2008 Annual Report
www.boartlongyear.com
cccc
T A B L E O F C O N T E N T S
Letter from the Chairman
Letter from the CEO
Operations Review
Focus on Safety, Training and Development
Board of Directors
Executive Leadership Team
Financial Report
Directors’ Report
Independent Auditor’s Report
Directors’ Declaration
Financial Statements
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4
6
8
10
11
13
16
41
43
44
Supplementary Information
121
1
A L E T T E R F R O M T H E C H A I R M A N
“IN A YEAR OF GENERALLY FAVOURABLE
Dear Investors,
CONDITIONS FOR THE WORLDWIDE
MINING AND RESOURCE INDUSTRIES,
BOART LONGYEAR PERFORMED WELL
IN 2008. OUR NET PROFIT AFTER TAX
WAS US$157 MILLION. THIS RESULT WAS
ACHIEVED ON REVENUES OF US$1,839
MILLION, AN INCREASE OF 17 PERCENT
OVER 2007 REVENUES OF US$1,576
MILLION.”
I am pleased to present the Company’s second Annual Report since
our ASX listing in April 2007.
In a year of generally favourable conditions for the worldwide mining
and resource industries, Boart Longyear performed well in 2008. Our
net profit after tax was US$157 million. This result was achieved on
revenues of US$1,839 million, an increase of 17 percent over 2007
revenues of US$1,576 million. Our earnings before net interest,
taxes, depreciation and amortization (EBITDA) in 2008, including
restructuring and related impairment charges, were US$356 million,
20 percent above our 2007 EBITDA of US$297 million.
The Company made a number of strategic acquisitions in 2008.
These included Britton Brothers Diamond Drilling in February,
strengthening our market share in mineral exploration and energy
in western Canada and Mexico; Aqua Drilling in May, providing an
entry into the environmental and water drilling business in Australia;
and Eklund Drilling Company in September, which strengthened our
position in reverse circulation drilling in the Western USA. We also
continued to divest non-core assets.
As all investors will be aware, the global financial crisis and economic
slowdowns in both developed and developing nations dramatically
changed the outlook for resource industries in the latter part of
2008. The outlook for 2009 is one of significantly lower prices
for most commodities and reduced new investment in resource
projects. These factors create considerable uncertainty in many
markets in which Boart Longyear competes. Needless to say, these
developments have severely impacted the Company’s share price,
as they have for many businesses that service the resource sector.
As a result, as we have progressively advised shareholders over
recent months, we expect our revenues, margins and profit in 2009
to be substantially lower than in 2008. Both our Drilling Services
and Products divisions will be negatively impacted, but some of
our businesses, including those related to energy, underground,
environmental and infrastructure drilling are expected to remain
relatively stable in 2009.
In anticipation of this downturn, management has taken a number of
decisive actions to reduce our manufacturing capacity, to resize our
headcount, to lower business overheads and to reduce operating
costs and capital expenditure. This includes senior management and
directors agreeing to a 10 percent reduction in salary and fees.
In light of the importance of cash conservation in the current
environment, the Board has decided not to pay a final dividend
for 2008. We believe that reduction in our outstanding debt is a
more prudent use of our free cash flow at this time. The Board will
2
“LET ME CLOSE BY THANKING OUR
PEOPLE AROUND THE WORLD FOR
THEIR HARD WORK, DEDICATION AND
ACHIEVEMENTS IN THE YEAR JUST PAST.
THE CHALLENGES IN 2009 WILL BE MANY,
BUT THE BOARD HAS GREAT CONFIDENCE
THAT OUR EXECUTIVE TEAM AND OUR
WORKFORCE WILL RISE TO THESE
CHALLENGES IN THE YEAR AHEAD.”
review the Company’s dividend policy on a regular basis with the
expectation that, as business conditions improve, it will again be
appropriate to distribute a portion of our earnings to shareholders.
Our major priority in the year ahead will be to conserve cash and
reduce our total net borrowings, which stood at US$764 million at
31 December 2008, up from US$569 million at 31 December 2007.
The increase in debt levels resulted from our acquisitions and rig
fleet expansion programs in 2008. By reducing working capital and
capital expenditures, and by careful management of operating cash
flows, the Company plans to reduce its level of borrowings.
Turning to management and board matters, I would like to
acknowledge the leadership of our former Chief Executive Officer,
Paul Brunner, who retired on 31 December after six years as the
Company’s CEO. Paul led the transformation of Boart Longyear
and its preparation for public listing with skill and distinction. We
welcomed our Chief Executive Officer, Craig Kipp, on 1 January
2009, and our new Chief Financial Officer, Joe Ragan, who joined us
last September.
We also thank Geoff Handley for his contribution as an inaugural
director of the listed company. Geoff retired from the Board on 15
November 2008. We welcome David Grzelak who became a director
on 13 November 2008, and we look forward to his contribution.
Let me close by thanking our people around the world for their
hard work, dedication and achievements in the year just past. The
challenges in 2009 will be many, but the Board has great confidence
that our executive team and our workforce will rise to these
challenges in the year ahead.
GRAHAM BRADLEY
CHAIRMAN
3
A L E T T E R F R O M T H E C H I E F E X E C U T I V E O F F I C E R
It is a pleasure as CEO to deliver my first annual report to Boart Longyear’s shareholders.
2008 was a year of extreme contrasts. The first three quarters were characterized by growth, expanding capacity and
completing a number of strategic acquisitions. In the fourth quarter, the world changed. These changes were dramatic
and rapid, but our leadership team responded decisively. We immediately changed our strategy from one of growth and
expansion to one focusing on cost control and cash generation.
In spite of this rapid market change, Boart Longyear still had a record 2008 performance in both revenue and earnings.
The credit goes to the hard work and dedication of over 7,000 skilled drillers, engineers, salesmen, and our experienced
management team located around the globe.
“IN THE FOURTH QUARTER, THE
WORLD CHANGED. THESE CHANGES
WERE DRAMATIC AND RAPID, BUT
OUR LEADERSHIP TEAM RESPONDED
DECISIVELY. WE IMMEDIATELY
CHANGED OUR STRATEGY FROM ONE
Our diversity played a big part in our successful 2008. Our Drilling Service
and Products divisions are truly global. We have operations in more than 40
countries, and we generate sales in over 100 countries. Yet, no more than
25 percent of our revenue is from any major market. As you can see, our
world-class drillers and support staff carry many passports. Our customer
base is also diverse. We support both exploration and production drilling in
many markets, including precious metals, base metals, uranium, energy and
environmental and construction markets—all on a global scale.
OF GROWTH AND EXPANSION TO ONE
CASH GENERATION.”
FOCUSING ON COST CONTROL AND
In spite of our record-setting financial performance, our stock price fell sharply
in the second half of the year. We are disappointed by this, but our leadership
team is committed to taking the necessary actions to restore shareholder
confidence. We will continue to build the Boart Longyear franchise for the
long term. The critical issue confronting the Company in the near term is the refinancing of our debt by April 2010. This
refinancing is the top priority for the leadership team, and I am confident that this will be resolved in 2009.
The unprecedented and ongoing global credit crisis has resulted in lower economic growth and has raised questions about
future commodity prices and exploration spending. We are prepared for a difficult operating environment in 2009. We are
taking all necessary actions on cost control, working capital, capital spending and cash generation.
Fortunately, for the past several years, we have taken steps to variabilize the cost structure of our business. This makes
cost control an easier and quicker process. For example, we have outsourced more, consolidated factories, reduced our
regional drilling operations and “leaned out” our global logistics and supply chain. The net result is a faster and more agile
business that can respond quickly to changing market conditions. These efforts will continue. We recognize the competitive
advantage of speed.
EXECUTIVE LEADERSHIP TEAM
From left to right
Mike Birch
Vice President, Global Products
Brad Baker
Senior Vice President, Human Resources
Craig Kipp
Chief Executive Officer
(seated in front)
Fabrizio Rasetti
Senior Vice President, General Counsel
and Secretary
Ira Kane
President, Environmental & Infrastructure
Drilling Services
Scott Alexander
Vice President, Global Drilling Services
Joe Ragan
Chief Financial Officer
4
Our plans involve more than just surviving this downturn.
Product development continues, with a focused pipeline of new
product introductions. Our joint services and products business
model, which is unique in our industry, results in a high level of
innovation and our products engineers will continue to generate
new, productive drilling products for us and our customers.
Additionally, our customers tell us it is our safety and compliance
culture that sets us apart in the industry. During 2008, our
best-in-class incident rate (TCIR) and lost time rate (LTIR)
further improved by 34 percent and 59 percent, respectively.
Our mining customers are demanding, and they will continue to
demand improved performance in this area. We will continue to
deliver.
Finally, in this report we have highlighted many of Boart
Longyear’s leaders. They are located all over the globe. I firmly
believe this team is the real Boart Longyear differentiator. They
have joined us from diverse backgrounds. They bring leadership
experience from markets as distinct as aviation, consumer
products, machining tools, automotive, banking and retail. They
have all been through downturns in their previous industries.
Our team knows how to adapt to the changing marketplace,
react quickly and drive performance across a broad range of
markets, cultures and geographies.
Boart Longyear has weathered many downturns in our 120-
year history. It is a humbling experience to see global markets
change this quickly and in unison. However, I know we will
come out of this current downturn stronger, leaner, and more
focused. I believe that Boart Longyear has the market-leading
franchise and is well-positioned for the future. I remain very
optimistic about our future prospects.
CRAIG KIPP
CHIEF EXECUTIVE OFFICER
PICTURED: TOP TO BOTTOM
GLOBAL DRILLING SERVICES TEAM From left to right
Steve Sangalli, VP, Environmental & Infrastructure - US
Dianne Bettes, General Manager, Minerals & Energy - Asia Pacific (seated)
Louis Del Solar, General Manager, Minerals & Energy - Latin America
Michael Napoletano, General Manager, Minerals & Energy - EMEA
Pat Rocca, General Manager, Minerals & Energy - Canada
GLOBAL ENGINEERING TEAM From left to right
Shayne Drivdahl, Director, Engineering - Sonic
Joe Moody, Vice President, Global Engineering (seated)
Keith Littlely, Technical Director, Reverse Circulation R&D
Keith Burch, Director, Engineering - Reverse Circulation Capital Equipment/Tools
Chris Drenth, Director, Engineering - Percussive and Tools (seated)
Dave Ritter, Director, Engineering - Capital Equipment;
Peter Kanck, Technical Director, Coring R&D (not pictured)
GLOBAL SALES TEAM From left to right
Ross Tilson, Director, Sales - Asia Pacific
Ulrich Kienle, Director, Sales - Sub Saharan Africa (seated)
John Pike, Director, Sales - Canada
Hans Glaessner, Director, Key Accounts (seated)
Pascal LeFevre, Director, Sales - Europe
Kevin Mullowney, Director, Sales - US (seated)
5
O P E R A T I O N S R E V I E W
OUR INTEGRATED
DRILLING SOLUTION
BUSINESS OVERVIEW
DRILLING
CONSUMABLES
DRILLING
CAPITAL EQUIPMENT
Boart Longyear has been a leading provider of drilling services and products to the
global minerals industry for over 120 years. We operate an integrated business
delivering high-quality drilling services and products to customers. Our skilled
workforce includes over 7,000 employees located in over 40 countries around the
world.
DRILLING SERVICES
Our Drilling Services division operates in North America, South America, Asia Pacific,
Europe and Africa. We have an international network of more than 36 zone locations
that maintain and mobilise equipment close to key geographic markets.
Our competitive strengths include:
• Global reach and longstanding relationships with a global customer base;
• Access to equipment and consumables to enhance drilling productivity;
•
•
Full range of drilling technologies; and
Industry-leading safety and training programmes.
MINING AND MINERALS
We are the global leader for minerals exploration, supporting mining customers in
the exploration, development and production of gold, copper, nickel, zinc, uranium,
and other metals and minerals. The rock core chips and samples we extract provide
mining companies with critical information over the life of a mining project, from
exploration through closure of the mine.
ENVIRONMENTAL
Our environmental drilling business continues to expand its presence and capabilities
to serve customers in the environmental, water, geotechnical and geo-construction
industries.
ENERGY
We assist customers in the exploration and production of a range of energy sources,
such as oil sands, oil shale, coal bed methane and geothermal, by providing earth
and rock core samples for analysis and by installing gas well casings and coal bed
methane wells.
DRILLING SERVICES
Boart Longyear is the #1 provider of drilling
services to the US environmental industry.
KEY FINANCIAL INDICATORS
$1,839
• Revenues up 17%
$1,576
$356
$297
$157
• EBITDA up 20%
• Net Profit up 93%
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2007
2008
2007
2008
2007
2008
Revenues
EBITDA
Net Profit
DRILLING PRODUCTS
Our Products division develops, manufactures and markets capital equipment
and consumables for use in a range of exploration and production activities.
These products are used in a variety of industries such as mining, geotechnical,
construction and energy and are sold to customers located in over 100 countries.
We are a recognized leader in the supply of drilling products to the mineral
exploration market, which supports mine operators as well as drilling contractors.
Boart Longyear’s product line includes surface and underground coring rigs,
diamond bits, drill rods and wireline core extraction systems. We design these
products to specifically meet the safety and productivity needs of the industry.
We also supply consumables and capital equipment to our own Drilling Services
division.
Boart Longyear is the world’s #1 provider
of products to the surface and underground
exploration drilling industries.
Corporate offices
Manufacturing locations
Boart Longyear’s full range of drilling rigs
serve clients in the exploration, production and
construction industries.
Boart Longyear’s engineering teams design
tomorrow’s drilling solutions focused on safety,
performance and reliability.
Boart Longyear is an industry leader in both
surface and underground exploration and
production drilling.
F O C U S O N S A F E T Y , T R A I N I N G A N D D E V E L O P M E N T
Management TRACK
EHS LEADERSHIP TRAINING
Facilitator Manual
We recognize that the people we
employ are our most important asset.
By effectively training our workforce,
we are able to deliver greater
operational efficiencies and a safer
work environment to the customers we
serve.
Boart Longyear has demonstrated commitment to the safety of our employees,
our customers and the environment, as shown by our proudly earned safety and
environmental certifications of ISO and OHSAS.
Safety is an integral part of the Boart Longyear corporate culture. In the past several
years, Boart Longyear has invested significant time and resources to develop
innovative tools, practices and drilling machines that lower the risk of injury on job-
sites. Our goal is zero environmental incidents, zero new cases of occupational illness
and zero workplace injuries.
2008 was a year in which Boart Longyear continued to prove our industry-leading
safety performance with 43% of all locations operating with no recordable injuries for
the year. Our regional drilling services teams continue to show their commitment to
safety with outstanding results. Our Brazilian team has worked 8 million hours without
a lost time injury, followed closely by Peruvian and Indonesian teams with over 3
million injury-free work hours.
HIGHLIGHTED BELOW ARE JUST THREE OF OUR MANY RECENT
SAFETY-FOCUSED ACCOMPLISHMENTS:
Global EHS Management System (GEMS)
With the launch of GEMS, an electronic global data base designed to monitor all
incidents, we are now able to track hazards, near misses, bumps and bruises, first
aids, recordables, and lost time incidents. Striving to prevent incidents before they
happen, GEMS provides a mechanism for root cause analysis and tracking corrective
actions to ensure all incidents are investigated and information is shared globally.
Rig Safety Manual
In 2008, we developed a new rig safety manual, which incorporated policies,
procedures, job safety analysis, and best practices to ensure that all rigs are
consistently operated in a safe and effective manner.
Training and Development
In 2008 we held many global EHS Leadership Training courses to teach our
leaders their roles and responsibilities for implementing our safety programs within
their respective areas of duty. The curriculum incudes: corporate EHS rules and
regulations; focusing on accident prevention using consistent techniques and
methodologies; instruction on conducting thorough and accurate incident investigations
in order to correctly determine root causes, draw conclusions, assign action items and
prevent incident recurrence.
SAFETY IMPROVEMENTS
0.34
•
LTIR down 59%
• TCIR down 34%
•
Lost time days down 73%.
0.14
3.26
1,500
2.15
400
2007
2008
2007
2008
2007
2008
Total Lost Time Incident Rate (LTIR)
Total Case Incident Rate (TCIR)
Total lost time days
BOART LONGYEAR’S AUTOMATED HANDS-FREE ROD
HANDLING SYSTEM - ENGINEERED FOR SAFETY
PERFORMANCE
Our uniquely integrated business includes both contract drilling services and
drilling products, so we understand the needs of our customers and work to
provide world-class drilling solutions, including those specifically designed to
meet the increasingly important safety requirements of the industry.
In 2008 we announced the development of a completely hands-free diamond
rod handling system. This system not only picks up drilling rods and
automatically positions them, but also makes and breaks the rod joints. This
eliminates many common injury risks that come with traditional, manual
handling.
Working with our global drilling services teams, our global engineering team
has initiated in-depth field testing of our new 4200 surface exploration drill,
which includes this new automated rod handling technology. As a result,
we are gaining real-time safety and performance data and bringing this
information back to our products and engineering teams.
G L O B A L C I T I Z E N S H I P
SAVING LIVES, ONE FLIGHT AT A TIME
Boart Longyear is proud to be a support
Australia’s Royal Flying Doctor Service, a not-for-
profit charitable service providing aeromedical
emergency and primary health care services
together with communication and education
assistance to people who live, work and travel in
remote Australia.
BREAD FOR LIFE
Each week, Boart Longyear’s South African
operations donate food to the underprivileged
through NG Welfare’s “Bread for Life”
campaign. The organisation is a comprehensive
professional social welfare service focused on
child protection, family preservation, poverty
alleviation, feeding schemes and HIV/AIDS.
Field testing the 4200 surface exploration drill.
Boart Longyear conducts EHS training
classes around the world.
Our Brazil drilling team has worked a total
of 8 million hours without a lost time injury.
Our 4200 surface exploration drill includes
a hands-free diamond rod handler, which
picks up rods, makes and breaks rod joints
without the need for manual operation.
B O A R D O F D I R E C T O R S
Gr
GRAHAM BRADLEY
(CHAIRMAN)
CRAIG KIPP
BRUCE BROOK
DAVID GRZELAK
DAVID McLEMORE
PETER ST GEORGE
GRAHAM BRADLEY
BRUCE BROOK
DAVID MCLEMORE
Mr. Bradley was appointed a director of the
Company on 21 February 2007 and is currently
Chairman of the Company. He is also Chairman
of Stockland Corporation Limited (appointed
February 2004) and Po Valley Energy Limited
(appointed September 2004) and a director
of Singapore Telecommunications Limited
(appointed March 2004). He is also chairman of
the unlisted local subsidiaries of HSBC plc and
Anglo American plc. In addition, Mr. Bradley is
a director of a number of non-profit philanthropic
organisations.
From 1995 to 2003, Mr. Bradley was the Chief
Executive Officer of the listed investment
management group Perpetual Trustees Australia
Limited (now known as Perpetual Limited). He
also spent four years as the Chief Executive
Officer of the law firm Blake Dawson. Previously,
he spent 12 years at McKinsey & Company, an
international firm of management consultants.
Mr. Bradley resigned as Chairman of Proteome
Systems Limited on 29 November 2007 and Film
Finance Corporation Australia Limited on 30 June
2008.
Mr. Bradley received a BA and LLB (Hons 1) from
Sydney University and an LLM from Harvard Law
School.
He is a member of the Remuneration &
Nomination Committee.
Mr. Brook was appointed a director of the
Company on 21 February 2007. He is currently
a director and Chairman of the Audit Committee
of Lihir Gold Limited (appointed December
2005) and Snowy Hydro Limited (appointed May
2006). He is a member of the Financial Reporting
Council, a member of the Finance Committee of
the University of Melbourne and a member of the
Audit Committee of the Salvation Army (Southern
Territory).
Mr. Brook was the Chief Financial Officer of WMC
Resources Limited from 2002 to 2005 and has
approximately 30 years’ experience in various
roles, including Deputy Chief Financial Officer
of ANZ Banking Group Limited, Group Chief
Accountant of Pacific Dunlop Limited, General
Manager, Group Accounting at CRA Limited and
General Manager, Accounting and Services at
Pasminco Limited.
Mr. Brook resigned as a director of Consolidated
Minerals Limited on 20 February 2008 (appointed
December 2005).
Mr. Brook gained his B.Comm and B.Accounting
at the University of Witwatersrand and is a fellow
of the Institute of Chartered Accountants in
Australia.
He is Chairman of the Audit, Compliance & Risk
Committee and a member of the Environment
Health & Safety Committee.
CRAIG KIPP
DAVID GRZELAK
Mr. Kipp was appointed a director of the
Company on 28 June 2008. He was appointed
the Company’s Chief Executive Officer on
1 January 2009, prior to which time he was
President and Chief Operating Officer. Mr. Kipp
joined the Company in 2005 after 22 years with
General Electric, where he was employed in
various capacities, including as President and
Chief Operating Officer of the Global Nuclear Fuel
division and General Manager of operations in
Hungary and China.
Mr. Kipp received his BS and MS in Mechanical
Engineering from the University of North Dakota
and an MBA from the University of Chicago.
Mr. Grzelak was appointed a director of the
Company on 13 November 2008. He is currently
Chairman and Chief Executive Officer of Komatsu
America Corp. and has held a variety of senior
executive positions with Komatsu since joining
the company in 1991. Prior to joining Komatsu,
he worked in General Electric’s Transportation
Systems business for approximately 20 years.
Mr. Grzelak has served as a director of the
NYSE-listed Alamo Group Inc. and member of its
Audit, Compensation & Nomination committees
since 2006.
Mr. Grzelak earned his BS in industrial
engineering from Penn State University and an
MBA from Gannon University.
He is a member of the Audit, Compliance & Risk
Committee and the Environment, Health & Safety
Committee.
10
Mr. McLemore was appointed a director of the
Company on 21 February 2007. He has 35 years
of industrial and broad operational experience.
He has held a number of positions with various
Advent International portfolio companies
for ten years and was involved with Advent
International’s acquisition of the Boart Longyear
Group from Anglo American plc in 2005.
Mr. McLemore served at various times as
Chairman, Deputy Chairman and Vice Chairman
of the Boart Longyear Group from 2005 until
2007. Mr. McLemore also served as a General
Manager of General Electric’s Power Systems
division from 1985 to 1997.
Mr. McLemore received his BS from Oklahoma
State University.
He is a member of the Environmental Health
& Safety Committee and was appointed its
Chairman effective 15 November 2008. He
is also a member of the Remuneration &
Nomination Committee.
PETER ST GEORGE
Mr. St George was appointed a director of the
Company on 21 February 2007. He also has
been a director of First Quantum Minerals Limited
(listed on the Toronto Stock Exchange) since
October 2003. Mr. St George was a director of
Spark Infrastructure Group, Powercor Australia
Limited, Citipower Pty Limited and CHEDHA
Holdings Pty Limited from December 2005 until
31 December 2008. He also served as a director
and Chairman of Walter Turnbull, an Australian
accounting and financial services firm, from
August 2002 until 31 October 2008 and was a
director of SFE Corporation Limited from 2000
until its merger with ASX Limited in July 2006.
Mr. St George served as Chief Executive/
Co-Chief Executive of Salomon Smith Barney
Australia/NatWest Markets Australia from 1995
to 2001. In addition, he has more than 20 years’
experience in senior corporate advisory roles
within NatWest Markets and Hill Samuel & Co in
London.
Mr. St George qualified as a Chartered
Accountant in South Africa and received an MBA
from the University of Cape Town.
He is Chairman of the Remuneration &
Nomination Committee and a member of the
Audit, Compliance & Risk Committee.
E X E C U T I V E L E A D E R S H I P T E A M
E
SCOTT ALEXANDER
BRAD BAKER
MIKE BIRCH
IRA KANE
VICE PRESIDENT,
GLOBAL DRILLING
SERVICES
SENIOR VICE
PRESIDENT,
HUMAN RESOURCES
VICE PRESIDENT,
GLOBAL PRODUCTS
PRESIDENT
ENVIRONMENTAL &
INFRASTRUCTURE
DRILLING SERVICES
JOE RAGAN
CHIEF FINANCIAL
OFFICER
FABRIZIO RASETTI
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND
SECRETARY
CRAIG KIPP
See Page 10.
SCOTT ALEXANDER
Mr. Alexander was appointed Vice President,
Global Drilling Services in 2006. Prior to
joining Boart Longyear, he was Vice President
of Manitowoc, Inc.’s Crane Group aftermarket
operations in the Americas. His 32 years of
mining industry experience include serving
with Joy Global, Inc. as Vice President and
General Manager of P&H MinePro Services
and Vice President, P&H Product Management
& Business Development, and with Bucyrus
International, Inc. in various roles.
BRAD BAKER
Mr. Baker was appointed as Senior Vice
President, Human Resources in 2008. Prior
to joining Boart Longyear he worked for
Milacron Inc. for 17 years in a variety of roles
including Vice President of Human Resources.
MICHAEL BIRCH
JOE RAGAN
Mr. Birch was appointed Vice President,
Global Products in 2006. Prior to joining
Boart Longyear, he worked for Black & Decker
Corporation for 15 years across various
business units in both North America and
Europe. Past roles include Vice President
and General Manager for Baldwin Hardware
and Director of Marketing and Product
Development for the DeWalt Industrial Power
Tools, both divisions of Black & Decker
Corporation.
IRA KANE
Mr. Kane joined Boart Longyear in 2006
through the acquisition of the Prosonic
Corporation, the USA’s largest provider of
sonic drilling services, where he served as its
President and COO. Prior to this, he served
for nine years as President & COO of MPW
Industrial Services Co. He also held the
position of Executive Vice-President of OHM
corporation and was a practicing attorney in
Columbus, Ohio.
Mr. Ragan was appointed Chief Financial
Officer in 2008. Prior to joining Boart
Longyear, he held the position of Chief
Financial Officer for GTSI Corp., a leading
technology solutions provider for the public
sector listed on NASDAQ. He also held the
position of Chief Financial Officer of US
Operations for Winstar Communications, Inc.
FABRIZIO RASETTI
Mr. Rasetti was appointed Senior Vice
President, General Counsel and Secretary in
2006. Prior to joining Boart Longyear, he was
a Segment General Counsel and Segment
Vice-President for Business Development for
NYSE-listed SPX Corporation and served in
various other management roles during his
nine-years there. Prior to SPX Corporation,
he worked in the private law firms of Howrey
& Simon and Towey & Associates in
Washington, DC.
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BOART LONGYEAR LIMITED
A.B.N. 49 123 052 728
ANNUAL FINANCIAL REPORT
YEAR ENDED 31 DECEMBER 2008
_______________________________________________________________________________________
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Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
CONTENTS
DIRECTORS’ REPORT..................................................................................................................................... 16
AUDITOR’S INDEPENDENCE DECLARATION............................................................................................... 40
INDEPENDENT AUDITOR’S REPORT ............................................................................................................ 41
DIRECTORS’ DECLARATION .......................................................................................................................... 43
INCOME STATEMENT...................................................................................................................................... 44
BALANCE SHEET ............................................................................................................................................. 45
STATEMENT OF RECOGNISED INCOME AND EXPENSE ........................................................................... 46
CASH FLOW STATEMENT .............................................................................................................................. 47
NOTES TO THE FINANCIAL STATEMENTS................................................................................................... 49
_______________________________________________________________________________________
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Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
DIRECTORS’ REPORT
The directors present their report together with the financial report of Boart Longyear Limited (“Boart Longyear” or the
"Company") and its controlled entities (collectively the “Group” or the “Consolidated Entity”) for the financial year ended
31 December 2008 (“financial year”) and the Independent Auditor’s Report thereon.
Financial results and information contained herein are presented in United States (“US”) dollars unless otherwise noted.
DIRECTORS
The directors of the Company in office during the financial year and as of the date of this report are set out below:
• Graham Bradley
• Bruce Brook
• David Grzelak
• Craig Kipp
• David McLemore
• Peter St George
Appointed 21 February 2007
Appointed 21 February 2007
Appointed 13 November 2008
Appointed 28 June 2008
Appointed 21 February 2007
Appointed 21 February 2007
Others who held office as directors during the financial year were:
• Paul Brunner
• Geoff Handley
Appointed 28 February 2007; resigned 31 December 2008
Appointed 21 February 2007; resigned 15 November 2008
DIRECTORS’ MEETINGS
The following table sets out for each director the number of directors’ meetings (including meetings of committees of
directors) held during the financial year while he was a director or committee member and the number of meetings each
director attended. The table does not reflect the directors’ attendance at committee meetings in an “ex-officio” capacity.
Directors
Nomination &
Audit, Compliance
Environment
Graham Bradley
Bruce Brook
Craig Kipp 4
David McLemore
Peter St. George
David Grzelak 3
Paul Brunner 1
Geoff Handley 2
Board of Directors
Remuneration
& Risk Committee
Health &
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Committee
Safety Committee
6
6
2
6
6
1
6
6
6
6
2
6
6
1
6
6
5
-
-
5
5
-
-
-
5
-
-
5
5
-
-
-
-
4
-
-
4
-
-
4
-
4
-
-
4
-
-
4
-
4
-
4
-
-
-
4
-
4
-
4
-
-
-
4
(1) Resigned on 31 December 2008.
(2) Resigned on 15 November 2008.
(3) Appointed 13 November 2008.
(4) Appointed 28 June 2008.
COMPANY SECRETARIES
Fabrizio Rasetti was appointed Company Secretary on 26 February 2007. A summary of his work experience and
qualifications is found on page 11.
Paul Blewett was appointed Company Secretary on 21 October 2008. Prior to joining Boart Longyear he was General
Counsel and Company Secretary for Hills Industries Limited (ASX:HIL). Prior to Hills Industries, he held a number of
positions with other Australian Securities Exchange listed companies, following private legal practice for 8 years with
Lynch Meyer, Adelaide, South Australia. Mr. Blewett received his LLB from the University of Adelaide in 1983.
_______________________________________________________________________________________
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Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
Duncan W.S. Glasgow resigned as Company Secretary on 21 October 2008.
PRINCIPAL ACTIVITIES
The Company is a leading integrated provider of drilling services, capital equipment and consumable products for
customers in the mining and minerals exploration, environmental and infrastructure, and energy industries. The Group
conducts these activities through two operating divisions, known as the Global Drilling Services and Global Products
divisions.
The Global Drilling Services division operates in over 30 countries. It provides services to a diverse customer base and
offers a broad range of drilling technologies, including, but not limited to, diamond core, underground, reverse circulation,
rotary and sonic drilling.
The Global Products division manufactures and sells capital equipment and consumables primarily to customers in the
drilling services and mining industries globally. These products include rigs and products (such as bits, rods and in-hole
tools) for exploration drilling, rock drilling and environmental, infrastructure and construction applications. The division
also distributes a wide variety of products and supplies through its network of retail drill stores in the United States.
Financial performance
Total revenue for the twelve months ended 31 December 2008 was $1,839 million, an increase of approximately 17% as
compared to $1,576 million over the prior twelve months ended 31 December 2007. Of the $263 million increase in
revenue during 2008, $270 million was attributable to an increase in revenues in the Global Drilling Services division offset
by a $7 million decrease in revenue in the Global Products division. Revenues were higher in North America, South
America, Asia Pacific and Africa, but lower in Europe.
In 2008, the Global Drilling Services division generated revenue of $1,241 million, up approximately 28% on the same
period last year. Higher revenues were attributable to higher pricing for certain drilling services, the impact of certain
acquisitions made in 2007 and 2008, and favourable FX movements as well as the impact of the organic expansion in the
Company’s fleet of drilling rigs.
In 2008, the Global Products division generated revenue from ongoing operations of $598 million, down 1% on the prior
year. Higher pricing and favorable FX movements were more than offset by lower volumes, primarily attributable to the
sale of certain non-core assets which took place in 2008.
Net profit after tax for the twelve months ended 31 December 2008 was $157 million, an increase of 93% as compared to
$81 million over the prior twelve months ended 31 December 2007. Net profit after tax in 2008 includes restructuring
expense of $20 million and net profit after tax in 2007 includes the impact of finance costs relating to the higher debt levels
in place prior to the listing of the Company related to pre-listing debt and other fees and expenses related to the IPO in
early 2007.
Tax expense for the twelve months ended 31 December 2008 was $75 million, an increase of approximately 36% as
compared to $55 million for the prior twelve months ended 31 December 2007. The effective tax rate in 2008 of 32.2%
has decreased from 40.4% in 2007, and takes into account the tax weighting of the corporate structure.
Earnings per share in 2008 were 10.4 cents per share on a basic and diluted basis, compared to earnings per share on a
basic and diluted basis of 5.4 cents for the same period in 2007.
DIVIDENDS
The directors of the Company declared dividends totaling US 3.8 cents per share during the financial year. A dividend of
US 1.5 cents per share was declared on 29 February 2008 and paid on 18 April 2008. A further dividend of US 2.3 cents
per share was declared on 26 August 2008 and paid on 16 October 2008. Both dividends were 35% franked.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Acquisition of Other Entities and Operations
During the financial year, the Group completed acquisitions of Britton Brothers Diamond Drilling, Aqua Drilling & Grouting
Pty Ltd, Westrod Engineering and Eklund Drilling Company Inc. Aqua Drilling and Westrod are located in Australia, while
Britton Brothers’ operations are in Canada and Mexico. Eklund Drilling operates in the western United States of America.
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31 DECEMBER 2008 BOART LONGYEAR LIMITED
Divestiture of Operations
The Group completed the sale of its mining capital equipment and diamond wire businesses, both of which are in South
Africa, and residential water business in the United States of America.
Other than the Company’s acquisitions and divestitures listed above, in the opinion of the directors, there were no other
significant changes in the state of affairs of the Group during the financial year.
EVENTS SUBSEQUENT TO REPORTING DATE
In the opinion of the directors, there has not arisen in the interval between the end of the financial year and the date of the
report any matter or circumstance that has significantly affected, or may significantly affect, the Group’s operations, results
or state of affairs in future financial years.
FUTURE DEVELOPMENTS
The Group intends to continue its principal activities related to providing drilling services and selling drilling capital
equipment and consumable products while focusing on operating improvements, product development, cost management,
cash generation and debt reduction. The Group may also elect to expand its product or service offerings through organic
growth initiatives or strategic acquisitions although it expects the level of acquisitions to decline as compared to 2008 and
2007.
Further information about likely developments in the operations of the Group in future years, expected results of those
operations, and strategies of the Group and its prospects for future financial years has been omitted from this report
because disclosure of the information is likely to result in unreasonable prejudice to the Group.
CORPORATE GOVERNANCE STATEMENT
The Board believes that high standards of corporate governance are an essential prerequisite for creating sustainable
value for shareholders. This statement summarises the main corporate governance policies and practices in place within
the Group. Unless otherwise noted, the Company has followed the best practice recommendations set out in the ASX
Corporate Governance Council’s Principles and Recommendations (the “ASX Guidelines”).
The Company’s most significant governance policies, including Board and committee charters, may be found on the
Company’s website at www.boartlongyear.com.
Role of the Board
The Board charter sets out the powers and responsibilities of the Board. These include:
providing strategic direction for, and approving, the Company’s business plans and objectives;
•
• monitoring the operational and financial position and performance of the Company;
•
establishing a sound risk management framework for the Company and ensuring that management takes
reasonable steps to implement appropriate controls and otherwise mitigate risks;
requiring that robust financial and other reporting mechanisms are put in place to provide adequate, accurate and
timely information to the Board and shareholders regarding all material developments;
appointing and evaluating the performance of the Chief Executive Officer, approving other key executive
appointments and planning for executive succession;
reviewing and approving remuneration for senior executives;
approving the Company’s annual operating budget and business plans and monitoring the management of the
Company’s capital, including any material capital expenditures, acquisitions or divestitures;
•
•
•
•
• monitoring procedures to ensure compliance with legal and regulatory requirements and accounting standards;
and
determining the level of authority delegated to the Chief Executive Officer and Company management.
•
_______________________________________________________________________________________
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Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
The Board has delegated to the Chief Executive Officer and to the Company’s Executive Management Committee
(“EXCO”) responsibility for managing the business of the Company in compliance with Board policies, legal requirements
and the fundamental standards of ethics and integrity reflected in the Group’s Code of Business Conduct. The Board
policies and charters set clear thresholds for management authority and ensure accountability to, and oversight by, the
Board for the approval of specific matters, including remuneration of senior executives, changes to the Company’s share
capitalisation, declaration of dividends, the Company’s annual operating budget, material acquisitions and divestitures and
changes to corporate strategy. Delegations are regularly reviewed by the Board and may be changed by the Board at any
time.
Composition of the Board
At the date of this report, the Company has one executive director and five non-executive directors.
Boart Longyear recognises that the ability of its Board to fulfill its role properly requires that the directors collectively have
an appropriate range of skills, experience and expertise, including experience in accounting and financial reporting,
operational expertise and experience in the markets the Group serves, and that a majority of the directors is independent.
In assessing the independence of non-executive directors, the Board has considered the criteria detailed in the Board
charter, including, whether a director:
•
•
•
•
•
•
is a substantial shareholder of the Company, or otherwise is associated directly or indirectly with a substantial
shareholder;
has been employed in an executive capacity by the Company or Group within the last three years and did not
become a director within three years of being so employed;
has been a principal of a material professional adviser or a material consultant to the Company or Group within
the last three years;
is a partner in, or material shareholder or officer of, a material supplier or customer of the Company or Group;
has a material contractual relationship with the Company or Group other than as a director; and
has received more than A$100,000 from the Company or Group during the past year other than as compensation
for the director fulfilling his duties as a director.
The charter also defines materiality as being an amount in excess of 5% of Boart Longyear’s or the advisor’s, supplier’s or
customer’s revenues or expenses, as the case may be.
The Board meets the requirements of the charter and the recommendations of the ASX Guidelines as a majority of the
Board is comprised of non-executive directors and all of the non-executive directors, including the Chairman, meet the
independence criteria listed above.
Board Processes
The Board meets at least six times a year and convenes additional meetings as required. The agenda for Board meetings
is prepared by the Chief Executive Officer and other senior management in conjunction with the Chairman and, along with
supporting papers, is distributed to directors prior to each meeting. Certain senior executives participate in Board and
committee meetings, thus providing the directors with access to key operating, financial and compliance personnel on a
regular basis. In addition, the directors have access to other Company employees in Board and committee meetings,
during visits to operations and in other settings.
Board Committees
The Board has three permanent committees to assist it in discharging its responsibilities. These are the:
• Audit, Compliance & Risk Committee;
• Remuneration & Nomination Committee; and
• Environment, Health & Safety Committee.
These committees have written charters that are reviewed at least annually. All non-executive directors may attend any
committee meeting. The Chairman of each committee reports on committee proceedings at the next Board meeting and
minutes of committee meetings are circulated to directors in the Board papers.
_______________________________________________________________________________________
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Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
Audit, Compliance & Risk Committee
The Audit, Compliance & Risk Committee assists the Board to fulfill its governance and disclosure responsibilities in
relation to the quality and integrity of the Company’s financial reports, internal controls, risk management framework and
external audits. The committee also monitors compliance with laws and regulations. The committee makes
recommendations to the Board regarding the appointment, performance and independence of the external auditor and
must approve all non-audit services performed by the external auditor.
The committee is comprised of three non-executive directors, all of whom are independent directors and at least one of
whom has relevant accounting qualifications or experience. The members of the committee during and since the financial
year are:
• Bruce Brook – Chairman
• Peter St George
• David Grzelak (appointed 14 November 2008)
• Geoff Handley (resigned 15 November 2008)
Remuneration & Nomination Committee
The Remuneration & Nomination Committee supports the Board by overseeing matters related to executive and director
remuneration and the composition and performance of the Board. The committee’s responsibilities include:
•
•
•
•
developing and reviewing remuneration plans, including annual bonus plans and equity-based incentive plans;
developing performance objectives for the Chief Executive Officer and his direct reports and reviewing
performance against those objectives;
overseeing policies for recruitment, retention and succession planning for directors and key executive positions;
and
reviewing the composition of the Board and monitoring the performance of the Board and the directors;
The committee consists of the following three non-executive directors:
• Peter St George – Chairman
• Graham Bradley
• David McLemore
Environment, Health & Safety Committee
Boart Longyear places a high priority on safety, management of operational risks and compliance with environmental laws
and regulations. The Environment, Health & Safety Committee assists the Board in the effective discharge of its
responsibilities in relation to these matters and has authority to investigate any matter within the scope of the committee’s
charter.
Among its responsibilities, the committee:
•
•
•
ensures that the Company has effective systems and processes for monitoring and mitigating operational risks;
reviews and assesses the Company’s policies and practices to ensure compliance with environmental and
operational regulatory requirements, including through internal and external audits; and
reviews the results of investigations of any major health, safety or environmental incidents occurring in the
Company’s operations.
The committee consists of the following three non-executive directors:
• David McLemore – Chairman (appointed Chairman on 15 November 2008)
• Bruce Brook
• David Grzelak (appointed 14 November 2008)
• Geoff Handley (resigned 15 November 2008)
_______________________________________________________________________________________
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Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
Board and Director Performance
The Board has a formal annual assessment process that includes performance assessments of the Board committees and
individual directors. As part of the assessment process, each director completes a questionnaire on the operation of the
Board and its committees and the performance and contributions of the directors. The results of the questionnaires are
compiled by the Chairman and discussed with each director individually. The Chairman also holds a further discussion
about the Board’s effectiveness with the Board as a whole. This Board effectiveness evaluation took place this year in the
period between June 2008 and August 2008.
New directors undergo an induction process to inform them of the nature of the Company’s business, strategies, risks and
issues, and expectations about director performance. The terms of a non-executive director’s appointment are set out in a
letter to the director from the Company. The letter details the director’s obligations, including to:
•
•
•
•
•
•
•
act in the best interests of the Company at all times;
submit to re-election from time-to-time as required by the Company’s constitution;
notify the Chairman of any change in circumstances that might prevent the director from being regarded as
independent;
comply with the Company’s constitution, governance policies and all applicable legal requirements, including the
Company’s Securities Trading Policy;
devote sufficient time to prepare for and attend Board meetings and otherwise to discharge the director’s duties;
keep confidential, and not use for the benefit of any person or party other than the Company, any confidential
information of the Company or Group; and
disclose any directorships, business interests or circumstances that might represent conflicts of interests or
reasonably be perceived to interfere with the exercise of the director’s independent judgment, or have an adverse
impact on the Company’s reputation or public profile.
The appointment letter also confers certain benefits and rights upon the director, including indemnities and insurance
coverage for liabilities arising out of the discharge of the director’s duties and unfettered access to papers, information and
employees of the Company. In addition, directors may, with the approval of the Chairman, consult with professional
advisors.
Executive Performance
The Company employs a structured performance evaluation process to ensure that senior executives are motivated to
deliver shareholder value and are accountable to the Board at all times. The process commences early each financial
year when the Board establishes and approves corporate performance objectives as well as individual performance
objectives for the most senior managers of the Company. As detailed more fully in the Remuneration Report,
performance against those objectives determines the potential incentive the executive may receive under the Company’s
annual bonus plan. The Chief Executive Officer’s annual incentive is based 100% on the achievement of the annual
corporate performance objectives approved by the Board. Other senior managers of the Company have individual
performance objectives that account for 50% of the total annual bonus for which they are eligible and the annual corporate
performance objectives that account for the balance. The Company’s executive performance assessment process for
2008 and goal-setting process for 2009 commenced in January 2009 and is scheduled to be completed in March 2009.
Risk Management
The Board recognises that risk management and internal controls are fundamental to good corporate governance, and the
Board and senior management accept their responsibility to identify and manage risk on an ongoing basis. The
Company’s risk management framework consists of a number of controls, including:
•
•
•
•
documented systems, procedures, authorities and delegations for the orderly management of the Company;
policies and ethical standards, and ensuring that employees understand such obligations;
risk-based internal audits to test the Company’s controls and assist management with the enforcement of
Company policies; and
certifications from management and process owners throughout the Company regarding the design and
operation of risk management systems, internal controls and compliance.
_______________________________________________________________________________________
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Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
The Board is assisted and advised in its oversight of the Company’s risk management system by two of its committees:
the Environment, Health & Safety Committee with respect to operational risks generally and the Audit, Compliance & Risk
Committee with respect to financial, compliance and other risks. Those committees review the annual audit plan of the
Company’s internal audit function and Environment, Health & Safety group, and, along with senior management, consider
the findings of those audits. The Audit, Compliance & Risk Committee also monitors compliance programs managed by
the Company’s legal function and reviews the sifnificant findings of any compliance reviews or investigations.
During the financial year, the Company enhanced its risk management processes by implementing a formal and
comprehensive risk management system based on a written risk management policy and the findings of Company audits
and investigations. Those processes are managed by the corporate Director of Risk Management, who, among other
tasks, directs regular regional and corporate risk identification and mitigation reviews and assists in tracking corrective
actions.
Integrity of Financial Reporting
In accordance with the ASX Guidelines, the Chief Executive Officer and Chief Financial Officer have certified the following
(among other detailed certifications) to the Board in writing:
1)
in their opinion, after having made appropriate enquiries:
(i)
(ii)
the financial statements of the Company and Consolidated Entity for the financial year comply with
Accounting Standards and have been properly maintained in accordance with section 286 of the
Corporations Act 2001; and
the financial reports of the Company and Consolidated Entity, and notes thereto, present a true and fair
view, in all material respects, of the financial position and performance of the Company and of the
Consolidated Entity in accordance with section 297 of the Corporations Act 2001.
2)
to the best of their knowledge and belief after having made appropriate enquiries:
(i)
(ii)
the statements made in (1) above regarding the integrity of the financial statements are founded on a
sound system of risk management and internal compliance which, in all material respects, implements
the policies adopted by the Board of Directors through delegation to senior executives;
the risk management and internal compliance system, to the extent it relates to financial reporting, is
operating effectively in all material respects based on the risk management model adopted by the
Company;
(iii)
nothing has come to management’s attention since 31 December 2008 that would indicate any material
change to the statements made in 2(i) and 2(ii) above, and
These statements are supported by certifications made to the Chief Executive Officer and Chief Financial Officer by the
financial managers of each of the Company’s divisions and regions and by other managers globally. They provide a
reasonable but not absolute level of assurance and do not imply a guarantee against adverse events or more volatile
outcomes arising in the future. A number of internal control deficiencies relating to financial reporting have been identified
during the financial year, and in such cases, where deemed appropriate, additional tests of procedures or tests of resulting
account balances included in the financial statements have confirmed that there has been no material impact on the
financial reports. Management also has reported to the Board as to the effectiveness of the Company’s management of
material business risks.
_______________________________________________________________________________________
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Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
Code of Business Conduct and Ethical Standards
Boart Longyear’s directors, management and employees are required to act with integrity at all times and maintain high
ethical standards. The Company has adopted a Code of Business Conduct that covers a broad range of matters,
including:
•
•
•
•
•
•
•
•
conflicts of interest and the preservation and proper use of Company assets;
protection of confidential and commercially sensitive information;
employment legislation;
competition law and fair dealing;
environmental, health and safety considerations;
improper payments, bribery and money laundering, including transactions with government officials;
financial reporting and record-keeping; and
each employee’s affirmative duty to report violations of policy or law.
The Code of Business Conduct is available on the Company’s website at www.boartlongyear.com. The Company
supplements the Code of Business Conduct with additional policies that provide more detailed guidance on substantive
legal requirements and other principles and requires employees to successfully complete assigned compliance training
courses on an ongoing basis.
Environmental Performance
Boart Longyear is committed to achieving a high standard of environmental performance. The Company’s operations are
subject to various environmental laws and regulations in the many jurisdictions in which it operates, including regulations
under both Commonwealth and state legislation in Australia. The Board, with the assistance of the Environment, Health &
Safety Committee, monitors environmental performance against relevant legislation and Company objectives and monitors
remedial action when required.
The directors are not aware of any business unit operating in breach of environmental regulations during the financial year
and to the date of this report under any applicable law of the Commonwealth or of a State or Territory.
Continuous Disclosure
The Board aims to ensure that all of its shareholders and the market in general are kept fully and promptly informed of all
major developments and changes that are likely to materially affect its operations, financial results and business
prospects. The Company’s External Communications Policy specifies how the Company will meet its continuous
disclosure obligations under ASX Listing Rule 3.1 and sets out procedures for Company employees to report potentially
price-sensitive information to management and the Board.
The Company produces financial statements for its shareholders and other interested parties twice per year.
Shareholders have the right to attend the Annual General Meeting in April and are provided with an explanatory
memorandum on the resolutions proposed through the Notice of Meeting. The Company also employs a Vice President of
Investor Relations to manage and assure prompt and relevant communications with shareholders and the market
generally, and the Company posts material information for its shareholders, such as ASX announcements and financial
results, on its website at www.boartlongyear.com.
Donations
Boart Longyear contributes to the communities in which it works with donations, sponsorship and practical support. The
Company does not make political donations.
_______________________________________________________________________________________
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Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
DIRECTORS’ SHAREHOLDINGS
The following table sets out each director’s relevant interest in shares, debentures, and rights or options in shares or
debentures of the Company or a related body corporate as at the date of this report.
Directors
Graham Bradley
Bruce Brook
Craig Kipp
David McLemore
Peter St. George
David Grzelak
Fully paid
ordinary shares
Restricted shares 1,
rights and options
2,118,364
458,108
5,214,626
1,158,609
446,216
10,000
491,891
45,945
2,994,710
-
72,972
-
Total
2,610,255
504,053
8,209,336
1,158,609
519,188
10,000
(1) The directors’ restricted shares as listed in the table above, although fully paid ordinary shares, are subject to a
vesting condition of three years’ service by the directors.
GRANTS OF SHARES, RIGHTS OVER SHARES AND OPTIONS GRANTED TO DIRECTORS AND EXECUTIVES
The shares or rights over shares of the Company that have been granted to directors or executives of the Group are
included in the Remuneration Report. Options over unissued shares of the Company have been granted to the Chief
Executive Officer, Mr. Kipp, as detailed in the Remuneration Report. No shares or interests have been issued during or
since the end of the financial year as a result of exercise of an option.
DIRECTORS' AND OFFICERS’ INTERESTS IN CONTRACTS
Except as noted herein, no contracts involving directors' or officers’ interests existed during, or were entered into since the
end of, the financial year other than the transactions detailed in Note 35 to the financial statements. In 2008, management
recommended that the Company engage Mr. St George to assist with the Company’s evaluation of a potential acquisition.
The Board, with Mr. St George abstaining from the discussions, reviewed and approved the engagement and proposed
terms and concluded that they did not conflict with the Company’s director independence guidelines.
PROCEEDINGS ON BEHALF OF COMPANY
No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings to
which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those
proceedings. The Company was not a party to any such proceedings during the financial year.
_______________________________________________________________________________________
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Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
REMUNERATION REPORT
The information provided in this Remuneration Report is that required under Section 300A of the Corporations Act.
This Report sets out the remuneration arrangements for the Key Management Personnel (KMP), who are those persons
having authority and responsibility for planning, directing and controlling the activities of the Company, directly or
indirectly, including any director (whether executive or otherwise). The KMP include the top five highest-paid executives.
The remuneration policy and programs detailed in this report also apply to senior Company management not included as
KMP.
The following individuals have been included as KMP in during the financial year:
• Graham Bradley (Chairman, non-executive director)
• Bruce Brook (Non-executive director)
• David McLemore (Non-executive director)
• Peter St George (Non-executive director)
• David Grzelak (Non-executive director) appointed 13 November 2008
• Geoff Handley (Non-executive director) resigned 15 November 2008
• Paul Brunner (Chief Executive Officer and Executive Director) resigned 31 December 2008
• Craig Kipp (Chief Operating Officer) (Executive Director) appointed 28 June 2008 (Chief Executive
Fabrizio Rasetti (Senior Vice President, General Counsel and Secretary)
Officer) appointed 1 January 2009
Joseph Ragan III (Chief Financial Officer) commenced employment 29 September 2008
•
• Brad Baker (Senior Vice President, Human Resources) commenced employment 2 June 2008
•
• Scott Alexander (Vice President of Global Drilling Services)
• Michael Birch (Vice President of Global Products)
• Patrick Johnson (Senior Vice President, Human Resources) resigned 6 June 2008
•
Terrance Dolan (Senior Vice President, Business Development and Marketing) resigned 31 October
2008
Remuneration Policies and Practices
The Board has ultimate responsibility for remuneration issues, including policies and procedures to ensure that the
Company remunerates fairly and responsibly. The Remuneration & Nomination Committee (“Remuneration Committee”)
has been established to assist the Board with remuneration issues and is responsible for ensuring that the Company
compensates appropriately and consistently with market practices. It also seeks to ensure that the Company’s
remuneration programs and policies will attract and retain high-calibre directors, executives and employees and will
motivate them to maximise the Company’s long-term business, create value for shareholders and support the Company’s
goals and values. The role and responsibilities of the Remuneration Committee are set out in its charter. The Chief
Executive Officer, the Senior Vice President for Human Resources and other members of senior management attend
meetings of the committee, as appropriate, to provide information necessary for the committee to discharge its duties. In
addition, the committee also has access to external consultants as it sees fit to provide advice, market data and other
information required.
Overall, the structure, quantum and mix of components of the Company’s remuneration program, detailed below, are
designed to meet the specific needs of the business and be consistent with good market practice. The Company and
Remuneration Committee will regularly review all elements of its remuneration framework to ensure that they remain
appropriate to the business strategy and are competitive and consistent with contemporary market practice.
Non-Executive Director Remuneration
Non-executive directors are remunerated by a fixed base fee with additional amounts paid for serving on Board
committees. Non-executive director fees are determined within an aggregate directors’ fee pool limit that periodically will
be approved by shareholders in general meeting. The current approved limit is A$2.0 million. Fees are set to reflect the
responsibility and time commitments required of non-executive directors and are reviewed annually to ensure that they
remain fair and consistent with market practice.
_______________________________________________________________________________________
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Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
The base fee for non-executive directors during the financial year was A$120,000 per annum, while the Chairman
received a base fee of A$360,000 per annum. Non-executive directors (other than the Chairman) received an additional
10% of the base fee for each Board committee on which they sat or 20% of the base fee for each committee they chaired.
In 2008, these fees did not include compulsory superannuation payments paid to Australian-resident non-executive
directors at the statutory rate of 9% on all Board and committee fees. In lieu of the superannuation payments, US-resident
non-executive directors received an additional payment of 9% on all Board and committee fees. During the financial year,
A$1,069,161 (US $893,572) of the pool was utilised for non-executive director fees (taking into account the aggregate
payment of fees and superannuation), being approximately 53% of the fee pool limit.
Non-executive directors also are reimbursed for all reasonable out-of-pocket expenses incurred in carrying out their duties.
They do not receive any retirement benefits other than statutory superannuation contributions or any performance-related
remuneration, such as the management short-term incentive or LTIP programs.
Non-Executive Director Share Acquisition Plan
In February 2008, the Committee recommended, and the Board approved, the establishment of a Non-Executive Director
Share Acquisition Plan (NEDSAP) as foreshadowed in the Company’s prospectus. The NEDSAP is a fee sacrifice plan in
which only non-executive directors may participate. Participation in the NEDSAP is voluntary, and non-executive directors
may elect to sacrifice up to 100% of pre-tax fees to acquire ordinary shares at the prevailing market price. Shares
acquired under the NEDSAP will be subject to a holding lock for up to ten years. The holding lock will be removed in
certain circumstances, including a cessation of directorship. There have been 200,985 shares issued under this plan
during the financial year ended 31 December 2008.
Executive Remuneration
There are several components of remuneration provided to reward executives, presenting a balance of fixed and at-risk
pay as well as short and longer-term rewards. Consistent with market practice, the proportion of remuneration attributable
to each component depends on the executive’s seniority. These components are as follows:
Fixed Remuneration
Base Salary
At-risk Remuneration
Short-Term Incentive (Corporate Bonus
Plan(CBP)); and
Long-Term Incentive (share rights and
share options)
The Company’s executive remuneration has been structured to ensure that it:
•
•
•
•
is reasonable;
provides a competitive compensation program to retain, attract and reward key employees;
achieves clear alignment between total remuneration and delivered business and personal performance over the
short and long-terms; and
is an appropriately balanced mix of fixed and at-risk compensation.
The Company places great importance on the need to retain key employees, thereby avoiding disruption to operations.
Accordingly, the use of both time-based and performance-based rewards is designed to ensure the Company’s leadership
is retained and delivers sustainable, long-term shareholder returns. The directors believe that the at-risk components of
the remuneration framework will effectively align senior management’s interests with those of shareholders.
_______________________________________________________________________________________
26
Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
The Directors believe that the achievement of certain performance objectives by executives of the Company links the
remuneration policy to the Company achieving its targeted performance objectives. The Company has only been a public
company since 11 April 2007 and therefore does not have a five-year history to present. An analysis of the past two
year’s remuneration and performance achievement has demonstrated the correlation between the short-term incentives
(CBP) and the Company’s achievement of its targeted performance objectives. For the 2007 plan year, the KMP received
between 67% and 85% of their target bonus amount. For the 2008 plan year, the KMP will receive between 83% and
90%* of their target bonus amount. In both years, management remuneration under the CBP directly tracked to corporate
financial targets established for those years, which represented between 50% of the bonus payable to senior executives
and 100% of the bonus payable to the Chief Executive Officer.
*100% for Mr. Ragan due to an employment agreement.
The table below shows summary information about the Company’s earnings and movements in shareholder wealth for the
last two years to 31 December 2008:
2008
US$'000
2007
US$'000
Revenue
Net profit after tax
Share price at start of period 1
Share price at end of year
Basic and diluted earnings per share
Dividends per share
1,838,538
156,724
$2.39
$0.20
10.4 cents
3.8 cents
1,575,737
81,115
$1.94
$2.35
5.4 cents
None
(1) The Company began trading shares on 5 April 2007.
The relative proportions in 2008 of the elements of the executive compensation that are fixed and related to on-target
achievement are:
Fixed
Incentive
Total
Executive Management
Paul Brunner
Craig Kipp
Joseph Ragan III
Scott Alexander
Michael Birch
Fabrizio Rasetti
Brad Baker
Short-term 1
50%
Long-term 2
0%
Short-term 3
50%
Long-term 4
0%
36%
38%
50%
41%
41%
42%
19%
18%
13%
20%
20%
19%
27%
26%
24%
20%
20%
21%
18%
18%
13%
19%
19%
18%
incentive based
50%
45%
44%
37%
39%
39%
39%
(1) Short-term fixed compensation includes salary and other benefits such as automotive allowances. One-time items
such as sign-on bonuses are excluded from the calculations. In addition, the purpose of the table is to present target
compensation percentages and accordingly, those executives that were not employed for the entire year were
annualised for the purpose of the table.
(2) Long-term fixed compensation includes 50% of the LTIP compensation that is based on only service conditions and
post-employment benefits. For Mr. Kipp, the long-term fixed compensation associated with the 2,500,000 share
options that were issued upon his acceptance of the Chief Executive Officer position were one-time grants and are
therefore excluded from the table.
(3) Short-term incentive compensation includes the annual bonus.
(4) Long-term incentive compensation includes the 50% of the LTIP compensation that is based on both performance
and service conditions.
_______________________________________________________________________________________
27
Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
Fixed Remuneration
The fixed component of executive compensation consists primarily of base salary. All executives receive other benefits,
such as a vehicle allowance. In addition, the Company contributes to retirement programs, such as Australia’s
Superannuation Guarantee system and the United States’ 401(k) plans. The level of fixed compensation paid to
employees is based on market standards and also takes into account a variety of factors, including an individual’s
experience, the unique skills required to perform their role and their particular contribution to the Company.
At-risk Remuneration
At-risk remuneration includes both short-term and long-term incentives.
Short-term Incentives
The Company has established its Corporate Bonus Plan (“CBP”) to provide incentives for its employees to achieve
specific annual objectives that are determined by the Board on an annual basis. The CBP aims to:
•
•
•
focus employees on achieving key financial, safety and operational targets;
align individual efforts with annual operating performance objectives; and
reward superior individual and Company performance.
The CBP rewards senior executives and other Company employees for their achievement during a financial year of
specific key performance indicators for the Company as well as for the achievement of performance goals specific to the
business unit or function for which they are responsible. The incentive earned under the CBP, if any, will vary depending
on relative performance against a variety of targets, as detailed more fully below. Except in certain circumstances, all
participants in the CBP must remain employed with the Company on the date incentives are paid to receive any award.
The potential incentives available under the CBP range between 10% and 100% of an employee’s base salary depending
on the employee’s role. Of that potential incentive, 50% is linked to the Company’s financial performance, and 50% is
linked to operational or functional objectives relevant to the employee’s business unit or function, such as meeting sales
targets, staying within expense budget or meeting other individual commitments. The Chief Executive Officer’s and
President and Chief Operating Officer’s incentive compensation in 2008 was based entirely on the achievement of the
Company’s Board-approved financial objectives for the year. Additionally, certain conditions may reduce, but not
increase, incentives under the CBP, including failure by a participant’s business unit to achieve target safety metrics
(which can reduce the overall incentive payable under the CBP by up to 10%) and a participant’s failure to adhere to
corporate leadership values, such as legal compliance (which can reduce the incentive payable under the CBP by up to
100%).
The Remuneration Committee approves the Company’s annual financial targets for the CBP. Targets are set at both
“threshold” and “stretch” levels. The committee also reviews non-financial targets for the CEO and his direct reports. The
committee’s philosophy in setting financial targets is to establish “threshold” targets that represent the desired minimum
outcome for each goal and “stretch” targets that are realistically achievable with excellent execution of the Company’s
annual plan. The financial performance indicators adopted by the Board in 2008 as the most appropriate measures in the
financial year for determining the incentives payable under the CBP were earnings before interest, taxes and depreciation
and amortisation (EBITDA) and net working capital. At the end of the financial year, the committee assesses the level of
achievement against financial and non-financial targets. The final determination of performance measures is determined
after reviewing the Company’s audited financial results.
Long-term Incentives
The Company has established a Long-term Incentive Plan (“LTIP”) to assist predominantly in retaining key executives and
encouraging superior performance on a sustained basis. The incentive provided under the LTIP in 2008 was an annual
grant of rights (“Rights”) that will vest based on the satisfaction of performance-based and/or time-based conditions.
Vested Rights will convert to ordinary, fully paid shares on a one-for-one basis.
The executives eligible to participate in the LTIP are senior divisional, regional and corporate executives. The target value
of annual LTIP grants varies up to 100% of a participant’s base salary depending on the participant’s position. The target
amounts are based on market averages for comparable roles at similarly-sized companies. The Company made grants to
approximately 120 participants in 2008.
_______________________________________________________________________________________
28
Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
Under the terms of the LTIP in 2008, a participant receives a specified number of Rights that will, when vested, result in
the participant receiving ordinary shares in the Company at no cost to the participant. The Company may acquire shares
underlying the grants, and the price paid by the Company will be the prevailing market price of the shares at the time of
acquisition. The acquired shares will be held in trust, and the participant will receive dividends paid on those shares from
the time of acquisition until vesting. Shares acquired in respect of grants which do not vest will be held by the trustee and
will be available for issue in respect of future grants for the Australian trust. Under the US trust, the grants which do not
vest, or are forfeited, must be sold immediately.
In 2008, the tranches of Rights granted under the LTIP and the vesting conditions attaching to each are as follows:
Tranche
Tranche 1
Rights
Percentage of
Grant
50% for
executives
who are at a
vice president
level or higher;
25% for other
participants.
Vesting Condition
Partial Vesting
Achievement of the cumulative earnings per
share (“EPS”) targets set by the Board at a level
the Board considers demanding. The targets
include a “threshold” EPS target and a “stretch”
EPS target for each financial year during the
three-year performance period. Vesting will be
determined by the Company’s performance
against cumulative EPS targets for the
performance period
plus
Yes. Vesting occurs on a pro-rata
basis if the cumulative three-year
minimum EPS threshold is
surpassed. At the minimum
cumulative EPS threshold, 50% of
Tranche 1 Rights will vest. Full
vesting occurs only if the
Company’s cumulative EPS meets
or exceeds the cumulative “stretch”
EPS target for the performance
period.
Continuation of employment during the
performance period and until the third
anniversary of the grant date.
Continuous employment from the grant date and
until the third anniversary of the grant date.
Tranche 2
Rights
50% for
executives
who are at a
vice president
level or higher;
75% for other
participants.
No, except in certain special
circumstances such as death,
redundancy, retirement, change of
control or other circumstances
considered by the Board in its
absolute discretion to be
extraordinary. In such
circumstances, the Board will
determine whether all or some
portion of the outstanding rights will
vest.
In addition to the LTIP, the Company has implemented an option plan for its Chief Executive Officer, the details of which
are discussed more fully on page 35.
Employee and Director Trading in Company Securities
Boart Longyear has adopted a Securities Trading Policy for its directors and employees. The policy prohibits trading in the
Company’s stock at any time if a person is in possession of material, non-public information. In addition, it prohibits short-
term trading and dealing in derivative securities and establishes “black-out” periods from July 1 and January 1 of each
year until such time as the Company’s half-year and full-year results are made public. The policy prohibits any director or
employee from entering into transactions that limit the economic risk of participating in unvested entitlements under the
Company’s equity-based remuneration schemes and it also requires directors to immediately disclose any Company
shares purchased on margin if a director were likely to sell Company shares in response to the financier’s demand for
repayment.
Further, when trades are allowed under the policy, non-executive directors and the Chief Executive Officer may only trade
in the Company’s shares with the consent of the Chairman, and executive officers and other designated employees must
obtain the consent of the Company’s General Counsel prior to any trade. The Chairman must obtain the consent of the
Chairman of the Audit, Risk & Compliance Committee to trade in the Company’s shares.
_______________________________________________________________________________________
29
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3
Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
Analysis of Bonuses Included in Remuneration
2008
Included as
Remuneration
% Vested in
% Forfeited in
Target STI % for
Year
Year
Financial Year
Paul Brunner
Craig Kipp
Joseph Ragan III 1
Scott Alexander
Michael Birch
Terrance Dolan
Patrick Johnson
Fabrizio Rasetti
Brad Baker 1
725,603
504,693
72,154
123,542
151,659
-
-
145,001
74,148
79.0
79.0
100.0
83.2
86.3
-
-
89.5
83.2
21.0
21.0
-
16.8
13.7
100.0
100.0
10.5
16.8
100
75/85
70
50
50
50
50
50
50
(1) The accrued bonuses for Messrs. Ragan and Baker have been calculated on a pro-rata basis since these executives were not
employed by the Company for the full calendar year.
2007
Included as
Remuneration 1
% Vested in
Year
% Forfeited in
Year 3
Target STI % for
Financial Year
Paul Brunner
Scott Alexander
Michael Birch
Terrance Dolan 2
Patrick Johnson
Craig Kipp
Holm Oostveen
Fabrizio Rasetti
Ronald Sellwood 2
743,250
119,000
91,954
36,833
116,600
366,563
-
116,025
185,938
85
85
85
85
85
85
-
85
85
15
15
15
15
15
15
100
15
15
100
50
50
50
50
75
50
50
70
(1) Bonus amounts included in remuneration for the financial year represent the amount that was accrued based on the achievement of
corporate performance criteria under the Corporate Bonus Plan for 2007. The actual bonus payments to management had not been
finalised by the date of the prior year Remuneration Report and in certain cases were different than those listed, as the Company’s
executive performance evaluation process for 2007 had not been completed.
(2) The accrued bonuses for Messrs. Dolan and Sellwood were calculated on a pro-rata basis since neither executive was employed by
the Company for the full calendar year.
(3) The percentages listed were those expected to be forfeited during the financial year due to corporate financial performance criteria
not being met under the Corporate Bonus Plan for 2007 or for the cessation of an executive’s employment.
_______________________________________________________________________________________
34
Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
Rights, Options and Shares Granted as Compensation to Key Management Personnel
Rights and Shares
Details of the rights under the LTIP and restricted shares that were granted as compensation to the KMP during the
reporting period, and details of those that were exercised, vested, or lapsed during the financial year are as follows:
Held at the
beginning of
Granted as
the Financial
Year
No.
Remun-
eration
No.
491,891
45,945
32,432
-
72,972
-
-
-
-
-
-
174,000
-
-
-
-
-
1
2
1
4
1
3
85,000
200,000
494,710
300,000
178,500
150,000
-
Name
Graham Bradley
Bruce Brook
Geoff Handley
David McLemore
Peter St George
Scott Alexander
Michael Birch
Craig Kipp
Joseph Ragan III
Fabrizio Rasetti
Brad Baker
Terrance Dolan
Vested
during the
Forfeited
during the
Vested and
Held at the
Exercisable
end of the
Financial
as at
31 December
year
No.
-
-
(32,432)
-
-
-
-
-
-
-
-
-
year
No.
Year
No.
2008
No.
-
-
-
-
-
-
-
-
-
-
-
(174,000)
491,891
45,945
-
-
72,972
85,000
200,000
494,710
300,000
178,500
150,000
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) The fair value of the rights at the grant date is the closing price on the 11 April 2008 date of grant (US$1.77), the rights vest over a
three-year period from the grant date, with 50% subject to certain performance conditions.
(2) The fair value of the rights at the grant date is the closing price on the 11 April 2008 and 26 June 2008 date of grant (US$1.77 and
US$2.10, respectively). The rights vest over a three-year period from the grant date, with 50% subject to certain performance
conditions.
(3) The fair value of the rights at the grant date is the closing price on the 26 June 2008 date of grant (US$2.10). The rights vest over a
three-year period from the grant date, with 50% subject to certain performance conditions.
(4) The fair value of the rights at the grant date is the closing price on the 23 October 2008 date of grant (US$0.40). The rights vest
over a three-year period from the grant date, with 50% subject to certain performance conditions.
The rights under the LTIP and the restricted shares were provided at no cost to the recipient.
Mr. Handley’s restricted shares were vested by the Board upon his resignation.
The rights under the LTIP granted to Mr. Dolan were forfeited upon his resignation.
Options
During the year, Mr. Kipp was granted two tranches of options in conjunction with his appointment as Chief Executive
Officer. The first tranche of 1,000,000 options vests on 1 January 2013 and has an exercise price of A$1.95 per option
and a fair value on the grant date of US$0.69 per option. The second tranche of 1,500,000 options vests on 1 January
2014 and has an exercise price of A$0.21 and a fair value on the grant date of US$1.45 per option. Vesting for both
tranches of options is conditioned on Mr. Kipp’s employment with the Company on the relevant vesting date, although
vesting may accelerate upon certain events such as a change in control. Both tranches of options expire on 31 December
2015.
Except as described above, no options or other rights over shares in the Company have been granted to KMP during or
since the end of the financial year.
During the reporting period, no shares were issued on the exercise of options or rights previously granted as
compensation.
_______________________________________________________________________________________
35
Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
Analysis of Movements in Rights, Options and Shares
The movement during the reporting period, by value of the relevant rights, options and shares in the Company held by
KMP is detailed below:
Entitlement
to rights
Share
options
Total rights
Total option
granted in
granted in
Exercised in
Forfeited in
value in
value in
year
US$
875,637
265,500
315,945
150,450
383,535
120,000
-
-
year
US$
2,864,367
-
-
-
-
-
-
-
year
US$
year
US$
year
US$
-
-
-
-
-
-
49,621
-
-
-
-
-
-
-
-
314,940
875,637
265,500
315,945
150,450
383,535
120,000
-
-
year
US$
2,864,367
-
-
-
-
-
-
-
Name
Craig Kipp
Brad Baker
Fabrizio Rasetti
Scott Alexander
Michael Birch
Joseph Ragan III
Geoff Handley
Terrance Dolan
The following table shows the share-based payment arrangements that were in existence at 31 December 2008:
Series
Grant Date
Expiry Date
(1) Issued 12 April 2007
(2) Issued 17 September 2007
(3) Issued 11 April 2008
(4) Issued 28 April 2008
(5) Issued 28 April 2008
(6) Issued 26 June 2008
(7) Issued 23 July 2008
(8) Issued 23 October 2008
12-Apr-07
17-Sep-07
11-Apr-08
28-Apr-08
28-Apr-08
26-Jun-08
23-Jul-08
23-Oct-08
12-Apr-10
1-Jul-10
11-Apr-11
1-Jan-13
1-Jan-14
11-Apr-11
23-Jul-11
23-Oct-11
Vesting
Date
N/A
1-Jul-10
11-Apr-11
31-Dec-15
31-Dec-15
11-Apr-11
23-Jul-11
23-Oct-11
Fair Value at
Grant Date
1.53
1.81
1.77
0.69
1.45
2.10
2.05
0.40
_______________________________________________________________________________________
36
Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
Service Agreements and Summary of Key Contract Terms
Summary of specific terms of the contracts between the Company and Key Management Personnel are set out below.
Name and position
held at the end of
Financial Year
Craig Kipp
Chief Executive Officer
President
Duration of
contract
Notice
Period by
Company
Notice
Termination payments
Period by
(where these are in addition to
Executive
statutory entitlements)
None Specified
None Specified
180 Days
• For termination with cause, statutory
• For termination without cause
• 12 months' salary
• Pro-rata bonus to termination date
• Waiver of medical insurance
premiums for 12 months
or until 31 December 2010,
whichever is later
• Up to $100,000 relocation expense
reimbursement
• Tax gross-up payment should any
termination or other contractual
payment be deemed subject to an
excise tax under the US tax code
Scott Alexander
None Specified
None Specified
90 days
• For termination with cause, statutory
Vice President, Global
Drilling Services
entitlements only
• For termination without cause
• 12 months' salary
• Pro-rata bonus to termination date
• Waiver of medical insurance
premiums for 12 months
Brad Baker
None Specified
None Specified
90 days
• For termination with cause, statutory
Senior Vice President, Human
Resources
entitlements only
• For termination without cause
• 12 months' salary
• Pro-rata bonus to termination date
• Waiver of medical insurance
premiums for 12 months
Michael Birch
None Specified
None Specified
90 days
• For termination with cause, statutory
Vice President, Global Products
entitlements only
• For termination without cause
• 12 months' salary
• Pro-rata bonus to termination date
• Waiver of medical insurance
premiums for 12 months
_______________________________________________________________________________________
37
Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
Name and position
held at the end of
Financial Year
Fabrizio Rasetti
Senior Vice President,
General Counsel
and Secretary
Duration of
contract
Notice
Period by
Company
Notice
Termination payments
Period by
(where these are in addition to
Executive
statutory entitlements)
None Specified
None Specified
90 days
• For termination with cause, statutory
entitlements only
• For termination without cause
• 12 months' salary
• Pro-rata bonus to termination date
• Waiver of medical insurance
premiums for 12 months
Joseph Ragan, III
None Specified
None Specified
90 days
• For termination with cause, statutory
Chief Financial Officer
NON-AUDIT SERVICES
entitlements only
• For termination without cause
• 12 months' salary
• Pro-rata bonus to termination date
• Waiver of medical insurance
premiums for 12 months
Details of amounts paid or payable for non-audit services provided during the year by the auditor are outlined in Note 36 to
the financial statements.
The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or
firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001.
The directors are of the opinion that the services, as disclosed in Note 36 to the financial statements, do not compromise
the external auditor’s independence, based on advice received from the Audit Committee, for the following reasons:
•
•
all non-audit services have been reviewed and approved by the Audit Committee to ensure that they do not
impact the integrity and objectivity of the auditor; and
none of the services undermine the general principles relating to auditor independence as set out in Code of
Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical
Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-
making capacity for the company, acting as an advocate for the company or jointly sharing economic risks and
rewards.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND AUDITORS
The directors and officers of the Company are indemnified by the Company to the maximum extent permitted by law
against liabilities incurred in their respective capacities as directors or officers. In addition, during the financial year the
Company paid premiums in respect of contracts insuring directors and officers of the Company and any related body
corporate against liabilities incurred by them to the extent permitted by the Corporations Act 2001. The insurance
contracts prohibit disclosure of the nature of the liability and the amount of the premium.
The Company has not paid any premiums in respect of any contract insuring Deloitte Touche Tohmatsu, against a liability
incurred in the role as an auditor of the Company.
_______________________________________________________________________________________
38
Annual Financial Report
31 DECEMBER 2008 BOART LONGYEAR LIMITED
AUDITOR’S INDEPENDENCE DECLARATION
The auditor’s independence declaration is included on page 40 of the annual financial report.
ROUNDING OF AMOUNTS
Boart Longyear Limited is a company of a kind referred to in Class Order 98/100, issued by the Australian Securities and
Investments Commission, relating to the “rounding off” of amounts in the directors’ report and financial report. Amounts in
the directors’ report and the financial report are presented in US dollars and have been rounded off to the nearest
thousand dollars in accordance with that Class Order, unless otherwise indicated.
Signed in accordance with a resolution of the directors.
On behalf of the Directors
Graham Bradley
Chairman
Sydney, 26 February 2009
Craig Kipp
Chief Executive Officer
Sydney, 26 February 2009
_______________________________________________________________________________________
39
The Directors
Boart Longyear Limited
919-929 Marion Road
Mitchell Park SA 5043
Australia
26 February 2009
Dear Directors
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Boart Longyear Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of
independence to the directors of Boart Longyear Limited.
As lead audit partner for the audit of the financial statements of Boart Longyear Limited for the financial year
ended 31 December 2008, I declare that to the best of my knowledge and belief, there have been no contraventions
of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Rod Smith
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
_______________________________________________________________________________________
40
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Independent Auditor’s Report
to the members of Boart Longyear Limited
Report on the Financial Report
We have audited the accompanying financial report of Boart Longyear Limited, which comprises the balance sheet as at
31 December 2008, and the income statement, cash flow statement and statement of recognised income and expense for
the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’
declaration of the consolidated entity, comprising the company and the entities it controlled at the year’s end or from
time to time during the financial year as set out on pages 43 to 120.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation and fair presentation of the financial report in
accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the
preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or
error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances. The directors are also responsible for the compensation disclosures contained in the directors’ report. In
Note 3, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that
the financial report, comprising the financial statements and notes comply with International Financial Reporting
Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation
of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
_______________________________________________________________________________________
41
Auditor’s Independence Declaration
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s Opinion on the Financial Report
In our opinion:
(a) the financial report of Boart Longyear Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 31 December
2008 and of their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and
the Corporations Regulations 2001; and
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 3.
Report on Remuneration Report
We have audited the Remuneration Report included on pages 25 to 38 of the directors’ report for the year ended 31
December 2008. The directors of the company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to
express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Auditor’s Opinion
In our opinion, the Remuneration Report of Boart Longyear Limited for the year ended 31 December 2008, complies
with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Rod Smith
Partner
Chartered Accountants
Sydney, 26 February 2009
_______________________________________________________________________________________
42
BOART LONGYEAR LIMITED
ANNUAL FINANCIAL REPORT
31 DECEMBER 2008
DIRECTORS’ DECLARATION
The directors declare that:
(a) in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as
and when they become due and payable;
(b) in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the
Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the
financial position and performance of the consolidated entity; and
(c) the directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of the directors made pursuant to section 295(5) of the Corporations Act 2001.
Graham Bradley
Chairman
Sydney, 26 February 2009
Craig Kipp
Chief Executive Officer
Sydney, 26 February 2009
_______________________________________________________________________________________
43
Income Statement
For the financial year ended 31 December 2008 BOART LONGYEAR LIMITED
Consolidated
Parent
Note
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
Revenue
Cost of goods sold
Gross margin
Other revenue
Other income
General and administrative expenses
Selling and marketing expenses
Restructuring expenses and related impairments
Other expenses
Operating profit
Interest income
Finance costs
Profit before taxation
Income tax (expense) benefit
Profit for the year attributable
to equity holders of the parent
5
5
7
9
5
6
8
1,838,538
(1,260,620)
577,918
1,575,737
(1,069,360)
506,377
-
18,427
(181,695)
(118,295)
(20,328)
(6,697)
269,330
1,637
(39,688)
231,279
(74,555)
-
18,466
(150,260)
(129,295)
(5,584)
(2,734)
236,970
5,012
(105,922)
136,060
(54,945)
-
-
-
55,110
-
(1,753)
-
-
(2,118)
51,239
603
-
51,842
(1,751)
156,724
81,115
50,091
-
-
-
15,108
-
(5,996)
-
-
(7,640)
1,472
3,049
-
4,521
2,988
7,509
Earnings per share:
Basic and diluted earnings per share
26
10.4 cents
5.4 cents
_______________________________________________________________________________________
See accompanying notes to the financial statements.
44
Balance Sheet
As at 31 December 2008 BOART LONGYEAR LIMITED
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other financial assets
Current tax receivable
Prepaid expenses
Assets classified as held for sale
Total current assets
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Deferred tax assets
Other financial assets
Other assets
Defined benefit plan asset
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Provisions
Current tax payable
Loans and borrowings
Liabilities directly associated with non-current
assets classified as held for sale
Total current liabilities
Non-current liabilities
Trade and other payables
Loans and borrowings
Other financial liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Other equity
Retained earnings (accumulated losses)
Total equity
Note
32a
11
12
13
8
14
15
16
8
13
20
17
19
8
18
17
18
13
8
19
21
22
23
24
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
50,603
234,578
177,296
306
10,161
26,166
499,110
-
499,110
403,693
234,571
73,456
68,537
-
1,609
13,031
794,897
1,294,007
195,597
23,109
32,378
3,314
254,398
-
254,398
1,293
811,604
27,197
2,130
45,037
887,261
1,141,659
152,348
478,036
(118,319)
(141,539)
(65,830)
152,348
87,548
243,212
176,265
604
9,918
32,975
550,522
16,067
566,589
358,360
206,186
29,478
31,391
-
544
19,797
645,756
1,212,345
244,685
14,318
25,323
6,543
290,869
8,370
299,239
200
650,170
12,985
7,632
22,479
693,466
992,705
219,640
479,673
22,534
(141,539)
(141,028)
219,640
108
28,323
-
-
6,583
-
35,014
-
35,014
-
-
-
11,614
2,186,106
-
-
2,197,720
2,232,734
1,511
-
-
-
1,511
-
1,511
-
-
-
-
-
-
1,087
61,197
-
-
-
-
62,284
-
62,284
-
-
-
15,999
2,175,180
-
-
2,191,179
2,253,463
8,533
-
7,277
-
15,810
-
15,810
-
-
-
-
-
-
1,511
2,231,223
15,810
2,237,653
2,228,139
2,229,776
2,592
-
492
368
-
7,509
2,231,223
2,237,653
_______________________________________________________________________________________
See accompanying notes to the financial statements.
45
Statement of Recognised Income and Expense
For the financial year ended 31 December 2008 BOART LONGYEAR LIMITED
Consolidated
Parent
2007
US$'000
2008
US$'000
2007
US$'000
Loss on cash flow hedges recorded in equity
Exchange differences arising on translation
of foreign operations
Actuarial gains (losses) related to defined
Note
22
22
2008
US$'000
(20,359)
(133,764)
benefit plans
20
(31,679)
Income tax on income and expense recognised
directly through equity
Net income (expense) recognised directly in equity
Transfer to profit or loss on cash flow hedges
22
Income tax on transfers to profit and loss
Profit for the period
Total recognised income and expense
for the period
14,128
(171,674)
6,147
(1,967)
156,724
(9,107)
34,695
29,847
(4,526)
50,909
(1,673)
669
81,115
-
-
-
-
-
-
-
50,091
50,091
-
-
-
-
-
-
-
7,509
7,509
(10,770)
131,020
_______________________________________________________________________________________
See accompanying notes to the financial statements.
46
Cash Flow Statement
For the financial year ended 31 December 2008 BOART LONGYEAR LIMITED
Consolidated
Parent
Note
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
Cash flows from operating activities
Profit for the year
Adjustments provided by operating activities:
Income tax expense (benefit) recognised in profit
Finance costs recognised in profit
Depreciation and amortisation
Investment revenue recognised in profit
Loss on sale or disposal of non-current assets
Gain on disposal of businesses
Impairment of current and non-current assets
Foreign exchange gain (loss)
Share-based compensation
Non-operating expenses
Changes in net assets and liabilities, net of effects
from acquisition and disposal of businesses:
(Increase) decrease in assets:
Trade and other receivables
Inventories
Other assets
Increase (decrease) in liabilities:
Trade and other payables
Provisions
Cash generated from operations
Interest paid
Interest received
Income taxes paid
Net cash flows from operating activities
6
7
5
7
7
22
5
156,724
81,115
50,091
74,555
39,688
86,347
(1,637)
1,018
(9,131)
6,577
6,462
2,224
(536)
(16,213)
(48,559)
(2,222)
(29,505)
5,058
270,850
(38,023)
1,637
(91,593)
142,871
54,945
105,922
59,848
(5,012)
272
(3,218)
-
(6,506)
775
10,807
(24,025)
(46,326)
(6,187)
46,084
(22,904)
245,590
(36,623)
5,012
(56,201)
157,778
1,751
-
-
(603)
-
-
-
-
-
-
28,516
-
4,385
(16,051)
-
68,089
-
603
-
68,692
7,509
(2,988)
-
-
(3,049)
-
-
-
-
-
5,207
(60,829)
-
50,723
15,810
-
12,383
-
3,049
-
15,432
_______________________________________________________________________________________
See accompanying notes to the financial statements.
47
Cash Flow Statement (continued)
For the financial year ended 31 December 2008 BOART LONGYEAR LIMITED
Consolidated
Parent
Note
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Development costs paid
Software costs paid
Payments for acquisitions of businesses
Proceeds on disposal of subsidiary,
net of cash disposed
Payments for investments
Purchase of derivative instruments
Net cash flows used in investing activities
Cash flows from financing activities
Proceeds from issuance of shares
Payments for share buy-back for LTIP
Payments for share issuance costs
Payments for debt issuance costs
Interest and other costs of finance related to
pre-IPO debt structure
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Payment to redeemable note holders
Net cash flows from financing activities
32b
32c
25
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on the balance
of cash held in foreign currencies
Cash and cash equivalents at the end of the year
32a
(145,910)
3,484
(5,081)
(15,890)
(138,426)
19,624
-
-
(282,199)
-
(1,637)
-
(523)
-
287,079
(133,128)
(57,108)
-
94,683
(44,645)
87,548
7,700
50,603
(124,278)
7,293
(3,032)
-
(129,833)
10,053
-
(1,054)
(240,851)
1,952,655
-
(76,613)
(16,955)
(37,332)
1,060,518
(1,709,427)
-
(1,030,828)
142,018
58,945
25,530
3,073
87,548
-
-
-
-
-
-
(10,926)
-
(10,926)
-
(1,637)
-
-
-
-
-
(57,108)
-
(58,745)
(979)
1,087
-
108
-
-
-
-
-
-
(1,890,388)
-
(1,890,388)
1,952,656
-
(76,613)
-
-
-
-
-
-
1,876,043
1,087
-
-
1,087
_______________________________________________________________________________________
See accompanying notes to the financial statements.
48
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
1.
GENERAL INFORMATION
General information
Boart Longyear Limited (the “Parent” or the “Company”) is a public company listed on the Australian Securities
Exchange Limited (“ASX”) and is incorporated in Australia. Boart Longyear Limited and subsidiaries (collectively
referred to as the “Boart Longyear Group” or the “Group”) operate in five geographic regions, which are defined
as North America, South America, Europe, Asia Pacific, and Africa.
Boart Longyear Limited’s registered office and its principal place of business are as follows:
Registered office
919-929 Marion Road
Mitchell Park South Australia 5043
Australia
Tel: +61 (8) 8375 8375
Principal place of business
Riverpark Corporate Center #14 Suite 600
10808 South River Front Parkway
South Jordan , Utah 84095
United States of America
Tel: +1 (801) 972 6430
2.
ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS
The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian
Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual
reporting period. Details of the impact of these new accounting standards are set out in the individual accounting
policy notes set out below. These Standards and Interpretations include:
• AASB 2007-4 ‘Amendments to Australian Accounting Standards Arising from ED 151 and Other
Amendments’. The adoption of this Standard did not change any of the amounts recognised in the
financial statements but did change the format of the Cash Flows Statement from the direct method to
the indirect method.
• AASB Interpretation 11 AASB 2 ‘Group and Treasury Share Transactions’ and AASB 2007 – 1
‘Amendments to Australian Accounting Standards arising from AASB Interpretation 11’. The adoption of
this Interpretation did not have a significant impact on the Group’s financial results or balance sheet.
• AASB Interpretation 14 AASB 119 ‘The Limit on a Defined Asset, Minimum Funding Requirements and
their Interactions’ is effective for annual reporting periods commencing on or after 1 January 2008.
Interpretation 14 aims to clarify how to determine in normal circumstances the limit on the asset that an
employer’s balance sheet may contain in respect of its defined benefit pension plan. The adoption of
Interpretation 14 did not have a significant impact on the Group.
• AASB 2008-4 ‘Amendments to Australian Accounting Standard – Key Management Personnel
Disclosures by Disclosing Entities’ is effective for annual reporting periods ending on or after 30 June
2008. This amends AASB 124 ‘Related Party Disclosures’ to exclude disclosing entities that are
companies from the application of certain paragraphs in the standard (dealing with certain key
management personnel disclosures), as the requirements for these entities are now incorporated into
the Corporations Act, 2001. The adoption of this standard did not have a significant impact on the
Group.
Standards and Interpretations issued not yet effective
The accounting standards and AASB Interpretations that will be applicable to the Group in future reporting
periods are detailed below. Apart from these standards and interpretations, management has considered other
accounting standards that will be applicable in future periods, however they have been considered insignificant to
the Group.
Business Combinations
AASB 3 ‘Business Combinations (2008)’, AASB 127 ‘Consolidated and Separate Financial Statements’ and
AASB 2008-3 ‘Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127’ are
effective for annual reporting periods commencing on or after 1 July 2009. These standards alter the manner in
which business combinations and changes in ownership interests in subsidiaries are accounted for. There are
also consequential amendments to other standards affected through AASB 2008-2, most notably AASB 128
‘Investments in Associates’ and AASB 131 ‘Interests in Joint Ventures’. Management has not yet assessed the
impact of these standards.
_______________________________________________________________________________________
49
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
2.
ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS (CONTINUED)
Borrowing costs
AASB 123 ‘Borrowing Costs’ was revised in May 2007, with the revised standard becoming applicable to annual
reporting periods beginning on or after 1 January 2009. A related omnibus standard AASB 2007-6 ‘Amendments
to Australian Accounting Standards arising from AASB 123’ makes a number of amendments to other accounting
standards as a result of the revised AASB 123 and must be adopted at the same time. This revised version
requires an entity to capitalise borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset. The adoption of this standard is not expected to have an impact on the Group’s
financial results or balance sheet.
Segment reporting
AASB 8 ‘Operating Segments’ is applicable to annual reporting periods beginning on or after 1 January 2009 and
replaces AASB 114 ‘Segment Reporting’. A related omnibus standard AASB 2007-3 ‘Amendments to Australian
Accounting Standards arising from AASB 8’ makes a number of amendments to other accounting standards as a
result of AASB 8 and must be adopted at the same time. AASB 8 requires entities to determine operating
segments based on their internal management reporting structure for the reporting of their financial performance.
The adoption of AASB 8 and AASB 2007-3 are not expected to have an impact on the Group’s financial results or
balance sheet as they are only concerned with disclosure.
Share-based payments
•
AASB 2008-1 ‘Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions
and Cancellations’ is applicable to annual reporting periods beginning on or after 1 January 2009. It amends
AASB 2 ‘Share-based Payment’ to introduce equivalent amendments made to IFRS 2 ‘Share-based Payment’ to:
clarify that vesting conditions are those conditions that determine whether the entity receives the
services that result in the counterparty’s entitlement
restrict the definition of vesting conditions to include only service conditions and performance conditions
amend the definition of performance conditions to require the completion of a service period in addition
to specified performance targets
specify that all cancellations, whether by the entity or by other parties, should receive the same
accounting treatment.
•
•
•
Management has not yet assessed the impact of adopting this standard.
Other standards
AASB 101 ‘Presentation of Financial Statements (revised September 2007)’, AASB 2007-10 ‘Further
Amendments to Australian Accounting Standards arising from AASB 101’ is effective for annual reporting periods
commencing on or after 1 January 2009. AASB 101 introduces “total comprehensive income”, changes the titles
of some of the financial statements, requires a statement of financial position at the beginning of the earliest
comparative period when comparatives are “restated”, requires disclosure of income tax relating to each
component of other comprehensive income. Management has not yet assessed the impact of this standard.
3.
SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
This financial report is a general purpose financial report which has been prepared in accordance with the
requirements of applicable Accounting Standards including Australian Interpretations and the Corporations Act
2001
The financial report includes the separate financial statements of the Parent and the consolidated financial
statements of the Group.
Accounting Standards include Australian equivalents to International Financial Reporting Standards (“A-IFRS”).
Compliance with A-IFRS ensures that the financial statements and notes of the Parent and the Group comply
with IFRS.
The financial report is presented in United States dollars which is Boart Longyear Limited’s functional and
presentation currency. The financial statements were authorised for issue by the directors on 26 February 2009.
_______________________________________________________________________________________
50
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basis of preparation
The financial report has been prepared on a historical cost basis, except for the revaluation of certain financial
instruments that are stated at fair value. Cost is based on fair values of the consideration given in exchange for
assets.
In applying A-IFRS, management is required to make judgments, estimates and assumptions that affect the
application of accounting policies and reported amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis of making judgments
about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision affects only that period, or in the
period of the revision and future periods if the revision affects both current and future periods.
Judgments made by management in the application of A-IFRS that have significant effects on the financial
statements and estimates with a significant risk of material adjustments in the next year are disclosed, where
applicable, in the relevant notes to the financial statements.
Accounting policies are selected and applied in a manner which ensures that the resulting financial information
satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying
transactions or other events is reported. These accounting policies have been consistently applied by each entity
in the Group.
The consolidated financial statements are prepared by combining the financial statements of all of the entities
that comprise the consolidated entity, Boart Longyear Limited and subsidiaries as defined in AASB 127
‘Consolidated and Separate Financial Statements’. Consistent accounting policies are applied by each entity and
in the preparation and presentation of the consolidated financial statements.
Subsidiaries are all entities for which the Boart Longyear Group has the power to govern the financial and
operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries
are fully consolidated from the date on which control is transferred to the Group until such time as the Group
ceases to control such entity. Where necessary, adjustments are made to the financial statements of subsidiaries
to make their accounting policies consistent with the Boart Longyear Group accounting policies.
In preparing the consolidated financial statements, all inter-company balances and transactions, and unrealised
income and expenses arising from inter-company transactions, are eliminated. Unrealised losses are eliminated
in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
The significant accounting policies set out below have been applied in the preparation and presentation of the
financial report for the year ended 31 December 2008 and the comparative information.
_______________________________________________________________________________________
51
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a)
Presentation currency
Results of the major operating businesses are recorded in their functional currencies, which are
generally their local currency. The Group’s US dollar denominated revenue represents the most
predominant currency. Accordingly, under A-IFRS, management believes that US dollar reporting
represents the best indicator of the results of the Group and therefore the consolidated financial
information is presented in US dollars.
(b)
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and deposits repayable on demand with a financial
institution. Cash balances and overdrafts in the balance sheet are stated at gross amounts within
current assets and current liabilities, unless there is a legal right of offset at the bank. The cash and
cash equivalents balance primarily consists of money market funds and bank term deposits with original
maturity at time of purchase of three months or less that are readily convertible to known amounts of
cash and which are subject to an insignificant risk of changes in value.
(c)
Trade and other receivables
Trade receivables are recorded at amortised cost. The Group reviews collectability of trade receivables
on an ongoing basis and makes judgments as to its ability to collect outstanding receivables and
provides an allowance for credit losses when there is objective evidence that the Group will not be able
to collect the debt. The amount of the loss is recognised in the income statement within operating
expenses. When a trade receivable is determined to be uncollectible, it is written off against the
allowance account for doubtful debts. Subsequent recoveries of amounts previously written off are
recorded in other income in the income statement.
(d)
Inventories
Products
Inventories are measured at the lower of cost or net realisable value. The cost of inventories is based
on a standard cost method, which approximates actual cost on a first-in first-out basis, and includes
expenditures incurred in acquiring the inventories and bringing them to their existing location and
condition. In the case of manufactured inventories and work in progress, cost includes an appropriate
share of production overheads (including depreciation) based on normal operating capacity. Net
realisable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and selling expenses.
Drilling Services
The Group maintains an inventory of core drilling rods and casings and certain consumables for use in
the rendering of services. Such inventories are measured at the lower of cost or net realisable value.
Core drilling rods and casings are initially recognised at cost and are expensed as utilised. A regular
and ongoing review is undertaken to establish whether any items are obsolete or damaged, and if so
their carrying amount is written down to its net realisable value. Allowances are recorded for inventory
considered to be excess or obsolete.
_______________________________________________________________________________________
52
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e)
Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and impairment
losses. Cost includes expenditures that are directly attributable to the acquisition of the asset, including
the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a
working condition for its intended use, and the present value at acquisition of the costs of dismantling
and removing the items and restoring the site on which they are located. Purchased software that is
integral to the functionality of the related equipment is capitalised as part of that equipment. When parts
of an item of property, plant and equipment have different useful lives, they are accounted for as
separate assets.
Subsequent costs are recognised in the carrying amount of an item of property, plant and equipment, as
appropriate, only when it is probable that the future economic benefits embodied within the item will flow
to the consolidated entity and the cost of the item can be measured reliably. All other costs, including
repairs and maintenance, are recognised in the income statement as an expense as incurred.
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each
part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the
lease term or their useful lives. Land and properties in the course of construction are not depreciated.
The following useful lives are used in the calculation of depreciation:
Buildings
Plant and machinery
Drilling rigs
Other drilling equipment
Office equipment
Computer equipment:
Hardware
Software
20-40 years
5-10 years
5-12 years
1-5 years
5-10 years
3-5 years
1-7 years
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
(f)
Goodwill and other intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the attributable net
assets and is not amortised, but tested for impairment annually. If there is an indication that the goodwill
may be impaired, the impairment is recognised in income and is not subsequently reversed. When the
excess of the cost of an acquisition over the fair value of the attributable net assets is negative (a
surplus on acquisition), it is recognised immediately in profit or loss.
Trademarks and trade names
Trademarks and trade names recognised by the Boart Longyear Group that are considered to have
indefinite useful lives are not amortised. Each period, the useful life of each of these assets is reviewed
to determine whether events and circumstances continue to support an indefinite useful life assessment
for the asset. Trademarks and trade names that are considered to have a finite useful life are carried at
cost less accumulated amortisation and accumulated impairment losses and have an average useful life
of 3 years. Such assets are tested for impairment at least annually or more frequently if events or
circumstances indicate that the asset might be impaired.
_______________________________________________________________________________________
53
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Contractual customer relationships
Contractual customer relationships acquired in a business combination are identified and recognised
separately from goodwill where they satisfy the definition of an intangible asset and their fair values can
be measured reliably. Contractual customer relationships have a finite useful life and are carried at cost
less accumulated amortisation and accumulated impairment losses.
Contractual customer relationships are amortised over 10 – 15 year periods on a straight line basis.
The estimated useful life and amortisation method is reviewed at the end of each annual reporting
period, with any changes being recognised as a change in accounting estimate.
Patents
Patents are measured at cost less accumulated amortisation and accumulated impairment losses.
Amortisation is charged on a straight line basis over their estimated useful lives of 10 years. The
estimated useful life and amortisation method is reviewed at the end of each annual reporting period,
with any changes being recognised as a change in accounting estimate.
Research and development costs
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical
knowledge and understanding, is recognised in profit or loss when incurred.
Development activities involve a plan or design for the production of new or substantially improved
products and processes. Development expenditure is capitalised only if development costs can be
measured reliably, the product or process is technically and commercially feasible, future economic
benefits are probable, and the Boart Longyear Group intends to and has sufficient resources to
complete development and to use or sell the asset. The expenditure capitalised includes the cost of
materials, direct labour and overhead costs that are directly attributable to preparing the asset for its
intended use. Other development expenditure is recognised in profit or loss when incurred.
Capitalised development expenditure is measured at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is recognised in profit or loss on a straight line basis over
the estimated useful lives, which on average is 15 years.
Subsequent expenditure on intangible assets is capitalised only when it increases the future economic
benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure
on internally generated goodwill and brands, is recognised in profit or loss when incurred.
(g)
Assets classified as held for sale
Non-current assets (and disposal groups) classified as held for sale and liabilities directly associated are
measured at the lower of carrying amount or fair value less costs to sell.
The Boart Longyear Group classifies non-current assets and disposal groups as held for sale if their
carrying amount will be recovered principally through a sale transaction rather than through continuing
use. This condition is regarded as met only when the asset (or disposal group) is available for
immediate sale in its present condition subject only to terms that are usual and customary for such a
sale and the sale is highly probable. The sale of the asset (or disposal group) must be expected to be
completed within one year from the date of classification, except in the circumstances where sale is
delayed by events or circumstances outside the Group’s control but it remains committed to a sale.
The Group discloses the results of these disposal groups as discontinued operations on the face of the
income statement only if they meet the following requirements:
•
•
•
represent a separate major line of business or geographical area of operations;
are part of a single coordinated plan to dispose of a separate major line of business or geographical
area of operations; or
are a subsidiary acquired exclusively with a view to resale.
_______________________________________________________________________________________
54
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h)
Leased assets
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks
and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as
operating leases.
Assets held under finance leases are initially recognised at their fair value or, if lower, at amounts equal
to the present value of the minimum lease payments, each determined at the inception of the lease.
The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.
Lease payments are apportioned between finance charges and reduction of the lease obligation so as to
achieve a constant rate of interest on the remaining balance of the liability. Finance charges are
charged directly against income, unless they are directly attributable to qualifying assets, in which case
they are capitalised in accordance with the Group’s general policy on borrowing costs. Refer to Note
3(o). Contingent rentals are recognised as expenses in the periods in which they are incurred.
Finance leased assets are amortised on a straight-line basis over the shorter of the lease term or the
estimated useful life of the asset.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term,
except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed. Contingent rentals arising under operating leases are
recognised as an expense in the period in which they are incurred.
Lease incentives
In the event that lease incentives are received to enter into operating leases, such incentives are
recognised as a liability. The aggregate benefits of incentives are recognised as a reduction of rental
expense on a straight-line basis over the term of the lease, except where another systematic basis is
more representative of the time pattern in which economic benefits from the leased asset are
consumed.
(i)
Current and deferred taxation
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or
loss except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity or where it arises as part of a business combination, in which case it is recognised
in goodwill.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is recognised using the balance sheet method, in respect of all temporary differences that
have originated but not reversed at the balance sheet date where transactions or events that result in an
obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the
balance sheet date. Temporary differences are differences between the Group’s taxable profits and its
results as stated in the financial statements that arise from the inclusion of gains and losses in tax
assessments in periods different from those in which they are recognised in the financial statements.
Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill,
the initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to
the extent that they probably will not reverse in the foreseeable future.
_______________________________________________________________________________________
55
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
Current and deferred taxation (continued)
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences
when they reverse, based on the laws that have been enacted or substantively enacted by the reporting
date.
A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all
available evidence, it can be regarded as more likely than not that there will be suitable taxable profits
from which the future reversal of the underlying temporary differences can be deducted. Deferred tax
assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as
the liability to pay the related dividend is recognised.
Tax consolidation
The Group includes tax consolidated groups for the entities incorporated in Australia and the United
States. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary
differences of the members of each tax-consolidated group are recognised in the separate financial
statements of the members of that tax-consolidated group using the ‘separate taxpayer within group’
approach by reference to the carrying amounts in the separate financial statements of each entity. Tax
values arising from the unused tax losses and relevant tax credits of each members of the tax-
consolidated group are recognised by the head entity in that tax-consolidated group.
Entities within the various tax-consolidated groups will enter into tax funding arrangements and tax-
sharing agreements with the head entities. Under the terms of the tax funding arrangements, the
relevant head entity and each of the entities in that tax-consolidated group will agree to pay a tax
equivalent payment to or from the head entity, based on the current tax liability or current tax asset of
the entity.
(j)
Derivative financial instruments
The Boart Longyear Group enters into a variety of derivative financial instruments to manage its
exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts
and interest rate swaps.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are
subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is
recognised in profit or loss immediately unless the derivative is designated and effective as a hedging
instrument, in which event, the timing of the recognition in profit or loss depends on the nature of the
hedge relationship.
The Group designates certain derivatives as either hedges of the fair value of recognised assets or
liabilities or firm commitments (fair value hedges), hedges of highly probable forecast transactions or
hedges of foreign currency risk of firm commitments (cash flow hedges).
The fair value of hedging derivatives is classified as a non-current asset or a non-current liability if the
remaining maturity of the hedge relationship is more than 12 months and as a current asset or a current
liability if the remaining maturity of the hedge relationship is less than 12 months.
Derivatives not designated into an effective hedge relationship are classified as a current asset or a
current liability regardless of their remaining maturities.
Hedge accounting
The Boart Longyear Group designates certain hedging instruments, which include derivatives,
embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges
or cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash
flow hedges.
At the inception of the hedge relationship, the Boart Longyear Group documents the relationship
between the hedging instrument and hedged item, along with its risk management objectives and its
strategy for undertaking various hedge transactions.
_______________________________________________________________________________________
56
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Hedge accounting (continued)
Furthermore, at the inception of the hedge and on an ongoing basis, the Boart Longyear Group
documents whether the hedging instrument that is used in a hedging relationship is highly effective in
offsetting changes in fair values or cash flows of the hedged item.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are
recorded in profit or loss immediately, together with any changes in the fair value of the hedged item that
is attributable to the hedged risk.
Hedge accounting is discontinued when the Boart Longyear Group revokes the hedging relationship, the
hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is
amortised to profit or loss from that date.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised
immediately in profit or loss as part of other expenses or other income.
Amounts deferred in equity are recycled in profit or loss in the periods when the hedged item is
recognised in profit or loss. However, when the forecast transaction that is hedged results in the
recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred
in equity are transferred from equity and included in the initial measurement of the cost of the asset or
liability.
Hedge accounting is discontinued when the Boart Longyear Group revokes the hedging relationship, the
hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is
recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is
recognised immediately in profit or loss.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate
derivatives when their risks and characteristics are not closely related to those of the host contracts and
the host contracts are not measured at fair value with changes in fair value recognised in profit or loss.
(k)
Impairment
Non-financial assets
The Boart Longyear Group’s non-financial assets, other than inventories and deferred tax assets are
reviewed at each reporting date to determine whether there is any indication of impairment. If any such
indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets
that have indefinite lives or that are not yet available for use, a recoverable amount is estimated at each
reporting date.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds
its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates
cash flows that largely are independent from other assets and groups. Impairment losses are
recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are
allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the
carrying amount of the other assets in the unit or group of units on a pro rata basis.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use or its fair
value, less costs to sell. In assessing value in use, the estimated future cash flows are discounted to
their present value using a post-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset.
_______________________________________________________________________________________
57
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k)
Impairment (continued)
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses
recognised in prior periods are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent
that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Financial assets
A financial asset is considered to be impaired if objective evidence indicates that one or more events
have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the
difference between its carrying amount, and the present value of the estimated future cash flows
discounted at the original effective interest rate. An impairment loss is not recognised directly for trade
receivables because the carrying amount is reduced through the use of an allowance account. When a
trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries
of amounts previously written off are recorded in other income in the income statement. Changes in the
carrying amount of the allowance account are recognised in profit or loss.
Individually significant financial assets are tested for impairment on an individual basis. The remaining
financial assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the
impairment loss was recognised. For financial assets measured at amortised cost, the reversal is
recognised in profit or loss.
(l)
Trade and other payables
Trade payables and other payables are carried at amortised cost. They represent unsecured liabilities
for goods and services provided to the Boart Longyear Group prior to the end of the financial period that
are unpaid and arise when the Group becomes obligated to make future payments.
(m)
Provisions
A provision is recognised if, as a result of a past event, the Boart Longyear Group has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the liability.
Warranties
The Boart Longyear Group maintains warranty reserves for consumable type products manufactured or
sold by its various companies. Based on past experience, warranty returns have not been significant. A
provision for warranties is recognised when the underlying products or services are sold or becomes
evident after the sale. The provision is based on historical warranty data and a weighting of all possible
outcomes against their associated probabilities.
Restructuring
A provision for restructuring is recognised when the Group has approved a detailed and formal
restructuring plan, and the Group starts to implement the restructuring plan or announces the main
features of the restructuring plan to those affected by the plan in a sufficiently specific manner to raise a
valid expectation of those affected that the restructuring will be carried out. The Group’s restructuring
accruals include only the direct expenditures arising from the restructuring, which are those that are both
necessarily incurred by the restructuring and not associated with the ongoing activities.
_______________________________________________________________________________________
58
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group
from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The
provision is measured at the present value of the lower of the expected cost of terminating the contract
and the expected net cost of continuing with the contract. Before a provision is established, the Group
recognises any impairment loss on the assets associated with that contract.
(n)
Employee benefits
Liabilities for employee benefits for wages, salaries, annual leave, long service leave, and sick leave
represent present obligations resulting from employees’ services provided to the reporting date and are
calculated at discounted amounts based on remuneration wage and salary rates that the Boart
Longyear Group expects to pay as at reporting date including related on-costs, such as workers
compensation insurance and payroll tax, when it is probable that settlement will be required and they
are capable of being measured reliably.
Liabilities recognised in respect of employee benefits expected to be settled within 12 months, are
measured at their nominal values using the remuneration rate expected to apply at the time of
settlement.
Liabilities recognised in respect of employee benefits which are not expected to be settled within 12
months are measured as the present value of the estimated future cash outflows to be made by the
Group in respect of services provided by employees up to reporting date.
Non-accumulating non-monetary benefits, such as medical care, housing, cars and free or subsidised
goods and services, are expensed based on the net marginal cost to the Group as the benefits are
taken by the employees.
A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-
sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of
past service provided by the employee and the obligation can be estimated reliably.
Defined contribution pension plans and post-retirement benefits
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a
separate entity. The Group has no legal or constructive obligation to pay further contributions if the fund
does not hold sufficient assets to pay all employees the benefits relating to employee service in the
current and prior periods. The amount recognised as an expense in the income statement in respect of
pension costs and other post-retirement benefits is the contributions payable in the year. Differences
between contributions payable in the year and contributions actually paid are shown as either accruals
or prepayments in the balance sheet.
Defined benefit pension plans
The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by
estimating the amount of future benefit that employees have earned in return for their service in the
current and prior periods; that benefit is discounted to determine its present value, and the fair value of
any fund assets is deducted.
The discount rate is the yield at the balance sheet date on high quality corporate bonds that have
maturity dates approximating to the terms of the Group’s defined benefit obligations. Where there is no
deep market in such bonds, the market yields at the reporting date on government bonds are used.
The calculation is performed by a qualified actuary using the projected unit credit method. Actuarial
gains and losses arising from experience adjustments and related changes in actuarial assumptions are
charged or credited to retained earnings.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by
employees is recognised as an expense in the profit or loss on a straight-line basis over the average
period until the benefits become vested. To the extent that the benefits vest immediately, the expense is
recognised immediately in profit or loss.
_______________________________________________________________________________________
59
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(n)
Employee benefits (continued)
Where the calculation results in a benefit to the Group, the recognised asset is limited to the net total of
any unrecognised past service costs and the present value of any future refunds from the plan or
reductions in future contributions to the plan. Past service cost is the increase in the present value of the
defined benefit obligation for employee services in prior periods, resulting in the current period from the
introduction of, or changes to, post-employment benefits or other long-term employee benefits. Past
service costs may either be positive (where benefits are introduced or improved) or negative (where
existing benefits are reduced).
Share-based payment transactions
Equity-settled share-based payments with employees and others providing similar services are
measured at the fair value of the equity instrument at the grant date. Fair value is measured by use of a
Black-Scholes-Merton model, which requires the input of highly subjective assumptions.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on
a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually
vest.
Equity-settled share-based payment transactions with other parties are measured at the fair value of the
goods and services received, except where the fair value cannot be estimated reliably, in which case
they are measured at the fair value of the equity instruments granted, measured at the date the entity
obtains the goods or the counterparty renders the service.
For cash-settled share-based payments, a liability equal to the portion of the goods or services received
is recognised at the current fair value determined at each reporting date.
Earn-out and bonus agreements
In certain circumstances, previous owners of acquired businesses may become employees of the
Group. A business combination agreement may include earn-out or bonus clauses which provide for an
adjustment to the cost of the combination contingent upon future events. If contingent consideration is,
in substance, compensation for services or profit sharing (e.g., clauses requiring that the individual
remain employed by the Group), those payments are recognised as an expense over the period of
services provided. If the substance of the consideration is payment for the business acquired, the
amount is treated as an adjustment to the cost of the business combination.
(o)
Loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less
directly attributable transaction costs. Debt issuance costs are amortised using the effective interest
rate method over the life of the borrowing. For refinancing or restructuring of liabilities which are not
considered a substantial modification, all costs incurred related to the refinancing or restructuring are
amortised to profit and loss over the remaining period of the borrowings. For refinancing or restructuring
of liabilities which are considered a substantial modification, a gain (loss) is recognised and the initial
issue costs are written off, while any issuance costs related to the refinancing are recorded against the
liabilities.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer
settlement of the liability for at least 12 months after the balance sheet date.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use or
sale, are added to the cost of those assets, until such time as the assets are substantially ready for their
intended use or sale. Investment income earned on the temporary investment of specific borrowings
pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
_______________________________________________________________________________________
60
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p)
Financial instruments
Debt and equity instruments
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with
the substance of the contractual arrangement.
Financial guarantee contract liabilities
Financial guarantee contract liabilities are measured initially at their fair values and subsequently at the
higher of the amount recognised as a provision and the amount initially recognised less cumulative
amortisation in accordance with the revenue recognition policies described in Note 3(r).
Financial assets
Investments are recognised and derecognised on trade date where the purchase or sale of an
investment is under a contract whose terms require delivery of the investment within the timeframe
established by the market concerned, and are initially measured at fair value, net of transaction costs
except for those financial assets classified as fair value through profit or loss which are initially
measured at fair value.
Subsequent to initial recognition, investments in subsidiaries are measured at cost in the Group financial
statements. Subsequent to initial recognition, investments in associates are accounted for under the
equity method in the consolidated financial statements and the cost method in the Group financial
statements.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not
quoted in an active market are classified as ‘loans and receivables’. Non-current loans and receivables
are measured at amortised cost using the effective interest rate method less impairment. Interest is
recognised by applying the effective interest rate. Current trade receivables are recorded at the
invoiced amount and do not bear interest.
Financial liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other
financial liabilities.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss are stated at fair value, with any resultant gain or
loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any
interest paid on the financial liability. Fair value is determined in the manner described in Note 13.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction
costs, and subsequently measured at amortised cost using the effective interest method, with interest
expense recognised on an effective yield basis. The effective interest method is a method of calculating
the amortised cost of a financial liability and of allocating interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts the estimated future cash payments through the
expected life of the financial liability, or, where appropriate, a shorter period.
(q)
Transaction costs on the issue of equity instruments
Transaction costs arising on the issue of equity instruments are recognised directly in equity as a
reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the
costs that are incurred directly in connection with the issue of those equity instruments and which would
not have been incurred had those instruments not been issued.
_______________________________________________________________________________________
61
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(r)
Revenue recognition
Revenue from the sale of goods is measured at the fair value of the consideration received or
receivable, net of returns and allowances, trade discounts, volume rebates and sales taxes. Revenue is
recognised when the significant risks and rewards of ownership have been transferred to the buyer,
recovery of the consideration is probable, the associated costs and possible return of goods can be
estimated reliably, and there is no continuing management involvement with the goods.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale and with
local statute, but are generally when title and insurance risk has passed to the customer and the goods
have been delivered to a contractually agreed location.
Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of
the transaction at the reporting date. The stage of completion of the contract is determined as follows:
•
•
revenue from drilling services contracts is recognised on the basis of actual meters drilled for each
contract; and
revenue from time and material contracts is recognised at the contractual rates as labour hours are
delivered and direct expenses are incurred.
Investment income is accrued over time, by reference to the principal outstanding and at the effective
applicable interest rate.
(s)
Foreign currency transactions
The financial statements of the Boart Longyear Group and its international subsidiaries have been
translated into US dollars using the exchange rate at each balance sheet date for assets and liabilities of
foreign operations and at an average exchange rate for revenues and expenses throughout the period.
The effects of exchange rate fluctuations on the translation of assets and liabilities are recorded as
movements in the foreign currency translation reserve (“FCTR”).
The Group’s presentation currency is the US dollar. The Group determines the functional currency of its
subsidiaries based on the currency used in their primary economic environment, and, as such, foreign
currency translation adjustments are recorded in the FCTR for those subsidiaries with a functional
currency different from the US dollar.
Transaction gains and losses, and unrealised translation gains and losses on short-term inter-company
and operating receivables and payables denominated in a currency other than the functional currency,
are included in other income in the consolidated income statement.
(t)
Contingencies
The recognition of accruals for legal disputes is subject to a significant degree of estimation. Accruals
are made for loss contingencies when it is deemed probable that an adverse outcome will occur and the
amount of the loss can be reasonably estimated. Accruals are recognised when (a) the Boart Longyear
Group has a present legal or constructive obligation as a result of past events, (b) it is more likely than
not that an outflow of resources will be required to settle the obligation, and (c) the amount of that
outflow has been reliably estimated.
(u)
Segment reporting
A segment is a distinguishable component of the Boart Longyear Group that is engaged either in
providing related products or services (business segment), or in providing products or services within a
particular economic environment (geographical segment), which is subject to risks and rewards that are
different from those of other segments. The Group’s primary format for segment reporting is business
segments.
_______________________________________________________________________________________
62
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(v)
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of
the business combination is measured as the aggregate of the fair values (at the date of exchange) of
assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange
for control of the acquiree, plus any costs directly attributable to the business combination. The
acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition
under AASB 3 ‘Business Combinations’ are recognised at their fair values at the acquisition date, except
for non-current assets (or disposal groups) that are classified as held for sale in accordance with AASB
5 ‘Non-current Assets Held for Sale and Discontinued Operations’, which are recognised and measured
at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the
excess of the cost of the business combination over the Group’s interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s
interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities
exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.
The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of
the net fair value of the assets, liabilities and contingent liabilities recognised.
(w)
Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST),
except:
• where the amount of GST incurred is not recoverable from the taxation authority, it is recognised
as part of the cost of acquisition of an asset or as part of an item of expense; or
for receivables and payables which are recognised inclusive of GST.
•
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of
receivables or payables.
Cash flows are included in the cash flow statement on a gross basis. The GST component of cash
flows arising from investing and financing activities, which is recoverable from, or payable to, the
taxation authority is classified as operating cash flows.
_______________________________________________________________________________________
63
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
4.
BUSINESS AND GEOGRAPHICAL SEGMENTS
A business segment is a group of assets and operations engaged in providing products or services that are
subject to risks and returns that are different from those of other business segments. A geographical segment is
engaged in providing products or services within a particular economic environment that are subject to risks and
returns that are different from those of segments operating in other economic environments.
The Boart Longyear Group has two business segments—Global Drilling Services and Global Products—which
provide services and products to mining companies, energy companies (coal, oil, gas and geothermal), water
utilities, environmental and geotechnical engineering firms, government agencies and other mining services
companies.
Global Drilling Services consists of providing rigs, equipment, consumables and services for drilling and
completing holes and the extraction and presentation of rock, soil and water samples on a contract basis. This
business depends upon the supply and utilisation of drilling rigs, the skills and training of the drilling services
personnel and the ability to negotiate the contracts under which these services are provided to customers.
Global Products designs, manufactures and markets drilling rigs and drilling products such as rods, bits and core
barrels used in the drilling of holes. The Global Products business sells the drilling products to mining and
construction companies as well as to contract drilling services that use these products as consumables in the
drilling process. The Global Drilling Services segment is a major user of these products. This segment depends
upon the development of products and the ability to manufacture, distribute and supply products to the Group’s
world-wide customers in a timely and competitive manner.
These business segments are the basis for which the Group reports its primary segment information.
External sales
Inter-segment (i)
Total
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
Global Drilling Services
Global Products
Total of all segments
Eliminations
Revenue
Interest revenue
Consolidated revenue
1,240,559
597,979
1,838,538
970,898
604,839
1,575,737
-
93,149
93,149
-
105,248
105,248
1,240,559
691,128
1,931,687
(93,149)
1,838,538
1,637
970,898
710,087
1,680,985
(105,248)
1,575,737
5,012
1,840,175
1,580,749
(i) Inter-segment sales are recorded at amounts equal to competitive market prices charged to external customers for similar
goods.
Profit before tax
Assets
Liabilities
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
Global Drilling Services
Global Products
Total of all segments
Eliminations
Unallocated
Consolidated
230,614
115,284
345,898
-
(114,619)
231,279
180,133
114,611
294,744
-
(158,684)
136,060
751,497
290,895
1,042,392
-
251,615
1,294,007
655,666
331,583
987,249
-
225,096
1,212,345
74,051
31,620
105,671
-
1,035,988
1,141,659
100,682
57,730
158,412
-
834,293
992,705
_______________________________________________________________________________________
64
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
4.
BUSINESS AND GEOGRAPHICAL SEGMENTS (CONTINUED)
Acquisition of segment
assets
Depreciation and
amortisation
of segment assets
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
265,204
26,294
291,498
-
24,620
316,118
206,281
25,898
232,179
-
10,551
242,730
68,562
12,999
81,561
-
4,786
86,347
44,136
14,118
58,254
-
1,594
59,848
Global Drilling Services
Global Products
Total of all segments
Eliminations
Unallocated
Consolidated
The Group’s two business segments operate in five principal geographic areas – Africa, Europe, North America,
South America, and Asia Pacific. The Group’s revenue from external customers and information about its
segment assets by geographical locations is detailed below:
Revenue from
external customers
Segment assets
Acquisition of
segment assets
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
Africa
Europe
North America
South America
Asia Pacific
203,171
106,549
790,581
230,498
507,739
139,100
124,951
732,311
143,167
436,208
99,186
60,202
530,943
133,866
469,810
114,174
70,719
442,815
121,889
462,748
1,838,538
1,575,737
1,294,007
1,212,345
4,329
5,116
214,130
33,303
59,240
316,118
3,780
5,407
74,491
63,088
95,964
242,730
_______________________________________________________________________________________
65
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
5.
REVENUE
An analysis of the Group’s revenue for the year is as follows:
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
Revenue from the rendering of services
Revenue from the sale of goods
1,240,559
597,979
1,838,538
970,898
604,839
1,575,737
Interest income:
Bank deposits
Other loans and receivables
Other
Dividends from subsidiaries
1,470
75
92
1,637
-
4,815
100
97
5,012
-
1,840,175
1,580,749
-
-
-
574
29
-
603
55,110
55,713
-
-
-
1,363
1,686
-
3,049
15,108
18,157
_______________________________________________________________________________________
66
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
6.
FINANCE COSTS
Interest on bank overdrafts and loans
Interest rate swap (income) expense
Amortisation of debt issuance costs
Debt early termination costs
Interest on obligations under finance leases
Total interest expense
Loss arising on derivatives in a
designated cash flow hedge accounting relationship
Loss arising on derivatives in a
designated fair value hedge accounting relationship
Gain arising on adjustment to hedged
item in a designated fair value hedge
accounting relationship
Consolidated
2008
US$'000
2007
US$'000
31,210
6,147
1,651
-
680
39,688
-
14,760
(14,760)
-
72,420
(1,673)
27,096
5,600
645
104,088
1,834
4,532
(4,532)
1,834
Total finance costs:
39,688
105,922
In 2007, interest paid prior to the IPO was included in the cash flow statement as a financing activity. Interest
paid after the IPO was included in the cash flow statement as an operating activity.
_______________________________________________________________________________________
67
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
7.
PROFIT FOR THE YEAR
(a)
Gains and losses
Profit for the year has been arrived at after crediting (charging) the following gains and (losses):
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
Loss on disposal of property,
plant and equipment
(1,018)
(272)
Gain on disposal of businesses
9,131
3,218
-
-
-
-
Net foreign exchange gains (losses)
7,054
12,665
(1,786)
(1,259)
Other income
2,242
2,583
-
-
(b)
Income and expenses relating to financial instruments
Profit for the year includes the following income and expenses arising from movements in the carrying
amounts of financial instruments (other than derivative instruments in an effective hedge relationship).
Loans and receivables:
Interest income
Impairment of loans and receivables
Financial liabilities at amortised cost
Interest expense
Interest rate swap income (expense)
Amortisation expense
Exchange gain (loss)
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
1,545
(5,428)
(3,883)
(31,210)
(6,147)
(1,651)
(219)
4,915
(73)
4,842
(78,020)
1,673
(27,096)
489
(39,227)
(102,954)
603
-
603
-
-
-
-
-
3,049
-
3,049
-
-
-
-
-
_______________________________________________________________________________________
68
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
7.
PROFIT FOR THE YEAR (CONTINUED)
(c)
Employee benefit expenses:
Post employment benefits
Defined contribution plans
Defined benefit plans
Share-based payments:
Equity-settled share-based
payments
Termination benefits (non-restructuring)
Termination benefits (restructuring)
Other employee benefits
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
(13,229)
758
(13,674)
(372)
(2,224)
(845)
(9,312)
(108,234)
(133,086)
(775)
(1,525)
-
(79,872)
(96,218)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) Other employee benefits include such items as medical benefits, worker’s compensation, other
fringe benefits, state taxes, etc.
(d)
Other:
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
Depreciation of non-current assets
Amortisation of non-current assets
Operating lease rental expense
Write-down of inventory (restructuring)
Impairment of property, plant and
equipment (restructuring)
(80,307)
(6,040)
(27,619)
(7,220)
(1,398)
(57,153)
(2,695)
(24,192)
-
-
-
-
-
-
-
-
-
-
-
-
_______________________________________________________________________________________
69
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
8.
INCOME TAXES
Income tax expense (benefit) is as follows:
Income tax expense (benefit):
Current tax expense (benefit)
Adjustments recognised in the current year
in relation to the current tax of prior years
Deferred tax expense (benefit)
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
105,655
57,020
(2,633)
(5,814)
(218)
(30,882)
74,555
(10,215)
8,140
54,945
-
4,384
1,751
-
2,826
(2,988)
(a) The prima facie income tax expense (income) on pre-tax accounting profit reconciles to the income
tax expense (benefit) in the financial statements as follows:
Profit before taxation
231,279
136,060
51,842
4,521
Income tax expense calculated at Australian
rate of 30%
Impact of higher rate tax countries
Impact of lower rate tax countries
Net nondeductible/nonassessable items
Utilisation of losses not previously recognised
Unrecognised tax losses
Income subject to double taxation in the U.S.
Unutilised foreign tax credits
Recognition of deferred tax assets arising
in prior years
Deduction of foreign taxes
Dividends exempt from tax
Other
(Over) under provision
69,384
6,183
(2,552)
(2,756)
-
73
7,693
8,337
(2,506)
(4,963)
-
(4,120)
74,773
(218)
74,555
40,818
3,739
(3,425)
7,820
(2,532)
-
17,745
2,381
(2,210)
(5,314)
-
6,137
65,160
(10,215)
54,945
15,553
-
-
-
-
-
-
2,322
-
-
(16,533)
409
1,751
-
1,751
1,356
-
-
188
-
-
-
-
-
-
(4,532)
-
(2,988)
-
(2,988)
_______________________________________________________________________________________
70
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
8.
INCOME TAXES (CONTINUED)
(b) Income tax recognised directly in equity during the period
The following current and deferred amounts were charged (credited) directly to equity during the period:
Deferred tax:
Actuarial movements on defined benefit plans
Share issue costs
Cash flow hedges
(c) Current tax assets and liabilities
Current tax assets:
Income tax receivable attributable to:
Parent
Other entities in the tax consolidated group
Other entities
Current tax liabilities:
Income tax payable attributable to:
Parent
Other entities in the tax consolidated group
Other entities
(d) Deferred tax balances
Deferred tax comprises:
Temporary differences
Tax losses
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
7,262
-
4,899
12,161
17,878
(11,295)
3,578
10,161
-
-
32,378
32,378
66,407
-
66,407
(7,954)
18,778
4,097
14,921
-
-
9,918
9,918
(5,768)
13,045
18,046
25,323
20,170
3,902
24,072
-
-
-
-
17,878
(11,295)
-
6,583
-
-
-
-
11,614
-
11,614
-
18,778
-
18,778
-
-
-
-
(5,768)
13,045
-
7,277
15,999
-
15,999
_______________________________________________________________________________________
71
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
8.
INCOME TAXES (CONTINUED)
Opening Credited to
FX
Acquired/
Adj. to PY
Credited
balance
income
Differences
disposed
acquisitions
to equity
Closing
balance
Consolidated
2008
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Deferred tax assets (liabilities)
Property, plant and equipment
Provisions
Doubtful debts
Intangibles
Acquisitions and restructuring costs
Share-issue expenses
Accrued liabilities
Pension
Debt and interest
Hedge loss
Unearned revenues
Inventory
Investments in subsidiaries
Foreign tax credit carryforward
Unrealised foreign exchange
Other
Unused tax losses and credits:
Tax losses
Presented in the balance sheet as follows:
Deferred tax liability
Deferred tax asset
2008
Deferred tax assets
Share issue costs
Presented in the balance sheet as follows:
Deferred tax liability
Deferred tax asset
(23,753)
4,138
125
(7,822)
11,080
16,122
9,231
923
4,688
4,935
(1,169)
2,976
(597)
-
-
(705)
20,170
2,752
1,381
441
3,765
(3,983)
(4,385)
(344)
(1,429)
(2,345)
-
1,274
4,172
54
6,723
20,960
6,099
35,135
3,902
24,072
(4,253)
30,882
(242)
372
11
(703)
995
-
829
83
421
-
(105)
267
(54)
-
-
(61)
1,813
351
2,164
78
-
-
-
-
-
(2,052)
(617)
-
-
-
-
-
-
-
-
-
-
-
(281)
(2,255)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,262
-
4,899
-
-
-
-
-
-
(21,165)
5,891
577
(7,429)
8,092
11,737
9,716
6,839
2,764
9,834
-
7,415
(597)
6,723
20,960
5,052
66,407
(617)
12,161
-
-
-
-
(2,255)
(617)
12,161
66,407
(2,130)
68,537
66,407
Opening
Charged to
Balance
US$'000
income
US$'000
Parent
Other
US$'000
Charged to
Equity
US$'000
Closing
Balance
US$'000
15,999
(4,385)
-
-
11,614
-
11,614
11,614
_______________________________________________________________________________________
72
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
8.
INCOME TAXES (CONTINUED)
Opening Charged to
FX
Acquired/
Consolidated
Property, plant and equipment
(19,050)
(5,135)
2,217
(1,785)
2007
Deferred tax assets/(liabilities)
balance
US$'000
Provisions
Doubtful debts
Intangibles
Acquisitions and restructuring costs
Share issue costs
Accrued liabilities
Pension
Debt and interest
Hedge loss
Unearned revenues
Inventory
Investments in subsidiaries
Other
Unused tax losses and credits:
Tax losses
4,739
3,306
(3,942)
13,333
123
6,311
8,176
5,001
838
(1,140)
3,572
(2,057)
4,336
23,546
921
24,467
Presented in the balance sheet as follows:
Deferred tax liability
Deferred tax asset
Directly associated with assets held for sale
income
Differences
disposed
Other
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Credited
to equity
Closing
balance
(50)
(2,796)
(1,628)
(702)
(2,826)
3,654
1,652
269
-
(162)
(180)
1,221
(4,546)
(551)
(385)
459
(1,551)
-
(734)
(951)
(582)
-
133
(416)
239
(496)
-
-
(2,711)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
47
18,778
-
-
-
-
-
-
-
-
-
(7,954)
-
4,097
-
-
-
-
(23,753)
4,138
125
(7,822)
11,080
16,122
9,231
923
4,688
4,935
(1,169)
2,976
(597)
(705)
(11,229)
(2,619)
(4,496)
47
14,921
20,170
3,088
(8,140)
(107)
(2,726)
-
(4,496)
-
47
-
14,921
3,902
24,072
(7,632)
31,391
313
24,072
2007
Deferred tax assets
Share issue costs
Presented in the balance sheet as follows:
Deferred tax liability
Deferred tax asset
Opening
Charged to
Balance
US$'000
income
US$'000
Parent
Other
US$'000
Credited to
Equity
US$'000
Closing
Balance
US$'000
-
(2,826)
47
18,778
15,999
-
15,999
15,999
_______________________________________________________________________________________
73
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
8.
INCOME TAXES (CONTINUED)
Unrecognised deferred tax assets
Tax losses - revenue
Unused tax credits
Consolidated
2008
US$'000
2007
US$'000
2,197
52,696
54,893
3,971
48,871
52,842
The Parent and its wholly-owned Australian resident entities became part of the same tax-consolidated group
with effect from 12 April 2007 and are therefore taxed as a single entity from that date. The head entity within the
tax-consolidated group is Boart Longyear Limited. Companies within the US group also form a tax-consolidated
group within the United States. Certain companies within the Dutch group have also formed a tax-consolidated
group within the Netherlands.
Entities within the tax-consolidated groups have entered into tax-funding arrangements with the head entities.
Under the terms of the tax-funding arrangements, the tax-consolidated groups and each of the entities within
those tax-consolidated groups agree to pay a tax equivalent payment to or from the head entity, based on the
current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable or
payable to other entities in the tax-consolidated groups.
9.
GROUP RESTRUCTURING
During 2008, the Boart Longyear Group initiated a significant effort to reduce operating costs through a series of
restructuring activities. The Group’s restructuring efforts include:
•
•
•
reduction of drilling services, manufacturing, general and administrative, and sales and marketing staff
levels;
consolidation of manufacturing, sales and services facilities; and
discontinuation of certain businesses/product lines.
As a result of these restructuring activities, the Group recognised separation costs associated with staff
reductions, provisions related to leases associated with facilities being closed, and impairments of inventory and
capital equipment related to businesses and product lines being discontinued. Similar types of restructuring
activities occurred in 2007.
Restructuring expenses are as follows:
Employee separation costs
Write-down of inventory
Impairment of property, plant and equipment
Occupancy and other
Consolidated
2008
US$'000
2007
US$'000
9,312
7,220
1,398
2,398
20,328
4,186
-
-
1,398
5,584
_______________________________________________________________________________________
74
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
9.
GROUP RESTRUCTURING (CONTINUED)
Restructuring expenses relate to the following expense categories:
Cost of goods sold
General and administrative expenses
Selling and marketing expenses
Consolidated
2008
US$'000
2007
US$'000
12,345
3,971
4,012
20,328
2,629
1,398
1,557
5,584
During 2007, as well, the Boart Longyear Group completed a group restructuring that resulted in a new corporate
structure. In summary, the group restructuring consisted of:
• Certain entities included within the US tax consolidated group selling wholly owned subsidiaries to
wholly owned Australian subsidiaries of Boart Longyear Limited; and
• Repayment of existing external borrowings and drawdown of new borrowings in Canada and Australia.
10.
RECLASSIFICATION
During 2008 the Group performed a review of selling and marketing expenses and determined that certain costs
relating to training, projects and maintenance were classified as selling and marketing costs but would be more
appropriately classified as cost of goods sold. As a result, the accounts were reclassified to cost of goods sold,
and systems were put in place to properly classify these costs on a go forward basis. In order to present
comparable financial results, the related 2007 accounts included in selling and marketing costs have been
reclassified to cost of goods sold as follows:
Amounts originally reported
Reclassification
Restated Amounts
2007
Cost of
goods sold
US$'000
2007
Selling and
marketing
US$'000
(1,047,088)
(22,272)
(1,069,360)
(151,567)
22,272
(129,295)
_______________________________________________________________________________________
75
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
11.
TRADE AND OTHER RECEIVABLES
Trade receivables
Allowance for doubtful accounts
Goods and services tax receivable
Other receivables
Intercompany receivable
The aging of trade receivables is detailed below:
Current
Past due 0 - 30 days
Past due 31 - 60 days
Past due 61-90 days
Past due 90 days
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
217,239
(8,100)
13,965
11,474
-
237,345
(3,425)
9,034
258
-
234,578
243,212
-
-
-
106
28,217
28,323
-
-
-
67
61,130
61,197
Consolidated
2008
US$'000
2007
US$'000
166,870
28,055
9,204
6,542
6,568
172,535
48,097
9,180
5,619
1,914
217,239
237,345
_______________________________________________________________________________________
76
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
11.
TRADE AND OTHER RECEIVABLES (CONTINUED)
The movement in the allowance for doubtful accounts in respect of trade receivables is detailed below:
Opening Balance
Additional provisions
Amounts used
Amounts reversed
Transferred to held for sale
Foreign currency exchange differences
Closing balance
Consolidated
2008
US$'000
2007
US$'000
3,425
6,453
(125)
(1,025)
-
(628)
8,100
4,169
89
(1,099)
(16)
(45)
327
3,425
The average credit period on sales of goods is 65 days. No interest is charged on trade receivables.
The Group’s policy requires customers to pay the Group in accordance with agreed payment terms. The Group’s
settlement terms are generally 30 to 60 days from date of invoice. All credit and recovery risk associated with
trade receivables has been provided for in the balance sheet. Trade receivables have been aged according to
their original due date in the above aging analysis. The Group holds security for a number of trade receivables
in the form of letters of credit, deposits, and advanced payments.
The Group has used the following basis to assess the allowance loss for trade receivables and as a result is
unable to specifically allocate the allowance to the aging categories shown above:
•
•
•
•
a general provision based on historical bad debt experience;
the general economic conditions in specific geographical regions;
an individual account by account specific risk assessment based on past credit history; and
any prior knowledge of debtor insolvency or other credit risk.
12.
INVENTORIES
Raw materials
Work in progress
Finished products
Consolidated
2008
US$'000
2007
US$'000
32,724
5,788
138,784
177,296
34,094
17,896
124,275
176,265
_______________________________________________________________________________________
77
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
13.
FINANCIAL INSTRUMENTS
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern
while maximising the return to stakeholders through the optimisation of the debt and equity balances.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 18, cash and
cash equivalents and equity attributable to equity holders of the Parent, comprising issued capital, reserves, other
equity and retained earnings (accumulated losses) as disclosed in Notes 21, 22, 23 and 24 respectively.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis
of measurement and the basis on which income and expenses are recognised, in respect of each class of
financial asset, financial liability and equity instrument are disclosed in Note 3 to the financial statements.
Categories of financial instruments
Financial Assets
Current
Loans and Receivables:
Cash and cash equivalents
Trade and other receivables
Other financial assets
Non-current
Investments carried at cost:
Investments in subsidiaries
Financial Liabilities
Current
Amortised cost:
Trade and other payables
Loans and borrowings
Non-current
Amortised cost:
Trade and other payables
Loans and borrowings
Other financial liabilities:
Derivative instruments in designated
hedge accounting relationships
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
50,603
234,578
306
285,487
87,548
243,212
604
331,364
108
28,323
-
28,431
1,087
61,197
-
62,284
-
-
2,186,106
2,175,180
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
195,597
3,314
198,911
1,293
811,604
812,897
244,685
6,543
251,228
200
650,170
650,370
27,197
12,985
1,511
-
1,511
8,533
-
8,533
-
-
-
-
-
-
-
-
At the reporting date there are no significant concentrations of credit risk. The carrying amount reflected above
represents the Group’s and the Parent’s maximum exposure to credit risk for such loans and receivables.
_______________________________________________________________________________________
78
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
13.
FINANCIAL INSTRUMENTS (CONTINUED)
Financial risk management objectives
The Group’s corporate treasury function provides services to the business, coordinates access to domestic and
international financial markets, and monitors and manages the financial risks relating to the operations of the
Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks
include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and
cash flow interest rate risk.
The Group seeks to minimise the effects of these risks, where deemed appropriate, by using derivative financial
instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group’s policies
approved by the board of directors, which provide written principles on foreign exchange risk and interest rate
risk. The Group does not enter into or trade financial instruments, including derivative financial instruments, for
speculative purposes.
Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and
interest rates (Note 3(l)). The Group enters into a variety of derivative financial instruments to manage its
exposure to interest rate and foreign currency risk, including:
•
•
foreign exchange forward contracts to hedge the exchange rate risk arising from transactions not recorded
in an entity’s functional currency;
interest rate swaps to mitigate the risk of rising interest rates.
Foreign currency risk management
The Group subsidiaries undertake certain transactions denominated in currencies other than their functional
currency, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within
approved policy parameters utilising forward foreign exchange contracts.
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities,
including intercompany balances, at the reporting date is as follows:
Australian Dollar
Canadian Dollar
Euro
US Dollar
Assets
Liabilities
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
308,821
24,062
40,948
201,245
172,199
7,473
37,109
76,896
56,458
37,211
113,280
158,592
30,207
10,890
122,017
129,991
_______________________________________________________________________________________
79
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
13.
FINANCIAL INSTRUMENTS (CONTINUED)
Foreign currency sensitivity
The Group is mainly exposed to Australian Dollars (AUD), Canadian Dollars (CAD), the Euro (EUR) and United
States Dollar (USD). The Group is also exposed to translation differences as the Group’s presentation currency
is different to the functional currencies of various operating entities. However this represents a translation risk
rather than a financial risk and consequently is not included in the following sensitivity analysis.
The following tables detail the Group’s sensitivity to a 10% change in each of the Group’s subsidiaries functional
currency against the relevant foreign currencies. The percentages disclosed below are the sensitivity rates used
when reporting foreign currency risk internally to key management personnel and represents management’s
assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding
foreign currency denominated monetary items and adjusts their translation at the period end for a given
percentage change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to
foreign operations within the Group where the denomination of the loan is in a currency other than the currency of
the lender or the borrower. A positive number indicates an increase in net profit and net assets where the
subsidiaries functional currency strengthens against the respective currency. For a weakening of the subsidiaries
functional currency against the respective currency there would be an equal and opposite impact on the profit
and net assets.
AUD Impact
Consolidated
CAD Impact
Consolidated
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
Net profit
Net assets
Change in currency 1
(428)
(22,498)
10%
(510)
(12,393)
10%
EUR Impact
Consolidated
513
-
10%
980
191
10%
USD Impact
Consolidated
Net profit
Net assets
Change in currency 1
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
(982)
7,506
10%
(840)
8,581
10%
(5,550)
1,231
10%
4,895
507
10%
(1) This has been based on the historical changes in the Group’s subsidiaries functional currencies against the
related foreign currencies in the financial year ended 31 December 2008 and 31 December 2007.
The Parent has no significant exposure to foreign currencies at the reporting date. The Group’s sensitivity to
certain foreign currency denominated loans has decreased during the current period mainly due to the retirement
of these instruments and due to current hedging activity.
In management’s opinion, the sensitivity analysis is not fully representative of the inherent foreign exchange risk
as the year end exposure does not necessarily reflect the exposure during the course of the year.
_______________________________________________________________________________________
80
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
13.
FINANCIAL INSTRUMENTS (CONTINUED)
Forward foreign exchange contracts
The following table details the forward foreign currency contracts outstanding as at the reporting date:
Average
exchange rate
Foreign currency
Contract value
Fair value
2008
2007
2008
2007
2008
2007
2008
2007
FC'000
FC'000
US$'000
US$'000
US$'000
US$'000
Outstanding
contracts
Consolidated
Sell - CAD
Less than 3 months
1.2216
0.9805
30,540
63,730
25,000
65,000
-
-
The Group has entered into contracts to hedge the foreign currency exposure it has on United States dollar
denominated loans in Canada. The Group has entered into forward foreign exchange contracts (for terms not
exceeding 9 months) to hedge the exchange rate risk arising from these anticipated future transactions, which
are designated as fair value hedges.
Interest rate risk management
The Parent and the Group are exposed to interest rate risk as entities within the Group borrow funds at both fixed
and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed
and floating rate borrowings, by the use of interest rate swap contracts. Hedging activities are evaluated
regularly to align with interest rate views and defined risk appetite. The Parent’s and the Group’s exposures to
interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of
this note.
Interest rate sensitivity
The sensitivity analyses below have been determined based on the exposure to interest rates for both derivative
and non-derivative instruments at the reporting date and the stipulated change taking place at the beginning of
the financial year and held constant throughout the reporting period. A 100 basis point increase or decrease is
used when reporting interest rate risk internally to key management personnel and represents management’s
assessment of the possible change in interest rates.
At the reporting date, if interest rates had been 100 basis points higher or lower and all other variables were held
constant, the Group’s:
•
•
profit before tax would increase/decrease by $3,295,000 (2007: decrease/increase by $2,720,000). This is
mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings.
other equity reserves would increase/decrease by $7,196,000 (2007: increase/decrease by $10,167,000)
mainly as a result of the Group’s exposure to interest rates on its interest rate swap contracts that are in a
cash flow hedge relationship.
Interest rate swap contracts
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate
interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate
the risk of changing interest rates on the cash flow exposures on the issued variable rate debt held. The fair
value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the
LIBOR curve at reporting date and the credit risk inherent in the contract, and are disclosed below. The average
interest rate is based on the outstanding balances at the start of the financial year.
_______________________________________________________________________________________
81
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
13.
FINANCIAL INSTRUMENTS (CONTINUED)
Interest rate swap contracts (continued)
The following tables detail the notional principal amounts and the remaining terms of interest rate swap contracts
outstanding as at reporting date.
Outstanding floating
for fixed contracts
Consolidated
1 to 2 years
2 to 5 years
Average contracted
fixed interest rate
2008
%
2007
%
Notional
principal amount
Fair value
2008
2007
2008
2007
US$'000
US$'000
US$'000
US$'000
3.1890%
5.1825%
-
5.1825%
100,000
325,000
425,000
-
378,000
378,000
(1,497)
(25,700)
(27,197)
-
(12,985)
(12,985)
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is 90-day USD
LIBOR. The Group settles the difference between the fixed and floating interest rate on a net basis.
All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are
designated as cash flow hedges in order to reduce the Group’s cash flow exposure resulting from variable rates
on borrowings. The interest rate swaps and the interest payments on the loan occur simultaneously and the
amount deferred in equity is recognised in profit or loss over the period of the loan.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss
to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining
sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults.
Trade receivables consist of a large number of customers, spread across diverse industries and geographical
areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable.
The Group does not have any significant credit risk exposure to any single counterparty or any group of
counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is
limited because the counterparties are banks with high credit ratings assigned by international credit-rating
agencies.
Except as detailed in the following table, the carrying amount of financial assets recorded in the financial
statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk without
taking account of the value of any collateral obtained.
Financial assets and other credit exposures
Consolidated
Maximum credit risk
2008
2007
US$'000
US$'000
Performance guarantees provided including letter of credits
40,619
29,254
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Treasurer and board of directors, who have
built an appropriate liquidity risk management framework for the management of the Group’s short, medium and
long-term funding and liquidity management requirements.
_______________________________________________________________________________________
82
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
13.
FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity risk management (continued)
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial
assets and liabilities. Included in Note 18 is a listing of additional undrawn facilities that the Group has at its
disposal to further reduce liquidity risk.
Liquidity and interest risk tables
The following tables detail the Parent’s and the Group’s remaining contractual maturity for its non-derivative
financial liabilities. The tables have been presented based on the undiscounted cash flows of financial liabilities
based on the earliest date on which the Group may be required to pay. The table includes both interest and
principal cash flows. The adjustment column represents the possible future cash flows attributable to the
instrument included in the maturity analysis which are not included in the carrying amount of the balance sheet.
Consolidated
Weighted
average
effective
interest
rate
%
Less
than
3 months
1 to 3
to
Adjust-
1 month months
1 year
1 - 5 years
5+ years
ment
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
2008
Non-interest bearing
payables
-
136,463
59,134
-
Finance lease liability
8.1%
32
65
2,433
1,293
3,285
Variable interest rate
instruments
3.9%
2,657
5,313
23,909
832,621
Fixed interest rate
instruments
12.0%
1,173
-
-
-
140,325
64,512
26,342
837,199
2007
Non-interest bearing
payables
-
146,811
97,874
-
Finance lease liability
8.3%
47
95
3,464
200
4,781
Variable interest rate
instruments
5.9%
3,208
6,415
28,869
730,688
Fixed interest rate
instruments
6.0%
20
40
150,086
104,424
3,685
36,018
591
736,260
-
-
-
-
-
-
-
-
-
-
-
(1,032)
196,890
4,783
(52,500)
812,000
-
1,173
(53,532)
1,014,846
-
(1,518)
244,885
6,869
(123,342)
645,838
(330)
4,006
(125,190)
901,598
_______________________________________________________________________________________
83
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
13.
FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity and interest risk tables (continued)
Parent
Weighted
average
effective
interest
rate
%
Less
than
3 months
1 to 3
to
Adjust-
1 month months
1 year
1 - 5 years
5+ years
ment
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
-
-
1,054
1,054
457
457
5,119
5,119
3,414
3,414
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,511
1,511
8,533
8,533
2008
Non-interest bearing
payables
2007
Non-interest bearing
payables
The following table details the Parent’s and the Group’s expected maturity for its non-derivative financial assets.
The tables below have been presented based on the undiscounted contractual maturities of the financial assets.
Consolidated
2008
Non-interest bearing
receivables
Cash
2007
Non-interest bearing
receivables
Cash
Less
than
3 months
1 to 3
to
Adjust-
1 month
months
1 year
1 - 5 years
5+ years
ment
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
108,267
126,311
50,603
-
158,870
126,311
128,006
115,206
87,548
-
215,554
115,206
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
234,578
50,603
285,181
243,212
87,548
330,760
_______________________________________________________________________________________
84
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
13.
FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity and interest risk tables (continued)
Parent
Less
than
3 months
1 to 3
to
1 month
months
1 year
1 - 5 years
5+ years
Adjust-
ment
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
13,072
15,251
108
-
13,180
15,251
36,718
1,087
37,805
24,479
-
24,479
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
28,323
108
28,431
61,197
1,087
62,284
2008
Non-interest bearing
receivables
Cash
2007
Non-interest bearing
receivables
Cash
The following table details the Group’s liquidity analysis for its derivative financial instruments. The table has
been drawn up based on the undiscounted net cash inflows (outflows) on the derivative instrument that settle on
a net basis and the undiscounted net inflows (outflows) on those derivatives. When the amount payable or
receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as
illustrated by the yield curves existing at the reporting date.
Consolidated
2008
Interest rate swaps
2007
Interest rate swaps
Less
than
3 months
1 to 3
to
Adjust-
1 month
months
1 year
1 - 5 years
5+ years
ment
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
-
-
(3,416)
(10,366)
(13,476)
(282)
(3,654)
(9,167)
-
-
61
(27,197)
118
(12,985)
The Parent had no derivative financial instruments for the reporting periods disclosed.
Fair value of financial instruments
The fair values of financial assets and financial liabilities are determined as follows:
•
•
•
the fair value of financial assets and financial liabilities with standard terms and conditions and traded
on active liquid markets are determined with reference to quoted market prices
the fair value of other financial assets and financial liabilities (excluding derivative instruments) are
determined in accordance with generally accepted pricing models based on discounted cash flow
analysis using prices from observable current market transactions
the fair value of derivative instruments are calculated using quoted prices. Where such prices are not
available, use is made of discounted cash flow analysis using the applicable yield curve for the duration
of the instruments for non-optional derivatives, and option pricing models for optional derivatives.
The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised
cost in the financial statements approximate their fair values.
_______________________________________________________________________________________
85
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
14.
PROPERTY, PLANT AND EQUIPMENT
Balance at 1 January 2007
Additions
Acquisitions through business combinations
Disposal of assets
Transfer to held for sale
Currency movements
Balance at 1 January 2008
Additions
Acquisitions through business combinations
Adjustments to business combinations
accounted for on a provisional basis in 2007
Disposal of assets
Currency movements
Balance at 31 December 2008
Accumulated depreciation and impairment:
Balance at 1 January 2007
Depreciation for the year
Disposal of assets
Transfer to held for sale
Currency movements
Balance at 1 January 2008
Depreciation for the year
Impairment of non-current assets
Disposal of assets
Currency movements
Balance at 31 December 2008
Net book value at 31 December 2007
Net book value at 31 December 2008
Land and
Buildings
US$'000
Consolidated
Plant and
Equipment
US$'000
Total
US$'000
36,043
6,587
4
(784)
-
2,979
44,829
4,011
4,329
-
(539)
(5,538)
47,092
(1,654)
(999)
223
-
(1,691)
(4,121)
(3,223)
-
157
2,631
(4,556)
40,708
42,536
299,005
122,402
18,546
(31,198)
(969)
45,164
452,950
134,026
33,270
2,540
(20,221)
(100,407)
502,158
(81,093)
(56,154)
24,125
459
(22,635)
(135,298)
(77,084)
(1,398)
14,156
58,623
(141,001)
317,652
361,157
335,048
128,989
18,550
(31,982)
(969)
48,143
497,779
138,037
37,599
2,540
(20,760)
(105,945)
549,250
(82,747)
(57,153)
24,348
459
(24,326)
(139,419)
(80,307)
(1,398)
14,313
61,254
(145,557)
358,360
403,693
_______________________________________________________________________________________
86
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
14.
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Tangible property, plant and equipment includes machinery equipment, office equipment, furniture and fixtures,
and vehicles, which are substantially freehold. The net book value of property, plant and equipment at 31
December 2008 and 2007 includes an amount of $3,430,000 and $6,060,000, respectively, related to assets held
under finance leases.
During 2008, the Group sold the mining capital equipment and diamond wire businesses in South Africa and the
residential water business in the United States of America. These sales included net book value of property,
plant and equipment of $425,000, $257,000 and $1,768,000, respectively.
During 2007, the Group sold its Australina-based mining capital equipment business, as well as the diamond
blades and Interfels businesses. These sales included net book value of property, plant and equipment of
$56,000, $148,150 and $30,000, respectively. The Group also disposed of its Zimbabwe and Calulo Drilling
(Pty) Ltd businesses which had no property, plant and equipment.
15.
GOODWILL
Gross carrying amount:
Balance at 1 January 2007
Additions through business combinations
Adjustments to business combinations accounted
for on a provisional basis in 2006
Currency movements
Balance at 31 December 2007
Balance at 1 January 2008
Additions through business combinations
Adjustments to business combinations accounted
for on a provisional basis in 2007
Currency movements
Balance at 31 December 2008
Consolidated
Goodwill
US$'000
125,336
62,276
3,602
14,972
206,186
206,186
65,577
2,775
(39,967)
234,571
Allocation of goodwill to cash-generating units
Goodwill has been allocated for impairment testing purposes to individual cash generating units. The carrying
amount of goodwill by geographic segment allocated to cash-generating units that are significant individually or in
aggregate is as follows:
Asia Pacific
South America
North America
Consolidated
2008
US$'000
2007
US$'000
105,661
33,108
95,802
234,571
125,696
31,572
48,918
206,186
_______________________________________________________________________________________
87
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
15.
GOODWILL (CONTINUED)
The carrying amount of goodwill is tested for impairment annually at 31 October and whenever there is an
indicator that the asset may be impaired. If an asset is impaired, it is written down to its recoverable amount. The
impairment testing was updated at 31 December 2008. The recoverable amount is based on a value in use
calculation using cash flow projections based on financial forecasts over a 10-year period, which approximates
the length of a typical business cycle based on historical industry experience, with a terminal value. Key
assumptions used for impairment testing for 31 October 2008 include a post-tax global discount rate of 11.5%
adjusted on a case by case basis for regional variations in the required equity rate of return, expected future
profits and future annual growth rates consistent with internal forecasts and expected performance of the specific
business line being tested for impairment over the cycle. Sensitivity analysis is used to determine whether the
carrying value is supported by different assumptions.
16.
OTHER INTANGIBLE ASSETS
Consolidated
Customer
Develop-
ment
Trademarks
Patents
relationships
Software
assets
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
1,988
1,090
-
-
-
1,988
1,988
1,270
-
-
-
1,090
1,090
-
11,689
10,460
-
2,395
24,544
24,544
33,376
-
-
1,763
-
-
-
-
-
-
-
-
2,442
-
17,209
10,460
3,032
-
5,474
3,032
2,395
33,096
5,474
-
33,096
34,646
-
1,763
-
-
3,258
-
-
1,090
-
(7,710)
51,973
15,890
-
15,890
5,081
(846)
9,709
20,971
(8,556)
81,920
Gross carrying amount:
Balance at 1 January 2007
Additions through business
combinations
Additions
Currency movements
Balance at 31 December 2007
Balance at 1 January 2008
Additions through business
combinations
Adjustments to business
combinations accounted for on a
provisional basis in 2007
Additions
Currency movements
Balance at 31 December 2008
Accumulated amortisation:
Balance at 1 January 2007
Amortisation for the period
Currency movements
(41)
-
-
(153)
(144)
-
Balance at 31 December 2007
(41)
(297)
Balance at 1 January 2008
Amortisation for the period
Currency movements
Balance at 31 December 2008
Net book value at 31 December 2007
Net book value at 31 December 2008
(41)
(123)
-
(164)
1,947
3,094
(297)
(160)
-
(457)
793
633
(301)
(2,186)
(206)
(2,693)
(2,693)
(4,058)
1,145
(5,606)
-
-
-
-
-
(1,340)
-
(1,340)
(222)
(365)
-
(717)
(2,695)
(206)
(587)
(3,618)
(587)
(359)
49
(897)
(3,618)
(6,040)
1,194
(8,464)
21,851
46,367
-
14,550
4,887
8,812
29,478
73,456
_______________________________________________________________________________________
88
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
17.
TRADE AND OTHER PAYABLES
Current
Trade payables
Accrued payroll and benefits
Goods and services tax payable
Professional fees
Other sundry payables and accruals
Non-current
Trade and other payables
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
105,671
34,833
24,795
4,127
26,171
195,597
152,073
54,754
6,433
2,376
29,049
244,685
1,293
1,293
200
200
-
-
-
618
893
1,511
-
-
-
-
-
290
8,243
8,533
-
-
The average credit period on purchases of certain goods is 43 days. No interest is charged on the trade
payables for this period. Thereafter, various percentages of interest may be charged on the outstanding balance
based on the terms of the specific contracts. The Group has financial risk management policies in place to
ensure that all payables are paid within the credit timeframe.
_______________________________________________________________________________________
89
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
18.
BORROWINGS
Unsecured - at amortised cost
Current
Bank loans
Non-current
Bank loans (i)
Other liabilities
Secured - at amortised cost
Current
Bank overdrafts
Finance lease liabilities
Non-current
Bank loans
Finance lease liabilities (ii)
Disclosed in the financials statements as:
Current borrowings
Non-current borrowings
A summary of the maturity of the Group's borrowings is as follows:
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
More than 4 years
Consolidated
2008
US$'000
2007
US$'000
1,173
3,505
808,962
-
-
2,141
-
2,642
814,918
3,314
811,604
814,918
3,314
583,075
1,737
226,341
451
814,918
645,838
501
-
3,038
-
3,831
656,713
6,543
650,170
656,713
6,543
2,377
581,697
1,512
64,584
656,713
(i)
As at 31 December 2008 and 2007, bank loans consist of variable rate loans with a consortium of banks with maturity
dates of 10 April 2010 and 13 April 2012. The interest rates on the loans are based on a base rate plus applicable
margin. The base rate is generally based on USD LIBOR rates, while the margin is determined based on leverage
according to a pricing grid. As at 31 December 2008, the rates ranged from USD LIBOR + 0.55% to USD LIBOR +
0.65% (2.05% to 2.15%). As at 31 December 2007, the rates ranged from USD LIBOR + 0.65% to USD LIBOR +
0.75% (5.53% to 5.63%). The Group hedges a portion of its exposure to floating rates under the loans via interest
rate swaps, exchanging variable rate interest payments for fixed rate interest payments. As of 31 December 2008,
$425,000,000 notional amount of floating rate interest rates were swapped to fixed at a base rate ranging from
3.163% to 5.1825%. As of 31 December 2007, $378,000,000 notional amount of floating rate interest rates were
swapped to fixed at a base rate of 5.1825%.
The Group’s borrowings contain covenants and restrictions requiring the Group to meet certain financial ratios and
reporting requirements. These covenants include maintaining a Debt to EBITDA ratio of not more than 3.75:1 and an
EBITDA to Interest ratio of not less than 3.0:1. Testing of covenant compliance takes place twice-yearly for the
trailing 12 month periods to 30 June and 31 December. Noncompliance with one or more of the covenants and
restrictions could result in the full or partial principal balance of the associated debt becoming immediately due and
payable. The Group is in compliance with the debt covenants as at 31 December 2008 and 2007.
Bank facilities include a revolver of $200,000,000. As of 31 December 2008 $162,000,000 is drawn with interest
rates from 1.15% to 2.5875%. As of 31 December 2007 the revolver was undrawn. Only $188,857,000 of the
revolver can be drawn because of outstanding letters of credit. The loans are guaranteed by certain subsidiaries of
the Group. See Note 28 for a listing of subsidiary guarantors.
(ii)
Secured by the assets leased. The borrowings have interest rates ranging from 5.15% to 11.07%, with repayment
periods not exceeding 6 years.
_______________________________________________________________________________________
90
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
19.
PROVISIONS
Current
Employee benefits
Warranty (i)
Restructuring and termination costs (ii)
Non-current
Employee benefits
Pension and post-retirement benefits (Note 20)
Consolidated
2008
US$'000
2007
US$'000
9,013
5,366
8,730
23,109
1,909
43,128
45,037
68,146
10,712
1,665
1,941
14,318
1,895
20,584
22,479
36,797
The changes in the provisions for the year ended 31 December 2008 are as follows:
Balance at 1 January 2008
Additional provisions recognised
Reductions arising from
payments/other sacrifices of
future economic benefits
Reductions resulting from re-
measurement or settlement
without cost
Foreign exchange
Balance at 31 December 2008
Consolidated
Warranty (i)
US$'000
1,665
8,330
Restructuring
and termination
costs (ii)
US$'000
1,941
13,332
(1,820)
(5,317)
(1,526)
(1,283)
5,366
(933)
(293)
8,730
(i)
(ii)
The provision for warranty claims represents the present value of management’s best estimate of the future outflow
of economic benefits that will be required under the Group’s warranty program. The estimate has been made on the
basis of historical warranty trends.
The provision for restructuring and termination costs represents the present value of management’s best estimate of
the costs directly and necessarily caused by the restructuring that are not associated with the ongoing activities of the
entity, including termination benefits and onerous leases.
_______________________________________________________________________________________
91
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
20.
PENSION AND POSTRETIREMENT BENEFITS
The Parent has no employees and therefore does not support any pension or postretirement plans. Accordingly,
the disclosures detailed below relate to the Group.
Pension and Postretirement Medical Commitments
The Group operates defined contribution and defined benefit pension plans for the majority of its employees. It
also operates postretirement medical arrangements in Southern Africa and North America. The policy for
accounting for pensions and postretirement benefits is included in Note 3(n).
The assets of the defined contribution plans are held separately in independently administered funds. The
charge in respect of these plans is calculated on the basis of contributions payable by the Group during the fiscal
year.
The majority of the defined benefit pension plans are funded in accordance with minimum funding requirements
by local regulators. The assets of these plans are held separately from those of the Group, in independently
administered funds, in accordance with statutory requirements or local practice throughout the world.
The postretirement medical arrangements provide health benefits to retired employees and certain dependants.
Eligibility for coverage is dependent upon certain criteria. The majority of these plans are unfunded and have
been provided for by the Group.
Defined Contribution Plans
Pension costs represent actual contributions paid or payable by the Group to the various plans. At 31 December
2008, and 2007, there were no significant outstanding/prepaid contributions. Group contributions to these plans
were $13,229,000 and $13,674,000 for the years ended 31 December 2008, and 2007, respectively.
The Group’s operations in the Netherlands participate in an industry-wide pension scheme for the mechanical
and electrical engineering industries, known as the PME Fund. Although it is a defined benefit pension plan, the
participating employers have no obligation other than to pay set contributions based on benefits accrued by the
employees every period. The employers are not obligated to make additional payments to fund deficits, nor have
they any right to repayments in the event of surpluses. The Group treats the PME scheme as a defined
contribution plan.
Defined Benefit Pension Plans
Full actuarial valuations of the defined benefit pension plans were performed as of various dates and updated to
31 December 2008 by qualified independent actuaries. The estimated market value of the assets of the funded
pension plans was $150,626,000 and $257,362,000 at 31 December 2008, and 2007, respectively. The market
value of assets was used to determine the funding level of the plans. The market value of the assets of the
funded plans was sufficient to cover 88% and 104% in 2008 and 2007, respectively, of the benefits that had
accrued to participants after allowing for expected increases in future earnings and pensions. Entities within the
Group are paying contributions as required in accordance with local actuarial advice.
As the majority of the defined benefit pension plans are closed to new participants, it is expected that under the
projected unit credit method, service cost will increase as the participants age.
Group contributions to these plans were $5,310,000 and $6,678,000 for the years ended 31 December 2008 and
2007, respectively. Contributions in 2009 are expected to be $6,451,000.
_______________________________________________________________________________________
92
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
20.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The principal assumptions used to determine the actuarial present value of benefit obligations and pension costs
are detailed below (shown in weighted averages):
Discount rates
Expected average rate of increase
Southern
2008
The
Africa
7.5%
Americas
Europe
6.5%
6.3%
Southern
Africa
8.5%
2007
The
Americas
Europe
5.7%
5.3%
in salaries
5.0%
4.3%
3.5%
6.0%
4.4%
3.5%
Expected average rate of increase
of pensions in payment
4.0%
-
1.5%
5.3%
-
1.5%
Expected average long term rate of
return on plan assets
Expected average increase
6.8%
8.0%
6.4%
8.8%
7.9%
6.8%
in healthcare costs (initial)
6.0%
8.0%
Expected average increase
in healthcare costs (ultimate)
6.0%
5.0%
-
-
6.8%
9.0%
6.8%
5.0%
-
-
Amounts recognised in profit or loss in respect of these defined benefit plans are as follows:
2008
Post-
2007
Post-
Pension
retirement
Pension
retirement
Plan
medical Plan
Total
plan
Medical Plan
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Current service cost
Interest cost on plan liabilities
Past service cost
Expected return on plan assets
Effects of settlement and
curtailment gains
Total charge to profit and loss account
3,070
13,315
4,069
(17,555)
453
735
3,523
14,050
(4,126)
(57)
4,583
12,595
558
-
(17,555)
(18,394)
142
3,041
(861)
(3,799)
(719)
(758)
(286)
(944)
486
830
-
-
-
1,316
5,069
13,425
558
(18,394)
(286)
372
For the financial years ended 31 December 2008 and 2007 a (gain) loss of $(564,000) and $141,000,
respectively, has been included in cost of goods sold and the remainder in general and administrative or sales
and marketing expenses.
_______________________________________________________________________________________
93
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
20.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The following amounts have been recognised in the statement of recognised income and expense.
2008
Post-
2007
Post-
Pension
retirement
Pension
retirement
Plan
Medical Plan
Total
Plan
Medical Plan
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Actuarial gains (losses)
during the year, net of taxes
(22,779)
(1,639)
(24,418)
(11,478)
1,615
(9,863)
Adjustments recognised
for restrictions on the
defined benefit asset
-
-
-
(22,779)
(1,639)
(24,418)
31,756
20,278
-
1,615
31,756
21,893
In 2001, legislation in South Africa was passed which restricts pension surpluses where they are not expected to
give rise to future contribution reductions or refunds because of local restrictions over their use. During 2007, the
South African Regulators approved the subsidiary's proposal in respect of the apportionment of the surplus from
the plans. At 1 January 2007, the regulators in South Africa had not yet acted on the subsidiary's proposal in
respect of the apportionment of the surplus in the plan. As a result, the 1 January 2007 net liabilities shown for
South Africa assumed the surplus was unrecoverable. The surplus restriction in South Africa arises where
pension surpluses are not expected to give rise to future contribution reductions or refunds because of local
restrictions over the use of the surplus. The 2007 net assets shown in respect to South Africa have been
adjusted to reflect the approved proposal and an agreement between the subsidiary, the trustees and the
members with respect to the apportionment of future surplus. The majority of the members elected to transfer to
the Alexander Forbes Retirement Fund effective 28 February 2008, leaving only one member in the fund. The
liability with respect to the transfer was settled on 19 December 2008. The net asset recorded has certain
restrictions on how the surplus can be used.
The amount included in the balance sheet arising from the Group’s obligations in respect of defined benefit plans
is as follows:
2008
Post-
2007
Post-
Pension
retirement
Pension
retirement
Plan
Medical Plan
Total
Plan
Medical Plan
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Present value of funded defined benefit
obligations
Fair value of plan assets
Present value of unfunded defined
benefit obligations
(Surplus) deficit
Restrictions on assets recognised
Net liability (asset) arising from defined
165,891
(150,626)
15,265
5,421
20,686
-
-
-
-
165,891
240,813
(150,626)
(257,362)
15,265
(16,549)
-
-
-
240,813
(257,362)
(16,549)
9,411
9,411
-
14,832
30,097
-
5,855
(10,694)
-
11,481
11,481
-
17,336
787
-
787
benefit obligations
20,686
9,411
30,097
(10,694)
11,481
_______________________________________________________________________________________
94
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
20.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
Movements in the present value of the defined benefit obligations were as follows:
2008
Post-
2007
Post-
Pension
retirement
Pension
retirement
Plan
Medical Plan
Total
Plan
Medical Plan
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from plan participants
Actuarial losses (gains)
Past service cost
Losses (gains) on curtailments
Liabilities extinguished on settlements
Exchange differences on foreign plans
Benefits paid
Closing defined benefit obligation
246,668
3,070
13,315
65
(20,689)
4,069
194
(18,766)
(26,761)
(29,853)
171,312
11,481
258,149
217,587
13,074
230,661
453
735
290
2,655
(4,126)
-
(861)
(585)
(631)
3,523
14,050
355
4,583
12,595
292
486
830
179
5,069
13,425
471
(18,034)
26,717
(2,615)
24,102
(57)
194
(19,627)
(27,346)
(30,484)
558
(286)
-
20,216
(35,594)
246,668
-
-
-
558
(286)
-
180
(653)
20,396
(36,247)
11,481
258,149
9,411
180,723
Changes in the fair value of plan assets were as follows:
2008
Post-
2007
Post-
Pension
retirement
Pension
retirement
Plan
Medical Plan
Total
Plan
Medical Plan
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Opening fair value plan of assets
Expected return on plan assets
Actuarial gains (losses)
Assets distributed on settlements
Exchange differences on foreign plans
Contributions from the employer
Contributions from plan participants
Benefits paid
Closing fair value of plan assets
257,362
17,555
(49,717)
(18,714)
(31,382)
5,310
65
(29,853)
150,626
-
-
-
-
-
341
290
257,362
17,555
(49,717)
(18,714)
(31,382)
5,651
355
239,371
18,394
8,973
-
19,248
6,678
292
-
-
-
-
-
474
179
239,371
18,394
8,973
-
19,248
7,152
471
(631)
(30,484)
(35,594)
(653)
(36,247)
-
150,626
257,362
-
257,362
_______________________________________________________________________________________
95
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
20.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The analysis of the plan assets and the expected rate of return at the balance sheet date are as follows:
2008
Southern Africa
The Americas
Europe
Rate of
Return
Fair
Value
Rate of
Return
Fair
Value
Rate of
Return
Fair
Value
Total
Fair Value
%
US$'000
%
US$'000
%
US$'000
US$'000
10.5%
7.5%
-
5.5%
-
6.8%
6,968
6,757
-
7,391
-
21,116
10.0%
5.0%
-
4.0%
4.0%
8.0%
41,681
43,576
-
6,631
2,842
94,730
8.0%
4.0%
6.5%
-
-
6.4%
19,476
12,520
2,783
-
-
34,779
68,126
62,853
2,783
14,022
2,842
150,626
2007
Southern Africa
The Americas
Europe
Rate of
Return
Fair
Value
Rate of
Return
Fair
Value
Rate of
Return
Fair
Value
Total
Fair Value
%
US$'000
%
US$'000
%
US$'000
US$'000
11.5%
-
-
6.5%
-
8.8%
48,495
-
-
26,113
-
74,608
9.5%
5.4%
-
4.0%
4.0%
7.9%
70,929
52,193
-
9,368
1,339
133,829
7.8%
4.5%
6.3%
-
-
6.8%
31,801
11,742
5,382
-
-
48,925
151,225
63,935
5,382
35,481
1,339
257,362
At 31 December 2008
Equity
Bonds
Property
Cash
Other
Total market value
At 31 December 2007
Equity
Bonds
Property
Cash
Other
Total market value
The pension and post-retirement (surplus) deficit by geographic region are as follows:
Consolidated
31 December 2008
31 December 2007
Southern
The
Southern
The
Africa
Americas Europe
Total
Africa
Americas Europe
Total
Postretirement medical
plan deficit
Pension plan
218
9,193
-
9,411
2,512
8,969
-
11,481
(surplus) deficit
Total (surplus) deficit
(13,249)
(13,031)
18,435
27,628
15,500
15,500
20,686
30,097
(22,309)
(19,797)
3,577
12,546
8,038
8,038
(10,694)
787
On 8 December 2003, the Medicare Prescription Drug Improvement and Modernisation Act of 2003 was signed
into law in the U.S. The Act introduced a prescription drug benefit beginning 2006 under Medicare (“Medicare
Part D”) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is
at least actuarially equivalent to Medicare Part D. Based on an actuarial analysis of the levels of benefits
provided under the Group’s Postretirement Welfare Plan, the plan’s actuary has concluded that beneficiaries
receive drug coverage at least actuarially equivalent to Medicare Part D. The federal subsidy was reflected in
costs, reducing the accumulated postretirement benefit obligation by approximately $468,000 and $1,183,000 at
31 December 2008 and 2007, respectively. The expense was reduced by approximately $87,000 and $112,000
at 31 December 2008 and 2007, respectively.
_______________________________________________________________________________________
96
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
20.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
2008
Post-
retirement
Medical Plan
US$'000
-
Pension
Plan
US$'000
150,626
Total
US$'000
150,626
Pension
Plan
US$'000
257,362
2007
Post-
retirement
Medical Plan
US$'000
-
Total
US$'000
257,362
(171,312)
(20,686)
(9,411)
(9,411)
(180,723)
(30,097)
(246,669)
10,693
(11,481)
(11,481)
(258,150)
(788)
(635)
63
(572)
(36,668)
2,688
(33,980)
(49,718)
-
(49,718)
8,974
-
8,974
Fair value of plan assets
Present value of
defined benefit obligation
Surplus (deficit)
Experience adjustments
on plan liabilities
Experience adjustments
on plan assets
Assumed healthcare cost trend rates have a significant effect on the amounts recognised in profit or loss. A one
percentage point change in assumed healthcare cost trend rates would have the following effects:
One percentage point increase
Effect on the aggregate of the service cost and interest cost
Effect on accumulated post-employment benefit obligation
One percentage point decrease
Effect on the aggregate of the service cost and interest cost
Effect on accumulated post-employment benefit obligation
2008
2007
US$'000
US$'000
126
1,256
214
1,489
(107)
(1,067)
(177)
(1,251)
_______________________________________________________________________________________
97
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
21.
ISSUED CAPITAL
Pursuant to its Initial Public Offering (“IPO”) in April of 2007 on the ASX, Boart Longyear Limited issued
1,269,158,552 ordinary shares. An additional 216,091,448 ordinary shares were issued to redeem exchangeable
notes and an additional 17,595,513 ordinary shares were issued to previous shareholders of RSHI to repurchase
RSHI shares surrendered. As a result, total ordinary shares issued as at 31 December 2007 were
1,502,845,513. There were no shares issued during the financial year, but the Company purchased 5,221,560
shares on market for the LTIP program.
Prior to the IPO, Boart Longyear Limited acquired RSHI and the transaction was accounted for as a reverse
acquisition. As a result, the amount recognised for the newly issued equity is equal to the value of the issued
equity of RSHI prior to the combination. The difference between the value of the issued equity of RSHI prior to
the combination and the actual net proceeds received for the issue of Boart Longyear Limited shares is included
within other equity amounts on the balance sheet and summarised in Note 23.
Share Capital
Ordinary shares, fully paid
Movements in ordinary shares
Balance at beginning of year
Issued during the year to previous
holders of equity (net of costs)
Purchase of shares for LTIP
Balance at end of the year
Consolidated
2008
US$'000
2007
US$'000
478,036
479,673
479,673
452,331
-
(1,637)
27,342
-
478,036
479,673
Parent
2008
Number of
shares
(000's)
2007
US$'000
2007
Number of
shares
(000's)
2008
US$'000
Share Capital
Ordinary shares, fully paid
2,228,139
1,497,624
2,229,776
1,502,846
Movements in ordinary shares
Balance at beginning of year
Issued during the year to previous
holders of equity (net of costs)
Issued at float (net of costs)
Purchase of shares for LTIP
2,229,776
1,502,846
-
-
-
-
-
-
(1,637)
(5,222)
27,342
2,202,434
-
17,596
1,485,250
-
Balance at end of the year
2,228,139
1,497,624
2,229,776
1,502,846
_______________________________________________________________________________________
98
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
22.
RESERVES
Foreign currency translation
Equity-settled employee benefits
Unrealised losses related
to hedging instruments
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
(103,548)
2,592
(17,363)
(118,319)
30,216
368
(8,050)
22,534
-
2,592
-
2,592
-
368
-
368
During the years ended 31 December 2008 and 2007 the changes in each of the respective reserve accounts
were as follows:
Foreign currency translation
Balance at beginning of year
Exchange differences arising on translation
of foreign operations
Balance at end of the year
Consolidated
2008
US$'000
2007
US$'000
30,216
(4,479)
(133,764)
(103,548)
34,695
30,216
Exchange differences relating to the translation from the functional currencies of the Group’s foreign controlled
entities into United States dollars are brought to account by entries made directly to the foreign currency
translation reserve.
Equity-settled employee benefits
Balance at beginning of year
Share-based compensation expense
Forfeiture of shares
Balance at end of the year
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
368
2,224
-
2,592
7,743
775
(8,150)
368
368
2,224
-
2,592
-
368
-
368
The equity-settled employee benefits reserve arises on the grant of restricted shares, LTIP rights and share
options. Amounts are transferred out of the reserve and into issued capital when the share is issued.
Unrealised losses related to
hedging instruments
Balance at beginning of year
Unrealised loss on cash flow hedges
Transfer to profit or loss on cash flow hedges
Related income tax
Balance at end of the year
Consolidated
2008
US$'000
2007
US$'000
(8,050)
(20,359)
6,147
4,899
(17,363)
(1,367)
(9,107)
(1,673)
4,097
(8,050)
The hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow
hedges. The cumulative deferred gain or loss on the hedge is recognised in profit or loss when the hedged
transaction impacts the profit or loss, or is included as a basis adjustment to the non-financial hedged item,
consistent with the applicable accounting policy.
_______________________________________________________________________________________
99
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
23.
OTHER EQUITY
During the years ended 31 December 2008 and 2007, the changes in other equity consisted of:
Balance at beginning of year
Cancellation of shares
Proceeds from issuance of shares
IPO transaction costs capitalised (net of tax)
Payment to redeemable note holders
Balance at end of the year
Consolidated
2008
US$'000
2007
US$'000
(141,539)
-
-
-
-
(141,539)
(991,546)
8,150
2,253,201
(50,766)
(1,360,578)
(141,539)
24.
RETAINED EARNINGS (ACCUMULATED LOSSES)
During the years ended 31 December 2008 and 2007, the changes in accumulated losses consisted of:
Balance at beginning of year
Profit for the period attributable
to equity holders of the parent
Dividends paid
Actuarial gains (losses) on defined
benefit plans (net of tax)
Balance at end of the year
25.
DIVIDENDS
Fully paid ordinary shares
Final dividend 35% franked
Interim dividend 35% franked
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
(141,028)
(244,036)
7,509
-
156,724
(57,108)
(24,418)
(65,830)
81,115
-
50,091
(57,108)
21,893
(141,028)
-
492
7,509
-
-
7,509
2008
Cents per
share
Total
US$'000
1.5
2.3
3.8
22,543
34,565
57,108
Consistent with the disclosures made in the Boart Longyear prospectus, the directors did not declare a dividend
during the financial year ended 31 December 2007.
Below is the combined amount of franking credits available for the next year:
Combined franking account balance
Franking credits that will arise from the payment of income tax
payable as at 31 December
Adjusted combined franking balance
2008
US$'000
2007
US$'000
2,202
(6,583)
(4,381)
7,667
7,277
14,944
_______________________________________________________________________________________
100
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
26.
EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
Basic earnings per share
The earnings and weighted average number of ordinary shares
used in the calculation of basic earnings per share are as follows:
Consolidated
2008
Cents
2007
Cents
per share
per share
10.4
10.4
5.4
5.4
2008
US$'000
2007
US$'000
Earnings used in the calculation of basic EPS
156,724
81,115
Weighted average number of ordinary shares for the purposes of
basic earnings per share
Diluted earnings per share
The earnings used in the calculation of diluted earnings per share is as follows:
2008
'000
2007
'000
1,502,011
1,489,057
2008
US$'000
2007
US$'000
Earnings used in the calculation of diluted EPS
156,724
81,115
Weighted average number of ordinary shares used in the
calculation of basic EPS
Shares deemed to be issued for no consideration in respect of:
Non-executive director restricted shares
LTIP share rights
Shares issued to previous holders of RSHI B shares
Weighted average number of ordinary shares used in the
calculation of diluted EPS
2008
'000
2007
'000
1,502,011
1,489,057
335
635
-
239
13
1,685
1,502,981
1,490,994
Weighted average number of converted, lapsed, or cancelled potential ordinary shares included in the
calculation of diluted earnings per share:
Non-executive director restricted shares
LTIP share rights
Shares issued to previous holders of RSHI B shares
2008
'000
25
256
-
The following potential ordinary shares are not dilutive and are therefore excluded from the weighted
average number of ordinary shares for the purposes of diluted earnings per share:
LTIP share rights
Share options
2008
'000
73
542
2007
'000
-
-
1,685
2007
'000
11
-
_______________________________________________________________________________________
101
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
27.
COMMITMENTS FOR EXPENDITURE
Commitments
The Group has a number of continuing operational and financial commitments in the normal course of business.
2008
US$'000
2007
US$'000
Capital Commitments
Purchase commitments for capital expenditures
732
4,226
Operating leases
Non-cancellable future operating lease commitments as at 31 December 2008 and 2007, consist of the following:
Consolidated
31 December 2008
31 December 2007
Land and
Buildings
US$'000
Plant and
Equipment
US$'000
Land and
Buildings
US$'000
Plant and
Equipment
US$'000
7,774
16,610
8,367
32,751
16,060
39,123
4,476
59,659
6,595
9,551
1,805
17,951
15,347
32,660
2,226
50,233
Payments due within:
One year
Two to five years
After five years
Description of operating leases
The Group has operating leases for land, buildings, plant and equipment with the following lease terms:
•
•
•
1 – 30 years for land and buildings with an average lease term of 7 years
1 – 5 years for machinery and equipment with an average lease term of 3 years
1 – 7 years for all other property with an average lease term of 3 years
The Group’s property operating leases generally contain escalation clauses, which are fixed increases generally
between 3% and 9%, or increase subject to a national index. The Group does not have any significant purchase
options.
Contingent rental payments exist for certain pieces of equipment and are not significant compared with total
rental payments. These are based on excess wear and tear and excess use.
The Group has no significant operating leases that are considered onerous other than the $2,002,000 included in
the restructuring expenses provision.
_______________________________________________________________________________________
102
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
28.
CONTINGENT LIABILITIES
Indemnifications
Anglo American plc has agreed to indemnify the Group for 50% of any losses in excess of $250,000 suffered due
to unknown environmental matters (up to a maximum of $15,000,000) arising from Group properties formerly
owned by Anglo American plc and which are identified within five years of the purchase date on 29 July 2005.
Letters of credit
Standby letters of credit primarily issued in support of commitments or other obligations as of 31 December 2008
are as follows.
•
The Group’s subsidiary in Holland, Cooperatief Longyear Holdings UA, has a letter of credit in the
amount of $2,500,000 with ABN/Amro for performance bonds with ACE Insurance Company of North
America which expires July 2009.
• Some of the Group’s subsidiaries in the U.S. have letters of credit in the amounts of $405,000,
$4,000,000, $500,000 and $495,000 with ABN/Amro for various leases with JPMC, Zurich Insurance,
Mike Albert Leasing, and BB&T Leasing, which expire January 2009 and December 2009.
The Group’s subsidiary in Patagonia has a letter of credit in the amount of $2,200,000 which expires
February 2009.
The Group’s subsidiary in Connors Argentina has a letter of credit in the amount of $1,400,000 which
expires February 2009.
The Group’s subsidiary in Canada has a letter of credit in the amount of $50,000 which expires
November 2009.
•
•
•
A summary of the maturity of issued letters of credit is as follows:
Less than one year
One to three years
Consolidated
2008
US$'000
2007
US$'000
11,550
-
11,550
9,743
1,400
11,143
_______________________________________________________________________________________
103
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
28.
CONTINGENT LIABILITIES (CONTINUED)
Guarantees
The subsidiaries of the Group provide guarantees within the normal course of business which includes payment
guarantees to cover import duties, taxes, performance and completion of contracts. In addition, the Group and
certain subsidiaries are guarantors on the Group’s loans and borrowings.
A summary of the Group’s subsidiaries which are guarantors of the Group’s long-term debt is as follows:
Country
Canada
United States
Entity
Longyear Canada ULC
Boart Longyear Alberta Limited
Boart Longyear Canada
Longyear Holdings, Inc.
Longyear TM, Inc.
Boart Longyear Company
Boart Longyear Consolidated Holdings Inc
Boart Longyear International Holdings Inc
Longyear Global Holdings, Inc.
Resources Services Holdco, Inc.
Boart Longyear Global Holdco, Inc.
Prosonic Corporation
Australia
Boart Longyear Limited
Boart Longyear Management Pty Limited
Boart Longyear Investments Pty Limited
Votraint No. 1609 Pty Limited
North West Drilling Pty Limited
Drillcorp Limited
Grimwood Davies Pty Limited
Boart Longyear Australia Pty Limited
Boart Longyear Australia Holdings Pty Limited
A.C.N. 066 301 531 Pty Limited
Coopertief Longyear Holdings
Longyear Calulo Holdings BV
Boart Longyear International BV
Boart Longyear BV
Europe
South Africa
Longyear South Africa (Pty) Limited
Legal Contingencies
The Group is subject to certain routine legal proceedings that arise in the normal course of its business. The
Group believes that the ultimate amount of liability, if any, for any pending claims of any type (either alone or
combined), including the legal proceedings described above, will not materially affect the Group’s operations,
liquidity, or financial position taken as a whole. However, the ultimate outcome of any litigation is uncertain, and
unfavorable outcomes could have a material adverse impact.
_______________________________________________________________________________________
104
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
28.
CONTINGENT LIABILITIES (CONTINUED)
Other Contingencies
Other contingent liabilities as at 31 December 2008 and 2007 consist of the following:
Contingent Liabilities
Guarantees or counter-guarantees issued to outside parties
Consolidated
2008
US$'000
2007
US$'000
29,069
29,069
18,111
18,111
_______________________________________________________________________________________
105
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
29.
COMPANY SUBSIDIARIES
The principal subsidiaries’ ownership percentage consist of the following:
Country of
Incorporation
Business
2008
2007
31 December
31 December
Subsidiaries
A.C.N. 066 301 531 Pty Ltd
Aqua Drilling & Grouting Pty Ltd.
BLI Zambia Ltd.
BLY Ghana Limited
BLY Mali S.A.
BLY Mexico Servicios S.A. de C.V.
Boart Longyear (Cambodia) Ltd.
Boart Longyear (D.R.C.) SPRL
Australia
Australia
Zambia
Ghana
Mali
Mexico
Cambodia
Tools and Equipment
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Dem. Rep. of Congo
Drilling Products & Services
Boart Longyear (Germany) GmbH
Germany
Tools and Equipment
Boart Longyear (Holdings) Ltd.
United Kingdom
Holding Company
Boart Longyear (Hong Kong) Limited
Hong Kong
Drilling Services
Boart Longyear (Investments) Ltd.
United Kingdom
Dormant
Boart Longyear (NZ) Limited
Boart Longyear (Pty) Ltd
Boart Longyear Alberta Limited
Boart Longyear Australia Holdings Pty Limited
Boart Longyear Australia Pty Ltd
Boart Longyear Bermuda Limited
New Zealand
Botswana
Canada
Australia
Australia
Bermuda
Boart Longyear Burkina Faso Sarl
Burkina Faso
Boart Longyear BV
Boart Longyear Canada
Boart Longyear Company
Boart Longyear Consolidated Holdings, Inc.
Holland
Canada
USA
USA
Drilling Services
Drilling Products
Holding Company
Holding Company
Drilling Services
Holding Company
Drilling Services
Drilling Products
Drilling Products & Services
Tools, Equipment and Drilling
Holding Company
Boart Longyear Drilling Products Company (Wuxi) Ltd China
Drilling Products and Services
Boart Longyear Global Holdco, Inc
Boart Longyear GmbH & Co Kg
Boart Longyear Holdings (Thailand) Co., Ltd.
Boart Longyear India Private Ltd
Boart Longyear International BV
Boart Longyear International Holdings, Inc.
Boart Longyear Investments Pty Ltd
Boart Longyear Limitada
Boart Longyear Limited
Boart Longyear Limited
Boart Longyear Limited
Boart Longyear LLC
Boart Longyear Ltd
Boart Longyear Management Pty Ltd
Boart Longyear Netherlands BV
Boart Longyear Nevada
Boart Longyear Poland Spolka Z.o.o.
USA
Germany
Thailand
India
Holland
USA
Australia
Brazil
Ireland
Laos
Thailand
Holding Company
Drilling Products and Services
Drilling Services
Tools and Equipment
Holding Company
Holding Company
Holding Company
Drilling Products
Drilling Products
Drilling Services
Drilling Services
Russia Federation
Drilling Services
Ghana
Australia
Norway
USA
Poland
Dormant
Holding Company
Holding Company
Drilling Services
Drilling Products and Services
Boart Longyear RUS
Russia Federation
Drilling Services
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
-
-
100
100
100
-
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
-
100
100
100
-
100
100
_______________________________________________________________________________________
106
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
29.
COMPANY SUBSIDIARIES (CONTINUED)
Country of
Incorporation
Business
2008
2007
31 December
31 December
Subsidiaries
Boart Longyear S.A.
Boart Longyear S.a.r.l. (ii)
Boart Longyear SAC
Boart Longyear Vermogensverwaltung GmbH
Boart Longyear Zambia Ltd.
Chile
France
Peru
Germany
Zambia
Britton Hermanos Perforaciones de Mexico, S.A. C.V Mexico
Connors Argentina SA
Connors SA
Cooperatief Longyear Holdings UA
Drillcorp Pty Ltd
Geoserv Pesquisas Geologicas S.A.
Geoverse, Inc. (i)
Grimwood Davies Pty Ltd
Inavel S.A.
J&T Servicios, S.C.
Longyear Calulo Holdings BV
Longyear Canada, ULC
Longyear Global Holdings, Inc.
Argentina
Chile
Holland
Australia
Brazil
USA
Australia
Uruguay
Mexico
Holland
Canada
USA
Longyear Holdings New Zealand, Ltd.
New Zealand
Longyear Holdings, Inc.
USA
Tools, Equipment and Drilling Services
Holding Company
Drilling Products and Services
Dormant
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Holding Company
Drilling Services
Drilling Services
Holding Company
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Tools and Equipment Services
Holding Company
Holding Company
Holding Company
Longyear South Africa (Pty) Ltd
South Africa
Drilling Products and Services
Longyear TM, Inc.
North West Drilling Pty Limited
P.T. Boart Longyear
Patagonia Drill Inversiones Mineras S.A.
Patagonia Drill Mining Services S.A.
Portezuelo S.A.
USA
Australia
Indonesia
Chile
Argentina
Paraguay
Professional Sonic Drillers (Pty) Limited T/A Prosonic South Africa
Prosonic Corporation
Prosonic Deutschland GmbH
Prosonic International, Inc.
Rentas de Exploracion I Limitada
Rentas de Exploracion II Limitada
Rentas de Exploracion III Limitada
Resources Services Holdco, Inc
USA
Germany
USA
Chile
Chile
Chile
USA
Votraint No. 1609 Pty Ltd
Australia
Holding Company
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Holding Company
Holding Company
Holding Company
Holding Company
Drilling Services
Discontinued Subsidiaries
Boart (UK) Limited
Boart Longyear AS
Boart Longyear Limited
Boart Longyear SA
Dongray Industrial Limited
United Kingdom
Dormant
Norway
Drilling Products
United Kingdom
Dormant
Spain
Drilling Products and Services
United Kingdom
Dormant
(i) This entity merged with Prosonic Corporation on 17 January 2008.
(ii) This entity changed its name from Prosonic France SARL.
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
-
-
100
100
100
100
100
-
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
_______________________________________________________________________________________
107
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
30.
ACQUISITION OF OPERATIONS
During the financial year ended 31 December 2008 the Boart Longyear Group acquired the following
entities:
On 25 February 2008, the Boart Longyear Group acquired 100% of the issued share capital of Britton Brothers
Diamond Drilling (Britton Brothers). Britton Brothers is a provider of uranium and minerals exploration drilling
services located in Canada and Mexico. The goodwill arising on the acquisition of Britton Brothers is attributable
to the position it occupies as a leading exploratory driller in Canada and Mexico, which provides the Boart
Longyear Group the opportunity to expand both its mineral and energy footprints in Canada and Mexico and
neighbouring countries through leveraging Boart Longyear’s global infrastructure and resources.
On 5 May 2008, the Boart Longyear Group acquired 100% of the issued share capital of Aqua Drilling & Grouting
Pty Limited (“Aqua”). Aqua is a Melbourne-based drilling services company specialising in environmental drilling,
geotechnical drilling, water drilling and related services. Accounting for this acquisition has been determined
provisionally at 31 December 2008. The goodwill arising on the acquisition of Aqua is attributable to its position
as one of the leading environmental and infrastructure drilling companies in Eastern Australia and its experienced
management and operational teams.
On 01 July 2008, the Boart Longyear Group acquired the business of Westrod Engineering. Westrod Engineering
is a Western Australia-based manufacturer of reverse circulation (“RC”) consumables including rods, subs and
swivels for minerals drilling. Accounting for this acquisition has been determined provisionally at 31 December
2008. The goodwill arising on the acquisition of Westrod Engineering is attributable to the ability to expand into
the RC drilling market. The introduction of the RC product range into Boart Longyear will be an excellent
complement to our growing RC drilling services business. Combined with recent RC-related acquisitions such as
KWL and Grimwood Davies, this acquisition expands our RC offering by making Boart Longyear the only
company that manufactures and distributes RC products and also does RC contract drilling; all on a global scale.
On 16 September 2008, the Boart Longyear Group acquired certain assets of Eklund Drilling Company, Inc.
(Eklund). Eklund is located in the United States with headquarters in Elko, Nevada. Eklund specialises in reverse
circulation drilling. Accounting for this acquisition has been determined provisionally at 31 December 2008. The
goodwill arising on the acquisition of Eklund is attributable to its position in global reverse circulation drilling which
provides the Boart Longyear Group the opportunity to expand its reach into a key reverse circulation market and
the opportunity to expand its global footprint.
Patagonia Drilling, which was purchased on 31 December 2007, was accounted for provisionally at 31 December
2007 and was finalised during the financial year ended 31 December 2008. This resulted in adjustments to the
initial book values that decreased the net assets purchased by $7,290,000 million, primarily as the result of the
recognition of provisions for taxes payable, other contingencies and debt balances. In addition, this was offset by
fair value adjustments amounting to $3,332,000 which had not been determined at 31 December 2007.
All of these acquisitions were accounted for as purchase transactions and the consolidated profit and loss
amounts includes the operations of the acquisitions from the date of acquisition through 31 December 2008.
The net profit contributed by these acquisitions in the period between the dates of acquisition and the reporting
date were approximately $5,325,000. Had the acquisitions been completed on 1 January 2008, total
consolidated revenue for the period would have been $1,892,250,000 and consolidated profit for the period would
have been $168,180,000.
_______________________________________________________________________________________
108
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
30.
ACQUISITION OF OPERATIONS (CONTINUED)
The net assets acquired for all other business combinations, and the goodwill arising, are as follows:
Net assets acquired
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid expenses
Intangible assets
Property, plant and equipment
Trade and other payables
Deferred tax liabilities
Goodwill arising on the acquisition
Total consideration
Net cash outflow arising on acquisition:
Total Consideration
Cash and cash equivalents acquired
Acquiree's
carrying amount
before business
combination
US$'000
Fair value
adjustments
US$'000
Fair value
US$'000
2,811
9,884
974
245
-
18,055
(6,772)
(97)
25,100
-
-
-
-
34,646
19,544
-
(2,052)
52,138
2,811
9,884
974
245
34,646
37,599
(6,772)
(2,149)
77,238
65,577
142,815
(142,815)
2,811
(140,004)
_______________________________________________________________________________________
109
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
30.
ACQUISITION OF OPERATIONS (CONTINUED)
During the financial year ended 31 December 2007 the Boart Longyear Group acquired the following
entities:
On 10 January 2007, the Boart Longyear Group acquired certain assets of KWL Drillrig Engineering Pty Limited
("KWL"). KWL is located in Australia and its principal activity is designing and manufacturing reverse circulation
rigs for use in the mining industry. The goodwill arising on the acquisition of KWL is attributable to the capability
it provides the Boart Longyear Group to manufacture reverse circulation rigs and allow the Boart Longyear Group
to expand the capacity of the reverse circulation operations in Western Australia.
On 23 January 2007, the Boart Longyear Group acquired 100% of issued share capital of Grimwood Davies Pty
Limited. Grimwood Davies Pty Limited's principal activity is providing reverse circulation exploration drilling
services, primarily in Western Australia. The goodwill arising on the acquisition of Grimwood Davies Pty Limited
is attributable to the position it occupies as a significant reverse circulation driller in Western Australia, which
provides the Boart Longyear Group with a tremendous opportunity to expand these services with other key
accounts of the Boart Longyear Group, building on Boart Longyear Group's already significant reverse circulation
drilling services presence in Western Australia.
On 31 January 2007, the Boart Longyear Group acquired 100% of the issued share capital of Connors S.A.
("Connors Chile") and Connors Argentina S.A. ("Connors Argentina"). Connors Chile is a mineral exploration
drilling service provider in Chile operating with 25 rigs in both the underground and surface markets. Connors
Argentina is a mineral exploration drilling service provider in the Argentine market operating with 9 rigs. The
goodwill arising on the acquisition of Connors Chile is attributable to the entry it provides the Boart Longyear
Group into the Chilean underground market and the opportunity to consolidate the Boart Longyear Group’s
operation in Chile into Connors Chile. The goodwill arising on the acquisition of Connors Argentina is attributable
to the entry it provides the Boart Longyear Group into the Argentine surface exploration market, and is an
excellent opportunity for the Boart Longyear Group to expand theses services and further penetrate the Argentine
exploration market.
On 31 December 2007, the Boart Longyear Group acquired 100% of the issued share capital of Patagonia
Drilling. Patagonia Drilling is a minerals exploration services provider in the Latin America region operating 13
rigs. The goodwill arising on the acquisition of Patagonia Drilling is attributable to the experienced labour force,
the position of the company in the Argentine reverse circulation drilling segment and the benefit of combining
business with the Boart Longyear Argentine operations. Reverse circulation drilling has higher barriers to entry
than conventional diamond drilling. The capital costs are greater and this method of drilling requires a unique
skill set of the drillers
All of these acquisitions were accounted for as purchase transactions and the consolidated profit and loss
amounts includes the operations of the acquisitions from the date of acquisition through 31 December 2007.
The net profit contributed by these acquisitions in the period between the dates of acquisition and the reporting
date were approximately $9,414,000. Had the acquisitions been completed on 1 January 2007, total
consolidated revenue for the period would have been $1,591,000,000 and consolidated profit for the period would
have been $82,672,000.
_______________________________________________________________________________________
110
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
30.
ACQUISITION OF OPERATIONS (CONTINUED)
The net assets acquired and the total cost of the acquisitions during 2007 are as follows:
Net assets acquired
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Intangible assets
Property, plant and equipment
Trade and other payables
Other liabilities
Deferred tax liabilities
Finance lease
Goodwill arising on the acquisition
Total consideration
Net cash outflow arising on acquisition:
Total consideration
Deferred consideration
Cash and cash equivalents acquired
Acquiree's
carrying amount
before business
Fair value
combination
adjustments
US$'000
US$'000
Fair value
US$'000
4,563
10,128
4,713
1,817
-
14,022
(12,507)
(4,230)
(520)
(2,930)
15,056
-
-
-
-
12,223
7,068
-
-
(4,593)
-
14,698
4,563
10,128
4,713
1,817
12,223
21,090
(12,507)
(4,230)
(5,113)
(2,930)
29,754
65,052
94,806
(94,806)
387
4,563
(89,856)
_______________________________________________________________________________________
111
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
31.
DISPOSAL OF OPERATIONS
During the financial years ended 31 December 2008 and 2007 the Boart Longyear Group disposed of the
following operations:
MCE South Africa
On 17 March 2008, the Boart Longyear Group announced the sale of its mining capital equipment (“MCE”)
business in South Africa for total proceeds of $16,972,000. The disposal is consistent with the Boart Longyear
Group’s long-term policy to focus its activities on higher return, core business opportunities. The MCE South
Africa business was not considered a core business and earned lower returns than the core business lines.
The MCE South Africa net assets disposed of are as follows:
Net assets disposed:
Current assets:
Trade and other receivables
Inventories
Prepaid expenses
Total current assets
Noncurrent assets:
Property, plant and equipment
Total non-current assets
Trade and other payables
Provisions
Net assets disposed
Disposal costs
Gain on disposal
Total proceeds
Net cash disposed
Net cash inflow from disposal of MCE South Africa
Diamond Wire
2008
US$'000
5,518
6,811
306
12,635
425
425
(5,808)
(287)
6,965
597
9,410
16,972
(597)
16,375
On 2 September 2008, the Group sold its diamond wire business in South Africa for total proceeds of
$2,536,000. The disposal is consistent with the Group’s long-term policy to focus its activities on higher return,
core business opportunities. The diamond wire business was not considered a core business and earned lower
returns than the core business lines.
Residential Water
On 31 December 2008, the Group sold its residential water business in the United States of America for total
proceeds of $831,000. The disposal is consistent with the Group’s long-term policy to focus its activities on
higher return, core business opportunities. The residential water business was not considered a core business
and earned lower returns than the core business lines.
MCE Australia
On 1 August 2007, the Group completed the sale of the mining capital equipment (“MCE”) business in Australia
for total proceeds of $10,053,000. The disposal is consistent with the Group’s long-term policy to focus its
activities on higher return, core business opportunities. The MCE Australia business was not considered a core
business and earned lower returns than the core business lines.
_______________________________________________________________________________________
112
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
32.
NOTES TO THE CASH FLOW STATEMENT
(a)
Reconciliation of cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in
banks and investments in money market instruments, net of outstanding bank overdrafts.
Cash and cash equivalents
50,603
87,548
108
1,087
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
(b)
Business acquired
During the financial year ended 31 December 2008, the Group acquired four businesses. The net cash
outflow for acquisitions was $140,004,000. Refer to Note 30 for further details. In addition, there was a
working capital adjustment that resulted in a refund of $1,578,000 related to a 2007 acquisition.
During the financial year ended 31 December 2007, the Group acquired four businesses. The net cash
outflow for acquisitions was $91,469,000. Refer to Note 30 for further details. In addition, there was a
final payment of $38,364,000 related to a 2006 acquisition.
(c)
Business disposed
During the financial year ended 31 December 2008, the Group disposed of its MCE South Africa,
Diamond Wire, and Residential Water businesses. During the financial year ended 31 December 2007,
the Group disposed of its MCE Australia, Diamond Blades, Interfels, Zimbabwe and Calulo Drilling Pty
Ltd businesses. Details of the disposal are as follows:
Book value of net assets sold
Trade and other receivables
Inventories
Property, plant and equipment
Prepaid expenses
Trade and other payables
Net assets disposed
Disposal costs
Gain on disposal
Total proceeds
Net cash disposed and
disposal costs
Net cash inflow on disposal
Consolidated
2008
US$'000
2007
US$'000
5,803
8,276
2,450
306
9,331
3,558
69
-
(6,342)
(6,123)
10,493
715
9,131
20,339
(715)
19,624
6,835
194
3,218
10,247
(194)
10,053
_______________________________________________________________________________________
113
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
32.
NOTES TO THE CASH FLOW STATEMENT (CONTINUED)
(d)
Non-cash flow items
Consolidated
Parent
2008
US$'000
2007
US$'000
2008
US$'000
2007
US$'000
Change in purchases of property, plant and
equipment in trade and other payables
7,873
4,711
-
-
_______________________________________________________________________________________
114
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
33.
SHARE-BASED PAYMENTS
The Group has established a Long-term Incentive Plan (“LTIP”) to assist in retaining key employees and
encouraging a superior performance on a sustained basis. The incentive provided under the LTIP is an annual
grant of two tranches of performance rights that will vest based on the satisfaction of both performance-based
and time-based conditions. Vested rights will convert to ordinary fully paid shares on a one-for-one basis.
Under the terms of the LTIP, the first tranche of rights vests upon the achievement of the cumulative EPS targets
set by the Board. The Board will set a minimum and maximum EPS target for each financial year during the
three-year vesting period. Vesting will be determined by the Group’s performance against cumulative EPS
targets for the relevant three-year period. Partial vesting occurs on a pro-rata basis if the cumulative three-year
minimum EPS target is surpassed. Full vesting occurs only if the Group’s EPS target meets or exceeds the
maximum cumulative EPS target for the three-year period. Participants must also remain employed during the
EPS period. The second tranche of rights vests upon continuous employment with the Group from the grant date
until the third anniversary of the grant date. The Company may acquire shares underlying the grants which will
be held in trust. The participant will receive dividends paid on those shares from the time of acquisition until
vesting.
The share-based expense associated with the LTIP grants recorded during the years ended 31 December 2008
and 2007 was $1,555,000 and $139,000, respectively.
During the year, the CEO announced his retirement and his successor was granted 2,500,000 options as part of
his employment agreement. The share-based expense recorded during the year ended 31 December 2008 was
$354,000.
In addition, prior to the IPO, there were 643,240 restricted shares granted to Board members in consideration of
services performed. The share-based expense recorded during the years ended 31 December 2008 and 2007
was $315,000 and $231,000, respectively.
The following table shows the share-based payment arrangements that were in existence at 31 December 2008:
Series
Number
Grant Date
(1) Issued 12 April 2007
(2) Issued 17 September 2007
(3) Issued 11 April 2008
(4) Issued 28 April 2008
(5) Issued 28 April 2008
(6) Issued 26 June 2008
(7) Issued 23 July 2008
(8) Issued 23 October 2008
610,777
432,000
3,548,310
1,000,000
1,500,000
476,762
138,000
587,500
12-Apr-07
17-Sep-07
11-Apr-08
28-Apr-08
28-Apr-08
26-Jun-08
23-Jul-08
23-Oct-08
Vesting
Date
12-Apr-10
1-Jul-10
11-Apr-11
1-Jan-13
1-Jan-14
11-Apr-11
23-Jul-11
23-Oct-11
Fair Value at
Grant Date
1.53
1.81
1.77
0.69
1.45
2.10
2.05
0.40
The fair value of the rights was determined using the Black-Scholes option pricing model using the following
inputs:
Series 1
Series 2
Series 3
Series 4
Series 5
Series 6
Series 7
Series 8
Grant date
share price
Expected
volatility
1.53
1.81
1.77
1.63
1.63
2.10
2.05
0.40
35.95%
35.95%
49.62%
49.86%
49.86%
50.34%
50.62%
56.68%
Life of
rights
36 months
33.5 months
36 months
56 months
68 months
34 months
36 months
36 months
Dividend
Risk-free
yield
0.00%
0.00%
0.00%
0.86%
0.86%
0.00%
0.00%
0.00%
interest rate
6.42%
6.16%
5.43%
5.58%
5.58%
5.67%
5.81%
6.11%
_______________________________________________________________________________________
115
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
33.
SHARE-BASED PAYMENTS (CONTINUED)
The following reconciles the outstanding restricted shares, LTIP rights and share options at the beginning and
end of the financial year:
Consolidated
2008
2007
Number of
restricted
shares, rights
and options
'000
Weighted
average
exercise
price
US$
Number of
restricted
shares, rights
and options
'000
Weighted
average
exercise
price
US$
Balance at beginning of financial year
Granted during the financial year
Forfeited during the financial year
Exercised during the financial year
Expired during the financial year
Balance at end of the financial year
Exercisable at end of the financial year
1,249
7,436
(359)
(32)
-
8,294
-
0.00
0.28
0.00
0.00
-
0.25
-
7
1,249
-
-
(7)
1,249
-
384.94
0.00
0.00
(384.94)
0.00
0.00
-
34.
KEY MANAGEMENT PERSONNEL COMPENSATION
Details of key management personnel
The directors and other members of key management personnel of the Group during the year were:
• Graham Bradley (Chairman, non-executive director)
• Bruce Brook (Non-executive director)
• David McLemore (Non-executive director)
• Peter St George (Non-executive director)
• David Grzelak (Non-executive director) appointed 13 November 2008
• Geoff Handley (Non-executive director) resigned 15 November 2008
• Paul Brunner (Chief Executive Officer and Executive Director) resigned 31 December 2008
• Craig Kipp (Chief Operating Officer) (Executive Director) appointed 28 June 2008 (Chief Executive
Fabrizio Rasetti (Senior Vice President, General Counsel and Secretary)
Officer) appointed 1 January 2009
•
Joseph Ragan III (Chief Financial Officer) commenced employment 29 September 2008
• Brad Baker (Senior Vice President, Human Resources) commenced employment 2 June 2008
•
• Scott Alexander (Vice President of Global Drilling Services)
• Michael Birch (Vice President of Global Products)
• Patrick Johnson (Senior Vice President, Human Resources) resigned 6 June 2008
•
Terrance Dolan (Senior Vice President, Business Development and Marketing) resigned 31 October
2008
_______________________________________________________________________________________
116
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
34.
KEY MANAGEMENT PERSONNEL COMPENSATION (CONTINUED)
The aggregate compensation made to key management personnel of the Parent and Group is set out below.
Consolidated
Parent
2008
US$
2007
US$
2008
US$
2007
US$
Short-term employee benefits
6,158,031
5,879,673
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payment
155,004
153,000
45,000
1,148,217
7,659,252
116,795
188,000
684,647
268,511
7,137,626
3,459,451
239,955
3,349,351
263,520
-
-
-
-
920,367
4,619,773
230,511
3,843,382
35.
RELATED PARTY TRANSACTIONS
(a)
Transactions with key management personnel
(i)
Key management personnel compensation
Details of key management personnel compensation are disclosed in Note 34 to the financial
statements.
(ii)
Other transactions with key management personnel of the Group.
Details of other transactions with key management personnel are disclosed in Note 33 of the
financial statements.
(iii)
Key management personnel equity holdings
Details of key management personnel equity holdings are disclosed below.
2008
Graham Bradley
Bruce Brook
Geoff Handley
David McLemore
Peter St. George
David Grzelak
Paul Brunner
Scott Alexander
Michael Birch
Patrick Johnson
Craig Kipp
Fabrizio Rasetti
Balance
1 January
No.
Net change
during year
No.
Balance
Balance
31 December
No.
held nominally
No.
2,383,782
154,053
86,486
808,609
289,188
-
226,473
350,000
24,512
350,000
230,000
10,000
2,610,255
504,053
110,998
1,158,609
519,188
10,000
16,869,839
3,175,161
20,045,000
588,918
664,596
1,430,973
10,214,626
984,121
-
-
(1,430,973)
(5,000,000)
82,000
588,918
664,596
-
5,214,626
1,066,121
-
-
-
-
-
-
-
-
-
-
-
-
_______________________________________________________________________________________
117
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
35.
RELATED PARTY TRANSACTIONS (CONTINUED)
2007
Graham Bradley
Bruce Brook
Geoff Handley
David McLemore
Peter St. George
Paul Brunner
Scott Alexander
Michael Birch
Patrick Johnson
Craig Kipp
Holm Oostveen
Fabrizio Rasetti
Ron Sellwood
Balance
1 January
No.
Issued
during year
No.
Balance
31 December
No.
-
-
-
-
-
-
-
-
-
-
-
-
-
2,383,782
2,383,782
154,053
86,486
808,609
289,188
154,053
86,486
808,609
289,188
16,869,839
16,869,839
588,918
664,596
1,430,973
10,214,626
1,070,744
984,121
5,522,683
588,918
664,596
1,430,973
10,214,626
1,070,744
984,121
5,522,683
Rights, Options and Shares Granted as Compensation to Key Management Personnel
Rights and Shares
Details of the rights under the LTIP and restricted shares that were granted as compensation to the KMP during
the reporting period, and details of those that were exercised, vested, or lapsed during the financial year are as
follows:
Held at the
Vested and
Held at the
Exercisable
beginning of
Granted as
Vested
Forfeited
end of the
as at
Name
Graham Bradley
Bruce Brook
Geoff Handley
David McLemore
Peter St George
Scott Alexander
Michael Birch
Craig Kipp
Joseph Ragan III
Fabrizio Rasetti
Brad Baker
Terrance Dolan
the Financial
Year
No.
Remun-
eration
No.
491,891
45,945
32,432
-
72,972
-
-
-
-
-
-
174,000
-
-
-
-
-
1
2
1
4
1
3
85,000
200,000
494,710
300,000
178,500
150,000
-
during the
during the
Financial
31 December
year
No.
year
No.
-
-
(32,432)
Year
No.
491,891
45,945
-
-
72,972
85,000
200,000
494,710
300,000
178,500
150,000
-
-
-
-
-
-
-
-
-
-
-
(174,000)
-
-
-
-
-
-
-
-
-
-
2008
No.
-
-
-
-
-
-
-
-
-
-
-
-
(1)
The fair value of the rights at the grant date is the closing price on the 11 April 2008 date of grant (US$1.77), the rights
vest over a three-year period from the grant date, with 50% subject to certain performance conditions.
(2) The fair value of the rights at the grant date is the closing price on the 11 April 2008 and 26 June 2008 date of grant
(US$1.77 and US$2.10, respectively). The rights vest over a three-year period from the grant date, with 50% subject to
certain performance conditions.
(3) The fair value of the rights at the grant date is the closing price on the 26 June 2008 date of grant (US$2.10). The rights
vest over a three-year period from the grant date, with 50% subject to certain performance conditions.
(4) The fair value of the rights at the grant date is the closing price on the 23 October 2008 date of grant (US$0.40). The
rights vest over a three-year period from the grant date, with 50% subject to certain performance conditions.
_______________________________________________________________________________________
118
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
35.
RELATED PARTY TRANSACTIONS (CONTINUED)
The rights under the LTIP and the restricted shares were provided at no cost to the recipient.
Mr. Handley’s restricted shares were vested by the Board upon his resignation.
The rights under the LTIP granted to Mr. Dolan were forfeited upon his resignation.
Options
During the year, Mr. Brunner announced his retirement and Mr. Kipp signed an employment agreement which
allowed for the issuance of two tranches of share options. The first tranche of 1,000,000 options vests on 1
January 2013 and has an exercise price of A$1.95 per option and a fair value on the grant date of US$0.69 per
option. The second tranche of 1,500,000 options vests on 1 January 2014 and has an exercise price of A$0.21
and a fair value on the grant date of US$1.45 per option. Vesting for both tranches of options is conditioned on
Mr. Kipp’s employment with the Company on the relevant vesting date, although vesting may accelerate upon
certain events such as a change in control. Both tranches of options expire on 31 December 2015.
Except as described above, no options or other rights over shares in the Company have been granted to KMP
during or since the end of the financial year.
During the reporting period, no shares were issued on the exercise of options or rights previously granted as
compensation.
Analysis of Movements in Rights, Options and Shares
The movement during the reporting period, by value of the relevant rights, options and shares in the Company
held by KMP is detailed below:
Entitlement
to rights
Share
options
Total rights
Total option
Name
Craig Kipp
Brad Baker
Fabrizio Rasetti
Scott Alexander
Michael Birch
Joseph Ragan III
Geoff Handley
Terrance Dolan
granted in
granted in
Exercised in
Forfeited in
value in
value in
year
US$
875,637
265,500
315,945
150,450
383,535
120,000
-
-
year
US$
2,864,367
-
-
-
-
-
-
-
year
US$
year
US$
year
US$
-
-
-
-
-
-
49,621
-
-
-
-
-
-
-
-
314,940
875,637
265,500
315,945
150,450
383,535
120,000
-
-
year
US$
2,864,367
-
-
-
-
-
-
-
(b)
Transactions with related parties
Transactions with other related parties consist of the following:
Fees paid to certain shareholders and
their representatives
Consulting fees paid to a director
Consolidated
2008
US$
2007
US$
-
34,264
67,354,405
-
_______________________________________________________________________________________
119
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
36.
REMUNERATION OF AUDITORS
Audit or review of the financial report
Auditor of the parent entity
Related practice of the parent entity auditor
Non-audit services
Tax services
Review of tax returns
Due diligence and other non-audit services
Consolidated
Parent
2008
US$
1,283,000
2,375,000
3,658,000
746,000
590,000
10,000
1,346,000
2007
US$
1,137,000
5,753,000
6,890,000
1,397,000
421,000
738,000
2,556,000
2008
US$
2007
US$
20,000
-
20,000
-
130,000
-
130,000
20,000
-
20,000
-
11,000
-
11,000
The auditor of Boart Longyear Limited is Deloitte Touche Tohmatsu.
37.
SUBSEQUENT EVENTS
The directors have not become aware of any matter or circumstance that has arisen since 31 December 2008
that has affected or may affect the operations of the consolidated entity, the results of those operations, or the
state of the consolidated entity in subsequent years.
_______________________________________________________________________________________
120
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
SUPPLEMENTARY INFORMATION
Additional stock exchange information as at 17 March 2009.
Number of holders of equity securities
(a)
Ordinary share capital
1,502,845,513 fully paid ordinary shares are held by 16,674 individual shareholders.
All issued ordinary shares carry one vote per share, however partly paid shares do not carry the rights to
dividends.
(b)
Share rights and share options
5,158,583 share rights are held in trust for 133 individual shareholders.
2,500,000 share options are held by one individual shareholder.
Distribution of holders of equity securities
1-1000
1,001-5000
5,001-10,000
10,001-100,000
100,001 and over
Fully paid
ordinary
shares
Share
rights
Share
options
1,307
5,177
3,570
6,003
617
16,674
-
-
-
122
11
133
-
-
-
-
1
1
_______________________________________________________________________________________
121
Notes to the Financial Statements
For the financial year ended 31 December 2008
BOART LONGYEAR LIMITED
SUPPLEMENTARY INFORMATION (CONTINUED)
Substantial shareholders
Ordinary shareholders
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
ANZ Nominees Limited
Citicorp Nominees Pty Limited
Comsec Nominees Pty Limited
Cogent Nominees Pty Limited
Citicorp Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Queensland Investment Corporation
Amp Life Limited
Citicorp Nominees Pty Limited
Elise Nominees Pty Limited
Brispot Nominees Pty Ltd
Fortis Clearing Nominees P/L
Citicorp Nominees Pty Limited
Bond Street Custodians Limited
UBS Wealth Management Australia Nominees Pty Ltd
Fully paid ordinary shares
Percent of Issued Capital
Number
260,084,259
186,479,628
149,449,295
138,468,043
114,468,276
76,299,515
49,728,290
12,510,234
10,090,190
9,000,000
7,726,428
6,379,206
6,345,547
5,881,388
5,099,000
4,994,692
4,961,995
4,957,200
4,869,001
4,549,877
Percent
17.3%
12.4%
9.9%
9.2%
7.6%
5.1%
3.3%
0.8%
0.7%
0.6%
0.5%
0.4%
0.4%
0.4%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
1,062,342,064
70.7%
_______________________________________________________________________________________
122
C O R P O R A T E I N F O R M A T I O N
Headquarters
Principal Administrative Office
10808 South Riverfront Parkway #600
South Jordan, Utah 84095
Tel: +1 801 972 6430
Fax: +1 801 977 3374
Registered Office
919-929 Marion Road
Mitchell Park,
South Australia 5043
Tel: +61 8 8375 8375
Fax: +61 8 8377 0539
Auditors
Deloitte Touche Tohmatsu
Company Secretaries
Fabrizio Rasetti
Paul Blewett
Stockholder Enquiries
Boart Longyear
Investor Relations
10808 South Riverfront Parkway
South Jordan, Utah 84095
Australia: +61 8 8375 8300
Others: +1 801 952 8513
email: ir@boartlongyear.com
Listing
Boart Longyear is listed on the Australian Securities Exchange under the symbol “BLY”
Share Registry
Link Market Services Limited
Level 12
680 George Street
Sydney NSW 2000
Tel: +61 2 8280 7111
Annual Meeting
The second Annual General Meeting of Shareholders of Boart Longyear Limited will be held at the Museum of Sydney, located at the corner of Bridge
and Phillip Streets, Sydney NSW 2000 on Monday, 11 May 2009, commencing at 10:00 a.m. (Sydney time).
Website
www.boartlongyear.com
Forward-Looking Statements
Statements in this report that are not historical are forward-looking statements. These statements are based on management’s current belief and their
expectations. The forward-looking statements in this report are subject to uncertainty and changes in circumstances and involve risks and uncertainties
that may affect our operations, markets, products, services, prices and other factors as discussed in our filings with the Australian Securities Exchange.
Significant risks and uncertainties may relate to, but are not limited to, financial, economic, competitive, environmental, political, legal, regulatory
and technological factors. In addition, completion of transactions of the type described in this report are subject to a number of uncertainties and
to negotiation and execution of definitive agreements among the parties and closing will be subject to approvals and other customary conditions.
Accordingly, there can be no assurance that the transactions will be completed or that our expectations will be realised. We assume no obligations to
provide revision to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.
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