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BOART LONGYEAR
ANNUAL REPORT 2010
Boart Longyear Limited ACN. 123 052 728
CONTENTS
Boart Longyear Overview
Chairman’s Report
Chief Executive Officer’s Report
Business Review
Board of Directors
Executive Leadership Team
Financial Report
Directors’ Report
Independent Auditor’s Report
Directors’ Declaration
Financial Statements
Supplementary Information
Corporate Information
WHO WE ARE
FINANCIAL CALENDAR
Final results and dividend announcement
Annual General Meeting
Half Year End
Interim results
Year End
23 February 2011
13 May 2011
30 June 2011
August 2011
31 December 2011
ANNUAL GENERAL MEETING
The Annual General Meeting of Boart Longyear will be held at
Perth Convention and Exhibition Centre
21 Mounts Bay Road, Perth, WA
Commencing at 10.00am on 13 May 2011
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132
IBC
Boart Longyear is the leading provider of mineral exploration services and drilling
products for the global mining industry. We are the only integrated drilling services
and products provider. We combine engineering excellence, global manufacturing
facilities and the most experienced drilling services group in the business.
Our customers rely on our unique ability to develop, field test, and deliver any
combination of drilling consumables, drill rigs, and drilling expertise to any corner
of the world. We have provided this service for over 120 years.
CEO’S REPORT
POSITIONED
FOR GROWTH
PAGE 8
REGIONAL OPERATIONS
GLOBAL FOCUS
PAGE 12
TECHNOLOGY AND INNOVATION
NEW IDEAS/
NEW PROCESSES
PAGE 4
THE YEAR IN REVIEW
PRODUCTS/
SERVICES
PAGE 10
BOARTLONGYEAR.COM/
ANNUAL-REPORT/2010
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.
CORPORATE INFORMATION
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
Shareholder Enquiries
Boart Longyear
Investor Relations
10808 South Riverfront Parkway #600
South Jordan, Utah 84095
Australia: +61 8 8375 8300
Others: +1 801 401 3712
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 12680 George Street
Sydney NSW 2000
Tel: +61 2 8280 7111
Annual Meeting
The Annual General Meeting of
Boart Longyear will be held at
Perth Convention and Exhibition Centre
21 Mounts Bay Road, Perth, WA
Commencing at 10.00am on 13 May 2011
Website
ww w.boartlongyear.com
www.precinct.com.au
Annual Report 2010
REVENUE
US$1,476M
2010
2009
2008
1,476
978
EBITDA
US$222M
2010
2009
111
222
1,839
2008
356
1
LOST TIME DAYS
306
2010
2009
2008
306
377
520
Revenue grew 51 percent to US$1.476 billion.
Growth was seen globally in both businesses,
in all regions.
EBITDA doubled in 2010 to US$222 million.
Leverage was seen on volume. Drilling Services
experienced steady price and margin recovery
in the second half of 2010. The Company had
excellent cost control.
The number of Lost Time Days was reduced
by 19 percent in 2010. The Company’s
tracking and reporting systems are shared
around the globe and will continue to drive
improvements.
NET PROFIT AFTER TAX
CASH FLOW FROM OPERATIONS
NUMBER OF EMPLOYEES
US$85M
2010
-15 2009
2008
85
US$52M
52
2010
2009
2008
157
9,221
2010
2009
2008
117
143
9,221
7,001
8,530
NPAT of US$85 million was up US$100 million
from the net loss of US$15 million in 2009.
Cash from Operations of US$52 million
compares to US$117 million for 2009.
Additional cash was required to
accelerate growth.
Over 2,200 employees have been hired
since December 2009, taking the global
workforce to over 9,200 people worldwide.
NET DEBT/EBITDA
TOTAL COMPANY REVENUE
0.69
2010
2009
0.69
0.43
27% PRODUCTS
73% DRILLING
During 2010 debt increased to fund working
capital needs as the business grew by
51 percent. Boart Longyear remains committed
to maintaining a low leverage ratio and a
prudent, sustainable capital structure through
the mining cycle.
Over 25 percent of the Company’s
diversified revenue stream is generated
from non-exploration activities.
Surface Core Drilling
Exploration Products
Rotary Drilling
Non-mining Drilling
Underground Drilling
Percussive Products
Percussive Drilling
35%
21%
18%
8%
8%
7%
3%
Boart Longyear
2
We have global reach and longstanding
relationships with a customer base
worldwide. We specialise in a full
suite of drilling services technology,
including surface and underground
diamond core drilling, surface and
underground percussive drilling,
surface rotary drilling, surface
geotechnical drilling, sonic drilling,
and surface reverse circulation drilling.
1,158
RIGS
BOART LONGYEAR’S
GLOBAL DRILLING
SERVICES AND PRODUCT
DEVELOPMENT HAVE
FORGED INDUSTRY-
CHANGING PRODUCTS
AND PRACTICES.
FOR OVER 120 YEARS,
WE HAVE LED THE
INDUSTRY IN SAFETY
AND PRODUCTIVITY.
A LONG AND PROVEN
TRACK RECORD
WITH CONTRACT
DRILLING SERVICES
IN 40 COUNTRIES
OUR HISTORY
PRE-1980 » The Longyear Company was founded when Edmund J
Longyear sank his first diamond drill hole in the wilderness of the Mesabi
Iron Range in Minnesota, USA in 1890. This discovery was later followed
by participation in the discovery of the Falcon Bridge nickel deposit at
Sudbury, Canada in 1916. Boart International was founded by DeBeers
in 1936 to use industrial diamonds in mining operations. That was the
start of Boart Longyear’s dedication to innovation in the mining industry.
In 1958, the first wireline core drilling system was patented and continues
to be the basis of technology used today. Boart International (DeBeers)
acquired Longyear Company in 1974, which led to the development of the
impregnated diamond bit. 1980—2004 » These years represented
growth in the Company through various acquisitions that helped expand
expertise through Canada and the USA. 2005—2008 » The recent
years represent a busy time for the Company through change of ownerships
Annual Report 2010
3
Our people are the very foundation of our success. With over 120 years of
experience behind us, our employees have joined a team with a proven
past and an exciting future. We believe we have more than just great
employees, we have the know-how, vision and commitment to design
and implement the best and most innovative solutions in the industry.
Our drillers in the field are a world-class team with a wealth of
operating knowledge. Ready to match the logistics and conditions
of each contract, we bring best-in-industry technology and expertise
to get the job done right. Always in search of better solutions and
greater productivity, we know that people come first. Internally as
well as externally, safety and integrity are part of our business culture.
WE HAVE OVER
9,200 EMPLOYEES
WE LAUNCHED
OVER 11 PRODUCTS
Our continued investment in research
and development, combined with
our field expertise, allows us to bring
innovative products that increase safety
and productivity to the market with
speed. We sell these mining products
in over 100 different countries.
and acquisitions. In 2005, Advent (P.E.) acquired Boart Longyear from Anglo
American (DeBeers). The following year, Macquarie acquired 51 percent
of the Company from Advent. The Company relocated headquarters from
Johannesburg, South Africa to Salt Lake City, USA in 2006, then went
public in 2007 on the Australian Securities Exchange. Acquisitions activity
continued to expand Drilling Services’ geographies throughout Argentina,
Australia, Canada, Chile, and the USA. In addition, there were two product
acquisitions made to expand and complement the Products business:
KWL (2007), a producer of capital drilling equipment, and Westrod
Engineering (2008), a producer of reverse circulation tooling.
CURRENT » Boart Longyear continues to make strides in developing
a high performing company that can manage through cycles and will
continue to leverage its unique integrated model and leading market
position while remaining focused on innovation and technology leadership.
Boart Longyear
4
At Boart Longyear, innovation is about leveraging the strength and
speed of our Global Products team working in close collaboration
with our Global Drilling Services division. We deliver solutions
that address the needs and challenges faced in the field. This
sharing of field data, needs, safety requirements, best practices,
and our global engineering presence results in a speed of driving
innovation that increases safety and productivity in the field.
This integrated business model is the Boart Longyear
advantage. We are proud to be the only drilling company
participating in the Deep Exploration Technologies Cooperative
Research Centre that was launched in Australia during 2010.
This AUD$112 million project will develop and deliver technologies
that result in more productive and safer ways to drill, analyse and
target deep mineral deposits.
WE ARE LEADERS
IN TECHNOLOGY
AND INNOVATION
Annual Report 2010
5
DID YOU KNOW
BOART LONGYEAR HOLDS:
163
PATENTS
508
TRADEMARKS
+
259
PATENTS
PENDING *
* The number of pending patent
applications may not result in a
corresponding number of issued
patents. Applications may be
rejected by the Patent Office,
abandoned for business reasons
or affected by other factors
which would prevent us from
obtaining patents.
ULTRAMATRIX™
DIAMOND CORING BITS
Patented Ultramatrix™ diamond coring bits are
engineered to drill faster, last longer, and outperform
existing bit technology in a wide range of drilling
conditions and formations. The extended range
and versatility reduces the number of bits needed
on the job site, and drillers can expect increased
productivity throughout the entire operation.
This means less time spent tripping rods, and
ultimately, more core in the box.
SC9 RIG WITH
HANDS FREE
ROD HANDLING
The SC9 introduces
a new approach to
surface exploration
drills. Featuring
a completely
hands-free rod
management system
and technology that
allows self monitoring
and efficient rig
operation, the SC9
is set to become
the standard for
fully automated
exploration drilling.
ROLLER LATCH™
UNDERGROUND
HEAD ASSEMBLY
The patent-pending
Roller Latch™ technology
in this head assembly
minimises wear on
related components
and improves reliability
by eliminating adapter
couplings and drive keys.
This head assembly
also includes a unique,
patent-pending ‘holdback
brake’ feature to retain
inner tube assemblies
in the drill string for
safer operations when
working in up-holes.
Boart Longyear
6
CHAIRMAN’S
REPORT
DAVID MCLEMORE
CHAIRMAN OF THE BOARD
THOUGH THE PRIORITY IN
2010 WAS PREPARING FOR
GROWTH AND LEVERAGING
THE BUSINESS, I AM
PLEASED TO REPORT THAT
THE COMPANY MAINTAINED
ITS STRONG COMMITMENT
TO SAFETY AND TO NEW
PRODUCT DEVELOPMENT
DURING THE YEAR.
Annual Report 2010
7
GROWTH
2010 was a year of rapid growth. The Company
managed the upturn by maintaining focus on its core
businesses and investing in technology, capacity,
and people while maintaining a strong balance sheet.
The Company made a US$85 million net profit
after tax as compared to a US$15 million loss in 2009.
Both revenue and EBITDA were up substantially on
the prior year. In 2010 our EBITDA was US$222 million
(US$111 million in 2009) on revenues of US$1.476
billion (US$978 million in 2009).
These results allowed the Board to resume
dividend payments in 2010.
Though the priority in 2010 was preparing
for growth and leveraging the business, I am
pleased to report that the Company maintained its
strong commitment to safety and to new product
development during the year. This commitment
continues to leverage our expertise in the field
with the ability to bring products to market at an
extraordinary pace. During 2010 we launched over
11 new products and our ongoing R&D program
remains on track to launch more new products in 2011.
Our Lost Time Days were down 19 percent
and safety continues to be a core value. A global
organisation has been established to support the
efforts in Environmental, Health, and Safety (EHS)
in order to rapidly deploy best practices and lessons
learned around the world.
We are well-positioned to capture the increased
demand we see in our markets for drilling services
and products. Our focus will remain on meeting
our customers’ needs, today and tomorrow, with
quality products and services while improving our
safety performance.
I would like to thank my fellow Board members
for their support of me personally and their advice
and guidance provided to the Company. I would also
like to thank our Chief Executive Officer, Craig Kipp,
and his executive team for their leadership, dedication
and outstanding performance during a period of rapid
growth. On behalf of the Board and every shareholder,
a “well done” to all of our 9,221 employees around the
world for their efforts and achievements in 2010.
HISTORICAL TRENDS US$M
Financial
Revenue
EBITDA
EBITDA %
NPAT
NPAT %
Cash from Operations
2007
2008
2009
1,576
1,839
297
356
978
111
2010
1,476
222
19% 19% 11% 15%
81
5%
158
157
–15
9% –2%
143
117
85
6%
52
4%
Cash from Operations %
10%
8% 12%
Our people
Lost Time Days
Total Case Incident Rate
Lost Time Incident Rate
2007
1430
3.26
0.34
2008
2009
2010
520
2.15
0.14
377
1.78
0.08
306
2.23
0.12
Number of Employees
9,056
8,530
7,001
9,221
2010 Drilling Services Revenue by Stage
Production
Development
Exploration
Non-mining
2010 Drilling Services Revenue by Commodity
Gold
Copper
Nickel
Iron
Other metals
Energy
Environmental
Other
39%
23%
23%
15%
40%
19%
6%
7%
5%
7%
7%
9%
Boart Longyear
8
CHIEF EXECUTIVE
OFFICER’S REPORT
CRAIG KIPP
CHIEF EXECUTIVE OFFICER
POSITIONED
FOR
GROWTH
This past year was a very profitable year of growth for
Boart Longyear. This is the direct result of a surprisingly
strong mining industry recovery and our restructuring
programs during the 2009 Global Financial Crisis (GFC).
Therefore, during 2010 we were able to refocus
on adding manufacturing capacity, optimising our rig
fleet, and hiring over 2,200 people – all in preparation
for the ongoing and future growth. Thus, a 47 percent
decline in 2009 revenue turned into a 51 percent revenue
increase in 2010. More importantly, we delivered a 100
percent increase in 2010 EBITDA. These strong results
also allowed us to reinstate our dividend policy in 2010.
Annual Report 2010
9
DURING 2010 WE WERE
ABLE TO REFOCUS ON
ADDING MANUFACTURING
CAPACITY, OPTIMISING
OUR RIG FLEET, AND HIRING
OVER 2,200 PEOPLE –
ALL IN PREPARATION
FOR THE ONGOING
AND FUTURE GROWTH
I would like to highlight several important
accomplishments from last year. We successfully
restructured our global and diverse organisation
into four regions, focusing on “GLOBAL alignment,
REGIONAL ownership, and LOCAL execution”. This is
the foundation for each customer, in each region, seeing
“One Boart Longyear”. As I said last year, our customers
want the same Boart Longyear products or services,
no matter where we operate. This new structure has
allowed us to start delivering on that commitment.
The “One Boart Longyear” initiative is also being
applied to our global compliance program. The nature
of the mining exploration business takes us to some
of the most remote and politically challenged places in
the world. We have one uniform code of conduct and
one compliance standard … regardless of the region,
country or customer. Some examples of this initiative:
mandatory online compliance training for all employees,
being a registered legal entity in each country in which
we operate, and a confidential global compliance hotline.
Fortunately, we were able to allocate significant
capital to organic growth in 2010. This capital was used
for new product development, manufacturing capacity
additions, fleet optimisation, and geographic expansion.
Each of these initiatives drives shareholder value and
positions us for further growth in 2011.
As we invested in the business, we continued to
remain focused on total operating cost. Continuing to
maintain a variable cost structure and a strong balance
sheet has also allowed us to maximise market share in
this growth environment
Our new product development roadmap extends
well into 2013. We remain focused on aggressive R&D
programs and new product launches. In 2010 alone,
173 patent applications were filed and 11 new products
launched. Many of these programs are focused on
continuing to improve rig operator safety and efficiency.
These development programs will continue, allowing us
to maintain our technology leadership and position as
a safety innovator.
As mentioned, safety remains a core value.
The rapid growth in 2010 required over 2,200 new
employees to be hired and, more importantly, properly
trained. As a result, our Lost Time Incident Rate (LTIR)
and Total Case Incident Rate (TCIR) increased from
2009. No excuses … we will improve. However, our
corresponding Lost Time Days was reduced by a
significant 19 percent.
With our world-class EHS daily tracking and
reporting system, best practices will continue to be
developed and shared around the world. Primarily,
we remain focused on driving “personal ownership”
of safety to all levels in the organisation.
Finally, I would like to comment on our global
leadership team. A large number of our local,
regional and HQ leadership teams remained with
Boart Longyear through the GFC and the ongoing
recovery. As an example, 11 out of 12 of our
executive leaders who were here in September of
2008 (the start of the GFC) are still with us today.
Similar statistics exist for our regional leadership
teams around the world.
All these leaders took the challenge head on,
made the difficult decisions, and brought Boart
Longyear back to profitability. Going forward, this is
a real value for the shareholders. The team has been
through both the steepest decline and the fastest
recovery in the industry’s memory. More importantly,
these leaders committed the single most important
asset to the company … their careers.
As always, I would like to thank our Board of
Directors, and our new Chairman, Dave McLemore.
With their help, we made the rapid 2010 transition from
restructuring and downsizing to growth and expansion.
In closing, I am very optimistic about Boart
Longyear’s position in this market and our possibilities
going into 2011. I would also like to thank all our
shareholders for their ongoing support over the last
couple of years.
Boart Longyear
10
DRILLING SERVICES
REVENUE
US$1,080M
2010
2009
2008
1,080
737
1,241
EBITDA
US$191M
2010
2009
2008
191
142
EBITDA MARGIN
18%
2010
2009
2008
295
18%
19%
24%
Drilling Services’ revenue grew 47 percent
to US$1.080 billion. Growth was seen
globally in all regions. Utilisation rates
were higher than in 2009.
EBITDA increased by 35 percent to
US$191 million. Steady price and
margin recovery was experienced
in the second half.
IN MAY 2010 BOART LONGYEAR’S 12-MAN DRILL
CREW COMPLETED THE DEEPEST EXPLORATION
HOLE IN TASMANIA’S RICH MINING HISTORY.
THE HOLE, LOCATED ON THE SURFACE OF
MT BLACK, ABOVE THE MINE, REACHED A
DEPTH OF 2,584 METRES ON 5 MAY 2010.
DRILLING TO THIS DEPTH POSED MAJOR
ENGINEERING CHALLENGES THAT DRILLING
CONTRACTOR BOART LONGYEAR WAS
ABLE TO MEET WITH ITS INTERNATIONAL
EXPERIENCE AND EXPERTISE.
No matter what location, what environment
or what type of service you need, Boart
Longyear’s Drilling Services group is
committed to providing the same consistent,
superior service around the globe. This
means you will get the same world-class
safety approach, program and performance.
The same highly trained capable and
productive drillers. And the same well
maintained, modern fleet of equipment.
› Utilisation rates in 2010 rose to 75 percent.
› The second half of 2010 showed price and margin
recovery as old contracts came up for renewal.
› With a continued focus on margins, contracting was very
disciplined by not renewing some existing contracts
› Investment continued in optimising the fleet for more
productivity, capacity, and safety. Organic growth
continues to provide the highest return on profit.
› The second half of 2010 required investment in
materials and training to keep up with the growth
that was experienced.
› Expanded the global sonic drilling program in both the
mining and Environmental & Infrastructure markets.
Annual Report 2010
11
DRILLING PRODUCTS
REVENUE
US$395M
2010
2009
2008
395
241
EBITDA
US$95M
2010
2009
26
95
598
2008
129
EBITDA MARGIN
24%
2010
2009
2008
11%
24%
22%
Products’ revenue grew 64 percent
to US$395 million. Growth
was achieved globally in all regions.
EBITDA increased by 265 percent to
US$95 million driven by volume and
productivity gains from manufacturing.
A RECOGNISED LEADER IN THE SUPPLY
OF DRILLING PRODUCTS TO THE MINERAL
EXPLORATION MARKET, BOART LONGYEAR'S
DRILLING PRODUCTS ARE DESIGNED
AND MANUFACTURED WITH THE HIGHEST
LEVELS OF SAFETY AND PRODUCTIVITY
TO SPECIFICALLY MEET THE NEEDS OF THE
INDUSTRY. THE BUSINESS LEVERAGES THE
DRILLING SERVICES GROUP TO TEST NEW
PRODUCTS AND CONTINUOUSLY IMPROVE
THE PRODUCT PORTFOLIO.
Continued investment in R&D and new
product development resulted in over
11 new commercial products in 2010,
enabling Boart Longyear to maintain its
global technology leadership position in
mineral exploration consumables and
drill rigs.
› Secured both orders and sales that were sharply
higher year-over-year in all regions.
› Improved distribution channels and delivery-to-
customer want.
› Achieved productivity gains in all manufacturing
plants offsetting labour and material inflation.
› Invested in capacity to manage increased 2011 demand.
› Launched over 11 new products.
Boart Longyear
12
Boart Longyear operates in 40 countries and sells
products into over 100. To ensure “One Boart
Longyear” around the world, the organisation was
restructured into four regions to focus on global
alignment, regional ownership, and local execution.
This new structure helps deliver a commitment to
customers that the same practices, procedures,
and customer service will be experienced no matter
where in the world business is being conducted.
IN ALL THE
RIGHT PLACES
NORTH AMERICA
LATIN AMERICA
DRILL RIGS. 554
MANUFACTURING PLANTS. 3
SHARE OF REVENUE. 42%
EMPLOYEES. 3,054
MINERALS DRILLED.
COPPER, GOLD, IRON, NICKEL,
URANIUM, OIL SANDS
DRILL RIGS. 169
MANUFACTURING PLANTS. 0
SHARE OF REVENUE. 13%
EMPLOYEES. 1,837
MINERALS DRILLED.
COPPER, GOLD, IRON ORE
The North American regional office is
located in Mississauga, Canada and covers
Canada, the USA, and Mexico.
› The Services organisation provides coring
(surface and underground), percussive, reverse
circulation, rotary, and sonic drilling solutions.
› Diamond bits, diamond core tooling and rods,
percussive rigs and rods, and surface drill rigs
are produced for the world.
The Latin American region is rich with mineral
diversity. The regional office is located in Santiago,
Chile, covering Central and South America.
› The Services organisation provides coring
(surface and underground), reverse circulation,
rotary and sonic drilling solutions.
› Business opportunities throughout the region resulted in
excellent revenue growth and positioned the region for
rapid future growth, especially in the Products business.
› Growth continues to steadily increase in all parts
› The Chilean team rallied to support their own and
of the business.
their colleagues in the aftermath of the Chile
earthquake and again during the miraculous rescue
of the 33 trapped miners.
Annual Report 2010
13
EUROPE/MIDDLE EAST/AFRICA (EMEA)
ASIA-PACIFIC
DRILL RIGS. 135
MANUFACTURING PLANTS. 2
SHARE OF REVENUE. 18%
EMPLOYEES. 1,483
MINERALS DRILLED.
COPPER, GOLD, IRON
DRILL RIGS. 300
MANUFACTURING PLANTS. 2
SHARE OF REVENUE. 27%
EMPLOYEES. 2,847
MINERALS DRILLED.
COPPER, ENERGY,
GOLD, IRON ORE,
NICKEL, URANIUM
The EMEA region covers a broad and complex
geography that spans multiple climates,
currencies, and languages. The regional office
is located in Geneva, Switzerland and covers
Europe, Russia, the Middle East, and Africa.
› The Services organisation provides coring
(surface and underground), percussive, reverse
circulation, rotary and sonic drilling solutions.
› Casing and geo-construction drill rigs and tooling
are produced for the world.
› The business continues to have strong growth
opportunities and evolves into a very sustainable
market for Boart Longyear.
The regional office of the mineral-rich region
of Asia-Pacific is located in Adelaide, Australia
and covers large mining economies in countries
such as Australia, Indonesia, and Laos.
› The Services organisation provides coring
(surface and underground), reverse circulation,
rotary, and sonic drilling solutions.
› Diamond core tooling and rods, percussive bits,
reverse circulation rigs and tooling, and
underground drill rigs are produced for the world.
› Participation as a core team industry member of
the Deep Exploration Technologies Cooperative
Research Centre (CRC).
Boart Longyear
14
OUR CORE
VALUES
SAFETY ALWAYS
COMES FIRST
Safety comes first in all activities. We each have a
responsibility to ourselves and to our employees,
contractors, customers and shareholders to proactively
work in strengthening our safety culture. We live by
the Boart Longyear Safety Golden Rules at all times.
Boart Longyear’s commitment to the safety of our
employees, our customers and the environment is
evident by our ISO 14001 Environmental Certification
and our OSHAS 18001 Certification.
Annual Report 2010
15
“On behalf of Shell and
the Colorado technical
and operations teams,
I would like to express
our sincere thanks
for the excellent
safety performance
that was achieved
on the recently-
completed Colorado
East RD&D Lease
Sodium Appraisal
and Hydrology well
drilling program.”
BOART LONGYEAR
NAMED BY THE NATIONAL
BUSINESS REVIEW
AS ONE OF THE MOST
EXCITING COMPANIES
IN THE MINING AND
QUARRYING SECTOR FOR
OUTSTANDING HEALTH
AND SAFETY RECORDS,
LEADING THE INDUSTRY.
DOME MINE
INCIDENT FREE
Boart Longyear
percussive drilling
crews at Goldcorp’s
Dome Mine in Canada
achieve a safety
milestone by working
two years without any
recordable injury, lost
time injury or fatality
accidents.
“I WANTED TO TAKE A MINUTE
TO THANK YOU GUYS AGAIN
FOR THE WORK THAT BOART
LONGYEAR HAS DONE
IN SAFETY AT BARRICK
GOLDSTRIKE UNDERGROUND.
THE ACHIEVEMENT OF 2
YEARS WITHOUT A MRA IS
OUTSTANDING. THE CERTIFICATES
THAT I PRESENTED TO YOU
GUYS AT THE MEETING WAS IN
APPRECIATION OF ALL THE HARD
WORK THAT YOU, YOUR PEOPLE
AND THE COMPANY THAT YOU
WORK FOR (BOART LONGYEAR)
PUT IN TO ENSURE THE SAFETY
OF YOUR EMPLOYEES …”
GENERAL FOREMAN
GOLDSTRIKE
UNDERGROUND DIVISION
Boart Longyear’s
Percussive Drilling
Services group
celebrates five years
or over 1,949,000
hours without a lost
time incident. This
achievement included
operations in both the
USA and Canada.
FIVE YEARS
OF DRILLING
WITHOUT
AN INCIDENT
365 DAYS INJURY FREE
OneSteel celebrates 365 days of
recordable injury free time with drilling
contractor Boart Longyear, which
has been working in conjunction with
OneSteel on its exploration drilling
program for the past two years.
OneSteel mineral resources manager
Don Dart stated, “We appreciate
the level of safety Boart Longyear
employees have displayed whilst
working in the Whyalla area. Each
time we conduct a safety behaviour
observation on the drilling activities, we
are impressed with the safety approach
that this drilling crew consistently
demonstrates.” Mr. Dart continues,
“Achieving one year injury free in a
challenging job like exploration drilling
is a significant achievement and a very
good reflection of the expertise and
approach to safety by Boart Longyear.”
FROM RUSSIA
WITH LOVE
Boart Longyear Russia has drilled
throughout 2010 on two of Kinross’
most important projects in Russia. Both
projects are in remote locations and
experience extreme winter conditions.
The Longyear crews have produced
quality results with good production
rates and an attention to safety that
exceeds that of most contractors
in the region. Boart Longyear will
continue to be a part of our exploration
and development operations.
Howard Golden,
Regional Director of Exploration,
Russia, Kinross Gold Corporation
Boart Longyear
16
FOOD AND TOY DRIVE IN SALT LAKE CITY
The Salt Lake City Bit Plant held a food and toy
drive for the families of Guadalupe School to
support their Christmas Store. The group donated
over 50 toys and collected a crate of food for the
families in need. The Guadalupe School in Salt Lake
City teaches economically disadvantaged children
and non-English speaking adults the vision and
skills needed to live productive, rewarding lives.
ETHICS AND
GOOD CITIZENSHIP
We take pride in upholding the highest standards of
behaviour. Not only do we comply with legal obligations,
but we operate ethically and responsibly in all aspects
of the communities in which we do business.
BOART LONGYEAR IS
A PROUD SPONSOR
OF FIRST LEGO LEAGUE
Boart Longyear
sponsored Utah’s FIRST
Lego League promoting
science and engineering
with youth. Innovation
and technology continue
to be a key focus for
Boart Longyear. The
Company is proud to
sponsor an event that
helps develop the next
generation of innovators.
FIRST Lego League
(For Inspiration and
Recognition of Science
and Technology) is an
exciting global robotics
and innovation program
that develops an
enthusiasm for discovery,
science, teamwork and
technology in kids ages
9 to 14. FIRST Lego
League students have
the opportunity to solve
real-world challenges by
building LEGO-based
robots to complete tasks
on a thematic playing
surface. Teams, guided
by their imaginations
and adult coaches,
discover exciting
career possibilities and,
through the process,
learn to make positive
contributions to society.
BOART LONGYEAR
HELPS OUT IN PIKE
RIVER MINE RESCUE
Two explosions at the
Pike River Mine in New
Zealand in November
resulted in the country’s
worst mining disaster
since 1914. Boart
Longyear’s crews were
on site in a voluntary
capacity to help with
the rescue efforts.
The mine was located
in heavy vegetation that
was only accessible
by helicopter. Boart
Longyear sent its
specialist from New
Zealand. All the
equipment was flown
in and assembled in
record time.
The drilling operations
that were carried out
were for rescue holes
to monitor gasses
and attempt to make
contact with any
survivors with the hope
to ultimately supply
them with supplies
until the rescue could
be carried out.
During the drilling
operations, a series
of explosive events
from within the mine
required the drill sites
to be evacuated.
Boart Longyear
drillers remained on
site despite multiple
opportunities to leave
and their dedication to
helping with the effort
was outstanding.
EXCEPTIONAL
RESULTS
We are focused on
delivering exceptional
results to our customers
and shareholders
every day. For Boart
Longyear, this means
more than consistently
delivering on our
promises. We strive to
achieve exceptional
results through
flawless execution,
an unwavering
commitment to our
customers and the
dedication to finding
new and innovative
ways to beat the
competition.
THE MINING FOUNDATION OF
THE SOUTHWEST HONORED
BOART LONGYEAR WITH
THE AMERICAN MINING
HALL OF FAME INDUSTRY
PARTNERSHIP AWARD.
THE AWARD WAS
RECOGNITION OF MORE
THAN 100 YEARS OF SERVICE
TO THE MINING INDUSTRY,
INCLUDING INNOVATIONS
IN DRILLING TECHNOLOGY.
Annual Report 2010
BHP TEAMS WITH
BOART LONGYEAR
For the past two years,
the geology department
(within Mine Technical
Services) at the Olympic
Dam site in Australia
has been rolling out
a number of Lean
Six Sigma business
improvement projects.
Partnering with Boart
Longyear on projects that
focused on improving
drilling productivity,
the following results
were accomplished:
› The Greenbelt Project was
successful in improving
rig move times by 29%.
› The Yellowbelt Project
reduced downtime by
57 minutes and saved
23 motions (as a result
of changing decking and
improving the workbench).
In a letter from
BHP outlining this
accomplishment, Josh
Briant, Acting Mine
Technical Services
Manager, wrote,
“None of this would
have been possible
without the cooperation
and support of Jody
Smith, Underground
Superintendent,
Boart Longyear.”
The success of these
projects has shown that
by engaging both BHP
and Boart Longyear in the
improvement process,
sharing best practices
leads to improved
efficiencies on site.
DEDICATION TO
OUR CLIENTS’ SUCCESS
We are dedicated to providing the products,
services and support our clients need to succeed.
This is a passion that is manifested through our
focus on the voice of the customer, building
strong client relationships and our non-negotiable
approach to quality.
Boart Longyear crews have been totally professional
in all aspects of their work at Central Tanami. I know
that through good communication it has made my
job easier at the end of the day and the crews have
been a pleasure to work with. I would like to take this
opportunity to thank all the Boart personnel for the
professional way the business of drilling holes has
been conducted throughout this year.
17
ANOTHER STRONG
PARTNERSHIP IN CHILE
Boart Longyear Product
Sales and Environmental,
Health and Safety (EHS)
partnered with “El
Teniente Division” from
CODELCO at its office in
Chile, to deliver an EHS
Workshop on the LM75 rig
it had recently purchased
for their operations.
Approximately 11 Codelco
managers and supervisors
were in attendance. This
event provided a great
service to the client and
positioned Boart Longyear
as competitive supplier
and an expert in EHS.
Adrian Dellar,
Senior Geologist,
Central Tanami Project
ANOTHER JOB WELL
DONE IN ARGENTINA
The first 2010 core drilling
program at Altar has now
concluded for the winter
season. The drilling was
conducted by Boart
Longyear Argentina SA,
and included up to four
core drills operating
24 hours a day.
Seventy-six holes totaling
over 26,000 metres were
completed between
15 January and 3 May.
A total of 140 core
holes for over 55,000
metres has been
MUTUAL
TRUST AND
RESPECT
Our people are our
most important asset.
We know that the best
ideas develop as a
result of collaborative
efforts between
individuals with diverse
backgrounds, opinions
and perspectives. We
value the diversity that
is Boart Longyear and
demonstrate mutual
trust and respect for
one another.
completed at Altar since
drilling began in 2003.
Jeff Toohey, Vice
President of Exploration
of Peregrine, commented,
"We are very pleased
with Boart Longyear
Argentina’s execution of
the 2010 drilling program.
The team they assembled
was first class, and the
completion of more than
26,000 metres of drilling
in less than four months
is a testament to their
professionalism."
Boart Longyear
18
Mr. McLemore was appointed a
director on 21 February 2007 and is
currently Chairman of the Company
and Chairman of the Remuneration
& Nomination Committee.
He has 35 years of industrial and
broad operational experience.
He has held a number of positions
with various Advent International
portfolio companies for more than
10 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. He 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.
DAVID MCLEMORE
CHAIRMAN
Mr. Kipp was appointed a director
of the Company on 28 June
2008 when the Board announced
Mr. Kipp would transition to
Chief Executive Officer, starting
1 January 2009. Prior to being
CEO, he was the President and
Chief Operating Officer for Boart
Longyear. Mr. Kipp joined the
Company in 2005 after 22 years
with General Electric, where he was
employed in various capacities,
including President and Chief
Operating Officer of the Global
Nuclear Fuel division and General
Manager of operations both in
Hungary and then China.
Mr. Kipp received his BS and MS
in Mechanical Engineering from
the University of North Dakota
and his MBA from the University
of Chicago.
CRAIG KIPP
MANAGING DIRECTOR,
CHIEF EXECUTIVE OFFICER
THE
BOARD
THE BOARD OF BOART
LONGYEAR IS COMPOSED
OF A MAJORITY OF
INDEPENDENT DIRECTORS,
AND REGULARLY
REVIEWS ITS CORPORATE
GOVERNANCE PRACTICES
TO ENSURE THE BEST
REPRESENTATION OF
SHAREHOLDER INTERESTS.
BRUCE BROOK
NON EXEC. DIRECTOR
Mr. Brook was appointed a director
of the Company on 21 February
2007, and is Chairman of the Audit,
Compliance & Risk Committee
and a member of the Environment,
Health & Safety Committee.
He is currently a director of
Snowy Hydro Limited (appointed
May 2006), Export Finance and
Insurance Corporation (appointed
March 2010), Programmed Group
(appointed June 2010) and the
Deep Exploration Technologies
Co-operative Research Centre
(since May 2010). Mr. Brook is
also a member of the Financial
Reporting Council and a member
of the Audit Committee of the
Salvation Army (Southern Territory).
Mr. Brook was a director of Lihir
Gold Limited from 2005 to 2010,
chairman of Energy Developments
from 2009 to 2010 and a director of
Consolidated Minerals from 2005
to 2008.
Mr. Brook was the Chief Financial
Officer of WMC Resources
Ltd from 2002 to 2005 and
has approximately 30 years of
experience in various management
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 gained his B. Comm and
B. Accounting at the University of
Witwatersrand and is a fellow of the
Institute of Chartered Accountants
in Australia.
Annual Report 2010
19
Mr. Brown was appointed
a director of the Company on
1 July 2010, and is a member of
the Remuneration & Nomination
Committee and the Environment,
Health & Safety Committee.
Mr. Franklin was appointed
a director of the Company on
15 October 2010 and is a member
of the Environment, Health &
Safety Committee and the Audit,
Compliance & Risk Committee.
He currently holds board positions
with McDermott International
Inc. (NYSE), and Ultra Petroleum
Corporation (NYSE). Prior to that,
Mr. Brown served as President of
Smith Technologies, a business
unit of Smith International, Inc.,
which prior to its acquisition by
Schlumberger, Ltd. was a Fortune
500 company that was a leading
worldwide supplier of products and
services to the oil and gas industrial
markets. In addition, Mr. Brown
has held board positions for
I.E. Miller Services, Sandvik/Smith
Ltd and the Petroleum Equipment
Suppliers Association.
Mr. Brown received his Bachelor
of Science in Economics, History,
and Political Science, along with his
Juris Doctorate, from the University
of Oklahoma.
ROGER BROWN
NON EXEC. DIRECTOR
He is currently Chairman of the
Board for Keller Group PLC
(London Stock Exchange) and a
director of Santos Ltd (ASX) and
Statoil ASA (Oslo Stock Exchange).
He previously held directorships
on a number of other corporate
boards, including International
Energy Group and Novera Energy.
Mr. Franklin also served as Chief
Executive of Paladin Resources
from 1997 to 2006, was Managing
Director of Clyde Petroleum from
1991 to 1997, and held a number
of executive roles with British
Petroleum earlier in his career.
Mr. Franklin is based out of
England and received his Bachelor
of Science in Geology from
the University of Southampton.
ROY FRANKLIN
NON EXEC. DIRECTOR
DAVID GRZELAK
NON EXEC. DIRECTOR
PETER ST. GEORGE
NON EXEC. DIRECTOR
Mr. Grzelak was appointed
a director of the Company
on 13 November 2008, and is
Chairman of the Environment,
Health & Safety Committee
and a member of the Audit,
Compliance & Risk Committee.
He is currently Chairman and
Chief Executive Officer of Komatsu
America Corp. since 2002, 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 20 years.
Mr. Grzelak has served as a director
of the Alamo Group Inc. (NYSE) and
has been a member of its Audit,
Compensation and Nominating
committees since 2006.
Mr. Grzelak earned his BS in
industrial engineering from
Penn State University and his
MBA from Gannon University.
Mr. St. George was appointed
a director of the Company on
21 February 2007, and is a member
of the Remuneration & Nomination
Committee and the Audit,
Compliance & Risk Committee.
Mr. St. George has also served
as a director of First Quantum
Minerals Limited (listed on the
Toronto Stock Exchange) since
October 2003. He was appointed
a director of Dexus Group (listed
on the Australian Securities
Exchange) in April 2009. He was
a director of Spark Infrastructure
Group and associated companies
from December 2005 until
December 2008.
He also served as a director and
Chairman of Walter Turnbull, an
Australian accounting and financial
services firm, from August 2002
until October 2008 and was
a director of SFE Corporation
Limited from 2000 until its merger
with ASX Ltd 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 of 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 his MBA
from the University of Cape Town.
Boart Longyear
20
EXECUTIVE
LEADERSHIP
TEAM
CRAIG KIPP
SEE PAGE 18
BRAD BAKER
IRA KANE
ALAN SIDES
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 operational,
divisional and global human
resources roles including Vice
President of Human Resources.
Mr. Baker received his BA in
Business from Bowling Green
State University and his MBA
from Xavier University.
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 publicly
held MPW Industrial Services Co.
and for 11 years as Executive
Vice-President of publicly held
OHM corporation. Mr. Kane was a
practising attorney in Columbus,
Ohio for 13 years.
Mr. Kane received his BA from
Hofstra University and his JD from
The Cleveland–Marshall College of
Law at Cleveland State University.
Mr. Sides was appointed Vice
President, Global Products in 2010.
Prior to joining Boart Longyear, he
spent over 25 years with General
Electric, where he was employed
in various capacities, including the
position of Commercial Operations
Manager with Aero Energy in
Houston, Texas and leading
the commercial function in Asia
Pacific for the Power Generation
business. Mr. Sides has been
responsible for leading sales and
commercial activities for General
Electric businesses while located
in Tokyo, Beijing and London, and
for business integration efforts in
Atlanta, Georgia.
Mr. Sides received his BS
in Mechanical Engineering
from Georgia Institute of
Technology and his MBA from
Emory University.
JOE RAGAN
MIKE BIRCH
Mr. Ragan was appointed Chief
Financial Officer in 2008. Prior to
joining Boart Longyear, he held
the position of Chief Financial
Officer for GTSI Corporation,
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., an
international telecommunications
company. Earlier in his career,
Mr. Ragan held various international
and domestic finance positions for
PSEG, the AES Corporation, and
Deloitte and Touche.
Mr. Ragan received his BS in
Accounting from The University of
the State of New York, his MS in
Accounting from George Mason
University and his CPA in the
Commonwealth of Virginia.
Mr. Birch was appointed as Vice
President of Global Drilling Services
in 2010 after successfully leading
the Global Products division
to record performance from
May 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
DeWalt Industrial Power Tools,
both divisions of Black & Decker
Corporation.
Mr. Birch received his BA in
Business Management from
Brigham Young University.
FAB 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.
Mr. Rasetti received his BS in
Foreign Service and his JD from
Georgetown University.
21
Annual Report 2010
CONTENTS
Directors’ Report
Auditor’s Independence Declaration
Independent Auditor’s Report
Directors’ Declaration
Consolidated Statement of Comprehensive Income (Loss)
Consolidated Statement of Financial Position
Consolidated Statement of Changes In Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
22
56
57
59
60
61
62
63
65
FINANCIAL
REPORT
Annual Financial Report
31 DECEMBER 2010 BOART LONGYEAR LIMITED
22
DIRECTORS’ REPORT
The directors present their report together with the financial report of Boart Longyear Limited (the “Parent”) and its
controlled entities (collectively the “Company”) for the financial year ended 31 December 2010 (“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.
• Bruce Brook
• Roger Brown
• Roy Franklin
• David Grzelak
• Craig Kipp
• David McLemore
• Peter St George
Appointed 21 February 2007
Appointed 1 July 2010
Appointed 15 October 2010
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:
• Graham Bradley
Appointed 21 February 2007; resigned 23 August 2010
A summary of the directors’ work experience and qualifications is found on pages 18-19.
DIRECTORS’ MEETINGS
The following table sets out for each director the number of directors’ meetings (including meetings of committees of
directors) held and the number of meetings attended by each director during the financial year while he was a director or
committee member. The table does not reflect the directors’ attendance at committee meetings in an “ex-officio”
capacity.
Board of Directors
Remuneration &
Nominations
Committee
Held
4
Attended
4
Held
2
Attended
2
Environment,
Audit, Compliance
Health &
& Risk Committee
Safety Committee
Held
Attended
Held
Attended
6
3
2
6
6
6
6
6
3
2
5
6
6
6
2
4
4
2
4
4
4
4
4
4
4
4
4
2
4
3
4
2
4
3
Graham Bradley 1
Bruce Brook
Roger Brown 2
Roy Franklin 3
David Grzelak
Craig Kipp
David McLemore
Peter St. George
(1) Mr. Bradley resigned from the Board effective 23 August 2010
(2) Mr. Brown was appointed to the Board on 1 July 2010
(3) Mr. Franklin was appointed to the Board on 15 October 2010
In addition to the regular meetings listed above, several special meetings of the Board and its committees were held
during the course of the year.
COMPANY SECRETARIES
Fabrizio Rasetti was appointed Company Secretary on 26 February 2007. A summary of his work experience and
qualifications is found on page 20.
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 the
Lynch Meyer law firm in Adelaide, South Australia. Mr. Blewett received his LLB from the University of Adelaide in 1983.
______________________________________________________________________________________
3
Annual Financial Report
31 DECEMBER 2010 BOART LONGYEAR LIMITED
23
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
Company 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 40 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.
Financial performance
Financial performance across all business lines and geographic regions significantly improved over the previous year.
Total revenue for the year ended 31 December 2010 was $1,476 million, an increase of 51% compared to $978 million
for the prior year. Of the $498 million increase in revenue during 2010, $343 million was attributable to an increase in
revenues in the Global Drilling Services division and $155 million was due to the Global Products division. Revenues
were higher in each of the five geographic regions.
In 2010, the Global Drilling Services division generated revenue of $1,080 million, an increase of 47% from the prior
year. The increase is primarily attributable to improved drill rig utilisation and improved pricing.
In 2010, the Global Products division generated revenue of $395 million, an increase of 64% from the prior year. The
increase was driven by higher sales volume related to higher activity in the mining industry.
In 2010, the Company initiated a restructuring plan to reduce or eliminate certain operations. Additionally, the Company
continued the initiative begun in 2008 to reduce operating costs through a series of restructuring activities. During the
year ended 31 December 2010, the Company incurred costs of $5 million related to employee separation, contract
termination and other restructuring initiatives. During the year ended 31 December 2009, the Company incurred costs of
$13 million related to employee separation, occupancy reductions and other restructuring initiatives.
Net profit after tax for the year ended 31 December 2010 was $85 million compared to a net loss of ($15) million in the
year ended 31 December 2009. The 2010 profit includes restructuring expenses of $5 million ($3 million net of tax
benefit). The 2009 losses include restructuring expenses of $13 million and $17 million ($9 million and $12 million net of
tax benefit, respectively) in one-time expenses (primarily non-cash) related to the capital raising program undertaken
during the financial year.
Tax expense for the year ended 31 December 2010 was $39 million, or 31% of profit before tax, compared to a tax
benefit of $8 million, or 34% of loss before tax, for the year ended 31 December 2009. The tax expense and benefit
takes into account the tax weighting of the corporate structure.
Earnings per share in 2010 were 18.5 cents per share on a basic basis and 18.4 cents per share on a diluted basis,
compared to a loss per share on a basic and diluted basis of (6.1) cents for the prior year.
DIVIDENDS
On 23 August 2010, the directors of the Company declared a dividend of US 2.1 cents per share for the half-year ended
30 June 2010. The dividend was paid on 14 October 2010 and was 35% franked at the Australian corporate taxation
rate of 30%. 100% of the unfranked portion of the dividend was conduit foreign income.
On 23 February 2011, the directors of the Company determined to pay a dividend of US 3.4 cents (total of approximately
$16,000,000) on each of the issued ordinary shares of the Company. The dividend is payable on 15 April 2011 to
shareholders of record on 18 March 2011. The dividend will be 35% franked at the Australian corporate taxation rate of
30%. 100% of the unfranked portion of the dividend was conduit foreign income. The dividend was not included as a
liability in the 31 December 2010 financial statements.
______________________________________________________________________________________
4
Annual Financial Report
31 DECEMBER 2010 BOART LONGYEAR LIMITED
24
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Enterprise Resource Planning System Implementation
The Company is in process of implementing a new Enterprise Resource Planning (“ERP”) system. The ERP system will
be an integral element of the Company’s management, reporting and control systems. The Company converted its North
American operations to the ERP system in January 2011. The Company plans to transition its remaining entities in a
series of conversions scheduled to occur in 2011 and 2012.
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 Company’s
operations, results or state of affairs in future financial years.
FUTURE DEVELOPMENTS
The Company 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 and cash generation. The Company may also elect to expand its product or service offerings through
organic growth initiatives or strategic acquisitions.
Further information about likely developments in the operations of the Company in future years, expected results of
those operations, and strategies of the Company and its prospects for future financial years has been omitted from this
report because disclosure of the information would likely result in unreasonable prejudice to the Company.
______________________________________________________________________________________
5
Annual Financial Report
31 DECEMBER 2010 BOART LONGYEAR LIMITED
25
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 Company. 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.
•
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 Company’s Code of Business Conduct. The Board
policies and charter set clear thresholds for management authority and ensure accountability to, and oversight by, the
Board or its committees 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 six 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 Company serves. The Company also recognises that a majority
of the directors should be 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 within the last three years or did not become a
director within three years of being so employed;
has been a principal of a material professional advisor or a material consultant to the Company within the last
three years;
is a partner in, or material shareholder or officer of, a material supplier or customer of the Company;
has a material contractual relationship with the Company other than as a director; and
has received more than A$100,000 from the Company during the past year other than as compensation for the
director fulfilling his duties as a director.
The Board 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 non-executive directors, including the Chairman, meet the
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31 DECEMBER 2010 BOART LONGYEAR LIMITED
26
independence criteria listed above. In particular, none of the non-executive directors, including the Chairman, has been
an employee of the Company or any of its significant investors prior to the Company’s initial public offering.
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 to provide 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 and in other settings. The Board endeavors to schedule at least one meeting annually at one of the
Company’s significant operating locations and, among other things, meets with the locations’ management during each
visit.
Board Committees
The Board is comprised of the following three permanent committees to assist it in discharging its responsibilities:
• Audit, Compliance & Risk Committee;
• Remuneration & Nominations Committee; and
• Environment, Health & Safety Committee.
The committees have written charters that are reviewed 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.
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
Remuneration & Nominations Committee
The Remuneration & Nominations 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 long term incentive plans,
including 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:
• David McLemore – Chairman
• Peter St George
• Roger Brown
Mr. St George resigned as committee Chairman on 22 March 2010, at which time Mr. McLemore assumed the
chairmanship.
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31 DECEMBER 2010 BOART LONGYEAR LIMITED
27
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:
• Dave Grzelak – Chairman
• Bruce Brook
• Roger Brown
Mr. McLemore was a member and Chairman of the committee until 19 August 2010. Mr. Grzelak assumed the
committee chairmanship upon Mr. McLemore’s resignation. Mr. Brown was appointed to the committee on 1 July 2010.
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. The last Board effectiveness evaluation was
completed in December 2009. The Chairman currently is coordinating a Board performance assessment to be
conducted in the first quarter of 2011 with the assistance of an external consultant.
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, including awareness of continuous disclosure principles. 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; 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 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 and other senior managers of the Company participate in an annual short-term
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31 DECEMBER 2010 BOART LONGYEAR LIMITED
28
incentive plan which is based on the achievement of the annual corporate operating margin, safety and revenue growth
performance objectives as well as certain individual strategic initiatives approved by the Board. Individuals are advised
annually of their target bonuses, which in 2010 ranged from 50% to an additional 100% of base pay for the senior
executives. Exceptional individual and corporate performance can increase these target bonuses by up to 100%. The
Company’s executive performance assessment process for 2010 and goal-setting process for 2011 commenced in
January 2011 and will be completed in March 2011.
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;
certifications from management and process owners throughout the Company regarding the design and
operation of risk management systems, internal controls and compliance; and
a formal risk management system, overseen by the Director of Risk Management, based on a written risk
management policy and the findings of Company audits and investigations.
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 significant findings of any compliance reviews or
investigations.
The Company also implemented a scenario planning process in December 2010 to identify early signs of, and plan for,
significant events and contingencies.
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, with regard to the integrity of the financial statements
of the Company for the year ended 31 December 2010:
(i)
(ii)
the financial statements for the financial year comply with Accounting Standards and have been
properly maintained in accordance with section 286 of the Corporations Act 2001;
the financial reports, and notes thereto, present a true and fair view, in all material respects, of the
financial position and performance of the Company in accordance with section 297 of the Corporations
Act 2001; and
(iii)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable.
2)
to the best of their knowledge and belief after having made appropriate enquiries, with regard to risk
management and internal control systems of the Company for the year ended 31 December 2010:
(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;
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; and
(iii)
nothing has come to management’s attention since 31 December 2010 that would indicate any
material change to the statements made in 2(i) and 2(ii) above.
______________________________________________________________________________________
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31 DECEMBER 2010 BOART LONGYEAR LIMITED
29
These statements are supported by certifications made to the Chief Executive Officer and Chief Financial Officer by the
regional and financial managers of each of the Company’s divisions. 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.
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.
In addition, the Company maintains, and actively promotes the use of, several systems for employees and other persons
to report potential violations of the Code of Conduct and other policies. Reported concerns are investigated by the
Company’s legal department and reported to the Board.
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 the Company’s 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 May and are provided with an explanatory
memorandum on the resolutions proposed through the Notice of Meeting. The Company also has an investor relations
function 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.
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31 DECEMBER 2010 BOART LONGYEAR LIMITED
30
Donations
Boart Longyear contributes to the communities in which it works with donations, sponsorship and practical support. The
Company does not make political donations.
DIRECTORS’ SHAREHOLDINGS
The following table sets out each director’s relevant interest in shares, debentures, and rights or options over shares or
debentures of the Company or a related body corporate as at the date of this report.
Bruce Brook
Roger Brown
Roy Franklin
David Grzelak
Craig Kipp
David McLemore
Peter St. George
Fully paid
ordinary shares
104,422
Restricted shares,
rights and options 1
30,000
-
1,000
521,463
115,861
107,449
-
-
-
-
Total
104,422
30,000
-
1,000
999,291
1,520,754
-
-
115,861
107,449
(1) Certain of the restricted shares and options listed for Mr. Kipp are performance share rights granted under the Long-
Term Incentive Plan and thus are subject to a performance condition as well as a service condition
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 Company are
included in the Remuneration Report. Options over unissued shares of the Company have been granted to the Chief
Executive Officer, Mr. Kipp, and certain other executives, 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 options.
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 34 to the financial statements.
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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31 DECEMBER 2010 BOART LONGYEAR LIMITED
31
REMUNERATION REPORT
INTRODUCTION
This remuneration report sets out Boart Longyear’s remuneration policies and practices, the rationale underlying them
and their outcomes.
The Company’s policies have been developed within a framework that seeks to fairly reconcile:
-
-
-
the overall objective of attracting, retaining and motivating management in order to achieve the highest levels of
performance from them for the benefit of all shareholders;
high standards of fairness, transparency and sound corporate governance principles;
the particular business environment in which Boart Longyear operates recognising that:
o
o
o
the Company’s business is global and consequently the senior executive team is based primarily
outside of Australia and is recruited internationally;
the markets in which the company operates can have strong cyclical characteristics which place equal
performance pressures on management in an upswing as in down cycles, and
importantly the Company is incorporated and listed in Australia and must comply with local corporate
regulatory requirements and practices.
During 2010 the Board undertook a comprehensive review of the Company’s remuneration practices and policies. In
conducting this review, the Board paid particular attention to the specific concerns that were raised by shareholders in
the vote on the 2009 remuneration report.
The goal in this year’s Remuneration Report is to provide clear and transparent disclosure on all relevant remuneration
matters. In doing so, greater detail has been provided than is required either by legislation or best practice principles.
Where appropriate, certain recommendations made in the final report by the Australian Productivity Commission,
Executive Remuneration, issued in late 2010, have been adopted early. The intention in doing this is to give
shareholders confidence that the Board has responsibly aligned the need to adequately remunerate our executives while
appropriately meeting the legitimate expectations of shareholders in terms of executive remuneration.
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31 DECEMBER 2010 BOART LONGYEAR LIMITED
32
Report Structure
The Remuneration Report (the “Report”) is presented in six sections, as follows.
1
2
3
4
5
6
Section
2010
remuneration
overview
• Outlines the Company’s remuneration practices and the key influences on the
Company’s remuneration arrangements during the year ended 31 December 2010.
Description of content
• Explains how executive remuneration is structured to support the Company’s strategic
objectives.
• Sets out the directors and senior executives who are covered by this Report.
• Details the actual remuneration earned by the CEO and other senior executives during
the year ended 31 December 2010.
Remuneration
framework and
strategy
• Sets out the Company’s remuneration governance framework and explains how the
Board and Remuneration & Nominations Committee make remuneration decisions,
including the use of external remuneration consultants.
• Outlines the Company’s remuneration strategy.
Components
of executive
remuneration
• Provides a breakdown of the various components of executive remuneration.
• Details the components of executive remuneration that are fixed and therefore not at-
risk.
Performance
and risk
alignment
Executive
remuneration
in detail
• Outlines the key features of the short-term incentive plan that applies to the Company’s
executives.
• Outlines the key features of the long-term incentive plan and option plan that apply to the
Company’s executives.
• Explains how executive remuneration is aligned with performance and outlines short-
term and long-term performance indicators and outcomes.
• Explains how executive remuneration is structured to encourage behaviour that supports
long-term financial soundness and the Company’s risk management framework.
• Sets out the total remuneration provided to executives (calculated pursuant to the
accounting standards) during the years ended 31 December 2010 and 2009.
• Provides details of the Rights granted to executives during the year ended 31 December
2010 under the long-term incentive plan.
• Summarises the key terms of executive service contracts (including termination
entitlements).
Non-executive
Director
arrangements
• Explains the Non-executive Directors’ remuneration structure including the basis on
which Non-executive Director remuneration is set and the components.
• Outlines key features of the Non-executive Director Share Acquisition Plan.
• Sets out the Non-executive Directors’ remuneration during the years ended 31
December 2010 and 2009.
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31 DECEMBER 2010 BOART LONGYEAR LIMITED
33
1. REMUNERATION OVERVIEW
This section provides:
•
•
•
•
an overview of the company’s executive remuneration strategy and linkages between the strategy and the design
of the components of executive remuneration;
a summary of the review that was undertaken of the Company’s remuneration strategy and procedures during
2010 and the outcomes of that review;
details of the directors and senior executives covered by this Report; and
details of the actual remuneration outcomes for senior executives.
At the Company’s annual general meeting on 11 May 2010, shareholders approved a 10 for 1 share consolidation.
Trading in the consolidated shares commenced 13 May 2010. Where relevant, amounts have been restated in this
Report using the consolidated share amounts.
1.1. EXECUTIVE REMUNERATION STRATEGY
The diagram below illustrates the significant objectives of the Company’s executive remuneration strategy and how the
components of overall remuneration have been designed to support these objectives:
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31 DECEMBER 2010 BOART LONGYEAR LIMITED
34
1.2. REVIEW OF REMUNERATION STRATEGY AND PRACTICES
During 2010, the Board reviewed the Company’s executive remuneration arrangements. The key objectives of this
review were to further enhance the linkage between performance-based compensation and actual business
performance, and to establish a set of key performance metrics that would remain consistent through business cycles. At
the same time it was recognised that the principle of a fair relationship between remuneration outcomes and
performance delivered to shareholders was fundamental to any executive incentive scheme being proposed as a result
of the review. The Board engaged Mercer Consulting as lead external consultants to assist in this review.
Following this review, the Company implemented several remuneration initiatives consistent with the goals of the review.
These included:
•
•
•
amending the terms of the short-term incentive (“STI”) provided to executives under the Corporate Bonus Plan
(“CBP”) to include a broader range of performance measures, including operating, strategic, safety and individual
performance measures, and to include stretch targets to reward exceptional performance. Details of the terms of this
plan are set out in section 3.3 below;
re-designing the terms of the long-term incentive (“LTI”) plan for executives applicable to performance-based awards
beginning 1 January 2010. This revised plan measures performance in relation to Return on Equity (“ROE”). This
measure is considered a more appropriate measure of performance than the previous single measure of average
earnings per share (“EPS”) as it captures several of the key performance drivers of the business and reflects the
importance to the Company of effective capital management. The revised plan also incorporates stretch targets to
reward outstanding performance. Details of the 2010 Long Term Incentive Plan are set out in section 3.4 below,
and;
establishing formulae and key performance metrics for both the CBP and the LTI plan which can be consistently
applied through all aspects of the business cycle so as to provide certainty and clarity for executives and
shareholders (the Board has, however, retained discretion to modify the plans should circumstances require).
All components of executive remuneration, including base pay, target short-term and target long-term incentive pay were
reviewed for market competitiveness against companies of similar size and/or a composite peer group including
companies with complementary talent pools and having similar value standards.
1.3. DIRECTORS AND SENIOR EXECUTIVES
This Report sets out the remuneration arrangements in place for the key management personnel (“KMP”) of the
Company for the purposes of the Corporations Act and the Accounting Standards, being those persons who have
authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly,
including the non-executive directors. The KMP include the five highest remunerated executives of the Company for the
year ended 31 December 2010 and are listed in Table 1.3 below:
Table 1.3: Directors and senior executives who were KMP during the year ended 31 December 2010
Non-Executive Directors
Position
David McLemore
Graham Bradley
Bruce Brook
Roger Brown
Roy Franklin
David Grzelak
Peter St. George
Chairman, Non-executive director (elected Chairman 23 August 2010)
Chairman, Non-executive director (resigned from the Board 23 August 2010)
Non-executive director
Non-executive director (appointed 1 July 2010)
Non-executive director (appointed 15 October 2010)
Non-executive director
Non-executive director
Senior Executives
Position
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
Chief Executive Officer and Executive Director
Chief Financial Officer
Senior Vice President, General Counsel and Secretary
Senior Vice President, Human Resources
Vice President, Global Drilling Services
Vice President, Global Products (employment commenced on 15 March 2010)
The remuneration policy and programs set out in this Report apply to all KMP and to other members of the Company’s
senior management who are not KMP.
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31 DECEMBER 2010 BOART LONGYEAR LIMITED
35
1.4. REMUNERATION OUTCOMES
Actual remuneration
Details of the CEO and other senior executive remuneration for the year ended 31 December 2010, prepared in
accordance with statutory obligations and accounting standards, are contained in Table 5.1 of this Report.
Table 1.4 below provides details of the cash and other benefits that were actually paid to the CEO and other senior
executives who were KMP. It illustrates how the Company’s remuneration strategy for senior executives translates into
practice.
Table 1.4: Actual remuneration received by senior executives during the year ended 31 December 2010
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides4
Base Salary
US$
STI (cash)1
US$
LTI (cash
and equity)2
US$
1,003,846
416,923
363,750
297,058
426,154
258,461
1,000,000
280,000
146,250
142,500
200,000
-
-
-
-
-
-
-
Other3
US$
34,514
36,768
34,878
35,807
29,280
238,415
Total
US$
2,038,360
733,691
544,878
475,365
655,434
496,876
(1) Represents the cash paid in respect of the executive’s STI award earned under the CBP. For further details of
the CBP, see section 3.3 of this Report.
(2) Represents the value of share rights, cash rights and options vested during the year. No awards vested for any
of the senior executives during 2010. Share rights and cash rights granted under the Company’s LTI Plan and
options granted under the Company’s Option Plan[s] during the year ended 31 December 2010 and other grant
years that are still in progress do not appear in this table, as they are not eligible for vesting until the conclusion
of the performance period and/or continued service requirement. For further details of the LTI Plan and Option
Plans, see section 3.4 of this Report.
(3) Represents benefits such as special one-time bonuses (if any), US 401(k) retirement plan Company matching
and/or profit sharing contributions, relocation benefits, car allowance, and tax preparation service
reimbursements if applicable.
(4) Mr. Sides’ employment commenced on 15 March 2010. In addition to the items in (3) above, the amount listed
as “Other” includes a one-time signing bonus of $50,000 and the value of his taxable relocation benefits of
$164,120 associated with joining the Company.
2. REMUNERATION FRAMEWORK AND STRATEGY
This section outlines the processes, principles and strategy that underpin the remuneration arrangements for senior
executives.
2.1. HOW REMUNERATION DECISIONS ARE MADE
Board responsibility
The Board is responsible for the Company’s remuneration arrangements and ensuring that they are equitable and
aligned with the long-term interests of the Company and its shareholders. In performing this function and making
decisions about executive remuneration, the Board is fully informed and acts independently of management. To assist in
making decisions relating to remuneration, the Board has established a Remuneration & Nominations Committee.
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31 DECEMBER 2010 BOART LONGYEAR LIMITED
36
Remuneration & Nominations Committee
The Remuneration & Nominations 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 strategies 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 Remuneration Committee’s responsibilities include:
•
developing and reviewing remuneration plans, including annual bonus plans and long-term incentive plans, including
equity-based incentive plans;
•
•
•
developing performance objectives for the CEO and his direct reports and reviewing performance against those
objectives;
overseeing strategies 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 Charter of the Remuneration Committee is set out in full on the Company’s website (ref: www. boartlongyear.com).
The CEO, the Senior Vice President for Human Resources and other members of senior management attend meetings
of the Remuneration Committee, as appropriate, to provide information necessary for the Remuneration Committee to
discharge its duties. Individual executives do not attend or participate in discussions where recommendations regarding
their own circumstances are determined.
Use of remuneration consultants
Where appropriate, the Board seeks and considers advice from independent remuneration consultants. Remuneration
consultants are engaged by, and report directly to, the Remuneration Committee and support the Committee in
assessing market practice and movements to ensure that base salary and targeted short-term and long-term
compensation are in line with comparable roles. When remuneration consultants are engaged, the Committee
establishes with the consultants the appropriate level of independence from the Company’s management that is required
depending upon the circumstances of the assignment or advice being sought. Thus the Committee may determine that
complete independence from management is required or that the consultants may be directed to work with Company
management to obtain relevant information or input in order to formulate advice or recommendations to the Committee.
The table below sets out details of the remuneration consultants engaged and a summary of the services provided
during the year ended 31 December 2010.
Table 2.1: Remuneration consultant arrangements
Remuneration consultant
Mercer Consulting
Nature of services provided
Independent market-based compensation benchmarking analysis for
establishing executive remuneration. During 2009 and continuing
into 2010, Mercer also consulted, advised and recommended
changes to the designs of both the Corporate Bonus Plan and the
long-term incentive plans as discussed in section 2.2 and detailed in
sections 3.1 through 3.4 respectively.
Blake Dawson
Provided regular independent advice and counsel on various legal
and governance standards related to executive remuneration.
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2.2. REMUNERATION POLICY AND STRATEGY
The Company’s remuneration program has been designed to ensure that the structure, mix of fixed and “at-risk”
remuneration and quantum of senior executive remuneration all meet the Company’s specific business needs and
objectives and are consistent with good market practice.
Accordingly, the Company’s senior executive remuneration program has been structured so that it:
•
•
•
•
is reasonable;
provides a competitive compensation program to retain, attract, motivate and reward key employees;
achieves clear alignment between total remuneration and delivered business and personal performance over the
short- and long-term; and
is an appropriately balanced mix of fixed and “at-risk” remuneration.
The Company and the Remuneration Committee regularly review all elements of the remuneration program to ensure
that it remains appropriate to the business strategy, is competitive and is consistent with contemporary market practice.
The diagram below illustrates three primary components of the executives’ total compensation opportunity and how the
components are structured to achieve the remuneration strategy and align with shareholder interests:
Fixed Remuneration
Short-term Incentive
(Corporate Bonus Plan)
Long-term Incentive
• Provides a predictable base level
of compensation commensurate
with the executive’s position, value
and contribution to the Company.
• This component of compensation is
“at-risk” and earned only if
challenging performance metrics
are achieved.
• Generally targeted to be near the
median of the competitive talent
market using external
benchmarking data. Since the
majority of the Company’s
executives (and all of the KMP) are
located in the US, the competitive
talent market is determined to be
the US market.
• Variability around the median is
based on the experience,
performance, skills, position,
business unit size and/or
complexity and unique market
considerations where necessary.
• Key performance metrics include
operating margin, safety
performance, revenue growth and
individual strategic goals.
• The plan is designed to weight
performance on operating margins,
safety and revenue growth to
overall Company performance in
order to promote collaboration and
to align with shareholder results.
• Individual strategic goals can
include financial or strategic targets
for a business unit or function.
Examples can include; business
unit growth, cost control goals,
cash flow generation, geographic
expansion, productivity programs,
etc.
• This component of compensation is
“at-risk” and earned only if
challenging performance metrics
are achieved and/or continued
service requirement are met over a
three-year performance period.
• The Board has determined to use
three-year average ROE as the key
measure for performance-based
long-term incentive awards.
• The ROE targets include a
minimum threshold performance,
below which no value is achieved.
The range of performance payouts
was established based on an
historical return analysis of the
Company as well as against stated
analyst and shareholder
expectations.
• ROE provides a strong link to
shareholders as it is a measure of
the profitability of the equity
employed in the business. It also
provides a basis to evaluate the
Company’s performance relative to
other companies and can provide a
direct comparison with alternative
investments available to
shareholders.
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3. COMPONENTS OF EXECUTIVE REMUNERATION
3.1. REMUNERATION MIX
Total remuneration for the CEO and senior executives is made up of fixed remuneration (consisting primarily of base
salary and superannuation payments) and variable “at-risk” remuneration. The variable remuneration has two “at-risk”
components:
• STI – being an annual bonus granted under the Company’s CBP; and
•
LTI – being equity or cash grants tied to vesting conditions, such as continued employment and performance
hurdles.
The relevant proportions of fixed to “at-risk” components for senior executive remuneration are:
Table 3.1 Remuneration mix
Fixed Remuneration
CEO
KMPs (Excl. CEO)1
28%
41% - 47%
At-Risk Remuneration
STI2
LTI3
45%
27%
32% - 37%
17% - 25%
(1) Percentages vary between individuals. This is a range for the group.
(2) Assuming performance metrics are achieved such that 100% of target bonus is earned.
(3) Represents fair value at date of grant, assuming 100% performance and vesting requirements are achieved.
3.2. FIXED REMUNERATION
The fixed component of executive remuneration consists primarily of base salary. Senior executives also receive other
benefits, such as a vehicle allowance. In addition, the Company contributes to retirement programs, such as Australia’s
compulsory Superannuation scheme or the United States’ 401(k) plans.
Base salaries are reviewed annually by the Remuneration Committee (or, for the CEO, by the Board) and may be
adjusted as appropriate to maintain market competitiveness and/or based on merit in accordance with the CEO’s
recommendation (for senior executives other than the CEO).
3.3. SHORT-TERM INCENTIVE
Table 3.3: Summary of STI program
What is the STI
program?
The Corporate Bonus Plan (“CBP”) provides certain employees with the potential to receive an
annual bonus if they satisfy specific annual objectives and targets that are pre-determined by the
Board.
Potential incentives available to be earned under the CBP range between 10% and 200% of an
employee’s base salary depending on the employee’s role and actual performance achieved.
The actual bonus that an employee will receive under the CBP (if any) will vary depending on the
Company’s and the individual’s performance against the relevant objectives and targets, as
detailed more fully below.
Who participates in
the STI program?
Senior executives (including the CEO) and other employees on a discretionary basis.
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Why does the
Board consider the
STI program an
appropriate
incentive?
The CBP and the performance conditions set under the CBP have been designed to:
•
•
•
focus eligible employees on maximising company performance in key financial, safety
and operational targets;
align individual efforts with Company and shareholder interests ; and
reward superior individual and Company performance.
By putting a significant proportion of senior executive remuneration “at risk” under the CBP
against challenging targets, the CBP aligns executive interests with the Company’s financial and
safety performance and with the operational and/ or functional objectives of their relevant
business unit or function.
What are the
performance
conditions?
There are four key performance components to the 2010 CBP. Each component has a
threshold performance below which no bonus is earned for that component; a target level of
performance where 100% of the bonus can be earned; and a maximum stretch level of
performance whereby superior results can earn up to 150% of that component of the bonus.
The four performance components and their relative weightings are:
1) Operating Margin - 60% of an employee’s CBP opportunity is linked to the Company’s
overall financial operating margin performance.
2) Strategic Objectives – 30% of an employee’s CBP opportunity is dependent upon
performance against strategic objectives relevant to the employee’s business unit or
functional responsibility. Examples of strategic objectives may include business unit or
functional cost targets, geographic or targeted market segment growth, new product
introductions, specific project or initiative progress, etc.
3) Safety - 10% of an employee’s CBP opportunity is dependent upon the Company’s
overall safety performance.
4) Revenue - a multiplier based on year-over-year increases in revenue is applied to any
amounts earned for meeting or exceeding the Operating Margin, Strategic Objectives
and Safety performance goals, thereby capturing overall business growth as a key
objective.
The Company’s annual financial target for the purposes of the CBP is set by the Remuneration
Committee and in 2010 both threshold and stretch targets were set to further incentivise
executives. The Remuneration Committee’s philosophy in setting financial targets is to establish
threshold targets that represent the desired minimum outcome for each goal (below which no
bonus is payable) and stretch targets that can only be met by the achievement of excellent
outcomes for each goal.
For 2010, the Remuneration Committee specifically approved the following performance payout
matrices for corporate Operating Margin and Revenue Multipliers:
Op. Margin
Performance
20.0%
17.5%
15.0%
12.5%
10.0%
7.5%
5.0%
Payout (% of
Target for
Financial
Component)
150%
120%
90%
70%
50%
40%
30%
Rev.
Growth
50%
40%
30%
20%
10%
0%
Multiplier
1.33x
1.27x
1.20x
1.13x
1.07x
1.00x
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While these metrics are specific to 2010 and will be reviewed annually, they have been
established with the intent of remaining consistent through the business cycle. The
Remuneration Committee also reviews and approves the non-financial targets for senior
executives (including the CEO).
Additionally, certain conditions may apply to an employee’s CBP opportunity that reduces (but
not increases) the bonus that they receive under the CBP. For example, if an employee fails to
adhere to corporate leadership values, such as legal compliance, this may reduce total bonus
payable to them under the CBP by up to 100%.
How are the
performance
conditions
measured?
Performance is assessed against the relevant targets annually. The final determination of the
Company’s financial performance is determined after reviewing the Company’s audited financial
results for the relevant period. Financial targets are assessed quantitatively against the pre-
determined targets. Where possible, non-financial targets are also assessed quantitatively and
otherwise they are assessed by periodic qualitative performance appraisal.
Sample calculation
Following is an example of how a bonus would be calculated assuming the following:
• Employee earns $150,000 with a 40% target bonus amount
• Corporate Operating Margin of 12.5%
• Safety and Strategic Objectives achievement each at target performance
• Revenue Growth of 10%
Corporate Operating Margin of 12.5% = 70% component payout (per table above)
Safety performance at target = 100% component payout
Strategic Objectives at target = 100% component payout
Revenue Growth of 10% = Revenue Multiplier of 1.07 (per table above)
Calculation:
Step 1: Determine Component subtotal
+
+
=
Operating Margin = (70% x 60% weighting)
Safety Performance = (100% x 10% weighting)
Strategic Objectives = (100% x 30% weighting)
Subtotal Achievement
= 42%
= 10%
= 30%
= 82%
Step 2: Multiply Subtotal by achieved Revenue Multiplier to obtain Total Bonus Percentage
82% x 1.07 = 88%
Step 3: Calculate Bonus
$150,000 x 40% Target Bonus x 88% Bonus achievement = $52,800 Bonus
All bonuses awarded under the CBP are delivered as a cash bonus.
Bonuses paid under the CBP during the year ended 31 December 2010 are set out in Table 4.3
in section 4.1 of this Report. The bonuses will be paid in March 2011 after Board approval.
In what form is the
STI delivered?
What STI awards
did senior
executives earn in
2010?
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3.4. LONG-TERM INCENTIVES
Long-term Incentive Plan (“LTIP”)
Table 3.4: Summary of the LTIP
What is the
purpose of the
LTIP?
The Company established the LTIP to:
• align senior executive reward with shareholder value;
• assist in retaining key executives;
• encourage superior performance on a sustained basis; and
• provide executives with an opportunity to share in the growth and value of the Company
By tying the LTI component of senior executive remuneration to the achievement of performance
conditions and time-based service conditions.
Who participates in
the LTIP?
The executives eligible to participate in the LTIP are senior divisional, regional and corporate
executives. The target value of annual LTIP grants varies 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 100 participants during the year
ended 31 December 2010.
What proportion of
total remuneration
does the LTIP
program
represent?
Senior executives are offered grants that represent approximately 32% - 37% (45% for the CEO)
of their total remuneration (on an annualised basis). However, participating senior executives
derive no actual value from their LTI grants under LTIP unless the performance hurdles and/or
service conditions are satisfied.
How is reward
delivered under the
LTIP?
The incentive provided under the LTIP is a grant of rights (“Rights”). Rights can be granted in the
form of shares (“Share Rights”), cash (“Cash Rights”) or a combination of the two. A Share Right
is an entitlement to receive a fully-paid ordinary share in the Company and a Cash Right is an
entitlement to receive a cash bonus up to a set maximum.
Do participants pay
for the Share
Rights?
What rights are
attached to the
Share Rights?
Rights are granted on terms and conditions determined by the Board, including vesting
conditions linked to service and performance over a specified period (usually 3 years).
Rights are offered at no cost to the senior executives.
Share Rights do not carry voting rights, however shares allocated upon vesting of Share Rights
will carry the same rights as other ordinary shares.
The Company may acquire shares underlying the Share Rights that it has granted under the
LTIP, 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 on trust, and, even though the Share Rights
have not yet vested, the participant will receive dividends attributed to the shares that underlie
their Share Rights when they are received by the Trustee from the time of acquisition until
vesting.
Senior executives are not entitled to trade or hedge their unvested Rights.
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What are the
vesting
conditions?
For Rights granted during the year ended 31 December 2010, the vesting conditions were as
follows:
Tranche
Percentage of grant
Vesting condition
Partial vesting
Performance
Share Rights or
Performance
Cash Rights
100% for the CEO
50% for executives
other than the CEO
Achievement of average
ROE targets over a
three-year period set by
the Board. The targets
include a threshold
average ROE target and
a stretch average ROE
target for the three year
performance period.
plus
Continuation of
employment during the
three-year performance
period.
Vesting occurs on a pro-
rata basis if the
minimum three-year
average ROE threshold
is surpassed.
At the minimum three-
year average ROE
threshold, 50% of
Performance Share
and/or Performance
Cash Rights will vest.
Full vesting occurs only
if the Company’s three-
year average ROE
meets or exceeds the
stretch target for the
performance period.
Retention Share
Rights or
Retention Cash
Rights
0% for the CEO
50% for executives
other than the CEO
Continuation of
employment during the
three-year continued
service period.
No
For Rights granted prior to 2010, the vesting conditions were as follows:
Tranche
Percentage of grant
Vesting condition
Partial vesting
Performance
Share Rights or
Performance
Cash Rights
50% for executives
(including the CEO)
Partial vesting
conditions are the same
as for the Performance
Share Rights described
above.
Vesting conditions are
the same as for the
Performance Share
Rights described above,
except that the
performance measure is
cumulative three-year
earnings per share
targets.
Retention Share
Rights or
Retention Cash
Rights
50% for executives
(including the CEO)
Continuation of
employment during the
three-year continued
service period.
No
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43
How is the ROE
hurdle measured?
Vesting of the Performance Share Rights or Performance Cash Rights that were granted during
the year ended 31 December 2010 will be determined by the Company’s performance against
average ROE targets for the three-year performance period. ROE is defined as annual net profit
after tax (“NPAT”) attributable to equity shareholders divided by average total equity.
The following table shows the 3-year average ROE threshold, target and maximum performance
requirements:
Average ROE Performance
3-year average ROE
% of award earned
Maximum Award
Greater than 13.0%
Greater than 11.0% and less than
or equal to 13.0%
Target Award
Greater than 9.0% and less than
or equal to 11.0%
Greater than 7.0% and less than
or equal to 9.0%
Threshold Award
Greater than or equal to 6.0% and
less than or equal to 7.0%
Less than Threshold
Less than 6.0%
150%
125%
100%
75%
50%
0%
How is the EPS
hurdle measured?
Vesting of the Performance Share Rights or Performance Cash Rights that were granted prior to
2010 will be determined by the Company’s performance against cumulative EPS targets for the
three-year performance period. At the beginning of each year the Board establishes a threshold
and maximum EPS metric for that year. At the end of the three-year performance period actual
cumulative performance over the period will be measured against the cumulative threshold and
maximum performance to determine the amount of the Performance Rights that will vest. Once
the actual cumulative performance has exceeded the threshold, participants have the potential to
earn any percentage of the target award between 50% to 100%.
The Performance Share Rights or Performance Cash Rights granted in 2008 which have
completed the performance period will vest in accordance with the following table:
Cumulative EPS
performance
Maximum Award
Threshold Award
Less than Threshold
2010 cumulative
EPS metric
64.5 cents
43.8 cents
% of award earned
100%
50%
0%
In 2009, the Board introduced a one-off provision allowing for a fourth year retesting of the 2008
awards to address issues arising from the highly uncertain position the Company found itself in
as a consequence of the global financial crisis. The Board stipulated however, that in the event
actual cumulative EPS performance would exceed the threshold EPS performance, resulting in
partial vesting of the 2008 awards, then this retesting provision would become redundant. The
actual cumulative EPS performance for the 2008 awards has exceeded the threshold and
therefore this provision will not be invoked. Retesting would be inconsistent with the current
LTIP design and the Company does not envisage permitting such a retesting exception in the
future.
The number of Performance Share Rights or Performance Cash Rights granted in 2009 that will
vest will be determined following the actual EPS performance outcome for 2011 and any earned
rights will vest in 2012.
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Why have the
performance
hurdles been
chosen?
ROE measures the Company’s profitability by revealing how much profit the Company generates
with the money shareholders have invested.
The Board chose to move to an ROE performance hurdle for Performance Share Rights and
Performance Cash Rights in place of the EPS hurdle used in previous years. The average ROE
hurdle is more appropriate as it accommodates the inherently cyclical nature of the Company’s
business by providing performance ranges (with the threshold being set at a minimum level of
acceptable shareholder returns) rather than annual dollar EPS targets. The ROE hurdle
therefore provides a greater alignment between the incentive provided to senior executives and
their ability to influence the Company’s performance.
What if a senior
executive ceases
employment?
A senior executive’s unvested Rights will generally lapse on the date that they cease
employment, unless the Board determines otherwise. However, where a senior executive’s
employment ceases due to their death or total and permanent disability, all of their unvested
Rights will vest. Also, unless the Board determines otherwise, where a senior executive’s
employment ceases by reason of “Special Circumstances” (which includes redundancy,
retirement or other circumstances which are considered by the Board to be extraordinary):
•
•
where there is no performance condition attached to a Right (i.e., it is a Retention Share
Right or Retention Cash Right), any applicable time-based condition will be waived and
the number of Retention Share Rights and/ or Retention Cash Rights that vest will be pro-
rated according to the extent of the retention period actually worked; and
where there is a performance condition attached to a Right (i.e., it is a Performance
Share Right or Performance Cash Right), there will be no accelerated vesting of the
Performance Rights and instead, the Performance Rights will remain “on foot” and be
tested in the ordinary course and against the applicable performance condition.
However, the number of Rights that vest will be prorated over the period of time actually
worked during the continued service period.
What happens in
the event of a
change of control?
In the event of a takeover or change of control of the Company, any unvested Rights may vest at
the Board’s discretion.
What Rights were
granted in 2010?
Rights granted during the year ended 31 December 2010 are set out in Table 5.2 of this Report.
The Rights were granted on 1 March 2010.
Option Plan
In 2009, the Board approved the establishment of the 2009 Option Plan which authorised the granting of no more than
5,000,000 (later adjusted to 500,000 in light of the 10:1 consolidation of the Company’s shares in 2010) options in total.
The purpose of the Option Plan was to bolster executive retention during the economic downturn in 2009 by providing a
one-off grant of options to senior executives (including the CEO).
Options, with an exercise price set at a premium of 22.5% of the prevailing market price for the Company’s shares on the
date of the grant, were granted to the senior executives on 18 June 2009 and will vest in full and become exercisable on
18 June 2012 if the senior executive remains continuously employed with the Company until that date. Unexercised
options will expire on 18 June 2014. On 15 March 2010, 25,000 options were granted at an exercise price of A$3.20,
which will vest in full and become exercisable on 15 March 2013 and will expire on 15 March 2015.
In 2008, the Board approved the establishment of the 2008 Option Plan on Mr. Kipp’s appointment to the position of
CEO in order to award Mr. Kipp a total of 2,500,000 (later adjusted to 250,000 in light of the 10:1 consolidation of the
Company’s shares in 2010) shares under two separate grants, both of which are still yet to vest and become exercisable,
on his appointment to the position of CEO. No other senior executive received a grant under the 2008 Option Plan.
Details of options that have been granted to senior executives under the Option Plans can be found in Table 4.7.
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4. PERFORMANCE AND RISK ALIGNMENT
4.1. PERFORMANCE ALIGNMENT
While senior executive remuneration is structured to attract and retain talented employees, the amount of remuneration
received by an individual is dependent on the achievement of superior performance and generating value for
shareholders.
The Company has only been a listed public company since 11 April 2007 and therefore does not have a five-year history
to present.
Table 4.1 below summarises the Company’s performance over the past 4 years in respect of the financial and non-
financial indicators identified by the Board to assess the Company’s performance and future prospects.
Table 4.1: Year-on-year performance
Share Performance
Earnings Performance
Closing
Share
Price
A$
4.56
3.52
1.99
23.33
Financial
Year
2010
2009
2008
2007
Dividend
p/share
US$
0.02
-
0.38
0.15
EPS % 1
4%
(2%)
52%
2%
Revenue
US$
millions
EBITDA
US$
millions
NPAT
US$
millions
1,476
978
1,838
1,576
222
111
356
297
85
(15)
157
81
ROE 2
8%
(2%)
18%
N/A
Operating
Margin
9%
2%
15%
15%
(1) Calculated as EPS divided by closing share price. EPS is pro forma for 10:1 share consolidation completed in
May 2010
(2) 2008 ROE is calculated on a pro forma basis allowing for the $700,000,000 equity raising completed in
November 2009
The Board determined to perform a detailed review of the Company’s incentive plans for senior executives in 2010. This
review took into account the experience of the relationship between executive compensation and outcomes for
shareholders over the four years since becoming a public listed company. As a result (and detailed earlier in this Report),
the Board modified the incentive plans for senior executives with the aim to further strengthen the relationship between
shareholder value and executive compensation. In particular, the Board believes incentivising and rewarding
management for sustaining higher levels of operating margin (via cash bonuses under the CBP) and ROE (via
performance-based LTIP rights) will more consistently yield desirable shareholder returns over time. The Board will
continue to monitor this relationship and make further modifications as it deems appropriate.
Short-term performance indicators and outcomes
As discussed above, the CBP rewards senior executives and other participants for their achievement of specific key
performance indicators for the Company as well as for the achievement of performance goals specific to the business
unit or function for which they are responsible during a financial year.
Table 4.2: Average proportion of STI awarded, 2007-2010
% of target STI awarded 1
2007
76%
2008
84%
2009
99%
2010
88%
(1) Weighted average for senior executives
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Table 4.3: STI earned during the year ended 31 December 2010
STI earned
US$
865,000
276,360
180,334
134,663
177,336
139,200
Target
STI 1
US$
1,000,000
294,000
186,875
149,625
216,000
160,000
STI earned
as % of
target STI
% of target
STI forfeited
87%
94%
97%
90%
82%
87%
13%
6%
3%
10%
17%
13%
STI as % of
maximum
STI 2
87%
94%
97%
90%
82%
44%
% of
maximum
STI
forfeited 2
13%
6%
3%
10%
17%
57%
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
(1) The target potential value of the 2010 STI awards for the CEO and senior executives (who receive STI awards
wholly in cash) is the amount disclosed. A minimum level of performance must be achieved before any STI is
awarded. Therefore, the minimum potential value of the STI for all participants in 2010 was nil.
(2) The maximum potential award assuming superior performance against all CBP metrics is 200% of target STI for
most participants. The maximum potential STI Messrs. Kipp, Ragan, Rasetti, Baker and Birch could have
earned in 2010 was capped under the terms of their employment contracts at 100% of their target STI. The
Board intends to seek shareholder approval at the Company’s 2011 Annual General Meeting of a resolution
which would lead to the modification of the terms of these KMPs’ employment contracts to permit their
participation in the CBP on the same terms as other participants to allow them to achieve an annual STI up to
200% of their target.
Long-term performance indicators and outcomes
LTI awards are provided through the LTIP to assist in retaining key executives, encourage superior performance on a
sustained basis, and provide such executives with an opportunity to share in the growth and value of the Company.
2010 was the final year that performance was measured against the cumulative EPS targets for performance-based
LTIP awards granted in 2008. Table 4.4 shows the cumulative EPS performance required for these grants to vest as well
as the actual EPS performance achieved during the same period. Based on the actual performance over the period, 76%
of the award will be eligible to vest once the executive satisfies the continued service requirement, which in all cases will
not occur prior to April 2011. The vesting dates for all outstanding awards are shown in Table 4.5 below
Table 4.4: Cumulative performance
Maximum EPS
Threshold EPS
1
Actual EPS
% of Maximum Award Vesting
Cumulative 3-year
Performance
64.5 cents (US)
43.8 cents (US)
54.5 cents (US)
76%
(1) Earnings adjusted to exclude impact of restructuring, recapitalization and related charges, as well as
gains/losses related to the sale of businesses.
No Share Rights, Cash Rights or options either vested, were forfeited or lapsed for Senior Executives during the year
ended 31 December 2010.
______________________________________________________________________________________
27
Annual Financial Report
31 DECEMBER 2010 BOART LONGYEAR LIMITED
47
Table 4.5: Movement in Share Rights during the year ended 31 December 2010
Number of
Share
Rights
Value of
Share
Rights
forfeited /
lapsed
US$
Name
Craig Kipp
Joe Ragan III
Brad Baker
Michael Birch
Fabrizio Rasetti
Alan Sides
Grant
Date
11-Apr-08
25-Mar-09
1-Mar-10
23-Oct-08
25-Mar-09
1-Mar-10
11-Apr-08
25-Mar-09
1-Mar-10
26-Jun-08
11-Apr-08
25-Mar-09
1-Mar-10
11-Apr-08
25-Mar-09
1-Mar-10
15-Mar-10
Vesting
Date
11-Apr-11
25-Mar-12
1-Mar-13
23-Oct-11
25-Mar-12
1-Mar-13
11-Apr-11
25-Mar-12
1-Mar-13
11-Apr-11
11-Apr-11
25-Mar-12
1-Mar-13
11-Apr-11
25-Mar-12
1-Mar-13
15-Mar-13
LTIP
Shares
(Total)
Number of
Share
Rights
vested
Value of
Share
Rights
vested
US$
49,471
180,000
429,820
30,000
75,000
103,000
15,000
55,000
72,150
8,950
11,050
55,000
82,900
17,850
55,000
82,578
104,600
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
forfeited /
lapsed
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Table 4.6: Movement in Cash Rights during the year ended 31 December 2010
Name
Craig Kipp
Joe Ragan III
Brad Baker
Michael Birch
Fabrizio Rasetti
Alan Sides
Grant
Date
25-Mar-09
1-Mar-10
25-Mar-09
1-Mar-10
25-Mar-09
1-Mar-10
25-Mar-09
1-Mar-10
25-Mar-09
1-Mar-10
15-Mar-10
Vesting
Date
25-Mar-12
1-Mar-13
25-Mar-12
1-Mar-13
25-Mar-12
1-Mar-13
25-Mar-12
1-Mar-13
25-Mar-12
1-Mar-13
15-Mar-13
Cash
(Total)
US$
550,000
450,000
275,000
100,000
225,000
80,000
225,000
80,000
225,000
80,000
80,000
Number of
Cash
Rights
vested
Value of
Cash
Rights
vested
US$
Number of
Cash
Rights
forfeited /
lapsed
Value of
Cash
Rights
forfeited /
lapsed
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
______________________________________________________________________________________
28
Annual Financial Report
31 DECEMBER 2010 BOART LONGYEAR LIMITED
48
Table 4.7: Movement in options during the year ended 31 December 2010
Name
Craig Kipp
Effective
Grant
Date
28-Apr-08
28-Apr-08 1
18-Jun-09
18-Jun-09
Joe Ragan III
18-Jun-09
Brad Baker
Michael Birch
18-Jun-09
Fabrizio Rasetti 18-Jun-09
15-Mar-10
Alan Sides
Vesting
Date
1-Jan-13
1-Jan-14
18-Jun-12
18-Jun-12
18-Jun-12
18-Jun-12
18-Jun-12
15-Mar-13
Number
of
Options
vested
-
-
-
-
-
-
-
-
Options
(Total)
100,000
150,000
90,000
37,500
27,500
27,500
27,500
25,000
Value of
Options
vested
US$
-
-
-
-
-
-
-
-
Option
Price
AU$
18.95
1.55
2.45
2.45
2.45
2.45
2.45
3.20
Number
of Options
forfeited /
lapsed
Value of
Options
forfeited /
lapsed
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) The second grant of options Mr. Kipp received in conjunction with his appointment as CEO was issued as
of 1 January 2009. For purposes of compliance with Australian Accounting Standards, the effective grant
date was determined to be 28 April 2008.
Adjustments made to existing Share Rights and options following share consolidation
In light of the 10:1 share consolidation, all unvested Share Rights and options held by executives prior to the
consolidation were adjusted by dividing the number of Share Rights and/ or options held by 10. The exercise price
applicable to the options was also adjusted by multiplying it by 10 so that the exercise price per option became A$2.45
for options granted to all executives on 11 April 2009; A$3.20 for options granted to Mr. Sides on 15 March 2010; and
A$18.95 and A$1.55 for options granted to the CEO on 28 April 2008 and 1 January 2009 respectively. As the
adjustments were made purely to address the impact of the share consolidation, the adjustments did not affect the fair
value of the adjusted Share Rights and options.
4.2. RISK ALIGNMENT
Employee and Director Trading in Company Securities
Under the Company’s Securities Trading Policy, Directors and employees (including senior executives) are prohibited
from entering into transactions that limit the economic risk of holding unvested Rights or options that have been received
as part of their remuneration. The Company treats compliance with this policy as a serious issue and takes appropriate
measures to ensure the policy is adhered to, including imposing appropriate sanctions where an employee is found to
have breached the policy.
Further restrictions also apply to directors and Senior Executives with respect to their dealing in the Company’s shares
and other securities under the Securities Trading Policy and further details of the policy are set out in the Corporate
Governance Statement on page 25 of this Annual Report
______________________________________________________________________________________
29
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3
Annual Financial Report
31 DECEMBER 2010 BOART LONGYEAR LIMITED
51
5.2. Rights and options granted
Table 5.2: Rights granted during the year ended 31 December 2010
Share Rights
Cash Rights
Name
Craig Kipp
Joe Ragan III
Brad Baker
Michael Birch
Fabrizio Rasetti
Alan Sides
Number of
Rights
granted1
429,820
103,000
72,150
82,900
82,578
104,600
Future
years
payable2
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
Fair
value
per
Right 3
US$
2.78
2.78
2.78
2.78
2.78
2.93
Maximum
value of
grant 4
US$
1,716,152
345,415
242,277
279,112
278,217
343,103
Number
of Rights
granted1
450,000
100,000
80,000
80,000
80,000
80,000
Future
years
payable2
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
Fair value
per Right 3
US$
Maximum
value of
grant 4
US$
1.00
1.00
1.00
1.00
1.00
1.00
675,000
125,000
100,000
100,000
100,000
100,000
(1) The grants made to senior executives constituted their full LTI entitlement for 2010 and were made on 1 March
2010 (15 March 2010 for Mr. Sides) on the terms summarised above. Any Rights that do not vest on the vesting
date will be forfeited.
(2) Rights vest on 1 March 2013 (15 March 2013 for Mr. Sides) subject to performance over the period from 1
January 2010 to 31 December 2012 and/or continued service until the vesting date.
(3) The fair value was calculated as at the grant date of 1 March 2010 (15 March 2010 for Mr. Sides). An
explanation of the pricing model used to calculate these values is set out in Note 32 to the financial statements.
(4) The maximum fair value of the grant is based on the fair value per instrument and full achievement of the stretch
targets. The minimum total value of the grant, if the applicable performance conditions are not met, is nil.
Table 5.3: Options granted during the year ended 31 December 2010
Number of
options
granted
Future
years
payable
Name
Exercise
price per
option
A$
Fair
value
per
option 1
US$
Alan Sides
25,000
3 yrs
3.20
2.24
Maximum
value of
grant 2
US$
56,000
(1) The fair value was calculated as at the grant date of 15 March 2010. An explanation of the pricing model used to
calculate these values is set out in Note 32 to the financial statements.
(2) The maximum fair value of the grant is based on the fair value per instrument and full vesting.
______________________________________________________________________________________
32
Annual Financial Report
31 DECEMBER 2010 BOART LONGYEAR LIMITED
52
5.4 Service contracts and termination provisions
Name and
position held at
the end of
Financial Year
Craig Kipp
Chief Executive
Officer
President
Duration of
contract
Notice Period by
Company
Notice Period
by Executive
Termination payments (where
these are in addition to
statutory entitlements)
No fixed term
None required
180 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
• 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
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
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
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
Chief Financial
Officer
No fixed term
None required
90 days
No fixed term
None required
90 days
No fixed term
None required
90 days
Fabrizio Rasetti
Senior Vice
President,
General Counsel
and Secretary
Brad Baker
Senior Vice
President, Human
Resources
______________________________________________________________________________________
33
Annual Financial Report
31 DECEMBER 2010 BOART LONGYEAR LIMITED
53
No fixed term
None required
90 days
Michael Birch
Vice President,
Minerals and
Energy
For termination with cause,
statutory entitlement only
For termination without cause
• 12 months’ salary
• Pro-rata bonus to termination
date
• Waiver of medical insurance
premiums for 12 months
Mr. Sides does not have an employment contract. Accordingly, he is neither bound by a notice period to the Company nor
contractually entitled to termination payments in excess of statutory entitlements.
6. NON-EXECUTIVE DIRECTOR ARRANGEMENTS
This section explains the remuneration structure and outcomes for Non-executive Directors. Details of the Non-executive
Directors for 2010 are set out in section 1.3 of this Report.
6.1. Non-executive Directors’ fee structure
Non-executive Directors are remunerated by a fixed annual base fee with additional fees paid for serving on Board
Committees. The fees are determined within a maximum aggregate fee pool that is approved by shareholders in general
meeting. The current approved fee pool limit is A$2 million. During the financial year, $800,950 of the pool was utilised for
non-executive director fees, being approximately 40% of the fee pool limit.
Table 6.1: Components of Non-Executive Director Remuneration
Component
Explanation
Board fees
Current base fees per annum are:
Committee fees
Other fees/benefits
Post-employment benefits
• US$100,000 for Board members; and
• US$300,000 for the Chairman of the Board
Current committee fees for Non-executive Directors (other
than the Chairman) are:
•
•
10% of the base fee for committee members; and
20% of the base fee for committee chairs.
Where the Chairman of the Board sits on a committee, he
does not receive any additional fee.
Non-executive Directors are entitled to be reimbursed for all
reasonable out-of-pocket expenses incurred in carrying out
their duties, including travel costs and office and secretarial
support.
Non-executive Directors may also, with the approval of the
Board, be paid additional fees for extra services or special
exertions for the benefit of the Company
Non-executive Directors are not entitled to receive any
performance-related remuneration, such as STI or LTI.
Compulsory superannuation contributions for Australian-
resident non-executive directors are included in the base fee
and additional committee fees set out above.
Non-executive Directors do not receive any retirement
benefits other than statutory superannuation contributions.
______________________________________________________________________________________
34
Annual Financial Report
31 DECEMBER 2010 BOART LONGYEAR LIMITED
54
6.2. NON-EXECUTIVE DIRECTOR SHARE ACQUISITION PLAN
In February 2008, the Remuneration 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 their pre-tax base and committee 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, during which they are unable to
deal with their shares. The holding lock may be removed in certain circumstances, including a cessation of directorship.
No shares were purchased under this plan during the year ended 31 December 2010.
6.3. DETAILS OF REMUNERATION PAID TO NON-EXECUTIVE DIRECTORS
Details of Non-executive Directors’ remuneration for the year ended 31 December 2010 and 2009 are set out in the table
below.
Table 6.3: Non-executive Director Remuneration
Fees (incl.
committee
fees) 1
US$
Superannuation
Contributions 2
US$
Shares 3
US$
177,231
252,294
190,779
119,167
119,266
109,327
60,000
20,833
113,575
110,000
119,266
109,327
15,951
25,329
85,466
250,636
-
-
10,734
10,734
-
-
-
-
-
-
8,066
23,411
-
-
-
-
10,734
10,734
12,668
37,182
Total
US$
278,648
528,259
190,779
119,167
138,066
143,472
60,000
20,833
113,575
110,000
142,668
157,243
Graham Bradley 4
2010
2009
David McLemore 5
2010
2009
Bruce Brook
2010
2009
Roger Brown 6
2010
Roy Franklin 7
2010
David Grzelak
2010
2009
Peter St. George
2010
2009
(1) Refer to Table 6.1 above for details of the annual Non-executive Director base fees and committee fees.
(2) Includes compulsory superannuation guarantee payments to Australian directors and an equivalent cash amount
to non-Australian Directors.
(3) On the Company’s listing in April 2007 restricted shares were awarded to certain non-executive directors in
respect of work performed prior to the Company’s listing. Full details of the awards were provided in the
Company’s prospectus for the initial public offering. These shares vested in April 2010. The amount in this table
is the accounting expense recognised in the year through amortisation of the cost over the service condition.
(4) Mr. Bradley resigned from the Board on 23 August 2010.
(5) Mr. McLemore was elected Chairman on 23 August 2010.
(6) Mr. Brown was appointed a director on 1 July 2010.
(7) Mr. Franklin was appointed a director on 15 October 2010.
______________________________________________________________________________________
35
Annual Financial Report
31 DECEMBER 2010 BOART LONGYEAR LIMITED
55
NON-AUDIT SERVICES
Details of amounts paid or payable for non-audit services provided during the year by the auditor are outlined in Note 35 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 35 to the financial statements, do not compromise
the external auditor’s independence, based on advice received from the Audit, Compliance & Risk Committee, for the
following reasons:
•
•
all non-audit services have been reviewed and approved by the Audit, Compliance & Risk 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.
AUDITOR’S INDEPENDENCE DECLARATION
The auditor’s independence declaration is included on page 56 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
Dave McLemore
Chairman
Sydney, 23 February 2011
Craig Kipp
Chief Executive Officer
Sydney, 23 February 2011
______________________________________________________________________________________
36
56
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
The Board of Directors
Boart Longyear Limited
919-929 Marion Road
Mitchell Park SA 5043
Australia
23 February 2011
Dear Directors
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 2010, 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
A V Griffiths
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
______________________________________________________________________________________
37
57
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 statement of
financial position as at 31 December 2010, the statement of comprehensive income, the statement of cash flows and the
statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting
policies and other explanatory information, 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
59 to 131.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the
directors determine is necessary to enable the preparation of the financial report that is free from material misstatement,
whether due to fraud or error. In Note 3, the directors also state, in accordance with Accounting Standard AASB 101
Presentation of Financial Statements, that the financial statements 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. Those 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 judgment, 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 of the financial report that gives a true and fair view, 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.
Member of Deloitte Touche Tohmatsu Limited
______________________________________________________________________________________
38
Auditor’s Independence Declaration
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
58
Opinion
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
2010 and of their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 3.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 31 to 54 of the directors’ report for the year ended 31
December 2010. 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.
Opinion
In our opinion the Remuneration Report of Boart Longyear Limited for the year ended 31 December 2010, complies with
section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
A V Griffiths
Partner
Chartered Accountants
Sydney, 23 February 2011
______________________________________________________________________________________
39
Annual Financial Report
59
31 DECEMBER 2010 BOART LONGYEAR LIMITED
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 are in compliance with International Financial
Reporting Standards, as stated in Note 3 to the financial statements;
(c)
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
(d) 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.
Dave McLemore
Chairman
Sydney, 23 February 2011
Craig Kipp
Chief Executive Officer
Sydney, 23 February 2011
______________________________________________________________________________________
40
Consolidated Statement of Comprehensive Income (Loss)
60
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
_______________________________________________________________________________________
See accompanying notes to the financial statements.
41
Consolidated Statement of Financial Position
61
As at 31 December 2010 BOART LONGYEAR LIMITED
_______________________________________________________________________________________
See accompanying notes to the financial statements.
42
Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity
62
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
_______________________________________________________________________________________
_______________________________________________________________________________________
See accompanying notes to the financial statements.
See accompanying notes to the financial statements.
43
43
Consolidated Statement of Cash Flows
63
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
_______________________________________________________________________________________
See accompanying notes to the financial statements.
44
Consolidated Statement of Cash Flows (continued)
64
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
_______________________________________________________________________________________
See accompanying notes to the financial statements.
45
Notes to the Consolidated Financial Statements
65
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
1.
GENERAL INFORMATION
Boart Longyear Limited (the “Parent”) 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
“Company”) operate in five geographic regions, which are defined as North America, Latin 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 Company 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:
Amendments to Australian Accounting Standards arising from the Annual Improvement Process
AASB 2009-4 ‘Amendments to Australian Accounting Standards arising from the Annual Improvement Process’
introduced amendments into Accounting Standards that are equivalent to those made by the IASB under its
program of annual improvements to its standards. A number of the amendments are technical changes to other
pronouncements as the result of AASB 3 ‘Business Combinations’ (2008), to align the scope of the
pronouncements or to implement other consequential amendments. The adoption of this amendment did not
have a significant impact on the Company’s financial results or statement of financial position.
AASB 2009-5 ‘Further Amendments to Australian Accounting Standards arising from the Annual Improvements
Process’ introduced amendments into Accounting Standards that are equivalent to those made by the IASB
under its program of annual improvements to its standards. A number of the amendments are largely technical,
clarifying particular items, or eliminating unintended consequences. Other changes are more substantial, such
as the amendment of AASB 8 ‘Operating Segments,’ which now requires the disclosure of total assets by
reportable segment only if such amount is regularly provided to the chief operating decision maker. As a result of
this amendment, the Company revised Note 5 Segment Reporting to eliminate the disclosure of total assets by
reportable segment.
Group cash-settled share-based payments
AASB 2009-8 ‘Amendments to Australian Accounting Standards – Group Cash-Settled Share-based Payment
Transactions’ amends AASB 2 ‘Share-based Payment’ to clarify the accounting for group cash-settled share-
based payment transactions. An entity receiving goods or services in a share-based payment arrangement must
account for those goods or services no matter which entity in the group settles the transaction, and no matter
whether the transaction is settled in shares or cash. The adoption of this amendment did not have a significant
impact on the Company’s financial results or statement of financial position.
Standards and Interpretations issued not yet effective
The accounting standards and AASB Interpretations that will be applicable to the Company and may have an
effect 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 Company.
_______________________________________________________________________________________
46
Notes to the Consolidated Financial Statements
66
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
2.
ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS (CONTINUED)
Financial instruments
AASB 2009-11 ‘Amendments to Australian Accounting Standards arising from AASB 9 ‘Financial Instruments’
introduces new requirements for classifying and measuring financial assets, as follows:
• Debt instruments meeting both a 'business model' test and a 'cash flow characteristics' test are
measured at amortised cost (the use of fair value is optional in some limited circumstances)
Investments in equity instruments can be designated as 'fair value through other comprehensive income'
with only dividends being recognised in profit or loss
•
• All other instruments (including all derivatives) are measured at fair value with changes recognised in
•
the profit or loss
The concept of 'embedded derivatives' does not apply to financial assets within the scope of the
Standard and the entire instrument must be classified and measured in accordance with the above
guidelines.
These amendments will be adopted for the year ending 31 December, 2013. Management has not yet assessed
the impact of adoption of these amendments.
Related party disclosures
AASB 2009-12 ‘Amendments to Australian Accounting Standards – Related Party Disclosures’ amends the
requirements of the previous version of AASB 124 ‘ Related Party Disclosures’ to clarify the definition of a related
party and includes an explicit requirement to disclose commitments involving related parties. These amendments
will be adopted for the year ending 31 December 2011. Management does not believe that the adoption of these
amendments will have a significant impact on the Company’s financial results or statement of financial position.
Prepayments of a Minimum Funding Requirement
AASB 2009-14 ‘Amendments to Australian Interpretation – Prepayments of a Minimum Funding Requirement’
makes limited-application amendments to Interpretation 14 ‘AASB 119 - The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction.’ The amendments apply when an entity is subject to
minimum funding requirements and makes an early payment of contributions to cover those requirements,
permitting the benefit of such an early payment to be recognised as an asset. These amendments will be
adopted for the year ending 31 December 2011. Management has not yet assessed the impact of adoption of
these amendments.
Additional amendments of Australian Accounting Standards have been issued, the adoption of which
management does not believe will have a significant impact on the Company’s financial results or statement of
financial position.
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 consolidated financial statements of the Company.
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 Company 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 23 February 2011.
_______________________________________________________________________________________
47
Notes to the Consolidated Financial Statements
67
For the financial year ended 31 December 2010 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.
At the Company’s annual general meeting on 11 May 2010, shareholders approved a 10 for 1 share
consolidation. Trading in the consolidated shares commenced 13 May 2010. The Company’s earnings (loss) per
share information, as well as the number of shares and rights under the LTIP and restricted shares have been
restated in this report using the consolidated share amounts.
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 the 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 respective periods in which they are revised if only those periods are affected, or in the
respective periods of the revisions as well as 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 Company.
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 Company 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 Company until such time as the Company
ceases to control such entity. Where necessary, adjustments are made to the financial statements of subsidiaries
to make their accounting policies consistent with Company 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 accounting policies and methods of computation are the same as those in the prior annual financial report.
Comparative figures have been adjusted to conform to the changes in presentation in the current reporting
period, where necessary.
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 2010 and the comparative information.
(a)
Presentation currency
Results of the major operating businesses are recorded in their functional currencies, which are
generally their local currencies. The Company’s US dollar-denominated revenue represents the
predominant currency. Accordingly, under A-IFRS, management believes that US dollar reporting
represents the best indicator of the results of the Company and therefore the consolidated financial
information is presented in US dollars.
_______________________________________________________________________________________
48
Notes to the Consolidated Financial Statements
68
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 demand deposits, 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 Company reviews collectability of trade
receivables on an ongoing basis and provides allowances for credit losses when there is evidence that
trade receivables are not collectible. These losses are 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 profit or loss.
(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 Company maintains inventories of core drilling rods and casings and certain consumables for use in
the rendering of services. Inventory items 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 performed to establish whether any items are obsolete or damaged,
and if so the carrying amounts are written down to the net realisable value. Allowances are recorded for
inventory considered to be excess or obsolete.
(e)
Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and impairment
losses. Costs include expenditures that are directly attributable to the acquisition of the assets,
including the costs of materials and direct labour, other costs directly attributable to bringing the assets
to a working condition for the 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 related to previously capitalised assets are capitalised only when it is probable that
they will result in commensurate future economic benefit and the costs can be reliably measured. All
other costs, including repairs and maintenance, are recognised in profit or loss as expenses as incurred.
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each
item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease
terms or their useful lives. Land and properties in the course of construction are not depreciated.
_______________________________________________________________________________________
49
Notes to the Consolidated Financial Statements
69
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e)
Property, plant and equipment (continued)
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
years
5-10
years
5-12
years
1-5
years
5-10
3-5
1-7
years
years
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
(f)
Goodwill and other intangible assets
Goodwill
Goodwill resulting from business combinations is recognised as an asset at the date that control is
acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the
acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date
amounts of the identifiable assets acquired and the liabilities assumed.
If, after reassessment, the Company’s interest in the fair value of the acquiree’s identifiable net assets
exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the
acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the
excess is recognised immediately in the statement of comprehensive income (loss) as a bargain
purchase gain.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of
impairment testing, goodwill is allocated to each of the Company’s cash-generating units expected to
benefit from the synergies of the combination. Cash-generating units to which goodwill has been
allocated are tested for impairment annually, or more frequently when there is an indication that the
carrying value of the unit may be impaired. If the recoverable amount of the cash-generating unit is less
than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying
amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a
subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the
profit or loss on disposal.
Trademarks and trade names
Trademarks and trade names recognised by the Company 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.
_______________________________________________________________________________________
50
Notes to the Consolidated Financial Statements
70
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f)
Goodwill and other intangible assets (continued)
Contractual customer relationships
Contractual customer relationships acquired in business combinations 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 finite useful lives and are carried at cost
less accumulated amortisation and accumulated impairment losses.
Contractual customer relationships are amortised over 10 – 15 years on a straight-line basis. The
estimated useful lives and amortisation methods are 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 estimated useful lives of 10 - 20 years. The
estimated useful lives 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 Company 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 costs are expensed when incurred.
Capitalised development costs are measured at cost less accumulated amortisation and accumulated
impairment losses. Amortisation is recognised on a straight-line basis over the estimated useful lives,
which on average is 15 years.
Subsequent costs related to previously capitalised assets are capitalised only when it is probable that
they will result in commensurate future economic benefit and the costs can be reliably measured. All
other expenditures, including expenditures on internally generated goodwill and brands, are expensed
as incurred.
_______________________________________________________________________________________
51
Notes to the Consolidated Financial Statements
71
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g)
Leased assets
Leases are classified as finance leases when the terms of the leases transfer substantially all the risks
and rewards incidental to ownership of the leased assets to the Company. All other leases are
classified as operating leases.
Assets held under finance leases are initially recognised at 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 statement of financial position as a finance lease
obligation.
Finance lease payments are apportioned between finance charges and reductions of the lease
obligations so as to achieve a constant rate of interest on the remaining balance of the liability. Finance
charges are expensed, unless they are directly attributable to qualifying assets, in which case they are
capitalised in accordance with the Company’s general policy on borrowing costs. Refer to Note 3(n).
Finance leased assets are amortised on a straight-line basis over the shorter of the lease terms or the
estimated useful lives of the assets.
Operating lease payments are recognised as expenses on a straight-line basis over the lease terms,
except when another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed.
Contingent rentals are expensed as incurred.
Lease incentives
In the event that lease incentives are received at the inception of operating leases, such incentives are
recognised as liabilities. The aggregate benefits of incentives are recognised as reductions of rental
expense on a straight-line basis over the lease terms, except where another systematic basis is more
representative of the time pattern in which economic benefits from the leased assets are consumed.
(h)
Current and deferred taxation
Income tax expense includes current and deferred tax expense (benefit). Income tax expense (benefit)
is recognised in profit or loss except to the extent that amounts relate to items recognised directly in
equity, in which case the income tax expense (benefit) is also recognised in equity, or amounts that
relate to a business combination, in which case the income tax expense (benefit) 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 for
which 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 but have not reversed at the balance sheet date. Temporary
differences are differences between the Company’s taxable income and its profit before taxation, as
reflected in profit or loss, that arise from the inclusion of profits and losses in tax assessments in periods
different from those in which they are recognised in profit or loss.
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 likely will not reverse in the foreseeable future.
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.
_______________________________________________________________________________________
52
Notes to the Consolidated Financial Statements
72
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h)
Current and deferred taxation (continued)
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 concurrently with the
liability to pay the related dividend.
Tax consolidation
The Company includes tax consolidated groups for the entities incorporated in Australia and the United
States. Tax expense/benefit and deferred tax assets/liabilities 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 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.
(i)
Derivative financial instruments
The Company periodically 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 executed and are
subsequently remeasured to fair value at each reporting date. The resulting gain or loss is recognised
in profit or loss 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 Company designates certain derivatives as either hedges of the fair value of recognised assets,
liabilities or firm commitments (fair value hedges), or hedges of highly probable forecast transactions or
hedges of foreign currency risk of firm commitments (cash flow hedges).
The fair values of hedging derivatives are classified as non-current assets/liabilities if the remaining
maturities of the hedge relationships are more than 12 months and as current assets/liabilities if the
remaining maturities of the hedge relationships are less than 12 months.
Derivatives not designated into an effective hedge relationship are classified as current assets/liabilities
regardless of their remaining maturities.
Hedge accounting
The Company 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 Company documents the relationship between the
hedging instrument and hedged item, along with its risk management objectives and its strategy for
undertaking various hedge transactions.
Furthermore, at the inception of the hedge and on an ongoing basis, the Company 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.
_______________________________________________________________________________________
53
Notes to the Consolidated Financial Statements
73
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
Derivative financial instruments (continued)
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 Company 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, other income, or interest expense as appropriate.
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 Company 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.
(j)
Impairment
Non-financial assets
The Company’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 respective 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 are largely independent from other assets and groups. 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.
_______________________________________________________________________________________
54
Notes to the Consolidated Financial Statements
74
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j)
Impairment (continued)
In respect of assets other than goodwill, impairment losses recognised in prior periods are assessed at
each reporting date for any indications that the impairment 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.
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 is
related 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.
(k)
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 Company prior to the end of the financial period that are unpaid
and arise when the Company becomes obligated to make future payments.
(l)
Provisions
A provision is recognised if, as a result of a past event, the Company 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 Company maintains warranty reserves for products manufactured by its various companies. A
provision is recognised when the following conditions are met: 1) the Company has an obligation as a
result of an implied or contractual warranty; 2) it is probable that an outflow of resources will be required
to settle the warranty claim; and 3) the amount of the claim can be reliably estimated.
Restructuring
A provision for restructuring is recognised when the Company has approved a detailed and formal
restructuring plan, and the Company 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 Company’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.
Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived from a
contract are less 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 Company
recognises any impairment loss on the assets associated with that contract.
_______________________________________________________________________________________
55
Notes to the Consolidated Financial Statements
75
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m)
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 and are calculated at
discounted amounts based on rates that the Company 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
Company 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 Company as the benefits are
provided to the employees.
Provisions are recognised for amounts expected to be paid under short-term cash bonus or profit-
sharing plans if the Company has present legal or constructive obligations to pay these amounts as a
result of past service provided by employees and the obligations can be reliably estimated.
Defined contribution pension plans and post-retirement benefits
A defined contribution plan is a pension plan under which the Company pays fixed contributions into a
separate entity. The Company 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 profit or loss 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 statement of financial position.
Defined benefit pension plans
The Company’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 Company’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 statement of comprehensive income (loss).
Where the calculation results in a benefit to the Company, 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 (increase the benefit obligation where benefits are introduced or
improved) or negative (decrease the benefit obligation where existing benefits are reduced).
_______________________________________________________________________________________
56
Notes to the Consolidated Financial Statements
76
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m)
Employee benefits (continued)
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 Company’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.
When determining expense related to long-term incentive plans, the Company considers the probability
of shares vesting due to the achievement of performance metrics established by the Board of Directors
related to long-term incentives that includes performance vesting conditions. The Company also
estimates the portion of share and cash rights that will ultimately be forfeited. A forfeiture rate over the
vesting period has been estimated, based upon extrapolation of historic forfeiture rates.
Earn-out and bonus agreements
In certain circumstances, previous owners of acquired businesses may become employees of the
Company. 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 Company), those payments are recognised as an expense over the period of
the services provided.
(n)
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 borrowing. 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 Company 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.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
_______________________________________________________________________________________
57
Notes to the Consolidated Financial Statements
77
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o)
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 or the amount initially recognised less cumulative
amortisation in accordance with the revenue recognition policies described in Note 3(q).
Financial assets
Investments are recognised and derecognised on trade dates 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 Parent
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 Parent
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 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 14.
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.
(p)
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.
_______________________________________________________________________________________
58
Notes to the Consolidated Financial Statements
78
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(q)
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 tax. 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 the statement of comprehensive income (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 or other
services performed 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.
(r)
Foreign currency
The financial statements of the Company 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 Company’s presentation currency is the US dollar. The Company 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 profit or loss.
(s)
Contingencies
The recognition of accruals for legal disputes is subject to a significant degree of judgment. Accruals
are made for loss contingencies when management determines that an adverse outcome is probable
and the amount of the loss can be reasonably estimated. Accruals are recognised when (a) the
Company 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.
(t)
Business combinations
Business combinations are accounted for using the acquisition method. The consideration for each
acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given,
liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of
the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.
Where applicable, consideration for acquisitions includes assets or liabilities resulting from contingent
consideration arrangements, measured at acquisition-date fair value. Subsequent changes in such fair
values are adjusted against the costs of the acquisitions where they qualify as measurement period
adjustments (see below). All other subsequent changes in the fair values of contingent consideration
classified as assets or liabilities are recognised in the statement of comprehensive income (loss) as
incurred. Changes in the fair values of contingent consideration classified as equity are not recognised.
_______________________________________________________________________________________
59
Notes to the Consolidated Financial Statements
79
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(t)
Business combinations (continued)
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for
recognition under AASB 3(2008) are recognised at their fair value at the acquisition date, except that:
•
•
•
deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements
are recognised and measured in accordance with AASB 112 Income Taxes and AASB 119
Employee Benefits, respectively;
liabilities or equity instruments related to the replacement by the Company of an acquiree’s share-
based payment awards are measured in accordance with AASB 2 Share-based Payment; and
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 are measured in accordance with that
Standard.
If the initial accounting for a business combination is incomplete by the end of the reporting period in
which the combination occurs, the Company reports provisional amounts for the items for which the
accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see
below), or additional assets or liabilities are recognised, to reflect new information obtained about facts
and circumstances that existed as of the acquisition date that, if known, would have affected the
amounts recognised as of that date.
The measurement period is the period from the date of acquisition to the date the Company obtains
complete information about facts and circumstances that existed as of the acquisition date, and is
subject to a maximum of one year.
(u)
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.
_______________________________________________________________________________________
60
Notes to the Consolidated Financial Statements
80
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
4.
PARENT ENTITY DISCLOSURES
Financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Equity
Issued capital
Reserves
Retained earnings
Total equity
Financial performance
Profit for the year
Other comprehensive income
Total comprehensive income
2010
US$'000
731,168
2,237,753
2,968,921
38,419
2,646
41,065
2,886,462
8,415
32,979
2,927,856
2010
US$'000
35,318
-
35,318
2009
US$'000
661,868
2,244,039
2,905,907
1,041
690
1,731
2,890,807
6,024
7,345
2,904,176
2009
US$'000
6,853
-
6,853
Guarantees entered into by the parent entity in relation to debs of its subsidiaries
As of 31 December 2010 and 2009 Boart Longyear Limited has not entered into any deed of cross guarantee
with any of its wholly-owned subsidiaries, other than as described in Note 28.
Contingent liabilities
As of 31 December 2010 and 2009 Boart Longyear Limited did not have any contingent liabilities.
Contractual obligations
As of 31 December 2010 and 2009 Boart Longyear Limited did not have any contractual obligations.
_______________________________________________________________________________________
61
Notes to the Consolidated Financial Statements
81
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
5.
SEGMENT REPORTING
Information reported to the chief operating decision maker for the purposes of resource allocation and
assessment of segment performance is aggregated based on the Company’s two general operating activities –
Global Drilling Services and Global Products. The Global Drilling Services segment provides a broad range of
drilling services to mining companies, energy companies, water utilities, environmental and geotechnical
engineering firms, government agencies and other mining services companies. The Global Products segment
manufactures and sells capital equipment and consumables to customers in the drilling services and mining
industries.
Information regarding these segments is presented below. The accounting policies of the reportable segments
are the same as the Company’s accounting policies.
Segment revenues and results
Segment revenue
Segment profit
Global Drilling Services
Global Products
Unallocated 1
Finance costs
Interest income
Profit (loss) before taxation
2010
US$'000
1,080,460
395,485
1,475,945
2009
US$'000
737,180
240,997
978,177
2010
US$'000
2009
US$'000
117,876
85,034
202,910
(74,472)
(8,733)
3,570
123,275
72,383
16,232
88,615
(66,085)
(46,752)
1,616
(22,606)
(1) Unallocated costs include corporate general and administrative costs as well as other expense items
such as restructuring costs and foreign exchange gains or losses.
Other segment information
Depreciation and amortisation of
segment assets
31 Dec 2010
US$'000
31 Dec 2009
US$'000
Additions to non-current assets 2
31 Dec 2010
31 Dec 2009
US$'000
US$'000
Global Drilling Services
Global Products
Total of all segments
Unallocated 1
Total
73,591
10,374
83,965
9,385
93,350
69,450
10,204
79,654
8,853
88,507
115,712
21,161
136,873
25,191
162,064
38,145
10,031
48,176
7,922
56,098
(1) Unallocated additions to non-current assets relate to the acquisition of general corporate assets such as
software.
(2) Non-current assets exclude deferred tax assets, post-employment assets and other financial assets.
The Company has no single external customer that provided more than 10% of the Company’s revenues.
_______________________________________________________________________________________
62
Notes to the Consolidated Financial Statements
82
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
5.
SEGMENT REPORTING (CONTINUED)
Geographic Information
The Company’s two business segments operate in five principal geographic areas – Africa, Europe, North
America, Latin America, and Asia Pacific. The Company’s revenue from external customers and information
about its segment assets by geographical locations are detailed below:
North America
Asia Pacific
Latin America
Africa
Europe
Total
Revenue from external customers
2010
US$'000
621,092
403,230
186,177
192,920
72,526
1,475,945
2009
US$'000
463,085
275,856
112,080
82,156
45,000
978,177
Non-current assets 1
2010
US$'000
2009
US$'000
347,222
340,023
89,008
55,169
13,645
845,067
311,259
307,577
74,028
39,677
11,016
743,557
(1) Non-current assets excluding deferred tax assets, post-employment assets and other financial assets.
6.
REVENUE
An analysis of the Company’s revenue for the year is as follows:
Revenue from the rendering of services
Revenue from the sale of goods
Interest income:
Bank deposits
Other loans and receivables
Other
2010
US$'000
1,080,460
395,485
1,475,945
3,306
151
113
3,570
2009
US$'000
737,180
240,997
978,177
1,314
113
189
1,616
Total
1,479,515
979,793
_______________________________________________________________________________________
63
Notes to the Consolidated Financial Statements
83
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
7.
FINANCE COSTS
Interest on loans and bank overdrafts
Interest rate swap expense
Amortisation of debt issuance costs
Interest on obligations under finance leases
Finance costs due to debt repayment
Interest rate swap expense
Bank refinancing fee
Write-off of debt issuance costs
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
2010
US$'000
2009
US$'000
4,370
3,730
420
213
8,733
-
-
-
-
-
-
-
11,752
15,556
2,352
430
30,090
15,242
1,050
370
16,662
694
(694)
-
Total finance costs
8,733
46,752
8.
PROFIT FOR THE YEAR
(a)
Gains and losses
Profit for the year includes the following gains and (losses):
Loss on disposal of property,
plant and equipment
Loss on disposal of businesses
Net foreign exchange losses
Change in fair value of financial
assets carried at fair value
through profit or loss
Impairment of non-current assets
2010
US$'000
2009
US$'000
(1,827)
(49)
-
(4,130)
(7,159)
(2,512)
(1,076)
1,389
(1,695)
(1,318)
_______________________________________________________________________________________
64
Notes to the Consolidated Financial Statements
84
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
8.
PROFIT FOR THE YEAR (CONTINUED)
(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
Reversal of allowance for doubtful accounts
Financial liabilities at amortised cost:
Interest expense
Interest rate swap expense
Amortisation of debt issuance costs
Finance costs due to debt repayment
Exchange loss
Interest on obligations
under finance leases
(c)
Employee benefits expenses:
Salaries and Wages
Post employment benefits:
Defined contribution plans
Defined benefit plans
Long-term incentive plans:
Equity-settled share-based
payments
Cash rights compensation
Termination benefits (non-restructuring)
Termination benefits (restructuring)
Other employee benefits 1
2010
US$'000
2009
US$'000
3,457
1,002
4,459
(4,370)
(3,730)
(420)
-
(19)
(213)
(8,752)
1,427
91
1,518
(11,752)
(15,556)
(2,352)
(16,662)
(74)
(430)
(46,826)
2010
US$'000
(423,098)
2009
US$'000
(294,343)
(15,049)
(1,666)
(12,025)
(632)
(3,863)
(1,954)
(493)
(2,297)
(75,392)
(523,812)
(3,432)
(690)
(416)
(8,234)
(52,666)
(372,438)
(1) Other employee benefits include such items as medical benefits, worker’s compensation, other
fringe benefits, state taxes, etc.
_______________________________________________________________________________________
65
Notes to the Consolidated Financial Statements
85
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
8.
PROFIT FOR THE YEAR (CONTINUED)
(d)
Other:
Depreciation of non-current assets
Amortisation of non-current assets
Operating lease rental expense
Impairment of inventory
Recovery of inventory previously imparied
9.
INCOME TAXES
Income tax expense (benefit) is as follows:
Income tax expense (benefit):
Current tax expense
Adjustments recognised in the current year
in relation to the current tax of prior years
Deferred tax benefit
2010
US$'000
2009
US$'000
(84,222)
(9,128)
(35,910)
(611)
-
(79,865)
(8,642)
(34,440)
(563)
1,706
2010
US$'000
2009
US$'000
51,601
35,264
2,402
(15,241)
38,762
1,762
(44,749)
(7,723)
(a) The prima facie income tax expense (benefit) on pre-tax accounting profit reconciles to the income
tax expense (benefit) in the financial statements as follows:
Profit (loss) before taxation
Income tax (benefit) expense calculated at
Australian rate of 30%
Impact of higher rate tax countries
Impact of lower rate tax countries
Net nondeductible/nonassessable items
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
Other
Under provision
123,275
(22,606)
36,982
2,701
(6,334)
(1,108)
1,231
(1,653)
6,634
(132)
(1,005)
(957)
36,359
2,403
38,762
(6,782)
(7,796)
(1,487)
(6,560)
1,148
2,607
4,978
(638)
(1,304)
6,349
(9,485)
1,762
(7,723)
_______________________________________________________________________________________
66
Notes to the Consolidated Financial Statements
86
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
9.
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
2010
US$'000
2009
US$'000
4,418
-
(194)
4,224
(340)
12,437
(9,465)
2,632
23,164
(15,373)
13,914
21,705
-
-
46,338
46,338
19,060
(8,042)
10,197
21,215
-
-
41,221
41,221
87,483
48,371
135,854
72,147
44,630
116,777
_______________________________________________________________________________________
67
Notes to the Consolidated Financial Statements
87
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
9.
INCOME TAXES (CONTINUED)
2010
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
Opening Credited to
balance
US$'000
income Differences disposed acquisitions
US$'000
US$'000
US$'000
US$'000
FX
Acquired/
Adj. to PY
(14,067)
4,549
630
(9,302)
7,463
17,678
9,470
5,146
8,816
6,323
23,488
6,782
(597)
6,723
(3,519)
2,564
72,147
5,276
(2,097)
(224)
(351)
(4,249)
(6,496)
(7,346)
(522)
4,782
(3,355)
(4,275)
7,127
(903)
1,479
19,424
3,229
11,499
44,630
116,777
3,741
15,240
(51)
(23)
(3)
48
(38)
-
(49)
(27)
(75)
-
(123)
(35)
-
-
-
(11)
(387)
-
(387)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Presented in the statement of financial position as follows:
Deferred tax liability
Deferred tax asset
Credited
to equity
US$'000
Closing
balance
US$'000
-
-
-
-
-
-
-
4,418
-
(194)
-
-
-
-
-
-
4,224
(8,842)
2,429
403
(9,605)
3,176
11,182
2,075
9,015
13,523
2,774
19,090
13,874
(1,500)
8,202
15,905
5,782
87,483
-
4,224
48,371
135,854
(11,468)
147,322
135,854
_______________________________________________________________________________________
68
Notes to the Consolidated Financial Statements
88
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
9.
INCOME TAXES (CONTINUED)
2009
Deferred tax assets (liabilities)
Property, plant and equipment
Provisions
Doubtful debts
Intangibles
Acquisitions and restructuring costs
Share-issue expenses
Accrued liabilities
Pension
Debt and interest
Hedge loss
Unearned revenues
Inventory
Investments in subsidiaries
Foreign tax credit carryforward
Unrealised foreign exchange
Other
Unused tax losses and credits:
Tax losses
Opening Credited to
balance
US$'000
income Differences disposed acquisitions
US$'000
US$'000
US$'000
US$'000
FX
Acquired/
Adj. to PY
(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
5,050
66,407
7,067
(1,794)
9
(1,303)
(1,250)
(6,496)
(991)
(1,878)
5,870
5,954
23,488
(1,202)
-
-
(24,479)
(2,876)
119
-
66,407
44,630
44,749
31
452
44
(570)
621
-
745
525
182
-
-
569
-
-
-
390
2,989
-
2,989
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Presented in the statement of financial position as follows:
Deferred tax liability
Deferred tax asset
Credited
to equity
US$'000
Closing
balance
US$'000
-
-
-
-
-
12,437
-
(340)
-
(9,465)
-
-
-
-
-
-
2,632
(14,067)
4,549
630
(9,302)
7,463
17,678
9,470
5,146
8,816
6,323
23,488
6,782
(597)
6,723
(3,519)
2,564
72,147
-
2,632
44,630
116,777
(5,323)
122,100
116,777
Unrecognised deferred tax assets
Tax losses - revenue
Unused tax credits
2010
US$'000
2009
US$'000
3,151
61,829
64,980
2,789
48,951
51,740
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.
_______________________________________________________________________________________
69
Notes to the Consolidated Financial Statements
89
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
10.
RESTRUCTURING
The Company initiated a restructuring plan in 2010 to reduce or eliminate certain operations. These activities
include:
•
•
•
reduction of drilling services staff levels in certain locations;
exiting unprofitable contracts
discontinuing certain retail drilling supply sales operations
In 2008 the Company initiated a restructuring and cost reduction plan for related activities that continued through
2009 and 2010. These activities include:
•
•
•
•
•
•
•
reduction of drilling services and manufacturing operating and administrative staff levels;
reduction of sales, general and administrative staff levels;
consolidation of drilling services, manufacturing and administrative facilities;
relocation of certain manufacturing activities to lower cost facilities;
outsourcing certain operational and administrative activities;
discontinuing certain businesses and product lines; and
the sale of non-core businesses (see Note 30).
The Company incurred costs related to executing the restructuring and cost reduction plans, including costs
associated with employee separations, leased facilities, and impairments of inventory and capital equipment
related to discontinued businesses and product lines. Expenses related to executing the restructuring and cost
reduction plan were as follows:
Employee separation costs
Contract termination costs
Occupancy
Impairment of inventory
Impairment of property, plant and equipment
Recovery of inventory previously impaired
Other
Restructuring expenses relate to the following expense categories:
Cost of goods sold
General and administrative expenses
Selling and marketing expenses
2010
US$'000
2009
US$'000
2,297
1,570
424
611
67
-
108
5,077
8,234
-
3,436
563
1,318
(1,706)
798
12,643
2010
US$'000
2009
US$'000
290
3,186
1,601
5,077
3,541
5,162
3,940
12,643
_______________________________________________________________________________________
70
Notes to the Consolidated Financial Statements
90
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
11.
RECLASSIFICATION
For 2010, the Company performed a review of selling and marketing expenses and general and administrative
expenses and determined that certain costs would be more appropriately classified as general and administrative
expenses or costs of goods sold. As a result, the accounts were reclassified. In order to present comparable
financial results, the related accounts for the year ended 31 December 2009 have been reclassified as follows:
Amounts originally reported
Reclassification
Restated amounts
2009
Selling and
marketing
US$'000
(70,549)
28,702
(41,847)
2009
Cost of
goods sold
US$'000
(744,670)
(2,633)
(747,303)
2009
General and
administrative
US$'000
(117,260)
(26,069)
(143,329)
Additionally, certain other amounts have been reclassified in the 2009 statement of financial position and
consolidated statement of cash flows to conform to 2010 presentation.
12.
TRADE AND OTHER RECEIVABLES
Trade receivables
Allowance for doubtful accounts
Goods and services tax receivable
Other receivables
The ageing of trade receivables is detailed below:
Current
Past due 0 - 30 days
Past due 31 - 60 days
Past due 61-90 days
Past due 90 days
2010
US$'000
2009
US$'000
245,842
(3,619)
23,978
10,635
276,836
177,442
(5,940)
14,901
12,195
198,598
2010
US$'000
2009
US$'000
172,930
43,050
13,710
6,302
9,850
245,842
128,700
32,235
6,771
3,086
6,650
177,442
_______________________________________________________________________________________
71
Notes to the Consolidated Financial Statements
91
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
12.
TRADE AND OTHER RECEIVABLES (CONTINUED)
The movement in the allowance for doubtful accounts in respect of trade receivables is detailed below:
Opening Balance
Additional provisions
Amounts used
Amounts reversed
Foreign currency exchange differences
Closing balance
2010
US$'000
2009
US$'000
5,940
2,651
(1,271)
(3,653)
(48)
3,619
8,100
4,989
(2,664)
(5,080)
595
5,940
The average credit period on sales of goods is 54 days (2009: 60 days). No interest is presently charged on
trade receivables.
The Company’s policy requires customers to pay the Company in accordance with agreed payment terms. The
Company’s settlement terms are generally 30 to 60 days from date of invoice. All credit and recovery risk
associated with trade receivables has been provided for in the statement of financial position. Trade receivables
have been aged according to their original due date in the above ageing analysis. The Company holds security
for a number of trade receivables in the form of letters of credit, deposits, and advanced payments.
The Company has used the following basis to assess the allowance loss for trade receivables and as a result is
unable to specifically allocate the allowance to the ageing categories shown above:
•
•
•
the general economic conditions in specific geographical regions;
an individual account by account specific risk assessment based on past credit history; and
any prior knowledge of debtor insolvency or other credit risk.
13.
INVENTORIES
Raw materials
Work in progress
Finished products
14.
FINANCIAL INSTRUMENTS
Capital risk management
2010
US$'000
2009
US$'000
31,631
3,437
248,047
283,115
16,327
5,194
137,939
159,460
The Company manages its capital to ensure that entities in the Company will be able to continue as a going
concern while maximising the return to stakeholders through the optimisation of the debt and equity balances.
The capital structure of the Company consists of debt, which includes the borrowings disclosed in Note 19, cash
and cash equivalents and equity attributable to equity holders of the Company, comprising issued capital,
reserves, and accumulated losses as disclosed in Notes 22, 23, and 24 respectively.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis
of measurement and the basis on which income and expenses are recognised, in respect of each class of
financial asset, financial liability and equity instrument are disclosed in Note 3 to the financial statements.
_______________________________________________________________________________________
72
Notes to the Consolidated Financial Statements
92
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
14.
FINANCIAL INSTRUMENTS (CONTINUED)
Categories of financial instruments
Financial Assets
Current
Cash and cash equivalents
Trade and other receivables
Other financial assets
Financial Liabilities
Current
Amortised cost:
Trade and other payables
Restructuring Provisions
Loans and borrowings
2010
US$'000
2009
US$'000
94,944
276,836
362
372,142
87,557
198,598
1,818
287,973
2010
US$'000
2009
US$'000
260,038
4,462
979
265,479
170,118
2,256
3,133
175,507
Other financial liabilities - Derivative instruments
7,272
11,835
Non-current
Amortised cost:
Loans and borrowings
247,490
247,490
132,486
132,486
Other financial liabilities - Derivative instruments
-
4,822
At the reporting date there are no significant concentrations of credit risk. The carrying amount reflected above
represents the Company’s maximum exposure to credit risk for such loans and receivables.
Financial risk management objectives
The Company’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
Company 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 Company 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
Company’s policies approved by the board of directors, which provide written principles on foreign exchange risk
and interest rate risk. The Company does not enter into or trade financial instruments, including derivative
financial instruments, for speculative purposes.
Market risk
The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates
and interest rates (Note 3(i)). The Company periodically 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.
_______________________________________________________________________________________
73
Notes to the Consolidated Financial Statements
93
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
14.
FINANCIAL INSTRUMENTS (CONTINUED)
Foreign currency risk management
Company 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, which may include utilising forward foreign exchange contracts.
The most significant carrying amounts of monetary assets and monetary liabilities that: (1) are denominated in
currencies other than the functional currency of the respective Company subsidiary; (2) cause foreign exchange
rate exposure; and (3) may include intercompany balances with other subsidiaries, at the reporting dates is as
follows:
Australian Dollar
Canadian Dollar
Euro
US Dollar
Assets
2010
US$'000
2009
US$'000
Liabilities
2010
US$'000
2009
US$'000
421,867
10,629
5,715
296,142
429,090
79,700
35,944
346,502
12,094
62,556
18,915
397,356
77,391
42,631
118,378
368,349
Foreign currency sensitivity
The Company is mainly exposed to Australian Dollars (AUD), Canadian Dollars (CAD), the Euro (EUR) and
United States Dollar (USD). The Company is also exposed to translation differences as the Company’s
presentation currency is different to the functional currencies of various operating entities. However this
represents a translation risk rather than a financial risk and consequently is not included in the following
sensitivity analysis.
The following tables detail the Company’s sensitivity to a 10% change in each of the Company’s subsidiaries
functional currency against the relevant foreign currencies. The percentages disclosed below are the sensitivity
rates used when reporting foreign currency risk internally to key management personnel. The sensitivity analysis
includes only outstanding foreign currency denominated monetary items and adjusts their translation at the
period end for a given percentage change in foreign currency rates. The sensitivity analysis includes external
loans as well as loans to foreign operations within the Company where the denomination of the loan is in a
currency other than the currency of the lender or the borrower. A positive number indicates an increase in net
profit and net assets where the subsidiaries functional currency strengthens against the respective currency. For
a weakening of the subsidiaries functional currency against the respective currency there would be an equal and
opposite impact on the profit and net assets.
_______________________________________________________________________________________
74
Notes to the Consolidated Financial Statements
94
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
14.
FINANCIAL INSTRUMENTS (CONTINUED)
Net profit
Net assets
Change in currency
Net profit
Net assets
Change in currency
AUD Impact
2010
US$'000
2009
US$'000
384
(37,252)
10%
(24)
(31,973)
10%
EUR Impact
2010
US$'000
2009
US$'000
(1,204)
1,204
10%
97
7,494
10%
CAD Impact
2010
US$'000
2009
US$'000
(2,505)
4,721
10%
6,165
(3,370)
10%
USD Impact
2010
US$'000
2009
US$'000
12,520
9,201
10%
15,737
1,986
10%
The Company’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.
Forward foreign exchange contracts
There were no open forward foreign currency contracts as of 31 December 2010 or 2009.
During the year ended 31 December 2009, the Company entered into contracts to hedge the foreign currency
exposure it has on United States dollar denominated loans in Canada. The Company periodically enters 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 Company is exposed to interest rate risk as entities within the Company borrow funds at both fixed and
floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed
and floating rate borrowings and 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 Company’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.
_______________________________________________________________________________________
75
Notes to the Consolidated Financial Statements
95
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
14.
FINANCIAL INSTRUMENTS (CONTINUED)
At the reporting date, if interest rates had been 100 basis points higher or lower and all other variables were held
constant, the Company’s:
•
•
profit before tax would increase/decrease by $854,000 (2009: decrease/increase by $2,774,000). $2,362,000
of the increase/decrease is attributable to the Company’s exposure to interest rates on its variable rate
borrowings. An offsetting $1,508,000 is attributable to the fair value change in the ineffective portion of the
Company’s interest rate swap contract.
In addition, other equity reserves would increase/decrease by $95,000 (2009: increase/decrease by
$247,000) mainly as a result of the Company’s exposure to interest rates on its interest rate swap contracts
that are in a cash flow hedge relationship.
Interest rate swap contracts
Under interest rate swap contracts, the Company agrees to exchange the difference between fixed and floating
rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Company to
mitigate the risk of changing interest rates on the cash flow exposures on the issued variable rate debt held. The
fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the
LIBOR curve at reporting date and the credit risk inherent in the contract, and are disclosed below. The average
interest rate is based on the outstanding balances at the start of the financial year.
The following tables detail the notional principal amounts and the remaining terms of interest rate swap contracts
outstanding as at the reporting dates.
Outstanding floating
for fixed contracts
1 year
Average contracted
fixed interest rate
2010
2009
%
%
5.1825%
5.1825%
Notional
principal amount
2010
2009
US$'000
US$'000
275,000
200,000
Fair value
2010
US$'000
2009
US$'000
(7,272)
(16,657)
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is 90-day USD
LIBOR. The Company settles the difference between the fixed and floating interest rate on a net basis.
The effective portion of the interest rate swap contracts that exchange floating rate interest amounts for fixed rate
interest amounts are designated as cash flow hedges in order to reduce the Company’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 Company. The Company 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 Company
holds security for a number of trade receivables in the form of letters of credit, deposits, and advanced payments.
The Company 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.
_______________________________________________________________________________________
76
Notes to the Consolidated Financial Statements
96
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
14.
FINANCIAL INSTRUMENTS (CONTINUED)
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 Company’s maximum exposure to credit risk without
taking account of the value of any collateral obtained.
Financial assets and other credit exposures
Performance guarantees provided, including letters of credit
Maximum credit risk
2010
US$'000
20,350
2009
US$'000
28,557
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Treasurer and board of directors, who have
built an appropriate liquidity risk management framework for the management of the Company’s short, medium
and long-term funding and liquidity management requirements.
The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial
assets and liabilities. Included in Note 19 is a listing of additional undrawn facilities that the Company has at its
disposal to further reduce liquidity risk.
_______________________________________________________________________________________
77
Notes to the Consolidated Financial Statements
97
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
14.
FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity and interest risk tables
The following tables detail the Company’s remaining contractual maturity for its non-derivative financial liabilities.
The tables have been presented based on the undiscounted cash flows of financial liabilities based on the
earliest date on which the Company may be required to pay. The table includes both interest and principal cash
flows. The adjustment column represents the possible future cash flows attributable to the instrument included in
the maturity analysis which are not included in the carrying amount of the balance sheet.
Weighted
average
effective
interest
rate
%
Less
than
1 to 3
3 months
to
1 year
1 month months
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
1 - 5 years 5+ years ment
Total
Adjust-
2010
Non-interest bearing
payables
Restructuring provision
Finance lease liability
Variable interest rate
instruments
-
-
8.9%
1.0%
133,308
372
115
126,730
743
230
-
3,347
1,032
-
-
320
199
133,994
398
128,101
1,790
6,169
248,651
248,971
2009
Non-interest bearing
payables
Restructuring provision
Finance lease liability
Variable interest rate
instruments
Fixed interest rate
instruments
-
-
8.4%
109,326
188
274
60,792
376
548
-
1,692
2,464
-
-
570
1.3%
146
293
1,317
134,240
3.1%
1,000
110,934
-
-
-
62,009
5,473
134,810
-
-
-
-
-
-
-
-
-
-
-
-
-
(184)
260,038
4,462
1,513
(3,038)
(3,222)
248,000
514,013
-
-
(381)
170,118
2,256
3,475
(3,996)
132,000
-
(4,377)
1,000
308,849
_______________________________________________________________________________________
78
Notes to the Consolidated Financial Statements
98
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
14.
FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity and interest risk tables (continued)
The following table details the Company’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.
2010
Non-interest bearing
receivables
Cash
2009
Non-interest bearing
receivables
Cash
Less
than
1 month
US$'000
1 to 3
months
US$'000
3 months
to
1 year
US$'000
1 - 5 years 5+ years
US$'000
US$'000
Total
US$'000
135,550
94,944
230,494
108,440
32,846
-
-
108,440
32,846
86,348
87,557
173,905
86,348
25,902
-
-
86,348
25,902
-
-
-
-
-
-
-
-
-
-
-
-
276,836
94,944
371,780
198,598
87,557
286,155
The liquidity and interest risk tables have been prepared based on the Company’s intent to collect the assets or
settle the liabilities in accordance with their contractual terms. If the group were to collect or settle the balances
early, the liquidity disclosure would be different than what is reported.
The following table details the Company’s liquidity analysis for its derivative financial instruments. The table has
been presented 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.
Less
than
1 month
US$'000
1 to 3
months
US$'000
3 months
to
1 year
US$'000
1 - 5 years
US$'000
5+ years
US$'000
Total
US$'000
-
-
(2,469)
(4,803)
-
(3,418)
(8,417)
(4,822)
-
-
(7,272)
(16,657)
2010
Interest rate swaps
2009
Interest rate swaps
_______________________________________________________________________________________
79
Notes to the Consolidated Financial Statements
99
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
14.
FINANCIAL INSTRUMENTS (CONTINUED)
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.
Fair value measurements recognised in the statement of financial position
The following table provides an analysis of financial instruments that are measured subsequent to initial
recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
•
•
•
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets
for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the
asset or liability that are not based on observable market data (unobservable inputs).
2010
Financial liabilities at fair value
Derivative instruments
2009
Financial assets at fair value
Held for trading
Financial liabilities at fair value
Derivative instruments
Level 1
US$'000
Level 2
US$'000
Level 3
US$'000
Total
US$'000
-
7,272
1,494
-
-
16,657
-
-
-
7,272
1,494
16,657
_______________________________________________________________________________________
80
Notes to the Consolidated Financial Statements
100
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
15.
PROPERTY, PLANT AND EQUIPMENT
Balance at 1 January 2009
Additions
Adjustments to business combinations
accounted for on a provisional basis in 2008
Disposal of assets
Transfer from intangible assets
Currency movements
Balance at 1 January 2010
Additions
Disposal of assets
Transfer from intangible assets
Currency movements
Balance at 31 December 2010
Accumulated depreciation and impairment:
Balance at 1 January 2009
Depreciation for the year
Impairment of non-current assets
Disposal of assets
Currency movements
Balance at 1 January 2010
Depreciation for the year
Impairment of non-current assets
Disposal of assets
Currency movements
Balance at 31 December 2010
Net book value at 31 December 2009
Net book value at 31 December 2010
Land and
Buildings
US$'000
Plant and
Equipment
US$'000
Total
US$'000
47,092
12
-
(9,363)
3,431
41,172
2,964
(62)
-
1,118
45,192
(4,556)
(1,622)
-
1,377
(1,803)
(6,604)
(1,860)
-
38
(675)
(9,101)
34,568
36,091
502,158
34,243
(6,554)
(19,093)
655
80,709
592,118
133,566
(41,915)
802
34,709
719,280
(141,001)
(78,243)
(1,318)
15,226
(40,835)
(246,171)
(82,362)
(867)
34,311
(20,836)
(315,925)
345,947
403,355
549,250
34,255
(6,554)
(28,456)
655
84,140
633,290
136,530
(41,977)
802
35,827
764,472
(145,557)
(79,865)
(1,318)
16,603
(42,638)
(252,775)
(84,222)
(867)
34,349
(21,511)
(325,026)
380,515
439,446
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 2010 and 2009 includes an amount of $2,740,000 and $3,424,000 respectively, related to assets held
under finance leases.
During 2009, the Company sold its Sub Saharan manufacturing operations. This sale included net book value of
property, plant and equipment of $5,487,000.
_______________________________________________________________________________________
81
Notes to the Consolidated Financial Statements
101
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
16.
GOODWILL
Gross carrying amount:
Balance at 1 January 2009
Adjustments to business combinations accounted
for on a provisional basis in 2008
Currency movements
Balance at 31 December 2009
Balance at 1 January 2010
Currency movements
Balance at 31 December 2010
US$'000
234,571
7,947
34,438
276,956
276,956
20,452
297,408
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
Latin America
North America
2010
US$'000
155,731
34,602
107,075
297,408
2009
US$'000
136,943
33,884
106,129
276,956
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.
In its impairment assessment, the Company assumes the recoverable amount based on a value-in-use
calculation using cash flow projections based on the Company’s three year strategic plan and financial forecasts
over a 9-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 include:
•
•
a global discount rate of 11.5% adjusted on a case by case basis for regional variations in the required
equity rate of return based on independent data (the adjusted rates ranged from 9.2% to 19.8%)
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. The growth rates do
not exceed forecasts for the long term industry averages.
Sensitivity analyses were performed to determine whether the carrying value is supported by different
assumptions. The key variables of the sensitivity analysis included:
•
•
•
applicable discount rates;
terminal growth rates; and
inflation assumptions.
Based on the impairment testing performed, the recoverable amount from each cash generating unit exceeded
the goodwill carrying amount. Consequently, no impairments were recorded in 2010.
_______________________________________________________________________________________
82
Notes to the Consolidated Financial Statements
102
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
17.
OTHER INTANGIBLE ASSETS
Trademarks Patents relationships Software
US$'000
US$'000
US$'000
Total
US$'000
Customer
Develop-
ment
assets
US$'000 US$'000
Gross carrying amount:
Balance at 1 January 2009
Adjustments to business
combinations accounted for on
a provisional basis in 2008
Additions
Disposals
Transfer to PP&E
Currency movements
Balance at 31 December 2009
Balance at 1 January 2010
Additions
Disposals
Transfer to PP&E
Currency movements
Balance at 31 December 2010
Accumulated amortisation:
Balance at 1 January 2009
Amortisation for the period
Currency movements
Balance at 31 December 2009
Balance at 1 January 2010
Amortisation for the period
Impairment for the period
Currency movements
Balance at 31 December 2010
3,258
1,090
51,973
15,890
9,709
81,920
-
505
-
-
-
3,763
3,763
121
-
-
-
3,884
(164)
(423)
-
(587)
(587)
(423)
-
-
(1,010)
-
607
-
-
-
1,697
1,697
1,250
-
-
-
2,947
(457)
(190)
-
(647)
(647)
(200)
-
-
(847)
(990)
-
-
-
6,745
57,728
57,728
-
-
-
3,826
61,554
(5,606)
(5,398)
(1,559)
(12,563)
(12,563)
(5,757)
-
(1,463)
(19,783)
-
7,065
-
-
-
22,955
22,955
20,799
-
-
3,580
47,334
(1,340)
(2,187)
-
(3,527)
(3,527)
(2,200)
-
-
(5,727)
-
5,719
(363)
(655)
2,459
16,869
16,869
3,364
-
(802)
1,289
20,720
(897)
(444)
(60)
(1,401)
(1,401)
(548)
(828)
-
(2,777)
(990)
13,896
(363)
(655)
9,204
103,012
103,012
25,534
-
(802)
8,695
136,439
(8,464)
(8,642)
(1,619)
(18,725)
(18,725)
(9,128)
(828)
(1,463)
(30,144)
Net book value at 31 December 2009
Net book value at 31 December 2010
3,176
2,874
1,050
2,100
45,165
41,771
19,428
41,607
15,468
17,943
84,287
106,295
_______________________________________________________________________________________
83
Notes to the Consolidated Financial Statements
103
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
18.
TRADE AND OTHER PAYABLES
Current
Trade payables
Accrued payroll and benefits
Goods and services tax payable
Professional fees
Other sundry payables and accruals
2010
US$'000
2009
US$'000
169,697
47,157
17,675
4,420
21,089
260,038
86,391
40,226
19,530
3,992
19,979
170,118
The average credit period on purchases of certain goods is 51 days (2009: 37 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 Company has financial risk management
policies in place to ensure that all payables are paid within the credit timeframe.
19.
BORROWINGS
Unsecured - at amortised cost
Current
Term bank loans
Debt issuance costs
Non-current
Term bank loans
Revolver bank loans
Debt issuance costs
Secured - at amortised cost
Current - finance lease liabilities
Non-current - finance lease liabilities
Disclosed in the financial 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
2010
US$'000
2009
US$'000
-
-
65,000
183,000
(1,044)
979
534
248,469
979
247,490
248,469
979
247,289
194
7
248,469
1,000
(381)
65,000
67,000
(475)
2,514
961
135,619
3,133
132,486
135,619
3,133
458
132,028
-
135,619
_______________________________________________________________________________________
84
Notes to the Consolidated Financial Statements
104
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
19.
BORROWINGS (CONTINUED)
Term Bank Loans
At 31 December 2010 and 2009, outstanding bank term loans consist primarily of a $65,000,000 variable rate
loan with a scheduled maturity date of 10 April 2012. The interest rates on the loans are based on a base rate
plus applicable margin. The base rate is generally based upon USD LIBOR rates, while the margin is determined
based upon leverage according to a pricing grid. At 31 December 2010, the rates were based upon USD LIBOR
+ 0.65%, which totaled 0.9625%. At 31 December 2009, the rates were based upon USD LIBOR + 1.05%, which
totaled 1.36%.
During the year ended 31 December 2009, the Company repaid $585,000,000 of its bank term loans. The loans
had an original, scheduled maturity date of 10 April 2010. The bank term loans were repaid with proceeds from
the 2009 capital raising program.
The Company hedges its exposure to floating rates under the loans via interest rate swaps, exchanging variable
rate interest payments for fixed rate interest payments. The interest swap contracts were largely entered into in
2006 and reflect notional amounts and maturities assuming (a) a portion of the variable interest loans would be
hedged and (b) that bank term loans would be repaid largely according to original, scheduled maturity dates. As
of 31 December 2010, the notional amount of interest rate swap contracts was $200,000,000, which exceeded
outstanding bank term loans. At 31 December 2010 and 2009, interest rate swap contracts with notional value of
$16,250,000 are deemed effective and are accounted for as cash flow hedges. At 31 December 2010 and 2009,
$183,750,000 and $258,750,000, respectively, of the notional value of the interest rate swap contracts are
deemed ineffective as cash flow hedges due to the repayment of the $585,000,000 bank term loan in late 2009.
As of 31 December 2010, the $200,000,000 of interest rate swap contracts outstanding swapped variable rates
(as noted above) to fixed at a base rate 5.18%. As of 31 December 2009, $275,000,000 notional amount of
floating rate interest rates were swapped to fixed at a base rate of 5.18%.
Revolver Bank Loans
Bank facilities include two revolving loans. A $200,000,000 facility has $183,000,000 drawn as of 31 December
2010 with interest rates of 0.9625% and has a scheduled maturity date of 10 April 2012. $67,000,000 is drawn
as of 31 December 2009 with interest rates of 1.30%. Outstanding letters of credit of $2,205,000 and
$11,405,000 as of 31 December 2010 and 2009, respectively, reduce the amount available to draw under the
revolver.
In December 2010, the Company executed an $85,000,000 facility with a scheduled maturity date of 10 February
2012, which is undrawn as of 31 December 2010.
The interest rates on the revolver loans are based on a base rate plus applicable margin. The base rate is
generally based upon USD LIBOR rates, while the margin is determined based upon leverage according to a
pricing grid.
Loan Covenants - Term and Revolver Bank Loans
The Company’s borrowings contain covenants and restrictions requiring the Company to meet certain financial
ratios and reporting requirements, as well as minimum levels of subsidiaries that are guarantors of the
borrowings. These covenants include maintaining a debt to EBITDA ratio of not more than 3.75:1 for the facility
that comprises the $200,000,000 revolver and $65,000,000 term bank loan and 3.50:1 for the $85,000,000
revolver facility. An EBITDA to interest ratio of not less than 3.0:1 is required for both facilities. The agreement
for the $200,000,000 revolver and $65,000,000 term bank loan also requires that borrowers and guarantors
represent at least 75% of Company EBITDA and total tangible assets of the Company. The $85,000,000 term
bank loan facility requires that borrowers and guarantors represent at least 70% of Company EBITDA and has no
tangible asset covenant. See Note 28 for a list of subsidiary guarantors which guarantee one or more of the
facilities. Testing of covenant compliance takes place twice-yearly for the trailing 12 month periods to 30 June
and 31 December. Noncompliance with one or more of the covenants and restrictions could result in the full or
partial principal balance of the associated debt becoming immediately due and payable. The Company is in
compliance with the debt covenants as of 31 December 2010 and 2009 as well as 30 June 2010 and 2009.
_______________________________________________________________________________________
85
Notes to the Consolidated Financial Statements
105
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
19.
BORROWINGS (CONTINUED)
Finance Leases
The finance lease liabilities were assumed largely as part of acquiring certain businesses prior to 2008. The
leases are secured by the assets leased. The borrowings have interest rates ranging from 7.10% to 13.08%,
with repayment periods not exceeding 4 years.
20.
PROVISIONS
Current
Employee benefits
Restructuring and termination costs 1
Warranty 2
Non-current
Employee benefits
Pension and post-retirement benefits (Note 21)
2010
US$'000
2009
US$'000
13,323
4,462
613
18,398
4,993
50,344
55,337
73,735
11,103
2,256
614
13,973
1,942
42,948
44,890
58,863
The changes in the provisions for the year ended 31 December 2010 are as follows:
Balance at 1 January 2010
Additional provisions recognised
Reductions arising from payments/other sacrifices of
future economic benefits
Increase (reductions) resulting from remeasurement
or settlement without cost
Foreign exchange
Balance at 31 December 2010
Restructuring
and termination
costs 1
US$'000
Warranty 2
US$'000
2,256
3,140
(966)
76
(44)
4,462
614
585
(427)
(212)
53
613
(1) 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.
(2) 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 Company’s warranty program.
_______________________________________________________________________________________
86
Notes to the Consolidated Financial Statements
106
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
21.
PENSION AND POST-RETIREMENT BENEFITS
Pension and Post-retirement Medical Commitments
The Company operates defined contribution and defined benefit pension plans for the majority of its employees.
It also operates post-retirement medical arrangements in North America. The policy for accounting for pensions
and post-retirement benefits is included in Note 3(m).
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 Company 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 Company, in independently
administered funds, in accordance with statutory requirements or local practice throughout the world.
The post-retirement 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 Company.
Defined Contribution Plans
Pension costs represent actual contributions paid or payable by the Company to the various plans. At 31
December 2010, and 2009, there were no significant outstanding/prepaid contributions. Company contributions
to these plans were $15,049,000 and $12,025,000 for the years ended 31 December 2010 and 2009,
respectively.
The Company’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 Company 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 2010 by qualified independent actuaries. The estimated market value of the assets of the funded
pension plans was $194,620,000 and $178,854,000 at 31 December 2010, and 2009, 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 93% in both 2010 and 2009, of the benefits that had accrued to participants
after allowing for expected increases in future earnings and pensions. Entities within the Company are paying
contributions as required by statutory requirements and 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.
Company contributions to these plans were $7,115,000 and $5,310,000 in the years ended 31 December 2010
and 2009, respectively. Contributions in 2011 are expected to be $9,046,000.
During the year ended 31 December 2009 the pension plan in the United States of America was frozen with
respect to all beneficiaries. This resulted in a curtailment and resulted in a gain of $2,510,000, which was
recognised in profit and loss in 2009.
_______________________________________________________________________________________
87
Notes to the Consolidated Financial Statements
107
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
21.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The principal assumptions used to determine the actuarial present value of benefit obligations and pension costs
are detailed below (shown in weighted averages):
Discount rates
Expected average rate of increase
in salaries
Expected average rate of increase
of pensions in payment
Expected average long term rate of
return on plan assets
Expected average increase
in healthcare costs (initial)
Expected average increase
in healthcare costs (ultimate)
Southern
Africa 1
8.8%
2010
The
Americas
5.3%
Europe
5.3%
Southern
Africa
9.5%
2009
The
Americas
5.9%
Europe
5.5%
-
-
3.8%
4.0%
6.8%
4.0%
4.0%
-
1.5%
5.8%
-
1.5%
7.3%
7.4%
5.3%
7.5%
7.4%
6.4%
-
-
7.8%
5.0%
-
-
7.8%
7.5%
7.8%
5.0%
-
-
(1) The Southern Africa pension and post-retirement medical plans were settled with participants in 2009.
Amounts recognised in profit or loss in respect of these defined benefit plans are as follows:
2010
Post-
retirement
Pension
2009
Post-
retirement
Pension
Plan medical Plan
US$'000
1,443
10,859
759
(12,622)
US$'000
581
646
-
-
Total
US$'000
2,024
11,505
759
(12,622)
Plan medical Plan
US$'000
2,126
11,145
122
(11,396)
US$'000
509
636
-
-
Total
US$'000
2,635
11,781
122
(11,396)
-
-
-
(2,510)
-
(2,510)
439
1,227
1,666
(513)
1,145
632
Current service cost
Interest cost on plan liabilities
Past service cost
Expected return on plan assets
Effects of settlement and
curtailment gains
Total charge (credit) to profit
and loss account
For the financial years ended 31 December 2010 and 2009, charges of $1,180 and $412,000, respectively, have
been included primarily in cost of goods sold and the remainder in general and administrative or sales and
marketing expenses.
_______________________________________________________________________________________
88
Notes to the Consolidated Financial Statements
108
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
21.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The following amounts have been recognised in the statement of comprehensive income.
2010
Post-
retirement
Medical Plan
US$'000
Pension
Plan
US$'000
Total
US$'000
Pension
Plan
US$'000
2009
Post-
retirement
Medical Plan
US$'000
Total
US$'000
(7,787)
(2,353)
(10,140)
(2,786)
(667)
(3,453)
Actuarial losses during
the year, net of taxes
In 2001, legislation in South Africa was passed which restricts pension surpluses where they are not expected to
give rise to future contribution reductions or refunds because of local restrictions over their use. During 2007, the
South African Regulators approved the subsidiary's proposal in respect of the apportionment of the surplus from
the plans. The majority of the members elected to transfer to the Alexander Forbes Retirement Fund effective 28
February 2008, leaving only one member in the fund. The liability with respect to the transfer was settled on 19
December 2008. The net asset recorded has certain restrictions on how the surplus can be used.
The amount included in the balance sheet arising from the Company’s obligations in respect of defined benefit
plans is as follows:
2010
Post-
2009
Post-
Pension
retirement
Pension
retirement
Plan
Medical Plan
Total
Plan
Medical Plan
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
205,183
(194,620)
10,563
-
-
-
205,183
188,455
(194,620)
(178,854)
10,563
9,601
-
-
-
188,455
(178,854)
9,601
4,567
15,130
14,879
14,879
19,446
30,009
4,901
14,502
10,488
10,488
15,389
24,990
Present value of funded defined benefit
obligations
Fair value of plan assets
Present value of unfunded defined
benefit obligations
Deficit
Net liability arising from defined
benefit obligations
15,130
14,879
30,009
14,502
10,488
24,990
_______________________________________________________________________________________
89
Notes to the Consolidated Financial Statements
109
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
21.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
Movements in the present value of the defined benefit obligations were as follows:
2010
Post-
2009
Post-
Pension
retirement
Pension
retirement
Plan
Medical Plan
Total
Plan
Medical Plan
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
10,488
203,843
171,312
9,411
180,723
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from plan participants
Actuarial losses
Past service cost
Gains on curtailments
Liabilities extinguished on settlements
Exchange differences on foreign plans
Benefits paid
Closing defined benefit obligation
193,355
1,443
10,859
-
14,632
759
-
-
(574)
(10,724)
209,750
581
646
353
2,024
11,505
353
3,793
18,425
759
-
-
(547)
-
-
-
27
(1,009)
14,879
2,126
11,145
2
15,857
122
(2,510)
(1,185)
12,167
509
636
299
601
-
-
(266)
103
(805)
2,635
11,781
301
16,458
122
(2,510)
(1,451)
12,270
(16,486)
(11,733)
(15,681)
224,629
193,355
10,488
203,843
Changes in the fair value of plan assets were as follows:
2010
Post-
2009
Post-
Pension
retirement
Pension
retirement
Plan
Medical Plan
Total
Plan
Medical Plan
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
178,854
12,622
3,867
-
2,886
7,115
-
(10,724)
194,620
-
-
-
-
-
656
353
178,854
150,626
12,622
3,867
-
2,886
7,771
353
11,396
13,345
(1,185)
15,041
5,310
2
-
-
-
(266)
-
830
299
150,626
11,396
13,345
(1,451)
15,041
6,140
301
(1,009)
(11,733)
(15,681)
(863)
(16,544)
-
194,620
178,854
-
178,854
Opening fair value plan of assets
Expected return on plan assets
Actuarial gains
Assets distributed on settlements
Exchange differences on foreign plans
Contributions from the employer
Contributions from plan participants
Benefits paid
Closing fair value of plan assets
_______________________________________________________________________________________
90
Notes to the Consolidated Financial Statements
110
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
21.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The analysis of the plan assets and the expected rate of return at the balance sheet date are as follows:
2010
Southern Africa
The Americas
Europe
Rate of
Return
Fair
Value
Rate of
Return
Fair
Value
Rate of
Return
Fair
Value
Total
Fair Value
%
US$'000
%
US$'000
%
US$'000
US$'000
-
8.8%
-
7.8%
-
7.3%
-
11,470
-
11,096
-
22,566
9.3%
4.6%
-
3.7%
3.9%
7.4%
62,679
56,547
-
9,499
2,281
131,006
7.0%
3.3%
5.5%
2.0%
-
5.3%
26,599
12,198
2,028
223
-
41,048
89,278
80,215
2,028
20,818
2,281
194,620
2009
Southern Africa
The Americas
Europe
Rate of
Return
Fair
Value
Rate of
Return
Fair
Value
Rate of
Return
Fair
Value
Total
Fair Value
%
US$'000
%
US$'000
%
US$'000
US$'000
-
9.5%
-
7.5%
-
7.5%
-
9,876
-
10,700
-
20,576
9.3%
4.6%
-
3.7%
3.7%
7.4%
57,752
53,039
-
4,714
2,357
117,862
7.8%
3.8%
6.3%
2.0%
-
6.4%
24,654
12,933
2,425
404
-
40,416
82,406
75,848
2,425
15,818
2,357
178,854
At 31 December 2010
Equity
Bonds
Property
Cash
Other
Total market value
At 31 December 2009
Equity
Bonds
Property
Cash
Other
Total market value
The pension and post-retirement (surplus) deficit by geographic region are as follows:
31 December 2010
31 December 2009
Southern
The
Southern
The
Africa
Americas
Europe
Total
Africa
Americas Europe
Total
-
14,879
-
14,879
-
10,488
-
10,488
(20,335)
(20,335)
19,202
34,081
16,263
16,263
15,130
30,009
(17,958)
(17,958)
14,275
24,763
18,185
18,185
14,502
24,990
Postretirement medical
plan deficit
Pension plan
(surplus) deficit
Total (surplus) deficit
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 Company’s Post-retirement 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 post-retirement benefit obligation by approximately $773,000 and $905,000 at
31 December 2010 and 2009, respectively. The expense was reduced by approximately $66,000 and $29,000 at
31 December 2010 and 2009, respectively.
_______________________________________________________________________________________
91
Notes to the Consolidated Financial Statements
111
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
21.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
2010
Post-
retirement
Medical Plan
US$'000
Total
US$'000
Pension
Plan
US$'000
2009
Post-
retirement
Medical Plan
US$'000
Total
US$'000
-
194,620
178,854
-
178,854
Pension
Plan
US$'000
194,620
(209,750)
(15,130)
(14,879)
(14,879)
(224,629)
(30,009)
(193,355)
(14,502)
(10,488)
(10,488)
(203,843)
(24,990)
(643)
106
(537)
(570)
(166)
(736)
3,867
-
3,867
13,345
-
13,345
2008
Post-
2007
Post-
Pension
retirement
Pension
retirement
Plan
Medical Plan
Total
Plan
Medical Plan
Total
US$'000
150,626
US$'000
-
US$'000
150,626
US$'000
257,362
US$'000
-
US$'000
257,362
(171,312)
(20,686)
(9,411)
(180,723)
(246,669)
(9,411)
(30,097)
10,693
(11,481)
(11,481)
(258,150)
(788)
(635)
63
(572)
(36,668)
2,688
(33,980)
(49,714)
-
(49,714)
8,974
-
8,974
Fair value of plan assets
Present value of
defined benefit obligation
Deficit
Experience adjustments
on plan liabilities
Experience adjustments
on plan assets
Fair value of plan assets
Present value of
defined benefit obligation
Deficit
Experience adjustments
on plan liabilities
Experience adjustments
on plan assets
Assumed healthcare cost trend rates have a significant effect on the amounts recognised in profit or loss. A one
percentage point change in assumed healthcare cost trend rates would have the following effects:
One percentage point increase
Effect on the aggregate of the service cost and interest cost
Effect on accumulated post-employment benefit obligation
One percentage point decrease
Effect on the aggregate of the service cost and interest cost
Effect on accumulated post-employment benefit obligation
2010
US$'000
2009
US$'000
184
1,790
168
1,362
(156)
(1,521)
(142)
(1,160)
_______________________________________________________________________________________
92
Notes to the Consolidated Financial Statements
112
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
22.
ISSUED CAPITAL
2010
2009
Shares
'000 1
US$'000
Shares
'000 1
US$'000
456,360
1,132,051
458,594
1,136,347
458,594
1,136,347
-
-
-
-
-
-
-
-
26
(2,260)
1,472
(5,768)
149,762
310,873
-
-
-
-
478,036
697,702
(49,549)
1,707
12,437
-
(2,041)
(3,986)
456,360
1,132,051
458,594
1,136,347
(1) The number of shares is adjusted for the 13 May 2010 share consolidation (see Note 3).
During 2009, the Company executed a capital raising program which raised $697,702,000. Proceeds from the
capital raising were used to repay $585,000,000 of the Company’s Term Loan A facility, to repay approximately
$62,000,000 of amounts previously drawn on its existing revolver facility, and to pay $49,549,000 of costs directly
related to the capital raising.
23.
RESERVES
Foreign currency translation
Equity-settled employee benefits
Unrealised losses related
to hedging instruments
2010
US$'000
2009
US$'000
76,421
8,415
(259)
84,577
17,630
6,024
(616)
23,038
During the years ended 31 December 2010 and 2009 the changes in each of the respective reserve accounts
were as follows:
Foreign currency translation
Balance at beginning of year
Exchange differences arising on translation
of foreign operations
Balance at end of the year
2010
US$'000
2009
US$'000
17,630
(103,549)
58,791
76,421
121,179
17,630
_______________________________________________________________________________________
93
Notes to the Consolidated Financial Statements
113
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
23.
RESERVES (CONTINUED)
Exchange differences relating to the translation from the functional currencies of the Company’s foreign
controlled entities into United States dollars are brought to account by entries made directly to the foreign
currency translation reserve.
Equity-settled employee benefits
Balance at beginning of year
Share-based compensation expense
Vesting of LTIP rights, restricted shares
Balance at end of the year
2010
US$'000
2009
US$'000
6,024
3,863
(1,472)
8,415
2,592
3,432
-
6,024
The equity-settled employee benefits reserve arises on the grant of restricted shares, LTIP rights and share
options. Amounts are transferred out of the reserve and into issued capital when the share is issued.
Unrealised losses related to hedging instruments
Balance at beginning of year
Unrealised gain (loss) on cash flow hedges
Transfer to profit or loss on cash flow hedges
Interest rate swap expense
Related income tax
Balance at end of the year
2010
US$'000
2009
US$'000
(616)
(190)
741
-
(194)
(259)
(17,362)
(2,007)
12,976
15,242
(9,465)
(616)
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. During the 2009 financial year, the Company executed a capital
raising program which raised approximately $697,702,000. Proceeds from the capital raising were used to repay
loans that were being hedged thus making a portion of the hedge ineffective. As a result, the mark to market
balance of $15,242,000 associated with the ineffective portion of the hedge was transferred to profit or loss.
_______________________________________________________________________________________
94
Notes to the Consolidated Financial Statements
114
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
24.
ACCUMULATED LOSSES
During the years ended 31 December 2010 and 2009, the changes in accumulated losses consisted of:
Balance at beginning of year
Profit (loss) for the period attributable
to equity holders of the parent
Dividends paid
Actuarial losses on defined benefit
plans (net of tax)
Balance at end of the year
2010
US$'000
2009
US$'000
(84,166)
(65,830)
84,513
(9,684)
(10,140)
(19,477)
(14,883)
-
(3,453)
(84,166)
25.
DIVIDENDS
Dividends declared and paid during the year ended 31 December 2010 are as follows:
Fully paid ordinary shares
Dividend 35% franked
2010
US cents per
share
Total
US$'000
2.1
9,684
On 23 February 2011, the directors determined to pay a dividend of US 3.4 cents (total of approximately
$16,000,000) on each of the issued ordinary shares of the Company. The dividend is payable on 15 April 2011
to shareholders of record on 18 March 2011. The dividend will be 35% franked at the Australian corporate
taxation rate of 30%. The dividend was not included as a liability in the 31 December 2010 financial statements.
Franking credits available after payment of this dividend will be $12,822,000.
There were no dividends declared or paid for the year ended 31 December 2009.
Below is the combined amount of franking credits available for the next year:
Adjusted combined franking balance
2010
US$'000
2009
US$'000
15,149
7,995
_______________________________________________________________________________________
95
Notes to the Consolidated Financial Statements
115
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
26.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share
Diluted earnings (loss) per share
Basic earnings (loss) per share
The earnings (loss) and weighted average number of ordinary shares
used in the calculation of basic earnings per share are as follows:
2010
US cents
per share
18.5
18.4
2009
US cents
per share
(6.1)
(6.1)
2010
US$'000
2009
US$'000
Earnings (loss) used in the calculation of basic EPS
84,513
(14,883)
Weighted average number of ordinary shares for the purposes of
basic earnings per share
457,397
243,680
2010
'000
2009
'000
Diluted earnings per share
The earnings (loss) used in the calculation of diluted earnings per
share is as follows:
2010
US$'000
2009
US$'000
Earnings used in the calculation of diluted EPS
84,513
(14,883)
Weighted average number of ordinary shares used in the
calculation of basic EPS
Shares deemed to be issued for no consideration in respect of:
LTIP share rights
Weighted average number of ordinary shares used in the
calculation of diluted EPS
2010
'000
2009
'000
457,397
243,680
1,553
726
458,950
244,406
Instruments which have not been included in the calculation of diluted earnings per share because they
are not dilutive include non-executive restricted shares, certain LTIP share rights and share options.
_______________________________________________________________________________________
96
Notes to the Consolidated Financial Statements
116
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
27.
COMMITMENTS FOR EXPENDITURE
Commitments
The Company has a number of continuing operational and financial commitments in the normal course of
business.
Capital Commitments
Purchase commitments for capital expenditures
2010
US$'000
2009
US$'000
9,786
3,930
Operating leases
Non-cancellable future operating lease commitments as at 31 December 2010 and 2009 consist of the following:
Payments due within:
One year
Two to five years
After five years
31 December 2010
31 December 2009
Land and
Buildings
US$'000
Plant and
Equipment
US$'000
Land and
Buildings
US$'000
Plant and
Equipment
US$'000
10,153
29,280
10,159
49,592
19,313
40,134
146
59,593
8,876
19,922
9,462
38,260
20,402
43,618
2,655
66,675
Description of operating leases
The Company 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 Company’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 Company 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 Company has no significant operating leases that are considered onerous other than those included in the
restructuring provision in the amounts of $1,238,000 and $1,933,000 as of 31 December 2010 and 2009,
respectively.
_______________________________________________________________________________________
97
Notes to the Consolidated Financial Statements
117
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
28.
CONTINGENT LIABILITIES
Letters of credit
Standby letters of credit primarily issued in support of commitments or other obligations as of 31 December 2010
are as follows.
•
•
The Company’s subsidiary in Zambia has a letter of credit in the amount of $1,800,000 to support
products inventory, which expires December 2011.
The Company’s subsidiary in the U.S. has a letter of credit in the amount of $405,000 to secure a
Workers Compensation program which expires January 2012.
A summary of the maturity of issued letters of credit is as follows:
Less than one year
One to three years
2010
US$'000
1,800
405
2,205
2009
US$'000
11,405
-
11,405
_______________________________________________________________________________________
98
Notes to the Consolidated Financial Statements
118
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
28.
CONTINGENT LIABILITIES (CONTINUED)
Guarantees
The subsidiaries of the Company 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
Parent and certain subsidiaries are guarantors on the Company’s loans and borrowings.
A summary of the Company’s subsidiaries which are guarantors of the Company’s long-term debt is as follows:
Country
Canada
United States
Australia
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
Boart Longyear Nevada
Boart Longyear Limited
Boart Longyear Management Pty Limited
Boart Longyear Investments Pty Limited
Votraint No. 1609 Pty Limited
North West Drilling Pty Limited
Drillcorp Pty Limited
Grimwood Davies Pty Limited
Boart Longyear Australia Pty Limited
Boart Longyear Australia Holdings Pty Limited
A.C.N. 066 301 531 Pty Limited
Aqua Drilling & Grouting Pty Ltd.
New Zealand
Boart Longyear (NZ) Limited
Netherlands
Cooperatief Longyear Holdings
Longyear Calulo Holdings BV
Boart Longyear International BV
Boart Longyear BV
Germany
Boart Longyear GmbH & Co Kg
Switzerland
South Africa
Chile
Peru
Votraint Switzerland SARL
Longyear South Africa (Pty) Limited
Boart Longyear S.A.
Boart Longyear Chile Limitada
Boart Longyear SAC
_______________________________________________________________________________________
99
Notes to the Consolidated Financial Statements
119
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
28.
CONTINGENT LIABILITIES (CONTINUED)
Legal Contingencies
The Company is subject to certain routine legal proceedings that arise in the normal course of its business.
Management believes that the ultimate amount of liability, if any, for any pending claims of any type (either alone
or combined) will not materially affect the Company’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.
Other Contingencies
Other contingent liabilities as at 31 December 2010 and 2009 consist of the following:
Contingent Liabilities
Guarantees/counter-guarantees issued to outside parties
18,145
17,152
2010
US$'000
2009
US$'000
_______________________________________________________________________________________
100
Notes to the Consolidated Financial Statements
120
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
29.
COMPANY SUBSIDIARIES
The Company’s percentage ownership of the principal subsidiaries follows:
Subsidiaries
A.C.N. 066 301 531 Pty Ltd
Aqua Drilling & Grouting Pty Ltd.
BLI Zambia Ltd.
BLY Gabon S.A.
BLY Ghana Limited
BLY Mali S.A.
BLY Mexico Servicios S.A. de C.V.
BLY Senegal S.A.
BLY Sierra Leone Ltd.
Boart Longyear (Cambodia) Ltd.
Boart Longyear (D.R.C.) SPRL
Boart Longyear (Germany) GmbH 1
Boart Longyear (Holdings) Ltd.
Country of
Incorporation
Australia
Australia
Zambia
Gabon
Ghana
Mali
Mexico
Senegal
Sierra Leone
Cambodia
Business
Tools and Equipment
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Dem. Rep. of Congo Drilling Products & Services
Germany
Tools and Equipment
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 (Vic) No. 1 Pty Ltd (Australia)
Boart Longyear (Vic) No. 2 Pty Ltd (Australia)
Boart Longyear Alberta Limited
Boart Longyear Argentina S.A.
Boart Longyear Australia Holdings Pty Limited
Boart Longyear Australia Pty Ltd
Boart Longyear Bermuda Limited
Boart Longyear Burkina Faso Sarl
Boart Longyear BV
Boart Longyear Canada
Boart Longyear Chile Limitada 2
Boart Longyear Company
Boart Longyear Consolidated Holdings, Inc.
Boart Longyear de Mexico, S.A. de C.V. 3
Boart Longyear Drilling Products Company (Wuxi) Ltd.
Boart Longyear Drilling Services KZ LLP
Boart Longyear EMEA Cooperatief U.A.
Boart Longyear Eritrea Ltd.
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
New Zealand
Botswana
Australia
Australia
Canada
Argentina
Australia
Australia
Bermuda
Burkina Faso
Netherlands
Canada
Chile
USA
USA
Mexico
China
Kazakhstan
Netherlands
Eritrea
USA
Germany
Thailand
India
Netherlands
USA
Australia
Drilling Services
Drilling Products
Holding Company
Holding Company
Holding Company
Drilling Services
Holding Company
Drilling Services
Holding Company
Drilling Services
Drilling Products
Drilling Products & Services
Drilling Products & Services
Tools, Equipment and Drilling
Holding Company
Drilling Services
Drilling Products and Services
Drilling Services
Holding Company
Drilling Services
Holding Company
Drilling Products and Services
Drilling Services
Tools and Equipment
Holding Company
Holding Company
Holding Company
31 Dec
31 Dec
2010
2009
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
100
100
100
_______________________________________________________________________________________
101
Notes to the Consolidated Financial Statements
121
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
29.
COMPANY SUBSIDIARIES (CONTINUED)
Subsidiaries
Boart Longyear Liberia Corporation
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.
Boart Longyear Products KZ LLP
Boart Longyear RUS
Boart Longyear S.A.
Boart Longyear S.a.r.l.
Boart Longyear SAC
Boart Longyear Vermogensverwaltung GmbH
Boart Longyear Zambia Ltd.
Connors SA 4
Cooperatief Longyear Holdings UA
Drillcorp Pty Ltd
Dongray Industrial Limited 6
Geoserv Pesquisas Geologicas S.A.
Grimwood Davies Pty Ltd
Inavel S.A.
J&T Servicios, S.C.
Longyear Calulo Holdings BV
Longyear Canada, ULC
Longyear Global Holdings, Inc.
Business
2010
31 Dec
31 Dec
Country of
Incorporation
Liberia
Brazil
Ireland
Laos
Thailand
Drilling Services
Drilling Products
Drilling Products
Drilling Services
Drilling Services
Russia Federation
Drilling Services
Ghana
Australia
Netherlands
USA
Poland
Dormant
Holding Company
Holding Company
Drilling Services
Drilling Products and Services
Kazakhstan
Drillings Products
Russia Federation
Drilling Services
Chile
France
Peru
Germany
Zambia
Chile
Netherlands
Australia
Tools, Equipment and Drilling Services100
Holding Company
Drilling Products and Services
Dormant
Drilling Services
Drilling Services
Holding Company
Drilling Services
United Kingdom
In Liquidation
Brazil
Australia
Uruguay
Mexico
Netherlands
Canada
USA
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Tools and Equipment Services
Holding Company
2009
-
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
Longyear Holdings New Zealand, Ltd.
New Zealand
Holding Company
Longyear Holdings, Inc.
Longyear South Africa (Pty) Ltd
Longyear TM, Inc.
North West Drilling Pty Limited
P.T. Boart Longyear
Patagonia Drill Inversiones Mineras S.A. 5
Patagonia Drill Mining Services S.A.
Portezuelo S.A.
Professional Sonic Drillers (Pty) Limited
T/A Prosonic Africa
Prosonic Corporation
USA
Holding Company
South Africa
Drilling Products and Services
USA
Australia
Indonesia
Chile
Argentina
Paraguay
Holding Company
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Dormant
South Africa
Dormat
USA
Drilling Services
_______________________________________________________________________________________
102
Notes to the Consolidated Financial Statements
122
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
29.
COMPANY SUBSIDIARIES (CONTINUED)
Subsidiaries
Prosonic International, Inc.
Rentas de Exploracion I Limitada
Rentas de Exploracion II Limitada
Resources Services Holdco, Inc
Votraint No. 1609 Pty Ltd
Votraint Switzerland SARL
Country of
Incorporation
USA
Chile
Chile
USA
Australia
Switzerland
Business
Drilling Services
Holding Company
Holding Company
Holding Company
Drilling Services
Holding Company
31 Dec
31 Dec
2010
2009
100
100
100
100
100
100
100
100
100
100
100
100
(1) Boart Longyear Germany GmbH merged into Boart Longyear GmbH & Co. KG in 2010
(2) This entity changed its name from Rentas de Exploracion III Limitada
(3) This entity changed its name from Britton Hermanos Perforaciones de Mexico, S.A., C.V.
(4) Connors SA has been dissolved by operation of law as of Nov 30 2010. All of its rights and obligations are succeeded by
Boart Longyear Chile Limitada (formerly Rentas III)
(5) Dissolved on 11 February 2010
(6) Dissolved in 2008. Restored on 26 October 2010 in an "in liquidation" status to collect a debt.
30.
DISPOSAL OF OPERATIONS
On 30 June 2009, the Company announced the sale of its Sub Saharan manufacturing operations and the
exclusive right to sell certain of the Company’s percussive rock drills and hard rock tools in Sub Saharan Africa
for $7,803,000. The disposal is consistent with the Company’s on-going strategy to divest select non-core
assets. The assets that were sold were not considered a core business and earned lower returns than the core
business lines.
The net assets disposed of are as follows:
Book value of net assets sold
Assets
Liabilities
Foreign currency translation reserve
Net assets disposed
Working capital adjustment
Disposal costs
Loss on disposal
Total proceeds
Cash paid - closing costs and working capital adjustment
Net cash inflow from disposal of subsidiaries
US$'000
7,017
(444)
2,683
9,256
1,388
1,069
(3,910)
7,803
(2,457)
5,346
During the year ended 31 December 2009 the Company also paid $220,000 related to the settlement of the
disposal of its diamond wire business in South Africa, which was sold on 2 September 2008.
_______________________________________________________________________________________
103
Notes to the Consolidated Financial Statements
123
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
31.
NOTES TO THE CASH FLOW STATEMENT
(a)
Reconciliation of cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in
banks and investments in money market instruments, net of outstanding bank overdrafts.
Cash and cash equivalents
(b)
Businesses acquired
2010
US$'000
2009
US$'000
94,944
87,557
During the financial years ended 31 December 2010 and 2009 there were no acquisitions. In 2009, the
Company paid additional cash of $403,000 for the Eklund and Westrod acquisitions.
(c)
Businesses disposed
During the financial year ended 31 December 2009 the Company disposed of its Sub Saharan
manufacturing operation. Details of the disposition are as follows:
Book value of net assets sold
Inventories
Property, plant and equipment
Intangible assets
Prepaids and other assets
Trade and other payables
Foreign currency translation reserve
Net assets disposed
Working capital adjustment
Disposal costs
Gain (loss) on disposal
Total proceeds
Cash paid - closing costs and working capital adjustment
Net cash inflow on disposal
2009
US$'000
539
5,487
363
628
(444)
2,683
9,256
1,388
1,069
(3,910)
7,803
(2,457)
5,346
During the year ended 31 December 2009 the Company also paid $220,000 related to the settlement of
the disposal of its diamond wire business in South Africa, which was sold on 2 September 2008.
_______________________________________________________________________________________
104
Notes to the Consolidated Financial Statements
124
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
32.
SHARE-BASED PAYMENTS
The Company has established a Long-term Incentive Plan (“LTIP”) to assist in retaining key employees and
encouraging superior performance on a sustained basis. The incentive provided under the LTIP includes an
annual grant of rights that will vest based on the satisfaction of either time-base conditions or 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 performance share rights vest upon the achievement of performance targets set
by the Board. For awards granted prior to 2010, the performance targets were based on cumulative EPS over a
three-year performance period. Awards granted beginning in 2010 have performance targets based on three-
year average ROE targets. The Board will set threshold and maximum targets for both the EPS and ROE
performance awards during the respective three-year performance periods. Vesting will be determined by the
Company’s actual performance against targets for the relevant three-year period. Partial vesting occurs on a pro-
rata basis if the three-year threshold target is surpassed. Full vesting occurs only if the Company’s actual
performance meets or exceeds the maximum target for the three-year period. Participants must also remain
continuously employed with the Company during the performance period. The retention share rights vest upon
continuous employment with the Company 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.
At the Company’s annual general meeting on 11 May 2010, shareholders approved a 10 for 1 share
consolidation. Trading in the consolidated shares commenced 13 May 2010. The number of shares and rights
under the LTIP and restricted shares has been restated in this report using the consolidated share amounts.
During the years ended 31 December 2010 and 2009, there were several grants of share rights made under the
Long-Term Incentive Plan (“LTIP”). The total share-based expense associated with share rights for the years
ended 31 December 2010 and 2009 was $2,976,000 and $2,460,000, respectively.
The Company grants share options to certain senior management in order to attract, retain and properly
incentivise those individuals. During 2010, the Company granted 25,000 share options to an employee with an
exercise price of A$3.20 per share. During 2009, the Company granted 345,000 share options to employees.
The share-based expense associated with share options for the years ended 31 December 2010 and 2009 was
$778,000 and $661,000 respectively.
In addition, prior to the IPO, there were 64,324 restricted shares granted to Board members in consideration of
services performed. The share-based expense recorded relating to the restricted shares during the years ended
31 December 2010 and 2009 was $109,000 and $311,000, respectively.
_______________________________________________________________________________________
105
Notes to the Consolidated Financial Statements
125
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
32.
SHARE-BASED PAYMENTS (CONTINUED)
The following table shows the share-based payment arrangements that were in existence at 31 December 2010:
Series
(1) Issued 11 April 2008
(2) Issued 28 April 2008
(3) Issued 1 January 2009 1
(4) Issued 26 June 2008
(5) Issued 23 July 2008
(6) Issued 23 October 2008
(7) Issued 14 January 2009
(8) Issued 25 March 2009
(9) Issued 18 June 2009
(10) Issued 2 July 2009
(11) Issued 1 March 2010
(12) Issued 15 March 2010
(13) Issued 15 March 2010
(14) Issued 26 August 2010
Number
273,475
100,000
150,000
36,897
1,400
48,750
1,250
1,202,500
317,500
5,000
1,981,763
104,600
25,000
30,000
Effective
Grant Date
11-Apr-08
28-Apr-08
28-Apr-08
26-Jun-08
23-Jul-08
23-Oct-08
14-Jan-09
25-Mar-09
18-Jun-09
2-Jul-09
1-Mar-10
15-Mar-10
15-Mar-10
26-Aug-10
Vesting
Date
11-Apr-11
1-Jan-13
1-Jan-14
11-Apr-11
23-Jul-11
23-Oct-11
14-Jan-12
25-Mar-12
18-Jun-12
2-Jul-12
1-Mar-13
15-Mar-13
15-Mar-13
26-Aug-13
Fair Value at
Grant Date
US$
17.70
6.87
14.50
21.00
20.50
4.00
1.78
0.74
1.43
3.41
2.78
2.93
2.24
3.29
(1) The second grant of options Mr. Kipp received in conjunction with his appointment as CEO was issued
as of 1 January 2009. For purposes of compliance with Australian Accounting Standards, the effective
grant date was determined to be 28 April 2008.
The fair value of the rights was determined using the Black-Scholes option pricing model using the following
inputs:
Grant date
share price
US$
17.70
16.30
16.30
21.00
20.50
4.00
1.80
0.70
1.90
3.41
2.78
2.93
2.93
3.29
Expected
volatility
49.62%
49.86%
49.86%
50.34%
50.62%
56.68%
73.10%
86.74%
97.29%
98.23%
92.72%
92.14%
92.14%
88.91%
Life of
rights
36 months
56 months
68 months
34 months
36 months
36 months
36 months
36 months
60 months
36 months
36 months
36 months
60 months
36 months
Dividend
yield
0.00%
0.86%
0.86%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Risk-free
interest rate
5.43%
5.58%
5.58%
5.67%
5.81%
6.11%
4.84%
5.55%
5.59%
5.40%
5.22%
5.25%
5.25%
4.24%
Series 1
Series 2 *
Series 3 *
Series 4
Series 5
Series 6
Series 7
Series 8
Series 9 *
Series 10
Series 11
Series 12
Series 13
Series 14
* Subsequent to the original grant date, the Company’s Board of Directors modified the share option
exercise price to reflect the dilution impact resulting from the Company’s 2009 capital raising
program and the related issuance of additional shares subsequent to the original grant date, as
follows:
Series 2
Series 3
Series 9
Original
exercise
price
A$19.50
A$ 2.10
A$ 3.00
Modified
exercise
price
A$18.95
A$ 1.55
A$ 2.45
_______________________________________________________________________________________
106
Notes to the Consolidated Financial Statements
126
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
32.
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:
2010
2009
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$
2,451
2,309
(394)
(88)
4,278
-
1.10
0.03
0.00
0.00
0.60
-
829
1,818
(196)
-
2,451
-
2.50
0.50
(0.30)
0.00
1.10
-
Balance at beginning of financial year
Granted during the financial year
Forfeited during the financial year
Exercised during the financial year
Balance at end of the financial year
Exercisable at end of the financial year
The following rights were exercised during 2010:
Grant date
12-Apr-07
17-Sep-07
11-Apr-08
Date of
exercise
12-Apr-10
1-Jul-10
1-Jul-10
Number
of shares
'000
61
22
5
Fair Value at
date of
exercise
US$
3.60
2.88
2.88
33.
KEY MANAGEMENT PERSONNEL COMPENSATION
Details of key management personnel
The directors and other members of key management personnel of the Company during the year were:
• David McLemore – Chairman, non-executive director (appointed Chairman effective 23 August 2010)
• Graham Bradley - Chairman, non-executive director (resigned 23 August 2010)
• Bruce Brook - Non-executive director
• Roger Brown - Non-executive director
• Roy Franklin - Non-executive director
• David Grzelak - Non-executive director
• Peter St George - Non-executive director
• Craig Kipp - Chief Executive Officer and Executive Director
•
•
• Brad Baker - Senior Vice President, Human Resources
• Michael Birch - Vice President, Global Drilling Services (formerly Vice President, Global Products)
• Alan Sides – Vice President, Global Products (employment commenced 15 March 2010)
Joseph Ragan III - Chief Financial Officer
Fabrizio Rasetti - Senior Vice President, General Counsel and Company Secretary
_______________________________________________________________________________________
107
Notes to the Consolidated Financial Statements
127
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
33.
KEY MANAGEMENT PERSONNEL COMPENSATION (CONTINUED)
The aggregate compensation made to key management personnel of the Company is set out below.
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payment
34.
RELATED PARTY TRANSACTIONS
(a)
Transactions with key management personnel
(i)
Key management personnel compensation
2010
US$
5,665,932
121,184
666,019
-
2,082,199
8,535,334
2009
US$
5,752,835
128,681
360,545
324,487
1,549,832
8,116,380
Details of key management personnel compensation are disclosed in Note 33 to the financial
statements.
(ii)
Other transactions with key management personnel of the Company.
Details of other transactions with key management personnel are disclosed in Note 32 of the
financial statements.
(iii)
Key management personnel equity holdings
The number of shares held by directors and other members of key management personnel are disclosed below.
2010
David McLemore
Bruce Brook
Roger Brown
David Grzelak
Peter St. George
Craig Kipp
Fabrizio Rasetti
Michael Birch
2009
Graham Bradley
Bruce Brook
David McLemore
David Grzelak
Peter St. George
Craig Kipp
Scott Alexander
Fabrizio Rasetti
Michael Birch
Balance
1 January
Net change
during year
Balance
31 December
Balance
held nominally
115,861
104,422
-
1,000
107,449
521,463
106,612
66,460
-
-
30,000
-
-
-
-
-
115,861
104,422
30,000
1,000
107,449
521,463
106,612
66,460
-
-
-
-
-
-
-
Balance
1 January
Net change
during year
Balance
31 December
Balance
held nominally
261,026
50,405
115,861
1,000
51,919
521,463
58,892
106,612
66,460
243,378
54,017
-
-
55,530
-
-
-
-
504,404
104,422
115,861
1,000
107,449
521,463
58,892
106,612
66,460
-
-
-
-
-
-
-
-
-
_______________________________________________________________________________________
108
Notes to the Consolidated Financial Statements
128
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
34.
RELATED PARTY TRANSACTIONS (CONTINUED)
Rights, Options and Shares Granted as Compensation to Key Management Personnel
Share Rights and Shares
Details of the number of rights under the LTIP and restricted shares that have been granted as compensation to
the KMP, and the activity during the financial year are as follows:
Held at the
beginning of
the Financial
Year
Granted as
Remun-
eration
49,189
4,595
7,297
229,471
105,000
72,850
70,000
75,000
-
-
-
-
429,820
103,000
82,578
72,150
82,900
104,600
2010
Graham Bradley
Bruce Brook
Peter St George
Craig Kipp
Joseph Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
Held at the
end of the
Financial
Year
Vested and
Exercisable
as at
31 December
2010
Vested
Forfeited
during the during the
year
year 1
(49,189)
(4,595)
(7,297)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
659,291
208,000
155,428
142,150
157,900
104,600
-
-
-
-
-
-
-
-
-
(1) Restricted shares vested in 2010 were awarded on the Company’s initial public offering in April
2007 in respect of work performed prior to the Company’s listing.
Held at the
beginning of
the Financial
Year
Granted as
Remun-
eration
Vested
Forfeited
during the during the
year
year
49,189
4,595
7,297
49,471
30,000
17,850
8,500
15,000
20,000
-
-
-
180,000
75,000
55,000
55,000
55,000
55,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(63,500)
-
-
Held at the
end of the
Financial
Year
49,189
4,595
7,297
229,471
105,000
72,850
-
70,000
75,000
2009
Graham Bradley
Bruce Brook
Peter St George
Craig Kipp
Joseph Ragan III
Fabrizio Rasetti
Scott Alexander
Brad Baker
Michael Birch
Vested and
Exercisable
as at
31 December
2009
-
-
-
-
-
-
-
-
-
_______________________________________________________________________________________
109
Notes to the Consolidated Financial Statements
129
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
34.
RELATED PARTY TRANSACTIONS (CONTINUED)
Cash Rights
Details of the cash rights that have been granted as compensation to the KMP, and the activity during the
financial year are as follows:
Held at the
beginning of
the Financial
Year
US$
550,000
275,000
225,000
225,000
225,000
-
Held at the
beginning of
the Financial
Year
US$
-
-
-
-
-
-
Granted as
Remun-
eration
US$ 1
450,000
100,000
80,000
80,000
80,000
80,000
Granted as
Remun-
eration
US$ 1
550,000
275,000
225,000
225,000
225,000
225,000
2010
Craig Kipp
Joseph Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
2009
Craig Kipp
Joseph Ragan III
Fabrizio Rasetti
Scott Alexander
Brad Baker
Michael Birch
Vested
during the
year
US$
Forfeited
during the
year
US$
-
-
-
-
-
-
-
-
-
-
-
-
Held at the
end of the
Financial
Year
US$
1,000,000
375,000
305,000
305,000
305,000
80,000
Vested and
Exercisable
as at
31 December
2010
US$
-
-
-
-
-
-
Vested
during the
year
US$
Forfeited
during the
year
US$
Held at the
end of the
Financial
Year
US$
Vested and
Exercisable
as at
31 December
2009
US$
-
-
-
-
-
-
-
-
-
(225,000)
-
-
550,000
275,000
225,000
-
225,000
225,000
-
-
-
-
-
-
(1) The cash rights vest over a three-year period from the grant date, with 50% subject to certain
performance conditions.
_______________________________________________________________________________________
110
Notes to the Consolidated Financial Statements
130
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
34.
RELATED PARTY TRANSACTIONS (CONTINUED)
The rights under the LTIP and the restricted shares were provided at no cost to the recipient.
Options
2010
Craig Kipp
Joseph Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
2009
Craig Kipp
Joseph Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Held at the
beginning of
the Financial
Year
340,000
37,500
27,500
27,500
27,500
-
Held at the
beginning of
the Financial
Year
250,000
-
-
-
-
Granted as
Remun-
eration
Vested
during the
year
Forfeited
during the
year
Held at the
end of the
Financial
Year
Vested and
Exercisable
as at
31 December
2010
-
-
-
-
-
25,000
-
-
-
-
-
-
-
-
-
-
-
-
340,000
37,500
27,500
27,500
27,500
25,000
-
-
-
-
-
-
Granted as
Remun-
eration
Vested
during the
year
Forfeited
during the
year
90,000
37,500
27,500
27,500
27,500
-
-
-
-
-
-
-
-
-
-
Held at the
end of the
Financial
Year
340,000
37,500
27,500
27,500
27,500
Vested and
Exercisable
as at
31 December
2009
-
-
-
-
-
During the year ended 31 December 2010, the Board awarded Mr. Sides 25,000 stock options. The stock
options granted in 2010 will vest in full and become exercisable on 15 June 2015 if the executive remains
continuously employed with the Company until that date. At the date of grant, the options had an original
exercise price of A$3.20 per option and a fair market value of US$2.24 per option.
Except as described above, no options or other rights over shares in the Company have been granted to KMP
during or since the end of the financial year.
During the reporting period, no shares were issued on the exercise of options or rights previously granted as
compensation to the above individuals.
Analysis of Movements in Rights, Options and Shares
The movement during the reporting period, by value of the relevant rights, options and shares in the Company
held by KMP is detailed below:
Value granted in year
Value forfeited in year
Name
Craig Kipp
Joseph Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
Entitlement to Entitlement to
share rights
US$
cash rights
US$
450,000
100,000
80,000
80,000
80,000
80,000
1,192,878
285,855
229,178
200,237
230,072
306,323
Share
options
US$
Entitlement to Entitlement to
share rights
US$
cash rights
US$
Share
options
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
_______________________________________________________________________________________
111
Notes to the Consolidated Financial Statements
131
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
34.
RELATED PARTY TRANSACTIONS (CONTINUED)
The value (based upon the fair value at the time of issuance) of outstanding rights, options and shares in the
Company held by KMP as at 31 December 2010 is detailed below:
Name
Craig Kipp
Joseph Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
Share rights
value as of
period end
US$
Cash rights
value as of
period end
US$
Options
value as of
period end
US$
Total rights and
option value as of
period end
US$
2,201,409
461,235
585,735
506,349
654,218
306,323
1,000,000
375,000
305,000
305,000
305,000
80,000
2,990,983
53,615
39,317
39,317
39,317
53,813
6,192,392
889,850
930,052
850,666
998,535
440,136
35.
REMUNERATION OF AUDITORS
Audit or review of the financial report
Auditor of the parent entity
Related practice of the parent entity auditor
Other auditors
Non-audit services
Tax services
Review of tax returns
Capital raising
Due diligence and other non-audit services
2010
US$
2009
US$
1,217,000
1,020,000
196,000
2,433,000
1,139,000
1,254,000
-
2,393,000
2,493,000
681,000
-
11,000
3,185,000
826,000
415,000
420,000
13,000
1,674,000
The auditor of Boart Longyear Limited is Deloitte Touche Tohmatsu.
36.
SUBSEQUENT EVENTS
The directors have not become aware of any matter or circumstance that has arisen since 31 December 2010
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.
_______________________________________________________________________________________
112
Notes to the Consolidated Financial Statements
132
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
SUPPLEMENTARY INFORMATION
Additional stock exchange information as at 8 March 2011
Substantial shareholders
The names of substantial holders, and the number of equity securities held by those holders as disclosed in
substantial holding notices given to the Company since the 2009 Annual Report, are as follows:
Date of notice
11 March 2011
16 August 2010
Name of substantial holder
FMR LLC and FIL Limited
Concord Capital Limited
Number of securities
23,208,586 ordinary shares
23,225,549 ordinary shares
Number of holders of equity securities
(a)
Ordinary share capital
461,163,412 fully paid ordinary shares are held by 21,162 individual shareholders.
Each ordinary shareholder present at a general meeting (whether in person or by proxy or representative) is
entitled to one vote on a show of hands or, on a poll, one vote for each fully paid ordinary share held.
(b)
Share rights and share options
592,500 share options are held by 11 individual option holders. Options do not carry rights to vote.
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
options
9,006
8,111
2,458
1,497
90
21,162
-
-
-
10
1
11
There are 1,531 investors holding less than a marketable parcel and they hold 54,291 fully paid ordinary shares.
_______________________________________________________________________________________
113
Notes to the Consolidated Financial Statements
133
For the financial year ended 31 December 2010 BOART LONGYEAR LIMITED
SUPPLEMENTARY INFORMATION (CONTINUED)
Top 20 holders
Ordinary shareholders
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Cogent Nominees Pty Limited
J P Morgan Nominees Australia Limited Cash Income A/C
USB Nominees Pty Limited
Amp Life Limited
HSBC Custody Nominees (Australia) Limited-A/C 2
Queensland Investment Corporation
RBC Dexia Investor Services Australia Nominees Pty Limited
Cogent Nominees Pty Limited - SMP Accounts
Band and Company
HSBC Custody Nominees (Australia) Limited - GSCO ECA
RBC Dexia Investor Services Australia Nominees Pty Limited-PIPOOLED A/C
Bond Street Custodians Limited-Macquarie Alpha Opport A/C
Citicorp Nominees Pty Limited
Australian Reward Investment Alliance
Bond Street Custodians Limited-Macquarie Smaller Co's A/C
Bond Street Custodians Limited-Macq High Conv Fund A/C
Fully paid
ordinary
shares
Number
114,494,601
83,121,735
63,924,454
39,697,332
11,844,735
8,531,784
7,130,113
6,511,176
4,080,969
3,904,285
3,842,325
3,689,950
3,548,026
2,993,974
2,029,850
2,002,506
1,459,021
1,332,238
1,136,346
990,698
Percent of
Issued
Capital
Percent
24.4%
18.0%
13.9%
8.6%
2.6%
1.9%
1.6%
1.4%
0.9%
0.9%
0.8%
0.8%
0.8%
0.7%
0.4%
0.4%
0.3%
0.3%
0.3%
0.2%
366,266,118
79.2%
_______________________________________________________________________________________
114
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134
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135
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136
Boart Longyear Limited ACN. 123 052 728
CONTENTS
Boart Longyear Overview
Chairman’s Report
Chief Executive Officer’s Report
Business Review
Board of Directors
Executive Leadership Team
Financial Report
Directors’ Report
Independent Auditor’s Report
Directors’ Declaration
Financial Statements
Supplementary Information
Corporate Information
WHO WE ARE
FINANCIAL CALENDAR
Final results and dividend announcement
Annual General Meeting
Half Year End
Interim results
Year End
23 February 2011
13 May 2011
30 June 2011
August 2011
31 December 2011
ANNUAL GENERAL MEETING
The Annual General Meeting of Boart Longyear will be held at
Perth Convention and Exhibition Centre
21 Mounts Bay Road, Perth, WA
Commencing at 10.00am on 13 May 2011
2
6
8
10
18
20
21
22
57
59
60
132
IBC
Boart Longyear is the leading provider of mineral exploration services and drilling
products for the global mining industry. We are the only integrated drilling services
and products provider. We combine engineering excellence, global manufacturing
facilities and the most experienced drilling services group in the business.
Our customers rely on our unique ability to develop, field test, and deliver any
combination of drilling consumables, drill rigs, and drilling expertise to any corner
of the world. We have provided this service for over 120 years.
CEO’S REPORT
POSITIONED
FOR GROWTH
PAGE 8
REGIONAL OPERATIONS
GLOBAL FOCUS
PAGE 12
TECHNOLOGY AND INNOVATION
NEW IDEAS/
NEW PROCESSES
PAGE 4
THE YEAR IN REVIEW
PRODUCTS/
SERVICES
PAGE 10
BOARTLONGYEAR.COM/
ANNUAL-REPORT/2010
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.
CORPORATE INFORMATION
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
Shareholder Enquiries
Boart Longyear
Investor Relations
10808 South Riverfront Parkway #600
South Jordan, Utah 84095
Australia: +61 8 8375 8300
Others: +1 801 401 3712
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 12680 George Street
Sydney NSW 2000
Tel: +61 2 8280 7111
Annual Meeting
The Annual General Meeting of
Boart Longyear will be held at
Perth Convention and Exhibition Centre
21 Mounts Bay Road, Perth, WA
Commencing at 10.00am on 13 May 2011
Website
ww w.boartlongyear.com
www.precinct.com.au
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BOART LONGYEAR
ANNUAL REPORT 2010