<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
LAYNE CHRISTENSEN COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of Incorporation or Organization)
48-0920712
(I.R.S. Employer Identification Number)
1900 Shawnee Mission Parkway
Mission Woods, Kansas 66205
(913) 362-0510
(Address and telephone number of Registrant's principal executive offices)
--------------------------
KENT B. MAGILL, ESQ.
LAYNE CHRISTENSEN COMPANY
1900 SHAWNEE MISSION PARKWAY
MISSION WOODS, KANSAS 66205
(913) 362-0510
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
PETER F. KERMAN, ESQ. DAVID B. MILLER, ESQ.
Latham & Watkins Faegre & Benson LLP
75 Willow Road 2200 Norwest Center
Menlo Park, California 94025 90 South Seventh Street
(415) 328-4600 Minneapolis, Minnesota 55402-3901
(612) 336-3000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of the Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM
TITLE OF SHARES TO AMOUNT TO MAXIMUM OFFERING AGGREGATE AMOUNT OF
BE REGISTERED BE REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value.................... 5,750,000 shares $21.50 $123,625,000 $37,463
</TABLE>
(1) Includes 750,000 shares subject to an over-allotment option granted to the
Underwriters.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933. The registration fee has been
calculated based upon the average of the high and low prices of the
Company's Common Stock as reported on the Nasdaq National Market on June 13,
1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 19, 1997
PROSPECTUS
DATED , 1997
5,000,000 SHARES
[logo]
LAYNE CHRISTENSEN COMPANY
COMMON STOCK
Of the 5,000,000 shares of Common Stock offered hereby, 1,700,000 shares are
being sold by Layne Christensen Company, a Delaware corporation ("Layne
Christensen" or the "Company"), and 3,300,000 shares are being sold by the
Selling Stockholders. See "Principal and Selling Stockholders." The Company will
not receive any proceeds from the sale of shares by the Selling Stockholders.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"LAYN." On June 16, 1997, the last reported sale price of the Common Stock was
$21 7/8 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Stockholders
<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
Total(3)............................. $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 750,000 additional shares of Common Stock, solely to
cover over-allotments, if any, at the per share Price to Public less the
Underwriting Discount. If the Underwriters exercise this option in full, the
total Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters, subject to
prior sale when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the certificates representing shares of Common Stock will be made at
the offices of Piper Jaffray Inc. in Minneapolis, Minnesota on or about
, 1997.
Piper Jaffray Inc. Dillon, Read & Co. Inc.
<PAGE>
LAYNE CHRISTENSEN COMPANY
WORLDWIDE LOCATIONS
Description of graphics on inside front cover of Prospectus: Map of world
with inset showing United States detail, with star indicating location of
corporate headquarters in Mission Woods, Kansas; white dots indicating locations
pending completion of Stanley Acquisition; and yellow dots showing the following
locations of sales and operations offices:
<TABLE>
<S> <C> <C>
Albany, GA Anchorage, AK Atlanta, GA
Aurora, IL Baton Rouge, LA Beecher, IL
Cedar Rapids, IA Chandler, AZ Cleveland, MS
Columbus, OH Denver, CO Edwardsburg, MI
Elk City, OK El Paso, TX Eunice, LA
Fontana, CA (2) Garden City, KS Grayson, KY
Houston, TX Jackson, MS Kearney, NE
Lakeland, FL Lansing, MI Las Vegas, NV
Louisville, KY Marshalltown, IA Memphis, TN
Milwaukee, WI Mission Woods, KS Omaha, NE
Pensacola, FL Pooler, GA St. Louis, MO (2)
Salt Lake City, UT San Antonio, TX Spokane, WA
Springfield, MO Stuttgart, AR Suffolk, VA
Tacoma, WA Tempe, AZ Tyler, TX
Wausau, WI West Monroe, LA Wichita, KS
Winchester, VA Woodland, CA Boston, MA
North Bay, Ontario, Canada Phoenix, AZ Calgary, Alberta, Canada
La Paz, Bolivia Hermosillo, Sonora, Mexico (2) Toluca, Mexico
Bangkok, Thailand (2) Antofagasto, Chile Santiago, Chile (2)
Lima, Peru (2) Stuttgart, Germany Nice, France
LOCATIONS PENDING COMPLETION OF STANLEY ACQUISITION (INDICATED
WITH WHITE DOTS):
Malaga Western Australia
Kalgoorlie/Boulder, Western Australia
Accra, West Africa
Obuasi, West Africa
Dar es Salaam, Tanzania
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE
OFFERING. IN ADDITION, IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS
(AND SELLING GROUP MEMBERS) ALSO MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET, IN ACCORDANCE
WITH RULE 103 UNDER THE SECURITIES EXCHANGE ACT OF 1934. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. THE "STANLEY ACQUISITION"
REFERS TO (I) THE PENDING ACQUISITION BY THE COMPANY OF ALL THE OUTSTANDING
CAPITAL STOCK OF STANLEY MINING SERVICES LIMITED ("STANLEY") AND CERTAIN RELATED
TRANSACTIONS AND THE COSTS AND EXPENSES THEREOF AND (II) THE REPURCHASE BY
GLINDEMANN & KITCHING PTY LTD. ("G&K"), STANLEY'S 51% OWNED SUBSIDIARY, OF ALL
OF G&K'S CAPITAL STOCK NOT OWNED BY STANLEY, THEREBY MAKING G&K A WHOLLY OWNED
SUBSIDIARY OF STANLEY (THE "G&K ACQUISITION"). ALL REFERENCES TO A PARTICULAR
"FISCAL YEAR" OF THE COMPANY REFER TO THE TWELVE MONTHS ENDED JANUARY 31 OF THE
YEAR REFERENCED, UNLESS OTHERWISE NOTED. EXCEPT WHERE OTHERWISE INDICATED, THE
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED. SEE "UNDERWRITING." SEE "RISK FACTORS"
FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT
IN THE SHARES OF COMMON STOCK OFFERED HEREBY. ALL REFERENCES TO THE "COMPANY"
AND "LAYNE CHRISTENSEN" MEAN LAYNE CHRISTENSEN COMPANY, ITS DOMESTIC AND FOREIGN
CONSOLIDATED SUBSIDIARIES AND ITS UNCONSOLIDATED FOREIGN AFFILIATES, AND EXCLUDE
STANLEY AND G&K, UNLESS THE CONTEXT INDICATES OTHERWISE. UNLESS OTHERWISE
INDICATED, ALL CURRENCY INFORMATION IS DENOMINATED IN UNITED STATES DOLLARS.
THE COMPANY
Layne Christensen is a leading provider of sophisticated drilling services
and related products and services in four principal markets: water supply,
mineral exploration, geotechnical construction and environmental. The Company
believes it is the largest provider in the United States of water well drilling,
well maintenance and environmental drilling services. The Company also believes
it is one of the world's largest providers of mineral exploration drilling
services and a world leader in diamond drill bit technology. Layne Christensen's
customers include municipalities, industrial companies, mining companies and
environmental consulting and engineering firms located principally in the United
States, Canada, Mexico and South America. Following consummation of the pending
Stanley Acquisition, the Company will gain entry into mineral exploration
drilling markets in Australia and West Africa.
After giving effect to the Stanley Acquisition, on a pro forma basis, the
Company would have had $278,070,000 in revenues for fiscal 1997. In addition,
the Company's share of foreign affiliate revenues in fiscal 1997 was
approximately $41,000,000. Including its share of foreign affiliate revenues, on
a pro forma basis after giving effect to the Stanley Acquisition, the Company's
domestic operations and international operations, respectively, would have
accounted for approximately 62% and 38% of fiscal 1997 revenues. Approximately
88% of the Company's revenues would have been allocated among the Company's
services approximately as follows: water well drilling and maintenance, 34%;
mineral exploration drilling, 42%; environmental drilling, 7%; and geotechnical
and other services, 5%. Approximately 12% of the Company's revenues would have
been attributable to product sales, primarily for mineral exploration drilling.
Layne Christensen believes it is one of only a few companies worldwide that
has the drilling expertise, financial resources, equipment and project
management skills to conduct large, highly complex drilling projects in the
Company's principal markets. As a result of providing water well and mineral
exploration drilling services for more than 100 years through its predecessor
companies, the Company has developed significant drilling expertise and project
management skills and has compiled a broad database of geological and other
technical information. The Company has substantial resources, including over 500
rigs and associated capital equipment, approximately 60 sales and operations
offices and approximately 1,800 employees (in each case excluding its foreign
affiliates).
In fiscal 1994, following a change in the Company's management, the Company
began a program to improve operating efficiencies and reduce costs through
office closures, reduced headcount, increased investment in
productivity-enhancing capital equipment and improved safety practices. At the
same time, it implemented steps to improve margins by emphasizing higher margin,
technically demanding work. The implementation of these programs resulted in the
Company's gross margin increasing from 23.4% for the
3
<PAGE>
twelve months ended January 31, 1994 to 27.5% for fiscal 1997 and its selling,
general and administrative expenses, as a percentage of revenues, decreasing
from 18.8% to 17.5% over the same period.
In addition to these operating initiatives, the Company implemented a
strategy focused on increasing revenues through acquisitions and internal
expansion into new geographical markets and new business lines. As a result of
this strategy, the Company's revenues have increased from $169,766,000 in the
twelve months ended January 31, 1994 to $222,853,000 in fiscal 1997. During this
period, revenues from mineral exploration products and services became a more
significant portion of the Company's business, the Company's water well drilling
and maintenance revenues remained relatively stable, and the Company's revenues
from environmental services declined as a result of an overall decline in the
market for such services and the Company's decision not to pursue lower margin,
less technically demanding projects.
The Company's growth strategy is to continue to build upon its sophisticated
drilling expertise and technical qualifications and includes the following key
components:
EXPAND MINERAL EXPLORATION DRILLING INTERNATIONALLY. The Company
believes that its best mineral exploration drilling opportunities exist in
Australasia, Africa and South America. The Company's acquisition of
Christensen Boyles Corporation ("CBC") in December 1995 allowed it to enter
certain South American mineral exploration markets, including Chile and
Peru. The pending Stanley Acquisition will allow the Company to enter
mineral exploration markets in Australia and West Africa. The Company
intends to continue to expand its international mineral exploration drilling
business through internal expansion and acquisitions.
ACQUIRE WATER WELL DRILLING BUSINESSES IN THE UNITED STATES. Due to the
highly fragmented nature of the United States water well drilling industry,
the Company believes there are consolidation opportunities which may be
achieved through the acquisition of selected regional water well drilling
companies whose operations would benefit from the Company's expertise and
resources.
EXPAND WATER WELL DRILLING INTERNATIONALLY. The Company intends to
build its water well drilling business internationally by providing
dewatering and water supply services to its mining customers and by
responding to growing requirements of many developing countries to access
groundwater to satisfy their potable water needs. The Company is currently
undertaking water projects in Chile and Indonesia and intends to expand into
the water well drilling markets in Mexico, Thailand and certain other
foreign locations.
EXPAND PRESENCE IN GEOTECHNICAL CONSTRUCTION SERVICES. The Company is
increasing its activities in the geotechnical construction market, a
business line which leverages the Company's technical skills and other core
competencies. The Company's strategy is to focus on relatively larger,
technically demanding projects using its grouting and ground freezing
capabilities. For example, in May 1997, the Company announced that it signed
a contract to design and construct the world's largest known groundfreeze
project for Echo Bay Mines Ltd.
RECENT DEVELOPMENT
On May 20, 1997, Layne Christensen, through its wholly-owned subsidiary
Layne Australia Pty Limited ("Layne Australia"), made a tender offer to the
security holders of Stanley, a company listed on the Australian Stock Exchange.
Stanley is a leading Australian mineral exploration drilling company that
provides services predominantly to gold mining companies in Australia and West
Africa, principally Ghana. Effective October 1996, the operations of Stanley
have included those of its 51% owned subsidiary, G&K, a leading drilling
contractor based and operating in Western Australia that specializes in diamond
core exploration drilling for gold projects. The purchase price of the Stanley
Acquisition is estimated at $60,356,000, consisting of a cash purchase price for
the tender offer estimated at $53,919,000 and an estimated liability of
$6,437,000 relating to G&K's obligation to repurchase the remaining 49% of the
outstanding capital stock of G&K. Consummation of the tender offer is expected
in August 1997, subject
4
<PAGE>
to the tender of at least 90% of the Stanley shares then outstanding and certain
other conditions, and must be effected within 21 days after the end of the
tender offer period.
The Company believes that the Stanley Acquisition will provide the Company
with several strategic benefits. The Company will gain entry into the drilling
markets of Australia and West Africa, as well as access to the operational
expertise of Stanley and G&K, including Stanley's base of Australian expatriate
employees in West Africa. The Company believes that Stanley's experience in
drill and blast operations will offer the Company's affiliates in South America
an opportunity to provide these services in that region. In addition, G&K has
significant experience in the design and fabrication, for internal use, of
multi-purpose exploration rigs which can alternate between diamond core and
reverse circulation drilling; the Company believes this experience will enable
it to design improved products for this application. See "The Stanley
Acquisition."
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered:
By the Company........................... 1,700,000 shares
By the Selling Stockholders.............. 3,300,000 shares
Total.................................. 5,000,000 shares
Common Stock to be outstanding after the
offering................................... 10,643,562 shares (1)
Use of proceeds.............................. To repay indebtedness incurred in connection
with the Stanley Acquisition. See "Use of
Proceeds."
Nasdaq National Market symbol................ LAYN
</TABLE>
- ------------------------
(1) Includes 68,571 shares to be purchased by Mr. Stanley in connection with the
Stanley Acquisition, but does not include options to purchase 205,713 shares
of Common Stock to be granted to Mr. Stanley. Does not include options
granted to other key employees to purchase 657,642 shares of Common Stock
outstanding as of June 1, 1997 under the Company's stock option plans,
440,345 of which were immediately exercisable or exercisable within 60 days
of such date. See "Unaudited Pro Forma Consolidated Financial Statements."
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
statements may be found in the material set forth under "Prospectus Summary,"
"The Stanley Acquisition," "Risk Factors," "Unaudited Consolidated Pro Forma
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" as well as in the Prospectus
generally (including the documents incorporated herein by reference) and are
indicated by words or phrases such as "anticipate," "estimate," "project,"
"believe," "intend," "expect," "plan" 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 those discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Risk Factors." 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 Prospectus, 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.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED JANUARY 31,
ENDED APRIL 30, ----------------------------------------------
-------------------- PRO FORMA(1)
1997 1996 1997 1997 1996(2) 1995
--------- --------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................. $57,750 $53,773 $278,070 $222,853 $167,271 $166,830
Gross profit.............................. 15,605 14,070 77,139 61,251 45,193 43,016
Operating income.......................... 2,446 1,492 16,578 11,321 8,700 6,345
Equity in earnings of foreign
affiliates.............................. 820 1,102 3,895 3,895 -- --
Net income................................ 1,683 1,103 9,792 8,017 4,587 2,960
Net income per common and dilutive
equivalent share outstanding............ $ 0.18 $ 0.12 $ 0.89 $ 0.88 $ 0.61 $ 0.40
Weighted average number of common and
dilutive equivalent shares
outstanding............................. 9,234,000 8,912,000 10,965,434(3) 9,146,000 7,517,000 7,348,000
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------------------------
APRIL 30, PRO FORMA(4)
1997 1997 1997 1996(2) 1995
----------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 37,572 $ 42,463 $ 29,643 $ 26,796 $ 13,578
Total assets............................................ 152,841 223,191 143,650 134,177 79,094
Long term debt.......................................... 35,783 61,951 30,314 28,428 --
Total stockholders' equity.............................. 64,500 98,993 62,664 53,972 40,273
</TABLE>
- ------------------------
(1) The unaudited pro forma income statement data reflects (i) the Stanley
Acquisition and (ii) the offering and the application of the estimated net
proceeds to the Company as described in "Use of Proceeds" as if such
transactions had occurred on February 1, 1996. See "The Stanley Acquisition"
and "Unaudited Pro Forma Consolidated Financial Statements."
(2) In December 1995, the Company completed a merger with CBC which has been
accounted for under the purchase method of accounting (see Note 2 of the
Notes to the Company's Consolidated Financial Statements) and, accordingly,
the Company's consolidated results include the operations of CBC from the
date of acquisition.
(3) Reflects the number of shares of Common Stock issued in connection with the
Stanley Acquisition and the shares to be sold by the Company in the offering
contemplated hereby as if outstanding for the entire year. Amount includes
the dilutive effect (under the treasury stock method) of the option to
purchase 205,713 shares of Common Stock (estimated based on the closing
price of the Common Stock on June 16, 1997) granted to Mr. Stanley. See "The
Stanley Acquisition."
(4) The unaudited pro forma balance sheet data reflects (i) the Stanley
Acquisition and (ii) the offering and the application of the estimated net
proceeds to the Company as described in "Use of Proceeds" as if such
transactions had occurred as of January 31, 1997. See "The Stanley
Acquisition" and "Unaudited Pro Forma Consolidated Financial Statements."
6
<PAGE>
THE STANLEY ACQUISITION
On May 20, 1997, Layne Christensen, through its wholly-owned subsidiary
Layne Australia, made a tender offer to the security holders of Stanley, a
company listed on the Australian Stock Exchange. Stanley is a leading Australian
mineral exploration drilling company that provides services predominantly to
gold mining companies in Australia and West Africa, principally Ghana. Effective
October 1996, the operations of Stanley have included those of its 51% owned
subsidiary, G&K, a leading drilling contractor based and operating in Western
Australia that specializes in diamond core exploration drilling for gold
projects. The purchase price of the Stanley Acquisition is estimated at
$60,356,000, consisting of a cash purchase price for the tender offer estimated
at $53,919,000 and an estimated liability of $6,437,000 relating to G&K's
obligation to repurchase the remaining 49% of the outstanding capital stock of
G&K.
The tender offer has been recommended by Stanley's board of directors and
will expire on July 7, 1997, subject to extension by the Company for additional
periods of up to 30 days. Consummation of the tender offer is expected in August
1997, subject to the tender of at least 90% of the Stanley shares then
outstanding and certain other conditions, and must be effected within 21 days
after the end of the tender offer period. Following the consummation of the
tender offer, Layne Australia will purchase any shares of Stanley that were not
tendered, at the tender offer share price, pursuant to legal procedures
available to corporations owning at least 90% of the shares of a target
corporation.
The Company believes that the Stanley Acquisition will provide the Company
with several strategic benefits. The Company will gain entry into the drilling
markets of Australia and West Africa, as well as access to the operational
expertise of Stanley and G&K, including Stanley's base of Australian expatriate
employees in West Africa. The Company believes that Stanley's experience in
drill and blast operations will offer the Company's affiliates in South America
an opportunity to provide these services in that region. In addition, G&K has
significant experience in the design and fabrication, for internal use, of
multi-purpose exploration rigs which can alternate between diamond core and
reverse circulation drilling; the Company believes this experience will enable
it to design improved products for this application.
Stanley specializes in diamond core, reverse circulation and percussion
drilling techniques, principally in gold mines, and has recently expanded into
the iron ore market. Stanley also provides drill and blast services at
production-stage open pit mines, a business line not currently offered by the
Company. In drill and blast operations, the driller drills holes for the
placement of explosives; the explosives are then detonated to loosen and
dislodge earth, which is hauled away by the mining company for processing. Drill
and blast contracts typically have lower margins than traditional mineral
exploration drilling projects; however, they provide more stable revenues
because drill and blast contracts typically have a duration of three to five
years whereas traditional mineral exploration projects typically have
substantially shorter terms. For its fiscal year ended June 30, 1996,
approximately 49% of Stanley's revenues were derived from traditional
exploration drilling and 51% were derived from its drill and blast operations.
For the purposes of this Prospectus, the phrase "mineral exploration drilling"
includes drill and blast operations, unless otherwise noted. In addition,
Stanley has equity interests in mining companies with limited gold mining
concessions in Ghana and Cote D'Ivoire; the Company, however, does not presently
intend to expand this portion of Stanley's business. Stanley began its
operations in 1980 in Australia as an exploration drilling company, expanding
into drill and blast operations in 1990. Stanley established its presence in
Africa in 1991 as mining companies focused increasingly on that continent. As of
May 31, 1997, Stanley (excluding G&K) owned or leased 20 drill rigs in West
Africa and 22 drill rigs in Western Australia and employed in excess of 380
employees. G&K had over 150 employees and owned or leased 22 rigs as of May 31,
1997.
In connection with the Stanley Acquisition, the Company entered into a
three-year employment agreement with Ross F. Stanley, the principal founder of
Stanley. The Company and Mr. Stanley also agreed that he will purchase
$1,500,000 of the Company's Common Stock and will be granted options to purchase
three times the number of such purchased shares.
The Company will finance the Stanley Acquisition through a $100,000,000
senior secured credit facility to be provided by Bank of America and a syndicate
arranged by BancAmerica Securities, Inc. (the "New Credit Agreement"). The New
Credit Agreement will also be used to refinance the Company's existing
$30,000,000 credit facility. The Company intends to use the proceeds from the
sale of 1,700,000 shares of Common Stock offered hereby to reduce debt under the
New Credit Agreement. See "Use of Proceeds," "Unaudited Consolidated Pro Forma
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and "--Liquidity and Capital
Resources" and Note 14 of Notes to the Company's Consolidated Financial
Statements.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS. IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE MAKING AN
INVESTMENT.
DEPENDENCE ON MINERAL EXPLORATION AND DEVELOPMENT
Demand for the Company's mineral exploration drilling services and products
depends in part upon the level of mineral exploration and development activities
conducted by mining companies, particularly with respect to gold and copper.
Mineral exploration is highly speculative and is influenced by a variety of
factors, including the prevailing prices for various metals which often
fluctuate widely. For example, the price of gold is affected by numerous
factors, including international economic trends, currency exchange
fluctuations, expectations for inflation, speculative activities, consumption
patterns, purchases and sales of gold bullion holdings by central banks and
others, world production levels and political events. In addition to prevailing
prices for minerals, mineral exploration activity is influenced by the economic
feasibility of mineral exploration and production, the discovery rate of new
mineral reserves, national and international political and economic conditions
and the ability of mining companies to access or generate sufficient funds to
finance capital expenditures for their activities. In this regard, recent
fraudulent activities concerning junior Canadian mining companies could damage
the ability of smaller mining companies to raise the capital necessary to
conduct mineral exploration activities. These smaller mining companies
constitute a substantial portion of new mineral exploration activity. A
substantial reduction in mineral exploration and development activity by these
smaller mining companies would reduce demand for mineral exploration drilling
services and products and could have a material adverse effect on the Company.
See "Business--Services and Products" and "--Customers and Contracts."
FOREIGN OPERATIONS
The earnings of the Company are and are expected to be increasingly
dependent upon the results of its operations in foreign countries, including
among others, Argentina, Bolivia, Canada, Chile, Indonesia, Mexico and Peru and,
following the consummation of the Company's pending acquisition of Stanley,
Australia and certain countries in West Africa. Including the Company's share of
foreign affiliate revenues, in fiscal 1997, the percentage of the Company's
revenues generated by domestic operations and international operations,
respectively, was 75% and 25%, and after giving effect to the Stanley
Acquisition on a pro forma basis, the percentages would have been 62% and 38%.
The Company's foreign operations are subject to certain risks beyond the control
of the Company, including political, social and economic instability; war and
civil disturbances; taking of property by nationalization or expropriation
without fair compensation; changes in government policies and regulations;
tariffs, taxes and other trade barriers; exchange controls and limitations on
remittance of dividends or other payments to the Company by its foreign
subsidiaries and affiliates; and devaluations and fluctuations in currency
exchange rates. In particular, land title claims by Australia's indigenous
people could affect mineral property rights, which could have an adverse impact
on the demand for Stanley's mineral exploration drilling services. Some of the
Company's contracts are not and will not be denominated in dollars, and the
Company does not currently engage in foreign currency hedging transactions. In
addition, the Company does not maintain political risk insurance and its
business interruption insurance does not extend to foreign operations. No
assurance can be given that any of these risks affecting foreign operations will
not have a material adverse effect on the Company.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's business strategy includes growth through acquisitions in the
United States and internationally. In May 1997, the Company made a tender offer
for all of the outstanding capital stock of Stanley, a publicly held mineral
exploration company based in Australia with substantial operations in West
8
<PAGE>
Africa, principally Ghana. The Company acquired CBC in fiscal 1996, resulting in
the Company's expansion of its domestic and international mineral exploration
drilling activities as well as its entry into the products manufacturing market.
No assurance can be given that in the future the Company will successfully
identify suitable acquisition candidates, complete acquisitions or successfully
integrate the acquired operations into its existing operations. Moreover, once
integrated, acquired operations may not achieve levels of revenues or
profitability comparable to those achieved by the Company's existing operations
or otherwise perform as expected due to adversely changing operating results,
unforeseen liabilities and losses of customers and employees as a result of new
ownership as well as other factors beyond the Company's control. See
"Business--Business Strategy" and "The Stanley Acquisition."
Notwithstanding its own review and investigation, at the time of an
acquisition, the Company's management has and will have limited knowledge about
the business acquired in such acquisition, including its specific operating
history and financial condition. In addition, the scope of due diligence
investigations in connection with foreign acquisitions generally may be more
limited than is common for investigations in the United States, due to limited
access to information, limited documentation of material agreements and cultural
and other factors. Whether an acquired business is based in the United States or
abroad, no assurance can be given that the Company paid or will pay reasonable
prices for an acquired business or negotiated or will negotiate appropriate
contractual terms, including seller representations, warranties and indemnities.
In this regard, as is customary for tender offers in Australia, no
representations and warranties have been made with respect to the business,
assets or liabilities associated with Stanley, and once the Company has
consummated the Stanley Acquisition, it will have no contractual recourse to
Stanley's shareholders for undisclosed liabilities or adverse changes in
Stanley's operations. To the extent the Company must pay for significant
unanticipated obligations of Stanley or other acquired businesses, the Company
could be materially adversely affected.
OPERATING RISKS
The Company's drilling activities involve certain operating hazards that can
result in personal injury or loss of life, damage and destruction of property
and equipment, damage to the surrounding areas, release of hazardous substances
or wastes and other damage to the environment, interruption or suspension of
drill site operations and loss of revenues and future business. The magnitude of
these operating risks is amplified when the Company, as is frequently the case,
conducts a project on a fixed-price, "turnkey" basis in which the Company
delegates certain functions to subcontractors but remains responsible to the
customer for the subcontracted work. Whether or not the Company or its
subcontractor causes an accident, the Company could be named as a defendant in
lawsuits asserting large claims arising from such occurrences. Although the
Company maintains insurance protection that it considers economically prudent,
there can be no assurance that any such insurance will be sufficient or
effective under all circumstances or against all claims or hazards to which the
Company may be subject or that the Company will be able to continue to obtain
such insurance protection. A successful claim or damage resulting from a hazard
for which the Company is not fully insured could have a material adverse effect
on the Company. Furthermore, no assurance can be given that the Company will be
able to maintain adequate insurance in the future at rates that it considers
reasonable. See "Business--Potential Liability and Insurance." In addition, the
Company's operations are subject to curtailed or suspended operations as a
result of adverse weather conditions, natural disasters, work stoppages, mine
closings, force majeure and other similar events, which could have a material
adverse impact upon the Company. Moreover, the Company's foreign drill rigs are
often situated in remote locations with limited infrastructure support which
could hinder the supply and mobilization of rigs, supporting equipment and
supplies.
9
<PAGE>
NEED FOR SKILLED WORKERS
The Company's ability to remain productive, profitable and competitive
depends substantially upon its ability to retain and attract skilled drillers
and employees with expert geological knowledge and capabilities. The demand for
such workers is high and the supply is limited. The inability of the Company to
attract and retain trained drillers and other skilled employees in the United
States and overseas could have a material adverse effect on the Company.
COMPETITION
Contracts for the Company's services are awarded on a competitive bid or
negotiated basis. Principal factors considered in awarding a particular contract
may often include a firm's technical expertise, reputation, bonding capacity,
safety record, access to available equipment, project management skills,
scheduling estimates and price. In its water well drilling and maintenance
businesses, the Company competes with many smaller firms on a local or regional
level. There are no 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 the
Company. In its mineral exploration business, the Company competes with a number
of drilling companies, including the Boart Longyear Group, an indirect
subsidiary of Anglo-American Industrial Corporation, Ltd ("Boart Longyear"), and
Ausdrill Limited, as well as vertically integrated mining companies that conduct
their own exploration drilling or drill and blast activities; some of these
competitors have greater capital and other resources than the Company.
Additional competition could adversely affect the Company. See "Business--
Competition."
REGULATION OF DRILLING SERVICES
The services provided by the Company are subject to various licensing,
permitting, approval and reporting requirements imposed by federal, state, local
and foreign laws. Its operations are subject to inspection and regulation by
various governmental agencies, including the Department of Transportation,
Occupation and Safety Health Administration ("OSHA") and Mine Safety and Health
Administration of the Department of Labor ("MSHA") in the United States as well
as their counterparts in foreign countries. In addition, the Company's
activities are subject to regulation under various environmental laws regarding
emissions to air, discharges to water and management of wastes and hazardous
substances. To the extent the Company fails to comply with these various
regulations, it could be subject to monetary fines, suspension of operations and
other penalties. In addition, these and other laws and regulations affect the
Company's mining customers and influence their determination whether to conduct
mineral exploration and development; future changes in these laws, domestically
or in foreign countries, could have a material adverse impact on the Company's
customers, which in turn could have a material adverse impact on the Company.
See "Business--Permits, Licenses and Regulatory Approvals."
DEPENDENCE ON MUNICIPAL SPENDING IN WATER WELL BUSINESS
Approximately 27% of the Company's fiscal 1997 revenues were derived from
water well drilling and maintenance contracts with local governmental entities
or agencies. Large reductions in such spending by a significant number of
municipalities or local governmental agencies could have a material adverse
effect on the Company. See "Business--Customers and Contracts."
CONTROL BY PRINCIPAL STOCKHOLDER
After the offering and based on shares of Common Stock outstanding as of
June 1, 1997, an aggregate of 2,120,436 shares of Common Stock, or approximately
19.9% (18.6% if the Underwriters' over-allotment option is exercised in full) of
the outstanding Common Stock, will be held by KKR Associates, a New York limited
partnership and an affiliate of Kohlberg Kravis Roberts & Co., L.P. ("KKR"), and
Marley G.P.,
10
<PAGE>
Inc., another KKR affiliate. Consequently, KKR and its affiliates will be able
to exercise significant influence over the business of the Company by virtue of
their existing representation on the Board of Directors of the Company and their
voting power with respect to the election of directors and actions requiring
stockholder approval. Moreover, in connection with the Company's acquisition of
CBC, certain former CBC stockholders holding an aggregate of approximately
1,500,000 shares of Common Stock as of April 30, 1997, a portion of which will
be sold in this offering, agreed to vote their shares of Common Stock through
December 2001 for a Board consisting of five directors and the election as
directors of four individuals designated by KKR. In addition, KKR renders
consulting and financial services to the Company for which it receives an annual
fee. See "Management" and "Principal and Selling Stockholders."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company historically has experienced fluctuations in its quarterly
results arising from the timing of the award and completion of contracts, the
recording of related revenues and unanticipated additional costs incurred on
projects. The Company's revenues on large drilling contracts are recognized on a
percentage of completion basis for individual contracts based upon the ratio of
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 revenues
and gross profit in the reporting period when such estimates are revised.
Changes in job performance, job conditions and estimated profitability
(including those arising from contract penalty provisions) and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. A significant number of the
Company's contracts contain fixed prices and generally assign responsibility to
the Company for cost overruns for the subject projects; as a result, revenues
and gross margin may vary from those originally estimated and, depending upon
the size of the project, variations from estimated contract performance could
affect the Company's operating results for a particular quarter. Many of the
Company's contracts are also subject to cancellation by the customer upon short
notice with limited damages payable to the Company. In addition, adverse weather
conditions, natural disasters, force majeure and other similar events can
curtail Company operations in various regions of the world throughout the year,
resulting in performance delays and increased costs. Moreover, the Company's
domestic drilling activities and related revenues and earnings tend to decrease
in the winter months when adverse weather conditions interfere with access to
drilling sites and the ability to drill; as a result, the Company's revenues and
earnings in its second and third quarters tend to be higher than revenues and
earnings in its first and fourth quarters. Accordingly, as a result of the
foregoing as well as other factors, quarterly results should not be considered
indicative of results to be expected for any other quarter or for any full
fiscal year. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and Notes thereto.
PRICE VOLATILITY
The market price of the Common Stock could be subject to significant
fluctuations in response to quarter-to-quarter variations in the Company's
results of operations, changes in earnings estimates or recommendations by
analysts, other events or factors relating to the Company's performance or the
drilling or mining industries generally, factors influencing the demand and
supply of gold and copper and related mining activity, the sale or attempted
sale of a large amount of shares of Common Stock in the public market or the
registration for resale of any shares of Common Stock. After this offering, the
holders of approximately shares of restricted Common Stock will continue
to have certain registration rights. The Company's executive officers and
directors and certain principal stockholders and other Selling Stockholders, who
hold in the aggregate approximately shares of Common Stock, after giving
effect to the offering, will agree that for a period of 90 days after the date
of this Prospectus, they will not, without the prior written consent of Piper
Jaffray Inc., dispose of any shares of Common Stock. In
11
<PAGE>
addition, the securities markets have experienced significant price and volume
fluctuations from time to time in recent years that have often been unrelated or
disproportionate to the operating performance of particular companies or
industries. These fluctuations may adversely affect the market price of the
Common Stock. See "Price Range of Common Stock," "Description of Capital
Stock--Registration and Other Rights" and "Underwriting."
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Restated Certificate of Incorporation and Bylaws, as well as
Delaware corporate law, contain certain provisions that could have the effect of
delaying, deferring or preventing a change of control of the Company that may be
in the best interest of stockholders. These provisions include the ability of
the Company to issue up to 5,000,000 shares of preferred stock having such
designations, preferences and rights as may be fixed by the Board of Directors,
without any stockholder approval, and a provision under which only the Board of
Directors may call meetings of stockholders. In addition, the directors are
divided into three classes, each having a term of three years, with the term of
one class expiring each year. These provisions could delay the replacement of a
majority of the directors and have the effect of making changes in the Board of
Directors more difficult than if such provisions were not in place. Under
certain conditions, Section 203 of the Delaware General Corporation Law would
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" (in general, a stockholder owning 15% or more of the
Company's outstanding voting stock) for a period of time. See "Description of
Capital Stock."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,700,000 shares of
Common Stock offered hereby are estimated to be $34,829,000 based upon an
assumed offering price per share of $21.875 ($50,414,000 if the Underwriters'
over-allotment option is exercised in full) after deducting the underwriting
discount and estimated offering expenses. The Company anticipates that its net
proceeds from this offering will be used to repay a portion of the debt expected
to be incurred by the Company under the New Credit Agreement in connection with
the Stanley Acquisition. The New Credit Agreement is expected to provide a
reducing revolving cash borrowing facility of up to $100,000,000, less any
outstanding letter of credit commitments, at variable rates of interest equal
to, at the Company's option, the Bank of America Illinois Interbank Eurodollar
rate plus .75% to 1.25% (depending upon debt to capitalization ratios) or an
alternate reference rate to be defined in the agreement. The New Credit
Agreement will terminate on the fifth anniversary of its closing, and any
borrowings thereunder will mature at that time. See "The Stanley Acquisition,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources" and "Unaudited Pro Forma
Consolidated Financial Statements."
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholders.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"LAYN." The table below sets forth the high and low bid prices of the Common
Stock on the Nasdaq National Market for the periods indicated, as reported by
the Nasdaq National Market. These quotations represent prices between dealers
and do not include retail mark-up, mark-down or commissions and do not
necessarily represent actual transactions:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDING JANUARY 31, 1998:
First Quarter......................... $17 3/4 $14 1/4
Second Quarter (through June 16,
1997)............................... 22 15 3/4
FISCAL YEAR ENDED JANUARY 31, 1997:
First Quarter......................... $11 3/4 $10 1/4
Second Quarter........................ 13 1/8 10 1/4
Third Quarter......................... 13 3/8 11
Fourth Quarter........................ 15 1/2 12 3/8
FISCAL YEAR ENDED JANUARY 31, 1996:
First Quarter......................... $ 8 1/4 $ 6 1/4
Second Quarter........................ 8 1/8 7 1/8
Third Quarter......................... 9 1/2 7 1/4
Fourth Quarter........................ 11 1/2 8 1/4
</TABLE>
On June 16, 1997, the last reported sale price of the Common Stock as quoted
on the Nasdaq National Market was $21 7/8 per share. As of June 1, 1997, the
Company had 207 stockholders of record.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since the
Company's initial public offering in August 1992. Moreover, the Board of
Directors of the Company does not anticipate paying any cash dividends in the
foreseeable future. The Company's future dividend policy will depend on a number
of factors including future earnings, capital requirements, financial condition
and prospects of the Company and such other factors as the Board of Directors
may deem relevant, as well as restrictions under the New Credit Agreement, the
Note Agreement between the Company and Massachusetts Mutual Life Insurance
Company and other restrictions which may exist under other credit arrangements
existing from time to time. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and Notes 8 and 14 of the Notes to the Company's Consolidated Financial
Statements.
13
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical consolidated short-term
debt and capitalization of the Company as of January 31, 1997, (ii) the pro
forma short-term debt and capitalization of the Company after giving effect to
the Stanley Acquisition and (iii) the pro forma short-term debt and
capitalization of the Company after giving effect to the Stanley Acquisition and
the sale by the Company of 1,700,000 shares of Common Stock offered by the
Company hereby at an assumed offering price of $21.875 per share and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the Company's and Stanley's Consolidated Financial
Statements and Notes thereto, G&K's Financial Statements and Notes thereto and
the "Unaudited Pro Forma Consolidated Financial Statements" and Notes thereto
included elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
JANUARY 31, 1997
-----------------------------------------------
<S> <C> <C> <C>
PRO FORMA FOR
PRO FORMA FOR STANLEY
STANLEY ACQUISITION
HISTORICAL ACQUISITION AND OFFERING
----------- ----------------- ---------------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt:
Mortgage loan................................................... $ 114 $ 114 $ 114
Stanley debt.................................................... -- 662 662
----------- -------- ---------------
Total short-term debt......................................... $ 114 $ 776 $ 776
----------- -------- ---------------
----------- -------- ---------------
Long-term debt:
Credit facility(1).............................................. $ 4,000 $ -- $ --
New Credit Agreement(2)(3)(4)................................... -- 63,706 28,877
6.75% Senior Notes due 2006(1).................................. 25,000 25,000 25,000
Mortgage loan(1)................................................ 1,314 1,314 1,314
Stanley debt.................................................... -- 6,760 6,760
----------- -------- ---------------
Total long-term debt.......................................... 30,314 96,780 61,951
Stockholders' equity:
Preferred Stock (par value $0.01 per share), 5,000,000 shares
authorized; no shares outstanding historical or pro forma .... -- -- --
Common Stock (par value $0.01 per share), 30,000,000 shares
authorized; 8,871,467 shares issued historical; 8,940,038
shares issued pro forma for the Stanley Acquisition; and
10,640,038 shares issued pro forma for the Stanley Acquisition
and the offering(3)(4)(5)..................................... 89 90 107
Additional paid-in capital(3)(4).................................. 39,293 40,792 75,604
Retained earnings................................................. 24,187 24,187 24,187
Other............................................................. (905) (905) (905)
----------- -------- ---------------
Total stockholders' equity.................................... 62,664 64,164 98,993
----------- -------- ---------------
Total capitalization.......................................... $ 92,978 $ 160,944 $ 160,944
----------- -------- ---------------
----------- -------- ---------------
</TABLE>
- ------------------------
(1) See Note 8 to the Company's Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for further information.
(2) See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Unaudited Pro Forma Consolidated Financial Statements."
(3) Reflects $1,500,000 in proceeds from the purchase of 68,571 shares of Common
Stock (assuming a price per share of $21.875) by Mr. Stanley, anticipated to
be used to repay indebtedness under the New Credit Agreement.
(4) Reflects the sale of 1,700,000 shares of Common Stock offered by the Company
hereby at an assumed offering price of $21.875 per share. The estimated net
proceeds of $34,829,000 are anticipated to be used to repay indebtedness
under the New Credit Agreement.
(5) Does not include (i) options to purchase 641,915 shares of Common Stock that
were outstanding under the Company's stock option plans as of January 31,
1997, of which 352,544 were exercisable immediately or within 60 days of
such date or (ii) options to purchase 205,713 shares of Common Stock
(assuming a price per share of $21.875) to be granted to Mr. Stanley in
connection with the Stanley Acquisition.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The following table presents (i) historical income statement data of the
Company for the three months ended April 30, 1997 and 1996, the fiscal years
ended January 31, 1997, 1996 and 1995, the twelve months ended January 31, 1994
and the fiscal year ended April 30, 1993 and (ii) historical balance sheet data
of the Company as of April 30, 1997, January 31, 1997, 1996, 1995 and 1994 and
April 30, 1993. The historical financial data for fiscal years ended January 31,
1997, 1996, and 1995 and April 30, 1993 have been derived from the Company's
audited consolidated financial statements. Such consolidated financial
statements were audited by Deloitte & Touche LLP, independent auditors, whose
report thereon appears elsewhere herein. Financial information as of April 30,
1997 and for the three months ended April 30, 1997 and 1996 has been derived
from unaudited consolidated financial statements. The Company changed its fiscal
year end to January 31 from April 30 during 1994; therefore, the consolidated
income statement data for the twelve months ended January 31, 1994 was derived
from unaudited consolidated financial statements. The unaudited consolidated
financial statements referred to above, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such information. Results for the three months ended
April 30, 1997 may not be indicative of the results expected for the fiscal year
ending January 31, 1998. In December 1995, the Company completed a merger with
CBC which has been accounted for under the purchase method of accounting (see
Note 2 of the Notes to the Company's Consolidated Financial Statements) and,
accordingly, the Company's consolidated results include the operations of CBC
from the date of acquisition. The information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS
THREE MONTHS ENDED FISCAL YEAR ENDED ENDED JANUARY
APRIL 30, JANUARY 31, 31,
-------------------- ------------------------------- --------------
1997 1996 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................................ $ 57,750 $ 53,773 $ 222,853 $ 167,271 $ 166,830 $ 169,766
Cost of revenues (exclusive of depreciation shown
below)................................................ 42,145 39,703 161,602 122,078 123,814 130,004
--------- --------- --------- --------- --------- --------------
Gross profit............................................ 15,605 14,070 61,251 45,193 43,016 39,762
Selling, general and administrative expenses............ 10,327 9,737 38,956 28,260 28,860 31,985
Depreciation............................................ 2,832 2,841 10,974 8,233 7,811 8,737
Restructuring charge(1)................................. -- -- -- -- -- 12,000
--------- --------- --------- --------- --------- --------------
Operating income (loss)................................. 2,446 1,492 11,321 8,700 6,345 (12,960)
Other income (expense):
Equity in earnings of foreign affiliates................ 820 1,102 3,895 -- -- --
Interest................................................ (614) (679) (2,447) (767) (779) (2,048)
Other, net.............................................. 62 90 161 407 (84) (198)
--------- --------- --------- --------- --------- --------------
Income (loss) before income taxes....................... 2,714 2,005 12,930 8,340 5,482 (15,206)
Income tax (benefit) expense............................ 1,031 902 4,913 3,753 2,522 (5,736)
--------- --------- --------- --------- --------- --------------
Net income (loss)....................................... $ 1,683 $ 1,103 $ 8,017 $ 4,587 $ 2,960 $ (9,470)
--------- --------- --------- --------- --------- --------------
--------- --------- --------- --------- --------- --------------
Net income (loss) per common and dilutive equivalent
share................................................. $ 0.18 $ 0.12 $ 0.88 $ 0.61 $ 0.40 $ (1.31)
--------- --------- --------- --------- --------- --------------
--------- --------- --------- --------- --------- --------------
<CAPTION>
FISCAL YEAR
ENDED APRIL
30,
-----------
1993
-----------
<S> <C>
INCOME STATEMENT DATA:
Revenues................................................ $ 168,688
Cost of revenues (exclusive of depreciation shown
below)................................................ 124,624
-----------
Gross profit............................................ 44,064
Selling, general and administrative expenses............ 30,595
Depreciation............................................ 8,203
Restructuring charge(1)................................. --
-----------
Operating income (loss)................................. 5,266
Other income (expense):
Equity in earnings of foreign affiliates................ --
Interest................................................ (2,012)
Other, net.............................................. (55)
-----------
Income (loss) before income taxes....................... 3,199
Income tax (benefit) expense............................ 1,407
-----------
Net income (loss)....................................... $ 1,792
-----------
-----------
Net income (loss) per common and dilutive equivalent
share................................................. $ 0.28
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
APRIL 30, ------------------------------------------
1997 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................... $ 37,572 $ 29,643 $ 26,796 $ 13,578 $ 29,545
Total assets............................................................ 152,841 143,650 134,177 79,094 90,250
Long-term debt.......................................................... 35,783 30,314 28,428 -- 18,900
Total stockholders' equity.............................................. 64,500 62,664 53,972 40,273 37,348
<CAPTION>
APRIL 30,
1993
-----------
<S> <C>
BALANCE SHEET DATA:
Working capital......................................................... $ 32,401
Total assets............................................................ 101,448
Long-term debt.......................................................... 22,000
Total stockholders' equity.............................................. 45,984
</TABLE>
- ------------------------
(1) During the twelve months ended January 31, 1994, the Company adopted a plan
to close certain locations and rightsize certain others that, in
management's opinion, would allow the Company to shift strategically to
areas that were more consistent with the Company's long-range objectives for
growth and return on investment. The Company-wide restructuring was a result
of the decision to move aggressively away from low end marginal services
across all product lines.
15
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth the Unaudited Pro Forma Consolidated Statement of
Income for the fiscal year ended January 31, 1997 and the Unaudited Pro Forma
Consolidated Balance Sheet as of January 31, 1997 which were prepared to reflect
the Stanley Acquisition under the purchase method of accounting and the
offering. The fiscal year end of both Stanley and G&K is June 30. The column
designated "Pro Forma for Stanley Acquisition" adjusts the historical
consolidated financial statements of the Company to reflect the Stanley
Acquisition as if it had occurred on February 1, 1996 (in the case of the
Unaudited Pro Forma Consolidated Statement of Income) and on January 31, 1997
(in the case of the Unaudited Pro Forma Consolidated Balance Sheet). The column
designated "Pro Forma for Stanley Acquisition and Offering" includes the effect
of the offering as if it had occurred on February 1, 1996 (in the case of the
Unaudited Pro Forma Consolidated Statement of Income) and on January 31, 1997
(in the case of the Unaudited Pro Forma Consolidated Balance Sheet).
The Unaudited Pro Forma Consolidated Financial Statements of the Company do
not purport to present the financial position or results of operations of the
Company had the transactions assumed herein occurred on the dates indicated, nor
are they necessarily indicative of the results of operations which may be
expected to occur in the future.
The Unaudited Pro Forma Consolidated Financial Statements are based upon,
and should be read in conjunction with, the Consolidated Financial Statements of
the Company and Stanley and Notes thereto, as well as the Financial Statements
and Notes thereto of G&K, included elsewhere in this Prospectus. The Stanley and
G&K financial information is derived from unaudited financial statements as of
and for the twelve months ended December 31, 1996 and notes thereto (including
US GAAP reconciliation adjustments) provided to the Company. The Company cannot
predict whether the consummation of the Stanley Acquisition or the offering will
conform to the assumptions used in the preparation of the Unaudited Pro Forma
Consolidated Financial Statements. In addition, management has made a
preliminary allocation of purchase price to the assets and liabilities of
Stanley and G&K, based on information currently available. Management intends to
obtain appraisals and other information which will be used to complete the
ultimate allocation of the purchase price. The final allocation of the purchase
price may be substantially different than the preliminary allocation.
16
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JANUARY 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR STANLEY
LAYNE PRO FORMA FOR STANLEY ACQUISITION
CHRISTENSEN ACQUISITION AND OFFERING
HISTORICAL STANLEY --------------------------- -------------------------
(1) COMBINED (2) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
----------- ------------ -------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Service and product revenues.............. $ 222,853 $ 55,217 $ 278,070 $ 278,070
Other revenues............................ 3,325 $ (3,325)(3)
----------- ------------ -------------- ----------- ------------- ----------
Total revenues............................ 222,853 58,542 (3,325) 278,070 278,070
Cost of revenues.......................... 161,602 39,329(3) 200,931 200,931
Operating costs........................... 48,082 (48,082)(3)
----------- ------------ -------------- ----------- ------------- ----------
Gross profit.............................. 61,251 10,460(3) 5,428 77,139 77,139
Selling, general and
administrative expenses................. 38,956 (400)(4) 44,715 44,715
369(5)
5,790(4)
Amortization expense...................... 22 1,344(6) 1,486 1,486
120(7)
Depreciation.............................. 10,974 3,386 14,360 14,360
----------- ------------ -------------- ----------- ------------- ----------
Operating income.......................... 11,321 7,052 (1,795) 16,578 16,578
Other income(expense):
Equity in earnings of
foreign affiliates.................... 3,895 3,895 3,895
Interest................................ (2,447) (1,110) (3,995)(8) (7,552) $ 2,612(9) (4,940)
Other income, net....................... 161 (446) 362(3) 77 77
----------- ------------ -------------- ----------- ------------- ----------
Income before income taxes................ 12,930 5,496 (5,428) 12,998 2,612 15,610
Income tax expense........................ 4,913 1,975 (2,063)(10) 4,825 993(10) 5,818
----------- ------------ -------------- ----------- ------------- ----------
Net income................................ $ 8,017 $ 3,521 $ (3,365) $ 8,173 $ 1,619 $ 9,792
----------- ------------ -------------- ----------- ------------- ----------
----------- ------------ -------------- ----------- ------------- ----------
Net income per common
and dilutive equivalent share........... $ 0.88 $ 0.88 $ 0.89
----------- ----------- ----------
----------- ----------- ----------
Weighted average number of common and
dilutive equivalent shares
outstanding............................. 9,146,000 119,434(11) 9,265,434 1,700,000(12) 10,965,434
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
17
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(1) The column designated "Layne Christensen Historical" reflects the
consolidated results of operations of the Company for the fiscal year ended
January 31, 1997.
(2) The "Stanley Combined" column includes the combined operations of Stanley
and G&K as if Stanley owned 100% of G&K for the twelve months ended December
31, 1996. Stanley and G&K use the Australian dollar as their functional
currency. The Unaudited Pro Forma Consolidated Statement of Income assumes a
conversion rate of $.7806 representing the average monthly conversion rate
for the year ended December 31, 1996.
(3) Represents a reclassification of Stanley Combined revenues and expenses to
conform with the Company's classifications for financial reporting purposes.
Gross profit in the Stanley Combined column would not be reflective of gross
profit determined under US GAAP because neither Stanley nor G&K classifies
cost of revenues separately from operating costs. Management used an
Australian GAAP to US GAAP reconciliation as provided in unaudited
historical financial statements of Stanley and G&K and other information to
determine reclassifications.
(4) Management has assumed selling, general and administrative expenses for
Stanley and G&K to be approximately 10% of revenues prior to Australian GAAP
to US GAAP adjustments. The $400,000 adjustment to selling, general and
administrative expenses represents cost reductions identified as a result of
the Stanley Acquisition, including the elimination of directors' fees,
Australian public filing fees and expenses and printing costs resulting from
Stanley no longer being publicly traded in Australia.
(5) Represents compensation expense associated with options granted to Mr.
Stanley under his employment agreement. The expense is based upon (i) an
exercise price of $16.50 per share, (ii) an assumed fair value of $21.875
per share (based on the closing price for the Common Stock on June 16, 1997)
and (iii) the issuance of options (with a three year vesting period) to
purchase 205,713 shares of Common Stock.
(6) Represents amortization of goodwill based on a period of 25 years. See Note
3 to the Unaudited Pro Forma Consolidated Balance Sheet.
(7) Represents amortization of deferred financing costs related to the New
Credit Agreement based on a period of five years.
(8) Represents interest expense on net borrowings at an assumed interest rate
of 7.5% (which represents an estimate of the variable rate on the New Credit
Agreement) undertaken for the Stanley Acquisition and the repayment of
borrowings from the proceeds of the issuance of Common Stock to Mr. Stanley
as follows:
<TABLE>
<S> <C>
Interest expense on borrowing of $54,769,000 for tender offer... ($4,108,000)
Reduction in interest expense of $1,500,000 attributed to
receipt of proceeds from purchase of Common Stock by Mr.
Stanley....................................................... 113,000
----------
Pro forma adjustment to net interest expense.................... ($3,995,000)
----------
----------
</TABLE>
(9) Represents the reduction in interest expense attributable to the
application of the estimated net proceeds from the sale of 1,700,000 shares
of Common Stock offered by the Company hereby of $34,829,000 (based on an
assumed offering price of $21.875 per share and estimated expenses of
$2,359,000) to repay borrowings under the New Credit Agreement at an assumed
interest rate of 7.5%.
(10) Tax effect at an assumed statutory rate of 38% on income before income
taxes.
18
<PAGE>
(11) Reflects the number of shares of Common Stock purchased by Mr. Stanley
(68,571) in connection with the Stanley Acquisition as if such shares were
outstanding for the entire year and options to purchase 205,713 shares of
Common Stock granted to Mr. Stanley, as calculated under the treasury stock
method.
(12) Reflects the number of shares of Common Stock to be issued by the Company
in connection with the offering as if such shares were outstanding for the
entire year.
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FOR STANLEY
PRO FORMA FOR STANLEY ACQUISITION AND THE
LAYNE ACQUISITION OFFERING
CHRISTENSEN STANLEY ------------------------ -----------------------
HISTORICAL (1) HISTORICAL (2) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
-------------- -------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents........... $ 1,697 $ 3,832 $ 5,529 $ 5,529
Customer receivables, net........... 42,315 11,032 53,347 53,347
Inventories......................... 17,739 5,764 23,503 23,503
Other current assets................ 8,031 612 8,643 8,643
-------------- ------- ----------- --------- ----------- ---------
Total current assets.............. 69,782 21,240 91,022 91,022
-------------- ------- ----------- --------- ----------- ---------
Property and equipment, net......... 54,407 22,175 76,582 76,582
Intangible assets................... 521 $ 34,143(3) 34,664 34,664
Investments in foreign affiliates... 17,172 228 17,400 17,400
Other assets........................ 1,768 1,155 600(4) 3,523 3,523
-------------- ------- ----------- --------- ----------- ---------
$143,650 $44,798 $ 34,743 $223,191 $223,191
-------------- ------- ----------- --------- ----------- ---------
-------------- ------- ----------- --------- ----------- ---------
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Accounts payable.................... $ 12,550 $ 5,858 $ 18,408 $ 18,408
Accrued liabilities................. 27,475 1,900 29,375 29,375
Current portion of long-term debt... 114 662 776 776
-------------- ------- ----------- --------- ----------- ---------
Total current liabilities......... 40,139 8,420 48,559 48,559
-------------- ------- ----------- --------- ----------- ---------
Long-term debt...................... 30,314 6,760 $ 61,206(5) 96,780 $ (34,829)(8) 61,951
(1,500)(6)
Other noncurrent liabilities........ 10,533 3,155 13,688 13,688
Minority interests.................. 5,887 (5,887)(7)
-------------- ------- ----------- --------- ----------- ---------
Total liabilities................. 80,986 24,222 53,819 159,027 (34,829) 124,198
-------------- ------- ----------- --------- ----------- ---------
Common stock........................ 89 8,371 (8,371)(7) 90 17(8) 107
1(6)
Capital in excess of par value...... 39,293 7,115 (7,115)(7) 40,792 34,812(8) 75,604
1,499(6)
Retained earnings................... 24,187 5,052 (5,052)(7) 24,187 24,187
Other............................... (905) 38 (38)(7) (905) (905)
-------------- ------- ----------- --------- ----------- ---------
Total stockholders' equity........ 62,664 20,576 (19,076) 64,164 34,829 98,993
-------------- ------- ----------- --------- ----------- ---------
$143,650 $44,798 $ 34,743 $223,191 $223,191
-------------- ------- ----------- --------- ----------- ---------
-------------- ------- ----------- --------- ----------- ---------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) The column designated "Layne Christensen Historical" reflects the
consolidated balance sheet of the Company as of January 31, 1997.
(2) The "Stanley Historical" column reflects the consolidated balance sheet
of Stanley as of December 31, 1996. The Unaudited Pro Forma Consolidated Balance
Sheet assumes a conversion rate of $.7947 representing the conversion rate at
December 31, 1996.
(3) Represents the recording of goodwill resulting from the Stanley
Acquisition. Management currently estimates that the excess purchase price over
historical cost of the Stanley Acquisition will be allocated to goodwill based
on a preliminary review of the Stanley consolidated financial statements.
<TABLE>
<CAPTION>
<S> <C> <C>
THE STANLEY TENDER OFFER:
Estimated purchase price...................................... $ 53,919,000
Acquisition costs............................................. 250,000
Historical cost basis of net assets of Stanley as of December
31, 1996.................................................... (20,576,000)
---------------
Excess purchase price......................................... 33,593,000
-------------
THE G&K ACQUISITION:
Estimated purchase price of remaining 49% minority interest in
G&K......................................................... 6,437,000
Minority interest in G&K recorded by Stanley as of December
31, 1996.................................................... (5,887,000)
---------------
Excess purchase price......................................... 550,000
-------------
Total excess purchase price of the tender offer and G&K
Acquisition................................................. $ 34,143,000
-------------
-------------
</TABLE>
(4) Represents deferred financing costs incurred in connection with the New
Credit Agreement.
(5) Represents total borrowings of $61,206,000 under the New Credit
Agreement to finance (i) the $53,919,000 Stanley purchase price, (ii) the
$6,437,000 G&K Acquisition and (iii) $850,000 of estimated fees and expenses
related to the Stanley Acquisition and the New Credit Agreement.
(6) Represents the purchase of $1,500,000 of Common Stock (68,571 shares
assuming a per share price of $21.875) by Mr. Stanley and the application of the
proceeds from such purchase to repay borrowings under the New Credit Agreement.
(7) To eliminate Stanley's minority interest in G&K and the stockholders'
equity of Stanley.
(8) Represents the issuance of 1,700,000 shares of Common Stock by the
Company and the application of the estimated net proceeds of $34,829,000
(assuming an offering price of $21.875 per share) to repay borrowings under the
New Credit Agreement.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Unaudited Pro Forma
Consolidated Financial Statements, the Company's Consolidated Financial
Statements and Notes thereto, Stanley's Consolidated Financial Statements and
Notes thereto and G&K's Financial Statements and Notes thereto, each of which is
included elsewhere in this Prospectus.
OVERVIEW
Through a series of predecessors, the Company has been in business since the
late 1800's when Mahlon Layne introduced a series of important innovations in
the water well drilling industry. The Company was incorporated in 1981 in
connection with the acquisition of substantially all the assets of The Marley
Company ("Marley"), the Company's former parent corporation, by a corporation
formed by KKR and its affiliates. Immediately prior to the Company's initial
public offering of its Common Stock in August 1992, the shares of Common Stock
held by Marley were distributed to Marley Holdings, L.P. and the other
stockholders of Marley in a spin-off.
In fiscal 1994, the Company began a program designed to improve operating
efficiencies and reduce costs through office closures, reduced headcount,
increased investment in productivity-enhancing capital equipment and improved
safety practices. In a December 1995 cash and stock merger transaction (the "CBC
Merger"), the Company acquired CBC, a leading provider of diamond core drilling
services for mineral exploration and manufacturer of diamond core bits, core
barrels, drill rigs and related equipment. The purchase price paid by the
Company in the CBC Merger consisted of approximately 1,506,000 shares of
restricted Common Stock valued at approximately $9,200,000 and approximately
$9,056,000 in cash; in addition, the Company retired approximately $13,971,000
and assumed $1,491,000 of CBC's existing indebtedness. A portion of the cost of
the CBC Merger was financed by a $25,000,000 term loan. The CBC Merger was
treated as a purchase for financial accounting purposes, and accordingly, the
results of operations include CBC from the acquisition date. As a result of the
CBC Merger, the Company acquired equity interests in CBC's foreign affiliates.
The Company's investment in foreign affiliates as of January 31, 1997
represented approximately 12% of its total assets. In fiscal 1997, the equity
earnings of the Company from its foreign affiliates represented in the aggregate
approximately 30% of the Company's earnings before taxes, and no individual
foreign affiliate represented more than 13% of the Company's earnings before
taxes. See Notes 2, 3 and 8 of Notes to the Company's Consolidated Financial
Statements. In connection with the CBC Merger, the Company changed its name from
Layne, Inc. to Layne Christensen Company in March 1996.
The Stanley Acquisition will have a significant effect on Layne
Christensen's future operations and on comparisons of income, expense and
balance sheet items in future periods in comparison to fiscal 1997 and the first
six months of fiscal 1998. Layne Christensen intends to account for the Stanley
Acquisition using the purchase method of accounting. As a result of the Stanley
Acquisition, among other things, the Company will incur a substantial increase
in long-term debt and related interest expense and in goodwill and related
goodwill amortization.
The Company recognizes revenue on large, long-term drilling contracts on a
percentage of completion basis for individual contracts based upon the ratio of
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 revenues
and gross profit in the reporting period when such estimates are revised.
Changes in job performance, job conditions and estimated profitability
(including those arising from contract penalty provisions) and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. Revenue is recognized on
smaller, short-term contracts using the completed contract method.
22
<PAGE>
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
In April 1997, the Company entered into a contract to install a frozen earth
barrier around an open pit mine in Canada. It is anticipated that the contract
will be completed within one year and will generate geotechnical construction
revenues of approximately $27,000,000 over such period. In light of the size of
this contract, there can be no assurance that this level of revenues will be
sustained in the geotechnical construction product line.
RESULTS OF OPERATIONS
The following table, which is derived from the Company's Consolidated
Financial Statements, presents, for the periods indicated, the percentage
relationship which certain items reflected in the Company's statements of income
bear to revenues.
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEAR ENDED
ENDED APRIL 30, JANUARY 31,
-------------------- -------------------------------
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Water well drilling............................... 26.6% 28.1% 28.5% 34.3% 33.1%
Well and pump repair and maintenance.............. 19.6 21.3 20.5 25.8 27.6
Mineral exploration drilling...................... 26.7 23.9 22.2 11.2 10.9
Environmental drilling............................ 6.1 10.6 10.4 15.1 18.3
Geotechnical construction and other services...... 6.7 4.0 6.6 5.5 3.7
--------- --------- --------- --------- ---------
Total service revenues........................ 85.7 87.9 88.2 91.9 93.6
Product sales..................................... 14.3 12.1 11.8 8.1 6.4
--------- --------- --------- --------- ---------
Total revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cost of revenues:
Cost of service revenues.......................... 73.2% 74.0% 72.5% 72.2% 73.8%
Cost of product sales............................. 71.8 72.5 72.4 81.5 80.1
Total cost of revenues............................ 73.0 73.8 72.5 73.0 74.2
--------- --------- --------- --------- ---------
Gross profit........................................ 27.0 26.2 27.5 27.0 25.8
Selling, general and administrative expenses........ 17.9 18.1 17.5 16.9 17.3
Depreciation........................................ 4.9 5.3 4.9 4.9 4.7
--------- --------- --------- --------- ---------
Operating income.................................... 4.2 2.8 5.1 5.2 3.8
Other income (expense):
Equity in earnings of foreign affiliates.......... 1.4 2.0 1.7 -- --
Interest.......................................... (1.0) (1.3) (1.1) (.5) (.5)
Other, net........................................ .1 .2 .1 .2 --
--------- --------- --------- --------- ---------
Income before income taxes.......................... 4.7 3.7 5.8 4.9 3.3
Income tax expense.................................. 1.8 1.7 2.2 2.2 1.5
--------- --------- --------- --------- ---------
Net income.......................................... 2.9% 2.0% 3.6% 2.7% 1.8%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
COMPARISON OF THREE MONTHS ENDED APRIL 30, 1997 TO THREE MONTHS ENDED APRIL 30,
1996
REVENUES. Revenues for the three months ended April 30, 1997 increased
$3,977,000 or 7.4% to $57,750,000 compared to $53,773,000 for the three months
ended April 30, 1996. Mineral exploration drilling revenues increased 20.1% to
$15,435,000 for the three months ended April 30, 1997 from $12,847,000 for the
three months ended April 30, 1996. The increase was primarily the result of
strong
23
<PAGE>
mining demand in Mexico and the southwest region of the United States. Water
well drilling revenues increased 1.6% to $15,358,000 for the three months ended
April 30, 1997 compared to revenues of $15,115,000 for the three months ended
April 30, 1996. Well and pump repair and maintenance revenues decreased 1.1% to
$11,320,000 for the three months ended April 30, 1997 from $11,451,000 for the
three months ended April 30, 1996. The water well and pump repair and
maintenance businesses, in total, have remained relatively constant in all
regions served by the Company. Environmental drilling revenues decreased 37.7%
to $3,542,000 for the three months ended April 30, 1997 from $5,688,000 for the
three months ended April 30, 1996. The Company believes the market for
environmental services offered by the Company, primarily in the southwest region
of the United States, continues to be soft. Product sales increased 27.0% to
$8,279,000 for the three months ended April 30, 1997 from $6,517,000 for the
three months ended April 30, 1996, as a result of strong sales to the mining
services industry.
GROSS PROFIT. Gross profit was 27.0% for the three months ended April 30,
1997 compared to 26.2% for the same period last year. The increase in gross
profit as a percent of revenues was primarily attributable to increased margins
on the Company's mineral exploration operations and manufacturing efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $10,327,000 for the three months ended
April 30, 1997 compared to $9,737,000 for the three months ended April 30, 1996.
Although down slightly as a percentage of revenue, the dollar increase in
selling, general and administrative expenses was a result of higher salary and
incentive related expenses during the first quarter.
FOREIGN AFFILIATES. Equity in earnings of foreign affiliates was $820,000
for the three months ended April 30, 1997 compared to $1,102,000 for the three
months ended April 30, 1996. The decrease was primarily a result of project
delays in Peru caused by heavy rains and flooding early in fiscal 1998.
INCOME TAXES. Income taxes of $1,031,000 for the three months ended April
30, 1997 increased from $902,000 in the same period last year as a result of
higher income before taxes compared to the prior year. The effective tax rate
for the three months ended April 30, 1997 was 38.0% compared to 45.0% for the
same period last year. This improvement in the Company's effective tax rate was
primarily a result of a higher estimate of tax on earnings from foreign
affiliates for the first quarter of fiscal 1997.
COMPARISON OF FISCAL 1997 TO FISCAL 1996
REVENUES. Revenues for fiscal 1997 increased $55,582,000 or 33.2% to
$222,853,000 from fiscal 1996. Water well drilling revenues increased 10.7% to
$63,529,000 for fiscal 1997 compared to revenues of $57,385,000 for fiscal 1996.
The Company believes the increase in water well drilling revenues for the year
was mainly the result of continued increases in domestic municipal spending in
certain areas of the United States combined with increased sales of water well
equipment. Well and pump repair and maintenance revenues increased 6.0% to
$45,750,000 for fiscal 1997 from $43,166,000 for fiscal 1996. The Company
experienced an increase in activity in several markets for these services.
Mineral exploration drilling revenues increased 162.8% to $49,395,000 for fiscal
1997 from $18,794,000 for fiscal 1996. The increase was the result of the
addition, through the CBC Merger, of CBC's domestic and Canadian drilling
operations and continued strong mining demand in Mexico. Environmental drilling
revenues decreased 8.0% to $23,260,000 for fiscal 1997 from $25,278,000 for
fiscal 1996. The Company believes the decrease for the year was mainly the
result of a continuing soft market for the environmental services offered by the
Company. Product sales increased 94.7% to $26,309,000 for fiscal 1997 from
$13,516,000 for fiscal 1996, as a result of the domestic production facilities
of CBC acquired in the CBC Merger.
GROSS PROFIT. Gross profit margin was 27.5% for fiscal 1997 compared to
27.0% for fiscal 1996. The increase in gross profit margin was primarily
attributable to increased margins on product sales as a result of sales of
drilling equipment and bits from manufacturing facilities acquired in the CBC
Merger which
24
<PAGE>
have higher gross profit margins than those associated with the Company's
products distribution business. The increase in gross profit margin on product
sales was partially offset by lower gross profit margin on CBC's service
revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $38,956,000 for fiscal 1997 compared to
$28,260,000 for fiscal 1996. The dollar increase in selling, general and
administrative expenses was a result of the CBC Merger, compensation related
expenses and growth in operations. As a percentage of revenues, selling, general
and administrative expenses were 17.5% in fiscal 1997 and 16.9% in fiscal 1996.
The increase as a percentage of revenue was due to increased requirements for
certain incentive-related expenses and a generally higher percentage of selling
expenses on product sales than contracting revenues.
DEPRECIATION. Depreciation increased to $10,974,000 for fiscal 1997
compared to $8,233,000 for fiscal 1996. The increase in depreciation was
primarily a result of assets acquired in the CBC Merger and the capital
expenditures made by the Company in the last several years.
FOREIGN AFFILIATES. Equity in earnings of foreign affiliates was $3,895,000
for fiscal 1997. These earnings were a result of the investments in foreign
affiliates acquired in connection with the CBC Merger. The affiliates were
reported on a one month lag, and therefore had no impact on the Company's fiscal
1996 operations. See Note 3 of the Notes to the Company's Consolidated Financial
Statements for additional information on the affiliates.
INTEREST EXPENSE. Interest expense increased $1,680,000 for fiscal 1997
compared to fiscal 1996. The increase was a result of the increased borrowings
necessitated by the CBC Merger.
INCOME TAXES. Income taxes of $4,913,000 for fiscal 1997 increased from
$3,753,000 for fiscal 1996 as a result of higher income before taxes compared to
the prior year. The effective tax rate for fiscal 1997 was 38.0% compared to
45.0% for fiscal 1996. This improvement in the Company's effective tax rate was
a result of the increase in and the tax treatment of the Company's earnings from
its foreign affiliates acquired through the CBC Merger. United States federal
income taxes are generally not provided by the Company on the equity earnings of
the affiliates, because foreign tax credits are available under current tax law
to significantly reduce or eliminate the resulting United States income tax
liability.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
REVENUES. Revenues increased to $167,271,000 in fiscal 1996 from
$166,830,000 in fiscal 1995. Revenues from water well drilling increased 3.8% to
$57,385,000 in fiscal 1996 compared to $55,278,000 in fiscal 1995. The Company
believes the increase in water well drilling revenues for the year was mainly
the result of increased domestic municipal spending in certain areas of the
country and the Company's international expansion. This increase was offset in
part by the significant adverse effect of weather and economic conditions on the
Company's southern California operations. Well and pump repair and maintenance
revenues decreased 6.3% to $43,166,000 in fiscal 1996 compared to $46,066,000 in
fiscal 1995. The Company experienced a decrease in activity in certain markets
for these services, particularly in southern California, in addition to
decreases resulting from certain office closures in fiscal 1995. Environmental
revenues decreased 17.1% to $25,278,000 in fiscal 1996 compared to $30,487,000
in fiscal 1995. The Company believes these decreases were a result of closing
certain offices during fiscal 1995 and a continuing decline in the overall
market for the environmental services offered by the Company. The decline in
environmental revenues was partially offset by strong demand in the Arizona
market serviced by the Company which was being influenced by increased
enforcement of state environmental laws. Mineral exploration drilling and other
services revenues increased 18.4% to $41,442,000 in fiscal 1996 compared to
$34,999,000 in fiscal 1995. A portion of the increase, $2,526,000, was the
result of the CBC Merger. The remaining increase reflected increased demand in
the international markets served by the Company, partially offset by decreased
domestic demand.
25
<PAGE>
GROSS PROFIT. Gross profit increased to $45,193,000 or 27.0% of revenues in
fiscal 1996 compared to $43,016,000 or 25.8% of revenues in fiscal 1995. The
increase in gross profit was primarily attributable to higher margins for all
product lines. The increase in margins was a result of an ongoing effort to
improve pricing and efficiencies in the delivery of services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $28,260,000 or 16.9% of revenues in fiscal
1996 compared to $28,860,000 or 17.3% of revenues in fiscal 1995. The decrease
in selling, general and administrative expenses was primarily attributable to
lower requirements for certain incentive-related expenses.
DEPRECIATION. Depreciation expense increased to $8,233,000 or 4.9% of
revenues in fiscal 1996 compared to $7,811,000 or 4.7% of revenues in fiscal
1995. The increase was the result of increased capital spending during the prior
two fiscal years in an effort to upgrade certain equipment and expand
internationally.
INTEREST EXPENSE. Interest expense remained flat in fiscal 1996 compared to
fiscal 1995. This was the result of a lower level of borrowings during the
majority of fiscal 1996 offset by increased borrowings as a result of the CBC
Merger.
OTHER INCOME. Other income, net increased to $407,000 in fiscal 1996
compared to a loss of $84,000 in fiscal 1995. Fiscal 1995 included a $474,000
exchange loss primarily as a result of the Mexican Peso devaluation.
INCOME TAXES. Income taxes increased to $3,753,000 in fiscal 1996 compared
to $2,522,000 in fiscal 1995 as a result of higher income before income taxes
compared to the prior year. The effective tax rate for fiscal 1996 decreased to
45% compared to 46% in fiscal 1995 as a result of the CBC Merger.
FLUCTUATION IN QUARTERLY RESULTS
The Company historically has experienced fluctuations in its quarterly
results arising from the timing of the award and completion of contracts, the
recording of related revenues and unanticipated additional costs incurred on
projects. The Company's revenues on large drilling contracts are recognized on a
percentage of completion basis for individual contracts based upon the ratio of
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 revenues
and gross profit in the reporting period when such estimates are revised.
Changes in job performance, job conditions and estimated profitability
(including those arising from contract penalty provisions) and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. A significant number of the
Company's contracts contain fixed prices and assign responsibility to the
Company for cost overruns for the subject projects; as a result, revenues and
gross margin may vary from those originally estimated and, depending upon the
size of the project, variations from estimated contract performance could affect
the Company's operating results for a particular quarter. Many of the Company's
contracts are also subject to cancellation by the customer upon short notice
with limited damages payable to the Company. In addition, adverse weather
conditions, natural disasters, force majeure and other similar events can
curtail Company operations in various regions of the world throughout the year,
resulting in performance delays and increased costs. Moreover, the Company's
domestic drilling activities and related revenues and earnings tend to decrease
in the winter months when adverse weather conditions interfere with access to
drilling sites and the ability to drill; as a result, the Company's revenues and
earnings in its second and third quarters tend to be higher than revenues and
earnings in its first and fourth quarters. Accordingly, as a result of the
foregoing as well as other factors, quarterly results should not be considered
indicative of results to be expected for any other quarter or for any full
fiscal year. See the Company's Consolidated Financial Statements and Notes
thereto.
26
<PAGE>
INFLATION
Management believes that the Company's operations for the periods discussed
have not been adversely affected by inflation or changing prices.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $3,290,000 for the three months ended April 30,
1997 compared to cash used of $2,496,000 for the same period in the prior year.
The change in cash from operations was primarily a result of increased net
customer receivables and inventory compared to the same period in the prior
year. During the quarter ended April 30, 1997, and as a result of a profitable
fiscal 1997, the Company had substantial cash requirements in the form of
incentive related expenses and profit sharing contributions that will not apply
during the remainder of the fiscal year. In the quarter ended April 30, 1997,
the Company's net customer receivables increased to $38,608,000 from $32,031,000
at January 31, 1997, primarily as a result of an increase in revenues. The
primary source of the Company's liquidity in fiscal 1997, 1996 and 1995 was its
cash from operating activities of $17,116,000, $7,268,000 and $23,308,000,
respectively. The change in cash from operating activities from fiscal 1996 to
1997 was primarily the result of improved net income, dividends received from
foreign affiliates and accounts receivable collections. The change in cash from
fiscal 1995 to fiscal 1996 was primarily the result of increased customer
receivables and a decrease in accounts payable and accrued expenses compared to
the prior year.
Cash from operations, along with borrowings under the Company's revolving
credit agreement, was primarily utilized during fiscal 1997 for investing
activities which included additions of $18,544,000 to property and equipment.
Capital expenditures during fiscal 1997 primarily related to upgrading the
Company's equipment and facilities and international expansion. The Company
expects to spend approximately $16,000,000 in fiscal 1998 for capital
expenditures, including approximately $3,500,000 for Stanley. Additions to
property and equipment were $2,873,000 during the three month period ended April
30, 1997. The Company anticipates fiscal 1998 capital expenditures will be used
to add to and upgrade the Company's equipment and expand operations. Stanley
could be subject to capital calls of approximately $1,800,000 through December
31, 1998 on its investment in limited gold mining concessions. Stanley's total
investment at April 30, 1997 was approximately $650,000. Stanley can decline to
make the capital contribution, in which event its investment in the mining
concessions will be reduced accordingly. As of April 30, 1997, the Company had
no material commitments outstanding for capital assets.
During March 1996, the Company completed the private placement of an
unsecured note agreement for $25,000,000 to replace a term loan the Company had
previously obtained from one of its lenders. The note bears a fixed interest
rate of 6.75% and will be due March 15, 2006 with annual installments of
$3,571,000 beginning March 15, 2000.
The Company also entered into a credit agreement ("Credit Agreement") in
March 1996 to refinance its then existing credit agreement and provide a
revolving cash borrowing facility of $30,000,000, less any outstanding letter of
credit commitments. The Company's borrowings and outstanding letter of credit
commitments under the Credit Agreement as of April 30, 1997 were $9,500,000 and
$5,000,000, respectively, leaving approximately $15,500,000 of unused
availability. See Note 8 of the Notes to the Company's Consolidated Financial
Statements.
On April 7, 1997, the Company obtained a commitment from Bank of America
National Trust and Savings Association ("Bank of America"), as agent,
subsequently amended, for the New Credit Agreement. The New Credit Agreement is
expected to close contemporaneously with the consummation of the Stanley
Acquisition and will be used to finance the Stanley Acquisition, refinance the
Company's existing indebtedness under the Credit Agreement, for working capital
and capital expenditures and for other general corporate purposes. The New
Credit Agreement is expected to provide a reducing revolving cash borrowing
facility of up to $100,000,000, less any outstanding letter of credit
commitments ($20,000,000 sublimit). The New Credit Agreement will terminate on
the fifth anniversary of its closing, and any
27
<PAGE>
borrowings thereunder will mature at that time. Layne Australia, the subsidiary
of the Company that has made the tender offer to purchase the shares of Stanley,
will be eligible to draw down $30,000,000 under the New Credit Agreement. The
New Credit Agreement is expected to provide for guarantees by certain of the
Company's domestic subsidiaries and is expected to be secured by the outstanding
stock of such subsidiaries as well as 65% of the outstanding stock of certain
foreign subsidiaries. The New Credit Agreement will contain certain covenants
including restrictions on the incurrence of additional indebtedness and liens,
sale of assets or other dispositions, limits on annual capital expenditures,
transactions with affiliates, mandatory prepayments based on the proceeds from
the sale of assets and debt and equity securities and certain financial
maintenance covenants, including among others, minimum interest coverage and
maximum leverage ratios. The New Credit Agreement will provide for interest at
variable rates equal to, at the Company's option, the Bank of America Illinois
Interbank Eurodollar rate plus .75% to 1.25% (depending upon debt to
capitalization ratios) or an alternate reference rate to be defined in the New
Credit Agreement. The New Credit Agreement has not yet been executed; therefore,
the terms of the arrangements are subject to change, and there can be no
assurance that the final agreement will reflect the foregoing terms.
The Company's working capital as of April 30, 1997 and as of January 31,
1997, 1996 and 1995 was $37,572,000, $29,643,000, $26,796,000 and $13,578,000,
respectively. The increase in working capital in fiscal 1997 over fiscal 1996
was the result of improved operating cash flow as discussed above. The Company
also recorded $2,800,000 in accrued integration costs in connection with the CBC
Merger. This has been reduced by total cash expenditures of $2,097,000 as of
April 30, 1997, all of which have been funded by operations. The remaining
amount is expected to be incurred during fiscal 1998. The Company believes
borrowings from the New Credit Agreement and cash from operations will be
sufficient to meet the Company's and Stanley's seasonal cash requirements and to
fund their budgeted capital expenditures for at least the balance of the fiscal
1998 year.
Costs estimated to be incurred in the future for employee medical benefits
and casualty insurance programs resulting from claims which have occurred are
accrued currently. Under the terms of the Company's agreement with the various
insurance carriers administering these claims, the Company is not required to
remit the total premium until the claims are actually paid by the insurance
companies. These costs are not expected to significantly impact liquidity in
future periods. See Note 10 of the Notes to the Company's Consolidated Financial
Statements.
28
<PAGE>
BUSINESS
GENERAL
Layne Christensen is a leading provider of sophisticated drilling services
and related products and services in four principal markets: water supply,
mineral exploration, geotechnical construction and environmental. The Company
believes it is the largest provider in the United States of water well drilling,
well maintenance and environmental drilling services. The Company also believes
it is one of the world's largest providers of mineral exploration drilling
services and a world leader in diamond drill bit technology. Layne Christensen's
customers include municipalities, industrial companies, mining companies and
environmental consulting and engineering firms located principally in the United
States, Canada, Mexico and South America. Following consummation of the pending
Stanley Acquisition, the Company will gain entry into mineral exploration
drilling markets in Australia and West Africa. See "The Stanley Acquisition."
The Company acquired CBC in December 1995, which expanded the Company's
mineral exploration drilling business domestically and marked the Company's
entry into Chile and Peru and other South American countries through CBC's
affiliated companies. The CBC acquisition also gave the Company substantial
capabilities in designing and manufacturing sophisticated drill rigs, diamond
drill bits and related equipment used by the mineral exploration industry.
The Company maintains its executive offices at 1900 Shawnee Mission Parkway,
Mission Woods, Kansas 66205. The Company's telephone number is (913) 362-0510.
MARKET OVERVIEW
The principal markets in which the Company operates are: water well drilling
and maintenance, mineral exploration drilling, geotechnical construction and
environmental drilling. In addition, consummation of the pending Stanley
Acquisition will expand the Company's mineral exploration drilling to include
drill and blast operations used in mine development. For purposes of this
Prospectus, the phrase "mineral exploration drilling" includes drill and blast
operations, unless otherwise noted. The characteristics of each of these markets
vary, particularly with respect to the maturity and cyclicality of the market in
various geographic areas. In each of these markets, however, the purchaser of
drilling services and products generally demands technical expertise, knowledge
of local geological conditions, project management skills, access to significant
amounts of capital equipment and cost effective pricing.
WATER WELL DRILLING AND MAINTENANCE. Demand for water well drilling
services is driven by the need to access groundwater, which is affected by many
factors including population movements and expansions, such as new housing
developments, deteriorating water quality and limited availability of surface
water. Groundwater is a vital natural resource that is pumped from the earth for
drinking water, irrigation and industrial use. In many parts of the United
States and other parts of the world, groundwater is the only reliable source of
water. Groundwater is located in saturated geological zones at varying depths
beneath the surface and accumulates in subsurface strata (aquifers). A
substantial majority of the public water systems in the United States rely on
groundwater (as compared to surface water) as their primary source of water.
Groundwater is the source of potable water for a significant portion of the
United States population. Surface water, the other major source of potable
water, comes principally from large lakes and rivers.
The water well drilling market is highly fragmented, with over 3,700 water
well drilling contractors in the United States. However, the Company believes
that a substantial majority of these contractors are regionally and locally
based, and are primarily involved in drilling low volume water wells for
agricultural and residential customers, markets in which the Company does not
generally compete. The Company's target groundwater drilling market consists of
high volume water wells drilled principally for municipal and industrial
customers. These wells have more stringent design specifications and are deeper
and larger in diameter than low-volume residential and agricultural wells.
Drillers for high-volume wells must have
29
<PAGE>
strong technical expertise, expert knowledge of local geology, large drilling
equipment and the ability to procure sizable performance bonds.
The demand for well and pump repair and maintenance depends upon the age and
use of the well and pump, the quality of material and workmanship applied in the
original well installation and changes in the depth and quality of the aquifer.
Repair and rehabilitation work is often required on an emergency basis or within
a relatively short period of time after a performance decline is recognized and
is often awarded to the firm that initially drilled the well. Scheduling
flexibility, together with appropriate expertise and equipment, are critical for
a repair and maintenance service provider. Like the water well drilling market,
the market for repair and maintenance is highly fragmented. It consists of most
well drilling companies as well as firms that provide solely repair and
maintenance services. In both cases, only a small percentage of companies
performing repair and maintenance services are capable of diagnosing complex
problems and selecting and implementing the appropriate rehabilitation
techniques.
MINERAL EXPLORATION DRILLING. Demand for mineral exploration drilling and
products is driven by the demand for identifying, defining and developing
underground mineral deposits. Growth in the economies of developing countries,
including China and India, is currently creating the largest demands for copper,
gold, silver, zinc and other minerals and propelling the need for
mineral-related drilling services. Other factors influencing the demand for
mineral-related drilling services include international political conditions,
inflation and foreign exchange levels, commodity prices, the economic
feasibility of mineral exploration and production, the discovery rate of new
mineral reserves and the ability of mining companies to access capital for their
activities.
In recent years, important changes in the international mining industry have
led to the development and growth of mineral exploration in developing regions
of the world, including West Africa, Asia and South America. Certain countries,
such as Chile and Peru, have liberalized their mining codes to permit foreign
investment, and investment conditions generally have improved in those
countries. At the same time, stricter environmental permitting rules in the
United States and Canada have delayed or blocked the development of certain
projects forcing mining companies to look overseas for growth. In addition,
technological advancements now allow development of mineral resources previously
regarded as uneconomical. The mining exploration industry has also increased its
focus on these areas due to their early stage of mining development, relative to
the more mature mining regions of the world such as the United States and South
Africa. For example, while South Africa remains the top gold producer worldwide,
its output has steadily fallen over the last decade and is projected to continue
falling. In its August 1996 report, the Gold Institute reported that the twelve
largest gold producing countries were as follows in 1995 (data given in million
troy ounces):
<TABLE>
<S> <C>
South Africa.......................................................... 16.8
United States......................................................... 10.6
Australia............................................................. 8.1
Commonwealth of Independent States.................................... 7.3*
Canada................................................................ 4.8
People's Republic of China............................................ 4.4*
Indonesia............................................................. 2.4
Brazil................................................................ 2.2
Papua New Guinea...................................................... 1.8
Ghana................................................................. 1.7
Peru.................................................................. 1.7
Chile................................................................. 1.4
</TABLE>
* Estimated
The Gold Institute also tracks exploration spending and reported that
exploration budgets in the United States dropped from $149 million in 1992 to a
projected $121 million in 1996 while spending in
30
<PAGE>
Central and South America increased from $28.1 million in 1992 to a projected
$145.7 million in 1996. With respect to copper, the United States Geological
Survey reported in February 1997 that the 12 largest copper producing countries
were as follows in 1995 (data given in thousand metric tons of copper content):
<TABLE>
<S> <C>
Chile................................................................ 2,490
United States........................................................ 1,850
Canada............................................................... 726
Russia............................................................... 591
Indonesia............................................................ 444
Australia............................................................ 437
Poland............................................................... 384
Peru................................................................. 381
People's Republic of China........................................... 370
Mexico............................................................... 332
Zambia............................................................... 329
Kazakstan............................................................ 260
</TABLE>
Mining companies hire exploration drillers to extract samples from sites
that the mining companies analyze for mineral content. Mineral exploration
drilling requires a high level of expertise and technical competence because the
samples extracted must be free of contamination and accurately reflect the
underlying mineral deposit. Familiarity with the local geology is critical to
acquiring this competence. Mineral exploration drilling consists of exploratory
drilling and definitional drilling. Exploratory drilling is conducted to
determine if there is a minable mineral deposit (an orebody) on the site.
Definitional drilling is typically conducted at a site to assess whether it
would be economical to mine. The demand for definitional drilling has increased
in recent years as new and less expensive mining techniques have made it
feasible to mine previously uneconomical orebodies.
In drill and blast operations conducted at open pit mines under production,
the driller drills holes for the placement of explosives; the explosives are
then detonated to loosen and dislodge earth, which is hauled away by the mining
company for processing. Drill and blast contracts typically have lower margins
than traditional mineral exploration drilling projects; however, they provide
more stable revenues because drill and blast contracts typically have a duration
of three to five years whereas traditional mineral exploration projects
typically have substantially shorter terms. To win drill and blast contracts, a
drilling company must be familiar with the mine site and its geology, have
proven drill and blast expertise and personnel and easily transferable rigs and
appropriate drilling equipment that can be dedicated to the site.
GEOTECHNICAL CONSTRUCTION SERVICES. Geotechnical construction services are
used to modify weak and unstable soils, decrease water flow in bedrock and
provide support and groundwater control for excavation. Methods used include
cement and chemical grouting and ground freezing, techniques for stabilizing
soils; jet grouting, a high-pressure method for providing subsurface support;
and dewatering, a method for lowering the water table. Geotechnical construction
services are important during the construction of dams, tunnels, shafts, water
lines, subways and other civil construction projects. Demand for geotechnical
construction services is driven primarily by the demand for these infrastructure
improvements. The customers for these services are primarily heavy civil
construction contractors, governmental agencies, mining companies and the
industrial sector. The geotechnical construction services industry is highly
fragmented.
ENVIRONMENTAL DRILLING. Demand for environmental drilling services is
driven by public concern over groundwater contamination and resulting regulatory
requirements to investigate and remediate contaminated sites and aquifers.
Numerous and complex federal, state and local laws have been enacted for the
purpose of investigating and remediating pollution of underground aquifers as
well as preventing or controlling the potential environmental hazards caused by
groundwater contamination. Environmental
31
<PAGE>
drilling services are utilized to assess, investigate, monitor and improve water
quality and pumping capacity. Customers are typically national and regional
consulting firms engaged by federal and state agencies as well as industrial
companies that need to assess or clean up groundwater contamination sources.
BUSINESS STRATEGY
Layne Christensen believes it is one of only a few companies worldwide that
has the drilling expertise, financial resources, equipment and project
management skills to conduct large, highly complex drilling projects in the
Company's principal markets. As a result of providing water well and mineral
exploration drilling services for more than 100 years through its predecessor
companies, the Company has developed significant drilling expertise and project
management skills and has compiled a broad database of geological and other
technical information. The Company has substantial resources, including over 500
rigs and associated capital equipment, approximately 60 sales and operations
offices and approximately 1,800 employees (in each case excluding its foreign
affiliates). The Company's growth strategy is to expand its current geographic
markets and enter into new business lines that build on the Company's core
competencies. Key elements of this strategy are as follows:
EXPAND MINERAL EXPLORATION DRILLING INTERNATIONALLY. The Company believes
that its best mineral exploration drilling opportunities exist in Australasia,
Africa and South America. To position itself to take advantage of such
opportunities, the Company intends to expand its international mineral
exploration business through internal expansion and acquisitions. In late 1995,
the Company entered certain South American mineral exploration markets,
including Chile and Peru, and expanded its operations in Mexico, through its
acquisition of CBC and its affiliates. To further implement this international
growth strategy, in May 1997 the Company made a tender offer for all the
outstanding capital stock of Stanley, a leading Australian mineral exploration
drilling company with operations currently in West Africa (principally Ghana)
and Australia. The Company believes that these foreign enterprises and their
local affiliates have the opportunity to significantly expand their businesses
by leveraging their local market expertise and the Company's technical
competence, access to transferable drilling equipment and employee training and
safety programs. The pending Stanley Acquisition also will give the Company the
opportunity to expand its existing South American mineral exploration drilling
activities into drill and blast operations. With the additional resources and
capabilities provided by its acquisitions of CBC and Stanley, the Company
believes it will be better positioned to expand its operations in countries such
as Argentina, Bolivia, Brazil and Zambia, where it expects the mineral
exploration industry to grow.
ACQUIRE WATER WELL DRILLING BUSINESSES IN THE UNITED STATES. Layne
Christensen is currently the largest provider of water well drilling services in
the United States, operating in all of the country's regions except the
northeast. The Company intends to expand its water well drilling business in the
United States by making strategic acquisitions of selected regional
privately-held water well drilling firms. The Company believes that by combining
the Company's capabilities with regional firms, the Company will improve such
firms' efficiency, safety record, bonding capacity, profitability and
professionalism and enable these firms to win project bids that they would not
otherwise have won.
EXPAND WATER WELL DRILLING INTERNATIONALLY. The Company intends to build
its groundwater business internationally by leveraging the mineral exploration
services that it currently provides to mining customers. Mining companies
frequently need to implement a dewatering program that requires the installation
of wells to remove groundwater from the mine excavation or to construct a
groundwater well to obtain process water for use in connection with mining
activities. For example, the Company is currently undertaking a project through
one of the Company's Chilean affiliates for the completion of thirteen water
production wells in the Collahuasi mine in Northern Chile, with technical
support provided through Layne Christensen. Many developing countries also have
significant and growing requirements to access groundwater to satisfy their
potable water needs. The Company intends to position itself to be an industry
leader
32
<PAGE>
in water well drilling in certain foreign markets, such as Mexico and Thailand.
In all of its regions, the Company intends to concentrate on large scale
industrial and government water well drilling projects.
EXPAND PRESENCE IN GEOTECHNICAL CONSTRUCTION SERVICES. The Company's
participation in the geotechnical construction services market is still in an
early stage. The Company intends to leverage its drilling capabilities, industry
contacts, reputation, project management skills and growing geographic presence
to expand this business. In particular, the Company's strategy is to focus on
relatively larger, technically demanding projects using its grouting and ground
freezing capabilities. An example of the implementation of this strategy is the
Company's project in Timmons, Ontario, Canada where the Company has been engaged
by Echo Bay Mines Ltd. to construct a subsurface frozen earth barrier around a
3.5 kilometer perimeter open pit gold mine.
SERVICES AND PRODUCTS
Layne Christensen's current business is divided into four primary areas:
water well drilling and maintenance services; mineral exploration drilling
services and products; geotechnical construction services; and environmental
drilling services. Following the consummation of the pending Stanley
Acquisition, the Company's mineral exploration drilling services will also
include drill and blast services.
OVERVIEW OF THE COMPANY'S DRILLING TECHNIQUES
The types of drilling techniques employed by the Company in its drilling
activities have different applications:
- Conventional and reverse circulation rotary rigs are used in water well
and mineral exploration drilling primarily for drilling large diameter
wells and employ air or drilling fluid circulation for removal of cuttings
and borehole stabilization.
- Dual tube drilling, an innovation advanced by the Company primarily for
mineral exploration and environmental drilling, conveys the drill cuttings
to the surface inside the drill pipe. This drilling method is critical in
mineral exploration drilling and environmental sampling because it
provides immediate representative samples and because the drill cuttings
do not contact the surrounding formation thus avoiding contamination of
the borehole while providing reliable, uncontaminated samples. Because
this method involves circulation of the drilling fluid inside the casing,
it is highly suitable for penetration of underground voids or faults where
traditional drilling methods would result in the loss of circulation of
the drilling fluid, thereby preventing further penetration.
- Diamond core drilling is used in mineral exploration drilling to core
solid rock, thereby providing geologists and engineers with solid rock
samples for evaluation.
- Cable tool drilling, which requires no drilling fluid, is used primarily
in water well drilling for larger diameter wells. While slower than other
drilling methods, it is well suited for penetrating boulders, cobble and
rock.
- Auger drilling is used principally in water well and environmental
drilling for efficient completion of relatively small diameter, shallow
wells. Auger rigs are equipped with a variety of auger sizes and soil
sampling equipment.
WATER WELL DRILLING AND MAINTENANCE
DRILLING SERVICES. The Company provides complete water well systems on
a turnkey basis, offering the comprehensive range of services required to
provide professionally designed, constructed and maintained municipal,
industrial and, to a lesser extent, agricultural water wells. Although it may
not perform each of the services it offers on every project, the Company has the
capability to provide every element of a water well system, including test hole
drilling, well casing and screen selection and
33
<PAGE>
installation, gravel packing, grout sealing, well development and testing and
pump selection, equipment sales and installation. Layne Christensen provides
water well drilling services in most regions of the United States and in certain
foreign countries.
Water well drilling requires the integration of hydrogeology and engineering
with the techniques of well drilling because the drilling methods and size and
type of equipment depend upon the depth of the wells and the geological
formations encountered at the project site. The Company has extensive well
archives and equipment in addition to technical personnel to determine
geological conditions and aquifer characteristics in most locations, enabling it
to locate suitable water-bearing formations to meet a wide variety of customer
requirements. The Company provides feasibility studies using complex geophysical
survey methods and has the expertise to analyze the survey results and define
the source, depth and magnitude of an aquifer. It can then estimate recharge
rates, specify required well design features, plan well field design and develop
water management plans. To conduct these services, the Company maintains a staff
of professional employees including civil and geological engineers, geologists,
hydrogeologists, geophysicists, and microbiologists.
The Company believes that it has the technical ability and experience to
specify and install the most efficient pump for a given well design and aquifer
characteristics. As part of its water well drilling and installation business,
the Company sells a wide variety of pumps manufactured by third parties,
including vertical turbine, submersible, shortcoupled and horizontal centrifugal
pumps. The Company also sells and installs certain third party water treatment
equipment, which is typically installed at or near the wellhead, including
chlorinators, aerators, filters and controls. In addition, the Company sells
miscellaneous supplies manufactured by the Company as well as third parties for
use in the water well drilling industry, including well casing, well screens,
drill pipe and bits, drilling fluids and well cleaning supplies.
WELL AND PUMP REPAIR AND MAINTENANCE. Periodic repair and maintenance of
well equipment is required during the life of a well. In locations where the
groundwater contains both bacteria and iron, screen openings may become blocked
with organic growth, reducing the capacity and productivity of the well.
Similarly, groundwater with high mineral content may cause the buildup of scale
on well screens, also reducing the capacity and productivity of the well.
The Company offers complete repair and maintenance services for existing
wells, pumps and related equipment through a network of local offices throughout
its geographic markets. In addition to its well service rigs, the Company has
equipment capable of conducting downhole closed circuit televideo inspections
(one of the most effective methods for investigating water well problems),
enabling the Company to diagnose better and respond more quickly to well and
maintenance problems. The Company believes it benefits from offering both water
well drilling and repair and maintenance services because firms that install
wells are more likely to be called upon to maintain or repair them.
The Company's trained and experienced personnel can perform a variety of
well rehabilitation techniques, including chemical and mechanical methods, and
can perform bacteriological well evaluation and water chemistry analysis. The
Company also has the capability and inventory to repair, in its own machine
shops, most water well pumps, regardless of manufacturer, as well as to repair
well screens, casings and related equipment such as chlorinators, aerators and
filtration systems.
MINERAL EXPLORATION DRILLING AND PRODUCTS
DRILLING SERVICES. The Company provides drilling services for geological
assessment, in situ mining and mineral exploration. These services are used
primarily by major gold and copper producers based in the United States and
Canada, and to a lesser extent, iron ore producers. In response to a shift in
recent years by many of these producers to foreign markets in search of
economically minable orebodies, the Company commenced mineral exploration
drilling operations in Mexico in 1991. In addition, with its acquisition of CBC
in December 1995, the Company now has foreign affiliates operating in South
America with facilities in Chile and Peru. These affiliates are among the
leaders in their respective markets for
34
<PAGE>
mineral exploration drilling services and have projects in Argentina, Bolivia,
Brazil, Chile, Mexico and Peru, among other locations.
The Company, together with its affiliates, offers a complete range of
mineral exploration drilling technologies from the traditional to the most
advanced. The Company's drilling specialists will recommend effective drilling
methods to address the challenges presented by difficult subsurface conditions
at exploration sites. Upon consummation of the pending Stanley Acquisition, the
Company's mineral exploration drilling activities will also include drill and
blast services.
PRODUCTS. With its acquisition of CBC, the Company expanded its operations
to include the manufacture and marketing of a wide range of standard equipment
used by the Company and third party drilling contractors involved in mineral
exploration and mine development in various parts of the world. The Company's
products include drill rigs, coring equipment and drill bits. The Company uses
its experience gained from completing a wide range of drilling projects to
design products, particularly drill bits, that are well suited to current
drilling applications, and from time to time, will design and manufacture
products for custom applications. The Company's products are designed and
manufactured to meet its own rigid standards of quality and utility as well as
the standards of various trade associations.
Layne Christensen manufactures a line of diamond core mineral exploration
drill rigs which are designed to meet the specialized work requirements of
mineral exploration sites and can also be used at environmental sites. The
Company's line of rig accessory equipment and tools includes subs, bushings and
adapters; water swivels; a variety of safety related equipment; and hoisting,
lowering and pulling equipment.
The Company manufactures conventional and wireline coring equipment for
recovery of core samples from the earth. The Company's wireline core barrels are
core recovery tools designed for operation at the bottom of the drill string
where a core bit cuts the core that is collected and retained inside the core
barrel. Retrieving the core requires pulling the inner tube through the inside
of the string of rods, using the Company's proprietary quad latch, and then
removing the core barrel from the inner tube to retrieve the core. The wireline
coring system allows for faster and more efficient core sampling than
conventional coring because the entire drill rod string does not have to be
retrieved from the earth each time a core sample is obtained. The Company
believes its wireline coring systems represent the state-of-the-art in coring
performance. The Company also offers a full line of equipment for conventional
coring. The Company's conventional and wireline coring products include drill
rods manufactured by third parties to which the Company adds industry standard
threading suited to its products. The drill rods purchased by the Company are
composed of the highest grade of carbon alloy steel for durability and
flexibility.
The diamond drill bit products manufactured by the Company include products
incorporating matrix powder technology coupled with both synthetic and natural
diamonds. The principal categories of drilling bits are surface set diamond
bits, impregnated synthetic diamond bits and polycrystalline synthetic diamond
bits. Each category of bit is specifically designed for maximum drilling
efficiency in different geological formations and drilling applications, and the
Company frequently updates and redesigns its bits for various formations and
applications. The Company's bit products also include reamers and stabilizers
for stabilizing and centering the drill bit. The Company distributes its
products to distributors, general contractors, mineral exploration companies and
equipment and parts suppliers.
35
<PAGE>
In the products market, the Company seeks to be a leader in advanced
manufacturing technology and superior quality drilling products and equipment
that meet the highest standards for precision, consistency and durability. The
Company engages in on-going engineering, research and development activities to
improve its existing products and to design and develop new products for both
existing and new drilling applications. To further promote efficiency, reduce
development costs and enhance customer relationships, the Company's research and
engineering staff works closely with its customers to design and develop
custom-engineered drilling solutions.
GEOTECHNICAL CONSTRUCTION SERVICES
Geotechnical construction services include those services provided by the
Company to the heavy civil construction market to provide ground modification
for construction work in unstable soils during the construction of dams,
tunnels, shafts and other civil construction projects. Services offered include
cement and chemical grouting, jet grouting, drain hole drilling, installation of
ground anchors, tie backs, rock bolts and instrumentation. The Company offers
expertise in selecting the appropriate support techniques to be applied in
various geological conditions. In addition, the Company has extensive experience
in the placement of measuring devices capable of monitoring water levels and
ground movement.
The Company also offers artificial ground freezing capabilities, typically
utilized as an alternative method to dewatering large diameter excavation and
tunneling projects. The Company was recently awarded a significant contract by
Echo Bay Mines Ltd. to construct a subsurface frozen earth barrier around an
open pit gold mine in Timmons, Ontario, Canada. In the Echo Bay project, the
Company will drill and install approximately 2,000 pipes to depths of 45 to 125
meters around the 3.5 kilometer perimeter of the mine, then connect the pipes to
an enclosed manifold system that will deliver a brine solution, refrigerated to
- -20 degrees Centigrade, to each of the individual pipes.
ENVIRONMENTAL DRILLING
The Company offers a wide range of environmental drilling services
including: investigative drilling, installation and testing of wells that
monitor the extent of groundwater contamination, installation of recovery wells
that extract contaminated groundwater for treatment (pump and treat remediation)
and specialized site safety programs associated with drilling at contaminated
sites. Monitoring wells are installed to determine the nature and extent of
known or suspected subsurface contamination as well as to monitor an area for
future contamination. In addition, monitoring wells are often installed
surrounding underground petroleum or chemical storage tanks to monitor for
possible future tank leaks or product spills. After monitoring and testing the
groundwater, recovery wells may be installed to extract contaminated water from
the aquifer for treatment or disposal.
In its environmental health services department, the Company employs a
full-time staff qualified to prepare site specific health and safety plans for
customers who have workers employed on hazardous waste cleanup sites as required
by OSHA and MSHA.
OPERATIONS
The Company operates on a decentralized basis, with approximately 50 sales
and operations offices located in most regions of the United States, except the
Northeast. In addition, the Company, through its foreign subsidiaries and
affiliates, operates out of locations in Canada, Mexico, Thailand, South America
and Europe.
The Company is primarily organized domestically in eastern and western
geographic regions, each with a regional vice president in charge of operations
and district managers in charge of individual district office profit centers.
The district managers report to their respective regional vice president on a
regular basis. Each district office employs a field superintendent who is in
charge of projects in the field and sales engineers who are responsible for
marketing the Company's services in their district as well as for
36
<PAGE>
monitoring the progress of projects. The Company does not conduct significant
marketing activities. Instead, the Company's sales engineers cultivate and
maintain contacts with existing and potential customers. In this way, the
Company learns of and is in a position to compete for proposed drilling projects
in the region.
In its foreign affiliates, where the Company does not have majority
ownership or operating control, day-to-day operating decisions are made by local
management. The Company's regional vice presidents oversee the Company's
interests in its foreign affiliates as well as the operations of its foreign
subsidiaries. In addition, the Company manages its interests in its foreign
affiliates through regular management meetings and analysis of comprehensive
operating and financial information. In its significant foreign affiliates, the
Company has entered into shareholder agreements that give it limited board
representation rights and require super-majority votes in certain circumstances.
CUSTOMERS AND CONTRACTS
Each of the Company's service and product lines has major customers;
however, no single customer accounted for 10% or more of the Company's revenues
in any of the past three fiscal years.
Generally, the Company negotiates its service contracts with industrial and
mining companies and other private entities, while its service contracts with
municipalities are generally awarded on a bid basis. The Company's contracts
vary in length depending upon the size and scope of the project. The majority of
such contracts are awarded on a fixed price basis, subject to change of
circumstance and force majeure adjustments, while a smaller portion are awarded
on a cost plus basis. Substantially all of the contracts are cancelable for,
among other reasons, the convenience of the customer.
In the water well drilling service line, the Company's customers are
typically municipalities and local operations of industrial businesses. Of the
Company's water well drilling revenues in fiscal 1997, approximately 59% were
derived from municipalities and approximately 26% were derived from industrial
businesses while the balance was derived from other customer groups. The term
"municipalities" is used to include local water districts, water utilities,
cities, counties and other local governmental entities and agencies that have
the responsibility to provide water supplies to residential and commercial
users. In the drilling of new water wells, the Company targets customers that
require compliance with detailed and demanding specifications and regulations
and that often require bonding and insurance, areas in which the Company
believes it has competitive advantages over its competitors.
In the water well repair and maintenance service line, the Company's
customers also include municipalities and local operations of industrial
businesses. In fiscal 1997, approximately 52% of the Company's repair and
maintenance revenues were derived from municipalities, approximately 27% of such
revenues were derived from industrial businesses and the balance was derived
from other customer groups.
Customers for the Company's mineral exploration drilling services in the
United States, Mexico, Canada and South America are primarily gold and copper
producers. The Company's largest customers in its mineral exploration drilling
business are multi-national corporations headquartered primarily in the United
States and Canada. Customers for mineral exploration products manufactured or
sold by the Company include distributors, general contractors, mineral
exploration companies and equipment and parts suppliers.
In its geotechnical construction services product line, the Company's
customers are primarily heavy civil construction contractors, governmental
agencies, mining companies and industrial companies. The Company often acts as a
specialty subcontractor when it provides geotechnical construction services.
The Company's primary environmental drilling customers are regional or
national consulting firms retained by federal or state agencies or by industrial
companies to assist in the assessment and cleanup of groundwater contamination.
37
<PAGE>
BACKLOG
The Company's backlog consists of executed service and product purchase
contracts, or portions thereof, not yet performed by the Company. The Company
believes that its backlog does not have any significance other than as a
short-term business indicator because substantially all of the contracts
comprising the backlog are cancelable for, among other reasons, the convenience
of the customer. The Company's backlog was approximately $49,197,000 at April
30, 1997, compared to approximately $41,551,000 at April 30, 1996. The Company's
backlog is generally completed within the following fiscal year.
PROPERTIES AND EQUIPMENT
The Company's corporate headquarters are located in Mission Woods, Kansas (a
suburb of Kansas City, Missouri), in approximately 28,000 square feet of office
space leased by the Company pursuant to a written lease agreement which expires
February 28, 2000. The Company's manufacturing operations are primarily
conducted from an approximately 84,000 square foot plant located in Salt Lake
City, Utah and owned by the Company (the "Plant"). The Plant is subject to a
commercial deed of trust which provides security for the Company's note to a
lender in the amount of approximately $1,400,000.
As of April 30, 1997, the Company (excluding foreign affiliates) owned or
leased approximately 525 drill and well service rigs throughout the world,
including approximately 475 in the United States. This includes rigs used
primarily in each of its service lines as well as multi-purpose rigs. In
addition, as of April 30, 1997, the Company's foreign affiliates owned or leased
approximately 90 drill rigs.
COMPETITION
The Company's competition in the water well drilling business consists
primarily of small, local water well drilling operations and some regional
competitors. The largest domestic provider of water well drilling products and
services other than the Company is Hydro Group, Inc., a private company located
and primarily operating in the northeastern United States, while the next
largest competitor, Beylik Drilling, Inc., is located in California. Oil and
natural gas well drillers generally do not compete in the water well drilling
business because the technology, expertise and equipment utilized in these
businesses differ significantly. Only a small percentage of all companies that
perform water well drilling services have the technical competence and drilling
expertise to compete effectively for high volume municipal and industrial
projects, which typically are more demanding than projects in the agricultural
or residential well markets. In addition, smaller companies often do not have
the financial resources or bonding capacity to compete for large projects.
However, there are no 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 the
Company. Water well drilling work is usually obtained on a competitive bid basis
for municipalities, while work for industrial customers is obtained on a
negotiated or informal bid basis.
As is the case in the water well drilling business, the well repair and
maintenance business is characterized by a large number of relatively small
competitors. Only a small percentage of the companies performing these services
have the technical expertise necessary to diagnose complex problems, perform
many of the sophisticated rehabilitation techniques offered by the Company or
repair a wide range of pumps in their own facilities. In addition, many of these
companies have only a small number of pump service rigs. Repair and maintenance
projects are typically negotiated at the time of repair or contracted for in
advance depending upon the lead time available for the repair work. Since pump
repair and rehabilitation work is typically negotiated on an emergency basis or
within a relatively short period of time, those companies with available rigs
and the requisite expertise have a competitive advantage by being able to
respond quickly to repair requests.
In its mineral exploration drilling business, the Company competes with a
number of drilling companies, including Boart Longyear and Ausdrill Limited, as
well as vertically integrated mining
38
<PAGE>
companies that conduct their own exploration drilling or drill and blast
activities; some of these competitors have greater capital and other resources
than the Company. In the mineral exploration drilling market, the Company
competes based on price, expertise and reputation. The Company believes it has a
well-recognized reputation for expertise and performance in this market,
although the Company is not the largest company providing these services on a
national or international basis. The Company believes that this market is
becoming more competitive, particularly in the United States. Mineral
exploration drilling work is typically performed on a negotiated basis. In the
market for the Company's manufactured mineral exploration drilling products, the
Company's competitors consist of Boart Longyear and a small number of other
manufacturers. The Company competes in this market based on price, technical
design and reputation.
The geotechnical construction services market is highly fragmented as a
result of the large area served, the wide range of techniques offered and the
large number and variety of contractors. The Company's two major competitors in
this market are Hayward Baker, Inc. and Nicholson Construction Company. In this
market, the Company competes based upon a combination of reputation, innovation
and price.
In the environmental drilling market, Layne Christensen competes with
different types of drillers depending on the services involved. Small site
assessments and routine underground storage tank assessment and remediation
projects are highly competitive and attract a large number of local drilling
competitors. More sophisticated and demanding projects generally require the
expertise and resources of larger drilling operators with access to multiple
rigs and alternative drilling techniques. The larger drilling companies
generally also have the requisite expertise and safety training to assess the
risks associated with drilling on sites having higher contamination levels and
larger amounts of hazardous wastes. The Company believes its risk assessment
process enables it to select projects prudently and to better manage risks
associated with those projects. The Company focuses on the more technically
demanding projects in this area and avoids the smaller and highly competitive
site assessment and remediation projects. Environmental drilling contracts are
usually bid or negotiated at the initial stage but major contract extensions are
often negotiated.
EMPLOYEES AND TRAINING
At January 31, 1997, the Company had 1,832 employees, 158 of whom were
hourly employees and members of collective bargaining units represented by
locals affiliated with major labor unions. The Company believes that its
relationship with its employees is satisfactory.
In all of the Company's service lines, an important competitive factor is
technical expertise. As a result, the Company emphasizes the training and
development of its personnel. Periodic technical training is provided for senior
field employees covering such areas as pump installation, drilling technology
and electrical troubleshooting. In addition, the Company emphasizes strict
adherence to all health and safety requirements and offers incentive pay based
upon achievement of specified safety goals. This emphasis encompasses developing
site-specific safety plans, ensuring regulatory compliance and training
employees in regulatory compliance and good safety practices. Training includes
an OSHA-mandated 40-hour hazardous waste and emergency response training course
as well as the required annual eight hour updates. The Company has an
environmental health sciences staff which allows it to offer such training in-
house. This staff also prepares health and safety plans for specific sites and
provides input and analysis for the health and safety plans prepared by others.
On average, the Company's field supervisors and drillers have sixteen and
ten years, respectively, of experience with the Company. In addition, many of
the Company's professional employees have advanced academic backgrounds in
agricultural, chemical, civil, industrial and mechanical engineering, geology,
microbiology and metallurgy. The Company believes that its size and reputation
allow it to compete effectively for highly qualified professionals.
39
<PAGE>
PERMITS, LICENSES AND REGULATORY APPROVALS
The services provided by the Company are subject to various licensing,
permitting, approval and reporting requirements imposed by federal, state, local
and foreign laws. Its operations are subject to inspection and regulation by
various governmental agencies, including the Department of Transportation, OSHA
and MSHA in the United States as well as their counterparts in foreign
countries. In addition, the Company's activities are subject to regulation under
various environmental laws regarding emissions to air, discharges to water and
management of wastes and hazardous substances. To the extent the Company fails
to comply with these various regulations, it could be subject to monetary fines,
suspension of operations and other penalties. In addition, these and other laws
and regulations affect the Company's mineral drilling services and product
customers and influence their determination whether to conduct mineral
exploration and development.
Many localities require well operating licenses which typically specify that
wells be constructed in accordance with applicable regulations. The Company
believes it benefits from strict enforcement of such regulations because it
believes its abilities and technical expertise give it a competitive advantage.
Various state, local and foreign laws require that water wells and monitoring
wells be installed by licensed well drillers. The Company maintains well
drilling and contractor's licenses in those jurisdictions in which it operates
and in which such licenses are required. In addition, the Company employs
licensed engineers, geologists and other professionals necessary to the conduct
of its business. In those circumstances in which the Company does not have a
required professional license, it subcontracts that portion of the work to a
firm employing the necessary professionals.
POTENTIAL LIABILITY AND INSURANCE
The Company's drilling activities involve certain operating hazards that can
result in personal injury or loss of life, damage and destruction of property
and equipment, damage to the surrounding areas, release of hazardous substances
or wastes and other damage to the environment, interruption or suspension of
drill site operations and loss of revenues and future business. The magnitude of
these operating risks is amplified when the Company, as is frequently the case,
conducts a project on a fixed-price, "turnkey" basis where the Company delegates
certain functions to subcontractors but remains responsible to the customer for
the subcontracted work. In addition, the Company is exposed to potential
liability under foreign, federal, state and local laws and regulations,
contractual indemnification agreements or otherwise in connection with its
provision of services and products. For example, the Company could be held
responsible for contamination caused by an accident which occurs as a result of
the Company drilling through a contaminated water source and creating a channel
through which the contaminants migrate to an uncontaminated water source.
Litigation arising from any such occurrences may result in the Company's being
named as a defendant in lawsuits asserting large claims. Although the Company
maintains insurance protection that it considers economically prudent, there can
be no assurance that any such insurance will be sufficient or effective under
all circumstances or against all claims or hazards to which the Company may be
subject or that the Company will be able to continue to obtain such insurance
protection. A successful claim or damage resulting from a hazard for which the
Company is not fully insured could have a material adverse effect on the
Company. In addition, the Company does not maintain political risk insurance or
business interruption insurance with respect to its foreign operations.
LEGAL PROCEEDINGS
The Company is involved in various matters of litigation, claims and
disputes which have arisen in the ordinary course of the Company's business.
While the resolution of any of these matters may have an impact on the financial
results for the period in which the matter is resolved, the Company believes
that the ultimate disposition of these matters will not, in the aggregate, have
a material adverse effect on the Company's business or consolidated financial
position.
40
<PAGE>
MANAGEMENT
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert J. Dineen 67 Chairman of the Board and Director
Andrew B. Schmitt 48 President, Chief Executive Officer and Director
Edward A. Gilhuly 37 Director
Todd A. Fisher 31 Director
Donald K. Miller 65 Director
H. Edward Coleman 59 Senior Vice President
Norman E. Mehlhorn 56 Senior Vice President
Eric R. Despain 48 Senior Vice President
Kent B. Magill 44 Vice President, General Counsel and Secretary
Jerry W. Fanska 48 Vice President--Finance and Treasurer
</TABLE>
Executive officers are appointed by and serve at the pleasure of the Board
of Directors.
ROBERT J. DINEEN. Mr. Dineen has served as Chairman of the Board of the
Company since August 1992. From May 1986 until his retirement in August 1993,
Mr. Dineen was President and Chief Executive Officer of The Marley Company, a
manufacturer and supplier of engineered equipment and services for heating,
fluid handling, control and treatment and heat exchange. Mr. Dineen is a
director of Kansas City Power & Light Company and Owens-Illinois, Inc.
ANDREW B. SCHMITT. Mr. Schmitt has served as President and Chief Executive
Officer of the Company since October 1993. For approximately two years prior to
joining the Company, Mr. Schmitt managed two privately-owned hydrostatic pump
and motor manufacturing companies and an oil and gas service company. He served
as President of the Tri-State Oil Tools Division of Baker Hughes Incorporated
from February 1988 to October 1991.
EDWARD A. GILHULY. Mr. Gilhuly has been a member of KKR since 1997. From
1995 until 1997, Mr. Gilhuly was a general partner of KKR and KKR Associates,
L.P. ("KKR Associates"); prior thereto he was an executive of KKR and a limited
partner of KKR Associates for more than five years. Mr. Gilhuly is a director of
Owens-Illinois, Inc., Owens-Illinois Group, Inc., Doubletree Hotel Corporation,
Union Texas Petroleum Holdings, Inc. and Merit Behavioral Care Corporation.
TODD A. FISHER. Mr. Fisher has been an executive of KKR since June 1993.
From July 1992 to June 1993, Mr. Fisher was an associate at Goldman, Sachs & Co.
Prior to 1992, Mr. Fisher attended the Wharton School of Business at the
University of Pennsylvania. Mr. Fisher has served as a director of Merit
Behavioral Care Corporation since October 1995.
DONALD K. MILLER. Mr. Miller has been Chairman of the Board of Greylock
Financial, Inc., a corporation engaged in merchant banking, since 1987. In
addition, Mr. Miller has been since 1987 a special limited partner of Greylock
Investments Limited Partnership ("Greylock"), a limited partnership engaged in
making investments. From November 1990 to April 1993 Mr. Miller was Chairman and
Chief Executive Officer, and from April 1993 to November 1994 Mr. Miller was
Vice Chairman, of Thomson Advisory Group L.P., an asset management company. Mr.
Miller served as Chairman of the Board of Directors of CBC from 1986 to December
1995. Mr. Miller was involved in the formation of Christensen Boyles and in the
acquisition of Boyles Bros. Drilling Company and Christensen Mining Products. He
currently is on the
41
<PAGE>
Board of Directors of Fibreboard Corporation, Huffy Corporation, PIMCO Advisors
L.P. and RPM, Inc. and has spent the majority of his career in investment
banking or as an investor focusing on a variety of industries.
H. EDWARD COLEMAN. Mr. Coleman has served as an officer of the Company
since 1976 and as its Senior Vice President since 1985 and is responsible for
most of the Company's operations in the eastern half of the country. Mr. Coleman
has over 35 years experience in various areas of the Company's operations.
NORMAN E. MEHLHORN. Mr. Mehlhorn has served as the Company's Senior Vice
President since September 1992 and as Vice President from 1986 to September 1992
and is responsible for most of the Company's operations in the western half of
the country. Mr. Mehlhorn has nearly 40 years experience in the drilling
business, with particular emphasis on dual tube drilling technology.
ERIC R. DESPAIN. Mr. Despain has served as the Company's Senior Vice
President since February 1996. Prior to joining the Company in December 1995,
Mr. Despain was President and a member of the Board of Directors of CBC since
1986.
KENT B. MAGILL. Mr. Magill has served as the Company's Vice President
General Counsel and Secretary since August 1992 and served as Vice President and
Associate General Counsel of Marley since May 1989.
JERRY W. FANSKA. Mr. Fanska has served as the Company's Vice
President--Finance and Treasurer since April 1994 and as Controller since
December 1993. Prior to joining Layne Christensen, Mr. Fanska served as
corporate controller of Marley since October 1992 and as Internal Audit Manager
of Marley since April 1984.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of June 1, 1997,
regarding the beneficial ownership of Layne Christensen Common Stock by (i) each
person known to the Board of Directors to own beneficially 5% or more of the
Company's Common Stock, (ii) each director of the Company, (iii) certain named
executive officers, (iv) all directors and executive officers of the Company as
a group and (v) each stockholder who is selling Common Stock in this offering
(the "Selling Stockholders"). Information with respect to beneficial ownership
has been furnished by each respective director, officer, 5% or more stockholder
or Selling Stockholder, as the case may be.
As of June 1, 1997, Marley Holdings, L.P. owned 4,607,986 shares of Common
Stock. Marley G.P., Inc. is the sole general partner of Marley Holdings, L.P.
KKR Associates is a limited partner of Marley Holdings, L.P. and the general
partner of three limited partners of Marley Holdings, L.P. (Marley Associates,
Marley Partners, L.P. and KKR Partners). In connection with the offering, Marley
Holdings, L.P. will distribute its shares of Common Stock on a pro rata basis to
Marley G.P., Inc. and to KKR Associates, Marley Associates, Marley Partners,
L.P., KKR Partners and the other limited partners of Marley Holdings, L.P.,
including Messrs. Dineen and Coleman (the "Distribution"). The table below sets
forth the share ownership of the Common Stock after giving effect to the
Distribution. Except as set forth in the table, neither Marley G.P., Inc. nor
any of the limited partners of Marley Holdings, L.P. will own more than 5% of
the outstanding Common Stock following the Distribution. As a result of the
filing of the Registration Statement of which this Prospectus is a part, the
partners of Marley Holdings, L.P. will have the right to include their shares of
Common Stock in the offering, and certain former stockholders of CBC will have
the right to include a portion of their shares of Common Stock in the offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED AFTER BENEFICIALLY OWNED
DISTRIBUTION AND PRIOR AFTER DISTRIBUTION AND
TO OFFERING(1) NUMBER OFFERING(1)(2)
----------------------- OF SHARES -------------------------
NAME NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------------------------------- ---------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
KKR Associates(3)................................ 3,930,936 44.3% -- 2,067,000 19.4%
Marley Associates................................ 1,265,596 14.3% 1,265,596 -- --
Marley Partners, L.P............................. 378,989 4.3% 378,989 -- --
KKR Partners..................................... 219,351 2.5% 219,351 -- --
Chesterfield Investments......................... 216,412 2.4% 216,412 -- --
D.P. Investments, L.P............................ 88,344 * 88,344 -- --
Inex Holdings.................................... 37,662 * 37,662 -- --
Greylock Investments
Limited Partnership(4)......................... 740,404 8.3%
Robert P. Henderson(4)........................... 740,404 8.3%
Shapiro Capital
Management Co., Inc.(5)........................ 621,600 7.0% -- 621,600 5.8%
Robert J. Dineen(6).............................. 152,683 1.7% -- 152,683 1.4%
Andrew B. Schmitt(6)............................. 280,000 3.1% -- 280,000 2.6%
Donald K. Miller(7).............................. 208,329 2.4%
Edward A. Gilhuly(3)(8).......................... -- -- -- -- --
Todd A. Fisher(3)(8)............................. -- -- -- -- --
H. Edward Coleman(6)............................. 93,767 1.1% -- 93,767 *
Norman E. Mehlhorn(6)............................ 74,295 * -- 74,295 *
Kent B. Magill(6)................................ 53,255 * -- 53,255 *
Eric R. Despain.................................. 91,324 1.0% -- 91,324 *
All directors and officers as a group (10
persons)(9).................................... 997,262 10.7%
-------------
-------------
3,300,000
</TABLE>
- ------------------------
* Less than 1%.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
43
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities and includes shares
of common stock issuable pursuant to the exercise of stock options that are
immediately exercisable or exercisable within 60 days. Unless otherwise
indicated, the persons or entities identified in this table have sole voting
and investment power with respect to all shares shown as beneficially owned
by them. Percentage ownership calculations prior to and after the offering
are based on 8,874,991 shares and 10,643,562, respectively, of Common Stock
outstanding.
(2) Gives effect to the issuance of a total of 1,700,000 shares sold in the
offering.
(3) The 3,930,936 shares of Common Stock designated as beneficially owned by KKR
Associates prior to the offering consist of (i) an aggregate of 1,863,936
shares owned by Marley Associates, Marley Partners, L.P. and KKR Partners
(the "Limited Partnerships"), all of which are being sold in the offering,
and (ii) 2,067,000 shares owned directly by KKR Associates. KKR Associates
is the sole general partner of each Limited Partnership and in such capacity
may be deemed to share beneficial ownership of the shares owned by the
Limited Partnerships. Mr. Gilhuly, Henry R. Kravis, George R. Roberts, Paul
E. Raether, Robert I. MacDonnell, Michael W. Michelson, James H. Greene,
Jr., Michael T. Tokarz, Perry Golkin, Clifton S. Robbins and Scott Stuart
are the general partners of KKR Associates, and Messrs. Kravis and Roberts
are also the members of the Executive Committee of KKR Associates, and in
such capacity may be deemed to share beneficial ownership of the shares of
Common Stock that KKR Associates may beneficially own or be deemed to
beneficially own. Mr. Gilhuly is a director of the Company. Mr. Fisher, a
director of the Company, is a limited partner of KKR Associates. The
foregoing persons disclaim beneficial ownership of the shares owned by KKR
Associates. The business address of KKR Associates is 9 West 57th Street,
New York, New York 10019.
(4) The 740,404 shares reported may be deemed to be beneficially owned by
Greylock Investments Limited Partnership ("Greylock") and, by virtue of his
status as the general partner of Greylock, Robert P. Henderson also may be
deemed the beneficial owner of such shares. Of the 740,404 shares, 317,645
shares are subject to the provisions of an escrow agreement, pursuant to
which some or all of such 317,645 shares are subject to forfeiture. Greylock
and Mr. Henderson each has sole voting power with respect to 740,404 shares
and sole investment power with respect to 422,759 shares. Neither Greylock
nor Mr. Henderson has shared voting or investment power with respect to any
shares. The address for Greylock and Mr. Henderson is One Federal Street,
Boston, Massachusetts 02110.
(5) According to its Schedule 13G filed with the Securities and Exchange
Commission on February 18, 1997, Shapiro Capital Management Co., Inc.
("Shapiro") is an investment adviser under the Investment Advisers Act of
1940. One or more of Shapiro's advisory clients is the legal owner of the
securities reported herein. Pursuant to the investment advisory agreements
with its clients, Shapiro has the authority to direct the investments of its
advisory clients, and subsequently to authorize the disposition of the
Company's shares. Samuel R. Shapiro is the president, a director and
majority shareholder of Shapiro, in which capacity he exercises dispositive
power over the securities reported herein by Shapiro. Mr. Shapiro,
therefore, may be deemed to have indirect beneficial ownership over such
securities. Unless otherwise indicated herein, Mr. Shapiro has no interest
in dividends or proceeds from the sale of such securities, owns no such
securities for his own account and disclaims beneficial ownership of all the
securities reported herein by Shapiro. As of December 31, 1996, Mr. Shapiro
owned no shares of Common Stock for his own account. He may be deemed to be
the beneficial owner of 2,500 shares owned by his wife and the remaining
619,100 shares of Common Stock reported herein. The business address of
Shapiro is 3060 Peachtree Road, N.W., Atlanta, Georgia 30305.
(6) Includes options for the purchase of 72,164 shares, 210,000 shares, 39,733
shares, 51,254 shares and 35,894 shares of Common Stock exercisable within
60 days granted to Messrs. Dineen, Schmitt, Coleman, Mehlhorn and Magill,
respectively.
(7) Includes 5,708 shares owned by Mr. Miller's two sons. Of the 208,329 shares
reported, 95,888 shares are held in trust for Mr. Miller and 89,377 shares
(including 2,450 shares owned by Mr. Miller's sons) are subject to the
provisions of an escrow agreement, pursuant to which some or all of such
89,377 shares are subject to forfeiture. Mr. Miller has sole voting power
with respect to 202,621 shares and sole investment power with respect to
115,694 shares. Mr. Miller has shared voting power with respect to 5,708
shares and shared investment power with respect to 3,258 shares.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
44
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
(8) Prior to and after the offering, Marley G.P., Inc., the sole general partner
of Marley Holdings, L.P., will own 53,436 shares of Common Stock which it
will receive as a result of the Distribution. The stockholders of Marley
G.P., Inc. are general and limited partners of KKR Associates. Mr. Gilhuly
is the Treasurer of Marley G.P., Inc. and a general partner of KKR
Associates. Mr. Fisher is a limited partner of KKR Associates. Messrs.
Gilhuly and Fisher disclaim any beneficial ownership of the shares owned by
Marley G.P., Inc.
(9) Includes options for the purchase of 437,045 shares of the Company's Common
Stock exercisable within 60 days granted to all directors and officers of
the Company as a group.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $0.01 par value per share, of which 10,643,562 shares (including
68,571 shares to be issued to Mr. Stanley in connection with the Stanley
Acquisition) will be outstanding upon the completion of this offering and
5,000,000 shares of preferred stock, $0.01 par value per share (the "Preferred
Stock"), none of which will be outstanding. The following description of the
capital stock of the Company and certain provisions of the Company's Restated
Certificate of Incorporation and Bylaws are qualified in their entirety by
reference to such documents, copies of which have been previously filed with the
Securities and Exchange Commission. As of June 1, 1997, the Company's Common
Stock was held of record by 207 stockholders.
COMMON STOCK
Except as otherwise required by law, holders of Common Stock are entitled to
one vote for each share of Common Stock held on all matters submitted to a vote
of stockholders. There is no cumulative voting for the election of directors,
which means that the holders of a majority of the shares voted in the election
of directors can elect all of the directors they nominate for election. In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock, subject to the rights of holders of any Preferred Stock then
outstanding, are entitled to share ratably in all remaining assets available for
distribution to stockholders.
Holders of Common Stock have no preemptive rights. There are no redemption
or sinking fund provisions applicable to the Common Stock. The Common Stock is
not convertible into any other class of security. All of the outstanding shares
of Common Stock are, and the shares being offered by the Company hereunder will
be, upon issuance and sale, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
stockholder action, to cause the issuance of and to divide any or all shares of
authorized Preferred Stock into series and to fix and determine the
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereon, of any series so
established, including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion principles. As of the date of this Prospectus,
the Board of Directors of the Company has not authorized any series of Preferred
Stock and there are no plans, agreements or understandings for the issuance of
any shares of Preferred Stock.
REGISTRATION AND OTHER RIGHTS
Under the terms of a Registration Rights Agreement by and between the
Company and Marley Holdings, L.P., dated as of November 30, 1995, and a
Stockholders Agreement (the "Stockholders Agreement") between the Company and
certain stockholders of the Company, dated December 28, 1995 (collectively, the
"Agreements"), following the closing of this offering the holders of
approximately shares of Common Stock (the "Registrable Securities") will
be entitled to certain rights with respect to the registration of such shares
under the Securities Act. Pursuant to the terms and conditions of the
Agreements, holders of Registrable Securities may require the Company to
register their shares at the Company's expense. In addition, holders of
Registrable Securities have the right to have any or all of their Registrable
Securities included, at the Company's expense, in a registration statement
relating to Common Stock filed by the Company, subject to certain limitations,
including the right of the underwriter to limit the number of shares of
Registrable Securities to be included in the registration. In connection with
such registrations, the Company is required to indemnify the holders
participating in an offering of Registrable Securities against certain
liabilities, including civil liabilities under the Securities Act.
Pursuant to the Stockholders Agreement, Marley Holdings, L.P. has and,
subsequent to the offering contemplated hereby, KKR Associates will have certain
rights of first refusal with respect to sales by
46
<PAGE>
former CBC stockholders of an aggregate of shares of Common Stock. In
addition, in connection with the CBC Merger, certain former CBC stockholders
holding an aggregate of approximately 1,500,000 shares of Common Stock as of
June 1, 1997, a portion of which will be sold in this offering, agreed to vote
their shares of Common Stock through December 2001 for a Board consisting of
five directors and the election as directors of four individuals designated by
KKR.
The Company has entered into agreements with certain officers and directors
of the Company granting piggyback registration rights and co-sale rights with
respect to an aggregate of 339,374 shares of Common Stock beneficially owned by
such officers and directors as of June 1, 1997, including their shares subject
to stock options.
CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
CLASSIFIED BOARD; REMOVAL OF DIRECTORS; BOARD VACANCIES. The Company's
Restated Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes as nearly equal in size as practicable.
Each class holds office until the third annual meeting for election of directors
following the election of such class. A director may be removed without cause
either by (i) a majority vote of the directors then in office (including, for
purposes of calculating the number of directors then in office, the director
subject to such removal vote) or (ii) the vote of 80% of the capital stock
entitled to vote for the election of directors. In addition, the provision
relating to the classified board may be amended only upon the vote of the
holders of at least 80% of the capital stock entitled to vote for the election
of directors. A majority of the remaining directors then in office, even though
less than a quorum, may fill any vacancy in the Board of Directors.
SPECIAL MEETINGS OF STOCKHOLDERS; STOCKHOLDER ACTION BY WRITTEN CONSENT.
The Restated Certificate of Incorporation provides that actions may be taken by
the stockholders of the Company only at annual or special meetings of
stockholders and not by written consent. Special meetings of the stockholders of
the Company may be called only by the Board of Directors, a majority of the
Board of Directors or by a duly designated committee of the Board of Directors
whose powers and authority include the power to call such meetings.
SECTION 203 OF DELAWARE CORPORATION LAW. The Company is subject to Section
203 of the Delaware General Corporation Law, which generally prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the time that
the person became an interested stockholder, unless (i) prior to such time the
Board of Directors of the corporation approved either the business combination
or the transaction in which the person became an interested stockholder, (ii)
upon consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by officers or directors of the corporation
and by certain employee stock plans, or (iii) at or after such time the business
combination is approved by the Board of Directors of the corporation and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock of the
corporation that is not owned by the interested stockholder. A "business
combination" generally includes mergers, asset sales and similar transactions
between the corporation and the interested stockholder, and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns 15% or more of
the corporation's voting stock or who is an affiliate or associate of the
corporation and, together with his or her affiliates and associates, has owned
15% or more of the corporation's voting stock within three years.
TRANSFER AGENT AND REGISTRAR
National City Bank is the transfer agent and registrar for the Common Stock.
47
<PAGE>
UNDERWRITING
Piper Jaffray Inc. and Dillon, Read & Co. Inc. (the "Underwriters") have
severally agreed, subject to the terms of the Purchase Agreement, to purchase
from the Company and the Selling Stockholders the number of shares of Common
Stock set forth opposite their names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Piper Jaffray Inc..........................................................
Dillon, Read & Co. Inc.....................................................
Total.................................................................. 5,000,000
-----------------
-----------------
</TABLE>
The Company has been advised that the Underwriters propose to offer the
shares to the public at the Price to Public set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow
a concession not in excess of $ per share on sale to certain other
brokers and dealers. After the offering, the Price to Public, concession and
reallowance may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, under which the
Underwriters may purchase up to an additional 750,000 shares of Common Stock
from the Company at the Price to Public less the Underwriting Discount set forth
on the cover page of the Prospectus. The Underwriters may exercise the option
only to cover over-allotments, if any. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as it was
obligated to purchase pursuant to the Purchase Agreement.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments which the Underwriters may be
required to make in respect thereof.
The Company and each of the Company's directors, executive officers and
certain principal stockholders and Selling Stockholders have agreed, for a
period of 90 days after the date of this Prospectus, not to directly or
indirectly offer for sale, sell, contract to sell, grant any option for the sale
of, or otherwise issue or dispose of, any shares of Common Stock, options or
warrants to acquire shares of Common Stock, or any security or instrument
related thereto, without the prior written consent of Piper Jaffray Inc., except
for (i) sales to the Underwriters pursuant to the Purchase Agreement, (ii) in
the case of the Company, sales in connection with the exercise of options
granted pursuant to the Company's existing stock option plans and (iii) certain
other exceptions.
In order to facilitate the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company and the Selling Stockholders. The Underwriters may elect to cover
any such short position by purchasing shares of Common Stock in the open market
or by exercising the over-allotment option granted to the Underwriters. In
addition, the Underwriters may stabilize or maintain the price of the Common
Stock by bidding for or purchasing shares of Common Stock in the open market and
may impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in the offering are reclaimed if
shares of Common Stock previously distributed in the offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the Common Stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such
48
<PAGE>
stabilization or other transactions. Such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
In connection with this offering, certain Underwriters (and selling group
members) may also engage in passive market making transactions in the Common
Stock on the Nasdaq National Market. Passive market making consists of
displaying bids on the Nasdaq National Market limited by the prices of
independent market makers and effecting purchases limited by such prices and in
response to order flow. Rule 103 of Regulation M promulgated by the Securities
and Exchange Commission limits the amount of net purchases that each passive
market maker may make and the displayed size of each bid. Passive market making
may stabilize the market price of the Common Stock at a level above that which
might otherwise prevail in the open market and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Latham & Watkins, Menlo Park, California. Certain legal
matters will be passed upon for the Underwriters by Faegre & Benson LLP,
Minneapolis, Minnesota. Certain partners of Latham & Watkins, members of their
families, related persons and others, have an indirect interest, through limited
partnerships, in less than 1% of the Common Stock of the Company. Such persons
do not have the power to vote or dispose of such shares of Common Stock.
EXPERTS
The Consolidated Financial Statements of Layne Christensen Company as of
January 31, 1997 and 1996 and for each of the three years in the period ended
January 31, 1997 included and incorporated by reference in this Prospectus and
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is included and
incorporated by reference herein, and has been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The Consolidated Financial Statements of Stanley as of June 30, 1996 and
1995 and for each of the years in the two-year period ended June 30, 1996, have
been included herein and in the registration statement in reliance upon the
report of KPMG, chartered accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The Financial Statements of G&K as of and for the year ended June 30, 1996
have been included herein and in the registration statement in reliance upon the
report of KPMG, chartered accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The reports of KPMG covering the financial statements of Stanley and G&K
contain explanatory paragraphs that state that accounting principles generally
accepted in Australia vary in certain significant respects from accounting
principles in the United States. The application of United States generally
accepted accounting principles would have affected results of operations and
shareholders' equity, to the extent summarized in Note 33 to the Consolidated
Financial Statements of Stanley and Note 7 to the Financial Statements of G&K.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement on Form S-2 under the Securities Act
with respect to the shares of Common Stock offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which are omitted as permitted by the rules and
regulations of the Securities and Exchange Commission. For further information
with respect to the Company and the shares offered by this Prospectus, reference
is made to the Registration Statement, including the exhibits and
49
<PAGE>
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any contract or any other document referred to herein or therein are
not necessarily complete, and in each instance reference is made to the copy of
such contract or document filed as an exhibit to the registration statement or
such other document, each such statement being qualified in all respects by such
reference. Copies of the Registration Statement (of which this Prospectus is a
part), together with such exhibits and schedules, may be obtained upon payment
of the fee prescribed by the Securities and Exchange Commission or may be
examined without charge at the office of the Securities and Exchange Commission.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files annual and quarterly reports, proxy
statements and other information with the Securities and Exchange Commission.
The Registration Statement, including the exhibits thereto, as well as such
reports and other information filed by the Company with the Securities and
Exchange Commission, can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C., 20549; 7 World Trade Center, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Securities and Exchange Commission also maintains a site
on the World Wide Web at http://www.sec.gov that contains reports and other
information regarding registrants that file electronically with the Commission,
and certain of the Company's filings are available at such web site.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus are (i) Layne Christensen's
Annual Report on Form 10-K for the fiscal year ended January 31, 1997 (including
such information as is incorporated by reference from the Company's Proxy
Statement for the Annual Meeting of Stockholders held on May 22, 1997, filed
with the Securities and Exchange Commission on April 18, 1997), as amended; (ii)
the Company's Quarterly Report on Form 10-Q for the quarter ended April 30,
1997; and (iii) the Company's Current Report on Form 8-K filed with the
Commission on April 9, 1997 pursuant to Section 13 of the Securities Exchange
Act of 1934. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, including any beneficial owner of Common
Stock, on the written or oral request of such person, a copy of any or all of
the foregoing documents incorporated by reference in this Prospectus, other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates. Written or
oral requests for such copies should be directed to the Secretary, Layne
Christensen Company, 1990 Shawnee Mission Parkway, Mission Woods, Kansas 66205
(telephone: (913) 362-0510).
50
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
Independent Auditors' Report............................................................................... F-2
Financial Statements:
Consolidated Balance Sheets as of January 31, 1997 and 1996 and April 30, 1997 (unaudited)............... F-3
Consolidated Statements of Income for the Years Ended January 31, 1997, 1996 and 1995 and for the Three
Months Ended April 30, 1997 and 1996 (unaudited)....................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 1997, 1996 and 1995 and
for the Three Months Ended April 30, 1997 (unaudited).................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended January 31, 1997, 1996 and 1995 and for the
Three Months Ended April 30, 1997 and 1996 (unaudited)................................................. F-6
Notes to Consolidated Financial Statements (schedules have been omitted because they are not applicable
or not required as the information is included in the consolidated financial statements of the Company
or Notes thereto)...................................................................................... F-8
STANLEY MINING SERVICES LIMITED
Report of Independent Auditors............................................................................. F-26
Consolidated Statements of Profit for the Years Ended June 30, 1996 and 1995............................... F-27
Consolidated Balance Sheets as of June 30, 1996 and 1995................................................... F-28
Consolidated Statements of Changes in Shareholders' Equity for Years Ended June 30, 1996 and 1995.......... F-29
Consolidated Statements of Cash Flows for the Years Ended June 30, 1996 and 1995........................... F-30
Notes to Consolidated Financial Statements................................................................. F-31
Unaudited Consolidated Statements of Profit for the Half Years Ended 31 December 1996 and 1995............. F-62
Unaudited Consolidated Balance Sheets as of 31 December 1996 and 1995...................................... F-63
Unaudited Consolidated Statements of Changes in Shareholders' Equity for the Half Years 31 December 1996
and 1995................................................................................................. F-64
Unaudited Consolidated Statements of Cash Flows for the Half Years Ended 31 December 1996 and 1995......... F-65
Notes to Unaudited Consolidated Financial Statements....................................................... F-67
GLINDEMANN & KITCHING PTY LTD.
Report of Independent Auditors............................................................................. F-76
Statement of Profit for the Year Ended June 30, 1996....................................................... F-77
Balance Sheet as of June 30, 1996.......................................................................... F-78
Statement of Changes in Shareholders' Equity for the Year Ended June 30, 1996.............................. F-79
Statement of Cash Flows for the Year Ended June 30, 1996................................................... F-80
Notes to Financial Statements.............................................................................. F-81
Unaudited Statements of Profit for the Half Years Ended 31 December 1996 and 1995.......................... F-93
Unaudited Balance Sheets as of 31 December 1996 and 1995................................................... F-93
Unaudited Statements of Changes in Shareholders' Equity for the Half Years Ended 31 December 1996 and
1995..................................................................................................... F-94
Unaudited Statements of Cash Flows for the Half Years Ended 31 December 1996 and 1995...................... F-95
Notes to Unaudited Financial Statements.................................................................... F-96
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Layne Christensen Company:
We have audited the accompanying consolidated balance sheets of Layne
Christensen Company and subsidiaries (together, the "Company") as of January 31,
1997 and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended January
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of January 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended January 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 7, 1997
(May 20, 1997 as to Note 14)
F-2
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1997 AND 1996
AND APRIL 30, 1997 (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
<S> <C> <C> <C>
ASSETS APRIL 30, 1997 1997 1996
-------------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................................................ $ 1,218 $ 1,697 $ 382
Customer receivables, less allowances of $1,349, $1,002 and $887, respectively........... 38,608 32,031 33,572
Costs and estimated earnings in excess of billings on uncompleted contracts.............. 12,126 10,284 9,777
Inventories.............................................................................. 19,024 17,739 15,495
Deferred income taxes.................................................................... 6,275 6,356 7,082
Other.................................................................................... 1,423 1,675 1,305
-------------- --------- ---------
Total current assets................................................................. 78,674 69,782 67,613
-------------- --------- ---------
Property and equipment:
Land..................................................................................... 7,922 7,922 4,469
Buildings................................................................................ 13,793 13,555 12,064
Machinery and equipment.................................................................. 103,959 101,945 93,497
-------------- --------- ---------
125,674 123,422 110,030
Less--Accumulated depreciation........................................................... (71,276) (69,015) (62,141)
-------------- --------- ---------
Net property and equipment........................................................... 54,398 54,407 47,889
-------------- --------- ---------
Other assets:
Investment in foreign affiliates......................................................... 17,660 17,172 14,921
Investment in domestic affiliate......................................................... -- -- 2,203
Intangible assets, at cost less accumulated amortization................................. 553 521 525
Property and equipment held for sale..................................................... 536 713 198
Other.................................................................................... 1,020 1,055 828
-------------- --------- ---------
Total other assets................................................................... 19,769 19,461 18,675
-------------- --------- ---------
$ 152,841 $ 143,650 $ 134,177
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable......................................................................... $ 12,614 $ 12,550 $ 13,225
Current maturities of long-term debt..................................................... 117 114 105
Accrued compensation..................................................................... 6,513 8,348 8,869
Accrued insurance expense................................................................ 5,060 5,410 4,936
Accrued integration costs................................................................ 702 787 2,703
Other accrued expenses................................................................... 7,884 6,876 7,088
Billings in excess of costs and estimated earnings on uncompleted contracts.............. 8,212 6,054 3,891
-------------- --------- ---------
Total current liabilities............................................................ 41,102 40,139 40,817
-------------- --------- ---------
Non-current and deferred liabilities:
Long-term debt........................................................................... 35,783 30,314 28,428
Deferred income taxes.................................................................... 3,347 3,307 2,323
Accrued insurance expense................................................................ 6,174 5,775 6,198
Other.................................................................................... 1,935 1,451 2,439
-------------- --------- ---------
Total non-current and deferred liabilities........................................... 47,239 40,847 39,388
-------------- --------- ---------
Contingencies(Note 10)
Stockholders' equity:
Preferred stock, par value $.01 per share, 5,000,000 shares authorized, none issued and
outstanding............................................................................ -- -- --
Common stock, par value $.01 per share, 30,000,000 shares authorized, 8,874,991,
8,871,467 and 8,839,845 shares issued and outstanding, respectively.................... 89 89 88
Capital in excess of par value........................................................... 39,407 39,293 38,954
Retained earnings........................................................................ 25,870 24,187 16,170
Notes receivable from management stockholders............................................ (175) (199) (313)
Unrecognized pension cost................................................................ (604) (624) (777)
Cumulative translation adjustment........................................................ (87) (82) (150)
-------------- --------- ---------
Total stockholders' equity....................................................... 64,500 62,664 53,972
-------------- --------- ---------
$ 152,841 $ 143,650 $ 134,177
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
AND THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30, FISCAL YEAR ENDED JANUARY 31,
---------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1995
------------- ------------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues........................ $ 49,471 $ 47,256 $ 196,544 $ 153,755 $ 156,121
Product sales........................... 8,279 6,517 26,309 13,516 10,709
------------- ------------- ---------- ---------- ----------
Total revenues...................... 57,750 53,773 222,853 167,271 166,830
------------- ------------- ---------- ---------- ----------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues................ 36,202 34,976 142,562 111,061 115,231
Cost of product sales................... 5,943 4,727 19,040 11,017 8,583
------------- ------------- ---------- ---------- ----------
Total cost of revenues.............. 42,145 39,703 161,602 122,078 123,814
------------- ------------- ---------- ---------- ----------
Gross profit.............................. 15,605 14,070 61,251 45,193 43,016
Selling, general and administrative
expenses................................ 10,327 9,737 38,956 28,260 28,860
Depreciation.............................. 2,832 2,841 10,974 8,233 7,811
------------- ------------- ---------- ---------- ----------
Operating income.......................... 2,446 1,492 11,321 8,700 6,345
Other income (expense):
Equity earnings of foreign affiliates... 820 1,102 3,895 -- --
Interest................................ (614) (679) (2,447) (767) (779)
Other, net.............................. 62 90 161 407 (84)
------------- ------------- ---------- ---------- ----------
Income before income taxes................ 2,714 2,005 12,930 8,340 5,482
Income tax expense........................ 1,031 902 4,913 3,753 2,522
------------- ------------- ---------- ---------- ----------
Net income................................ $ 1,683 $ 1,103 $ 8,017 $ 4,587 $ 2,960
------------- ------------- ---------- ---------- ----------
------------- ------------- ---------- ---------- ----------
Net income per common and dilutive
equivalent share........................ $ 0.18 $ 0.12 $ 0.88 $ 0.61 $ 0.40
------------- ------------- ---------- ---------- ----------
------------- ------------- ---------- ---------- ----------
Weighted average number of common and
dilutive equivalent shares outstanding:
Weighted average shares outstanding... 8,872,000 8,845,000 8,865,000 7,451,000 7,301,000
Dilutive stock options................ 362,000 67,000 281,000 66,000 47,000
------------- ------------- ---------- ---------- ----------
9,234,000 8,912,000 9,146,000 7,517,000 7,348,000
------------- ------------- ---------- ---------- ----------
------------- ------------- ---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
AND THE THREE MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
COMMON STOCK CAPITAL IN FROM UNRECOGNIZED
---------------------- EXCESS OF RETAINED MANAGEMENT PENSION
SHARES AMOUNT PAR VALUE EARNINGS STOCKHOLDERS COST
--------- ----------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1994.............. 7,301,002 $ 73 $ 29,580 $ 8,623 $ (391) $ (516)
Issuance of notes receivable from
management......................... -- -- -- -- (50) --
Payments on notes receivables........ -- -- -- -- 106 --
Unrecognized pension liability....... -- -- -- -- -- 28
Net income........................... -- -- -- 2,960 -- --
Cumulative translation adjustment.... -- -- -- -- -- --
--------- --- ----------- ----------- ----- -----
Balance, January 31, 1995.............. 7,301,002 73 29,580 11,583 (335) (488)
Issuance of stock for acquisition.... 1,506,194 15 9,158 -- -- --
Issuance of stock for incentive
compensation program............... 32,649 -- 216 -- -- --
Payments on notes receivable......... -- -- -- -- 22 --
Unrecognized pension liability....... -- -- -- -- -- (289)
Net income........................... -- -- -- 4,587 -- --
Cumulative translation adjustment.... -- -- -- -- -- --
--------- --- ----------- ----------- ----- -----
Balance, January 31, 1996.............. 8,839,845 88 38,954 16,170 (313) (777)
Issuance of stock for incentive
compensation program............... 31,622 1 339 -- -- --
Payments on notes receivable......... -- -- -- -- 114 --
Unrecognized pension liability....... -- -- -- -- -- 153
Net income........................... -- -- -- 8,017 -- --
Cumulative translation adjustment.... -- -- -- -- -- --
--------- --- ----------- ----------- ----- -----
Balance, January 31, 1997.............. 8,871,467 89 39,293 24,187 (199) (624)
Unaudited:
Issuance of stock for incentive
compensation program............... 3,524 -- 114 -- -- --
Payments on notes receivable......... -- -- -- -- 24 --
Unrecognized pension liability....... -- -- -- -- -- 20
Net income........................... -- -- -- 1,683 -- --
Cumulative translation adjustment.... -- -- -- -- -- --
--------- --- ----------- ----------- ----- -----
Balance, April 30, 1997 (unaudited).... 8,874,991 $ 89 $ 39,407 $ 25,870 $ (175) $ (604)
--------- --- ----------- ----------- ----- -----
--------- --- ----------- ----------- ----- -----
<CAPTION>
CUMULATIVE
TRANSLATION
ADJUSTMENT
---------------
<S> <C>
Balance, February 1, 1994.............. $ (21)
Issuance of notes receivable from
management......................... --
Payments on notes receivables........ --
Unrecognized pension liability....... --
Net income........................... --
Cumulative translation adjustment.... (119)
---
Balance, January 31, 1995.............. (140)
Issuance of stock for acquisition.... --
Issuance of stock for incentive
compensation program............... --
Payments on notes receivable......... --
Unrecognized pension liability....... --
Net income........................... --
Cumulative translation adjustment.... (10)
---
Balance, January 31, 1996.............. (150)
Issuance of stock for incentive
compensation program............... --
Payments on notes receivable......... --
Unrecognized pension liability....... --
Net income........................... --
Cumulative translation adjustment.... 68
---
Balance, January 31, 1997.............. (82)
Unaudited:
Issuance of stock for incentive
compensation program............... --
Payments on notes receivable......... --
Unrecognized pension liability....... --
Net income........................... --
Cumulative translation adjustment.... (5)
---
Balance, April 30, 1997 (unaudited).... $ (87)
---
---
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
AND THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, FISCAL YEAR ENDED JANUARY 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income................................................... $ 1,683 $ 1,103 $ 8,017 $ 4,587 $ 2,960
Adjustments to reconcile net income to cash from operations:
Depreciation and amortization................................ 2,877 2,872 11,261 8,392 7,978
Deferred income taxes........................................ 511 313 1,710 (48) 677
Equity earnings of foreign affiliates........................ (820) (1,102) (3,895) -- --
Dividends received from foreign affiliates................... 351 482 1,990 279 --
(Gain) loss from disposal of property and equipment.......... (22) (19) 110 (330) (164)
Changes in current assets and liabilities, net of effects
from acquisitions:
(Increase) decrease in customer receivables................ (6,577) (1,120) 2,275 (1,490) 1,884
Increase in costs and estimated earnings in excess of
billings on uncompleted contracts........................ (1,842) (2,491) (507) (402) (1,059)
(Increase) decrease in inventories......................... (1,285) (533) (1,623) (345) 996
(Increase) decrease in other current assets................ 252 (656) (370) (185) 1,202
Increase (decrease) in accounts payable and accrued
expenses................................................. (1,588) (2,050) (2,987) (5,374) 8,478
Increase in billings in excess of costs and estimated
earnings on uncompleted contracts........................ 2,158 409 2,163 1,304 786
Other, net................................................. 1,012 296 (1,028) 880 (430)
--------- --------- --------- --------- ---------
Cash from operating activities............................. (3,290) (2,496) 17,116 7,268 23,308
--------- --------- --------- --------- ---------
Cash flow from investing activities:
Additions to property and equipment.......................... (2,873) (3,168) (18,544) (12,454) (8,732)
Proceeds from disposal of property and equipment............. 25 -- 1,070 798 348
Proceeds from disposal of property held for disposal......... 182 179 -- 486 1,386
Acquisition, net of cash acquired............................ -- -- -- (22,801) --
Investment in foreign affiliate.............................. (19) -- (346) (200) --
Investment in domestic affiliate............................. -- 180 282 (118) --
--------- --------- --------- --------- ---------
Cash from investing activities............................... (2,685) (2,809) (17,538) (34,289) (6,998)
--------- --------- --------- --------- ---------
</TABLE>
(CONTINUED)
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
AND THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, FISCAL YEAR ENDED JANUARY 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from financing activities:
Proceeds from long-term debt.................................. -- 25,000 25,000 25,000 --
Net borrowings under revolving credit facility................ 5,500 4,000 500 3,500 --
Repayments of long-term debt.................................. (28) (23,526) (23,605) (1,508) (21,900)
Issuance of notes receivable from management stockholders..... -- -- -- -- (50)
Payments on notes receivable from management stockholders..... 24 21 114 22 106
Debt issuance costs........................................... -- (191) (272) (190) (92)
--------- --------- --------- --------- ---------
Cash from financing activities................................ 5,496 5,304 1,737 26,824 (21,936)
--------- --------- --------- --------- ---------
Effects of exchange rate changes on cash........................ -- -- -- -- (401)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents............ (479) (1) 1,315 (197) (6,027)
Cash and cash equivalents at beginning of period................ 1,697 382 382 579 6,606
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period...................... $ 1,218 $ 381 $ 1,697 $ 382 $ 579
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business--Layne Christensen Company and subsidiaries
(together, the "Company") provides comprehensive services for water well
drilling (including related equipment sales), well repair and maintenance and
environmental drilling in most regions in the United States, and provides
mineral exploration drilling services primarily in the United States, Mexico,
Canada and South America. Its customers include municipalities, industrial
companies, mining companies and environmental consulting and engineering firms.
In addition, the Company manufactures diamond core bits, drilling rigs and other
equipment utilized in the mineral exploration and mine development markets
throughout the United States and internationally.
Fiscal Year--References to years are to the fiscal years then ended.
Investment in Affiliated Companies--Investments in affiliates (33% to 50%
owned) in which the Company exercises significant influence over operating and
financial policies are accounted for on the equity method.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated. Financial information for the
Company's foreign subsidiaries and affiliates is generally reported in the
Company's consolidated financial statements on a one month lag.
Use of Estimates in Preparing Financial Statements--The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Foreign Currency Transactions and Translation--The cash flows and financing
activities of the Company's Mexican subsidiary are primarily denominated in the
U.S. dollar. Accordingly, this subsidiary uses the U.S. dollar as its functional
currency and translates monetary assets and liabilities at year-end exchange
rates while nonmonetary items are translated at historical rates. Income and
expense accounts are translated at the average rates in effect during the year,
except for depreciation, certain cost of revenues and selling expenses. Gains or
losses from changes in exchange rates are recognized in consolidated income in
the year of occurrence.
Other foreign subsidiaries and affiliates use local currencies as their
functional currency. Assets and liabilities have been translated to U.S. dollars
at year-end exchange rates. Income and expense items have been translated at
exchange rates which approximate the average of the rates prevailing during each
year. Translation adjustments are reported as a separate component of
stockholders' equity.
Net foreign currency transaction gains and losses for the three months ended
April 30, 1997 and 1996, and 1997 and 1996 are not significant. Included in the
consolidated statement of income for 1995 are net losses of $474,000.
Revenue Recognition--Revenue is recognized on large, long-term contracts
using the percentage of completion method based upon materials installed and
labor costs incurred. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions, and
final contract settlements may result in revisions to costs and income and are
recognized in the period in
F-8
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
which the revisions are determined. Revenue is recognized on smaller, short-term
contracts using the completed contract method. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined.
Inventories--The Company values inventories at the lower of cost (first-in,
first-out, including material, labor, and manufacturing overhead costs) or
market (in thousands of dollars):
<TABLE>
<CAPTION>
JANUARY 31,
APRIL 30, --------------------
1997 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Raw materials................................................ $ 1,879 $ 1,790 $ 2,070
Work in process.............................................. 1,755 1,568 846
Finished products, parts and supplies........................ 15,390 14,381 12,579
--------- --------- ---------
Total.................................................... $ 19,024 $ 17,739 $ 15,495
--------- --------- ---------
--------- --------- ---------
</TABLE>
Property and Equipment and Related Depreciation--Property and equipment
(including major renewals and improvements) are recorded at cost. Property and
equipment held for sale is carried at the lower of depreciated cost or estimated
net realizable value. Depreciation is provided using the straight-line method.
The lives used for the more significant items within each property
classification are as follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings............................................................................ 15-35
Machinery and equipment.............................................................. 3-10
</TABLE>
Intangible Assets--Intangible assets consist of purchased technical manuals,
well records and other assets which are being amortized over their estimated
economic lives which, for the more significant items, range from three to
thirty-five years. Amortization expense for intangible assets, excluding
amortization related to foreign affiliates, was $116,000, $125,000 and $144,000
for 1997, 1996 and 1995, respectively and $45,000 and $31,000 for the three
months ended April 30, 1997 and 1996, respectively. Accumulated amortization of
intangible assets at April 30, 1997, January 31, 1997 and 1996 was $754,000,
$709,000 and $593,000, respectively.
Impairment of Long-Lived Assets--At each balance sheet date, a determination
is made by management as to whether the value of long-lived assets, including
intangible assets and assets to be disposed of, has been impaired. The
determination is based on several criteria, including, but not limited to,
revenue trends, undiscounted operating cash flows and other operating factors.
Effective February 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The adoption did not have a material effect on the consolidated financial
statements.
Accrued Insurance Expense--Costs estimated to be incurred in the future for
employee medical benefits and casualty insurance programs resulting from claims
which have occurred are accrued currently. Under the terms of the Company's
agreement with the various insurance carriers administering these
F-9
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
claims, the Company is not required to remit the total premium until the claims
are actually paid by the insurance companies (see Note 10).
Fair Value of Financial Instruments--SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments", requires disclosure of the fair value of
certain financial instruments for which it is practicable to estimate that
value. The carrying amounts of financial instruments including cash and cash
equivalents, customer receivables, accounts payable and debt approximate fair
value at January 31, 1997 and 1996 because of the relatively short maturity of
those instruments.
Consolidated Statements of Cash Flows--Highly liquid investments with a
remaining maturity of three months or less at the time of purchase are
considered cash equivalents. The Company's cash equivalents consist principally
of funds deposited in a short-term asset management account and are carried at
cost which approximates market. The amounts paid for income taxes and interest
are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
Income taxes........................................................ $ 386 $ 171 $ 2,855 $ 3,743 $ 1,625
Interest............................................................ 1,012 464 1,750 631 785
</TABLE>
Supplemental Noncash Transactions--In 1996, the Company issued 1,506,194
shares of Common Stock in connection with an acquisition of a business (see Note
2). The following table summarizes the Company's acquisition in 1996 (in
thousands of dollars):
<TABLE>
<S> <C>
Fair value of assets acquired...................................... $ 49,674
Less: liabilities incurred or assumed.............................. 26,873
---------
Cash paid, net of cash acquired.................................... $ 22,801
---------
---------
</TABLE>
During the three months ended April 30, 1997 and in 1997 and 1996, the
Company issued 3,524, 31,622 and 32,649 shares, respectively, of Common Stock to
employees related to 1997, 1996 and 1995 compensation awards. The 1997
compensation awards also included 15,727 stock options issued to employees
during the three months ended April 30, 1997. The total value of these awards
was approximately $114,000, $340,000 and $216,000, respectively, which was
accrued at January 31, 1997, 1996 and 1995, respectively.
Income Taxes--Income taxes are provided using the asset/liability method, in
which deferred taxes are recognized for the tax consequences of temporary
differences between the financial statement carrying amounts and tax bases of
existing assets and liabilities. See Note 5.
Earnings Per Share--Earnings per common share are based upon the weighted
average number of common and dilutive equivalent shares outstanding. Options to
purchase Common Stock are included based on the treasury stock method except
when their effect is antidilutive.
Effective for the Company's financial statements as of January 31, 1998,
SFAS No. 128, "Earnings Per Share," specified the computation, presentation and
disclosure requirements for earnings per share. At the
F-10
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
effective date, all prior period earnings per share data presented will be
restated to conform with the provisions of the Statement. Management believes
there will be no significant impact on earnings per share as a result of the
adoption of this statement.
Stock-Based Compensation--Effective February 1, 1996, the Company adopted
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under SFAS 123, stock-compensation would be accounted for based
on the estimated fair value of the awards at the date they are granted. As
permitted by the Statement, the Company will continue to account for its
stock-based compensation programs (see Note 9) under APB Opinion No. 25 which
requires compensation cost to be recognized based on the difference, if any,
between the market price of the stock at the date of grant and the amount the
employee must pay to acquire the stock. Pro forma net income and earnings per
share for 1997, determined as if the new method had been applied, would have
been $7,842,000 and $0.86, respectively. As there were no options granted during
1996, there is no pro forma effect on 1996 results. Because the SFAS 123 method
of accounting has not been applied to options granted prior to 1996, the pro
forma compensation cost may not be representative of that to be expected on a
pro forma basis in future years.
Interim Financial Statements--The accompanying unaudited consolidated
financial statements, as of April 30, 1997 and for the three months ended April
30, 1997 and 1996 include all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
presentation of financial position, results of operations and cash flows.
Results of operations for interim periods are not necessarily indicative of
results to be expected for a full year.
Reclassifications--Certain 1996 and 1995 amounts have been reclassified to
conform with the 1997 presentation.
(2) ACQUISITIONS
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), on
December 28, 1995, the Company purchased all of the outstanding shares and
options for Common Stock of Christensen Boyles Corporation ("CBC") for
approximately 1,506,000 shares of restricted Common Stock of the Company and
approximately $9,056,000 in cash and accrued $2,800,000 (and related tax
benefits of $1,081,000) for integration costs and $460,000 for transaction
costs. The restricted Common Stock of the Company issued in connection with the
Merger was valued at $6.09 per share, as determined by a fair market-value
analysis conducted by an independent investment banking firm. The acquisition is
referred to as the "CBC Merger". The Company also paid-off approximately
$13,971,000 and assumed $1,491,000 of CBC's existing indebtedness. A portion of
the cost of the CBC Merger was financed by a $25,000,000 term loan (see Note 8).
The Company's consolidated results include the operations of CBC from the date
of acquisition. The CBC Merger was accounted for using the purchase method of
accounting. The purchase price of $20,408,000 was allocated based on estimated
fair values at the date of the CBC Merger.
Pursuant to the Merger Agreement, as of January 31, 1997, a total of 646,187
shares of the Company's Common Stock remain deposited in escrow with an
independent escrow agent to provide security to the Company for the accuracy and
performance of the covenants and warranties made by the parties to the Merger
Agreement (other than the Company). All such shares are shown as outstanding and
issued as of
F-11
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(2) ACQUISITIONS (CONTINUED)
the date of the CBC Merger. The shares are to be released from escrow on the
second and third anniversary of the CBC Merger, pending any claims filed.
The integration costs accrued in connection with the acquisition included
costs for consolidating certain CBC facilities into Company facilities and
closing one CBC manufacturing facility. The remaining balance of $702,000 and
$787,000 at April 30, 1997 and January 31, 1997, respectively, consists
primarily of lease termination costs, employee termination benefits, and asset
relocation costs. These actions are expected to be substantially completed
during 1998.
(3) INVESTMENTS IN FOREIGN AFFILIATES
Primarily as a result of the CBC Merger (see Note 2), the Company has
investments in foreign affiliates. The Company's investments in foreign
affiliates are carried at the Company's equity in the underlying net assets plus
an additional $4,753,000 as a result of purchase accounting. This additional
amount is being amortized over the remaining useful lives of the applicable
underlying assets ranging from 20-35 years. Accumulated amortization at April 30
and January 31, 1997 was $163,000 and $130,000, respectively. Amortization
expense amounted to $33,000 for the three months ended April 30, 1997 and 1996
and $131,000 for the fiscal year ended January 31, 1997. These affiliates, which
generally are engaged in mineral exploration drilling and the manufacture and
supply of drilling equipment, parts and supplies, are as follows:
<TABLE>
<CAPTION>
PERCENTAGE OWNED
-----------------
<S> <C>
Christensen Chile, S.A. (Chile)............................................ 49.99%
Christensen Commercial, S.A. (Chile)....................................... 50.00%
Geotec Boyles Bros., S.A. (Chile).......................................... 49.75%
Boyles Bros. Diamantina, S.A. (Peru)....................................... 35.375%
Christensen Commercial, S.A. (Peru)........................................ 50.00%
Geotec, S.A. (Peru)........................................................ 35.375%
Boytec, S.A. (Panama)...................................................... 49.99%
Technidrill, Ltd. (France)................................................. 49.00%
Christensen Boyles GmbH (Germany).......................................... 33.35%
Plantation International(Chile)............................................ 50.00%
</TABLE>
Financial information from foreign affiliates is reported on a one month
lag. As the Company had no investments in foreign affiliates prior to December
28, 1995, no equity in earnings was recorded for the period December 28, 1995
(the CBC acquisition date) to January 31, 1996. Such amount is not considered
F-12
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(3) INVESTMENTS IN FOREIGN AFFILIATES (CONTINUED)
significant. Summarized financial information of the Company's foreign
affiliates, as of January 31, 1997 and 1996 and for the year ended January 31,
1997 were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Total assets............................................................ $ 68,576 $ 52,237
Total liabilities....................................................... 35,993 30,157
Revenues................................................................ 94,182 --
Gross profit............................................................ 69,577 --
Operating income........................................................ 14,651 --
Net income.............................................................. 10,043 --
</TABLE>
The Company has transactions and balances with foreign affiliates which
resulted in the following amounts being included in the consolidated financial
statements as of January 31, 1997 and 1996 and for the years then ended (in
thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accounts receivable........................................................ $ 1,480 $ 1,116
Revenues................................................................... 5,924 --
</TABLE>
Undistributed equity earnings of foreign affiliates totaled $1,905,000 as of
January 31, 1997. No individual affiliate represents more than 13% of earnings
before taxes or total assets of the Company as of January 31, 1997.
(4) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
JANUARY 31,
APRIL 30, --------------------
1997 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Costs incurred on uncompleted contracts.......................................... $ 51,490 $ 44,165 $ 30,672
Estimated earnings............................................................... 20,522 19,453 14,764
--------- --------- ---------
72,012 63,618 45,436
Less: Billings to date........................................................... 68,098 59,388 39,550
--------- --------- ---------
$ 3,914 $ 4,230 $ 5,886
--------- --------- ---------
--------- --------- ---------
Included in accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts.... $ 12,126 $ 10,284 $ 9,777
Billings in excess of costs and estimated earnings on uncompleted contracts.... (8,212) (6,054) (3,891)
--------- --------- ---------
$ 3,914 $ 4,230 $ 5,886
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(4) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (CONTINUED)
The Company generally does not bill contract retainage amounts until the
contract is completed. The Company bills its customers based on specific
contract terms. Substantially all billed amounts are collectible within one
year.
(5) INCOME TAXES
Income before income taxes is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic........................................................ $ 8,206 $ 8,551 $ 5,121
Foreign......................................................... 4,724 (211) 361
--------- --------- ---------
$ 12,930 $ 8,340 $ 5,482
--------- --------- ---------
--------- --------- ---------
</TABLE>
Components of the income tax expense are (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently due:
U.S. Federal and state......................................... $ 2,406 $ 3,851 $ 1,679
Foreign........................................................ 893 (230) 183
--------- --------- ---------
3,299 3,621 1,862
--------- --------- ---------
Deferred:
U.S. Federal and state......................................... 1,157 (189) 660
Foreign........................................................ 457 321 --
--------- --------- ---------
1,614 132 660
--------- --------- ---------
$ 4,913 $ 3,753 $ 2,522
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(5) INCOME TAXES (CONTINUED)
Deferred income taxes result from temporary differences between the
financial statement and tax basis of the Company's assets and liabilities. The
sources of these differences and their cumulative tax effects are (in thousands
of dollars):
<TABLE>
<CAPTION>
JANUARY 31, 1997 JANUARY 31, 1996
--------------------------------- ---------------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Contract income................................ $ 2,642 $ -- $ 2,642 $ 1,271 $ -- $ 1,271
Accrued insurance expense...................... 1,521 -- 1,521 1,447 -- 1,447
Employee compensation.......................... 801 -- 801 688 -- 688
Bad debts...................................... 338 -- 338 370 -- 370
Inventory reserves............................. 607 -- 607 1,229 -- 1,229
Product guaranty............................... 186 -- 186 282 -- 282
Accrued acquisition integration costs.......... 294 -- 294 1,044 -- 1,044
Other.......................................... 531 (564) (33) 998 (247) 751
--------- ----------- --------- --------- ----------- ---------
Current...................................... 6,920 (564) 6,356 7,329 (247) 7,082
--------- ----------- --------- --------- ----------- ---------
Accelerated depreciation....................... -- (6,562) (6,562) -- (6,225) (6,225)
Accrued insurance expense...................... 2,154 -- 2,154 2,394 -- 2,394
Net operating loss carryforward................ 694 -- 694 1,178 -- 1,178
Employee compensation.......................... -- (205) (205) -- (219) (219)
Other.......................................... 626 (14) 612 613 (64) 549
--------- ----------- --------- --------- ----------- ---------
Noncurrent................................... 3,474 (6,781) (3,307) 4,185 (6,508) (2,323)
--------- ----------- --------- --------- ----------- ---------
$ 10,394 $ (7,345) $ 3,049 $ 11,514 $ (6,755) $ 4,759
--------- ----------- --------- --------- ----------- ---------
--------- ----------- --------- --------- ----------- ---------
</TABLE>
For the year ended January 31, 1997, deferred income tax assets, net of
deferred income tax liabilities, decreased by $1,710,000. Of this decrease,
$1,614,000 was recorded as deferred income tax expense in the income tax
provision and $96,000 was recorded in Stockholder's Equity pursuant to the
application of SFAS No. 87, "Employers Accounting for Pensions" (see Note 7).
Management has determined that no valuation allowance for the deferred tax
assets is necessary based on all available evidence.
For federal income tax purposes, the Company has a tax net operating loss
carryforward of $1,862,000 relating to the company acquired in the CBC Merger
(see Note 2) and therefore subject to certain restrictions, which expires during
the years ending 2008, 2009 and 2010.
At January 31, 1997, undistributed earnings of foreign subsidiaries and
foreign affiliates include $11,375,000 for which no federal income and foreign
withholding taxes have been provided as foreign tax credits should become
available under current tax law to significantly reduce or eliminate the
resulting U.S. income tax liability.
F-15
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(5) INCOME TAXES (CONTINUED)
A reconciliation of the total income tax expense to the statutory federal
rate is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
EFFECTIVE EFFECTIVE EFFECTIVE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- ----------- --------- ----------- --------- -----------
Income tax at statutory rate................... $ 4,397 34.0% $ 2,836 34.0% $ 1,864 34.0%
State income tax, net of federal income tax
benefit...................................... 570 4.4 355 4.3 290 5.3
Difference in tax expense resulting from:
Non-deductible expenses...................... 692 5.4 618 7.4 322 5.9
Income of foreign affiliates................. (774) (6.0) -- -- -- --
Other, net................................... 28 .2 (56) (.7) 46 .8
--------- --- --------- --- --------- ---
$ 4,913 38.0% $ 3,753 45.0% $ 2,522 46.0%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
(6) LEASES
Future minimum rental payments required under operating leases that have
initial or remaining noncancellable lease terms in excess of one year from
January 31, 1997 are as follows (in thousands of dollars):
<TABLE>
<S> <C>
1998............................................................. $ 4,178
1999............................................................. 2,648
2000............................................................. 1,645
2001............................................................. 403
2002............................................................. 16
</TABLE>
Principal operating leases are for equipment, office and shop facilities.
Equipment leases are primarily for automobiles and small trucks, which are
leased from independent leasing companies under master lease arrangements. Rent
expense under operating leases (including minor amounts of contingent rental
payments) was $5,010,000, $3,298,000 and $2,749,000, in 1997, 1996 and 1995,
respectively.
F-16
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(7) EMPLOYEE BENEFITS PLANS
The Company sponsors pension plans covering certain hourly employees not
covered by union-sponsored, multi-employer plans. Benefits are computed based
mainly on years of service. The Company makes annual contributions to the plans
substantially equal to the amounts required to maintain the qualified status of
the plans. Contributions are intended to provide for benefits related to past
and current service with the Company. Assets of the plans consist primarily of
stocks, bonds and government securities.
The following table sets forth the plans' funded status as of December 31,
1996 and 1995 (the measurement dates) and the amounts recognized in the
Company's balance sheets at January 31, 1997 and 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated vested benefit obligations......................................................... $ 4,832 $ 4,794
Accumulated non-vested benefit obligation...................................................... 117 107
--------- ---------
Accumulated benefit obligations............................................................ $ 4,949 $ 4,901
--------- ---------
--------- ---------
Projected benefit obligations for service rendered to date..................................... (4,949) (4,901)
Plan assets at fair value...................................................................... 4,398 4,049
--------- ---------
Projected benefit obligation in excess of plan assets.......................................... (551) (852)
Unrecognized net loss.......................................................................... 1,365 1,672
Prior service cost not yet recognized in net periodic pension cost............................. 92 128
Unrecognized net obligation being recognized over the average expected remaining life of the
participants................................................................................. (345) (407)
Adjustment required to recognize minimum liability............................................. (1,109) (1,393)
--------- ---------
Pension liability recognized in the balance sheets......................................... $ (548) $ (852)
--------- ---------
--------- ---------
</TABLE>
Net periodic pension cost for 1997, 1996 and 1995 includes the following
components (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost........................................................ $ 171 $ 140 $ 173
Interest cost....................................................... 357 336 317
Actual return on assets............................................. (343) (602) 74
Net amortization.................................................... 88 42 81
Deferred asset gain (loss).......................................... (29) 307 (345)
--------- --------- ---------
$ 244 $ 223 $ 300
--------- --------- ---------
--------- --------- ---------
</TABLE>
In accordance with SFAS No. 87, at January 31, 1997 and 1996 the Company has
recognized the full amount of its actuarially determined pension liability and
the related intangible asset of $92,000 and $128,000, respectively. The
unrecognized pension cost has been recorded as a charge to stockholders' equity
after giving effect to the related future tax benefit.
F-17
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(7) EMPLOYEE BENEFITS PLANS (CONTINUED)
The projected benefit obligation for 1997, 1996 and 1995 was computed using
a discount rate of 7.50%, 7.25% and 8.25%, respectively, and an estimated
long-term rate of return on assets of 8.75%. Benefit level assumptions for 1997,
1996 and 1995 are based on fixed amounts per year of credited service.
The Company also participates in a number of defined benefit, multi-employer
plans. These plans are union-sponsored, and the Company makes contributions
equal to the amounts accrued for pension expense. Total union pension expense
for these plans was $638,000, $517,000 and $474,000 in 1997, 1996 and 1995,
respectively, and $149,000 and $148,000 for the three months ended April 30,
1997 and 1996, respectively. Information regarding assets and accumulated
benefits of these plans has not been made available to the Company.
The Company's salaried and certain hourly employees participate in
Company-sponsored, defined contribution plans. Company contributions are
determined annually at the discretion of the Board of Directors of the Company.
Total expense for the Company's portion of these plans was $1,264,000, $802,000
and $862,000 in 1997, 1996 and 1995, respectively, and $361,000 and $269,000 for
the three months ended April 30, 1997 and 1996, respectively. The Company
reserves the right to amend or terminate the plans, but the Company cannot
recover contributions already paid.
(8) INDEBTEDNESS
On March 15, 1996, the Company executed a credit agreement ("Credit
Agreement") with a bank group which replaced a previous credit agreement
("Previous Credit Agreement"). The Credit Agreement provides a revolving cash
borrowing facility of up to $30,000,000, less any outstanding letter of credit
commitments by the bank group. As of April 30, 1997 and January 31, 1997,
letters of credit in an aggregate amount of $4,548,000 and $4,904,000,
respectively, had been issued on behalf of the Company.
The Credit Agreement is unsecured, but is guaranteed by certain of the
Company's domestic subsidiaries. The Credit Agreement limits the amount
available for the payment of cash dividends to $1,000,000 plus 25% of cumulative
net income after January 31, 1995. At April 30, 1997 and January 31, 1997, the
Company's retained earnings available for cash dividends was $4,572,000 and
$4,151,000, respectively, based on this limitation. The Credit Agreement also
contains significant covenants including restrictions on incurrence of
additional indebtedness and liens, sale of assets of other dispositions,
transactions with affiliates and certain financial maintenance covenants,
including among others, minimum interest coverage, minimum net worth, and
maximum leverage ratios. In addition, the Credit Agreement contains a provision
providing for the accelerated maturities of all outstanding balances if there is
an unapproved change of control in the Company. The Credit Agreement expires on
March 15, 1999.
The Credit Agreement provides for interest at variable rates equal to, at
the Company's options, the Bank of America Illinois ("BAI") interbank eurodollar
rate (which generally is approximately equal to LIBOR; 5.6563% and 5.4375% at
April 30, 1997 and January 31, 1997, respectively) plus .75% to 1.25% (depending
on interest coverage and debt ratios) or the BAI Alternative Reference Rate (as
defined in the loan agreement; 8.50% and 8.25% at April 30, 1997 and January 31,
1997, respectively). The variable interest rates on the outstanding balances
approximate the current market rates.
Maximum borrowings outstanding under the Company's then existing credit
agreements during 1997, 1996 and 1995 were $7,500,000, $18,000,000 and
$2,500,000, respectively, and the average outstanding
F-18
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(8) INDEBTEDNESS (CONTINUED)
borrowings were $4,875,000, $6,042,000 and $675,000, respectively. The weighted
average interest rate was 7.5%, 7.9% and 8.5%, respectively.
On December 28, 1995, the Company executed an amendment to the Previous
Credit Agreement to provide a $25,000,000 term loan facility ("Term Loan") to
the Company to finance the CBC Merger (see Note 2). The Term Loan provided for
interest at rates equal to the Credit Agreement except that the margin on
interbank eurodollar loans was 1.25%.
The Term Loan was replaced on March 15, 1996 with the private placement of
an unsecured note agreement for the issuance and sale of $25,000,000 aggregate
principal amount of senior notes ("Senior Notes"). The Senior Notes bear a fixed
interest rate of 6.75% and will be due March 15, 2006 with annual installments
of $3,571,000 beginning March 15, 2000. As of April 30, 1997, January 31, 1997
and 1996, such interest rate approximates market for similar securities.
Financial guarantees and covenants are similar to those in the Credit Agreement.
In connection with the CBC Merger (see Note 2), the Company assumed a
mortgage loan with an insurance company which is secured by the Company's
manufacturing facility in Salt Lake City, Utah. The mortgage loan provides for
monthly installments of $19,000 through September 2000 with a final payment in
October, 2000 of $963,000. The interest rate is fixed during the term of the
Mortgage Loan at 8.64%. As of April 30, 1997, January 31, 1997 and 1996, such
interest rate approximate market for similar securities.
Loan costs incurred in securing long-term financing are amortized over the
term of the respective loan agreement. Amortization of these costs for 1997,
1996 and 1995 and the three months ended April 30, 1997 and 1996 was $171,000,
$34,000, $92,000, $25,000 and $87,000, respectively. Amortization of loan costs
is included in interest expense in statements of income.
Long-term debt is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
JANUARY 31,
APRIL 30, --------------------
1997 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Senior Notes................................................. $ 25,000 $ 25,000 --
Term loan.................................................... -- -- $ 23,500
Revolving debt............................................... 9,500 4,000 3,500
Mortgage loan................................................ 1,400 1,428 1,533
--------- --------- ---------
35,900 30,428 28,533
Less current maturities...................................... 117 114 105
--------- --------- ---------
Total long-term debt--net.................................. $ 35,783 $ 30,314 $ 28,428
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(8) INDEBTEDNESS (CONTINUED)
As of January 31, 1997, long-term debt matures as follows (in thousands of
dollars):
<TABLE>
<S> <C>
1998............................................................... $ 114
1999............................................................... 124
2000............................................................... 4,136
2001............................................................... 4,624
2002............................................................... 3,571
Thereafter......................................................... 17,859
</TABLE>
(9) STOCK AND STOCK OPTION PLANS
The Company has reserved 500,000 shares of Common Stock for issuance under
Employee Incentive Compensation Plans. Issuance of shares under the Plans is
based on performance as determined annually by a committee appointed by the
Company's Board of Directors. During the three months ended April 30, 1997 and
in 1997 and 1996, 3,524, 31,622 and 32,649 shares, respectively, were issued at
$15.20, $10.75 and $6.63 per share, respectively.
The Company also has two stock option plans which provide for the granting
of options to purchase up to an aggregate of 1,000,000 shares of Common Stock at
a price fixed by the Board of Directors or a committee.
<TABLE>
<CAPTION>
SHARES UNDER OPTION SHARES EXERCISABLE
------------------------ ------------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
OF SHARES PRICE OF SHARES PRICE
----------- ----------- ----------- -----------
Stock Option Activity Summary:
Outstanding, January 31, 1994....................................... 486,232 $ 5.784 103,456 $ 2.733
Granted............................................................. 39,000 6.375 --
Canceled............................................................ (58,317) 7.000 (11,663)
Vested.............................................................. -- -- 71,152
----------- -----------
Outstanding, January 31, 1995....................................... 466,915 5.681 162,945 4.106
Granted............................................................. -- -- --
Canceled............................................................ -- -- --
Vested.............................................................. -- -- 78,948
----------- -----------
Outstanding, January 31, 1996....................................... 466,915 5.681 241,893 4.907
Granted............................................................. 191,500 10.748 --
Canceled............................................................ (16,500) 10.500 --
Vested.............................................................. -- -- 110,651
----------- -----------
Outstanding, January 31, 1997....................................... 641,915 7.069 352,544 5.779
Unaudited:
Granted............................................................. 15,727 11.400 --
Canceled............................................................ -- -- --
Vested.............................................................. -- -- --
----------- -----------
Outstanding, April 30, 1997......................................... 657,642 7.172 352,544 5.779
----------- -----------
----------- -----------
</TABLE>
F-20
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(9) STOCK AND STOCK OPTION PLANS (CONTINUED)
Significant option groups outstanding at January 31, 1997 and related
weighted average price and life information follows:
<TABLE>
<CAPTION>
OPTIONS OPTIONS EXCERSISE REMAINING LIFE
GRANT DATE OUTSTANDING EXERCISABLE PRICE (YEARS)
- -------------------------------------------- ----------- ----------- --------- -----------------
<S> <C> <C> <C> <C>
8/92....................................... 72,164 72,164 $ .882 5
8/92....................................... 97,434 78,518 $ 7.000 5
12/93....................................... 258,317 154,562 $ 6.420 6
5/94....................................... 39,000 15,600 $ 6.375 7
2/96....................................... 158,500 31,700 $ 10.500 9
11/96....................................... 16,500 -- $ 13.375 9
</TABLE>
All options were granted at an exercise price equal to the fair market value
of the Company's common stock at the date of grant. The weighted average fair
value at the date of grant for options granted during fiscal year 1997 were
$6.98 per option, respectively. As there were no options granted during 1996, no
weighted average fair value of options is presented. The options generally have
a ten year term from the date of grant and vest ratably over five years. The
fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
<TABLE>
<S> <C>
Expected life (years).................................................. 10
Interest rate.......................................................... 6.5%
Volatility............................................................. 20%
Dividend yield......................................................... 0%
</TABLE>
(10) CONTINGENCIES
The Company provides environmental drilling and consulting services that are
related to the cleanup of hazardous substances, toxic wastes and other
pollutants. Rendering these services exposes the Company to potential
significant liability for claims related to the costs of environmental
remediation and other damages. The Company has obtained a "claims made"
pollution liability policy limited to $20,000,000 for any individual claim and
$20,000,000 for all claims in the aggregate made under such policy during the
policy's three year term. While the Company believes this is a cost effective
level of environmental insurance coverage in light of the risks associated with
its business, no assurance can be given that the amount and scope of coverage
will be adequate.
The Company's former parent corporation, The Marley Company ("Marley"),
maintains insurance reserves for the Company on its financial statements to
cover expected losses under various casualty insurance policies for occurrences
prior to April 30, 1992. Those reserves were funded through intercompany charges
to the Company, which were calculated on the basis of the estimated insured
losses incurred by the Company. The Company has indemnified Marley for claims or
retroactive insurance premiums on those policies that exceed the amount of
reserves attributable to the Company's estimated losses through April 30, 1992.
The Company believes that the amount of such reserves will be sufficient to
cover its reasonably anticipated insured losses under past insurance policies.
Pursuant to an agreement with Marley,
F-21
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(10) CONTINGENCIES (CONTINUED)
in July 1997, Marley will make payment to the Company in the amount of the
remaining reserves at that date, and the Company will be responsible for any
remaining incurred but unpaid claims or losses.
The Company is involved in various matters of litigation, claims and
disputes which have arisen in the ordinary course of the Company's business.
While the resolution of any of these matters may have an impact on the financial
results for the period in which the matter is resolved, the Company believes
that the ultimate disposition of these matters will not, in the aggregate, have
a material adverse effect upon its business or consolidated financial position.
(11) SEGMENT INFORMATION AND FOREIGN OPERATIONS
The Company is a multi-national company operating predominantly in two
industry segments: as a drilling company with wholly-owned operations in the
United States, Mexico, Canada and Thailand, and as a manufacturer and supplier
of drilling equipment, parts and supplies. The manufacturing and supply
operations are primarily in the United States. Refer to Note 3 for information
on other foreign investments.
Revenues, operating income, identifiable assets, capital expenditures and
depreciation and amortization pertaining to the segments in which the Company
operates are presented below (in thousands of dollars). Intersegment sales are
accounted for based on the estimated fair market value of the products sold. In
computing operating income for foreign subsidiaries, no allocations of general
corporate expenses have been made. Identifiable assets of foreign subsidiaries
are those assets related to the operations of those subsidiaries. Corporate
assets are all other assets of the Company not directly associated with an
operating segment, and consist primarily of cash, deferred income taxes and
investments in foreign affiliates (see Note 3).
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Drilling
United States............................................................ $ 171,704 $ 143,162 $ 150,036
Foreign.................................................................. 24,840 10,593 6,085
---------- ---------- ----------
Total Drilling......................................................... 196,544 153,755 156,121
Manufacturing and Supply................................................. 41,572 23,232 17,935
Intersegment revenues.................................................... (15,263) (9,716) (7,226)
---------- ---------- ----------
Total Manufacturing and Supply......................................... 26,309 13,516 10,709
---------- ---------- ----------
$ 222,853 $ 167,271 $ 166,830
---------- ---------- ----------
---------- ---------- ----------
Operating Income
Drilling
United States............................................................ $ 13,844 $ 14, 107 $ 15,073
Foreign.................................................................. 2,159 409 1,037
---------- ---------- ----------
Total Drilling......................................................... 16,003 14,516 16,110
Manufacturing and Supply................................................. 1,390 1,625 536
Corporate................................................................ (6,072) (7,441) (10,301)
---------- ---------- ----------
$ 11,321 $ 8,700 $ 6,345
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-22
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(11) SEGMENT INFORMATION AND FOREIGN OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Identifiable Assets
Drilling
United States............................................................ $ 74,113 $ 70,866 $ 60,678
Foreign.................................................................. 16,484 15,616 6,206
---------- ---------- ----------
Total Drilling......................................................... 90,597 86,482 66,884
Manufacturing and Supply................................................. 24,917 20,622 5,008
Corporate................................................................ 28,136 27,073 9,165
---------- ---------- ----------
$ 143,650 $ 134,177 $ 81,057
---------- ---------- ----------
---------- ---------- ----------
Capital Expenditures
Drilling................................................................... $ 18,071 $ 12,383 $ 8,723
Manufacturing and Supply................................................... 473 71 9
---------- ---------- ----------
$ 18,544 $ 12,454 $ 8,732
---------- ---------- ----------
---------- ---------- ----------
Depreciation and Amortization
Drilling................................................................... $ 10,776 $ 8,375 $ 7,960
Manufacturing and Supply................................................... 485 17 18
---------- ---------- ----------
$ 11,261 $ 8,392 $ 7,978
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Of the $26,309,000 Manufacturing and Supply sales to unaffiliated customers
in 1997, $10,023,000 were export sales, principally to Latin and South America.
(12) INVESTMENT IN DOMESTIC AFFILIATE
As a result of the CBC Merger (see Note 2), the Company owned 50% of a
limited liability company, CBC Welnav L.C. ("Welnav"). Welnav engaged primarily
in surveying and directional drilling services, and the manufacturing and
selling of survey tools and hydraulic down hole motors for mineral and energy
exploration, mine development, and pre-construction testing. Welnav was
dissolved and terminated as of November 30, 1996. No loss was incurred by the
Company in connection with the dissolution.
The Company's investment in Welnav was carried at the Company's equity in
the underlying net assets plus advances to Welnav. Summarized financial
information as of January 31, 1996 and for the period then ended was
approximately (in thousands of dollars):
<TABLE>
<S> <C>
Total assets........................................................ $ 3,443
Total liabilities................................................... 1,346
Net sales........................................................... 305
Net income.......................................................... 39
</TABLE>
The Company had $1,155,000 in advances to Welnav as of January 31, 1996. The
Company had transactions with Welnav for the years ended January 31, 1997 and
1996, but such amounts were not significant.
F-23
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(13) QUARTERLY RESULTS (UNAUDITED)
Unaudited quarterly financial data is as follows (see Note 2 regarding the
CBC Merger) (in thousands of dollars, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997:
Revenues........................................ $ 53,773 $ 56,312 $ 60,212 $ 52,556
Gross profit.................................... 14,070 15,975 17,172 14,034
Net income...................................... 1,103 2,552 3,200 1,162
Per share earnings.............................. 0.12 0.28 0.35 0.13
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996:
Revenues........................................ $ 37,559 $ 42,560 $ 44,368 $ 42,784
Gross profit.................................... 10,203 11,521 12,695 10,774
Net income...................................... 646 1,555 1,841 545
Per share earnings.............................. 0.09 0.21 0.25 0.07
</TABLE>
(14) SUBSEQUENT EVENTS
On May 20, 1997, the Company, through its wholly-owned subsidiary Layne
Christensen Australia Pty Limited ("Layne Australia"), made a tender offer to
the holders of all the outstanding shares of capital stock of Stanley Mining
Services, Inc. ("Stanley"), a company listed on the Australian Stock Exchange
(the "Tender Offer"). The purchase price of the Tender Offer is estimated at
approximately $53,919,000.
The Tender Offer has been recommended by Stanley's board of directors and
will expire on July 7, 1997, subject to extension by the Company for additional
periods of up to 30 days. Consummation of the Tender Offer is expected in August
1997 subject to the tender of at least 90% of the Stanley shares then
outstanding and certain other conditions and must be effected within 21 days
after the end of the tender offer period. Following the consummation of the
Tender Offer, Layne Australia will purchase any shares of Stanley that were not
tendered, at the Tender Offer share price, pursuant to legal procedures
available to corporations owning at least 90% of the shares of a target
corporation.
In December 1996, Stanley acquired 51% of the outstanding capital stock of
Glindemann & Kitching Pty Ltd. ("G&K"), a leading diamond core exploration
drilling company in Western Australia, from its two stockholders and their
affiliates at a price of $5,245,000, under terms of an acquisition agreement
which also provides for G&K to repurchase the remaining 49% of the outstanding
shares of G&K from its stockholders other than Stanley on or before September
30, 1997, at a price based upon five times the adjusted average annual after tax
profits of G&K for the two fiscal years ending June 30, 1996 and June 30, 1997,
thereby making G&K a wholly owned subsidiary of Stanley. It is expected that the
purchase price for the 49% interest will be approximately $6,437,000. The
repurchase by G&K of the remaining 49% interest is referred to herein as the
"G&K Acquisition."
The Company will finance the Tender Offer and the G&K Acquisition through a
$100,000,000 senior secured credit agreement to be provided by Bank of America
National Trust and Savings Association ("Bank of America") and a syndicate
arranged by BancAmerica Securities, Inc. (the "New Credit
F-24
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(14) SUBSEQUENT EVENTS (CONTINUED)
Agreement"). The New Credit Agreement is expected to provide a reducing
revolving cash borrowing facility of up to $100,000,000, less any outstanding
letter of credit commitments ($20,000,000 sublimit). The Company expects to
borrow approximately $61,206,000 under the New Credit Agreement for the Tender
Offer and G&K Acquisition and for certain related costs and expenses. The
purchase price of Stanley is estimated to be $53,919,000 based on the number of
outstanding shares of Stanley stock and the agreed upon share price of A$.95.
The purchase price of the G&K Acquisition is estimated to be $6,437,000.
The Tender Offer is subject to several conditions including the tender of at
least 90% of all outstanding shares of Stanley and all outstanding Stanley stock
options. There can be no assurance that the Tender Offer and G&K Acquisition
will be completed under the foregoing terms.
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Members of Stanley Mining Services Limited:
We have audited the accompanying consolidated balance sheets of Stanley
Mining Services Limited and its controlled entities (Economic Entity) as of June
30, 1996 and 1995 and the related consolidated statements of profit, statements
of changes in shareholders' equity and statements of cash flows for each of the
years in the two year period ended June 30, 1996, all expressed in Australian
dollars. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in Australia which do not differ in any significant respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the economic
entity of June 30, 1996 and June 30, 1995 and the results of their operations
and their cash flows for the years in the two year period ended June 30, 1996,
in conformity with accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles in the United States. The
application of United States generally accepted accounting principles would have
affected the results of operations for each of the years in the two year period
ended June 30, 1996 and shareholders' equity as of June 30, 1996 and June 30,
1995, to the extent summarised in Note 33 to the consolidated financial
statements.
KPMG
CHARTERED ACCOUNTANTS
PERTH, WESTERN AUSTRALIA
Dated: 12 September 1996,
except as to Notes 32 and 33,
are as of 17 June 1997.
F-26
<PAGE>
STANLEY MINING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF PROFIT
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
----- ----------- -----------
<S> <C> <C> <C>
Operating profit before abnormal items and income tax................................... 2,3 5,622 4,363
Abnormal items.......................................................................... 5 -- (494)
----------- -----------
Operating profit before income tax...................................................... 5,622 3,869
Income tax expense attributable to operating profit..................................... 6 (2,049) (1,508)
----------- -----------
Operating profit after income tax....................................................... 3,573 2,361
----------- -----------
Basic earnings per share--cents......................................................... 8 10.1 9.3
</TABLE>
See the accompanying notes to and
forming part of the consolidated financial statements.
F-27
<PAGE>
STANLEY MINING SERVICES LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
NOTE 1996 1995
----- --------- ---------
<S> <C> <C> <C>
A $'000 A $'000
CURRENT ASSETS
Cash.................................................................................... 1,384 2,407
Receivables............................................................................. 10 9,974 6,019
Inventories............................................................................. 12 4,875 2,790
Other................................................................................... 13 695 667
--------- ---------
TOTAL CURRENT ASSETS.................................................................... 16,928 11,883
--------- ---------
NON-CURRENT ASSETS
Investments............................................................................. 11 503 237
Property, plant and equipment........................................................... 14 17,099 12,109
Other................................................................................... 13 866 169
--------- ---------
TOTAL NON-CURRENT ASSETS................................................................ 18,468 12,515
--------- ---------
TOTAL ASSETS............................................................................ 35,396 24,398
--------- ---------
--------- ---------
CURRENT LIABILITIES
Creditors and borrowings................................................................ 15 6,325 5,627
Provisions.............................................................................. 18 3,290 1,434
--------- ---------
TOTAL CURRENT LIABILITIES............................................................... 9,615 7,061
--------- ---------
NON-CURRENT LIABILITIES
Creditors and borrowings................................................................ 15 8,010 2,784
Provisions.............................................................................. 18 2,886 2,015
--------- ---------
TOTAL NON-CURRENT LIABILITIES........................................................... 10,896 4,799
--------- ---------
TOTAL LIABILITIES....................................................................... 20,511 11,860
--------- ---------
SHAREHOLDERS' EQUITY
Share capital........................................................................... 19 7,218 7,016
Reserves................................................................................ 20 2,422 1,940
Retained profits........................................................................ 5,245 3,582
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................................................. 14,885 12,538
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................................. 35,396 24,398
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to and
forming part of the consolidated financial statements.
F-28
<PAGE>
STANLEY MINING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
----- --------- ---------
<S> <C> <C> <C>
AUTHORISED CAPITAL
Ordinary shares of 20 cents each........................................................ 19 50,000 50,000
--------- ---------
Opening balance......................................................................... 7,016 3,626
Additional shares issued................................................................ 202 3,390
--------- ---------
Total share capital..................................................................... 19 7,218 7,016
--------- ---------
RETAINED PROFITS
Retained profits at the beginning of the year as stated................................. 3,582 22
Dividend rescinded...................................................................... -- 1,900
Dividend provided for or paid........................................................... (1,910) (701)
Operating profit after income tax....................................................... 3,573 2,361
--------- ---------
Retained profits at the end of the year as stated....................................... 5,245 3,582
--------- ---------
RESERVES
SHARE PREMIUM RESERVE
Opening balance......................................................................... 1,937 --
Premium on additional shares issued..................................................... 343 2,700
Share placement costs................................................................... -- (763)
--------- ---------
Closing balance......................................................................... 20 2,280 1,937
--------- ---------
ASSET REVALUATION RESERVE
Opening balance......................................................................... 3 3
Revaluation increment on freehold land and buildings.................................... 139 --
--------- ---------
Closing balance......................................................................... 20 142 3
--------- ---------
Reserves closing balance................................................................ 2,422 1,940
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................................................. 14,885 12,538
--------- ---------
</TABLE>
See the accompanying notes to and
forming part of the consolidated financial statements.
F-29
<PAGE>
STANLEY MINING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of operations........................................... 43,026 25,236
Cash payments in the course of operations........................................... (39,614) (22,513)
Income taxes paid................................................................... (900) (712)
Withholding taxes paid.............................................................. (513) (310)
Interest received................................................................... 83 90
Interest paid....................................................................... (457) (325)
--------- ---------
Net cash provided by operating activities........................................... 30 (ii) 1,625 1,466
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of investments..................................................... 76 37
Proceeds on sale of plant and equipment............................................. 109 403
Payments for property, plant and equipment.......................................... (7,733) (7,539)
Payment for exploration............................................................. -- (534)
Payments for investments............................................................ (362) (96)
--------- ---------
Net cash used in investing activities............................................... (7,910) (7,729)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank loan........................................................................... 8,542 648
Proceeds from share issue........................................................... 545 5,327
Lease payments...................................................................... -- (27)
Hire purchase finance............................................................... -- 3,894
Hire purchase payments.............................................................. (4,402) (1,358)
Dividends paid...................................................................... (701) --
--------- ---------
Net cash provided by financing activities........................................... 3,984 8,484
--------- ---------
NET INCREASE/DECREASE IN CASH HELD.................................................. (2,301) 2,221
CASH AT THE BEGINNING OF THE FINANCIAL YEAR......................................... 2,364 143
--------- ---------
CASH AT THE END OF THE FINANCIAL YEAR............................................... 30 (i) 63 2,364
--------- ---------
</TABLE>
See the accompanying notes to and
forming part of the consolidated financial statements.
F-30
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The significant policies which have been adopted by the economic entity in
the preparation of these financial statements are:
(A) BASIS OF PREPARATION
The financial statements are a financial report which has been drawn up in
accordance with Accounting Standards, Urgent Issues Group Consensus Views, the
provisions of Schedule 5 to the Corporations Regulations and the requirements of
the Corporations Law. They have been prepared on the basis of historical costs
and except where stated do not take into account changing money values or
current valuations of non-current assets. The accounting policies have been
consistently applied by each entity in the economic entity and except where
there is a change in accounting policy, are consistent with those of the
previous year.
A reconciliation of the major differences between these accounts and those
applicable under General Accepted Accounting Principles in the United States
("US GAAP") is included in note 33.
(B) PRINCIPLES OF CONSOLIDATION
The Consolidated Accounts of the economic entity include the financial
statements of the Company, being the chief entity, and its controlled entities.
Where an entity either began or ceased to be controlled during the year, the
results are included only from the date control commenced or up to the date
control ceased.
All inter-entity balances, transactions and unrealised profits resulting
from transactions within the economic entity have been eliminated.
(C) REVENUE RECOGNITION
SALES REVENUE
Sales revenue comprises revenue earned (net of returns, discounts and
allowances) from the provision of products or services to entities outside the
economic entity. Sales revenue is recognised when earned and the fee in respect
of services provided is receivable.
INTEREST INCOME
Interest income is recognised as it accrues.
ASSET SALES
The gross proceeds of asset sales are included as revenue of the entity. The
profit or loss on disposal of assets is brought to account at the date an
unconditional contract of sale is signed.
OTHER REVENUE
Revenue recognition policies for investments are described in Note (g).
F-31
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) FOREIGN CURRENCY TRANSACTIONS
TRANSACTIONS
Foreign currency transactions are translated to Australian currency at the
rates of exchange ruling at the dates of the transactions. Amounts receivable
and payable in foreign currencies at balance date are translated at the rates of
exchange ruling on that date.
Exchange differences relating to amounts payable and receivable in foreign
currencies are brought to account as exchange gains or losses in the profit and
loss account in the financial year in which the exchange rates change.
HEDGES
All non-specific hedge transactions are initially recorded at the spot rate
at the date of the transaction. Hedges outstanding at balance date are
translated at the rates of exchange ruling on that date and any exchange
differences are brought to account in the profit and loss account. Costs or
gains arising at the time of entering into the hedge are deferred and amortised
over the life of the hedge.
Where hedge transactions are designed to hedge the purchase or sale of goods
or services, exchange differences arising up to the date of purchase or sale,
together with any costs or gains arising at the time of entering into the hedge,
are deferred and included in the measurement of the purchase or sale. Any
exchange differences on the hedge transaction after that date are included in
the consolidated statements of profit.
TRANSLATION OF FOREIGN OPERATIONS
The operating results of overseas operations that are integrated foreign
operations are translated using the temporal method. Monetary assets and
liabilities are translated into Australian currency at rates of exchange current
at balance date, while non-monetary items and revenue and expense items are
translated at exchange rates current when the transactions occurred. Exchange
differences arising on translation are brought to account in the consolidated
statements of profit.
(E) INCOME TAX
The economic entity adopts the liability method of tax effect accounting.
Income tax expense is calculated on operating profit adjusted for permanent
differences between taxable and accounting income. The tax effect of timing
differences which arise from items being brought to account in different periods
for income tax and accounting purposes, is carried forward in the balance sheet
as a future income tax benefit or a provision for deferred income tax.
Future income tax benefits are brought to account as realisation of the
asset is assured beyond reasonable doubt. Future income tax benefits relating to
tax losses have been brought to account when their realisation is virtually
certain.
The Company is not taxed as a private company.
F-32
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) NON-CURRENT ASSETS
The carrying amounts of all non-current assets, other than exploration
expenditure, are reviewed at least annually to determine whether they are in
excess of their recoverable amount. If the carrying amount of a non-current
assets exceeds the recoverable amount, the asset is written down to the lower
value.
In assessing recoverable amounts the relevant cash flows have not been
discounted to their present value, except where specifically stated.
(G) INVESTMENTS
ASSOCIATED COMPANIES
An associated company is one in which: the economic entity exercises
significant influence; and the investment is long-term.
Investments in associated companies are carried at the lower of cost and
recoverable amount. In the case of interim dividends, dividends are brought to
account in the consolidated statements of profit as they are received, and in
the case of final dividends after they have been declared by the associated
company in a general meeting.
OTHER COMPANIES
Investments in other companies are carried at the lower of cost, or
recoverable amount, being a directors valuation based on market values at the
time of the valuation. Dividends are brought to account as they are received.
(H) INVENTORIES
Drilling supplies and consumables are valued at the lower of cost
(calculated on the first-in first-out basis) and net realisable amount.
(I) PROPERTY, PLANT AND EQUIPMENT
ACQUISITION
Items of property, plant and equipment are initially recorded at cost and
depreciated as outlined below.
CAPITAL WORKS IN PROGRESS
The cost of property, plant and equipment constructed by the Company
includes the cost of materials and direct labour and an appropriate proportion
of fixed and variable overheads.
REVALUATIONS
Land and buildings are independently valued every three years on an existing
use basis of valuation and included in the financial statements at the revalued
amounts.
F-33
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The potential capital gains tax liability is assessed each time an asset
acquired after 19 September, 1985 is revalued. A provision for capital gains tax
is only provided when it is known that the asset will eventually be sold. This
provision, when required, is made against the asset revaluation reserve.
The tax effect on capital losses is not recorded unless realisation is
virtually certain.
DISPOSAL OF REVALUED ASSETS
The gain or loss on disposal of revalued assets is calculated as the
difference between the carrying amount of the asset at the time of disposal and
the proceeds on disposal and is included in the results in the year of disposal.
Any related revaluation increment standing in the asset revaluation reserve
at the time of disposal is transferred to the capital profits reserve.
DEPRECIATION AND AMORTISATION
Items of property, plant and equipment, including buildings and leasehold
property but excluding freehold land, are depreciated/amortised over their
estimated useful lives ranging from 3 to 20 years.
Assets are depreciated or amortised from the date of first use.
LEASED PLANT AND EQUIPMENT
Leases of plant and equipment under which the Company or its controlled
entities assume substantially all the risks and benefits of ownership are
classified as finance leases. Other leases are classified as operating leases.
Finance leases are capitalised. A lease asset and a lease liability equal to
the present value of the minimum lease payments are recorded at the inception of
the lease. Contingent rentals are written off as an expense of the accounting
period in which they are incurred. Capitalised lease assets are amortised on a
straight line basis over the term of the relevant lease, or where it is likely
the economic entity will obtain ownership of the asset, the life of the asset.
Lease liabilities are reduced by repayments of principal. The interest
components of the lease payments are charged to consolidated statement of
profit.
(J) EXPLORATION EXPENDITURE
Exploration, evaluation and development costs are accumulated in respect of
each separate area of interest. These costs are carried forward where the right
of tenure of the area of interest is current and they are expected to be
recouped through sale or successful development and exploitation of the area of
interest, or where activities in the area of interest have not yet reached a
stage that permits reasonable assessment of the existence of economically
recoverable reserves.
When an area of interest is abandoned or the directors decide that it is not
commercial, any accumulated costs in respect of that area are written-off in the
financial period the decision is made. Each area of interest is also reviewed at
the end of each accounting period and accumulated costs written-off to the
extent that they will not be recoverable in the future.
F-34
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amortisation is not charged on costs carried forward in respect of areas of
interest in the development phase until production commences.
(K) DEFERRED EXPENDITURE
Material items of expenditure are deferred to the extent that the benefits:
are recoverable out of future revenue: do not relate solely to revenue which has
already been brought to account and will contribute to the future earning
capacity of the economic entity.
Deferred expenditure is amortised over the shorter of the period in which
the related benefits are expected to be realised or three years. Deferred
expenditure is reviewed in accordance with the policy set out in Note (f).
(L) EMPLOYEE ENTITLEMENTS
WAGES, SALARIES, ANNUAL LEAVE AND SICK LEAVE
The provisions for employee entitlements to wages, salaries, annual leave
and sick leave represents the amount which the economic entity has a present
obligation to pay resulting from employees' services provided up to the balance
date. The provisions have been calculated at nominal amounts based on current
wage and salary rates and includes related on-costs.
LONG SERVICE LEAVE
The liability for employee's entitlement to long service leave represents
the present value of the estimated future cash outflows to be made by the
employer resulting from employees' services provided up to the balance date.
Liabilities for employee entitlements which are not expected to be settled
within twelve months are discounted using the rates attaching to national
government securities at balance date, which most closely match the terms of
maturity of the related liabilities.
In determining the liability for employee entitlements, consideration has
been given to future increases in wage and salary rates, and the economic
entity's experience with staff departures. Related on-costs have also been
included in the liability.
EMPLOYEE SHARE OPTION PLAN
The Company intends to grant options to certain employees under an employee
share plan. Further information is set out in Note 19 of the financial
statements. Other than the costs incurred in administering the schemes which are
expended as incurred, the scheme does not result in any expense to the economic
entity. No options have been granted at 30 June 1996.
F-35
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUPERANNUATION
The Company contributes to a defined contribution superannuation fund on
behalf of employees in accordance with the requirements of the Superannuation
Guarantee Administration Act 1992. The contributions are charged against income
as they are made.
(M) PROVISION FOR DOUBTFUL DEBTS
The collectability of debts is assessed at year end and specific provision
is made for any doubtful accounts.
(N) DERIVATIVES
The economic entity is exposed to changes in interest rates and foreign
exchange rates. It is the economic entity's policy to use derivative financial
instruments to hedge a portion of these risks. Economic entity policy is not to
enter, hold or issue derivative financial instruments for trading purposes.
Derivative financial instruments that are designated as hedges of firm
commitments and are effective as hedges of underlying exposures are accounted
for on the same basis as the underlying exposure. Gains/ losses relating to
hedges of specific purchase/sale commitments are deferred and recognised as
adjustments to the carrying amount of the hedged transactions
2. OPERATING REVENUE
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
--------- ---------
<S> <C> <C>
Operating profit is determined after crediting the following items:
Sales revenue................................................................................ 43,026 27,334
Other revenue
Insurance recovery........................................................................... -- 29
Interest received from other persons......................................................... 83 90
Foreign currency gains....................................................................... 502 70
Sundry....................................................................................... 780 244
Gross proceeds from sale of non-current assets............................................... 185 440
Write back provision for doubtful debts...................................................... -- 194
--------- ---------
44,576 28,401
--------- ---------
</TABLE>
F-36
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
3. OPERATING PROFIT
Operating profit is determined after charging the following items:
A) OPERATING EXPENSES
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C>
Contributions to superannuation................................................................ 497 271
Interest paid or due and payable to other persons.............................................. 457 325
Finance charges on capitalised leases.......................................................... -- 3
Lease rental expenses, operating leases........................................................ 33 14
Depreciation of property, plant and equipment.................................................. 2,842 1,734
Foreign currency losses........................................................................ 480 --
Write down in value of inventories............................................................. 899 1,212
Amounts set aside to provision for:
Employee entitlements.......................................................................... 29 136
</TABLE>
B) SALE OF NON-CURRENT ASSETS
<TABLE>
<S> <C> <C>
Profit on sales of property, plant and equipment.......................... 69 252
Profit/(loss) on sale of investments...................................... (20) 27
</TABLE>
4. AUDITORS' REMUNERATION
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C>
Amounts received or due and receivable for audit and other services provided by KPMG
--audit services............................................................................. 79 65
--other services............................................................................. 59 154
--- ---
138 219
--- ---
</TABLE>
5. ABNORMAL ITEM
<TABLE>
<S> <C> <C>
Exploration expenditure written off....................................... -- 494
--- ---
Aggregate abnormal items before income tax................................ -- 494
--- ---
</TABLE>
F-37
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
6. INCOME TAX EXPENSE
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C>
A) The prima facie income tax expense at 36% (1995: 33%) on operating profit................... 2,024 1,276
Increase in income tax expense due to non-tax deductible items:
Depreciation of revaluation increment on property, plant and equipment....................... -- 22
Write-off of exploration expenditure......................................................... -- 163
Write down in Ghana withholding tax.......................................................... 36 --
Sundry items (including entertainment)....................................................... (3) 1
Capital losses on disposal of investments.................................................... 7 --
Decrease in income tax expense due to:
Allowable preliminary expenses............................................................... -- (80)
----------- -----
Income tax expense on operating profit....................................................... 2,064 1,382
Add: Income tax expense under (over) provided from prior period.............................. 142 (30)
Add: Income tax expense arising from tax rate adjustment..................................... -- 156
Less: Foreign tax credit..................................................................... (157) --
----------- -----
Total income tax expense attributable to operating profit.................................... 2,049 1,508
----------- -----
Total income tax expense is made up of:
Current income tax provision............................................................... 1,734 788
Deferred income tax provision.............................................................. 870 798
Future income tax benefit.................................................................. (697) (48)
Under (over) provision in prior year....................................................... 142 (30)
----------- -----
2,049 1,508
----------- -----
</TABLE>
B) PROVISION FOR CURRENT INCOME TAX
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C>
Movements during the year were as follows:
Balance at beginning of year................................................................... 466 612
Current year's income tax expense on operating profit.......................................... 1,734 788
Paid in year................................................................................... (1,413) (712)
Foreign tax credit............................................................................. 178 (187)
Under (over) provision prior year.............................................................. 77 (35)
----------- -----
Balance at the end of year..................................................................... 1,042 466
----------- -----
</TABLE>
F-38
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
6. INCOME TAX EXPENSE (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C>
</TABLE>
C) PROVISION FOR DEFERRED INCOME TAX
Provision for deferred income tax comprises the estimated expense at current
income tax rates on the following items:
<TABLE>
<S> <C> <C>
Difference in depreciation and amortisation of property, plant and equipment for accounting and
income tax purposes.......................................................................... 1,140 814
Expenditure currently deductible but deferred and amortised for accounting
purposes.................................................................. 1,739 1,195
----------- -----
2,879 2,009
----------- -----
</TABLE>
D) FUTURE INCOME TAX BENEFIT
Future income tax benefit comprises the estimated future benefit at current
income tax rates of the following items:
<TABLE>
<S> <C> <C>
Provisions and accrued employee entitlements not currently deductible....... 126 169
Unrealised currency differences............................................. 74 --
Excess foreign tax credit carried forward................................... 666 --
----------- -----
866 169
----------- -----
E) Future Income Tax Benefit not brought to account......................... 228 228
</TABLE>
The potential future income tax benefit in a controlled entity, which is a
company, arising from exploration expenditure has not been recognised as an
asset because recovery is not virtually certain.
The potential future income tax benefit will only be obtained if:
(i) the relevant company derives future assessable income of a nature and an
amount sufficient to enable the benefit to be realised, or the benefit can
be utilised by another company in the economic entity in accordance with
Section 80G of the Income Tax Assessment Act 1936;
(ii) the relevant Company and/or the economic entity continues to comply with
the conditions for deductibility imposed by the law; and
(iii) no changes in tax legislation adversely affect the relevant company and/or
the economic entity in realising the benefit.
F-39
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
7. DIVIDENDS
A) DIVIDENDS RESCINDED
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
------------ ------------
<S> <C> <C>
A partially franked ordinary dividend of 10.5 cents per share which had been
provided for at 30 June, 1994 was subsequently rescinded by a resolution of
shareholders on 1 November, 1994. .................................................. -- 1,900
</TABLE>
B) DIVIDENDS PROVIDED FOR
<TABLE>
<S> <C> <C>
Dividends provided for by the Company are a final ordinary dividend
of 4 cents per share (1995: 2 cents) fully franked to 100% from
profits taxed at 36% (1995:fully franked to 72% from profits taxed
at 39% and to 28% from profits taxed at 33%) is recommended by the
Directors. ........................................................ 1,910 701
</TABLE>
C) DIVIDEND FRANKING ACCOUNT
<TABLE>
<S> <C> <C>
Estimated amounts of retained profits and reserves that could be
distributed as franked dividends using franking credits already in
existence or which will arise from income tax payments in the
following period, and after deducting franking credits to be used
in payment of the above dividends:
--franked at 36%................................................... 2,391 1,922
</TABLE>
8. BASIC EARNINGS PER SHARE
<TABLE>
<S> <C> <C>
Basic Earnings per Share........................................... 10.1c 9.3c
Weighted average number of ordinary shares used in calculation of
basic earnings per share........................................... 35,416,388 25,375,624
</TABLE>
9. STATEMENT OF OPERATIONS OF SEGMENTS CONSOLIDATED
INDUSTRY SEGMENTS
The economy entity operates predominantly in the mining industry.
F-40
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
9. STATEMENT OF OPERATIONS OF SEGMENTS CONSOLIDATED (CONTINUED)
GEOGRAPHICAL SEGMENTS
The economic entity has operations and assets in Australia and Africa. Segmental
revenue and assets are as follows.
<TABLE>
<CAPTION>
AUSTRALIA AFRICA EUROPE ELIMINATIONS CONSOLIDATIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1996 1995 1996 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----- ---------- ---------- ---------- ----------
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
---------- ---------- ---------- ---------- ----- ---------- ---------- ---------- ----------
Revenue...... 28,585 14,156 25,608 18,713 -- 182 (9,617) (4,650) 44,576
Segment
operating
profit
before
tax........ 4,415 2,937 2,162 1,169 -- 5 (955) (242) 5,622
Income tax
attributable
to the
operating
profit..... (2,049)
Operating
profit
after
income
tax........ 3,573
Segment
Assets..... 17,659 10,533 18,692 14,107 (955) (242) 35,396
<CAPTION>
<S> <C>
1995
----------
$'000
----------
Revenue...... 28,401
Segment
operating
profit
before
tax........ 3,869
Income tax
attributable
to the
operating
profit..... (1,508)
Operating
profit
after
income
tax........ 2,361
Segment
Assets..... 24,398
</TABLE>
10. RECEIVABLES
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
--------- ---------
<S> <C> <C> <C>
CURRENT
Trade debtors............................................................................. 9,586 5,781
Other debtors............................................................................. 388 238
--------- ---------
9,974 6,019
--------- ---------
</TABLE>
F-41
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
11. INVESTMENTS
<TABLE>
<S> <C> <C> <C>
Investment in other corporations Shares in listed companies--at
cost.............................................................. 8 97
Investments in associated entities.................................. 495 140
----- -----
503 237
----- -----
Shares in listed companies--at market value......................... 17 123
----- -----
The amount of capital gains tax that would be payable if the quoted
shares in other corporations were sold at balance date at the
disclosed market values should not exceed:........................ 3 8
Associated Companies
The Company holds a 50% interest in Equigold (Ghana) Limited.
</TABLE>
12. INVENTORIES
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C> <C>
Drilling supplies, stores and spare parts for drilling rigs
- -- unused items at cost................................................................. 3,711 1,530
- -- used items at impaired value......................................................... 1,164 1,260
----- -----
4,875 2,790
----- -----
</TABLE>
13. OTHER
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
--------- ----------- -----------
<S> <C> <C> <C>
CURRENT
Prepayments............................................................................. 513 436
Withholding tax......................................................................... -- 231
Deferred expenditure.................................................................... 182 --
----- -----
695 667
----- -----
NON-CURRENT
Future income tax benefit............................................................... 6 866 169
----- -----
</TABLE>
14. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
--------- ---------
<S> <C> <C> <C>
Freehold land
--at independent valuation 1996 (1995:1992)........................................... 156 30
Freehold buildings
--at independent valuation 1996 (1995:1992)........................................... 92 123
</TABLE>
F-42
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
14. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
--------- ---------
--accumulated depreciation............................................................ (1) (33)
<S> <C> <C> <C>
--------- ---------
91 90
--------- ---------
Buildings on concessional land
--at cost............................................................................. 323 277
--accumulated depreciation............................................................ (55) (24)
--------- ---------
268 253
--------- ---------
359 343
--------- ---------
Plant and equipment
--at cost............................................................................. 2,432 1,632
--accumulated depreciation............................................................ (868) (510)
--------- ---------
1,564 1,122
--------- ---------
--at independent valuation 1987....................................................... 75 75
--accumulated depreciation............................................................ (75) (75)
--------- ---------
-- --
--------- ---------
1,564 1,122
--------- ---------
Motor vehicles and drilling rigs
-at cost.............................................................................. 20,148 13,812
-accumulated depreciation............................................................. (6,230) (4,225)
--------- ---------
13,918 9,587
--------- ---------
--at independent valuation 1987....................................................... 1,250 1,300
--accumulated depreciation............................................................ (1,136) (1,062)
--------- ---------
114 238
--------- ---------
14,032 9,825
Capital works in progress--at cost...................................................... 988 789
--------- ---------
Total property, plant & equipment
--net book value...................................................................... 17,099 12,109
--------- ---------
</TABLE>
a) Freehold land and buildings were revalued in May 1996, by an independent
valuer, Brad Reed, AVLE (Val & Econ), on the basis of the open market value
of the properties concerned in their existing use. The directors are of the
opinion that this basis provides a reasonable estimate of recoverable
amount.
The net surplus on revaluation of the land and buildings during 1996 of
$139,000 was transferred to the asset revaluation reserve (note 20).
This valuation is in accordance with the Company's policy of obtaining an
independent valuation of land and buildings every three years.
F-43
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
14. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
In revaluing freehold land and buildings the Directors have not taken into
account the potential impact of capital gains tax on the grounds that the
assets are an integral part of the Company's operations and there is no
intention to sell the assets.
15. CREDITORS AND BORROWINGS
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
--------- ----------- -----------
<S> <C> <C> <C>
CURRENT
Trade creditors....................................................................... 3,824 3,318
Bank overdraft
--secured........................................................................... 16 1,321 --
--unsecured......................................................................... -- 43
Hire purchase liabilities
--secured........................................................................... 16, 22 -- 2,266
Bank loan
--unsecured......................................................................... 16 1,180 --
----- -----
6,325 5,627
----- -----
NON-CURRENT
Hire purchase liabilities
--secured........................................................................... 16, 22 -- 2,136
Bank bill facility
--secured........................................................................... 16 7,767 --
Bank loan
--unsecured......................................................................... 16 243 648
----- -----
8,010 2,784
----- -----
----- -----
</TABLE>
F-44
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
16. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
1996 1995
A S`000 A $`000
--------- ---------
<S> <C> <C>
The economic entity has access to the following lines of credit:
Total facilities available:
Bank overdraft/bill facility................................................................... 9,300 300
Bank credit facility........................................................................... 50 30
Bank loan...................................................................................... 1,423 648
Floating debenture............................................................................. -- 1,078
Hire purchase facilities....................................................................... -- 3,324
--------- ---------
10,773 5,380
--------- ---------
Facilities utilised at balance date:
Bank overdraft................................................................................. 1,321 --
Bank bill facility............................................................................. 7,767 --
Bank credit facility........................................................................... -- --
Bank loan...................................................................................... 1,423 648
Floating debenture............................................................................. -- 1,078
Hire purchase facilities....................................................................... -- 3,324
--------- ---------
10,511 5,050
--------- ---------
Facilities not utilised at balance date:
Bank overdraft/bill facility................................................................... 212 300
Bank credit facility........................................................................... 50 30
--------- ---------
262 330
--------- ---------
</TABLE>
BANK OVERDRAFT/CREDIT FACILITY
The bank overdraft/credit facilities are secured by a registered first
mortgage debenture over the economic entity's assets and undertakings.
The bank overdraft/credit facility is of a continuous nature, subject to
satisfactory annual review.
BANK LOAN
The bank loan is unsecured and was established to finance the purchase of 3
drilling rigs for the Company's Ghana operations.
The loan is payable according to a schedule of payment due for completion in
May 1998.
F-45
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
17. AMOUNTS PAYABLE/RECEIVABLE IN FOREIGN CURRENCIES
The Australian dollar equivalents to unhedged amounts payable or receivable
in foreign currencies calculated at year end exchange rates are as follows:
<TABLE>
<CAPTION>
1996 1995
A S`000 A $`000
--------- ---------
<S> <C> <C>
United States Dollars
Amounts payable--current....................................................................... 188 57
Amounts receivable--current.................................................................... 5,851 4,460
Ghanaian Cedis
Amounts payable--current....................................................................... 189 250
Amounts receivable--current.................................................................... 116 36
Swedish Kroner
Amounts payable--current....................................................................... 275 297
</TABLE>
18. PROVISIONS
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
--------- ----------- -----------
<S> <C> <C> <C>
CURRENT
Dividends............................................................................... 7 1,910 701
Employee entitlements................................................................... 21 338 267
Income tax.............................................................................. 6 1,042 466
----- -----
3,290 1,434
----- -----
NON-CURRENT
Employee entitlements................................................................... 21 7 6
Deferred income tax..................................................................... 6 2,879 2,009
----- -----
2,886 2,015
----- -----
</TABLE>
19. SHARE CAPITAL
<TABLE>
<CAPTION>
1996 1995
A S`000 A $`000
--------- ---------
<S> <C> <C>
(A) AUTHORISED CAPITAL
250,000,000 ordinary shares of $0.20 each................................................... 50,000 50,000
--------- ---------
(B) ISSUED CAPITAL
36,089,420 ordinary shares of $0.20 each (1995: 35,079,870)................................. 7,218 7,016
--------- ---------
7,218 7,016
--------- ---------
</TABLE>
F-46
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
19. SHARE CAPITAL (CONTINUED)
ORDINARY SHARES
On 1 March, 1996, the Company made an issue of 1,009,550 ordinary shares of
20 cents each at 54 cents per share in accordance with the Dividend Reinvestment
Plan.
EMPLOYEE SHARE OPTION PLAN
On 30 May, 1996, the Directors resolved to issue 1,000,000 options to the
employees of the Company at an exercise price of 67 cents each under the terms
of the Stanley Mining Services Limited Employee Share Option Plan. On 28 June,
1996, the Shareholders approved the issue of up to 200,000 of these options to
Mr L. D. Humfrey, a director of the Company.
At 30 June 1996 no options have been allocated.
20. RESERVES
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
----- ----------- -----------
<S> <C> <C> <C>
Asset revaluation reserve................................................................. 142 3
Share premium............................................................................. 2,280 1,937
----- -----
2,422 1,940
----- -----
Movements during the year
Share premium
Balance at beginning of year.............................................................. 1,937 --
Add: Premium on ordinary shares issued during the year.................................... 19 343 2,700
Less: Share issue expenses applied........................................................ -- 763
----- -----
Balance at end of year.................................................................... 2,280 1,937
----- -----
Asset revaluation
Balance at beginning of year.............................................................. 3 3
Add: Revaluation increment on freehold land and buildings................................. 14 139 --
----- -----
Balance at end of year.................................................................... 142 3
----- -----
</TABLE>
21. EMPLOYEE ENTITLEMENTS
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
----- ----------- -----------
<S> <C> <C> <C>
Aggregate employee entitlements, including on-costs
- --Current................................................................................. 18 338 267
- --Non-Current............................................................................. 18 7 6
----- -----
345 273
----- -----
</TABLE>
F-47
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
21. EMPLOYEE ENTITLEMENTS (CONTINUED)
The present value of employee entitlements not expected to be settled within
twelve months of balance date have not been calculated as the amounts are
considered to be immaterial.
22. COMMITMENTS
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
----- ----------- -----------
<S> <C> <C> <C>
NON CANCELLABLE OPERATING LEASE COMMITMENTS
Future operating leases not provided for in the financial statements & payable:
Not later than one year................................................................. 138 17
Later than one year but not later than two years........................................ 138 --
Later than two years but not later than five years...................................... 414 --
----- -----
690 17
----- -----
HIRE PURCHASE COMMITMENTS
Future hire purchase commitments are payable as follows:
Not later than one year................................................................. -- 2,628
Later than one year but not later, than two years....................................... -- 1,592
Later than two years but not later that five years...................................... -- 721
----- -----
-- 4,941
Less: Future term charges................................................................. -- (539)
----- -----
-- 4,402
----- -----
Disclosed as:
Current................................................................................. 15 -- 2,266
Non-current............................................................................. 15 -- 2,136
----- -----
-- 4,402
----- -----
CAPITAL EXPENDITURE COMMITMENTS
Contracted but not provided for and payable as follows:
Not later than one year................................................................. 732 --
Later than one year but not later than two years........................................ 284 --
----- -----
1,016 --
----- -----
</TABLE>
SUPERANNUATION COMMITMENTS
The Company and its controlled entities contribute to various employee
defined contribution superannuation funds in accordance with the requirements of
the Superannuation Guarantee Administration Act 1992. The contributions are
based on a percentage of employee gross salaries. All employees are entitled to
benefits on retirement, disability or death.
The Company and other controlled entities are under no legal obligation to
make up any shortfall in the fund's assets to meet payments due to employees.
F-48
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
23. DEED OF CROSS GUARANTEE
Pursuant to an ASC Class Order 95/1530 dated 31 October, 1995, relief was
granted to the wholly-owned subsidiaries listed below from the Corporations Law
requirements for preparation, audit, and publication of accounts.
It is a condition of the Class Order that the Company and each of the
subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is
that the Company guarantees to each creditor payment in full of any debt in the
event of winding up of any of the subsidiaries under certain provisions of the
Corporations Law. If a winding up occurs under other provisions of the Law, the
Company will only be liable in the event that after six months any creditor has
not been paid in full. The subsidiaries have also given similar guarantees in
the event that the Company is wound up.
The Subsidiaries subject to the Deed are:
Stanmines NL (ACN 009 248 122)
International Mining Services Pty Ltd (ACN 008 945 471)
At balance date, the Company and subsidiaries which are a party to the Deed
have aggregate assets of $35,606,308 (1995: $25,042,078); aggregate liabilities
of $19,673,046 (1995: $10,600,721); and their contribution to the consolidated
operating profit after income tax for the year was $3,573,251 (1995:
$2,754,587).
24. PARTICULARS IN RELATION TO CONTROLLED ENTITIES
<TABLE>
<CAPTION>
BOOK VALUE OF
EACH PARENT
INTEREST HELD ENTITY'S INVESTMENT
CLASS OF ------------- ----------------------
NOTE SHARES 1996 1995 1996 1995
----- ----------- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
% % $ $
----- ----- --------- -----
Stanley Mining Services Limited....................
CONTROLLED ENTITIES
International Mining Services Pty Ltd.............. (i) Ord....... 100 100 100 100
Stanmines NL....................................... (i) Ord 100 100 5 5
Stanley Exploration & Mining Company Ltd........... (ii) Ord 100 100 50 50
Stanmines Ghana Ltd................................ (ii) Ord 100 100 50 50
Stanley Mining Services (Tanzania) Ltd............. (iii) Ord 100 100 4 --
<CAPTION>
CONTRIBUTION TO
CONSOLIDATED
PROFIT AFTER TAX
--------------------
1996 1995
--------- ---------
<S> <C> <C>
$'000 $'000
--------- ---------
Stanley Mining Services Limited.................... 1,766 2,381
CONTROLLED ENTITIES
International Mining Services Pty Ltd.............. 1,807 475
Stanmines NL....................................... -- (1)
Stanley Exploration & Mining Company Ltd........... -- (494)
Stanmines Ghana Ltd................................ -- --
Stanley Mining Services (Tanzania) Ltd............. -- --
--------- ---------
3,573 2,361
--------- ---------
</TABLE>
NOTES
(i) International Mining Services Pty Ltd and Stanmines NL have each entered
into a Deed of Cross Guarantee with Stanley Mining Services in respect of
relief granted from specified accounting and financial reporting
requirements in accordance with a class order. Refer Note 23.
F-49
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
24. PARTICULARS IN RELATION TO CONTROLLED ENTITIES (CONTINUED)
(ii) Stanley Exploration & Mining Company Ltd and Stanmines Ghana NL were
incorporated in and carry on business in Ghana.
(iii) Stanley Mining Services(Tanzania) Ltd was incorporated in and carries on
business in Tanzania.
25. ACQUISITION/DISPOSAL OF CONTROLLED ENTITIES
During the year the economic entity ceased to have management control in
Equigold (Ghana) Ltd. The economic entity retains its 50% interest in the
entity.
26. INVESTMENTS IN ASSOCIATED COMPANIES
EQUITY INFORMATION
Investments in associated companies are accounted for on a cost basis in the
Company Financial Statements and the Consolidated Accounts.
Information about the investments under the equity accounting method is set
out below:
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
----------- -----------
<S> <C> <C> <C>
Share of associated companies' operating profit/(loss) and extraordinary items after
income tax.............................................................................. (5) --
--
--- ---
Share of associated companies' profits/(losses) not brought to account in the consolidated
accounts................................................................................ (5) --
--
--- ---
Share of associated companies' accumulated losses......................................... (5) --
Cost of Investment........................................................................ 495 140
--
--- ---
Equity Accounted Amount of Investment..................................................... 490 140
--
--- ---
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
CARRYING
INTEREST VALUE
---------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
PRINCIPLES PLACE OF CLASS OF 1996 1995 1996
NAME ACTIVITIES INCORP. SHARE % % $'000
- ----------------------------------------- ------------- ---------------- ----------- --------- ----- -----
Equigold (Ghana) Ltd..................... Exploration Ghana Ord. 50 50 339
Equigold (Cote D'Ivoire) SA.............. Exploration Cote D'Ivoire Ord....... 42.5 -- 156
---
495
---
<CAPTION>
<S> <C>
1995
NAME $'000
- ----------------------------------------- -----
Equigold (Ghana) Ltd..................... 140
Equigold (Cote D'Ivoire) SA.............. --
---
140
---
</TABLE>
The balance date of Associated Companies is June 30 1996.
F-50
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
27. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C> <C>
REMUNERATION OF DIRECTORS
The number of Directors of the Company, including Executive Directors, whose income from
the Company or related bodies corporate, falls within the following bands:
$ 10,000-$19,999........................................................................ -- 2
$ 20,000-$29,999........................................................................ 2 --
$ 30,000-$39,999........................................................................ -- 1
$160,000-$169,999....................................................................... -- 1
$200,000-$209,999....................................................................... 1 --
$210,000-$219,999....................................................................... 1 1
<CAPTION>
A$'000 A$'000
----------- -----------
<S> <C> <C> <C>
Total income received or due and receivable by all Directors of each entity in the
economic entity from the Company, related bodies corporate, or controlled entities. .... 467 444
</TABLE>
The above amounts (including the comparatives) are disclosed in accordance
with ASC Class Order 95/741 dated 27 June, 1995. These amounts are disclosed in
aggregate as the Directors believe that provision of full particulars would be
unreasonable.
Directors' income includes amounts paid by the Company during the year to
indemnify executives, but does not include insurance premiums paid by the
Company or related bodies corporate in respect of Directors' and Officers'
liabilities insurance contracts as the insurance policies do not specify
premiums paid in respect of individual Directors. Details of insurance premiums
paid are set out in the Directors Report.
F-51
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
28. EXECUTIVES REMUNERATION
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C> <C>
EXECUTIVES INCOME
The income of executives who work wholly or mainly outside Australia is not included in
this disclosure.
The number of executive officers of the economic entity whose income from the Company,
entities in the economic entity, or related entities falls within the following bands:
$100,000--$109,999...................................................................... 1 --
$110,000--$119,999...................................................................... 1 1
$160,000--$169,999...................................................................... -- 1
$200,000--$209,999...................................................................... 1 --
$210,000--$219,999...................................................................... 1 1
<CAPTION>
A$'000 A$'000
----------- -----------
<S> <C> <C> <C>
Total income received, or due and receivable, from the Company, entities in the economic
entity, or related entities by executive officers of the economic entity whose income
exceeds $100,000........................................................................ 641 492
</TABLE>
29. RELATED PARTIES
DIRECTORS
The names of each person holding the position of Director of Stanley Mining
Services Limited during the financial year are Messrs M. D. Perrott, R. F.
Stanley, L. D. Humfrey, N. Giorgetta, P. E. Huston and T. R. Kestel. Details of
Directors' remuneration are set out in Note 27.
Apart from the details disclosed in this note, no Director has entered into
a material contract with the Company or the economic entity since the end of the
previous financial year, and there were no material contracts involving
Directors' interests subsisting at year end.
The following transactions with Directors and their Director related
entities were conducted on normal commercial terms and conditions no more
favourable than those available, or which might reasonably be expected to be
available, on similar transactions to non-director related entities on an arm's
length basis.
1. Mr. Stanley and Mr. Kestel are directors of Sierra Bay Pty Ltd which
has entered into a contract with the Company. The contract is an agreement
to enter into an operating lease with the Company at the completion of
construction of an office and workshop complex. Mr. Kestel has no beneficial
interest in Sierra Bay Pty Ltd.
2. Mr. Huston is the Principal in the law firm Huston Partners being
the law firm which provided services to the Company.
F-52
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
29. RELATED PARTIES (CONTINUED)
3. Mr. Kestel is a director in the accounting firm Nissen Kestel and
Harford which supplied accounting and taxation advice to the Company.
4. Mr. Perrott is a director in Perrott Management Pty Ltd which has
provided management consultancy services to the Company during the year.
The value of transactions during the year with Directors and their Director
related entities were as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
--------------------
<S> <C> <C> <C>
1996 1995
DIRECTOR DIRECTOR RELATED ENTITY $ $
- ------------ ---------------------------- --------- ---------
P. Huston Huston Partners 83,256 162,620
R. Kestel Nissen Kestel & Harford 55,590 154,352
M. Perrott Perrott Management 84,500 49,000
</TABLE>
Amounts payable to Directors and their Director related entities are as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
--------------------
<S> <C> <C> <C>
1996 1995
ENTITY $ $
- ------------ --------- ---------
Huston Partners........................... -- 7,868
Nissen Kestel and Harford................. -- 7,262
Perrott Management........................ 7,000 7,000
</TABLE>
DIRECTORS HOLDINGS OF SHARES
The relevant interest of Directors of the reporting entity and their
Director related entities in shares of entities within the economic entity at
year end are set out below:
<TABLE>
<CAPTION>
CONSOLIDATED
NUMBER HELD
--------------------------
<S> <C> <C>
1996 1995
------------ ------------
Stanley Mining Services Limited
$0.20 Ordinary Shares........................................... 22,820,388 21,330,703
------------ ------------
</TABLE>
WHOLLY OWNED GROUP
Details of interests in wholly owned controlled entities are set out in Note
24. Details of dealings with these entities are set out below.
TRANSACTIONS WITHIN THE WHOLLY-OWNED GROUP
Transactions between the Company and related parties in the wholly owned
group consisted of:
i) Sales and purchases of consumables and spares
F-53
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
29. RELATED PARTIES (CONTINUED)
ii) Administrative and management services
iii) Loans to entities in the wholly owned group
iv) Loans repaid by entities in the wholly owned group
Loans between entities within the wholly owned group have no fixed term or
repayment schedule. There is no interest charged or receivable.
ASSOCIATED COMPANIES
Refer to Note 26
30. NOTES TO THE STATEMENTS OF CASH FLOWS
(I) RECONCILIATION OF CASH
For the purposes of the Statements of Cash Flows, cash includes cash on hand
and at bank, net of outstanding bank overdrafts. Cash as at the end of the
financial year as shown in the Statements of Cash Flows is reconciled to the
related items in the Balance Sheet as follows:
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
----------- --------- -----------
<S> <C> <C> <C>
Cash..................................................................................... 1,384 2,407
Bank overdraft........................................................................... 15 (1,321) (43)
--------- -----
63 2,364
--------- -----
</TABLE>
(II) RECONCILIATION OF OPERATING PROFIT/(LOSS) AFTER INCOME TAX TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<S> <C> <C> <C>
Operating profit after income tax................................... 3,573 2,361
Add: Items classified as financing/investing:
Finance charges..................................................... -- 3
Add (less) non-cash items:
(Profit) loss on sale of investments.............................. 20 (27)
(Profit) loss on sale of property, plant and equipment............ (69) (252)
Depreciation and amortisation....................................... 2,842 1,734
Foreign exchange losses on withholding tax.......................... 243 --
Exploration expenditure written off................................. -- 494
Withholding tax written off......................................... 100 --
----------- -----
Net cash provided by operating activities before change in assets
and liabilities................................................... 6,709 4,313
----------- -----
</TABLE>
F-54
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
30. NOTES TO THE STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
--------- ---------
<S> <C> <C> <C>
Change in assets and liabilities during the financial year
Increase in inventories............................................................... (2,085) (812)
Increase in other assets.............................................................. (371) (406)
Increase in trade and other debtors................................................... (3,955) (3,102)
Increase in creditors and accruals.................................................... 506 851
Increase in income taxes payable...................................................... 749 487
Amounts set aside to provisions....................................................... 72 135
--------- ---------
Net cash provided by operating activities............................................. 1,625 1,466
--------- ---------
</TABLE>
FINANCING ARRANGEMENTS
Refer Note 16
31. EVENTS SUBSEQUENT TO BALANCE DATE
During July, 1996 the Company allotted 11,666,667 ordinary shares of 20
cents each at an issue price of 60 cents per share for cash.
32. EVENTS SUBSEQUENT TO 12 SEPTEMBER 1996
On 31 October 1996, the Company issued 2,050,799 fully paid ordinary shares
of 20 cents each at 65 cents per share in accordance with the Dividend
Reinvestment Plan.
On 25 November 1996, the Company announced a 1:3 Rights Issue of 17,554,439
shares of 20 cents each to fund the purchase of Glindemann & Kitching Pty Ltd.
This issue was completed on 21 February 1997.
On 17 December 1996 the Company acquired 51% of Glindemann & Kitching Pty
Ltd effective from 1 October 1996. The remaining 49% will be completed in July
1997.
On 17 December 1996 the Company made a cash issue of 2,858,000 ordinary
shares of 20 cents each at 70 cents per share as part consideration of the
acquisition of 51% of Glindemann & Kitching Pty Ltd.
On 27 February 1997 the Directors resolved to allot 2,000,000 options to
employees of the Company at an exercise price of 63 cents each under the terms
of the Stanley Mining Services Limited Employee Share Option Plan.
On 27 February 1997 the 1,000,000 options to employees of the Company at an
exercise price of 67 cents, as previously disclosed, lapsed.
On 27 March 1997, the Company approved the issue of 2,000,000 options to
Michael Perrott, the Chairman and Managing Director, at an exercise price of 70
cents each.
F-55
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
32. EVENTS SUBSEQUENT TO 12 SEPTEMBER 1996 (CONTINUED)
On 8 April 1997, the Company announced it had received a notice of a
proposed takeover from Layne Christensen Australia Pty Ltd which is a fully
owned subsidiary of Layne Christensen Company of Mission Woods, Kansas, USA. The
takeover documents were posted to shareholders during May 1997.
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
PRINCIPAL DIFFERENCES BETWEEN AUSTRALIAN GAAP AND US GAAP
Financial statements in the United States are prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP"). In
Australia financial statements are prepared in accordance with applicable
accounting standards issued by the Australian Accounting Standards Board, the
Australian Corporations Law, Schedule 5 to the Corporations Regulations and
other mandatory professional reporting requirements (Urgent Issues Consensus
Views) collectively referred to as "Australian GAAP." The principle differences
between Australian GAAP and US GAAP which are material to the preparation of the
consolidated financial statements of the Company are set out below in this note.
(A) MARKETABLE INVESTMENTS SECURITIES
Under Australian GAAP marketable equity securities held for trading purposes
are stated at the lower of aggregate cost or net realisable value. Marketable
equity securities held for investment are stated at cost or directors'
valuation.
Under US GAAP Statement of Financial Accounting Standard No. 115 "Accounting
for Certain Investments in Debt and Equity Securities ("SFAS 115"), requires
investments to be classified into three categories and accounted for as follows:
debt securities that the Company has the positive intent and ability to hold to
maturity are classified as "held-to-maturity securities" and reported at
amortised costs; debt and marketable equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
"trading securities" and reported at fair value, with unrealised gains and
losses included in earnings; and debt and marketable equity securities not
classified as either held-to-maturity securities or trading securities are
classified as "available-for-sale securities" and reported at fair value, with
unrealised gains and losses excluded from earnings and reported as a separate
component of shareholders' equity net of tax effect.
(B) INVESTMENTS IN ASSOCIATES
Under Australian GAAP investments in associates are initially recorded at
cost. Investments in associates may be revalued. Income from investments in
associates is recognised only to the extent of dividends received or receivable
from post-acquisition profits of the investee.
Under US GAAP investments in associates are accounted for under the equity
method of accounting. The equity method of accounting requires the investor to
recognise its proportionate share of the associates' net profit or loss for the
period. Dividends received or receivable are accounted for as reductions in the
carrying value of the investor's investment.
F-56
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(C) DEFERRED EXPENDITURE
SHARE ISSUE EXPENSES
Under Australian GAAP, costs of raising additional share capital are
capitalised and offset against the share premium reserve when the share issue is
finalised.
Under US GAAP a similar treatment is allowed.
INTERNAL COSTS OF ACQUISITIONS AND BUSINESS COMMENCEMENTS
Under Australian GAAP the Company capitalises certain internal costs
incurred in connection with certain business acquisitions and start up of
businesses.
Under US GAAP the internal costs incurred in connection with certain
business acquisitions and business start up are expensed as incurred.
EXPLORATION EXPENDITURE
Under Australian GAAP, all exploration expenditure is capitalised to the
extent that it is expected to be recouped through successful exploitation of the
area or where exploration and evaluation activities have not yet reached a stage
which permits a reasonable assessment of the existence or otherwise of
economically recoverable reserves and significant activities are continuing.
Under US GAAP, exploration expenditure in the search for mineralisation
deposits is expensed as incurred. Once it is determined that mineral reserves
exist and are commercially recoverable future expenditure is capitalised as
development expenditure.
(D) ASSET REVALUATIONS
Under Australian GAAP non-current assets may be revalued both upwards and
downwards based on directors' valuations. An upwards revaluation is recorded by
a credit to the asset revaluation reserve as a component of shareholders' equity
and is not taken through the profit and loss account except where a previous
revaluation decrement has been recorded for that class of assets through the
profit and loss account. An impairment or downwards revaluation is taken through
the profit and loss account except where there is a revaluation reserve for that
particular class of assets, in which case the decrement may be debited to that
asset revaluation reserve, to the extent a credit exists, rather than the profit
and loss account.
The Company assesses the recoverability of non-current assets by comparing
the carrying value to the asset's undiscounted cash flow. To the extent that the
asset's carrying value exceeds its undiscounted cash flow, the asset is written
down to that amount.
US GAAP does not permit the upward revaluation of such assets. US GAAP
requires that an impairment of long-lived assets be recognised through the
profit and loss account. Under US GAAP SFAS 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
F-57
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
entities, when assessing an asset for impairment, compare the carrying value of
the asset or group of assets to the relevant expected cash flow, undiscounted
and without interest. If the sum of the undiscounted cash flow is less than the
asset carrying value the asset must be written down to "fair value". One method
of determining an asset's fair value, in the absence of an active market, is its
discounted cash flow. Once impairment is recorded, subsequent recoveries through
the profit and loss account are not allowed until the asset is sold.
Under Australian GAAP, the Company may pay dividends out of its asset
revaluation reserve to the extent that a credit balance exists. Under US GAAP
since no asset revaluation reserve exists, all dividends are paid out of
retained earnings.
(E) INCOME TAXES
Under Australian GAAP, income taxes are accounted for in accordance with the
liability method which is equivalent in many respects to United States Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires deferred tax assets and liabilities to be recognised for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not "more likely than not" that such deferred tax assets
will be realised. Under SFAS 109, "more likely than not" is defined as a
likelihood of more than 50 percent.
Under Australian GAAP, deferred tax assets related to temporary differences
are brought to account when they are "assured beyond a reasonable doubt" and net
operating losses pass a "virtually certain" threshold. The effect of a change in
tax rate is recorded in the period the government approves the budget which in
financial year 1995 preceded the enactment date under US GAAP. Accordingly, the
effect of the increase in the Australian tax rate from 33% to 36% is recognised
for US GAAP purposes in fiscal 1996.
With respect to business combinations accounted for as purchases, under
Australian GAAP, differences in the bases of assets and liabilities as a result
of purchase price adjustments do not result in the creation of a deferred tax
asset or liability at the acquisition date. Under US GAAP, the differences
between the assigned values and tax bases of assets and liabilities acquired in
such business combinations require the recognition of deferred tax assets and
liabilities at the acquisition date.
(F) DIVIDENDS
Under Australian GAAP, dividends declared subsequent to year end are
provided (accrued) for in the financial statements at year end if the
declaration date is prior to the date the financial statements are signed. Under
US GAAP dividends are recorded in the period declared.
F-58
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(G) STOCK BASED COMPENSATION
EMPLOYEE COMPENSATION
Under Australian GAAP, the issuance of employee stock options does not
result in compensation expense. Under US GAAP, entities may account for employee
stock compensation either in accordance with APB Opinion 25 "Accounting for
Stock Issued to Employees" or Statement of Financial Accounting Standard 123
"Accounting for Stock Based Compensation". APB 25 requires that entities record
compensation expense to the extent that the quoted market price of the
underlying shares at the defined measurement date is greater than the exercise
price to be paid by the employee.
Alternatively, FAS 123 specifics that compensation costs related to stock
based compensation plans shall be based on the estimated fair value of the stock
option as at the grant date, with the resulting compensation being recognised
over the employee vesting period. The fair value of employee stock options is
determined using option pricing models such as the binomial or Black Scholes
models. Presently the Company will be following APB 25 for US GAAP purposes.
Given stock options granted to date have had an exercise price equal to or
greater than the share trading price at date of grant. There is no impact on net
income or shareholders' equity.
NON-EMPLOYEES STOCK OPTIONS
Under Australian GAAP, the issuance of stock options to non-employees with
an exercise price equal to the current market price at date of grant results in
no compensation.
Under US GAAP, the issuance of stock options to non-employees must be
accounted for under the fair value method prescribed in SFAS 123 "Accounting for
Stock-Based Compensation". The fair value of the options granted will be
recorded as expense over their service or vesting period.
F-59
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(H) PROFIT AND LOSS ACCOUNT
Under Australian GAAP, the Company has disclosed certain items as "abnormal"
in the profit and loss statement in the June 1996 accounts. There is no
"abnormal items" category in a US GAAP statement of profit such that these items
would be included as operating income.
<TABLE>
<CAPTION>
FOR YEAR ENDED FOR YEAR ENDED
1996 1995
A$'000 A$'000
--------------- ---------------
<S> <C> <C>
Operating profit after income tax in accordance with Australian GAAP.............. 3,573 2,361
Adjustments:
(Realised) Unrealised gains on trading securities............................... (26) 26
Share of associates' net loss consisting of deferred exploration expenditure.... (199) --
Deferred exploration expenditure................................................ -- (41)
Deferred internal costs of acquisition & business commencements................. (149) --
Depreciation relating to revalued assets........................................ 33 34
Gain on sale of revalued asset.................................................. 7 --
Change in tax rates............................................................. (156) 156
Tax effect of US GAAP adjustments............................................... 72 14
----- -----
Net profit--US GAAP............................................................. 3,155 2,550
----- -----
</TABLE>
F-60
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED 30 JUNE 1996 AND 1995
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
<TABLE>
<CAPTION>
AS AT JUNE 30, 1996 AS AT JUNE 30, 1995
A$'000 A$'000
------------------- -------------------
<S> <C> <C>
Shareholders equity attributable to members of the parent entity--
Australian GAAP......................................................... 14,885 12,538
Adjustments:
Unrealised gains on trading securities.................................. -- 26
Unrealised gains on available-for-sale securities....................... 9 --
Share of associates' net loss consisting of deferred exploration
expenditure........................................................... (199) --
Deferred exploration expenditure........................................ (140) (140)
Deferred internal costs of acquisitions & business commencements........ (149) --
Asset revaluation reserve............................................... (142) (3)
Dividend paid from asset revaluation reserve............................ (188) (188)
Accumulated depreciation of revalued assets............................. 102 69
Gain on sale of revalued asset.......................................... 7 --
Dividend proposed....................................................... 1,910 701
Change in tax rates..................................................... -- 156
Cumulative tax effect of US GAAP adjustments............................ 122 46
------ ------
Shareholders' equity--US GAAP........................................... 16,217 13,205
------ ------
</TABLE>
F-61
<PAGE>
STANLEY MINING SERVICES LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF PROFIT
FOR THE HALF YEARS ENDED
31 DECEMBER 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
------ --------- ---------
<S> <C> <C> <C>
Sales revenue......................................................................... 29,782 20,268
Other revenue......................................................................... 1,272 290
--------- ---------
TOTAL OPERATING REVENUE............................................................... 31,054 20,558
--------- ---------
Operating profit before income tax.................................................... 2 3,543 3,203
Income tax attributable to operating profit........................................... 1,204 1,093
--------- ---------
OPERATING PROFIT AFTER INCOME TAX..................................................... 2,339 2,110
Outside equity interests in operating profit.......................................... 454 --
--------- ---------
OPERATING PROFIT AFTER INCOME TAX ATTRIBUTABLE TO MEMBERS OF THE COMPANY.............. 1,885 2,110
Retained profits at the beginning of the half year.................................... 5,245 3,582
--------- ---------
TOTAL AVAILABLE FOR APPROPRIATION..................................................... 7,130 5,692
Dividends provided for or paid........................................................ -- --
Retained profits at the end of the half year.......................................... 7,130 5,692
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited consolidated financial statements
F-62
<PAGE>
STANLEY MINING SERVICES LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF 31 DECEMBER 1996 AND 1995
<TABLE>
<CAPTION>
NOTE 1996 1995
<S> <C> <C> <C>
A$'000 A$'000
--------- ---------
CURRENT ASSETS
Cash.................................................................................. 9 4,822 2,110
Receivables........................................................................... 13,882 7,598
Inventories........................................................................... 7,253 4,233
Other................................................................................. 1,114 890
--------- ---------
TOTAL CURRENT ASSETS.................................................................. 27,071 14,831
--------- ---------
NON-CURRENT ASSETS
Investments........................................................................... 6 877 104
Property, plant & equipment........................................................... 28,101 11,706
Other................................................................................. 1,454 418
--------- ---------
TOTAL NON-CURRENT ASSETS.............................................................. 30,432 12,228
--------- ---------
TOTAL ASSETS.......................................................................... 57,503 27,059
--------- ---------
--------- ---------
CURRENT LIABILITIES
Accounts payable...................................................................... 7,372 4,006
Borrowings............................................................................ 833 2,534
Provisions............................................................................ 2,682 1,659
--------- ---------
TOTAL CURRENT LIABILITIES............................................................. 10,887 8,199
--------- ---------
NON-CURRENT LIABILITIES
Borrowings............................................................................ 8,506 1,505
Provisions............................................................................ 3,970 2,707
--------- ---------
TOTAL NON-CURRENT LIABILITIES......................................................... 12,476 4,212
--------- ---------
TOTAL LIABILITIES..................................................................... 23,363 12,411
--------- ---------
SHAREHOLDERS' EQUITY
Share capital......................................................................... 7 10,533 7,016
Reserves.............................................................................. 9,095 1,940
Retained profits...................................................................... 7,130 5,692
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO MEMBERS OF THE COMPANY..................... 26,758 14,648
Outside equity interests in controlled entities....................................... 7,382 --
--------- ---------
TOTAL SHAREHOLDERS' EQUITY............................................................ 34,140 14,648
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................................ 57,503 27,059
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited consolidated financial statements
F-63
<PAGE>
STANLEY MINING SERVICES LIMITED
UNAUDITED CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE HALF YEARS ENDED
31 DECEMBER 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
--------- ---------
<S> <C> <C>
AUTHORISED CAPITAL
Ordinary shares of 20 cents each............................................................... 50,000 50,000
--------- ---------
Opening balance................................................................................ 7,217 7,016
Additional shares issued....................................................................... 3,316 --
--------- ---------
Total share capital............................................................................ 10,533 7,016
--------- ---------
RETAINED PROFITS
Retained profits at the beginning of the half year as stated................................... 5,245 3,582
Operating profit after income tax attributable to members of the Company....................... 1,885 2,110
--------- ---------
Retained profits at the end of the half year as stated......................................... 7,130 5,692
--------- ---------
RESERVES
SHARE PREMIUM RESERVE
Opening balance................................................................................ 2,280 1,937
Premium on additional shares issued............................................................ 7,018 --
Share placement costs.......................................................................... (345) --
--------- ---------
Closing balance................................................................................ 8,953 1,937
--------- ---------
ASSET REVALUATION RESERVE
Opening balance................................................................................ 142 3
--------- ---------
Closing balance................................................................................ 142 3
--------- ---------
Total reserves................................................................................. 9,095 1,940
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO THE MEMBERS OF THE COMPANY.......................... 26,758 14,648
--------- ---------
OUTSIDE EQUITY INTERESTS IN CONTROLLED ENTITIES................................................ 7,382 --
--------- ---------
TOTAL SHAREHOLDERS' EQUITY..................................................................... 34,140 14,648
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited consolidated financial statements
F-64
<PAGE>
STANLEY MINING SERVICES LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE HALF YEARS ENDED
31 DECEMBER 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of operations.................................................... 30,120 18,899
Cash payments in the course of operations.................................................... (25,627) (16,294)
Income taxes paid............................................................................ (555) (338)
Withholding taxes paid....................................................................... (239) (476)
Interest and other items of a similar nature received........................................ 110 50
Interest and other finance costs paid........................................................ (168) (277)
Dividends received........................................................................... 9 --
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................................... 3,650 1,564
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for controlled entity................................................................ (6,057) --
Cost of acquisition.......................................................................... (361) --
Proceeds on sale of investments.............................................................. 1,372 1
Proceeds on sale of plant and equipment...................................................... 129 48
Payments for property, plant and equipment................................................... (3,705) (884)
Payment for exploration...................................................................... -- (5)
Payment for investments...................................................................... (374) (6)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES........................................................ (8,996) (846)
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited consolidated financial statements
F-65
<PAGE>
STANLEY MINING SERVICES LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE HALF YEARS ENDED
31 DECEMBER 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid........................................................................ (577) --
Proceeds from share issue............................................................. 9,000 --
Repayment of borrowings............................................................... (8,712) --
Proceeds from borrowings.............................................................. 8,506 1,400
Hire purchase payments................................................................ -- (2,415)
Cost of capital raising............................................................... (345) --
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................................... 7,872 (1,015)
--------- ---------
NET INCREASE (DECREASE) IN CASH HELD.................................................. 2,526 (297)
CASH AT THE BEGINNING OF THE FINANCIAL PERIOD......................................... 63 2,407
CASH BALANCES IN CONTROLLED ENTITIES ACQUIRED......................................... 1,878 --
--------- ---------
CASH AT THE END OF THE FINANCIAL PERIOD............................................... 9 4,467 2,110
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited consolidated financial statements
F-66
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEARS ENDED 31 DECEMBER 1996 AND 1995
1. BASIS OF PREPARATION OF HALF YEAR FINANCIAL STATEMENTS
The general purpose half-year consolidated financial statements have been
prepared in accordance with the requirements of the Corporations Law and
Accounting Standard AASB 1029 "Half-Year Accounts and Consolidated Accounts" and
other mandatory professional reporting requirements (Urgent Issues Group
Consensus Views). It is recommended that these half-year financial statements
and reports be read in conjunction with the 30 June 1996 Annual Financial
Statements and Reports and any public announcements by Stanley Mining Services
Limited and its controlled entities during the half year in accordance with
continuous disclosure obligations arising under the Corporations Law.
The accounting policies have been consistently applied by the entities in
the economic entity and are consistent with those of the previous financial year
and corresponding half year.
The carrying amount of non-current assets are reviewed to determine whether
they are in excess of their recoverable amount at the end of the half-year. If
the carrying amount of a non-current asset exceeds the recoverable amount, the
asset is written down to the lower amount. In assessing recoverable amounts the
relevant cash flows have not been discounted to their present value.
For the purposes of preparing the half-year financial statements, the
half-year has been treated as a discrete reporting period.
A reconciliation of the major differences between these accounts and those
applicable under generally accepted accounting principles in the United States
("US GAAP") is included in note 11.
2. OPERATING PROFIT BEFORE INCOME TAX
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
----------- -----------
<S> <C> <C>
Operating profit before income tax has been arrived at after including:
Interest received or due and receivable.......................................................... 110 50
Interest paid or due and payable (including lease finance charges)............................... 168 236
Depreciation including all forms of amortisation................................................. 2,376 1,173
</TABLE>
3. DIVIDENDS
Stanley Mining Services Limited paid the following dividends in respect of
the half year ended 31 December 1996:
4 cents per share franked to 100% with class "C" (36%) franking credits
paid on 31 October 1996.
F-67
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE HALF YEARS ENDED 31 DECEMBER 1996 AND 1995
DIVIDEND FRANKING ACCOUNT
Estimated amounts of retained profits and reserves that could be distributed
as franked dividends using franking credits already in existence or which will
arise from the payment of income tax provided for in the financial statements.
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
----------- -----------
<S> <C> <C>
Class C (36%) franking credits............................................... 1,447 2,005
----- -----
----- -----
</TABLE>
4. EARNINGS PER SHARE
<TABLE>
<S> <C> <C>
Basic earnings per share........................................ 4.0c 6.0c
--- ---
--- ---
</TABLE>
Basic earnings per share and diluted earnings per share were not materially
different at the end of the period.
5. CONTROL GAINED OVER ENTITY
The economic entity gained control over the following entity during the
period:
<TABLE>
<CAPTION>
CONTRIBUTION
------------------------
(2)
1996 1995
NAME DATE (1) A$'000 A$'000
- ---------------------------------------------------------------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Glindemann & Kitching Pty Ltd............................................... 1 October 1996 475 --
</TABLE>
- ------------------------
(1) Date is date control was gained.
(2) Contribution to consolidated profit after tax.
6. INVESTMENTS IN ASSOCIATED COMPANIES EQUITY INFORMATION
Investments in associated companies are accounted for on a cost basis in the
half year consolidated financial statements.
F-68
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE HALF YEARS ENDED 31 DECEMBER 1996 AND 1995
6. INVESTMENTS IN ASSOCIATED COMPANIES EQUITY INFORMATION (CONTINUED)
Information about the investments under the equity accounting method is set
out below:
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
----------- -----------
<S> <C> <C>
Share of associated companies' operating profit (loss) and extra ordinary items after income
tax............................................................................................ (5) --
--
---
Share of associated companies' profits (losses) not brought to account in the consolidated
accounts....................................................................................... (5) --
--
---
Share of associated companies' accumulated losses................................................ (5) --
Cost of investment............................................................................... 672 --
--
---
Equity accounted amount of investment............................................................ 667 --
--
--
---
---
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED
INTEREST
----------------------------
CLASS OF 1996 1995
NAME PRINCIPAL ACTIVITIES SHARE % %
- ------------------------------------------------------ ----------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Equigold (Ghana) Ltd.................................. Exploration Ord 50 50
Equigold (Cote D'Ivoire) SA........................... Exploration Ord 42.5 --
</TABLE>
7. SHARE CAPITAL
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
--------- ---------
<S> <C> <C>
(a) Authorised capital 250,000,000 shares of $0.20 each........................................ 50,000 50,000
--------- ---------
(b) Issued capital 52,664,886 ordinary shares of $0.20 each [1995: 35,079,870]................. 10,533 7,016
--------- ---------
Total.......................................................................................... 10,533 7,016
--------- ---------
</TABLE>
ORDINARY SHARES
Between 3 July and 16 July 1996 the Company made a cash issue of 11,666,667
ordinary shares of 20 cents each at an issue price of 60 cents to fund expansion
of the drilling operations of the Company in Australia and Ghana, and to provide
$1.5 million to fund the Company's portion of exploration expenditure on its
mining interests in Ghana.
On 31 October 1996, the Company issued 2,050,799 fully paid ordinary shares
of 20 cents each at 65 cents per share in accordance with the Dividend
Reinvestment Plan.
On 17 December 1996 the Company made a cash issue of 2,858,000 ordinary
shares of 20 cents each at 70 cents per share as part consideration of the
acquisition of 51% of Glindemann & Kitching Pty Ltd.
F-69
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE HALF YEARS ENDED 31 DECEMBER 1996 AND 1995
8. STATEMENT OF OPERATIONS OF SEGMENTS
INDUSTRY SEGMENTS
The economic entity operates predominantly in the mining services industry.
GEOGRAPHICAL SEGMENTS
The economic entity has operations and assets in Australia and Africa.
Segmental revenue, profit and assets are as follows:
<TABLE>
<CAPTION>
AUSTRALIA AFRICA ELIMINATION CONSOLIDATED
-------------------- -------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1996 1995 1996 1995 1996
$'000 $'000 $'000 $'000 $'000 $'000 $'000
--------- --------- --------- --------- --------- --------- ---------
Revenue outside the economic entity............. 19,224 7,923 11,830 12,635 -- -- 31,054
Inter-segment revenue........................... 4,807 4,180 -- -- (4,807) (4,180) --
--------- --------- --------- --------- --------- --------- ---------
Total revenue................................... 24,031 12,103 11,830 12,635 (4,807) (4,180) 31,054
Segment operating profit........................ 2,998 1,052 726 2,863 (181) (712) 3,543
--------- --------- --------- --------- --------- --------- ---------
Income tax expense attributable to operating
profit........................................ 1,204
OPERATING PROFIT AFTER TAX...................... 2,339
---------
---------
SEGMENT ASSETS.................................. 37,057 10,223 21,823 17,940 (1,377) (1,104) 57,503
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
1995
$'000
---------
Revenue outside the economic entity............. 20,558
Inter-segment revenue........................... --
---------
Total revenue................................... 20,558
Segment operating profit........................ 3,203
---------
Income tax expense attributable to operating
profit........................................ 1,093
OPERATING PROFIT AFTER TAX...................... 2,110
---------
---------
SEGMENT ASSETS.................................. 27,059
---------
---------
</TABLE>
9. NOTES TO THE STATEMENTS OF CASH FLOWS
RECONCILIATION OF CASH
For the purpose of the Statements of Cash Flows, cash includes cash on hand
and at bank, net of outstanding bank overdrafts. Cash as at the end of the
financial period as shown in the Statements of Cash Flows are reconciled to the
related items in the balance sheets as follows:-
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
----------- -----------
<S> <C> <C>
Cash......................................................................... 4,822 2,110
Bank overdraft............................................................... (355) --
----- -----
Totals....................................................................... 4,467 2,110
----- -----
</TABLE>
F-70
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE HALF YEARS ENDED 31 DECEMBER 1996 AND 1995
10. EVENTS SUBSEQUENT TO REPORTING DATE
EMPLOYEE SHARE OPTION PLAN
On 27 February 1997 the Directors resolved to allot 2,000,000 options to
employees of the Company at an exercise price of 63 cents each under the terms
of the Stanley Mining Services Limited Employee Share Option Plan.
OPTIONS
On 30 January 1997 the Directors resolved, subject to shareholders approval,
to issue 2,000,000 options to Michael Perrott, the Managing Director and the
Chairman, at an exercise price of 70 cents each in consideration of him entering
into a 2 year service agreement, as follows:
1,000,000 options exercisable on or after 1 February 1998 and prior to 31
January 2003.
1,000,000 options exercisable on or after 1 February 1999 and prior to 31
January 2003.
The shareholders approved the issue of these options on 27 March 1997.
RIGHTS ISSUE
On 21 February 1997 the Company allotted 17,554,439 shares pursuant to a
prospectus dated 20 December 1996. The purpose of the issue was to repay the
short term debt facility taken out by the Company to partially fund the
Glindemann & Kitching Pty Ltd acquisition and to provide further working capital
to the Company.
TAKEOVER
On 8 April 1997 the Company announced it had received a notice of a proposed
takeover from Layne Christensen Australia Pty Ltd, which is a fully owned
subsidiary of Layne Christensen Company of Mission Woods, Kansas, USA. The
takeover documents were posted to shareholders during May 1997.
11. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
PRINCIPAL DIFFERENCES BETWEEN AUSTRALIAN GAAP AND US GAAP
Financial statements in the United States are prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP"). In
Australia financial statements are prepared in accordance with applicable
accounting standards issued by the Australian Accounting Standards Board, the
Australian Corporations Law, Schedule 5 to the Corporations Regulations and
other mandatory professional reporting requirements (Urgent Issues Consensus
Views) collectively referred to as "Australian GAAP." The principal differences
between Australian GAAP and US GAAP which are material to the preparation of the
consolidated financial statements of the Company are set out below in this note.
F-71
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE HALF YEARS ENDED 31 DECEMBER 1996 AND 1995
11. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(A) MARKETABLE INVESTMENTS SECURITIES
Under Australian GAAP marketable equity securities held for trading purposes
are stated at the lower of aggregate cost or net realisable value. Marketable
equity securities held for investment are stated at cost or directors'
valuation.
Under US GAAP Statement of Financial Accounting Standard No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115"), requires
investments to be classified into three categories and accounted for as follows:
debt securities that the Company has the positive intent and ability to hold to
maturity are classified as "held-to-maturity securities" and reported at
amortised cost; debt and marketable equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
"trading securities" and reported at fair value, with unrealised gains and
losses included in earnings; and debt and marketable equity securities not
classified as either held-to-maturity securities or trading securities are
classified as "available-for-sale securities" and reported at fair value, with
unrealised gains and losses excluded from earnings and reported as a separate
component of shareholders' equity net of tax effect.
(B) INVESTMENTS IN ASSOCIATES
Under Australian GAAP investments in associates are initially recorded at
cost. Investments in associates may be revalued. Income from investments in
associates is recognised only to the extent of dividends received or receivable
from post-acquisition profits of the investee.
Under US GAAP investments in associates are accounted for under the equity
method of accounting. The equity method of accounting requires the investor to
recognise its proportionate share of the associates' net profit or loss for the
period. Dividends received or receivable are accounted for as reductions in the
carrying value of the investor's investment.
(C) DEFERRED EXPENDITURE
SHARE ISSUE EXPENSES
Under Australian GAAP, costs of raising additional share capital are
capitalised and offset against the share premium reserve when the share issue is
finalised.
Under US GAAP a similar treatment is allowed.
INTERNAL COSTS OF ACQUISITIONS AND BUSINESS COMMENCEMENTS
Under Australian GAAP the Company capitalises certain internal costs
incurred in connection with certain business acquisitions and start up of
businesses.
Under US GAAP the internal costs incurred in connection with certain
business acquisitions and business start up are expensed as incurred.
F-72
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE HALF YEARS ENDED 31 DECEMBER 1996 AND 1995
11. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
EXPLORATION EXPENDITURE
Under Australian GAAP, all exploration expenditure is capitalised to the
extent that it is expected to be recouped through successful exploitation of the
area or where exploration and evaluation activities have not yet reached a stage
which permits a reasonable assessment of the existence or otherwise of
economically recoverable reserves and significant activities are continuing.
Under US GAAP, exploration expenditure in the search for mineralisation
deposits is expensed as incurred. Once it is determined that mineral reserves
exist and are commercially recoverable future expenditure is capitalised as
development expenditure.
(D) ASSET REVALUATIONS
Under Australian GAAP non-current assets may be revalued both upwards and
downwards based on directors' valuations. An upwards revaluation is recorded by
a credit to the asset revaluation reserve as a component of shareholders' equity
and is not taken through the profit and loss account except where a previous
revaluation decrement has been recorded for that class of assets through the
profit and loss account. An impairment or downwards revaluation is taken through
the profit and loss account except where there is a revaluation reserve for that
particular class of assets, in which case the decrement may be debited to that
asset revaluation reserve, to the extent a credit exists, rather than the profit
and loss account.
The Company assesses the recoverability of non-current assets by comparing
the carrying value to the asset's undiscounted cash flow. To the extent that the
asset's carrying value exceeds its undiscounted cash flow, the asset is written
down to that amount.
US GAAP does not permit the upward revaluation of such assets. US GAAP
requires that an impairment of long-lived assets be recognised through the
profit and loss account. Under US GAAP SFAS 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," entities,
when assessing an asset for impairment, compare the carrying value of the asset
or group of assets to the relevant expected cash flow, undiscounted and without
interest. If the sum of the undiscounted cash flow is less than the asset
carrying value the asset must be written down to "fair value." One method of
determining an asset's fair value, in the absence of an active market, is its
discounted cash flow. Once impairment is recorded, subsequent recoveries through
the profit and loss account are not allowed until the asset is sold.
(E) INCOME TAXES
Under Australian GAAP, income taxes are accounted for in accordance with the
liability method which is equivalent in many respects to United States Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires deferred tax assets and liabilities to be recognised
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
F-73
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE HALF YEARS ENDED 31 DECEMBER 1996 AND 1995
11. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
in effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not "more likely than not" that such deferred tax assets
will be realised. Under SFAS 109, "more likely than not" is defined as a
likelihood of more than 50 percent.
Under Australian GAAP, deferred tax assets related to temporary differences
are brought to account when they are "assured beyond a reasonable doubt" and net
operating losses pass a "virtually certain" threshold. The effect of a change in
tax rate is recorded in the period the government approves the budget which in
financial year 1995 proceeded the enactment date under US GAAP. Accordingly, the
effect of the increase in the Australian tax rate from 33% to 36% is recognised
for US GAAP purposes in fiscal 1996.
With respect to business combinations accounted for as purchases, under
Australian GAAP, differences in the bases of assets and liabilities as a result
of purchase price adjustments do not result in the creation of a deferred tax
asset or liability at the acquisition date. Under US GAAP, the differences
between the assigned values and tax bases of assets and liabilities acquired in
such business combinations require the recognition of deferred tax assets and
liabilities at the acquisition date.
(F) DIVIDENDS
Under Australian GAAP, dividends declared subsequent to year end are
provided (accrued) for in the financial statements at year end if the
declaration date is prior to the date the financial statements are signed. Under
US GAAP dividends are recorded in the period declared.
(G) STOCK BASED COMPENSATION
EMPLOYEE COMPENSATION
Under Australian GAAP, the issuance of employee stock options does not
result in compensation expense. Under US GAAP, entities may account for employee
stock compensation either in accordance with APB Opinion 25 "Accounting for
Stock Issued to Employees" or Statement of Financial Accounting Standard 123
"Accounting for Stock Based Compensation." APB 25 requires that entities record
compensation expense to the extent that the quoted market price of the
underlying shares at the defined measurement date is greater than the exercise
price to be paid by the employee.
Alternatively, FAS 123 specifics that compensation costs related to stock
based compensation plans shall be based on the estimated fair value of the stock
option as at the grant date, with the resulting compensation being recognised
over the employee vesting period. The fair value of employee stock options is
determined using option pricing models such as the binomial or Black Scholes
models. Presently the Company will be following APB 25 for US GAAP purposes.
Given stock options granted to date have had an exercise price equal to or
greater than the share trading price at date of grant. There is no impact on net
income or shareholders' equity.
F-74
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE HALF YEARS ENDED 31 DECEMBER 1996 AND 1995
11. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
NON-EMPLOYEES STOCK OPTIONS
Under Australian GAAP, the issuance of stock options to non-employees with
an exercise price equal to the current market price at date of grant results in
no compensation.
Under US GAAP, the issuance of stock options to non-employees must be
accounted for under the fair value method prescribed in SFAS 123 "Accounting for
Stock-Based Compensation." The fair value of the options granted will be
recorded as expense over their service or vesting period. There have been no
non-employee stock options issued.
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
--------- ---------
<S> <C> <C>
Operating profit after income tax in accordance with Australian GAAP........................... 2,339 2,110
Adjustments:
Unrealised gains on trading securities..................................................... 37
Share of associates' net loss consisting of deferred exploration expenditure............... (298) --
Deferred exploration expenditure........................................................... (5)
Deferred internal costs of acquisition and business commencements.......................... (195) --
Depreciation relating to revalued assets................................................... 17 17
Gain on sale of revalued assets............................................................ 4 7
Gain in tax rates.......................................................................... -- (156)
Effect on minority interests............................................................... (2) --
Tax effect of US GAAP adjustments.......................................................... 150 2
--------- ---------
Operating profit after income tax--US GAAP..................................................... 2,015 2,012
--------- ---------
Shareholders' equity attributable to members of the parent entity:
Australian GAAP................................................................................ 26,758 14,648
Adjustments:
Unrealised gains on trading securities..................................................... -- 37
Unrealised gains on available-for-sales securities......................................... 48 --
Share of associates' net loss consisting of deferred exploration expenditure............... (637) (140)
Deferred internal costs of acquisition and business commencements.......................... (344) --
Asset revaluation reserve.................................................................. (142) (3)
Dividend paid from asset revaluation reserve............................................... (188) (188)
Accumulated depreciation of revalued assets................................................ 121 86
Gain on sale of revalued asset............................................................. 11 7
Effect on minority interests............................................................... (26) --
Cumulative tax effect of US GAAP adjustments............................................... 291 50
--------- ---------
Shareholders' equity attributable to members of the parent entity--US GAAP..................... 25,892 14,497
--------- ---------
</TABLE>
F-75
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the members of Glindemann & Kitching Pty Ltd:
We have audited the accompanying balance sheet of Glindemann & Kitching Pty
Ltd as of June 30, 1996, and the related statement of profit, statement of
changes in shareholders' equity and statement of cash flows for the year ended
June 30, 1996, all expressed in Australian dollars. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Australia which do not differ in any significant respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June 30,
1996 and the results of its operations and its cash flows for the year ended
June 30, 1996, in conformity with accounting principles generally accepted in
Australia.
Generally accepted accounting principles in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of United States generally accepted accounting
principles would have affected the results of operations for the year ended June
30, 1996 and shareholders' equity as of June 30, 1996, to the extent summarised
in Note 19 to the financial statements.
KPMG
CHARTERED ACCOUNTANTS
PERTH, WESTERN AUSTRALIA
Dated: June 17, 1997
F-76
<PAGE>
GLINDEMANN & KITCHING PTY LTD
STATEMENT OF PROFIT
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
NOTE A$'000
------ ---------
<S> <C> <C>
Sales revenue................................................................................... 22,755
Other revenue................................................................................... 294
---------
TOTAL OPERATING REVENUE......................................................................... 2 23,049
---------
Operating profit before abnormal item & income tax.............................................. 2(a) 3,612
Abnormal item................................................................................... 2(b) (982)
Operating profit before income tax.............................................................. 2,630
Income tax attributable to operating profit..................................................... 4 (964)
---------
OPERATING PROFIT AFTER TAX...................................................................... 1,666
---------
---------
</TABLE>
See the accompanying notes to and forming part of the financial statements.
F-77
<PAGE>
GLINDEMANN & KITCHING PTY LTD
BALANCE SHEET
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
NOTE A$'000
----------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash.......................................................................................... 1,963
Receivables................................................................................... 5 4,077
Inventories................................................................................... 6 420
Investments................................................................................... 7 932
Other......................................................................................... 8 118
---------
TOTAL CURRENT ASSETS............................................................................ 7,510
---------
NON-CURRENT ASSETS
Property, plant and equipment................................................................. 9 3,113
Other......................................................................................... 10 182
---------
TOTAL NON-CURRENT ASSETS........................................................................ 3,295
TOTAL ASSETS.................................................................................... 10,805
---------
---------
CURRENT LIABILITIES
Creditors and borrowings...................................................................... 11 4,244
Provisions.................................................................................... 12 1,263
---------
TOTAL CURRENT LIABILITIES....................................................................... 5,507
---------
TOTAL LIABILITIES............................................................................... 5,507
---------
---------
SHAREHOLDERS' EQUITY
Share capital................................................................................. 13 2
Reserves...................................................................................... 14 382
Retained profits.............................................................................. 4,914
---------
TOTAL SHAREHOLDERS' EQUITY...................................................................... 5,298
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................................... 10,805
---------
---------
</TABLE>
See the accompanying notes to and forming part of the financial statements.
F-78
<PAGE>
GLINDEMANN & KITCHING PTY LTD
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
ASSET CAPITAL
SHARE REVALUATION PROFITS RETAINED
CAPITAL RESERVE RESERVE PROFITS
----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at June 30, 1995.............................................. A$ 2 A$ 337 A$ 45 A$ 3,568
Dividend.............................................................. -- -- -- (320)
Net earnings.......................................................... -- -- -- 1,666
----- ----------- ----------- ----------
Balance at June 30, 1996.............................................. A$ 2 A$ 337 A$ 45 A$ 4,914
----- ----------- ----------- ----------
----- ----------- ----------- ----------
</TABLE>
See the accompanying notes to and forming part of the financial statements.
F-79
<PAGE>
GLINDEMANN & KITCHING PTY LTD
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
NOTE A$'000
------ ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of operations...................................................... 22,008
Cash payments in the course of operations...................................................... (19,551)
Dividends received............................................................................. 28
Interest and other items of a similar nature received.......................................... 167
Interest and other finance costs paid.......................................................... (158)
Income taxes paid.............................................................................. (1,908)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................................................... 18(ii) 586
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for purchases of property, plant and equipment......................................... (826)
Payments for investments....................................................................... (309)
Proceeds from sale of investments.............................................................. 70
Proceeds from the sale of fixed assets......................................................... 29
---------
NET CASH USED IN INVESTING ACTIVITIES.......................................................... (1,036)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings........................................................................ (393)
Dividends paid................................................................................. (320)
---------
NET CASH USED IN FINANCING ACTIVITIES.......................................................... (713)
---------
NET DECREASE IN CASH HELD...................................................................... (1,163)
CASH AT THE BEGINNING OF THE FINANCIAL PERIOD.................................................. 1,863
---------
CASH AT THE END OF THE FINANCIAL PERIOD........................................................ 18(i) 700
---------
</TABLE>
See the accompanying notes to and forming part of the financial statements.
F-80
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The significant policies which have been adopted by the Company in the
preparation of these financial statements are:
(A) BASIS OF PREPARATION
The financial statements are a general purpose financial report which have
been drawn up in accordance with Accounting Standards, Urgent Issues Group
Consensus Views, the provisions of Schedule 5 to the Corporations Regulations
and the requirements the Corporations Law. They have been prepared on the basis
of historical costs and except where stated do not take into account changing
money values or current valuations of non-current assets. The accounting
policies have been consistently applied by the Company and except where there is
a change in accounting policy, are consistent with those of the previous year.
A reconciliation of the major differences between these accounts and those
applicable under generally accepted accounting principles in the United States
("US GAAP") is included in note 19.
(B) REVENUE RECOGNITION
SALES REVENUE
Sales revenue comprises revenue earned (net of returns, discounts and
allowances) from the provision of products or services to entities outside the
Company. Sales revenue is recognised when earned and the fee in respect of
services provided is receivable.
INTEREST INCOME
Interest income is recognised as it accrues.
ASSET SALES
The gross proceeds of asset sales are included as other revenue of the
Company. The profit or loss on disposal of assets is brought to account at the
date an unconditional contract of sale is signed.
OTHER REVENUE
Revenue recognition policies for investments are described in Note 1(e).
(C) INCOME TAX
The company adopts the liability method of tax effect accounting.
Income tax expense is calculated on operating profit adjusted for permanent
differences between taxable and accounting income. The tax effect of timing
differences which arise from items being brought to account in different periods
for income tax and accounting purposes, is carried forward in the balance sheet
as a future income tax benefit or a provision for deferred income tax.
Future income tax benefits are brought to account as realisation of the
asset is assured beyond reasonable doubt. Future income tax benefits relating to
tax losses are brought to account when their realisation is virtually certain.
F-81
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) NON-CURRENT ASSETS
The carrying amounts of all non-current assets are reviewed at least
annually to determine whether they are in excess of their recoverable amount. If
the carrying amount of a non-current asset exceeds the recoverable amount, the
asset is written down to the lower value.
In assessing recoverable amounts the relevant cash flows have not been
discounted to their present value, except where specifically stated.
(E) INVESTMENTS
OTHER COMPANIES
Investments in other companies are carried at cost. No recognition for
fluctuations in the market value of these investments is brought to account.
Dividends are brought to account as they are received.
(F) INVENTORIES
Drilling supplies and consumables held at the Company's store and workshop
at year end are valued at cost (calculated on the first-in first-out basis).
Once these drilling supplies and consumables are issued to the Company's drill
rigs, they are expensed to the profit and loss account.
(G) PROPERTY, PLANT AND EQUIPMENT
ACQUISITION
Items of property, plant and equipment are initially recorded at cost and
depreciated as outlined below.
The cost of property, plant and equipment constructed by the Company
includes the cost of materials and direct labour and an appropriate proportion
of fixed and variable overheads.
DEPRECIATION AND AMORTISATION
Property, plant and equipment, including buildings and leasehold property
but excluding freehold land, are depreciated/amortised over their estimated
useful lives.
Assets are depreciated or amortised from the date of first use.
(H) EMPLOYEE ENTITLEMENTS
WAGES, SALARIES, ANNUAL LEAVE AND SICK LEAVE
The provisions for employee entitlements to wages, salaries, annual leave
and sick leave represents the amount which the Company has a present obligation
to pay resulting from employees' services provided up to the balance date. The
provisions have been calculated at nominal amounts based on current wage and
salary rates and includes related on-costs.
F-82
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG SERVICE LEAVE
The liability for employee's entitlement to long service leave represents
the present value of the estimated future cash outflows to be made by the
employer resulting from employees' services provided up to the balance date.
Liabilities for employee entitlements which are not expected to be settled
within twelve months are discounted using the rates attaching to national
government securities at balance date, which most closely match the terms of
maturity of the related liabilities.
In determining the liability for employee entitlements, consideration has
been given to future increases in wage and salary rates, and the company's
experience with staff departures. Related on-costs have also been included in
the liability.
SUPERANNUATION
The Company contributes to a superannuation fund on behalf of employees in
accordance with the requirements of the Superannuation Guarantee Administration
Act 1992. The contributions are charged against income as they are made.
(I) EXPLORATION EXPENDITURE
The company expenses all exploration expenditure when incurred.
F-83
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
2. OPERATING PROFIT BEFORE INCOME TAX
(a) Operating profit has been arrived at after including:
<TABLE>
<CAPTION>
A$'000
---------
<S> <C>
Sales revenue.................................................................................. 22,755
Interest received or due and receivable........................................................ 167
Dividends received............................................................................. 28
Gross proceeds from the sale of non-current assets............................................. 29
Gross proceeds from the sale of investments.................................................... 70
---------
Total operating revenue........................................................................ 23,049
---------
---------
OPERATING EXPENSES
Interest paid or due and payable to:
Related party.............................................................................. 158
Depreciation................................................................................... 713
Amounts set aside to provision for:
Employee entitlements.................................................................... 28
SALES OF NON-CURRENT ASSETS
Profit on sales of property, plant and equipment............................................... 25
Loss on sales of investments................................................................... (1)
(b) Abnormal Item
Oil exploration expenditure.................................................................. (982)
Income tax effect............................................................................ 354
---------
(628)
---------
---------
</TABLE>
3. DIVIDENDS
Dividends provided for or paid by the Company are:
<TABLE>
<CAPTION>
A$'000
---------
<S> <C>
A final class 'A' dividend of $320,000 franked to 100% was declared on 21 February 1996........ 320
---------
---------
</TABLE>
F-84
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
<TABLE>
<CAPTION>
A$'000
---------
<S> <C>
</TABLE>
4. TAXATION
<TABLE>
<S> <C>
INCOME TAX EXPENSE
Prima facie income tax expense calculated at 36% on the operating profit.... 947
Increase in income tax expense due to non tax deductible items:
Depreciation of buildings................................................. 4
Entertainment expenses.................................................... 22
Decrease in income tax expense due to non tax assessable items:
Dividends................................................................. 9
---------
Income tax expense on operating profit...................................... 964
---------
---------
Total income tax expense is made up of:
Current income tax provision.............................................. 972
Future income tax benefit................................................. (8)
---------
964
---------
---------
</TABLE>
5. RECEIVABLES
<TABLE>
<S> <C>
Trade debtors............................................................... 3,946
Other debtors............................................................... 131
---------
4,077
---------
---------
</TABLE>
6. INVENTORIES
<TABLE>
<S> <C>
Raw materials and stores--at cost........................................... 172
Finished goods--at cost..................................................... 248
---------
420
---------
---------
</TABLE>
7. INVESTMENTS
<TABLE>
<S> <C>
Shares in other corporations--at cost....................................... 932
---------
---------
</TABLE>
Quoted market value of shares in other corporations $1,325,450.
The amount of capital gains tax that would be payable if the quoted shares
in other corporations were sold at balance date at the disclosed market value
should not exceed $141,750.
8. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
A$'000
---------
<S> <C>
Prepayments.................................................................................... 118
---------
---------
</TABLE>
F-85
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
<TABLE>
<CAPTION>
A$'000
---------
<S> <C>
</TABLE>
9. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<S> <C>
Freehold land--at directors' valuation 1988.................................................... 207
Buildings
--at cost................................................................. 84
--Accumulated depreciation................................................ (5)
---------
79
--at directors' valuation 1988............................................ 300
--Accumulated depreciation................................................ (63)
---------
237
Total Land and Buildings.................................................... 523
---------
---------
Plant and equipment
--at cost................................................................. 5,189
--Accumulated depreciation................................................ (2,669)
---------
2,520
---------
---------
Construction in progress.................................................... 70
---------
---------
Total property, plant and equipment......................................... 3,113
---------
---------
</TABLE>
The directors' valuation of freehold land and buildings were based on the
assessment of the current market value of freehold land and buildings and was
carried out at 30 June 1988.
10. OTHER NON-CURRENT ASSETS
<TABLE>
<S> <C>
Future income tax benefit................................................... 182
---------
---------
</TABLE>
11. CREDITORS AND BORROWINGS
<TABLE>
<CAPTION>
A$'000
---------
<S> <C>
Bank overdraft................................................................................. 1,263
Trade creditors and accruals................................................................... 872
Loan from shareholders......................................................................... 2,109
---------
4,244
---------
---------
</TABLE>
12. PROVISIONS
<TABLE>
<S> <C>
Employee entitlements....................................................... 505
Income tax.................................................................. 758
---------
1,263
---------
---------
</TABLE>
F-86
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996
13. SHARE CAPITAL
<TABLE>
<S> <C>
AUTHORISED CAPITAL
1,000,000 shares of $1 each................................................. 1,000
---------
---------
ISSUED CAPITAL
1,500 Ordinary shares of $1 each............................................ 2
1 'A' Class share of $1..................................................... --
1 'B' Class share of $1..................................................... --
---------
2
---------
---------
</TABLE>
14. RESERVES
<TABLE>
<S> <C>
Fixed asset revaluation..................................................... 337
Capital profits............................................................. 45
---------
382
---------
---------
</TABLE>
15. SEGMENT INFORMATION
Glindemann & Kitching Pty Ltd operates in the drilling industry in Western
Australia.
16. RELATED PARTIES
DIRECTORS
The names of each person holding the position of director of Glindemann &
Kitching Pty Ltd during the financial year are R. W. Aird and W. Unger.
Details of directors' remuneration, superannuation and retirement payments
are set out in Note 16.
DIRECTORS' INCOME
The number of directors of the Company whose income, from the Company or
related bodies Corporate falls within the following bands.
<TABLE>
<CAPTION>
1996
---------
<S> <C>
$130,000-$139,999 2
A $ '000
Total income received, or due and receivable by all directors of the Company from
the Company or related bodies corporate.......................................... 278
</TABLE>
DIRECTORS' HOLDINGS OF SHARES
The directors hold 100% of the issued capital of the Company as follows:
F-87
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
16. RELATED PARTIES (CONTINUED)
ZELMAN PTY LTD (a company associated with Mr. Unger)
750 Ordinary shares
1 'B' Class share
R.W. AIRD (AS TRUSTEE FOR THE AIRD TRUST)
750 Ordinary shares
1 'A' Class share
<TABLE>
<CAPTION>
A $'000
---------
<S> <C>
LOANS FROM DIRECTORS
Zelman Pty Ltd................................................................................. 1,054
(a company associated with Mr. Unger)
R. W. Aird..................................................................................... 1,055
(as trustee for the Aird Trust)
---------
2,109
---------
---------
</TABLE>
The Company recognised $157,748 of interest expense in the year ended 30
June 1996 on the above loans.
17. EVENTS SUBSEQUENT TO BALANCE DATE
On 17 December 1996, Stanley Mining Services Limited acquired 51% of the
Company with effect from 1 October 1996. The remaining 49% will be acquired on 1
July 1997. As a result of the acquisition, Stanley Mining Services Limited
appointed three directors to the Company.
18. NOTES TO THE STATEMENT OF CASH FLOWS
(i) RECONCILIATION OF CASH
For the purpose of the Statement of Cash Flows, cash includes cash on hand
and at bank net of all outstanding bank overdrafts. Cash as at the end of the
financial period as shown in the Statement of Cash Flows is reconciled to the
related items in the balance sheet as follows:
<TABLE>
<S> <C>
Cash........................................................................ 1,963
Bank overdraft.............................................................. (1,263)
---------
700
---------
---------
</TABLE>
F-88
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
18. NOTES TO THE STATEMENT OF CASH FLOWS (CONTINUED)
(ii) RECONCILIATION OF OPERATING PROFIT AFTER INCOME TAX TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
A $'000
---------
<S> <C>
Operating profit after income tax.................................................... 1,666
LESS ITEM CLASSIFIED AS INVESTING ACTIVITY:
Profit on sale of non-current assets................................................. (24)
ADD NON-CASH ITEMS
Depreciation......................................................................... 713
---------
Net cash provided by operating activities before changes in assets and liabilities... 2,355
Changes in assets and liabilities:
Increase in prepayments.............................................................. (118)
Increase in receivables.............................................................. (747)
Decrease in inventories.............................................................. 98
Increase in deferred tax benefit..................................................... (8)
Decrease in trade creditors and accruals............................................. (83)
Decrease in income tax payable....................................................... (936)
Increase in provisions for employee entitlements..................................... 25
---------
Net cash provided by operating activities............................................ 586
---------
---------
</TABLE>
19. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
PRINCIPAL DIFFERENCES BETWEEN AUSTRALIAN GAAP AND US GAAP
Financial statements in the United States are prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP"). In
Australia statutory financial statements are prepared in accordance with
applicable accounting standards issued by the Australian Accounting Standards
Board, the Australian Corporations Law, Schedule 5 to the Corporations
Regulations and other mandatory professional reporting requirements (Urgent
Issues Consensus Views) collectively referred to as "Australian GAAP". The
principle differences between Australian GAAP and US GAAP which are material to
the preparation of the financial statements of the Company are set out below in
this note.
(A) MARKETABLE INVESTMENT SECURITIES
Under Australian GAAP marketable equity securities available for sale are
stated at cost.
Under US GAAP Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"),
requires investments to be classified into three categories and accounted for as
follows: debt securities that the Company has the positive intent and ability to
hold to maturity are classified as "held-to-maturity securities" and reported at
amortised costs: debt and marketable equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
"trading securities" and reported at fair value, with unrealised gains and
losses included in earnings: and debt and marketable equity securities not
classified as either held-to-maturity
F-89
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
19. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
securities or trading securities are classified as "available-for-sale
securities" and reported at fair value, with unrealised gains and losses
excluded from earnings and reported as a separate component of shareholders'
equity, net of tax.
(B) ASSET REVALUATIONS
Under Australian GAAP non-current assets may be revalued both upwards and
downwards based on directors' valuations. An upwards revaluation is recorded by
a credit to the asset revaluation reserve as a component of shareholders' equity
and is not taken through the profit and loss account except where a previous
revaluation decrement has been recorded for that class of assets through the
profit and loss account. An impairment or downwards revaluation is taken through
the profit and loss account except where there is a revaluation reserve for that
particular class of assets, in which case the decrement may be debited to that
asset revaluation reserve, to the extent a credit exists, rather than the profit
and loss account.
The Company assesses the recoverability of non-current assets by comparing
the carrying value to the asset's undiscounted cash flow. To the extent that the
asset carrying value exceeds its undiscounted cash flow the asset is written
down to that amount.
US GAAP does not permit the upward revaluation of such assets. US GAAP
requires that an impairment of long-lived assets be recognised through the
profit and loss account. Under US GAAP SFAS 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," entities,
when assessing an asset for impairment, compare the carrying value of the asset
or group of assets to the relevant expected cash flow, undiscounted and without
interest. If the sum of the undiscounted cash flow is less than the asset
carrying value the asset must be written down to "fair value." One method of
determining an asset's fair value, in the absence of an active market, is its
discounted cash flow. Once impairment is recorded, subsequent recoveries through
the profit and loss account are not allowed until the asset is sold.
(C) INCOME TAXES
Under Australian GAAP, income taxes are accounted for in accordance with the
liability method which is equivalent in many aspects to United States Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires deferred tax assets and liabilities to be recognised for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not "more likely than not" that such deferred tax assets
will be realised. Under SFAS 109, "more likely than not" is defined as a
likelihood of more than 50 percent.
Under Australian GAAP, deferred tax assets related to temporary differences
are brought to account when they are "assured beyond a reasonable doubt" and net
operating losses pass a "virtually certain" threshold. The effect of a change in
the tax rate is recorded in the period the government approves the
F-90
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
19. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
budget which in fiscal year 1995 preceded the enactment date under US GAAP.
Accordingly, the effect of the increase in the Australian tax rate from 33
percent to 36 percent is recognised for US GAAP in the current year.
With respect to business combinations accounted for as purchases, under
Australian GAAP, differences in the bases of assets and liabilities as a result
of purchase price adjustments do not result in the creation of a deferred tax
asset or liability at the acquisition date. Under US GAAP, the differences
between the assigned values and tax bases of assets and liabilities acquired in
such business combinations require the recognition of deferred tax assets and
liabilities at the acquisition date.
(D) CAPITAL PROFITS RESERVE
Under Australian GAAP, the company transfers profits on sale of revalued
assets out of the asset revaluation reserve to the capital profits reserve.
Under US GAAP the amount shown in capital profits reserve would have been
reflected in the Statement of Profit in the year the fixed asset was sold and be
included in Retained Earnings. This adjustment has no net impact on
shareholders' equity.
(E) PROFIT AND LOSS ACCOUNT
Under Australian GAAP, the Company has disclosed certain items as "abnormal"
in the statement of profit in the June 1996 accounts, There is no "abnormal
item" category in a US GAAP statement of profit such that these items would be
included in operating income.
<TABLE>
<CAPTION>
A $'000
---------
<S> <C>
Operating profit after income tax in accordance with Australian GAAP.......................... 1,666
Adjustments:
Depreciation relating to revalued assets.................................................... 6
Change in tax rates......................................................................... (14)
---------
Net profit--US GAAP........................................................................... 1,658
---------
<CAPTION>
A $'000
---------
<S> <C>
Shareholders' equity in accordance with Australian GAAP....................................... 5,298
Adjustments:
Unrealised gains on available-for-sale securities........................................... 393
Accumulated depreciation of revalued assets................................................. 48
Asset revaluation reserve................................................................... (337)
---------
Shareholders' equity--US GAAP................................................................. 5,402
---------
</TABLE>
F-91
<PAGE>
GLINDEMANN & KITCHING PTY LTD
UNAUDITED STATEMENTS OF PROFIT
FOR THE HALF-YEARS ENDED
31 DECEMBER 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
------ --------- ---------
<S> <C> <C> <C>
Sales revenue......................................................................... 12,971 10,753
Other revenue......................................................................... 1,551 118
--------- ---------
TOTAL OPERATING REVENUE............................................................... 14,552 10,871
--------- ---------
OPERATING PROFIT BEFORE INCOME TAX.................................................... 2 2,932 1,684
Income tax attributable to operating profit........................................... 1,066 623
--------- ---------
OPERATING PROFIT AFTER INCOME TAX..................................................... 1,866 1,061
Profit on abnormal items.............................................................. 441 --
Income tax attributable to profit on abnormal items................................... 156 --
--------- ---------
285 --
OPERATING PROFIT AND ABNORMAL ITEMS AFTER INCOME TAX.................................. 2,151 1,061
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited financial statements.
F-92
<PAGE>
GLINDEMANN & KITCHING PTY LTD
UNAUDITED BALANCE SHEETS
AS OF 31 DECEMBER 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
------ --------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................................................... 2,610 3,050
Receivables............................................................................ 4,472 2,194
Inventories............................................................................ 528 753
Other.................................................................................. 31 --
--------- -----
TOTAL CURRENT ASSETS................................................................... 7,641 5,997
--------- -----
NON-CURRENT ASSETS
Investments............................................................................ 224 973
Property, plant and equipment.......................................................... 3,251 2,863
Other.................................................................................. 289 140
--------- -----
TOTAL NON-CURRENT ASSETS............................................................... 3,764 3,976
--------- -----
TOTAL ASSETS........................................................................... 11,405 9,973
--------- -----
CURRENT LIABILITIES
Accounts payable....................................................................... 1,493 3,692
Provisions............................................................................. 1,919 1,269
--------- -----
TOTAL CURRENT LIABILITIES.............................................................. 3,412 4,961
--------- -----
TOTAL LIABILITIES...................................................................... 3,412 4,961
--------- -----
SHAREHOLDERS' EQUITY
Share capital.......................................................................... 3 3 2
Reserves............................................................................... 6,982 382
Retained profits....................................................................... 1,008 4,628
--------- -----
TOTAL SHAREHOLDERS' EQUITY............................................................. 7,993 5,012
--------- -----
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................................. 11,405 9,973
--------- -----
--------- -----
</TABLE>
See the accompanying notes to and forming part
of the unaudited financial statements.
F-93
<PAGE>
GLINDEMANN & KITCHING PTY LTD
UNAUDITED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE HALF-YEARS ENDED
31 DECEMBER 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
--------- -----------
<S> <C> <C>
AUTHORISED CAPITAL
Ordinary shares of $1 each...................................................................... 1,000 1,000
--------- -----
Opening balance................................................................................. 2 2
Additional shares issued........................................................................ 1 --
--------- -----
Total share capital............................................................................. 3 2
--------- -----
RETAINED PROFITS
Retained profits at the beginning of the period as stated....................................... 4,914 3,567
Dividend provided for or paid................................................................... (6,057) --
Operating profit and abnormal items after income tax............................................ 2,151 1,061
--------- -----
Retained profits at the end of the period as stated............................................. 1,008 4,628
--------- -----
RESERVES
SHARE PREMIUM RESERVE
Opening balance................................................................................. -- --
Premium on additional shares issued............................................................. 6,600 --
--------- -----
Closing balance................................................................................. 6,600 --
--------- -----
ASSET REVALUATION RESERVE
Opening balance................................................................................. 337 337
--------- -----
Closing balance................................................................................. 337 337
--------- -----
CAPITAL PROFITS RESERVE
Opening balance................................................................................. 45 45
--------- -----
Closing balance................................................................................. 45 45
--------- -----
TOTAL SHAREHOLDERS' EQUITY...................................................................... 7,993 5,012
--------- -----
</TABLE>
See the accompanying notes to and forming part
of the unaudited financial statements.
F-94
<PAGE>
GLINDEMANN & KITCHING PTY LTD
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE HALF-YEARS ENDED
31 DECEMBER 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of operations............................................. 13,448 10,753
Cash payments in the course of operations............................................. (9,726) (8,071)
Income taxes paid..................................................................... (759) (1,402)
Interest and other items of a similar nature received................................. 95 78
Interest and other finance costs paid................................................. (62) (81)
Dividends received.................................................................... 14 --
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................................. 5(b) 3,010 1,277
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of plant and equipment............................................... -- 26
Payments for property, plant and equipment............................................ (494) (241)
Payment for investments............................................................... (224) (280)
Proceeds from sale of investments..................................................... 1,372 --
Loans to shareholders................................................................. (546) --
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES................................... 108 (495)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares......................................................... 6,601 --
Repayment of borrowing................................................................ (2,107) --
Dividends paid........................................................................ (6,057) --
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES................................................. (1,563) --
--------- ---------
NET INCREASE IN CASH HELD............................................................. 1,555 782
CASH AT THE BEGINNING OF THE FINANCIAL PERIOD......................................... 700 1,864
--------- ---------
CASH AT THE END OF THE FINANCIAL PERIOD............................................... 5(a) 2,255 2,646
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited financial statements.
F-95
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE
UNAUDITED FINANCIAL STATEMENTS FOR THE HALF-YEARS ENDED
31 DECEMBER 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The significant policies which have been adopted by the Company in the
preparation of these financial statements are:
(A) BASIS OF PREPARATION
The financial statements are based on historic costs and have been prepared
in accordance with accounting principles generally accepted in Australia. The
financial statements contain all the disclosure requirements of Accounting
Standard AASB 1029 "Half-year Accounts and Consolidated Accounts".
The accounting policies have been consistently applied by the Company and
except where there is a change in accounting policy, are consistent with those
of the previous fiscal years.
For the purpose of preparing the half-year financial statements, the
half-year has been treated as a discrete reporting period.
A reconciliation of the major differences between these accounts and those
applicable under generally accepted accounting principles in the United States
("US GAAP") is included in note 6.
For the purpose of preparing the half-year financial statements, the
half-year has been treated as a discrete reporting period.
2. OPERATING PROFIT BEFORE INCOME TAX
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
----------- -----------
<S> <C> <C>
Operating profit before income tax has been arrived at after including:
Interest received or due and receivable...................................................... 95 78
Interest paid or due and payable (including lease finance charges)........................... 62 81
Depreciation including all forms of amortisation............................................. 414 357
Loss on sale of non-current assets........................................................... 13 --
<CAPTION>
3. SHARE CAPITAL
<S> <C> <C>
Authorised capital 1,000,000 shares of $1 each............................................... 1,000 1,000
----- -----
Issued capital 3,065 (1995: 1,502) ordinary shares of $1 each................................ 3 2
----- -----
Total........................................................................................ 3 2
----- -----
<CAPTION>
4. DIVIDENDS
<S> <C> <C>
Glindemann & Kitching Pty Ltd paid a final ordinary
dividend of $4,032 per share, franked to 100%, with
Class C (36%) franking credits on 30 September
1996....................................................................................... 6,057 --
----- -----
----- -----
</TABLE>
F-96
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE
UNAUDITED FINANCIAL STATEMENTS FOR THE HALF-YEARS ENDED
31 DECEMBER 1996 AND 1995 (CONTINUED)
5. NOTES TO THE STATEMENT OF CASH FLOWS
(A) RECONCILIATION OF CASH
For the purpose of the Statements of Cash Flows, cash includes cash on hand
and at bank, net of outstanding bank overdrafts. Cash as at the end of the
half-year as shown in the Statements of Cash Flows is reconciled to the related
items in the balance sheet as follows:
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
----------- -----------
<S> <C> <C>
Cash......................................................................... 2,610 3,050
Bank overdraft............................................................... (355) (404)
----- -----
Total........................................................................ 2,255 2,646
----- -----
</TABLE>
(B) RECONCILIATION OF OPERATING PROFIT AFTER INCOME TAX TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
<TABLE>
<S> <C> <C>
Operating profit after income tax............................. 1,866 1,061
Add item classified as investing activity:
Loss on sale of non-current assets............................ 13 --
Add non-cash items:
Depreciation.................................................. 414 357
----- -----
Net cash provided by operating activities before changes in
assets and liabilities...................................... 2,293 1,418
Changes in assets and liabilities
Decrease in receivables....................................... 238 1,138
Increase in inventories....................................... (177) (235)
(Increase) decrease in deferred tax benefit................... (107) 34
Decrease in trade creditors and accruals...................... (643) (169)
Increase (decrease) in income tax payable..................... 1,328 (814)
Increase (decrease) in provisions............................. 78 (95)
----- -----
Net cash provided by operating activities..................... 3,010 1,277
----- -----
----- -----
</TABLE>
6. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
PRINCIPAL DIFFERENCES BETWEEN AUSTRALIAN GAAP AND US GAAP
Financial statements in the United States are prepared in accordance with US
GAAP. In Australia statutory financial statements are prepared in accordance
with applicable accounting standards issued by the Australian Accounting
Standards Board, the Australian Corporations Law, Schedule 5 to the Corporations
Regulations and other mandatory professional reporting requirements (Urgent
Issues Consensus Views) collectively referred to as "Australian GAAP." The
principal differences between Australian GAAP
F-97
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE
UNAUDITED FINANCIAL STATEMENTS FOR THE HALF-YEARS ENDED
31 DECEMBER 1996 AND 1995 (CONTINUED)
6. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
and US GAAP which are material to the preparation of the financial statements of
the Company are set out below in this note.
(A) MARKETABLE INVESTMENT SECURITIES
Under Australian GAAP, marketable equity securities available for sale are
stated at cost.
Under US GAAP, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115")
requires investments to be classified into three categories and accounted for as
follows: debt securities that the Company has the positive intent and ability to
hold to maturity are classified as "held-to-maturity securities" and reported at
amortised cost; debt and marketable equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
"trading securities" and reported at fair value, with unrealised gains and
losses included in earnings; and debt and marketable equity securities not
classified as either held-to-maturity securities or trading securities are
classified as "available-for-sale securities" and reported at fair value, with
unrealised gains and losses excluded from earnings and reported as a separate
component of shareholders' equity, net of tax.
(B) ASSET REVALUATIONS
Under Australian GAAP non-current assets may be revalued both upwards and
downwards based on directors' valuations. An upwards revaluation is recorded by
a credit to the asset revaluation reserve as a component of shareholders' equity
and is not taken through the profit and loss account except where a previous
revaluation decrement has been recorded for that class of assets through the
profit and loss account. An impairment or downwards revaluation is taken through
the profit and loss account except where there is a revaluation reserve for that
particular class of assets, in which case the decrement may be debited to that
asset revaluation reserve, to the extent a credit exists, rather than the profit
and loss account.
The Company assesses the recoverability of non-current assets by comparing
the carrying value to the asset's undiscounted cash flow. To the extent that the
asset carrying value exceeds its undiscounted cash flow the asset is written
down to that amount.
US GAAP does not permit the upward revaluation of such assets. US GAAP
requires that an impairment of long-lived assets be recognised through the
profit and loss account. Under US GAAP SFAS 121 "Accounting for the impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," entities,
when assessing an asset for impairment, compare the carrying value of the asset
or group of assets to the relevant expected cash flow, undiscounted and without
interest. If the sum of the undiscounted cash flow is less than the asset
carrying value the asset must be written down to "fair value." One method of
determining an asset's fair value, in the absence of an active market, is its
discounted cash flow. Once impairment is recorded, subsequent recoveries through
the profit and loss account are not allowed until the asset is sold.
F-98
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE
UNAUDITED FINANCIAL STATEMENTS FOR THE HALF-YEARS ENDED
31 DECEMBER 1996 AND 1995 (CONTINUED)
6. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(C) INCOME TAXES
Under Australian GAAP, income taxes are accounted for in accordance with the
liability method which is equivalent in many aspects to United States Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (FAS
109). FAS 109 requires deferred tax assets and liabilities to be recognised for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not "more likely than not" that such deferred tax assets
will be realised. Under FAS 109, "more likely than not" is defined as a
likelihood of more than 50 percent.
Under Australian GAAP, deferred tax assets related to temporary differences
are brought to account when they are "assured beyond a reasonable doubt" and net
operating losses pass a "virtually certain" threshold.
With respect to business combinations accounted for as purchases, under
Australian GAAP, differences in the bases of assets and liabilities as a result
of purchase price adjustments do not result in the creation of a deferred tax
asset or liability at the acquisition date. Under US GAAP, the differences
between the assigned values and tax bases of assets and liabilities acquired in
such business combinations require the recognition of deferred tax assets and
liabilities at the acquisition date.
(D) CAPITAL PROFITS RESERVE
Under Australian GAAP, the Company transfers profits on sale of revalued
assets out of the asset revaluation reserve to the capital profits reserve.
Under US GAAP the amount shown in capital profits reserve would have been
reflected in the Statement of Profit in the half-year the fixed asset was sold
and be included in Retained Earnings. This adjustment has no net impact on
shareholders' equity.
F-99
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE
UNAUDITED FINANCIAL STATEMENTS FOR THE HALF-YEARS ENDED
31 DECEMBER 1996 AND 1995 (CONTINUED)
6. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(E) PROFIT AND LOSS ACCOUNT
Under Australian GAAP the Company has disclosed certain items as "abnormal"
in the Statements of Profit in the December 1996 Accounts. There is no "abnormal
item" category in a US GAAP Statement of Profit such that these items would be
included in operating income.
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C>
Operating profit after income tax in accordance with Australian GAAP....... 2,151 1,061
Adjustments:
Depreciation relating to revalued assets................................... 3 3
----- -----
Net profit--US GAAP........................................................ 2,154 1,064
----- -----
Shareholders' equity in accordance with Australian GAAP.................... 7,993 5,012
Adjustments:
Unrealised profit (loss) on available-for-sale securities.................. 56 (109)
Accumulated depreciation of revalued assets................................ 51 45
Asset revaluation reserve.................................................. (337) (337)
----- -----
Shareholders' equity--US GAAP.............................................. 7,763 4,611
----- -----
</TABLE>
F-100
<PAGE>
[INSIDE BACK COVER OF THE PROSPECTUS WILL CONTAIN
FIVE PHOTOS WITH DESCRIPTIVE CAPTIONS AS FOLLOWS:
A At a site in central Mexico, the Company provides gold exploration drilling
services.
B Near the Salton Sea in the California desert, a crew installs wells to
monitor environmental contamination.
C Geotechnical drilling crew creates a 180-foot deep frozen earth wall,
preventing groundwater from flowing into an excavation site in Seattle,
Washington.
D Near Lake Pleasant in Arizona, a crew drills a 1,500-foot deep water well,
using the air-assisted reverse rotary method.
E A drilling crew in Western Australia conducts diamond core mineral
exploration drilling.]
<PAGE>
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus, and, if given or made, such information or representation must
not be relied upon as having been authorized by Layne Christensen, any Selling
Stockholder or any Underwriter. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy by anyone in any jurisdiction in which
such offer to sell or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so or to any person to
whom it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
The Stanley Acquisition................................................... 7
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 12
Price Range of Common Stock............................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Selected Consolidated Financial Data...................................... 15
Unaudited Pro Forma Consolidated Financial Statements..................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 29
Management................................................................ 41
Principal and Selling Stockholders........................................ 43
Description of Capital Stock.............................................. 46
Underwriting.............................................................. 48
Legal Matters............................................................. 49
Experts................................................................... 49
Available Information..................................................... 49
Incorporation of Certain Documents by Reference........................... 50
Index to Consolidated Financial Statements................................ F-1
</TABLE>
5,000,000 SHARES
[LOGO]
LAYNE CHRISTENSEN
COMPANY
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
PIPER JAFFRAY INC.
DILLON, READ & CO. INC.
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Company in connection with the distribution
of the securities being registered are as set forth in the following table:
<TABLE>
<S> <C>
Securities and Exchange Commission Fee............................ $ 37,463
NASD Filing Fee................................................... 12,863
Nasdaq National Market Listing Fee................................ 17,500
*Legal Fees and Expenses.......................................... 100,000
*Accounting Fees and Expenses..................................... 65,000
*Printing Expenses................................................ 175,000
*Blue Sky Fees and Expenses....................................... 5,000
*Registrar and Transfer Agent Fees and
Expenses........................................................ 10,000
*Miscellaneous.................................................... 77,174
*Total............................................................ $ 500,000
</TABLE>
- ------------------------
*Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Section 145 of the General Corporation Law of Delaware (the "DGCL") (i)
gives Delaware corporations broad powers to indemnify their present and former
directors and officers and those of affiliated corporations against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers, including expenses relating
to liabilities under the Securities Act, subject to specified conditions and
exclusions, (ii) gives a director or officer who successfully defends an action
the right to be so indemnified, and (iii) authorizes the Company to buy
directors' and officers' liability insurance. Such indemnification is not
exclusive of any other rights to which those indemnified may be entitled under
any by-laws, agreement, vote of the stockholders or otherwise.
(b) The Company's Bylaws provide that the Company shall indemnify officers
and directors of the Company to the fullest extent permitted by and in the
manner permissible under the DGCL.
(c) In accordance with Section 102(b)(7) of the DGCL, the Company's Restated
Certificate of Incorporation provides that directors shall not be personally
liable for monetary damages for breaches of their fiduciary duty as directors
except for (i) breaches of their duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (iii) under Section 174 of
the DGCL (unlawful payment of dividends) or (iv) transactions from which a
director derives an improper personal benefit.
(d) The Company has obtained directors and officers liability insurance for
each of its directors and executive officers which (subject to certain limits
and deductibles) (i) insures such persons against loss arising from certain
claims made against them by reason of such persons being a director or officer,
and (ii) insures the Company against loss which it may be required or permitted
to pay as indemnification due such persons for certain claims. Such insurance
may provide coverage for certain matters as to which the Company may not be
permitted by law to provide indemnification.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Purchase Agreement.*
2.1 Offer by Layne Christensen Australia Pty Limited to Acquire All of Your Fully Paid
Ordinary Shares in Stanley Mining Services Limited.
2.2 Part A Statement Relating to Proposed Offers by Layne Christensen Australia Pty
Limited for All Fully Paid Shares in Stanley Mining Services Limited.**
2.3 Stanley Mining Services Limited Part B Statement in Relation to the Takeover Offers
by Layne Christensen Australia Pty Ltd.**
4.1 Restated Certificate of Incorporation of the Company (filed with the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1996 (File No.
0-20578) as Exhibit 3(1) and incorporated herein by reference).
4.2 Bylaws of the Company (filed with Amendment No. 2 to the Company's Registration
Statement (File No. 33-48432) as Exhibit 3(2) and incorporated herein by reference).
4.3 Specimen Common Stock Certificate (filed with Amendment No. 3 to the Company's
Registration Statement (File No. 33-42432) as Exhibit 4(1) and incorporated herein
by reference).
5.1 Opinion of Latham & Watkins.
10.1 Tax Liability Indemnification Agreement between the Company and The Marley Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(2) and incorporated herein by reference).
10.2 Lease Agreement between the Company and Parkway Partners, L.L.C. dated December 21,
1994 (filed with the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995 (File No. 0-20578) as Exhibit 10(2) and incorporated herein by
reference).
10.2.1 First Modification & Ratification of Lease, dated as of February 26, 1996, between
Parkway Partners, L.L.C. and the Company (filed with the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1996 (File No. 0-20578) as Exhibit
10(2.1) and incorporated herein by reference).
10.3 Form of The Layne Capital Accumulation Plan and Trust Agreement (filed with the
Company's Registration Statement (File No. 33-48432) as Exhibit 10(5) and
incorporated herein by reference).
10.4 Layne, Inc. 1992 Stock Option Plan (filed with Amendment No. 3 to the Company's
Registration Statement (File No. 33-48432) as Exhibit 10(6) and incorporated herein
by reference).
10.5 Form of Stock Option Agreement between the Company and management of the Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(7) and incorporated herein by reference).
10.6 Form of Non Qualified Stock Option Agreement (Spin-Off Options) between the Company
and Robert J. Dineen (filed with Amendment No. 3 to the Company's Registration
Statement (File No. 33-48432) as Exhibit 10(9) and incorporated herein by
reference).
10.7 Insurance Liability Indemnity Agreement between the Company and The Marley Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(10) and incorporated herein by reference).
10.8 Form of the Layne, Inc. Executive Incentive Compensation Plan (filed with the
Company's Form 10-Q for the quarterly period ended July 31, 1994 (File No. 33-48432)
as Exhibit 10(2) and incorporated herein by reference).
10.9 Agreement between The Marley Company and the Company relating to tradename (filed
with the Company's Registration Statement (File No. 33-48432) as Exhibit 10(12) and
incorporated herein by reference).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.10 Form of Subscription Agreement for management of the Company (filed with Amendment
No. 3 to the Company's Registration Statement (File No. 33-48432) as Exhibit 10(16)
and incorporated herein by reference).
10.11 Form of Subscription Agreement between the Company and Robert J. Dineen (filed with
Amendment No. 3 to the Company's Registration Statement (File No. 33-48432) as
Exhibit 10(17) and incorporated herein by reference).
10.12 New Credit Agreement.*
10.13 Letter Agreement between Andrew B. Schmitt and the Company dated October 12, 1993
(filed with the Company's Annual Report on Form 10-K for the transition period from
May 1, 1993 to January 31, 1994 (File No. 0-20578) as Exhibit 10(17) and
incorporated herein by reference).
10.14 Note Agreement, dated as of March 15, 1996, between the Company and Massachusetts
Mutual Life Insurance Company ("Purchaser") for the issuance and sale to Purchaser
of $25,000,000 aggregate principal amount of 6.75% Senior Notes due March 15, 2006
(filed with the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1996 (File No. 0-20578), as Exhibit 10(14) and incorporated herein by
reference).
10.15 Form of Incentive Stock Option Agreement between the Company and management of the
Company (filed with the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996 (File No. 0-20578), as Exhibit 10(15) and incorporated herein
by reference).
10.16 Severance Agreement, dated July 3, 1995, between Christensen Boyles Corporation, a
wholly owned subsidiary of the Company, and Eric R. Despain (filed with the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(16) and incorporated herein by reference).
10.17 Registration Rights Agreement, dated as of November 30, 1995, between the Company
and Marley Holdings, L.P. (filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996 (File No. 0-20578), as Exhibit 10(17) and
incorporated herein by this reference).
10.18 Stockholders Agreement, dated as of December 28, 1995, among the Company, Marley
Holdings, L.P., Greylock Investments Limited Partnership and certain other
stockholders of the Company identified therein (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996 (File No. 0-20578),
as Exhibit 10(18) and incorporated herein by reference).
11 Statement regarding Computation of Per Share Earnings.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Latham & Watkins (included in Exhibit 5.1).
24 Powers of Attorney (contained on the signature page of this Registration Statement).
</TABLE>
- ------------------------
* To be filed by amendment.
** Omits certain attachments. The Company will furnish supplementally a copy of
any omitted attachment to the Commission upon request.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
II-3
<PAGE>
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective. (2) For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mission Woods, State of Kansas, on June 17, 1997.
LAYNE CHRISTENSEN COMPANY
BY /S/ KENT B. MAGILL
-----------------------------------------
Kent B. Magill
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Kent B. Magill and Jerry W. Fanska, and
each of them, with full power of substitution and full power to act without the
other, his true and lawful attorney-in-fact and agent to act for him in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file this Registration Statement, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in order to effectuate the same as fully, to all intents and
purposes, as they or he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by each of the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------------------- ---------------------
<C> <S> <C>
/s/ ANDREW B. SCHMITT
------------------------------------ President, Chief Executive Officer and June 17, 1997
Andrew B. Schmitt Director (Principal Executive Officer)
/s/ JERRY W. FANSKA Vice President--Finance and Treasurer
------------------------------------ (Principal Financial Officer and June 17, 1997
Jerry W. Fanska Principal Accounting Officer)
/s/ ROBERT J. DINEEN
------------------------------------ Director June 17, 1997
Robert J. Dineen
/s/ EDWARD A. GILHULY
------------------------------------ Director June 17, 1997
Edward A. Gilhuly
/s/ TODD A. FISHER
------------------------------------ Director June 17, 1997
Todd A. Fisher
/s/ DONALD K. MILLER
------------------------------------ Director June 17, 1997
Donald K. Miller
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Form of Purchase Agreement.*
2.1 Offer by Layne Christensen Australia Pty Limited to Acquire All of Your Fully Paid
Ordinary Shares in Stanley Mining Services Limited.
2.2 Part A Statement Relating to Proposed Offers by Layne Christensen Australia Pty
Limited for All Fully Paid Shares in Stanley Mining Services Limited.**
2.3 Stanley Mining Services Limited Part B Statement in Relation to the Takeover Offers
by Layne Christensen Australia Pty Ltd.**
4.1 Restated Certificate of Incorporation of the Company (filed with the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1996 (File No.
0-20578) as Exhibit 3(1) and incorporated herein by reference).
4.2 Bylaws of the Company (filed with Amendment No. 2 to the Company's Registration
Statement (File No. 33-48432) as Exhibit 3(2) and incorporated herein by reference).
4.3 Specimen Common Stock Certificate (filed with Amendment No. 3 to the Company's
Registration Statement (File No. 33-42432) as Exhibit 4(1) and incorporated herein
by reference).
5.1 Opinion of Latham & Watkins.
10.1 Tax Liability Indemnification Agreement between the Company and The Marley Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(2) and incorporated herein by reference).
10.2 Lease Agreement between the Company and Parkway Partners, L.L.C. dated December 21,
1994 (filed with the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995 (File No. 0-20578) as Exhibit 10(2) and incorporated herein by
reference).
10.2.1 First Modification & Ratification of Lease, dated as of February 26, 1996, between
Parkway Partners, L.L.C. and the Company (filed with the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1996 (File No. 0-20578) as Exhibit
10(2.1) and incorporated herein by reference).
10.3 Form of The Layne Capital Accumulation Plan and Trust Agreement (filed with the
Company's Registration Statement (File No. 33-48432) as Exhibit 10(5) and
incorporated herein by reference).
10.4 Layne, Inc. 1992 Stock Option Plan (filed with Amendment No. 3 to the Company's
Registration Statement (File No. 33-48432) as Exhibit 10(6) and incorporated herein
by reference).
10.5 Form of Stock Option Agreement between the Company and management of the Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(7) and incorporated herein by reference).
10.6 Form of Non Qualified Stock Option Agreement (Spin-Off Options) between the Company
and Robert J. Dineen (filed with Amendment No. 3 to the Company's Registration
Statement (File No. 33-48432) as Exhibit 10(9) and incorporated herein by
reference).
10.7 Insurance Liability Indemnity Agreement between the Company and The Marley Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(10) and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.8 Form of the Layne, Inc. Executive Incentive Compensation Plan (filed with the
Company's Form 10-Q for the quarterly period ended July 31, 1994 (File No. 33-48432)
as Exhibit 10(2) and incorporated herein by reference).
10.9 Agreement between The Marley Company and the Company relating to tradename (filed
with the Company's Registration Statement (File No. 33-48432) as Exhibit 10(12) and
incorporated herein by reference).
10.10 Form of Subscription Agreement for management of the Company (filed with Amendment
No. 3 to the Company's Registration Statement (File No. 33-48432) as Exhibit 10(16)
and incorporated herein by reference).
10.11 Form of Subscription Agreement between the Company and Robert J. Dineen (filed with
Amendment No. 3 to the Company's Registration Statement (File No. 33-48432) as
Exhibit 10(17) and incorporated herein by reference).
10.12 New Credit Agreement.*
10.13 Letter Agreement between Andrew B. Schmitt and the Company dated October 12, 1993
(filed with the Company's Annual Report on Form 10-K for the transition period from
May 1, 1993 to January 31, 1994 (File No. 0-20578) as Exhibit 10(17) and
incorporated herein by reference).
10.14 Note Agreement, dated as of March 15, 1996, between the Company and Massachusetts
Mutual Life Insurance Company ("Purchaser") for the issuance and sale to Purchaser
of $25,000,000 aggregate principal amount of 6.75% Senior Notes due March 15, 2006
(filed with the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1996 (File No. 0-20578), as Exhibit 10(14) and incorporated herein by
reference).
10.15 Form of Incentive Stock Option Agreement between the Company and management of the
Company (filed with the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996 (File No. 0-20578), as Exhibit 10(15) and incorporated herein
by reference).
10.16 Severance Agreement, dated July 3, 1995, between Christensen Boyles Corporation, a
wholly owned subsidiary of the Company, and Eric R. Despain (filed with the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(16) and incorporated herein by reference).
10.17 Registration Rights Agreement, dated as of November 30, 1995, between the Company
and Marley Holdings, L.P. (filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996 (File No. 0-20578), as Exhibit 10(17) and
incorporated herein by this reference).
10.18 Stockholders Agreement, dated as of December 28, 1995, among the Company, Marley
Holdings, L.P., Greylock Investments Limited Partnership and certain other
stockholders of the Company identified therein (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996 (File No. 0-20578),
as Exhibit 10(18) and incorporated herein by reference).
11 Statement regarding Computation of Per Share Earnings.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG, Chartered Accountants.
23.3 Consent of Latham & Watkins (included in Exhibit 5.1).
24 Powers of Attorney (contained on the signature page of this Registration Statement).
</TABLE>
- ------------------------
* To be filed by amendment.
** Omits certain attachments. The Company will furnish supplementally a copy of
any omitted attachment to the Commission upon request.
<PAGE>
THIS IS AN IMPORTANT DOCUMENT
IF YOU ARE IN ANY DOUBT ABOUT THE ACTION
TO BE TAKEN, YOU SHOULD CONSULT YOUR
STOCKBROKER, BANK MANAGER, SOLICITOR,
ACCOUNTANT OR OTHER PROFESSIONAL
ADVISER IMMEDIATELY.
OFFER
BY
LAYNE CHRISTENSEN AUSTRALIA
PTY LIMITED
(ACN 078 167 610)
to acquire all of your fully paid ordinary shares in
STANLEY MINING SERVICES LIMITED
(ACN 009 117 533)
for 90 cents per share
<PAGE>
OFFER
BY
LAYNE CHRISTENSEN AUSTRALIA PTY LIMITED
TO ACQUIRE ALL OF YOUR FULLY PAID ORDINARY SHARES
IN
STANLEY MINING SERVICES LIMITED
1. LAYNE AUSTRIALIA'S OFFER
1.1 Layne Australia offers to acquire all of Your Shares on the terms and
conditions of this Offer.
1.2 If you accept this Offer, Layne Australia will be entitled to receive
all Rights attaching to Your Shares other than the right to receive
the Special Dividend, the rights to which you will retain.
2. CONSIDERATION
The consideration Layne Australia offers you is 90 cents cash for each of Your
Shares.
3. OFFER PERIOD
Unless withdrawn in accordance with the Law, it is intended that this
Offer will remain open for acceptance for a period commencing on the date of
this Offer and ending at 5 pm on 23 June 1997 subject to Layne Australia's
right to extend such period in accordance with section 656 of the law.
4. WHO MAY ACCEPT
4.1 This Offer is made to you as the holder of Stanley Shares which are
registered or entitled to be registered in your name in the register
of members of Stanley on the date this Offer is sent or at any time
prior to the end of the Offer Period. If at any time during the Offer
Period, another person is, or is entitled to be, registered as a
holder of some or all of Your Shares ("the Transferred Shares"), then
in accordance with section 649 of the Law:
(a) an offer corresponding to this Offer is deemed to have been made
to that person in respect of the Transferred Shares of which that
person is, or is entitled to be, so registered as a holder;
2
<PAGE>
(b) an offer corresponding to this Offer is deemed to have been made
to you in respect of the remainder (if any) of the Stanley Shares
other than the Transferred Shares registered in your name on the
date this Offer is sent, or at any time prior to the end of the
Offer Period; and
(c) this original Offer is deemed to have been withdrawn.
4.2 If:
(a) at any time during the Offer Period and prior to acceptance of
this Offer, Your Shares consist of two or more Distinct Portions
(for example, if you hold Your Shares as trustee for 2 or more
persons); and
(b) you give to Layne Australia a notice which:
(i) if it relates to Your Shares in a CHESS Holding, is in an
electronic form approved by the SCH Business Rules; or
(ii) if it relates to Your Shares which are certificated or
uncertificated but not in a CHESS Holding, is in writing,
stating that Your Shares consist of Distinct Portions and
specifying the number of Your Shares in each Distinct Portion for
which you wish to accept this Offer;
this Offer will be deemed to consist of separate Offers made to you in
relation to the respective Distinct Portions of Your Shares.
5. HOW TO ACCEPT
5.1 This Offer may only be accepted in respect of all of Your Shares.
Subject to clause 4, it may not be accepted in relation to only some
of Your Shares.
5.2 You may accept this Offer in respect of all of Your Shares at any time
during the Offer Period.
5.3 To accept this Offer in respect of Your Shares which are certificated
or are uncertificated but not in a CHESS Holding, you should complete
and sign the Acceptance Form in accordance with the instructions on it
and then post the Acceptance Form to:
National Registry Services (WA) Pty Ltd
GPO Box U1936
Perth, Western Australia, 6845
or hand deliver the Acceptance Form to:
3
<PAGE>
National Registry Services (WA) Pty Ltd.
Level 17, Central Park
152-158 St. George's Terrace
Perth, Western Australia, 6000
so that it is received before the expiry of the Offer Period.
5.4 To accept this Offer in respect of Your Shares which are
uncertificated and which are in a CHESS Holding, you must do so in
accordance with the SCH Business Rules and, specifically:
(a) if you are a Broker or Non-Broker Participant (as defined in the
SCH Business Rules), you should initiate acceptance of this Offer
in accordance with the SCH Business Rules before the expiry of
the Offer Period; or
(b) otherwise, you should instruct your Controlling Participant (this
will normally be the stockbroker who purchased your Stanley
Shares for you) to initiate acceptance of this Offer in
accordance with the SCH Business Rules before the expiry of the
Offer Period.
5.5 When accepting this Offer for Your Shares which are certificated, you
must also provide all certificates relating to Your Shares, or fulfill
all the requirements of Layne Australia and Stanley if you are unable
to provide the certificates, to enable the registration of Layne
Australia as a bona fide purchaser of Your Shares for value and
without notice of any defect in your title to Your Shares.
5.6 Subject to clause 5.4, acceptance of the Offer will not be complete
until the completed Acceptance Form has been received at the address
set out in clause 5.3 and the requirements of clauses 5.3 and 5.5 have
been complied with. However:
(a) Layne Australia may in its sole discretion treat the receipt by
it of the Acceptance Form without some or all of the relevant
certificate(s) for Your Shares which are certificated or other
documents as a valid acceptance; and
(b) where the requirements of clauses 5.3 and 5.5 have been complied
with in respect of some but not all of Your Shares, Layne
Australia may in its sole discretion deem your acceptance of this
Offer complete in respect of those Stanley Shares for which the
requirements have been complied with but not in respect of the
remainder.
6. EFFECT OF ACCEPTANCE
6.1 By initiating acceptance of this Offer in respect of Your Shares
through CHESS or signing and returning an Acceptance Form to Layne
Australia in accordance with clause 5 above, you will be deemed to
have:
4
<PAGE>
(a) irrevocably accepted this Offer in accordance with its terms in
respect of all Your Shares;
(b) subject to this Offer being declared free of the conditions set
out in clause 7 below or such conditions being fulfilled,
transferred Your Shares to Layne Australia for the consideration
in this Offer;
(c) represented and warranted to and agreed with Layne Australia
that:
(i) on the date of registration of the transfer of Your
Shares to Layne Australia, Your Shares will be fully paid
up and free from all mortgages, charges, liens and other
encumbrances (whether legal or equitable) of any kind;
(ii) you have full right, power and authority to sell and
transfer all of Your Shares to Layne Australia in
accordance with the terms and conditions of this Offer;
(iii) Layne Australia ill be entitled to receive all
dividends, distributions and other Rights (except the
Special Dividend) accruing to Your Shares at the time of
and following the Statement Lodgment Date;
(iv) if for any reason Layne Australia does not receive any
dividends, distributions of other Rights to which it is
entitled under paragraph (iii) above, Layne Australia
will be entitled to reduce the amount of cash
consideration to which you would otherwise be entitled in
accordance with this Offer by the amount or value of such
dividends, distributions or other Rights; and
(v) if for any reason, Layne Australia does not receive any
certificate(s) for Your Shares (except for any of Your
Shares which are held in uncertificated form) then you
must promptly deliver to Layne Australia the relevant
certificate(s) and/or other documents, or acceptable
evidence of loss or destruction and an acceptable
indemnity in relation to those certificates and/or other
documents;
(d) authorized Layne Australia (by its officers, servants or
agents) to complete on the Acceptance Form correct details of
Your Shares, fill in any blanks remaining on the Acceptance
Form and rectify any error in or omission from the Acceptance
Form;
(e) if you signed the Acceptance Form in respect of Your Shares
which are uncertificated and which are in a CHESS Holding,
authorized Layne Australia (or any of its officers, servants or
agents) to instruct your Controlling Participant to initiate
acceptance of the Offer in respect of
5
<PAGE>
those Stanley Shares in accordance with the SCH Business Rules
and take all other steps necessary under the SCH Business Rules
to accept the Offer in respect of Your Shares;
(f) irrevocably appointed each director of Layne Australia from
time to time, as your attorney for you and on your behalf to:
(i) requisition and/or convene (or join in requisitioning and/or
convening) general meetings of Stanley in accordance with
the Articles of Association of Stanley or sections 246 or
247 of the Law;
(ii) consent to any such meetings being held on short notice;
(iii) attend and vote in respect of Your Shares at any and all
general meetings of Stanley;
(iv) request Stanley, prior to registering the transfer of Your
Shares, to transmit Your Shares to such registers maintained
by or on behalf of Stanley as Layne Australia may specify;
and
(v) execute all forms, notices, instruments (including an
instrument appointing a director of Layne Australia as a
proxy in respect of any or all of Your Shares and any
application to Stanley for a replacement certificate in
respect of any certificate which has been lost or destroyed)
and resolutions relating to Your Shares and generally to
exercise all powers and rights which you may have as the
holder of those shares,
and to have agreed that in exercising the powers conferred by
that power of attorney any such director will be entitled to act
in the interests of Layne Australia as the beneficial owner and
intended registered holder of Your Shares, provided that the
appointment will operate only if the contract resulting from the
acceptance of this Offer is or becomes unconditional; and
(g) irrevocably authorized and directed Stanley to pay to Layne
Australia or to account to Layne Australia for all dividends,
distributions and other Rights (except the Special Dividend) in
respect of Your Shares, subject however to any such dividends,
distributions or other Rights received by Layne Australia being
accounted for by Layne Australia to you in the event that this
Offer is withdrawn or the contract formed by your acceptance of
this Offer is rendered void pursuant to clause 7.
6
<PAGE>
7. CONDITIONS OF THIS OFFER
7.1 Subject to clause 7.3, this Offer and any contract that results from
the acceptance of this Offer are each conditional upon:
(a) Layne Australia becoming entitled to not less than 90% of the
Stanley Shares by the expiry of the Offer Period;
(b) Layne Australia receiving acceptances before the expiry of the
Offer Period in respect of all offers it makes during the Offer
Period, substantially in the form of Annexure A to this Offer
(except that the consideration specified in the offers may be
increased by Layne Australia), to the holders of options to
subscribe for Stanley Shares;
(c) the Treasurer of the Commonwealth of Australia ("Treasurer")
consenting unconditionally to or stating prior to the end of the
Offer Period that he has no objection under the Commonwealth
Government's foreign investment policy to the purchase by Layne
Australia of all Stanley Shares and the cancellation of all
options to subscribe for unissued Stanley Shares in accordance
with the Offers or the Treasurer ceases to be entitled to make an
order under the Foreign Acquisitions and Takeovers Act 1975 in
respect of that purchase;
(d) none of the following occurrences happening during the period
commencing on the Statement Lodgment Date and ending on the
expiry of the Offer Period:
(i) any one or more of the provisions of the constituent
documents of Stanley or of a subsidiary of Stanley being
altered in any of the ways mentioned in subsection 193(1)
of the Law;
(ii) Stanley or a subsidiary of Stanley resolving to reduce
its share capital in any way;
(iii) Stanley or a subsidiary of Stanley:
(A) entering into a buy-back agreement; or
(B) resolving to approve the terms of a buy-back agreement
under subsections 206D(1) or 206E(1) of the Law;
other than in relation to a buy back of shares in Glindemann
& Kitching Pty Ltd which is or will be substantially in the
manner described in the prospectus issued by Stanley and
dated 20 December 1996;
7
<PAGE>
(iv) Stanley or a subsidiary of Stanley making an allotment
of, or granting an option to subscribe for, any of its
shares (of any class), or agreeing to make such an
allotment or grant such an option, or declaring or
paying a dividend in circumstances where shares may be
allotted or issued pursuant to Stanley's Dividend
Reinvestment Plan;
(v) Stanley declaring or paying a dividend other than the
Special Dividend;
(vi) Stanley or a subsidiary of Stanley issuing, or agreeing
to issue, convertible notes;
(vii) Stanley or a subsidiary of Stanley disposing, or
agreeing to dispose, of the whole, or a substantial
part, of its business or property;
(viii) Stanley or a subsidiary of Stanley charging, or agreeing
to charge, the whole, or a substantial part, of its
business or property;
(ix) Stanley or a subsidiary of Stanley resolving that it be
wound up;
(x) the appointment of a provisional liquidator of Stanley
or of a subsidiary of Stanley;
(xi) the making of an order by a court for the winding up of
Stanley or of a subsidiary of Stanley;
(xii) an administrator of Stanley, or of a subsidiary of
Stanley, being appointed under sections 436A, 436B or
436C of the Law;
(xiii) Stanley or a subsidiary of Stanley executing a deed of
company arrangement; or
(xiv) the appointment of a receiver, or a receiver and
manager, in relation to the whole, or a substantial
part, of the property of Stanley or of a subsidiary of
Stanley; and
(e) none of the following occurring during the period commencing on
the Statement Lodgment Date and ending on the expiry of the Offer
Period:
(i) Stanley or a subsidiary of Stanley purchasing or
otherwise acquiring or agreeing or offering to purchase
or otherwise acquire or taking a right or option to
acquire any right, title or interest in or to any
property, assets or rights, otherwise than in the
ordinary course of business;
8
<PAGE>
(ii) Stanley or a subsidiary of Stanley selling or otherwise
disposing of or agreeing or offering to sell or
otherwise dispose of or giving a right or option to sell
any right, title or interest in or to any property,
assets or rights, otherwise than in the ordinary course
of business;
(iii) Stanley or a subsidiary of Stanley entering into or
agreeing to enter into or incurring, varying or
canceling any material contract, commitment or
contingent liability, otherwise than in the ordinary
course of business;
(iv) a material adverse change occurring or being threatened
or announced in the structure, business, financial or
trading position, profitability or prospects of Stanley
or the group of companies comprising Stanley and its
subsidiaries taken as a whole; or
(v) Bank of America National Trust and Savings Association
("Bank of America") or any of its related or affiliated
corporations, notifying Layne Christensen Company that
all or a substantial part of the US$125 million credit
facility the subject of a letter from Bank of America
dated 2 April 1997 will not be made available to Layne
Christensen Company or Layne Australia for any reason,
other than due to an event that was within the sole
control of Layne Australia or of any of its associates;
and
(f) a director or the chief financial officer of Stanley giving
notice to Layne Australia before the end of the Offer Period that
each of the following is correct at the date of the notice, and
is expected to be correct at the end of the Offer Period:
(i) Stanley's consolidated shareholders' equity, determined
in accordance with the accounting principles that were
used in preparing Stanley's audited financial statements
for the year ended 30 June, 1996, is at least $30
million; and
(ii) Stanley's Dividend Reinvestment Plan has been suspended
in accordance with its terms such that no shares will be
allotted or issued pursuant to that plan in connection
with the Special Dividend.
7.2 Subject to the Law, the conditions in clause 7.1 (other than the
condition in clause 7.1(c)) are conditions subsequent and a breach or
non-fulfillment of any of those conditions will not prevent a contract
arising from acceptance of this Offer. Those conditions will not
merge on completion of any contract arising from acceptance of this
Offer and may only be relied upon by Layne Australia. The condition
in clause 7.1(c) is a condition precedent, and any contract arising
from
9
<PAGE>
acceptance of this Offer will not become binding unless and until that
condition is fulfilled.
7.3 It is a term of this Offer that Layne Australia may, subject to and in
accordance with the Law, declare this Offer and all other Offers made
under the Takeover Scheme and all contracts formed by acceptance of
such Offers, to be free from the conditions (or any one or more of
them or any part of any of them) set out in clause 7.1, other than the
condition in clause 7.1(c). Any declaration made under this clause
7.3 must be made by Layne Australia not less than 7 days before the
end of the Offer Period, and a notice in that respect must be
published in accordance with the requirements of section 663 of the
Law.
7.4 If at the time immediately after the end of the Offer Period in
respect of any condition in clause 7.1:
(a) Layne Australia has not declared this Offer and all other Offers
made by Layne Australia under the Takeover Scheme to be free from
that condition;
(b) the Offers have not become free of that condition by virtue of
the operation of subsection 664(2) of the Law; or
(c) that condition has not been fulfilled;
all contracts resulting from the acceptance of Offers and all Offers
that have been accepted and from whose acceptance binding contracts
have not yet resulted, are void. In that event Layne Australia will,
if you have accepted this Offer, return any Acceptance Form and other
documents forwarded by you, to your address as shown in the Acceptance
Form.
8. PAYMENT
8.1 If you validly accept (or are treated by Layne Australia pursuant to
clause 5.6 as having validly accepted) this Offer and:
(a) all of the conditions set out in clause 7.1 have been fulfilled;
or
(b) Layne Australia has declared the Offers constituting the Takeover
Scheme to be free from those conditions to the extent that they
have not been fulfilled,
Layne Australia will pay the consideration payable to you by cheque in
Australian dollars sent to you at your risk by pre-paid ordinary mail,
or, in the case of overseas shareholders by pre-paid airmail, to your
address shown on the Acceptance Form within 30 days after the Offer is
accepted by you or the Offer or the contract resulting from acceptance
of the Offer becomes unconditional,
10
<PAGE>
whichever is the later, but in any event not later than 21 days after
the end of the Offer Period.
9. WITHDRAWAL
Subject to compliance with section 653 of the Law and any conditions imposed
pursuant to that section, Layne Australia may withdraw this Offer.
10. VARIATION OF THE OFFER
Layne Australia may at any time, and from time to time, vary this Offer in
accordance with sections 654 to 661 of the Law.
11. ADDITIONAL INFORMATION
11.1 According to documents lodged by Stanley with Australian Stock
Exchange Limited, as at the date of this Offer the total number of
Stanley Shares on issue is 70,219,325.
11.2 Immediately before this Offer was sent, Layne Australia was entitled
to none of the Stanley Shares on issue at that date.
11.3 The date of publication of the notice referred to in subsection 663(4)
of the Law is 13 June 1997, subject to variation in accordance with
section 663(5) of the Law if the Offer Period is extended.
11.4 All stamp duty payable on transfers of Stanley Shares in respect of
which Offers are accepted will be paid by Layne Australia.
11.5 This Offer is accompanied by a copy of the Part A Statement.
12. NOTICES
12.1 Any notice, nomination or other communication to be given by Layne
Australia to you under this Offer will be deemed to be duly given if
it is in writing and is signed or purports to be signed (whether in
manuscript, printed or reproduced in any form) on behalf of Layne
Australia by any of its directors or secretaries and is delivered to
or sent by post in a pre-paid envelope to your address as recorded on
the register of members of Stanley.
12.2 Any notice or other communication given by you to Layne Australia in
connection with this Offer will be deemed to be duly given if it is in
writing and is sent by post to Layne Australia at the following
address
11
<PAGE>
c/o Baker & McKenzie
Level 26
AMP Centre
50 Bridge Street
SYDNEY NSW 2000
Attention: Steven Glanz
13. INTERPRETATION
13.1 In this Offer:
"Acceptance Form" means the form of acceptance and transfer enclosed with this
Offer;
"CHESS" means the Clearing House Electronic Subregister System operated by SCH;
"CHESS Holding" means a holding of Stanley Shares on the CHESS subregister of
Stanley;
"Commission" means the Australian Securities Commission;
"Controlling Participant" means the Broker or Non-Broker Participant designated
as the controlling participant for Stanley Shares in accordance with the SCH
Business Rules;
"Distinct Portions" has the meaning attributed to that phrase in the Law in
respect of Stanley Shares;
"Law" means the Corporations Law;
"Layne Australia" means Layne Christensen Australia Pty Limited ACN 078 167 610
of Level 26, 50 Bridge Street, Sydney NSW;
"Offer" means the offer contained in this document (or if the context so
requires, this document itself) and "Offers" means all like offers sent to
holders of Stanley Shares (or persons entitled to receive such Offers);
"Offer Period" means the period, referred to in clause 3, during which this
Offer remains open for acceptance;
"Part A Statement" means the Part A Statement registered in relation to the
Takeover Scheme (a copy of which accompanies this Offer);
"Rights" means all accretions and rights accrued or accruing directly or
indirectly to the Stanley Shares at the time of and following the Statement
Lodgment Date including, without limitation, all rights to receive dividends and
to receive, convert to or subscribe for Stanley Shares (whether under a dividend
reinvestment plan, option or otherwise) stock units, notes, options or other
marketable securities, whether declared paid or issued by Stanley or otherwise,
but does not include the Special Dividend;
12
<PAGE>
"SCH" means the Securities Clearing House approved under the Law;
"SCH Business Rules" means the business rules of SCH from time to time;
"Special Dividend" means the dividend of 5 cents per Stanley Share which was
declared on 29 April 1997;
"Stanley" means Stanley Mining Services Limited ACN 009 117 533 of C/-Nissen,
Kestel & Hartford, Suite 4, 1st Floor, South Mill Centre, 9 Bowman Street, South
Perth, WA;
"Stanley Shares" means the fully paid ordinary shares of $0.20 each in Stanley
on issue at the date the Offers are sent;
"Statement Lodgment Date" means the date upon which the Part A Statement is
lodged for registration with the Commission;
"Takeover Scheme" means the takeover scheme constituted by the Offers for
Stanley Shares;
"Your Shares" means, subject to clause 4, the Stanley Shares in respect of which
you are registered or entitled to be registered as holder in the register of
members of Stanley; and
unless the context otherwise requires, other words and phrases used in this
Offer have the same meaning as attributed to them by the Law or the SCH Business
Rules, as the case may be.
13.2 Headings are for ease of reference only and do not affect the
interpretation of this Offer.
13.3 References to clauses are references to clauses in this Offer.
13.4 The singular includes the plural and the plural includes the singular.
A reference to a person includes a reference to a corporation.
13.5 Unless otherwise indicated, a reference to "dollars" or "$" means the
lawful currency of the Commonwealth of Australia.
13.6 References to any law are references to that law as amended,
consolidated, supplemented or replaced from time to time.
13.7 References to time are references to Sydney time.
DATED 20 May 1997
SIGNED for and on behalf of )
Layne Christensen Australia )
Pty Limited ) ______________________________
Director
13
<PAGE>
Annexure A
Offer by Layne Christensen Australia Pty Limited ACN 078 167 610 ("Layne
Australia")
To: [Name of option holder]
Offer
1. Layne Australia offers to pay you the price specified in clause 2 for each
option granted to you under the Stanley Mining Services Limited Employee
Share Option Plan ("Options") in consideration for the surrender to Stanley
Mining Services Limited ("Stanley") of those Options and for your agreeing
to enter into any further agreement with or execute any document in favour
of Stanley to extinguish all of your rights in connection with the Options.
2. The price which Layne Australia offers in relation to each Option is the
difference between 95 cents and the exercise price of the Option. If Layne
Australia increases the cash price offered for each share in Stanley under
its takeover offers for all of those shares dated 20 May 1997 ("Share
Offers"), then the price to be paid by Layne Australia for each of the
Options will be increased by the same amount.
3. This offer expires at the end of the Offer Period (as defined in the Share
Offers).
Acceptance
4. This offer may be accepted by signing this document in the place indicated
and returning it to Layne Australia together with the certificates for the
Options (if any). Once received, your acceptance will be irrevocable.
5. This offer may only be accepted in respect of all your Options.
Condition subsequent
6. This offer is conditional upon the Share Offers becoming unconditional, due
to the conditions to which they are subject being either satisfied or
waived by Layne Australia.
7. The condition in clause 6 is a condition subsequent, and a breach or
non-fulfillment of the condition will not prevent a contract arising from
acceptance of this offer. If at the end of the Offer Period (as defined in
the Share Offers) the condition has not been fulfilled then the contract
arising from acceptance of this offer will be void.
14
<PAGE>
Payment
8. The offer price for the surrender of your Options will be paid by Layne
within 14 days after you accept this offer or the condition in clause 6 is
satisfied, whichever happens later.
Enforceability
9. If you accept this offer, then your agreement to surrender the Options is
for the benefit of both Layne Australia and Stanley, and may be enforced by
either of them.
10. Your acceptance of this Offer will, subject to the satisfaction of the
condition in clause 6, irrevocably constitute Layne Australia your attorney
to execute on your behalf and in your name any document considered
reasonably necessary by Layne Australia to effect the extinguishment,
surrender or cancellation of the Options and all of your rights in
connection with the Options.
Dated: [ ] 1997
I accept this offer
_____________________________________________
Signature of Option holder
15
<PAGE>
A copy of this Part A statement has been registered by the
Australian Securities Commission ("Commission") on
1997. Neither the Commission nor any of its
officers takes any responsibility as to contents of this statement.
PART A STATEMENT RELATING TO
PROPOSED OFFERS
BY
LAYNE CHRISTENSEN
AUSTRALIA PTY LIMITED
ACN 078 167 610
FOR ALL FULLY PAID SHARES IN
STANLEY MINING SERVICES LIMITED
ACN 009 117 553
<PAGE>
1. Interpretation
In this Statement:
(a) "Law" means the Corporations Law.
(b) "Layne Australia" means Layne Christensen Australia Pty
Limited, ACN 078 167 610 a company incorporated in New
South Wales having its registered office at Level 26,
50 Bridge Street, Sydney, NSW;
(c) "Offers" means the proposed offers by Layne Australia
for Stanley Shares to which this Statement relates;
(d) "Stanley" means Stanley Mining Services Limited ACN 009
117 533, a company incorporated in Western Australia,
having its registered office at C/-Nissen, Kestel &
Harford, Suite 4, 1st Floor, South Mill Centre, 9
Bowman Street, South Perth, Western Australia;
(e) "Stanley Shares" means the fully paid ordinary shares
of 20 cents each in Stanley on issue at the date the
Offers are sent; and
(f) Words and phrases which have meanings given to them for
the purposes of Chapter 6 of the Law or in the document
by which the Offers are made bear those meanings in
this Statement.
2. Offers
2.1 Layne Australia proposes to dispatch Offers
constituting a Takeover Scheme to acquire all of the
Stanley Shares for a consideration of 90 cents cash for
each Stanley Share. Stanley shareholders may accept
the Offers only in respect of all of their Stanley
Shares.
2.2 Stanley shareholders who accept Layne Australia's Offer
will retain their entitlement to receive the dividend
of 5 cents per Stanley Share that was declared by
Stanley on 29 April 1997. However, if an Offer is
accepted then Layne Australia will become entitled to
all other accretions and rights accrued or accruing
directly or indirectly to the Stanley Shares to which
the acceptance relates on and after the date on which
this Statement was lodged with the Commission,
including, without limitation, all rights to receive
dividends and to receive, convert to or subscribe for
Stanley Shares (whether under a dividend reinvestment
plan, option or otherwise), stock units, notes, options
or other marketable securities, whether declared paid
or issued by Stanley or otherwise.
2.3 Full particulars of the Offers which Layne Australia
proposes to make are contained in the copy of one of
the proposed Offers which accompanies this Part A
Statement, except that the following details will be
inserted in the relevant places in the Offers before
they are sent:
(a) the date of the Offers;
(b) the date until which the Offers will remain open unless extended
or withdrawn;
(c) the date upon which the notice under sub-section 663(4) of the
Law is to be published; and
<PAGE>
(d) the number of Stanley Shares to which Layne Australia is entitled
immediately before the Offers are sent.
3. Intended Offer Period
The Offers are intended to remain open for acceptance for a
period commencing on the date of the Offers and ending on the
date which is one month after the date of the Offers, unless
extended in accordance with their terms or withdrawn in
accordance with the Law.
4. Directors of Layne Australia
The names, occupations and addresses of all of the directors of
Layne Australia at the date of this Statement are:
Andrew Bernard Schmitt, Executive 310 West 49th Street
(President and Chief Executive Officer, Kansas City, Missouri,USA
Layne Christensen Company)
Eric Russell Despain Executive (Senior 2675 Field Point
Circle Vice President, Layne Christensen Sandy Utah, USA
Company)
Peter Donald Bunting, Chartered 21 Days Crescent
Accountant Blackheath, New South Wales
5. Principal activities of Layne Australia and Layne Group
5.1 Layne Australia was established for the purpose of
making the Offers and currently has no other business.
5.2 Layne Australia is part of a group of companies, the
ultimate parent of which is Layne Christensen Company
("LCC"). LCC is a company incorporated in the state of
Delaware in the United States, and its shares are
traded on the NASDAQ National Market System.
The principal activities of LCC and its subsidiaries are:
(a) locating underground water resources and drilling and
developing wells for customers in a variety of industries;
(b) providing well and pump repair and maintenance services, and well
rehabilitation services, to customers in a variety of industries;
(c) providing soil sampling and exploration drilling services to
customers in the minerals exploration industry;
(d) providing a range of environmental services to customers such as
assessment, monitoring and enhancement of the quality of water
supplies; and
(e) manufacturing and marketing a range of equipment used by drilling
contractors involved in mineral and energy exploration, mine
development and soils and environmental testing.
<PAGE>
6. Layne Australia's entitlement to Stanley Shares
6.1 Layne Australia is not entitled at the date of this Statement to any
Stanley Shares.
6.2 Layne Australia is not entitled at the date of this Statement to any
other marketable securities of Stanley.
7. Transactions in Stanley by Layne Australia or its associates during
previous 4 months and transactions in Layne Australia
7.1 During the 4 months immediately preceding the date on which this
Statement is lodged for registration with the Commission there were
no acquisitions or disposals of Stanley Shares by Layne Australia or
any associate of Layne Australia.
7.2 The only acquisitions or disposals of shares in Layne Australia made
by Layne Australia or its associates during the 4 months immediately
preceding the date on which this statement is lodged for registration
with the Commission were the following:
<TABLE>
<S> <C> <C> <C>
Date Person to whom issued Number of fully paid Issue price per share
ordinary shares of $1
each
29 April 1997 Layne Christensen Company 2 $1.00
</TABLE>
The subscriber shares in Layne Australia, held by the incorporators of
Layne Australia, were redeemed on 29 April 1997.
7.3 Layne Christensen Company ("LCC") is currently in the process of
incorporating a new subsidiary in Belgium, to be called Layne
Christensen Belgium SA ("Layne Belgium"). Upon Layne Belgium's
incorporation, LCC intends transferring its shares in Layne Australia
to Layne Belgium for a consideration of $2.00.
8. Proposed terms for cancellation of options.
8.1 Stanley currently has on issue the following non-transferable options
to subscribe for ordinary shares in Stanley:
Name of option holder Number of options Exercise price per option
David Noort 500,000 63 cents
David Harper 300,000 63 cents
Gary Savage 300,000 63 cents
Brian Birmingham 250,000 63 cents
Tony Grizaard 200,000 63 cents
Colin Roberts 100,000 63 cents
Gregory Finch 100,000 63 cents
Graham Fisher 150,000 63 cents
Brian Rudd 100,000 63 cents
Michael Perrott 2,000,000 70 cents
<PAGE>
8.2 Layne Australia proposes, during the Offer Period, to make offers to
each option holder substantially in the form of Annexure A to the copy
of the proposed Offer which accompanies this Part A Statement.
8.3 Stanley has agreed to grant David Noort a further 500,000 options in
February 1998. The exercise price for these options is not specified
in the agreement. Layne Australia intends to negotiate with Mr. Noort
during the Offer Period to secure his agreement to the cancellation of
his right to receive these options. In exchange, Layne Australia will
offer to procure Layne Christensen Company ("LCC") to issue to
Mr. Noort options to purchase shares of common stock in LCC on terms
and conditions, and at an exercise price, which are similar to options
previously offered to employees of LCC who have a seniority and
experience comparable with Mr. Noort.
9. No pre-emption clause
As far as Layne Australia is aware the constituent documents of
Stanley are its Memorandum and Articles of Association. They
contain no restriction on the right to transfer Stanley Shares
that has the effect of requiring the holders of Stanley Shares,
before transferring them, to offer them for purchase to the
members of Stanley or to any other person.
10. How cash consideration to be provided
The consideration for the acquisition of Stanley Shares to which
the Offers relate will be 90 cents cash per Stanley Share. In
addition, a total of $1,140,000 will be offered to option holders
for the cancellation of all of their options. The maximum cash
amount that would be required if all the Offers in relation to
Stanley Shares and options were accepted is $64,337,392.50.
Layne's parent company, LCC, has been offered a US $125 million
(approximately A$161 million at exchange rates applying at the
date of this Statement) credit facility ("Facility") by Bank of
America National Trust and Savings Association ("Bank of
America"). LCC will ensure that Layne Australia is able to
borrow funds under the Facility to enable it to meet its
obligations in relation to the Stanley Shares and options,
subject to the satisfaction of the conditions precedent referred
to below.
Although Bank of America has entered into a commitment to provide
the facility, it has informed LCC that it intends to assemble a
syndicate of lenders to provide a portion of the Facility. The
syndicate will be arranged by BancAmerica Securities, Inc.
("BASI"), an affiliated company of Bank of America. LCC is not
aware of the identity of any of the proposed members of the
syndicate, nor is it aware of the portion of the Facility which
Bank of America proposes to syndicate.
The availability of funds under the Facility will be subject to a
number of conditions precedent, namely:
(a) the negotiation and execution of a definitive credit agreement and
other related documentation satisfactory to Bank of America and the
other syndicated lenders;
(b) there being no material adverse change (in the reasonable opinion of
BASI and Bank of America) in the financial condition, business,
operations, properties or prospects of LCC
<PAGE>
and its consolidated subsidiaries from the date of its audited
financial statements as at 31 January 1997;
(c) the non-occurrence of any material adverse change in loan syndication
or capital market conditions after 2 April 1997, generally, which in
the reasonable opinion of BASI would affect its syndication efforts in
respect of any portion of the Facility;
(d) until the earlier of 30 September 1997 or notification by BASI of the
completion of the syndication of the Facility, there being no
competing offering, placement or arrangement of any debt securities or
bank financing by or on behalf of LCC; and
(e) other conditions precedent which will be contained in the definitive
agreements relating to the Facility. Bank of America has informed LCC
that these conditions will include:
(i) the acquisition of (or the right to acquire) all Stanley
Shares on terms and conditions acceptable to Bank of America
and the syndicated lenders of the Facility;
(ii) all necessary corporate authorisations being obtained;
(iii) receipt by Bank of America of satisfactory documentation
regarding the takeover offer and Layne Australia's obligation
to pay the purchase consideration;
(iv) all representations and warranties made by LCC in connection
with the Facility documents being true and complete; and
(v) cancellation of LCC's existing credit agreement with Bank of
America.
Layne Australia has no reason to believe that the conditions
precedent to the availability of funds under the Facility will
not be satisfied or waived by the time Layne Australia becomes
liable to pay the consideration for the purchase of Stanley
Shares or surrender of options.
Bank of America's commitment to provide the Facility will expire
on 30 September 1997 if the Facility has not been drawn down by
that date.
11. No benefits to officers of Stanley
Except as otherwise disclosed in this Statement, Layne Australia
does not propose in connection with the Offers that:
(a) a benefit (being a prescribed benefit for the purposes of the
Law) other than an excluded benefit within the meaning of the
Law will or may be given to a person in connection with the
retirement of a person from an office that, in relation to
Stanley, is a prescribed office for the purpose of the Law; and
(b) a benefit (being a prescribed benefit for the purpose of the Law)
will or may be given to a person, who in relation to Stanley
would be a prescribed person for the purpose of the Law, in
connections with the transfer of the whole or any part of the
undertaking or property of Stanley.
<PAGE>
12. Agreement between Layne Australia and the Directors of Stanley
There is no agreement between Layne Australia, or any of its
associates, and any of the directors of Stanley in connection
with, or conditional upon, the outcome of the Takeover Scheme
except for an agreement dated 7 April 1997 between Layne
Christensen Company ("LCC") and Mr. Ross Stanley, a director of
Stanley, under which:
(a) LCC will cause Stanley to terminate Mr. Stanley's current employment
with Stanley, and to re-employ him on the terms of the agreement.
(b) Mr. Stanley's terms and conditions for employment will broadly remain
the same as those he currently enjoys, except that the new employment
will have a three year term subject to specified rights of early
termination.
(c) Mr. Stanley will have an obligation not to compete with Stanley for a
period of up to three years following the termination of his
employment.
(d) Mr. Stanley will be required to subscribe for US$1,500,000 worth or
shares of LCC's common stock at the prevailing market price at the
time of the subscription. The shares will be issued subject to a
restriction on the transfer of the shares for a period of three
years; and
(e) Mr. Stanley will be granted free options by LCC to subscribe for
shares of LCC's common stock at an exercise price equal to the closing
market price for LCC's common stock on the trading day immediately
before the public announcement of Layne Australia's proposed takeover
for the Stanley Shares. The number of shares that may be acquired on
exercise of the options will be three times the number of shares
subscribed for in accordance with paragraph (d) above. Two thirds of
the options will become exercisable after a further year. The options
will be non-transferable and will expire 10 years after their date of
issue if not exercised.
The rights and obligations of Layne Australia and Mr. Stanley under the
agreement are conditional upon each of the conditions to which the Offers
are subject being either satisfied or waived by Layne Australia by the end
of the Offer Period. However, there is no obligation on Mr. Stanley to
accept, or to cause any third party to accept, Layne Australia's Offer.
13. Change in financial position of Stanley
So far as is known to Layne Australia the only changes in the financial
position of Stanley since 30 June 1996 (being the date of the last balance
sheet laid before Stanley in general meeting on 15 November 1996) are as
announced to Australian Stock Exchange Limited (ASX).
In summary, the announcements were:
(a) Allotment of Stanley Shares -- 3 July 1996
Stanley announced that it had allotted 7.22 million Stanley Shares
(part of the 11,666,667 shares authorised at the general meeting of
28 June 1996) at 60 cents per share.
(b) Allotment of Stanley Shares -- 8 July 1996
<PAGE>
Stanley announced that it had allotted a further 280,000 Stanley
Shares as part of the 11,666,667 shares authorised at the general
meeting of 28 June 1996.
(c) Allotment of Stanley Shares -- 16 July 1996
Stanley announced that it had allotted 4,166,667 Stanley Shares. This
allotment finalized the allotment of 11,666,667 Stanley Shares
authorised at the general meeting of 28 June 1996. The shares were
issued at 60 cents per share, as part of a placement to raise
additional working capital.
(d) Granting of exploration licenses in Cote d'Ivoire -- 17 September 1996
Stanley announced that Equigold (Cote d'Ivoire) SA, an Ivory Coast
registered company owned 42.5% by Stanley, had been granted two
exploration licenses covering 2,000 km in Ivory Coast, Western Africa.
The consideration paid by the company in relation to the granting of
the licenses was US$150,000.
(e) Agreement to acquire Glindemann & Kitching Pty Ltd -- 3 October 1996
Stanley announced it had entered into a Heads of Agreement to acquire
mining services company Glindemann & Kitching Pty Ltd ("G&K"). The
acquisition will be implemented in a two stage process, involving an
initial subscription by Stanley of 51% of the expanded issued capital
of G&K for $6.5 million. The remaining 49% shareholding will be
acquired in two years time at a purchase price based on a Price
Earnings Multiple of five times the average annual after tax profits
of G&K during the two year period. The acquisition was subject to
satisfactory due diligence by Stanley. A copy of the announcement is
attached as Annexure 1.
(f) Quarterly report: Activities September quarter 1996 -- 29 October
1996
Exploration results for the September quarter 1996 are set out in the
quarterly report, a copy of which is attached as Annexure 2.
(g) Completion of due diligence and amended terms for acquisition --
4 November 1996
Stanley announced that it has successfully completed its due diligence
review of G&K and would proceed to finalise the acquisition subject
to completion of satisfactory legal documentation. The terms of
acquisition with the vendors of G&K had also been amended. The
acquisition of the final 49% of G&K will be brought forward to 1 July
1997. A copy of the announcement is attached as Annexure 3.
(h) Additions to the official list -- 5 November 1996
Stanley announced that 2,050.799 Stanley Shares were issued at
65 cents per share were issued pursuant to Stanley's dividend
reinvestment plan and quoted for trading on Australian Stock Exchange
Limited.
(i) Chairman's address to annual general meeting -- 15 November 1996
The Chairman stated that trading continued to be in line with
expectations and all divisions were performing in accordance with
budget. Utilisation of all drilling rights continued to be high, and
there was a high likelihood ofcontinuing demand for Stanley's
services.
<PAGE>
(j) One for three renounceable rights issue -- 25 November 1996
Stanley announced that up to approximately 17.5 million Stanley Shares
would be issued under a one for three rights issue at 50 cents per
share. Funds raised will be used to fund the acquisition of G&K.
The issue will be underwritten by Paterson Ord Minnett Ltd.
(k) Acquisition completed -- 17 December 1996
Stanley announced that the transaction to acquire 51% of G&K
had been completed.
(l) Allotment of Stanley Shares -- 17 December 1996
Stanley announced that it had allotted 2.858 million Stanley Shares at
an issue price of 70 cents per share for cash for the purposes of the
acquisition of 51% OF G&K.
(m) Prospectus for renounceable rights issue -- 20 December 1996
Stanley announced that up to 17,554,962 Stanley Shares would be
issued at 50 cents per share under a one for three rights issue.
Funds raised will be used to fund the acquisition of G&K and for
continued growth of the company.
The Chairman of Stanley stated, in connection with the issue, that:
* the mining services industry continues to be a significant growth
industry, and Stanley is one of the leading companies in the
industry,
* demand for the company's services continues to be very strong,
* the acquisition of G&K provides the company with additional profit
in Australia which enhances its ability to pay fully franked
dividends.
* Stanley's dividend policy remains unchanged at 50% of after tax
profits, and
* the acquisition of G&K also provides an opportunity to rationalise
the company's operations in Kalgoorlie and Perth.
The prospectus also sets out details of the application of the
funds to be raised by the issue, the effect of the issue on
Stanley's balance sheet, and a forecast of consolidated operating
profit after tax for the year ended 30 June 1997 of $4,954,000.
Copies of relevant extracts from the prospectus are attached as
Annexure 4.
(n) Quarterly report -- Activities for December quarter -- 30 January 1997
Exploration results for the quarter ended 31 December 1996 are set out
in the quarterly report, a copy of which is attached as Annexure 5.
(o) Directorate -- 17 February 1997
Stanley announced that Mr. Michael Perrott had been appointed
executive chairman of Stanley. In consideration of Mr. Perrott
entering into a service agreement with the company for a two year
period, Stanley's directors resolved to issue 2 million options to
Mr. Perrott or his nominee on the following terms:
<PAGE>
(i) exercise price of 70 cents;
(ii) 1 million options exercisable on or after 1 February 1998
and prior to 31 January 2003; and
(iii) 1 million options exercisable on or after 1 February 1999
and prior to 31 January 2003.
The issue of these options is subject to the approval of shareholders
in general meeting.
Ross Stanley will commence activities as Executive Director
International Operations.
David Noort was appointed General Manager responsible for all company
matters. The board of directors resolved to allot Mr. Noort 500,000
options under the Stanley Mining Services Limited Employee Share
Option Plan, and a further 1,500,000 options will be allotted under
that plan to other key staff members.
(p) Audited half yearly report for the half year ended 31 December 1996 -
14 March 1997
Stanley announced that revenue was up 46.9% to $29,782,000, operating
profit before abnormal items and tax was up 10.6% to $3,543,000,
operating profit after tax but before outside equity interests was up
10.9% to $2,339,000, and operating profit and extraordinary items
after tax attributable to members of Stanley was down 10.7% to
$1,885,000. A copy of the report is attached as Annexure 6.
(q) Response to Stock Exchange enquiry -- 3 April 1997
Stanley announced that management and other initiatives had not had
the expected effect of redressing the adverse profit performance
that was disclosed in the company's Half Yearly Report for the
period to 31 December 1996. Stanley advised that, based on current
trading information, it was likely that the company would not meet
the profit forecast contained in its prospectus dated 20 December
1996, and that the profit performance for the full year ended 30 June
1997 was likely to be approximately 20% less than that disclosed in
the prospectus.
(r) Dividend declaration -- 29 April 1997
Stanley announced that the fully franked dividend of 5 cents per
Stanley Share had been declared. The record date for the dividend
will be 13 May 1997. The payment of and payment date for the
dividend are subject to a number of conditions. A copy of the
announcement is attached as Annexure 7.
(s) Quarterly report -- Activities for March quarter 1997 --
29 April 1997
Exploration results for the quarter ended 31 March 1997 are set out in
the quarterly report, a copy of which is attached as Annexure 8.
14. Agreements relating to transfer of Stanley Shares by Layne Australia
<PAGE>
There is no present agreement, arrangement or understanding whereby any
Stanley Shares acquired by Layne Australia pursuant to the Offers will or
may be transferred to any other person, except that Bank of America will
be granted rights over the Stanley Shares to be purchased by Layne
Australia for the purpose of securing repayment of the credit facility
described in clause 10, and in the exercise of those security rights Bank
of America may require Layne Australia to sell the Stanley Shares which it
holds.
15. No escalation agreement
There is no agreement, arrangement or understanding for the
acquisition of Stanley Shares by Layne Australia or by a person
associated with Layne Australia (within the meaning of Section 609 of
the Law) being an agreement, arrangement or understanding under which
the person or either or any of the persons from whom Stanley Shares have
been or are to be acquired or an associate of that person or of either
or any of those persons may, at any time after an Offer is sent, become
entitled to any benefit, whether by way of receiving an increased price
for those Stanley Shares or by payment of cash or otherwise, that is
related to, dependent upon, or calculated in any way by reference to the
consideration payable for Stanley Shares acquired after the agreement,
arrangement or understanding was entered into.
16. Layne Australia's present intentions about business, assets and
employees of Stanley
Subject to the matter specifically set out below and in clause 12 above,
Layne Australia presently:
(a) intends to continue the business of Stanley;
(b) does not intend to make any major changes to the business of Stanley,
including the deployment of the fixed assets of Stanley; and
(c) does not intend to change the employment of the present employees of
Stanley.
In the event that Layne Australia receives sufficient acceptances
and its Offers become unconditional, it is the present intention of
Layne Australia that the board of directors of Stanley should be
reconstituted such that a majority of the board of Stanley (including
the Chairman) would comprise nominees of Layne Australia. Layne
Australia expects that it will be necessary to seek the removal of most
of the current board in order to achieve this outcome.
Subject to the following paragraph, Layne Australia intends to
continue the business of Stanley in substantially the same manner as it
is currently conducted. However, if Layne Australia gains control of
Stanley then it will examine the exploration and mining activities which
Stanley currently carries on in West Africa with a view to determining
whether those activities are complementary to Stanley's core activities.
If they are determined to be non-core activities, then Layne Australia
will consider disposing of Stanley's interest in those activities on
appropriate terms and conditions.
If Layne Australia is able to proceed to compulsory acquisition in
accordance with Section 701 of the Law and acquires 100% of the Stanley
Shares, it will consider reorganising the business and operations of
Stanley. The reorganisation may be implemented by transferring the
assets and, if applicable, novating the liabilities of the group of
companies comprising Stanley and its subsidiaries ("Stanley Group")
amongst the group of companies comprising Layne Australia and its
subsidiaries. The transfer may be achieved by voluntary liquidation of
one or more Stanley Group companies. Although the employment of some
employees of Stanley Group companies may be transferred to another
company in the group, Layne Australia does not intend to make any
Stanley Group employees redundant or adversely affect their terms and
conditions of employment.
<PAGE>
Layne Australia has not yet made any firm decision as to whether
this or any other kind of reorganisation will b undertaken. Its
decision whether to do so will be influenced by further professional
advice regarding the business, financial, legal, stamp duty and tax
consequences of any reorganisation.
In the event that it becomes entitled to do so under the Law, Layne
Australia intends to proceed to compulsory acquisition of all Stanley
Shares under section 701 of the Law. In these circumstances, Layne
Australia will also seek to have Stanley delisted from the Official List
of Australian Stock Exchange Limited.
17. Other material information
Layne Australia obtained a letter from the Commission on 27 March
1997 indicating that the arrangement with Mr. Stanley described in
clause 12 above would not, in the Commission's view, infringe section
698 of the Law, and advising that the Commission will take no
enforcement action in relation to section 698 with respect to the
arrangement.
Layne Australia also obtained from the Commission on 30 April 1997
relief from section 698 of the Law to enable it to make the offers in
relation to the options referred to in clause 8, and relief from section
637(1)(a) and 657(1)(a) of the Law to allow this Statement and any
notice of variation of the Offers to be signed on behalf of a director
of Layne Australia by an agent authorised in writing.
Layne Australia understands that Stanley is currently involved in
discussions with Australian Stock Exchange Limited with a view to
amending the record date for the dividend that was declared on 29 April
(see clause 13(r) above) to a date with is 9 business days after the
date upon which Layne Australia declares its Offers to be free of
conditions or the Offers lapse, whichever is the earlier. If this or
any similar variation to the terms of payment of the dividend is made by
Stanley, then it is the intention of Layne Australia to postpone (to the
extent that it is entitled to do so under the Law) its registrations as
the holder of Stanley Shares for which acceptances have been received
until such time as the revised record date for the dividend has passed.
Except as contained elsewhere in this Statement, there is no other
information material to the making of a decision by a holder of Stanley
Shares whether or not to accept the Offers being information that is
known to Layne Australia and which has not previously been disclosed to
holders of Stanley Shares.
DATED 31 April 1997
SIGNED by Peter Donald Bunting, a director of Layne Australia on
his own behalf and on behalf of Andrew Bernard Schmitt, authorised to
sign this Statement pursuant to a resolution passed by the directors of
Layne Australia on 30 April 1997.
/s/ Peter Donald Bunting /s/ Peter Donald Bunting
--------------------------- --------------------------
Director Director (by duly authorized Agent)
<PAGE>
Exhibit 2-3
STANLEY MINING SERVICES LIMITED
(ACN 009 117 533)
PART B STATEMENT
in relation to the Takeover Offers
by Layne Christensen Australia Pty Ltd (ACN 078 167 610)
a wholly owned subsidiary of Layne Christensen Company
to acquire your Stanley Shares
YOUR DIRECTORS RECOMMEND
THAT YOU ACCEPT THE TAKEOVER OFFERS BY
LAYNE CHRISTENSEN AUSTRALIA PTY LTD
IN THE ABSENCE OF A HIGHER OFFER
Legal Advisers Financial Advisers
Huston Partners Troika Securities Pty Ltd.
This is an important document and requires your immediate attention. If you
are in any doubt as to the action you should take, please consult your legal,
financial or other professional adviser immediately.
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
SECTION PAGE
1. CHAIRMAN'S LETTER TO SHAREHOLDERS 2-3
2. DIRECTORS' RECOMMENDATIONS 4-5
3. STATUTORY INFORMATION 6-14
4. ANNEXURE "A" 15-17
5. ANNEXURE "B" 18-20
ENQUIRIES
If you have any questions regarding the Takeover Offer by Layne Christensen
Australia Pty Ltd., please contact:
Stanley Mining Services Limited
Telephone: (618) 9248 5022
Facsimile: (618) 9248 5044
<PAGE>
SECTION 1.--CHAIRMAN'S LETTER TO SHAREHOLDERS
9 May 1997
Dear Shareholder:
TAKEOVER OFFER BY LAYNE CHRISTENSEN AUSTRALIA PTY LTD FOR YOUR SHARES
This document is very important and should be read carefully. It contains
the Part B Statement by Stanley Mining Services Limited in response to the
Takeover Offer by Layne Christensen Australia Pty Ltd to purchase your Shares in
Stanley Mining Services Limited.
Your Directors unanimously recommend you accept this Takeover Offer in the
absence of a higher offer and advise that they intend to accept the Takeover
Offer in relation to their Shares.
TERMS OF THE OFFER AND SPECIAL DIVIDEND DECLARATION
Under the terms of the Takeover Offer, Shareholders will receive a cash
payment of 90 cents for each Share held by them in Stanley Mining Services
Limited, and will be entitled to receive a Special Dividend of 5 cents per Share
fully franked.
The Takeover Offer by Layne Christensen Australia Pty Ltd is subject to
various conditions, which are set out in the Part A Statement. Three of the main
conditions are:
1. approval of the Foreign Investment Review Board;
2. receipt of 90% acceptances; and
3. receipt of 100% acceptances by Optionholders.
On 29 April 1997, Stanley Mining Services Limited declared a Special
Dividend of 5 cents per share fully franked at the 36% tax rate. The Record Date
for the Special Dividend is 9 Business Days after either:
1. the Takeover Offer becomes unconditional (because the conditions have been
satisfied or waived); or
2. the Takeover Offer lapses (because the conditions have not been satisfied or
waived during the Offer Period);
whichever is the first to occur. Shareholders who are the registered holders
of Shares on or before the Record Date and who accept the Takeover Offer
will still receive the Special Dividend.
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
STANLEY MINING SERVICES LIMITED
The Company has experienced rapid growth since its listing on the
Australian Stock Exchange two years ago with an increase in its market
capitalisation from that at listing of $14.8 million to a current value of
$63 million plus the aggregate value of the Special Dividend of $3.5 million.
This has been a pleasing result achieved in a period of just over two years.
The Company has undertaken two major fundraisings over the past 12 months
which on each occasion required the Directors to carry out an assessment of the
value of the Company especially in comparison to its industry competitors. This
information has been useful in helping your Directors assess the current value
of the Company including the value relative to other competitors within the
mining services sector. Your Directors believe that this has provided them with
sufficient up to date information to enable them to make the unanimous decision
to recommend acceptance of the Takeover offer which they have made in this Part
B Statement.
WHY YOU SHOULD ACCEPT THE TAKEOVER OFFER
The Directors believe the Takeover Offer is attractive to Shareholders for
the following reasons:
1. The Takeover Offer is worth a total of 95 cents per Share (including the
Special Dividend) plus the additional value of franking credits attached
to the Special Dividend.
2. The cash offer gives Shareholders certainty as to the value of the
consideration being received.
3. The total value offered of 95 cents (including the Special Dividend)
represents a significant 36% premium to the price of Stanley Shares on 2
April 1997, being three trading days prior to the announcement of the bid by
Layne Christensen Australia Pty Ltd on 8 April 1997.
4. The total value offered of 95 cents (including the Special Dividend)
represents a price earnings multiple estimated at 13 times after tax
earnings per Share for the 1996/1997 financial year.
Nevertheless your Directors urge you to read this Part B Statement
carefully, before deciding whether to accept the Layne Christensen Company
Takeover Offer.
3
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
Shareholders are referred to the Part A Statement and Offer Document issued
by Layne Christensen Australia Pty Ltd which sets out the date on which the
Offer Period closes (unless extended). If you wish to follow the Directors
Recommendation and accept the Takeover Offer then you should complete the
Acceptance Form accompanying the Offer Document and return it to the address
shown on that form as soon as possible and certainly no later than the close of
the Offer Period.
Yours faithfully
/s/ Michael Perrott
MICHAEL PERROTT
EXECUTIVE CHAIRMAN
4
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
SECTION 2.--DIRECTORS' RECOMMENDATIONS
1. Your Choice as a Stanley Shareholder
As a Shareholder in Stanley Mining Services Limited, fundamentally you have
three choices as to the course of action which you can adopt in response to the
Layne Christensen Company Takeover Offer namely:
(1) You can accept the Takeover Offer in which case you will receive 90
cents for each of your Stanley Shares. You will also be entitled to receive
the Special Dividend announced by Stanley Mining Services Limited on 29
April 1997 of 5 cents per Share fully franked; or
(2) You can sell your Shares on the stock market in which case you will
receive the market price of Stanley Shares on the Australian Stock Exchange
at the time your Shares are sold. You will not receive the consideration
being offered under the Takeover Offer. If the Takeover Offer is increased,
you will not share in any increased consideration. If you are not the
registered holder of Shares at the Record Date you will not receive the
Special Dividend of 5 cents per Share fully franked; or
(3) You can retain your Stanley Shares and you will retain your
entitlement to receive payment of the Special Dividend of 5 cents per Share
fully franked. If the Takeover Offer reaches the compulsory acquisition
threshold. Layne Christensen Australia may elect to compulsorily acquire
your Shares under the provisions of the Corporations Law. You will then
receive the cash consideration for the Takeover Offer.
2. Directors Recommendations to Shareholders
Each of the Directors recommends THAT IN THE ABSENCE OF A HIGHER OFFER YOU
ACCEPT THE TAKEOVER OFFERS BY LAYNE CHRISTENSEN AUSTRALIA for your Shares in
Stanley Mining Services Limited. The reasons for this recommendation are as
follows:
(1) The cash consideration offered by Layne Christensen Australia is 90
cents for each Stanley Share. In addition, Shareholders who are the
registered holders of Shares on the Record Date will be entitled to receive
the Special Dividend of 5 cents per Share fully franked.
(2) On 29 April 1997, Stanley Mining Services Limited declared a dividend of 5
cents per Share, fully franked at the 36% tax rate. The terms of the Special
Dividend are set out in the two announcements made by the Company on 29
April
5
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
1997 and 1 May 1997. A copy of each of these announcements is annexed
to this Part B Statement as Annexure "A" and Annexure "B" respectively.
(3) The Takeover Offer thus provides Shareholders with a total value of 95 cents
per Share plus the additional value of franking credits attached to the
Special Dividend. If full value is attributed to the franking credits
attached to the Special Dividend, the value of the Takeover Offer would
be 97.8 cents per Share.
(4) The total value offered of 95 cents (including the Special Dividend)
represents a significant 36% premium above the price of Stanley Shares as
traded on the Australian Stock Exchange on 2 April 1997 being three trading
days prior to the announcement of the Takeover Offer by Layne Christensen
Australia.
(5) The total value offered of 95 cents (including the Special Dividend)
represents a premium of 40% above the weighted average price of
Stanley Shares on the Australian Stock Exchange over the period of 3 months
immediately preceding the Takeover Offer by Layne Christensen Australia.
(6) The total value of the Takeover Offer represents a price earnings multiple
of 13 times Stanley Mining Services Limited forecast 1996/1997 after tax
earnings per Share.
(7) The cash consideration provides Shareholders with certainty as to the value
of their Shares.
(8) For all of the reasons set out above, the Directors are of the opinion
that the Takeover Offer represents good value to Stanley Shareholders
for their Shares.
COMPARISON OF THE TAKEOVER OFFER
WITH HISTORICAL STANLEY SHARE PRICE
[GRAPH SHOWING PER SHARE PRICE MARCH 1995 - 1997]
3. Directors Recommendations to Optionholders
The Directors recommend that Optionholders accept the offers made to
Optionholders for the same reasons as those set out at paragraph 2 above.
6
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
SECTION 3.--STATUTORY INFORMATION
This Part B Statement is made by Stanley Mining Services Limited pursuant to
Sections 647(1) and Part B of Section 750 of the Corporations Law in response to
the Part A Statement of Layne Christensen Australia dated 30 April 1997 and
served on Stanley Mining Services Limited on 5 May 1997.
1. Definitions and Interpretation
In this Part B Statement unless the context otherwise requires, the
following words and expressions have the following meanings:
(1) "$" means Australian Dollars unless specified otherwise;
(2) "Annexure" means an annexure to this Part B Statement;
(3) "Associate" has the same meaning as that contained in Division 2 of
Part 1.2 of the Corporations Law;
(4) "Australian Securities Commission" means Australian Securities
Commission as established under Section 7 of the Australian
Securities Commission Act 1990;
(5) "Australian Stock Exchange" means Australian Stock Exchange Limited
(ACN 008 624 691);
(6) "Business Day" means a day when the Australian Stock Exchange is
open for business in Perth, Western Australia;
(7) "Company" or "Stanley Mining Services Limited" means Stanley Mining
Services Limited (ACN 009 117 533) of 28-32 Irvine Drive, Malaga in
Western Australia and where appropriate includes its subsidiaries;
(8) "Corporations Law" means the Corporations Law of Western Australia
as referred to in Part 3 of the Corporations (Western Australia)
Act;
(9) "Directors" or "Stanley Directors" means the Directors of Stanley
Mining Services Limited from time to time;
(10) "Employee Options" means the options issued under the Company's
Employee Share Option Plan;
(11) "Glindemann & Kitching" means Glindemann & Kitching Pty Ltd. (ACN
003 204 448) of 7 Iraking Avenue, Moorebank in New South Wales;
7
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
(12) "Layne Christensen Company" means Layne Christensen Company of 1900
Shawnee Mission Parkway, Mission Woods, Kansas 66205 in the United
States of America;
(13) "Layne Christensen Australia" means Layne Christensen Australia Pty
Ltd. (ACN 078 167 610) of Level 26, 50 Bridge Street, Sydney in
New South Wales, a wholly owned subsidiary of Layne Christensen
Company;
(14) "MDP Options" means the options issued to Michael Delaney Perrott
on 27 March 1997 as approved b Stanley Shareholders on 27 March
1997;
(15) "Offer Period" means the term of the Takeover Offer and any
extension thereof;
(16) "Option" means an Employee Option and an MDP Option or any of them;
(17) "Optionholder" means the registered holder of an Option in the
Company;
(18) "Part A Statement" means the Part A Statement of Layne Christensen
Australia dated 30 April 1997 served on Stanley Mining Services
Limited on 5 May 1997;
(19) "Part B Statement" means this Part B Statement and includes any
Annexure;
(20) "Section" means a section of this Part B Statement;
(21) "Share" or "Stanley Share" means fully paid ordinary share with a
par value of 20 cents in the capital of Stanley Mining Services
Limited;
(22) "Shareholder" or "Stanley Shareholder" means the registered holder
of a Share in the Company.
(23) "Special Dividend" means the 5 cent per Share fully franked
dividend declared by the Company in its announcement to the
Australian Stock Exchange on 29 April 1997 and amended by the
announcement made on 1 May 1997 copies of which are contained in
Annexures "A" and "B" to this Part B Statement;
(24) "Takeover Offer/s" means the takeover offers made by Layne
Christensen Australia to acquire Shares from the Stanley
Shareholders pursuant to the Part A Statement;
(25) in this Part B Statement unless the context otherwise requires the
following rules of interpretation apply:
(a) the singular includes the plural and vice versa;
(b) the use of any gender includes each gender;
8
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
(c) any reference to a person includes a corporation;
(d) references to Sections or pages by number are references to the
numbered Sections and pages of this Part B Statement;
(e) references to legislation are references to that legislation as
amended from time to time; and
(f) the headings and sub-headings of this Part B Statement do not
affect the construction of the substantive provisions.
2. Lodgement with Australian Securities Commission
A copy of this Part B Statement has been lodged with the Australian
Securities Commission. Neither the Australian Securities Commission nor its
officers take any responsibility for the contents of this Part B Statement.
3. Directors of Stanley Mining Services Limited
At the date of this Part B Statement the Directors of Stanley Mining
Services are as follows:
(1) Michael Delaney Perrott;
(2) Ross Frances Stanley;
(3) Nick Giorgetta;
(4) Peter Ernest Huston;
(5) Terence Ross Kestel; and
(6) Walter Unger.
4. Recommendations of the Directors of Stanley Mining Services Limited
Each of the Directors of Stanley Mining Services Limited desires to make and
considers himself justified in making a recommendation in relation to the
Takeover Offer.
Each of the Directors recommends that Shareholders accept the Takeover
Offer. The reasons for the recommendations are set out in Section 2 of this Part
B Statement.
5. Directors' Entitlement to Marketable Securities of Stanley Mining
Services Limited
9
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
The number, description and amount of marketable securities of Stanley
Mining Services Limited to which each Director of Stanley Mining Services
Limited is entitled are set out in the following table:
<TABLE>
<CAPTION>
REGISTERED NUMBER OF NUMBER OF
NAME OF DIRECTOR HOLDER SHARES OPTIONS
- ------------------------- ------------------- ----------- ----------
<S> <C> <C> <C>
Michael Delaney Perrott Contours Pty Ltd. 1,209,472 2,000,000
(ACN 009 002 975) MDP Options
Michael Perrott 7,338
Rhonda Perrott 7,338
- -------------------------------------------------------------------------------
Ross Francis Stanley Tazga Pty Ltd. 19,128,509 Nil
(ACN 008 952 681)
Ross Stanley 712,411
Sierra Bay Pty Ltd. 30,000
(ACN 009 420 455)
- -------------------------------------------------------------------------------
Nick Giorgetta Rollason Pty Ltd. 417,378 Nil
(ACN 009 178 858)
- -------------------------------------------------------------------------------
Peter Ernest Huston Mandalup 455,018 Nil
Investments Pty Ltd.
(ACN 009 212 855)
Peter Huston 7,338
Joanne Huston 7,338
- -------------------------------------------------------------------------------
Terence Ross Kestel Aralad Management 109,296 Nil
Pty Ltd.
(ACN 008 890 113)
- -------------------------------------------------------------------------------
Walter Unger Zeiman Pty Ltd. 1,905,333 Nil
(ACN 009 211 607)
</TABLE>
- - Contours Pty Ltd.--Mr. Perrott has power to vote in respect of not less than
20% of the voting shares in Contours Pty Ltd. and is deemed by virtue of
Division 5 of Part 1.2 of the Corporations Law to have a relevant interest in
(and therefore to be entitled to) the Stanley Shares held by Contours Pty Ltd.
- - Rhonda Perrott--Mr. Perrott is deemed to have a relevant interest in (and
therefore is deemed to be entitled to) the Stanley Shares held by his wife
Rhonda Perrott.
- - Mandalup Investments Pty Ltd.-- Mr. Huston has power to vote in respect of
not less than 20% of the voting shares in Mandalup Investments Pty Ltd. and
is deemed by virtue of Division 5 of Part 1.2 of the Corporations Law to have
a relevant interest
10
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
in (and therefore to be entitled to) the Stanley Shares held by Mandalup
Investments Pty Ltd.
- - Joanne Huston--Mr. Huston is deemed to have a relevant interest in (and
therefore is deemed to be entitled to) the Stanley Shares held by his wife
Joanne Huston.
- - Tazga Pty Ltd.--Mr. Stanley has power to vote in respect of not less than 20%
of the voting shares in Tazga Pty Ltd. and is deemed by virtue of Division 5
of Part 1.2 of the Corporations Law to have a relevant interest in (and
therefore to be entitled to) the Stanley Shares held by Tazga Pty Ltd.
- - Sierra Bay Pty Ltd.--Mr. Stanley has power to vote in respect of not less
than 20% of the voting shares in Rollason Pty Ltd. and is deemed by virtue of
Division 5 of Part 1.2 of the Corporations Law to have a relevant interest in
(and therefore to be entitled to) the Stanley Shares held by Rollason Pty Ltd.
- - Rollason Pty Ltd.--Mr. Giorgetta has power to vote in respect of not less
than 20% of the voting shares in Rollason Pty Ltd. and is deemed by virtue of
Division 5 of Part 1.2 of the Corporations Law to have a relevant interest in
(and therefore to be entitled to) the Stanley Shares held by Rollason Pty Ltd.
- - Aralad Management Pty Ltd.--Mr. Kestel has power to vote in respect of not
less than 20% of the voting shares in Aralad Management Pty Ltd. and is
deemed by virtue of Division 5 of Part 1.2 of the Corporations Law to have a
relevant interest in (and therefore to be entitled to) the Stanley Shares
held by Aralad Management Pty Ltd.
- - Zelman Pty Ltd.--Mr. Unger has power to vote in respect of not less than 20%
of the voting shares in Zelman Pty Ltd. and is deemed by virtue of Division 5
of Part 1.2 of the Corporations Law to have a relevant interest in (and
therefore to be entitled to) the Stanley Shares held by Zelman Pty Ltd.
6. Intentions of the Directors of Stanley Mining Services Limited
The Directors of Stanley Mining Services Limited are required to state
whether they intend to accept or not accept the Takeover Offer by Layne
Christensen Australia in respect of Shares and/or Options held by them or on
their behalf or whether they have not decided whether to accept the Takeover
Offer.
Each Director of Stanley Mining Services Limited intends to accept the
Takeover Offer by Layne Christensen Australia.
11
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
7. Authorisation of Part B Statement
No Director of Stanley Mining Services Limited voted against the resolution
authorising this Part B Statement.
8. Directors' Entitlement to Marketable Securities of Layne Christensen
Australia
At the date of this Part B Statement, no Director of Stanley Mining Services
Limited is entitled to any Shares in or other marketable securities of Layne
Christensen Australia or Layne Christensen Company.
9. Dealings in shares in Layne Christensen Australia by Stanley Mining
Services Limited or Associates of Stanley Mining Services Limited
There have been no acquisitions or disposals of Shares in Layne Christensen
Australia by Stanley Mining Service Limited or by an Associate of Stanley Mining
Services Limited during the four months ending on the day immediately before the
Part A Statement was served on Stanley Mining Services Limited.
10. Dealings in Shares in Stanley Mining Services Limited by Associates of
Stanley Mining Services Limited
There have been no acquisitions or disposals of Shares in Stanley Mining
Services Limited by an Associate of Stanley Mining Services Limited during the
four months ending on the day before the Part A Statement was served on Stanley
Mining Services Limited except as set out in the following table:
<TABLE>
<CAPTION>
NAME DATE BUY/SELL NUMBER PRICE TRANSACTION
- --------------------------------- --------- ------------- ---------- ----------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Contours Pty Ltd. 21/02/97 Buy 302,368 0.50 rights issue*
Michael Perrott 21/02/97 Buy 1,834 0.50 rights issue*
Rhonda Perrott 21/02/97 Buy 1,834 0.50 rights issue*
Tazga Pty Ltd. 18/03/97 Buy 7,777,831 0.61 purchase from Ross Stanley
Ross Stanley 18/03/97 Sold 7,777,831 0.61 sale to Tazga Pty Ltd.
</TABLE>
12
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME DATE BUY/SELL NUMBER PRICE TRANSACTION
- --------------------------------- --------- ------------- ---------- ----------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Sierra Bay Pty Ltd. 09/01/97 Buy 20,000 on market on market on market on
14/02/97 Sold 8,292 market on market on market on
17/02/97 Sold 91,708 market on market on market on
24/02/97 Sold 82,830 market on market on market on
25/02/97 Sold 43,767 market
26/02/97 Buy 2,706
03/03/97 Buy 97,294
19/03/97 Buy 18,666
20/03/97 Buy 31,334
20/03/97 Buy 63,333
21/03/97 Buy 36,667
25/03/97 Buy 6,500
21/04/97 Sold 256,500
Rollason Pty Ltd. 3-7/2/97 Sold 500,000 0.66 on market
21/02/97 Buy 229,344 0.50 rights issue*
Mandalup Investments Pty Ltd. 21/02/97 Buy 113,754 0.50 rights issue*
Peter Huston 21/02/97 Buy 1,834 0.50 rights issue*
Joanne Huston 21/02/97 Buy 1,834 0.50 rights issue*
Aralad Management Pty. Ltd. 21/02/97 Buy 27,323 0.50 rights issue*
Zeiman Pty Ltd. 21/02/97 Buy 476,333 0.50 rights issue*
</TABLE>
- - 1:3 Rights issue by way of Prospectus dated 20 December 1996.
- - Contours Pty Ltd.--is a company which is associated with Michael Perrott as
referred to in paragraph 5 of this Part B Statement.
- - Tazga Pty Ltd.--is a company which is associated with Ross Stanley as
referred to in paragraph 5 of this Part B Statement.
- - Sierra Bay Pty Ltd.--is a company which is associated with Ross Stanley as
referenced to in paragraph 5 of this Part B Statement.
- - Rollason Pty Ltd.--is a company which is associated with Nick Giorgetta as
referred to in paragraph 5 of this Part B Statement.
13
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
- - Mandalup Investments Pty Ltd.--is a company which is associated
with Peter Huston as referred to in paragraph 5 of this Part B Statement.
- - Aralad Management Pty Ltd.--is a company which is associated with Ross Kestel
as referred to in paragraph 5 of this Part B Statement.
- - Zeiman Pty Ltd.--is a company which is associated with Walter Unger as
referred to in paragraph 5 of this Part B Statement.
11. Prescribed Benefits to Officers of Stanley Mining Services Limited
(1) No prescribed benefit (not being an excluded benefit) will or may be
given to a person in connection with the retirement of a person from a
prescribed office in relation to Stanley Mining Services Limited.
(2) No prescribed benefit will or may be given to a prescribed person in
connection with the transfer of the whole or any part of the undertaking or
property of Stanley Mining Services Limited.
12. Agreements with Directors of Stanley Mining Services Limited
There is no agreement or arrangement made between any Stanley Director
and any other person in connection with or conditional upon the outcome of
the Takeover Offer except that on 7 April 1997 Mr. Ross Stanley entered into
an agreement with Layne Christensen Company which is conditional upon each of
the conditions to which the Takeover Offers are subject being either
satisfied or waived by Layne Christensen Australia by the end of the Offer
Period. The terms and conditions of the agreement are summarised as follows:
(1) Layne Christensen Company will cause Stanley Mining Services Limited
to terminate Mr. Stanley's current employment with Stanley Mining Services
Limited, and to re-employ him on the terms of the agreement;
(2) Mr. Stanley's terms and conditions of employment will broadly remain
the same as those he currently enjoys, except that the new employment will
have a three year term subject to specified rights of early termination;
(3) Mr. Stanley will have an obligation not to compete with Stanley
Mining Services Limited for a period of up to three years following the
termination of his employment;
(4) Mr. Stanley will be required to subscribe for US$1,500,000 worth of
shares of Layne Christensen Company's common stock at the prevailing market
price at the time of subscription. The shares will be issued subject to a
restriction on the transfer of the shares for a period of three years; and
14
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
(5) Mr. Stanley will be granted free options by Layne Christensen
Company to subscribe for shares of Layne Christensen Company's common stock
at an exercise price equal to the closing market price for Layne Christensen
Company's common stock on the trading day immediately before the public
announcement of Layne Christensen Australia's proposed takeover for the
Stanley Shares. The number of shares that may be acquired on exercise of the
options will be three times the number of shares subscribed for in accordance
with paragraph 12(4) above. Two thirds of the options will become exercisable
two years after their date of grant, with the remaining third becoming
exercisable after a further year. The options will be non-transferable and
will expire 10 years after their date of issue if not exercised.
There is no obligation on Mr. Stanley to accept, or to cause any third
party to accept, Layne Christensen Australia's Takeover Offer.
13. Interests of Directors of Stanley Mining Services Limited in any
contract with Layne Christensen Australia
None of the Stanley Directors has any interest in any contract entered into
by Layne Christensen Australia as referred to in paragraph 12 above.
14. Material Changes in the Financial Position of Stanley Mining Services
Limited
To the knowledge of the Stanley Directors, the financial position of
Stanley Mining Services Limited has not materially changed since 30 June 1996
(the date of the last balance sheet laid before the members of Stanley Mining
Services Limited in general meeting on 15 November 1996 or despatched to
Shareholders in accordance with Section 315 of the Corporations Law) other
than as follows:
(1) as set forth in the Part A Statement;
(2) the Company has at the date of this Part B Statement repaid all debts
to the Bank of New Zealand Limited or is not drawing on any facilities
provided by that Bank other than:
(a) currency hedging loans of approximately US$1,000,000; and
(b) Swedish Kroner Bill Commitment of approximately AUD$390,000;
(3) on 30 September 1997 Glindemann & Kitching must complete the buy-back
of the remaining 49% minority shareholding in Glindemann & Kitching for
cash at a cost estimated by the Directors of Stanley Mining Services
Limited at the date of this Part B Statement of approximately $8,100,000.
15
<PAGE>
STANLEY MINING SERVICES LIMITED
- ------------------------------------------------------------------------------
15. Other Information Relevant to the making of decision by a Stanley
Shareholder
There is no other information material to the making of a decision by an
offeree whether or not to accept the Takeover Offer (being information that
is known to the Directors of Stanley Mining Services Limited that has not
been previously disclosed by Stanley Shareholders) except as follows:
(1) on 3 April 1997 Stanley Mining Services Limited announced via the
Australian Stock Exchange that management and other initiatives had not had
the expected effected of redressing the adverse profit performance that was
disclosed in the Company's Half Yearly Report for the period to 31 December
1996. Stanley Mining Services Limited advised that, based on current trading
information, it was likely that the Company would not meet the profit
forecast contained in its prospectus dated 20 December 1996, and that the
profit performance for the full year ended 30 June 1997 was likely to be
approximately 20% less than that disclosed in the prospectus;
(2) the Special Dividend of 5 cents per Share fully franked announced by
the Company via the Australian Stock Exchange on 29 April 1997 and amended by
the announcement made on 1 May 1997 copies of which are contained in Annexure
"A" and "B" of this Part B Statement; and
(3) under the terms of the acquisition of Glindemann & Kitching the 49%
minority shareholders of that company retain their entitlement to receive a
49% share of any dividend declared by Glinderman & Kitching for the financial
year ending 30 June 1997.
Signed for and on behalf of Stanley Mining Services Limited by two Directors
of Stanley Mining Services Limited authorised to do so pursuant to a resolution
of the Directors dated 6 May 1997.
DATED: 9 May 1997
/s/ Michael Delaney Perrott /s/ Terrence Ross Kestel
- --------------------------- ------------------------
16
<PAGE>
EXHIBIT 5.1
June 18, 1997
Layne Christensen Company
1900 Shawnee Mission Parkway
Mission Woods, Kansas 66205
Ladies and Gentlemen:
This opinion is rendered in connection with the filing by Layne Christensen
Company, a Delaware corporation (the "Company"), of its Registration Statement
on Form S-2 (the "Registration Statement") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), with
respect to the offer and sale of up to 5,750,000 shares (the "Offering") of the
Company's Common Stock, par value of $0.01 per share (the "Common Stock"), and
any subsequent registration statement the Company may hereafter file with the
Commission pursuant to Rule 462(b) under the Act to register additional shares
of Common Stock in connection with the Offering (collectively, the "Shares"). Up
to 3,300,000 Shares will be sold by the Company's stockholders and the remaining
Shares will be sold by the Company. We have acted as counsel to the Company in
connection with the preparation of the Registration Statement.
In our capacity as such counsel, we are familiar with the proceedings taken
and to be taken by the Company in connection with the authorization, issuance
and sale of the Common Stock. In addition, we have made such legal and factual
examinations and inquiries, including an examination of originals (or copies
certified or otherwise identified to our satisfaction as being true
reproductions of originals) of such documents, corporate records and other
instruments, and have obtained from officers of the Company and agents thereof
such certificates and other representations and assurances, as we have deemed
necessary or appropriate for the purposes of this opinion.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the legal capacity
of natural persons executing such documents and the authenticity and conformity
to original documents of documents submitted to us as certified or photostatic
copies.
Based upon the foregoing and the proceedings to be taken by the Company as
referred to above, we are of the opinion that (i) the Shares to be sold by the
Company have been duly authorized, and upon issuance, delivery and payment
therefor in the manner described in the Registration Statement, such Shares will
be validly issued, fully paid and nonassessable and (ii) the Shares to be sold
by the Selling Stockholders are duly authorized, validly issued, fully paid and
non-assessable.
Our opinion herein is limited to the effect on the subject transaction of
United States Federal law and the General Corporation Law of the State of
Delaware. We assume no responsibility regarding the applicability to, or the
effect thereon, of the laws of any other jurisdiction.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters" of the prospectus included therein, and to the incorporation by
reference of this opinion and consent into a registration statement filed with
the Commission pursuant to Rule 462(b) under the Act relating to the Offering.
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE>
EXHIBIT 11.1
LAYNE CHRISTENSEN COMPANY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, YEARS ENDED JANUARY 31,
-------------------------- ----------------------------------------
1997 1996 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
COMPUTATION OF PER SHARE EARNINGS (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income................................. $ 1,683 $ 1,103 $ 8,017 $ 4,587 $ 2,960
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average common shares
outstanding.............................. 8,872,000 8,845,000 8,865,000 7,451,000 7,301,000
Dilutive stock options..................... 362,000 67,000 281,000 66,000 47,000
------------ ------------ ------------ ------------ ------------
Primary weighted average common shares
outstanding.............................. 9,234,000 8,912,000 9,146,000 7,517,000 7,348,000
Additional dilutive stock options (a)...... -- 185,000 58,000 135,000 9,000
------------ ------------ ------------ ------------ ------------
Fully diluted weighted average common and
equivalent shares outstanding............ 9,234,000 9,097,000 9,204,000 7,652,000 7,357,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Per share:
Net income--primary...................... $ .18 $ .12 $ .88 $ .61 $ .40
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income--fully dilutive............... $ .18 $ .12 $ .87 $ .60 $ .40
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
- ------------------------
(a) The effects of additional dilutive stock options on primary per share
earnings are less than two percent.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Layne Christensen
Company on Form S-2 of our report dated March 7, 1997, included and incorporated
by reference in the Annual Report on Form 10-K of Layne Christensen Company for
the year ended January 31, 1997, and to the use of our report dated March 7,
1997 (May 20, 1997 as to Note 14), appearing in this Prospectus, which is part
of this Registration Statement. We also consent to the reference to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
June 17, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Boards of Directors
Stanley Mining Services Limited and
Glindemann & Kitching Pty Ltd:
We consent to the inclusion of our reports dated 17 June, 1997 with respect
to the consolidated financial statements of Stanley Mining Services Limited and
its controlled entities ("Stanley") as of June 30, 1996 and 1995 and for each of
the years in the two-year period ended June 30, 1996 and with respect to the
financial statements of Glindemann & Kitching Pty Ltd ("G&K") as of for the year
ended June 30, 1996, which reports appear in the Form S-2 Registration Statement
and Prospectus of Layne Christensen Company dated 18 June, 1997 and to the
reference to our firm under the heading "Experts" in the prospectus.
Our reports dated 17 June, 1997 contain explanatory paragraphs that state
that accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles in the United States. The
application of United States generally accepted accounting principles would have
affected results of operations for the years ended June 30, 1996 and 1995 and
shareholders' equity as of June 30, 1996 and 1995, to the extent summarized in
Note 33 to the consolidated financial statements of Stanley and the results of
operations for the years ended June 30, 1996 and shareholders' equity as of June
30, 1996, to the extent summarized Note 19 to the financial statements of G&K.
KPMG
Perth, Western Australia
June 17, 1997
