Investing in our common stock is subject to risks and uncertainties. You should carefully consider the risks described below with all of the other information contained or incorporated by reference in this annual report on Form 10-K before deciding to invest in our common stock. Many of these risks are beyond our control and are driven by factors that often cannot be predicted. If any of the following risks actually occur, they may materially harm our business and our financial condition and results of operations. In this event, the market price of our common stock could decline and you could lose part or all of your investment.

Risks Relating to Our Business and Industry

Demand for our services is subject to economic conditions and volatility in private industry and municipal and other governmental spending. This could materially and adversely affect our revenues, profits and our financial condition.

During times of uncertain economic conditions, our customers may face budget shortfalls and may reduce or defer capital spending that could decrease the overall demand for our services. In addition, our customers may find it difficult to raise capital in the future. Levels of municipal spending particularly impact Water Resources and Inliner. Reduced tax revenue or user fee in certain regions, or inability to access traditional sources of credit, may limit spending and new development by municipalities or local governmental agencies, which in turn may adversely affect the demand for our services and reduce our revenue.

Many of our customers, especially federal, state and local governmental agencies competitively bid their contracts. In addition, projects with negotiated contracts are also highly competitive. Our customers may also demand lower pricing as a condition of continuing our services. In addition, certain of our customers may be unable to pay us if they are unable to raise capital to fund their business operations, which would have an adverse effect on our revenue and cash flows.

Volatility within the global commodity markets may negatively impact Mineral Services. Mineral exploration is highly speculative and is influenced by a variety of factors, including the prevailing prices for various metals (particularly gold and copper), which often fluctuate widely in response to global supply and demand, international economic trends, currency exchange fluctuations, expectations for inflation, speculative activities and political events.

Volatility in the price of crude oil and natural gas may negatively impact our Water Midstream business. Crude oil and natural gas exploration, development and production is influenced by a variety of factors, including the prevailing prices for crude oil and natural gas, which often fluctuate widely in response to global supply and demand, international economic trends, currency exchange fluctuations and political events. Demand for our Water Midstream services is highly dependent on the level of exploration, development and production of crude oil and natural gas in the geographic areas in which we operate.

Because our operations are impacted by certain seasonality, our results can fluctuate significantly, which could make it difficult to evaluate our business and could cause instability in the market price of our common stock.

Adverse weather conditions, natural disasters, disease, force majeure and other similar events can curtail our operations in various regions in which we operate, resulting in performance delays and increased costs.

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Moreover, our domestic activities and related revenue and earnings tend to decrease in the winter months when adverse weather conditions interfere with access to drilling or other infrastructure services sites. Additionally, activities related to our domestic and international operations can decrease due t o year end holidays as certain customers stop operations during this time. As a resul t, our revenue and earnings in the second and third quarters tend to be higher than revenue and earnings in the first and fourth quarters. Accordingly, as a result of the foregoing as well as other factors, our quarterly results should not be considered in dicative of results to be expected for any other quarter or for any full fiscal year.

Our failure to meet the schedule or performance requirements of our contracts could harm our reputation, reduce our client base and harm our future operations.

In certain circumstances, we guarantee contract completion by a scheduled acceptance date. Failure to meet any such schedule could result in additional costs and the amount of such additional costs could exceed projected profit margins. These additional costs could include liquidated damages paid under contractual penalty provisions, which can be substantial and can accrue on a daily basis. In addition, our actual costs could exceed our projections. Performance problems for existing and future contracts could increase the anticipated costs of performing those contracts and cause us to suffer damage to our reputation within our industry and our client base, which would harm our future business.

The timing of new contract awards and the performance of those new contracts could result in fluctuations in our operating results and cash flows.

New projects often entail a lengthy and complex design and bidding process. This process can be affected by governmental approvals, budget negotiations, funding approvals, permitting, weather, as well as changing market conditions. The uncertainty of the timing of contract awards as well as the timing of the commencement date of the contract can have an adverse effect on our results of operations and cash flows causing fluctuations from quarter to quarter or year to year. These fluctuations can be significant.

We may not fully realize the anticipated benefits from our restructuring plans.

We continue to implement certain restructuring initiatives that seek to reduce our cost structure and streamline our operations. These restructuring plans have, among other things, resulted in a reduction in workforce, cost containment measures and working capital management initiatives.

Our restructuring plans may not reduce expenses or produce the cost savings we anticipate or in the time frame we expect. Further restructuring activities may also be required in the future beyond what is currently planned, which could enhance the risks associated with these activities.

In addition, our management periodically reviews our businesses and portfolio of assets to identify those businesses and assets that may be underperforming and for which we may consider a sale or other disposition. However, we may not correctly identify businesses or assets that are, or will be, underperforming, and we may not be able to dispose of those businesses and assets on favorable terms in a timely manner, if at all. Our inability to identify and favorably dispose of underperforming businesses and assets may significantly harm our business.

If we are unable to retain skilled workers, or if a work stoppage occurs as a result of disputes relating to collective bargaining agreements, our ability to operate our business could be limited and our revenue could be reduced.

Our ability to remain productive, profitable and competitive depends substantially on our ability to retain and attract skilled workers with expert geological and other engineering knowledge and capabilities. The demand for these workers is high and the supply is limited. An inability to attract and retain trained drillers and other skilled employees could limit our ability to operate our business and reduce our revenue.

As of January 31, 2018, approximately 3% of our workforce was unionized and 3 of our 8 active collective bargaining agreements are scheduled to expire within the next 12 months. To the extent that disputes relating to existing or future collective bargaining agreements arise, a work stoppage could occur. If protracted, a work stoppage could reduce or suspend our operations and reduce our revenue.

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Fluctuations in the prices of raw materials could increase our operating costs.

We purchase steel, resin, concrete and fuel for use in connection with our businesses. We also purchase a significant volume of fuel to operate our trucks and equipment. The manufacture of materials used in our sewer rehabilitation business is dependent upon the availability of resin, a petroleum-based product. At present, we do not engage in any type of hedging activities to mitigate the risks of fluctuating market prices for oil, steel, resin, concrete or fuel and increases in the price of these materials may increase our operating costs.

International trade tariffs and restrictions in the steel market may adversely affect our business.

Portions of our business either use significant quantities of imported steel or are dependent on providing products and services to customers that import steel into the United States from the international markets. To the extent that trade tariffs and other restrictions imposed by the United States increase the price of, or limit the amount of, steel imported into the United States, the costs of our raw materials may be adversely affected and/or the demand from our customers for products and services may be diminished, which could adversely affect our revenues and profitability.

If we are not able to demonstrate our technical competence, competitive pricing and reliable performance to potential customers we will lose business to competitors, which would reduce our profit.

We face significant competition and a large part of our business is dependent upon obtaining work through a competitive bidding process. In Water Resources and Inliner, we compete with many smaller firms on a local or regional level, many of whom may have a lower corporate overhead cost than us. We also compete with larger competitors that may be better capitalized than us and may have a lower cost of capital. There are few proprietary technologies or other significant factors which prevent other firms from entering these local or regional markets or from consolidating together into larger companies more comparable in size to our company. Competition also places downward pressure on our contract prices and profit margins. Competition in all of our markets has intensified in the last few years and such heightened competition may continue for the foreseeable future. If we are unable to meet these competitive challenges, we could lose market share to our competitors and experience an overall reduction in our profit. Additional competition could reduce our profit.

If we cannot obtain third-party subcontractors, or if their performance is unsatisfactory, our profit could be reduced.

We rely on third-party subcontractors to provide services on some of our projects. To the extent that we cannot engage subcontractors as planned, our ability to complete a project in a timely fashion or at a profit may be impaired. If the amount we are required to pay for subcontracted services exceeds the amount we have estimated in bidding for fixed-price work, we could experience reduced profits or losses in the performance of these contracts. In addition, if a subcontractor is unable to deliver its services according to the negotiated terms for any reason, including the deterioration of its financial condition, we may be required to purchase the services from another source at a higher price, which could reduce the profit to be realized or result in a loss on a project for which the services were needed. Also, if our subcontractors perform unsatisfactory work, we may become subject to increased warranty costs or product liability or other claims against us.

We may pay our suppliers and subcontractors before receiving payment from our customers for the related services.

We use suppliers to obtain the necessary materials and subcontractors to perform portions of our services and to manage work flow. In some cases, we pay our suppliers and subcontractors before our customers pay us for the related services. We may pay our suppliers and subcontractors for materials purchased and work performed for customers who fail to pay, or delay paying, us for the related work, which could harm our liquidity and results of operations.

We extend trade credit to customers for purchases of our services and in the past we have had and in the future we may have, difficulty collecting receivables from customers that experience financial difficulties.

We grant trade credit, generally without collateral, to our customers, which include mining companies, general contractors, commercial and industrial facility owners, government agencies and industrial companies. Consequently, we are subject to potential credit risk related to changes in business and economic factors in the geographic areas in which our customers are located. If any of our major customers experience financial difficulties, we could experience reduced cash flows and losses in excess of current allowances provided. In addition, material changes in any of our customers’ revenues or cash flows could affect our ability to collect amounts due from them.

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If we are unable to obtain performance bonds or letters of credit on acceptable terms, our ability to obtain future projects could be negatively impacted .

A portion of our projects require us to procure a bond to secure performance. Our continued ability to obtain surety bonds primarily will depend upon our capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. With a decreasing number of insurance providers in that market, it may be difficult to find sureties who will continue to provide contract-required bonding on acceptable terms and conditions.

We have granted our sureties a security interest in certain assets. The surety companies may in the future request us to provide further collateral or other security. Our ability to satisfy any future requests may require the consent of the lenders under the asset-based credit facility. If the lenders are unwilling to agree to any future requests on terms acceptable to the surety companies, we may be unable to continue to obtain performance bonds on acceptable terms.

On certain projects we may enter into a joint venture agreement with others. Our ability to obtain a bond may also depend on the credit and performance risks of our joint venture partners.

In addition, events that generally affect the insurance and bonding markets may result in bonding becoming more difficult to obtain in the future, being available only at a significantly greater cost or not being available at all. If we are unable to obtain performance bonds on future projects, our results of operations would be materially and adversely affected. The amount of our surety bonds as of January 31, 2018, based on the expected amount of revenues remaining to be recognized on the projects, was $148.3 million; $48.4 million relates to surety bonds on contracts which were assumed by the purchaser of our former Heavy Civil business which we do not expect to be released until the jobs are completed.

We also occasionally utilize a letter of credit instead of a performance bond. Almost all of the letters of credit are issued under the asset-based credit facility. Our ability to continue to obtain new letters of credit under the asset-based credit facility is limited to the lesser of (a) $75.0 million and (b) the amount of Excess Availability (as defined in the asset-based credit facility agreement) under the asset-based credit facility and is subject to limitations on the issuance of letters of credit if the expiry date of the proposed letter of credit extends beyond the five business days prior to the maturity date of the asset-based credit facility. Our inability to obtain bonding or letters of credit on favorable terms and at reasonable prices or at all would increase operating costs and inhibit the ability to execute or pursue new projects, which could have a material adverse effect on our business, financial condition and results of operations.

We may experience cost overruns on our fixed-price contracts, which could reduce our profitability and we may suffer additional losses.

A significant number of our contracts contain fixed prices and generally assign responsibility for cost overruns to us. Under such contracts, prices are established in part on cost and scheduling estimates, which are based on a number of assumptions, many of which are beyond our control. These assumptions include job-site conditions (both surface and sub-surface), future economic conditions, prices and availability of materials, labor and other requirements. Estimates are revised based upon changing conditions and new developments that are continuous and characteristic of the drilling and infrastructure services. In addition, the time required to complete a drilling or infrastructure project may be greater than originally anticipated. We may not be able to obtain compensation for additional work performed or expenses incurred as a result of changes or inaccuracies in these estimates and underlying assumptions.

We have experienced inaccurate estimates, or changes in other circumstances, such as unanticipated technical problems, difficulties obtaining permits or approvals, changes in local laws or labor conditions, ambiguities in specifications, supply shortages, weather delays, unanticipated sub-surface site conditions, accidents, equipment failures, inefficiencies, cost of raw materials, or our suppliers’ or subcontractors’ inability to perform, which could result in substantial losses. As a result, cost and gross margin may vary from those originally estimated making the project less profitable than originally estimated, or possibly not profitable at all and, depending upon the size of the project, variations from estimated contract performance could significantly affect our operating results.

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Our use of the percentage of completion method of accounting involves significant estimates and management judgment, changes of which could result in volatility in our results of operations.

Our Inliner segment primarily uses the percentage of completion method for its contracts, while our Water Resources segment uses the percentage of completion method for its larger, more complex contracts. Under the percentage of completion method, revenue is recognized based upon the ratio of actual costs incurred to total estimated costs at completion. Contract price and cost estimates are reviewed periodically as work progresses and adjustments proportionate to the percentage of completion are reflected in contract revenue, costs and profits in the reporting period when such estimates are revised. Total estimates may be affected by:

The above items can change the estimates on a contract, including those arising from contract penalty provisions and final contract settlements and can result in revisions to costs and income. Revisions in estimates are recognized in the period in which they are determined. This could result in the reduction or reversal of previously recorded revenues and profits. Change orders often change the scope and cost of a contract. Change orders can also have the short-term effect of reducing the percentage of completion on a contract and the revenues and profits that otherwise would be recognized. We also factor in all other information that we possess with respect to the change order to determine whether the change order should be recognized at all and, if recognition is appropriate, what dollar amount of the change order should be recognized. Due to factors that we may not anticipate at the time of recognition, however, revenues ultimately received on these change orders could be less than revenues that we recognized in a prior reporting period or periods, which could require us in subsequent reporting periods to reduce revenues and profit previously recognized.

Our contracts may require us to perform extra, or change order work, which can result in disputes or claims and adversely affect our working capital, profits and cash flows.

Our contracts generally require us to perform extra, or change order, work as directed by the customer even if the customer has not agreed in advance on the scope or price of the work to be performed. This process may result in disputes or claims over whether the work performed is beyond the scope of work directed by the customer and/or exceeds the price the customer is willing to pay for the work performed. To the extent we do not recover our costs for this work or there are delays in the recovery of these costs, our cash flows and working capital could be adversely impacted.

We may not fully realize the revenue value reported in our backlog due to cancellations or reductions in scope.

As of January 31, 2018, our backlog of uncompleted drilling and infrastructure services was approximately $178.6 million. The revenue projected in our backlog may not be realized or, if realized, may not result in profits. Projects reflected in our contract backlog may be affected by project cancellations, scope adjustments, time extensions or other changes. Such changes may adversely affect the revenue and profit we ultimately realize on these projects.

Our actual results could differ if the estimates and assumptions that we use to prepare our financial statements are inaccurate.

To prepare financial statements in conformity with GAAP, we are required to make estimates and assumptions, as of the date of the financial statements, which affect the reported values of assets, liabilities, revenue, expenses and disclosures of contingent assets and liabilities. Areas in which we must make significant estimates include:

If these estimates or assumptions are inaccurate, our actual results could differ materially from currently recorded amounts.

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If we do not attract and retain qualified managers and executives, our business could be materially and adversely affected.

We are very dependent on the skills and motivation of our employees, managers and executives to define and implement our corporate strategies and operational plans. We maintain and rely on a small executive team to manage our business. We may not be successful in retaining or attracting qualified replacements should any personnel leave. The loss of members of our executive team and inability to retain and attract suitable replacements could materially and adversely affect our business.

Because we are a multinational company conducting a complex business in several markets in North America and South America, we are subject to legal and operational risks related to staffing and management, as well as a broad array of local legal and regulatory requirements.

Operating outside of the U.S. creates difficulties associated with staffing and managing our international operations, as well as complying with local legal and regulatory requirements. The laws and regulations in the markets in which we operate are subject to rapid change. Although we have local staff in countries in which we deem it appropriate, we cannot ensure that we will be operating in full compliance with all applicable laws or regulations to which we may be subject, including customs and clearing, tax, immigration, employment, worker health and safety and environmental. We also cannot ensure that these laws will not be modified in ways that may adversely affect our business.

A portion of our earnings is generated from our foreign operations and those of our affiliates. Political and economic risks in those countries could reduce or eliminate the earnings and cash flow due to dividends we derive from those operations.

Our earnings are significantly impacted by the results of our operations in foreign countries. Our foreign operations are subject to certain risks beyond our control, including the following:

In particular, changes in laws or regulations or in the interpretation of existing laws or regulations, whether caused by a change in government or otherwise, could materially adversely affect our business, growth, financial condition or results of operations. For example, while there are currently no limitations on the repatriation of profits from the countries in which we have subsidiaries, several countries do impose withholding taxes on dividends or fund transfers. Foreign funds transfer restrictions, taxes or limitations may be imposed or increased in the future with regard to repatriation of earnings and investments from countries in which we operate. If foreign funds transfer restrictions, taxes or limitations are imposed, our ability to receive dividends or other payments from affected subsidiaries could be reduced, resulting in an adverse material effect.

In addition, corporate, contract, property, insolvency, competition, securities and other laws and regulations in Mexico and South America have been and continue to be, substantially revised. Therefore, the interpretation and procedural safeguards of the new legal and regulatory systems are in the process of being developed and defined and existing laws and regulations may be applied inconsistently. Also, in some circumstances, it may not be possible to obtain the legal remedies provided for under these laws and regulations in a reasonably timely manner, if at all.

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We perform work at mining operations in countries which have experienced political and economic instability in the past, or may experience similar instability in the future. The mining industry is subject to reg ulation by the countries in which we have operations relating to matters such as environmental protection, controls and restrictions on production and , potentially, nationalization, expropriation or cancellation of contract rights, as well as restrictions on conducting business in such countries. In addition, in our foreign operations we face operating difficulties, including political instability, workforce instability, harsh environmental conditions and remote locations. We do not maintain political risk insurance . Adverse events beyond our control in the areas of our foreign operations could reduce the earnings derived from our foreign operations to the extent that contractual provisions and bilateral agreements between countries may not be sufficient to guard our interests.

Our operations in foreign countries expose us to devaluations and fluctuations in currency exchange rates.

We operate a portion of our business in countries outside the U.S. The majority of our costs in those locations are transacted in local currencies. Although we generally contract with our customers in U.S. dollars, some of our contracts are in other currencies. We do not currently engage in foreign currency hedging transactions. As exchange rates among the U.S. dollar and other currencies fluctuate, the translation effect of these fluctuations may have a material adverse effect on our results of operations or financial condition as reported in U.S. dollars. Exchange rate policies have not always allowed for the free conversion of currencies at the market rate. Future fluctuations in the value of the U.S. dollar could have an adverse effect on our results. In addition, some of the countries in which we operate have foreign currency restrictions that may prohibit or limit our ability to convert local currencies into U.S. dollars and/or transfer U.S. dollars from such countries to the U.S., which restrictions could affect our liquidity or our ability to use such funds in other countries.

We conduct business in international markets with complex and evolving tax rules, including value-added tax rules, which subject us to international tax compliance risks.

While we obtain advice from legal and tax advisors as necessary to help assure compliance with tax and regulatory matters, most tax jurisdictions that we operate in have complex and subjective rules regarding the valuation of intercompany services, cross-border payments between affiliated companies and the related effects on income tax, value-added tax (“VAT”), transfer tax and share registration tax. Our foreign subsidiaries frequently undergo VAT reviews and from time to time undergo comprehensive tax reviews and may be required to make additional tax payments should the review result in different interpretations, allocations or valuations of our products or services. Certain countries may, from time to time, make changes to their existing tax structure which might affect our operations. These countries may, with little or no notice, implement additional taxes in the form of severance taxes, windfall profits taxes, production taxes and tariffs, which could negatively impact our results in our segments that perform services in those countries. We earn a portion of our operating income from outside of the U.S. and any repatriation of funds currently held in foreign jurisdictions may result in additional tax expense.

Uncertainties in the interpretation and application of the Tax Cuts and Jobs Act of 2017 could materially affect our tax disclosures and our effective tax rate in the future when we return to profitability.

The Tax Cuts and Jobs Act of 2017 ("The Act") was enacted on December 22, 2017, and it significantly affected U.S. tax law by, among other things, changing how the U.S. imposes income tax on multinational corporations. The Act contains several key tax provisions that affect us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others.

We are required to recognize the effect of the tax law changes in the period of enactment, including determining the transition tax, re-measuring our U.S. deferred tax assets and liabilities and reassessing the net realizability of our deferred tax assets and liabilities. Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We have recorded provisional estimates in our financial statements with respect to certain income tax effects of The Act for which the accounting is incomplete, but a reasonable estimate was able to be determined. We will continue to perform additional analysis on the application of The Act, taking into account any additional regulatory guidance that is issued by the applicable taxing authorities, which may result in adjustments to our previously reported provisional estimates. In accordance with the SEC's guidance, we will recognize any adjustments to our previously reported provisional estimates in the relevant future periods, which could materially affect our tax obligations and our effective tax rate. See Note 10 to the Consolidated Financial Statements.

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In ad dition, The Act requires complex computations not previously provided in U.S. tax law, and the application of accounting guidance for such items is currently uncertain in some respects. Further, compliance with The Act and the accounting for such provision s require accumulation of information not previously required or regularly produced. The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how the law is applied and thus impact o ur results of operations in the period issued.

Professional liability, product liability, warranty and other claims against us could reduce our revenue.

Any accidents, design defect or system failures in excess of insurance limits at locations that we engineer or construct or where our products are installed or where we perform services could result in significant professional liability, product liability, warranty and other claims against us. Further, the drilling and infrastructure services projects we perform expose us to additional risks, including cost overruns, equipment failures, personal injuries, property damage, shortages of materials and labor, work stoppages, labor disputes, weather problems and unforeseen engineering, architectural, environmental and geological problems. In addition, once our drilling and infrastructure services are complete, we may face claims with respect to the work performed. If we incur these claims, we could incur substantial losses of revenue or additional costs. See Note 15, “Contingencies” to our Consolidated Financial Statements for a further discussion.

Our business is subject to numerous operating hazards, logistical limitations and force majeure events that could significantly reduce our liquidity, suspend our operations and reduce our revenue and future business.

Our drilling and infrastructure services activities involve operating hazards that can result in personal injury or loss of life, damage or destruction of property and equipment, damage to the surrounding areas, release of hazardous substances or wastes and other harm to the environment. To the extent that the insurance protection we maintain is insufficient or ineffective against claims resulting from the operating hazards to which our business is subject, our liquidity could be significantly reduced.

In addition, our operations are subject to delays in obtaining equipment and supplies and the availability of transportation for the purpose of mobilizing rigs and other equipment, particularly where rigs or mines are located in remote areas with limited infrastructure support. Our business operations are also subject to force majeure events such as adverse weather conditions, natural disasters and mine accidents or closings. If our drill site or infrastructure services operations were interrupted or suspended as a result of any such events, we could incur substantial losses of revenue and future business.

Our failure to comply with the regulations of the U.S. Occupational Safety and Health Administration, the U.S. Mine Safety and Health Administration, the U.S. Department of Transportation and other state and local agencies that oversee transportation and safety compliance could reduce our revenue, profitability and liquidity.

OSHA, MSHA and other comparable state and foreign laws establish certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the applicable regulatory authorities and various recordkeeping, disclosure and procedural requirements. Various standards, including standards for notices of hazards and safety in excavation and demolition work may apply to our operations. We have incurred and will continue to incur, capital and operating expenditures and other costs in the ordinary course of business in complying with OSHA, MSHA and other state, local and foreign laws and regulations and could incur penalties and fines in the future, including in extreme cases, criminal sanctions.

While we have invested, and will continue to invest, substantial resources in worker health and safety programs, the industries in which we operate involve a high degree of operational risk and there can be no assurance that we will avoid significant liability exposure. Although we have taken what are believed to be appropriate precautions, we have suffered employee injuries and fatalities in the past and may suffer additional injuries or fatalities in the future. Serious accidents of this nature may subject us to substantial penalties, civil litigation or criminal prosecution. Personal injury claims for damages, including for bodily injury or loss of life, could result in substantial costs and liabilities, which could materially and adversely affect our financial condition, results of operations or cash flows. In addition, if our safety record were to substantially deteriorate, or if we suffered substantial penalties or criminal prosecution for violation of health and safety regulations, customers could cancel existing contracts and not award future business to us, which could materially adversely affect our liquidity, cash flows and results of operations.

We have, from time to time, received notice from the DOT that our motor carrier operations may be monitored and that the failure to improve our safety performance could result in suspension or revocation of vehicle registration privileges. If we were not able to successfully resolve these issues, our ability to service our customers could be damaged, which could lead to a material adverse effect on our results of operations, cash flows and liquidity.

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The cost of complying with complex governmental regulations applicable to our business, sanctions resulting from non-compliance or reduced demand resulting from increased regulations could increase our operating costs and reduce our profit.

Our drilling and infrastructure services are subject to various licensing, permitting, approval and reporting requirements imposed by federal, state, local and foreign laws. Our operations are subject to inspection and regulation by various governmental agencies, including the DOT, OSHA and MSHA of the Department of Labor in the U.S., as well as their counterparts in foreign countries. A major risk inherent in drilling and infrastructure services is the need to obtain permits from local authorities. Delays in obtaining permits, the failure to obtain a permit for a project or a permit with unreasonable conditions or costs could limit our ability to effectively provide our services.

In addition, these regulations also affect our mining customers and may influence their determination to conduct mineral exploration and development. Future changes in these laws and regulations, domestically or in foreign countries, could cause our customers to incur additional expenses or result in significant restrictions to their operations and possible expansion plans, which could reduce our profit.

Our water treatment business is impacted by legislation and municipal requirements that set forth discharge parameters, constrain water source availability and set quality and treatment standards. The success of our groundwater treatment services depends on our ability to comply with the stringent standards set forth by the regulations governing the industry and our ability to provide adequate design and infrastructure services solutions cost-effectively.

In most states, one of our employees is required to be a licensed contractor in order for us to bid for, or perform, certain types of infrastructure services related projects. From time to time, we are temporarily unable to bid for, or perform work with respect to, those types of infrastructure services projects in a particular state, because our licensed employee resigns, is terminated, or dies. Depending upon the length of time to qualify another employee as a licensed contractor in the state and the number and size of the affected projects in that state, the loss of the services of an employee that is a licensed contractor could have a material adverse effect on our results of operations.

The SEC rules require disclosure of the use of tin, tantalum, tungsten and gold, known as conflict minerals, in products manufactured by public companies. The SEC rules require that public companies conduct due diligence to determine whether such minerals originated from the Democratic Republic of Congo (DRC) or an adjoining country. We have incurred additional costs associated with complying with these disclosure requirements, including costs to determine the origin of conflict minerals used in our products. In addition, the implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. Also, we may face reputational challenges if the due diligence procedures we implement do not enable us to verify the origins for all conflict minerals. We may also encounter challenges to satisfy customers that may require all of the components of products purchased to be certified as DRC conflict-free because our supply chain is complex. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier.

Our activities are subject to environmental regulation that could increase our operating costs or suspend our ability to operate our business.

We are required to comply with foreign, federal, state and local laws and regulations regarding health and safety and the protection of the environment, including those governing the generation, storage, use, handling, transportation, discharge, disposal and clean-up of hazardous substances in the ordinary course of our operations. We are also required to obtain and comply with various permits under current environmental laws and regulations and new laws and regulations, or changed interpretations of existing requirements, which may require us to obtain and comply with additional permits and/or subject us to enforcement or penalty proceedings. We may be unable to obtain or comply with, and could be subject to revocation of, permits necessary to conduct our business. The costs of complying with environmental laws, regulations and permits may be substantial and any failure to comply could result in fines, penalties or other sanctions.

Our operations are sometimes conducted in or near ecologically sensitive areas, such as wetlands, which are subject to special protective measures and which may expose us to additional operating costs and liabilities related to restricted operations, for unpermitted or accidental discharges of oil, natural gas, drilling fluids, contaminated water or other substances or for noncompliance with other aspects of applicable laws and regulations. Our operations are subject to various environmental laws and regulations, including those dealing with the handling and disposal of waste products, PCBs, fuel storage and air quality. Certain of our current and historical operations have used hazardous materials and, to the extent that such materials are not properly stored, contained, recycled or disposed of, they could become hazardous waste.

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Many of our operations involve the production or disposal of significant quantiti es of water. We may be subject to regulation that restricts our ability to discharge water in the course of these operations. The costs to dispose of this water may increase if any of the following occur:

The cost to dispose of, or treat that water or otherwise comply with these regulations concerning water disposal may reduce our profitability.

Various foreign, federal, state and local environmental laws and regulations may impose liability on us with respect to conditions at our current or former facilities, sites at which we conduct or have conducted operations or activities or any third-party waste disposal site to which we send hazardous wastes. We may be subject to claims under various environmental laws and regulations, federal and state statutes and/or common law doctrines for toxic torts and other damages, as well as for natural resource damages and the investigation and clean-up of soil, surface water, groundwater and other media under laws such as CERCLA. Such claims may arise, for example, out of current or former conditions at project sites, current or former properties owned or leased by us and contaminated sites that have always been owned or operated by third parties. Liability may be imposed without regard to fault and may be strict, joint and several, such that we may be held responsible for more than our share of any contamination or other damages, or even for the entire share, and may be unable to obtain reimbursement from the parties causing the contamination. The costs of investigation or remediation at these sites may be substantial. Environmental laws are complex, change frequently and have tended to become more stringent over time. Compliance with, and liability under, current and future environmental laws, as well as more vigorous enforcement policies or discovery of previously unknown conditions requiring remediation, could increase our operating costs and reduce our revenue. See Part I, Item 1—Business—Regulation in this Form 10-K for additional information.

If our health insurance, liability insurance or workers’ compensation insurance is insufficient to cover losses resulting from claims or hazards, if we are unable to cover our deductible obligations or if we are unable to obtain insurance at reasonable rates, our operating costs could increase and our profit could decline.

Although we maintain insurance protection that we consider economically prudent for major losses, we have high deductible amounts for each claim under our health insurance, workers’ compensation insurance and liability insurance. Our current individual claim deductible amount is $200,000 for health insurance, and on a per occurrence basis it is $750,000 for auto liability insurance and $500,000 for workers’ compensation insurance. Our general liability insurance is subject to a per claim self-insured retention of $750,000. We cannot assure that we will have adequate funds to cover our deductible obligations or that our insurance will be sufficient or effective under all circumstances or against all claims or hazards to which we may be subject or that we will be able to continue to obtain such insurance protection. In addition, we may not be able to maintain insurance of the types or at levels we deem necessary or adequate or at rates we consider reasonable. A claim or damage resulting from a hazard for which we are not fully insured could increase our operating costs and reduce our profit.

The cost of defending litigation or successful claims against us could reduce our profit or significantly limit our liquidity and impair our operations.

We have been and from time to time may be named as a defendant in legal actions claiming damages in connection with drilling or other infrastructure services projects and other matters. These are typically actions that arise in the normal course of business, including employment-related claims and contractual disputes or claims for personal injury or property damage that occur in connection with drilling or infrastructure site services. To the extent that the cost of defending litigation or successful claims against us is not covered by insurance, our profit could decline, our liquidity could be significantly reduced and our operations could be impaired.

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Geocons truction , one of our discontinued segments, was a subcontractor on the foundation for the Salesforce Tower office building in San Francisco, California in 2013 and 2014. Certain anomalies were discovered in March 2014 in the foundation’s structural concret e, which were remediated by the general contractor during 2015. We have participated in discussions with the project owner and the general contractor regarding potential causes of the anomalies. We have assigned our claims under the project's builder's ris k insurance policy to the general contractor. During the fiscal year ended January 31, 2016, the owner and the general contractor submitted a claim to the project’s builder’s risk insurers to cover the cost of remedial work and related damages. The claim w as denied by the builder’s risk insurers and the owner and the general contractor subsequently filed a legal proceeding against the insurers seeking coverage under the builder’s risk insurance policy. Although we are not a party to this legal proceeding, m anagement believes, based on court filings in the legal proceeding, that the owner and the general contractor are asserting a claim for damages against the project’s builder’s risk insurers of approximately $100 million. Accordingly, no provision has been made in these Consolidated Financial Statements . See Note 15 to our Consolidated Financial Statements for a further discussion of this contingency.

Our ability to use U.S. federal net operating loss carryforwards, foreign tax credit carryforwards, capital loss carryforwards and net unrealized built-in losses could be severely limited in the event of certain share transfers of our common stock.

We currently have a significant U.S. deferred tax asset, before considering valuation allowances, which results from federal net operating loss carryforwards, foreign tax credit carryforwards, capital loss carryforwards and net unrealized built-in losses. While we have recorded a full valuation allowance against the net deferred tax asset, the carryforwards and the future use of these attributes could provide significant future tax savings to us if we are able to use such losses and credits. However, our ability to use these tax benefits may be restricted due to a future ownership change within the meaning of Section 382 of the Internal Revenue Code. An ownership change could occur that would severely limit our ability to use the tax benefits associated with the net operating loss carryforwards, foreign tax credit carryforwards, capital loss carryforwards and net unrealized built-in losses, which may result in a significantly higher tax cost compared to the situation where these tax benefits are preserved.

If we are unable to protect our intellectual property adequately, the value of our patents and trademarks and our ability to operate our business could be harmed.

We rely on a combination of patents, trademarks, trade secrets and similar intellectual property rights to protect the proprietary technology and other intellectual property that are instrumental to our operations. We may not be able to protect our intellectual property adequately and our use of this intellectual property could result in liability for patent or trademark infringement or unfair competition. Further, through acquisitions of third parties, we may acquire intellectual property that is subject to the same risks as the intellectual property we currently own.

We may be required to institute litigation to enforce our patents, trademarks or other intellectual property rights, or to protect our trade secrets from time to time. Such litigation could result in substantial costs and diversion of resources and could reduce our profit or disrupt our business, regardless of whether we are able to successfully enforce our rights.

We may be exposed to liabilities under the Foreign Corrupt Practices Act and any determination that Layne or any of its subsidiaries has violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.

We operate in some countries known to experience corruption. We are committed to doing business in accordance with applicable anti-corruption laws and our code of business conduct and ethics. We are subject, however, to the risk that we, our affiliated entities or their respective officers, directors, employees and agents may take action determined to be in violation of such anti-corruption laws, including the FCPA.

The FCPA and related statutes and regulations provide for potential fines, civil and criminal penalties and equitable remedies, including disgorgement of profits or monetary benefits from such payments, related interest and injunctive relief. These fines and penalties can be significant.

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Further, detecting, investigating and resolving these types of matters is expensive and could consume significant time and attention of our senior management. We could also face fines, sanctions and other penalties from authorities in the relevant foreign jurisdictions, including prohibition of our participating in or curtailmen t of business operations in those jurisdictions and the seizure of rigs or other assets. Our customers in those jurisdictions could seek to impose penalties or take other actions adverse to our interest. We could also face other third-party claims by our d irectors, officers, employees, affiliates, advisors, attorneys, agents, stockholders, debt holders or other interest holders or constituents. In addition, disclosure of the subject matter of the investigation could adversely affect our reputation and our a bility to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees and to access the capital markets. Future violations of the FCPA may also give rise to an event of default under the a greements governing our debt instruments if such violation were to have a material adverse effect on our business, assets, property, financial condition or prospects or if the amount of any settlement resulted in our failing to satisfy any financial covena nts.

Future climate change could adversely affect us.

The prospective impact of potential climate change on our operations and those of our customers remains uncertain. Some scientists have hypothesized that the impacts of climate change could include changes in rainfall patterns, water shortages, snowpack levels, changing sea levels, changing storm patterns and intensities and changing temperature levels and that these changes could be severe. These impacts could vary by geographic location. At the present time, we cannot predict the prospective impact of potential climate change on our results of operations, liquidity or capital resources, or whether any such effects could be material to us.

Deliberate, malicious acts, including terrorism and sabotage, could damage our facilities, disrupt our operations or injure employees, contractors, customers or the public and result in liability to us.

Intentional acts of destruction could hinder our sales or production and disrupt our supply chain. Our facilities could be damaged or destroyed, reducing our operational production capacity and requiring us to repair or replace our facilities at substantial cost. Employees, contractors and the public could suffer substantial physical injury for which we could be liable. Governmental authorities may impose security or other requirements that could make our operations more difficult or costly. The consequences of any such actions could adversely affect our operating results and financial condition.

We are dependent on our information systems.

Information technology systems are an integral part of the efficient functioning of our business as well as the security of our information. Problems with the implementation of new or upgraded systems as our business grows or with maintenance or discontinuance of existing systems could disrupt or reduce the efficiency of our operations.

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers and suppliers and personally identifiable information of our employees, in our facilities and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, disrupt our operations, damage our reputation and cause a loss of confidence, which could adversely affect our business.

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Claims for indemnification related to the sale of business units and assets may be substantial and have a negative impact on our financial condition.

From time to time, we dispose of business units or assets, including the recent dispositions of our Heavy Civil and Geoconstruction businesses. As part of a sale, we have agreed and may in the future agree to indemnify the purchaser for certain pre-closing liabilities associated with the business unit or assets that are sold and for any breach of the representations and warranties contained in the asset purchase agreement for the transaction. There can be no guarantee that material claims will not arise during the relevant indemnification periods and that we will not have to provide the requisite indemnification. In addition, legal challenges to any potential claim for indemnification could result in increased legal expenses. Also, as is typical in divestiture transactions, some third parties have been, and in the future may be, unwilling to release us from guarantees, performance bonds or other credit support provided prior to the sale of the business unit or assets. As a result, after a divestiture, we may remain secondarily liable for some of the obligations guaranteed, bonded or supported to the extent that the buyer of the business unit or assets fails to perform these obligations.

Risks Related To Our Indebtedness

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations.

We have a significant amount of indebtedness. As of January 31, 2018, we had total indebtedness of approximately $166.0 million. Our substantial indebtedness could have important consequences. For example, it could:

In addition, the agreements governing our indebtedness and any future indebtedness we incur may contain restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our debt. Our growth plans and our ability to make payments of principal or interest on, or to refinance our indebtedness will depend on our future operational performance and our ability to enter into additional debt or equity financings. If we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt, to sell assets or to obtain additional financing, which we may be unable to do on favorable terms, if at all.

Servicing our debt requires a significant amount of cash and we may not have sufficient cash flow from our business to service our substantial debt.

Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness depends on our future performance which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt because of factors beyond our control. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial conditions at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms which could result in a default on our debt obligations.

We may not have sufficient borrowing capacity under our asset-based credit facility to meet our liquidity requirements and a reduction in our borrowing base could result in a portion of our borrowings becoming immediately due.

We may need to borrow on our asset-based credit facility in the future for our liquidity needs. If we are unable to borrow under our asset-based credit facility or otherwise obtain capital as needed to operate our business, our financial performance and position could materially suffer.

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Our ability to borrow under our asset-based credit facility depends on, among other things, the amount of the borrowing base as defined in the asset-based credit facility and our available capacity under the asset-based credit f acility. Continued operating losses or negative cash flows from our operations may cause Layne to borrow under our asset-based credit facility and reduce the available capacity under the asset-based credit facility. Our borrowing base is primarily comprise d of a percentage of the net orderly liquidation value of eligible equipment and the value of certain customer and contract receivables. Our borrowing base is reduced by any reserves that the co-collateral agents under our asset-based credit facility deter mine to be necessary in good faith and their reasonable business judgment. As of January 31, 2018, total availability under the asset-based credit facility was $ 100.0 million, with $24.6 million of letters of credit and no borrowings outstanding, resulting in Excess Availability of $ 75.4 million. The amount of our borrowing base could be materially and adversely affected by decreases in the value of our eligible equipment and/or receivables, a portion of our equipment and/or receivables being deemed ineligi ble under the terms of our asset-based credit facility or the co-collateral agents imposing additional reserve requirements.

In addition, if our borrowing base is reduced below the amount of letters of credit and borrowings outstanding under our asset-based credit facility, then the excess indebtedness would, absent a waiver or amendment, become immediately due and payable and any outstanding letters of credit could require replacement or cash collateralization. We may not have the resources to make any required repayment or cash collateralization and such repayment obligation or cash collateralization could have a material adverse impact on our liquidity and financial condition.

We may not have sufficient capital resources to repay all of our indebtedness as it matures.

Our debt facilities currently consist of:

However, if the 4.25% Convertible Notes have not been redeemed, repurchased, otherwise retired, discharged in accordance with their terms or converted into our common stock, or effectively discharged, in each case on or prior to August 15, 2018 or the scheduled maturity date of the 4.25% Convertible Notes has not been extended to a date that is after October 15, 2019, then the 8.0% Convertible Notes will mature on August 15, 2018.

In addition, the maturity date of the asset-based credit facility will be (a) July 16, 2018 if we have not delivered to the administrative agent for the asset-based credit facility evidence by July 15, 2018 that the 4.25% Convertible Notes have been effectively discharged with the proceeds from the issuance of the 11.0% Unsecured Notes or (b) May 15, 2018 if (i) the issuance of the 11.0% Unsecured Notes is cancelled for any reason or (ii) the proceeds of the 11.0% Unsecured Notes are used for a purpose other than to effectively discharge the 4.25% Convertible Notes in full; provided, that if an event described in clause (i) or (ii) above occurs after May 15, 2018, then the maturity date of the asset-based credit facility will be the date the event occurred.

On March 19, 2018, we entered into a note purchase agreement with two investment funds advised by Corre Partners Management, LLC to purchase $71.0 million of our 11% Unsecured Notes. Corre Partners Management and its affiliated funds, including the purchasers of the 11.0% Unsecured Notes, own a portion of our 4.25% Convertible Notes and 8.00% Convertible Notes. Prior to August 15, 2018, we may elect to issue the 11.0% Unsecured Notes and use the proceeds from the issuance of the 11.0% Unsecured Notes to effectively discharge the 4.25% Convertible Notes, in which case the maturity date of the 8.0% Convertible Notes would remain May 1, 2019. As a result, if the proceeds of the 11.0% Unsecured Notes were to be used to effectively discharge the 4.25% Convertible Notes prior to July 16, 2018, we would need to refinance (1) the asset-based credit facility on or prior to April 14, 2019, (2) to the extent they are not converted into our common stock, the 8.0% Convertible Notes on May 1, 2019 and (3) the 11.0% Unsecured Notes on or prior to October 16, 2019.

Alternatively, if the market price of our common stock prior to August 15, 2018 is above $11.70 per share, we could elect to take no action with respect to the 4.25% Convertible Notes, in which case the maturity date of the 8.0% Convertible Notes would become August 15, 2018. We believe that under those circumstances most, if not all, of the holders of our 8.0% Convertible Notes would convert their notes into our common stock (and any remaining unconverted amounts could be refinanced with available cash or drawings under our asset-based credit facility) and we could issue the 11.0% Unsecured Notes by October 1, 2018 in order to repay the 4.25% Convertible Notes at maturity. In this case, we would seek to extend or refinance our asset-based credit facility.

We may not have sufficient capital resources to repay all of our indebtedness as it becomes due, which could result in a default under all of our indebtedness.

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Our indebtedness agreements contain and the terms of any future indebtedness may contain significant operating and financial restrictions. These restrictions may limit our and certain of our subsidiaries’ operating flexibility and, in turn, h inder our ability to make payments on our obligations, impair our ability to make capital expenditures and/or increase the cost of obtaining additional financing.

Our asset-based credit facility includes customary conditions to funding, representations and warranties, covenants and events of default. The terms of the indebtedness could have important consequences to shareholders, including the following:

In addition, under our asset-based credit facility, if Excess Availability is less than the greater of $17.5 million or 17.5% of total availability, in each case for more than one business day, then a “Covenant Compliance Period” will exist until we have Excess Availability for a period of 30 consecutive days equal to or greater than the greater of (a) 17.5 % of the total availability and (b) $17.5 million. During each Covenant Compliance Period, we must maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 and a first lien leverage ratio of not greater than 5.0 to 1.0 for the four fiscal quarter period ended immediately prior to commencement of a Covenant Compliance Period and for every four fiscal quarter period ending during a Covenant Compliance Period. During the fiscal years ended January 31, 2018 and 2017, we were not subject to Covenant Compliance Period(s) under our asset-backed credit facility. If we had been in a Covenant Compliance Period during the three year period ended January 31, 2018, we would not have been in compliance with the minimum fixed charge coverage ratio.

Furthermore, during a covenant Compliance Period or if an Event of Default has occurred and is continuing all of our funds received on a daily basis will be applied to reduce amounts owing under the asset-based credit facility. Although we do not anticipate being in a Covenant Compliance Period during the next twelve months, a Covenant Compliance Period could occur if the borrowing base is decreased for any of the reasons discussed above or if we are required to borrow more funds than is currently anticipated at a time when we do not meet the minimum fixed charge coverage ratio and the first lien leverage ratio.

We cannot assure that waivers will be granted or amendments made to any of the agreements governing our indebtedness if for any reason we are unable to comply with the obligations thereunder or that we will be able to refinance our debt on acceptable terms, or at all, should we seek to do so. See Note 8 to the Consolidated Financial Statements for a more detailed description of our indebtedness.

The conversion of our 4.25% Convertible Notes may adversely affect our financial condition.

After May 15, 2018, holders of the 4.25% Convertible Notes will be entitled to convert such notes at any time at their option. If one or more holders elect to convert their 4.25% Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying solely cash in lieu of any fractional share), including if we have irrevocably elected full physical settlement upon conversion, we would be required to make cash payments to satisfy all or a portion of our conversion obligations based on the applicable conversion rate, which could adversely affect our liquidity.

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We may in certain circumstances elect to settle conversions of our 4.25% Convertible Notes in cash and the accounting method for convertible debt securities that may be settled in cash could have a material effect on our reported financial results.

Pursuant to the terms of our 4.25% Convertible Notes, at our election, we will satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock. We refer to these settlement methods as cash settlement, physical settlement and combination settlement, respectively. In May 2008, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), which has subsequently been codified as ASC Topic 470-20, “Debt with Conversion and Other Options”. ASC Topic 470-20 requires an entity to separately account for the liability and equity components of convertible debt instruments whose conversion may be settled entirely or partially in cash in a manner that reflects the issuer’s economic interest cost for non-convertible debt. During the first quarter of the fiscal year ended January 31, 2015, the liability component of the convertible debt instrument was valued at the fair value of a similar debt instrument that did not have an associated equity component and was reflected as a liability on the balance sheet. The equity component of the convertible debt instrument was included in the additional paid-in capital section of stockholders’ equity on the balance sheet and the value of the equity component was treated as original issue discount for purposes of accounting for the debt component. This original issue discount is being amortized to non-cash interest expense over the term of the convertible debt instrument. Accordingly, we record a greater amount of non-cash interest expense in current periods as a result of this amortization. We report lower net income in our financial results because ASC Topic 470-20 requires the interest expense associated with our 4.25% Convertible Notes to include both the current period’s amortization of the debt discount and our 4.25% Convertible Notes’ coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of our 4.25% Convertible Notes.

If we elect to settle conversions using physical settlement, then we must include the full number of shares underlying our 4.25% Convertible Notes in the calculation of our diluted earnings per share, regardless of whether the contingent conversion feature of our 4.25% Convertible Notes is triggered. In addition, under certain circumstances, convertible debt instruments whose conversion may be settled entirely or partly in cash (such as our 4.25% Convertible Notes) are currently accounted for using the treasury stock method. Under this method, the shares issuable upon conversion of convertible notes are not included in the calculation of diluted earnings per share unless the conversion value of the convertible notes exceeds their principal amount at the end of the relevant reporting period. If the conversion value exceeds their principal amount, then, for diluted earnings per share purposes, convertible notes are accounted for as if the number of shares of common stock that would be necessary to settle the excess, if we elected to settle the excess in shares, are issued. Accordingly, the treasury stock method could result in more favorable reported diluted earnings per share. If we do not satisfy the criteria required to utilize the treasury stock method, we will be required to determine diluted earnings per share utilizing the “if converted” method, the effect of which is that the shares issuable upon conversion of the notes are included in the calculation of diluted earnings per share assuming the conversion of the notes at the beginning of the reporting period if the impact is dilutive. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. Additionally, we cannot be sure that we will satisfy the relevant criteria to utilize the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares, if any, issuable upon conversion of our convertible notes, then our diluted earnings per share could be adversely affected.

Conversion of our 8.0% Convertible Notes could dilute the ownership interests of our shareholders.

Our 8.0% Convertible Notes are convertible, at the option of the holders, into consideration consisting of shares of our common stock (and cash in lieu of fractional shares) until the close of business on the scheduled trading day immediately preceding the maturity date. As of January 31, 2018, the conversion price of the 8.0% Convertible Notes ($11.70 per share) was significantly below the closing price of our common stock on that date ($13.49 per share). To the extent we issue common stock upon conversion of our 8.0% Convertible Notes, that conversion would dilute the ownership interests of our shareholders. If all the 8.0% Convertible Notes were to convert into shares of our common stock, we would issue approximately 8.5 million additional shares representing approximately 30.0% of the outstanding shares of our common stock on that date.

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We may not have the ability to raise the funds necessary to repurchase our convertible notes upon a fundamental change, asset sale or casualty or condemnation event, and our debt instruments may prohibit some of these payments.

As discussed in Note 8 to the Consolidated Financial Statements, if a “fundamental change” (as defined in the indentures governing our convertible notes) occurs, holders of our convertible notes may require us to repurchase all or a portion of such notes in cash. Any such cash payment could be significant, and we may not have enough available cash or be able to obtain financing so that we can make payments on our convertible notes when due.

In addition, except in very limited circumstances involving a refinancing of the 8.0% Convertible Notes in a manner permitted by our asset-based credit facility, our asset-based credit facility prohibits us from making or offering to make certain voluntary repurchases of the  convertible notes, except that we may repurchase the 8.0% Convertible Notes if certain “payment conditions” are satisfied. This provision may prohibit us from repurchasing the convertible notes at the holders’ election following a fundamental change or, with respect to the 8.0% Convertible Notes, certain asset sales and casualty and condemnation events.

If we fail to repurchase our convertible notes when required, we will be in default under the indentures for the convertible notes. In addition, such a failure could also be a default under our asset-based credit facility, which may allow the lenders under that agreement to cause all outstanding amounts under the facility to become immediately due and payable.

Certain provisions in the indentures governing our convertible notes could delay or prevent an otherwise beneficial takeover or takeover attempt of us.

Certain provisions in the indentures governing our convertible notes could make it more difficult or more expensive for a third party to acquire us. For example, if a takeover would constitute a fundamental change (as defined in the indentures governing our convertible notes), holders of our convertible notes will have the right to require us to repurchase their convertible notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their convertible notes in connection with such takeover. In either case and in other cases, our obligations under our convertible notes and the indentures could increase the cost of acquiring us or otherwise discourage a third party from acquiring us.

Risks Related To Ownership of Our Common Stock

Provisions in our organizational documents, Delaware law and the indentures governing our convertible notes could prevent or frustrate attempts by stockholders to replace our current management or effect a change of control of Layne.

Our certificate of incorporation, bylaws and the Delaware General Corporation Law contain provisions that could make it more difficult for a third party to acquire us without consent of our board of directors. In addition, under our certificate of incorporation, our board of directors may issue shares of preferred stock and determine the terms of those shares of stock without any further action by our stockholders. Our issuance of preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock and thereby effect a change in the composition of our board of directors. Our certificate of incorporation also provides that our stockholders may not take action by written consent. Our bylaws require advance notice of stockholder proposals and nominations and permit only our board of directors, or authorized committee designated by our board of directors, to call a special stockholder meeting. These provisions may have the effect of preventing or hindering attempts by our stockholders to replace our current management. In addition, Delaware law prohibits us from engaging in a business combination with any holder of 15% or more of our capital stock until the holder has held the stock for three years unless, among other possibilities, our board of directors approves the transaction. Our board may use this provision to prevent changes in our management. Also, under applicable Delaware law, our board of directors may adopt additional anti-takeover measures in the future.

In addition, provisions of Delaware law may also discourage, delay or prevent a third party from acquiring or merging with us or obtaining control of Layne.

If a “fundamental change” (as such terms are defined in the indentures governing our convertible notes) occurs, holders of the convertible notes will have the right, at their option, to require us to repurchase all or a portion of their convertible notes. A “fundamental change” generally occurs when there is a change in control of Layne (acquisition of 50% or more of our voting stock, liquidation or sale of Layne not for stock) or trading of our stock is terminated. In the event of a “make-whole fundamental change” (as is defined in the indentures for the convertible notes), we may also be required to increase the conversion rate applicable to the convertible notes surrendered for conversion in connection with such make-whole fundamental change. A “make-whole fundamental change” is generally a sale of Layne not for stock in another publicly traded company. In addition, the indentures for the convertible notes prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the convertible notes.

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The market price of our common stock could be reduced by future issuances or sales of our common stock.

Sales by us or our shareholders of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could cause the market price of our common stock to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities.

In addition to outstanding shares eligible for future sale, as of January 31, 2018, 2.0 million shares of our common stock were issuable, subject to vesting requirement, under currently outstanding stock options and restricted stock units granted to officers, directors and employees and an additional 0.7 million shares are available to be granted under our stock option and employee incentive plans.

We are restricted from paying dividends.

We have not paid any cash dividends on our common stock since our initial public offering in 1992 and we do not anticipate paying any cash dividends in the foreseeable future. In addition, our current credit arrangements restrict our ability to pay cash dividends.

Our share price has been volatile and could decline, resulting in a substantial or complete loss of your investment. Because the trading of our common stock is characterized by low trading volume, it could be difficult for you to sell the shares of our common stock that you hold.

The stock markets, including the NASDAQ Global Select Market, on which we list our common stock, have experienced significant price and volume fluctuations. As a result, the market price of our common stock could be similarly volatile and you may experience a decrease in the value of the shares of our common stock that you may hold, including a decrease unrelated to our operating performance or prospects. In addition, the trading of our common stock has historically been characterized by relatively low trading volume and the volatility of our stock price could be exacerbated by such low trading volumes. The market price of our common stock could be subject to significant fluctuations in response to various factors or events, including among other things:

These factors may lower the trading price of our common stock, regardless of our actual operating performance and could prevent you from selling your common stock at or above the price that you paid for the common stock. In addition, the stock markets, from time to time, experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. These broad fluctuations may lower the market price of our common stock.

Risks Relating to Pending Merger with Granite Construction (see Item 7, Overview - Subsequent Event)

Information concerning additional risk factors related to the pending merger with Granite Construction Incorporated (“Granite”) is available in the preliminary proxy statement/prospectus included in the Registration Statement on Form S-4 that Granite filed with the SEC on March 13, 2018, in connection with the pending stock merger.

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Layne’s business relationships may be subject to disruption due to uncertainty associated with the merger.

Parties with which Layne does business may experience uncertainty associated with the proposed merger, including with respect to current or future business relationships with Layne or the combined company. Layne’s business relationships may be subject to disruption as customers, distributors, suppliers, vendors and others may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than Layne or the combined company. These disruptions could have an adverse effect on the businesses, financial condition, or results of operations of Layne and/or the combined company. The risk, and adverse effect, of such disruptions could be exacerbated by a delay in consummating the merger or termination of the merger agreement.

The m erger may be consummated on different terms from those contained in the merger a greement.

Prior to the consummation of the merger, the parties may, by their mutual agreement, amend or alter the terms of the merger agreement, including with respect to, among other things, the consideration to be received by Layne stockholders, or any covenants or agreements with respect to the parties’ respective operations during the pendency thereof, provided, however, that after approval by Layne stockholders, no amendment may be made without further stockholder approval which, by law or in accordance with the rules of Nasdaq, requires further approval by such stockholders. Any such amendments or alterations may have negative consequences to Layne stockholders including, among other things, reducing the cash available for Granite’s or Layne’s operations or to meet respective obligations or restricting or limiting assets or operations of either of Granite or Layne. Under certain circumstances, Layne stockholders may be permitted or required to adopt any such amendments, which could delay consummation of the Merger and subject Layne and Granite to additional expense.

Layne must obtain approval of its stockholders to consummate the Merger, which, if delayed or not obtained, may jeopardize or delay the consummation of the Merger.

The Merger is conditioned on the adoption of the merger agreement by the affirmative vote of the holders of a majority of the issued and outstanding shares of Layne Common Stock entitled to vote thereon. If Layne stockholders do not adopt the merger agreement, then Layne and Granite cannot consummate the Merger.

The m erger a greement contains provisions that limit Layne’s ability to pursue alternatives to the merger, which could discourage a potential acquirer of Layne from making an alternative transaction proposal or could result in a competing proposal being at a lower price than it might otherwise be and, in certain circumstances, could require Layne to pay Granite a significant termination fee.

The merger agreement contains “no shop” provisions that, subject to limited exceptions, require that Layne may not (a) solicit, initiate, cause or knowingly facilitate or encourage the submission of any inquiries, proposals or offers or any other efforts or attempts that constitute or may reasonably be expected to lead to any acquisition proposal (generally, a proposal to acquire 20% or more of the common stock or assets of Layne), or engage in any discussions or negotiations with respect thereto or otherwise cooperate with or assist or participate in, or knowingly facilitate or encourage, any such inquiries, proposals, discussions or negotiations, or resolve to or publicly propose to take any of the foregoing actions, (b) approve or recommend, or resolve to or publicly propose to approve or recommend, any acquisition proposal or enter into any merger agreement, agreement-in-principle, letter of intent, share purchase agreement, asset purchase agreement, share exchange agreement, option agreement or other similar agreement relating to an acquisition proposal or enter into any letter of intent, agreement or agreement-in-principle requiring Layne to abandon, terminate or fail to consummate the Merger or (c) (1) withdraw, modify or qualify in a manner adverse to Granite the recommendation of the Layne Board or the approval or declaration of advisability by the Layne Board of the merger agreement and the transactions contemplated thereby (including the Merger) or (2) approve or recommend, or resolve to or publicly propose to approve or recommend, any acquisition proposal.

The merger agreement also provides that Layne will be required to pay a termination fee of $16.0 million to Granite upon termination of the merger agreement under certain circumstances. These provisions might discourage a potential competing a cquiror that might have an interest in acquiring all or a significant part of Layne from considering or proposing an acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in the Merger, or might result in a potential competing acquiror proposing to pay a lower per share price to acquire Layne than it might otherwise have proposed to pay.