Boart longyear limited
—
INNOVATION LEADER
record
performance
—
annual report 2011
Boart Longyear Limited ACN 123 052 728
cONTENTs
Technology and Innovation
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
21 February 2012
15 May 2012
30 June 2012
30 August 2012
31 December 2012
ANNuAL gENERAL mEETINg
The Annual General Meeting of Boart Longyear will be held at:
National Wine Centre
Corner of Botanic and Hackney Roads, Adelaide, SA
Commencing at 1.00pm on 15 May 2012
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IBC
Boart Longyear is the world’s largest mineral exploration drilling company.
With more than 120 years of expertise, we provide drilling services and drilling
products for the global mineral exploration industry. We also have a globally
recognised expertise in mine de-watering, environmental sampling, energy,
and oil sands exploration. Our customers rely on our unique ability to develop,
field test and deliver any combination of drilling consumables, capital equipment
and expertise direct to any corner of the world.
Edmund J. Longyear drilled the first
diamond core hole in the Mesabi Iron
Range in northern Minnesota during
the late 1880s. This was the beginning
of a long history of innovation and
expertise in contract drilling and product
development. The first diamond core
drill used was in the early 1900s. Today,
technology is still being developed to
increase productivity in order to fulfill the
drilling needs of our customers.
The momentum of this rich 120+ year
history has given us record high revenue
and profits in 2011.
bOARTLONgyEAR.cOm/ANNuAL-REpORT/2011
Annual Report 2011
1
2011 OVERVIEW
REVENuE
US$2,020m
2011
2010
2009
1,476
978
2,020
EbITDA
US$356m
2011
2010
2009 111
356
222
sEVERITy RATE *
1.90
2011
2010
2009
1.90
3.08
4.65
NET pROFIT AFTER TAx
cAsh FROm OpERATIONs
NumbER OF EmpLOyEEs
US$160m
2011
2010
-15 2009
85
US$198m
160
2011
198
2010
52
2009
117
10,572
2011
2010
2009
10,572
9,221
7,001
* Severity Rate = (# of Lost Time Days x 200,000)/# of man hours
TOTAL cOmpANy REVENuE spLIT
cOmpANy REVENuE by REgION
Surface Core Drilling 38%
22%
17%
Drilling Products
Rotary Drilling
Underground
Core Drilling
Percussive Products
Non-mining/
Other Drilling
Percussive Drilling
9%
6%
5%
2%
DRILLINg sERVIcEs REVENuE by cOmmODITy
DRILLINg sERVIcEs REVENuE by sTAgE
Gold
Copper
Iron
Nickel
Energy
Other Metals
Environmental
Other
41%
20%
8%
7%
7%
7%
6%
5%
Asia Pacific
United States
Europe, Middle East
and Africa
Canada
Latin America
26%
22%
21%
16%
14%
Production (In pit)
40%
Exploration
(Greenfield)
Development
(Brownfield)
Non-Mining
26%
25%
8%
Boart Longyear Limited
2
Employees who led the
global implementation of
the Oracle® ERP system
(left to right): Jeff Kuckenbaker,
Eric Povilus, Norm Robinson,
Kelly Toombs, Ron Hankins,
Matt Daw, Madhur Guliani,
Joe Harmer, Brett Davis,
Matt Zollinger.
TEchNOLOgy
ORAcLE®
During the year, we successfully
implemented a single global
Oracle® ERP system. Its 21
modules support all business
segments and functions in over
40 countries. This new ‘digital
backbone’ replaces numerous
aging and disconnected systems
and provides a foundation for
efficiency improvements and
future business growth. Its
real-time data has enhanced
visibility across our global
operations, allowing for faster
transactions and ensuring
better compliance and control.
Annual Report 2011
3
INNOVATION
INTELLEcTuAL pROpERTy
pATENT AppLIcATIONs
2011
2010
2009 51
210
173
We continue to invest
in research and
development. In 2011 we
launched 10 new products
and filed a record 210
patent applications.
We also were the proud
recipient during the
year of the Utah Genius
Award, which recognises
companies in the state
of Utah, United States,
for innovation. This award
is based on statistics
from the US Patent
and Trademark Office.
Boart Longyear, in
cooperation with Froude-
Hofmann, developed the
industry’s first drill rig
dynamometer. Shown
here, this innovative
testing system simulates
drilling conditions and
loading in a controlled
environment prior to rigs
being placed in the field.
Boart Longyear Limited
4
While Boart longyear delivered
very good financial performance,
it also delivered on several other
initiatives that have made it a much
stronger and Better positioned Business.
DAVID mcLEmORE
chAIRmAN
Annual Report 2011
5
DEAR shAREhOLDERs
2011 was a year of significant growth. Boart
Longyear made a record US$160 million net profit
after tax as compared to US$85 million in 2010.
Both revenue and EBITDA were up substantially
on the prior year. In 2011, our EBITDA was
US$356 million (US$222 million in 2010) on revenues
of US$2.02 billion (US$1.476 billion in 2010).
While Boart Longyear delivered very good
financial performance, it also delivered on several
other initiatives that made it a much safer, stronger
and better positioned business:
› The company finished restructuring its debt. All
previous IPO debt facilities have been retired and
replaced with new senior notes and a bank debt
facility. These facilities are at low interest rates
with staggered maturities and limited covenants.
Our leverage remains under 1x EBITDA, providing
headroom for any unforeseen market downturns.
› The company continued to make investments in the
business, laying a foundation for future growth. The
commitment to R&D and bringing new products to
market remained steady, with 10 new technologies
being launched in 2011.
› A new ERP system, Oracle®, was implemented
globally in 2011. This system has brought greater
visibility globally by connecting the countries where
we operate under one system. The company will
now be able to speed transactions and enhance
compliance and controls worldwide.
› The Board approved a new environmental
sustainability program that focuses on air quality
controls, energy and water conservation, and waste
and hazardous materials minimisation. This initiative,
in addition to our global annual ISO 14001
certification, drove several improvement projects
worldwide to reduce our environmental impacts.
› The company invested in new training programs and
new equipment and technologies that are inherently
safer to operate. Since 2007, Lost Time Days are
down 79%, Total Case Incidents Rates are down
29% Lost Time Incidents Rates are down 62% and
Severity Rates for lost-time incidents are down 83%.
The business is in great shape and the
company is well positioned to deliver growth in 2012
and beyond. I would like to thank my fellow Board
members for their support, 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 this record year.
Boart Longyear Limited
6
A REcORD yEAR
This past year was a record year for Boart Longyear!
We delivered 37% revenue growth and a solid 89%
NPAT growth. All this adds up to a new high in our
rich 120 year history. The Boart Longyear “brand”
is stronger than ever. Mr Edmund J Longyear would
be proud.
We have been very busy transforming the
company since the 2008 GFC (Global Financial
Crisis). While 2011 revenue and profitability may look
very similar to the previous results of 2008, this is a
much different company.
Boart Longyear did not waste the 2008-2009
crisis. Let me explain:
› Our capital structure has been made more recession
resilient. The debt agreements in place prior to
the IPO, have been completely replaced with long
term high yield bonds and a new bank facility
with extended maturities into 2021 and 2016,
respectively.
› The company’s leverage is well below 1x EBITDA,
reducing our exposure to any potential “tail risk”.
› We have finished implementing a world class
ERP system (Oracle®) everywhere: 21 modules,
40 countries, all businesses. It has replaced
12 old and disconnected internal IT systems.
A new foundation for the digital century.
› We have launched well over 35 new products
since 2007, for a current vitality index of 12%.
210 patents were applied for in 2011 alone.
› During 2011, 90 older rigs were replaced, and
112 safer, newer technology rigs were added.
A revenue enhancing process that will continue.
› The safety metrics: TCIR and LTIR were 2.33 and
0.13, respectively. Our Severity Rate improved from
3.08 in 2010 to 1.9 in 2011.
› Our emerging market geographic expansion has
been dramatic, now representing over 35% of our
revenue. We continue to follow our key customers
as they expand geographically.
› Re-investment back into the business has driven
ROE from 8% in 2010 to 14% in 2011.
In summary, we have continued to invest in
Boart Longyear’s people and technology. This has
resulted in a much improved ROE. We will continue
to invest for ongoing growth.
Finally, and perhaps most importantly, we have
brought the company into the global digital age,
with the recently launched “BLY App”. In the future,
any driller will be able to order a Boart Longyear
product while standing at his rig, with his cell phone,
anywhere in the world.
So, time was not lost. As promised, we have
emerged from the recession a better company and
have extended our competitive advantage and our
global footprint. The net result of all this hard work
is leverage to the shareholders.
Principally, that has meant leverage in our
financial performance: revenue, EBITDA, NPAT and
ROE. For example, our dividends have grown 167%
in the past 18 months and our ROE has grown by
77% from the previous year. We plan to keep this
momentum going and improve our performance
again in 2012. Expected revenue and NPAT for
2012 should exceed our previous highs of 2011.
Finally, whether we are drilling in Afghanistan
or selling product in Laos –“People Create All Value”.
As I mentioned last year, of the 20 top executives in
Boart Longyear during September 2008 (start of the
GFC), 17 are still here today. During difficult times,
these leaders committed their most important asset
to Boart Longyear: their careers.
This is the reason you reward good people in
hard times: they are necessary to lead you to better
opportunities. Leaders matter in these ongoing
volatile times. The world is not going to get simpler
or more predictable. Conversely, markets are getting
faster, more variable and more global. Our team is
tested and ready.
As always, I would like to thank our Board of
Directors, our Chairman, David McLemore, and
welcome our two newest Board members, Tanya
Fratto and Barbara Jeremiah, to Boart Longyear.
In closing, thanks to all our shareholders for
their ongoing support. The company is in great
shape – ready to grow and continue performing.
Annual Report 2011
7
We have Been very Busy transforming
the company since the 2008 gloBal
financial crisis. While 2011 revenue
and profitaBility may look very similar
to the previous results of 2008, this is
a much different company.
cRAIg KIpp
chIEF ExEcuTIVE OFFIcER
Boart Longyear Limited
8
REVENuE
US$1,448m
2011
2010
2009
EbITDA
US$296m
1,080
737
1,448
2011
2010
2009
191
142
296
DRILLINg sERVIcEs
The Drilling Services business includes the largest
surface coring, underground coring, reverse circulation,
rotary, and sonic rig fleets in the world. Our expertise
in these various drilling methods allows our teams to
tailor the drilling services we provide our customers,
resulting in customised drilling solutions that deliver
superior results.
We also continued to win contracts and new
business by executing our global priorities:
› “Industry Best” safety performance with a special
focus on compliance.
› A “One Boart Longyear” drilling experience globally.
› A modern “drill ready” fleet of equipment.
› Development and retention of the best drilling
As the global leader in minerals exploration drilling,
organisation in the industry.
our business is able to support mining customers in
their exploration, development and production of gold,
copper, nickel, zinc, uranium, and other metals and
minerals. The geological samples we extract through
our drilling operations, provide mining companies with
critical information over the life of a mining project,
from exploration to mine closure, wherever they operate.
In 2011, a number of key initiatives drove our record
financial results, including: a focus on more profitable
contracts, customers and geographies; a shift in “rig
mix” towards high margin, technical drilling technologies;
and a general increase in fleet vitality through investment
in new and more productive drill rigs.
Annual Report 2011
9
REVENuE
US$572m
2011
2010
2009
EbITDA
US$132m
395
241
572
2011
2010
2009
26
132
95
DRILLINg pRODucTs
The Products business designs, manufactures
and sells drilling equipment and support systems,
as well as drilling consumables such as bits, rods
and tooling. These products are used in a range
of industries including mineral exploration, mining,
energy, environmental sampling and remediation,
and infrastructure reinforcement and development.
We also offer our customers professional aftermarket
service and support. This includes drill equipment
commissioning, training, maintenance programs,
spare parts and emergency parts kits.
In 2011, record growth was attributed to a
number of initiatives: new products, market
expansion, capacity investments and service support.
We released 10 new products in 2011 and
continued to invest in our R&D pipeline to ensure
continued development and product vitality in
the years ahead. In 2011, we filed 210 patent
applications globally and were also recognised
for our innovation commitment as recipients of
the 2011 Utah Genius Award.
The business stayed focused on its primary
objective of creating innovative products which
provide safer and more productive drilling solutions
to the industry.
Boart Longyear products are sold in over
100 countries and in 2011 we executed plans to
expand into emerging countries such as Mali and
Colombia. We successfully focused on improving global
customer service performance through the addition
of regionally positioned diamond bit technicians,
customer service and supply chain representatives.
The business successfully made several manufacturing
capacity additions to adequately support the increase
in global demand.
Boart Longyear Limited
10
ENVIRONmENT
susTAINAbILITy
Throughout Boart Longyear, environmental, health,
and safety (EHS) are our top priority. We have a
responsibility to our communities, employees,
contractors, customers and shareholders to proactively
strengthen our safety culture. Our management
tracking system for EHS incidents sends daily emails,
promptly reporting on every incident in every country
in which we operate. We are continually enhancing
our EHS programs and implementing best practices
to ensure we can develop new processes and
practices that help reduce safety incidents.
When it comes to the environment,
our areas of focus include air quality controls,
energy and water conservation, and waste and
hazardous materials minimisation. Some examples
of environmental projects undertaken during
2011 include:
› Introducing high-efficiency paint guns and water-
based paints in three of our manufacturing sites.
This has reduced VOC (volatile organic compounds)
by three metric tonnes – equivalent to more than
200,000 vehicle kilometres.
› Installing high-efficiency lighting at two manufacturing
sites and upgrading a high-demand compressor. This
has provided almost 900,000 kWh in energy savings
– sufficient to power 78 homes for a year.
› Filtering and reusing process waste water has reduced
waste water disposal by 90 percent at one site
– equivalent to more than 2,700 car washes
at 380 litres per wash.
› Implementing waste minimisation measures to reduce
solid waste disposal at one site by 75 percent, or 265
tonnes annually – equivalent to the annual solid waste
production of 371 people.
Our commitment to the well-being of our employees,
our customers and the environment is reinforced by
having our ISO 14001 environmental and OSHAS 18001
certifications renewed annually at all global operations
and facilities.
Annual Report 2011
11
2011 Safet y reSUltS
TOTAL cAsE INcIDENT RATE *
2011
2010
2009
2.33
2.23
1.78
LOsT TImE INcIDENT RATE **
2011
2010
2009
0.13
0.12
0.08
LOsT TImE DAy s
2011
2010
2009
307
306
377
Boart Longyear’s
commitment to the
safety of our employees,
our customers and
the environment is
reinforced by having
our global ISO 14001
environmental and OSHAS
18001 certifications
renewed annually.
* Total Case Incident Rate =
(# Injuries x 200,000)/# of Man hours
** Lost Time Incident Rate =
(# of Lost Time Injuries x 200,000)
/# of Man hours
Boart Longyear Limited
12
pEOpLE
DIVERsITy
One of Boart Longyear’s core values – Mutual Trust
and Respect – states that our people are our
most important asset. We know that the best
ideas develop from collaborative efforts between
individuals with diverse backgrounds, opinions
and perspectives.
We have continued to expand training
programs for employees around the world to develop
their competencies and leadership skills. In 2011,
the Board adopted a Workforce Diversity Policy that
sets forth our commitment to creating a diverse and
motivated workforce and is representative of the
many communities in which we operate.
Several significant diversity achievements were
recognised during 2011, including: the appointment
of two female Non-Executive Directors (improving
female board representation from 0% to 29%); the
thiS year the Board adopted a Workforce
diverSity policy Which SetS forth oUr
commitment to creating a diverSe and
motivated Workforce and iS repreSentative
of the many commUnitieS in Which We operate.
development of a system to measure and report
global gender representation; improvement of female
representation within senior managers from 5%
to 10%; and sponsorship of an internal Women’s
Network at our US headquarters.
A few of the female
leaders (left to right):
Calisa Olinquevitch, Jasmina
Finell, Janet Cooley, Stacie
Rollins, Alice Barschti, Ginny
Sorensen, Melanie Marier,
Laura Holupka, Suzanne
Silvestri, Monika Portman,
AnnMarie Geddes.
Annual Report 2011
13
Boart Longyear Asia Pacific
is proud to be a corporate
sponsor of The Royal
Flying Doctor Service.
cOmmuNITy
VOLuNTEERINg
During the year, we took a more comprehensive
approach towards giving back to the communities in
which we operate by aligning company support with
employees’ charitable interests. Globally, we support
organisations that provide education and opportunities
for children and programs that focus on health and
preventive care.
Recent examples of Boart Longyear’s
community activities include:
› Boart Longyear Zambia funds the Rainbow
Elizabetta Project in the impoverished and AIDS-
stricken Kantolomba district of Zambia. The company
purchases medication for terminally ill patients and
formula for babies with terminally ill mothers. Daily
meals are provided for patients and several hundred
orphaned children who have lost parents to AIDS.
We also provide books and pens for counselling and
education. In 2008 and 2011, we drilled new water
wells and installed a new water pump to provide
clean water and showers.
› Boart Longyear sponsors the FIRST Lego League
promoting science and engineering. 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
children aged nine 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 Asia Pacific is proud to be a corporate
sponsor of The Royal Flying Doctor Service. This
Australian not-for-profit service provides aero-medical
emergency and primary health care services along with
communication and education assistance to people who
live, work and travel in regional and remote Australia.
› Boart Longyear held an employee food drive to help
restock shelves at the Utah Food Bank. The employee
food drive raised more than 1,800 pounds of food
and thousands of dollars in donations by both
employees and the company. In total, Boart
Longyear helped the Utah Food Bank provide almost
30,000 meals for needy families in the state of Utah,
United States. The Utah Food Bank provides food to
a state-wide network of 154 emergency food pantries
and agencies.
› Boart Longyear Latin America sponsored the
International Association of Chile's “Noche de
Ayudarte” – the night of helping you – in Santiago.
This event included a silent auction and sale of art
by local artists for a variety of children’s charities.
Boart Longyear Limited
14
Board of directorS
Mr Kipp received both his BS
and MS in Mechanical
Engineering from the University
of North Dakota and his MBA
from the University of Chicago.
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.
Mr Brook currently is Chairman
of the Board of Programmed
Group and a director of CSL
Limited, the Export Finance
and Insurance Corporation, the
Deep Exploration Technologies
Co-operative Research Centre
and Newmont Mining Corporation
(New York Stock Exchange).
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 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.
ROgER bROWN
non eXec. director
Mr Brown was appointed
a Director of the Company
on 1 July 2010, and is the
Chairman of the Remuneration
& Nomination Committee and
a member the Environment,
Health & Safety Committee.
He currently holds board positions
with McDermott International Inc.
(New York Stock Exchange), and
Ultra Petroleum Corporation (New
York Stock Exchange). In addition,
he has held board positions for
I.E. Miller Services, Sandvik/Smith
Ltd and the Petroleum Equipment
Suppliers Association.
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
and a leading worldwide supplier
of products and services to the oil
and gas industrial markets.
Mr Brown received his BS in
Economics, History and Political
Science along with his JD from
the University of Oklahoma.
ROy FRANKLIN
non eXec. director
Mr Franklin was appointed a
Director of the Company on
15 October 2010 and is the
Chairman of the Environment,
Health & Safety Committee
and member of the Audit,
Compliance & Risk Committee.
He is currently Chairman of
the Board for Keller Group
PLC (London Stock Exchange)
and a Director of Santos Ltd.
(ASX), Statoil ASA (Oslo Stock
Exchange), and Cuadrilla
Resources. 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 Officer 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 BS in Geology from the
University of Southampton.
TANyA FRATTO
non eXec. director
Ms Fratto was appointed a Director
on 1 June 2011 and is a member of
the Environment, Health & Safety
Committee and the Remuneration
& Nominations Committee.
She most recently served as
President and Chief Executive
Officer of Diamond Innovations,
the world’s leading supplier of
manufactured diamond, cubic boron
nitride (CBN), and polycrystalline
products, from 2004 and April 2011.
Ms Fratto also was an officer of the
General Electric Company and held
a number of leadership positions
over more than 20 years there,
including in general management,
operations, sourcing, product
management and marketing.
Ms Fratto received her BS in
Electrical Engineering from the
University of South Alabama.
DAVID mcLEmORE
non eXec. chairman
Mr McLemore was appointed a
Director on 21 February 2007 and
became Chairman of the Board
on 23 August 2010. He also is a
member of the Remuneration and
Nominations 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
ten years and was involved with
Advent International’s acquisition
of the Boart Longyear Group from
Anglo American plc in 2005.
Mr McLemore served at various
times as Chairman, Deputy
Chairman and Vice Chairman of
the Boart Longyear Group from
2005 until 2007. Mr McLemore also
served as a General Manager of
a General Electric Power Systems
division from 1985 to 1997.
Mr McLemore received his BS
from Oklahoma State University.
cRAIg KIpp
eXecUtive director,
chief eXecUtive officer
Mr Kipp was appointed President
and CEO of Boart Longyear in
2008, after serving three years
as the company’s COO and after
the successful 2007 IPO. Prior
to joining the company, he was
employed by General Electric from
1983 to 2005, serving in various
capacities in GE’s Energy Division,
including: President and COO of
the Global Nuclear Fuel business,
General Manager of Hungary
operations in Budapest and
finally General Manager of China
operations in Shanghai.
Annual Report 2011
15
Mr St George’s professional
experience includes serving
as Chief Executive/Co-Chief
Executive of Salomon Smith
Barney Australia/NatWest Markets
Australia from 1995 to 2001 and
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 an MBA
from the University of Cape Town.
bARbAR A JEREmIAh
non eXec. director
Mrs Jeremiah was appointed
a Director of the Company on
1 October 2011 and is a member
of the Audit, Compliance and
Risk Committee and Environment,
Health and Safety Committee.
Ms Jeremiah is a non-executive
Director of EQT, Inc. (New York
Stock Exchange), Allegheny
Technologies, Inc. (New York
Stock Exchange) and First Niagara
Financial Group (NASDAQ). She
also serves on the board of two
non-profit organisations in the
United States.
Ms Jeremiah’s professional
career includes several senior
executive roles for Alcoa, Inc.
She retired as Alcoa’s Executive
Vice President for Corporate
Development in 2009 and in that
role was responsible for leading
Alcoa’s worldwide acquisition and
divestiture activity as well as its
strategic analysis of its business.
Prior to her corporate
development responsibilities,
she held several senior positions
in Alcoa’s legal department,
including Corporate Secretary
and Assistant General Counsel.
Mrs Jeremiah received a BA
in Political Science from Brown
University and a JD from the
University of Virginia School
of Law.
pETER sT. gEORgE
non eXec. director
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 currently is a
Director of Dexus Group and
First Quantum Minerals Limited
(Toronto Stock Exchange). He also
has served as a Director of SFE
Corporation Limited and Spark
Infrastructure Group.
Boart Longyear Limited
16
eXecUtive leaderShip team
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.
IRA KANE
Mr Kane joined Boart Longyear
in 2006 through the acquisition
of the Prosonic Corporation, the
USA’s largest provider of sonic
drilling services, where he served
as its acting President and COO.
Prior to this, he served for nine
years as President and 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 practicing 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.
cRAIg KIpp
See page 14.
bRAD bAKER
Mr Baker was appointed as
Senior Vice President, Human
Resources in 2008. Prior to joining
Boart Longyear he worked for
Milacron Inc. for 17 years in a
variety of 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.
mIKE bIRch
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.
JOE RAgAN
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 U.S. Operations for
Winstar Communications Inc., an
international telecommunications
company. Earlier in his career,
Joe 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.
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 JD from
Georgetown University.
ALAN sIDEs
Mr Sides was appointed Vice
President, Global Products in 2010.
Prior to joining Boart Longyear
he spent over 25 years with the
General Electric Company in the
energy business. He was employed
in various leadership capacities
in both services and capital
equipment globally. Most recently,
he was the global commercial
leader for the Aero Energy business
in Houston, Texas. Prior positions
included leading the commercial
function in Asia Pacific for GE’s
power generation business and
leading the wind energy P&L in
Asia from Beijing. Mr Sides has
been responsible for leading
sales, commercial and services
activities for GE while located in
Singapore, Beijing, Tokyo, London
and the USA. In addition, he has
extensive acquisition integration
experience having overseen over
20 integrations.
Alan received his BS in Mechanical
Engineering from the Georgia
Institute of Technology and earned
an MBA from Emory University.
Annual Report 2011
17
Financial report
Directors’ Report
Independent Auditor’s Report
Auditor’s Independence Declaration
Directors’ Declaration
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes In Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
18
56
58
59
60
61
62
63
65
Boart Longyear Limited
18
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
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 2011 (“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 (the “Directors”) in office during the financial year and as of the date of this report are set
out below.
• Bruce Brook
• Roger Brown
•
Tanya Fratto
• Roy Franklin
• Barbara Jeremiah
• Craig Kipp
• David McLemore
• Peter St. George
Others who held office as Directors during the financial year were:
• David Grzelak (appointed effective 13 November 2008; resigned effective 1 June 2011)
A summary of the Directors’ work experience and qualifications is on pages 14-15.
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/she 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
Held
Attended
Remuneration &
Nominations
Committee
Held
Attended
Audit, Compliance
& Risk Committee
Held
Attended
Environment,
Health &
Safety Committee
Held
Attended
Bruce Brook
Roger Brown
Tanya Fratto 1
Roy Franklin 4
David Grzelak 2
Barbara Jeremiah 3
Craig Kipp
David McLemore
Peter St. George
6
6
3
6
3
1
6
6
6
6
6
3
6
2
1
6
6
6
4
2
4
4
4
1
4
4
4
3
3
4
4
2
2
4
4
4
2
3
2
4
4
1
3
2
(1) Ms Fratto was appointed to the Board effective 1 June 2011 and the EHS and ACRC Committees effective 1
July 2011.
(2) Mr Grzelak resigned from the Board effective 1 June 2011.
(3) Ms Jeremiah was appointed to the Board effective 1 October 2011 and the EHS and ACRC Committees
effective 30 January 2012.
(4) Mr Franklin was appointed to the ACRC and EHS Committees effective 1 March 2011.
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.
______________________________________________________________________________________
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19
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
COMPANY SECRETARIES
Fabrizio Rasetti was appointed Company Secretary on 26 February 2007. A summary of his work experience and
qualifications is on page 16.
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 eight years with
the Lynch Meyer law firm in Adelaide, South Australia. Mr Blewett received his LLB from the University of Adelaide in
1983.
PRINCIPAL ACTIVITIES
The Company is the 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 Drilling Services and Products
divisions.
The 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,
percussive, rotary and sonic drilling.
The 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 has improved over the previous year.
Total revenue for the year ended 31 December 2011 was $2,020 million, an increase of 37%, compared to $1,476 million
in the prior year. Of the $544 million increase in revenue during 2011, $367 million was attributable to an increase in
revenue in the Drilling Services division and $177 million was due to the Products division. Revenue was higher in each
of the five geographic regions in which the Company operates. The Company experienced significant growth in the
African and South American emerging markets.
By all measures, 2011 was a record year for the Drilling Services division, which increased revenue to $1,448 million, an
increase of 34% from the prior year. The Drilling Services division leveraged this strong top-line growth into a $95 million,
or 80%, increase in operating profit. A number of key initiatives drove these strong financial results, including: a focus on
more profitable contracts, customers and geographies; a shift in “rig mix” towards high margin, technical drilling
technologies; and a general increase in fleet vitality through investment in new and more productive drill rigs. The
division also continued to execute on its global priorities of building on its reputation for industry-leading safety
performance, legal compliance and global consistency of operations; maintaining a modern, “drill ready” fleet; and
recruiting, developing and retaining the best drilling organisation in the industry.
In 2011, the Products division significantly increased revenue to $572 million, an increase of 45% from the prior year, as
a result of market growth as well as share gains in most product categories. The increase was driven by higher sales
volume related to higher activity in the mining industry. The division released 10 significant new products in 2011, filed
210 patent applications and continued to increase investment in research and development to maintain a pipeline of new
products for future years. The Products division also expanded geographically in 2011 by establishing operations in Mali
and Colombia. In addition, the division focused on improving global customer service performance through the addition
of regionally positioned diamond bit technicians and customer service and supply chain representatives and successfully
made several manufacturing capacity additions to support the demand increases achieved during the year.
Net profit after tax for the year ended 31 December 2011 was $160 million, compared to net profit after tax of $85 million
in the prior year. The 2010 net profit after tax includes restructuring expenses of $5 million ($3 million net of tax benefit).
2011 net profit after tax increased primarily due to leverage on increased volume, better productivity and continued price
and margin recovery, partially offset by higher general and administrative expense and interest expense.
______________________________________________________________________________________
4
Boart Longyear Limited
20
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
Tax expense for the year ended 31 December 2011 was $67 million, or 30% of profit before tax, compared to tax
expense of $39 million, or 31% of profit before tax for the prior year. The tax expense takes into account the tax
weighting of the corporate structure.
Earnings per share in 2011 were 35.1 cents on a basic basis and 34.8 cents on a diluted basis, compared to earnings
per share of 18.5 cents on a basic basis and 18.4 cents on a diluted basis for the prior year.
DIVIDENDS
A dividend of US 3.4 cents per share (total of $15,679,556) was paid on 15 April 2011. The dividend, which was for the
second half of 2010, was 35% franked at the Australian corporate taxation rate of 30%. 100% of unfranked portion of the
dividend was conduit foreign income.
An interim dividend of US 4.8 cents per share (total of $22,135,844) was paid on 7 October 2011. The dividend, which
was for the half-year ended 30 June 2011, was 35% franked at the Australian corporate taxation rate of 30%. 69% of the
unfranked portion of the dividend was conduit foreign income.
On 21 February 2012, the Directors determined to pay a dividend of US 5.6 cents per share (for a total of approximately
$26,000,000) for the second half of 2011. The dividend is expected to be paid on 13 April 2012 to shareholders of
record as at 16 March 2012. The dividend will be 15% franked at the Australian corporate taxation rate of 30%. None of
the unfranked portion of the dividend will be conduit foreign income. The dividend is not included as a liability in the 31
December 2011 financial statements.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Enterprise Resource Planning system implementation
The Company has successfully implemented a new Oracle Enterprise Resource Planning system. The implementation,
which occurred in three phases over two years, was completed in January 2012 and covered operations in 40 countries
across all of the Company’s regions and businesses. It will be an integral element of the Company’s management,
reporting and control systems and includes a full suite of modules offered by Oracle.
2011 Senior Notes Offering and Bank Debt Refinancing
In March 2011, the Company completed an offering of $300 million of 7% Senior Notes in a private offering to qualified
institutional buyers in the United States pursuant to Rule 144a under the United States Securities Act of 1933
(“Securities Act”) and to certain buyers outside of the United States under Regulation S of the Securities Act. The Senior
Notes, which are unsecured and guaranteed by Boart Longyear Limited and certain of its subsidiaries, will mature on 1
April 2021. They are subject to covenants that restrict the Company’s ability to engage in certain activities, including
incurring additional indebtedness, and may require the Company to repurchase some or all of the notes upon the
occurrence of a defined “change of control event” followed by a downgrade of the Company’s credit ratings. The
Company’s ability to redeem the notes prior to maturity also is subject to certain conditions.
In July 2011, the Company refinanced its two existing bank debt facilities, which had an aggregate principal amount of
$285 million and were due to mature in February and April 2012. The Company’s new bank debt facility, which has a
maturity date of 29 July 2016, is for a principal amount of $250 million and contains an option to increase the principal
amount by an additional $150 million. Interest rates on the new facility are subject to a leverage grid and are described
in greater detail in Note 17 to the financial statements.
The combination of the March 2011 Senior Notes offering and refinancing of bank debt in July 2011 represented the
completion of the Company’s capital restructuring plan by retiring the last of the Company’s bank debt facilities from the
time of its initial public offering in 2007 and providing the Company with additional liquidity with staggered, long-term
maturities and attractive terms.
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.
______________________________________________________________________________________
5
Annual Report 2011
21
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
FUTURE DEVELOPMENTS
The Company intends to continue to invest significantly in 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, return on equity 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 be speculative or prejudicial to the Company.
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 its Board and committee charters, diversity policy and
Code of Conduct, 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 and Director selection process
At the date of this report, the Company has one executive Director and seven 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 Board recruited two new non-executive
Directors, Tanya Fratto and Barbara Jeremiah, in 2011. They were identified and selected with the assistance of a large,
global executive search firm based on desired skills and experience criteria provided by the Company’s Board and senior
management after the completion of the annual Board performance assessment in the first half of 2011.
______________________________________________________________________________________
6
Boart Longyear Limited
22
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
Board independence
The Company recognises that a majority of the Directors should be independent, and the Board reviews Director
independence at least annually. 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, material shareholder or officer of, or otherwise has a significant association with, a material
supplier or customer of the Company;
has a material contractual relationship with the Company other than as a Director; or
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 revenue 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 of the Board and
the chairmen of the three Board committees, meet the 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.
The Board has considered each Director's previous and current relationships with the Company's customers, suppliers,
consultants, professional advisors and substantial shareholders. The Board notes that two non-executive Directors,
Bruce Brook and Roy Franklin, each hold positions in companies with which the Company currently has commercial
relationships. Mr Brook became a non-executive director of Newmont Mining Corporation in October 2011, and Mr
Franklin currently is the non-executive Chairman of Keller Group plc. Both Newmont and Keller Group, through its
Hayward Baker geotechnical construction engineering business, are customers of the Company's Drilling Services
business.
The Board has considered each case separately and has concluded that these relationships are not material and do not
interfere with the relevant Director's exercise of independent judgment. Nor do these relationships affect their ability to
act in the best interests of the Company’s shareholders. The relationships are arm’s length customer-supplier
relationships based on normal commercial terms. Neither Mr Brook nor Mr Franklin participates directly or indirectly in
those relationships or the terms on which the companies conduct business, and they were not involved in any
procurement or other Board decision-making regarding the companies with which they have an association. The Board
also notes the importance of having Directors with experience in the Company's markets serving on the Board.
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, the Secretaries, 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 endeavours to schedule at least one meeting annually
at one of the Company’s significant operating locations to meet with the location’s management and better familiarise the
Board with those operations and the Company’s risks and opportunities.
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.
______________________________________________________________________________________
7
Annual Report 2011
23
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
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
all 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 currently comprised of four non-executive Directors, all of whom are independent Directors and at
least one of whom has relevant accounting qualifications or experience. The Committee consisted of the following non-
executive Directors during the financial year:
• Bruce Brook – Chairman
• Roy Franklin (appointed 1 March 2011)
• David Grzelak (resigned effective 1 June 2011)
• Peter St. George
Barbara Jeremiah was appointed to the Committee effective 30 January 2012.
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 consisted of the following non-executive Directors during the financial year:
• David McLemore – Chairman
• Roger Brown
•
• Peter St. George
Tanya Fratto (effective 1 July 2011)
Roger Brown will become Chairman of the Committee effective 1 March 2012, and Mr McLemore will continue to serve
on the Committee after that date.
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, including Australia’s work health and safety legislation, and has authority to
investigate any matter within the scope of the Committee’s charter.
Among its responsibilities, the Committee:
• assists the Directors to maintain an up-to-date knowledge of work health and safety matters;
• ensures that the Company has effective resources, 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.
______________________________________________________________________________________
8
Boart Longyear Limited
24
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
The Committee consisted of the following non-executive Directors during the financial year:
• Roy Franklin – Chairman (appointed Chairman effective 1 June 2011)
• Bruce Brook
• Roger Brown
•
Tanya Fratto (effective 1 July 2011)
Barbara Jeremiah was appointed to the Committee effective 30 January 2012.
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 of the Board or committee, as applicable, and discussed with each
Director individually.
The most recent Board performance evaluation was conducted in the first half of 2011 with the assistance of an external
advisor, who prepared a questionnaire for the Directors and certain members of senior management, interviewed certain
of the respondents, and compiled and reported the results in a report to the Chairman and the Directors. The Chairman
then reviewed the results and recommendations with the Directors.
In addition, the Board committee chairmen currently are conducting a performance assessment of their committees and
members. The committee assessments commenced in December 2011 and are expected to be completed in the first
quarter of 2012.
Director induction process
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 judgement, 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.
The Company’s induction process also includes meetings with the senior management, including the leaders of the
Company’s business units and administrative functions.
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
incentive plan that 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
______________________________________________________________________________________
9
Annual Report 2011
25
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
annually of their target bonuses, which in 2011 ranged from 50% to an additional 100% of base pay for the senior
executives. Exceptional individual and corporate performance can increase actual bonuses paid under the Corporate
Bonus Plan to up to 150% of a participant’s target bonus amount. The Company’s executive performance assessment
process for 2011 and goal-setting process for 2012 commenced in January 2012 and will be completed in March 2012.
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 health safety and operational risks generally and the Audit,
Compliance & Risk Committee with respect to financial and compliance 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 or outside counsel 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. The scenario planning process is an ongoing process and continued throughout
2011 with periodic reports to the Board.
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 2011:
(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 beliefs after having made appropriate enquiries, with regard to risk
management and internal control systems of the Company for the year ended 31 December 2011:
(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 2011 that would indicate any
material change to the statements made in 2(i) and 2(ii) above.
______________________________________________________________________________________
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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 or external legal counsel and reported to the Board.
Workforce diversity
In 2011, the Board adopted the Company’s Workforce Diversity Policy, which is available on the Company’s website at
www.boartlongyear.com.
This policy sets forth the Company’s commitment to creating a diverse and motivated workforce that shares the
Company’s and its investors’ values and is representative of the many communities in which the Company operates. It
promotes a work environment where people are free to achieve their best without encountering prejudice regarding their
gender, ethnicity, age, disability, sexual orientation, religion or cultural differences.
The Remuneration & Nominations Committee of the Board of Directors has responsibility for oversight of the policy and
any amendments. The Committee will review the Workforce Diversity Policy at least annually and oversee its
implementation. The Committee has established measurable objectives for achieving desired diversity and will annually
assess their relevance and the progress made in achieving them.
Several significant diversity achievements were recognised during 2011, including:
•
•
•
•
the appointment of two female Directors during 2011, improving female board representation from 0% to 29%;
the development of a system to measure and report global gender representation so year-to-year progress can
be monitored;
female representation within senior managers improved from 5% in 2010 to 10% in 2011; and
the Company’s sponsorship of an internal Women’s Network at its US headquarters (with the intention to
expand the network in the future).
The levels of the Company’s workforce gender diversity as of 31 December 2011 are set out below:
Gender diversity
Total Employees
Total Employees (excluding Drillers and Driller Helpers)
Senior Managers
Board of Directors
Male
92%
82%
90%
71%
Female
8%
18%
10%
29%
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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 and Safety Committee, monitors environmental performance against relevant legislation and
Company objectives and monitors remedial action, when required.
In 2011, the Board approved a corporate environmental sustainability initiative that outlines specific waste and emission
reduction programs to be developed and implemented by the Company’s operations over three years. Implementation of
the sustainability initiative began during the year throughout the Company’s operations and already has yielded positive
results, including:
•
•
•
•
reducing solid waste disposal at the Company’s Salt Lake City bit manufacturing plant by 75%, or 265 tonnes
annually;
upgrading a gas-fired annealing furnace at the Mississauga, Canada, plant with a high-efficiency electric
induction heating coil system, producing an annual reduction in natural gas usage of 3.1 million m
annual reduction of greenhouse gas emissions of approximately 7,000 tonnes of CO2;
filtering and reusing process waste water at the Wuxi, China, facility and reducing waste water disposal by 90%;
and
installing high-efficiency lighting in its North Bay and Mississauga plants in Canada and generating almost
400,000 kWh in annual energy savings.
and an
3
The Directors are not aware of any business unit operating in breach of environmental regulations during the financial
year, or as at, the date of this report, under any applicable law of the Commonwealth or of a State or Territory. The
Company’s Environmental, Health and Safety Policy can be reviewed on the Company’s website at
www.boartlongyear.com.
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
potentially price-sensitive 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.
Donations
Boart Longyear contributes to the communities in which it works with donations, sponsorship and practical support. The
Company does not make political donations. The Company adopted a Charitable Giving Policy in 2011 that more
formally establishes the framework and requirements for all charitable giving by, and on behalf of, all Company
operations and units. The policy aims to align Company charitable giving with the charitable interests of employees and
regional operations by soliciting proposals directly from them and targeting projects and causes in which they participate
actively. The Company especially targets projects that have clear objectives and outcomes promoting the following:
•
•
education and opportunities for children – programs and opportunities that assist young people to develop
marketable skills and competencies, particularly in the areas of engineering, science and technology; and
health and preventive care – programs that improve the health and safety of employees, their families and their
communities by improving access to critical resources and addressing endemic illnesses, including providing
access to clean water sources and supporting the development of malaria vaccinations and treatments.
The Company’s charitable giving is coordinated by the Company’s regional leadership teams and overseen by its
Executive Committee.
______________________________________________________________________________________
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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
Tanya Fratto
Roy Franklin
Barbara Jeremiah
Craig Kipp
David McLemore
Peter St. George
Fully paid
ordinary shares
104,423
30,000
30,000
564,998
115,861
107,450
Rights and
options 1
1,405,400
Total
104,423
30,000
30,000
1,970,398
115,861
107,450
(1) Certain of the share rights 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 31 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 2011 BOART LONGYEAR LIMITED
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 and balance:
-
-
-
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 2011, as in previous years, 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 votes on the 2009 and 2010 remuneration reports. As a result of the changes to the
Company’s remuneration practices and policies in 2010, combined with the revised structure and improved transparency
of the remuneration report, shareholders approved the 2010 remuneration report with 94% in favour.
This 2011 remuneration report maintains the improvements the Company made to the 2010 report and incorporates
additional information based on feedback received from shareholders and proxy advisors. Some of the specific changes
the Board of Directors addressed in 2011 include:
•
adoption of non-executive Director shareholding guidelines;
• modification to the fee schedule for non-executive Directors;
• modification of the Long Term Incentive Plan (“LTIP”) such that, for Share Rights granted beginning 2012, all
dividends paid on unvested Share Rights will be held in trust and payable upon the participant satisfying
applicable vesting conditions.
______________________________________________________________________________________
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Report Structure
The Remuneration Report (the “Report”) is presented in six sections, as follows.
1
2
3
4
5
6
Section
2011
remuneration
overview
Remuneration
framework and
strategy
Description of content
• Outlines the Company’s remuneration practices and the key influences on the
Company’s remuneration arrangements during the year ended 31 December 2011.
•
•
•
•
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 2011.
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
Non-executive
Director
arrangements
• 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 2011 and 2010.
Provides details of the Rights granted to executives during the year ended 31 December
2011 under the long-term incentive plan.
Summarises the key terms of executive service contracts (including termination
entitlements).
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
2011 and 2010.
______________________________________________________________________________________
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
1. 2011 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 comprehensive review of the Company’s remuneration strategy and procedures that was
undertaken 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 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 2011 BOART LONGYEAR LIMITED
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;
redesigning 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 2011 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.
The philosophy and structure above were reviewed, discussed and determined to remain unchanged by the Board in
2011.
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 2011 and are listed in Table 1.3 below:
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
Table 1.3: Directors and senior executives who were KMP during the year ended 31 December 2011
Non-executive Directors
Position
David McLemore
Bruce Brook
Roger Brown
Tanya Fratto
Roy Franklin
Barbara Jeremiah
David Grzelak
Peter St. George
Chairman, Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director (appointed effective 1 June 2011)
Non-executive Director
Non-executive Director (appointed effective 1 October 2011)
Non-executive Director (resigned from the Board effective 1 June 2011)
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
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.
1.4. REMUNERATION OUTCOMES
Actual remuneration
Details of CEO and other senior executive remuneration for the year ended 31 December 2011, 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 are KMP. It illustrates how the Company’s remuneration strategy for senior executives translates into
practice. 2011 was the first year of LTIP grants vesting for the CEO and other senior executives, as Rights granted in
2008 and subject to performance conditions from 2008 through 2010 reached their vesting date.
Table 1.4: Actual remuneration received by senior executives during the year ended 31 December 2011
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
Base salary
US$
STI (cash)1
US$
LTI (cash
and equity)2
US$
Other3
US$
1,000,000
435,385
393,942
311,365
449,692
335,385
865,000
276,360
180,334
134,663
177,336
111,360
291,898
102,534
92,652
78,862
95,800
11,457
36,768
36,768
35,551
36,962
30,511
39,639
Total
US$
2,193,666
851,047
702,479
561,852
753,339
497,841
(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 and cash rights vested during the year (based on the market value of
shares at the vesting date) and dividends received on share rights. Share rights and cash rights granted under
the Company’s LTI Plan and options granted under the Company’s Option Plans during the year ended 31
December 2011 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
reimbursement, if applicable.
______________________________________________________________________________________
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
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.
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 at 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 2011.
Table 2.1: Remuneration consultant arrangements
Remuneration consultant
Mercer Consulting
Blake Dawson
Nature of services provided
The Committee utilised the information provided by Mercer in 2009
and 2010 as the benchmark for 2011 compensation decisions and
will evaluate the need for a revised analysis by an independent
remuneration consultant in 2012.
In addition, in 2011 the Committee retained Mercer Consulting to
provide remuneration analysis and benchmark data for the non-
executive Director remuneration.
Provided regular independent advice and counsel on various legal
and governance standards related to executive remuneration.
______________________________________________________________________________________
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
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.
• 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.
• This component of compensation is
• This component of compensation is
“at-risk” and earned only if
challenging performance metrics
are achieved.
• 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 interests.
• Individual strategic goals can
include financial and/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.
“at-risk” and earned only if
challenging performance metrics
are achieved and/or continued
service requirements are met over
a three-year performance period.
• The Board has determined to use
three-year average return on equity
(“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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31 DECEMBER 2011 BOART LONGYEAR LIMITED
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 (or foreign equivalent such as the United States’ 401(k)) 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
"At-risk" remuneration
STI2
LTI3
CEO
KMPs (Excl. CEO)1
26%
42% - 46%
25%
21% - 27%
49%
31% - 34%
(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?
Approximately 190 senior employees participated in the CBP in 2011.
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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 for 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 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 growth - 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 2011 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 2011, 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%
Revenue
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 2011 and will be reviewed annually, they have been
established with the intent of remaining consistent through the business cycle and are
unchanged from 2010. The Remuneration Committee also reviews and approves the non-
financial targets for senior executives (including the CEO).
The Board maintains total discretion to reduce or eliminate a bonus entirely for any reason.
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 under the CBP during the year ended 31 December 2011 are set out in Table 4.1.3 in
section 4.1 of this Report. The bonuses will be paid in March 2012 after Board approval.
In what form is the
STI delivered?
What STI awards
did senior
executives earn in
2011?
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
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 130 participants during the year
ended 31 December 2011.
What proportion of
total remuneration
does the LTIP
program
represent?
How is reward
delivered under the
LTIP?
Do participants pay
for the Share
Rights?
What rights are
attached to the
Share Rights?
Senior executives are offered grants that represent approximately 31% - 34% (49% for the CEO)
of their total remuneration (on an annualised basis). However, participating senior executives
derive no actual value from their LTI grants under the LTIP unless the performance hurdles
and/or service conditions are satisfied.
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. Although the Board may elect to grant
Cash Rights for any reason, they have typically been used to supplement Share Rights when the
stock price was low at the time of the award. The combination of both Share and Cash Rights
utilised a more appropriate quantum of Share Rights to deliver the desired grant date award
values.
Rights are granted on terms and conditions determined by the Board, including vesting
conditions linked to service and performance over a specified period (usually three 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 in trust, and for Share Rights granted
beginning 2012, all dividends paid on unvested Share Rights will be held in trust and payable
when the participant satisfies the vesting conditions. For Share Rights granted prior to 2012,
even though the Share Rights have not yet vested, the participant will receive dividends
attributable to the shares that underlie their Share Rights from the time those underlying shares
are acquired by the trustee.
Senior executives are not entitled to trade or hedge their unvested Rights.
______________________________________________________________________________________
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
What are the
vesting
conditions?
For Rights granted during the years ended 31 December 2011 and 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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31 DECEMBER 2011 BOART LONGYEAR LIMITED
How is the Return
on Equity (“ROE”)
hurdle measured?
Vesting of the Performance Share Rights or Performance Cash Rights that were granted during
the year ended 31 December 2011 and 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 three-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
Earnings per Share
(“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% and 100%.
The Performance Share Rights or Performance Cash Rights granted in 2009 which have
completed the performance period will vest in accordance with the following table:
Cumulative EPS
performance
2011 cumulative
EPS metric
% of award earned
Maximum Award
Threshold Award
Less than Threshold
48.6 cents
27.1 cents
100%
50%
0%
The number of Performance Share Rights or Performance Cash Rights granted in 2009 that are
earned pursuant to the EPS performance metric above will vest in 2012 following the completion
of the continuous service requirement.
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
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.
In 2010, the Board chose, based on independent consultation with Mercer, 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 pro-rated 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 2011?
Rights granted during the year ended 31 December 2011 are set out in Table 5.2 of this Report.
The Rights were granted on 15 March 2011.
Option Plans
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).
No options were granted to senior executives during 2011.
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 employed on 18 June 2009 and will vest in full and become
exercisable on 18 June 2012 if the relevant 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 to a new senior
executive at an exercise price of A$3.20, and those options will vest in full and become exercisable on 15 March 2013
and will expire on 15 March 2015.
In 2008, the Board approved the establishment of the 2008 Option Plan upon Mr Kipp’s appointment to the position of
CEO in order to award Mr Kipp a total of 2,500,000 (later adjusted to 250,000 in light of the 10:1 consolidation of the
Company’s shares in 2010) shares under two separate grants, both of which are still yet to vest and become exercisable.
No other senior executive received a grant under the 2008 Option Plan.
Details of options that have been granted to senior executives under both option plans can be found in Table 4.1.7.
______________________________________________________________________________________
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
4. PERFORMANCE AND RISK ALIGNMENT
4.1. PERFORMANCE ALIGNMENT
While senior executive remuneration is structured to attract and retain talented employees, the amount of remuneration
received by an individual is dependent on the achievement of superior performance and generating value for
shareholders.
Table 4.1.1 below summarises the Company’s performance over the past five years in respect of the financial and non-
financial indicators identified by the Board to assess the Company’s performance and future prospects.
Table 4.1.1: Year-on-year performance
Share performance
Earnings performance
Closing
share
price
A$
2.78
4.56
3.52
1.99
23.33
Financial
year
2011
2010
2009
2008
2007
Dividend
p/share
US$
0.08
0.02
-
0.38
0.15
EPS % 1
13%
4%
(2%)
52%
2%
Revenue
US$
millions
EBITDA
US$
millions
NPAT
US$
millions
2,020
1,476
978
1,838
1,576
356
222
111
356
297
160
85
(15)
157
81
ROE 2
14%
8%
(2%)
18%
N/A
Operating
margin 3
13%
9%
2%
15%
15%
(1) Calculated as basic EPS divided by closing share price. EPS is adjusted for 10:1 share consolidation
completed in May 2010.
(2) 2008 ROE is calculated on a pro-forma basis allowing for the $700,000,000 equity raising completed in
November 2009.
(3) Excludes other income and other expenses.
The Board determined to perform a detailed review of the Company’s incentive plans for senior executives in 2010. This
review took into account the experience of the relationship between executive compensation and outcomes for
shareholders over the four years since becoming a public listed company. As a result (and detailed earlier in this Report),
the Board modified the incentive plans for senior executives with the aim to further strengthen the relationship between
shareholder value and executive compensation. In particular, the Board believes incentivising and rewarding
management for sustaining higher levels of operating margin (via cash bonuses under the CBP) and ROE (via
performance-based LTIP rights) will more consistently yield desirable shareholder returns over time. The Board will
continue to monitor this relationship and make further modifications as it deems appropriate.
Short-term performance indicators and outcomes
As discussed above, the CBP rewards senior executives and other participants for their achievement of specific key
performance indicators for the Company as well as for the achievement of performance goals specific to the business
unit or function for which they are responsible during a financial year.
Table 4.1.2: Average proportion of STI awarded, 2007-2011
% of target STI awarded 1
2007
76%
2008
84%
2009
99%
2010
88%
2011
97%
(1) Weighted average for senior executives.
______________________________________________________________________________________
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
Table 4.1.3: STI earned during the year ended 31 December 2011
STI earned
US$
Target
STI 1
US$
STI earned
as % of
target STI
% of target
STI forfeited
STI as % of
maximum
STI 2
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
950,000
305,844
209,200
157,500
215,898
161,330
1,000,000
308,000
200,000
157,500
227,500
170,000
95%
99%
105%
100%
95%
95%
5%
1%
0%
0%
5%
5%
48%
50%
52%
50%
47%
47%
% of
maximum
STI
forfeited 2
52%
50%
48%
50%
53%
53%
(1) The target potential value of the 2011 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 2011 was nil.
(2) The maximum potential award assuming superior performance against all CBP metrics is 200% of target STI.
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.
2011 was the final year that performance was measured against the cumulative EPS targets for performance-based
LTIP awards granted in 2009. Table 4.1.4 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,
100% 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 March 2012. The vesting dates for all outstanding awards are shown in Table 4.1.5 below.
Table 4.1.4: Cumulative performance for 2009 grants of performance-based LTIP awards
Maximum EPS
Threshold EPS
Actual EPS 1
% of Maximum Award Vesting
Cumulative 3-year
performance
48.60 cents (US)
27.10 cents (US)
53.52 cents (US)
100%
(1) Earnings adjusted to exclude impact of restructuring, recapitalisation and related charges, as well as
gains/losses related to the sale of businesses.
The vested Share Rights listed in Table 4.1.5 below include the Retention Share Rights and Performance Share Rights
that were granted in 2008 and vested in 2011. The Performance Share Rights were subject to the performance period
ended 31 December 2010 and achieved 76% of the target award amount (as detailed in last year’s remuneration
report). These earned Performance Rights remained unvested until the continuous service requirement was met in
2011.
______________________________________________________________________________________
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
Table 4.1.5: Movement in Share Rights during the year ended 31 December 2011
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
15-Mar-11
23-Oct-08
25-Mar-09
1-Mar-10
15-Mar-11
11-Apr-08
25-Mar-09
1-Mar-10
15-Mar-11
26-Jun-08
11-Apr-08
25-Mar-09
1-Mar-10
15-Mar-11
11-Apr-08
25-Mar-09
1-Mar-10
15-Mar-11
15-Mar-10
15-Mar-11
Vesting
date
11-Apr-11
25-Mar-12
1-Mar-13
15-Mar-14
23-Oct-11
25-Mar-12
1-Mar-13
15-Mar-14
11-Apr-11
25-Mar-12
1-Mar-13
15-Mar-14
11-Apr-11
11-Apr-11
25-Mar-12
1-Mar-13
15-Mar-14
11-Apr-11
25-Mar-12
1-Mar-13
15-Mar-14
15-Mar-13
15-Mar-14
LTIP
shares
(Total)
Number of
Share
Rights
vested
Value of
Share
Rights
vested
US$
Number of
Share
Rights
forfeited
Value of
Share
Rights
forfeited
US$
49,471
180,000
429,820
455,580
30,000
75,000
103,000
80,000
15,000
55,000
72,150
60,000
8,950
11,050
55,000
82,900
80,000
17,850
55,000
82,578
70,000
104,600
60,000
43,535
-
-
-
26,400
-
-
-
13,200
-
-
-
7,876
9,724
-
-
-
15,708
-
-
-
-
-
217,265
-
-
-
81,660
-
-
-
65,876
-
-
-
34,363
48,528
-
-
-
78,392
-
-
-
-
-
5,936
-
-
-
3,600
-
-
-
1,800
-
-
-
1,074
1,326
-
-
-
2,142
-
-
-
-
-
29,624
-
-
-
11,135
-
-
-
8,983
-
-
-
4,686
6,618
-
-
-
10,690
-
-
-
-
-
Table 4.1.6: Movement in Cash Rights during the year ended 31 December 2011
Note: No Cash Rights either vested, were forfeited or lapsed for senior executives during the year ended 31 December
2011.
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
Value of
Cash
Rights
forfeited
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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31 DECEMBER 2011 BOART LONGYEAR LIMITED
Table 4.1.7: Movement in options during the year ended 31 December 2011
Note: No options either vested, were forfeited or lapsed for Senior Executives during the year ended 31 December 2011.
Effective
grant
date
28-Apr-08
28-Apr-08 1
18-Jun-09
18-Jun-09
18-Jun-09
18-Jun-09
18-Jun-09
15-Mar-10
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
Options
(total)
100,000
150,000
90,000
37,500
27,500
27,500
27,500
25,000
Number
of
options
vested
-
-
-
-
-
-
-
-
Value of
options
vested
US$
-
-
-
-
-
-
-
-
Option
price
A$
18.95
1.55
2.45
2.45
2.45
2.45
2.45
3.20
Name
Craig Kipp
Joe Ragan III
Brad Baker
Michael Birch
Fabrizio Rasetti
Alan Sides
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$1.55 for options granted to the CEO on 28 April 2008 and 1 January 2009 respectively. As the
adjustments were made purely to address the impact of the share consolidation, the adjustments did not affect the fair
value of the adjusted Share Rights and options.
4.2. RISK ALIGNMENT
Employee and Director trading in Company securities
Under the Company’s Securities Trading Policy, Directors and employees (including senior executives) are prohibited
from entering into transactions that limit the economic risk of holding unvested Rights or options that have been received
as part of their remuneration. The Company treats compliance with this policy as a serious issue and takes appropriate
measures to ensure the policy is adhered to, including imposing appropriate sanctions where an employee is found to
have breached the policy.
Further restrictions also apply to Directors and senior executives with respect to their dealing in the Company’s shares
and other securities under the Securities Trading Policy and further details of the policy are set out in the Corporate
Governance Statement on page 21 of this Annual Financial Report.
______________________________________________________________________________________
31
Annual Report 2011
47
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(
Annual Report 2011
49
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
5.2. RIGHTS AND OPTIONS GRANTED
Table 5.2: Rights granted during the year ended 31 December 2011
Share Rights
Number of
Rights
granted1
Future
years
payable2
Fair value
per Right 3
US$
455,580
80,000
60,000
80,000
70,000
60,000
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
4.36
4.36
4.36
4.36
4.36
4.36
Maximum
value of
grant 4
US$
2,979,493
436,000
327,000
436,000
381,500
327,000
Name
Craig Kipp
Joe Ragan III
Brad Baker
Michael Birch
Fabrizio Rasetti
Alan Sides
(1) The grants made to senior executives constituted their full LTI entitlement for 2011 and were made on 15 March
2011 on the terms summarised above. Any Rights that do not vest on the vesting date will be forfeited.
(2) Rights vest on 15 March 2014 subject to performance over the period from 1 January 2011 to 31 December 2013
and/or continued service until the vesting date.
(3) The fair value was calculated as at the grant date of 15 March 2011.
(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.
There were no options or Cash Rights granted during the year ended 31 December 2011.
______________________________________________________________________________________
34
Boart Longyear Limited
50
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
5.3 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
Joe 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
______________________________________________________________________________________
35
Annual Report 2011
51
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
No fixed term
None required
90 days
Michael Birch
Vice President,
Global Drilling
Services
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.
Under the terms of the Company’s LTIP and option plans, the Board has discretion to provide for early vesting of all or a
portion of unvested LTIP Rights and options depending on the circumstances of an employee’s termination. In addition,
the executive employment contracts listed above contain a twelve-month non-competition and non-solicitation covenant in
the Company’s favour. The Company may, at its option, extend the term of the covenants upon an executive’s termination
of employment for up to an additional twelve months in exchange for monthly payments of the executive’s base salary for
the term of the extension.
6. NON-EXECUTIVE DIRECTOR ARRANGEMENTS
This section explains the remuneration structure and outcomes for non-executive Directors.
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, which has not changed since the Company’s initial public
offering in 2007. During the financial year, US$995,001 of the pool was utilised for non-executive Director fees, being
approximately 48% of the fee pool limit.
In 2011, the Board performed a detailed review of the NED remuneration structure. The Board hired Mercer Consulting as
an independent firm to assist with its review and examined several factors, including:
• market competitive remuneration levels provided to non-executive Directors of similar sized organisations in
similar industry sectors (namely industrials and materials sectors) within the markets where our Directors reside
or may be recruited (i.e. Australia, United States, Canada and Europe);
• differences in Director equity granting practices in markets where Company non-executive Directors reside or
may be recruited;
• market practice treatment of different currencies for countries where non-executive Directors reside or may be
recruited;
• Australian Director remuneration practices and governance implications; and
•
reasonable non-executive Director shareholding guidelines.
The Board’s review and analysis resulted in certain adjustments to the remuneration structure to improve its market
competitiveness and to recognise the increased demands placed on the Board committees. Specifically, the following
decisions were taken:
•
•
•
•
•
•
•
all fees will continue to be paid in US currency;
remuneration will continue to be limited to cash-based fees;
the non-executive Director base fee was increased by $20,000 per annum;
the Board Chairman’s base fee remained unchanged;
committee member fees were changed from 10% of the base fee to a flat $15,000 annual fee;
committee chair fees were changed from 20% of the base fee to a flat $30,000 annual fee; and
a non-executive Director Shareholding Guideline as described in section 6.2 below was implemented.
______________________________________________________________________________________
36
Boart Longyear Limited
52
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
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
•
•
$120,000 for non-executive Directors other than the
Chairman; and
$300,000 for the Chairman of the Board
Current committee fees for non-executive Directors (other
than the Chairman) are:
•
•
$15,000 annually for committee members; and
$30,000 annually 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. The Chairman also is
entitled to reimbursement for 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 short-term or
long-term incentives.
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.
6.2. NON-EXECUTIVE SHAREHOLDING GUIDELINE
In 2011, the Board implemented a shareholding guideline requiring non-executive Directors to accumulate 30,000 Boart
Longyear shares over a five-year period from the latter of 1 September 2011 or the date of their appointment to the Board.
6.3. 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 10 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 2011.
______________________________________________________________________________________
37
Annual Report 2011
53
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
6.4. DETAILS OF REMUNERATION PAID TO NON-EXECUTIVE DIRECTORS
Details of non-executive Directors’ remuneration for the year ended 31 December 2011 and 2010 are set out in the table
below.
Table 6.4: Non-executive Director remuneration
Fees (incl.
committee
fees) 1
US$
Superannuation
contributions 2
US$
Shares 3
US$
David McLemore 4
2011
2010
Bruce Brook
2011
2010
Roger Brown 5
2011
2010
Tanya Fratto 6
2011
Roy Franklin 7
2011
2010
David Grzelak 8
2011
2010
Barbara Jeremiah 9
2011
Peter St. George
2011
2010
300,000
190,779
129,969
119,266
130,000
60,000
82,500
134,167
20,833
54,167
113,575
30,000
112,385
119,266
-
-
11,697
10,734
-
-
-
8,066
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,115
10,734
-
12,668
Total
US$
300,000
190,779
141,666
138,066
130,000
60,000
82,500
134,167
20,833
54,167
113,575
30,000
122,500
142,668
(1) Please 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-resident Directors which are deducted
from their base and additional committee fees.
(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 McLemore was elected Chairman effective 23 August 2010.
(5) Mr Brown was appointed a Director effective 1 July 2010.
(6) Ms Fratto was appointed a Director effective 1 June 2011.
(7) Mr Franklin was appointed a Director effective 15 October 2010.
(8) Mr Grzelak resigned from the Board effective 1 June 2011.
(9) Ms Jeremiah was appointed a Director effective 1 October 2011.
______________________________________________________________________________________
38
Boart Longyear Limited
54
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
NON-AUDIT SERVICES
Details of amounts paid or payable for non-audit services provided during the year by the auditor are outlined in Note 32 to
the financial statements.
The auditor of Boart Longyear Limited is Deloitte Touche Tohmatsu. The Company has employed Deloitte Touche
Tohmatsu on assignments additional to their audit duties where their expertise and experience with the Company are
important. These assignments principally have been related to tax advice and due diligence reporting on acquisitions.
The Company and its Audit, Compliance & Risk Committee (“Audit Committee”) are committed to ensuring the
independence of the external auditors. Accordingly, significant scrutiny is given to non-audit engagements of the external
auditor. The Company has a formal pre-approval policy which requires the pre-approval of non-audit services by the
Chairman of the Audit Committee or the Audit Committee. Additionally, the total annual fees for such non-audit services
cannot exceed the auditor’s annual audit fees without the approval of the Audit Committee. The Audit Committee believes
that the combination of these two approaches results in an effective procedure to pre-approve services performed by the
external auditor.
Consistent with the approach outlined above, the Audit Committee approved Deloitte Touche Tohmatsu’s services on a
tax-related business improvement project for the years ended 31 December 2010 and 2011, which resulted in the amount
of non-audit services exceeding the audit fee in both years. It is expected that this project will conclude during the year
ending 31 December 2012 and that the level of non-audit services will be below the audit fee in subsequent years.
None of the services performed by the auditor 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.
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 and are of the opinion that the services, as disclosed in Note 32 to the financial statements, do not
compromise the external auditor’s independence.
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.
______________________________________________________________________________________
39
Annual Report 2011
55
Annual Financial Report
31 DECEMBER 2011 BOART LONGYEAR LIMITED
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
David McLemore
Chairman
Sydney, 21 February 2012
Craig Kipp
Chief Executive Officer
Sydney, 21 February 2012
______________________________________________________________________________________
40
Boart Longyear Limited
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 (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 2011, 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 124.
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 consolidated 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
______________________________________________________________________________________
42
Annual Report 2011
57
Auditor’s Independence Declaration
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We
confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors
of Boart Longyear Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.
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 consolidated entity’s financial position as at 31 December 2011 and of its
performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) the consolidated 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 29 to 53 of the Directors’ Report for the year ended 31
December 2011. 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 2011, complies with
section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
A V Griffiths
Partner
Chartered Accountants
Sydney, 21 February 2012
______________________________________________________________________________________
43
Boart Longyear Limited
58
The Board of Directors
Boart Longyear Limited
919-929 Marion Road
Mitchell Park SA 5043
Australia
21 February 2012
Dear Directors
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Boart Longyear Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of
independence to the directors of Boart Longyear Limited.
As lead audit partner for the audit of the financial statements of Boart Longyear Limited for the financial year
ended 31 December 2011, 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
______________________________________________________________________________________
41
Annual Report 2011
59
Annual Financial Report
31 DECEMBER 2011 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.
David McLemore
Chairman
Sydney, 21 February 2012
Craig Kipp
Chief Executive Officer
Sydney, 21 February 2012
______________________________________________________________________________________
44
Boart Longyear Limited
60
Consolidated Statement of Comprehensive Income
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
_______________________________________________________________________________________
See accompanying notes to the financial statements.
45
Annual Report 2011
61
Consolidated Statement of Financial Position
As at 31 December 2011 BOART LONGYEAR LIMITED
_______________________________________________________________________________________
See accompanying notes to the financial statements.
46
Boart Longyear Limited
62
Consolidated Statement of Changes in Equity
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
_______________________________________________________________________________________
See accompanying notes to the financial statements.
47
Annual Report 2011
63
Consolidated Statement of Cash Flows
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
_______________________________________________________________________________________
See accompanying notes to the financial statements.
48
Boart Longyear Limited
64
Consolidated Statement of Cash Flows (continued)
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
_______________________________________________________________________________________
See accompanying notes to the financial statements.
49
Annual Report 2011
65
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 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
26 Butler Boulevard
Burbridge Business Park
Adelaide Airport, SA 5650
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:
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. The adoption of this
amendment did not have an impact on the Company’s disclosures.
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. 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.
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; and
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 2015 subject to the AASB adopting the
amendments to IFRS 9, which delays the effective date until the year ending 31 December 2015. Management
has not yet assessed the impact of adoption of these amendments.
_______________________________________________________________________________________
50
Boart Longyear Limited
66
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
2.
ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS (CONTINUED)
Consolidated financial statements
AASB 10 ‘Consolidated Financial Statements’ introduces a single consolidation model for all entities based on
control, irrespective of the nature of the investee. This standard will be adopted for the year ending 31 December
2013. Management does not believe that the adoption of this standard will have a significant impact on the
Company’s financial results or statement of financial position.
Fair value measurement
AASB 13 ‘Fair Value Measurement’ defines fair value and provides guidance on how to determine fair value and
requires disclosures about fair value measurement. This standard will be adopted for the year ending 31
December 2013. Management has not yet assessed the impact of the adoption of this standard.
Employee benefits
Amendments to AASB 119 ‘Employee Benefits’ require changes in the calculation of the net defined benefit
liability (asset) and pension expense and provides changes to certain financial statement disclosures. These
amendments will be adopted for the year ending 31 December 2013. Management has not yet assessed the
impact of the adoption of these amendments.
Financial instruments
A revised version of AASB 9 ‘Financial Instruments’ incorporates revised requirements for the classification and
measurement of financial liabilities. This revised standard will be adopted for the year ending 31 December 2013.
Management has not yet assessed the impact of the adoption of this revised standard.
Disclosure of interests in other entities
AASB 12 ‘Disclosure of Interests in Other Entities’ requires disclosure of information that enables financial
statement users to evaluate the nature of, and risks associated with, interests in other entities and the effects of
those interests on its financial position, financial performance and cash flows. This standard will be adopted for
the year ending 31 December 2013. Management has not yet assessed the impact of the adoption of this
standard.
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 21 February 2012.
_______________________________________________________________________________________
51
Annual Report 2011
67
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 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 per
share information, as well as the number of shares and rights under the LTIP, option plan and restricted shares
have been restated in this report using the consolidated share amounts.
In applying A-IFRS, management is required to make judgements, 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 judgements
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.
Judgements 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 2011 and the comparative information.
(a)
Presentation currency
Results of operating businesses are recorded in their functional currencies, which are generally their
local currencies. The US dollar is the Company’s predominant currency. Accordingly, management
believes that reporting the Company’s financial statements in the US dollar is most representative of the
Company’s financial results and position and therefore the consolidated financial information is
presented in US dollars.
_______________________________________________________________________________________
52
Boart Longyear Limited
68
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b)
Cash and cash equivalents
Cash and cash equivalents primarily include deposits with financial institutions repayable upon demand.
Cash overdrafts are included in current liabilities in the statement of financial position unless there is a
legal right of offset.
(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 may not be 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 accounts. Subsequent recoveries of amounts previously written off
are recorded in other income in profit or loss.
(d)
Inventories
Inventories are measured at the lower of cost or net realisable value. The cost of most 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 overhead expenses (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.
Allowances are recorded for inventory considered to be excess or obsolete and damaged items are
written down to the net realisable value.
(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 and other costs directly attributable to bringing the
assets to a working condition for the intended use. 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 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. Items in the course of construction or not yet in service are not depreciated.
The following useful lives are used in the calculation of depreciation:
Buildings
Plant and machinery
Drilling rigs
Other drilling equipment
Office equipment
Computer equipment:
Hardware
Software
20-40 years
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.
_______________________________________________________________________________________
53
Annual Report 2011
69
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f)
Goodwill and other intangible assets
Goodwill
Goodwill resulting from business combinations is recognised as an asset at the date that control is
acquired. 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 previously held equity interest in
the acquiree (if any) over the net amounts of the identifiable assets acquired and the liabilities assumed.
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 acquisition. 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. An impairment loss recognised for goodwill is not reversed in a
subsequent period.
Upon 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 three
years. Such assets are tested for impairment at least annually or more frequently if events or
circumstances indicate that the asset might be impaired.
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 reliably measured. 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.
Amortisation methods and useful lives are reassessed at each reporting date.
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.
Amortisation methods and useful lives are reassessed at each reporting date.
Research and development costs
Expenditures 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 costs are 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. Capitalised costs include the cost of materials, direct labour
and overhead costs 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.
_______________________________________________________________________________________
54
Boart Longyear Limited
70
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 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
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.
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.
(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 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.
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.
_______________________________________________________________________________________
55
Annual Report 2011
71
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h)
Current and deferred taxation (continued)
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 member 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).
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 is highly effective in offsetting changes in fair values or cash flows of the hedged
item.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are
recorded in profit or loss immediately, together with any changes in the fair value of the hedged item that
is attributable to the hedged risk.
Hedge accounting is discontinued when the 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.
_______________________________________________________________________________________
56
Boart Longyear Limited
72
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
Derivative financial instruments (continued)
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.
(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.
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.
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.
(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.
_______________________________________________________________________________________
57
Annual Report 2011
73
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 it manufactures. 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
claims; and 3) the amount of the claims 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.
(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
costs such as workers’ compensation insurance and payroll tax, when it is probable that settlement will
be required and they are capable of being reliably measured.
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.
_______________________________________________________________________________________
58
Boart Longyear Limited
74
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m)
Employee benefits (continued)
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 the terms of the Company’s defined benefit obligations. 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.
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. For stock options, 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.
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.
(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. 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.
(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 arrangements.
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).
_______________________________________________________________________________________
59
Annual Report 2011
75
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
(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 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 metres 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 subsidiaries have been translated into US dollars using
the exchange rates at each balance sheet date for assets and liabilities and at an average exchange
rates for revenue 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 or other expenses in profit or loss.
(s)
Contingencies
The recognition of provisions for legal disputes is subject to a significant degree of judgement.
Provisions are established 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.
_______________________________________________________________________________________
60
Boart Longyear Limited
76
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 the 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 as incurred.
Changes in the fair values of contingent consideration classified as equity are not recognised.
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
Revenue, 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.
_______________________________________________________________________________________
61
Annual Report 2011
77
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 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
2011
US$'000
2010
US$'000
802,449
2,232,744
3,035,193
731,168
2,237,753
2,968,921
111,154
214
111,368
38,419
2,646
41,065
2,886,462
7,643
29,720
2,923,825
2,886,462
8,415
32,979
2,927,856
2011
US$'000
2010
US$'000
34,556
-
34,556
35,318
-
35,318
Guarantees entered into by the parent entity in relation to debts of its subsidiaries
As of 31 December 2011 and 2010 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 26.
Contingent liabilities
As of 31 December 2011 and 2010 Boart Longyear Limited did not have any contingent liabilities.
Contractual obligations
As of 31 December 2011 and 2010 Boart Longyear Limited did not have any contractual obligations.
_______________________________________________________________________________________
62
Boart Longyear Limited
78
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 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 –
Drilling Services and Products. The 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 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 revenue and results
Segment revenue
Segment profit
31 Dec 2011
US$'000
31 Dec 2010
US$'000
31 Dec 2011
US$'000
31 Dec 2010
US$'000
1,447,881
572,441
2,020,322
1,080,460
395,485
1,475,945
Drilling Services
Products
Unallocated 1
Finance costs
Interest income
Profit (loss) before taxation
212,542
119,765
332,307
(86,672)
(23,936)
5,111
226,810
117,876
85,034
202,910
(74,472)
(8,733)
3,570
123,275
(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 2011
US$'000
31 Dec 2010
US$'000
Additions to non-current
assets 2
31 Dec 2011
US$'000
31 Dec 2010
US$'000
Drilling Services
Products
Total of all segments
Unallocated 1
Total
89,448
12,757
102,205
8,418
110,623
73,591
10,374
83,965
9,385
93,350
138,538
45,360
183,898
34,436
218,334
115,712
21,161
136,873
25,191
162,064
(1) Unallocated additions to non-current assets relate to the acquisition of general corporate assets such as
software.
(2) Non-current assets excluding 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 revenue.
_______________________________________________________________________________________
63
Annual Report 2011
79
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 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:
Revenue from external customers
31 Dec 2011
US$'000
31 Dec 2010
US$'000
Non-current assets 1
31 Dec 2011
US$'000
31 Dec 2010
US$'000
780,381
534,915
290,509
288,168
126,349
2,020,322
621,092
403,230
186,177
192,920
72,526
1,475,945
378,472
360,376
98,529
73,497
22,416
933,290
347,222
340,023
89,008
55,169
13,645
845,067
North America
Asia Pacific
Latin America
Africa
Europe
Total
(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
Total
2011
US$'000
1,447,881
572,441
2,020,322
5,003
108
5,111
2,025,433
2010
US$'000
1,080,460
395,485
1,475,945
3,306
264
3,570
1,479,515
_______________________________________________________________________________________
64
Boart Longyear Limited
80
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 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
Write-off of debt issuance costs
2011
US$'000
2010
US$'000
21,252
347
1,179
251
23,029
137
770
907
4,370
3,730
420
213
8,733
-
-
-
Total finance costs
23,936
8,733
8.
PROFIT FOR THE YEAR
(a)
Gains and losses
Profit for the year includes the following gains and (losses):
Gain (loss) on disposal of property,
plant and equipment
Net foreign exchange losses
Change in fair value of financial
assets carried at fair value
through profit or loss
Impairment of non-current assets
2011
US$'000
2010
US$'000
365
(1,827)
(3,381)
(7,159)
-
(1,076)
(450)
(1,695)
_______________________________________________________________________________________
65
Annual Report 2011
81
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 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 (excluding foreign currency gains and losses).
Interest income
Net (expense) reversal of bad debt
Financial liabilities at amortised cost:
Interest expense
Interest rate swap expense
Amortisation of debt issuance costs
Finance costs due to debt repayment
Interest on obligations under finance lease
(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
Other employee benefits 1
2011
US$'000
2010
US$'000
5,003
(245)
4,758
(21,252)
(347)
(1,179)
(907)
(251)
(23,936)
3,457
1,002
4,459
(4,370)
(3,730)
(420)
-
(213)
(8,733)
2011
US$'000
2010
US$'000
(591,464)
(463,902)
(16,778)
(1,106)
(5,854)
(2,670)
(135)
(154,794)
(772,801)
(15,049)
(1,666)
(3,863)
(1,954)
(2,790)
(97,383)
(586,607)
(1) Other employee benefits include items such as medical benefits, workers’ compensation, other
fringe benefits, state taxes, etc.
_______________________________________________________________________________________
66
Boart Longyear Limited
82
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 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
9.
INCOME TAXES
Income tax expense is as follows:
Income tax expense:
Current tax expense
Adjustments recognised in the current year
in relation to the current tax of prior years
Deferred tax expense (benefit)
2011
US$'000
2010
US$'000
(95,096)
(15,527)
(37,686)
(568)
(84,222)
(9,128)
(35,910)
(611)
2011
US$'000
2010
US$'000
68,574
51,601
(5,208)
3,573
66,939
2,402
(15,241)
38,762
(a) The prima facie income tax expense on pre-tax accounting profit reconciles to the income tax
expense in the financial statements as follows:
Profit before taxation
Income tax expense calculated at
Australian rate of 30%
Impact of higher rate tax countries
Impact of lower rate tax countries
Net non-deductible/non-assessable items
Unrecognised tax losses
Income subject to double taxation in the US
Unutilised foreign tax credits
Recognition of deferred tax assets arising
in prior years
Deduction of foreign taxes
Other
(Over) under provision from prior years
226,810
123,275
68,042
5,196
(20,473)
(2,763)
(826)
4,547
16,908
150
(5,594)
6,960
72,147
(5,208)
66,939
36,982
2,701
(6,334)
(1,108)
1,231
(1,653)
6,634
(132)
(1,005)
(957)
36,359
2,403
38,762
_______________________________________________________________________________________
67
Annual Report 2011
83
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
9.
INCOME TAXES (CONTINUED)
(b) Income tax recognised directly in equity during the period
The following current and deferred amounts were credited (charged) directly to equity during the year:
Deferred tax:
Actuarial movements on defined benefit plans
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:
Entities other than parent
and entities in the consolidated group
(d) Deferred tax balances
Deferred tax comprises:
Temporary differences
Tax losses
2011
US$'000
2010
US$'000
8,236
(71)
8,165
4,418
(194)
4,224
(6,857)
14,282
22,568
29,993
23,164
(15,373)
13,914
21,705
82,000
82,000
46,338
46,338
108,071
33,611
141,682
87,483
48,371
135,854
_______________________________________________________________________________________
68
Boart Longyear Limited
84
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
9.
INCOME TAXES (CONTINUED)
2011
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$'000
income
US$'000
(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
3,054
1,687
(223)
709
(3,237)
(6,247)
475
(7,267)
11,781
(2,703)
(5,473)
3,478
-
814
8,569
5,770
11,187
48,371
135,854
(14,760)
(3,573)
Presented in the statement of financial position as follows:
Deferred tax asset
Deferred tax liability
FX
Credited
differences to equity
US$'000
US$'000
97
46
8
(183)
61
-
40
172
258
-
364
264
-
-
-
109
1,236
-
1,236
Closing
balance
US$'000
(5,691)
4,162
188
(9,079)
-
4,935
2,590
10,156
25,562
-
13,981
17,616
(1,500)
9,016
24,474
11,661
108,071
-
-
-
-
-
-
-
8,236
-
(71)
-
-
-
-
-
-
8,165
-
8,165
33,611
141,682
144,587
(2,905)
141,682
_______________________________________________________________________________________
69
Annual Report 2011
85
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
9.
INCOME TAXES (CONTINUED)
2010
Deferred tax assets (liabilities)
Property, plant and equipment
Provisions
Doubtful debts
Intangibles
Acquisitions and restructuring costs
Share-issue expenses
Accrued liabilities
Pension
Debt and interest
Hedge loss
Unearned revenues
Inventory
Investments in subsidiaries
Foreign tax credit carryforward
Unrealised foreign exchange
Other
Unused tax losses and credits:
Tax losses
Opening Credited to
balance
US$'000
income
US$'000
(14,067)
4,549
630
(9,302)
7,463
17,678
9,470
5,146
8,816
6,323
23,488
6,782
(597)
6,723
(3,519)
2,564
72,147
5,276
(2,097)
(224)
(351)
(4,249)
(6,496)
(7,346)
(522)
4,782
(3,355)
(4,275)
7,127
(903)
1,479
19,424
3,229
11,499
44,630
116,777
3,741
15,240
Presented in the statement of financial position as follows:
Deferred tax liability
Deferred tax asset
FX
Credited
differences to equity
US$'000
US$'000
(51)
(23)
(3)
48
(38)
-
(49)
(27)
(75)
-
(123)
(35)
-
-
-
(11)
(387)
-
(387)
Closing
balance
US$'000
(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
-
-
-
-
-
-
-
4,418
-
(194)
-
-
-
-
-
-
4,224
-
4,224
48,371
135,854
(11,468)
147,322
135,854
Unrecognised deferred tax assets
Tax losses - revenue
Unused tax credits
2011
US$'000
2010
US$'000
2,449
63,754
66,203
3,151
61,829
64,980
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 from or
payable to other entities in the tax-consolidated groups.
_______________________________________________________________________________________
70
Boart Longyear Limited
86
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
9.
INCOME TAXES (CONTINUED)
The Canada Revenue Agency (“CRA”) has been reviewing the Company’s tax returns for 2005 to 2009. The
CRA issued an assessment in December 2011, which the Company is contesting, and further assessments for
the period are possible.
The taxes, interest and penalties assessed relate to profits which the CRA asserts should have been attributable
to the Company’s Canadian operations. These profits were assessed in other jurisdictions and taxes were paid
in those jurisdictions, many of which have tax rates similar to Canada.
The Company intends to request relief through a process known as “competent authority” which allows interested
jurisdictions to determine where the Company’s income and costs should be reported. This process avoids
double payment of taxes but the Company would be exposed to penalties and interest on underpayments, if any.
The Company believes it is appropriately reserved in respect of this issue.
10.
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
2011
US$'000
2010
US$'000
292,719
(1,412)
33,796
9,204
334,307
245,842
(3,619)
23,978
10,635
276,836
2011
US$'000
2010
US$'000
220,532
45,619
11,344
7,778
7,446
292,719
172,930
43,050
13,710
6,302
9,850
245,842
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
2011
US$'000
2010
US$'000
3,619
500
(2,361)
(255)
(91)
1,412
5,940
2,651
(1,271)
(3,653)
(48)
3,619
_______________________________________________________________________________________
71
Annual Report 2011
87
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
10.
TRADE AND OTHER RECEIVABLES (CONTINUED)
The average credit period on sales of goods as at 31 December 2011 is 52 days (2010: 54 days). No interest is
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.
11.
INVENTORIES
Raw materials
Work in progress
Finished products
12.
FINANCIAL INSTRUMENTS
Capital risk management
2011
US$'000
2010
US$'000
32,019
6,774
361,646
400,439
31,631
3,437
248,047
283,115
The Company manages its capital to ensure that entities in the Company will be able to continue as going
concerns 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 loans and borrowings disclosed in Note
17, cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued
capital, reserves, and retained earnings/accumulated losses as disclosed in Notes 20, 21, and 22 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.
_______________________________________________________________________________________
72
Boart Longyear Limited
88
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
12.
FINANCIAL INSTRUMENTS (CONTINUED)
Categories of financial instruments
Financial assets
Current
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Current
Amortised cost:
Trade and other payables
Restructuring and termination cost provisions
Loans and borrowings
2011
US$'000
2010
US$'000
82,286
334,307
416,593
94,944
276,836
371,780
2011
US$'000
2010
US$'000
320,604
1,044
2,518
324,166
260,038
4,462
979
265,479
Other financial liabilities - derivative instruments
-
7,272
Non-current
Amortised cost:
Loans and borrowings
310,343
310,343
247,490
247,490
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 trade and other 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, 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 certain 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; and
interest rate swaps to mitigate the risk of rising interest rates.
_______________________________________________________________________________________
73
Annual Report 2011
89
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
12.
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 (which include intercompany
balances with other subsidiaries) that: (1) are denominated in currencies other than the functional currency of the
respective Company subsidiary; and (2) cause foreign exchange rate exposure, at 31 December are as follows:
Australian Dollar
Canadian Dollar
Euro
US Dollar
Assets
Liabilities
2011
US$'000
2010
US$'000
2011
US$'000
2010
US$'000
402,240
7,306
33,510
206,392
421,867
10,629
5,715
296,142
7,972
88,785
38,326
386,926
12,094
62,556
18,915
397,356
Foreign currency sensitivity
The Company is mainly exposed to exchange rate fluctuations in the Australian Dollar (AUD), Canadian Dollar
(CAD), Euro (EUR) and United States Dollar (USD). The Company is also exposed to translation differences as
the Company’s presentation currency is different from the functional currencies of various subsidiaries. However,
this represents a translation risk rather than a financial risk and consequently is not included in the following
sensitivity analysis.
The following tables reflect the Company’s sensitivity to a 10% change in the exchange rate of each of the
currencies listed above. This sensitivity analysis includes only outstanding monetary items denominated in
currencies other than the respective subsidiaries’ functional currencies and remeasures these at the respective
year end to reflect a 10% decrease in the indicated currency against the respective subsidiaries’ functional
currencies. A positive number indicates an increase in net profit and/or net assets.
Net profit
Net assets
Net profit
Net assets
10% change in AUD
10% change in CAD
2011
US$'000
(586)
(35,842)
2010
US$'000
(384)
(37,252)
2011
US$'000
2010
US$'000
4,745
7,407
2,505
4,721
10% change in EUR
10% change in USD
2011
US$'000
438
438
2010
US$'000
1,204
1,204
2011
US$'000
2,441
16,412
2010
US$'000
(12,520)
9,201
In management’s opinion, the sensitivity analysis is not fully representative of the inherent foreign exchange risk
as the year-end exposure does not reflect the exposure during the course of the year.
_______________________________________________________________________________________
74
Boart Longyear Limited
90
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
12.
FINANCIAL INSTRUMENTS (CONTINUED)
Forward foreign exchange contracts
There were no open forward foreign currency contracts as of 31 December 2011 or 2010.
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 risk tolerance. 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.
During the year, 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 $170,000 (2010: decrease/increase by
$854,000) all of which is attributable to the Company’s exposure to interest rates on its variable-rate borrowings.
Interest rate swap contracts
Under interest rate swap contracts, the Company agrees to exchange the difference between fixed and floating
rate interest amounts calculated on notional amounts. Such contracts enable the Company to mitigate the risk of
changing interest rates on the cash flow exposures on variable-rate debt. The fair value of interest rate swaps at
the reporting date is determined by discounting the future cash flows using the LIBOR curve at the reporting date
and the credit risk inherent in the contract. These are disclosed below. The average interest rate is based on the
outstanding balances at the start of the financial year. There were no interest rate swap contracts outstanding at
31 December 2011.
The following table details the notional principal amounts and the remaining terms of interest rate swap contracts
outstanding as at the reporting dates.
Outstanding floating
for fixed contracts
Less than 1 year
Average contracted
fixed interest rate
2011
2010
%
%
-
5.1825%
Notional
principal amount
2011
US$'000
-
2010
US$'000
200,000
Fair value
2011
US$'000
2010
US$'000
-
(7,272)
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 rates on a net basis.
Any 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 respective
loan.
_______________________________________________________________________________________
75
Annual Report 2011
91
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
12.
FINANCIAL INSTRUMENTS (CONTINUED)
Credit risk management
The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient
collateral, when 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 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.
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. See Note 26.
Financial assets and other credit exposures
Maximum credit risk
2011
US$'000
2010
US$'000
Performance guarantees provided, including letters of credit
15,797
20,350
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Company’s Treasurer and Board, 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 forecasted and actual cash flows and matching the maturity profiles of
financial assets and liabilities. Included in Note 17 is a list of undrawn facilities that the Company has at its
disposal to further reduce liquidity risk.
_______________________________________________________________________________________
76
Boart Longyear Limited
92
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
12.
12.
12.
FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity and interest risk tables
Liquidity and interest risk tables
Liquidity and interest risk tables
The following tables reflect the expected maturities of non-derivative financial liabilities. These are based on the
The following tables reflect the expected maturities of non-derivative financial liabilities. These are based on the
The following tables reflect the expected maturities of non-derivative financial liabilities. These are based on the
undiscounted expected cash flows of financial liabilities at the earliest date on which the Company may be
undiscounted expected cash flows of financial liabilities at the earliest date on which the Company may be
undiscounted expected cash flows of financial liabilities at 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
required to pay. The table includes both interest and principal cash flows. The adjustment column represents the
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
possible future cash flows attributable to the instrument included in the maturity analysis which are not included in
possible future cash flows attributable to the instrument included in the maturity analysis which are not included in
the carrying amount on the balance sheet.
the carrying amount on the balance sheet.
the carrying amount on the balance sheet.
Weighted
average
effective
interest
rate
%
Weighted
Weighted
average
average
effective
effective
interest
interest
rate
rate
%
%
Less
than
Less
Less
than
than
3 months
3 months
3 months
to
to
1 to 3
1 to 3
to
1 month months
1 year
1 month months
1 year
1 year
US$'000 US$'000 US$'000
US$'000 US$'000 US$'000
1 month months
US$'000 US$'000 US$'000
1 to 3
1 - 5 years 5+ years
US$'000
1 - 5 years 5+ years
1 - 5 years 5+ years
US$'000
US$'000
US$'000
US$'000
US$'000
Adjust-
ment
US$'000
Adjust-
Adjust-
ment
ment
US$'000
US$'000
Total
US$'000
Total
Total
US$'000
US$'000
2011
2011
Non-interest bearing
Non-interest bearing
2011
Non-interest bearing
payables
payables
payables
Restructuring provision
Restructuring provision
Finance lease liability
Finance lease liability
Variable interest rate
Variable interest rate
Restructuring provision
Finance lease liability
Variable interest rate
instruments
instruments
Fixed interest rate
Fixed interest rate
Fixed interest rate
instruments
instruments
instruments
instruments
2010
2010
Non-interest bearing
Non-interest bearing
2010
Non-interest bearing
payables
payables
payables
Restructuring provision
Restructuring provision
Finance lease liability
Finance lease liability
Variable interest rate
Variable interest rate
Restructuring provision
Finance lease liability
Variable interest rate
instruments
instruments
instruments
196,176
196,176
196,176
87
87
87
40
40
40
124,428
124,428
124,428
174
174
174
80
80
80
-
783
360
-
-
783
783
360
360
-
-
121
-
-
-
-
121
121
-
-
-
-
-
-
-
-
-
-
-
(65)
-
-
-
-
(65)
(65)
320,604
320,604
320,604
1,044
1,044
1,044
536
536
536
8.9%
8.9%
8.9%
2.2%
2.2%
2.2%
32
32
32
63
63
63
286
286
286
18,363
18,363
18,363
-
-
-
(1,744)
(1,744)
(1,744)
17,000
17,000
17,000
7.0%
7.0%
7.0%
1,760
1,760
1,760
198,095
198,095
198,095
3,520
3,520
3,520
128,265
128,265
128,265
15,839
17,268
15,839
15,839
17,268
17,268
86,191
104,675
86,191
86,191
104,675
104,675
389,408
389,408
389,408
389,408
389,408
389,408
(194,527)
(196,336)
(194,527)
(194,527)
(196,336)
(196,336)
302,191
641,375
302,191
302,191
641,375
641,375
133,308
133,308
133,308
126,730
126,730
126,730
-
-
-
372
115
372
372
115
115
743
230
743
743
230
230
3,347
1,032
3,347
3,347
1,032
1,032
-
-
-
-
320
-
-
320
320
199
199
199
133,994
133,994
133,994
398
398
398
128,101
128,101
128,101
1,790
6,169
1,790
1,790
6,169
6,169
248,651
248,971
248,651
248,651
248,971
248,971
8.9%
8.9%
8.9%
1.0%
1.0%
1.0%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
260,038
260,038
260,038
-
(184)
-
-
(184)
(184)
4,462
1,513
4,462
4,462
1,513
1,513
(3,038)
(3,222)
(3,038)
(3,038)
(3,222)
(3,222)
248,000
514,013
248,000
248,000
514,013
514,013
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
77
77
77
Annual Report 2011
93
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
12.
FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity and interest risk tables (continued)
The following tables reflect the expected maturities of non-derivative financial assets. These are based on the
undiscounted expected cash flows of the financial assets.
2011
Non-interest bearing
receivables
Cash
2010
Non-interest bearing
receivables
Cash
Less
than
1 month
US$'000
1 to 3
months
US$'000
3 months
to
1 year
US$'000
Total
US$'000
170,920
82,286
253,206
125,340
38,047
-
-
125,340
38,047
334,307
82,286
416,593
135,550
94,944
230,494
108,440
32,846
-
-
108,440
32,846
276,836
94,944
371,780
The liquidity and interest risk tables are based on the Company’s intent to collect the assets or settle the liabilities
in accordance with the contractual terms.
The following table reflects the Company’s liquidity position for its derivative financial instruments. The table has
been presented based on the undiscounted net cash outflows on the derivative instruments that settle on a net
basis. 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. There
were no swap contracts outstanding at 31 December 2011.
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
2010
Interest rate swaps
-
(2,469)
(4,803)
-
-
(7,272)
_______________________________________________________________________________________
78
Boart Longyear Limited
94
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
12.
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
analyses 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 analyses using the applicable yield curve for the
duration of the instruments for non-optional derivatives, and option pricing models for optional
derivatives.
Management considers 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).
2011
Financial liabilities at fair value
Derivative instruments
2010
Financial liabilities at fair value
Derivative instruments
Level 1
US$'000
Level 2
US$'000
Level 3
US$'000
Total
US$'000
-
-
-
7,272
-
-
-
7,272
_______________________________________________________________________________________
79
Annual Report 2011
95
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
13.
PROPERTY, PLANT AND EQUIPMENT
Land and
Buildings
US$'000
Plant and
Equipment
US$'000
Construction
in Progress
US$'000
Total
US$'000
Balance at 1 January 2010
Additions
Disposal
Transfer to/from CIP
Transfer from intangible assets
Currency movements
Balance at 1 January 2011
Additions
Disposal
Transfer to/from CIP
Currency movements
Balance at 31 December 2011
Accumulated depreciation and impairment:
Balance at 1 January 2010
Depreciation
Impairment
Disposal
Currency movements
Balance at 1 January 2011
Depreciation
Impairment
Disposal
Currency movements
Balance at 31 December 2011
Net book value at 31 December 2010
Net book value at 31 December 2011
41,172
608
(62)
2,356
-
1,118
45,192
1,160
(922)
16,251
(405)
61,276
(6,604)
(1,860)
-
38
(675)
(9,101)
(2,584)
-
494
93
(11,098)
36,091
50,178
566,521
26,861
(41,915)
30,662
-
32,949
615,078
47,624
(17,485)
101,955
(25,678)
721,494
(246,171)
(82,362)
(867)
34,311
(20,836)
(315,925)
(92,512)
(57)
15,370
18,798
(374,326)
299,153
347,168
25,597
109,061
-
(33,018)
802
1,760
104,202
129,117
-
(118,206)
(4,228)
110,885
-
-
-
-
-
-
-
-
-
-
-
104,202
110,885
633,290
136,530
(41,977)
-
802
35,827
764,472
177,901
(18,407)
-
(30,311)
893,655
(252,775)
(84,222)
(867)
34,349
(21,511)
(325,026)
(95,096)
(57)
15,864
18,891
(385,424)
439,446
508,231
The net book value of property, plant and equipment at 31 December 2011 and 2010 includes amounts of
$1,770,000 and $2,740,000, respectively, related to assets held under finance leases.
_______________________________________________________________________________________
80
Boart Longyear Limited
96
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
14.
GOODWILL
Gross carrying amount:
Balance at 1 January 2010
Currency movements
Balance at 31 December 2010
Balance at 1 January 2011
Currency movements
Balance at 31 December 2011
Goodwill by cash-generating units
US$'000
276,956
20,452
297,408
297,408
(3,345)
294,063
For purposes of impairment testing, goodwill is included in cash-generating units that are significant individually
or in aggregate. The carrying amount of goodwill included in cash-generating units, by geographic area, is as
follows:
Asia Pacific
Latin America
North America
2011
US$'000
154,677
32,767
106,619
294,063
2010
US$'000
155,731
34,602
107,075
297,408
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 nine-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 8.9% to 20.3%); and
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 include:
•
•
•
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 2011.
_______________________________________________________________________________________
81
Annual Report 2011
97
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
15.
OTHER INTANGIBLE ASSETS
Trademarks Patents relationships Software
US$'000
US$'000
US$'000
Customer
Develop-
ment
assets
US$'000 US$'000
Gross carrying amount:
Balance at 1 January 2010
Additions
Transfer to PP&E
Currency movements
Balance at 31 December 2010
Balance at 1 January 2011
Additions
Currency movements
Balance at 31 December 2011
Accumulated amortisation:
Balance at 1 January 2010
Amortisation for the period
Impairment for the period
Currency movements
Balance at 31 December 2010
Balance at 1 January 2011
Amortisation for the period
Impairment for the period
Currency movements
Balance at 31 December 2011
3,763
121
-
-
3,884
3,884
-
-
3,884
(587)
(423)
-
-
(1,010)
(1,010)
(423)
-
-
(1,433)
1,697
1,250
-
-
2,947
2,947
1,725
-
4,672
(647)
(200)
-
-
(847)
(847)
(267)
-
-
(1,114)
57,728
-
-
3,826
61,554
61,554
-
(691)
60,863
(12,563)
(5,757)
-
(1,463)
(19,783)
(19,783)
(6,165)
-
324
(25,624)
22,955
20,799
-
3,580
47,334
47,334
23,646
-
70,980
(3,527)
(2,200)
-
-
(5,727)
(5,727)
(7,940)
-
-
(13,667)
16,869
3,364
(802)
1,289
20,720
20,720
14,935
(567)
35,088
(1,401)
(548)
(828)
-
(2,777)
(2,777)
(732)
(393)
96
(3,806)
Total
US$'000
103,012
25,534
(802)
8,695
136,439
136,439
40,306
(1,258)
175,487
(18,725)
(9,128)
(828)
(1,463)
(30,144)
(30,144)
(15,527)
(393)
420
(45,644)
Net book value at 31 December 2010
Net book value at 31 December 2011
2,874
2,451
2,100
3,558
41,771
35,239
41,607
57,313
17,943
31,282
106,295
129,843
_______________________________________________________________________________________
82
Boart Longyear Limited
98
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
16.
TRADE AND OTHER PAYABLES
Current
Trade payables
Accrued payroll and benefits
Goods and services tax payable
Accrued drilling costs
Accrued legal and environmental
Accrued interest
Professional fees
Other sundry payables and accruals
2011
US$'000
2010
US$'000
173,936
59,492
29,365
10,013
6,202
5,446
5,331
30,819
320,604
159,820
47,157
17,675
6,340
3,378
56
4,420
21,192
260,038
The average credit period on purchases of certain goods is 42 days (2010: 48 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.
17.
LOANS AND BORROWINGS
Unsecured - at amortised cost
Current
Bank loans
Non-current
Senior notes
Revolver bank loans
Term 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 Company's borrowings is as follows:
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
More than 4 years
2011
US$'000
2010
US$'000
2,191
300,000
17,000
-
(6,866)
327
209
312,861
2,518
310,343
312,861
2,518
197
13
-
310,133
312,861
-
-
183,000
65,000
(1,044)
979
534
248,469
979
247,490
248,469
979
247,289
194
7
-
248,469
_______________________________________________________________________________________
83
Annual Report 2011
99
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
17.
LOANS AND BORROWINGS (CONTINUED)
Senior notes
On 28 March 2011, the Company issued $300,000,000 of senior unsecured notes at an interest rate of 7% with a
scheduled maturity date of 1 April 2021. The net proceeds were used to repay the Company’s $65,000,000 term
loan and $230,000,000 in borrowings under its revolving loan facilities. The Company may redeem all or a
portion of the notes prior to maturity subject to certain conditions, including in certain cases the payment of
premiums or make-whole amounts. Guarantors of the senior notes are the same as the $250,000,000 revolver
bank loan facility described below.
The indenture governing the notes includes covenants that restrict the Company’s ability to engage in certain
activities, including incurring additional indebtedness and paying dividends, subject in each case to specified
exceptions and qualifications.
Term bank loans
In March 2011, the Company repaid its $65,000,000 variable rate term bank loan, which had a scheduled
maturity date of 10 April 2012. The interest rate on this term bank loan was 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 totalled 0.9625%.
During 2010 and part of 2011, the Company hedged 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 reflected 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 2011, there were no interest rate swap contracts
outstanding and 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, interest rate swap contracts with notional
values of $16,250,000 were deemed effective and $183,750,000 were deemed ineffective due to the repayment
of the $585,000,000 bank term loan in late 2009.
Revolver bank loans
On 29 July 2011, the Company executed an agreement for a $250,000,000 revolver bank loan facility.
$17,000,000 was drawn as at 31 December 2011. Interest rates on borrowings are based on a base rate plus an
applicable margin. The base rate is generally based on either 30-day USD LIBOR or the prime rate as
determined by Bank of America, while the margin is determined based on leverage according to a pricing grid.
$15,000,000 of the borrowings as at 31 December 2011 were based on 30-day LIBOR at the time of draws
(between 0.27% and 0.30%) plus a margin of 1.75%, for a weighted average interest rate of 2.03%. $2,000,000
of the borrowings as at 31 December 2011 were based on the prime rate of 3.25% plus a margin of 0.75% for a
total interest rate of 4.0%. The scheduled maturity date is 29 July 2016. Concurrent with executing the new
$250,000,000 facility, the Company terminated its $200,000,000 and $85,000,000 revolver bank loan facilities.
The initial draw on the $250,000,000 facility was used to repay the borrowings under the $200,000,000 revolver
bank loan facility.
The $200,000,000 facility had $183,000,000 drawn as at 31 December 2010 with an interest margin of 0.65%
over 30-day USD LIBOR, set at the time of the draws (totalling 0.9625%) and had a scheduled maturity date of
10 April 2012.
The $85,000,000 bank facility had a scheduled maturity date of 10 February 2012 and an interest rate margin of
1.75% over 30-day USD LIBOR and was undrawn as at 31 December 2010.
Outstanding letters of credit of $2,305,000 and $2,205,000 as of 31 December 2011 and 2010, respectively,
reduce the amount available to draw under the revolvers.
_______________________________________________________________________________________
84
Boart Longyear Limited
100
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
17.
LOANS AND BORROWINGS (CONTINUED)
Loan covenants - revolver and term bank loans
The Company’s revolver and term bank loans 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.
The covenants for the $250,000,000 revolver bank loan facility includes maintaining a gross debt to EBITDA ratio
of not more than 3.5:1, and an EBITDA to interest ratio of not less than 3.0:1. The agreement also requires that
borrowers and guarantors represent at least 60% of Company EBITDA and total tangible assets of the Company.
The covenants for the $200,000,000 revolver bank loan facility include maintaining a debt (offset by cash) to
EBITDA ratio of not more than 3.75:1 and an EBITDA to interest ratio of not less than 3.0:1. The agreement also
requires that borrowers and guarantors represent at least 75% of Company EBITDA and total tangible assets of
the Company.
The covenants for the $85,000,000 revolver bank loan facility include maintaining a debt (offset by cash) to
EBITDA ratio of not more than 3.5:1 and an EBITDA to interest ratio of not less than 3.0:1. The agreement also
requires that borrowers and guarantors represent at least 70% of Company EBITDA and has no tangible asset
covenant.
Prior to the Company engaging in certain activities, including incurring additional indebtedness, the Company is
subject to specific covenants, which contain specified exceptions and qualifications.
See Note 26 for a list of subsidiary guarantors which guarantee one or more of the debt facilities. Testing of
covenant compliance takes place twice-yearly for the trailing 12 month periods to 30 June and 31 December.
Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal
balance of the associated debt becoming immediately due and payable. The Company is in compliance with the
debt covenants as at 31 December 2011 and 2010 as well as 30 June 2011 and 2010.
Finance leases
The finance lease liabilities were assumed largely as part of acquiring certain businesses prior to 2008. The
leases are secured by the assets leased. The borrowings have interest rates ranging from 7.10% to 13.08%,
with repayment periods not exceeding three years.
_______________________________________________________________________________________
85
Annual Report 2011
101
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
18.
PROVISIONS
Current
Employee benefits
Restructuring and termination costs 1
Warranty 2
Onerous lease costs
Non-current
Employee benefits
Pension and post-retirement benefits (Note 19)
2011
US$'000
2010
US$'000
19,871
1,044
715
656
22,286
4,510
69,078
73,588
95,874
13,323
4,462
613
-
18,398
4,993
50,344
55,337
73,735
The changes in the provisions for the year ended 31 December 2011 are as follows:
Balance at 1 January 2011
Additional provisions recognised
Reductions arising from payments
Reductions resulting from remeasurement
Foreign exchange
Balance at 31 December 2011
Restructuring
and termination
costs 1
US$'000
Warranty 2
US$'000
Onerous
lease costs
US$'000
4,462
543
(3,299)
(452)
(210)
1,044
613
760
(175)
(403)
(80)
715
-
656
-
-
-
656
(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
Boart Longyear Limited
102
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
19.
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. Most 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 2011, and 2010, there were no significant outstanding/prepaid contributions. Company contributions
to these plans were $16,778,000 and $15,049,000 for the years ended 31 December 2011 and 2010,
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 2011 by qualified independent actuaries. The estimated market value of the assets of the funded
pension plans was $173,776,000 and $194,620,000 at 31 December 2011, and 2010, 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 77% and 93% in 2011 and 2010, respectively, 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 $9,612,000 and $7,115,000 in the years ended 31 December 2011
and 2010, respectively. Contributions in 2012 are expected to be $13,231,000.
_______________________________________________________________________________________
87
Annual Report 2011
103
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
19.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The principal assumptions used to determine the actuarial present value of benefit obligations and pension costs
are detailed below (shown in weighted averages):
Discount rates
Expected average rate of increase
North
America
4.5%
2011
Europe
4.8%
Southern
Africa 1
-
North
America
5.3%
2010
Europe
5.3%
Southern
Africa 1
8.8%
in salaries
3.8%
4.0%
Expected average rate of increase
of pensions in payment
-
1.5%
Expected average long-term rate of
return on plan assets
Expected average increase
in healthcare costs (initial)
Expected average increase
in healthcare costs (ultimate)
7.1%
4.2%
8.0%
5.0%
-
-
-
-
-
-
-
3.8%
4.0%
-
1.5%
-
-
7.4%
5.3%
7.3%
7.8%
5.0%
-
-
-
-
(1) The Southern Africa pension and post-retirement medical plans were settled with participants in 2008. The
majority of the members elected to transfer to the Alexander Forbes Retirement Fund, leaving only one
member in the plan. In December 2011, the Company received payment from the plan representing the net
pension assets.
Amounts recognised in profit or loss in respect of these defined benefit plans are as follows:
2011
Post-
retirement
Pension
plan medical plan
US$'000
US$'000
1,862
11,081
-
(13,409)
769
803
-
-
Total
US$'000
2,631
11,884
-
(13,409)
2010
Post-
retirement
Pension
plan medical plan
US$'000
US$'000
1,443
10,859
759
(12,622)
581
646
-
-
Total
US$'000
2,024
11,505
759
(12,622)
(466)
1,572
1,106
439
1,227
1,666
Current service cost
Interest cost on plan liabilities
Past service cost
Expected return on plan assets
Total charge (credit) to profit
and loss account
For the financial years ended 31 December 2011 and 2010, charges of approximately $932,000 and $1,180,000,
respectively, have been included in cost of goods sold and the remainder in general and administrative or sales
and marketing expenses.
The following amounts have been recognised in the statement of comprehensive income.
2011
Post-
retirement
Pension
2010
Post-
retirement
Pension
plan medical plan
US$'000
US$'000
Total
US$'000
plan medical plan
US$'000
US$'000
Total
US$'000
18,456
1,090
19,546
7,787
2,353
10,140
Actuarial losses during
the year, net of taxes
_______________________________________________________________________________________
88
Boart Longyear Limited
104
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
19.
19.
19.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The amount included in the balance sheet arising from the Company’s obligations in respect of defined benefit
plans is as follows:
The amount included in the balance sheet arising from the Company’s obligations in respect of defined benefit
The amount included in the balance sheet arising from the Company’s obligations in respect of defined benefit
plans is as follows:
plans is as follows:
2011
2011
2011
Post-
Post-
Post-
retirement
retirement
retirement
medical plan
medical plan
medical plan
US$'000
US$'000
US$'000
Pension
Pension
Pension
plan
plan
plan
US$'000
US$'000
US$'000
Total
Total
Total
US$'000
US$'000
US$'000
Pension
Pension
Pension
plan
plan
plan
US$'000
US$'000
US$'000
2010
2010
2010
Post-
Post-
Post-
retirement
retirement
retirement
medical plan
medical plan
medical plan
US$'000
US$'000
US$'000
Total
Total
Total
US$'000
US$'000
US$'000
Present value of funded defined
Present value of funded defined
Present value of funded defined
benefit obligations
benefit obligations
benefit obligations
Fair value of plan assets
Fair value of plan assets
Fair value of plan assets
benefit obligations
benefit obligations
Present value of unfunded defined
Present value of unfunded defined
Present value of unfunded defined
benefit obligations
Deficit
Deficit
Net liability arising from defined
Net liability arising from defined
benefit obligations
Deficit
Net liability arising from defined
benefit obligations
benefit obligations
221,041
221,041
221,041
(173,776)
(173,776)
(173,776)
47,265
47,265
47,265
-
-
-
-
-
-
-
-
-
221,041
221,041
221,041
(173,776)
(173,776)
(173,776)
47,265
47,265
47,265
205,183
205,183
205,183
(194,620)
(194,620)
(194,620)
10,563
10,563
10,563
-
-
-
-
-
-
-
-
-
205,183
205,183
205,183
(194,620)
(194,620)
(194,620)
10,563
10,563
10,563
4,575
51,840
4,575
4,575
51,840
51,840
17,238
17,238
17,238
17,238
17,238
17,238
21,813
69,078
21,813
21,813
69,078
69,078
4,567
15,130
4,567
4,567
15,130
15,130
14,879
14,879
14,879
14,879
14,879
14,879
19,446
30,009
19,446
19,446
30,009
30,009
51,840
51,840
51,840
17,238
17,238
17,238
69,078
69,078
69,078
15,130
15,130
15,130
14,879
14,879
14,879
30,009
30,009
30,009
Changes in the present value of the defined benefit obligations were as follows:
Changes in the present value of the defined benefit obligations were as follows:
Changes in the present value of the defined benefit obligations were as follows:
2011
2011
2011
Post-
Post-
Post-
retirement
retirement
retirement
medical plan
medical plan
medical plan
US$'000
US$'000
US$'000
Pension
Pension
Pension
plan
plan
plan
US$'000
US$'000
US$'000
Total
Total
Total
US$'000
US$'000
US$'000
Pension
Pension
Pension
plan
plan
plan
US$'000
US$'000
US$'000
2010
2010
2010
Post-
Post-
Post-
retirement
retirement
retirement
medical plan
medical plan
medical plan
US$'000
US$'000
US$'000
Total
Total
Total
US$'000
US$'000
US$'000
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from plan participants
Actuarial losses
Past service cost
Exchange differences on foreign plans
Benefits paid
Closing defined benefit obligation
Opening defined benefit obligation
Opening defined benefit obligation
Current service cost
Current service cost
Interest cost
Interest cost
Contributions from plan participants
Contributions from plan participants
Actuarial losses
Actuarial losses
Past service cost
Past service cost
Exchange differences on foreign plans
Exchange differences on foreign plans
Benefits paid
Benefits paid
Closing defined benefit obligation
Closing defined benefit obligation
209,750
209,750
209,750
1,862
1,862
1,862
11,081
11,081
11,081
-
-
-
17,510
17,510
-
-
-
(4,414)
(4,414)
(4,414)
(10,173)
(10,173)
(10,173)
225,616
225,616
225,616
17,510
14,879
14,879
14,879
769
769
769
803
803
803
434
434
434
1,752
1,752
1,752
-
-
-
(12)
(12)
(12)
(1,387)
(1,387)
(1,387)
17,238
17,238
17,238
224,629
224,629
224,629
2,631
2,631
2,631
11,884
11,884
11,884
434
434
434
19,262
19,262
19,262
-
-
-
(4,426)
(4,426)
(4,426)
(11,560)
(11,560)
(11,560)
242,854
242,854
242,854
193,355
193,355
193,355
1,443
1,443
1,443
10,859
10,859
10,859
-
-
-
14,632
14,632
14,632
759
759
759
(574)
(574)
(574)
(10,724)
(10,724)
(10,724)
209,750
209,750
209,750
10,488
10,488
10,488
581
581
581
646
646
646
353
353
353
3,793
3,793
3,793
-
-
-
27
27
27
(1,009)
(1,009)
(1,009)
14,879
14,879
14,879
203,843
203,843
203,843
2,024
2,024
2,024
11,505
11,505
11,505
353
353
353
18,425
18,425
18,425
759
759
759
(547)
(547)
(547)
(11,733)
(11,733)
(11,733)
224,629
224,629
224,629
Changes in the fair value of plan assets were as follows:
Changes in the fair value of plan assets were as follows:
Changes in the fair value of plan assets were as follows:
2011
2011
2011
Post-
Post-
Post-
retirement
retirement
retirement
medical plan
medical plan
medical plan
US$'000
US$'000
US$'000
Pension
Pension
Pension
plan
plan
plan
US$'000
US$'000
US$'000
Total
Total
Total
US$'000
US$'000
US$'000
Pension
Pension
Pension
plan
plan
plan
US$'000
US$'000
US$'000
2010
2010
2010
Post-
Post-
Post-
retirement
retirement
retirement
medical plan
medical plan
medical plan
US$'000
US$'000
US$'000
Total
Total
Total
US$'000
US$'000
US$'000
Opening fair value plan of assets
Opening fair value plan of assets
Opening fair value plan of assets
Expected return on plan assets
Expected return on plan assets
Expected return on plan assets
Actuarial (losses) gains
Actuarial (losses) gains
Actuarial (losses) gains
Exchange differences on foreign plans
Exchange differences on foreign plans
Exchange differences on foreign plans
Contributions from the employer
Contributions from the employer
Contributions from the employer
Distribution of assets from settled plan
Distribution of assets from settled plan
Distribution of assets from settled plan
Contributions from plan participants
Contributions from plan participants
Contributions from plan participants
Benefits paid
Benefits paid
Benefits paid
Closing fair value of plan assets
Closing fair value of plan assets
Closing fair value of plan assets
194,620
194,620
194,620
13,409
13,409
13,409
(8,520)
(8,520)
(8,520)
(5,155)
(5,155)
(5,155)
9,612
9,612
9,612
(20,017)
(20,017)
(20,017)
-
-
-
(10,173)
(10,173)
(10,173)
173,776
173,776
173,776
-
-
-
-
-
-
-
-
-
-
-
-
953
953
953
-
-
-
434
434
434
(1,387)
(1,387)
(1,387)
-
-
-
194,620
194,620
194,620
13,409
13,409
13,409
(8,520)
(8,520)
(8,520)
(5,155)
(5,155)
(5,155)
10,565
10,565
10,565
(20,017)
(20,017)
(20,017)
434
434
434
(11,560)
(11,560)
(11,560)
173,776
173,776
173,776
178,854
12,622
3,867
2,886
7,115
178,854
178,854
12,622
12,622
3,867
3,867
2,886
2,886
7,115
7,115
-
-
-
-
-
-
(10,724)
(10,724)
(10,724)
194,620
194,620
194,620
-
-
-
-
-
-
-
-
-
-
-
-
656
656
656
-
-
-
353
353
353
(1,009)
(1,009)
(1,009)
-
-
-
178,854
12,622
3,867
2,886
7,771
178,854
178,854
12,622
12,622
3,867
3,867
2,886
2,886
7,771
7,771
-
-
-
353
353
353
(11,733)
(11,733)
(11,733)
194,620
194,620
194,620
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
89
89
89
Annual Report 2011
105
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
19.
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:
North America
Fair
value
US$'000
Rate of
return
%
2011
Europe
Rate of
return
%
Fair
value
US$'000
Southern Africa
Fair
value
US$'000
Rate of
return
%
9.0%
4.6%
-
3.4%
3.4%
7.1%
59,418
60,498
-
6,794
2,140
128,850
6.8%
2.5%
4.8%
1.4%
-
4.2%
15,963
25,187
1,544
215
-
42,909
-
-
-
-
-
-
-
-
-
2,017
-
2,017
North America
Fair
value
US$'000
Rate of
return
%
2010
Europe
Rate of
return
%
Fair
value
US$'000
Southern Africa
Fair
value
US$'000
Rate of
return
%
9.3%
4.6%
-
3.7%
3.9%
7.4%
62,679
56,547
-
9,499
2,281
131,006
7.0%
3.3%
5.5%
2.0%
-
5.3%
26,599
12,198
2,028
223
-
41,048
-
8.8%
-
7.8%
-
7.3%
-
11,470
-
11,096
-
22,566
Total
fair value
US$'000
75,381
85,685
1,544
9,026
2,140
173,776
Total
fair value
US$'000
89,278
80,215
2,028
20,818
2,281
194,620
At 31 December 2011
Equity
Bonds
Property
Cash
Other
At 31 December 2010
Equity
Bonds
Property
Cash
Other
The pension and post-retirement (surplus) deficit by geographic region are as follows:
31 December 2011
31 December 2010
North
America
Europe
Southern
Africa
Total
North
America
Europe
Southern
Africa
Total
Post-retirement medical
plan deficit
Pension plan
17,238
-
deficit (surplus)
Total deficit (surplus)
36,298
53,536
15,542
15,542
-
-
-
17,238
14,879
-
-
14,879
51,840
69,078
19,202
34,081
16,263
16,263
(20,335)
(20,335)
15,130
30,009
On 8 December 2003, the Medicare Prescription Drug Improvement and Modernisation Act of 2003 was signed
into law in the US 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 $930,000 and $773,000 at 31
December 2011 and 2010, respectively. The expense was reduced by approximately $49,000 and $66,000 at 31
December 2011 and 2010, respectively.
_______________________________________________________________________________________
90
Boart Longyear Limited
106
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
19.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
2011
Post-
retirement
medical plan
US$'000
Total
US$'000
Pension
plan
US$'000
2010
Post-
retirement
medical plan
US$'000
Total
US$'000
-
173,776
194,620
-
194,620
Pension
plan
US$'000
173,776
(225,616)
(51,840)
(17,238)
(17,238)
(242,854)
(69,078)
(209,750)
(15,130)
(14,879)
(14,879)
(224,629)
(30,009)
141
85
226
(643)
106
(537)
(8,520)
-
(8,520)
3,867
-
3,867
2009
Post-
retirement
medical plan
US$'000
Total
US$'000
Pension
plan
US$'000
2008
Post-
retirement
medical plan
US$'000
Total
US$'000
-
178,854
150,626
-
150,626
Pension
plan
US$'000
178,854
(193,355)
(14,501)
(10,488)
(10,488)
(203,843)
(24,989)
(171,312)
(20,686)
(9,411)
(9,411)
(180,723)
(30,097)
(570)
(166)
(736)
(635)
63
(572)
13,345
-
13,345
(49,714)
-
(49,714)
2007
Post-
retirement
medical plan
US$'000
Total
US$'000
-
257,362
Pension
plan
US$'000
257,362
(246,669)
10,693
(11,481)
(11,481)
(258,150)
(788)
(36,668)
2,688
(33,980)
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
Fair value of plan assets
Present value of
defined benefit obligation
Deficit
Experience adjustments
on plan liabilities
Experience adjustments
on plan assets
_______________________________________________________________________________________
91
Annual Report 2011
107
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
19.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
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
20.
ISSUED CAPITAL
2011
US$'000
2010
US$'000
211
2,133
184
1,790
(180)
(1,808)
(156)
(1,521)
2011
2010
Shares
'000
US$'000
Shares
'000
US$'000
Share capital
Ordinary shares, fully paid
455,755
1,128,923
457,129
1,132,051
Movements in ordinary shares
Balance at beginning of year
Vesting of LTIP rights, restricted shares
Purchase of shares for LTIP
Balance at end of the year
457,129
322
(1,696)
455,755
1,132,051
5,204
(8,332)
1,128,923
459,363
26
(2,260)
457,129
1,136,347
1,472
(5,768)
1,132,051
_______________________________________________________________________________________
92
Boart Longyear Limited
108
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
21.
RESERVES
Foreign currency translation
Equity-settled employee benefits
Unrealised losses related
to hedging instruments
2011
US$'000
2010
US$'000
50,334
9,333
-
59,667
76,421
8,415
(259)
84,577
During the years ended 31 December 2011 and 2010, 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 year
2011
US$'000
76,421
(26,087)
50,334
2010
US$'000
17,630
58,791
76,421
Exchange differences relating to the translation from various functional currencies of the Company’s subsidiaries
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
Vesting of LTIP rights
Balance at end of year
2011
US$'000
2010
US$'000
8,415
6,122
(5,204)
9,333
6,024
3,863
(1,472)
8,415
The equity-settled employee benefits reserve is recognised over the vesting period of restricted shares, LTIP
rights and share options. Amounts are transferred out of the reserve and into issued capital when the shares are
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
Related income tax
Balance at end of year
2011
US$'000
2010
US$'000
(259)
193
137
(71)
-
(616)
(190)
741
(194)
(259)
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.
_______________________________________________________________________________________
93
Annual Report 2011
109
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
22.
RETAINED EARNINGS/ACCUMULATED LOSSES
During the years ended 31 December 2011 and 2010, the changes in retained earnings (accumulated losses)
consist of:
Balance at beginning of year
Profit 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 year
2011
US$'000
2010
US$'000
(19,477)
(84,166)
159,871
(37,816)
(19,546)
83,032
84,513
(9,684)
(10,140)
(19,477)
23.
DIVIDENDS
Dividends declared and paid during the year ended 31 December 2011 are as follows:
Fully paid ordinary shares
Final 2010 dividend 35% franked
Interim 2011 dividend 35% franked
Fully paid ordinary shares
Dividend 35% franked
2011
US cents per
share
Total
US$'000
3.4
4.8
8.2
15,679
22,137
37,816
2010
US cents per
share
Total
US$'000
2.1
9,684
On 21 February 2012, the Directors determined to pay a dividend of US 5.6 cents per share (for a total of
approximately $26,000,000) for the second half of 2011. The dividend is expected to be paid on 13 April 2012 to
shareholders of record on 16 March 2012. The dividend will be 15% franked at the Australian corporate taxation
rate of 30%. None of the unfranked portion of the dividend will be conduit foreign income. The dividend is not
included as a liability in the 31 December 2011 financial statements. Franking credits available after payment of
this dividend will be $5,765,000.
Below is the combined amount of franking credits available for the next year:
Adjusted combined franking balance
2011
US$'000
2010
US$'000
7,437
15,149
_______________________________________________________________________________________
94
Boart Longyear Limited
110
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
24.
EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
Basic earnings per share
The earnings and weighted average number of ordinary shares
used in the calculation of basic earnings per share are as follows:
2011
US cents
per share
2010
US cents
per share
35.1
34.8
18.5
18.4
2011
US$'000
2010
US$'000
Earnings used in the calculation of basic EPS
159,871
84,513
Weighted average number of ordinary shares for the purposes of
basic earnings per share
456,117
457,397
2011
'000
2010
'000
Diluted earnings per share
The earnings used in the calculation of diluted earnings per
share are as follows:
2011
US$'000
2010
US$'000
Earnings used in the calculation of diluted EPS
159,871
84,513
Weighted average number of ordinary shares used in the
calculation of basic EPS
Shares deemed to be issued for no consideration in respect of:
LTIP share rights
Options
Weighted average number of ordinary shares used in the
calculation of diluted EPS
2011
'000
2010
'000
456,117
457,397
2,856
39
1,553
-
459,012
458,950
_______________________________________________________________________________________
95
Annual Report 2011
111
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
25.
COMMITMENTS FOR EXPENDITURE
Commitments
The Company has a number of continuing operational and financial commitments in the normal course of
business.
Capital commitments
Purchase commitments for capital expenditures
13,631
9,786
2011
US$'000
2010
US$'000
Non-cancellable future operating lease commitments as at 31 December 2011 and 2010 consist of the following:
Payments due within:
1 year
2 to 5 years
After 5 years
31 December 2011
31 December 2010
Land and
buildings
US$'000
Plant and
equipment
US$'000
Land and
buildings
US$'000
Plant and
equipment
US$'000
15,536
34,172
12,166
61,874
17,121
24,616
-
41,737
10,153
29,280
10,159
49,592
19,313
40,134
146
59,593
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 seven years
1 – 5 years for machinery and equipment with an average lease term of three years
1 – 7 years for all other property with an average lease term of three 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 accruals for operating leases as at 31 December 2011 that are considered onerous in the
amount of $1,166,000, $510,000 of which is included the restructuring provision. As at 31 December 2010, the
Company has accruals for operating leases that are considered onerous of $1,238,000, all of which is included in
the restructuring provision.
_______________________________________________________________________________________
96
Boart Longyear Limited
112
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
26.
CONTINGENT LIABILITIES
Letters of credit
Standby letters of credit primarily issued in support of commitments or other obligations as at 31 December 2011
are as follows:
•
•
The Company’s subsidiary in Zambia has a letter of credit in the amount of $1,900,000 to support
products inventory, which expires December 2012.
The Company’s subsidiary in the US has a letter of credit in the amount of $405,000 to secure a
worker’s compensation program which expires January 2013.
A summary of the maturity of issued letters of credit is as follows:
Less than 1 year
1 to 3 years
2011
US$'000
2010
US$'000
1,900
405
2,305
1,800
405
2,205
_______________________________________________________________________________________
97
Annual Report 2011
113
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
26.
CONTINGENT LIABILITIES (CONTINUED)
Guarantees
The subsidiaries of the Company provide guarantees within the normal course of business which includes
payment guarantees to cover import duties, taxes, performance and completion of contracts. In addition, the
Parent and certain subsidiaries are guarantors on the Company’s loans and borrowings.
A summary of the Company’s subsidiaries which are guarantors of the Company’s long-term debt is as follows:
Country
Canada
United States
Australia
Entity
Longyear Canada ULC
Boart Longyear Canada
Longyear Holdings, Inc.
Longyear TM, Inc.
Boart Longyear Company
Boart Longyear Nevada
Boart Longyear Limited
Boart Longyear Management Pty Limited
Votraint No. 1609 Pty Limited
Boart Longyear Australia Pty Limited
Aqua Drilling & Grouting Pty Ltd.
Switzerland
Votraint Switzerland SARL
Legal contingencies
The Company is subject to certain routine legal proceedings that arise in the normal course of its business.
Management believes that the ultimate amount of liability, if any, for any pending claims of any type (either alone
or combined) will not materially affect the Company’s operations, liquidity, or financial position taken as a whole.
However, the ultimate outcome of any litigation is uncertain, and unfavourable outcomes could have a material
adverse impact.
Other contingencies
Other contingent liabilities as at 31 December 2011 and 2010 consist of the following:
Contingent liabilities
Guarantees/counter-guarantees to outside parties
13,492
18,145
2011
US$'000
2010
US$'000
_______________________________________________________________________________________
98
Boart Longyear Limited
114
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
27.
27.
27.
COMPANY SUBSIDIARIES
COMPANY SUBSIDIARIES
COMPANY SUBSIDIARIES
The Company’s percentage ownership of the principal subsidiaries follows:
The Company’s percentage ownership of the principal subsidiaries follows:
The Company’s percentage ownership of the principal subsidiaries follows:
Subsidiaries
Subsidiaries
Subsidiaries
A.C.N. 066 301 531 Pty Ltd
A.C.N. 066 301 531 Pty Ltd
A.C.N. 066 301 531 Pty Ltd
Aqua Drilling & Grouting Pty Ltd.
Aqua Drilling & Grouting Pty Ltd.
Aqua Drilling & Grouting Pty Ltd.
BLI Zambia Ltd.
BLI Zambia Ltd.
BLI Zambia Ltd.
BLY Gabon S.A.
BLY Gabon S.A.
BLY Gabon S.A.
BLY Ghana Limited
BLY Ghana Limited
BLY Ghana Limited
BLY Mali S.A.
BLY Mali S.A.
BLY Mali S.A.
BLY Mexico Servicios S.A. de C.V.
BLY Mexico Servicios S.A. de C.V.
BLY Mexico Servicios S.A. de C.V.
BLY Senegal S.A.
BLY Senegal S.A.
BLY Senegal S.A.
BLY Sierra Leone Ltd.
BLY Sierra Leone Ltd.
BLY Sierra Leone Ltd.
Boart Longyear (Cambodia) Ltd.
Boart Longyear (Cambodia) Ltd.
Boart Longyear (Cambodia) Ltd.
Boart Longyear (D.R.C.) SPRL
Boart Longyear (D.R.C.) SPRL
Boart Longyear (D.R.C.) SPRL
Boart Longyear (Holdings) Ltd.
Boart Longyear (Holdings) Ltd.
Boart Longyear (Holdings) Ltd.
Boart Longyear (Hong Kong) Limited
Boart Longyear (Hong Kong) Limited
Boart Longyear (Hong Kong) Limited
Boart Longyear (Investments) Ltd.
Boart Longyear (Investments) Ltd.
Boart Longyear (Investments) Ltd.
Boart Longyear (NZ) Limited
Boart Longyear (NZ) Limited
Boart Longyear (NZ) Limited
Boart Longyear (Pty) Ltd
Boart Longyear (Pty) Ltd
Boart Longyear (Pty) Ltd
Boart Longyear (Vic) No. 1 Pty Ltd (Australia)
Boart Longyear (Vic) No. 1 Pty Ltd (Australia)
Boart Longyear (Vic) No. 1 Pty Ltd (Australia)
Boart Longyear (Vic) No. 2 Pty Ltd (Australia)
Boart Longyear (Vic) No. 2 Pty Ltd (Australia)
Boart Longyear (Vic) No. 2 Pty Ltd (Australia)
Boart Longyear Alberta Limited
Boart Longyear Alberta Limited
Boart Longyear Alberta Limited
Boart Longyear Argentina S.A.
Boart Longyear Argentina S.A.
Boart Longyear Argentina S.A.
Boart Longyear Australia Holdings Pty Limited
Boart Longyear Australia Holdings Pty Limited
Boart Longyear Australia Holdings Pty Limited
Boart Longyear Australia Pty Ltd
Boart Longyear Australia Pty Ltd
Boart Longyear Australia Pty Ltd
Boart Longyear Bermuda Limited
Boart Longyear Bermuda Limited
Boart Longyear Bermuda Limited
Boart Longyear Burkina Faso Sarl
Boart Longyear Burkina Faso Sarl
Boart Longyear Burkina Faso Sarl
Boart Longyear BV
Boart Longyear BV
Boart Longyear BV
Boart Longyear Canada
Boart Longyear Canada
Boart Longyear Canada
Boart Longyear Chile Limitada
Boart Longyear Chile Limitada
Boart Longyear Chile Limitada
Boart Longyear Colombia S.A.S. 1
Boart Longyear Colombia S.A.S. 1
Boart Longyear Colombia S.A.S. 1
Boart Longyear Company
Boart Longyear Company
Boart Longyear Company
Boart Longyear Cote d'Ivoire S.A. 1
Boart Longyear Cote d'Ivoire S.A. 1
Boart Longyear Cote d'Ivoire S.A. 1
Boart Longyear Consolidated Holdings, Inc.
Boart Longyear Consolidated Holdings, Inc.
Boart Longyear Consolidated Holdings, Inc.
Boart Longyear de Mexico, S.A. de C.V.
Boart Longyear de Mexico, S.A. de C.V.
Boart Longyear de Mexico, S.A. de C.V.
Boart Longyear Drilling and Products Mexico, S.A. de C.V. 1
Boart Longyear Drilling and Products Mexico, S.A. de C.V. 1
Boart Longyear Drilling and Products Mexico, S.A. de C.V. 1
Boart Longyear Drilling Private Limited Company 1
Boart Longyear Drilling Private Limited Company 1
Boart Longyear Drilling Private Limited Company 1
Boart Longyear Drilling Products Company (Wuxi) Ltd.
Boart Longyear Drilling Products Company (Wuxi) Ltd.
Boart Longyear Drilling Products Company (Wuxi) Ltd.
Boart Longyear Drilling Services KZ LLP
Boart Longyear Drilling Services KZ LLP
Boart Longyear Drilling Services KZ LLP
Boart Longyear EMEA Cooperatief U.A.
Boart Longyear EMEA Cooperatief U.A.
Boart Longyear EMEA Cooperatief U.A.
Boart Longyear EMEA UK Holdings Ltd 1
Boart Longyear EMEA UK Holdings Ltd 1
Boart Longyear EMEA UK Holdings Ltd 1
Boart Longyear Eritrea Ltd.
Boart Longyear Eritrea Ltd.
Boart Longyear Eritrea Ltd.
Boart Longyear Financial Services SARL 1
Boart Longyear Financial Services SARL 1
Boart Longyear Financial Services SARL 1
Boart Longyear Global Holdco, Inc
Boart Longyear Global Holdco, Inc
Boart Longyear Global Holdco, Inc
Boart Longyear GmbH & Co Kg
Boart Longyear GmbH & Co Kg
Boart Longyear GmbH & Co Kg
Boart Longyear Holdings (Thailand) Co., Ltd.
Boart Longyear Holdings (Thailand) Co., Ltd.
Boart Longyear Holdings (Thailand) Co., Ltd.
Boart Longyear India Private Ltd
Boart Longyear India Private Ltd
Boart Longyear India Private Ltd
Boart Longyear International BV
Boart Longyear International BV
Boart Longyear International BV
Boart Longyear International Holdings, Inc.
Boart Longyear International Holdings, Inc.
Boart Longyear International Holdings, Inc.
Boart Longyear Investments Pty Ltd
Boart Longyear Investments Pty Ltd
Boart Longyear Investments Pty Ltd
Boart Longyear Liberia Corporation
Boart Longyear Liberia Corporation
Boart Longyear Liberia Corporation
Boart Longyear Limitada
Boart Longyear Limitada
Boart Longyear Limitada
Boart Longyear Limited
Boart Longyear Limited
Boart Longyear Limited
Boart Longyear Limited
Boart Longyear Limited
Boart Longyear Limited
Boart Longyear Limited
Boart Longyear Limited
Boart Longyear Limited
Country of
Country of
Country of
incorporation
incorporation
incorporation
Business
Business
Business
Tools and Equipment
Australia
Tools and Equipment
Australia
Tools and Equipment
Australia
Drilling Services
Australia
Drilling Services
Australia
Drilling Services
Australia
Drilling Services
Zambia
Drilling Services
Zambia
Drilling Services
Zambia
Drilling Services
Drilling Services
Gabon
Drilling Services
Gabon
Gabon
Drilling Services
Ghana
Drilling Services
Drilling Services
Ghana
Ghana
Drilling Services
Mali
Drilling Services
Mali
Mali
Drilling Services
Drilling Services
Mexico
Drilling Services
Mexico
Drilling Services
Mexico
Drilling Services
Senegal
Drilling Services
Senegal
Drilling Services
Senegal
Senegal
Drilling Services
Senegal
Senegal
Drilling Services
Drilling Services
Drilling Services
Cambodia
Drilling Services
Cambodia
Drilling Services
Cambodia
Dem. Rep. of Congo Drilling Products and Services
Dem. Rep. of Congo Drilling Products and Services
Dem. Rep. of Congo Drilling Products and Services
United Kingdom
Holding Company
Holding Company
United Kingdom
United Kingdom
Holding Company
Drilling Services
Hong Kong
Drilling Services
Hong Kong
Hong Kong
Drilling Services
Dormant
Dormant
United Kingdom
Dormant
United Kingdom
United Kingdom
Drilling Services
New Zealand
Drilling Services
New Zealand
New Zealand
Drilling Services
Drilling Products
Botswana
Botswana
Drilling Products
Botswana
Drilling Products
Holding Company
Australia
Holding Company
Australia
Australia
Holding Company
Holding Company
Australia
Holding Company
Australia
Australia
Holding Company
Holding Company
Canada
Holding Company
Canada
Canada
Holding Company
Drilling Services
Argentina
Drilling Services
Argentina
Argentina
Drilling Services
Holding Company
Australia
Holding Company
Australia
Australia
Holding Company
Drilling Services
Australia
Drilling Services
Australia
Australia
Drilling Services
Holding Company
Bermuda
Holding Company
Bermuda
Bermuda
Holding Company
Drilling Services
Drilling Services
Burkina Faso
Burkina Faso
Burkina Faso
Drilling Services
Drilling Products
Drilling Products
Netherlands
Netherlands
Netherlands
Drilling Products
Drilling Products and Services
Canada
Canada
Drilling Products and Services
Canada
Drilling Products and Services
Drilling Products and Services
Chile
Drilling Products and Services
Chile
Chile
Drilling Products and Services
Drilling Services
Colombia
Drilling Services
Colombia
Colombia
Drilling Services
Tools, Equipment and Drilling
USA
Tools, Equipment and Drilling
USA
USA
Tools, Equipment and Drilling
Drilling Services
Ivory Coast
Drilling Services
Ivory Coast
Ivory Coast
Drilling Services
Holding Company
USA
Holding Company
USA
USA
Holding Company
Drilling Services
Mexico
Drilling Services
Mexico
Mexico
Drilling Services
Drilling Products and Services
Drilling Products and Services
Mexico
Mexico
Mexico
Drilling Products and Services
Drilling Services
Ethiopia
Drilling Services
Ethiopia
Ethiopia
Drilling Services
Drilling Products and Services
China
Drilling Products and Services
China
China
Drilling Products and Services
Drilling Services
Kazakhstan
Drilling Services
Kazakhstan
Kazakhstan
Drilling Services
Holding Company
Netherlands
Holding Company
Netherlands
Netherlands
Holding Company
United Kingdom
Holding Company
Holding Company
United Kingdom
United Kingdom
Holding Company
Drilling Services
Eritrea
Drilling Services
Eritrea
Eritrea
Drilling Services
Products
Switzerland
Products
Switzerland
Products
Switzerland
Holding Company
USA
Holding Company
USA
USA
Holding Company
Drilling Products and Services
Germany
Drilling Products and Services
Germany
Germany
Drilling Products and Services
Drilling Services
Thailand
Drilling Services
Drilling Services
Thailand
Thailand
Tools and Equipment
India
Tools and Equipment
India
India
Tools and Equipment
Holding Company
Netherlands
Holding Company
Netherlands
Netherlands
Holding Company
Holding Company
USA
Holding Company
USA
USA
Holding Company
Holding Company
Australia
Holding Company
Australia
Australia
Holding Company
Drilling Services
Liberia
Drilling Services
Liberia
Liberia
Drilling Services
Drilling Products
Drilling Products
Brazil
Brazil
Brazil
Drilling Products
Drilling Products
Ireland
Drilling Products
Ireland
Ireland
Drilling Products
Drilling Services
Laos
Drilling Services
Laos
Laos
Drilling Services
Drilling Services
Thailand
Drilling Services
Thailand
Thailand
Drilling Services
31 Dec
31 Dec
2011
2011
31 Dec
2011
31 Dec
31 Dec
2010
2010
31 Dec
2010
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
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
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
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
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
99
99
99
Annual Report 2011
115
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
27.
27.
COMPANY SUBSIDIARIES (CONTINUED)
COMPANY SUBSIDIARIES (CONTINUED)
Subsidiaries
Subsidiaries
Boart Longyear LLC
Boart Longyear LLC
Boart Longyear Ltd
Boart Longyear Madagascar S.A. 1
Boart Longyear Ltd
Boart Longyear Madagascar S.A. 1
Boart Longyear Management Pty Ltd
Boart Longyear Management Pty Ltd
Boart Longyear Netherlands BV
Boart Longyear Netherlands BV
Boart Longyear Nevada
Boart Longyear Nevada
Boart Longyear Poland Spolka Z.o.o.
Boart Longyear Poland Spolka Z.o.o.
Boart Longyear Products KZ LLP
Boart Longyear Products KZ LLP
Boart Longyear RUS
Boart Longyear RUS
Boart Longyear S.A.
Boart Longyear S.A.
Boart Longyear S.a.r.l.
Boart Longyear S.a.r.l.
Boart Longyear SAC
Boart Longyear SAC
Boart Longyear Vermogensverwaltung GmbH
Boart Longyear Vermogensverwaltung GmbH
Boart Longyear Zambia Ltd.
Connors SA 2
Boart Longyear Zambia Ltd.
Connors SA 2
Cooperatief Longyear Holdings UA
Cooperatief Longyear Holdings UA
Drillcorp Pty Ltd
Dongray Industrial Limited 3
Drillcorp Pty Ltd
Dongray Industrial Limited 3
Geoserv Pesquisas Geologicas S.A.
Geoserv Pesquisas Geologicas S.A.
Grimwood Davies Pty Ltd
Grimwood Davies Pty Ltd
Inavel S.A.
Inavel S.A.
J&T Servicios, S.C.
J&T Servicios, S.C.
Longyear Calulo Holdings BV
Longyear Calulo Holdings BV
Longyear Canada, ULC
Longyear Canada, ULC
Longyear Global Holdings, Inc.
Longyear Global Holdings, Inc.
Longyear Holdings New Zealand, Ltd.
Longyear Holdings New Zealand, Ltd.
Longyear Holdings, Inc.
Longyear Holdings, Inc.
Longyear South Africa (Pty) Ltd
Longyear South Africa (Pty) Ltd
Longyear TM, Inc.
Longyear TM, Inc.
North West Drilling Pty Limited
North West Drilling Pty Limited
P.T. Boart Longyear
P.T. Boart Longyear
Patagonia Drill Mining Services S.A.
Patagonia Drill Mining Services S.A.
Portezuelo S.A.
Portezuelo S.A.
Professional Sonic Drillers (Pty) Limited T/A Prosonic Africa
Professional Sonic Drillers (Pty) Limited T/A Prosonic Africa
Prosonic Corporation
Prosonic Corporation
Prosonic International, Inc.
Rentas de Exploracion I Limitada 2
Prosonic International, Inc.
Rentas de Exploracion I Limitada 2
Rentas de Exploracion II Limitada 2
Rentas de Exploracion II Limitada 2
Votraint No. 1609 Pty Ltd
Votraint No. 1609 Pty Ltd
Votraint Switzerland SARL
Votraint Switzerland SARL
Country of
incorporation
Country of
incorporation
Russia Federation
Russia Federation
Ghana
Ghana
Madagascar
Madagascar
Australia
Australia
Netherlands
Netherlands
USA
USA
Poland
Poland
Kazakhstan
Kazakhstan
Russia Federation
Russia Federation
Chile
Chile
France
France
Peru
Peru
Germany
Germany
Zambia
Zambia
Chile
Chile
Netherlands
Netherlands
Australia
Australia
United Kingdom
United Kingdom
Brazil
Brazil
Australia
Australia
Uruguay
Uruguay
Mexico
Mexico
Netherlands
Netherlands
Canada
Canada
USA
USA
New Zealand
New Zealand
USA
USA
South Africa
South Africa
USA
USA
Australia
Australia
Indonesia
Indonesia
Argentina
Argentina
Paraguay
Paraguay
South Africa
South Africa
USA
USA
USA
USA
Chile
Chile
Chile
Chile
Australia
Australia
Switzerland
Switzerland
Business
Business
31 Dec
2011
31 Dec
2010
31 Dec
2011
31 Dec
2010
Drilling Services
Drilling Services
Dormant
Dormant
Drilling Services
Drilling Services
Holding Company
Holding Company
Holding Company
Holding Company
Drilling Services
Drilling Services
Drilling Products and Services
Drilling Products and Services
Drilling Products
Drilling Products
Drilling Services
Drilling Services
Tools, Equipment and Drilling Services
Tools, Equipment and Drilling Services
Holding Company
Holding Company
Drilling Products and Services
Drilling Products and Services
Dormant
Dormant
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Holding Company
Holding Company
Drilling Services
Drilling Services
In Liquidation
In Liquidation
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Tools and Equipment Services
Tools and Equipment Services
Holding Company
Holding Company
Holding Company
Holding Company
Holding Company
Holding Company
Drilling Products and Services
Drilling Products and Services
Holding Company
Holding Company
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Dormant
Dormant
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Holding Company
Holding Company
Holding Company
Holding Company
Drilling Services
Drilling Services
Holding Company
Holding Company
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
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
(1) This entity was formed in 2011.
(1) This entity was formed in 2011.
(2) All rights and obligations are succeeded by Boart Longyear Chile Limitada.
(2) All rights and obligations are succeeded by Boart Longyear Chile Limitada.
(3) Dissolved in 2008. Restored on 26 October 2010 in an "in liquidation" status to collect a debt.
(3) Dissolved in 2008. Restored on 26 October 2010 in an "in liquidation" status to collect a debt.
_______________________________________________________________________________________
_______________________________________________________________________________________
100
100
Boart Longyear Limited
116
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
28.
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
2011
US$'000
2010
US$'000
82,286
94,944
During the financial years ended 31 December 2011 and 2010 there were no business acquisitions.
(c)
Businesses disposed
During the financial years ended 31 December 2011 and 2010 there were no business dispositions.
29.
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-based 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 has set threshold and maximum targets for both the EPS and ROE
performance awards during each three-year performance period and vesting will be determined by the
Company’s actual performance against the targets. 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 shares will be held in trust. For grants made prior to 2012, the participant will
receive dividends paid on those shares from the time of acquisition until vesting. For grants made beginning in
2012, dividends paid on unvested share rights will be held in trust and paid when vesting occurs.
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 share rights,
options and restricted shares have been restated in this report using the consolidated share amounts.
The total share-based expense associated with share rights granted under the LTIP for the years ended 31
December 2011 and 2010 was $5,107,000 and $2,976,000, respectively.
The Board has on certain occasions granted 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. The share-based expense associated with share options
for the years ended 31 December 2011 and 2010 was $748,000 and $778,000, respectively. $268,000 of share-
based compensation was capitalised in the fiscal year ended 31 December 2011.
In addition, prior to the IPO, there were 64,324 restricted shares granted to Board members in consideration of
services performed, which vested in 2010. The share-based expense recorded relating to the restricted shares
during the year ended 31 December 2010 was $109,000.
_______________________________________________________________________________________
101
Annual Report 2011
117
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
29.
SHARE-BASED PAYMENTS (CONTINUED)
Share Rights
The following table reflects the share rights arrangements that were in existence at 31 December 2011:
Series - Share Rights
1 - Issued 14 January 2009
2 - Issued 25 March 2009
3 - Issued 2 July 2009
4 - Issued 1 March 2010
5 - Issued 15 March 2010
6 - Issued 26 August 2010
7 - Issued 13 December 2010
8 - Issued 15 March 2011
9 - Issued 15 April 2011
10 - Issued 11 July 2011
11 - Issued 14 October 2011
Number
1,250
1,171,219
5,000
1,912,898
104,600
30,000
10,000
2,022,180
74,324
26,750
125,000
Effective
grant date
Vesting
date
Fair value at
grant date 1
US$
14-Jan-09
25-Mar-09
2-Jul-09
1-Mar-10
15-Mar-10
26-Aug-10
13-Dec-10
15-Mar-11
15-Apr-11
11-Jul-11
14-Oct-11
14-Jan-12
25-Mar-12
2-Jul-12
1-Mar-13
15-Mar-13
26-Aug-13
13-Dec-13
15-Mar-14
1-Aug-12
11-Jul-14
14-Oct-14
1.78
0.74
3.41
2.78
2.93
3.29
4.35
4.36
4.97
4.27
3.05
(1) Because share rights have no market vesting conditions and participants are entitled to dividends, share
rights are valued at the market price upon the grant date.
The following reconciles the outstanding share rights at the beginning and end of the year:
Share rights
Balance at beginning of year
Granted
Forfeited
Vested
Balance at end of year
2011
Number of
rights
'000
2010
Number of
rights
'000
3,686
2,270
(151)
(322)
5,483
1,884
2,284
(394)
(88)
3,686
The following share rights vested during 2011:
Grant date
Date of
vest
Number
of shares
'000
Fair value at
date of
vest
A$
11-Apr-08
26-Jun-08
23-Oct-08
11-Apr-11
11-Apr-11
23-Oct-11
244
34
44
4.72
4.72
2.98
_______________________________________________________________________________________
102
Boart Longyear Limited
118
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
29.
SHARE-BASED PAYMENTS (CONTINUED)
Options
The following table reflects the options arrangements that were in existence at 31 December 2011:
Series - Options
1 - Issued 28 April 2008
2 - Issued 1 January 2009 1
3 - Issued 18 June 2009
4 - Issued 15 March 2010
Number
100,000
150,000
317,500
25,000
Effective
grant date
Vesting
date
28-Apr-08
28-Apr-08
18-Jun-09
15-Mar-10
1-Jan-13
1-Jan-14
18-Jun-12
15-Mar-13
Fair value at
grant date
US$
6.87
14.50
1.43
2.24
(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 values of the options grants were determined using the Black-Scholes option pricing model using the
following inputs:
Grant date
share price
US$
16.30
16.30
1.90
2.93
Series 1 *
Series 2 *
Series 3 *
Series 4
Expected
volatility
49.86%
49.86%
97.29%
92.14%
Life of
rights
56 months
68 months
60 months
60 months
Dividend
yield
Risk-free
interest rate
0.86%
0.86%
0.00%
0.00%
5.58%
5.58%
5.59%
5.25%
* Subsequent to the original grant date, the Board modified the 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 1
Series 2
Series 3
Original
exercise
price
A$19.50
A$ 2.10
A$ 3.00
Modified
exercise
price
A$18.95
A$ 1.55
A$ 2.45
_______________________________________________________________________________________
103
Annual Report 2011
119
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
29.
SHARE-BASED PAYMENTS (CONTINUED)
The following reconciles the outstanding options at the beginning and end of the year:
2011
2010
Weighted
average
exercise
price
US$
Number of
options
'000
Weighted
average
exercise
price
US$
Number of
options
'000
592
-
-
-
592
-
4.88
-
-
-
4.88
-
567
25
-
-
592
-
4.96
2.93
-
-
4.88
-
Options
Balance at beginning of year
Granted
Forfeited
Exercised
Balance at end of year
Exercisable at end of year
30.
KEY MANAGEMENT PERSONNEL COMPENSATION
Details of key management personnel
The Directors and other members of key management personnel of the Company during the financial year were:
Tanya Fratto - non-executive Director (appointed effective 1 June 2011)
• David McLemore – Chairman, non-executive Director
• Bruce Brook - non-executive Director
• Roger Brown - non-executive Director
•
• Roy Franklin - non-executive Director
• David Grzelak - non-executive Director (resigned effective 1 June 2011)
• Barbara Jeremiah - non-executive Director (appointed effective 1 October 2010)
• Craig Kipp - Chief Executive Officer and Executive Director
• Peter St. George - non-executive Director
•
Joe Ragan III - Chief Financial Officer
•
Fabrizio Rasetti - Senior Vice President, General Counsel and Company Secretary
• Brad Baker - Senior Vice President, Human Resources
• Michael Birch - Vice President, Drilling Services
• Alan Sides – Vice President, Products
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
Share-based payment
2011
US$
6,171,076
110,012
989,175
3,127,647
10,397,910
2010
US$
5,665,932
121,184
666,019
2,082,199
8,535,334
_______________________________________________________________________________________
104
Boart Longyear Limited
120
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
31.
RELATED PARTY TRANSACTIONS
Transactions with key management personnel
(i)
Key management personnel compensation
Details of key management personnel compensation are disclosed in Note 30.
(ii)
Other transactions with key management personnel of the Company
None.
(iii)
Key management personnel equity holdings
Shares
The number of shares held by Directors and other key management personnel are disclosed below.
2011
David McLemore
Bruce Brook
Roger Brown
Barbara Jeremiah
Peter St. George
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
2010
David McLemore
Bruce Brook
Roger Brown
David Grzelak
Peter St. George
Craig Kipp
Fabrizio Rasetti
Michael Birch
Balance
1 January
Net change
during year
Balance
31 December
Balance
held nominally
115,861
104,423
30,000
-
107,450
521,463
-
106,612
-
66,460
-
-
-
30,000
-
43,535
18,523
10,674
8,967
(18,117)
115,861
104,423
30,000
30,000
107,450
564,998
18,523
117,286
8,967
48,343
-
-
-
-
-
-
-
-
-
-
Balance
1 January
Net change
during year
Balance
31 December
Balance
held nominally
115,861
104,423
-
1,000
107,450
521,463
106,612
66,460
-
-
30,000
-
-
-
-
-
115,861
104,423
30,000
1,000
107,450
521,463
106,612
66,460
-
-
-
-
-
-
-
_______________________________________________________________________________________
105
Annual Report 2011
121
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
31.
RELATED PARTY TRANSACTIONS (CONTINUED)
Share rights and restricted shares
Details of the number of share rights granted under the LTIP program and restricted shares that have been
granted as compensation to key management personnel, and the activity during the financial year, are as follows:
Held at the
beginning of
the financial
year
Granted as
remun-
eration
Vested
and issued
during the
year
Forfeited
during the
year
659,291
208,000
155,428
142,150
157,900
104,600
455,580
80,000
70,000
60,000
80,000
60,000
(43,535)
(26,400)
(15,708)
(13,200)
(17,600)
-
(5,936)
(3,600)
(2,142)
(1,800)
(2,400)
-
Held at the
end of the
financial
year
1,065,400
258,000
207,578
187,150
217,900
164,600
2011
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
Held at the
beginning of
the Financial
year
Granted as
remun-
eration
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
Vested
and issued
during the
year
(4,595)
(7,297)
-
-
-
-
-
-
2010
Bruce Brook 1
Peter St. George 1
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
Forfeited
during the
year
Held at the
end of the
financial
year
-
-
-
-
-
-
-
-
-
-
659,291
208,000
155,428
142,150
157,900
104,600
(1) The restricted shares that vested in 2010 were awarded upon the Company’s initial public offering
in April 2007 in respect of work performed prior to the Company’s listing.
_______________________________________________________________________________________
106
Boart Longyear Limited
122
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
31.
RELATED PARTY TRANSACTIONS (CONTINUED)
Cash rights
Details of the cash rights that have been granted under the LTIP program as compensation to key management
personnel, and the activity during the financial year, are as follows:
Held at the
beginning of
the financial
year
US$
Granted as
remun-
eration
US$
Vested
and issued
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,000,000
375,000
305,000
305,000
305,000
80,000
2011
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
Held at the
beginning of
the financial
year
US$
Granted as
remun-
eration
US$ 1
Vested
and issued
during the
year
US$
Forfeited
during the
year
US$
Held at the
end of the
financial
year
US$
550,000
275,000
225,000
225,000
225,000
-
450,000
100,000
80,000
80,000
80,000
80,000
-
-
-
-
-
-
-
-
-
-
-
-
1,000,000
375,000
305,000
305,000
305,000
80,000
2010
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
(1) The cash rights vest over a three-year period from the grant date, with 50% subject to certain
performance conditions.
The share and cash rights under the LTIP were provided at no cost to the recipient.
_______________________________________________________________________________________
107
Annual Report 2011
123
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
31.
RELATED PARTY TRANSACTIONS (CONTINUED)
Options
Details of the options that have been granted as compensation to key management personnel under the LTIP
program, and the activity during the financial year are as follows:
Held at the
beginning of
the financial
Year
340,000
37,500
27,500
27,500
27,500
25,000
Held at the
beginning of
the financial
year
340,000
37,500
27,500
27,500
27,500
-
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
2011
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
340,000
37,500
27,500
27,500
27,500
25,000
-
-
-
-
-
-
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
-
-
-
-
-
-
2011
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
2010
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Michael Birch
Alan Sides
During the year ended 31 December 2010, the Board awarded Mr Sides 25,000 options, which will vest in full
and become exercisable on 15 March 2013 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$2.24 per option.
During the years ended 31 December 2011 and 2010, no shares were issued on the exercise of options
previously granted as compensation to the above individuals.
_______________________________________________________________________________________
108
Boart Longyear Limited
124
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2011 BOART LONGYEAR LIMITED
32.
REMUNERATION OF AUDITORS
Company auditor's remuneration
Audit and review of the financial report:
Auditor of the parent entity
Related practices of the parent entity auditor
Non-audit services:
Tax services
Review of tax returns
Due diligence and other non-audit services
2011
US$
2010
US$
1,369,000
1,173,000
2,542,000
2,669,000
687,000
359,000
3,715,000
1,217,000
1,020,000
2,237,000
2,493,000
681,000
11,000
3,185,000
Total remuneration to Company auditor
6,257,000
5,422,000
Remuneration to other accounting firms
Audit services
Non-audit services:
Tax services
Internal audit
Global mobility
Accounting and payroll services
Other
Total remuneration to other accounting firms
272,000
196,000
2,457,000
1,339,000
885,000
439,000
430,000
5,822,000
1,825,000
812,000
371,000
343,000
61,000
3,608,000
The auditor of Boart Longyear Limited is Deloitte Touche Tohmatsu. The Company has employed Deloitte
Touche Tohmatsu on assignments additional to their audit duties where their expertise and experience with the
Company are important. These assignments principally have been related to tax advice and due diligence
reporting on acquisitions.
The Company and its Audit, Compliance & Risk Committee (“Audit Committee”) are committed to ensuring the
independence of the external auditors. Accordingly, significant scrutiny is given to non-audit engagements of the
external auditor. The Company has a formal pre-approval policy which requires the pre-approval of non-audit
services by the Chairman of the Audit Committee or the Audit Committee. Additionally, the total annual fees for
such non-audit services cannot exceed the auditor’s annual audit fees without the approval of the Audit
Committee. The Audit Committee believes that the combination of these two approaches results in an effective
procedure to pre-approve services performed by the external auditor.
Consistent with the approach outlined above, the Audit Committee approved Deloitte Touche Tohmatsu’s
services on a tax-related business improvement project for the years ended 31 December 2010 and 2011, which
resulted in the amount of non-audit services exceeding the audit fee in both years. It is expected that this project
will conclude during the year ending 31 December 2012 and that the level of non-audit services will be below the
audit fee in subsequent years.
33.
SUBSEQUENT EVENTS
The Directors have not become aware of any matter or circumstance that has arisen since 31 December 2011
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.
_______________________________________________________________________________________
109
Annual Report 2011
125
SUPPLEMENTARY INFORMATION
Additional stock exchange information as at 8 March 2012
Substantial shareholders
There are no current substantial holders disclosed in substantial holding notices given to the Company.
Number of holders of equity securities
(a)
Ordinary share capital
461,163,412 fully paid ordinary shares are held by 18,815 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
582,500 share options are held by 11 individual option holders. Options do not carry rights to vote.
Distribution of holders of equity securities
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
Fully paid
ordinary
shares
Share
options
7,827
7,354
2,279
1,274
81
18,815
-
-
-
10
1
11
There are 1,702 shareholders holding less than a marketable parcel of ordinary shares.
_______________________________________________________________________________________
110
Boart Longyear Limited
126
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
Amp Life Limited
Band and Co
USB Nominees Pty Ltd
Cogent Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited-A/C 2
UBS Wealth Management Australia Nominees Pty Ltd
Citicorp Nominees Pty Limited
CS Fourth Nominees Pty Ltd
Share Direct Nominees Pty Ltd
Cogent Nominees Pty Limited
Queensland Investment Corporation
Australian Reward Investment Alliance
RBC Dexia Investor Services Australia Nominees Pty Limited
Bond Street Custodians Limited (MACQ High Conv Fund) & Bond Street
Custodians Limited
Fully paid
ordinary
shares
Number
116,592,228
78,276,726
76,444,944
32,851,661
17,819,828
14,833,924
6,011,620
4,233,556
3,679,154
3,314,707
3,053,065
2,786,779
2,747,621
2,576,640
2,350,000
1,974,800
1,927,092
1,800,076
1,584,616
1,334,803
376,193,840
Percent of
Issued Capital
Percent
25.3%
17.0%
16.6%
7.1%
3.9%
3.2%
1.3%
0.9%
0.8%
0.7%
0.7%
0.6%
0.6%
0.6%
0.5%
0.4%
0.4%
0.4%
0.3%
0.3%
81.6%
_______________________________________________________________________________________
111
Annual Report 2011
127
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Boart Longyear Limited
128
This page has been left blank intentionally.
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
26 Butler Boulevard,
Burbridge Business Park
Adelaide Airport
South Australia 5950
Tel: +61 8 8375 8375
Fax: +61 8 8375 8498
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:
National Wine Centre
Corner of Botanic and Hackney Roads,
Adelaide, SA
Commencing at 1.00pm on 15 May 2012
Website
ww w.boartlongyear.com
ww w.precinct.com.au