ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Language Regarding Forward-Looking Statements

This Form 10-Q 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," "plan," "estimate" and similar words or phrases. Such statements are based on current expectations and are subject to certain risks, 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 a greater financial or business impact than management currently anticipates), prevailing prices for various commodities, unanticipated slowdowns in the Company's major markets, the availability of credit, the risks and uncertainties normally incident to the construction industry and exploration for and development and production of oil and gas, the impact of competition, the effectiveness of operational changes expected to increase efficiency and productivity, worldwide economic and political conditions and foreign currency fluctuations that may affect worldwide results of operations. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, estimated or projected. These forward-looking statements are made as of the date of this filing, and the Company assumes no obligation to update such forward-looking statements or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.

Overview
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand Layne Christensen Company, our operations and our present business environment. MD&A is provided as a supplement to-and should be read in connection with-our consolidated financial statements and the accompanying notes thereto included under Part I Item 1 of this report. MD&A should also be read in conjunction with our consolidated financial statements as of January 31, 2012, and for the year then ended, and the related MD&A, both of which are contained in our Form 10-K for the year ended January 31, 2012. MD&A includes the following sections:

? Our Business-a general description of our business and key fiscal 2013 events.

? Consolidated Review of Operations-an analysis of our consolidated results of operations for the three and six months ended July 31, 2012.

? Operating Segment Review of Operations-an analysis of our results of operations for the three and six months ended July 31, 2012, as presented in our consolidated financial statements for our reporting segments: Water Resources Division, Inliner Division, Heavy Civil Division, Geoconstruction Division, and Mineral Exploration Division.

? Liquidity and Capital Resources-an analysis of cash flows, aggregate financial commitments and certain financial condition ratios.

? Critical Accounting Policies-a discussion of changes to our critical accounting policies in the current period that involve a higher degree of judgment or complexity. This section also includes the impact of new accounting standards.

Our Business

Layne is a global water management, construction and drilling company. We provide responsible solutions for water, mineral and energy challenges. The Company's operational and organizational structure is divided into five divisions based on primary service lines. Each division is comprised of individual district offices, which primarily offer similar services and serve similar markets. Periodically, individual offices within a division may perform services that are normally provided by another division. When that happens, the results of those services are recorded in the originating offices' own division. For example, if a Mineral Exploration Division office performed water well drilling services, the revenues would be recorded in the Mineral Exploration Division rather than the Water Resources Division. See Note 10 to the consolidated financial statements for a discussion of the Company's segments and the changes to the segments in FY2012.

Key Fiscal 2013 Events

? Margins in all of our Water Infrastructure businesses have continued to decline, producing an overall cost of revenues as a percentage of revenue for the businesses of 86% as compared to 81% a year ago. The Company's Heavy Civil Division has been particularly hard hit by margin declines due to lower prices in the municipal bid market as well as delays and cost overruns. For the second quarter of fiscal 2013, Heavy Civil Division's revenues have decreased 17.1% compared to second quarter last year, and the division has experienced a pre-tax loss. We believe the municipal bid market has been impacted by the entry of a large number of competitors which have traditionally served other markets, but are now seeking municipal work to keep equipment and personnel utilized.

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? For the second quarter of fiscal 2013, revenues in our Mineral Exploration Division have increased 2.1%, although pre-tax earnings have decreased 12.5% compared to last year due to a temporary mine shut down by a client of one of our affiliates in South America and inefficiencies from moving equipment between job sites.
? On May 30, 2012, the Company acquired the remaining 50% of Diberil Sociedad Anónima ("Diberil"), a Uruguayan company and parent company to Costa Fortuna (Brazil and Uruguay) for $18,473,000. Diberil, with operations in Sao Paulo, Brazil, and Montevideo, Uruguay, is one of the largest providers of specialty foundation and specialized marine geotechnical services in South America. In conjunction with the acquisition of the remaining 50% equity interest and recording the operation on a fully consolidated basis, the Company remeasured the previously held equity investment in Diberil to fair value and recognized a loss of $7,705,000 during the period. The fair value of the 50% noncontrolling interest was estimated to be $15,794,000 based on the acquisition price of the remaining 50% interest.
? During the second quarter of fiscal 2013, the Company reclassified its Energy Division as a discontinued operation pending its sale, which is expected by the end of the fiscal year. Results of the Energy Division were a loss on discontinued operations (net of tax) of $21,105,000 and $22,011,000 for the three and six months ended July 31, 2012, respectively, including a pretax loss of $32,589,000 to adjust the net assets of the division to fair value, less costs to sell.