate initiative to refocus Layne's operations on more traditional water services and the cessation of the use of a number of trade names as we emphasize the Layne name for our services worldwide. Excluding the impact of the impairment charges, the net loss in the fiscal fourth quarter was $3.9 million or $0.20 per share, while net income for all of fiscal 2012 was $28.6 million or $1.45 per share.

Included in the $3.9 million loss in the fourth quarter was the $3.7 million expense, representing our initial, and I emphasize initial, estimates of disgorgement of benefits and related interest associated with the FCPA matter. I encourage you to read very carefully the language associated with this figure in our press release this morning and our soon-to-be-filed 10-K.

The SEC and DOJ have asked us to perform additional analysis, which we are doing. I also want to emphasize that this figure should not be relied upon as a final settlement as the government may not accept it. The amount does not include fines and penalties, which may be part of the settlement, and we cannot, at this time, reasonably estimate these amounts.

As we disclosed in late March, effective in the fourth quarter, we began to separately report 4 business segments that previously comprised the Water Infrastructure Group; Water Resources, Inliner, Heavy Civil and Geoconstruction. Prior year periods will also reflect this change. I will briefly discuss the performance of these segments, excluding the impact of any non-cash charges and comment on trends within each.

Water Resources posted higher revenues across all product lines, most notably, water supply, repair and installation services. We reported a pretax loss in the fourth quarter due in large part to operating losses associated with the restructuring of our water treatment initiatives. Our Water Resources division provides our customers with every aspect of water supply, system development and technology, including hydrologic design and construction, source of supply, water well drilling, specialty drilling, specialty drilling including injection well, and the repair and installation of pumps and related equipment. The division also brings new technologies to the water and wastewater markets and offers water treatment equipment engineering services.

There are several important trends and initiatives underway in Water Resources that you should know about. Our municipal hard-bid business will likely remain soft for at least the next year. While we will always support our municipal customers, we are focused on higher margin negotiated business, industrial opportunities in the exploration and production industry, the mining industry, food and beverage, and the power sectors in addition to targeted international expansion. We expect Water Resources performance in fiscal year '13 to be similar to fiscal year '12.

Our Inliner division provides a diverse range of wastewater pipeline and structure rehabilitation services to our clients. We focus on our proprietary Inliner cured-in-place pipe, or CIPP, which allows us to rehabilitate aging sanitary sewer, storm water and processed water infrastructure to provide structural rebuilding as well as infiltration and inflow reduction. For the quarter, Inliner posted higher revenues and pretax income compared to the prior-year period and for the year, set revenue and profit record. Our Inliner team is incredibly busy juggling people and crews. We have 30 crews working hard and plan on adding one more soon. This business is nicely profitable but still highly competitive. We expect another record year for Inliner.

Our Heavy Civil recorded lower revenues and a pretax loss as competition, margin pressures and project delays created strong headwinds for this municipal-customer based services business. Our Heavy Civil division [indiscernible] agencies and industrial clients by providing integrated solutions for the design and construction of water and wastewater treatment plants, as well as pipeline installation. These solutions include unique water supply capabilities such as horizontal collector well, often referred to as Ranney Well, surface water intake and infiltration gallery. We also design and construct biogas facilities or anaerobic digesters for the purpose of generating and capturing methane gas and emerging renewable energy resources.

Like our Water Resources division, Heavy Civil business outlook is soft for the hard-bid municipal sector over the next year. Our backlog is at $303 million as of March 31, and that includes about $60 million of business that was previously in our Water Resource division and a biogas project.

On average, the quality of our backlog has improved from a year ago, leading us to project breakeven earnings for fiscal year 2013, although first quarter results will likely be negative. We are seeing increasing activity in the sector, but the competition is still tough. Our Heavy Civil, our Water Resources and our water treatment are actively collaborating on a bid for a very large emergency drought project in the Southwest. We expect to see much more collaboration like this going forward.

Our Geoconstruction group provides specialized foundation construction services to the heavy civil, industrial and commercial construction markets that are focused primarily on soil stabilization and subterranean structural support during the construction of dams and levees, tunnels, shafts, water lines, subways, highways and marine facilities. Services offered include jet grouting, structural diaphragm and slurry cutoff walls, cement and chemical grouting, drilled pile, vibratory ground improvement and installation of ground anchors. For the fourth quarter, this segment generated lower revenues and pretax income from the prior year, but like Inliner, set revenue and profit record for the full year.

Geoconstruction is a profitable and growing division within Layne. Its results are lumpy and this will likely be the nature of its financial performance in the future. Our Geo business has partnered with our Heavy Civil division to jointly bid on large municipal projects, and we expect this collaboration to continue and provide significant opportunities for Layne. Our Geo business has also partnered with our Water Resources division to bid on the project to help minimize the environmental damage done by the Costa Concordia cruise ship that sunk off the coast of Italy. Our Brazilian partner, Costa Fortuna, has a backlog of roughly $75 million and is doing great. Our Italy-based manufacturing group, Tecniwell, remains the leader in high-pressure pumping and specialty drilling equipment, providing innovative support for our services businesses worldwide. We expect another record year for Geo, but it won't likely get going until May.

Mineral Exploration. While we had a record performance in fiscal year 2012, we had strong activity levels within each of our primary markets for fiscal year '12. Approximately 55% of our revenues from our wholly-owned business were derived from gold exploration and 30% from copper exploration, with the balance from other base metals. This business benefiting from improved pricing and operating efficiencies, which will carry over into fiscal year '13. Macroeconomic tailwinds today are very positive. Commodity prices, demand, record exploration budget, we expect another record year for fiscal year '13.

Just last week, Reuters ran a story that mining investment in Chile should reach $100 billion by the year 2020. Chile is expected to produce 7.5 million tons of copper annually within the next 8 years, and that's up from 5.2 million tons last year.

In the Energy Division, our revenues in pretax income were impacted by low natural gas prices, which are down significantly from fiscal year 2011. In response, we increased oil production and reduced overhead expenses. We are focused on alternatives for our E&P business, including the sale. Our emerging Energy Services business will provide integrated water management solutions to leading oil and gas operators.

I'll now turn the call over to Jerry Fanska, who will review our results for the fourth quarter. After that, I will provide additional details with respect to the changes in our corporate strategy and the associated initiative. Jerry?

Jerry W. Fanska

Thank you, Rene, and thanks to each of you for participating in the call today. Rene touched on a few of our metrics for the quarter, so let me begin with a discussion of the non-cash impairment charges recorded in the fourth quarter. The total charges were $97.5 million pretax or $84.6 million net of income tax. Including these charges is a net loss for the fourth quarter was $88.5 million or $4.55 per share compared to net income of $8.8 million or $0.45 per diluted share last year. The net loss for the full year was $56.1 million or $2.88 per share compared to net income of $30 million or $1.53 per diluted share in 2011. Excluding these charges, the net loss for Q4 would have been $3.9 million or $0.20 per share compared to net income of $8.8 million or $0.45 per diluted share for the fourth quarter of 2011, and net income for the full year of 2012 would have been $28.6 million or $1.45 per diluted share compared to $30 million or $1.53 per diluted share in fiscal 2011. The net loss, excluding the impairment charges, for Q4 of $3.9 million compared to what we anticipated to be breakeven and disclosed in our pre-release includes the $3.7 million in expenses associated with the FCPA matter, as Rene discussed, and certain income tax adjustments booked after the pre-release.

Revenues increased by $4 million or 1.5% to $275.8 million for the fourth quarter in 2012 and by $107.5 million or 10.5% to $1.1 billion for the full year. Higher revenues in the fourth quarter were primarily due to strong activity across all Mineral Exploration division locations, with the largest increases in Africa, the Western U.S. and Mexico, as well as higher sewer rehabilitation revenues from our Inliner division. For fiscal 2012, the revenues increased primarily due to the Mineral Exploration performance and the impact of recently acquired operations.

Higher cost of revenues on a percentage of revenue basis for the fourth quarter and the full year were primarily due to cost overruns and project delays in our Heavy Civil division in the second half of the year and by margin pressures in our Heavy Civil and Water Resources division due to continuing weakness in municipal spending.

SG&A rose to $45.4 million in the fourth quarter from $39.7 million last year. In addition to the FCPA expense of $3.7 million taken in the fourth quarter, higher SG&A was primarily the result of increased compensation expenses of $1 million, $1.6 million associated with the executive transition cost and added expenses from acquired operations of $0.5 million. These increases were partially offset by reductions in incentive compensation requirements of $1.7 million in the fourth quarter.

Depreciation, depreciation and amortization increased to $17.8 million in the fourth quarter from $14.4 million last year, reflecting increases in assets from acquisitions and property additions. Equity in earnings of affiliates increased to $5.6 million for the fourth quarter from $5.4 million last year, primarily attributable to the $1.3 million increase in earnings from our Geoconstruction affiliate in Brazil, offset by a $0.5 million decrease in earnings from our Latin American affiliates in Mineral Exploration. Our Mineral Exploration affiliates' result in the fourth quarter were impacted by certain project start-up expenses and other project delays. The increase for fiscal 2012 reflects the impact of an improved Mineral Exploration market in Latin America, primarily for copper and gold in Chile and Peru, as well as a full year of operations from our Geoconstruction affiliate in Brazil.

Higher interest expense was due primarily to higher borrowings under the revolving credit facility to fund operations. Other income net for fiscal 2012 was $9.6 million compared to $500,000 last year and consisted primarily of a gain of $5.4 million on the sale of our Fontana property in California in anticipation of relocating these existing operations, a gain of $1 million on the sale of certain investment securities in Australia and gains of $2.9 million on the sale of other equipment. Income tax benefit was $12.8 million in the fourth quarter compared to an income tax expense of $5 million in last year's fourth quarter. Excluding the impact of the impairment charges in the fourth quarter, we would have recorded income tax expense of $100,000. The adjusted effective rates for the current period were lower than the effective rates for the comparable prior quarters periods due to continued increase in forecasted equity earnings of affiliates as a percentage of forecasted income before income taxes. As a substantial part of the non-dividend portion of these earnings is considered indefinitely re-investment, it tends to lower our effective tax rate overall.

For our fiscal 2013, we expect our effective rate to be approximately 43%. I do want to reiterate that the non-cash charges we incurred in the fourth quarter of fiscal 2012 do not affect our -- the company's liquidity, cash flows from operations or the calculation of financial ratios under our credit facility. We have been in touch with a number of our lenders, and I believe they are very supportive of Layne's current strategic moves. Our cash position at the end of the year was $45.2 million, we had working capital of $136.4 million. Long-term debt less current maturities was $52.7 million and our stockholders' equity was $448.7 million (sic) [$448.6 million] or about $22.78 per share. With that, I will turn it back over to Rene. Rene?

Rene J. Robichaud

Thanks, Jerry. I want to thank all of you for your patience and continuing interest in Layne, as we have devoted ourselves to re-imagining and re-making the company as a total solutions provider. The attributes that set Layne apart from the competition are creating the foundation that is bringing us together as an organization. We have a 130-year history of locating, sourcing, delivering and managing the world's essential natural resources. Our library of hydrological mass is unparalleled. No company has drilled more water wells approximately 50,000 than Layne, and our wholly-owned mineral rig count at year end was 186.

Layne's technical competency has allowed us to complete some of the most complex projects ever attempted, including those that involve saving the most precious of resources, people. What we have not done well is position ourselves as a one-stop shop. Instead, we have focused, quite successfully I may add, on providing individual services. This is changing. Over the last several months, management and employees have worked together to create an operating paradigm in which we share one vision: to be the leading sustainable solutions provider to the world of essential natural resources, water, mineral, energy; and to commit to one purpose, to enhance the lives of people by providing and protecting the world's essential resources; also that we may operate as One Layne. By doing so, we believe that we can provide sustainable growth and the income that creates long-term value for the stakeholders of Layne.

We have 4 fundamental values: safety, sustainability, integrity and excellence, that set high standards for Layne employees worldwide, as well as 8 foundational beliefs that guide our attitude, behavior and decision-making. These values and beliefs have resulted in new daily habits for planning our businesses, collaborating across divisional and functional lines and following up on our objectives and goals, so that we may maximize our performance over the long term.

We have the assets in place so this process will be evolutionary. It will not happen overnight, but it is happening. I've mentioned some examples of our teams working collaboratively on large projects for the benefit of our clients and Layne. You will hear more about this in the months and years ahead.

During fiscal 2013, we will focus on increasing our international Water Resources business and seeking out clients whose calculus for choosing their service provider include something in addition to price, people, knowledge and experience. We will continue to migrate towards higher margin work derived from our industrial and energy clients who value our differentiated services.

This has impacted our Heavy Civil backlog, which declined to $308 million at January 31 from $358 million at January 31, 2011. Although we do not expect to return to fiscal 2011 backlog levels this year, our shift in strategy to larger, more complex projects that our smaller, less-experienced competitors are unable to manage should lead to better profit. We see a significant strategic opportunity to create and build the Water Services business that addresses the energy industry. We do not expect to be in the oil and gas business for the long term. However, we do intend to be in the oil and gas services business for quite some time. Because of this shift in strategy, we are currently exploring strategic alternatives for the E&P business, including a potential sale. We are developing our total water solutions business under the energy services banner. Building this new business over the next 3 to 5 years will require coordinated entry strategy in this sector with our Water Resources, Water Treatment and Heavy Civil division committing their vast resources.

At Inliner, we'll manage growth and adapt to market changes in order to deliver quality solutions, products and services, with continual attention to meeting or exceeding revenue and margin expectations. We'll focus on and promote our devotion to safe practices, the One Layne integration strategy, new product development and expansion in new markets. The overall plan for Heavy Civil is to strategically grow revenue and income over the next 5 years by focusing on the following: positioning ourselves to take advantage of a rebounding infrastructure market; creating new and expanded synergies and cross-fertilization opportunities as part of our One Layne initiative; increasing market share created by the attrition of weaker competitors; expanding our business development culture to effectively shift our mix of projects to those allowing higher anticipated margins; upgrading our management team where appropriate to meet future challenges and goals and actively managing our cost across the organization.

At Geo group, we will remain at the leading edge of the state-of-the-art practice in our industry educating, training and mentoring the next generation of field and management personnel, focusing on research and development both internally and in partnership with selected leading specialized equipment designers and manufacturers, increase our focus and efforts in selected international markets to reduce our dependence on the highly competitive U.S. market while leveraging existing relationships where market and competitive positions are more favorable.

At Mineral Exploration. We expect modest increases in rig count with an associated focus on higher average rig utilization. We'll strive to differentiate our services to advance technology, sustainable business practices and industry-leading safety practices.

Deliberately, methodically and passionately, we're evolving into an organization that provides responsible solutions to the world's water, mineral and energy challenges. We are holding ourselves accountable every day for the safety of our employees, the sustainability of the environment in which we work, the integrity of our employees and the excellence of our work. We are creating an environment based on collaboration, long-term relationship and total solution. We are grateful for your continuing interest, and we're devoted to championing your investments in our company. Thank you for your attendance today, and we're now happy to answer your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Steven Fisher from UBS.

Brandon Verblow - UBS Investment Bank, Research Division

This is Brandon Verblow in for Steve. My first question is, now that discussions have begun on FCPA, do you have a better idea of the timing for when that might be resolved the earliest we might hear some more news on that?

Rene J. Robichaud

If it was just up if it happened right away, but we have 2 other agencies that we have to work with and negotiate with, so we really can't give you a lot of clarity on that.

Brandon Verblow - UBS Investment Bank, Research Division

Okay. Do you see as one of the potential outcomes that you could have liner like others in your situation have had? And have you estimated how material that cost could be, if that's an option?

Rene J. Robichaud

It is an option. That's up to the agencies. We have gotten feedback that leads me to believe that will not be required. I cannot say that -- that's really up to the agencies.

Brandon Verblow - UBS Investment Bank, Research Division

Right. Okay. And then on the Energy side, I guess you talked about plans to eventually divest that. But until that happens, how should we think about the latest cash breakeven cost, like what gas price do you need to breakeven in that business?

Rene J. Robichaud

Well, another $0.50 per Mcf is probably likely. We will be losing some money on a cash basis at these low prices.

Brandon Verblow - UBS Investment Bank, Research Division

Okay. And lastly, are you involved in the Minas Conga mining project in Peru at all?

Rene J. Robichaud

Please -- you said something about Congo and Peru?

Brandon Verblow - UBS Investment Bank, Research Division

The Newmont's Minas Conga mining project in Peru? Are you involved in that at all?

Rene J. Robichaud

I don't know. We're definitely involved in Yanacocha through our Latin American affiliates, but we are not directly competing with our Latin American affiliates in Peru.

Brandon Verblow - UBS Investment Bank, Research Division

Right. Have you seen any impact from the dispute over that project impacting any of your other work in Peru?

Rene J. Robichaud

Well, again, our directly owned -- our Mineral Exploration business is not operating in Peru. Our Latin American affiliates do. To the best of my knowledge, that has not affected the Peruvian financial results. One of the issues in Peru and Chile has been bad weather and operational difficulties as they've grown their rig count quite smartly.

Operator

And our next question comes from the line of John Rogers from D.A. Davidson.

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

Couple of things. I guess, first of all, Jerry, you mentioned the bank's support with your plans and are there any covenant issues that you're coming up against?

Jerry W. Fanska

No. Not really.

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

Okay.

Jerry W. Fanska

All the significant charges are non-cash.

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

Right.

Jerry W. Fanska

They don't go into the definition. So we're okay there.

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

Okay. And then, Rene, as far as restructuring or the reorganization of the business segments, just -- I'm trying to understanding -- I mean, you talked about One Layne but then you've broken up the Water Resources or Water Infrastructure business into 4 segments. And I'm just saying, how do you think about these businesses? The reason for breaking them out separately, is it just for more transparency on in terms of where your profitability is or to be able to hold the division accountable or there are parts that you need to add or possibly get out of them on the Water Infrastructure side?

Rene J. Robichaud

Well, you've touched on the word accountability and that's one of our 8 foundational beliefs that we've all agreed to. And we do hold ourselves accountable, each of our divisions, for our own customer base and collaborating for the benefit of the whole. And so we will change our incentive compensation this year to recognize people who might sacrifice some in their division for the benefit of a large project where Layne can benefit. So we have come together. We have agreed that the best way to manage ourselves is really to come together as one capable company. Although we have several divisions and several different expertise, we'll bring them altogether when we face -- our clients face some very large and complicated projects.

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

Okay. But in terms of these 4 divisions within Water Infrastructure group, is it your intention to -- that this point that you will keep all 4 of those divisions?

Rene J. Robichaud

Absolutely.

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

Okay. Just want to be clear. And then finally, just on the minerals exploration drilling side of the business. I know in the past that typically around the first calendar quarter, you're negotiating rates for the following -- for the remainder of the year. Can you give us an update sort on where rates are for calendar '12 relative to '11 and have they changed significantly? And with your -- the capacity you've mentioned, does utilization or capabilities grow for that side of the business this year?

Rene J. Robichaud

Yes, well, we think of the way Mineral Exploration should have another record year is that the average price increases that we put in for last year will be available for the full year '13. And that the rig count average that was available last year will be slightly higher next year. And then the real management expertise is to keep those, the larger number of average rigs, even more highly utilized than they were last year. And in some of those cases, we're asking our clients to allow us to double shift our rigs because we have the people to do the work faster. And we're getting positive feedback on that.

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

Okay. So it sounds like...

Rene J. Robichaud

We have slightly higher pricing, slightly higher rig count and slightly higher average utilization, and the 3 combined give us confidence to say that we should have a stronger year.

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

Okay. I mean, it sounds as if -- I mean, it'll primarily be in the form of higher margins.

Rene J. Robichaud

Yes, that's fair. Higher margin and higher volume.

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

Right, right. Okay. But higher margins on the higher volume revenue.

Rene J. Robichaud

Yes, it's a combination.

Operator

And our next question comes from the line of Gerry Sweeney from Boenning.

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

A couple of questions. Water Resources obviously had a loss in that -- I think in the opening remarks you talked about a lot of that or some of that coming from, I guess, the writing down of the technology effort that you had. Can you give any color as to what Water Resources would've been without that writing down the technology side, whether it had been breakeven, a positive or still in the negative territory?

Rene J. Robichaud

Probably would have been still a little negative. The water treatment restructuring cost us at least a couple of million dollars, Gerry, if you can look up the more precise number. But we changed our strategy in water treatment and we merged it into Water Resources. And there's a couple of good reasons for that. The water treatment was designed for a more custom and high research and development customer base. That was not panning out very well, and we kind of looked at the long-term future of that and decided that we would change our strategy, merge it into Water Resources where we have a business development team across the country that could sell a more standardized water treatment product rather than a highly customized solutions that were done by just a few specialists in water treatment. So obviously, we had some headcount reduction. We took some severance charges, some restructuring charges. And, Jerry, just put up 3 fingers. I'm assuming that means it was about a $3 million charge. So I think that means that the Water Resources business still had a weak quarter, still might have been slightly negative for the quarter, but we're expecting better results.

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

Okay. And then Inliner, I was actually a little surprised to see some of the, I guess, goodwill or intangibles written off in there since it was -- appeared to be doing all right. Was that related to the One Layne and the brand and focusing on that aspect? Or can you give a little clarity on what happened there?

Rene J. Robichaud

That is the strange accounting quirk in my mind, and it's a -- Jerry Fanska can try and explain to you why our Inliner business had this non-cash charge.

Jerry W. Fanska

Yes. The issue is when we bought Reynolds, Gerry, we did not assign the goodwill. And basically, when you don't assign it at the start, you have to assign it based on economic value when you do assign it. And since we've decided to break apart the segments, a disproportionate amount of the goodwill went to Inliner at the end of the year.

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

Got it. And then -- I think I understand where...

Jerry W. Fanska

Yes. And then basically, we ended up writing some of that off, because obviously, it was assigned probably more than it should have been originally, so.

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

Understood. So it was a -- okay.

Jerry W. Fanska

The function of the accounting.

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

I think I understand now, so. And then while we're on the topic of goodwill and intangibles. I guess back of the envelope, let's say you wrote off about $97 million. Look at the balance sheet, there's probably about $130 million goodwill and intangibles left there. So it looks like you're cleaning house pretty well, just getting a lot of this off the books. Is that $130 million? Am I accurate with that? Just written off a good deal the entire goodwill and intangibles side?

Rene J. Robichaud

It certainly is a great majority. There is some left and we'll just look outside of the balance of the number for you, give it to you after the call. That's right, you're right.

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

So I'm assuming a lot of this your -- you've probably done a deep dive going into everything and remove anything that would probably -- remotely close to being in the impaired region?

Jerry W. Fanska

Almost everything related to the municipal business could not support the goodwill in Inliner.

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

And then one other quick question. On the Energy services side, did I read it correctly in the press release that's -- I think that's being categorized in the Other category for now, is that correct?

Jerry W. Fanska

That's right. It's very small.

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

Yes, it obviously is 3 to 5 years to build it out, but at some point, it will get its own category moving forward.

Rene J. Robichaud

Absolutely.

Operator

[Operator Instructions] Our next question comes from the line of Jon Braatz from Kansas City Capital.

Jonathan P. Braatz - Kansas City Capital Associates

A question on the Energy side. You've indicated that you probably would like to exit that business. I'm just curious, when you look at the assets of that business, that segment, what might be the total book value of those assets at this moment that might be included in something sale such as that?

Rene J. Robichaud

Around $53 million.

Jonathan P. Braatz - Kansas City Capital Associates

$53 million?

Rene J. Robichaud

That's about right.

Jonathan P. Braatz - Kansas City Capital Associates

Okay. And at this moment, those assets are from a goodwill impairment charge. We're talking about those assets being valued at maybe $2.50 per Mcf?

Rene J. Robichaud

I'm not quite sure. You mean as far as the market value?

Jonathan P. Braatz - Kansas City Capital Associates

Yes. Yes.

Rene J. Robichaud

Yes, it's obviously -- we can't opine on that. The market will tell us what they want to pay in this environment. We've got some people definitely knocking on our doors, and we appreciate that. And there are people who are in that business for the long-term. We've got good people managing that business and they manage it very well. It's just not a solutions business. And so where as we do not really want to own copper and gold mines. We don't really want to own water wells or water treatment facilities. We're in the business of solving other people's problems, and that's one of the reasons why our own Exploration and Production business is not a long-term fit.

Operator

And I see no further questions in the queue at this time. I'd like to turn the conference back over to Layne Christensen for any closing remarks.

Rene J. Robichaud

We don't. We really do appreciate your support and your attendance on this call and look forward to speaking with you again in 3 months.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.

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Source: Layne Christensen's CEO Discusses Q4 2012 Results - Earnings Call Transcript

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