BOART LONGYEAR LIMITED
ANNUAL REPORT 2013
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ONE SOURCE
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Boart Longyear Limited ACN 123 052 728
WHO WE ARE
With over 120 years of expertise, Boart Longyear is the world’s leading provider of
drilling services, drilling equipment, and performance tooling for mining and drilling
companies globally. It also has a substantial presence in aftermarket parts and
service, energy, mine de-watering, oil sands exploration, and production drilling.
The Global Drilling Services division operates in over 35 countries for a diverse mining
customer base spanning a wide range of commodities, including copper, gold, nickel,
zinc, uranium, and other metals and minerals. The Global Products division designs,
manufactures and sells drilling equipment, performance tooling, and aftermarket
parts and services to customers in over 100 countries. 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.
CONTENTS
Overview
Chair’s Report
Financial Report
Directors’ Report
Board of Directors
Executive Leadership Team
Independent Auditor’s Report
Directors’ Declaration
Financial Statements
Supplementary Information
Corporate Information
BOARTLONGYEAR.COM/ANNUAL-REPORT/2013
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IBC
FINANCIAL CALENDAR
Final Results
Annual General Meeting
Half Year End
Interim Results
Year End
24 February 2014
19 May 2014
30 June 2014
25 August 2014
31 December 2014
ANNUAL GENERAL MEETING
The Annual General Meeting of Boart Longyear will be held at:
Museum of Sydney
Corner Bridge Street and Philip Street, Sydney NSW 2000
Commencing at 1:00pm on 19 May 2014
2013 OVERVIEW
2013
2012
2011
REVENUE
US$1,223M
1,223
2,012
2,020
GROSS MARGIN
US$202M
EBITDA
US$107M
NET PROFIT AFTER TAX
US$–94M
202
-337
107
*
-620
*
-94
512
564
254
*
322
356
68
116
*
160
CASH FROM OPERATIONS
US$76M
NUMBER OF EMPLOYEES
5,681
SAFETY
TCIR 1.62
LTIR 0.19
76
5,681
156
198
9,162
10,572
1.62
1.56
2.33
0.19
0.10
0.13
DRILLING SERVICES
REVENUE
US$917M
917
1516
1448
EBITDA
US$142M
142
PRODUCTS
REVENUE
US$306M
306
EBITDA
US$16M
16
290
296
495
572
107
132
COMPANY REVENUE
(PRODUCTS AND SERVICES)
COMPANY REVENUE
BY REGION (PRODUCTS
AND SERVICES)
DRILLING SERVICES
REVENUE BY STAGE
DRILLING SERVICES
REVENUE BY COMMODITY
Surface Coring
30%
Rotary/RC
21%
Performance Tooling 19%
Underground Coring 15%
6%
Drilling Equipment
5%
Production Drilling
4%
Other
Asia Pacific
United States
Europe, Middle East
and Africa
Canada
Latin America
29%
22%
19%
18%
13%
Development
(Brownfield)
Water Services
Exploration
(Greenfield)
Production (In-Pit)
Non-Mining
56%
15%
13%
12%
4%
Gold
Copper
Iron
Other Metals
Energy
Nickel
Other
39%
22%
12%
8%
7%
7%
5%
*Adjusted numbers: Adjusted EBITDA, Adjusted EBIT, and Adjusted NPAT are non-IFRS measures and are used internally by management to assess
the performance of the business and, for 2013, have been derived from the Company’s financial statements by adding back US$444 million pre-tax
(US$526 million post-tax) comprising US$461 million of restructuring charges and impairments, offset by a pension related gain of US$17 million.
Cash from Operations: excludes interest & tax.
Annual Report 2013
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DEAR SHAREHOLDERS
OUR AREAS OF FOCUS THROUGHOUT THE YEAR WERE
ON REDUCING COST, MANAGING WORKING CAPITAL AND
IMPROVING OUR CAPITAL STRUCTURE, WHILE BEING DILIGENT
TO CONTINUE PRIORITIZING OUR CUSTOMERS’ NEEDS
Barbara Jeremiah Chair
As of December 31, 2013, we had almost
US$200 million of liquidity between cash on the
balance sheet and committed borrowing facilities.
We continue to enjoy the support of our bank group,
who worked with us to amend our bank agreement
as recently as February, to provide our business with
additional covenant capacity to withstand market
volatility and allow continued access to our bank
revolving credit facility. We remain confident that we
can and will take the actions necessary to ensure
we have the necessary cash and liquidity required to
keep our business operating smoothly and meet our
obligations to our business partners.
As a result of market conditions and numerous
accounting charges, we reported a statutory loss of
USUS$620 million for fiscal year 2013. That statutory
loss primarily reflects US$461 million of pre-tax
(US$375 million post-tax) restructuring charges
and of which only US$40 million was cash. These
accounting adjustments included an impairment
of goodwill related to historical acquisitions and
impairment of other intangible assets as well as write
downs of a portion of our inventory and write downs
and revaluations of certain of our fixed assets.
I am pleased to present our 2013 Annual Report.
2013 represented a difficult year for the
Company and our shareholders. The industry
contraction that began in 2012 accelerated
throughout the year, and the magnitude and speed
of the decline challenged the entire industry as well
as our business. Our areas of focus throughout
the year were on reducing cost, managing working
capital and improving our capital structure, while
being diligent to continue prioritizing our customers’
needs. We have a 120 year-old franchise that
remains very valuable. We are committed to
maintaining the high standards of operating safely
and responsibly, and serving our customers for
which our company has long been recognized.
The Company took significant and tough
steps during the year to respond to an almost 40%
reduction in revenues. We reduced total costs by
almost US$900 million from 2012 levels (including
run-rate SG&A savings of US$190 million), protected
our balance sheet and liquidity through a successful
US$300 million senior note offering completed
in September, and held debt levels almost equal
to our year-end 2012 balances. Our focus has
been on smart and sustainable restructuring to
reduce bureaucracy and duplication and improve
our productivity, decision-making and customer
orientation. These activities have been far-reaching
and significant, including the reduction of
approximately 3,300 overhead and direct positions
and the closure of several facilities. Our team
has navigated the challenges of these changes
skillfully, and the Board thanks all of the Company’s
employees for their dedication and commitment in a
very painful year.
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Boart Longyear The challenges we face will not cause us
to compromise our high standards of safety or
governance, which are vital to our long-term
success and fundamental to our culture. In 2013,
we achieved a Total Case Incident Rate (TCIR) of
1.62 recordable incidents per 200,000 hours worked
and a Lost-Time Injury Rate (LTIR) of 0.19 lost-time
injuries per 200,000 hours worked. Both results
represent superior performance for our industry
but reflect slight decreases in performance from
2012, which saw our TCIR at 1.59 and LTIR at 0.10.
We believe our safety performance during the first
half of the year was impacted by changes in our
leadership and the significant restructuring activities
we undertook, particularly the consolidation of
our Drilling Services territories. We implemented a
number of corrective actions during the course of
the year that have resulted in significantly improved
performance. These initiatives continue to yield
positive results, and we will pursue the continuous
improvement of our safety culture and performance.
We also have refreshed the composition of
our Board and ensured that we have the necessary
financial and mining industry expertise to confront
the challenges we face for the foreseeable future.
The addition of Richard O’Brien, Rex McLennan
and Peter Day to our Board in the past year provides
three directors with outstanding financial acumen
and extensive commercial experience in the US,
Australian and Canadian mining markets. The
Board also established a Finance Committee to
provide additional guidance and assistance with
capital management and financial governance of
the Company.
The Board and management are optimistic
about the Company’s future and prospects. We
believe the current enterprise value is significantly
below the fundamental value of the Company,
and we are committed to closing this gap for
our shareholders. We are confident that our
management team and employees are well equipped
to emerge from the bottom of the mining cycle with
renewed focus and confidence that Boart Longyear
will take advantage of a return to a more robust
mineral exploration and development environment.
These restructuring charges are fully explained
on page 17 of this annual report and in Note 10 to
our financial statements (beginning on page 111).
They are the result of the depressed markets for
our products and services, but they also reflect
the cost of the significant actions we have taken
to permanently improve the business, including
rationalization of our manufacturing facilities and
consolidation of our Drilling Services and Global
Products aftermarket services, maintenance and
supply chain groups.
We are confident our efforts throughout the
year have benefited the Company and positioned
it for solid performance once conditions rebound.
Even in an environment as difficult as in 2013,
our operating business was profitable, producing
US$107 million in adjusted EBITDA and generating
positive cash flow from operations. Our global reach
and customer service remain intact, ensuring that
Boart Longyear’s franchise remains not just a viable
business but a very valuable business.
Our management team and Board continue
to work diligently to preserve shareholder value,
and we assure our shareholders that we will manage
capital prudently, pursue operating improvements
and work closely with our bank group to ensure
our debt instruments are appropriate for market
conditions. However, we also believe that it is
prudent and necessary to explore additional
opportunities to optimize the Company’s capital
structure, particularly to protect the Company and
its shareholders against the volatility of the global
markets for mining services. The Company has
initiated a strategic review of options to access
capital, should it become necessary to do so,
and otherwise to protect the value of the franchise.
The review represents a structured process to
gather information about a broad range of options
to assist the Board’s assessment of which, if any, of
those alternatives might be in the Company’s best
interests. As of the time of this letter, the review is
ongoing and the Board has taken no decisions with
respect to any of the options being investigated.
In a year in which uncertainty in the resources
sector dominated the headlines, there were many
noteworthy Boart Longyear accomplishments
that will position the business for success in the
future. They are too numerous to list in this letter,
but they include our businesses ability to protect
market share while maintaining cost, capital
expenditure and pricing discipline. During the year,
our Drilling Services division won key contracts in
Chile, Saudi Arabia and the Democratic Republic
of Congo, and our Products division continued to
invest in new product development activities as well
as launching several new products.
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Annual Report 2013 FINANCIAL REPORT
Directors’ Report
Auditor’s Independence
Declaration
Independent
Auditor’s Report
Directors’ Declaration
Consolidated Statement of
Profit or Loss and Other
Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes In Equity
Consolidated Statement
of Cash Flows
Notes to the Consolidated
Financial Statements
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Annual Report 2013
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Annual Financial Report
31 December 2013 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 2013 (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.
PRINCIPAL ACTIVITIES
Boart Longyear is the world’s leading integrated provider of drilling services, drilling equipment and performance tooling for
mining and mineral drilling companies globally. The Company provides drilling services, drilling equipment and performance
tooling to mining and drilling companies globally by offering a comprehensive portfolio of technologically advanced and
innovative drilling services and products. The Company operates through two divisions: “Global Drilling Services” and “Global
Products” and believes that its market-leading positions in the mineral drilling industry are driven by a variety of factors,
including the performance, expertise, reliability and high safety standards of Global Drilling Services, the technological
innovation, engineering excellence and global manufacturing capabilities of Global Products and its vertically integrated
business model. These factors, in combination with the Company’s global footprint, have allowed the Company to establish
and maintain long-standing relationships with a diverse and blue-chip customer base worldwide that includes many of the
world’s leading mining companies. With more than 120 years of drilling expertise, the Company believes its
brand represent the gold standard in the global mineral drilling industry.
insignia and
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
The Company implemented a series of restructuring actions and cost reductions during 2012 and 2013 to address declining
revenues in many of its core markets. The restructuring charges and related impairments associated with those actions
totalled approximately $461.2 million during the 2013 financial year and included significant costs associated with the
reduction of approximately 3,300 overhead and direct positions and the closure of several facilities. Nearly $190 million in total
cost savings will be achieved through three cost reduction programmes initiated in December 2012, August 2013 and January
2014.
EVENTS SUBSEQUENT TO REPORTING DATE
On 7 January 2014, the Company announced the appointment of Mr Jeffrey Olsen as Chief Financial Officer of the Company
effective 1 April 2014. Mr. Olsen currently serves as Chief Commercial Officer for Rio Tinto’s Iron & Titanium business. He
brings over 17 years of experience in various finance management roles during his tenure with Rio Tinto.
On 31 January 2014, the Company issued a $5,000,000 cash retention grant to Richard O’Brien. The cash rights will be
divided into three equal portions vesting on 19 May 2014, 1 April 2015 and 1 April 2016.
Based on the Company’s view that market conditions may not significantly recover over the next twelve months, the Company
negotiated an amendment to its Credit Agreement that is intended to provide continued access to the revolving credit facility
and additional head room under the Credit Agreement’s financial covenants. The amendment, which became effective on 22
February 2014, eliminates the Minimum Asset Coverage financial covenant and suspends the following financial covenants
through the 31 March 2015 compliance testing date:
· Minimum Liquidity of US$30 million (tested monthly)
· Minimum Interest Coverage Ratio of 1.55x (tested quarterly)
New financial covenants have been added, which require:
· minimum cumulative last-twelve-months EBITDA of US$45 million through 31 March 2015 (tested quarterly); and
· maximum Total Debt, at the levels set out below, to be tested quarterly through the maturity date of the Credit
Agreement, which remains unchanged at 29 July 2016:
(i) US$700 million at 30 June 2014
(ii) US$700 million at 30 September 2014
(iii) US$670 million at 31 December 2014
(iv) US$720 million at 31 March 2015
(v) US$725 million at 30 June 2015 and for each quarterly testing date thereafter.
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Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
The specified maximum Total Debt levels may vary upon the occurrence of certain events. In addition, the amendment adjusts
fees and pricing, introduces new financial reporting requirements, establishes a monthly borrowing base of specified assets to
allowed borrowings, limits annual capital expenditures and requires the Company, by 30 September 2014, to present a plan to
the banks that proposes full repayment of the facility by the maturity date, which will be subject to an independent review.
“Total Debt” means, as of any date, the Total Revolving Outstandings and any other Finance Debt of the Group outstanding
(whether actually or contingently) on that date, but excluding (to the extent otherwise included): (i) contingent exposures under
hedge or derivative transactions other than currency hedge or derivative transactions that hedge Finance Debt; (ii) Finance
Debt owed by a Group member to another Group member; (iii) contingent liability under any letters of credit (other than those
issued under this Agreement) which support performance obligations of a Group member, performance bonds or performance
guaranties (or bank guaranties or letters of credit in lieu thereof) occurring within the ordinary course of business but not
obligations in respect of Finance Debt; and (iv) to avoid double counting, contingent liability under any other letters of credit
issued to secure external Finance Debt of a Group member to a financier to the extent such Finance Debt is already included
in the calculation of the definition.
DIVIDENDS
The Company paid aggregate dividends of US 1.0 cent per share during the financial year.
· A dividend of US 1.0 cent per share (for a total of $4,612,412) was paid during the year ended 31 December 2013.
The dividend, which was for the second half of 2012, was paid on 12 April 2013 and was 35% franked at the
Australian corporate taxation rate of 30%. The entire unfranked portion of the dividend was conduit foreign income.
· No dividend was determined for either of the half-years ended 30 June 2013 or 31 December 2013.
DIRECTORS
The directors of the Company (the “Directors”) in office during the financial year and as at the date of this report are set out
below.
· Bruce Brook
· Roger Brown
· Roy Franklin
· Tanya Fratto
· Barbara Jeremiah
· David McLemore
· Rex McLennan (appointed effective 24 August 2013)
· Richard O’Brien (appointed effective 21 May 2013)
Others who held office as Directors during the financial year were:
· Peter St. George (appointed effective 21 February 2007; resigned effective 21 May 2013)
COMPANY SECRETARIES
· Fabrizio Rasetti
· Paul Blewett
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Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
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
Remuneration
Committee
Held
Attended Held
Attended
Audit, Compliance
& Risk Committee
Held
Attended
Environment,
Health &
Safety Committee
Attended
Held
Finance
Committee 1
Held
Attended
Bruce Brook 2
Roger Brown
Roy Franklin
Tanya Fratto
Barbara Jeremiah
David McLemore 3
Rex McLennan 4
Richard O'Brien 5
Peter St. George 6
7
7
7
7
7
7
2
5
3
7
7
7
7
7
7
2
5
3
5
5
4
1
5
5
4
1
4
4
3
1
1
4
4
3
1
1
3
4
4
4
3
1
3
4
4
4
2
1
1
1
1
1
1
1
1
1
(1) The Finance Committee was created effective 1 November 2013.
(2) Mr Brook resigned from the Environment, Health & Safety Committee effective 1 November 2013.
(3) Mr McLemore attended Remuneration Committee meetings in an ex officio capacity while serving as interim CEO.
(4) Mr McLennan joined the Board effective 24 August 2013 and the Audit, Compliance & Risk Committee effective 1
November 2013.
(5) Mr O’Brien joined the Board effective 21 May 2013.
(6) Mr St George resigned from the Board effective 21 May 2013 and from the Remuneration Committee and the Audit,
Compliance & Risk Committee effective 1 March 2013.
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.
DIRECTORS’ SHAREHOLDINGS
The following table sets out each Director’s relevant interest in shares, debentures, and rights or options over shares or
debentures of the Company or a related body corporate as at the date of this report.
Bruce Brook
Roger Brown
Roy Franklin
Tanya Fratto
Barbara Jeremiah
David McLemore
Rex McLennan
Richard O'Brien
Fully paid
ordinary shares
220,000
100,000
165,000
120,000
455,000
1,155,861
100,000
300,000
Rights and
options
-
-
-
-
-
-
-
-
Total
220,000
100,000
165,000
120,000
455,000
1,155,861
100,000
300,000
In August 2011, the Board adopted a Non-executive Director shareholding guideline, which recommends that non-executive
Directors acquire and hold at least 30,000 Company shares within five years of their appointment. The target share amount
was established to be roughly equivalent to one year’s directors’ fees and was based on the value of the Company shares at
the time. The target shareholding amount may be adjusted from time to time to track movements in the Company’s share
price.
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Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
GRANTS OF SHARES, RIGHTS OVER SHARES AND OPTIONS GRANTED TO DIRECTORS AND EXECUTIVES
No shares or rights over shares of the Company have been granted to non-executive Directors since the Company’s initial
public offering in April 2007. Shares and rights over shares granted to executives of the Company are included in the
Remuneration Report. As detailed more fully in the Remuneration Report, the Company has at various times in 2008, 2009
and 2010 granted options to the former chief executive officer (CEO), Mr Kipp, and other members of senior management.
250,000 options granted to the former CEO in April 2008 vested in accordance with their terms and expired in April 2013. A
further 345,000 options granted to the former CEO and nine other senior executives in June 2009 vested in 2012 and will
expire in June 2014. None of those vested options were exercised during the financial year by the option holder, and no
shares or interests have been issued during the financial year as a result of the 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 37 to the financial statements.
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 the directors and officers of the Company and any related body 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 86 of this report.
NON-AUDIT SERVICES
Details of amounts paid or payable for non-audit services provided during the year by the auditor are outlined in Note 11 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 tax compliance services, the magnitude of which are impacted by
the global reach of the Company.
The Company and its Audit, Compliance & Risk Committee (Audit Committee) are committed to ensuring the independence of
the external auditor. 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. 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 control services performed by the external auditor.
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Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
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 2011 through 31 December 2013. This project has
largely concluded during the year ended 31 December 2013. The Company expects that the level of non-audit services will
remain below the audit fee threshold in future 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 11 to the financial statements, do not compromise the
external auditor’s independence.
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.
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.
REMUNERATION
The Remuneration Report is included beginning at page 43 and forms part of this Directors’ Report.
REVIEW OF OPERATIONS1
1. Overview of 2013 Operations, Safety Performance and Financial Results
Boart Longyear is the world’s leading integrated provider of drilling services, drilling equipment and performance tooling for
mining and mineral drilling companies globally. We conduct our business activities through two operating divisions, Global
Drilling Services and Global Products.
Our strategy is to be the “One Source” of drilling solutions in our core markets by creating value for our customers and through
the delivery of a comprehensive portfolio of technologically advanced and innovative drilling services and products. We
believe that our market leading positions in the mineral drilling industry are driven by a variety of factors, including the
performance, expertise, reliability and high safety standards of Global Drilling Services, the technological innovation,
engineering excellence and global manufacturing capabilities of Global Products and our vertically integrated business model.
We remain focused on our customer base with detailed action plans identifying select customers and lower-cost mines on
which to focus investment and efforts. Further, while maintaining a disciplined approach to capital expenditures, we will
continue to invest in safety improvements and productivity enhancements in our Global Drilling Services division that will
contribute to project margins. New product development efforts in our Global Products division will remain focused, for the time
being, on incremental product improvements that customers will need at any point in the mining cycle. New product launches
will continue over the short and long term.
(1) The Review of Operations contains information sourced from our audited financial statements as well as additional
supplemental information that has not been subject to audit or review.
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Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
Central to our strategy is a clear focus on continuing to drive safety improvements and reducing debt. We regard safety as
fundamental to our relationships with, and commitments to, our employees and customers. In addition, we consider our safety
performance to be one of our most significant opportunities and operational risks in 2014, as the customers we are targeting
are increasingly looking to safety as a basis to differentiate their suppliers.
In 2013, we achieved a Total Case Incident Rate (TCIR) of 1.62 recordable incidents per 200,000 hours worked and a Lost-
Time Injury Rate of 0.19 lost-time injuries per 200,000 hours worked. Both results represent superior performance for our
industry, but reflect slight decreases in performance from 2012, which saw our TCIR at 1.59 and LTIR at 0.10. Our safety
performance was impacted by significantly reduced hours worked throughout our business, as well as by disruptions caused
by the significant restructuring we undertook to reduce cost.
Tragically, on 1 October 2013, we lost one of our North American employees from fatal injuries he sustained in a motor vehicle
accident in Alaska while driving to work with his crew in icy road conditions. The employee was a 39-year old resident of
Idaho who had been a member of the Boart Longyear family for approximately two years. The loss, which was our first work-
related fatality since 2008, redoubles our commitment to invest in safety and to continue to pursue several key initiatives to
address our key safety risks, such as driving risks and hand and finger injuries, and to reinforce individual and leader
accountability for safety.
We also continue to prioritise debt reduction to deleverage the business and position it with a more efficient operating platform
for increased cash flow flexibility through the mining industry cycles. Key elements of this strategy include achieving and
maintaining industry leading EBITDA-to-revenue margins and improving returns on capital through disciplined variable and
fixed cost management.
2013 was a difficult year for the industry and the Company, as declining prices for metals and mined commodities together
with increased levels of political and economic risk related to the development of new mines and a focus on maximising near
term cash flows resulted in most of the world’s mining companies significantly reducing their exploration, development and
capital expenditures from 2011 and 2012 levels. Mining industry observers SNL Metals Economics Group (SNL MEG)
estimate that overall global exploration spending in 2013 decreased by 30-35% from the $21.5 billion spent in 2012. As the
mining industry reduced exploration spending and capital investments, drill rig utilisation rates declined significantly during
2013 for both our Global Drilling Services business and our Global Products customers.
In response to declining revenues, we took steps to significantly reduce operating and capital costs as well as sales, general
and administrative (SG&A) costs. In addition, we generated cash through reducing inventory. However, reduced levels of
operating cash flow led us to amend several key terms of our bank debt facility effective 29 June 2013 to provide additional
financial flexibility and covenant headroom. A significant industry decline in demand continued into July and August, and
certain of our projections indicated a further amendment of our financial covenants would be prudent. In September 2013,
therefore, the Company issued $300 million of senior secured notes and used the net proceeds to pay down substantially all of
the loans outstanding under the bank debt facility and secure modifications to provide further flexibility in our covenant
structure.
Based on the Company’s view that market conditions may not significantly recover over the next twelve months, the Company
negotiated an amendment to its Credit Agreement that is intended to provide continued access to the revolving credit facility
and additional head room under the Credit Agreement’s financial covenants. The amendment became effective on 22
February 2014 and its specific terms are separately disclosed in Note 38 to the financial statements.
The significant deterioration in revenues and profitability throughout 2013, combined with forecasted further industry
reductions in demand and the compression of valuations in the drilling services sector, resulted in the impairment of the
carrying value of some of our assets and charges associated with business restructuring. As a result, the Company has
reported a loss for the year of $619.9 million which is a decrease of $688.1 million from the prior year (2012: $68.2 million
profit). Adjusted operating loss after tax for the year (adding back the significant items) for 2013 was $94.3 million compared
to adjusted NPAT for 2012 of $116.1 million, a decrease of $210.4 million, reflecting much lower average drill rig utilisations
and demand for our services and products in 2013.
Revenue for the year of $1,222.9 million was $788.6 million, or 39%, lower than 2012 revenue (2012: $2,011.5 million).
Global Drilling Services’ average operating utilisation rates (defined as a rig that has generated revenue through normal
operations during the course of a week divided by the total rig count) for the first and second halves of 2013 were 42%
and 35%, respectively, (2012: 61% and 53%). Global Products’ sales of drilling equipment in 2013 totalled $73.0 million
(2012: $141.9) and sales of performance tooling fell to $232.5 million in 2013 (2012: $353.4).
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31 December 2013 BOART LONGYEAR LIMITED
Total cost of goods sold (COGS) for 2013 was $1,020.7 million (2012: $1,499.1). COGS as a percentage of revenue
increased, due to a timing lag between declining revenues and the achievement of cost reductions in both Global Drilling
Services and Global Products, and results were adversely impacted by inventory obsolescence charges and fixed
manufacturing costs not covered through revenues in the Global Products business. In addition, depreciation and amortisation
costs did not decrease in line with the reduction in revenue in both businesses.
Total Sales and Marketing expenses for the Company for 2013 of $44.4 million represented a decrease of 27.8%, or $17.1
million, from the prior year (2012: $61.5 million). Compensation and benefits as a percentage of revenue increased from the
prior year, as we retained personnel in the supply chain group to prioritise inventory reductions and warehouse consolidations.
In addition, occupancy cost reductions lagged revenue reductions, as many facilities have non-cancellable leases.
Total General and Administrative expenses for the Company for the year ended 31 December 2013 of $157.7 million
represented a decrease of 33.2%, or $78.5 million (2012: $236.2 million). General and Administrative expenses decreased
significantly due to aggressive cost reduction actions taken in the last half of 2012 and throughout 2013. The slight increase
as a percentage of revenue is mainly due to revenues decreasing more quickly than cost reductions could be implemented.
Operating cash flow, before interest and taxes, for the year ended 31 December 2013 was $76.3 million, a decrease of 51%
(2012: $155.7 million). The reduction was mainly due to the operating loss of $619.9 million in the current year and the
decrease in accounts payable offset by the generation of cash from inventory, non-cash impairment charges and lower cash
taxes paid during the year.
On an accrual basis, capital expenditures (CAPEX) in 2013 totaled $49.2 million (2012: $290.1 million). Of that amount, we
spent $18.6 million on development activities to complete investment in several water rig packages initiated in 2012 and in
several underground rigs. In addition, $18.5 million was spent on sustainment activities relating to refurbishing current rigs
and other support equipment, $5.4 million was spent on software and $3.7 million related to product engineering development
activities. The remaining amount related to miscellaneous expenditures.
As at 31 December 2013, our debt totaled $585.5 million and our total debt-to-adjusted EBITDA was 5.5 times (31 December
2012: $601.9 million and 1.9 times). We remain committed to reducing our absolute level of debt by aggressively managing
fixed and variable costs and improving efficiencies through several ongoing initiatives, including: 1) the consolidation of our
Global Products division’s aftermarket service function with our Global Drilling Services division’s maintenance function and
similar integration initiatives across the Company; 2) the consolidation of separate supply chain groups for Global Products
and Global Drilling Services and improved inventory management to reduce inventory levels and release working capital; and
3) capitalising on our significant investment in modernising our rig fleet from 2010 to 2012, which we believe positions us well
for any market recovery and reduces our expected CAPEX requirments over the next several years. Overall, our goal is to
drive down our overall leverage profile to provide for greater flexibility through the cycle.
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Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
2. Financial and Operating Highlights
Key financial data
Revenue
NPAT(1)
Adjusted NPAT(1)
EBITDA (2)
Adjusted EBITDA (2)
Cash from Operations (before interest and tax)
Cash from Operating Activities
Capital expenditures (accrual)
Capital expenditures (cash)
Earnings per share (basic)
Earnings per share (diluted)
Average BLY rig utilisation
Year end fleet size
For the year ended 31 Decem ber
2013
2012
US$ Millions
US$ Millions
$ Change
% Change
1,222.9
2,011.5
(619.9)
(94.3)
(337.1)
107.2
76.3
11.5
49.2
41.5
68.2
116.1
254.3
321.9
155.7
64.2
290.1
282.8
(788.6)
(688.1)
(210.4)
(591.4)
(214.7)
(79.4)
(52.7)
(240.9)
(241.3)
(136.1) cents
(136.1) cents
15.0 cents
(151.1) cents
14.8 cents
(150.5) cents
38%
951
56%
1,165
-18%
(214)
-39%
-1009%
-181%
-233%
-67%
-51%
-82%
-83%
-85%
-1010%
-1017%
-32.7%
-18.4%
(1) NPAT is 'Net profit after tax'. Adjusted NPAT is 'Net profit after tax and before significant items'. See reconciliation in
section 7 'Non-IFRS Financial Information'.
(2) EBITDA is 'Earnings before interest, tax, depreciation and amortisation'. Adjusted EBITDA is 'Earnings before interest, tax,
depreciation and amortisation and before significant items'. See reconciliation in section 7 'Non-IFRS Financial Information'.
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Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
3. Discussion and Analysis of Operational Results and the Income Statement
3.1 Revenue
Total revenue for the Company for the year ended 31 December 2013 of $1,222.9 million was a decrease of 39.2%, or $788.6
million, as compared to revenue for the year ended 31 December 2012 of $2,011.5 million.
For the year ended 31 Decem ber
2013
2012
$ Change % Change
Global Drilling Services Revenue (US$ m illions)
917.3
1,516.2
(598.9)
-40%
Average rig utilisation rates
Change in price
38%
56%
-18%
-33%
-6.0%
Global Products Revenue (US$ m illions)
305.5
495.3
(189.8)
-38%
Sales of Drilling Equipment (US$ millions)
Sales of Performance Tooling (US$ millions)
73.0
232.5
141.9
353.4
(68.9)
(120.9)
Change in price
-49%
-34%
-3.4%
A majority of the revenue of both Global Drilling Services and Global Products is derived from sales to the mining industry and
is dependent on mineral exploration, development and production activity. Mineral exploration, development and production
activity is driven by several factors, including anticipated future demand for commodities, the outlook for current and projected
supply and available mine productive capacity, mining exploration capital expenditure levels and availability of financing for
mining development.
As the global economy improved in the wake of the financial crisis of 2009, the demand for drilling products re-emerged and
we experienced significant top line recovery during 2010 and 2011, as revenue increased from 2009 levels of $978.2 million to
$1,475.9 million in 2010 and to a record of $2,020.3 million in 2011. During the half-year ended 30 June 2012, we achieved
revenue of nearly $1,098.8 million and were on pace to nearly match the revenue recorded in the year ended 31 December
2011. However, in mid-2012, many mining companies began to announce reductions in their exploration programs and capital
expenditure budgets, which ultimately led to a slowdown in the second half of 2012. This had an adverse effect on our
performance and we reported revenue of $912.7 million for the half-year ended 31 December 2012. The contraction of the
mining industry continued through 2013, with volatility in the commodities market also affecting our performance.
14
Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
3.2 Cost of Goods Sold, Selling and Marketing Expense, and General and Administrative Expense
Total Cost of Goods Sold (COGS), Selling and Marketing expenses (S&M) and General and Administrative expenses (G&A)
for the Company were $1,222.9 million in 2013 as compared to $1,796.7 million in 2012, a decrease of $573.8 million or 32%.
For the year ended 31 Decem ber
2013
2012
US$ Millions
US$ Millions
$ Change
% Change
COGS
Drilling Services
Materials/labor/overhead/other
Depreciation and amortisation
Drilling Services COGS
COGS as a % of Revenue
Products
Materials/labor/overhead/other
Inventory obsolescence
Depreciation and amortisation
Products COGS
COGS as a % of Revenue
Total COGS
COGS as a % of Revenue
688.7
94.6
783.3
85.4%
203.3
22.7
11.4
237.4
77.7%
1,020.7
83.5%
1,093.5
93.7
1,187.2
78.3%
295.3
4.6
12.0
311.9
63.0%
1,499.1
74.5%
(404.8)
0.9
(403.9)
7.1%
-37%
1%
-34%
9%
(92.0)
-31%
(0.6)
(74.5)
14.7%
(478.4)
8.9%
-5%
-24%
23%
-32%
12%
Total COGS for the Company for the year ended 31 December 2013 was $1,020.7 million representing a decrease of 32.0%,
compared to COGS of $1,499.1 million for 2012. COGS as a percentage of revenue increased due to the lag between
declining revenues and the achievement of cost reductions in both Global Drilling Services and Global Products, and results
were adversely impacted by inventory obsolescence charges and fixed manufacturing costs not covered through revenues in
the Global Products business. In addition, depreciation and amortisation costs did not decrease in line with the reduction in
revenue in both businesses.
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Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
For the year ended 31 Decem ber
2013
2012
US$ Millions
US$ Millions
$ Change
% Change
Sales and Marketing Expenses
Compensation and benefits expense
Occupancy costs
Travel and transportation
Professional fees
Other
Total Sales and Marketing Expenses
S&M as a % of revenue
26.2
7.2
4.0
3.7
3.3
44.4
3.6%
28.6
6.1
6.3
2.3
18.2
61.5
3.1%
(2.4)
1.1
(2.3)
1.4
(14.9)
(17.1)
0.5%
-8%
18%
-37%
61%
-82%
-28%
15%
Total Sales and Marketing expenses for the Company for the year ended 31 December 2013 were $44.4 million, representing
a decrease of 27.8%, or $17.1 million, from Sales and Marketing expenses for 2012 of $61.5 million. Compensation and
benefits as a percentage of revenue increased from the prior year, as we retained personnel in the supply chain group to
prioritise inventory reductions and warehouse consolidations. In addition, occupancy cost reductions lagged behind revenue
reductions, as many facilities have non-cancellable leases.
For the year ended 31 Decem ber
2013
2012
US$ Millions
US$ Millions
$ Change
% Change
General and Adm inistrative Expenses
Compensation and benefits expense
Occupancy costs
Professional fees
Travel and transportation
Other
Total General and Adm inistrative Expenses
G&A as a % of revenue
81.9
26.7
26.5
7.2
15.4
157.7
12.9%
126.4
35.7
37.4
15.1
21.6
236.2
11.7%
(44.5)
(9.0)
(10.9)
(7.9)
(6.2)
(78.5)
1.2%
-35%
-25%
-29%
-52%
-29%
-33%
10%
Total General and Administrative expenses for the Company for the year ended 31 December 2013 were $157.7 million,
representing a decrease of 33.2%, or $78.5 million, from General and Adminstrative expenses for 2012 of $236.2 million.
General and Administrative expenses decreased significantly due to aggressive cost reduction actions taken in the last half of
2012 and throughout 2013. The slight increase as a percentage of revenue is mainly due to revenues decreasing more
quickly than cost reductions could be implemented.
In response to weakening industry conditions, we took a series of actions to reset our cost base, to establish a more nimble
organisational and overhead structure, and to respond more effectively to volatile market conditions. In the second half of
2012, the industry slow-down was rapid. We aggressively implemented cost-saving initiatives which included reduction of
headcount by over 2,200 people in 2012 and consolidation or migration of manufacturing into lower cost geographic areas.
During 2012 and 2013, these initiatives reduced our expenses by approximately $70 million, equivalent to 20% of global
overhead.
Further cost reductions were implemented in 2013. We have reduced our employee headcount by over 3,300 personnel since
1 January 2013, including approximately 25% of general and administrative positions across the business. In April 2013, an
operational review took place that resulted in recommendations for several additional restructuring initiatives to reduce
16
Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
overhead and operating costs across the Company, including additional rationalisation of manufacturing, inventory and
administrative facilities. This resulted in a reduction of over 30% of stocking locations globally and also resulted in the
consolidation of the Global Products division’s aftermarket services group with the Global Drilling Services maintenance group.
The supply chain groups for both divisions were also consolidated. We estimate that such actions, and others we have more
recently initiated, will reduce fixed costs by approximately $90 million during 2013 and 2014. These cost reductions are in
addition to the cost reductions announced in December 2012. The Company has also initiated a salary freeze and decided to
eliminate certain retirement benefits, which will result in a cash savings in 2014 and 2015 of approximately $28 million.
3.3 Restructuring Expenses and Related Impairments Charges
During 2013 and 2012, the Company incurred the following restructuring expenses and impairment charges related to the
current market conditions and cost reductions:
Restructuring expenses and related im pairm ents
Goodw ill impairment
Property, plant and equipment impairment
Inventory impairment
Employee separation and related costs
Development asset impairment
Intangible assets impairment
Softw are impairment
Other restructuring expenses
Total restructuring expenses and related im pairm ents
For the year ended 31 Decem ber
2013
2012
$
US$ Millions
US$ Millions
Change
166.3
109.9
101.9
44.8
14.6
9.1
-
14.6
461.2
6.8
6.0
7.7
23.0
8.4
3.5
3.6
8.6
67.6
159.5
103.9
94.2
21.8
6.2
5.6
(3.6)
6.0
393.6
Restructuring expenses and impairment charges increased to $461.2 million during 2013 (2012: $67.6 million). The
Company’s cost reductions were a continuation of the cost-reduction program that began in the second-half of 2012 in
response to the slowdown in the global mining services industry and were part of a focused effort toward more efficiency
across the business while still delivering safe, reliable and productive drilling services and products to customers. The
restructuring expenses and impairment charges of $461.2 million were associated with employee separations, exiting onerous
leases, and impairments of inventory and capital equipment related to relocating certain manufacturing activities and resizing
the business. The $461.2 million charge also included impairment charges in the carrying value of certain assets, including
goodwill, intangibles, inventory and plant and equipment following a year end review of asset carrying values.
17
Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
3.4 Other Income/Expenses
Other Incom e
Gain on termination of post-retirement medical plan
Scrap sales
Gain on disposal of property, plant and equipment
Other
Total other incom e
For the year ended 31 Decem ber
2013
2012
$
US$ Millions
US$ Millions
Change
16.9
0.7
0.4
0.2
18.2
-
1.8
-
1.3
3.1
16.9
(1.1)
0.4
(1.1)
15.1
Other income increased to $18.2 million during 2013 (2012: $3.1 million). The increase is mainly due to the gain of $16.9
million related to the decision to terminate a post-retirement medical plan in North America. Details of this transaction are
disclosed in Note 25 to the financial statements.
Other Expenses
Amortisation of intangible assets
Asset impairments
Loss on foreign currency exchange differences
Loss on disposal of property, plant and equipment
VAT w rite off
Other
Total other expenses
For the year ended 31 Decem ber
2013
2012
$
US$ Millions
US$ Millions
Change
18.3
3.2
1.0
-
1.4
0.9
24.8
15.7
0.2
5.9
0.9
-
0.8
23.5
2.6
3.0
(4.9)
(0.9)
1.4
0.1
1.3
Other expenses, principally amortisation of intangible assets, asset impairments and net losses on foreign currency exchange,
increased $1.3 million to $24.8 million in 2013 (2012: $23.5 million). Amortisation of intangible assets increase, as the Oracle
software implementation was completed in 2012 and there was a full twelve months of amortisation during 2013 as compared
to 2012. The loss on foreign currency exchange differences decreased, as the Company continues to actively manage our
exposure to foreign currency exchange risk.
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Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
3.5 Finance Costs and Interest Income
Finance costs
Average gross senior notes outstanding
Average related interest rate
Average gross revolver outstanding
Average related interest rate
Interest Income
For the year ended 31 Decem ber
2013
2012
%
US$ Millions
US$ Millions
Change
40.9
378.9
7.6%
246.6
2.4%
2.9
30.1
300.0
7.0%
181.9
2.1%
3.1
36%
26%
1%
36%
0%
-6%
Finance costs increased to $40.9 million during 2013 (2012: $30.1 million) as a result of higher average debt levels combined
with increased interest rates.
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Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
3.6 Income Tax Expense
For the year ended 31 Decem ber
2013
Adjustm ents
2013
2012
Adjustm ents
2012
Statutory
for Significant
Underlying
Statutory for Significant Underlying
US$ Millions
Item s
US$ Millions US$ Millions
Item s
US$ Millions
(Loss) Profit before Taxation
Tax at Australian rate of 30%
Derecognition of net deferred tax assets arising in prior years
Unrecognised tax losses in current year
Non deductible items related to impairments
Income tax in countries low er than parent tax rate
Income tax in countries higher than parent tax rate
Unutilised foreign tax credit
Other non-assessable/deductible items
Over (under) provisions
Income subject to double taxation
Other
(505.9)
151.8
(92.7)
(67.6)
(50.4)
(30.1)
1.2
(9.0)
(8.9)
(4.2)
0.5
(4.6)
444.3
(133.3)
92.7
67.6
50.4
8.2
(4.3)
-
-
-
-
-
(61.6)
18.5
-
-
-
(21.9)
(3.1)
(9.0)
(8.9)
(4.2)
0.5
(4.6)
99.9
(30.0)
16.8
(0.2)
(1.5)
0.7
(4.9)
(7.1)
(1.5)
(2.2)
2.5
(4.3)
67.6
167.5
(20.3)
-
-
1.5
0.8
(1.7)
-
-
-
-
-
(50.3)
16.8
(0.2)
-
1.5
(6.6)
(7.1)
(1.5)
(2.2)
2.5
(0.3)
Tax per the statem ent of profit and loss
(114.0)
81.3
(32.7)
(31.7)
(19.7)
(47.4)
Income tax expense on a pre-tax loss of $505.9 million for 2013 financial year was $114.0 million. This tax expense can
largely be attributed to several factors including:
the impact of certain impairment and restructuring items that will not be assessable for tax (primarily goodwill),
the non-recognition of current period losses, and
·
·
· de-recognition of certain prior period deferred tax assets due to the group being in a tax loss position in many
jurisdictions during the current financial year.
These results are illustrated in the table above.
3.7 Earnings
NPAT for the Company decreased to a loss of $619.9 million for the year ended 31 December 2013 (2012: profit of $68.2
million) and EBITDA decreased to a negative $337.1 million for the year ended 31 December 2013 (2012: $254.3 million), with
both results driven by the performance of Global Products and Global Drilling Services, significant restructuring expenses and
impairment charges and a number of related tax expenses.
Adjusted NPAT for the Company decreased to an adjusted loss of $94.3 million for the year ended 31 December 2013 (2012:
adjusted profit $116.1 million) and adjusted EBITDA decreased by 67% to $107.2 million for the year ended 31 December
2013 (2012: $321.9 million).
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Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
3.8 Seasonality
The global business experiences seasonality in the months of November, December and January, when mining activity is
reduced and workers travel to and from their homes for holidays. Working capital is generally at its highest during the second
and third quarters of the year. Working capital decreases to a seasonal low at year-end, driven by reduced business activity
during this typically slow period.
4. Discussion and Analysis of Cash Flow
For the year ended 31 Decem ber
2013
2012
US$ Millions US$ Millions
$ Change
% Change
Cash flow from operations (before interest and tax)
Cash flow from operating activities
76.3
11.5
155.7
64.2
(79.4)
(52.7)
Cash flow from investing
(2.2)
(279.5)
277.3
-51%
-82%
-99%
Cash flow from financing activities
(22.9)
223.6
(246.5)
-110%
Net change in cash
Cash at beginning of period
Effects of exchange rate changes on cash
Cash at end of period
(13.5)
89.6
(17.0)
59.1
8.3
82.3
(0.9)
89.6
(21.8)
-263%
7.3
9%
(16.1)
1789%
(30.5)
-34%
4.1 Cash Flow from Operating Activities
Operating cash flow for the year ended 31 December 2013 was $11.5 million, a decrease of 82% from the prior year
(2012: $64.2 million). The reduction was mainly due to:
· A decrease of $210.4 million in adjusted loss/profit for the year, and
· A decrease in accounts payable during the year of $138.7 million, as compared to a decrease of $39.7 million the
prior year,
The decrease during the year of operating cash flow was partially offset by:
· Cash generation from the sale of inventory of $102.0 million during 2013, as compared to additional cash purchases
in inventory of $140.3 million during 2012, and
· non-cash tax expense of $78.0 million, along with a decrease in cash taxes paid of $29.7 million from the prior year
as many of the entities in the consolidated group experienced losses for the year.
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Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
4.2 Cash Flow from Investing
For the year ended 31 Decem ber
2013
2012
US$ Millions US$ Millions $ Change % Change
Purchase of property, plant and equipment
(35.5)
(247.7)
(212.2)
-85.7%
Proceeds from sale of property, plant and equipment
14.5
3.3
11.2
339.4%
Intangible costs paid
(6.0)
(35.1)
(29.1)
-82.9%
Proceeds on disposal of subsidiary
24.8
-
24.8
100.0%
Total net cash flow s from investing activities
(2.2)
(279.5)
277.3
99.2%
The Company continued to invest in capital equipment to support existing operations, which resulted in net capital of $35.5
million being invested, down 85.7% on the prior year (2012: $247.7 million). In 2013 the Company implemented a plan to
conserve cash, limiting capital expenditures to essential capital maintenance, and decided not to pursue any business
acquisitions.
The proceeds from the sale of property, plant and equipment relates mainly to a parcel of land that was sold in Chile for $7.8
million and was originally intended to be used to build new Global Drilling Services offices, including a warehouse and
maintenance shop. The parcel was sold during 2013 as a part of the effort to rationalise and consolidate rooftops. The
remaining $6.7 million included in proceeds from the sale of property, plant and equipment related to the sale of trucks and
other support equipment globally.
During 2013, the Company sold its US-based environmental and infrastructure drilling services operations. The sale is
consistent with the Company’s desire to focus resources and efforts on its core markets. The net cash proceeds after
transaction related costs were $24.8 million. See Note 34 to the financial statements.
Intangible costs paid relate to payments for patents, both to apply for new patents and to defend existing patents, trademarks,
software and costs incurred for development activities.
4.3 Cash flows from Financing Activities
In September 2013, the Company completed a $300.0 million senior secured debt offering due in 2018. The Secured Notes
will pay interest at a rate of 10.0% per annum and will mature on 1 October 2018. The Secured Notes are guaranteed by
Boart Longyear Limited and certain of its subsidiaries. The net proceeds of the offering were used to substantially pay down
loans outstanding under the Company’s revolving credit facility and to pay fees and expenses related to the offering.
The Company also completed several amendment to its revolving credit facility. See Note 23 and Note 38 to the financial
statements for discussion of the amendments.
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Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
5.
Discussion of the Balance Sheet
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid expenses and other assets
Assets classified as held for sale
Property, plant and equipment
Goodw ill
Other intangible assets
Tax assets
Other assets
Total Assets
Trade and other payables
Provisions
Tax Liabilities
Loans and borrow ings
Total Liabilities
Issued capital
Reserves
Other equity
(Accumulated losses) retained earnings
Total Equity
For the year ended 31 Decem ber
2013
2012
US$ Millions
US$ Millions
$ Change
% Change
59.1
196.9
298.9
25.1
-
408.3
104.0
92.0
135.4
10.8
89.6
260.5
533.7
42.0
34.0
628.7
290.8
128.1
231.7
11.6
1,330.5
2,250.7
153.2
70.4
92.9
585.4
901.9
1,129.0
(37.3)
(137.2)
(525.9)
428.6
284.3
123.8
105.3
601.9
1,115.3
1,122.2
70.9
(137.2)
79.5
1,135.4
(30.5)
(63.6)
(234.8)
(16.9)
(34.0)
(220.4)
(186.8)
(36.1)
(96.3)
(0.8)
(920.2)
(131.1)
(53.4)
(12.4)
(16.5)
(213.4)
6.8
(108.2)
-
(605.4)
(706.8)
-34%
-24%
-44%
-40%
-100%
-35%
-64%
-28%
-42%
-7%
-41%
-46%
-43%
-12%
-3%
-19%
1%
-153%
0%
-762%
-62%
The net assets of the Company decreased by $706.8 million to $428.6 million as at 31 December 2013 (2012: $1,135.4
million). This decrease was a result of significant impairments of inventory, property, plant and equipment, goodwill, other
intangibles and deferred tax assets, as well as the Company actively managing net working capital in relation to the current
business cycle. In sustained periods of reduced global drill rig utilisation, inventory levels do not shrink as quickly and the
Company must evaluate inventory monthly to determine the appropriate accounting reserves for slow-moving and obsolete
inventory. When the markets the Company serves begin to improve, it is likely that net working capital levels will increase as
the Company increases inventory and generates additional receivables.
Cash and cash equivalents decreased by $30.5 million, or 34%, to $59.1 million as at 31 December 2013 (2012: $89.6 million)
as the Company had an operating loss for the year. Correspondingly, trade and other receivables decreased by $63.6 million,
or 24%, to $196.9 million as at 31 December 2013 (2012: $260.5 million) reflecting decreased revenues, increased focus on
cash collections by all divisions and the resolution of certain customer disputes in both divisions. Days sales outstanding
(DSO) at 31 December 2013 increased on average by 7 days from 2012 mainly due to timing. The average DSO over the full
year showed an improvement compared to 2012 of 2 days.
The net debt of the Company (gross debt less available cash) increased by $14.0 million to $526.3 million as at 31 December
2013 (2012: $512.3 million).
Inventories decreased by $234.8 million, or 44%, to $298.9 million as at 31 December 2013 (2012: $533.7 million). Of the
decrease, $124.6 million related to an increase in the provision for impairment and obsolescence, $102.0 million sale and
consumption and foreign currency exchange differences.
23
Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
Other assets are substantially current prepayments and deposits.
The net value of property, plant and equipment decreased by $220.4 million to $408.3 million as at 31 December 2013
(2012 $628.7 million) mainly due to decreased capital spend, an asset impairment charge of $106.2 million and depreciation
expense of $111.5 million.
Goodwill decreased by $186.8 million, or 64%, to $104.0 million as at 31 December 2013 (2012: $ 290.8 million) mainly due to
an impairment recorded during the year of $166.3 million. The remaining decrease was due to foreign currency exchange rate
impacts as the United States dollar strengthened against other currencies.
Other intangible assets decreased by $36.1 million, or 28%, to $92.0 million as at 31 December 2013 (2012: $128.1 milion)
mainly due to amortisation for the year of $19.3 million and an impairment of $22.9 million, which was partially offset by
trademark, patent, software and development asset additions of $10.6 million and foreign currency exchange differences.
Tax assets decreased by $96.3 million, or 42%, to $135.4 million as at 31 December 2013 (2012: $231.7 million) mainly due to
the write down of deferred tax assets that are of uncertain benefit to the Company.
Trade and other payables decreased by $131.1 million, or 46%, to $153.2 million as at 31 December 2013 (2012: $284.3
million) with the average credit period on purchases of certain goods decreasing by 12 days to 31 days. Trade payables
represents 8% of the Company’s total liabilities.
Total net drawn borrowings of $585.4 million representing 64% of the Company’s liabilities, decreased by $16.5 million during
the year (2012: $601.9 million).
Liquidity and Debt Facilities
The Company’s outstanding debt is comprised of two tranches of Senior Notes, a $300.0 million senior unsecured note with
an interest rate of 7% and a scheduled maturity date of 1 April 2021 and a $300.0 million senior note that is secured by a
first-priority lien on the issuer and guarantors’ tangible and intangible assets and by a second-priority lien on the issuer
and guarantors’ accounts receivable, inventory and cash with an interest rate of 10% and a scheduled maturity date of
1 October 2018.
The Company’s bank credit facility provides a $140.0 million revolving bank loan, of which, up to $120.0 million is available in
the form of revolving loans or letters of credit with the remaining $20.0 million being available only for the issuance of letters of
credit. The credit facility has certain convenants, including a minimum interest coverage covenant to a ratio of 1.55 to 1.0,
which is tested quarterly, as well as a covenant requiring maintenance of at least $30.0 million in liquidity and a minimum asset
coverage ratio of 1.25 to 1.0, both tested monthly. In addition, see Note 38 to the financial statements for discussion of
amendment to these covenants.
24
Boart Longyear
Annual Financial Report
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
31 December 2013 BOART LONGYEAR LIMITED
The following shows the outstanding debt with maturities.
The following shows the outstanding debt with maturities.
Liquidity, appears sufficient for the next twelve months but, as discussed in Note 2 to the financial statements, depends upon
Liquidity, appears sufficient for the next twelve months but, as discussed in Note 2 to the financial statements, depends upon
the Company having continued access to draw funds under its bank revolver. As at 31 December, 2013 there were no drawn
the Company having continued access to draw funds under its bank revolver. As at 31 December, 2013 there were no drawn
borrowings under the bank revolver. However, there were outstanding letters of credit totaling $10.4 million.
borrowings under the bank revolver. However, there were outstanding letters of credit totaling $10.4 million.
Risks to liquidity include potential demand for security to challenge Canadian, and other jursidictions, tax assessments and
Risks to liquidity include potential demand for security to challenge Canadian, and other jursidictions, tax assessments and
other operating conditions for which we would need to draw on liquidity to fund. Although we decreased accounts receivable
other operating conditions for which we would need to draw on liquidity to fund. Although we decreased accounts receivable
and inventory balances, they were largely offset by lower accounts payable balances. The lower accounts payable balances
and inventory balances, they were largely offset by lower accounts payable balances. The lower accounts payable balances
were driven by the reduction in manufacturing activities and additional focus on cost controls. We do not expect payables to
were driven by the reduction in manufacturing activities and additional focus on cost controls. We do not expect payables to
negatively affect working capital significantly in the near future. DSO at 31 December 2013 increased by 7 days from the prior
negatively affect working capital significantly in the near future. DSO at 31 December 2013 increased by 7 days from the prior
year. November 2013 sales were stronger than anticipated, driving an increased accounts receivable balance at year end.
year. November 2013 sales were stronger than anticipated, driving an increased accounts receivable balance at year end.
This, combined with some temporary billing delays, drove year-end closing DSO higher than anticipated; however, the
This, combined with some temporary billing delays, drove year-end closing DSO higher than anticipated; however, the
average DSO over the full year (60 days) actually showed an improvement over 2012 (62 days).
average DSO over the full year (60 days) actually showed an improvement over 2012 (62 days).
Based on the Company’s view that market conditions may not significantly recover over the next twelve months, the Company
Based on the Company’s view that market conditions may not significantly recover over the next twelve months, the Company
negotiated an amendment to its Credit Agreement that is intended to provide continued access to the revolving credit facility
negotiated an amendment to its Credit Agreement that is intended to provide continued access to the revolving credit facility
and additional head room under the Credit Agreement’s financial covenants. The amendment became effective on 22
and additional head room under the Credit Agreement’s financial covenants. The amendment became effective on 22
February 2014 and its specific terms are separately disclosed in Note 38 to the financial statements. As disclosed in Note 2,
February 2014 and its specific terms are separately disclosed in Note 38 to the financial statements. As disclosed in Note 2,
the amendment does not guarantee the Company’s ability to comply with the financial covenants and terms of the Credit
the amendment does not guarantee the Company’s ability to comply with the financial covenants and terms of the Credit
Agreement. Difficulties with covenant compliance could arise on or after the June 2014 testing date depending on actual
Agreement. Difficulties with covenant compliance could arise on or after the June 2014 testing date depending on actual
market conditions.
market conditions.
During the year, the Company has seen its debt rating downgraded by both Standard and Poors Rating Services and Moody’s
During the year, the Company has seen its debt rating downgraded by both Standard and Poors Rating Services and Moody’s
Investor Services. The corporate credit rating with Standard and Poor’s Rating Services has been revised from a BB- rating to
Investor Services. The corporate credit rating with Standard and Poor’s Rating Services has been revised from a BB- rating to
a B rating. The corporate credit rating with Moody’s has been revised from a Ba2 rating to B2 corporate family rating. Both
a B rating. The corporate credit rating with Moody’s has been revised from a Ba2 rating to B2 corporate family rating. Both
rating agencies downgrades reflect expectations that the operating conditions for the Company will remain difficult for the next
rating agencies downgrades reflect expectations that the operating conditions for the Company will remain difficult for the next
12 months due to reduced exploration drilling budgets of major mining companies which will lead to further downward pressure
12 months due to reduced exploration drilling budgets of major mining companies which will lead to further downward pressure
on rig utilisations and will likely result in continued pressure on performance.
on rig utilisations and will likely result in continued pressure on performance.
Provisions of $70.4 million as at 31 December 2013 decreased by 43.1%, or $53.4 million as compared to the prior year
Provisions of $70.4 million as at 31 December 2013 decreased by 43.1%, or $53.4 million as compared to the prior year
(2012: $123.8 million), and represent 7.8% of total Company liabilities. Employee provisions (annual leave, long service leave
(2012: $123.8 million), and represent 7.8% of total Company liabilities. Employee provisions (annual leave, long service leave
and bonus) made up 68.6% of this balance with the remainder covering restructuring provisions, onerous leases and warranty
and bonus) made up 68.6% of this balance with the remainder covering restructuring provisions, onerous leases and warranty
obligations.
obligations.
Shareholders’ equity decreased mainly due to the operating loss of $619.9 million. In addition, the devaluation of the foreign
Shareholders’ equity decreased mainly due to the operating loss of $619.9 million. In addition, the devaluation of the foreign
currencies against the US dollar reduced the cumulative foreign currency translation reserve by $102.6 million during 2013.
currencies against the US dollar reduced the cumulative foreign currency translation reserve by $102.6 million during 2013.
25
Annual Report 2013
Annual Financial Report
Annual Financial Report
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
31 December 2013 BOART LONGYEAR LIMITED
31 December 2013 BOART LONGYEAR LIMITED
6. Review of Segment Operations
6. Review of Segment Operations
6. Review of Segment Operations
The following table shows our revenue by third party as well as revenue from our Global Products division to our Global
The following table shows our revenue by third party as well as revenue from our Global Products division to our Global
Drilling Services division.
Drilling Services division.
The following table shows our revenue by third party as well as revenue from our Global Products division to our Global
Drilling Services division.
Drilling Services
Drilling Services
Drilling Services
Segment revenue
Segment revenue
2013
2013
US$'000
US$'000
Segment revenue
2012
2012
2012
US$'000
US$'000
US$'000
1,516,203
1,516,203
2013
US$'000
917,348
917,348
917,348
1,516,203
Products total revenue
Products total revenue
Products total revenue
Products inter-segment revenue 1
Products inter-segment revenue 1
Products inter-segment revenue 1
Products external revenue
Products external revenue
Products external revenue
362,074
362,074
(56,569)
(56,569)
305,505
305,505
362,074
(56,569)
305,505
643,552
643,552
643,552
(148,248)
(148,248)
(148,248)
495,304
495,304
495,304
Total external revenue
Total external revenue
Total external revenue
1,222,853
1,222,853
1,222,853
2,011,507
2,011,507
2,011,507
(1) Transactions between segments are carried out at arm’s length and are eliminated on consolidation.
(1) Transactions between segments are carried out at arm’s length and are eliminated on consolidation.
(1) Transactions between segments are carried out at arm’s length and are eliminated on consolidation.
Operating Division1
Operating Division1
Operating Division1
Revenue by Type1
Revenue by Type1
Revenue by Type1
Geography1
Geography1
Geography1
Global
Global
Products
Products
25%
25%
Global
Products
25%
(cid:5)(cid:29)(cid:22)(cid:23)(cid:23)(cid:22)(cid:25)(cid:20)(cid:2)
(cid:6)(cid:28)(cid:33)(cid:22)(cid:27)(cid:24)(cid:18)(cid:25)(cid:30)(cid:36)(cid:2)(cid:46)(cid:51)
(cid:5)(cid:29)(cid:22)(cid:23)(cid:23)(cid:22)(cid:25)(cid:20)(cid:2)
(cid:5)(cid:29)(cid:22)(cid:23)(cid:23)(cid:22)(cid:25)(cid:20)(cid:2)
(cid:6)(cid:28)(cid:33)(cid:22)(cid:27)(cid:24)(cid:18)(cid:25)(cid:30)(cid:36)(cid:2)(cid:46)(cid:51)
(cid:6)(cid:28)(cid:33)(cid:22)(cid:27)(cid:24)(cid:18)(cid:25)(cid:30)(cid:36)(cid:2)(cid:46)(cid:51)
Underground
Underground
Coring,
Coring,
15%
15%
Underground
Coring,
15%
Global
Global
Global
Products
Products
Products
(cid:10)(cid:18)(cid:29)(cid:19)(cid:26)(cid:29)(cid:24)(cid:15)(cid:25)(cid:16)(cid:18)(cid:2)
(cid:13)(cid:26)(cid:26)(cid:23)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)(cid:41)(cid:48)(cid:51)
(cid:10)(cid:18)(cid:29)(cid:19)(cid:26)(cid:29)(cid:24)(cid:15)(cid:25)(cid:16)(cid:18)(cid:2)
(cid:10)(cid:18)(cid:29)(cid:19)(cid:26)(cid:29)(cid:24)(cid:15)(cid:25)(cid:16)(cid:18)(cid:2)
(cid:13)(cid:26)(cid:26)(cid:23)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)(cid:41)(cid:48)(cid:51)
(cid:13)(cid:26)(cid:26)(cid:23)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)(cid:41)(cid:48)(cid:51)
(cid:11)(cid:26)(cid:30)(cid:15)(cid:29)(cid:34)(cid:37)(cid:11)(cid:4)(cid:36)(cid:2)(cid:42)(cid:41)(cid:51)
(cid:11)(cid:26)(cid:30)(cid:15)(cid:29)(cid:34)(cid:37)(cid:11)(cid:4)(cid:36)(cid:2)(cid:42)(cid:41)(cid:51)
(cid:11)(cid:26)(cid:30)(cid:15)(cid:29)(cid:34)(cid:37)(cid:11)(cid:4)(cid:36)(cid:2)(cid:42)(cid:41)(cid:51)
(cid:7)(cid:3)(cid:8)(cid:36)(cid:2)(cid:41)(cid:43)(cid:51)
(cid:7)(cid:3)(cid:8)(cid:36)(cid:2)(cid:41)(cid:43)(cid:51)
(cid:7)(cid:3)(cid:8)(cid:36)(cid:2)(cid:41)(cid:43)(cid:51)
(cid:14)(cid:12)(cid:3)(cid:36)(cid:2)(cid:42)(cid:42)(cid:51)
(cid:14)(cid:12)(cid:3)(cid:36)(cid:2)(cid:42)(cid:42)(cid:51)
(cid:14)(cid:12)(cid:3)(cid:36)(cid:2)(cid:42)(cid:42)(cid:51)
(cid:10)(cid:29)(cid:26)(cid:17)(cid:33)(cid:16)(cid:31)(cid:26)(cid:25)(cid:2)
(cid:5)(cid:29)(cid:22)(cid:23)(cid:23)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)(cid:45)(cid:51)
(cid:10)(cid:29)(cid:26)(cid:17)(cid:33)(cid:16)(cid:31)(cid:26)(cid:25)(cid:2)
(cid:10)(cid:29)(cid:26)(cid:17)(cid:33)(cid:16)(cid:31)(cid:26)(cid:25)(cid:2)
(cid:5)(cid:29)(cid:22)(cid:23)(cid:23)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)(cid:45)(cid:51)
(cid:5)(cid:29)(cid:22)(cid:23)(cid:23)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)(cid:45)(cid:51)
(cid:9)(cid:30)(cid:21)(cid:18)(cid:29)(cid:36)(cid:2)(cid:44)(cid:51)
(cid:9)(cid:30)(cid:21)(cid:18)(cid:29)(cid:36)(cid:2)(cid:44)(cid:51)
(cid:9)(cid:30)(cid:21)(cid:18)(cid:29)(cid:36)(cid:2)(cid:44)(cid:51)
(cid:3)(cid:10)(cid:3)(cid:4)(cid:36)(cid:2)(cid:42)(cid:48)(cid:51)
(cid:3)(cid:10)(cid:3)(cid:4)(cid:36)(cid:2)(cid:42)(cid:48)(cid:51)
(cid:3)(cid:10)(cid:3)(cid:4)(cid:36)(cid:2)(cid:42)(cid:48)(cid:51)
(cid:4)(cid:15)(cid:25)(cid:15)(cid:17)(cid:15)(cid:36)(cid:2)
(cid:4)(cid:15)(cid:25)(cid:15)(cid:17)(cid:15)(cid:36)(cid:2)
(cid:41)(cid:47)(cid:51)
(cid:4)(cid:15)(cid:25)(cid:15)(cid:17)(cid:15)(cid:36)(cid:2)
(cid:41)(cid:47)(cid:51)
(cid:41)(cid:47)(cid:51)
(cid:6)(cid:8)(cid:6)(cid:3)(cid:36)(cid:2)(cid:41)(cid:48)(cid:51)
(cid:6)(cid:8)(cid:6)(cid:3)(cid:36)(cid:2)(cid:41)(cid:48)(cid:51)
(cid:6)(cid:8)(cid:6)(cid:3)(cid:36)(cid:2)(cid:41)(cid:48)(cid:51)
Global
Drilling
Services
75%
Global
Global
Drilling
Drilling
Services
Services
75%
75%
(cid:10)(cid:18)(cid:29)(cid:19)(cid:26)(cid:29)(cid:24)(cid:15)(cid:25)(cid:16)(cid:18)(cid:2)
(cid:13)(cid:26)(cid:26)(cid:23)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)(cid:41)(cid:48)(cid:51)
(cid:10)(cid:18)(cid:29)(cid:19)(cid:26)(cid:29)(cid:24)(cid:15)(cid:25)(cid:16)(cid:18)(cid:2)
(cid:10)(cid:18)(cid:29)(cid:19)(cid:26)(cid:29)(cid:24)(cid:15)(cid:25)(cid:16)(cid:18)(cid:2)
(cid:13)(cid:26)(cid:26)(cid:23)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)(cid:41)(cid:48)(cid:51)
(cid:13)(cid:26)(cid:26)(cid:23)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)(cid:41)(cid:48)(cid:51)
(cid:12)(cid:33)(cid:29)(cid:19)(cid:15)(cid:16)(cid:18)(cid:2)(cid:4)(cid:26)(cid:29)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)
(cid:43)(cid:40)(cid:51)
(cid:12)(cid:33)(cid:29)(cid:19)(cid:15)(cid:16)(cid:18)(cid:2)(cid:4)(cid:26)(cid:29)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)
(cid:12)(cid:33)(cid:29)(cid:19)(cid:15)(cid:16)(cid:18)(cid:2)(cid:4)(cid:26)(cid:29)(cid:22)(cid:25)(cid:20)(cid:36)(cid:2)
(cid:43)(cid:40)(cid:51)
(cid:43)(cid:40)(cid:51)
(1) Based on percentages of total Company revenue for the year ended 31 December 2013.
(1) Based on percentages of total Company revenue for the year ended 31 December 2013.
(1) Based on percentages of total Company revenue for the year ended 31 December 2013.
The Global Drilling Services division operates in approximately 35 countries on five continents for a diverse mining customer
base spanning a wide range of commodities, including copper, gold, iron, nickel, zinc, uranium, and other metals and minerals.
The Global Drilling Services division operates in approximately 35 countries on five continents for a diverse mining customer
The Global Drilling Services division operates in approximately 35 countries on five continents for a diverse mining customer
Among other advantages, Global Drilling Services is able to offer the broadest range in its market segments of drilling
base spanning a wide range of commodities, including copper, gold, iron, nickel, zinc, uranium, and other metals and minerals.
base spanning a wide range of commodities, including copper, gold, iron, nickel, zinc, uranium, and other metals and minerals.
technologies to suit its customers’ requirements. Those technologies include surface and underground diamond coring,
Among other advantages, Global Drilling Services is able to offer the broadest range in its market segments of drilling
Among other advantages, Global Drilling Services is able to offer the broadest range in its market segments of drilling
reverse circulation, rotary and sonic drilling, as well as mine water services. With its global footprint, a commitment to
technologies to suit its customers’ requirements. Those technologies include surface and underground diamond coring,
technologies to suit its customers’ requirements. Those technologies include surface and underground diamond coring,
providing employees and customers a safe work environment and industry leading drilling expertise, the Global Drilling
reverse circulation, rotary and sonic drilling, as well as mine water services. With its global footprint, a commitment to
reverse circulation, rotary and sonic drilling, as well as mine water services. With its global footprint, a commitment to
Services business supports all phases of its customers’ operations, from greenfield exploration through mine development to
providing employees and customers a safe work environment and industry leading drilling expertise, the Global Drilling
providing employees and customers a safe work environment and industry leading drilling expertise, the Global Drilling
production to mine closure.
Services business supports all phases of its customers’ operations, from greenfield exploration through mine development to
Services business supports all phases of its customers’ operations, from greenfield exploration through mine development to
production to mine closure.
production to mine closure.
26
Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
The Global Products division designs, manufactures and sells drilling equipment and performance tooling to customers in over
100 countries. These products are used by the Company’s own Global Drilling Services division, as well as other drilling
services companies in the mineral exploration, mining, and energy industries and by mining companies. The Global Products
division has positioned itself as an innovation leader in the segments in which it competes and offers a full range of products
within those segments. The division also has invested in recent years in developing a stronger aftermarket service and
support business to provide its customers with drill equipment commissioning, training, maintenance programs, spare parts
and emergency parts kits.
Global Drilling Services
Global Drilling Services performs contract drilling work for a diverse mining customer base, operating across a wide range of
commodities, including gold, copper, nickel, zinc, uranium and other metals and minerals. Our contract drilling services
include, but are not limited to, providing core samples and completed holes to clients as an integral part of their evaluation of
subsurface ground composition. As an example, clients in the mining industry use our contract drilling services as a key
component in their mineral exploration, evaluation and resource delineation activities. As at 31 December 2013, we had 951
drilling rigs deployed around the world and provided contract drilling services in approximately 35 countries.
We have global reach and longstanding relationships with a customer base worldwide. We specialise in a full suite of drilling
services technology including surface and underground diamond core drilling, and underground percussive drilling, surface
rotary drilling, surface geotechnical drilling, sonic drilling and surface and underground reverse circulation drilling.
Global Drilling Services generates the majority of its revenue from the minerals industry but in recent years we have continued
to develop drilling capabilities for energy and other industries. In the energy industry, we provide earth and rock core samples
for analysis purposes, as well as holes for the installation of gas well casings.
Our Global Drilling Services division is International Standard Organisation 14001 (Environmental) (ISO 14001) and
Occupational Health and Safety Association Standard 18001 (Safety) (OHSAS 18001) accredited. We believe our ISO 14001
and OHSAS 18001 accreditation are factors considered by majors when selecting a drilling services provider and by potential
employees for the Company when trying to attract skilled labor.
Global Drilling Services operates across North America, South America, Asia Pacific, Europe and Africa, with a worldwide
network that maintains and mobilises equipment close to key geographic markets. To extend our service offering to remote
locations, we also operate fly-in fly-out rigs and drilling crews to provide drilling services in remote areas.
Drilling services offered
Mining - Drilling services for minerals primarily involves the extraction of solid rock core or chip samples for technical analysis.
This is regarded as a noncore activity by mining companies and is typically contracted to third party service providers, such as
Boart Longyear. The samples extracted provide the mining companies with critical information over the life of a mining project.
Drilling services are used in each stage of the life cycle of the mining operation: exploration, development and production and
mine closure.
· Exploration stage drilling - This stage of mining, also known as the “greenfield” stage is primarily focused on the
discovery of mineral deposits. It is the first stage of the mining operation and precedes the development and
production stages. In this stage, equipment and crews are deployed to often remote locations to undertake
exploration drilling on undeveloped land to determine whether sufficient reserves exist within a region to justify
development of a mining project. Crews drill into the underlying rock to recover rock chips or core samples to
ascertain the existence or quality of a mineral deposit. The integrity of the core samples supplied by drilling services
providers for analysis is extremely important for the accurate determination of the feasibility of a particular prospect.
For this reason, our experience is that mining companies will typically engage experienced drilling services providers
with a track record of producing high quality core samples. Following the discovery of a mineral deposit, substantial
drilling is typically required to characterise the size and quality of the deposit and to assess the feasibility of
developing the deposit.
· Development stage drilling - Development stage exploration drilling is typically undertaken to enable resource
definition required for the expansion of an existing mining project and also to aid in the planning and construction of
new mine sites. This is refered to as “brownfield” drilling. The “brownfield” stage of mining is less susceptible to
fluctuations in demand for commodities than the exploration, or “greenfield,” stage. This is because miners are more
likely to be able to access and develop high quality deposits in close proximity to existing mining operations than
through “greenfield” exploration. This type of exploration is more efficient for mining companies since they can
process new reserves using existing mine infrastructure.
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Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
· Production stage drilling - Production stage drilling takes place within the mine boundaries and includes both surface
and underground services. Operating mines require drilling services to delineate the ore body for planning and grade
control over the life of the mine. Drilling is also required to control or obtain water within the mine. Large diameter
water production wells are often bored either to supply the mine with process water, or to extract water from the
vicinity of the mine to improve mining conditions. In the production stage, percussive drills are used to conduct blast
hole drilling in underground mines for extraction of ore for removal to the surface. Demand for production stage
drilling for mine planning and production is relatively stable despite fluctuations in commodity prices. When production
ceases and a mine is closed, remedial action is undertaken to restore the site to pre-mining condition. Drilling
services required at this stage include environmental testing to install monitoring wells within and around the mine.
· Mine closure drilling - Drilling related to a mine closure takes place when the activities involved with extracting ore
have ceased and final decommissioning and mine reclamation are completed. Our drilling services are focused on
assisting with decommissioning, well abandonment and any service related boreholes. In addition we may install
monitor wells, piezometric wells, and wells associated with leach pad decommissioning. Finally, we will conduct
drilling for final leach enhancement and neutralising fluid injection and drainage. Sonic drilling will be used anywhere
the soil is unconsolidated. We are well-positioned in the drilling industry for this specialised and growing technology.
Energy - The energy drilling services we provide, relate to the exploration and development of nonconventional energy
sources such as oil sands, oil shale, coal and coal bed methane. We do not drill production wells for conventional oil or gas,
but do provide specialised gas well pre-collaring services. We provide earth and rock core samples for analysis, as well as
completed holes for the installation of gas well casings.
Drilling technologies
Our Global Drilling Services division offers its mining customers a wide variety of drilling technologies tailored to meet clients’
needs. All methods require purpose-built equipment, tooling and skilled operators to perform the drilling safely, efficiently and
to a high standard of quality.
· Diamond core drilling (surface and underground) - Diamond core drilling uses an industrial-grade diamond crown drill
bit to cut a cylindrical core through solid rock. This is the most sophisticated form of drilling due to the information that
it yields and it commands a higher service margin than other forms of drilling. The core barrel assembly used in
diamond core drilling enables core samples to be retrieved through the hollow drill rods with a wireline device. The
wireline device allows the core sample to be extracted without having to remove the entire string of drill rods from the
hole to reach the sample. The benefits of this device are of particular importance for deep drilling.
· Production drilling - Production drilling is a fast and effective method to quickly remove earth and obtain ore. Holes
are drilled with a pneumatic/hydraulic top hammer or an in-the-hole hammer with a carbide percussive bit. Once the
hole is drilled into the rock, it is filled with explosives. After detonation, the debris is cleared and the process is
repeated. This method of drilling is sometimes referred to as long-hole drill-and-blast. This method of drilling is also
used when holes are needed to connect from level to level in an underground mine or when up-holes are drilled in the
back of underground tunnels to install cables for structural support in the tunnels.
· Rotary drilling - Rotary drilling involves a continuous rotation of a drill bit to bore through earth and rock. As cuttings
are created, they are circulated out of the borehole with either air or drilling fluids. There are several technologies
used to perform rotary drilling including reverse circulation, flooded reverse, and conventional rotary. Reverse
circulation drilling is used to collect rock samples quickly and efficiently using a large rotary drill and air compressor.
This method is ideal for obtaining mineral samples in the early phases of an exploration project. In addition, rotary
drilling is used in the development and production stages of mining. Our dual-tube flooded reverse technology allows
us to install dewatering wells in existing mines. This method can also be used to drill “service holes” in underground
mines to supply utilities and air shafts to the mine. In addition, rotary drilling is also used where pockets of water near
the walls of an open pit mine create pressure against the wall making it unstable. Horizontal holes are drilled in the
wall to create an outlet for water to drain and relieve wall pressure.
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31 December 2013 BOART LONGYEAR LIMITED
31 December 2013 BOART LONGYEAR LIMITED
· Sonic drilling - Sonic drilling produces a continuous, in-situ, sample providing close to 100% recovery in almost any
· Sonic drilling - Sonic drilling produces a continuous, in-situ, sample providing close to 100% recovery in almost any
overburden formation. Sonic drilling relies upon sending a frequency from the head into the rod. The sonic tooling
overburden formation. Sonic drilling relies upon sending a frequency from the head into the rod. The sonic tooling
penetrates the surface with minimal rotation, friction and disruption. This method of drilling provides a continuous
penetrates the surface with minimal rotation, friction and disruption. This method of drilling provides a continuous
sample, and is ideal in both overburden and environmentally sensitive areas. Mining companies will utilise sonic
sample, and is ideal in both overburden and environmentally sensitive areas. Mining companies will utilise sonic
drilling to examine leach pads, ore bodies just prior to processing, and pre-collars in unconsolidated formations. The
drilling to examine leach pads, ore bodies just prior to processing, and pre-collars in unconsolidated formations. The
technology does not require water or mud consumables, which makes it an environmentally friendly form of drilling
technology does not require water or mud consumables, which makes it an environmentally friendly form of drilling
that offers an uncontaminated sample.
that offers an uncontaminated sample.
Global Drilling Services – Customers and Contracts
Global Drilling Services – Customers and Contracts
Approximately 87% of Global Drilling Services’ revenue for the year ended 31 December 2013 was derived from major mining
Approximately 87% of Global Drilling Services’ revenue for the year ended 31 December 2013 was derived from major mining
companies, including Barrick Gold Corporation, BHP Billiton Limited, Freeport-McMoRan Copper & Gold, Inc., GoldCorp, Inc.,
companies, including Barrick Gold Corporation, BHP Billiton Limited, Freeport-McMoRan Copper & Gold, Inc., GoldCorp, Inc.,
Newmont Mining Corporation and Rio Tinto Ltd. Our top 10 Global Drilling Services customers represented approximately
Newmont Mining Corporation and Rio Tinto Ltd. Our top 10 Global Drilling Services customers represented approximately
55% of Global Drilling Services’ revenue for the year ended 31 December 2013, with no customer contributing more than 11%
55% of Global Drilling Services’ revenue for the year ended 31 December 2013, with no customer contributing more than 11%
of our consolidated revenue and no contract contributing more than 4% of our consolidated revenue. We believe this
of our consolidated revenue and no contract contributing more than 4% of our consolidated revenue. We believe this
diversified income base provides greater revenue stability.
diversified income base provides greater revenue stability.
Revenue by Customer Type
Revenue by Customer Type
Drilling services contracts are typically awarded following a tender process. Drilling services providers tend to quote following a
Drilling services contracts are typically awarded following a tender process. Drilling services providers tend to quote following a
detailed costing and pricing process that ensures that projects are properly planned and take into account the geography,
detailed costing and pricing process that ensures that projects are properly planned and take into account the geography,
geology, timeframe, staffing and equipment and tooling costs.
geology, timeframe, staffing and equipment and tooling costs.
A typical drilling contract specifies the depth of drilling required, the duration of the project and the scope and conditions of
A typical drilling contract specifies the depth of drilling required, the duration of the project and the scope and conditions of
work. Customers are typically charged on a rate per-meter drilled basis. Profitability is therefore a function not only of price, but
work. Customers are typically charged on a rate per-meter drilled basis. Profitability is therefore a function not only of price, but
also of productivity, which is driven by the drilling method, technology, efficiency of the equipment and skill and experience of
also of productivity, which is driven by the drilling method, technology, efficiency of the equipment and skill and experience of
the drill operators. The majority of our drilling services contracts are short term in duration and typically can be cancelled by
the drill operators. The majority of our drilling services contracts are short term in duration and typically can be cancelled by
our customers with a short notice period, which is in line with industry standards.
our customers with a short notice period, which is in line with industry standards.
In the minerals industry, some mining exploration stage contracts are as short as three months, but mining production stage
In the minerals industry, some mining exploration stage contracts are as short as three months, but mining production stage
contracts are generally longer and typically last up to 12 months. Despite their relatively short duration, minerals industry
contracts are generally longer and typically last up to 12 months. Despite their relatively short duration, minerals industry
drilling services contracts are generally reviewed annually following a negotiation or re-bid. In the case of exploration stage
drilling services contracts are generally reviewed annually following a negotiation or re-bid. In the case of exploration stage
contracts, such work is often renewed or extended to the completion of the project following a successful strike or discovery. In
contracts, such work is often renewed or extended to the completion of the project following a successful strike or discovery. In
such cases, and particularly on the more remote contracts, mining companies will often prefer to leave the incumbent drilling
such cases, and particularly on the more remote contracts, mining companies will often prefer to leave the incumbent drilling
services contractor on site to continue drilling so that the project continues with minimal disruption and the mobilisation and
services contractor on site to continue drilling so that the project continues with minimal disruption and the mobilisation and
demobilisation costs are kept to a minimum.
demobilisation costs are kept to a minimum.
29
Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
In the energy industry, the scope of work tends to be larger and contract duration is typically three to six months but can
extend up to 12 months.
Drilling Services pricing is measured by calculating the 2013 revenue-per-meter by drilling discipline by territory and comparing
this figure to the same calculated figure for 2012. The difference is the year-over-year price change for the respective territory
and drilling discipline. The calculated pricing changes for each territory and drilling discipline are then weighted to calculate
the overall global pricing change. The calculated pricing change is then tested against the contract database pricing where
comparable contract pricing for 2013 (total contract revenue / total meters) is compared to 2012 pricing. The pricing result for
2013 versus 2012 was a decrease of 6%.
Rig fleet
Our drill rig fleet, consisting of 951 rigs as at 31 December 2013, is the largest fleet operated by a mineral drilling services
company in the world. Our drill rigs range from small underground drills costing approximately $250,000 to large diameter
rotary rigs that cost in excess of $4 million. The operational life of a drill rig varies greatly. Underground rigs depreciate over a
five year period, while surface core rigs are depreciated over 10 years and rotary rigs over 12 years, or their estimated useful
life.
Safety and risk management
A crucial consideration for mining companies in the selection of drilling service providers is their respective safety track record.
We believe we have established a reputation as an industry leader in the application of safe operating practices and products,
which provides a competitive advantage when bidding for customer contracts.
We are focused on effectively managing safety performance and building a solid safety culture. By quantifying hazards, risks
and awareness levels and measuring against appropriate goals, we have gained a competitive advantage of delivering on our
strategy safely. Our focus on improving safety has avoided significant costs being incurred through accidents and resulted in
more efficient operations.
In addition, we have established an enterprise risk management function (ERM) that periodically assesses likelihood and
potential impact of a variety of operational, industry and financial risks to the Company on a regional basis. The ERM function
also oversees the development and implementation of mitigation plans for the most significant identified risks.
Financial Inform ation
Third party revenue
COGS
Materials/labor/overhead/other
Depreciation and amortisation
Total COGS
COGS as a % of Revenue
Contribution margin $
Contribution margin %
Business unit SG&A
Allocated SG&A
EBITDA
Capital spend (accrual)
Other Metrics
# of Drill rigs at 31 December
# of Employees at 31 December
For the year ended 31 Decem ber
2013
2012
US$ Millions
US$ Millions
$ Change
% Change
917.3
1,516.2
(598.9)
-40%
688.7
94.6
783.3
85%
89.3
10%
44.8
40.1
141.9
37.6
951
4,338
1,093.5
93.7
1,187.2
78%
250.2
17%
78.9
58.0
289.6
234.8
1,165
7,338
(404.8)
0.9
(403.9)
7%
(160.9)
-7%
(34.1)
(17.9)
(147.7)
(197.2)
(214)
(3,000)
-37%
1%
-34%
9%
-64%
-41%
-43%
-31%
-51%
-84%
-18%
-41%
30
Boart Longyear
Annual Financial Report
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
31 December 2013 BOART LONGYEAR LIMITED
(cid:11)(cid:20)(cid:23)(cid:13)(cid:18)(cid:2)(cid:5)(cid:21)(cid:17)(cid:18)(cid:18)(cid:17)(cid:19)(cid:16)(cid:2)(cid:10)(cid:15)(cid:21)(cid:25)(cid:17)(cid:14)(cid:15)(cid:22)
(cid:11)(cid:20)(cid:23)(cid:13)(cid:18)(cid:2)(cid:5)(cid:21)(cid:17)(cid:18)(cid:18)(cid:17)(cid:19)(cid:16)(cid:2)(cid:10)(cid:15)(cid:21)(cid:25)(cid:17)(cid:14)(cid:15)(cid:22)
(cid:28)
(cid:28)
(cid:2)
(cid:2)
(cid:8)
(cid:8)
(cid:30)
(cid:30)
(cid:5)
(cid:5)
(cid:10)
(cid:10)
(cid:12)
(cid:12)
(cid:27)
(cid:27)
(cid:2)
(cid:2)
(cid:15)
(cid:15)
(cid:24)
(cid:24)
(cid:19)
(cid:19)
(cid:15)
(cid:15)
(cid:25)
(cid:25)
(cid:15)
(cid:15)
(cid:9)
(cid:9)
(cid:30)(cid:34)(cid:26)(cid:39)(cid:33)(cid:33)
(cid:30)(cid:34)(cid:26)(cid:39)(cid:33)(cid:33)
(cid:30)(cid:34)(cid:26)(cid:37)(cid:33)(cid:33)
(cid:30)(cid:34)(cid:26)(cid:37)(cid:33)(cid:33)
(cid:30)(cid:34)(cid:26)(cid:35)(cid:33)(cid:33)
(cid:30)(cid:34)(cid:26)(cid:35)(cid:33)(cid:33)
(cid:30)(cid:34)(cid:26)(cid:33)(cid:33)(cid:33)
(cid:30)(cid:34)(cid:26)(cid:33)(cid:33)(cid:33)
(cid:30)(cid:40)(cid:33)(cid:33)
(cid:30)(cid:40)(cid:33)(cid:33)
(cid:30)(cid:39)(cid:33)(cid:33)
(cid:30)(cid:39)(cid:33)(cid:33)
(cid:30)(cid:37)(cid:33)(cid:33)
(cid:30)(cid:37)(cid:33)(cid:33)
(cid:30)(cid:35)(cid:33)(cid:33)
(cid:30)(cid:35)(cid:33)(cid:33)
(cid:30)(cid:33)
(cid:30)(cid:33)
(cid:2)
(cid:2)
(cid:43)
(cid:43)
(cid:3)
(cid:3)
(cid:5)
(cid:5)
(cid:11)
(cid:11)
(cid:7)
(cid:7)
(cid:4)
(cid:4)
(cid:6)
(cid:6)
(cid:35)(cid:38)(cid:43)
(cid:35)(cid:38)(cid:43)
(cid:35)(cid:33)(cid:43)
(cid:35)(cid:33)(cid:43)
(cid:34)(cid:38)(cid:43)
(cid:34)(cid:38)(cid:43)
(cid:34)(cid:33)(cid:43)
(cid:34)(cid:33)(cid:43)
(cid:38)(cid:43)
(cid:38)(cid:43)
(cid:33)(cid:43)
(cid:33)(cid:43)
(cid:9)(cid:15)(cid:25)(cid:15)(cid:19)(cid:24)(cid:15)
(cid:9)(cid:15)(cid:25)(cid:15)(cid:19)(cid:24)(cid:15)
(cid:6)(cid:4)(cid:7)(cid:11)(cid:5)(cid:3)(cid:2)(cid:43)
(cid:6)(cid:4)(cid:7)(cid:11)(cid:5)(cid:3)(cid:2)(cid:43)
(cid:35)(cid:33)(cid:34)(cid:33)
(cid:35)(cid:33)(cid:34)(cid:33)
(cid:35)(cid:33)(cid:34)(cid:34)
(cid:35)(cid:33)(cid:34)(cid:34)
(cid:35)(cid:33)(cid:34)(cid:35)
(cid:35)(cid:33)(cid:34)(cid:35)
(cid:35)(cid:33)(cid:34)(cid:36)
(cid:35)(cid:33)(cid:34)(cid:36)
Included in the chart and table above is the operations of the US-based environmental and infrastructure drilling services
Included in the chart and table above is the operations of the US-based environmental and infrastructure drilling services
business (E&I) that was sold on 15 July 2013. The table below shows the pro-forma results for the Global Drilling Services
business (E&I) that was sold on 15 July 2013. The table below shows the pro-forma results for the Global Drilling Services
business taking out the 2012 results and first half 2013 results of the E&I business.
business taking out the 2012 results and first half 2013 results of the E&I business.
For the year ended 31 Decem ber
For the year ended 31 Decem ber
2013
2013
2012
2012
Pro Form a
Pro Form a
Pro Form a
Pro Form a
US$ Millions
US$ Millions
US$ Millions
US$ Millions
$ Change
$ Change
% Change
% Change
887.7
887.7
1,391.9
1,391.9
(504.2)
(504.2)
-36%
-36%
676.4
676.4
89.2
89.2
765.6
765.6
86%
86%
79.9
79.9
9%
9%
129.3
129.3
882.7
882.7
200.2
200.2
1,082.9
1,082.9
78%
78%
244.7
244.7
18%
18%
275.5
275.5
(206.3)
(206.3)
(111.0)
(111.0)
(317.3)
(317.3)
8%
8%
(164.8)
(164.8)
-9%
-9%
(146.2)
(146.2)
-23%
-23%
-55%
-55%
-29%
-29%
11%
11%
-67%
-67%
-49%
-49%
-53%
-53%
Pro Form a Financial Inform ation
Pro Form a Financial Inform ation
Third party revenue
Third party revenue
COGS
COGS
Materials/labor/overhead/other
Materials/labor/overhead/other
Depreciation and amortisation
Depreciation and amortisation
Total COGS
Total COGS
COGS as a % of Revenue
COGS as a % of Revenue
Contribution margin $
Contribution margin $
Contribution margin %
Contribution margin %
EBITDA
EBITDA
31
Annual Report 2013
Annual Financial Report
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
31 December 2013 BOART LONGYEAR LIMITED
After several years of strong revenue growth, current market conditions have proven to be a challenge with customers
After several years of strong revenue growth, current market conditions have proven to be a challenge with customers
reducing their exploration, development and capital spending. Although underground drilling and production related drilling
reducing their exploration, development and capital spending. Although underground drilling and production related drilling
services have remained flat to slightly down, the drilling services industry has experienced significant reductions due to
services have remained flat to slightly down, the drilling services industry has experienced significant reductions due to
reduced demand. Much of the spending reduction has been attributed to reduction in commodity demand and pricing. In
reduced demand. Much of the spending reduction has been attributed to reduction in commodity demand and pricing. In
particular, gold exploration spending has waned over the last year.
particular, gold exploration spending has waned over the last year.
Drilling Services Commodity Breakdown1
Drilling Services Commodity Breakdown1
(1) Based on percentages of revenue for the year ended 31 December 2013.
(1) Based on percentages of revenue for the year ended 31 December 2013.
Boart Longyear has experienced significant revenue reductions in 2013 due to contract cancellations or reductions in drilling
Boart Longyear has experienced significant revenue reductions in 2013 due to contract cancellations or reductions in drilling
scope. To offset the drop in revenue, the Global Drilling Services group reduced fixed costs through the consolidation of 23
scope. To offset the drop in revenue, the Global Drilling Services group reduced fixed costs through the consolidation of 23
zones into 10 territories in 4 global regions. The restructuring enabled the division to reduce fixed costs by eliminating
zones into 10 territories in 4 global regions. The restructuring enabled the division to reduce fixed costs by eliminating
headcount and operating facilities. The consolidation has not only reduced costs but it has also driven efficiencies, thus better
headcount and operating facilities. The consolidation has not only reduced costs but it has also driven efficiencies, thus better
positioning the Global Drilling Services for the future.
positioning the Global Drilling Services for the future.
Global Products
Global Products
Global Products is a leading manufacturer, marketer and distributor of a wide range of drilling equipment and performance
Global Products is a leading manufacturer, marketer and distributor of a wide range of drilling equipment and performance
tooling, including diamond drill bits, drill rods, wireline core extraction systems, drilling rigs and other products used in mineral
tooling, including diamond drill bits, drill rods, wireline core extraction systems, drilling rigs and other products used in mineral
exploration, mine development, mine production and environmental and infrastructure drilling. Our extensive experience in the
exploration, mine development, mine production and environmental and infrastructure drilling. Our extensive experience in the
drilling industry and broad portfolio of patents and innovations have enabled us to develop and deliver a comprehensive line of
drilling industry and broad portfolio of patents and innovations have enabled us to develop and deliver a comprehensive line of
technologically advanced drilling products to meet the drilling industry’s needs for safety, reliability and productivity.
technologically advanced drilling products to meet the drilling industry’s needs for safety, reliability and productivity.
Of Global Products’ revenue for the year ended 31 December 2013, approximately 75% was comprised of performance tooling
Of Global Products’ revenue for the year ended 31 December 2013, approximately 75% was comprised of performance tooling
components. Through a worldwide network of approximately 150 sales and customer service representatives, we primarily sell
components. Through a worldwide network of approximately 150 sales and customer service representatives, we primarily sell
our products to drilling services contractors. No external Global Products customer represented more than 2% of our
our products to drilling services contractors. No external Global Products customer represented more than 2% of our
consolidated revenue for the year ended 31 December 2013. Global Products also provides the products necessary for our
consolidated revenue for the year ended 31 December 2013. Global Products also provides the products necessary for our
Global Drilling Services division.
Global Drilling Services division.
For the past several years, we have continuously enhanced our manufacturing flexibility and lowered our cost base by
For the past several years, we have continuously enhanced our manufacturing flexibility and lowered our cost base by
rationalising our global manufacturing footprint and optimising our global sourcing and distribution channels. From 2005 to
rationalising our global manufacturing footprint and optimising our global sourcing and distribution channels. From 2005 to
2013, we have successfully reduced our manufacturing facilities from 25 to 6. At the same time, we have significantly
2013, we have successfully reduced our manufacturing facilities from 25 to 6. At the same time, we have significantly
increased our manufacturing capacity by concentrating on fewer, larger facilities and through the implementation of several
increased our manufacturing capacity by concentrating on fewer, larger facilities and through the implementation of several
manufacturing process improvement initiatives. By managing assets within fewer manufacturing facilities, we are able to more
manufacturing process improvement initiatives. By managing assets within fewer manufacturing facilities, we are able to more
efficiently leverage our asset base and our production, manufacturing and supply chain process. In addition, we have recently
efficiently leverage our asset base and our production, manufacturing and supply chain process. In addition, we have recently
combined the aftermarket service function of our Global Products division with the maintenance function of our Global Drilling
combined the aftermarket service function of our Global Products division with the maintenance function of our Global Drilling
Services division. We have manufacturing facilities located in Europe, North America and China that currently employ
Services division. We have manufacturing facilities located in Europe, North America and China that currently employ
approximately 470 manufacturing employees.
approximately 470 manufacturing employees.
32
Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
Drilling products offered
Global Products supplies drilling equipment (surface and underground) and performance tooling (diamond drill bits, percussive
drill bits, core barrels, drill rods and casings and other products) to the minerals, environmental and infrastructure and energy
industries. Below is a summary of the primary products we sell.
· Coring tools - Coring tools include advanced wireline and conventional diamond drill coring systems used in minerals
drilling, including diamond drill bits, core barrels, rods and casings. These products are designed and used to extract
rock and other core samples drilled.
· Rigs - We manufacture a wide range of rigs for use by the minerals, environmental and infrastructure and energy
industries. Each rig type is designed and manufactured for specific applications. The parameters used to design rigs
include hole depth, hole diameter, hole use/ maintenance and ground conditions.
· Percussive tools - Percussive tools include drill-mounted and hand-held hammers used to produce the rotation and
impact forces, shank adaptors to transmit the energy to the drill string, drill rods and couplings for various hole depths
and bits, which are fitted with tungsten carbide inserts to fracture the rock.
· Aftermarket services – We support our customers through experienced teams of service technicians. In-house and
field-based repair services are available, as well as technical advice and support. Parts repair and rebuild services
are offered as a more efficient replacement parts option for major components.
Sales, marketing and distribution
Through a worldwide network of approximately 150 sales and customer service representatives, we primarily sell our products
to drilling services contractors. Global Products’ sales are made either directly to the end user or through distributors who then
on-sell to end users. In regions where sales volumes are large, individuals may have product-specific sales responsibility,
whereas in smaller countries and regions, sales efforts may be the responsibility of one individual. Distribution methods vary
depending on the type of product and customer. Large-scale products such as drill rigs are delivered directly to the end user.
For other tools, equipment and consumables, we operate a network of distribution centers located in North America, South
America, EMEA and Asia Pacific.
Product backlog
At 31 December 2013, we had a backlog of orders of products valued at $16.2 million (2012: $36.8 million). Backlog
represents orders for products that we believe to be firm. However, there is no certainty that the backlog orders will in fact
result in actual sales at the times or in the amounts ordered because our customers can cancel their orders without penalty.
Backlog is not applicable to our Global Drilling Services business.
Our customers
The customers of the drilling products industry are numerous and diverse. The customer base participates in a range of
mining, environmental, infrastructure and energy activities. Global Products has a diversified customer base, the majority of
whom are drilling contractors (including Global Drilling Services) and mine operators. Key Global Products’ customers, listed
alphabetically, include:
· Barminco Limited
· Capital Drilling
· Cascade Drilling, L.P.
· Foraco International SA
· Layne Christensen Company
· Major Drilling Group International Inc.
· Swick Mining Services
During the year ended 31 December 2013, no third-party customer of Global Products accounted for greater than 2% of our
consolidated revenue. We estimate that approximately 20-30% of Global Products’ manufacturing output is used by Global
Drilling Services.
33
Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
Our competitors
Boart Longyear, Atlas Copco Group, Sandvik AB and Schramm are key global participants in the minerals exploration drilling
products industry. A large number of local and regional participants also serve the industry.
Intellectual property
We rely on a combination of patents, trademarks, trade secrets and similar intellectual property rights to protect the proprietary
technology and other intellectual property that are instrumental to our Global Products business. As at 31 December 2013, we
had approximately 383 issued patents, 626 registered trademarks, 342 pending patent applications and 90 pending trademark
applications. One of the most significant patents is our RQ™ coring rod. The RQ™ patented thread design withstands greater
stress than all previously available coring rod designs, enabling drilling of substantially deeper holes. We do not consider our
Global Products business, or our business as a whole, to be materially dependent upon any particular patent, trademark, trade
secret or other intellectual property.
Research and development
We employ engineers and technicians to develop, design and test new and improved products. We work closely with our
customers, as well as our Global Drilling Services division, to identify issues and develop technical solutions. We believe that
this sharing of field data, challenges, safety requirements, and best practices, accelerates innovation that also increases safety
and productivity in the field. This integrated business model provides us with an advantage in product development, and we
believe it enables us to bring new technology to the market with speed. Prior to introduction, new products are subject to
extensive testing in various environments, again with assistance from our Global Drilling Services operator network around the
world. In 2013, we launched 6 new products and we continue to invest in our new product pipeline.
Competitive Strengths
Our variable cost structure offers operational flexibility. Within Global Products, we have rationalised non-core manufacturing
facilities and implemented a low-cost, global sourcing model. Despite reducing the number of our manufacturing facilities from
25 in 2005 to 6 in 2013, we have significantly increased our manufacturing capacity. Many of the manufacturing facilities we
have recently eliminated were small facilities that were not as efficient as our current facilities. Also, by managing assets within
fewer manufacturing facilities, we are able to more efficiently leverage our asset base and our production, manufacturing and
supply chain process. In addition, we have added further capacity and variability to our manufacturing footprint through the use
of contract manufacturers for both our capital equipment and performance tooling offerings.
We have been successful in scaling up quickly in response to mining market growth cycles. For example, we increased
revenues in Global Products by 138% from 2009 to 2011. Our variable cost structure, in conjunction with a predominantly
discretionary capital expenditure program and countercyclical working capital requirements, provides us with significant
operational flexibility and several operating “levers” to successfully manage our business through industry cycles. In turn, this
helps to partially mitigate the impact of reduced revenues on our cash flow profile during industry down cycles, and gives us
the ability to quickly respond to improvements in mining industry conditions.
Our integrated business model provides industry insights and fuels technological innovation. As a leading global integrated
provider of both mineral drilling services and products, we are well positioned to act upon market and customer feedback. We
have access to comprehensive and differentiated market insights that enable us to more efficiently conduct our drilling
products research and development efforts to develop cutting-edge drilling technologies and produce innovative new products
that are responsive to customer demands. Global Drilling Services routinely field tests of our new products before the products
are launched to third-party customers, allowing Global Products to incorporate suggested improvements into the final product
design.
In addition, the global reach of Global Drilling Services allows Global Products to develop and conduct field tests for
applications throughout the world, while its competitors typically focus on one region due to resource limitations and access to
drill sites. As the segments become increasingly integrated (for example, the consolidation of the Global Products division’s
aftermarket service function with the Global Drilling Services division’s maintenance function), we expect to see further
efficiencies, reduced fixed costs and release of working capital through better management of total company inventory.
34
Boart Longyear
Annual Financial Report
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
31 December 2013 BOART LONGYEAR LIMITED
Financial Inform ation
Financial Inform ation
Third party revenue
Third party revenue
COGS
COGS
Materials/labor/overhead/other
Materials/labor/overhead/other
Inventory obsolescence
Inventory obsolescence
Depreciation and amortisation
Depreciation and amortisation
Total COGS
Total COGS
COGS as a % of Revenue
COGS as a % of Revenue
Contribution margin $
Contribution margin $
Contribution margin %
Contribution margin %
Business unit SG&A
Business unit SG&A
Allocated SG&A
Allocated SG&A
EBITDA
EBITDA
Capital Spend (accrual)
Capital Spend (accrual)
Other Metrics
Other Metrics
Manufacturing plants
Manufacturing plants
Average backlog
Average backlog
# of Employees at 31 December
# of Employees at 31 December
For the year ended 31 Decem ber
For the year ended 31 Decem ber
2013
2013
2012
2012
US$ Millions
US$ Millions
US$ Millions
US$ Millions
$ Change
$ Change
% Change
% Change
305.5
305.5
495.3
495.3
(189.8)
(189.8)
-38%
-38%
203.3
203.3
22.7
22.7
11.4
11.4
237.4
237.4
78%
78%
39.0
39.0
12.8%
12.8%
29.1
29.1
36.4
36.4
16.1
16.1
6.8
6.8
6
6
28.5
28.5
910
910
295.2
295.2
4.6
4.6
12.0
12.0
311.8
311.8
63%
63%
143.5
143.5
29.0%
29.0%
40.2
40.2
50.5
50.5
107.2
107.2
27.6
27.6
6
6
61.0
61.0
1,173
1,173
(91.9)
(91.9)
-31%
-31%
(0.6)
(0.6)
(74.4)
(74.4)
15%
15%
(104.5)
(104.5)
-16%
-16%
(11.1)
(11.1)
(14.1)
(14.1)
(91.1)
(91.1)
(20.8)
(20.8)
-
-
(32.5)
(32.5)
(263)
(263)
-5%
-5%
-24%
-24%
23%
23%
-73%
-73%
-56%
-56%
-28%
-28%
-28%
-28%
-85%
-85%
-75.4%
-75.4%
0%
0%
-53%
-53%
-22%
-22%
2013 contribution margin and EBITDA were adversely affected by $22.7 million of non-cash expense related to the company’s
2013 contribution margin and EBITDA were adversely affected by $22.7 million of non-cash expense related to the company’s
policy for slow-moving inventory.
policy for slow-moving inventory.
)
)
M
M
$
$
S
S
U
U
(
(
e
e
u
u
n
n
e
e
v
v
e
e
R
R
$700
$700
$600
$600
$500
$500
$400
$400
$300
$300
$200
$200
$100
$100
$-
$-
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
%
%
A
A
D
D
T
T
B
B
E
E
I
I
Revenue
Revenue
EBITDA %
EBITDA %
Adj EBITDA % *
Adj EBITDA % *
(1)
(1)
2010
2010
2011
2011
2012
2012
2013
2013
(1) Adjusted EBITDA does not include the $22.7 million of expense related to the Company’s policy for slow-moving inventory.
(1) Adjusted EBITDA does not include the $22.7 million of expense related to the Company’s policy for slow-moving inventory.
35
Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
7. Non-IFRS Financial Information
US$ Millions
US$ Millions
US$ Millions
US$ Millions
US$ Millions
For the year ended 31 Decem ber
2013
2013
2012
2012
EBITDA(1)
NPAT(2)
Goodw ill impairment
Property, plant and equipment impairment
Inventory impairment
Employee separation and related costs
Development asset impairment
Intangible assets impairment
Other restructuring and impairment costs
Gain on termination of post-retirement medical plan
Tax effect of significant items and other tax w rite offs(3)
Total of significant item s
Adjusted EBITDA(1)
Adjusted NPAT(2)
(337.1)
254.3
166.3
109.9
101.9
44.8
14.6
9.1
14.6
(16.9)
444.3
107.2
(619.9)
166.3
109.9
101.9
44.8
14.6
9.1
14.6
(16.9)
81.3
525.6
(94.3)
6.8
6.0
7.7
23.0
8.4
3.5
12.2
-
67.6
321.9
68.2
6.8
6.0
7.7
31.6
8.4
3.5
3.6
-
(19.7)
47.9
116.1
(1) EBITDA is 'Earnings before interest, tax, depreciation and amortisation'. Adjusted EBITDA is 'Earnings before interest, tax,
depreciation and amortisation and significant items'.
(2) NPAT is 'Net profit after tax'. Adjusted NPAT is 'Net profit after tax and significant items'.
(3) Includes tax expense on derecognition of deferred tax assets arising in prior year and unrecognised tax losses
in the current year ($160.3 million).
8. Outlook and Risks
8.1 Our prospects are highly correlated with the environment for Mineral Exploration, Development and Production
and the related level of spending which determines drill rig utilisation rates
Our prospects in the short- to medium- term are driven, in large part, by the level of mineral exploration, development and
production activity which is affected by factors including:
·
the level and volatility of commodity prices, in particular gold, copper and iron ore (which accounted for approximately
73% of Global Drilling Services 2013 revenue);
· anticipated future prices for commodities and the outlook for commodity demand;
·
·
·
·
· availability of financing for mining exploration and development, particularly for junior mining companies.
the outlook for current and projected commodity supply and available mine production capacity;
the underlying costs associated with the extraction and production of commodities, mainly, gold, copper and iron ore;
the level of mining industry exploration, development and capital expenditures;
the sovereign and geo-political risks related to mining development activities;
The recent downturn in the mining services industry began in the second half of 2012 and persists today. Global utilisation and
activity rates for our Company, and those publicly reported by certain of our drilling services customers and competitors,
appear to be at or below levels experienced during the 2009 downturn. The key differentiator between the 2009 downturn and
the present downturn is that activity levels in the sector during 2009 were directly related to the stagnation of the global credit
markets. Once the credit markets reopened, the industry witnessed accelerated recovery from 2010 to mid-2012. As the
36
Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
current downturn is not credit related, our expectation is that the downturn will be more prolonged than that of 2009 and that
any recovery may be drawn out over several years.
Commodity prices still remain volatile and junior miners, which serve as one barometer of health for mineral exploration,
appear to be constrained by low levels of cash on-hand and reduced access to the capital markets. Once commodity prices
stabilise and major mining houses are able to achieve lower production costs through the benefits of previously initiated cost
reduction programs we expect that these companies will increase their exploration activities by allocating increased capital and
resources to mineral exploration in order to replenish and augment their existing reserve base.
According to SNL MEG analysis of exploration spending over the last few years, mineral exploration cycles can span several
years. Prior to the 2009 downturn of exploration spending which was largely driven by the Global Financial Crisis, mineral
exploration spend increased for 6 consecutive years from 2002 to 2008 representing a compounded average growth rate of
39%. Conversely, the same data set illustrates a sustained downturn from 1997 to 2002 in which mineral exploration spend
decreased for 5 consecutive years respresenting a compounded average decline rate of 17%. While mineral exploration
cycles are very difficult to predict, we believe the long-term fundamentals of mining and commodity supply and demand are in
place to support an eventual recovery in mineral exploration.
As such, the demand for our Company’s services and products may increase. Based on industry and analyst forecasts, we do
not expect to see the resumption of these activities until at least the second half of 2014 and, more likely, into 2015.
8.2 Our prospects are also impacted by the competitive pressures among Global Drilling Services and its peers and
Global Products and its peers.
With current global rig utilisation rates approaching the levels of the 2008 and 2009 period of global financial crisis, there are a
significant number of unused or under-utilised drill rigs. Competition among drilling services providers for a more limited
number of projects may lead to price competition. Persistence of these or similar pricing pressures could have a material
adverse effect on our revenues and profitability. The resulting decline in demand for our products and services has caused our
revenue to decrease significantly since that time. Both the utilisation level for our drilling rigs and the backlog for our products
business are back to, or below, the depressed levels seen in the 2008-2009 global economic downturn. Further decreased
demand for our products and services could result from general economic downturn arising from currently unforeseen political
or economic events leading to a decline in the demand for minerals.
8.3 We face increased risks of doing business due to the extent of our international operations.
Our international operations are subject to business risks, including political instability, war or civil disturbance, expropriation,
import and export restrictions, exchange controls, inflationary economies, currency risks and risks related to the restrictions on
repatriation of earnings or proceeds from liquidated assets or foreign subsidiaries. In addition, because we report our earnings
in US dollars, unfavorable fluctuations in currency values and exchange rates may have a significant effect on our business.
We closely monitor these risks to mitigate adverse effects. For example, we suspended operations in Mali for several months
in 2012 as civil war and violence in that country threatened our employees and assets.
8.4 We are subject to tax regimes of many different countries and are subject to risks of changes in taxes, or
interpretation or enforcement.
We operate and sell products in countries that have tax regimes in which the rules are not clear, are not consistently applied
and are subject to sudden change. This is especially true with regard to international transfer pricing. Our earnings could be
reduced by the uncertain and changing nature of these risks in foreign locations. We currently have government audits in
process in several countries. While we are confident in our positions in these audits, there is the risk that the government may
take a position contrary to that which we have concluded. In addition, requirements to post security with the dispute of
Canadian tax assessments may adversely affect our liquidity.
37
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31 December 2013 BOART LONGYEAR LIMITED
8.5 Our 2014 Prioirites
Our key priorities for 2014 are to:
· maintain and enhance our culture around safety and compliance;
· expand our mining and minerals drilling customer base;
· effectively manage the related pricing and contract terms;
·
· create new products and respond to new Global Drilling Service’s customers within a constrained capital budget;
· efficiently manage variable and fixed costs;
· strengthen our financial position.
improve the quality of our customer service;
Maintain and enhance our strong safety and compliance record. Safety is of critical importance to the Company, our
employees, and our customers, both in determining the success of our business and in ensuring the ongoing safety of our
employees and others with whom we come into contact. We are dedicated to implementing and adhering to high safety
standards, and we continually seek ways to maintain and enhance the safety of our drilling services and products.
Expand our mining and minerals drilling customer base by offering superior service. The company remains focused on
providing our customers with a full range of drilling services offerings backed by 120 years of experience and innovation,
improving the efficiency with which we deliver information to our customers, and operating under clear contract and pricing
terms. In particular, we seek to be the driller of choice at our clients’ ‘flagship’ projects—typically among the highest producing,
lowest cost projects in their portfolios. Drilling activity at these sites tends to be less volatile, higher volume, and involve longer-
term contracts, allowing Boart Longyear the opportunity to leverage its costs and to develop site-specific expertise that brings
value both to the customer and to Boart Longyear.
Creating new products and respond to new Global Drilling Service’s customers within a constrained capital budget.
Disciplined investments in our business to drive returns. We will continue to actively manage our rig fleet and capitalise on
investments made in all areas of the business during the past few years. Because we have spent in excess of $600 million in
capital expenditures in 2010 through 2012 (including approximately $430 million for drilling rigs and support equipment), we
believe future capital expenditures are likely to be more moderate at an expected $25 -$50 million per year over the next
several years, unless rig utilisation rates increase significantly. This level of capital expenditure will allow us to focus on high-
value opportunities in which we can leverage distinctive competencies, such as for mine water services, or on market
segments that are more resilient in industry contractions, such as underground drilling services and products. We also will
continue to explore entry into geographies with favorable risk/return metrics and on technologies and high value added and
more profitable activities.
Efficiently manage our variable and fixed costs. We believe that our variable cost structure is a key advantage that allows
us to operate our business with significant flexibility in response to the market environment. We are committed to continuously
reviewing our cost structure in order to maintain a relatively high percentage of our costs that are variable. In addition, we are
committed to delivering on the $28 million cost out program initiated in January 2014. We will continue to pursue
manufacturing and administrative optimisation programs in order to improve our operating efficiency beyond those initiatives
that have already been announced. We continue to focus on process improvements and structural changes to improve
customer support and responsiveness and drive long-term efficiencies. For example, we are improving working capital
management and product delivery through the consolidation of the supply chain organisations in our Global Products and
Global Drilling Services divisions. Similarly, we are leveraging the extensive global maintenance organisation in our Global
Drilling Services division to expand the reach, capabilities and offerings of the aftermarket services business of our Global
Products division. Our objective is to continue to seek growth opportunities in our core markets while positioning our business
at the top end of our peer group for profitability and cash generation. We also intend to continue our disciplined focus on
customer relationships and to seek mutually favorable contract terms. And, further, we are moving towards shared-service
organisations to increase the process efficiencies and to leverage our knowledge base across the global financial organisation.
Strengthen our financial position - provide continued access to liquidity under the terms and conditions of our
borrowing arrangements. The Company currently has a higher than desired gearing level which impacts the costs and
terms upon which we can access the debt and equity markets. Access to borrowings under our bank debt facility are
conditional upon meeting certain financial covenants and those covenants are set at levels that, under certain of our
projections, may not be met. As such, we have entered into a series of amendments to our credit agreement in June and
September 2013 and in February 2014. See details in Note 23 and Note 38 to the financial statements.
In addition to pursuing continued access to liquidity through capital markets and banking arrangements, the Company will
continue to focus on organic cash generating activities, such as filling customer orders with existing stock on-hand and
increasing overall inventory turnover.
38
Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
8.6 Our 2014 Outlook
We are not providing market guidance for 2014 revenue or EBITDA given current market uncertainty. We expect, however,
that the primary factors driving our revenue, such as rig utilisation rates and product sales volumes, will remain broadly
consistent with levels experienced in the fourth quarter of 2013. Profitability will be influenced by those and other factors, such
as price, productivity and our ability to further control costs. We believe current market expectations for 2014 revenue and
EBITDA, including even at the low end of 2014 analyst estimates compiled by Bloomberg of $979.0 million in revenue and
$77.0 million in EBITDA, may not be based on the most current available market information regarding industry conditions.
Given the significant and continuing downward pressure on demand for our services and products from July 2012 to now and
recognising that most mining industry observers are predicting continued, lower levels of exploration spending combined with
the fact that contracts for our drilling services and products can be cancelled by our customers with little notice, we are not
providing a specific outlook for 2014 Revenue and EBITDA this early in the calendar year.
Our 2014 outlook for several other metrics is as follows:
2014 Outlook
(US$ m illion unless noted)
Sales, general and adminstrative expenses
Net interest expense
Capital spending
$165 to $170
$50 to $55
$25 to $50
8.9 Future Developments
We believe that we are well-positioned to take advantage of positive long-term mining industry fundamentals. The
mining industry is cyclical. Notwithstanding the current sector challenges, the longer-term outlook for the mining industry is
expected to remain attractive underpinned by:
·
continued industrialisation and urbanisation of developing economies, which are expected to support structural
increases in demand for minerals and metals; and
· although volatile, continued high commodity prices relative to price levels over the past decade.
As a result, we believe natural resources companies will be compelled to produce throughout the cycle and supplement and
replace their reserves, over time, driving exploration, development and capital spending. As the leading drilling services
provider globally with the world’s largest drilling fleet, Boart Longyear is well positioned to capture expansionary opportunities
to drive technological innovation and engineering excellence. For over 120 years, we have pioneered and developed many of
the mineral drilling techniques and products that have represented the cutting edge of the drilling industry. Going forward, we
are committed to continuing as a leader in the drilling industry in the areas of technological innovation and engineering
excellence to improve productivity, efficiency, accuracy, reliability and safety. Our integrated business model uniquely
positions us to do so. We aim to be the “One Source” for drilling services, drilling equipment and performance tooling for
mining and drilling companies globally by offering our customers a comprehensive portfolio of technologically advanced and
innovative drilling services and products.
The Company remains focused on its core mining markets and intends to continue to invest in high-potential organic growth
opportunities in those markets in a selective and disciplined manner. Examples of such opportunities include ongoing
expansion of the Company’s mine water drilling services business, as well as developing the next generation of consumable
products, rod-handling solutions for the entire range of drilling rigs the Company offers and other products that enhance safety
and productivity. In addition, the Company continues to evaluate operational enhancements to improve operating margins,
cash generation and debt reduction, such as an ongoing evaluation of its overhead cost structure and initiatives to reduce
inventory and working capital. The Company may also elect to expand through strategic acquisitions.
39
Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
Annual Financial Report
Annual Financial Report
As our markets improve, we expect, over time, that the Company’s EBITDA generation could return to the historical levels of
31 December 2013 BOART LONGYEAR LIMITED
“mid-cycle” EBITDA.
31 December 2013 BOART LONGYEAR LIMITED
As our markets improve, we expect, over time, that the Company’s EBITDA generation could return to the historical levels of
“mid-cycle” EBITDA.
As our markets improve, we expect, over time, that the Company’s EBITDA generation could return to the historical levels of
“mid-cycle” EBITDA.
And, as our markets improve, we believe we can earn better margins than the Company has realised historically as a result of
the significant reductions in SG&A and overhead costs realised in 2013, most of which will not need to be replaced. In
addition, the efficiencies we are generating through the consolidation of the Global Products division’s aftermarket services
group with the Global Drilling Services division’s maintenance group and the supply chain groups for both divisions are
significant. We also expect that as our EBITDA generation improves, along with improved management of inventory levels
and working capital and reduced capital spending, we will be able to pay down debt.
And, as our markets improve, we believe we can earn better margins than the Company has realised historically as a result of
the significant reductions in SG&A and overhead costs realised in 2013, most of which will not need to be replaced. In
addition, the efficiencies we are generating through the consolidation of the Global Products division’s aftermarket services
And, as our markets improve, we believe we can earn better margins than the Company has realised historically as a result of
group with the Global Drilling Services division’s maintenance group and the supply chain groups for both divisions are
the significant reductions in SG&A and overhead costs realised in 2013, most of which will not need to be replaced. In
significant. We also expect that as our EBITDA generation improves, along with improved management of inventory levels
addition, the efficiencies we are generating through the consolidation of the Global Products division’s aftermarket services
and working capital and reduced capital spending, we will be able to pay down debt.
group with the Global Drilling Services division’s maintenance group and the supply chain groups for both divisions are
significant. We also expect that as our EBITDA generation improves, along with improved management of inventory levels
Further information about likely developments in the operations of the Company in future years, expected results of those
and working capital and reduced capital spending, we will be able to pay down debt.
operations, and strategies of the Company and its prospects for future financial years have been omitted from this report
because disclosure of the information would be speculative or could be prejudicial to the Company.
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 have been omitted from this report
because disclosure of the information would be speculative or could be prejudicial to the Company.
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 have been omitted from this report
because disclosure of the information would be speculative or could be prejudicial to the Company.
40
Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
9.
Quarterly Income Statement and Related Information
41
Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
It is our pleasure to introduce Boart Longyear’s 2013 Remuneration Report. 2013 was a particularly challenging year for the
mining services sector generally. This was clearly reflected in Boart Longyear’s bottom line and remuneration outcomes. We
introduced a number of shareholder focused changes in 2013, including adopting a clawback policy that will apply to new
incentive awards and changing the long-term incentive metrics to a straight linear calculation between achievement levels.
Both measures were intended to help mitigate the potential for inappropriate risk-taking.
Short-term incentive outcomes were significantly lower than last year and there will be no vesting of performance tested long-
term incentive awards. On average, executives received 19% of the short-term incentives and 0% (zero) of the performance-
based long-term incentives that could have vested or been paid in 2013. We recognise that these outcomes are appropriate
and that executives, like shareholders, will inevitably be impacted by the current challenging environment, and therefore our
remuneration programs have evidenced a strong link with Company and shareholder performance.
However, the Board is acutely aware of the need to ensure that the executive team remains focused and incentivised in this
environment. There are some critical challenges confronting us. The depth of the downturn in the sector has exceeded all
expectations and the ramifications we are confronted with are largely beyond the control of our executive team. Fortunately,
we are confident that we have the right team to navigate this difficult period. Retention of the team, including of course our new
CEO, is a key near-term remuneration strategy imperative given our current circumstances. This challenge comes at at a time
when the U.S. market for executives, which is where the Company is based and where we compete for executive talent, is
becoming more competitive and yet there is no near term recovery in sight for the mining services sector.
The Board’s other key current area of focus for the remuneration strategy is to properly incentivise our executive team to
successfully address our debt and free cash flow situation and position the Company to manage through the current
challenges. Only then will we be in a position to take advantage of the new opportunities which will arise when our resources
client base has implemented the ongoing (and unprecedented) winding back of capital expenditure commitments and
investments. In this context we recently conducted a review of our remuneration arrangements. The Board concluded that
Boart Longyear needs to introduce tailored and fit for purpose incentives for 2014 that both support retention and drive the
executive team to implement a strategy focused on cash flows and debt reduction. These changes affect both the short term
and long term incentive awards because of the timeframe and criticality of the challenges with which we are confronted. We
have described these changes for 2014 in more detail in section 6 of our report.
The Board will keep the remuneration structure under review and will remain attentive to ensure the strategy and structure of
remuneration at Boart Longyear continues to support business outcomes as well as shareholder and investment community
expectations.
On behalf of the Board of Directors of Boart Longyear,
Barbara Jeremiah
Board Chair
Roger Brown
Remuneration Committee Chair
42
Boart Longyear
Annual Financial Report
31 December 2013 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, aligning 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, that 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.
Changes in 2013
· CEO Transition: In April 2013, Richard O’Brien was hired as President and Chief Executive Officer. He replaced
David McLemore who had been serving as Interim Chief Executive Officer since October 2012. The terms of Mr
O’Brien’s employment arrangements were disclosed at the time of his hiring and are discussed elsewhere in this
report. Mr O’Brien’s appointment was a key success for the Company in 2013. With his considerable expertise and
industry experience, the Board firmly believes that Mr O’Brien is the right person to steer the Company as CEO
through the current challenging environment. Making sure Mr O’Brien’s remuneration package remains relevant and
attractive, especially in the context of the mining downturn and the highly competitive US market for talent, is an
important balancing exercise for the Remuneration Committee and Board on an ongoing basis. See remuneration
actions described in Section 6.2.1 of this report.
· Change of LTI Plan Return on Equity (ROE) performance payout to a linear calculation: In response to proxy
adviser and shareholder comments, the Board modified the three-year average ROE payout matrix for awards made
under the LTI Plan in 2013 from payouts based on achieving certain ranges of average ROE to a straight linear
calculation within a range between minimum and maximum levels. The change in methodology for calculating
achievement of plan targets better aligns management actions with shareholder interests by mitigating the potential
for risk-taking that may be inconsistent with long-term value creation in order to get to the “next level” of payout.
· Clawback policy: In 2013, the Board resolved to implement a clawback policy that will apply to performance-based
incentive remuneration granted, paid or credited after 31 December 2013. The clawback policy provides scope for the
Board to take action to reduce or recover overpaid remuneration in certain circumstances.
Impact of challenging market conditions on incentives
The year ended 31 December 2013 was a particularly difficult year for the resources sector in general. The difficulties were
amplified for mining services and support companies like Boart Longyear whose revenues rise or fall in line with the level of
mining activity during the year. Reduced activity across the sector resulted in lower demand in the Company’s key markets
and, as a result, Boart Longyear experienced a significant decline in both revenues of $788.6 million, or (39.2%), and
operating loss of $688.1 million.
The management team responded to these market conditions by eliminating over US $800 million in costs from the
organisation. In addition to the aggressive cost reduction efforts, the Company also increased its focus on cash generation,
primarily through working capital reductions. Unfortunately, costs were not able to be reduced as quickly as revenues declined
due to statutory employee notice periods and other factors, and operating margin fell from 10.8% in 2012 to 0.0% in 2013.
Short-term incentives (STIs) awarded fell significantly from 72% (on average) in 2012 to 40% in 2013.
In addition, none of the long-term incentives (LTIs) that were awarded in 2011 and which were subject to a three-year ROE
performance hurdle, will vest.
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Review of remuneration structure
Ongoing challenging market conditions have caused the Company to review its remuneration arrangements to ensure that
they continue to meet the Company’s specific business needs and objectives, while also recognising and encouraging the
continued hard work, dedication and loyalty of the management team. This review has led to a number of changes that will be
implemented in 2014, including changes to the performance metrics used for the Company’s STI and LTI arrangements to
focus on cash flow generation and debt reduction. The review was conducted with the assistance of the Board’s independent
remuneration advisor, Frederic W. Cook & Co., Inc.
Although the remuneration structure changes resulting from the review are not applicable to the year ended 31 December
2013, section 6.0 provides an overview of some of the key changes.
Report Structure
The Remuneration Report (the “Report”) is presented in seven sections, as follows:
Section
1 2013 remuneration
overview
2 Remuneration
framework
and strategy
3 Components of
executive
remuneration
4 Performance and
risk alignment
5 Executive
remuneration
in detail
6 Remuneration actions
occurring after
31 December 2013
7 Non-executive Director
arrangements
Description of content
(cid:127) Outlines the Company’s remuneration practices and explains how executive
remuneration is structured to support the Company’s strategic objectives.
(cid:127) Sets out the Directors and senior executives who are covered by this Report.
(cid:127) Details the actual remuneration earned by the CEO and other senior executives
during the year ended 31 December 2013.
(cid:127) Sets out the Company’s remuneration governance framework and explains how the
Board and Remuneration Committee make remuneration decisions, including the
use of external remuneration consultants.
(cid:127) Outlines the Company’s remuneration strategy.
(cid:127) Provides a breakdown of the various components of executive remuneration.
(cid:127) Details the components of executive remuneration that are fixed and therefore
not “at-risk”.
(cid:127) Outlines the key features of the short-term incentive plan that applies to the
Company’s executives.
(cid:127) Outlines the key features of the long-term incentive plan and option plan that
apply to the Company’s executives.
(cid:127) Explains how executive remuneration is aligned with performance and outlines
short-term and long-term performance indicators and outcomes.
(cid:127) Explains how executive remuneration is structured to encourage behaviour that
supports long-term financial soundness and the Company’s risk management
framework.
(cid:127) Sets out the total remuneration provided to executives (calculated pursuant to the
accounting standards) during the years ended 31 December 2013 and 2012.
(cid:127) Provides details of the Rights granted to executives during the year ended
31 December 2013 under the long-term incentive plan.
(cid:127) Summarises the key terms of executive service contracts (including termination
entitlements).
(cid:127) Summarises the decisions or actions made to remuneration structure or incentive
plan designs impacting the Company’s executives following the end of the 2013
reporting year.
(cid:127) Additional details will be provided in the 2014 remuneration report.
(cid:127) Explains the non-executive Directors’ remuneration structure, including the basis
on which non-executive Director remuneration is set and the components.
(cid:127) Outlines key features of the non-executive Director Share Acquisition Plan.
(cid:127) Sets out the non-executive Directors’ remuneration during the years ended
31 December 2013 and 2012.
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1. 2013 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;
details of the Directors and senior executives covered by this Report; and
details of the actual remuneration outcomes for senior executives.
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31 December 2013 BOART LONGYEAR LIMITED
1.1. EXECUTIVE REMUNERATION STRATEGY
1.1. EXECUTIVE REMUNERATION STRATEGY
The diagram below illustrates the significant objectives of the Company’s executive remuneration strategy and how the
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:
components of overall remuneration have been designed to support these objectives:
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1.2. 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 for the year ended 31 December 2013 are listed in Table 1.2 below:
Table 1.2: Directors and senior executives who were KMP during the year ended 31 December 2013
Non-executive
Directors
Barbara Jeremiah
Bruce Brook
Roger Brown
Roy Franklin
Tanya Fratto
David McLemore 1
Rex McLennan
Peter St. George
Position
Chair and Non-executive Director (appointed Chair effective 1 March 2013)
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director (appointed effective 24 August 2013)
Non-executive Director (resigned from the Board effective 21 May 2013)
Senior executives
Position
Richard O'Brien
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Alan Sides 2
Kent Hoots 2
Chief Executive Officer (appointed effective 1 April 2013)
Chief Financial Officer (terminated employment effective 18 May 2013)
Senior Vice President, General Counsel and Secretary
Senior Vice President, Human Resources
Senior Vice President, Global Drilling Services (appointed effective 31 January 2013)
Senior Vice President, Global Products (appointed effective 31 January 2013)
(1) Mr McLemore served as Interim CEO from 5 October 2012 until 1 April 2013, during which time his responsibilities as
Chairman were assumed by Ms. Jeremiah, who was formally appointed Chair from 1 March 2013. Mr McLemore
resumed his role as a non-executive Director when Mr O’Brien commenced as President and Chief Executive Officer.
(2) Prior to his promotion to the position of Senior Vice-President (SVP), Global Drilling Services, Mr Sides held the role
of SVP, Global Products, which also was a KMP role. Mr Hoots was promoted to SVP, Global Products with effect
from 31 January 2013 and continued to retain responsibility for the Company’s global supply chain organisation after
his promotion.
The remuneration policy and programs set out in this Report apply to all executive KMP and to other members of the
Company’s senior management who are not KMP.
1.3. REMUNERATION OUTCOMES
Actual remuneration
Details of CEO and other senior executive remuneration for the year ended 31 December 2013, prepared in accordance with
statutory obligations and accounting standards, are contained in Table 5.1 of this Report. The remuneration calculations in
Table 5.1 are based on the Accounting Standards principle of “accrual accounting” and, consequently do not necessarily
reflect the amount of compensation an executive actually realised in a particular year. To supplement the required disclosure
we have included the additional table 1.3 below which shows the actual compensation realised by the senior executive who
were KMP at the end of 2013. It illustrates how the Company’s remuneration strategy for senior executives translates into
practice. It is important to note that the STI and LTI amounts are amounts earned on performance during the prior plan year(s)
and vested and/or paid in the current year.
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Table 1.3: Actual remuneration received by senior executives who were KMP on 31 December 2013
Base salary
US$
STI (cash)1
US$
LTI (equity)2
US$
LTI (cash)2
US$
Other3
US$
Richard O'Brien 4
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots 5
562,500
416,000
324,450
387,301
337,866
-
178,152
140,974
143,031
96,704
-
145,602
127,204
145,666
97,177
-
80,000
80,000
80,000
50,000
19,110
46,927
32,885
28,450
32,884
Total
US$
581,610
866,681
705,513
784,448
614,631
(1) Represents the cash paid in respect of the executive’s STI award earned for the prior year’s performance. For further
details of the STI Plan, see section 3.3 of this Report.
(2) Represents the value of share rights and cash rights vested during the year ended 31 December 2013 (based on the
market value of shares at the vesting date: A$1.73 on 1 March 2013 and A$1.34 on 15 March 2013) and dividends
received on unvested share rights granted prior to 1 January 2012. Share rights and cash rights granted under the
Company’s LTI Plan and options granted under the Company’s Option Plans during other grant years that are still in
progress do not appear in this table, as they do not vest 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 US 401(k) retirement plan Company matching and/or profit sharing contributions,
relocation benefits, car allowance and tax preparation service reimbursement.
(4) Represents remuneration received from hire date 1 April 2013 through 31 December 2013.
(5) Mr Hoots was promoted into a KMP role effective 31 January 2013.
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 ensures 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 related to
remuneration, the Board has established a Remuneration Committee.
Remuneration Committee
The 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:
(cid:127)
developing and reviewing remuneration plans, including annual bonus plans and long-term incentive plans and including
equity-based incentive plans;
(cid:127)
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
(cid:127)
(cid:127)
The charter of the Remuneration Committee is set out in full on the Company’s website at www.boartlongyear.com.
reviewing the composition of the Board and monitoring the performance of the Board and the Directors.
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31 December 2013 BOART LONGYEAR LIMITED
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 and external advisers
Where appropriate, the Board seeks and considers advice from independent remuneration consultants and external advisers.
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.
In 2013, the Committee continued to engage Frederic W. Cook & Co., Inc. as an independent compensation advisor to the
Board. In making its selection, the Committee considered that Frederic W. Cook consults on executive compensation as its
sole business and therefore is independent of other potential business considerations that could possibly compromise the
consultant’s objectivity; has been successfully performing this work since 1973; and has extensive experience with clients in
the mining and natural resources industries
The Committee has also established a formal Protocol that summarises the policy and procedures that the Company has
adopted to govern the relationship between the independent remuneration consultant, the Committee and management. The
Protocol was developed in compliance with the obligations under Part 2D.8 of the Corporations Act and ensures that the
remuneration consultant remains free from any undue influence by any member of the KMP to whom the recommendations
relate. All consultant remuneration recommendations are provided directly to the Committee and are accompanied by an
undue influence declaration from the consultant.
During 2013, Frederic W. Cook & Co., Inc. made remuneration recommendations, as defined in the Corporations Act, with
respect to the components of the remuneration package for the Company’s CEO Mr Richard O’Brien and the appropriate
structure for the Company’s incentive arrangements. The Board is satisfied that the remuneration recommendations were free
of undue influence by the KMP to whom the recommendations relate in light of the arrangements explained above.
The amount paid to Frederic W. Cook & Co., Inc. for remuneration recommendations made during 2013 was $54,900.
Frederic W. Cook & Co., Inc. performed no other services during 2013.
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The table below sets out details of the remuneration consultants (and other external advisers) engaged and a summary of the
services provided during the year ended 31 December 2013.
Table 2.1: Remuneration consultant and other external adviser arrangements
Remuneration consultant
Frederic W. Cook & Co., Inc.
Nature of services provided
The Committee engaged Frederic W. Cook & Co., Inc. to assist in
with establishing the remuneration package for Mr O’Brien as the
Company’s new CEO. In addition, the Committee determined to
conduct a thorough review of the Company’s incentive plans with a
focus on assessing the appropriateness of the structure and metrics
given the significant volatility inherent in the mining drilling and
exploration industry and strengthening the alignment to the
Company’s current business focus. Although the remuneration
structure changes resulting from this analysis are not applicable to
the year ending 31 December 2013, section 6. provides an overview
of some of the changes anticipated for 2014.
Other external advisers
Herbert Smith Freehills
Nature of services provided
Provided regular independent advice and counsel on various legal
and governance standards related to executive remuneration.
Ashurst
Provided regular independent advice and counsel on various legal
and governance standards related to executive remuneration.
2.2. REMUNERATION POLICY AND STRATEGY
The Company’s remuneration programme has been designed to ensure that the structure, mix of fixed and “at-risk”
remuneration and quantum of senior executive remuneration meets the Company’s specific business needs and objectives
and are consistent with good market practice. An additional challenge that impacts on the remuneration programme is the
need to provide total compensation packages that are competitive in the US market, where remuneration levels and structures
materially differ from standard Australian arrangements.
Accordingly, the Company’s senior executive remuneration programme has been structured so that it:
(cid:127)
(cid:127)
(cid:127)
(cid:127)
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 programme to ensure that it
remains appropriate to the business strategy, is competitive and is consistent with contemporary market practice.
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31 December 2013 BOART LONGYEAR LIMITED
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 scope of
responsibilities, leadership skills,
values, performance 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 compesation
is “at-risk” and earned only if
challenging performance
metrics are achieved.
• Key performance metrics for
2013 include operating margin,
safety performance, revenue
growth and individual strategic
goals.
• These metrics were 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.
• The metrics used for the CBP
are reviewed annually to ensure
that they continue to support the
Company’s business strategy.
• This component of compensation
is “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 in
2013. The hurdle used for the LTI
is reviewed annually in light of
market conditions and to ensure
that it encourages executives to
achieve outcomes that reflect the
actual long term needs and goals
of the business.
• The three-year average ROE
target used in 2013 included a
minimum threshold performance,
below which no value is achieved.
The range of performance
payouts was established based
on an historical return analysis
of the Company as well as
against stated analyst and
shareholder expectations.
• ROE provides a strong link to
shareholders as it is a measure
of the profitability of the equity
employed in the business. It also
provides a basis to evaluate the
Company’s performance relative
to other companies and can
provide a direct comparison with
alternative investments available
to shareholders.
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3.1. REMUNERATION MIX
Total remuneration for the CEO and senior executives is made up of fixed remuneration (consisting primarily of base salary
and superannuation contributions (or the foreign equivalent such as the United States’ 401(k)) payments) and variable “at-risk”
remuneration. The variable remuneration has two “at-risk” components:
(cid:127) STI – being an annual bonus granted under the Company’s Corporate Bonus Plan;
and
(cid:127)
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 during 2013 were:
Table 3.1: Remuneration mix
Fixed Remuneration
"At-risk" remuneration
STI 1
LTI 2
CEO 3
KMPs (Excl. CEO) 4
19%
19%
62%
38% - 46%
19% - 21%
33% - 41%
(1) Assuming performance metrics are achieved such that 100% of target bonus is earned.
(2) Represents fair value at date of grant, assuming 100% performance and vesting requirements are achieved.
(3) For Mr O’Brien, the above amounts reflect his annual LTI amount as per his employment agreement.
(4) Percentages vary between individuals. This is a range for the group.
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 160 senior employees participated in the CBP in 2013.
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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. For purposes of calculating operating
margin, the operating income component is adjusted to eliminate the impact of items
such as restructuring costs, amortisation of intangibles, gain/loss on disposal of assets,
foreign exchange transactions and other immaterial non-operating related expenses.
(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. For 2013, 50% of the strategic objectives (15% of the overall
CBP potential) are contingent upon reducing the Company’s net working capital.
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. 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 2013, the Remuneration Committee specifically approved the following performance payout
matrices for corporate Operating Margin and Revenue Multipliers:
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31 December 2013 BOART LONGYEAR LIMITED
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
As explained earlier in this report, operating margin fell from 10.8% in 2012 to 0.0% in 2013.
Further, the Company achieved no year-over-year revenue growth during 2013.
The Company had mixed results in safety performance in 2013. Achievement of the STI safety
targets for 2013 was at a Total Case Incident Rate of 118% and Lost Time Incident Rate 57%.
The Company understands the desire for greater transparency of specific targets that are
represented in the strategic objectives portion of the STI plan. Given the Company’s size and
position in the industry, it believes disclosing certain detailed financial or strategic performance
targets would put it at a competitive disadvantage due to commercial sensitivities. However, in
2013 the Board did establish several specific strategic and operational objectives with the CEO
that included metrics for immediately reducing the Company’s cost structure, establishing a plan
for improving operating and financial performance, renewing the focus on customers and
shareholders, and communications with employees, customers and shareholders. These
objectives generally also pertained to other senior executives as they relate to their business,
function or region. The Board was satisfied that the progress made on the majority of these
strategic initiatives for the CEO was, on average, slightly above the targeted performance
established for the year
Overall, STI awarded fell from 72% (on average) in 2012 to 40% in 2013.
The financial metrics used for the CBP are reviewed annually. The Remuneration Committee
also reviews and approves the non-financial targets for senior executives (including the CEO).
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
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31 December 2013 BOART LONGYEAR LIMITED
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 2013 are set out in Table 4.1.3 in
section 4.1 of this Report. The bonuses will be paid in or after March 2014.
In what form is the
STI delivered?
What STI awards
did senior
executives earn in
2013?
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Annual Financial Report
31 December 2013 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:
(cid:127) align senior executive reward with shareholder value;
(cid:127) assist in retaining key executives;
(cid:127) encourage superior performance on a sustained basis; and
(cid:127) 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 equity awards that rise
and fall in value in line with the share price.
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, skills and contributions to the Company. The target amounts are generally based on
market averages for comparable roles at similarly-sized companies. The Company made grants
to approximately 100 participants during the year ended 31 December 2013.
What proportion of
total remuneration
does the LTIP
program
represent?
How is reward
delivered under the
LTIP?
Do participants pay
for the Share
Rights?
Senior executives are offered grants that represent approximately 33% - 41% (62% 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 in order
to appropriately limit share dilution 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 and no amount is payable if they vest.
56
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31 December 2013 BOART LONGYEAR LIMITED
What rights are
attached to the
Share Rights?
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.
What are the
vesting
conditions?
For Rights granted since 2010, the vesting conditions are 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
57
Annual Report 2013
Annual Financial Report
31 December 2013 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 since
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 for grants made in 2011 and 2012:
3-year average ROE
performance
% 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%
The number of Performance Share Rights or Performance Cash Rights granted in 2011 that are
eligible to be earned pursuant to the three-year average ROE performance metric above will not
vest in 2014 since the 3-year average ROE was below the 6% minimum threshold.
For Performance Share Rights or Performance Cash Rights granted beginning 2013, the three-
year average ROE threshold, target and maximum performance requirements are as follows:
3-year average ROE
performance
% of award earned
Maximum Award
Greater than or equal to 13.0%
Target Award
Equal to 9.5%
Threshold Award
Equal to 6.0%
Less than Threshold
Less than 6.0%
150%
100%
50%
0%
Actual amounts earned for three-year ROE performance falling between the threshold and
target, or between the target and maximum, will be calculated on a linear basis.
58
Boart Longyear
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31 December 2013 BOART LONGYEAR LIMITED
Why have the
performance
hurdles been
chosen?
The Board chose, based on independent consultation with Mercer Consulting, to use an ROE
performance hurdle for Performance Share Rights and Performance Cash Rights. ROE
measures how effectively the Company is using the money shareholders have invested to
generate profits. ROE is a reflection of multiple financial measures including net profitability of
the Company and the efficient management of assets employed. Utilising a three-year average
measure reduces the risk for short-term decision making and accommodates the inherent cycles
within our industry and business. The ROE hurdle therefore provides a greater alignment
between the long-term incentive provided to senior executives and their ability to influence the
Company’s performance.
The hurdle used for the LTI is reviewed annually in light of market conditions and to ensure that
it continues to encourage executives to achieve outcomes that reflect the actual long term needs
and goals of the business.
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.
In the event of a takeover or change of control of the Company, any unvested Rights may vest at
the Board’s discretion.
Rights granted during the year ended 31 December 2013 are set out in Table 5.2 of this Report.
What happens in
the event of a
change of control?
What Rights were
granted in 2013?
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 2013.
On 15 March 2010, 25,000 options were granted to Mr Sides as a part of his offer of employment at an exercise price of
A$3.20, and those options vested in full and became exercisable on 15 March 2013 and will expire on 15 March 2015.
Details of options that have been granted to senior executives can be found in Table 4.1.7.
59
Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
4. PERFORMANCE AND RISK ALIGNMENT
4.1. PERFORMANCE ALIGNMENT
While senior executive remuneration is structured to attract and retain talented employees, the amount of remuneration
received by an individual is dependent on the achievement of superior performance and generating value for shareholders.
Table 4.1.1 below summarises the Company’s performance over the past five years in respect of the financial and non-
financial indicators identified by the Board to assess the Company’s performance and future prospects.
Table 4.1.1: Year-on-year performance
Share performance
Earnings performance
Closing
share
price
A$
Dividend
p/share
US$ 1
EPS % 2
(403.7%)
7.7%
13.0%
4.0%
0.01
0.12
0.08
0.02
-
(2.0%)
0.38
1.88
2.78
4.56
3.52
Financial
year
2013
2012
2011
2010
2009 4
Revenue
US$
millions
EBITDA
US$
millions
NPAT
US$
millions
ROE
Operating
margin 3
1,223
2,012
2,020
1,476
978
(337)
254
356
222
111
(620)
68
160
85
(15)
(79.3%)
0.0%
6.0% 10.7%
14.6% 13.0%
9.0%
8.5%
(2.0%)
2.0%
(1) Dividends per share are shown based upon the cash amounts paid in each year.
(2) Calculated as basic EPS divided by closing share price. EPS is adjusted for 10:1 share consolidation completed in
May 2010.
(3) Excludes other income and other expenses.
(4) The closing share price for 2008 was A$1.99.
Short-term performance indicators and outcomes
As discussed above, the CBP rewards senior executives and other participants for their achievement of specific key
performance indicators for the Company as well as for the achievement of performance goals specific to the business unit or
function for which they are responsible during a financial year.
Table 4.1.2: Average proportion of STI awarded, 2009-2013
% of target STI awarded 1
2009
99%
2010
88%
2011
97%
2012
72%
2013
40%
(1) Weighted average for senior executives.
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Boart Longyear
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
Table 4.1.3: STI earned during the year ended 31 December 2013
As described earlier in this report, for 2013 the Company’s performance on the operating margin metric, representing 60% of
the total, achieved no portion of the bonus. Company performance on the safety metrics representing 10% of the total,
achieved slightly under the target amount. Performance on strategic objectives which represent 30% of the total, half of which
was measured on net working capital targets, were, on average, achieved at the targeted amount.
Richard O'Brien
Joe Ragan III 3
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
STI earned
US$
297,000
50,828
89,664
67,810
97,291
60,990
Target
STI 1
US$
STI earned
as % of
target STI
% of target
STI forfeited
STI as % of
maximum
STI 2
% of
maximum
STI forfeited
2
750,000
317,240
208,000
162,225
234,437
170,363
40%
16%
43%
42%
41%
36%
60%
84%
57%
58%
59%
64%
20%
8%
22%
21%
21%
18%
80%
92%
78%
79%
79%
82%
(1) The target potential value of the 2013 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 2013 was nil.
(2) The maximum potential award assuming superior performance against all CBP metrics is 200% of target STI.
(3) Mr Ragan’s STI was prorated to 18 May 2013.
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.
Table 4.1.4 shows the actual ROE performance achieved during each of the three years applicable to the 2011 performance
awards, as well as the actual three-year average ROE. Based on the actual performance over the period, and pursuant to the
performance requirement outlined in Table 3.4. 0% (nil) of the award will be eligible to vest, even if the executive satisfies the
continued service requirement, which in all cases will not occur prior to March 2014. The vesting dates for all outstanding
awards are shown in Table 4.1.5 below.
Table 4.1.4: Cumulative performance for 2011 grants of performance-based LTIP awards
2011
2012
2013
3-year Average
% of Award Earned
ROE Performance
14.6%
6.0%
(79.3%)
(19.6%)
0.0%
The vested Share Rights listed in Table 4.1.5 below include the Retention Share Rights and Performance Share Rights that
were granted in 2010 and vested in 2013. The Performance Share Rights were subject to the performance period ended 31
December 2012 and achieved 100% 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 2013.
61
Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
Table 4.1.5: Movement in Share Rights during the year ended 31 December 2013
Nam e
Richard O'Brien
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
Grant
date
1-Apr-13
1-Apr-13
1-Apr-13
1-Mar-10
15-Mar-11
15-Mar-12
15-Mar-11
15-Mar-12
1-Mar-10
15-Mar-11
15-Mar-12
15-Mar-13
1-Mar-10
15-Mar-11
15-Mar-12
15-Mar-13
15-Mar-10
15-Mar-11
15-Mar-12
15-Mar-13
1-Mar-10
15-Mar-11
15-Mar-12
15-Mar-13
FMV at
Grant Date
US$
Vesting
date
1.32
1.32
1.32
2.78
4.36
4.50
4.36
4.50
2.78
4.36
4.50
1.39
2.78
4.36
4.50
1.39
2.93
4.36
4.50
1.39
2.78
4.36
4.50
1.39
1-Apr-14
1-Apr-15
1-Apr-16
1-Mar-13
18-May-13 (cid:1)
18-May-13 (cid:1)
15-Mar-14 (cid:2)
15-Mar-15 (cid:2)
1-Mar-13
15-Mar-14
15-Mar-15
15-Mar-16
1-Mar-13
15-Mar-14
15-Mar-15
15-Mar-16
15-Mar-13
15-Mar-14
15-Mar-15
15-Mar-16
1-Mar-13
15-Mar-14
15-Mar-15
15-Mar-16
LTIP
shares
(Total)
315,000
315,000
3,149,000
103,000
40,000
45,000
40,000
45,000
82,578
70,000
90,000
238,550
72,150
60,000
75,000
180,238
104,600
60,000
70,000
318,066
55,095
50,000
55,000
265,056
Num ber of
Share
Rights
vested
Value of
Share
Rights
vested
US$ 1
Num ber of
Share
Rights
forfeited
Value of
Share
Rights
forfeited
US$ 1
Num ber of
Share Rights
Outstanding
-
-
-
103,000
40,000
45,000
-
-
82,578
-
-
-
72,150
-
-
-
104,600
-
-
-
55,095
-
-
-
-
-
-
182,705
31,531
35,473
-
-
146,479
-
-
-
127,982
-
-
-
145,195
-
-
-
97,729
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
315,000
315,000
3,149,000
-
-
-
40,000
45,000
-
70,000
90,000
238,550
-
60,000
75,000
180,238
-
60,000
70,000
318,066
-
50,000
55,000
265,056
(1) Represents the value of share rights vested and forfeited during the year based on the market value of shares at
the vesting and forfeiture date.
(2) The number of Share Rights that vested on 18 May 2013 represents the amount of retention shares that vested
pursuant to the terms of the termination agreement.
(3) As a result of Mr Ragan’s termination of employment in 2013, and pursuant to the terms of the termination
agreement, Mr Ragan’s outstanding Retention Share Rights were vested on his date of termination on 18 May
2013. His Performance Share Rights remain subject to the Performance Conditions of the award.
(4) A portion of the 2011 outstanding grants relate to performance share rights that will not be payed out due to
performance targets not being reached. These share rights will show as forfeited once the vesting date has
passed in March 2014.
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Boart Longyear
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31 December 2013 BOART LONGYEAR LIMITED
Table 4.1.6: Movement in Cash Rights during the year ended 31 December 2013
Nam e
Richard O'Brien
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
Grant
date
Vesting
date
-
1-Mar-10
1-Mar-10
1-Mar-10
15-Mar-10
1-Mar-10
-
1-Mar-13
1-Mar-13
1-Mar-13
15-Mar-13
1-Mar-13
Num ber
of Cash
Rights
vested
-
100,000
80,000
80,000
80,000
50,000
Value of
Cash
Rights
vested
US$
-
100,000
80,000
80,000
80,000
50,000
Cash
(total)
US$
-
100,000
80,000
80,000
80,000
50,000
Num ber
of Cash
Rights
forfeited
Value of
Cash
Rights
forfeited
US$
Num ber of
Cash Rights
Outstanding
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Table 4.1.7: Movement in options during the year ended 31 December 2013
Nam e
Richard O'Brien
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
Effective
grant
date
-
-
-
-
15-Mar-10
-
Vesting
date
-
-
-
-
15-Mar-13
-
Options
(total)
-
-
-
-
25,000
-
Num ber
of
options
vested
Value of
options
vested
US$
Option
price
A$
Num ber of
Options
Outstanding
-
-
-
-
25,000
-
-
-
-
-
56,000
-
-
2.45
2.45
2.45
3.20
2.45
-
37,500
27,500
27,500
25,000
20,000
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 and; A$3.20 for options granted to Mr Sides on 15 March 2010. 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
4.2.1
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 78 of this Annual Financial Report.
63
Annual Report 2013
Annual Financial Report
31 December 2013 BOART LONGYEAR LIMITED
4.2.2
Executive Remuneration Clawback Policy
Effective with remuneration granted, paid or credited after 31 December 2013, the Board has implemented an incentive
compensation clawback policy applicable to current and former senior executives, including the KMP listed in this report, as
well as any other management of the Company who participated in the Company’s incentive compensation plans. The policy
is applicable to incentive compensation including bonuses, awards or grants of cash or equity under any of the Company’s
short or long-term incentive or bonus plans where bonuses, awards or grants are based in whole or in part on the achievement
of financial results. If the Board determines that a covered employee was overpaid as a result of his or her fraud or willful
misconduct that requires a restatement of the reported financial results, the Board may seek to recover the amount of the
overpayment by a repayment or through a reduction or cancellation of outstanding future bonus or awards. The Board can
make determinations of overpayment at any time through the third fiscal year following the year for which the inaccurate
performance criteria were measured.
64
Boart Longyear
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(
Boart Longyear
Annual Financial Report
31 DECEMBER 2013 BOART LONGYEAR LIMITED
5.2. RIGHTS AND OPTIONS GRANTED
Table 5.2: Rights granted during the year ended 31 December 2013
Share Rights
Num ber of
Rights
granted1
Future
years
payable 2
Fair value
per Right 3
US$
315,000
315,000
3,149,000
238,550
180,238
318,066
265,056
1 yrs
2 yrs
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
1.32
1.32
1.32
1.39
1.39
1.39
1.39
Maxim um
value of
grant 4
US$
415,800
415,800
6,027,120
414,481
313,164
552,640
460,535
Nam e
Richard O'Brien 5
Richard O'Brien 5
Richard O'Brien 5
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
(1) The grants made to senior executives constituted their full LTI entitlement for 2013 and were made on 15 March 2013
(except for the CEO which was made on 1 April 2013) on the terms summarised above. Any Rights that do not vest
on the vesting date will be forfeited.
(2) For executives other than Mr O’Brien, rights vest on 15 March 2016 subject to performance over the period from 1
January 2013 to 31 December 2015 and/or continued service until the vesting date.
(3) For executives other than Mr O’Brien, the fair value was calculated as at the grant date of 15 March 2013. For Mr
O’Brien, the fair value was calculated as at the grant date of 1 April 2013.
(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.
(5) For Mr O’Brien, the number of Rights granted was approved by shareholders in 2013. The terms were fully disclosed
in the notice of meeting for the 2013 AGM but in summary:
(cid:127)
(cid:127)
the first 315,000 vest in April 2014, provided Mr O’Brien remains employed and holds on that date 157,500
shares that he has purchased. Additional tranches of 315,000 rights will vest in April 2015 and in April 2016
provided Mr O’Brien remains employed on those dates and holds on each date an additional 157,500 shares
that he has purchased;
the remaining 2,834,000 rights are subject to the same 3 year ROE hurdle applicable to other executives
who were granted performance share rights in 2013, as described in Table 3.4.
There were no options or Cash Rights granted during the year ended 31 December 2013.
67
Annual Report 2013
Annual Financial Report
31 DECEMBER 2013 BOART LONGYEAR LIMITED
5.3 SERVICE CONTRACTS AND TERMINATION PROVISIONS
Name and
position held at
the end of
financial year
Richard O’Brien
Chief Executive
Officer,
President
Joe Ragan III
Former Chief
Financial Officer
(employment
terminated 18 May
2013)
Fabrizio Rasetti
Senior Vice
President,
General Counsel
and Secretary
Brad Baker
Senior Vice
President, Human
Resources
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
No fixed term
None required
90 days
No fixed term
None required
90 days
No fixed term
None required
90 days
For termination with cause,
statutory entitlements only
For termination without cause:
(cid:127) 12 months’ salary
(cid:127) Pro-rata bonus to termination
date
(cid:127) Waiver of medical insurance
premiums for 12 months or 1
April 2015, whichever is later
(cid:127) Up to $50,000 relocation
expense reimbursement
For termination with cause,
statutory entitlements only
For termination without cause:
(cid:127) 12 months’ salary
(cid:127) Pro-rata bonus to termination
date
(cid:127) Waiver of medical insurance
premiums for 12 months
For termination with cause,
statutory entitlements only
For termination without cause:
(cid:127) 12 months’ salary
(cid:127) Pro-rata bonus to termination
date
(cid:127) Waiver of medical insurance
premiums for 12 months
For termination with cause,
statutory entitlements only
For termination without cause:
(cid:127) 12 months’ salary
(cid:127) Pro-rata bonus to termination
date
(cid:127) Waiver of medical insurance
premiums for 12 months
68
Boart Longyear
Annual Financial Report
31 DECEMBER 2013 BOART LONGYEAR LIMITED
No fixed term
None required
90 days
No fixed term
None required
90 days
Alan Sides
Senior Vice
President, Global
Drilling Services
Kent Hoots
Senior Vice
President, Global
Products and
Supply Chain
For termination with cause,
statutory entitlements only
For termination without cause:
(cid:127) 12 months’ salary
(cid:127) Pro-rata bonus to termination
date
(cid:127) Waiver of medical insurance
premiums for 12 months
For termination with cause,
statutory entitlement only
For termination without cause:
(cid:127) 12 months’ salary
(cid:127) Pro-rata bonus to termination
date
Waiver of medical insurance
premiums for 12 months
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.
Mr Ragan’s employment with the Company was terminated May 2013. Consistent with his employment agreement and
shareholder approval at the Company’s 2011 Annual General Meeting and subject to the execution of, and compliance with, a
release and non-disparagement agreement, he is entitled to the following termination benefits:
severance payments equal to twelve months of his base salary;
·
· pro-rata payment of his 2013 annual bonus under the Company’s Corporate Bonus Plan through his termination date,
subject to achievement of specified corporate and personal goals;
· a waiver of medical premiums for twelve months; and
·
in consideration of his agreement to continue providing support to the CEO and the acting CFO during a transition
period, the board approved the vesting of his retention share rights and waiver of the continuous service requirement
for his performance share rights, but outstanding performance share rights will continue to be subject to the
performance conditions.
The expense of these termination benefits and equity awards has been brought forward as required under applicable
accounting standards and fully expensed in the 2013 financial statements. The extent to which Mr Ragan receive any value
from unvested performance rights for which he remains eligible depends upon the Company’s achievement of ROE
performance metrics during the relevant performance period for those awards.
In exchange for these termination benefits, Mr Ragan is subject to a non-competition and non-solicitation agreement for twelve
months from the date of their termination. The Company may elect to extend these restrictive covenants for up to an additional
twelve months by continuing monthly severance payments for the relevant extension period. No tax gross-up payment will be
made in association with the termination benefits Mr Ragan will receive.
69
Annual Report 2013
Annual Financial Report
31 DECEMBER 2013 BOART LONGYEAR LIMITED
6. REMUNERATION ACTIONS OCCURRING AFTER 31 DECEMBER 2013
6.1 FORTHCOMING CHANGES TO THE REMUNERATION STRUCTURE
At the Company’s 2013 AGM, Richard O’Brien, the new President and CEO, highlighted several objectives for the Company
during the balance of 2013 and over the course of the next several years in response to the currently depressed economic
conditions in the Company’s markets. The primary aim of these objectives is to improve the balance sheet by:
reducing the Company’s risk profile by improving cash flows and reducing debt;
increasing operational and functional efficiencies and reducing costs; and
·
·
· heightening the focus on margin improvement and returns.
In light of the importance of these goals, the changing market conditions and heightened focus on cash generation and debt
reduction, the Board determined that changes to the remuneration structure were needed in 2014 to strengthen the alignment
of the incentive structure with the Company’s goals.
Accordingly, the Remuneration Committee engaged its independent remuneration consultants, Frederick W. Cook, to assist
the Committee in the review and analysis of the executive incentive plans design and structure. The primary objective of the
review was to ensure the incentive plans structure supported the key financial, strategic and human resources objectives
including; attracting and retaining highly skilled executives; tying total compensation to the achievement of the Company’s
short- and long-term financial and strategic goals; enhancing the commonality of interests between management and
shareholders by encouraging executives to think and behave like owners; and maximising the financial efficiency of the
program.
The primary changes introduced by the Board following this review are as follows:
1) Short-term Incentive Plan
a. Changing the overall Company financial metric from operating margin to free cash flow with a payout target
and range tied to the annual operating plan;
b. Payout of the strategic objective component will be conditional upon achieving a gateway threshold of
overall Company financial performance;
c. Elimination of the revenue growth multiplier;
d. A special provision for 2014 that, if necessary, holds the payout of any earned bonus during the plan year
until trailing twelve month financial performance net of the accrued payout, will not cause a default of any of
the Company’s then current financial arrangements. This assessment will be tested quarterly beginning with
the first quarter ending 31 December 2014.
2) Long-term Incentive Plan
a. For performance rights granted, the performance metric will be changed from return on equity to net debt
reduction over a three-year performance period.
b. An additional modifier of +/- 10% to any earned performance rights based on total shareholder return
performance against an appropriate comparator group.
c. The long-term incentive granted to executive participants will include a mix of performance rights, options
and retention rights. The Board believes that, given the inherent volatility associated with the markets in
which the Company operates, it is appropriate to maintain a portion of retention rights to keep talented
executives motivated and retained through the very difficult market cycles. Further, the Board believes that
an overweight to performance shares actually achieves little retention value to participants as a single down-
market year (as experienced in 2013) can eliminate all outstanding performance rights and create a
disincentive and distraction for participants. The Board firmly believes that remuneration in the form of equity
retention rights, performance rights and options provides appropriate alignment with, and incentive to
increase, shareholder value over the long term.
The Board believes these tailored changes are necessary and fit for purpose for the current environment, but it will continue to
assess and refine to ensure the program design continues to support the Company’s business objectives over time, with the
goal of returning to a more standardised remuneration structure if and when appropriate.
70
Boart Longyear
Annual Financial Report
31 DECEMBER 2013 BOART LONGYEAR LIMITED
6.2 Special One-time Retention Awards
Notwithstanding the downturn in the market for the Company’s drilling products and services, the US market for talent remains
highly competitive. Our executives, including the CEO, are working harder than ever in the interests of the Company, but their
efforts are not being recognised in the same way that they would be in comparable US and global organisations.
Consequently, the Board recognised that steps needed to be taken to ensure that executive remuneration packages remain
competitive and continue to provide meaningful incentives at a time when the retention and loyalty of high quality staff will be
instrumental in achieving the Company’s goals.
Following a detailed review of Mr O’Brien’s compensation structure with the assistance of its independent compensation
advisers, the Board concluded that Mr O’Brien’s initial remuneration package was wrongly suited given the dramatic changes
to the Company’s business environment since the commencement of his employment. The Board further recognises that Mr
O’Brien’s skills, focus and leadership is critical to the ongoing improvements towards achieving the Company’s near and long-
term objectives. In addition, several institutional investors have recognised and communicated their concern that the
compensation structure and retention value for Mr O’Brien, as well as other key Company executives, appeared to be
misaligned with the current economic environment. As a result, in addition to the changes to the 2014 incentive structures
above, the Board took the following actions in January of 2014.
Special Strategic Retention Award for the CEO
6.2.1
As disclosed by the Company pursuant to ASX Listing Rule 3.16.4, the Board approved a special one-off strategic
award to Mr O’Brien in 2014 of US$5 million. The award was in the form of cash retention divided into three equal
portions that will vest on the dates of the 2014 AGM, 1 April 2015 and 1 April 2016, respectively, provided that vesting
and payment would not result in the Company breaching any financial covenants (in which case vesting would be
deferred until such time as the financial position would accommodate payment). The Board may elect to seek
shareholder approval at the 2014 AGM to convert some or all of the grant into options in order to strengthen the
alignment with shareholders. In addition, Mr O’Brien has also agreed to propose to shareholders his voluntary
forfeiture of all outstanding long-term incentive awards granted in 2013, but will continue in his commitment to
purchase and hold 472,500 Company shares by 1 April 2016. To date, Mr O’Brien has purchased and holds 300,000
Company shares.
Special Strategic Retention Awards for Key Employees (excluding the CEO)
6.2.2
For similar reasons as stated above, the Board also approved a special one-off awards to certain other key
employees that include the KMP but exclude the CEO. These awards will be in the form of cash retention and will
vest on the second anniversary of the award. In addition, a threshold financial performance must be achieved in
order for the awards to be paid following the satisfaction of the time-based vesting requirement. This minimal
financial performance will be set such that the vesting and payment would not reasonably be likely to result in the
Company breeching any financial covenants (in which case vesting would be deferred until such time as the financial
position would accommodate payment). Vested awards may remain outstanding until such conditions are met and
the awards are paid, or until the 4th anniversary of the award grant date at which time the award will be forfeited. For
the Company’s KMP, all awards will vest in March 2016 and are in the following amounts:
Alan Sides
US$586,000
Fabrizio Rasetti US$624,000
US$511,000
Kent Hoots
US$487,000
Brad Baker
7. NON-EXECUTIVE DIRECTOR ARRANGEMENTS
This section explains the remuneration structure and outcomes for non-executive Directors.
7.1. 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, $1,378,703 of the pool was utilised for non-executive Director fees, being approximately
69% of the fee pool limit.
The Board determined to make no adjustments to NED remuneration in 2013.
71
Annual Report 2013
Annual Financial Report
31 DECEMBER 2013 BOART LONGYEAR LIMITED
In consideration of Mr McLemore’s duties as interim CEO following the termination of Mr Kipp’s employment in October 2012,
the Board determined to pay Mr McLemore an additional monthly fee of $37,500 until 30 April 2013 and $10,000 a month from
1 May 2013 through 1 September 2013, which allowed for a transition with Mr O’Brien following his appointment in April 2013.
In addition, Mr McLemore was reimbursed for reasonable expenses associated with temporary living arrangements in Salt
Lake City while serving in this capacity. Mr McLemore did not participate in the Company’s short- or long-term incentive plans.
Table 7.1: Components of non-executive Director remuneration
Component
Explanation
Board fees
Committee fees
Interim fee structure
Other fees/benefits
Post-employment benefits
Current base fees per annum are:
· US$120,000 for non-executive Directors other than the
Board Chair; and
· US$300,000 for the Board Chair
Current committee fees for non-executive Directors (other
than the Board Chair) are:
· US$15,000 annually for committee members; and
· US$30,000 annually for committee chairs.
Where the Board Chair sits on a committee, he or she does
not receive any additional fee.
Given the difficult market and financial conditions the
Company is experiencing, effective 15 February 2014 the
Board has established an interim reduction to certain fees
as follows:
· Board Chair fee has been reduced to US$275,000
· Committee member fees are reduced to US$7,500
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 Board Chair 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.
72
Boart Longyear
Annual Financial Report
31 DECEMBER 2013 BOART LONGYEAR LIMITED
7.2 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. All
non-executive Directors who held office as at 31 December 2013 have satisfied the shareholding guideline.
7.3. 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 2013.
73
Annual Report 2013
Annual Financial Report
31 DECEMBER 2013 BOART LONGYEAR LIMITED
7.4. DETAILS OF REMUNERATION PAID TO NON-EXECUTIVE DIRECTORS
Details of non-executive Directors’ remuneration for the year ended 31 December 2013 and 2012 are set out in the table
below.
Table 7.4: Non-executive Director remuneration
Fees (incl.
committee
fees) 1
US$
Superannuation
contributions 2
US$
Shares
US$
Total
US$
Barbara Jeremiah 5
2013
2012
Bruce Brook
2013
2012
Roger Brown
2013
2012
Roy Franklin
2013
2012
Tanya Fratto
2013
2012
David McLemore 3
2013
2012
Peter St. George 4
2013
2012
Rex McLennan 6
2013
2012
275,000
147,500
148,915
151,376
165,000
165,000
165,000
165,000
150,000
150,000
365,000
412,500
47,268
137,615
44,681
-
-
-
13,585
13,624
-
-
-
-
-
-
-
-
4,254
12,385
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
275,000
147,500
162,500
165,000
165,000
165,000
165,000
165,000
150,000
150,000
365,000
412,500
51,522
150,000
44,681
-
(1) Please refer to Table 7.1 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) Includes $150,000 of additional fees received by Mr McLemore in 2013 as compensation for serving as Interim Chief
Executive Officer and $50,000 from 1 May 2013 through 1 October 2013 to allow for a transition with Mr O’Brien after
his appointment on 1 April 2013.
(4) Mr St. George retired from the Board effective 21 May 2013.
(5) Ms Jeremiah was appointed Chair of the Board effective 1 March 2013.
(6) Mr McLennan was appointed a Director effective 24 August 2013
74
Boart Longyear
Annual Financial Report
31 DECEMBER 2013 BOART LONGYEAR LIMITED
BOARD OF DIRECTORS
A brief summary of the Directors’ work experience and qualifications is as follows.
Barbara Jeremiah
Barbara Jeremiah has been a Director of the Company since 1 October 2011 and was appointed Chair of the Board effective 1
March 2013. As at the date of this report, she is a member of the Finance Committee. On 18 February 2013, the Company
announced that Ms. Jeremiah was appointed the Chair of the Board effective 1 March 2013.
Ms. Jeremiah is a non-executive director of Allegheny Technologies, Inc. (New York Stock Exchange). She also serves on the
board of three non-profit organisations in the United States. She has also served as a non-executive director of First Niagara
Financial Group (NASDAQ) and EQT, Inc. (New York Stock Exchange).
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.
Ms. Jeremiah received her JD from the University of Virginia School of Law and BA in Political Science from Brown University.
Bruce Brook
Bruce Brook was appointed a Director of the Company on 21 February 2007. He is Chairman of the Audit, Compliance and
Risk Committee and a member of the Finance 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 Board of Governors of the Australia and New Zealand College
of Anaethesists and Pain Management.
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
Roger Brown was appointed a Director of the Company on 1 July 2010. He has served as Chairman of the Remuneration
Committee since 1 March 2012. He also is a member of the Environment, Health & Safety Committee
Mr Brown 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.
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, and his JD, from the University of Oklahoma.
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Roy Franklin
Roy Franklin was appointed a Director of the Company on 15 October 2010. He is the Chairman of the Environment, Health &
Safety Committee and a member of the Audit, Compliance & Risk Committee and Finance Committee.
Mr Franklin currently serves as Chairman of the Board of Keller Group PLC (London Stock Exchange) and a director of Santos
Ltd (Australian Securities Exchange) and Cuadrilla Resources. He previously held directorships on a number of other
corporate boards, including International Energy Group, Statoil ASA (Oslo Stock Exchange) and Novera Energy.
Mr Franklin 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 received his BS in Geology from the University of Southampton.
Tanya Fratto
Tanya Fratto was appointed a Director of the Company on 1 June 2011 and is a member of the Environmental, Health and
Safety Committee and the Remuneration Committee.
Ms Fratto 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
David McLemore was appointed a Director on 21 February 2007 and served as Chair of the Board from 23 August 2010 to 1
March 2013. He also acted as Interim Chief Executive Officer of the Company for approximately six months until 1 April 2013
until the appointment of Richard O’Brien as Chief Executive Officer.
Mr McLemore is a member of the Remuneration Committee and Environment, Health & Safety Committee
Mr McLemore has more than 35 years of industrial and broad operational experience. He has held a number of positions with
various Advent International portfolio companies for more than fifteen years and was involved with Advent International’s
acquisition of the Boart Longyear Group from Anglo American plc. in 2005. Mr McLemore served at various times as
Chairman, Deputy Chairman and Vice Chairman of the Boart Longyear Group from 2005 until 2007. He also served as a
general manager of a General Electric Power Systems division from 1985 to 1997.
Mr McLemore received his BS from Oklahoma State University.
Rex McLennan
Mr McLennan was appointed a Director of the Company on 24 August 2013. He serves as Chairman of the Finance
Committee and also is a member of the Audit, Compliance & Risk Committee.
Mr McLennan most recently served as Chief Financial Officer for Viterra, Inc., a leading global agricultural products company
primarily involved in the distribution, marketing and processing of grain and oilseeds, which was acquired by Glencore
International in December 2013. He has held finance roles in the resources and other industries, including serving as
Executive Vice President and Chief Financial Officer for Placer Dome, Inc. prior to its acquisition by Barrick Gold Company,
and the Vancouver Organizing Committee (VANOC) for the 2010 Olympic Winter Games. He also has significant experience
in the energy resources industry, having held progressive leadership roles earlier in his career at Imperial Oil Limited, Exxon’s
Canadian public oil company.
Mr McLennan holds a Master of Business Administration from McGill University in Finance/Accounting, and a Bachelor of
Science in Mathematics/Economics from the University of British Columbia. He is a member of the Institute of Corporate
Directors (ICD), a recent graduate of the ICD Director’s Education Program, University of Toronto, Rotman School of
Business, obtaining his ICD.D designation. He is also a member of Financial Executives International (FEI).
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Richard O’Brien
Mr O’Brien was appointed as President and Chief Executive Officer on 1 April 2013 and a Director on 21 May 2013. He brings
over 25 years of operational, financial and leadership experience from the natural resources, energy and power industries. He
was employed in various capacities between 2005 and March 2013 by NYSE-listed Newmont Mining Corporation, serving as
President and CEO since 2007 and Executive Vice President and Chief Financial Officer prior to that time. Before Newmont
Mining, Mr O‘Brien’s executive roles included Chief Financial Officer of US-based natural gas utility company AGL Resources
and Chief Operating Officer and Chief Financial Officer at PacifiCorp, an electric power company.
Mr O’Brien holds a Bachelor of Arts in economics from the University of Chicago and a Doctor of Jurisprudence degree from
Lewis and Clark Law School. He has been a director of Xcel Energy Inc. since August 2012 and a director of Vulcan Materials
Company since October 2008.
COMPANY SECRETARIES
Fabrizio Rasetti was appointed Company Secretary on 26 February 2007. He joined Boart Longyear in April 2006. Prior to
that time, he worked at SPX Corporation (New York Stock Exchange), where he held various management roles in the legal
department and for business development over a period of almost nine years. He also worked in the private law firms of
Howrey & Simon and Towey & Associates in Washington, DC. He received his BS in Foreign Service and JD from
Georgetown University.
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.
EXECUTIVE MANAGEMENT TEAM
A brief summary of the Executive Management Team’s work experience and qualifications is as follows.
M. Bradley Baker
Mr Baker was appointed Senior Vice President, Human Resources in 2008. Prior to joining Boart Longyear he worked for
Milacron Inc. in Cincinnati, Ohio for 17 years in a variety of operational, divisional and global human resources roles including:
Vice President of Human Resources, Director of Human Resources, North America, Director of Human Resources for the
Plastics Technologies Group and leading the human resources and leadership integration of multiple acquisitions including the
Michigan-based consumable tooling manufacturer, Valenite Inc.
Mr Baker received his Bachelor of Science in Business Administration from Bowling Green State University and his Master of
Business Administration from Xavier University.
Kent Hoots
Mr Hoots was appointed Senior Vice President of Global Products in January 2013 in addition to his responsibilities of Global
Supply Chain and IT, which he took over in July of 2012. He joined Boart Longyear in April 2007 as Vice President – Asia
Pacific located in Adelaide, Australia. Prior to joining Boart Longyear, Mr Hoots was employed by General Electric for over 20
years where he held various positions of increasing responsibility in both the Aviation and Energy divisions including Sourcing
Director for GE’s Power Generation Operations, Asia Sourcing Director, Customer Quality Leader for GE Energy, and Quality
Director for GE Energy’s European Operations. In addition, he has held several international positions including assignments
in Dubai, United Arab Emirates, Belfort, France and Shanghai, China.
Mr Hoots is a graduate of GE’s Manufacturing Management Program and received his Bachelors of Science in Industrial
Engineering from North Carolina State University and his Master’s degree in Mechanical Engineering from the University of
Cincinnati.
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Fabrizio Rasetti
Mr Rasetti’s experience and qualifications are summarised above..
Alan Sides
Mr Sides was appointed as Senior Vice President of Global Drilling Services in January 2013 after successfully leading the
Global Products division since 2010. He spent over 25 years with the General Electric Company in the energy business. Mr
Sides was employed in various leadership capacities in both services and capital equipment globally. Just prior to joining Boart
Longyear, he was the global commercial leader for the Aero Energy business in Houston, Texas, USA. Other 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.
Mr Sides received his Bachelors of Science in Mechanical Engineering from the Georgia Institute of Technology and earned a
Master’s of Business Administration from Emory University.
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.
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Composition of the Board and Director Selection process
At the date of this report, the Company has seven non-executive Directors and one Executive Director. In addition, William
Peter Day will join the Board effective 25 February 2014 as a non-executive Director.
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. Among other things, the Board considers the results of its
periodic Board performance assessments and Company strategy reviews to determine whether to recruit additional Board
talent.
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 Directors, including the Chairman of the Board and the chairmen of the three
Board committees, meet the independence criteria listed above. In particular, at its February 2013 meeting, the Board
considered whether Mr McLemore’s temporary assumption of the chief executive officer’s duties compromised his
independence or status as a non-executive director and determined that, save for the period of his service as Interim CEO, it
did not, given the temporary nature of the assignment. During such period, McLemore temporarily relinquished his
responsibilities as Chair to Ms Jeremiah and attended the November 2012 and February 2013 meetings of the Remuneration
Committee in an ex officio capacity, as permitted in the committee’s charter. Further, although Mr McLemore received
additional fees of $37,500 per month while acting as Interim CEO, he was not eligible to participate in the Company’s short
term incentive or long term incentive programs.
In addition, 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 Bruce Brook, Roy Franklin
and Rex McLennan are, respectively, non-executive directors of Newmont Mining Corporation, Santos Limited and Endeavour
Silver, each of which was a customer of the Company in 2013. The Board has considered each director’s directorship with
those customers and has concluded that such relationship is not material, does not interfere with the director’s exercise of
independent judgment and does not affect the director’s ability to act in the best interests of the Company’s shareholders and
other stakeholders, as each such customer relationship is at arm’s length and based on normal commercial terms. None of
Messrs Brook, Franklin or McLennan participates directly or indirectly in the relationship between the Company and its
customer or the terms on which the Company conducts business with the customer. 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 Chair and,
along with supporting papers, is distributed to Directors prior to each meeting. Certain senior executives participate in Board
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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. When possible, 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 assisted by the following four permanent committees in discharging its responsibilities:
·
·
·
·
Audit, Compliance & Risk Committee;
Remuneration Committee;
Environment, Health & Safety Committee; and
Finance Committee.
The committees have written charters that are reviewed annually. All non-executive Directors may attend any committee
meeting. The Chairman of each committee reports on committee proceedings at the next Board meeting, and minutes of all
committee meetings are circulated to Directors in subsequent Board meeting 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 and the Company’s Code of Conduct and policies. 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 or its affiliates.
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
· Barbara Jeremiah (resigned from Committee effective 1 November 2013)
· Rex McLennan (appointed to Committee effective 1 November 2013)
· Peter St. George (resigned from the Committee effective 1 March 2013)
Remuneration Committee
The Remuneration 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;
· promoting workforce diversity and monitoring the Company’s performance against established diversity objectives;
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:
· Roger Brown – Chairman
· Tanya Fratto
· David McLemore (Committee membership inactive while serving as Interim CEO)
· Peter St. George (resigned from Committee effective 1 March 2013)
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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.
The Committee consisted of the following non-executive Directors during the financial year:
· Roy Franklin – Chairman
· Bruce Brook (resigned from Committee effective 1 November 2013)
· Roger Brown
· Tanya Fratto
· Barbara Jeremiah (resigned from Committee effective 1 November 2013)
· David McLemore (appointed to Committee effective 1 November 2013)
Finance Committee
The Board established the Finance Committee effective 1 November 2013 to assist with the review and management of
financial risks and funding requirements at the Company. The Committee’s responsibilities include:
· assisting the Board with the effective discharge of its responsibilities in relation to the Company’s capital
structure, funding requirements and sources of funding;
· monitoring and advising the Board on capital expenditure (CAPEX) plans; and
·
reviewing treasury risks and practices (including hedging and risk management), insurance requirements
and employee benefit plan investment policies, performance and funding requirements.
The Committee consisted of the following non-executive Directors during the financial year:
· Rex McLennan – Chairman
· Bruce Brook
· Roy Franklin
· Barbara Jeremiah
Board and Director performance
The Board has a formal assessment process that includes performance assessments of the Board committees and individual
Directors on approximately an annual basis. As part of the assessment process, each Director and executive 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.
The most recent Board and committee performance evaluations were completed at the end of 2013 and reviewed at the
February 2014 Board and committee meetings.
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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;
·
· notify the Chairman of any change in circumstances that might prevent the Director from being regarded as
submit to re-election from time to time as required by the Company’s constitution;
·
independent;
comply with the Company’s constitution, governance policies and all applicable legal requirements, including the
Company’s Securities Trading Policy;
· devote sufficient time to prepare for and attend Board meetings and otherwise to discharge the Director’s duties;
keep confidential, and not use for the benefit of any person or party other than the Company, any confidential
·
information of the Company; and
· disclose any directorships, business interests or circumstances that might represent conflicts of interests or
reasonably be perceived to interfere with the exercise of the Director’s independent judgment, or have an adverse
impact on the Company’s reputation or public profile.
The appointment letter also confers certain benefits and rights upon the Director, including indemnities and insurance
coverage for liabilities arising out of the discharge of the Director’s duties and unfettered access to papers, information and
employees of the Company. In addition, Directors may, with the approval of the Chairman, consult with professional advisors.
The Company’s induction process also includes meetings with 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 strategic personal
objectives determines the potential incentive the executive may receive under the Company’s short-term incentive plan, which
also sets corporate financial performance and safety objectives that must be met. Individuals are advised annually of their
target bonuses, which in 2013 ranged from 50% to an additional 100% of base pay for senior executives. Certain other
corporate executives and managers also participate in the corporate bonus plan at lower target levels.
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 2013 and goal-
setting process for 2014 commenced in February 2014 and will be completed in March 2014.
Risk Management
The Board recognises that disciplined risk management and sound 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, regularly regional and corporate risk identification and mitigation reviews and the findings of
Company audits and investigations.
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The Board reviews on a semi-annual basis the risk registers prepared by business unit and corporate management. It also is
assisted and advised in its oversight of the Company’s risk management system by three of its committees: the Environment,
Health & Safety Committee with respect to health safety and operational risks generally, the Audit, Compliance & Risk
Committee with respect to controls and compliance risks and the Finance Committee with respect to financial and funding
risks. Those committees consider the risks identified by senior management and confirm the implementation of corrective
actions to mitigate identified risks and deficiencies. The Company currently is assessing and implementing changes to its risk
management system to reflect changes in the Company’s operating environment and structure in 2013 and to enhance its
value and efficacy.
Integrity of financial reporting
In accordance with the ASX Guidelines, the Chief Executive Officer and Interim 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 2013:
(i)
(ii)
(iii)
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
subject to the material uncertainties and risks outlined in Note 2 of the financial statements, 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 2013:
(i)
(ii)
(iii)
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
nothing has come to management’s attention since 31 December 2013 that would indicate any material
change to the statements made in 2(i) and 2(ii) above.
These statements are supported by certifications made to the Chief Executive Officer and Interim 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;
competition law and fair dealing;
·
· protection of confidential and commercially sensitive information;
· employment legislation;
·
· environmental, health and safety considerations;
·
·
· each employee’s affirmative duty to report violations of policy or law.
improper payments, bribery and money laundering, including transactions with government officials;
financial reporting and record-keeping; and
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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
The Board of Directors has established a workforce diversity policy for the Company. The complete policy can be found under
the governance section on the Company’s website (www.boartlongyear.com).
The policy sets out the Company’s commitment to creating a diverse workforce that is representative of the diverse
communities in which the Company operates and 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 Committee of the Board of Directors has responsibility for oversight of the policy. The Committee also
reviews the policy at least annually and oversees its implementation, including progress made toward measurable objectives
for achieving desired diversity representation and the continued relevance of those objectives.
Diversity objectives achieved in 2013 include:
· Continued progress in increasing female representation among senior managers from 5% in 2010 to10% in 2011 to
13% in 2012 to 14% in 2013; and
· A specific review of women in senior management positions as part of the Company’s formal leadership assessment,
development and succession management process.
· Total female representation in the Company when excluding our drillers and driller helpers has risen from 17% in
2012 to 20% in 2013.
The levels of gender diversity as at 31 December 2013 are:
Gender Diversity
Total Employees
Total Employees (excl. Drillers and Driller Helpers)
Senior Managers
Board of Directors
Male
90%
80%
86%
75%
Female
10%
20%
14%
25%
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.
The Board has 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. Additional information about the
programme, including some of the early results it has yielded, is available on the Company’s website at
www.boartlongyear.com.
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 also can be reviewed on the Company’s website.
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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. In addition, the
Company endeavours to provide earnings guidance to shareholders on a regular basis throughout the 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’s Charitable Giving Policy 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.
Signed in accordance with a resolution of the Directors.
On behalf of the Directors
Barbara Jeremiah
Chairman
24 February 2014
85
Annual Report 2013
Deloitte Touche Tohmatsu
Deloitte Touche Tohmatsu
ABN 74 490 121 060
ABN 74 490 121 060
Grosvenor Place
Grosvenor Place
225 George Street
225 George Street
Sydney NSW 2000
Sydney NSW 2000
PO Box N250 Grosvenor Place
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Sydney NSW 1220 Australia
Tel: +61 2 9322 7000
Tel: +61 2 9322 7000
Fax: +61 8407 7001
Fax: +61 8407 7001
www.deloitte.com.au
www.deloitte.com.au
The Directors
The Directors
Boart Longyear Limited
Boart Longyear Limited
26 Butler Boulevard
26 Butler Boulevard
Adelaide Airport SA 5650
Adelaide Airport SA 5650
Australia
Australia
24 February 2014
24 February 2014
Dear Directors
Dear Directors
Boart Longyear Limited
Boart Longyear Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of
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.
independence to the directors of Boart Longyear Limited.
As lead audit partner for the audit of the consolidated financial statements of Boart Longyear Limited for the financial
As lead audit partner for the audit of the consolidated financial statements of Boart Longyear Limited for the financial
year ended 31 December 2013, I declare that to the best of my knowledge and belief, there have been no contraventions
year ended 31 December 2013, I declare that to the best of my knowledge and belief, there have been no contraventions
of:
of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(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.
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
Yours sincerely
DELOITTE TOUCHE TOHMATSU
DELOITTE TOUCHE TOHMATSU
Samantha Lewis
Samantha Lewis
Partner
Partner
Chartered Accountants
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
Member of Deloitte Touche Tohmatsu Limited
86
Boart Longyear
Deloitte Touche Tohmatsu
Deloitte Touche Tohmatsu
ABN 74 490 121 060
ABN 74 490 121 060
Grosvenor Place
Grosvenor Place
225 George Street
225 George Street
Sydney NSW 2000
Sydney NSW 2000
PO Box N250 Grosvenor Place
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Sydney NSW 1220 Australia
Tel: +61 2 9322 7000
Tel: +61 2 9322 7000
Fax: +61 8407 7001
Fax: +61 8407 7001
www.deloitte.com.au
www.deloitte.com.au
Independent Auditor’s Report
Independent Auditor’s Report
to the Members of Boart Longyear Limited
to the Members of Boart Longyear Limited
Report on the Financial Report
Report on the Financial Report
We have audited the accompanying financial report of Boart Longyear Limited, which comprises the statement of
We have audited the accompanying financial report of Boart Longyear Limited, which comprises the statement of
financial position as at 31 December 2013, the statement of profit or loss and comprehensive income, the statement of
financial position as at 31 December 2013, the statement of profit or loss and 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
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
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
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 89 to 160.
year as set out on pages 89 to 160.
Directors’ Responsibility for the Financial Report
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
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
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 gives a true and fair view and is
directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is
free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with
free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with
Accounting Standard AASB 101 Presentation of Financial Statements, that the consolidated financial statements
Accounting Standard AASB 101 Presentation of Financial Statements, that the consolidated financial statements
comply with International Financial Reporting Standards.
comply with International Financial Reporting Standards.
Auditor’s Responsibility
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
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
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
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.
financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor
misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control, relevant to the company’s preparation of the financial report that gives a true and fair view,
considers internal control, relevant to the company’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
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 company’s internal control. An audit also includes evaluating the appropriateness of
opinion on the effectiveness of the company’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
accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating
the overall presentation of the financial report.
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
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
Member of Deloitte Touche Tohmatsu Limited
87
Annual Report 2013
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 2013 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 2.
Emphasis of Matter
Without modifying our opinion we draw attention to Note 2 in the financial report which outlines the directors’
assessment that Boart Longyear Limited may, in certain circumstances, have difficulty with covenant compliance on or
after the June 2014 testing period. These factors, along with other matters set out in Note 2, indicate the existence of
material uncertainty which may cast significant doubt about the company’s and consolidated entity’s ability to continue
as going concerns and whether they will realise their assets and extinguish their liabilities in the normal course of
business and at the amounts stated in the financial report.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 43 to 74 of the directors’ report for the year ended 31
December 2013. 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 2013, complies
with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Samantha Lewis
Partner
Chartered Accountants
Sydney, 24 February 2014
88
Boart Longyear
Annual Financial Report
31 DECEMBER 2013 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 2 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.
The Directors draw the reader’s attention to Note 2 on page 95 concerning the going concern basis of preparation of the
financial report and potential impact of material uncertainties related to the Company’s market outlook on its financing
arrangements.
Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act 2001.
On behalf of the Directors
Barbara Jeremiah
Chairman
24 February 2014
89
Annual Report 2013
Consolidated Statement of Profit or Loss and
Other Comprehensive Income
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
Revenue
Cost of goods sold
Gross margin
Other income
General and administrative expenses
Sales and marketing expenses
Restructuring expenses and related impairments
Other expenses
Operating (loss) profit
Interest income
Finance costs
(Loss) profit before taxation
Income tax expense
(Loss) profit for the year attributable
to equity holders of the parent
Earnings per share:
Basic (loss) earnings per share
Diluted (loss) earnings per share
Other comprehensive income (loss)
(Loss) profit for the year attributable
to equity holders of the parent
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Items that will not be reclassified subsequently to profit or loss
Actuarial gain (loss) related to defined benefit plans
Income tax on income and expense
recognised directly through equity
Other comprehensive loss for the year (net of tax)
Note
6
7
10
7
8
8
14
15
15
27
25
25
2013
US$'000
1,222,853
(1,020,718)
202,135
18,151
(157,728)
(44,405)
(461,165)
(24,828)
(467,840)
2,851
(40,914)
(505,903)
(114,040)
(619,943)
2012
US$'000
2,011,507
(1,499,060)
512,447
3,097
(236,168)
(61,490)
(67,584)
(23,454)
126,848
3,143
(30,065)
99,926
(31,762)
68,164
(136.1) cents
(136.1) cents
15.0 cents
14.8 cents
2013
US$'000
2012
US$'000
(619,943)
(102,631)
28,008
(8,874)
(83,497)
68,164
6,324
(19,448)
3,088
(10,036)
Total comprehensive (loss) income for the year
attributed to equity holders of the parent
(703,440)
58,128
See accompanying Notes to the Consolidated Financial Statements included on pages 95–160
90
Boart Longyear
Consolidated Statement of Financial Position
As at 31 December 2013 BOART LONGYEAR LIMITED
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax receivable
Prepaid expenses and other assets
Assets classified as held for sale
Total current assets
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Provisions
Current tax payable
Loans and borrowings
Total current liabilities
Non-current liabilities
Loans and borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Other equity
(Accumulated Losses) Retained earnings
Total equity
Note
35a
16
17
14
36
19
20
21
14
22
24
14
23
23
14
24
26
27
28
2013
US$'000
2012
US$'000
59,053
196,912
298,947
18,253
25,054
598,219
-
598,219
408,311
103,974
92,028
110,243
17,706
732,262
1,330,481
153,152
33,263
91,649
84
278,148
585,375
1,179
37,184
623,738
901,886
428,595
1,129,014
(37,312)
(137,182)
(525,925)
428,595
89,628
260,502
533,690
39,331
42,021
965,172
33,997
999,169
628,691
290,786
128,158
192,352
11,582
1,251,569
2,250,738
284,251
36,271
97,486
189
418,197
601,733
7,757
87,634
697,124
1,115,321
1,135,417
1,122,189
70,914
(137,182)
79,496
1,135,417
See accompanying Notes to the Consolidated Financial Statements included on pages 95–160
91
Annual Report 2013
Consolidated Statement of Changes in Equity
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
Foreign
currency
translation
reserve
Issued
capital
Equity-settled
compensation
reserve
Other
equity
US$'000
US$'000
US$'000
US$'000
Accumulated
(losses)/
retained
earnings
US$'000
Total
attributable
to owners of
the parent
US$'000
Balance at 1 January 2012
Profit for the period
Other comprehensive loss
for the period
Total other comprehensive income
Payment of dividends
Vesting of LTIP rights, restricted shares
Purchase of shares for LTIP
Share-based compensation
Balance at 31 December 2012
1,128,923
-
-
-
-
2,435
(9,169)
-
50,334
-
6,324
6,324
-
-
-
-
9,333
-
(137,182)
-
83,032
68,164
1,134,440
68,164
-
-
-
(2,435)
-
7,358
-
-
-
-
-
-
(16,360)
51,804
(55,340)
-
-
-
(10,036)
58,128
(55,340)
-
(9,169)
7,358
1,122,189
56,658
14,256
(137,182)
79,496
1,135,417
Balance at 1 January 2013
1,122,189
Loss for the period
Other comprehensive loss
for the period
Total other comprehensive loss
Payment of dividends
Vesting of LTIP rights, restricted shares
Share-based compensation
Balance at 31 December 2013
-
-
-
-
6,825
-
1,129,014
56,658
-
(102,631)
(102,631)
-
-
-
(45,973)
14,256
-
(137,182)
-
79,496
(619,943)
1,135,417
(619,943)
-
-
-
(6,825)
1,230
8,661
-
-
-
-
-
(137,182)
19,134
(600,809)
(4,612)
-
-
(525,925)
(83,497)
(703,440)
(4,612)
-
1,230
428,595
See accompanying Notes to the Consolidated Financial Statements included on pages 95–160
92
Boart Longyear
Consolidated Statement of Cash Flows
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
Note
2013
US$'000
2012
US$'000
Cash flows from operating activities
(Loss) Profit for the year
Adjustments provided by operating activities:
Income tax expense recognised in profit
Finance costs recognised in profit
Depreciation and amortisation
Interest income recognised in profit
(Gain) loss on sale or disposal of non-current assets
Loss on disposal of business
Impairment of current and non-current assets
Non-cash foreign exchange loss
Share-based compensation
Long-term compensation - cash rights
Changes in net assets and liabilities, net of effects
from acquisition and disposal of business:
Decrease (increase) in assets:
Trade and other receivables
Inventories
Other assets
Increase (decrease) in liabilities:
Trade and other payables
Provisions
Cash generated from operations
8
9
8
9
34
9b, 13
9
Interest paid
Interest received
Income taxes paid
Net cash flows provided by operating activities
8
(619,943)
114,040
40,914
130,724
(2,851)
(364)
1,962
405,016
2,888
1,230
(31)
45,851
101,791
16,427
(138,746)
(22,629)
76,279
(31,616)
2,851
(36,012)
11,502
68,164
31,762
30,065
127,443
(3,143)
900
-
36,300
1,472
7,304
3,336
45,906
(140,276)
(20,588)
(39,668)
6,742
155,719
(28,928)
3,143
(65,722)
64,212
See accompanying Notes to the Consolidated Financial Statements included on pages 95–160
93
Annual Report 2013
Consolidated Statement of Cash Flows
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
Note
2013
US$'000
2012
US$'000
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Intangible costs paid
Proceeds on disposal of subsidiary, net of cash disposed
Net cash flows used in investing activities
Cash flows from financing activities
Payments for share purchases for LTIP
Payments for debt issuance costs
Proceeds from borrowings
Repayment of borrowings
Dividends paid
34
29
Net cash flows (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on the balance
of cash held in foreign currencies
Cash and cash equivalents at the end of the year
35a
(35,528)
14,522
(5,956)
24,810
(2,152)
-
(10,137)
453,006
(461,139)
(4,612)
(22,882)
(13,532)
89,628
(17,043)
59,053
(247,653)
3,266
(35,141)
-
(279,528)
(9,169)
(490)
418,444
(129,872)
(55,340)
223,573
8,257
82,286
(915)
89,628
94
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
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.
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. For purposes of
preparing the consolidated financial statements, the Company is a for-profit entity.
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 24 February 2014.
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.
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 10
‘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 (a) has power over the investee (b) is exposed or has rights,
to variable returns from involvement with the investee and (c) has the ability to use its power to affect its return.
All three of these criteria must be met for the Company to have control over the investee. 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.
Going Concern
The financial statements have been prepared on the basis of a going concern, which contemplates the continuity
of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of
business. The Directors consider that current and expected liquidity from operating cash flow and available
drawings under the revolving credit agreement (Credit Agreement) will be adequate to enable the Company to
meet its debts as and when they fall due, subject to the risks and uncertainties described below, which give rise
to material uncertainty.
95
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For the year ended 31 December 2013 (compared to the year ended 31 December 2012), the Company incurred
a net loss after tax of $619,943,000 (2012: net profit of $68,164,000), generated cash from operations before
interest and taxes of $76,279,000 (2012: $155,719,000) and provided net cash flows from operating activities of
$11,502,000 (2012: $64,212,000).
As at 31 December 2013 (compared to 31 December 2012), the Company had cash and cash equivalents of
$59,053,000 (2012: $89,628,000) and total debt gross of amortisation of $600,000,000 (2012: $608,000,000). As
at 31 December 2013, the Company was in compliance with all of its bank covenants and had no outstanding
borrowings under its $140,000,000 Credit Agreement, although $10,392,000 in letters of credit that were
outstanding at that date are considered as a draw against availability under the terms of the Credit Agreement.
Accordingly, at 31 December 2013, the Company had $120,000,000 available for cash drawings and $9,608,000
available for additional letters of credit under the Credit Agreement.
The Company’s core mining markets, which are prone to significant cycles, have remained volatile from July
2012 to the present time. The Company has taken significant steps throughout 2013 to continue to mitigate the
impact of volatile conditions and improve profitability and cash generation. The Company’s financial performance
in 2014 and 2015 will be driven by demand for its drilling services and products, which, in turn, will continue to
depend on numerous industry-related factors - including expectations for future commodity prices, the level of
mining industry exploration, mine development and capital expenditures, political risks related to mining
development activities, and the availability of financing for mining development – that are beyond the Company’s
control and continue to be extremely difficult to predict.
Given market uncertainties, the Company is not providing a market outlook for 2014 revenue and EBITDA. It
has, however, developed internal 2014 and 2015 projections based on relevant information, such as past
experience, public guidance and commentary provided by customers and competitors, forecasts of capital
available for mining development and other macroeconomic indicators. The Company’s assumptions as to
demand and prices for its goods and services are particularly relevant to those projections. In addition, the
accuracy of the Company’s liquidity projections will depend on several factors, including management’s ability to
adjust variable costs in line with changes in revenue and foreign exchange rates.
Given the risk of market conditions not significantly recovering over the next twelve months, the Company has
negotiated a further amendment of the Credit Agreement effective 22 February 2014 that is intended to provide
the Company with continued access to the revolving credit facility and additional capacity under the Credit
Agreement’s financial covenants to withstand market volatility and remain in compliance with the terms of the
Credit Agreement. The specific terms of the amendment are separately disclosed in the Subsequent Events
Note 38.
The amendment does not guarantee the Company’s ability to comply with the financial covenants and terms of
the Credit Agreement. Difficulties with covenant compliance could arise on or after the June 2014 testing date
depending on actual market conditions. However, in preparing the financial report on a going concern basis, the
Directors have had regard to information, including, but not limited to, the following:
·
the Company’s current financial condition, including available liquidity and the absence of defaults under
current borrowing agreements,
· projections and forecasts for the Company in the context of the expected mining industry environment;
· an independent advisor’s review of the Company’s position;
·
the initiatives taken by management, including initiatives to reduce operating, SG&A and capital costs
and to maximise current cash flows by reducing inventory levels and minimising working capital;
the ongoing support of the Company’s bank group, including its agreement to the recently completed
amendment of the Credit Agreement (as discussed above); and
the commencement of a strategic review of a full range of options, which the Directors believe could
lead to a refinancing, recapitalisation, sale of assets or another transaction that could reduce existing
debt levels and/or provide a more sustainable capital structure.
·
·
As a result of the matters outlined above, there is material uncertainty that may cast significant doubt on the
ability of the Parent and consolidated entity to continue as going concerns in the future and, therefore,
whether they will realise their assets and settle their liabilities and commitments in the normal course of
business and in the amounts stated in the financial statements. In particular, if there is a breach of a
covenant of the Credit Agreement, the ability of the Parent and the consolidated entity to continue as going
concerns will depend on the Parent’s ability to secure a waiver or further amendment of the terms of the
Credit Agreement, or an alternative financing or another capital option. In that context, the Directors are
actively considering and pursuing all reasonable available options to mitigate such a risk.
96
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Except for the adoptions of new and revised accounting standards as described in Note 3, 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 2013 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.
(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.
97
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e)
Property, plant and equipment (continued)
The following useful lives are used in the calculation of depreciation:
Buildings
Plant and machinery
Drilling rigs
Other drilling equipment
Office equipment
Computer equipment:
Hardware
Software
20-40 years
years
5-10
years
5-12
years
1-5
years
5-10
3-5
1-7
years
years
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
(f)
Goodwill and other intangible assets
Goodwill
Goodwill resulting from business combinations is recognised as an asset at the date that control is
acquired. 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.
(f)
Goodwill and other intangible assets (continued)
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.
98
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f)
Goodwill and other intangible assets (continued)
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, are 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.
(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) and is recognised in profit or
loss except to the extent that 1) amounts relate to items recognised directly in equity, in which case the
income tax expense (benefit) is also recognised in equity, or 2) amounts that relate to a business
combination, in which case the income tax expense (benefit) is recognised in goodwill.
Current income 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.
Management periodically evaluates provisions taken in tax returns with respect to situations in which
applicable tax regulation is open to interpretation. The Company establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities.
99
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h)
Current and deferred taxation (continued)
Deferred income tax is provided on 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.
Deferred tax assets are 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 sufficient taxable profit will be available to all or part of the deferred tax asset to be realised.
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)
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.
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.
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.
100
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
Impairment (continued)
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating
unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the
increased carrying amount does not exceed the carrying amount that would have been determined had
no impairment loss been recognised for the asset (cash generating unit) in prior years. A reversal of an
impairment loss is recognised immediately in profit or loss.
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.
(j)
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.
(k)
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.
Contingencies
The recognition of provisions for legal disputes is subject to a significant degree of judgment. 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.
101
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l)
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.
Defined benefit 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.
102
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m)
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.
(n)
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 2(p).
(o)
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.
(p)
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.
·
(q)
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.
103
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(r)
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.
(s)
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.
104
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
3.
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. These standards and interpretations are set forth below. The adoption of each standard,
individually did not have a significant impact on the Company’s financial results or consolidated statement of
financial position.
Employee benefits
Amendments to AASB 119 ‘Employee Benefits’ require changes in the calculation of the net defined benefit
liability and pension expense and provide changes to certain financial statement disclosures. The primary impact
is interest cost and expected return on assets are combined into net financing cost. This is determined as the
interest on the net liability based on the assumed discount rate. The net impact is an increase in the pension
expense which will vary from country to country depending on the spread between the discount rate and the
expected return on asset assumption used previously. The effect of applying this standard increased the 31
December 2012 expense by $1,910,000. See Note 25.
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. There was no change in the entities consolidated as a result of
the application of this standard.
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 was adopted for the year ended 31 December
2013.
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 was adopted for the
year ended 31 December 2013.
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 2017 subject to the AASB adopting the
amendments to IFRS 9 (AASB effective date is currently 1 January 2017). Management has not yet assessed
the impact of adoption of these amendments.
Additional amendments of Australian Accounting Standards have been issued, the adoption of which
management does not believe will have a significant impact on the Company’s financial results or statement of
financial position.
105
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
4.
CRITICAL ACCOUNTING POLICIES
In applying A-IFRS, management is required to make judgments, estimates and form assumptions that affect the
application of accounting policies and reported amounts of assets and liabilities and the disclosure of contingent
liabilities at the date of the financial statements, and the reported revenue and expenses during the periods
presented herein. On an ongoing basis, management evaluates its judgments and estimates in relation to asset,
liabilities, contingent liabilities, revenues and expenses. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the respective periods in which they are revised if only those periods are affected, or in the
respective periods of the revisions as well as future periods if the revision affects both current and future periods.
The key judgments, estimates and assumptions that have or could have the most significant effect on the
amounts recognised in the financial statements relate to the following areas:
(a)
Goodwill, intangible assets and property, plant and equipment
The Company determines whether goodwill is impaired on an annual basis and assesses impairment of
all other assets at each reporting date by evaluating whether indicators of impairment exist. This
evaluation includes consideration of the market conditions specific to the industry in which the group
operates, the decline in demand for our drilling services and low rig utilisation rates, the political
environment in countries in which the group operates, technological changes, expectations in relation to
future cash flows and the Company’s market capitalisation. Where an indication of impairment exists
the recoverable amount of the asset is determined. Recoverable amount is the greater of fair value less
costs to sell and value in use. Impairment is considered for individual assets, or cash generating units
(a)
Goodwill, intangible assets and property, plant and equipment (continued)
(CGU). Judgments are made in determining appropriate cash generating units. When considering
whether impairments exist at a CGU, the Company uses the value in use methodology.
The value in use calculation requires the Company to estimate the future cash flows expected to arise
from a cash-generating unit and a suitable discount rate in order to calculate present value. These
estimates are subject to risk and uncertainty; hence there is a possibility that changes in circumstances
will alter these projections, which may impact the recoverable amount of the assets.
See Note 10 for details relating to expenses arising as a result of the impairment process and a
description of the key assumptions made.
(b)
Recoverability of Inventories
The Company measures inventory at the lower of cost or net realisable value. Due to the decline in the
demand for products, and consumables used in our Global Drilling Services business, and the high
inventory balances across the group and the speed at which inventory is turning in the current market,
significant judgment is required in determining net realisable value of inventory. During the current
financial year the Company recorded an impairment of inventory to bring the remaining inventory down
to management’s estimate of net realisable value. See Note 10 for details relating to the expenses
arising as a result of the inventory impairment process.
(c)
Property, Plant and Equipment
The Company’s assets are held in various differing geographical, political and physical environments
across the world, therefore, the estimation of useful lives of assets is an area of significant judgment.
Our current estimate has been based on historical experience. In addition, the condition of the assets is
assessed at least annually and considered against the remaining useful life. Adjustments to useful lives
are made when considered necessary.
106
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
4.
CRITICAL ACCOUNTING POLICIES (CONTINUED)
(d)
Income Taxes
The Company is subject to income taxes in Australia and other jurisdictions around the world in which
the Company operates. Significant judgment is required in determining the Company’s current tax
assets and liabilities. Judgments are required about the application of income tax legislation and its
interaction with income tax accounting principles. Tax positions taken by the Company are subject to
challenge and audit by various income tax authorities in jurisdictions in which the group operates.
Judgment is also required in assessing whether deferred tax assets and certain deferred tax liabilities
are recognised on the balance sheet. Deferred tax assets, including those arising from unrecouped tax
losses, capital losses, foreign tax credits and temporary differences, are recognised only where it is
considered more likely than not that they will be recovered, which is dependent on the generation of
sufficient future taxable profits. Assumptions about the generation of future taxable profits and
repatriation of retained earnings depend on management’s estimates of future cash flows.
These judgments and assumptions are subject to risk and uncertainty, hence there is a possibility that
changes in circumstances will alter expectations, which may impact the amount of deferred tax assets
and tax liabilities recognised on the balance sheet. In such circumstances, some or all of the carrying
amount of recognised deferred tax assets and tax liabilities may require adjustment, resulting in a
corresponding credit or charge to the income statement.
(e)
Defined Benefit Pension Plans
The Company’s accounting policy for defined benefit pension plans requires management to make
annual estimates and assumptions about future returns on classes of assets, future remuneration
changes, employee attrition rates, administration costs, changes in benefits, inflation rates, exchange
rates, life expectancy and expected remaining periods of service of employees. In making these
estimates and assumptions, management considers advice provided by external advisers, such as
actuaries. Where actual experience differs to these estimates, actuarial gains and losses are
recognised directly in equity.
107
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
5.
SEGMENT REPORTING
Information reported to the chief operating decision maker for the purposes of resource allocation and
assessment of segment performance is aggregated based on the Company’s two general operating activities –
Global Drilling Services and Global Products. The Global Drilling Services segment provides a broad range of
drilling services to companies in mining, energy and other industries. The Global Products segment manufactures
and sells drilling equipment and performance tooling 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 profit shown below is consistent with the income
reported to the chief operation decision maker for the purposes of resource allocation and assessment of
segment performance.
Segment revenue and results
Segment revenue
Segment profit
2013
US$'000
2012
US$'000
2013
US$'000
2012
US$'000
Drilling Services
917,348
1,516,203
40,605
186,992
Products total revenue
Products inter-segment revenue 1
Products
Total
362,074
(56,569)
305,505
643,552
(148,248)
495,304
2,145
93,177
1,222,853
2,011,507
42,750
280,169
Unallocated 2
Restructure expenses and related impairments
Finance costs
Interest income
Profit before taxation
(49,425)
(461,165)
(40,914)
2,851
(505,903)
(85,737)
(67,584)
(30,065)
3,143
99,926
(1) Transactions between segments are carried out at arm’s length and are eliminated on consolidation.
(2) Unallocated costs include corporate general and administrative costs, as well as, other expense items
such as foreign exchange gains or losses.
Other segment information
Drilling Services
Products
Total of all segments
Unallocated 1
Total
Depreciation and amortisation
of segment assets
2013
US$'000
2012
US$'000
Additions to non-current
assets 2
2013
US$'000
2012
US$'000
101,316
13,923
115,239
15,485
130,724
102,610
14,061
116,671
10,772
127,443
35,063
6,814
41,877
7,316
49,193
241,524
27,564
269,088
21,026
290,114
(1) Unallocated additions to non-current assets relate to the acquisition of general corporate assets such as
software and hardware.
(2) Non-current assets excluding deferred tax assets.
108
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
5.
SEGMENT REPORTING (CONTINUED)
Geographic information
The Company’s two business segments operate in five principal geographic areas – North America, Asia Pacific,
Latin America, Africa, and Europe. The Company’s revenue from external customers and information about its
segment assets by geographical locations are detailed below:
North America
Asia Pacific
Latin America
Africa
Europe
Total
Revenue from
external customers
2013
US$'000
489,037
349,030
153,648
160,843
70,295
1,222,853
2012
US$'000
752,886
534,687
314,877
305,550
103,507
2,011,507
Non-current assets 1
2013
2012
US$'000
US$'000
319,505
147,761
51,646
88,165
14,942
622,019
378,804
393,101
116,649
140,703
29,960
1,059,217
(1) Non-current assets excluding deferred tax assets.
6.
REVENUE
An analysis of the Company’s revenue for the year is as follows:
Revenue from the rendering of services
Revenue from the sale of goods
2013
US$'000
917,348
305,505
1,222,853
2012
US$'000
1,516,202
495,305
2,011,507
Included in revenues arising from rendering of services of $917,348,000 (2012 $1,516,202) are revenues of
$126,118,000 (2012: $159,670,000 million) which arose from sales to the Company’s largest customer. No other
single customer contributed 10% or more to the Company’s revenue for both 2013 and 2012.
109
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
7.
OTHER INCOME / EXPENSE
The components of other income are as follows:
Gain on termination of post-retirement medical plan
Scrap sales
Gain on disposal of property, plant and equipment
Other
Total other income
The components of other expense are as follows:
Amortisation of intangible assets
Sundry asset impairments
Loss on foreign currency exchange differences
Loss on disposal of property, plant and equipment
VAT write-off
Other
Total other expenses
Note
25
2013
US$'000
2012
US$'000
16,871
651
364
265
18,151
-
1,759
-
1,338
3,097
2013
US$'000
2012
US$'000
18,276
3,195
986
-
1,429
942
24,828
15,741
205
5,949
900
-
659
23,454
8.
INTEREST INCOME / FINANCE COSTS
Interest income is as follows:
Interest income:
Bank deposits
Other
Total interest income
Finance costs are as follows:
Interest on loans and bank overdrafts
Amortisation of debt issuance costs
Interest on obligations under finance leases
Total finance costs
2013
US$'000
2012
US$'000
2,807
44
2,851
2,863
280
3,143
2013
US$'000
2012
US$'000
39,022
1,839
53
40,914
28,965
951
149
30,065
110
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
9.
PROFIT (LOSS) FOR THE YEAR
(a)
Gains and losses
Profit for the year includes the following gains and (losses):
Gain (loss) on disposal of property,
plant and equipment
Net foreign exchange losses
Net expense of bad debt
(b)
Employee benefits expenses
Salaries and wages
Post-employment benefits:
Defined contribution plans
Defined benefit plans
Long-term incentive plans:
Equity-settled share-based payments
Cash rights compensation
Termination benefits
Other employee benefits 1
2013
US$'000
2012
US$'000
364
(900)
(986)
(5,949)
(266)
(605)
2013
US$'000
2012
US$'000
(394,179)
(592,371)
(16,627)
11,519
(23,863)
(2,808)
(1,230)
31
(35,923)
(120,877)
(557,286)
(7,304)
(3,336)
(22,974)
(166,771)
(819,427)
(1) Other employee benefits include items such as medical benefits, workers’ compensation, other
fringe benefits, state taxes, etc.
(c)
Other
Depreciation of non-current assets
Amortisation of non-current assets
Operating lease rental expense
Loss in disposal of business
2013
US$'000
(111,455)
(19,269)
(35,803)
(1,962)
2012
US$'000
(110,991)
(16,452)
(39,664)
-
10.
RESTRUCTURING EXPENSES AND RELATED IMPAIRMENTS
During 2013, the Company continued to significantly reduce operating costs through a series of restructuring
activities. The Company’s restructuring efforts include:
· Reductions of over 3,300 personnel since 1 January 2013, including approximately 25% of sales,
general and administrative positions across the business;
· Consolidation of drilling services zones into larger territories;
· Rationalisation of manufacturing, inventory and administrative facilities;
· Consolidation of the Products division’s aftermarket services group with the Drilling Services
maintenance group as well as the supply chain groups for both divisions; and
· Sale of its non-core environmental and infrastructure drilling services operations (see Note 34).
The Company has incurred costs related to executing its restructuring and cost-reduction plans, including costs
associated with employee separations, leased facilities, and impairments of inventory and capital equipment
related to relocating certain manufacturing activities and resizing the business.
111
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
10.
RESTRUCTURING EXPENSES AND RELATED IMPAIRMENTS (CONTINUED)
In addition, due to the significant deterioration in revenues and profitability as well as a forecasted global
slowdown in the demand for drilling services and products, the Company has reassessed the carrying value of
certain assets, including goodwill, intangibles, plant and equipment and inventory, resulting in additional
impairment charges and provisions. A description of the impairment process is provided below.
Restructuring expenses and impairment charges for the years ended 31 December 2013 and 2012 are, as
follows:
Goodwill impairment
Equipment impairment
Inventory impairment
Employee separation and related costs
Development asset impairment
Other restructuring costs
Intangible asset impairment
Land & buildings impairment
Onerous leases
Loss on disposal of business
Software impairment
Net of tax
Note
20
19
17
19, 21
21
19
34
2013
US$'000
2012
US$'000
166,313
104,347
101,916
44,752
14,595
9,919
9,090
5,561
2,710
1,962
-
461,165
375,284
6,839
5,960
7,743
22,974
8,461
-
3,446
-
8,514
-
3,647
67,584
47,843
Restructuring expenses and related impairments by income statement classification for the years ended 31
December 2013 and 2012 are, as follows:
Cost of goods sold
General and administrative expenses
Selling and marketing expenses
Research and development
Other expense
2013
US$'000
2012
US$'000
218,282
59,725
2,250
14,595
166,313
461,165
25,383
20,113
3,344
8,416
10,328
67,584
Restructuring expenses and related impairments for the years ended 31 December 2013 and 2012 by business
segment are, as follows:
Global drilling services
Global products
Unallocated
2013
US$'000
394,604
54,824
11,737
461,165
2012
US$'000
50,193
6,245
11,146
67,584
112
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
10.
RESTRUCTURING EXPENSES AND RELATED IMPAIRMENTS (CONTINUED)
Impairment Process
In its impairment assessment, the Company assumes the recoverable amount based on a value-in-use
calculation. Cash flow projections are based on the Company’s expected performance over a nine-year period,
which approximates the length of a typical mining business cycle based on historical industry experience, with a
terminal value. In assessing value in use, the estimated future cash flows are discounted to their present value
using a post-tax discount rate that reflects the current market assessments of the time value of money and risks
specific to the asset. The post-tax discount rate is applied to post tax cash flows that include an allowance for tax
based on the respective jurisdictions tax rate, no allowance is made for existing timing differences or carry-
forward losses. This method is used to approximate the requirement of the accounting standards to apply a pre-
tax discount rate to pre-tax cash flows as the company determined it was not feasible to calculate a stand alone
pre-tax discount rate.
In performing its impairment analysis the Company takes the following approach:
· Assets are first considered individually to determine whether there is any impairment related to specific
assets due to factors such as technical obsolescence, declining market value, physical condition or
salability within a reasonable timeframe. As a result of this process, the Company has recorded the
following impairment charges:
o Property, plant and equipment (mainly rigs and associated equipment) of $89,908,000
o Development assets of $14,595,000
· The Company also assesses the recoverability of its assets collectively across cash generating units
(“CGUs”), where assets are not fully covered by the individual analysis above. In assessing the
appropriate CGUs to test the Company takes the following approach:
· Whilst not operating its full asset pool on an individual country basis, where goodwill exists the
Company assesses the recoverability of goodwill within the country in which the original acquisition
generating the goodwill was incurred;
· For the Drilling Services segment, as the Company operates the business on a regional basis and
the primary assets, being rigs and associated equipment and inventory, are considered to be
mobile between countries within a region, the Company assesses for impairment at a regional CGU
level.
As a result of this process, the Company has recorded the following impairment charges:
o Goodwill of $166,313,000. See Note 20 for a breakdown of the goodwill impairment by
country.
o Property, plant and equipment of $20,000,0001
o Other assets of $45,010,0001
(1) These impairments were mainly as a result of the impairment assessment of the Europe and Africa
Drilling services CGU. This CGU contains no goodwill and therefore the impairment was allocated
on a pro rata basis across the major classes of assets.
Key Assumptions
Certain key assumptions are used for CGU impairment testing.
As noted above cash flow projections are based on the Company’s expected performance over a nine-year
period, which approximates the length of a typical mining business cycle based on historical industry experience,
with a terminal value. Central to the approach adopted is the assumption that the mining industry will continue to
follow its historical trend of cycles and that we are currently at or near the bottom of the current cycle.
In considering the appropriateness of the assumptions used in the value in use analysis, the Company has
considered the fact that the implied enterprise value implicit in its market capitalisation is considerably below its
net asset value and the internal models. This factor is one of many indicators of impairment that the Company
has considered.
113
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
10. RESTRUCTURING EXPENSES AND RELATED IMPAIRMENTS (CONTINUED)
Revenue
The growth rates applied to revenue through the mining-cycle are based on the compound average growth rate
for the various cash-generating units being tested for impairment over the mining cycle from the mid-point of the
cycle (which is set based on historical experience), and do not exceed the historical rates of inflation in the
regions where the Company does business.
Expenses
In determining gross margin and SG&A expenses management have used historical performance trends,
overlaying the impacts of recent cost out programs and other initiatives taken within the business to reduce costs.
Working capital and capital expenditure
Working capital and capital expenditure assumptions are assumed to be in line with historic trends given the level
of utilisation and operating activity.
Discount rate
A global discount rate of 11.5%, is used and adjusted on a case-by-case basis for regional variations in the
required equity rate of return. Based on information published by Morningstar, the adjusted post tax discount
rates ranged from 9.2% to 21.6%, as shown in the table below.
Other economic factors
The assumed growth rates are based on the compound average growth rate for the various cash-generating
units being tested for impairment over the mining cycle from the mid-point of the cycle. The growth rates do not
exceed the historical rates of inflation in the countries where the Company does business and have been sourced
from Bloomberg forecasts.
Key assumptions - Impairment Model
Global
North America
Asia Pacific
Latin America
Europe and Africa
Post Tax
Discount
Rate
Growth
Rate
11.5%
9.2%
12.2%
14.1%
21.6%
3.0%
1.9%
3.2%
4.3%
5.4%
Sensitivity analyses were performed to determine whether carrying values are supported by different
assumptions. Key variables of the sensitivity analysis include:
· near term and terminal growth rates; and
·
inflation assumptions.
Each of these variables in the analysis have been examined at levels above and below expected values. The
expected values are based on forecast inflation rates for each respective region with a global rate assumed at
3% based on historic inflation trends. The growth rates were increased by 1% and decreased by 3%, with a floor
of 0% actual growth, in the upside and downside sensitivity scenarios respectively. In the downside sensitivity
scenario, with assumed growth rates 3% lower than forecast inflation, there would be additional impairments as
follows:
Global
North America
Asia Pacific
Latin America
Europe and Africa
US$'000
-
51,000
-
-
24,000
114
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
11.
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
Assurance services
Other non-audit services
Total remuneration to Company auditor
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
2013
US$'000
2012
US$'000
1,607
1,422
3,029
1,841
581
174
21
2,617
5,646
418
1,246
122
1,798
166
702
4,452
1,465
1,434
2,899
1,541
539
-
61
2,141
5,040
356
2,069
474
2,009
232
208
5,348
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 tax compliance
services, the magnitude of which is impacted by the global reach of the Company.
The Company and its Audit, Compliance & Risk Committee (Audit Committee) are committed to ensuring the
independence of the external auditor. 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. 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 2011 to 2013. This
project has largely concluded during the year ended 31 December 2013. The Company expects that the level of
non-audit services will continue to be below the audit fee threshold in future years.
115
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
12.
KEY MANAGEMENT PERSONNEL COMPENSATION
Details of key directors and management personnel
The Directors and other members of key management personnel of the Company during the financial year were:
· Barbara Jeremiah - Chair, non-executive Director (appointed Chairman effective 1 March 2013)
· Bruce Brook - non-executive Director
· Roger Brown - non-executive Director
· Roy Franklin - non-executive Director
· Tanya Fratto - non-executive Director
· David McLemore - non-executive Director
· Rex McLennan - non-executive Director (appointed effective 24 August 2013)
· Peter St. George - non-executive Director (resigned from the Board effective 21 May 2013)
· Richard O'Brien - Chief Executive Officer (appointed effective 1 April 2013)
·
· Fabrizio Rasetti - Senior Vice President, General Counsel and Secretary
· Brad Baker - Senior Vice President, Human Resources
· Alan Sides - Senior Vice President, Global Drilling Services (appointed effective 31 January 2013)
· Kent Hoots - Senior Vice President, Global Products (appointed effective 31 January 2013)
Joe Ragan III - Chief Financial Officer (terminated employment effective 18 May 2013)
The aggregate compensation made to key management personnel of the Company is set out below.
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payment
13.
SHARE-BASED PAYMENTS
2013
US$
4,354,012
56,089
22,726
467,145
859,650
5,759,622
2012
US$
5,967,949
116,009
465,864
1,044,640
2,651,514
10,245,976
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. Awards granted beginning in 2010 through 2013 have performance targets based on three-year
average ROE targets. The Board has set threshold and maximum targets for 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.
116
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
13.
SHARE-BASED PAYMENTS (CONTINUED)
The total share-based expense associated with share rights granted under the LTIP for the years ended 31
December 2013 and 2012 was $1,219,000 and $6,500,000, 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 2013 and 2012 was $11,000 and $804,000, respectively. None of share-based
compensation was capitalised in the fiscal year ended 31 December 2013 (2012: $54,000).
Share Rights
The following table reflects the share rights arrangements that were in existence at 31 December 2013:
Series - Share Rights
1 - Issued 15 March 2011
2 - Issued 11 July 2011
3 - Issued 14 October 2011
4 - Issued 15 March 2012
5 - Issued 15 March 2013
6 - Issued 4 April 2013
7 - Issued 4 April 2013
8 - Issued 4 April 2013
9 - Issued 1 June 2013
10 - Issued 1 June 2013
Number
1,225,305
26,750
100,000
1,399,695
3,044,177
315,000
315,000
3,149,000
125,000
401,500
Effective
grant date
Vesting
date
Fair value at
grant date 1
US$
15-Mar-11
11-Jul-11
14-Oct-11
15-Mar-12
15-Mar-13
1-Apr-13
1-Apr-13
1-Apr-13
1-Jun-13
1-Jun-13
15-Mar-14
11-Jul-14
14-Oct-14
15-Mar-15
15-Mar-16
1-Apr-14
1-Apr-15
1-Apr-16
1-Jun-15
1-Jun-16
4.36
4.27
3.05
4.50
1.39
1.32
1.32
1.32
0.67
0.67
(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
2013
Number of
rights
'000
2012
Number of
rights
'000
5,280
8,228
(1,162)
(2,245)
10,101
5,483
2,690
(1,296)
(1,597)
5,280
117
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
13.
SHARE-BASED PAYMENTS (CONTINUED)
The following share rights vested during 2013:
Vest date range
Grant date
Start
End
1-Mar-10
15-Mar-10
12-Apr-10
26-Aug-10
15-Mar-11
14-Oct-11
15-Mar-12
15-Mar-13
1-Jun-13
Options
31-Jan-13
15-Mar-13
12-Apr-13
26-Aug-13
31-Jan-13
30-Sep-13
31-Jan-13
15-May-13
11-Oct-13
1-Mar-13
15-Mar-13
12-Apr-13
26-Aug-13
31-Dec-13
30-Sep-13
31-Dec-13
31-Dec-13
31-Dec-13
Number
of shares
1,604,271
104,600
7,000
10,844
218,435
6,546
194,597
88,739
10,230
Fair value at
vest date range A$
Low
High
1.75
1.39
1.31
0.44
0.34
0.41
0.34
0.34
0.34
2.13
1.39
1.31
0.44
2.13
0.41
2.13
0.82
0.41
The following table reflects the options arrangements that were in existence at 31 December 2013:
Series - Options
1 - Issued 18 June 2009
2 - Issued 15 March 2010
Number
317,500
25,000
Effective
grant date
Vesting
date
Fair value at
grant date
US$
18-Jun-09
15-Mar-10
18-Jun-12
15-Mar-13
1.43
2.24
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$
1.90
2.93
Series 1
Series 2
Expected
volatility
97.29%
92.14%
Life of
rights
60 months
60 months
Dividend
yield
Risk-free
interest rate
0.00%
0.00%
5.59%
5.25%
The following reconciles the outstanding options at the beginning and end of the year:
Options
Balance at beginning of year
Granted
Forfeited
Exercised
Balance at end of year
Exercisable at end of year
2013
2012
Number of
options
'000
592
-
(250)
-
342
342
Weighted
average
exercise
price
US$
4.88
-
8.24
-
2.43
2.43
Number of
options
'000
592
-
-
-
592
567
Weighted
average
exercise
price
US$
4.88
-
-
-
4.88
4.88
118
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
14.
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 (benefit) expense
2013
US$'000
2012
US$'000
42,926
70,913
4,227
66,887
114,040
2,262
(41,413)
31,762
(a) Reconciliation of the prima facie income tax expense on pre-tax accounting profit to the income tax
expense in the financial statements:
(Loss) Profit before taxation
Income tax (benefit) expense calculated at
Australian rate of 30%
Impact of higher rate tax countries
Impact of lower rate tax countries
Net non-deductible/non-assessable items other
Net non-deductible/non assessable items related to impairments 1
Unrecognised tax losses 2
Profit/Losses subject to double taxation in the US
Unutilised foreign tax credits
Derecognition (recognition) of net prior year deferred tax assets 2
Other
Under provision from prior years
Income tax expense per the Consolidated
Statement of Profit or Loss and Other Comprehensive Income
(505,903)
99,926
(151,772)
(1,223)
30,083
8,967
50,423
67,565
(519)
9,017
92,653
4,619
109,813
4,227
29,977
4,903
(646)
1,524
1,500
145
(2,468)
7,055
(16,827)
4,337
29,500
2,262
114,040
31,762
(1) Certain of the impairment and restructuring items will not be assessable for tax, primarily relating to goodwill
in certain jurisdictions.
(2) Due to the group being in a tax loss position in many jurisdictions during the current financial year the
Company has not recognised current period losses and has derecognised a number of losses and deferred
tax assets recognised in prior periods.
119
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
14.
INCOME TAXES (CONTINUED)
(b) Income tax recognised directly in equity during the period
The following current and deferred amounts were charged (credited) directly to equity during the year:
Deferred tax:
Actuarial movements on defined benefit plans
(8,874)
3,088
2013
US$'000
2012
US$'000
(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
Unused tax losses and credits
(47,753)
48,727
24,161
25,135
1
(21,684)
26,069
34,946
39,331
91,649
91,649
97,486
97,486
94,299
14,765
109,064
118,801
65,794
184,595
(1) The income tax receivable for 2013 is $25,135,000 of which, $18,253,000 is classified as current tax
receivable and $6,882,000 is classified within other non-current assets.
120
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
14.
INCOME TAXES (CONTINUED)
2013
Deferred tax assets (liabilities)
temporary differences
Property, plant and equipment
Provisions
Doubtful debts
Intangibles
Share-issue expenses
Accrued liabilities
Pension
Debt and interest
Inventory
Investments in subsidiaries
Unrealised foreign exchange
Other
Unused tax losses and credits:
Tax losses
Foreign tax credits
Opening Recognised
balance
US$'000
in income differences
US$'000
US$'000
FX
(4,264)
10,414
352
(9,227)
2,448
4,540
15,275
24,386
24,496
(1,500)
42,269
9,612
118,801
22,129
43,665
184,595
39,163
5,680
(77)
(6,392)
(2,447)
(3,127)
(2,258)
(20,550)
9,183
-
(24,748)
(6,145)
(11,718)
(26,270)
(28,900)
(66,888)
3
(14)
-
13
-
(6)
(21)
(3,836)
(34)
-
-
(15)
(3,910)
-
-
(3,910)
Presented in the statement of financial position as follows:
Deferred tax asset
Deferred tax liability
Other
US$'000
Recognised Closing
balance
US$'000
in equity
US$'000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(8,874)
-
-
-
-
-
(8,874)
34,902
16,080
275
(15,606)
1
1,407
4,122
-
33,645
(1,500)
17,521
3,452
94,299
4,141
-
4,141
-
-
(8,874)
-
14,765
109,064
110,243
(1,179)
109,064
121
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
14.
INCOME TAXES (CONTINUED)
Opening Recognised
balance
US$'000
in income differences
US$'000
US$'000
FX
Other
US$'000
Recognised Closing
balance
US$'000
in equity
US$'000
2012
Deferred tax assets (liabilities)
temporary differences
Property, plant and equipment
Provisions
Doubtful debts
Intangibles
Share-issue expenses
Accrued liabilities
Pension
Debt and interest
Inventory
Investments in subsidiaries
Unrealised foreign exchange
Other
Unused tax losses and credits:
Tax losses
Foreign tax credits
(5,691)
4,162
188
(9,079)
4,935
2,590
10,156
25,562
17,616
(1,500)
38,455
11,661
99,055
33,611
9,016
42,627
1,408
6,358
169
(380)
(2,487)
2,016
2,291
(522)
7,330
-
3,814
(1,751)
18,246
(11,482)
34,649
23,167
19
(106)
(5)
232
-
(66)
(260)
(654)
(450)
-
-
(298)
(1,588)
-
-
-
141,682
41,413
(1,588)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Presented in the statement of financial position as follows:
Deferred tax asset
Deferred tax liability
Unrecognised deferred tax assets
Tax losses - revenue
Unused tax credits
Temporary differences
2013
US$'000
2012
US$'000
93,276
61,966
47,910
203,152
3,582
32,889
-
36,471
-
-
-
-
-
-
3,088
-
-
-
-
-
3,088
-
-
-
(4,264)
10,414
352
(9,227)
2,448
4,540
15,275
24,386
24,496
(1,500)
42,269
9,612
118,801
22,129
43,665
65,794
3,088
184,595
192,352
(7,757)
184,595
The Parent Entity 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.
Entities within the Australian tax-consolidated group have entered into tax-funding arrangements with the head
entity. Under the terms of the tax-funding arrangements, the tax-consolidated groups and each of the entities
within the tax-consolidated group agrees to pay a tax equivalent payment to or from the head entity, based on the
current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable or
payable to other entities in the tax-consolidated group.
122
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
14.
INCOME TAXES (CONTINUED)
The Company’s Canadian tax returns since 2005 have been subject to review by the Canada Revenue Agency
(CRA), with assessments having been issued or determined by tax years between 2005 and 2009 and field work
having commenced for tax years from 2010 through 2012. As the Company has previously reported, the most
significant contested areas of the CRA’s reviews relate to three issues: (1) the transfer pricing structure and
methodology used by Longyear Canada ULC and Boart Longyear Canada Partnership for sales of products to
international affiliates; (2) management fees paid to a United States affiliate; and (3) intellectual property royalties
paid to a United States affiliate.
2005 – 2006 Audit Period
On 23 December 2013, the Company received written notice that the CRA’s Competent Authority division had
decided to withdraw substantially all of the assessments the Company had disputed for the 2005 and 2006 tax
years. The Company is awaiting receipt of the final reduced assessments for the period from the CRA’s Audit
division and expects they will be received soon. The impact of the CRA’s decision will be the reversal of
approximately C$59,400,000 of federal taxes, penalties and interest previously assessed by the CRA and
reported by the Company in its half-year financial report.
The Company also expects that the CRA’s decision will result in the reversal of provincial tax assessments
totaling approximately C$11,000,000 for the period. As the provincial assessments were based on the same
adjustments made by the CRA, the Company anticipates the provincial reversals will be received after CRA’s
final adjustments are formally made.
As a result of the CRA and provincial assessment reversals, the security of approximately C$35,500,000
provided to support the Company’s appeals of the assessments is expected to be released.
2007 – 2009 Audit Period
The Company received income adjustments by the CRA’s Audit Division for the 2007 through 2009 tax years on
23 December 2013 and projects that those adjustments will result in proposed federal and provincial tax
liabilities, including interest and penalties, of approximately C$75,400,000.
The Company notes that the adjustments for the 2007 through 2009 audit period were determined on
substantially the same basis as the reversed assessments for the 2005 to 2006 period. The Company therefore
intends to dispute the assessments through the competent authority resolution process as well as all other
available methods of appeal. That substantially similar CRA Audit division assessments for 2005 and 2006 were
reversed in their entirety by the CRA’s Competent Authority division should provide a favourable background for
a positive and, possibly, expeditious resolution of such appeals, but the outcome and timing of any attempts to
reverse the assessments are unknown. Interest will continue to accrue on all disputed and unpaid amounts until
they are paid, or, alternatively, unless the disputes are resolved in the Company’s favor.
The Company could be required to provide security of approximately C$40,000,000 while the 2007 through 2009
reassessments are under dispute. The security would be required until the resolution of the relevant dispute.
The Company intends to seek relief from the CRA and provincial authorities from the security requirements but
the outcome of any such efforts is uncertain.
2010 – 2012 Audit Period
The CRA also has expressed its intention to audit the 2010 through 2012 taxation years in the future and recently
commenced its field work for the audit. The Company has no information about the timing to conclude the audit
or its likely outcome.
Risks in Respect of Reassessments
The Company has recorded a tax provision related to the CRA’s audits of the 2007 through 2012 tax years. The
provision reflects the uncertainties of the ongoing disputes with the CRA and has been established primarily for
any related taxes, penalties and interest. If unsuccessful in its appeal through the competent authority dispute
process, the Company would be entitled to recover taxes owed to the CRA from the jurisdictions in which those
taxes were erroneously paid. While the Company believes it is appropriately reserved in respect of the CRA tax
controversies, their resolution on terms substantially as proposed by the CRA could be material to the Company’s
financial position or results of operations.
The Company’s liquidity also could be impacted negatively by the CRA reassessments. To the extent disputes
are resolved in the CRA’s favor, the time required to recover overpayments to other jurisdictions likely would
exceed the period in which underpayments would need to be made to Canada. In addition, the amounts
provided as security to the CRA are considered outstanding debt of the Company for the purpose of calculating
the Company’s compliance with its covenants under the existing revolving bank credit facility, including for the
Maximum Total Indebtedness covenant of the amendment concluded on 22 February 2014.
123
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
15.
LOSS / EARNINGS PER SHARE
Basic (loss) earnings per share
Diluted (loss) earnings per share
Basic (loss) earnings per share
The (loss) earnings and weighted average number of ordinary shares
used in the calculation of basic (loss) earnings per share are as follows:
2013
US cents
per share
2012
US cents
per share
(136.1)
(136.1)
15.0
14.8
2013
US$'000
2012
US$'000
(Loss) earnings used in the calculation of basic EPS
(619,943)
68,164
Weighted average number of ordinary shares for the purposes of
basic (loss) earnings per share
455,508
454,862
2013
'000
2012
'000
Diluted (loss) earnings per share
The (loss) earnings used in the calculation of diluted (loss)
earnings per share are as follows:
2013
US$'000
2012
US$'000
(Loss) earnings used in the calculation of diluted EPS
(619,943)
68,164
Weighted average number of ordinary shares used in the
calculation of basic EPS
Shares deemed to be issued for no consideration in respect of
LTIP share rights
Weighted average number of ordinary shares used in the
calculation of diluted EPS
2013
'000
2012
'000
455,508
454,862
-
4,917
455,508
459,779
The following potential shares are anti-dilutive and are therefore excluded from the weighted average
number of ordinary shares for the purposes of diluted earnings per share.
Shares deemed to be issued for no consideration in respect of
LTIP share rights
2013
'000
2012
'000
1,404
-
124
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
16.
TRADE AND OTHER RECEIVABLES
Trade receivables
Allowance for doubtful accounts
Goods and services tax receivable
Other receivables
The ageing of trade receivables is detailed below:
Current
Past due 0 - 30 days
Past due 31 - 60 days
Past due 61-90 days
Past due 90 days
The ageing of impaired trade receivables is detailed below:
Current
Past due 0 - 30 days
Past due 31 - 60 days
Past due 61-90 days
Past due 90 days
2013
US$'000
2012
US$'000
151,076
(1,374)
41,110
6,100
196,912
222,248
(1,841)
35,082
5,013
260,502
2013
US$'000
2012
US$'000
105,591
23,620
6,362
7,196
8,307
151,076
156,357
45,273
7,074
6,005
7,539
222,248
2013
US$'000
2012
US$'000
-
-
-
-
-
-
-
-
(1,374)
(1,374)
(1,841)
(1,841)
The movement in the allowance for doubtful accounts in respect of trade receivables is detailed below:
Opening balance
Additional provisions
Amounts used
Amounts reversed
Foreign currency exchange differences
Closing balance
2013
US$'000
2012
US$'000
1,841
1,256
(680)
(990)
(53)
1,374
1,412
1,583
(186)
(978)
10
1,841
The average credit period on sales of goods is 60 days as at 31 December 2013, compared to 53 days as at 31
December 2012. No interest is charged on trade receivables.
The Company’s policy requires customers to pay the Company in accordance with agreed payment terms. The
Company’s settlement terms are generally 30 to 60 days from date of invoice. All credit and recovery risk
associated with trade receivables has been provided for in the statement of financial position. Trade receivables
have been aged according to their original due date in the above ageing analysis. The Company holds security
for a number of trade receivables in the form of letters of credit, deposits, and advanced payments.
125
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
16.
TRADE AND OTHER RECEIVABLES (CONTINUED)
Credit risk management
The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient
collateral, when appropriate, as a means of mitigating the risk of financial loss from defaults.
Trade receivables consist of a large number of customers, spread across diverse industries and geographical
areas. Ongoing credit evaluation is performed on accounts receivable. The Company holds security for a
number of trade receivables in the form of letters of credit, deposits, and advanced payments.
The Company does not have any significant credit risk exposure to any single counterparty or any group of
counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is
limited because the counterparties are banks with high credit ratings assigned by international credit-rating
agencies.
17.
INVENTORIES
Raw materials
Work in progress
Finished products
2013
US$'000
2012
US$'000
43,630
3,458
251,859
298,947
52,606
13,029
468,055
533,690
The Company recorded impairment provisions against inventory of $101,916,000 and $7,743,000 for the years
ended 31 December 2013 and 2012, respectively. Impairment and obsolescence provisions were $129,263,000
and $17,912,000 as at 31 December 2013 and 2012, respectively.
18.
FINANCIAL RISK MANAGEMENT
Capital risk management
The Company manages its capital to ensure that entities in the Company will be able to continue as going
concerns while maximising the return to stakeholders through the optimisation of the debt and equity balances.
The capital structure of the Company consists of debt, which includes the loans and borrowings disclosed in Note
23, cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued
capital, reserves, and accumulated losses/retained earnings as disclosed in Notes 26, 27, and 28, respectively.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis
of measurement and the basis on which income and expenses are recognised, in respect of each class of
financial asset, financial liability and equity instrument are disclosed in Note 2.
Categories of financial instruments
Financial assets
Current
Cash and cash equivalents
Trade and other receivables
Note
16
2013
US$'000
2012
US$'000
59,053
196,912
255,965
89,628
260,502
350,130
126
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
18.
FINANCIAL RISK MANAGEMENT (CONTINUED)
Financial liabilities
Current
Amortised cost:
Trade and other payables
Loans and borrowings
Non-current
Amortised cost:
Loans and borrowings
2013
US$'000
2012
US$'000
153,152
84
153,236
284,251
189
284,440
585,375
585,375
601,733
601,733
22
23
23
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. 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.
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:
Assets
Liabilities
2013
US$'000
2012
US$'000
2013
US$'000
2012
US$'000
Australian Dollar
Canadian Dollar
Euro
US Dollar
566,664
8,575
3,588
303,429
543,182
10,692
2,515
193,379
54,294
93,443
91,399
622,144
39,895
93,889
93,582
439,146
127
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
18.
FINANCIAL RISK MANAGEMENT (CONTINUED)
Foreign currency sensitivity
The Company is mainly exposed to exchange rate fluctuations in the Australian Dollar (AUD), Canadian Dollar
(CAD), Euro (EUR) and United States Dollar (USD). The Company is also exposed to translation differences as
the Company’s presentation currency is different from the functional currencies of various subsidiaries. However,
this represents a translation risk rather than a financial risk and consequently is not included in the following
sensitivity analysis.
The following tables reflect the Company’s sensitivity to a 10% change in the exchange rate of each of the
currencies listed above. This sensitivity analysis includes only outstanding monetary items denominated in
currencies other than the respective subsidiaries’ functional currencies and remeasures these at the respective
year end to reflect a 10% decrease in the indicated currency against the respective subsidiaries’ functional
currencies. A positive number indicates an increase in net profit and/or net assets.
Net profit
Net assets
Net profit
Net assets
10% change in AUD
10% change in CAD
2013
US$'000
(5,589)
(46,579)
2012
US$'000
(1,913)
(45,753)
2013
US$'000
2012
US$'000
5,211
7,715
4,614
7,563
10% change in EUR
10% change in USD
2013
US$'000
7,983
7,983
2012
US$'000
8,279
8,279
2013
US$'000
(787)
28,974
2012
US$'000
4,090
22,342
In management’s opinion, the sensitivity analysis is not fully representative of the inherent foreign exchange risk
as the year-end exposure may not reflect the exposure during the course of the year.
Forward foreign exchange contracts
There were no open forward foreign currency contracts as of 31 December 2013 or 2012.
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, from time to time, by the use of interest rate swap contracts. There are no
interest rate swaps as of 31 December 2013 (2012 : nil). 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 not increase/decrease (2012: increase/decrease by $3,080,000)
all of which is attributable to the Company’s exposure to interest rates on its variable-rate borrowings. The
Company had no variable-rate borrowings as of 31 December 2013.
128
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
18.
FINANCIAL RISK MANAGEMENT (CONTINUED)
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Company’s Treasurer and Board. The
Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecasted and actual cash flows and matching the maturity profiles of
financial assets and liabilities. Included in Note 23 is a list of undrawn facilities that the Company has at its
disposal to further reduce liquidity risk.
See Note 2 for additional discussion regarding going concern and liquidity risk.
Liquidity and interest risk
The following tables reflect the expected maturities of non-derivative financial liabilities as at 31 December 2013.
These are based on the undiscounted expected cash flows of financial liabilities based on the maturity profile per
the loan agreement. The table includes both interest and principal cash flows. The adjustment column
represents the possible future cash flows attributable to the instrument included in the maturity analysis which are
not included in the carrying amount on the balance sheet.
Weighted
average
effective
interest
rate
%
Less
than
1 to 3
1 month months
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
1 - 5 years 5+ years
Adjust-
ment
Total
US$'000
3 months
to
1 year
31 December 2013
Non-interest bearing
payables
Finance lease liability
Variable interest rate
instruments
Fixed interest rate
instruments
31 December 2012
Non-interest bearing
payables
Finance lease liability
Variable interest rate
instruments
Fixed interest rate
instruments
8.1%
126,632
8
26,520
16
-
-
-
-
70
-
2
-
-
-
-
-
-
(8)
153,152
88
-
-
8.5%
4,250
130,890
8,500
35,036
38,250
38,320
496,603
496,605
347,351
347,351
(294,954)
(294,962)
600,000
753,240
8.0%
184,376
17
99,875
35
-
157
-
67
2.1%
538
1,075
4,839
321,770
-
-
-
-
(23)
284,251
253
(20,222)
308,000
7.0%
1,750
186,681
3,500
104,485
15,750
20,746
84,000
405,837
368,351
368,351
(173,351)
(193,596)
300,000
892,504
129
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
18.
FINANCIAL RISK MANAGEMENT (CONTINUED)
Liquidity and interest risk (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.
2013
Non-interest bearing
receivables
Cash
2012
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
77,275
59,053
136,328
76,035
43,602
-
-
76,035
43,602
196,912
59,053
255,965
144,575
89,628
234,203
110,840
-
110,840
5,087
-
5,087
260,502
89,628
350,130
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.
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 materially approximate their fair values, except for the Company’s senior secured
notes that are trading below their carrying value.
130
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
19.
PROPERTY, PLANT AND EQUIPMENT
Land and
Buildings
US$'000
Plant and
Equipment
US$'000
Construction
in Progress
US$'000
Balance at 1 January 2012
Additions
Disposal
Transfers to assets held for sale
Transfer to/from CIP
Transfer from intangible assets
Currency movements
Balance at 1 January 2013
Additions
Disposal
Transfer to/from CIP
Transfer from intangible assets
Currency movements
Balance at 31 December 2013
Accumulated depreciation and impairment:
Balance at 1 January 2012
Depreciation
Impairment
Disposal
Transfer to held for sale
Currency movements
Balance at 1 January 2013
Depreciation
Impairment
Disposal
Currency movements
Balance at 31 December 2013
Net book value at 31 December 2012
Net book value at 31 December 2013
61,276
8,963
(2,462)
(143)
7,935
-
(128)
75,441
678
(9,360)
3,055
22
(2,786)
67,050
(11,098)
(3,321)
(1,867)
2,222
76
(4)
(13,992)
(3,276)
(5,561)
503
1,444
(20,882)
61,449
46,168
721,494
106,333
(26,056)
(53,069)
188,166
1,179
11,101
949,148
5,521
(25,686)
36,275
2,336
(85,434)
882,160
(374,326)
(107,670)
(4,297)
22,130
34,477
(8,025)
(437,711)
(108,179)
(100,607)
20,385
59,544
(566,568)
511,437
315,592
Total
US$'000
893,655
256,639
(28,518)
(53,712)
-
1,179
11,151
1,080,394
38,601
(35,046)
-
1,267
(89,455)
995,761
(385,424)
(110,991)
(6,164)
24,352
34,553
(8,029)
(451,703)
(111,455)
(106,168)
20,888
60,988
(587,450)
110,885
141,343
-
(500)
(196,101)
-
178
55,805
32,402
-
(39,330)
(1,091)
(1,235)
46,551
-
-
-
-
-
-
-
-
-
-
-
-
55,805
46,551
628,691
408,311
The net book value of property, plant and equipment at 31 December 2013 and 2012 includes amounts of $5,142,000
and $6,107,000, respectively, related to assets held under finance leases.
Property, plant and equipment is reviewed at each reporting date to determine whether there is any indication of
impairment. Due to the decline in demand for our drilling services and low rig utilisation rates, the Company made
estimates associated with the asset’s recoverable amount. As a result of this exercise, the Company recorded an
impairment loss at 31 December 2013 and 31 December 2012 of $109,908,000 and $5,960,000 respectively on
property, plant and equipment, including assets held for sale. See Note 10 for details of other assumptions used as
part of this impairment testing.
131
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
20.
GOODWILL
Gross carrying amount:
Balance at 1 January 2012
Impairment loss
Currency movements
Balance at 31 December 2012
Balance at 1 January 2013
Impairment loss
Currency movements
Balance at 31 December 2013
Goodwill by cash-generating units
US$'000
294,063
(6,839)
3,562
290,786
290,786
(166,313)
(20,499)
103,974
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:
North America Drilling Services
Latin America Drilling Services
Asia Pacific Drilling Services
2013
US$'000
103,974
-
-
103,974
2012
US$'000
105,367
26,348
159,071
290,786
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 goodwill is impaired, it is written down to its recoverable amount.
The Company performed goodwill impairment tests at 30 June 2013 and at 31 December 2013 and has
recognised an impairment loss of $166,313,000 due to the most recent financial performance of various cash-
generating units as well as the expected financial performance of the business, as described further in Note 10.
Goodwill Impairment by cash-generating units
Argentina
Australia
Chile
Mexico
New Zealand
United States of America
2013
US$'000
2012
US$'000
12,226
139,751
12,776
-
1,560
-
166,313
-
-
-
5,060
-
1,779
6,839
Goodwill and intangible assets in Australia, New Zealand, Chile and Argentina have been fully impaired as at 31
December 2013. For the cash-generating units with remaining goodwill and intangible assets, being USA and
Canada, there could be potential impairments under certain changes in key assumptions, as described further in
Note 10.
132
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
21.
OTHER INTANGIBLE ASSETS
Gross carrying amount:
Balance at 1 January 2012
Additions
Disposals
Transfer to PP&E
Transfers to held for sale
Currency movements
Balance at 31 December 2012
Balance at 1 January 2013
Additions
Transfer to PP&E
Currency movements
Balance at 31 December 2013
Accumulated amortisation:
Balance at 1 January 2012
Amortisation for the period
Disposals
Transfers to held for sale
Impairment for the period
Currency movements
Balance at 31 December 2012
Balance at 1 January 2013
Amortisation for the period
Impairment for the period
Currency movements
Balance at 31 December 2013
Trademarks Patents
US$'000
US$'000
Customer
relationships
and other
US$'000
Develop-
ment
Software
assets
US$'000 US$'000 US$'000
Total
3,884
340
(163)
-
-
(78)
3,983
3,983
164
-
-
4,147
(1,433)
-
163
-
-
-
(1,270)
(1,270)
-
-
-
(1,270)
4,672
1,071
-
-
-
200
5,943
5,943
1,368
-
-
7,311
(1,114)
(395)
-
-
-
2
(1,507)
(1,507)
(283)
-
-
(1,790)
60,863
1,360
(6,253)
-
-
1,267
57,237
57,237
-
-
(4,352)
52,885
(25,624)
(6,147)
6,253
-
(3,446)
(1,096)
(30,060)
(30,060)
(4,044)
(9,090)
3,240
(39,954)
70,980
16,413
(3,871)
-
-
(2,599)
80,923
80,923
5,369
-
(36)
86,256
(13,667)
(9,200)
3,871
-
(3,647)
(213)
(22,856)
(22,856)
(13,976)
-
23
(36,809)
35,088
14,291
-
(1,179)
(588)
(222)
47,390
47,390
3,691
(1,267)
(2,904)
46,910
(3,806)
(710)
-
175
(8,461)
1,177
(11,625)
(11,625)
(966)
(13,822)
755
(25,658)
175,487
33,475
(10,287)
(1,179)
(588)
(1,432)
195,476
195,476
10,592
(1,267)
(7,292)
197,509
(45,644)
(16,452)
10,287
175
(15,554)
(130)
(67,318)
(67,318)
(19,269)
(22,912)
4,018
(105,481)
Net book value at 31 December 2012
Net book value at 31 December 2013
2,713
2,877
4,436
5,521
27,177
12,931
58,067
49,447
35,765
21,252
128,158
92,028
As part of the Company’s impairment testing at 30 June 2013 and at 31 December 2013 it has recognised an
intangible asset impairment loss of $9,090,000 due to the most recent financial performance of various cash-
generating units as well as the expected financial performance of the business. In its impairment assessment, the
Company assumes the recoverable amount based on a value-in-use calculation. Cash flow projections are 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. See Note 10
for details of other assumptions used as part of this impairment testing.
The Company has reassessed the carrying value of certain development assets relating to its Global Products
business. The review led to the recognition of an impairment loss of $13,822,000, which has been recognised in
the consolidated statement of comprehensive income. In its impairment assessment, the Company assumes the
recoverable amount based on a value-in-use calculation.
The Company recognised $8,427,000 of research and development expenses in the consolidated statement of
comprehensive income for the year ended 31 December 2013 (2012: $13,201,000).
133
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
22.
TRADE AND OTHER PAYABLES
Current
Trade payables
Accrued payroll and benefits
Goods and services tax payable
Accrued drilling costs
Accrued legal and environmental
Accrued interest
Professional fees
Other sundry payables and accruals
2013
US$'000
2012
US$'000
68,962
22,685
17,017
3,518
9,596
13,091
5,822
12,461
153,152
160,076
46,928
27,105
4,916
7,468
5,632
6,067
26,059
284,251
The average credit period on purchases of certain goods is 31 days (2012: 43 days). No interest is charged on the
trade payables for this period. Thereafter, various percentages of interest may be charged on the outstanding
balance based on the terms of the specific contracts. The Company has financial risk management policies in place
to ensure that all payables are paid within the credit timeframe.
134
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
23.
LOANS AND BORROWINGS
Unsecured - at amortised cost
Non-current
Senior notes
Revolver bank loans
Debt issuance costs
Secured - at amortised cost
Current
Finance lease liabilities
Non-current
Senior Notes
Revolver bank loans
Debt issuance costs
Finance lease liabilities
Disclosed in the financial statements as:
Current borrowings
Non-current borrowings
A summary of the maturity of the Company's borrowings is as follows:
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
More than 4 years
Debt issuance costs
2013
US$'000
2012
US$'000
300,000
-
(4,219)
300,000
308,000
(6,331)
84
189
300,000
-
(10,410)
4
585,459
84
585,375
585,459
84
4
-
-
600,000
600,088
(14,629)
585,459
-
-
-
64
601,922
189
601,733
601,922
189
64
-
308,000
300,000
608,253
(6,331)
601,922
135
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
23.
LOANS AND BORROWINGS (CONTINUED)
Senior notes
The Company has $300,000,000 of senior unsecured notes at an interest rate of 7% with a scheduled maturity date
of 1 April 2021. 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. Obligors for the senior notes are the
Company’s Australian, Canadian, United States and Swiss subsidiaries.
On 28 September 2013, the Company issued $300,000,000 of senior secured notes at an interest rate of 10% with a
scheduled maturity date of 1 October 2018. Approximately $296,000,000 of the net proceeds was used to
substantially repay borrowings under the Company’s 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. Obligors for the senior notes are the Company’s Australian, Canadian, United
States, Chilean, Peruvian and Swiss subsidiaries. The secured notes are secured by a first priority lien on
substantially all of the issuer’s and the guarantors’ tangible and intangible assets, including the outstanding capital
stock held by the Company, the issuer and the guarantors, and by certain owned real property and will also be
secured by a second priority lien on the issuer’s and the guarantors’ accounts receivable, inventories and cash.
Bank Credit Facility
The Company’s bank credit facility provides a $140,000,000 secured revolving bank loan, of which up to
$120,000,000 is available in the form of revolving loans or letters of credit with the remaining $20,000,000 being
available only for the issuance of letters of credit. The revolving bank loan was decreased from a committed amount
of $450,000,000 on 28 September 2013. The committed amount was increased from $350,000,000 to $450,000,000
on 15 February 2013.
In June 2013, the Company amended the facility to increase the maximum leverage covenant for certain covenant
testing periods. The June 2013 amendment increased the maximum leverage ratio of gross-debt-to-EBITDA to 4.0:1
at 30 June 2013, 4.75:1 at 31 December 2013 and 30 June 2014, and 4.0:1 at 31 December 2014 and 30 June 2015.
The maximum leverage ratio for subsequent compliance testing dates until the 29 July 2016 maturity date is
3.5:1. According to the June 2013 amendment, the revolver commitment was to be permanently reduced to
$425,000,000 on 15 June 2014, $400,000,000 on 15 August 2014, $375,000,000 on 15 June 2015 and $350,000,000
on 15 August 2015. Additional material changes to the terms of the credit facility included the Company’s agreement
to provide security to its lenders over a range of its assets as well as an increase in the Company’s borrowing rates.
Lenders under the revolving credit facility have a first priority security interest in accounts receivable, inventories,
cash and related assets and a second priority security interest in substantially all other tangible and intangible assets,
including subsidiaries’ outstanding capital stock, and in certain owned real property
On 28 September 2013, the company amended the facility to eliminate the existing maximum gross-debt-to-EBITDA
leverage ratio covenant and adjust the minimum interest coverage covenant to a ratio of 1.55 to 1.0, which is tested
quarterly. The amendment also adds covenants requiring maintenance of at least $30,000,000 in liquidity and a
minimum asset coverage ratio of 1.25 to 1.0, both tested monthly.
As described in Note 38 (subsequent events), effective 22 February 2014, the Company has negotiated a further
amendment of the credit facility.
Although none of the $120,000,000 bank credit facility commitment available in the form of revolving loan was drawn
as at 31 December 2013, there were outstanding letters of credit of $10,392,000 as at 31 December 2013. As of 31
December 2012, $308,000,000 of the $350,000,000 bank credit facility commitment was drawn. 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. $288,000,000 of the borrowings as at 31 December 2012, were based on 30-day LIBOR
at the time of draws (between 0.210% and 0.215%) plus a margin of 1.75%, for a weighted average interest rate of
1.96% for 31 December 2012. $20,000,000 of the borrowings as at 31 December 2012 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.
Outstanding letters of credit of $10,392,000 as at 31 December 2013 and $2,305,000 31 December 2012 reduce the
amount available to draw under the bank credit facility commitments.
136
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
23.
LOANS AND BORROWINGS (CONTINUED)
Covenants and other material terms – bank credit facility and senior notes
The Company’s revolver contains 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. This
includes maintaining a minimum interest coverage covenant to a ratio of 1.55 to 1.0, tested quarterly, maintenance of
at least $30,000,000 in liquidity tested monthly and a minimum asset coverage ratio of 1.25 to 1.0 tested monthly.
The agreement also requires that borrowers and guarantors represent at least 60% of Company EBITDA and total
tangible assets of the Company. The Company amended several key terms of its bank debt facility effective 22
February 2014. See Note 38 for details of the amendment.
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 31 for a list of subsidiary guarantors which guarantee one or more of the debt facilities. Testing of the
interest coverage covenant compliance takes place quarterly for the trailing 3 month period. Testing of the liquidity
and asset coverage covenant compliance takes place monthly. 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 2013 and 2012 as well as
30 June 2013 and 2012.
With respect to the senior notes issued by the Company, the indenture governing those senior notes includes
covenants that restrict the Company’s ability to engage in certain activities, including incurring additional
indebtedness and making certain restricted payments as well as a limitation on the amount of secured debt the
Company may incur. The senior notes contain certain provisions similar to the bank revolver but do not require
maintenance or testing of financial ratios, such as for leverage and interest cover.
Finance leases
The Company’s 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 7.65% to 9.0%, with
repayment periods not exceeding two years.
24.
PROVISIONS
Current
Employee benefits
Restructuring and termination costs 1
Warranty 2
Onerous leases
Non-current
Employee benefits
Pension and post-retirement benefits (Note 25)
Onerous leases
2013
US$'000
2012
US$'000
13,802
14,235
293
4,933
33,263
2,171
32,284
2,729
37,184
70,447
22,018
8,765
223
5,265
36,271
3,753
80,422
3,459
87,634
123,905
137
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
24.
PROVISIONS (CONTINUED)
The changes in the provisions for the year ended 31 December 2013 are as follows:
Restructuring
and termination
costs 1
US$'000
Warranty 2
US$'000
Onerous
lease costs 3
US$'000
Balance at 1 January 2013
Additional provisions recognised
Reductions arising from payments
Reductions resulting from remeasurement
Foreign exchange
Balance at 31 December 2013
8,765
18,118
(10,936)
(1,384)
(328)
14,235
223
382
(211)
(93)
(8)
293
8,724
5,029
(2,903)
(2,361)
(827)
7,662
(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.
(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.
(3) Includes current and non-current.
25.
PENSION AND POST-RETIREMENT BENEFITS
The Company provides defined contribution and defined benefit pension plans for the majority of its employees. It
also provides post-retirement medical arrangements in North America. The policy for accounting for pensions and
post-retirement benefits is included in Note 2(l).
Post-retirement medical commitments
The post-retirement medical arrangements provide health benefits to retired employees and certain dependents.
Eligibility for coverage is dependent upon certain criteria. Historically, most of these plans were unfunded and had
been provided for by the Company. In August 2013, the Company made the decision to terminate the US retiree
medical program. Effective 1 January 2014 retiree medical coverage is no longer offered to newly retiring US
employees. Effective 1 March 2014 retirees and dependents over age 65 lose retiree medical coverage. The
Company has partnered with a Towers Watson company, Extend Health, to provide benefit advisory services to
Medicare-eligible retirees who desire replacement coverage on the open market. Effective 31 December 2014
retirees and dependents under age 65 lose retiree medical coverage. They are eligible to transition to the US federal
healthcare exchange for medical insurance. As a result of the changes described above, the Company has recorded
a gain of $16,871,000 for the year ended 31 December 2013.
Defined contribution plans
Pension costs represent actual contributions paid or payable by the Company to the various plans. At 31 December
2013, and 2012, there were no significant outstanding/prepaid contributions. Company contributions to these plans
were $16,627,000 and $23,863,000 for the years ended 31 December 2013 and 2012, respectively.
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.
138
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
Defined benefit pension plans
Full actuarial valuations of the defined benefit pension plans were performed as of various dates and updated to 31
December 2013 by qualified independent actuaries. The estimated market value of the assets of the funded pension
plans was $194,937,000 and $191,207,000 at 31 December 2013, and 2012, respectively. The market value of
assets was used to determine the funding level of the plans. The market value of the assets of the funded plans was
sufficient to cover 88% in 2013 and 77% in 2012, 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.
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.
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 $6,844,000 and $11,065,000 during the years ended 31 December 2013
and 2012, respectively. Contributions in 2014 are expected to be $8,697,000.
The principal assumptions used to determine the actuarial present value of benefit obligations and pension costs are
detailed below (shown in weighted averages):
Discount rates
Expected average rate of increase
2013
2012
North
America
4.7%
Europe
3.4%
North
America
4.0%
Europe
3.4%
in salaries
3.5%
4.0%
3.5%
4.0%
Expected average rate of increase
of pensions in payment
Expected average increase
in healthcare costs (initial)
Expected average increase
6.8%
in healthcare costs (ultimate)
5.0%
-
1.8%
-
1.5%
-
-
7.4%
5.0%
-
-
139
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
Amounts recognised in profit or loss in respect of these defined benefit plans are as follows:
2013
Post-
Pension retirement
plan medical plan
US$'000
US$'000
1,359
2,172
(222)
1,246
797
(16,871)
Total
US$'000
2,605
2,969
(17,093)
Pension
plan
US$'000
2,096
(864)
(207)
2012
Post-
retirement
medical plan
US$'000
940
843
Total
US$'000
3,036
(21)
(207)
3,309
(14,828)
(11,519)
1,025
1,783
2,808
Current service cost
Net Interest Expense
Past service cost
Total charge (credit) to profit
and loss account
Effect of Standard change on
Expected return on plan assets 1
Adjusted total charge (credit) to profit
and loss account
3,077
4,102
-
3,077
1,783
5,885
(1) During the year, the Company implemented the amendments to AASB119 ‘Employee Benefits’ which required
changes to the calculation of the net defined benefit liability and pension expense and requires retroactive
restatement of the periods presented. As this application of this standard did not have a significant impact on
the Company’s financial results or consolidated statement of financial position, the Company decided to show
the effect of restatement in this note and not restate the 2012 financial results and statement of financial
position.
For the financial years ended 31 December 2013 and 2012, charges of approximately $4,218,000 and $2,608,000,
respectively, have been included in cost of goods sold and the remainder in general and administrative or sales and
marketing expenses.
The following amounts have been recognised in the statement of comprehensive income.
2013
Post-
Pension retirement
plan medical plan
US$'000
US$'000
Total
US$'000
Pension
plan
US$'000
2012
Post-
retirement
medical plan
US$'000
Total
US$'000
Actuarial (gains) losses
during the year, net of taxes
(17,404)
(1,730)
(19,134)
1
15,864
496
16,360
Effect of Standard change 2
Adjusted actuarial (gains) losses
during the year, net of taxes
(1,910)
-
(1,910)
13,954
496
14,450
(1) Amount is the gross actuarial gain of $28,008,000 less $8,874,000 tax.
(2) During the year, the Company implemented the amendments to AASB119 ‘Employee Benefits’ which required
changes to the calculation of the net defined benefit liability and pension expense and requires retroactive
restatement of the periods presented. As this application of this standard did not have a significant impact on the
Company’s financial results or consolidated statement of financial position, the Company decided to show the
effect of restatement in this note and not restate the 2012 financial results and statement of financial position.
140
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The amount included in the provisions on the balance sheet arising from the Company’s obligations in respect of
defined benefit plans is as follows:
2013
Post-
Pension retirement
plan medical plan
US$'000
US$'000
2012
Post-
retirement
Pension
Total
US$'000
plan medical plan
US$'000
US$'000
Total
US$'000
220,594
(194,937)
25,657
-
-
-
220,594
(194,937)
25,657
246,789
(191,207)
55,582
-
-
-
246,789
(191,207)
55,582
5,770
31,427
857
857
6,627
32,284
5,742
61,324
19,098
19,098
24,840
80,422
31,427
857
32,284
61,324
19,098
80,422
Present value of funded defined
benefit obligations
Fair value of plan assets
Present value of unfunded defined
benefit obligations
Deficit
Net liability arising from defined
benefit obligations
Changes in the present value of the defined benefit obligations were as follows:
2013
Post-
2012
Post-
Pension retirement
plan medical plan
US$'000
US$'000
Total
US$'000
Pension retirement
plan medical plan
US$'000
US$'000
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from plan participants
Actuarial (gains) losses
Assets distributed on settlements
Past service cost
Exchange differences on foreign plans
Benefits paid
Federal subsidy on benefits paid
Closing defined benefit obligation
252,531
1,359
9,409
-
(10,821)
(10,340)
(222)
(4,383)
(11,169)
-
226,364
19,098
1,246
797
367
(2,663)
-
(16,871)
(33)
(1,162)
78
857
271,629
2,605
10,206
367
(13,484)
(10,340)
(17,093)
(4,416)
(12,331)
78
227,221
225,616
2,096
10,199
-
23,264
-
(207)
4,077
(12,514)
-
252,531
17,238
940
843
423
799
-
-
15
(1,279)
119
19,098
Total
US$'000
242,854
3,036
11,042
423
24,063
-
(207)
4,092
(13,793)
119
271,629
141
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
Changes in the fair value of plan assets were as follows:
2013
Post-
Pension retirement
plan medical plan
US$'000
US$'000
Total
US$'000
Opening fair value plan of assets
Interest Income
Actuarial gains
Assets distributed on settlements
Exchange differences on foreign plans
Contributions from the employer
Distribution of assets from settled plan
Contributions from plan participants
Benefits paid
Closing fair value of plan assets
191,207
7,237
14,524
(9,619)
(4,087)
6,844
-
(11,169)
194,937
-
-
-
-
-
795
367
(1,162)
-
Post-
191,207
7,237
14,524
(9,619)
(4,087)
7,639
-
367
(12,331)
194,937
2012
Pension retirement
plan medical plan
US$'000
US$'000
Total
US$'000
Opening fair value plan of assets
Interest Income
Actuarial gains
Assets distributed on settlements
Exchange differences on foreign plans
Contributions from the employer
Distribution of assets from settled plan
Contributions from plan participants
Benefits paid
Closing fair value of plan assets
173,776
11,063
4,615
3,202
11,065
-
-
(12,514)
191,207
-
-
-
-
856
-
423
(1,279)
-
173,776
11,063
4,615
-
3,202
11,921
-
423
(13,793)
191,207
Effect of
Standard
Change
US$'000 1
-
(3,077)
3,077
-
-
-
-
-
-
-
Total
US$'000
173,776
7,986
7,692
-
3,202
11,921
-
423
(13,793)
191,207
(1) During the year, the Company implemented the amendments to AASB119 ‘Employee Benefits’ which required
changes to the calculation of the net defined benefit liability and pension expense and requires retroactive
restatement of the periods presented. As this application of this standard did not have a significant impact on the
Company’s financial results or consolidated statement of financial position, the Company decided to show the
effect of restatement in this note and not restate the 2012 financial results and statement of financial position.
142
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The allocation of the plan assets for each asset class at the balance sheet date are as follows:
North America
Fair
value
US$'000
2013
Europe
Fair
value
US$'000
82,211
47,376
2,787
2,787
2,787
1,392
139,340
19,459
34,470
1,112
556
-
-
55,597
North America
Fair
value
US$'000
2012
Europe
Fair
value
US$'000
81,124
55,782
-
4,302
338
141,546
17,749
30,116
1,319
403
74
49,661
Total
fair value
US$'000
101,670
81,846
3,899
3,343
2,787
1,392
194,937
Total
fair value
US$'000
98,873
85,898
1,319
4,705
412
191,207
At 31 December 2013
Equity
Bonds
Property
Cash
Structured Debt
Other
At 31 December 2012
Equity
Bonds
Property
Cash
Other
The pension and post retirement deficit by geographic region are as follows:
31 December 2013
31 December 2012
North
America
Europe
Total
North
America
Europe
Total
Post-retirement medical
plan deficit
Pension plan
deficit
Total deficit
857
-
857
19,098
-
19,098
10,006
10,863
21,421
21,421
31,427
32,284
36,625
55,723
24,699
24,699
61,324
80,422
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 $0 (nil) and $1,389,000 at 31 December 2013 and
2012, respectively. The expense was reduced by approximately $87,000 and $53,000 at 31 December 2013 and
2012, respectively.
143
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
2013
Post-
retirement
Pension
plan medical plan
US$'000
US$'000
Total
US$'000
2012
Post-
retirement
medical plan
US$'000
Total
US$'000
Pension
plan
US$'000
194,937
-
194,937
191,207
-
191,207
(226,364)
(31,427)
(857)
(857)
(227,221)
(32,284)
(252,531)
(61,324)
(19,098)
(19,098)
(271,629)
(80,422)
3,377
1,360
4,737
3,341
14,524
-
14,524
4,615
1
3,077
7,692
-
-
-
-
3,341
4,615
3,077
7,692
Fair value of plan assets
Present value of
defined benefit obligation
Deficit
Experience adjustments
on plan liabilities
Experience adjustments
on plan assets
Effect of Standard change 1
Adjusted experience adjustments
on plan assets
(1) During the year, the Company implemented the amendments to AASB119 ‘Employee Benefits’ which required
changes to the calculation of the net defined benefit liability and pension expense and requires retroactive
restatement of the periods presented. As this application of this standard did not have a significant impact on the
Company’s financial results or consolidated statement of financial position, the Company decided to show the
show the effect of restatement in this note and not restate the 2012 financial results and statement of financial
position.
2011
Post-
Pension retirement
plan medical plan
US$'000
US$'000
Total
US$'000
Pension
plan
US$'000
2010
Post-
retirement
medical plan
US$'000
Total
US$'000
173,776
-
173,776
194,620
-
194,620
(225,616)
(51,840)
(17,238)
(17,238)
(242,854)
(69,078)
(209,750)
(15,130)
(14,879)
(14,879)
(224,629)
(30,009)
141
85
226
(643)
106
(537)
(8,520)
-
(8,520)
3,867
-
3,867
Fair value of plan assets
Present value of
defined benefit obligation
Deficit
Experience adjustments
on plan liabilities
Experience adjustments
on plan assets
144
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
2009
Post-
Pension retirement
plan medical plan
US$'000
US$'000
Total
US$'000
178,854
-
178,854
(193,355)
(14,501)
(10,488)
(10,488)
(203,843)
(24,989)
(570)
(166)
(736)
13,345
-
13,345
Fair value of plan assets
Present value of
defined benefit obligation
Deficit
Experience adjustments
on plan liabilities
Experience adjustments
on plan assets
Assumed healthcare cost trend rates have a significant effect on the amounts recognised in profit or loss. A one
percentage point change in assumed healthcare cost trend rates would have the following effects:
One percentage point increase
Effect on the aggregate of the service cost and interest cost
Effect on accumulated post-employment benefit obligation
One percentage point decrease
Effect on the aggregate of the service cost and interest cost
Effect on accumulated post-employment benefit obligation
2013
US$'000
2012
US$'000
307
28
254
2,462
(257)
(28)
(216)
(2,072)
26.
ISSUED CAPITAL
2013
2012
Shares
'000
US$'000
Shares
'000
US$'000
Share capital
Ordinary shares, fully paid
456,955
1,129,014
454,710
1,122,189
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
454,710
2,245
-
1,122,189
6,825
-
456,955
1,129,014
455,755
1,597
(2,642)
454,710
1,128,923
2,435
(9,169)
1,122,189
Total shares outstanding
Shares held in trust
Balance at end of the year
461,163
(4,208)
456,955
1,148,245
(19,231)
1,129,014
461,163
(6,453)
454,710
1,146,804
(24,615)
1,122,189
145
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
27.
RESERVES
Foreign currency translation
Equity-settled employee benefits
2013
US$'000
(45,973)
8,661
(37,312)
2012
US$'000
56,658
14,256
70,914
During the years ended 31 December 2013 and 2012, 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
2013
US$'000
56,658
(102,631)
(45,973)
2012
US$'000
50,334
6,324
56,658
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
2013
US$'000
2012
US$'000
14,256
1,230
(6,825)
8,661
9,333
7,358
(2,435)
14,256
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.
28.
ACCUMULATED LOSSES / RETAINED EARNINGS
During the years ended 31 December 2013 and 2012, the changes in retained earnings consist of:
Balance at beginning of year
Profit for the period attributable
to equity holders of the Parent
Dividends paid
Actuarial gains (losses) on defined benefit
plans (net of tax)
Balance at end of year
2013
US$'000
2012
US$'000
79,496
83,032
(619,943)
(4,612)
19,134
(525,925)
68,164
(55,340)
(16,360)
79,496
146
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
29.
DIVIDENDS
Dividends declared and paid during the year ended 31 December 2013 are as follows:
Fully paid ordinary shares
Final 2012 dividend 35% franked
Fully paid ordinary shares
Final 2011 dividend 15% franked
Interim 2012 dividend 15% franked
2013
US cents per
share
Total
US$'000
1.0
4,612
2012
US cents per
share
Total
US$'000
5.6
6.4
12.0
25,826
29,514
55,340
No dividend had been determined for either of the half-years ended 30 June 2013 or 31 December 2013.
Below is the combined amount of franking credits available for the next year:
Adjusted combined franking balance
2013
US$'000
2012
US$'000
4,295
7,853
30.
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
511
10,857
2013
US$'000
2012
US$'000
147
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
30.
COMMITMENTS FOR EXPENDITURE (CONTINUED)
Non-cancellable future operating lease commitments as at 31 December 2013 and 2012 consist of the following:
Payments due within:
1 year
2 to 5 years
After 5 years
31 December 2013
31 December 2012
Land and
buildings
US$'000
Plant and
equipment
US$'000
Land and
buildings
US$'000
Plant and
equipment
US$'000
12,556
25,406
4,156
42,118
6,467
2,034
21
8,522
15,603
32,483
6,740
54,826
12,086
11,601
-
23,687
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 four years
· 1 – 6 years for machinery and equipment with an average lease term of five 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.
31.
CONTINGENT LIABILITIES
Letters of credit
Standby letters of credit primarily issued in support of commitments or other obligations as at 31 December 2013 are
as follows:
Expiration
Date
Purpose
Secure a performance bond
Secure a facility rental
Secure a facility rental
Secure a surety bond
Secure a performance bond
Secure workers compensation program January 2014
Support Products inventory
February 2015
August 2015
March 2015
August 2014
July 2016
December 2014
Amount
US $'000
772
100
171
5,032
2,012
405
1,900
10,392
Subsidiary
Australia
Australia
Australia
Canada
Chile
United States
Zambia
148
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
31.
CONTINGENT LIABILITIES (CONTINUED)
A summary of the maturity of issued letters of credit is as follows:
Less than 1 year
1 to 3 years
Guarantees
2013
US$'000
2012
US$'000
7,337
3,055
10,392
2,305
-
2,305
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. See Note 23.
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
Boart Longyear Manufacturing Canada Ltd.
Longyear Holdings, Inc.
Longyear TM, Inc.
Boart Longyear Manufacturing USA, Inc.
Boart Longyear Company
Boart Longyear Limited
Boart Longyear Management Pty Limited
Votraint No. 1609 Pty Limited
Boart Longyear Australia Pty Limited
Switzerland
Boart Longyear Suisse Sarl
Peru
Chile
Legal contingencies
Boart Longyear S.A.C.
Boart Longyear Comercializadora Limitada
Boart Longyear Chile Limitada
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.
149
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
31.
CONTINGENT LIABILITIES (CONTINUED)
Tax and customs audits
The Company is subject to certain tax and customs audits that arise in the normal course of its
business. Management believes that the ultimate amount of liability, if any, for any pending assessments (either
alone or combined) would not materially affect the Company’s operations, liquidity, or financial position taken as a
whole. However, the ultimate outcome of these audits are uncertain, and unfavourable outcomes could have a
material adverse impact. See additional disclosure in Note 14.
The Zambian Revenue Authority (ZRA) completed a customs clearance audit in January 2013 and issued a proposed
assessment (assessment) of $9,900,000 against Boart Longyear International Zambia Limited, a fully owned
subsidiary of the Company. The Company has already paid $200,000 to resolve some aspects of the assessment.
The balance of the assessment primarily relates to the ZRA’s contentions that: (1) the declared value of imported
goods was not accurate and was less than actual value; and (2) goods destined for other countries stored in a
Zambian bonded warehouse did not exit the country within the legally stipulated period of time.
The ZRA’s assessment was based on an extrapolation of findings from a sample of transactions. The Company
performed its own detailed analysis of the transactions, with the results showing there is some substance to the
ZRA’s claims but that the potential liability amount to be considerably less than the assessment. The Company has
shared those findings with the ZRA in a series of discussions resulting in ZRA informally reducing its assessment in a
substantial manner. The Company still disagrees with the ZRA’s revised informal assessment and will continue to
work with the ZRA to share the appropriate data supporting its detailed analysis. The Company expects additional
discussions with the ZRA to attempt to resolve the open areas and believes it is appropriately reserved in respect to
this matter.
Other contingencies
Other contingent liabilities as at 31 December 2013 and 2012 consist of the following:
Contingent liabilities
Guarantees/counter-guarantees to outside parties
46,989
30,154
2013
US$'000
2012
US$'000
Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements,
net of any allowances for losses, represents the Company’s maximum exposure to credit risk without taking account
of the value of any collateral obtained. See Note 18.
Financial assets and other credit exposures
Maximum credit risk
2013
US$'000
2012
US$'000
Performance guarantees provided, including letters of credit
57,381
32,459
150
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
32.
PARENT ENTITY DISCLOSURES
Financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net Assets
Equity
Issued capital
Reserves
(Accumulated losses) Retained earnings
Total equity
Financial performance
(Loss) profit for the year
Other comprehensive income
Total comprehensive (loss) income
2013
US$'000
2012
US$'000
844,962
142,354
987,316
821,946
1,330,440
2,152,386
146,013
582
146,595
840,721
149,574
1,238
150,812
2,001,574
2,887,901
253
(2,047,433)
840,721
2,886,462
464
(885,352)
2,001,574
2013
US$'000
2012
US$'000
(1,157,469)
(859,732)
-
-
(1,157,469)
(859,732)
During the year ended 31 December 2013, Boart Longyear Limited recorded a provision against intercompany
accounts of $1,200,000,000 ($900,000,000 for 31 December 2012). This provision has no impact on the
consolidated financial statements.
Guarantees entered into by the parent entity in relation to debts of its subsidiaries
Other guarantees are described in Note 31.
Contingent liabilities
As at 31 December 2013 and 2012 Boart Longyear Limited did not have any contingent liabilities.
Contractual obligations
As at 31 December 2013 and 2012 Boart Longyear Limited did not have any contractual obligations.
151
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
33.
COMPANY SUBSIDIARIES
The Company’s percentage ownership of the principal subsidiaries follows:
Subsidiaries
Country of
incorporation
Business
31 Dec 31 Dec
2013
2012
Drilling Products
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Australia
Australia
Zambia
Gabon
Ghana
Mali
Mexico
Senegal
Sierra Leone
Cambodia
Dem. Rep. of Congo Drilling Products and Services
United Kingdom
Hong Kong
United Kingdom
New Zealand
Botsw ana
Australia
Australia
Canada
Argentina
Australia
Australia
Bermuda
Burkina Faso
Netherlands
Canada
Chile
Colombia
Chile
USA
Ivory Coast
USA
Mexico
Mexico
Ethiopia
China
Kazakhstan
Netherlands
United Kingdom
Eritrea
Sw itzerland
USA
Germany
Guinea
Thailand
India
Netherlands
USA
Australia
Liberia
Brazil
Ireland
Laos
Thailand
Holding Company
Drilling Services
Dormant
Drilling Services
Drilling Products
Holding Company
Holding Company
Holding Company
Drilling Services
Holding Company
Drilling Services
Holding Company
Drilling Services
Drilling Products
Drilling Products and Services
Drilling Products and Services
Drilling Services
Drilling Products
Drilling Products and Services
Drilling Services
Holding Company
Drilling Services
Drilling Products and Services
Drilling Services
Drilling Products and Services
Drilling Services
Holding Company
Holding Company
Drilling Services
Products
Holding Company
Drilling Products and Services
Drilling Services
Drilling Services
Drilling Products
Holding Company
Holding Company
Holding Company
Drilling Services
Drilling Products
Drilling Products
Drilling Services
Drilling Services
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
A.C.N. 066 301 531 Pty Ltd
Aqua Drilling & Grouting Pty Ltd.
BLI Zambia Ltd.
BLY Gabon S.A.
BLY Ghana Limited
BLY Mali S.A.
BLY Mexico Servicios S.A. de C.V.
BLY Senegal S.A.
BLY Sierra Leone Ltd.
Boart Longyear (Cambodia) Ltd.
Boart Longyear (D.R.C.) SPRL
Boart Longyear (Holdings) Ltd. 2
Boart Longyear (Hong Kong) Limited
Boart Longyear (Investments) Ltd.
Boart Longyear (NZ) Limited
Boart Longyear (Pty) Ltd
Boart Longyear (Vic) No. 1 Pty Ltd (Australia)
Boart Longyear (Vic) No. 2 Pty Ltd (Australia)
Boart Longyear Alberta Limited
Boart Longyear Argentina S.A.
Boart Longyear Australia Holdings Pty Limited
Boart Longyear Australia Pty Ltd
Boart Longyear Bermuda Limited
Boart Longyear Burkina Faso Sarl
Boart Longyear BV
Boart Longyear Canada
Boart Longyear Chile Limitada
Boart Longyear Colombia S.A.S.
Boart Longyear Comercializadora Limitada 5
Boart Longyear Company
Boart Longyear Cote d'Ivoire S.A.
Boart Longyear Consolidated Holdings, Inc.
Boart Longyear de Mexico, S.A. de C.V.
Boart Longyear Drilling and Products Mexico, S.A. de C.V.
Boart Longyear Drilling Private Limited Company
Boart Longyear Drilling Products Company (Wuxi) Ltd.
Boart Longyear Drilling Services KZ LLP
Boart Longyear EMEA Cooperatief U.A.
Boart Longyear EMEA UK Holdings Ltd
Boart Longyear Eritrea Ltd.
Boart Longyear Financial Services SARL
Boart Longyear Global Holdco, Inc
Boart Longyear GmbH & Co Kg
Boart Longyear Guinea S.A.
Boart Longyear Holdings (Thailand) Co., Ltd.
Boart Longyear India Private Ltd
Boart Longyear International BV
Boart Longyear International Holdings, Inc.
Boart Longyear Investments Pty Ltd
Boart Longyear Liberia Corporation
Boart Longyear Limitada
Boart Longyear Limited
Boart Longyear Limited
Boart Longyear Limited
152
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
33.
COMPANY SUBSIDIARIES (CONTINUED)
Subsidiaries
Country of
incorporation
Business
31 Dec 31 Dec
2013
2012
Boart Longyear LLC
Boart Longyear Ltd
Boart Longyear Madagascar S.A.
Boart Longyear Mali Products S.A.
Boart Longyear Management Pty Ltd
Boart Longyear Manufacturing Canada Ltd. 1
Boart Longyear Manufacturing USA Inc. 1
Boart Longyear Netherlands BV
Boart Longyear Nevada 3
Boart Longyear Poland Spolka Z.o.o.
Boart Longyear Products KZ LLP
Boart Longyear RUS
Boart Longyear S.a.r.l. 2
Boart Longyear SAC
Boart Longyear Saudi Arabia LLC
Boart Longyear Suisse SARL 4
Boart Longyear Vermogensverw altung GmbH
Boart Longyear Zambia Ltd.
Cooperatief Longyear Holdings UA
Drillcorp Pty Ltd
Dongray Industrial Limited 2
Geoserv Pesquisas Geologicas S.A.
Grimw ood Davies Pty Ltd
Inavel S.A.
J&T Servicios, S.C.
Longyear Calulo Holdings BV
Longyear Canada, ULC
Longyear Global Holdings, Inc.
Longyear Holdings New Zealand, Ltd.
Longyear Holdings, Inc.
Longyear South Africa (Pty) Ltd
Longyear TM, Inc.
North West Drilling Pty Limited
P.T. Boart Longyear
Patagonia Drill Mining Services S.A.
Portezuelo S.A.
Professional Sonic Drillers (Pty) Limited T/A Prosonic Africa South Africa
Prosonic Corporation
Prosonic International, Inc.
Resources Services Holdco, Inc
Votraint No. 1609 Pty Ltd
Russia Federation
Ghana
Madagascar
Mali
Australia
Canada
USA
Netherlands
USA
Poland
Kazakhstan
Russia Federation
France
Peru
Saudi Arabia
Sw itzerland
Germany
Zambia
Netherlands
Australia
United Kingdom
Brazil
Australia
Uruguay
Mexico
Netherlands
Canada
USA
New Zealand
USA
South Africa
USA
Australia
Indonesia
Argentina
Paraguay
USA
USA
USA
Australia
(1) This entity w as formed in 2013.
(2) This entity is currently in liquidation status.
(3) This entity w as merged into Boart Longyear Company (USA) in 2013.
(4) Formerly Votraint Sw itzerland SARL; name changed in 2013.
(5) Formerly Boart Longyear S.A., name changed in 2013
Drilling Products
Dormant
Drilling Services
Products
Holding Company
Drilling Products
Drilling Products
Holding Company
Drilling Services
Drilling Products and Services
Drilling Products
Drilling Services
Holding Company
Drilling Products and Services
Drilling Services
Holding Company
Dormant
Drilling Services
Holding Company
Drilling Services
Dormant
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Products
Holding Company
Holding Company
Holding Company
Drilling Products and Services
Holding Company
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Dormant
Drilling Services
Drilling Services
Holding Company
Drilling Services
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
153
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
34.
DISPOSAL OF OPERATIONS
On 15 July 2013, the Company sold its US-based environmental and infrastructure drilling services operations. The
sale is consistent with the Company’s desire to focus resources and efforts on its core markets and on higher margin
drilling services segments. An impairment charge of $7,707,000 was recorded at 30 June 2013 to decrease the
assets held for sale to their fair value less cost to sell. Settlements occurring subsequent to the transaction date have
given rise to additional payments and a loss on the sale of subsidiary has been recognised in the amount of
$1,962,000. The disposal of this business is related to the Company’s restructuring activities and the loss has been
included in the total restructuring costs (See Note 10).
Book value of net assets sold
Assets
Liabilities
Net assets disposed
Disposal costs
Loss on disposal
Total proceeds
Cash paid - closing costs
Net cash inflow from disposal of subsidiaries
2013
US$'000
26,698
(298)
26,400
2,065
(1,962)
26,503
(1,693)
24,810
35.
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
2013
US$'000
2012
US$'000
59,053
89,628
Of the cash balance at 31 December 2013, $4,510,000 was considered restricted cash. At 31 December
2012, $1,463,000 was considered restricted cash.
(b)
Businesses acquired
During the years ended 31 December 2013 and 2012 there were no business acquisitions.
(c)
Businesses disposed
During the year ended 31 December 2013 the Company disposed of its United States environmental and
infrastructure drilling services operations. The net cash inflow from disposals was $24,810,000. See Note
34.
During the year ended 31 December 2012 there were no business dispositions.
154
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
36.
ASSETS CLASSIFIED AS HELD FOR SALE
The Company classified certain assets related to the United States environmental and infrastructure drilling services
operations as assets held for sale as at 31 December 2012. On reclassification of these operations to assets held for
sale, the Company recognised an impairment loss of $3,986,000 for the year ended 31 December 2012. This
business was classified, and accounted for, at 31 December 2012 as a disposal group held for sale.
The following assets were reclassified to assets held for sale at 31 December 2012:
Trade and other receivables
Inventories
Prepaid expenses and other assets
Property, plant and equipment
Other intangible assets
Other assets
2012
US$'000
13,269
722
212
19,159
444
191
33,997
On 15 July 2013 these assets were sold. See Note 34.
37.
RELATED PARTY TRANSACTIONS
Transactions with key management personnel
(i)
Key management personnel compensation
Details of key management personnel compensation are disclosed in Note 12.
(ii)
Other transactions with key management personnel of the Company
None.
(iii)
Key management personnel equity holdings
155
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
37.
RELATED PARTY TRANSACTIONS (CONTINUED)
Shares
The number of shares held by Directors and other key management personnel are disclosed below.
(1) The 31 December 2013 share balances for Mr St. George and Mr Ragan are not reported due to their
resignations on 21 May 2013 and 18 May 2013 respectively. Their net change for the year is reflected
through the termination date.
(2) Mr Kipp’s 31 December 2012 share balance is not reported due to his termination as a related party
effective 5 October 2012. His net change for the year is reflected through the termination date.
156
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
37.
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
-
3,779,000
-
273,000
242,578
207,150
234,600
160,095
-
238,550
180,238
318,066
265,056
1
(188,000)
(82,578)
(72,150)
(104,600)
(55,095)
-
-
-
-
-
-
2013
Richard O'Brien
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
Held at the
beginning of
the Financial
year
Granted as
remun-
eration
1,065,400
258,000
207,578
187,150
164,600
217,900
681,200
90,000
90,000
75,000
70,000
90,000
Vested
and issued
during the
year
(227,475)
(75,000)
(55,000)
(55,000)
-
(55,000)
Forfeited
during the
year
2
(829,747)
-
-
-
-
-
2012
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Alan Sides
Michael Birch
Held at the
end of the
financial
year
3,779,000
85,001
398,550
315,238
448,066
370,056
Held at the
end of the
financial
year
689,378
273,000
242,578
207,150
234,600
252,900
(1) As a result of Mr Ragan’s termination of employment in 2013, and pursuant to the terms of the termination
agreement, Mr Ragan’s outstanding Retention Share Rights were vested on his date of termination on 18 May
2013. His Performance Share Rights remain subject to the Performance Conditions of the award.
(2) As a result of Mr Kipp’s termination of employment in 2012, and pursuant to the terms of the termination
agreement, Mr Kipp’s outstanding Share Rights were prorated to his date of termination. This resulted in the
amount of Share Right forfeitures indicated above. The balance of his Performance Share Rights remains
subject to the Performance Conditions and other vesting requirements of the award.
157
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
37.
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: The cash rights vest over a three-year period from
the grant date, with 50% subject to certain performance conditions.
Held at the
beginning of Granted as
the financial
year
US$
remun-
eration
US$
Vested
and issued
during the
year
US$
Forfeited
during the
year
US$
Held at the
end of the
financial
year
US$
-
100,000
80,000
80,000
80,000
50,000
-
-
-
-
-
-
-
100,000
80,000
80,000
80,000
50,000
-
-
-
-
-
-
-
-
-
-
-
-
2013
Richard O'Brien
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
Held at the
beginning of Granted as
the financial
year
US$
remun-
eration
US$
Vested
and issued
during the
year
US$
2012
Craig Kipp
1,196,300
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Alan Sides
Michael Birch
375,000
305,000
305,000
80,000
305,000
-
-
-
-
-
-
746,300
275,000
225,000
225,000
-
225,000
Forfeited
during the
year
US$
1
60,300
1
-
-
-
-
-
Held at the
end of the
financial
year
US$
1
389,700
100,000
80,000
80,000
80,000
80,000
(1) As a result of Mr Kipp’s termination of employment in 2012, and pursuant to the terms of the LTI award
agreement, Mr Kipp’s outstanding Performance Cash Rights were prorated to 5 October 2012.
The share and cash rights under the LTIP were provided at no cost to the recipient.
158
Boart Longyear
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
37.
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
-
-
-
-
25,000
-
Held at the
beginning of
the financial
year
340,000
37,500
27,500
27,500
25,000
27,500
2013
Richard O'Brien
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
2012
Craig Kipp
Joe Ragan III
Fabrizio Rasetti
Brad Baker
Alan Sides
Michael Birch
Granted as
remun-
eration
Vested
during the
year
Forfeited
during the
year
-
-
-
-
-
-
-
-
-
-
25,000
-
-
-
-
-
-
-
Granted as
remun-
eration
Vested
during the
year
Forfeited
during the
year
-
-
-
-
-
-
340,000
37,500
27,500
27,500
-
27,500
-
-
-
-
-
-
Held at the
end of the
financial
year
Vested and
exercisable
as at
31 December
2013
-
-
-
-
-
-
-
37,500
27,500
27,500
25,000
20,000
Held at the
end of the
financial
year
Vested and
exercisable
as at
31 December
2012
-
-
-
-
25,000
-
340,000
37,500
27,500
27,500
-
27,500
During the years ended 31 December 2013 and 2012, no shares were issued on the exercise of options previously
granted as compensation to the above individuals.
159
Annual Report 2013
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2013 BOART LONGYEAR LIMITED
38.
SUBSEQUENT EVENTS
On 7 January 2014, the Company announced the appointment of Mr Jeffrey Olsen as Chief Financial Officer of the
Company effective 1 April 2014. Mr. Olsen currently serves as Chief Commercial Officer for Rio Tinto’s Iron &
Titanium business. He brings over 17 years of experience in various finance management roles during his tenure with
Rio Tinto.
On 31 January 2014, the Company issued a $5,000,000 cash retention grant to Richard O’Brien. The cash rights will
be divided into three equal portions vesting on the dates of 19 May 2014, 1 April 2015 and 1 April 2016.
Based on the Company’s view that market conditions may not significantly recover over the next twelve months, the
Company negotiated an amendment to its Credit Agreement that is intended to provide continued access to the
revolving credit facility and additional head room under the Credit Agreement’s financial covenants. The amendment,
which became effective on 22 February 2014, eliminates the Minimum Asset Coverage financial covenant and
suspends the following financial covenants through the 31 March 2015 compliance testing date:
· Minimum Liquidity of $30,000,000 (tested monthly)
· Minimum Interest Coverage Ratio of 1.55x (tested quarterly)
New financial covenants have been added, which require:
· minimum cumulative last-twelve-months EBITDA of $45,000,000 through 31 March 2015 (tested quarterly);
and
· maximum Total Debt, at the levels set out below, to be tested quarterly through the maturity date of the
Credit Agreement, which remains unchanged at 29 July 2016:
(i) $700,000,000 at 30 June 2014
(ii) $700,000,000 at 30 September 2014
(iii) $670,000,000 at 31 December 2014
(iv) $720,000,000 at 31 March 2015
(v) $725,000,000 at 30 June 2015 and for each quarterly testing date thereafter.
The specified maximum Total Debt levels may vary upon the occurrence of certain events. In addition, the
amendment adjusts fees and pricing, introduces new financial reporting requirements, establishes a monthly
borrowing base of specified assets to allowed borrowings, limits annual capital expenditures and requires the
Company, by 30 September 2014, to present a plan to the banks that proposes full repayment of the facility by the
maturity date, which will be subject to an independent review. “Total Debt” means, as of any date, the Total
Revolving Outstandings and any other Finance Debt of the Group outstanding (whether actually or contingently) on
that date, but excluding (to the extent otherwise included): (i) contingent exposures under hedge or derivative
transactions other than currency hedge or derivative transactions that hedge Finance Debt; (ii) Finance Debt owed by
a Group member to another Group member; (iii) contingent liability under any letters of credit (other than those issued
under this Agreement) which support performance obligations of a Group member, performance bonds or
performance guaranties (or bank guaranties or letters of credit in lieu thereof) occurring within the ordinary course of
business but not obligations in respect of Finance Debt; and (iv) to avoid double counting, contingent liability under
any other letters of credit issued to secure external Finance Debt of a Group member to a financier to the extent
such Finance Debt is already included in the calculation of the definition.
160
Boart Longyear
SUPPLEMENTARY INFORMATION
ADDITIONAL INFORMATION as at 13 March 2014.
Substantial shareholders
The substantial shareholders as disclosed to the Company in substantial holders notices are:-
Holder
Number of Ordinary Shares in
which relevant interest held
Beutel Goodman and Company Ltd
74,559,639
Number of holders of equity securities
(a) Ordinary share capital
There are 461,163,412 fully paid ordinary shares on issue, held by 17,932 individual shareholders.
Each ordinary shareholder present at a general meeting (whether is 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
190,000 share options are held by 5 individual option holders. Options do not carry rights to vote.
Distribution of holders of equity securities
Range
Holders - Fully Paid
Ordinary Shares
Holders -
Share Options
1-1000
1,001-5000
5,001-10,000
10,001-100,000
100,001 and over
6,330
6,078
2,442
2,819
263
17,932
5
5
There are 7,872 shareholders holding less than a marketable parcel of ordinary shares.
161
Annual Report 2013
SUPPLEMENTARY INFORMATION
TOP 20 HOLDERS
No. Holder
HSBC CUSTODY NOMINEES
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA
SNOWSIDE PTY LTD
NATIONAL NOMINEES LIMITED
BAND AND CO
DARRELL JAMES PTY LTD
MERRILL LYNCH (AUSTRALIA)
HISHENK PTY LTD
1
2
3
4
5
6
7
8
9
10 BNP PARIBAS NOMS PTY LTD
11 MS YING GE
12 QIC LIMITED
13 MR JOHN ROBERT VINCENT +
14 PACIFIC CUSTODIANS PTY LTD
15 ABN AMRO CLEARING SYDNEY
16 MR ANTHONY MAURICI
17 WARATAH CAPITAL PARTNERS PTY
18
FORSYTH BARR CUSTODIANS LTD
19 BUTTONWOOD NOMINEES PTY LTD
20 MR GERALD FRANCIS PAULEY +
TOTAL FOR TOP 20
Fully Paid
Ordinary Shares
Percent of
Issued Capital Held
128,423,384
48,658,332
34,874,953
25,332,685
14,269,773
3,855,518
3,000,000
2,835,266
2,000,000
1,864,491
1,700,000
1,567,570
1,500,000
1,428,214
1,395,505
1,363,759
1,200,000
1,195,175
1,167,837
1,071,320
278,703,782
27.85
10.55
7.56
5.49
3.09
0.84
0.65
0.61
0.43
0.4
0.37
0.34
0.33
0.31
0.3
0.3
0.26
0.26
0.25
0.23
60.43
162
Boart Longyear
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163
Annual Report 2013 This page has been left blank intentionally.
164
Boart Longyear 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:
Museum of Sydney
Corner Bridge Street and Philip
Street, Sydney NSW 2000
Commencing at 1:00pm
on 19 May 2014
Website
ww w.boartlongyear.com
ww w.precinct.com.au
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