Drillers in the fi eld, USA
ANNUAL
REPORT 2014
2014
OVERVIEW
At Boart Longyear, “Safety First” is a core value. Fostering
a safety culture that emphasises why we work safely is more
than just a safety program – it’s the way we work every day.
To make it safe, make it personal, and make it home – for
ourselves, our families, and for each other.
Who we are
Celebrating its 125th anniversary in 2015, 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 Drilling Services division operates in over 30 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 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, fi eld test and deliver any
combination of drilling consumables, capital equipment
and expertise direct to any corner of the world.
Boart Longyear Limited ACN 123 052 728
2014
2013
2012
GROSS MARGIN
US$116M
116
202
2,012
512
ADJUSTED
NET PROFIT AFTER TAX
US$–142M
REVENUE
US$867M
867
1,223
ADJUSTED
EBITDA
US$31M
-83
-337
31*
107
*
-333
-620
254
*
322
-142*
*
-94
68
116
*
CASH FROM OPERATIONS
US$55M
NUMBER OF EMPLOYEES
5,933
55
76
5,933
5,681
156
9,162
SAFETY
TCIR 1.35
LTIR 0.11
1.35
1.62
1.56
0.11
0.10
0.19
*EBITDA, Adjusted EBITDA, Adjusted EBIT, and Adjusted NPAT are
non-IFRS measures and are used internally by management to assess
the performance of the business. For 2014, the adjusted fi gures have
been derived from the Company’s fi nancial statements by adding back
$114 million pre-tax ($80 million post-tax) of signifi cant items and
$111 million of tax expense on derecognition of deferred tax assets
and unrecognised tax losses in the current year.
Cash from Operations: excludes interest and tax.
CONTENTS
Overview
CEO’s Report
Financial Report
Directors’ Report
Review of Operations
Remuneration Report
Board of Directors
Executive Management Team
Independent Auditor’s Report
Directors’ Declaration
Financial Statements
Supplementary Information
Corporate Information
FINANCIAL CALENDAR
2014 Final Results
Annual General Meeting
2015 Half Year End
2015 Interim Results
2015 Year End
24 February 2015
26 May 2015
30 June 2015
25 August 2015
31 December 2015
ANNUAL GENERAL MEETING
The Annual General Meeting of Boart Longyear will be held at:
Clarendon Room A, Melbourne Exhibition Centre, 2 Clarendon Street,
South Wharf, Melbourne, Victoria 3006, Australia
Commencing 1.00pm (Melbourne time) on Tuesday, 26 May 2015.
IFC
2
5
6
11
41
78
81
91
93
94
158
IBC
DRILLING SERVICES
REVENUE
US$636M
636
917
EBITDA
US$69M
69
142
PRODUCTS
REVENUE
US$230M
230
306
EBITDA
US$14M
14
16
1,516
290
495
107
COMPANY REVENUE
(PRODUCTS AND SERVICES)
COMPANY REVENUE
BY REGION (PRODUCTS
AND SERVICES)
DRILLING SERVICES REVENUE
BY STAGE
DRILLING SERVICES REVENUE
BY COMMODITY
Performance Tooling
Rotary/RC
Surface Coring
Underground Coring
Production Drilling
Drilling Equipment
Other
22%
22%
21%
17%
8%
5%
5%
Asia Pacifi c
USA
Canada
EMEA
Latin America
26%
23%
21%
17%
13%
Development
(Near Mine/Brownfi eld) 53%
Production (In-Pit)
Water Services
16%
16%
Exploration (Greenfi eld) 12%
Non-Mining
3%
Gold
Copper
Other Metals
Energy
Other
Iron
Nickel
Boart Longyear Annual Report 2014
45%
19%
9%
9%
8%
6%
4%
1
CEO’S
REPORT
DEAR
SHAREHOLDERS
“In a year in which persistent uncertainty
in the mining resources sector dominated
the headlines, there were many noteworthy
Boart Longyear accomplishments that have
positioned the business for success.”
2014 was another diffi cult period for
the mining industry and for Boart
Longyear, as commodity prices
continued to decline and mining
companies maintained their focus
on maximising near-term cash fl ows.
This resulted in most of the world’s
mining companies continuing to
signifi cantly reduce their exploration,
development and capital expenditures.
The vast majority of the revenues from
our Drilling Services and Products
businesses are related to mining
companies spending on exploration
and development activities. Since
peaking in 2012 at US$21.5 billion,
non-ferrous annual exploration budgets
declined to US$15.2 billion (down 29%
against 2012) in 2013 and US$11.4 billion
in 2014 (down 25% against 2013). As a
result, Boart Longyear and the drilling
services industry around the globe have
experienced signifi cant declines in drill
rig utilisation rates since the second
half of 2012, and those declines have
continued through most of 2014. In the
last quarter of 2014, the rate of decline in
drill rig utilisation appeared to slow down
compared to the declines experienced
during 2013 and the fi rst half of 2014.
Lower utilisation rates and lower
pricing continued to adversely impact
the Company’s and the industry’s
fi nancial performance.
In particular, excess supply has resulted
in signifi cant price reductions across
the drilling industry since the second
half of 2012. While our business saw
relatively fl at utilisation rates during
the second half of 2014, continued
pricing headwinds further hurt the
Company’s fi nancial performance.
Pricing has, we believe, reached a level
in the industry where many drilling
services companies are operating at
cash break-even. In fact, a number of
drilling services companies have gone
into administration or bankruptcy, or
have elected to shut down their activities
in certain countries around the world,
including Australia.
Unfortunately, while our Company has
been impacted by the negative fi nancial
and cash fl ow impacts associated with
low utilisation rates and ongoing pricing
headwinds, we also have had to deal
with the problems of entering this mining
down cycle with far too much debt. As
a result, we continue to take aggressive
actions to reduce our costs while we
work to reduce our absolute level of debt
over time by aggressively managing
fi xed, variable and capital costs and
improving effi ciencies through several
ongoing initiatives, including:
1. re-examining our global operating
model and underlying support costs;
2. completing the consolidation of
certain fi nancial service functions and
leveraging our two shared services
centers to consolidate other sales,
general and administrative functions;
3. exiting certain loss-making drilling
services projects or territories;
4. controlling SG&A and other
overhead related costs; and
5. capitalising on our signifi cant
investment in modernising our
rig fl eet from 2010 to 2012, which
we believe positions us well for
any market recovery and reduces
our expected capital expenditure
requirements over the next
several years.
Reducing our debt load will take time
and one of our major accomplishments
of 2014 was to announce in October
a comprehensive recapitalisation that
provides a more sustainable capital
structure and better positions the
Company to successfully weather
the current down cycle. As a result
of the recapitalisation, we no longer
face the material uncertainty we faced
one year ago related to our potential
inability to refi nance our debt. We
are also much better positioned, as a
result of substantial and sustainable
cost reductions, to provide increased
earnings and cash fl ow when our
2
markets recover. Highlights from the
recapitalisation include:
› US$225 million in new loan
fi nancing provided by Centerbridge
– Proceeds have been used to
refi nance the Company’s former
revolving credit facility and
repurchase existing US$105 million
of the Company’s 10% Senior
Secured Notes. The new fi nancing
package has eliminated the restrictive
fi nancial covenants associated with
the revolving credit facility, providing
us with more fi nancial fl exibility and
other advantages.
› Approximately US$111 million in
new equity capital – New capital
was raised through two private
placements of ordinary shares to
Centerbridge totaling approximately
US$27 million and an equal-access,
renounceable rights offering which
totaled approximately $US84 million.
› US$16 million Debt Equitisation –
Centerbridge also agreed to convert
its US$16 million holding of Boart
Longyear Senior Unsecured Notes
into US$16 million of equity.
› Equity-funded Share Repurchase
Plan – The Company also sold
Centerbridge approximately 8 million
fully paid ordinary shares it acquired
in an off-market share buyback
launched in December.
› Centerbridge Ownership in
Boart Longyear – As a result of
the recapitalisation transactions,
Centerbridge now owns
approximately 465 million ordinary
shares (or 49.9%) and 434 million
preferred shares, which are
convertible one-for-one into ordinary
shares under certain conditions.
› Centerbridge nominees join
Boart Longyear Board –
Jonathan Lewinsohn and Connor
Tochilin, from Centerbridge, were
appointed to the Board of Directors
in 2014. In February 2015, Bret
Clayton and Marcus Randolph
also joined the Board.
In a year in which persistent
uncertainty in the mining resources
sector dominated the headlines,
there were many noteworthy Boart
Longyear accomplishments that
have positioned the business for
success. Those successes include our
businesses’ ability to protect market
share while maintaining cost, capital
expenditure, pricing discipline and
product leadership. During the year,
our Drilling Services division won several
key contracts, and our Products division
continued to invest in innovative new
products designed to drive productivity
and safety on-site.
The challenges we faced in 2014 did
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 2014,
we achieved a Total Case Incident Rate
(TCIR) of 1.35 recordable incidents
and a Lost-Time Injury Rate (LTIR)
of 0.11 lost-time injuries, compared
to 1.62 and 0.19 for 20131. The TCIR
rate is the lowest annual rate we have
experienced since 2007.
Throughout 2015, we will continue
to pursue improvements in our
safety performance focusing on
forward-looking safety indicators,
such as increased interactions
between managers and fi eld
employees, disciplined tracking and
remediation of risks and increased
training for our fi eld supervisors and
employees. Safety performance is
central to the Company’s strategy of
operational improvements and improved
customer relationships. Management
and the Company’s employees regard
safety as not only a fundamental
business value but also a signifi cant
commercial opportunity and risk,
as blue-chip mining customers look
to safety performance as a basis to
differentiate their suppliers.
As we look forward, there are three key
pillars that we will remain focused on:
1. Safety: Relentlessly pursue
innovation to enhance safety
on-site and look for continuous
improvement initiatives. Safety will
remain a personal responsibility and
concern of each of our employees.
2. Customers: Growing our
relationships with new and existing
customers while optimising our
commercial approach to the business.
Also, expanding our drilling services
offerings and pricing options and
consistently investing in product
development efforts that respond
to customer needs for safety and
productivity.
3. Profi tability: Continue to drive
effi ciencies and productivity
throughout the business while
ensuring pricing discipline. Focus on
managing working capital, maintaining
disciplined capital management and
controlling all of our costs.
Also, as we look forward into 2015 and
beyond, I am very pleased to welcome
Marcus Randolph as Chairman of the
Board of Directors. Marcus joins us
after 35 years’ experience in global
senior executive roles across the
mining sector. I would also like to thank
Barbara Jeremiah and Dave McLemore
for their service and guidance as our
two previous Board Chairs over the
last several, diffi cult years and also
recognise and thank Roy Franklin and
Tanya Fratto for their insights, diligence
and unwavering concern for our
shareholders during their tenures.
I also thank each and every one of our
employees for their contributions to
keeping our Company strong. We have
worked hard to navigate through the
diffi cult market environment of recent
years. As we enter our 125th year in
2015, we are energised by a renewed
vigor and discipline that we believe
positions us to grow far into the future
and provide increased value to our
shareholders. As we celebrate the many
accomplishments of our past, we are
moving confi dently toward the future.
Yours sincerely,
Richard O’Brien
President and Chief Executive Offi cer
1
TCIR and LTIR are based on
200,000 hours worked.
Boart Longyear Annual Report 2014
Boart Longyear Annual Report 2014
3
3
Driller in the fi eld, USA
“AT BOART LONGYEAR, “SAFETY FIRST” IS A CORE VALUE.
FOSTERING A SAFETY CULTURE THAT EMPHASISES WHY WE WORK
SAFELY IS MORE THAN JUST A SAFETY PROGRAM – IT’S THE WAY WE
WORK EVERY DAY. TO MAKE IT SAFE, MAKE IT PERSONAL, AND MAKE
IT HOME – FOR OURSELVES, OUR FAMILIES, AND FOR EACH OTHER.”
Richard O’Brien, President and Chief Executive Offi cer
4
FINANCIAL
REPORT
CONTENTS
Directors’ Report
Review of Operations
Remuneration Report
Board of Directors
Executive Management Team
Corporate Governance Statement
Auditor’s Independence Declaration
Independent Auditor’s Report
Directors’ Declaration
Consolidated Statement of Profi t 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
Supplementary Information
Corporate Information
6
11
41
78
81
82
90
91
93
94
95
96
97
99
158
IBC
5
5
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014
DIRECTORSʼ REPORT
BOART LONGYEAR LIMITED
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 2014 (financial year) and the Independent
Auditorʼs Report thereon.
Financial results and information contained herein are presented in United States (“US”) dollars unless otherwise noted.
PRINCIPAL ACTIVITIES
Boart Longyear is the worldʼs 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 Companyʼs 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
worldʼs 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
As previously announced, the Company announced a proposed conclusion to its Strategic Review process in October 2014,
which culminated in the Company entering into a series of recapitalisation transactions with Centerbridge Partners, L.P. The
recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P.,
equity placements to Centerbridge Partners, L.P., an equal-access rights offering made available to shareholders, an off-
market share buy-back available to shareholders on a pro-rata basis, and a bond equitisation of Centerbridge Partners, L.P.ʼs
holding in Boart Longyearʼs Senior Unsecured notes. The recapitalisation transactions represented a comprehensive solution
to the Companyʼs liquidity risk, as they eliminated the potential risk of default associated with covenant breaches related to the
Companyʼs former revolving credit facility and are also expected to stabilise the Companyʼs balance sheet during the present
cyclical downturn. At 31 December 2014, the following recapitalisation transactions had been executed and recorded in the
Companyʼs financial statements:
•
•
Term Loans: The Company received $225 million of “covenant-lite” terms loans that will accrete interest at a rate of
12% per annum. The proceeds of the term loans were used to refinance the Companyʼs prior revolving credit facility,
of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Companyʼs
existing 10.00% Senior Secured Notes.
Equity Placements: The Company issued two equity placements directly to Centerbridge Partners, L.P,. totaling
approximately $27.0 million. As a result of the transactions, Centerbridge Partners, L.P. increased its ownership in
the Companyʼs common stock to approximately 37%.
As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs
which were recorded in significant items. Of the $45.5 million of costs, $26.6 million were paid in 2014 and the residual
balance will be paid in early 2015. As noted immediately below, the Company completed the recapitalisation, and additional
proceeds related thereto were received, after 31 December 2014.
EVENTS SUBSEQUENT TO REPORTING DATE
On 27 January 2015, the Company finalised the rights offering and received additional proceeds of A$106.2 million. The
Company also completed the acquisition of approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant
to the off-market buyback. The Company cancelled the repurchased shares and subsequently sold an equivalent number of
new shares to Centerbridge Partners, L.P. for the same price per share. In addition, the Company also completed the
equitisation of US$16 million of its 7.00% Senior Unsecured Notes, held by Centerbridge Partners, L.P., and its affiliates and
related funds through the issuance of approximately 102.8 million shares.
__________________________________________________________________________________________
6
3
Annual Financial Report
31 December 2014
BOART LONGYEAR LIMITED
Following the completion of the recapitalisation transactions, the Company has 930.9 million fully paid ordinary shares and
434.0 million fully paid convertible preference shares on issue. Centerbridge Partners, L.P.ʼs holding in ordinary shares
increased to 49.9% or 464.1 million shares and now also includes 434.0 million convertible preference shares at a value of
approximately A$71.6 million. Additionally, as all recapitalisation transactions have been completed, the Company paid the
remaining $18.9 million of costs accrued for in 2014 related to the Strategic Review.
The following pro forma balance sheet shows the effects of the 27 January 2015 transactions.
US$ Millions
Statutory
Pro Forma 1
Loans and Borrowings
Less: Cash and Cash Equivalents
Net Debt 2
Issued Capital
716
169
548
700
234
466
1,159
1,259
1 Inclusive of final recapitalisation transactions that occurred in January 2015
2 Loans and borrowings, less cash and cash equivalents
The Company announced changes in the composition of its Board on 23 February 2015. The changes, which will take effect
on 25 February 2015, include the retirement of Barbara Jeremiah and Roy Franklin from the Board and the appointment of
Bret Clayton and Marcus Randolph as new directors. Mr. Randolph will also assume the role of Chairman from Ms. Jeremiah.
The foregoing changes to the Companyʼs Board arise from the recapitalisation agreements, in which the Board agreed that
Centerbridge Partners, L.P. may appoint up to four directors, including the right to nominate the Board Chairman subject to the
approval of a majority of the independent directors. Messrs. Clayton and Randolph join the Board as independent, non-
executive directors and, with Messrs. Lewinsohn and Tochilin, who were appointed in 2014, comprise Centerbridge Partners,
L.P. nominated Board appointees.
DIVIDENDS
No dividends have been paid during the financial year.
No dividend was determined for either of the half-years ended 30 June 2014 or 31 December 2014.
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
Peter Day (appointed effective 25 February 2014)
Roy Franklin
Tanya Fratto
Barbara Jeremiah
Jonathan Lewinsohn (appointed effective 23 October 2014)
David McLemore
Rex McLennan
Richard OʼBrien
Conor Tochilin (appointed effective 18 December 2014)
Others who held office as Directors during the financial year were:
•
Roger Brown (appointed effective 1 July 2010; resigned effective 18 December 2014)
For a summary of experience and qualifications for each director, see the Board of Directors section on page 78 of this Report.
__________________________________________________________________________________________
7
4
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014
COMPANY SECRETARIES
•
•
Fabrizio Rasetti
Paul Blewett
DIRECTORSʼ MEETINGS
BOART LONGYEAR LIMITED
The following table sets out for each Director the number of Directorsʼ meetings (including meetings of Board committees) 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 Directorsʼ attendance at committee meetings in an “ex-officio” capacity. The table also
does not reflect special or informal meetings of the Board or its committees.
Board of
Directors
Remuneration
Committee
Held
Attended Held
Attended
Audit, Compliance
& Risk Committee
Held
Attended
Bruce Brook
Roger Brown 1
Peter Day 2
Roy Franklin 3
Tanya Fratto
Barbara Jeremiah
Jonathan Lewinsohn 4
David McLemore 5
Rex McLennan 6
Richard O'Brien
Conor Tochilin 7
14
14
11
14
14
14
1
14
14
14
14
13
11
14
14
14
1
14
14
14
2
3
3
5
2
2
3
3
5
2
4
3
2
2
4
4
3
2
2
4
Environment,
Health &
Safety Committee
Held
Attended
Finance
Committee
Held
Attended
10
9
3
2
1
2
1
3
2
1
2
1
10
10
6
10
10
10
5
10
(1) Mr Brown resigned from the Board and the Environment, Health & Safety Committee effective 18 December 2014
and from the Remuneration Committee effective 1 June 2014.
(2) Mr Day joined the Board and the Audit, Compliance & Risk Committee effective 25 February 2014 and the
Remuneration Committee effective 1 June 2014.
(3) Mr Franklin joined the Remuneration Committee and resigned from the Audit, Compliance & Risk Committee and
Environment, Health & Safety Committee effective 1 June 2014.
(4) Mr Lewinsohn joined the Board effective 23 October 2014.
(5) Mr McLemore joined the Audit, Compliance & Risk Committee and resigned from the Remuneration Committee, the
Environment, Health & Safety Committee and the Finance Committee effective 1 June 2014.
(6) Mr McLennan joined the Environment, Health & Safety Committee effective 1 June 2014.
(7) Mr Tochilin joined the Board effective 18 December 2014.
__________________________________________________________________________________________
8
5
Annual Financial Report
31 December 2014
DIRECTORSʼ SHAREHOLDINGS
BOART LONGYEAR LIMITED
The following table sets out each Directorʼs 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
Peter Day
Roy Franklin
Tanya Fratto
Barbara Jeremiah
Jonathan Lewinsohn
David McLem ore
Rex McLennan
Richard O'Brien
Conor Tochilin
Fully paid
Rights offering
ordinary shares ordinary shares 1
Rights and
options
220,000
175,000
300,000
120,000
455,000
-
1,155,861
100,000
300,000
-
215,559
171,465
293,940
-
-
-
1,132,512
95,400 2
293,940
-
-
-
-
-
-
-
-
-
7,897,813
-
Total
435,559
346,465
593,940
120,000
455,000
-
2,288,373
195,400
8,491,753
-
(1) Rights offering ordinary shares represent shares taken up as part of the recapitalisation transaction offering finalised
on 27 January 2015.
(2) Mr McLennan was unable to acquire shares through the rights offering due to technical problems with the execution
of his purchase of rights. Accordingly, he received clearance to purchase an equivalent number of shares on market
at the time of the rights offering.
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 yearʼs directorsʼ 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 Companyʼs share
price.
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 Companyʼs 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 2009, 2010
and 2014 granted options to former and current members of senior management. 345,000 of these options granted in June
2009 vested in accordance with their terms and expired in June 2014, with none having been exercised. 25,000 of these
options granted in March 2010 vested in accordance with their terms and expire in March 2015. During 2014 new options
were granted to Mr OʼBrien as part of a special one-off strategic award and new options were also granted to senior
executives as part of the Companyʼs long-term incentives for the year, as outlined more fully in the Remuneration Report. No
shares or interests have been issued during the financial year as a result of the exercise of options.
DIRECTORS' AND OFFICERSʼ INTERESTS IN CONTRACTS
Except as noted herein, no contracts involving Directors' or officersʼ interests existed during, or were entered into, since the
end of the financial year other than the transactions detailed in Note 36 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.
__________________________________________________________________________________________
9
6
Boart Longyear Annual Report 2014 Annual Financial Report
31 December 2014
BOART LONGYEAR LIMITED
AUDITORʼS INDEPENDENCE DECLARATION
The auditorʼs independence declaration is included on page 90 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 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 that 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 auditorʼs 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.
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 auditorʼs 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 auditorʼs 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 auditorʼs 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 Directorsʼ Report and Financial Report. Amounts in
the Directorsʼ 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 Directorsʼ Report.
10
__________________________________________________________________________________________
7
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
REVIEW OF OPERATIONS
1
REVIEW OF OPERATIONS
1. Overview of 2014 Operations, Safety Performance and Financial Results
1
1. Overview of 2014 Operations, Safety Performance and Financial Results
Boart Longyear is the worldʼs 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 segments, Global Drilling
Boart Longyear is the worldʼs leading integrated provider of drilling services, drilling equipment and performance tooling for
Services and Global Products.
mining and mineral drilling companies globally. We conduct our business activities through two segments, 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 by
delivering 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 Companyʼs vertically integrated business model.
Our strategy is to be the “One Source” of drilling solutions in our core markets by creating value for our customers by
delivering 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 Companyʼs vertically integrated business model.
We remain focused on our customer base with detailed marketing and investment plans to identify and secure additional
customer opportunities at lower-cost mines. Further, while maintaining a disciplined approach to capital expenditures, we will
We remain focused on our customer base with detailed marketing and investment plans to identify and secure additional
continue to invest in safety improvements and productivity enhancements in our Global Drilling Services division that should
customer opportunities at lower-cost mines. Further, while maintaining a disciplined approach to capital expenditures, we will
contribute to project margins. New product development efforts in our Global Products division will remain focused, for the
continue to invest in safety improvements and productivity enhancements in our Global Drilling Services division that should
time being, on incremental product improvements that customers will need at any point in the mining cycle. During 2014,
contribute to project margins. New product development efforts in our Global Products division will remain focused, for the
Global Products launched four new and competitive products which have seen moderate success given current market
time being, on incremental product improvements that customers will need at any point in the mining cycle. During 2014,
conditions and are well positioned for further penetration in 2015. Several other product development programs are in the
Global Products launched four new and competitive products which have seen moderate success given current market
current pipeline.
conditions and are well positioned for further penetration in 2015. Several other product development programs are in the
current pipeline.
Central to our strategy is a clear focus on continuing to drive safety improvements, increase efficiencies, generate positive
cash flow and reduce net debt. We regard safety as fundamental to our relationships with, and commitments to, our
Central to our strategy is a clear focus on continuing to drive safety improvements, increase efficiencies, generate positive
employees and customers. In addition, we consider our safety performance both to be one of our most significant
cash flow and reduce net debt. We regard safety as fundamental to our relationships with, and commitments to, our
opportunities as well as a major operational risk in 2015, as our current and targeted customers look to safety as a basis to
employees and customers. In addition, we consider our safety performance both to be one of our most significant
differentiate their suppliers.
opportunities as well as a major operational risk in 2015, as our current and targeted customers look to safety as a basis to
differentiate their suppliers.
In 2014, the Company reported significantly improved safety performance, with a Total Case Incident Rate (TCIR) of 1.35 and
Lost-Time Injury Rate (LTIR) of 0.11 compared to corresponding rates of 1.62 and 0.19 for the comparable period of 2013.
In 2014, the Company reported significantly improved safety performance, with a Total Case Incident Rate (TCIR) of 1.35 and
(Both TCIR and LTIR are rates calculated based on 200,000 hours worked.) We are committed to providing our employees
Lost-Time Injury Rate (LTIR) of 0.11 compared to corresponding rates of 1.62 and 0.19 for the comparable period of 2013.
and customers with an injury-free workplace and industry-leading safety performance. Steps we have taken over the past
(Both TCIR and LTIR are rates calculated based on 200,000 hours worked.) We are committed to providing our employees
year to employ more forward-looking safety metrics and more on-the-ground interactions between our experienced
and customers with an injury-free workplace and industry-leading safety performance. Steps we have taken over the past
supervisors and our safety-conscious employees on our rigs around the world are contributing to this improved performance.
year to employ more forward-looking safety metrics and more on-the-ground interactions between our experienced
supervisors and our safety-conscious employees on our rigs around the world are contributing to this improved performance.
We also continue to prioritise net debt reduction and cash generation to deleverage the business over time and position it with
a more efficient operating platform in all phases of the mining industryʼs cycles. Key elements of this strategy include
achieving and maintaining sustainable EBITDA-to-revenue margins and improving returns on capital through disciplined
variable and fixed cost management and capital spending programs.
We also continue to prioritise net debt reduction and cash generation to deleverage the business over time and position it with
a more efficient operating platform in all phases of the mining industryʼs cycles. Key elements of this strategy include
achieving and maintaining sustainable EBITDA-to-revenue margins and improving returns on capital through disciplined
variable and fixed cost management and capital spending programs.
2014 continued to be a difficult period for the industry and the Company, as declining or stagnant prices for metals and mined
commodities, political and economic risks related to the development of new mines and a continued focus by mining
2014 continued to be a difficult period for the industry and the Company, as declining or stagnant prices for metals and mined
companies on maximising near term cash flows drove most of the worldʼs mining companies to significantly reduce their
commodities, political and economic risks related to the development of new mines and a continued focus by mining
exploration, development and capital expenditures each year since 2011. Mining industry observers SNL Metals Economics
companies on maximising near term cash flows drove most of the worldʼs mining companies to significantly reduce their
Group (SNL MEG) estimate that budgets for overall global exploration spending in 2013 decreased by 29% to $15.2 billion
exploration, development and capital expenditures each year since 2011. Mining industry observers SNL Metals Economics
from the $21.5 billion spent in 2012 and in 2014 declined a further 25% to about $11.4 billion.
Group (SNL MEG) estimate that budgets for overall global exploration spending in 2013 decreased by 29% to $15.2 billion
from the $21.5 billion spent in 2012 and in 2014 declined a further 25% to about $11.4 billion.
As the mining industry reduced exploration spending and capital investments, drill rig utilisation rates declined significantly in
the second half of 2012 and continued during 2013 and most of 2014 for both our Global Drilling Services business and our
As the mining industry reduced exploration spending and capital investments, drill rig utilisation rates declined significantly in
Global Products customers. During the year ended 31 December 2014, drill rig utilisation continued to decline relative to 2012
the second half of 2012 and continued during 2013 and most of 2014 for both our Global Drilling Services business and our
and 2013, but at a much reduced rate compared to the declines experienced during 2013 and the first-half of 2014, but
Global Products customers. During the year ended 31 December 2014, drill rig utilisation continued to decline relative to 2012
stabilised in the last quarter of 2014. However, pricing as a result of low global rig utilisation continued to adversely impact the
and 2013, but at a much reduced rate compared to the declines experienced during 2013 and the first-half of 2014, but
Companyʼs financial performance.
stabilised in the last quarter of 2014. However, pricing as a result of low global rig utilisation continued to adversely impact the
Companyʼs financial performance.
__________________________________________________________________________________________
__________________________________________________________________________________________
(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.
(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.
8
8
11
Boart Longyear Annual Report 2014 Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
As global drill rig utilisation rates declined, we experienced significant price reductions beginning in the second half of 2012
and continuing through the first half of 2014. During the second half of 2014 we saw relatively flat utilisation rates with
continued pricing headwinds for the Companyʼs services. However, drill rig utilisation rates began stabilising in the last quarter
of 2014.
In order to offset the negative financial and cash flow impacts associated with declining utilisation rates and ongoing pricing
headwinds, we remain focused on identifying cost reduction opportunities and increases in efficiency across the Company.
We have taken steps in 2014 to reduce operating costs as well as sales, general and administrative (SG&A) costs. In
addition, we remain focused on generating cash through reducing inventory and controlling capital costs.
In 2014, a number of significant items impacted the Companyʼs financial performance. The continued deterioration in
revenues and profitability during 2014, combined with forecasts of reductions in demand in the industry and the compression
of enterprise valuations for companies in the drilling services sector, resulted in an impairment of the carrying value of some of
our assets and charges associated with business. Additionally, the Company completed its previously announced
recapitalisation led by Centerbridge Partners, L.P., which resulted in significant expenses in connection with its
implementation.
Primarily as a result of those asset impairments and recapitalisation costs as well as a detrimental tax rate and ongoing
overhead and finance costs, the Company has reported a statutory loss for the year of $332.7 million, which is $287.2 million
less than during the prior year (2013: $619.9 million loss for the comparable period). Adjusted operating loss after tax for the
year (adding back the significant items) was $141.8 million, compared to an adjusted operating loss after tax for the same
period of 2013 of $94.3 million, an increase in loss of $47.5 million, reflecting much lower average drill rig utilisation and
demand for our services and products and lower pricing in Global Drilling Services in 2014. See reconciliation in Section 7
ʻNon-IFRS Financial Informationʼ.
Revenue for the year of $866.6 million was $356.3 million, or 29.1%, lower than revenue in the same period in 2013 (2013: $
1,222.9 million for the comparable period). Global Drilling Servicesʼ average operating utilisation rates (defined as the number
of rigs that have generated revenue through normal operations during the course of a week divided by the total rig count) for
the first and second halves of 2014 was 36% and 39% respectively (2013: 42% and 35%). Global Productsʼ sales of drilling
equipment in 2014 totalled $47.3 million (2013: $73.0 million) and sales of performance tooling fell to $183.1 million in 2014
(2013: $232.5 million).
Total cost of goods sold (COGS) for 2014 was $750.1 million (2013: $1,020.7 million). COGS as a percentage of revenue
increased due to fixed costs that cannot be decreased commensurately with revenue losses. For example, depreciation and
amortisation costs – which are generally expensed over depreciable lives and are not tied to utilisation – did not decrease in
line with the reduction in revenue in both businesses.
Total Sales and Marketing expenses for the Company for the year ended 31 December 2014 of $40.1 million decreased 9.7%,
or $4.3 million, from the same period of the prior year (2013: $44.4 million). Compensation and benefits as a percentage of
revenue remained consistent from the prior year. As many of the costs associated with the Companyʼs facilities are fixed in
nature and have non-cancellable leases, occupancy costs remained relatively flat compared to the prior year. Professional
fees decreased significantly from prior year as a result of the supply chain group insourcing certain warehousing activities
which reduced its reliance on a third party.
Total general and administrative expenses for the Company for the year ended 31 December 2014 of $124.3 million
decreased 21.2%, or $33.4 million, from the same period of the prior year (2013: $157.7 million). Although general and
administrative expenses decreased due to the aggressive cost reduction actions taken from 2012 through 2014, the amount
as a percentage of revenue increased slightly with the higher fixed cost nature of our remaining general and administrative
expenses, particularly as a result of the significant cost reductions that had already occurred in 2012 and 2013.
Operating cash flow, before interest and taxes, for the year ended 31 December 2014 was $54.6 million, a decrease of 28.4%
(2013: $76.3 million).
On an accrual basis, capital expenditures (CAPEX) in 2014 totaled $25.2 million compared to $49.2 million for the same period
of the prior year. Of the 2014 amount, $13.0 million was spent on sustainment activities relating to refurbishing current rigs
and other support equipment including rods and casings. $5.0 million was spent on product development activities including
engineering and patent maintenance. The remaining amount related to miscellaneous expenditures. The Company has
continued to focus on reducing capital expenditures to minimum levels during 2014.
As at 31 December 2014, loans and borrowings and net debt totaled $716.3 million and $547.6 million, respectively, and total
debt-to-adjusted EBITDA was 22.8 times (2013: $585.4 million, $526.3 million and 5.5 times). We remain committed to
__________________________________________________________________________________________
12
9
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
reducing our absolute level of debt, over time, by aggressively managing fixed, variable and capital costs and improving
efficiencies through several ongoing initiatives, including:
reexamining our global operating model and underlying support costs;
1.
2. completing the consolidation of certain financial service functions and further utilisation of our two shared services
operations to consolidate other sales, general and administrative functions;
3. exiting certain loss-making drilling services projects or territories;
4. controlling SG&A and other overhead related costs and
5. capitalising on our significant investment in modernising our rig fleet from 2010 to 2012, which we believe positions
us well for any market recovery and reduces our expected capital expenditure requirements over the next several
years.
Ultimately, our goal is to reduce our overall net debt profile to provide for greater balance sheet flexibility through the cycle
while also providing our equity holders with the significant upside that we may realise in our operations when markets improve
and our operating leverage improves as a result of our significantly reduced cost structure. We note, however, that interest on
the term loans we entered into with Centerbridge Partners, L.P. as part of the recapitalisation accretes and will be added to the
principal balance of those loans.
2. Financial and Operating Highlights
For the year ended 31 De cem ber
2014
2013
US$ Millions
US$ Millions
$ Change
% Change
Key financial data
Revenue
NPAT(1)
Adjusted NPAT(1)
EBITDA(2)
Adjusted EBITDA(2)
Cash generated from operations
Net cash flow s (used in) provided by operating activities
Capital expenditures (accrual)
Capital expenditures (cash)
866.6
(332.7)
(141.8)
(82.6)
31.4
54.6
(11.3)
25.2
18.2
1,222.9
(356.3)
(619.9)
(94.3)
(337.1)
107.2
76.3
11.5
49.2
41.5
287.2
(47.5)
254.5
(75.8)
(21.7)
(22.8)
(24.0)
(23.3)
14.2
-29.1%
46.3%
-50.4%
75.5%
-70.7%
-28.4%
-198.3%
-48.8%
-56.1%
3.1%
48.0%
48.0%
-2.6%
-8.6%
Weighted Average number of ordinary shares
469.7
455.5
Earnings per share (basic)
Earnings per share (diluted)
Average BLY rig utilisation
Average Fleet size
(70.8) cents
(136.1) cents
65.3 cents
(70.8) cents
(136.1) cents
65.3 cents
37%
948
38%
1,037
-1%
(89)
(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'.
__________________________________________________________________________________________
13
10
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
3. Discussion and Analysis of Operational Results and the Income Statement
3.1 Revenue
Total revenue for the year ended 31 December 2014 of $866.6 million decreased by 29.1 %, or $356.3 million, compared to
revenue for the year ended 31 December 2013 of $1,222.9 million.
For the year ended 31 Decem ber
2014
2013
$ Change % Change
Global Drilling Services Reve nue (US$ m illions)
636.1
917.3
(281.2)
-30.7%
Average rig utilisation rates
37%
38%
-1.0%
-2.6%
Global Products Revenue (US$ m illions)
230.4
305.5
(75.1)
-24.6%
Sales of Drilling Equipment (US$ millions)
47.3
73.0
Sales of Performance Tooling (US$ millions)
183.1
232.5
(25.7)
(49.4)
-35.2%
-21.2%
A majority of the revenue for both Global Drilling Services and Global Products is derived from providing drilling services and
products to the mining industry and is dependent on mineral exploration, development and production activities. Such
activities in turn are driven by several factors, including anticipated future demand for commodities, the outlook for current and
projected supply and available mine productive capacity, the level of mining exploration capital and development related
expenditures and availability of financing for, and the political and social risks around, mining development.
As the global economy improved in the wake of the financial crisis of 2009, the demand for drilling services and products re-
emerged and the Company 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, the Company achieved revenue of nearly $1,098.8 million and was on pace to nearly match the revenue recorded
in the year ended 31 December 2011. However, in mid-2012, many mining companies began to significantly reduce their
exploration programs and capital expenditure budgets, which ultimately led to a slowdown in demand for our products and
services in the second half of 2012. This had an adverse effect on performance, and the Company reported revenue of
$912.7 million for the second half period ended 31 December 2012. The contraction of the mining industry continued
throughout 2013 and into the first-half of 2014, with volatility in the commodities market also affecting performance. These
lower levels of mineral exploration, development and production continued through the end of 2014, though the rate of
reduction slowed during the second half of 2014, stabilising at very low levels.
__________________________________________________________________________________________
14
11
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
3.2 Cost of Goods Sold, Sales and Marketing Expense, and General and Administrative Expense
Total Cost of Goods Sold (COGS), sales and marketing expenses (S&M) and General and Administrative expenses (G&A) for
the Company for the year ended 2014 were $914.4 million, compared to $1,222.9 million in 2013, a decrease of $308.4
million, or 25.2%.
COGS
Global Drilling Services
Materials/labor/overhead/other
Depreciation and amortisation
Global Drilling Services COGS
COGS as a % of Revenue
Global Products
Materials/labor/overhead/other
Inventory obsolescence
Depreciation and amortisation
Global Products COGS
COGS as a % of Revenue
Total COGS
COGS as a % of Revenue
For the year ended 31 Dece m ber
2014
2013
US$ Millions
US$ Millions
$ Change
% Change
511.6
69.9
581.5
91.4%
158.3
0.3
10.0
168.6
73.2%
750.1
86.6%
688.7
94.6
783.3
85.4%
203.3
22.7
11.4
237.4
77.7%
1,020.7
83.5%
(177.1)
(24.7)
(201.8)
6.0%
(45.0)
(22.4)
(1.4)
(68.8)
-4.5%
(270.6)
3.1%
-25.7%
-26.1%
-25.8%
7.0%
-22.1%
-98.7%
-12.3%
-29.0%
-5.8%
-26.5%
3.7%
Total COGS for the Company for the year ended 31 December 2014 was $750.1 million, representing a decrease of 26.5%
compared to COGS of $1,020.7 million for 2013. From 2013 to 2014, the Companyʼs revenue declined at a further rate,
29.1%, negatively impacting the Companyʼs profitability. COGS as a percentage of revenue increased due to fixed costs that
cannot be decreased commensurately with revenue losses. In addition, depreciation and amortisation costs – which are
generally expensed over depreciable lives and are not tied to utilisation – did not decrease in line with the reduction in revenue
in both businesses.
__________________________________________________________________________________________
15
12
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
For the year ended 31 Dece m ber
2014
2013
US$ 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
24.3
7.1
3.5
1.0
4.2
40.1
4.6%
26.2
7.2
4.0
3.7
3.3
44.4
3.6%
(1.9)
(0.1)
(0.5)
(2.7)
0.9
(4.3)
1.0%
-7.3%
-1.4%
-12.5%
-73.0%
27.3%
-9.7%
27.8%
Total Sales and Marketing expenses for the Company for the year ended 31 December 2014 of $40.1 million decreased 9.7%,
or $4.3 million, from the same period of the prior year (2013: $44.4 million). Compensation and benefits as a percentage of
revenue remained consistent from the prior year. As many of the costs associated with the Companyʼs facilities are fixed in
nature and have non-cancellable leases, occupancy costs remained relatively flat compared to the prior year. Professional
fees decreased significantly from prior year as a result of the supply chain group insourcing certain warehousing activities
which reduced its reliance on a vendor.
For the year ended 31 Dece m ber
2014
2013
US$ 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
69.0
21.5
17.7
5.9
10.2
124.3
14.3%
81.9
26.7
26.5
7.2
15.4
157.7
12.9%
(12.9)
(5.2)
(8.8)
(1.3)
(5.2)
(33.4)
1.4%
-15.8%
-19.5%
-33.2%
-18.1%
-33.8%
-21.2%
10.9%
Total General and Administrative expenses for the Company for the year ended 31 December 2014 were $124.3 million,
representing a decrease of 21.2%, or $33.4 million, compared to $157.7 million for the same period of 2013. General and
administrative expenses decreased due to aggressive cost reduction actions taken from 2012 and continuing throughout 2013
and 2014. The increase as a percentage of revenue is mainly due to revenues decreasing more quickly than cost reductions
could be implemented combined with the higher fixed cost nature of our remaining general and administrative expenses,
particularly as a result of the significant cost reductions that have already occurred in 2012 and 2013.
In response to weakening industry conditions, we have taken a series of actions to reset the Companyʼs cost base, to
establish a more sustainable 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 that 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 carrying into 2013, these initiatives reduced Company expenses by
approximately $70.0 million, equivalent to 20% of global overhead, with approximately $15.0 million and $55.0 million realised
in 2012 and 2013, respectively.
__________________________________________________________________________________________
16
13
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
In the first-half of 2013, an operational review was concluded that resulted in recommendations for several additional
restructuring initiatives to reduce overhead and operating costs across the Company, including additional rationalisation of
manufacturing, inventory and administrative facilities. In August of 2013, the Company announced a $90 million cost reduction
program - in addition to the $70 million of cost reductions announced in December 2012 – which resulted in an over 30%
reduction in stocking locations globally, the consolidation of the Global Products divisionʼs aftermarket services group with the
Global Drilling Services maintenance group and the consolidation of the supply chain groups for both divisions. As a result of
these actions and significant reductions in our SG&A costs, the Company reduced its headcount by over 3,300 during 2013,
including approximately 45% of general and administrative positions across the business. We estimate that such actions
reduced fixed costs by a total of approximately $60 million during 2013 and an additional $28 million in 2014.
In 2014, the Company took further cost reduction actions through the initiation of a salary freeze for certain employees and
other temporary reduction measures, which will result in annualised cash savings of approximately $28 million.
For the year ended 31 Decem ber
2014
2013
2012
Em ployee headcount reduction
Sales, marketing, general and administrative
% reduction from prior year
% reduction from 2011
866
-4.0%
-40.4%
902
-27.8%
1,249
-14.0%
For the year ended 31 Decem ber
2014
2013
2012
Sales, m arketing, ge neral and adm inistrative cost reduction
Sales, marketing, general and administrative (US$ millions)
% of reduction from prior year
% of reduction from 2011
164.4
-18.7%
-45.7%
202.1
-32.1%
297.7
-1.6%
Despite the significant cost actions occurring over the last 18 months, the Company and its employees remain committed to
driving more efficiencies across our business platform, while still delivering safe, reliable and productive drilling services and
innovative products to customers.
__________________________________________________________________________________________
17
14
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
3.3 Significant Items
During 2014 and 2013, the Company incurred the following restructuring, recapitalisation expenses and impairment charges
related to current market conditions and cost reductions:
Significant ite m s
Recapitalisation costs
Impairments
Property, plant and equipment
Intangible assets
Inventory
Goodw ill
Development asset
Employee and related costs
Other restructuring expenses
Total significant item s
For the year ended 31 Dece m ber
2014
2013
$
US$ Millions
US$ Millions
Change
45.5
46.1
1.6
0.7
-
-
12.5
7.6
114.0
-
45.5
109.9
9.1
101.9
166.3
14.6
44.8
14.6
461.2
(63.8)
(7.5)
(101.2)
(166.3)
(14.6)
(32.3)
(7.0)
(347.2)
Significant items decreased to $114.0 million during 2014 (2013: $461.2 million). Recapitalisation activities represented $45.5
million of these expenses. $20.8 million of the expenses were associated with employee separations and retention, exiting
onerous leases, and impairments of inventory related to resizing the business. Impairment charges in the carrying value of
certain plant and equipment following reviews of asset carrying values totaled $46.1 million.
3.4 Other Income/Expenses
Other income decreased to $7.6 million during 2014 (2013: $18.2 million for the comparable period). During the year ended
31 December 2014, we recorded a gain on a litigation settlement of $3.1 million, an increase due to gains on disposal of
property, plant and equipment and sales of scrap of $2.2 million and increases in other income of $2.3 million. During 2013
we had a $16.9 million gain related to the Companyʼs decision to terminate a post-retirement medical plan in North America.
Other expenses, principally amortisation of intangible assets, loss on foreign exchange and sundry asset impairments,
increased $5.9 million to $30.7 million during 2014 (2013: $24.8 million). Amortisation of intangible assets decreased due to a
lower carrying value of intangible assets resulting from prior year impairments.
The loss on foreign currency exchange increased due to strengthening of the US dollar and increased volatility of selected
currencies during 2014. The Company continues to actively manage its exposure to foreign currency exchange risk which may
include the use of forward exchange contracts or currency options. However, for the years ended 31 December 2014 and
2013, the Company did not employ the use of these methods in managing its currency exposures.
__________________________________________________________________________________________
18
15
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
3.5 Finance Costs and Interest Income
Finance costs
Average gross senior notes outstanding
Average related interest rate
Average term loans outstanding
Average related interest rate
Average gross revolver outstanding
Average related interest rate
Interest Income
For the year ended 31 Decem ber
2014
2013
%
US$ Millions
US$ Millions
Change
66.1
584.2
8.5%
38.5
12.0%
22.5
5.0%
5.5
40.9
378.9
7.6%
0%
0%
246.6
2.4%
2.9
61.6%
54.2%
11.8%
-
-
-90.9%
108.3%
89.7%
Finance costs increased to $66.1 million during 2014 (2013: $40.9 million) as a result of higher average debt levels and higher
average interest rates, primarily associated with the run-rate impact of the companyʼs $300.0 million Senior Secured Notes
which were issued in September 2013 (note, in November 2014 proceeds from Term Loan B, in the amount of $105.0 million,
were used to repurchase $105.0 million of the Senior Secured Notes and had no impact on average debt outstanding) and the
net impact of the $120.0 million Term Loan A associated with the recapitalisation of which $30 million was used to refinance
the Companyʼs prior revolving credit facility. The Company also incurred an expense associated with the write-off of debt
issuance costs of $6.1 million during 2014.
__________________________________________________________________________________________
19
16
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
3.6 Income Tax Expense
For the year ende d 31 De cem be r
2014
Adjustm e nts
2014
2013
Adjustm e nts
2013
Statutory for Significant Underlying
Statutory for Significant Unde rlying
US$ Millions
Ite m s
US$ Millions US$ Millions
Ite m s
US$ Millions
(Loss) Profit before Taxation
(251.7)
114.0
(137.7)
(505.9)
444.3
(61.6)
Tax at Australian rate of 30%
Derecognition of def erred tax assets
Unrecognised tax losses
Non deductible items related to impairments
75.5
(68.2)
(42.4)
-
Income tax in countries low er than parent tax rate
(30.7)
Income tax in countries higher than parent tax rate
Withholding tax net of foreign tax credit
Other non-assessable/deductible items
Over/under provisions
Income subject to double taxation
Other
(4.0)
(3.3)
(0.6)
-
4.3
(11.6)
(34.2)
68.2
42.4
-
1.5
(1.0)
-
-
-
-
-
41.3
151.8
(133.3)
18.5
-
-
-
(29.2)
(5.0)
(3.3)
(0.6)
-
4.3
(11.6)
(92.7)
(67.6)
(50.4)
(30.1)
1.2
(9.0)
(8.9)
(4.2)
0.5
(4.6)
92.7
67.6
50.4
8.2
(4.3)
-
-
-
-
-
-
-
-
(21.9)
(3.1)
(9.0)
(8.9)
(4.2)
0.5
(4.6)
Tax per the annual financial re port
(81.0)
76.9
(4.1)
(114.0)
81.3
(32.7)
Income tax expense on the pre-tax loss of $251.7 million for 2014 was $81.0 million. This tax expense is illustrated in the table
above and can largely be attributed to several factors including:
• profits in higher tax rate countries;
•
significant losses in lower tax rate countries;
• withholding taxes on intercompany transactions;
•
the non-recognition of current period losses; and
•
the write-down of deferred tax assets.
3.7 Earnings (Losses)
Net operating loss after tax for the Company was $332.7 million for the year ended 31 December 2014 (2013: net operating
loss after tax of $619.9 million). EBITDA for 2014 was a loss of $82.6 million (2013: $337.1 million EBITDA loss). Results
were driven by the performance of Global Products and Global Drilling Services, significant restructuring and recapitalisation
expenses and impairment charges.
Adjusted net operating loss after tax for the Company increased to an adjusted loss of $141.8 million for 2014 (2013: adjusted
loss $94.3 million) and adjusted EBITDA decreased by 70.7% to $31.4 million for 2014 (2013: $107.2 million). See
reconciliation in Section 7 ʻNon-IFRS Financial Informationʼ.
3.8 Seasonality
The global business experiences a seasonal reduction in drilling, usually during the months of November, December and
January, when mining activity is reduced and workers travel to and from their homes for holidays. A seasonal increase in
drilling generally follows in the months of February and March. Working capital is generally at its highest during the second
and third quarters of the year and generally decreases to a seasonal low at year-end, driven by reduced business activity
during this typically slow period.
__________________________________________________________________________________________
20
17
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
4. Discussion and Analysis of Cash Flow
For the year e nded 31 Decem ber
2014
2013
US$ Millions US$ Millions
$ Change
% Change
Cash generated from operations
Net cash flow s (used in) provided by operating activities
Net cash flow s used in investing activities
Net cash flow s provided by (used in) financing activities
Net increase (decrease) in cash
Cash and cash equivalents at the beginning of the year
54.6
(11.3)
(12.0)
143.9
120.6
59.1
76.3
11.5
(2.2)
(22.9)
(13.5)
89.6
(21.7)
-28.4%
(22.8)
-198.3%
(9.8)
-445.5%
166.8
134.1
728.4%
993.3%
(30.5)
-34.0%
Effects of exchange rate changes on cash
(10.8)
(17.0)
6.2
36.5%
Cash and cash equivalents at the end of the year
168.8
59.1
109.7
185.6%
4.1 Cash Flow from Operating Activities
Cash flows from operating activities for 2014 was negative $11.3 million, a decrease of $22.8 million from the prior year
comparable period (2013: cash provided by operating activities $11.5 million). The decrease in 2014 was mainly due to:
•
•
•
•
•
an increase of $47.5 million in the adjusted loss for the year;
a decrease in cash generated from the sale of inventory from the prior year of $61.1 million;
an increase in interest paid during the year of $29.1 million;
cash generated from increasing trade and other payables balances of $11.1 million as compared to a use of cash on
decreasing balances in the prior year of $138.7 million which represents a $149.8 million change; and
a decrease in cash taxes paid during the year of $25.3 million.
__________________________________________________________________________________________
21
18
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
4.2 Cash Flow from Investing
For the year ended 31 Decem ber
2014
2013
US$ Millions US$ Millions $ Change % Change
Purchase of property, plant and equipment
(13.8)
(35.5)
21.7
61.1%
Proceeds from sale of property, plant and equipment
Intangible costs paid
Proceeds on disposal of subsidiary
6.2
(4.4)
-
14.5
(8.3)
-57.2%
(6.0)
1.6
26.7%
24.8
(24.8)
100.0%
Total net cash flow s from investing activities
(12.0)
(2.2)
(9.8)
-445.5%
The Company continued to invest in capital equipment to support existing operations, which resulted in capital of $13.8 million
being invested, down 61.1% on the prior year (2013: $35.5 million). In 2014, the Company continued to pursue initiatives to
conserve cash, including through prudent and judicious control over capital expenditures.
Intangible costs paid relate to payments for patents, both to apply for new patents and to maintain existing patents,
trademarks, software and costs incurred for development activities.
4.3 Cash flows from Financing Activities
In October 2014, the Company announced a recapitalisation transaction led by its largest shareholder, Centerbridge Partners,
L.P., successfully completing its strategic review of recapitalisation options. As part of the recapitalisation, the Company was
able to substantially improve its liquidity through equity raisings and debt refinancing.
Equity Raisings
The Company raised $27.2 million in new equity through a series of equity transactions prior to 31 December 2014 through the
Initial Equity Placement and Conditional Placement to Centerbridge Partners, L.P.. In January 2015, the Company raised an
additional $83.7 million through the Rights Offer. While non-cash, a further $16.0 million of equity was raised in January 2015
via equitisation of $16.0 million of 7% Notes held by Centerbridge Partners, L.P.. See Note 37 for additional discussion.
Debt Refinancing
The recapitalisation provided $225 million of new “covenant-lite” term loans that will accrete (i.e. accumulating and
compounding) interest. Structured as Term A and Term Loan B, the new loans will have an interest rate of 12% per annum,
which would be reduced to 11% per annum if the Companyʼs trailing 12 month adjusted EBITDA is greater than $200 million.
The new Term Loans provide immediate incremental liquidity as a result of accretive interest –no cash pay- and full access to
funds (likely breach of former bank facilities would have prevented access to the credit facility) and extended maturities from
2016 to 2020.
__________________________________________________________________________________________
22
19
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
5. Discussion of the Balance Sheet
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid expenses and other assets
Property, plant and equipment
Goodw ill
Other intangible assets
Tax assets
Other assets
Total Assets
Trade and other payables
Provisions
Tax liabilities
Loans and borrow ings
Total Liabilities
Issued capital
Reserves
Other equity
Accumulated losses
Total Equity
For the year ended 31 Decem ber
2014
2013
US$ Millions
US$ Millions
$ Change
% Change
168.8
137.4
241.3
18.7
279.3
102.5
77.3
97.6
17.5
59.1
196.9
298.9
25.1
408.3
104.0
92.0
135.4
10.8
109.7
(59.5)
(57.6)
(6.4)
(129.0)
(1.5)
(14.7)
(37.8)
6.7
1,140.4
1,330.5
(190.1)
167.0
68.9
118.0
716.3
1,070.2
1,159.1
(82.8)
(137.2)
(868.9)
70.2
153.2
70.4
92.9
585.4
901.9
1,129.0
(37.3)
(137.2)
(525.9)
428.6
13.8
(1.5)
25.1
130.9
168.3
30.1
(45.5)
-
(343.0)
(358.4)
185.6%
-30.2%
-19.3%
-25.5%
-31.6%
-1.4%
-16.0%
-27.9%
62.0%
-14.3%
9.0%
-2.1%
27.0%
22.4%
18.7%
2.7%
-122.0%
0.0%
-65.2%
-83.6%
The net assets of the Company decreased by $358.4 million to $70.2 million as at 31 December 2014 compared to $428.6
million as at 31 December 2013. This decrease was a result of continued reductions of inventory, impairments of property,
plant and equipment and the write-off of deferred tax assets. The Company continues to actively manage net working capital
in relation to the current business cycle. In sustained periods of reduced global drill rig utilisation, inventory reductions are
more difficult to achieve through business activity 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 increased by $109.7 million, or 185.6%, to $168.8 million as at 31 December 2014 (2013: $59.1
million). Correspondingly, trade and other receivables decreased by $59.5 million, or 30.2%, to $137.4 million as at 31
December 2014 (2013: $196.9 million) reflecting decreased revenues, increased focus on cash collections by all divisions.
Inventories decreased by $57.6 million, or 19.3 %, to $241.3 million as at 31 December 2014 (2013: $298.9 million). Of the
decrease, $40.7 million related to third party sales and Global Drilling Services consumption, $16.9 million of foreign currency
exchange and other non-cash changes.
Other assets consist of current prepayments and deposits and VAT/GST receivables.
The net value of property, plant and equipment decreased by $129.0 million to $279.3 million as at 31 December 2014 (2013
$408.3 million) mainly due to decreased capital spend, asset impairment charges of $46.1 million, depreciation expense of
$84.6 million, offset by additions of $19.7 million and foreign currency exchange of $13.7 million.
__________________________________________________________________________________________
23
20
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
Goodwill remained relatively unchanged at $102.5 million as at 31 December 2014 compared to 31 December 2013 (2013:
$104.0 million)
Other intangible assets decreased by $14.7 million, or 16.0 %, to $77.3 million as at 31 December 2014 (2013: $92.0 million)
mainly due to amortisation for the year of $17.8 million and impairments of $1.7 million, which was partially offset by
trademark, patent, software and development asset additions of $5.4 million and foreign currency exchange.
Tax assets decreased by $37.8 million, or 27.9%, to $97.6 million as at 31 December 2014 (2013: $135.4 million) mainly due
to the write down of deferred tax assets that are of uncertain benefit to the Company.
Trade and other payables increased by $13.8 million, or 9.0% as at 31 December 2014 (2013: $153.2). The increase is
mainly due to accrued costs of $18.4 million relating to the recapitalisation efforts that were accrued as at 31 December 2014.
DSO at 31 December 2014 decreased by 7 days from the prior year comparable period. The average credit period on
purchases of certain goods increasing by 2 days to 33 days. Trade payables represent 6.4% of the Companyʼs total liabilities.
Provisions of $68.9 million as at 31 December 2014 decreased by 2.1%, or $1.5 million, compared to the prior year (2013:
$70.4 million), and represent 6.4% of total Company liabilities. Employee provisions (annual leave, long service leave and
bonus) made up 24% of this balance, with the remainder covering restructuring provisions, onerous leases and warranty
obligations.
Borrowings of $716.3 million representing 66.9% of the Companyʼs liabilities increased by $130.9 million during the year
ended 31 December 2014 (2013: $585.4 million) as a result of the recapitalisation transaction entered into during 2014 which
provided additional cash to the Company and increased borrowings. Net debt of the Companyʼs (gross debt less cash and
cash equivalents) increased by $21.3 million to $547.6 million as at 31 December 2014 (2013: $526.3 million)
Liquidity and Debt Facilities
The Companyʼs 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 $195.0 million senior secured note with a first-priority
lien on the issuerʼs and guarantorsʼ tangible and intangible assets and by a second-priority lien on the issuerʼs and guarantorsʼ
accounts receivable, inventory and cash with an interest rate of 10% and a scheduled maturity date of 1 October 2018.
The Company also has outstanding two tranches of term loans. Structured as Term Loan A and Term Loan B, the loans carry
an interest rate of 12% per annum, which may be reduced to 11% per annum if the Companyʼs trailing 12 month adjusted
EBITDA is greater than $200.0 million. Term Loan A is a $120.0 million secured loan with a first lien on the borrowerʼs and
guarantorsʼ accounts receivable, inventory, and cash and a second lien on the borrowerʼs and guarantorsʼ tangible and
intangible assets and a scheduled maturity date of 22 October 2020. As at 31 December 2014 the accreted interest on Term
Loan A is $2.8 million. Term Loan B is a $105.0 million secured loan note that is secured by a first-priority lien on the
borrowerʼs and guarantorsʼ tangible and intangible assets and by a second-priority lien on the borrowerʼs and guarantorsʼ
accounts receivable, inventory and cash and a scheduled maturity date of 1 October 2018. As at 31 December 2014, the
accreted interest on Term Loan B is $1.9 million.
__________________________________________________________________________________________
24
21
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 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.
Liquidity appears sufficient for the next twelve months.
Risks to liquidity include potential demand for security to challenge tax assessments and other operating conditions for which
Risks to liquidity include potential demand for security to challenge tax assessments and other operating conditions for which
we would need to draw on liquidity to fund.
we would need to draw on liquidity to fund.
During 2014 net working capital was a key focus area; we continued to reduce accounts receivable and inventory balances, as
During 2014 net working capital was a key focus area; we continued to reduce accounts receivable and inventory balances, as
well as delivering a reduction in trade payables (driven by the lower level of manufacturing activities and continued focus on
well as delivering a reduction in trade payables (driven by the lower level of manufacturing activities and continued focus on
cost control).
cost control).
DSO (days sales outstanding) at 31 December 2014 decreased by 7 days from the prior year (down to 53 from 60 in 2013),
DSO (days sales outstanding) at 31 December 2014 decreased by 7 days from the prior year (down to 53 from 60 in 2013),
driven by a global push to deliver improved collections results, combined with a strong focus on prompt customer billing by our
driven by a global push to deliver improved collections results, combined with a strong focus on prompt customer billing by our
Global Drilling Services division.
Global Drilling Services division.
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 Moodyʼs
Investor Services. The corporate credit rating with Standard and Poor’s Rating Services has been revised from a B rating to a
Investor Services. The corporate credit rating with Standard and Poorʼs Rating Services has been revised from a B rating to a
CCC rating. The corporate credit rating with Moody’s has been revised from a B2 rating to a Caa1 corporate family rating.
CCC rating. The corporate credit rating with Moodyʼs has been revised from a B2 rating to a Caa1 corporate family rating.
Both rating agencies downgrades reflect expectations that the operating conditions for the Company will remain difficult for the
Both 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
next 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.
pressure on rig utilisations and will likely result in continued pressure on performance.
On 27 January 2015, the Company finalised the rights offering and received proceeds of A$106.2 million. The Company also
On 27 January 2015, the Company finalised the rights offering and received proceeds of A$106.2 million. The Company also
completed the acquisition of approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-
completed the acquisition of approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-
market buyback. Those shares were cancelled and, subsequently, 7.5 million new shares were sold to Centerbridge Partners,
market buyback. Those shares were cancelled and, subsequently, 7.5 million new shares were sold to Centerbridge Partners,
L.P. for the same price per share. In addition, the Company also completed the equitisation of $US16 million of its 7.00%
L.P. for the same price per share. In addition, the Company also completed the equitisation of $US16 million of its 7.00%
Senior Unsecured Notes, held by Centerbridge Partners, L.P., and its affiliates and related funds through the issuance of
Senior Unsecured Notes, held by Centerbridge Partners, L.P., and its affiliates and related funds through the issuance of
approximately 102.8 million shares. See note 37 Subsequent Events.
approximately 102.8 million shares. See note 37 Subsequent Events.
__________________________________________________________________________________________
__________________________________________________________________________________________
25
22
22
Boart Longyear Annual Report 2014
Annual Financial Report
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
6. Review of Segment Operations
6. Review of Segment Operations
6. Review of Segment Operations
The following table shows our third party revenue as well as revenue inclusive of inter-segment sales from our Global Products
The following table shows our third party revenue as well as revenue inclusive of inter-segment sales from our Global Products
The following table shows our third party revenue as well as revenue inclusive of inter-segment sales from our Global Products
division to our Global Drilling Services division. Segment profit represents earnings before interest and taxes.
division to our Global Drilling Services division. Segment profit represents earnings before interest and taxes.
division to our Global Drilling Services division. Segment profit represents earnings before interest and taxes.
Segm ent Revenue
Segm ent Revenue
Segm ent Revenue
2014
2014
2014
US$ Millions
US$ Millions
US$ Millions
2013
2013
2013
US$ Millions
US$ Millions
US$ Millions
Segm ent Profit
Segm ent Profit
Segm ent Profit
2014
2014
2014
2013
US$ Millions US$ Millions
US$ Millions US$ Millions
US$ Millions US$ Millions
2013
2013
Drilling Services
Drilling Services
Drilling Services
636.1
636.1
636.1
917.3
917.3
917.3
(2.9)
(2.9)
(2.9)
40.6
40.6
40.6
Global Products revenue
Global Products revenue
Global Products revenue
Products third party revenue
Products third party revenue
Products third party revenue
Products inter-segment revenue 1
Products inter-segment revenue 1
Products inter-segment revenue 1
Total Products
Total Products
Total Products
230.4
230.4
230.4
72.4
72.4
72.4
Less Global Product sales to Global Drilling Services
Less Global Product sales to Global Drilling Services
Less Global Product sales to Global Drilling Services
Total third party revenue
Total third party revenue
Total third party revenue
Total segment prof it
Total segment profit
Total segment prof it
305.5
56.6
305.5
305.5
56.6
56.6
302.8
302.8
302.8
(72.4)
(72.4)
(72.4)
866.5
866.5
866.5
362.1
362.1
362.1
4.3
4.3
4.3
2.1
2.1
2.1
(56.6)
(56.6)
(56.6)
1,222.8
1,222.8
1,222.8
1.4
1.4
1.4
42.7
42.7
42.7
(1) Transactions between segments are carried out at armʼs 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 armʼs length and are eliminated on consolidation.
Revenue by Type 1
Revenue by Type 1
Revenue by Type 1
Revenue by Geography 1
Revenue by Geography 1
Revenue by Geography 1
(1) Based on percentages of total Company revenue for the year ended 31 December 2014.
(1) Based on percentages of total Company revenue for the year ended 31 December 2014.
(1) Based on percentages of total Company revenue for the year ended 31 December 2014.
__________________________________________________________________________________________
23
__________________________________________________________________________________________
__________________________________________________________________________________________
26
23
23
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
Revenue by Stage 1
Revenue by Stage 1
Revenue by Commodity 1
Revenue by Commodity 1
(1) Based on percentages of total Company revenue for the year ended 31 December 2014.
(1) Based on percentages of total Company revenue for the year ended 31 December 2014.
Review of Segment Operations - Global Drilling Services
Review of Segment Operations - Global Drilling Services
Safety
Safety
The Global Drilling Services division remains focused on safety knowing that safety is more than just an industry requirement,
The Global Drilling Services division remains focused on safety knowing that safety is more than just an industry requirement,
it is our moral obligation. The Global Drilling Services division’s Total Case Incident Rate (TCIR) for 2014 was 1.51 compared
it is our moral obligation. The Global Drilling Services divisionʼs Total Case Incident Rate (TCIR) for 2014 was 1.51 compared
to 1.79 for the comparable period in 2013. Its Lost-Time Incident Rate (LTIR) for 2014 was 0.14 compared to 0.21 for the
to 1.79 for the comparable period in 2013. Its Lost-Time Incident Rate (LTIR) for 2014 was 0.14 compared to 0.21 for the
comparable period of 2013. These improvements have been realised through increased focus on actions related to leading
comparable period of 2013. These improvements have been realised through increased focus on actions related to leading
safety indicators associated with the drilling process and include actions such as encouraging our employees to report “near
safety indicators associated with the drilling process and include actions such as encouraging our employees to report “near
miss” incidents; learning from and taking mitigating actions as a result of the root cause analysis of significant injuries and high
miss” incidents; learning from and taking mitigating actions as a result of the root cause analysis of significant injuries and high
potential near miss incidents; increasing management’s safety interactions at the drill sites; increasing supervisory
potential near miss incidents; increasing managementʼs safety interactions at the drill sites; increasing supervisory
competencies through training, increasing drill rig inspection frequency; and creating an environment where employees are
competencies through training, increasing drill rig inspection frequency; and creating an environment where employees are
empowered to stop work if they detect a hazard and to take other actions to assure their own safety as well as that of their
empowered to stop work if they detect a hazard and to take other actions to assure their own safety as well as that of their
fellow workers.
fellow workers.
Key Safety Metrics 1
Key Safety Metrics 1
TCIR
TCIR
LTIR
LTIR
2014
2014
1.51
1.51
0.14
0.14
2013
2013
1.79
1.79
0.21
0.21
(1) These rates are per 200,000 hours worked.
(1) These rates are per 200,000 hours worked.
2012
2012
1.66
1.66
0.11
0.11
__________________________________________________________________________________________
__________________________________________________________________________________________
27
24
24
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
Rig fleet
Our drill rig fleet, consisting of 942 rigs as at 31 December 2014, is the largest fleet operated by a mineral drilling services
company in the world. Our drill rig packages range from small underground packages costing approximately $250,000 to large
diameter rotary packages that cost in excess of $4.0 million. The operational life of a drill rig varies greatly. Underground rigs
are depreciated over a 5 year period, while surface core rigs are depreciated over 10 years and rotary rigs over 12 years, or
their estimated useful life.
Revenue
As we experienced in the second-half of 2012 and the full year 2013, mining industry spending on exploration and
development continued to decline in 2014 and, as a result, our revenue in 2014 was $636.1 million, down 30.7% from $917.3
million in 2013. The primary drivers of the revenue decrease were year over year price reductions in the low teens as a
percentage of revenue and the changing mix among our various types of drilling services. The 2013 revenue also included
$29.6 million of revenue related to the E&I business that was sold in the second-half of 2013. Revenue for the second half of
2014 was $327.9 million as compared to $308.2 million in the first half of 2014, an increase of 6.4%. The half year over half
year increase in revenue can be attributed to the seasonal nature of our business along with a slight increase in the number of
operating rigs. Operating rig utilisation remained at approximately 40.0% through November 2014 which was more favourable
than a typical year. Drilling programs typically begin to wind down at the end of the fourth quarter due to our customersʼ
normal year-end seasonal reductions in exploration and development drilling related activities.
Approximately 83% of Global Drilling Servicesʼ revenue for the year ended 31 December 2014 was derived from major mining
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
57% of Global Drilling Servicesʼ revenue for the year ended 31 December 2014, with no customer contributing more than 12%
of our consolidated revenue and no contract contributing more than 5% of our consolidated revenue. We believe this
diversified revenue base provides greater revenue stability.
__________________________________________________________________________________________
28
25
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
Revenue by Customer Type
Revenue by Customer Type
Revenue by Drill Type
Revenue by Drill Type
Although each drilling type has experienced revenue declines in the past years, much of the Global Drilling Services’ revenue
Although each drilling type has experienced revenue declines in the past years, much of the Global Drilling Servicesʼ revenue
reduction can be attributed to reduced levels of surface coring activity. Surface coring revenues for 2014 were $202.4 million
reduction can be attributed to reduced levels of surface coring activity. Surface coring revenues for 2014 were $202.4 million
as compared to 2013 revenues of $341.5 million, a decrease of 40.7%. For the same period rotary drilling experienced a drop
as compared to 2013 revenues of $341.5 million, a decrease of 40.7%. For the same period rotary drilling experienced a drop
in revenues of 15.3% and underground coring experienced a drop in revenues of 17.7%.
in revenues of 15.3% and underground coring experienced a drop in revenues of 17.7%.
__________________________________________________________________________________________
__________________________________________________________________________________________
29
26
26
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
Revenue by Drill Type1
2014
2013
2012
US$
Millions
202.4
154.8
109.4
98.5
45.4
25.6
636.1
% of
Total
31.8%
24.3%
17.2%
15.5%
7.1%
4.1%
US$
Millions
% of
Total
US$
Millions
% of
Total
341.5
188.0
129.2
133.2
63.5
61.9
917.3
37.2%
20.5%
14.1%
14.5%
6.9%
6.8%
767.1
204.6
224.8
162.5
64.9
92.3
1,516.2
50.6%
13.5%
14.8%
10.7%
4.3%
6.1%
Surface Coring
UG Coring
Rotary
Water Well
Percussive
Sonic
Grand Total
(1) Total Global Drilling Services revenue as reported in 2013 and 2012, includes revenues from the E&I environmental business of
$29.6 and $124.3, respectively. The E&I business was sold in 2013.
Revenue by commodity
Much of the reduction in our revenue can be attributed to reduction in commodity demand and pricing and the related
reduction in exploration spending and drilling activities. In particular, Global Drilling Services revenue associated with gold has
decreased to $285.7 million for 2014 as compared to $354.9 million for the year ended 2013, a decrease of 19.5%. For the
same time periods, revenue associated with copper has decreased by 38.9% and revenue associated with iron has decreased
by 62.3%.
Revenue by Commodity1
2014
2013
2012
US$
Millions
% of
Total
US$
Millions
% of
Total
US$
Millions
% of
Total
Gold
Copper
Energy
Iron
Water Services
Nickel
Environmental
Other Metals
Grand Total
285.7
120.8
56.3
39.9
42.9
26.8
8.3
55.4
636.1
44.9%
19.0%
8.9%
6.3%
6.7%
4.2%
1.3%
8.7%
354.9
197.6
60.5
105.9
42.2
60.1
26.9
69.2
917.3
38.7%
21.5%
6.6%
11.5%
4.6%
6.6%
2.9%
7.6%
663.7
351.8
74.8
142.0
64.5
71.9
77.2
70.3
1516.2
43.8%
23.2%
4.9%
9.4%
4.3%
4.7%
5.1%
4.6%
(1) Total Global Drilling Services revenue as reported in 2013 and 2012, includes revenues from the E&I environmental business of
$29.6 and $124.3, respectively. The E&I business was sold in 2013.
Margins
Global Drilling Services continues to experience margin degradation with 2014 revenue 30.7%, or $281.2 million, lower than
the comparable period in 2013, as a result of lower utilisation rates and a negative overall pricing impact in the low-to-mid
teens, both of which were partially offset by improvements in productivity. While revenues in the business were down 30.7%
from 2013, COGS was down only 25.8%, as a result of the negative flow through of price reductions against the cost base
required to achieve contracted drilling volumes. The 2014 margins were also negatively affected by higher depreciation as a
percent of revenue. Depreciation for 2014 equated to $69.9 million or 11.0% of revenue compared to $94.6 million or 10.3% in
2013. Contribution margin for 2014 was $25.5 million, down 71.4% from $89.3 million in 2013 despite a 34.8%, or $15.6
million, reduction in business SG&A.
__________________________________________________________________________________________
30
27
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
EBITDA in 2014 was $68.8 million, down 51.7% from $141.9 million in 2013, despite improvements in both allocated SG&A of
$11.7 million and in direct business SG&A of $15.6 million. The primary drivers for the decrease in EBITDA were the
decrease in sales volume and pricing reductions. EBITDA in the second half of 2014 was $32.2 million compared to $36.6
million in the first half of 2014, a decrease of 2.0%.
Global Drilling Services
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
Average # of Operating Drill Rigs
Average # of Drill rigs
# of Employees at year-end
For the year ended 31 Decem ber
2014
2013 1
US$ Millions
US$ Millions
$ Change
% Change
636.1
917.3
(281.2)
-30.7%
511.6
69.9
581.5
91.4%
25.5
4.0%
29.2
28.3
68.6
16.3
354
948
4,172
688.7
94.6
783.3
85.4%
89.3
9.7%
44.8
40.1
141.9
37.6
396
1,037
4,338
(177.1)
(24.7)
(201.8)
6.0%
(63.8)
-5.7%
(15.6)
(11.8)
(73.3)
(21.3)
(42)
(89)
(166)
-25.7%
-26.1%
-25.8%
7.0%
-71.4%
-58.8%
-34.8%
-29.4%
-51.7%
-56.6%
-10.6%
-8.6%
-3.8%
(1)
Includes the operations of the US-based environmental and infrastructure drilling services business (E&I) that was sold on 15 July
2013.
__________________________________________________________________________________________
31
28
Boart Longyear Annual Report 2014
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
(1)
(1)
Includes the operations of the US-based environmental and infrastructure drilling services business (E&I) that was sold on 15 July
Includes the operations of the US-based environmental and infrastructure drilling services business (E&I) that was sold on 15 July
2013.
2013.
The table below shows the pro-forma results for the Global Drilling Services business taking out results of the E&I business in
The table below shows the pro-forma results for the Global Drilling Services business taking out results of the E&I business in
2013.
2013.
Global Drilling Services (Excluding E&I business)
Global Drilling Services (Excluding E&I business)
For the year ended 31 Decem ber
For the year ended 31 Decem ber
2014
2014
2013
2013
Pro Form a
Pro Form a
Pro Form a
Pro Form a
US$ Millions
US$ Millions
US$ Millions
US$ Millions
$ Change
$ Change
% Change
% Change
636.1
636.1
887.7
887.7
(251.6)
(251.6)
-28.3%
-28.3%
511.6
511.6
69.9
69.9
581.5
581.5
91.4%
91.4%
25.5
25.5
4.0%
4.0%
68.6
68.6
676.4
676.4
89.2
89.2
765.6
765.6
86.2%
86.2%
79.9
79.9
9.0%
9.0%
129.3
129.3
(164.8)
(164.8)
(19.3)
(19.3)
(184.1)
(184.1)
5.2%
5.2%
(54.4)
(54.4)
-5.0%
-5.0%
(60.7)
(60.7)
-24.4%
-24.4%
-21.6%
-21.6%
-24.0%
-24.0%
6.0%
6.0%
-68.1%
-68.1%
-55.6%
-55.6%
-46.9%
-46.9%
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
__________________________________________________________________________________________
__________________________________________________________________________________________
32
29
29
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
Review of Segment Operations - Global Products
Safety
Safety is fundamental to the success of our Global Products business. The Company is committed to providing our employees
with a safe workplace, and our employees are committed to operating safely wherever they are located. In 2014, the Total
Case Incident Rate (TCIR) was 0.75 recordable incidents per 200,000 hours worked and the Lost-Time Incident Rate (LTIR)
was 0.0 lost-time injuries per 200,000 hours worked.
Revenue
The market for the Global Products business remains soft relative to 2013. Revenue during 2014 came in at $230.4 million,
down 24.6% from $305.5 million in 2013. The primary driver of the decrease was lower volume due to the overall slowdown in
the mineral exploration market. Although revenue was down on a year-over-year basis, we saw a slight improvement in
demand during the second half of the year. This is apparent when comparing second-half 2014 results to first-half 2014.
Revenue in second-half 2014 came in at $117.2 million compared to $113.2 million in first-half 2014. We expect to see a
relatively flat environment in the near-term.
Of Global Productsʼ revenue for 2014, approximately 80% was comprised of performance tooling components. Through a
worldwide network of 140 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 consolidated revenue for the full-year
period 2014. Global Products also provides many of the products necessary for our Global Drilling Services division.
Margins
We continue to experience margin pressure due primarily to the decrease in volume. Contribution margin in 2014 came in at
$34.4 million, down 11.8% from $39.0 million in 2013, despite a $3.6 million reduction in business SG&A. When comparing
second-half 2014 to first-half 2014, however, we are starting to see margin improvement. Contribution margin in second-half
2014 came in at $18.7 million compared to $15.7 million in first-half 2014. This margin improvement is due to the flow-through
of additional volume in the second half as well as greater fixed cost leverage due to production levels at the plants increasing
marginally. As a result of the large reduction in inventories over the past two years, we have started producing key SKUs and
this is benefitting Productsʼ margins as manufacturing recoveries improve.
EBITDA in 2014 came in at $14.0 million, down 13.0% from $16.1 million in 2013, despite a $4.4 million reduction in allocated
SG&A (along with the $3.6 million reduction in business SG&A mentioned above). The primary driver of the decrease in
EBITDA was the flow through from lower volumes. When comparing second-half 2014 to first-half 2014, however, we are
seeing improvement. This is due to the flow-through of additional volume in the second half along with improved
manufacturing recoveries referred to above. EBITDA in the second-half 2014 came in at $8.2 million compared to $5.8M in the
first-half 2014.
Backlog
At 31 December 2014, we had a backlog of product orders valued at $19.5 million. This compares to $19.1 million at 30 June
2014 and $16.2 million at 31 December 2013. Average backlog during second-half 2014 was $19.8 million compared to $16.1
million during first-half 2014. The steadiness in backlog supports the relatively flat trend we are seeing in our revenue profile.
Backlog represents orders for products that we believe to be firm. However, it should be noted that 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 (with some exceptions on capital equipment orders).
__________________________________________________________________________________________
33
30
Boart Longyear Annual Report 2014 Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
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 2014, we
had approximately 370 issued patents, 644 registered trademarks, 290 pending patent applications and 59 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 and quality. Prior to introduction, new products are
subject to extensive testing in various environments, again with assistance from our Global Drilling Services network around
the world. In the full-year period 2014, we launched 4 new products and we continue to invest in our new product pipeline.
New product development efforts remain focused on incremental product changes that customers will pay for regardless of the
business environment. We continue to make progress in the development of our strategic initiative in the area of
instrumentation services.
Inventory
Inventory levels continue to be reduced due to the low demand signal on our suppliers and manufacturing facilities. We
reduced inventory by $57.6 million during 2014. Of this decrease, $40.7 million is related to third party sales and Global Drilling
Services consumption. In addition, this decrease includes $16.9 million of foreign currency and other non-cash changes. The
integration of the Global Products and Global Drilling Services supply chain groups is complete and inventory is now managed
by a single supply chain team. Global Drilling Services continues to consume their products at a slow pace due to low rig
utilisations in their fleet and we may incur future costs related to moving inventory from certain underperforming projects or
territories to other drilling servicesʼ territories to speed consumption and delay manufacturing related cost.
__________________________________________________________________________________________
34
31
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
Global Products
Global Products
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
Inventory 2
Inventory 2
# of Employees
# of Employees
For the year ended 31 Decem ber
For the year ended 31 Decem ber
2014
2014
2013
2013
US$ Millions
US$ Millions
US$ Millions
US$ Millions
$ Change
$ Change
% Change
% Change
230.4
230.4
305.5
305.5
158.3
158.3
0.3
0.3
10.0
10.0
168.6
168.6
73.2%
73.2%
34.4
34.4
14.9%
14.9%
25.5
25.5
32.0
32.0
14.0
14.0
3.0
3.0
6
6
17.9
17.9
241.3
241.3
1,393
1,393
203.3
203.3
22.7
22.7
11.4
11.4
237.4
237.4
77.7%
77.7%
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
298.9
298.9
910
910
(75.1)
(75.1)
(45.0)
(45.0)
(22.4)
(22.4)
(1.4)
(1.4)
(68.8)
(68.8)
-4.5%
-4.5%
(4.6)
(4.6)
2.1%
2.1%
(3.6)
(3.6)
(4.4)
(4.4)
(2.1)
(2.1)
(3.8)
(3.8)
-
-
(10.6)
(10.6)
(57.6)
(57.6)
(1)
(1)
483
483
-24.6%
-24.6%
-22.1%
-22.1%
-98.7%
-98.7%
-12.3%
-12.3%
-29.0%
-29.0%
-5.8%
-5.8%
-11.8%
-11.8%
16.4%
16.4%
-12.4%
-12.4%
-12.1%
-12.1%
-13.0%
-13.0%
-55.3%
-55.3%
0.0%
0.0%
-37.2%
-37.2%
-19.3%
-19.3%
53.1%
53.1%
(1) Increase in Global Products employees is due to the consolidation of maintenance and supply chain operations into
(1) Increase in Global Products employees is due to the consolidation of maintenance and supply chain operations into
the Global Products division at the end of 2013.
the Global Products division at the end of 2013.
(2) Inventory values represent total Company inventory including Global Products and Global Services.
(2) Inventory values represent total Company inventory including Global Products and Global Services.
__________________________________________________________________________________________
__________________________________________________________________________________________
35
32
32
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 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
2014
2014
2013
2013
EBITDA(1)
NPAT(2)
Recapitalisation costs
Impairments
Property, plant and equipment
Intangible assets
Inventory
Goodw ill
Development asset
Employee and related costs
Other restructuring expenses
Gain on termination of post-retirement medical plan
Tax ef fect of significant items and other tax w rite of fs(3)
Total of significant item s
Adjusted EBITDA(1)
Adjusted NPAT(2)
(82.6)
(337.1)
45.5
46.1
1.6
0.7
-
-
12.5
7.6
-
114.0
31.4
(332.7)
45.5
46.1
1.6
0.7
-
-
12.5
7.6
-
76.9
190.9
(141.8)
-
109.9
9.1
101.9
166.3
14.6
44.8
14.6
(16.9)
444.3
107.2
(619.9)
-
109.9
9.1
101.9
166.3
14.6
44.8
14.6
(16.9)
81.3
525.6
(94.3)
(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 prof it after tax'. Adjusted NPAT is 'Net profit after tax and before significant items'.
(3) Includes tax expense on derecognition of deferred tax assets and unrecognised tax losses of $110.6 million.
__________________________________________________________________________________________
36
33
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
8. Outlook
8.1 Our 2015 Priorities
Our key priorities for 2015 are to:
•
•
•
•
•
•
continue to eliminate job related injuries by maintaining and enhancing our culture around safety and compliance;
expand our mining and minerals drilling customer base by focusing on efficiency and productivity;
effectively manage pricing and contract terms;
create new products and respond to new Global Drilling Serviceʼs customers within a constrained capital budget;
efficiently manage costs, including capital; and
strengthen our financial position by reducing net debt over time
Continue to eliminate job related injuries by maintaining and enhancing 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 eliminating job related injuries by providing a safe work environment for each one of our employees by implementing and
adhering to high safety standards, continually seeking ways to maintain and enhance the safety of our Global Drilling Services
and Products businesses and ensuring that when injuries occur we investigate those injuries and determine.
Expand our mining and minerals drilling customer base. The Company remains focused on providing our customers with
a full range of drilling services offerings backed by 125 years of experience and innovation, improving the efficiency and
productivity 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 clientsʼ ʻflagshipʼ 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.
Effectively manage pricing and contract terms. The Company continues to follow a rigorous internal process of evaluating
potential bid opportunities, ensuring that pricing and eventual contract terms provide for safe, profitable and successful
projects. As each project must succeed on its own merits, we consider the active management of pricing and contract terms to
be key tools in achieving this objective. Pricing is designed to reflect the full value delivered by Global Drilling Services, within
the context of the unique competitive environment for each project. Similarly, contract terms are designed to allow the
Company to safely and profitably deliver value to the customer and to create lasting customer relationships.
Create new products and respond to new Global Drilling Serviceʼs customers within a constrained capital budget.
We will continue to pursue disciplined investments in our business to drive returns and 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 from 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, including capital. 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. We will continue to pursue manufacturing and administrative optimisation programs in order to improve our operating
efficiency beyond those initiatives that we have already completed. 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. And, further, we are moving
towards shared-service organisations to increase process efficiencies and to leverage our knowledge base across the global
financial organisation. The Company will further examine our total cost structure and global footprint, in particular as it relates
to loss making projects and or territories with our Global Drilling Services Division. The examination will include a full review of
each layer of costs – beginning at the drill string through the territory and region and all the way to corporate support and
__________________________________________________________________________________________
37
34
Boart Longyear Annual Report 2014 Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
overhead costs. The Company initiated this project in February 2015, however, the analysis is still in a premature status and
overhead costs. The Company initiated this project in February 2015, however, the analysis is still in a premature status and
the extent of the associated structural changes to the organisation and the ranges of potential cost savings are unknown and
the extent of the associated structural changes to the organisation and the ranges of potential cost savings are unknown and
will be identified as the project progresses.
will be identified as the project progresses.
Strengthen our financial position by reducing net debt over time – as a result of our announced recapitalisation with
Strengthen our financial position by reducing net debt over time – as a result of our announced recapitalisation with
Centerbridge Partners, L.P., the Company has adequate liquidity to support the business’s near-term needs. Nonetheless, the
Centerbridge Partners, L.P., the Company has adequate liquidity to support the businessʼs near-term needs. Nonetheless, the
Company entered the most recent cyclical downturn with too much debt and, as our revenue and EBITDA profiles have
Company entered the most recent cyclical downturn with too much debt and, as our revenue and EBITDA profiles have
decreased over the last two and a half years, the Company’s overall net debt position remains too high. Over the next few
decreased over the last two and a half years, the Companyʼs overall net debt position remains too high. Over the next few
years, we expect to focus on cash to reduce net debt as much as possible.
years, we expect to focus on cash to reduce net debt as much as possible.
8.2 Our 2015 Outlook
8.2 Our 2015 Outlook
While we have seen some signs of a levelling in industry demand in the second half of 2014, the Company’s financial results,
While we have seen some signs of a levelling in industry demand in the second half of 2014, the Companyʼs financial results,
especially margins, will continue to be challenged by extremely competitive industry pricing for drilling services and by other
especially margins, will continue to be challenged by extremely competitive industry pricing for drilling services and by other
factors, such as the strengthening of the US dollar relative to many of the currencies in which we transact. We expect,
factors, such as the strengthening of the US dollar relative to many of the currencies in which we transact. We expect,
however, that the primary factors driving revenue, such as rig utilisation rates and product sales volumes, will remain broadly
however, that the primary factors driving revenue, such as rig utilisation rates and product sales volumes, will remain broadly
consistent with levels experienced in 2014 and, in particular, the second half of 2014. We also expect that revenue and
consistent with levels experienced in 2014 and, in particular, the second half of 2014. We also expect that revenue and
EBITDA will be negatively impacted by the read-through of price reductions incurred in 2014, especially in its Drilling Services
EBITDA will be negatively impacted by the read-through of price reductions incurred in 2014, especially in its Drilling Services
division, and weakening currencies against the US dollar, the Company’s reporting currency. Profitability will also be
division, and weakening currencies against the US dollar, the Companyʼs reporting currency. Profitability will also be
influenced positively by other factors, such as productivity and management’s ability to further control costs.
influenced positively by other factors, such as productivity and managementʼs ability to further control costs.
We expect that the primary factors driving our revenue, such as rig utilisation rates and product sales volumes, will remain
We expect 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 second half of 2014. Profitability will be influenced by those and other
broadly consistent with levels experienced in the second half of 2014. Profitability will be influenced by those and other
factors, such as price, productivity, our ability to further control costs, potentially lower levels of exploration and development
factors, such as price, productivity, our ability to further control costs, potentially lower levels of exploration and development
spending by mining companies and the fact that contracts for our drilling services and products can be cancelled by our
spending by mining companies and the fact that contracts for our drilling services and products can be cancelled by our
customers with little notice.
customers with little notice.
Our full-year 2015 outlook for several key business metrics is set forth below:
Our full-year 2015 outlook for several key business metrics is set forth below:
(cid:1)
(cid:1)
2015 Outlook - US$ Millions
2015 Outlook - US$ Millions
Volumes consistent with second-half 2014 levels, but adjusting for:
Volumes consistent with second-half 2014 levels, but adjusting for:
> Read-through of price reductions in the low-to-mid teens realised throughout
> Read-through of price reductions in the low-to-mid teens realised throughout
2014
2014
> Currency movements
> Currency movem ents
Similar to 2014, with expectation between US$165 million to US$175 million
Similar to 2014, with expectation between US$165 million to US$175 m illion
Similar to 2014 target of US$25 million, but subject to changing market conditions
Similar to 2014 target of US$25 million, but subject to changing m arket conditions
Revenue
Revenue
SG&A
SG&A
Capex
Capex
Working
Working
Capital
Capital
Further release estimated at US$25 million to US$50 million, primarily as a result of
Further release estimated at US$25 million to US$50 million, primarily as a result of
inventory reductions
inventory reductions
8.3 Future Developments
8.3 Future Developments
We believe that we are well-positioned to take advantage of positive long-term mining industry fundamentals, as described
We believe that we are well-positioned to take advantage of positive long-term mining industry fundamentals, as described
further in Section 9. The mining industry is cyclical. Notwithstanding current sector challenges, the longer-term outlook for the
further in Section 9. The mining industry is cyclical. Notwithstanding current sector challenges, the longer-term outlook for the
mining industry is expected to remain attractive and to be underpinned by:
mining industry is expected to remain attractive and to be underpinned by:
•
•
•
•
continued industrialisation and urbanisation of developing economies, which are expected to support structural
continued industrialisation and urbanisation of developing economies, which are expected to support structural
increases in demand for minerals and metals; and
increases in demand for minerals and metals; and
although volatile, continued high commodity prices relative to price levels over the past decade.
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
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
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, we believe Boart Longyear is well positioned to capture expansionary
provider globally with the worldʼs largest drilling fleet, we believe Boart Longyear is well positioned to capture expansionary
opportunities in Global Drilling Services as well as increasing demand from our Global Products customers. And, as we
opportunities in Global Drilling Services as well as increasing demand from our Global Products customers. And, as we
continue to drive technological innovation and engineering excellence in both Global Drilling Services and Global Products
continue to drive technological innovation and engineering excellence in both Global Drilling Services and Global Products
business, we should see increased opportunities resulting from enhanced services and products offerings to our customers.
business, we should see increased opportunities resulting from enhanced services and products offerings to our customers.
For 125 years, we have pioneered and developed many of the mineral drilling techniques and products that have represented
For 125 years, we have pioneered and developed many of the mineral drilling techniques and products that have represented
__________________________________________________________________________________________
__________________________________________________________________________________________
38
35
35
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
the cutting edge of the drilling industry. Going forward, we are committed to continuing as a leader in the drilling industry in the
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
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,
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
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.
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
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
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 activities, as well as developing the next generation of consumable
expansion of the Companyʼs mine water drilling services activities, 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
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,
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
cash generation and debt reduction, such as an ongoing evaluation of its overhead cost structure and initiatives to reduce
inventory and overall working capital. The Company may also elect to expand through strategic acquisitions.
inventory and overall working capital. The Company may also elect to expand through strategic acquisitions.
As our markets improve, we expect, over time, that the Company’s EBITDA generation could return to the historical levels of
As our markets improve, we expect, over time, that the Companyʼs EBITDA generation could return to the historical levels of
“mid-cycle” EBITDA as depicted below.
“mid-cycle” EBITDA as depicted below.
As our markets improve, we also believe we can earn better margins than the Company has realised historically as a result of
As our markets improve, we also 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 and 2014, most of which will not need to be replaced.
the significant reductions in SG&A and overhead costs realised in 2013 and 2014, 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
In addition, the efficiencies we are generating through the consolidation of the Global Products divisionʼs aftermarket services
group with the Global Drilling Services division’s maintenance group and the supply chain groups for both divisions are
group with the Global Drilling Services divisionʼs 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
significant. We also expect that as our EBITDA generation improves, along with improved management of inventory levels
and overall working capital and reduced capital spending, we will be able to pay down debt.
and overall working capital and reduced capital spending, we will be able to pay down debt.
Further information about likely developments in the operations of the Company in future years, expected results of those
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
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.
because disclosure of the information would be speculative or could be prejudicial to the Company.
8.4 Forward Looking Statements
8.4 Forward Looking Statements
This report contains forward looking statements, including statements of current intention, opinion and expectation regarding
This report contains forward looking statements, including statements of current intention, opinion and expectation regarding
the Company’s present and future operations, possible future events and future financial prospects. While these statements
the Companyʼs present and future operations, possible future events and future financial prospects. While these statements
reflect expectations at the date of this report, they are, by their nature, not certain and are susceptible to change. The
reflect expectations at the date of this report, they are, by their nature, not certain and are susceptible to change. The
Company makes no representation, assurance or guarantee as to the accuracy of or likelihood of fulfilling any such forward
Company makes no representation, assurance or guarantee as to the accuracy of or likelihood of fulfilling any such forward
looking statements (whether express or implied), and, except as required by applicable law or the Australian Securites
looking statements (whether express or implied), and, except as required by applicable law or the Australian Securites
Exchange Listing Rules, disclaims any obligation or undertaking to publicly update such forward looking statements.
Exchange Listing Rules, disclaims any obligation or undertaking to publicly update such forward looking statements.
__________________________________________________________________________________________
__________________________________________________________________________________________
39
36
36
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
9
Quarterly Income Statement and Related Information
9
Quarterly Income Statement and Related Information
Quarters ende d
2014
Quarters ende d
2014
Quarters ended
2013
Quarters ended
2013
Quarters ended
2012
Quarters ended
2012
Q4
Q3
Q4
Q2
Q3
Q1
Q2
Q4
Q1
Q3
Q4
Q2
Q3
Q1
Q2
Q4
Q1
Q3
Q4
Q2
Q3
Q1
Q2
Q1
Total Com pany
Total Com pany
Revenue (US$ millions)
Revenue (US$ millions)
EBITDA (US$ millions)
EBITDA (US$ millions)
Adjusted EBITDA (US$ millions)
Net cash flow s (used by) provided
by operating activities
Adjusted EBITDA (US$ millions)
Net cash flow s (used by) provided
by operating activities
(6.8)
Net Debt (US$ millions)
Net Debt (US$ millions)
SG&A (US$ millions)
SG&A (US$ millions)
# of employees
# of employees
Global Drilling Services
Revenue (US$ millions)
Global Drilling Services
EBITDA (US$ millions)
Revenue (US$ millions)
Average rig utilisation
EBITDA (US$ millions)
Average # of drill rigs (w ith E&I)
Average rig utilisation
Average # of drill rigs (w ithout E&I)
Average # of drill rigs (w ith E&I)
# of employees
Average # of drill rigs (w ithout E&I)
4,172
# of employees
Global Products
Revenue (US$ millions)
Global Products
EBITDA (US$ millions)
Revenue (US$ millions)
Average backlog (US$ millions)
# of employees 1
EBITDA (US$ millions)
Average backlog (US$ millions)
# of employees 1
205.8
(61.9)
(3.2)
547.6
40.7
5,933
151.8
9.1
38%
944
944
239.3
205.8
12.3
(61.9)
15.9
(3.2)
10.1
(6.8)
550.9
547.6
40.4
40.7
5,972
5,933
224.1
239.3
(31.1)
12.3
14.9
15.9
(8.3)
10.1
555.8
550.9
42.1
40.4
5,871
5,972
176.0
151.8
22.9
9.1
40%
38%
953
944
953
944
4,208
4,172
168.7
176.0
25.4
22.9
39%
40%
945
953
945
953
4,130
4,208
53.9
1.2
19.3
1,393
63.3
7.0
53.9
20.3
1.2
1,407
19.3
55.4
63.3
5.0
16.9
7.0
1,382
20.3
197.4
224.1
(1.9)
(31.1)
3.8
14.9
(6.3)
(8.3)
544.4
555.8
41.2
42.1
5,593
5,871
139.6
168.7
11.2
25.4
32%
39%
950
945
950
945
3,874
4,130
57.8
0.8
55.4
15.2
5.0
1,363
16.9
224.5
197.4
(100.8)
(1.9)
8.0
3.8
4.1
(6.3)
526.4
544.4
43.6
41.2
5,681
5,593
163.4
139.6
15.5
11.2
31%
32%
1,031
950
1,031
950
4,338
3,874
61.1
2.6
57.8
19.4
0.8
910
15.2
279.5
224.5
(1.2)
(100.8)
18.8
8.0
348.7
279.5
(269.7)
(1.2)
40.1
18.8
36.1
4.1
523.0
526.4
48.4
43.6
6,020
5,681
216.3
163.4
42.7
15.5
37%
31%
1,037
1,031
1,037
1,031
4,737
4,338
63.2
(8.2)
61.1
19.8
2.6
899
19.4
17.8
36.1
563.8
523.0
51.1
48.4
7,270
6,020
265.3
216.3
42.6
42.7
43%
37%
1,139
1,037
1,037
1,037
5,859
4,737
83.3
8.7
63.2
31.5
(8.2)
990
19.8
370.2
348.7
34.6
(269.7)
40.3
40.1
(46.5)
17.8
571.3
563.8
59.0
51.1
8,283
7,270
272.3
265.3
41.1
42.6
39%
43%
1,146
1,139
1,044
1,037
6,749
5,859
399.1
370.2
(42.2)
34.6
24.0
40.3
60.3
(46.5)
512.3
571.3
66.9
59.0
9,162
8,283
513.6
399.1
88.8
(42.2)
89.2
24.0
578.3
513.6
121.9
88.8
122.9
89.2
520.5
578.3
85.8
121.9
85.8
122.9
(20.0)
60.3
469.4
512.3
76.1
66.9
10,970
9,162
65.7
(20.0)
373.2
469.4
77.6
76.1
11,426
10,970
(41.8)
65.7
328.1
373.2
77.1
77.6
11,087
11,426
296.4
272.3
31.9
41.1
44%
39%
1,182
1,146
1,011
1,044
7,338
6,749
403.1
296.4
80.9
31.9
57%
425.0
403.1
100.1
80.9
61%
391.7
425.0
76.7
100.1
61%
44%
1,176
57%
1,180
1,175
61%
1,182
996
1,011
8,841
7,338
1,176
990
1,180
981
9,193
996
8,909
990
8,841
9,193
520.5
85.8
85.8
(41.8)
328.1
77.1
11,087
391.7
76.7
61%
1,175
981
8,909
97.9
102.7
110.5
153.4
128.7
13.0
83.3
43.3
8.7
1,103
31.5
12.0
97.9
41.2
13.0
27.0
102.7
48.5
12.0
41.7
110.5
71.8
27.0
26.5
153.4
82.4
41.7
1,173
43.3
1,467
41.2
1,559
48.5
1,541
71.8
128.7
26.5
82.4
1,382
(1) Increase in Global Products employees is due to the consolidation of maintenance and supply chain operations into
1,393
1,407
1,363
1,103
1,173
910
899
990
1,467
1,559
1,541
the Global Products division at the end of 2013.
(1) Increase in Global Products employees is due to the consolidation of maintenance and supply chain operations into
the Global Products division at the end of 2013.
__________________________________________________________________________________________
__________________________________________________________________________________________
40
37
37
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
INTRODUCTION TO REMUNERATION REPORT
It is our pleasure to introduce Boart Longyearʼs 2014 Remuneration Report. As was predicted, 2014 was a continuation of the
very difficult conditions that have been ongoing for the mining services sector generally since the second half of 2012. In
response, and as communicated to shareholders by Richard OʼBrien, President and CEO, the Companyʼs primary focus, in
addition to supporting our current customers, has been to address these depressed economic conditions across the markets in
which Boart Longyear operates. The primary aim of these objectives has been to improve the balance sheet by:
reducing the Companyʼs risk profile by improving cash flows and reducing debt;
increasing operational and functional efficiencies and reducing costs;
•
•
• heightening the focus on margin improvement and returns; and
•
conducting a strategic review of options to deliver a comprehensive recapitalisation solution that benefited
shareholders and other stakeholders.
In light of the importance of these goals, the changing market conditions and heightened focus on cash generation and debt
reduction, the Board determined to make changes to the Companyʼs remuneration structure in 2014 to strengthen the
alignment of the incentive structure with the Companyʼs goals. Accordingly, the Remuneration Committee engaged its
independent remuneration consultants, Frederic W. Cook & Co., Inc. to assist the Committee with its review and analysis of
executive remuneration, including the design of incentive plans. Egan Associates was also retained to provide remuneration
and governance advice to ensure Australian expectations and governance standards were adequately considered. The
primary objective of the review was to ensure that the Companyʼs plans addressed certain key financial, strategic and human
resources objectives, including; tying total compensation to the achievement of the Companyʼs 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; maximising the financial efficiency of the program; and attracting and retaining
highly skilled executives. In addition, the Committee sought advice on addressing the concern for key employee retention
given the high level of uncertainty involved with both the continued decline of the market and strategic review process.
The primary changes introduced by the Board following this review are as follows:
1) Short-term Incentive Plan
a. Changing the Company financial objective from operating margin to free cash flow with a payout target and
range tied to the annual operating plan;
b. Paying the strategic objective component only after achieving a gateway threshold of overall Company
financial performance;
c. Eliminating the revenue growth multiplier;
d. Adding a special provision for 2014 that, if necessary, would have allowed the Company to withhold
payment of any bonus earned during the plan year unless and until the payment of bonuses would not have
caused the Company to breach a covenant or other term of its former bank debt facilities.
2) Long-term Incentive Plan
a. Changing the performance metric, for performance rights granted, from return on equity to net debt targets
over a three-year performance period.
b. Adding an additional modifier of +/- 10% to any earned performance rights based on total shareholder return
performance against an appropriate comparator group.
c. Granting options in addition to performance and retention rights for long-term incentives to senior executive
participants.
The Board believes these tailored changes are necessary and fit for purpose for the current environment, but it will continue to
assess and refine the incentive plans to ensure the program design appropriately supports the Companyʼs business objectives
over time, with the goal of returning to a more standardised remuneration structure when appropriate. In particular, given the
inherent volatility associated with the markets in which the Company operates, the Board considers it appropriate to maintain a
portion of retention rights to keep talented executives motivated and retain their services through current and expected market
turbulence. Further, the Board believes that an overweighting to performance rights actually achieves little retention value to
participants because experience demonstrates that 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 and is well aligned with market practice in regions where the key
executives are employed. The Remuneration Committee Chairman met with proxy advisors and Australian governance
__________________________________________________________________________________________
41
38
Boart Longyear Annual Report 2014 Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
advisors to discuss the philosophy and intent of these changes and have incorporated their feedback for transparent
disclosure to shareholders within this Report.
The Company announced in February that it had commenced a strategic review of its capital structure, as the Board and the
leadership team believed the status quo was unsustainable and the Company required greater liquidity and financial flexibility
to protect shareholder value until market conditions improved. This process involved significant time and commitment from the
management team and the Board of Directors to explore an extensive range of recapitalisation structures and options,
negotiate with potential investors, support several rigorous due diligence investigations and deliberate options in numerous
board meetings. These requirements were on top of the heightened demands of continuing to operate the business in very
difficult circumstances.
On 23 October 2014, Boart Longyear announced to the ASX that its largest shareholder, Centerbridge Partners, L.P., had
agreed to increase its investment in the Company through a comprehensive recapitalisation plan. The recapitalisation, which
was overwhelmingly supported by Boart Longyearʼs shareholders at the Companyʼs Extraordinary General Meeting on 17
December 2014, is designed to improve the Companyʼs debt structure and liquidity. The agreement with Centerbridge
Partners, L.P. marks the successful completion of the strategic review process and will give Boart Longyear the liquidity to
weather the challenges of the current depressed markets for our drilling services and products and the financial strength to
allow more time for those markets to recover. The recapitalisation plan has now been successfully completed.
As you will see in this report, base salaries for all senior executives were frozen for 2014. In addition, the Board elected to
temporarily reduce its fees in recognition of the difficulties facing the Company, notwithstanding the significant time associated
with the strategic review and recapitalisation process. Incentive compensation results for the year are mixed with short-term
incentive outcomes higher than last yearʼs due primarily to critical year-over-year performance improvement on cash flow
generation and safety metrics. In addition, the Board exercised its discretion to award certain executives a higher portion of
their individual strategic component under the Short Term Incentive Plan due to their significant contributions to the success of
the strategic review and recapitalisation process. On the other hand, there will be no vesting of performance tested long-term
incentive awards that were based on return on equity metrics. The Board also exercised its discretion to prohibit any
accelerated vesting of long term incentive awards, including stock options, as a result of the recapitalisation process. We
believe that these outcomes are appropriate given the critical need during the year to generate cash and successfully execute
the strategic review process. The Board rigorously scruitinises the performance achieved under the incentive plans and
calculations are reviewed by the Companyʼs independent auditors. We are confident that our remuneration programs are
appropriately linked to financial metrics critical to the Companyʼs objectives and consistent with shareholderʼs long-term
interests, recognising the highly cyclical nature of the markets in which the Company operates.
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
CEO, is a key near-term remuneration strategy imperative given our current circumstances. This challenge comes 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. We are pleased to
report that although we have experienced some turnover in key positions throughout the Company as we continue to adapt
our business model to our marketʼs challenges, we have retained all of our senior executives while also successfully
completing the recruitment of our new Chief Financial Officer, Mr Jeffrey Olsen.
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 near and long term business outcomes as well as shareholder and
investment community expectations.
On behalf of the Board of Directors of Boart Longyear,
Barbara Jeremiah
Board Chair
Roy Franklin
Remuneration Committee Chair
__________________________________________________________________________________________
42
39
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
REMUNERATION REPORT
This remuneration report sets out Boart Longyearʼs remuneration policies and practices, the rationale underlying them and
their outcomes for the year ended 31 December 2014 in accordance with the requirements of the Corporations Act 2001
(Commonwealth)(the Act) and its regulations. This information has been audited as required by Section 308(3C) of the Act.
The Companyʼs 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; and
the particular business environment in which Boart Longyear operates, recognising that:
o
o
o
the Companyʼs business is global and 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 complies with local corporate regulatory
requirements and practices.
Changes in 2014
Each of the changes outlined below, which were foreshadowed in last yearʼs Remuneration Report and implemented in 2014,
were carefully designed to support the key financial, strategic and human resources objectives of the Company during difficult
market conditions.
1. Change in Short Term Incentive Plan (STI) financial metric to Free Cash Flow instead of Operating Margin - the
Board modified the STI Plan to focus on cash flow generation to fund ongoing business cash needs. This strategic focus
was critical in maintaining business operations and funding cash requirements necessary for continued cost reduction
initiatives in response to the on-going mining sector market declines that occurred throughout 2014. In addition, the
revenue multiplier component of the STI plan was eliminated and a threshold company performance metric is now
required to be met prior to the payment of any STI. For 2014, this minimum threshold was defined as the requirement that
none of the Companyʼs bank covenants could be breached, offering further reinforcement to the critical need to focus on
cash generation.
2. Changes in Long Term Incentive (LTI) – the Board adopted a new performance metric for performance rights granted in
2014 from return on equity to a net debt measure. Given the challenging business environment, the highly leveraged
capital structure, and the pressures from the bank covenants, the Board believes a focus on cash generation and
decrease in Net Debt over time is highly aligned to Company and shareholder interests. In addition, based on
shareholder and proxy advisor feedback that performance rights should be subject to more than a single metric, the Board
has added a total shareholder return (TSR) modifier to provide a relative measure of performance.
3. Special One-time Strategic Retention Awards - As previously disclosed in last yearʼs Remuneration Report, in early
2014 the Board approved a special strategic retention award for certain of the Companyʼs key employees, including the
executive members of the Companyʼs Key Management Personnel (KMP). The rationale and details of these awards
were included in last yearʼs report but, in summary, the Board recognised that steps needed to be taken to ensure that
executive remuneration packages remained competitive and continued to provide meaningful incentives at a time when
the retention and loyalty of high quality staff would be instrumental in achieving the Companyʼs goals. Notwithstanding the
downturn in the market for the Companyʼs drilling products and services, the U.S. market for talent remains highly
competitive
a) Special Strategic Retention Award for the CEO
As disclosed by the Company pursuant to ASX Listing Rule 3.16.4, the Board approved a special one-off strategic
award to Mr OʼBrien in 2014 of US$5 million. In May of 2014 shareholders overwhelmingly approved the conversion
of 50% of this award into stock options while the balance remained in the form of a cash retention award divided into
three equal portions due to vest on the date 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). In recognition of this
provision, the Board determined to not vest and pay the cash award eligible to vest in May 2014 in order to
__________________________________________________________________________________________
43
40
Boart Longyear Annual Report 2014 Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
conservatively maintain sufficient headroom to the financial covenants. The Board continued to monitor the
Companyʼs financial performance and determined in September 2014 that vesting and payment of this portion of Mr
OʼBrienʼs award was appropriate. If, prior to the vesting date for the remaining tranches, Mr OʼBrien is terminated for
“cause” or resigns (other than for “Good Reason”, as defined in his employment agreement), then any unvested
options or Cash Rights will be forfeited. In addition, at the Companyʼs 2014 AGM shareholders also approved Mr
OʼBrienʼs voluntary forfeiture of all outstanding long-term incentive awards granted in 2013. Mr OʼBrien retains his
commitment to purchase and hold 472,500 Company shares by 1 April 2016. As at 1 February 2015, Mr OʼBrien has
purchased and holds 593,940 Company shares
b) Special Strategic Retention Awards for Key Employees (excluding the CEO)
For similar reasons as stated above, the Board also approved special one-off awards to certain other key employees
including the other executive members of the KMP. These awards are in the form of cash retention awards and will
vest on the second anniversary of the award. In addition, in order for the awards to be paid following the satisfaction
of the time-based vesting requirement, company financial performance must be such that the vesting and payment of
the awards would not reasonably be likely to result in the Company breaching any financial covenants (in which case
vesting will be deferred until such time as the financial position would accommodate payment). Unvested 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. If, prior to the vesting date of the award, a participant is
terminated for “cause” or resigns (other than for “Good Reason”), then any unvested awards will be forfeited. For the
Companyʼs executive 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
2014 business impacts on incentives
The year ended 31 December 2014 continued to be another 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 caused lower demand in the Companyʼs key markets and
lower pricing, primarily within the Companyʼs drilling services division, have resulted in a year-over-year decline in revenues of
$356.3 million, or 29.1%, although statutory EBITDA improved during the year from an operating loss of $337.1 million in 2013
to a loss of $82.6 million in 2014. Although the revenues experienced a year-over-year decline, they did come in at a level
consistent with our annual operating plan for the year and at the higher end of analyst estimates. Adjusted EBITDA, which
excludes significant items which are largely non-cash in nature, came in within the range of analyst estimates albeit at the
lower end of the range primarily due to higher than anticipated drill rig maintenance and mobilisation/demobilisation costs.
The management team continued to respond to the on-going depressed market conditions by eliminating over $330 million in
costs from the organisation (on top of the over $800 million eliminated during 2013). In addition to the aggressive cost
reduction efforts, the Company also increased its focus on net cash generation, primarily through expense, capital spending
and working capital reductions. Free cash flow (defined for the purposes of Short Term Incentive (STI) calculations in section 3
of the report) for the business was $89.4 million which was broadly flat when compared with the same metric for 2013 of $89.3
million generated in 2013. Generating this level of cash flow on significantly reduced revenue helped keep the Company
solvent by maintaining compliance to our bank covenants and sustains the Companyʼs business operations through this year
until the strategic review and recapitalisation efforts were completed with a subsequent infusion of capital. The successful
focus on critical cash flow generation, coupled with the Boardʼs recognition of the significant demands and successful
completion of the strategic review and recapitalisation exercise resulted in short-term incentives awarded rising from 2013
levels of 40% (on average) to 114% in 2014.
By contrast, none of the LTI that were awarded in 2011 and were subject to a three-year return on equity performance hurdle
vested in 2014. Similarly, no performance rights awarded in 2012 and which were also subject to a three-year return on equity
performance hurdle, will vest in 2015. The retention rights granted in 2011, representing 50% of the long-term incentive award
to the Companyʼs executive KMP vested in 2014 as detailed in table 1.3.
__________________________________________________________________________________________
44
41
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
Impacts of recent recapitalisation on incentives
As discussed above, the Company successfully completed a comprehensive recapitalisation plan which has resulted in a
restructure of the Companyʼs debt, an increased amount of cash on the balance sheet and a majority shareholder,
Centerbridge Partners, L.P., who as at January 2015 holds 49.9% of the Companyʼs outstanding voting shares. The positive
outcomes from these activities will not benefit participants in the incentive plans because:
a) Short-term incentive plan performance metric – Free cash flow is measured exclusive of cash from investing activities (e.g.
disposals of subsidiaries) and from financing activities such as proceeds from equity raising or borrowings. See section 3.3 of
this report for further detail.
b) Long-term Incentive performance metrics – the performance metric for awards granted in 2014 under this plan is a
measurement of net debt (explained in detail in section 3.4 of this report). The net debt for 2014 LTI is measured exclusive of
the changes in the Companyʼs debt structure, cash received from the private placements and equity offering and fees paid as
a result of the recapitalisation. The metric for outstanding performance-based LTI awards granted prior to 2014 is a measure
of return on equity. Similarly, no positive improvements from the recapitalisation have benefitted this calculation. As
mentioned above, no performance-based long-term incentives granted in 2012 have met the minimum performance threshold
for vesting in 2015.
c) Stock Option exercise price adjustment - pursuant to the terms of the Company's Option Plan, the Board could authorise the
adjustment to the exercise price of outstanding unexercised options to reflect the impact of the Companyʼs 2014 capital
restructuring program and the related issuance of additional shares subsequent thereunder. However, given the minimal
impact this adjustment would have on the original exercise price, it was agreed to leave the exercise price unchanged.
d) Long-term Incentives change in control provisions – both the LTI and the stock option plans contain provisions that define
what constitutes a change in control of the Company for the purposes of the plans and give the Board discretion to determine
whether to accelerate all or a portion of the awards as a result of such change in control. In the case of the LTI plan, a change
in control is deemed to have occurred when 30% or more of the Companyʼs stock is acquired by a person or group within a 12
month period. In the case of the 2014 recapitalisation activities, this threshold has been met. The Board however, determined
that no accelerated vesting of LTI awards were to occur and that the awards would remain on foot and subject to the original
terms of the award. The stock option plan provided more discretion for the Board to make the determination of whether, in
their judgment, a change in control had occurred. The Board determined that a change in control had not occurred as a result
of the 2014 recapitalisation and also determined to keep the options on foot and subject to their original terms.
Report Structure
The Remuneration Report (the “Report”) is presented in seven sections, as follows:
1
2
3
Section
2014
remuneration
overview
Description of content
• Outlines the Companyʼs remuneration practices and explains how executive
remuneration is structured to support the Companyʼs strategic objectives.
Sets out the Directors and senior executives who are covered by this Report.
Details the actual remuneration earned by the CEO and other senior executives during
the year ended 31 December 2014.
•
•
Remuneration
framework and
strategy
•
Sets out the Companyʼs remuneration governance framework and explains how the
Board and Remuneration Committee make remuneration decisions, including the use of
external remuneration consultants.
• Outlines the Companyʼs remuneration strategy.
Components
of executive
remuneration
•
•
Provides a breakdown of the various components of executive remuneration.
Details the components of executive remuneration that are fixed and therefore not “at-
risk”.
• Outlines the key features of the short-term incentive plan that applies to the Companyʼs
executives.
• Outlines the key features of the long-term incentive plan and option plan that apply to the
Companyʼs executives.
__________________________________________________________________________________________
45
42
Boart Longyear Annual Report 2014 Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
4
5
6
7
Performance
and risk
alignment
Executive
remuneration
in detail
Remuneration
actions
occurring after
31 December
2014
Non-executive
Director
arrangements
•
•
•
•
•
•
•
Explains how executive remuneration is aligned with performance and outlines short-
term and long-term performance indicators and outcomes.
Explains how executive remuneration is structured to encourage behaviour that supports
long-term financial soundness and the Companyʼs risk management framework.
Sets out the total remuneration provided to executives (calculated pursuant to the
accounting standards) during the years ended 31 December 2014 and 2013.
Provides details of the Rights granted to executives during the year ended 31 December
2014 under the long-term incentive plan.
Summarises the key terms of executive service contracts (including termination
entitlements).
Summarises the decisions or actions made to remuneration structure or incentive plan
designs impacting the Companyʼs executives following the end of the 2014 reporting
year.
Additional details will be provided in the 2015 remuneration report.
•
Explains the non-executive Directorsʼ remuneration structure, including the basis on
which non-executive Director remuneration is set and the components.
• Outlines key features of the non-executive Director Share Acquisition Plan.
•
Sets out the non-executive Directorsʼ remuneration during the years ended 31 December
2014 and 2013.
1. 2014 REMUNERATION OVERVIEW
This section provides:
•
•
•
an overview of the Companyʼs 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.
__________________________________________________________________________________________
46
43
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 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 Companyʼs 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:
__________________________________________________________________________________________
__________________________________________________________________________________________
47
44
44
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
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 2014 are listed in Table 1.2 below. Unless otherwise indicated,
the individuals below were KMP for the entire financial year.
Table 1.2: Directors and senior executives who were KMP during the year ended 31 December 2014
Non-executive
Directors
Barbara Jeremiah
Bruce Brook
Roger Brown
Peter Day
Roy Franklin
Tanya Fratto
Jonathan Lewinsohn
David McLemore
Rex McLennan
Conor Tochilin
Position
Chair and Non-executive Director
Non-executive Director
Non-executive Director (resigned from the Board effective 18 December 2014)
Non-executive Director (appointed effective 25 February 2014)
Non-executive Director
Non-executive Director
Non-executive Director (appointed effective 23 October 2014)
Non-executive Director
Non-executive Director
Non-executive Director (appointed effective 18 December 2014)
Senior executives
Position
Richard O'Brien
Jeffrey Olsen
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
Chief Executive Officer
Chief Financial Officer (appointed effective 1 April 2014)
Senior Vice President, General Couns el and Secretary
Senior Vice President, Hum an Resources
Senior Vice President, Global Drilling Services
Senior Vice President, Global Products
There were no changes to KMP after the reporting date and before the date the financial report was authorised for issue.
1.3. REMUNERATION OUTCOMES
Actual remuneration
Details of CEO and other senior executive remuneration for the year ended 31 December 2014, 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 2014. It illustrates how the Companyʼs 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.
__________________________________________________________________________________________
48
45
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
Table 1.3: Actual remuneration received by senior executives who were KMP on 31 December 2014
Base salary
US$
STI 1
US$
LTI 2
US$
LTI (cash) 3
US$
Other 4
US$
Richard O'Brien
Jeff rey Olsen 5
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
750,000
298,462
416,000
324,450
390,728
340,725
297,000
-
79,664
67,810
97,291
60,989
-
-
8,960
7,680
7,680
6,400
833,333
-
-
-
-
-
41,080
30,577
40,784
40,776
36,400
40,776
Total
US$
1,921,413
329,039
545,408
440,716
532,099
448,890
(1) Represents the cash paid in respect of the executiveʼs STI award earned for the prior yearʼs performance. For further
details of the STI Plan, see section 3.3 of this Report.
(2) Represents the value of Share Rights vested during the year ended 31 December 2014 (based on the market value
of shares at the vesting date: A$0.28 on 15 March 2014 and dividends received on unvested Share Rights granted
prior to 1 January 2012). Share Rights granted under the Companyʼs LTI Plan and options granted under the
Companyʼs 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 Mr OʼBrienʼs LTI cash award that vested and was paid in 2014.
(4) Represents benefits such as US 401(k) retirement plan Company matching and/or profit sharing contributions, car
allowance and tax preparation service reimbursement.
(5) Mr Olsen was hired on 1 April 2014, as such, his actual remuneration received reflects a partial year of earnings from
his date of hire.
2. REMUNERATION FRAMEWORK AND STRATEGY
This section outlines the Companyʼs remuneration governance framework and strategy and explains how the Board and
Remuneration Committee make remuneration decisions, including the use of external remuneration consultants that underpin
the remuneration arrangements for senior executives.
2.1. HOW REMUNERATION DECISIONS ARE MADE
Board responsibility
The Board is responsible for the Companyʼs 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
Companyʼs remuneration programs and strategies will attract and retain high-calibre Directors, executives and employees and
will motivate them to maximise the Companyʼs long-term business, create value for shareholders and support the Companyʼs
goals and values.
The Remuneration Committeeʼs responsibilities include:
•
developing and reviewing remuneration plans, including annual bonus plans and long-term incentive plans, including
equity-based incentive plans;
developing performance objectives for the CEO and his direct reports and reviewing performance against those
objectives;
overseeing strategies for recruitment, retention and succession planning for Directors and key executive positions; and
reviewing the composition of the Board and monitoring the performance of the Board and the Directors.
•
•
•
The charter of the Remuneration Committee is set out in full on the Companyʼs website at www.boartlongyear.com.
__________________________________________________________________________________________
49
46
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
The Committee members as at the date of this Report include Mr Roy Franklin, Chairman, Ms Tanya Fratto and Mr Peter Day.
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 Companyʼs management that is required depending upon the
circumstances of the assignment or advice being sought. Thus the Committee may determine that complete independence
from management is required or that the consultants may be directed to work with Company management to obtain relevant
information or input in order to formulate advice or recommendations to the Committee.
The 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.
In 2014, 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 & Co., Inc. consults on executive
compensation as its sole business and therefore is independent of other potential business considerations that could possibly
compromise the consultantʼs objectivity; has been successfully performing this work since 1973; and has extensive experience
with clients in the mining and natural resources industries.
The Committee also engaged an independent compensation advisor in Australia, Egan Associates, to supplement the work of
Frederic W. Cook & Co., Inc., to ensure the Committee receives relevant advice from an Australian shareholder perspective.
During 2014, 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 Companyʼs CEO, Mr Richard OʼBrien and CFO, Mr Jeffrey
Olsen and the appropriate structure for the Companyʼs 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 2014 was US$13,000.
Frederic W. Cook & Co., Inc. performed no other services during 2014.
__________________________________________________________________________________________
50
47
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
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 2014.
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 with
establishing the remuneration package for Mr OʼBrien. In addition,
the Committee conducted a thorough review of the Companyʼs
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 Companyʼs current business focus.
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
Egan Associates
Provided regular independent advice and counsel on various legal
and governance standards related to executive remuneration.
Provided independent advice and counsel on various Australian
governance standards related to executive remuneration.
2.2. REMUNERATION POLICY AND STRATEGY
The Companyʼs executive remuneration strategy is designed to attract, motivate and retain high performing individuals and
align the interests of executives with shareholders.
The Companyʼs remuneration program has been designed to ensure that the structure, mix of fixed and “at-risk” remuneration
and quantum of senior executive remuneration meets the Companyʼs specific business needs and objectives and are
consistent with good market practice. An additional challenge that impacts on the remuneration program 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 Companyʼs senior executive remuneration program has been structured so that it:
•
•
•
•
is reasonable in the context of the definition in the Corporations Act 2001;
provides a competitive compensation program to retain, attract, motivate and reward key employees;
achieves clear alignment between total remuneration and delivered business and personal performance over the short
and long term; and
is an appropriately balanced mix of fixed and “at-risk” remuneration.
The Company and the Remuneration Committee regularly review all elements of the remuneration program to ensure that it
remains appropriate to the business strategy, is competitive and is consistent with relevant contemporary market practice. The
remuneration initiatives introduced in 2014, which were designed to assist the Company achieve key goals during a very
challenging time, demonstrate this.
__________________________________________________________________________________________
51
48
Boart Longyear Annual Report 2014 Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
The diagram below illustrates three primary components of the executives’ total compensation opportunity and how the
The Committee members as at the date of this Report include Mr Roy Franklin, Chairman, Ms Tanya Fratto and Mr Peter Day.
components are structured to achieve the remuneration strategy and align with shareholder interests:
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.
Fixed Remuneration
Use of remuneration consultants and external advisers
Short-term Incentive
(Corporate Bonus Plan)
Long-term Incentive
(cid:127) Provides a predictable base level of
compensation commensurate with
the executive’s scope of
responsibilities, leadership skills,
values, performance and
contribution to the Company.
(cid:127) 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.
(cid:127) This component of compensation is
(cid:127) This component of compensation is
Where appropriate, the Board seeks and considers advice from independent remuneration consultants and external advisers.
“at-risk” and earned only if
“at-risk” and earned only if
Remuneration consultants are engaged by, and report directly to, the Remuneration Committee and support the Committee in
challenging performance metrics
challenging performance metrics
assessing market practice and movements to ensure that base salary and targeted short-term and long-term compensation
are achieved and/or continued
are achieved.
are in line with comparable roles. When remuneration consultants are engaged, the Committee establishes with the
service requirements are met over
consultants the appropriate level of independence from the Companyʼs management that is required depending upon the
a three-year performance period.
(cid:127) Key performance metrics for 2014
circumstances of the assignment or advice being sought. Thus the Committee may determine that complete independence
include free cash flow, safety
(cid:127) The Board has determined to use
from management is required or that the consultants may be directed to work with Company management to obtain relevant
performance, and individual
three-year cumulative Net Debt
information or input in order to formulate advice or recommendations to the Committee.
strategic goals.
targets as the key measure for
performance-based long-term
The Committee has also established a formal Protocol that summarises the policy and procedures that the Company has
incentive awards in 2014. In
(cid:127) These metrics were designed to
adopted to govern the relationship between the independent remuneration consultant, the Committee and management. The
addition, the outcomes will be
weight performance on free cash
Protocol was developed in compliance with the obligations under Part 2D.8 of the Corporations Act and ensures that the
adjusted +/- 10% depending how
flow and safety to overall Company
remuneration consultant remains free from any undue influence by any member of the KMP to whom the recommendations
Total Shareholder Return (TSR)
performance in order to promote
compares to comparator
relate. All consultant remuneration recommendations are provided directly to the Committee and are accompanied by an
collaboration and to align with
companies. The hurdle used for the
undue influence declaration from the consultant.
shareholder interests.
LTI is reviewed annually in light of
market conditions and to ensure
In 2014, the Committee continued to engage Frederic W. Cook & Co., Inc. as an independent compensation advisor to the
that it encourages executives to
Individual strategic goals can
Board. In making its selection, the Committee considered that Frederic W. Cook & Co., Inc. consults on executive
achieve outcomes that reflect the
include financial and/or strategic
compensation as its sole business and therefore is independent of other potential business considerations that could possibly
actual long term needs and goals of
targets for a business unit or
the business.
compromise the consultantʼs objectivity; has been successfully performing this work since 1973; and has extensive experience
function. Examples can include
with clients in the mining and natural resources industries.
business unit growth, cost control
(cid:127) Net Debt targets used in 2014
goals, cash flow generation,
included a minimum threshold
The Committee also engaged an independent compensation advisor in Australia, Egan Associates, to supplement the work of
geographic expansion, productivity
performance, below which no value
Frederic W. Cook & Co., Inc., to ensure the Committee receives relevant advice from an Australian shareholder perspective.
programs, etc.
is achieved. The range of
performance targets was
During 2014, Frederic W. Cook & Co., Inc. made remuneration recommendations, as defined in the Corporations Act, with
established based on an analysis of
(cid:127) The metrics used for the CBP are
respect to the components of the remuneration package for the Companyʼs CEO, Mr Richard OʼBrien and CFO, Mr Jeffrey
the debt and cash profile of the
reviewed annually to ensure that
Company as well as against stated
Olsen and the appropriate structure for the Companyʼs incentive arrangements. The Board is satisfied that the remuneration
they continue to support the
analyst and shareholder
recommendations were free of undue influence by the KMP to whom the recommendations relate in light of the arrangements
Company’s business strategy.
expectations.
explained above.
based on the experience,
performance, skills, position,
business unit size and/or
complexity and unique market
considerations where necessary.
(cid:127) Variability around the median is
(cid:127)
The amount paid to Frederic W. Cook & Co., Inc. for remuneration recommendations made during 2014 was US$13,000.
Frederic W. Cook & Co., Inc. performed no other services during 2014.
(cid:127) Net Debt performance provides a
(cid:127) Awarded in cash.
strong link to shareholders as it is a
measure of the capital structure
employed in the business. The
TSR adjustment 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.
(cid:127) Awarded in equity and/or cash.
__________________________________________________________________________________________
52
47
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
3. COMPONENTS OF EXECUTIVE REMUNERATION
The remuneration policy and programs set out in this section of the Report apply to all executive KMP and to other members
of the Companyʼs senior management who are not KMP.
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 Statesʼ 401(k)) payments) and variable “at-risk”
remuneration. The variable remuneration has two “at-risk” components:
•
•
STI – being an annual bonus granted under the Companyʼs Corporate Bonus Plan; and
LTI – being equity or cash grants tied to vesting conditions, such as continued employment and performance hurdles.
The Board notes that given the currently repressed market capitalisation of the Company, some shareholders and analysts
may consider certain compensation components and/or total remuneration to be higher than their market comparison models
would suggest. A comment to this effect was made by a shareholder at the 2014 AGM (no other comments were made by
shareholders on the 2013 Remuneration Report at the AGM). While the Board does consider this issue, it also notes that the
remuneration structure for the majority of the current executives was made in 2012, and since that time the Companyʼs market
capitalisation has declined. Given the volatility of the Companyʼs markets, the Board believes that maintaining its executive
compensation benchmarking to these levels is a more accurate reflection of the long-term potential and through-the-cycle
market capitalisation of the Company and the remuneration levels necessary to attract and retain the calibre of talent required
to operate a company in a globally complex and highly cyclical environment.
With respect to the remuneration of Mr OʼBrien, the Companyʼs President and CEO, the Board believes his skills, relevant
industry experience and successful leadership record make him uniquely qualified to lead the Company through the
challenging business and operating environment we are currently experiencing. In light of Mr OʼBrienʼs compensation previous
to joining the Company and that he is a later-career CEO, the Board determined to structure his fixed and short-term
compensation in line with competitive market comparisons while providing an annualised long-term variable compensation at
the higher end of the market comparisons. Given the strength of his qualifications, the Board believes this provides an
appropriate total remuneration package that maintains a larger portion “at risk” through equity compensation that is closely
aligned to shareholders.
The relevant proportions of fixed-to-at-risk components for senior executive remuneration during 2014 are shown below in
table 3.1. It illustrates the annualised remuneration mix for KMP including annualised fixed salary, target STI assuming
performance metrics are achieved such that 100% of target bonus is earned and LTI at the fair value at date of grant,
assuming 100% performance and vesting requirements are achieved. For Mr OʼBrien, the amounts reflect the annual fair value
at grant date as per his employment agreement.
__________________________________________________________________________________________
53
50
Boart Longyear Annual Report 2014 Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
Table 3.1: Remuneration mix
Table 3.1: Remuneration mix
3.2. FIXED REMUNERATION
3.2. FIXED REMUNERATION
The fixed component of executive remuneration consists primarily of base salary. Senior executives also receive other
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
benefits, such as a vehicle allowance. In addition, the Company contributes to retirement programs, such as Australiaʼs
compulsory superannuation scheme or the United States’ 401(k) plans.
compulsory superannuation scheme or the United Statesʼ 401(k) plans.
Base salaries are reviewed annually by the Remuneration Committee (or, for the CEO, by the Board) and may be adjusted as
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
appropriate to maintain market competitiveness and/or based on merit in accordance with the CEOʼs recommendation (for
senior executives other than the CEO).
senior executives other than the CEO).
3.3. SHORT-TERM INCENTIVE
3.3. SHORT-TERM INCENTIVE
Table 3.3: Summary of the Short Term Incentive program
Table 3.3: Summary of the Short Term Incentive program
What is the STI
What is the STI
program?
program?
The Short Term Incentive program or Corporate Bonus Plan (“CBP”) provides certain employees
The Short Term Incentive program or Corporate Bonus Plan (“CBP”) provides certain employees
with the potential to receive an annual bonus if they satisfy specific annual objectives and targets
with the potential to receive an annual bonus if they satisfy specific annual objectives and targets
that are pre-determined by the Board.
that are pre-determined by the Board.
Potential incentives available to be earned under the CBP range between 10% and 200% of an
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.
employeeʼs base salary depending on the employeeʼs role and actual performance achieved.
The actual bonus that an employee will receive under the CBP (if any) will vary depending on the
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
Companyʼs and the individualʼs performance against the relevant objectives and targets, as
detailed more fully below.
detailed more fully below.
138 senior employees, including the senior executive KMP, participated in the CBP in 2014.
138 senior employees, including the senior executive KMP, participated in the CBP in 2014.
The CBP and the performance conditions set under the CBP have been designed to:
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
focus eligible employees on maximising Company performance in key financial, safety and
operational targets;
operational targets;
align individual efforts with Company and shareholder interests; and
align individual efforts with Company and shareholder interests; and
reward for superior individual and Company performance.
reward for superior individual and Company performance.
Who participates in
Who participates in
the STI program?
the STI program?
Why does the
Why does the
Board consider the
Board consider the
STI program an
STI program an
appropriate
appropriate
incentive?
incentive?
__________________________________________________________________________________________
__________________________________________________________________________________________
54
51
51
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
What are the
What are the
performance
performance
conditions?
conditions?
By putting a significant proportion of senior executive remuneration at-risk under the CBP
By putting a significant proportion of senior executive remuneration at-risk under the CBP
against challenging targets, the CBP aligns executive interests with the Companyʼs financial and
against challenging targets, the CBP aligns executive interests with the Companyʼs financial and
safety performance and with the operational and/or functional objectives of their relevant
safety performance and with the operational and/or functional objectives of their relevant
business unit or function.
business unit or function.
There are three key performance components to the CBP that were used in 2014. Each
There are three key performance components to the CBP that were used in 2014. Each
component has a threshold performance below which no bonus is earned for that component; a
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
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 200% of that component of the
level of performance whereby superior results can earn up to 200% of that component of the
bonus.
bonus.
The Companyʼs annual financial target for the purposes of the CBP is set by the Remuneration
The Companyʼs annual financial target for the purposes of the CBP is set by the Remuneration
Committee. The Remuneration Committeeʼs philosophy in setting financial targets is to establish
Committee. The Remuneration Committeeʼs philosophy in setting financial targets is to establish
threshold targets that represent the desired minimum outcome for each goal (below which no
threshold targets that represent the desired minimum outcome for each goal (below which no
bonus is payable for that goal) and stretch targets that can only be met by the achievement of
bonus is payable for that goal) and stretch targets that can only be met by the achievement of
excellent outcomes for each goal.
excellent outcomes for each goal.
The financial metrics used for the CBP are reviewed annually. The Remuneration Committee
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).
also reviews and approves the non-financial targets for senior executives (including the CEO).
The three performance components for 2014 and their relative weightings are:
The three performance components for 2014 and their relative weightings are:
(1) Corporate Financial Target - Free Cash Flow (FCF) - 60% of an employeeʼs CBP
(1) Corporate Financial Target - Free Cash Flow (FCF) - 60% of an employeeʼs CBP
opportunity is linked to the Companyʼs overall FCF performance. For purposes of
opportunity is linked to the Companyʼs overall FCF performance. For purposes of
calculating FCF, the statutory FCF is adjusted to eliminate the impact of items such as
calculating FCF, the statutory FCF is adjusted to eliminate the impact of items such as
cash restructuring costs, pension plan pre-funding, interest and income tax receipts or
cash restructuring costs, pension plan pre-funding, interest and income tax receipts or
payments, acquisition or disposals of subsidiaries, and cash flows from financing
payments, acquisition or disposals of subsidiaries, and cash flows from financing
activities including, but not limited, to proceeds from equity raisings and borrowings.
activities including, but not limited, to proceeds from equity raisings and borrowings.
The free cash flow metric was selected to ensure proper alignment and focus on the
The free cash flow metric was selected to ensure proper alignment and focus on the
critical need to generate cash to fund ongoing operations and contribute to reducing
critical need to generate cash to fund ongoing operations and contribute to reducing
debt when access to additional capital was extremely limited during this extended
debt when access to additional capital was extremely limited during this extended
market downturn.
market downturn.
For 2014, the Remuneration Committee specifically recommended and the Board
For 2014, the Remuneration Committee specifically recommended and the Board
approved the following performance payout matrix for the Free Cash Flow component:
approved the following performance payout matrix for the Free Cash Flow component:
Free Cash Flow Targets
Free Cash Flow Targets
Free Cash Flow
Free Cash Flow
(US$)
(US$)
121,030
121,030
113,518
113,518
Free Cash Flow
Free Cash Flow
(% of Budget)
(% of Budget)
>145%
>145%
136%
136%
83,469 – 102,367 100%-123%
83,469 – 102,367 100%-123%
71,783
71,783
<71,783
<71,783
86%
86%
<86%
<86%
Payout %
Payout %
200%
200%
125%
125%
100%
100%
50%
50%
0%
0%
For 2014, Free Cash Flow targets were established with a target payout of 100% if
For 2014, Free Cash Flow targets were established with a target payout of 100% if
actual FCF achieved fell within a “strike zone” represented by achievement of 100% to
actual FCF achieved fell within a “strike zone” represented by achievement of 100% to
123% of the target FCF amount. In addition, to further emphasise how critical
123% of the target FCF amount. In addition, to further emphasise how critical
generating FCF was during the year, a steep decelerator for under target achievement
generating FCF was during the year, a steep decelerator for under target achievement
was established whereby no payout was earned if less than 86% achievement of the
was established whereby no payout was earned if less than 86% achievement of the
FCF target was achieved. Payout is linear between levels.
FCF target was achieved. Payout is linear between levels.
(2) Strategic objectives - 30% of an employeeʼs CBP opportunity is dependent upon
(2) Strategic objectives - 30% of an employeeʼs CBP opportunity is dependent upon
performance against strategic objectives relevant to the employeeʼs business unit or
performance against strategic objectives relevant to the employeeʼs business unit or
functional responsibility. Examples of strategic objectives may include: business unit or
functional responsibility. Examples of strategic objectives may include: business unit or
functional cost targets, geographic or targeted market segment or customer growth,
functional cost targets, geographic or targeted market segment or customer growth,
__________________________________________________________________________________________
__________________________________________________________________________________________
52
55
52
Boart Longyear Annual Report 2014 Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
new product introductions, leadership, talent retention and development, specific
new product introductions, leadership, talent retention and development, specific
project or initiative progress, etc.
project or initiative progress, etc.
Strategic objectives are utilised to reinforce continued focus on critical initiatives and
Strategic objectives are utilised to reinforce continued focus on critical initiatives and
business unit or functional priorities that have a positive impact on current or future
business unit or functional priorities that have a positive impact on current or future
business performance. Strategic objectives should be pursued regardless of the
business performance. Strategic objectives should be pursued regardless of the
business or market pressures impacting the overall corporate financial performance.
business or market pressures impacting the overall corporate financial performance.
The Board has discretion to modify the amount of the strategic objective award up or
The Board has discretion to modify the amount of the strategic objective award up or
down as appropriate.
down as appropriate.
(3) Safety - 10% of an employeeʼs CBP opportunity is dependent upon the Companyʼs
(3) Safety - 10% of an employeeʼs CBP opportunity is dependent upon the Companyʼs
overall safety performance.
overall safety performance.
The nature of the work that the majority of our employees perform on a daily business
The nature of the work that the majority of our employees perform on a daily business
is inherently dangerous. We believe that a component of the bonus plan based on
is inherently dangerous. We believe that a component of the bonus plan based on
safety results is instrumental for all employees to adopt safe work practices,
safety results is instrumental for all employees to adopt safe work practices,
continuously identify ways to reduce or eliminate hazards or unsafe behaviours and to
continuously identify ways to reduce or eliminate hazards or unsafe behaviours and to
get our employees home safely every day. Our business with our customers can be
get our employees home safely every day. Our business with our customers can be
won or lost due to our safety performance and they expect as much of a focus on safety
won or lost due to our safety performance and they expect as much of a focus on safety
as we expect of ourselves.
as we expect of ourselves.
For 2014, the Remuneration Committee established total case incident rates (TCIR)
For 2014, the Remuneration Committee established total case incident rates (TCIR)
and lost time incident rates (LTIR) as the measurements of safety performance and
and lost time incident rates (LTIR) as the measurements of safety performance and
specifically recommended and the Board approved the following performance payout
specifically recommended and the Board approved the following performance payout
targets for the Safety component:
targets for the Safety component:
Safety TCIR
Safety TCIR
2.00
2.00
1.70
1.70
1.45
1.45
Payout %
Payout %
50%
50%
100%
100%
150%
150%
Safety LTIR
Safety LTIR
0.20
0.20
0.13
0.13
0.06
0.06
Payout %
Payout %
50%
50%
100%
100%
150%
150%
Payout is linear between levels.
Payout is linear between levels.
Certain conditions may apply to an employeeʼs CBP opportunity that reduces (but not increases)
Certain conditions may apply to an employeeʼs CBP opportunity that reduces (but not increases)
the bonus that they receive under the CBP. For example, if an employee fails to adhere to
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
corporate leadership values, such as legal compliance, this may reduce total bonus payable to
them under the CBP by up to 100%.
them under the CBP by up to 100%.
How are the
How are the
performance
performance
conditions
conditions
measured?
measured?
Performance is assessed against the relevant targets annually. The final determination of the
Performance is assessed against the relevant targets annually. The final determination of the
Companyʼs financial performance is determined after reviewing the Companyʼs audited financial
Companyʼs financial performance is determined after reviewing the Companyʼs audited financial
results for the relevant period. Financial targets are assessed quantitatively against the pre-
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
determined targets. Where possible, non-financial targets are also assessed quantitatively and
otherwise they are assessed by periodic qualitative performance appraisal.
otherwise they are assessed by periodic qualitative performance appraisal.
The Remuneration Committee recommends the amount of bonus to be paid to the CEO for
The Remuneration Committee recommends the amount of bonus to be paid to the CEO for
Board approval. For senior executives, the Remuneration Committee will seek recommendations
Board approval. For senior executives, the Remuneration Committee will seek recommendations
from the CEO as appropriate.
from the CEO as appropriate.
Sample calculation
Sample calculation
Following is an example of how a bonus would be calculated assuming the following:
Following is an example of how a bonus would be calculated assuming the following:
• Employee earns $150,000 with a 40% target bonus amount
• Employee earns $150,000 with a 40% target bonus amount
• Corporate Free Cash Flow of (93% achievement)
• Corporate Free Cash Flow of (93% achievement)
• Safety and strategic objectives achievement each at target performance
• Safety and strategic objectives achievement each at target performance
Free Cash Flow of 93% = 75% component payout (per table above)
Free Cash Flow of 93% = 75% component payout (per table above)
Safety performance at target = 100% component payout
Safety performance at target = 100% component payout
Strategic Objectives at target = 100% component payout
Strategic Objectives at target = 100% component payout
Calculation:
Calculation:
__________________________________________________________________________________________
__________________________________________________________________________________________
56
53
53
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
Step 1: Determine component subtotal
Step 1: Determine component subtotal
+
+
+
+
=
=
Free Cash Flow = (75% x 60% weighting)
Free Cash Flow = (75% x 60% weighting)
Safety performance = (100% x 10% weighting)
Safety performance = (100% x 10% weighting)
Strategic objectives = (100% x 30% weighting)
Strategic objectives = (100% x 30% weighting)
Subtotal achievement
Subtotal achievement
= 45%
= 45%
= 10%
= 10%
= 30%
= 30%
= 85%
= 85%
Step 2: Calculate Bonus
Step 2: Calculate Bonus
$150,000 x 40% Target Bonus x 85% Bonus achievement = $51,000 Bonus
$150,000 x 40% Target Bonus x 85% Bonus achievement = $51,000 Bonus
All bonuses awarded under the CBP are delivered as a cash bonus.
All bonuses awarded under the CBP are delivered as a cash bonus.
Bonuses earned under the CBP during the year ended 31 December 2014 are set out in Table
Bonuses earned under the CBP during the year ended 31 December 2014 are set out in Table
4.1.3 in section 4.1 of this Report. The bonuses will be paid in or after March 2015.
4.1.3 in section 4.1 of this Report. The bonuses will be paid in or after March 2015.
In what form is the
In what form is the
STI delivered?
STI delivered?
What STI awards
What STI awards
did senior
did senior
executives earn in
executives earn in
2014?
2014?
What if a senior
What if a senior
executive ceases
executive ceases
employment?
employment?
A senior executiveʼs entitlement to a CBP payment ceases on the date that they cease
A senior executiveʼs entitlement to a CBP payment ceases on the date that they cease
employment, unless the Board determines otherwise. However, where a senior executiveʼs
employment, unless the Board determines otherwise. However, where a senior executiveʼs
employment ceases for reasons other than for cause or good reason, any earned bonus will be
employment ceases for reasons other than for cause or good reason, any earned bonus will be
prorated and paid for the amount of time actually worked during the plan year.
prorated and paid for the amount of time actually worked during the plan year.
3.4. Long-term incentives
3.4. Long-term incentives
Table 3.4: Summary of the Long-term Incentive
Table 3.4: Summary of the Long-term Incentive
What is the
What is the
purpose of the LTI?
purpose of the LTI?
The Companyʼs LTI arrangements are designed to:
The Companyʼs LTI arrangements are designed to:
• align senior executive reward with shareholder value;
• align senior executive reward with shareholder value;
• assist in retaining key executives;
• assist in retaining key executives;
• encourage superior performance on a sustained basis; and
• encourage superior performance on a sustained basis; and
• provide executives with an opportunity to share in the growth and value of the Company
• 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
by tying the LTI component of senior executive remuneration to equity awards that rise
and fall in value in line with the share price.
and fall in value in line with the share price.
Who participates in
Who participates in
the LTI?
the LTI?
The executives eligible to participate in the LTI are senior divisional, regional and corporate
The executives eligible to participate in the LTI are senior divisional, regional and corporate
executives. The target value of annual LTI grants varies depending on the participantʼs position,
executives. The target value of annual LTI grants varies depending on the participantʼs position,
skills and contributions to the Company. The target amounts are generally based on market
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
averages for comparable roles at similarly-sized companies. The Company made grants to
approximately 86 participants during the year ended 31 December 2014. See Section 4.1 for
approximately 86 participants during the year ended 31 December 2014. See Section 4.1 for
details on LTI awards made to KMP
details on LTI awards made to KMP
What proportion of
What proportion of
total remuneration
total remuneration
does the LTI
does the LTI
program
program
represent?
represent?
How is reward
How is reward
delivered under the
delivered under the
LTI?
LTI?
Senior executives are offered grants that represent approximately 39% - 44% (59% for the CEO)
Senior executives are offered grants that represent approximately 39% - 44% (59% for the CEO)
of their total remuneration (on an annualised basis). However, participating senior executives
of their total remuneration (on an annualised basis). However, participating senior executives
derive no actual value from their LTI grants under the LTI unless the performance hurdles and/or
derive no actual value from their LTI grants under the LTI unless the performance hurdles and/or
service conditions are satisfied.
service conditions are satisfied.
Under the LTIP Rules and the Option Plan Rules, the Board has flexibility to grant various
Under the LTIP Rules and the Option Plan Rules, the Board has flexibility to grant various
instruments (Share Rights, Cash Rights (together referred to as “Rights”) and Options, or a
instruments (Share Rights, Cash Rights (together referred to as “Rights”) and Options, or a
combination of the three) as an executiveʼs LTI award. The composition of the grants from year
combination of the three) as an executiveʼs LTI award. The composition of the grants from year
to year will depend on what, in the Boardʼs view, will best incentivise and reward executives
to year will depend on what, in the Boardʼs view, will best incentivise and reward executives
having regard to the Companyʼs circumstances from time to time. An Option is an entitlement to
having regard to the Companyʼs circumstances from time to time. An Option is an entitlement to
purchase a share at a pre-determined share price set at grant date. A Share Right is an
purchase a share at a pre-determined share price set at grant date. A Share Right is an
__________________________________________________________________________________________
__________________________________________________________________________________________
57
54
54
Boart Longyear Annual Report 2014
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
entitlement to receive a fully-paid ordinary share in the Company and a Cash 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
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
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
to appropriately limit share dilution when the stock price was low at the time of the award. The
2014 LTI award comprised a combination of Options, Share Rights and Cash Rights. The Board
2014 LTI award comprised a combination of Options, Share Rights and Cash Rights. The Board
considered this mix to be appropriate for 2014 as it most effectively achieved three key
considered this mix to be appropriate for 2014 as it most effectively achieved three key
objectives: aligning executivesʼ interests with shareholdersʼ; motivating executives to focus on
objectives: aligning executivesʼ interests with shareholdersʼ; motivating executives to focus on
share price growth over the longer term; and retaining key executive talent which is critical to the
share price growth over the longer term; and retaining key executive talent which is critical to the
Companyʼs long term success.
Companyʼs long term success.
Rights and Options are granted on terms and conditions determined by the Board, including
Rights and Options are granted on terms and conditions determined by the Board, including
vesting conditions linked to service and performance over a specified period (usually three
vesting conditions linked to service and performance over a specified period (usually three
years).
years).
Options are offered at a pre-determined share price which the senior executives must pay in
Options are offered at a pre-determined share price which the senior executives must pay in
order to exercise the Option award after it vests. At the time the participant exercises the Option,
order to exercise the Option award after it vests. At the time the participant exercises the Option,
the participant may pay the exercise price of the Shares as to which the Option is being
the participant may pay the exercise price of the Shares as to which the Option is being
exercised to the Company by either making a payment to the Company, executing a cashless
exercised to the Company by either making a payment to the Company, executing a cashless
(broker-assisted) exercise that complies with applicable laws, authorising the withholding by the
(broker-assisted) exercise that complies with applicable laws, authorising the withholding by the
Company of an equivalent number of Shares otherwise deliverable to the participant pursuant to
Company of an equivalent number of Shares otherwise deliverable to the participant pursuant to
the Option, or by a combination of the foregoing.
the Option, or by a combination of the foregoing.
Rights are offered at no cost to the senior executives and no amount is payable if they vest.
Rights are offered at no cost to the senior executives and no amount is payable if they vest.
Options or Share Rights do not carry voting rights; however, shares allocated upon vesting of
Options or Share Rights do not carry voting rights; however, shares allocated upon vesting of
Share Rights or exercise of Options will carry the same rights as other ordinary shares.
Share Rights or exercise of Options will carry the same rights as other ordinary shares.
The Company may acquire shares underlying the Share Rights that it has granted under the
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
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
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
beginning 2012, all dividends paid on unvested Share Rights will be held in trust and payable
when the participant satisfies the vesting conditions.
when the participant satisfies the vesting conditions.
Senior executives are not entitled to trade or hedge their unvested Rights or Options.
Senior executives are not entitled to trade or hedge their unvested Rights or Options.
Do participants pay
Do participants pay
for Options?
for Options?
Do participants pay
Do participants pay
for the Share
for the Share
Rights or Cash
Rights or Cash
Rights?
Rights?
What rights are
What rights are
attached to the
attached to the
Options or Share
Options or Share
Rights?
Rights?
__________________________________________________________________________________________
__________________________________________________________________________________________
58
55
55
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
What are the
What are the
vesting
vesting
conditions?
conditions?
For the 2014 LTI grant, the vesting conditions are as follows:
For the 2014 LTI grant, the vesting conditions are as follows:
Tranche
Tranche
Percentage of grant
Percentage of grant
Vesting condition
Vesting condition
Partial vesting
Partial vesting
Performance
Performance
Share Rights or
Share Rights or
Performance
Performance
Cash Rights
Cash Rights
31% for all
31% for all
executives including
executives including
the CEO
the CEO
Vesting occurs on a pro-
Vesting occurs on a pro-
rata basis if the
rata basis if the
minimum three-year
minimum three-year
cumulative net debt
cumulative net debt
threshold is surpassed.
threshold is surpassed.
At the minimum net debt
At the minimum net debt
threshold, 50% of
threshold, 50% of
Performance Rights will
Performance Rights will
vest.
vest.
Full vesting occurs only
Full vesting occurs only
if the Companyʼs three-
if the Companyʼs three-
year cumulative net debt
year cumulative net debt
and TSR meets or
and TSR meets or
exceeds the stretch
exceeds the stretch
target for the
target for the
performance period.
performance period.
Achievement of
Achievement of
cumulative net debt
cumulative net debt
targets over a three-year
targets over a three-year
period set by the Board.
period set by the Board.
The targets include a
The targets include a
minimum threshold,
minimum threshold,
target and stretch
target and stretch
amount of net debt set
amount of net debt set
annually over a three-
annually over a three-
year performance
year performance
period. Final net debt
period. Final net debt
achieved performance
achieved performance
will be determined by
will be determined by
the cumulative actual
the cumulative actual
achievement relative to
achievement relative to
the cumulative targets.
the cumulative targets.
Any earned
Any earned
Performance Rights
Performance Rights
under the net debt
under the net debt
performance criteria will
performance criteria will
be further modified to
be further modified to
+/- 10% based on TSR
+/- 10% based on TSR
performance relative to
performance relative to
a comparator group;
a comparator group;
plus,
plus,
Continuation of
Continuation of
employment during the
employment during the
three-year performance
three-year performance
period.
period.
Retention Share
Retention Share
Rights or
Rights or
Retention Cash
Retention Cash
Rights
Rights
50% for all
50% for all
executives including
executives including
the CEO
the CEO
Continuation of
Continuation of
employment during the
employment during the
three-year continued
three-year continued
service period.
service period.
Options
Options
19% for all
19% for all
executives including
executives including
the CEO
the CEO
Continuation of
Continuation of
employment during the
employment during the
three-year continued
three-year continued
service period.
service period.
No
No
No
No
__________________________________________________________________________________________
__________________________________________________________________________________________
59
56
56
Boart Longyear Annual Report 2014 Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
How are the Net
How are the Net
Debt and Total
Debt and Total
Shareholder Return
Shareholder Return
hurdles measured?
hurdles measured?
For Performance Share Rights or Performance Cash Rights granted in 2014, two measures will
For Performance Share Rights or Performance Cash Rights granted in 2014, two measures will
be used: Net Debt and Total Shareholder Return.
be used: Net Debt and Total Shareholder Return.
Net Debt is defined as the total outstanding senior debt plus the drawn revolver debt less cash. It
Net Debt is defined as the total outstanding senior debt plus the drawn revolver debt less cash. It
excludes or is adjusted to eliminate the effects of strategic asset disposals and equity raising
excludes or is adjusted to eliminate the effects of strategic asset disposals and equity raising
activities such as the recapitalisation event that occurred in 2014. Each year of the performance
activities such as the recapitalisation event that occurred in 2014. Each year of the performance
period, a threshold, target and maximum level of Net Debt will be determined by the Board. At
period, a threshold, target and maximum level of Net Debt will be determined by the Board. At
the end of the three-year measurement period, the cumulative actual performance over the
the end of the three-year measurement period, the cumulative actual performance over the
period will be compared against the three-year cumulative targets to determine the portion of the
period will be compared against the three-year cumulative targets to determine the portion of the
award, if any, that will vest subject to any remaining service requirements as illustrated below.
award, if any, that will vest subject to any remaining service requirements as illustrated below.
3-yr Cumulative
3-yr Cumulative
Net Debt
Net Debt
Performance
Performance
Level
Level
Maximum
Maximum
Target
Target
Threshold
Threshold
Payout
Payout
(% of Target
(% of Target
Performance Rights)
Performance Rights)
150%
150%
100%
100%
50%
50%
BLY’
BLY’
The three-year average Total Shareholder Return threshold, target and maximum performance
The three-year average Total Shareholder Return threshold, target and maximum performance
requirements are as follows:
requirements are as follows:
Total Shareholder Return
Total Shareholder Return
BLYʼs %-ile Rank vs.
BLYʼs %-ile Rank vs.
Peer Group
Peer Group
Modification of
Modification of
Performance Rights Earned
Performance Rights Earned
< 25 %
< 25 %
25% to 44%
25% to 44%
45% to 54%
45% to 54%
55% to 74%
55% to 74%
> 75%
> 75%
-10%
-10%
-5%
-5%
0%
0%
+5%
+5%
+10%
+10%
The Total Shareholder Return comparator group consists of a peer group of companies selected
The Total Shareholder Return comparator group consists of a peer group of companies selected
by the Board in consultation with Frederic W. Cook & Co., Inc. which have a competitive offering
by the Board in consultation with Frederic W. Cook & Co., Inc. which have a competitive offering
in drilling products or drilling services, are publicly traded and operate in one or more major
in drilling products or drilling services, are publicly traded and operate in one or more major
geographic areas where the Company does business. Each of the peers is weighted within the
geographic areas where the Company does business. Each of the peers is weighted within the
group according to its relative enterprise value.
group according to its relative enterprise value.
The Bloomberg Mining Index (BBG World Mining Index) was selected due to its global
The Bloomberg Mining Index (BBG World Mining Index) was selected due to its global
representation of the addressable market for drilling and drilling services in which the Company
representation of the addressable market for drilling and drilling services in which the Company
operates. It is a market capitalisation-weighted index of the leading mining stocks in the world.
operates. It is a market capitalisation-weighted index of the leading mining stocks in the world.
This overall comparator group of peers and index fairly represents the market in which the
This overall comparator group of peers and index fairly represents the market in which the
Company operates and provides a measure of Company performance relative to peers and the
Company operates and provides a measure of Company performance relative to peers and the
industry. The Board will continue to monitor this comparator group for ongoing relevance and
industry. The Board will continue to monitor this comparator group for ongoing relevance and
make adjustments as required. The peer group and index information is available at the
make adjustments as required. The peer group and index information is available at the
respective peer group company sites and by accessing Bloomberg, ticker symbol BWMING
respective peer group company sites and by accessing Bloomberg, ticker symbol BWMING
__________________________________________________________________________________________
__________________________________________________________________________________________
60
57
57
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
Type
Type
Weight
Weight
Peer
Major Drilling Group Intl
Peer
Major Drilling Group Intl
Cabo Drilling Corp
Cabo Drilling Corp
AJ Lucas Group LTD
AJ Lucas Group LTD
s
r
e
e
P
g
n
s
r
e
e
P
g
n
i
l
l
i
r
i
l
l
i
r
D
D
75%
75%
Swick Mining Services LTD
Swick Mining Services LTD
Foraco International SA
Foraco International SA
Ausdrill LTD
Ausdrill LTD
Layne Christensen Company
Layne Christensen Company
Energold Drilling LTD
Energold Drilling LTD
Capital Drilling LTD
Capital Drilling LTD
Orbit Drilling Inc
Orbit Drilling Inc
Mining Index
Mining Index
25%
25%
BBG World Mining Index
BBG World Mining Index
__________________________________________________________________________________________
__________________________________________________________________________________________
61
58
58
Boart Longyear Annual Report 2014
Annual Financial Report
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
31 December 2014 BOART LONGYEAR LIMITED
Why have the
Why have the
performance
performance
hurdles been
hurdles been
chosen?
chosen?
What if a senior
What if a senior
executive ceases
executive ceases
employment?
employment?
What happens in
What happens in
the event of a
the event of a
change of control?
change of control?
What Options or
What Options or
Rights were
Rights were
granted in 2014?
granted in 2014?
In 2014, the Board chose, based on independent consultation with Frederic W. Cook & Co., Inc.,
In 2014, the Board chose, based on independent consultation with Frederic W. Cook & Co., Inc.,
to use a Net Debt and Total Shareholder Return performance hurdle for Performance Rights.
to use a Net Debt and Total Shareholder Return performance hurdle for Performance Rights.
Given the challenging business environment, the highly leveraged capital structure, and the
Given the challenging business environment, the highly leveraged capital structure, and the
pressures from the bank covenants, the Board believes a focus on cash generation and Net
pressures from the bank covenants, the Board believes a focus on cash generation and Net
Debt over time is highly aligned to Company and shareholder interests. In addition, based on
Debt over time is highly aligned to Company and shareholder interests. In addition, based on
shareholder and proxy advisor feedback on the desire for Performance Rights to be based on
shareholder and proxy advisor feedback on the desire for Performance Rights to be based on
more than a single metric, the Board has added TSR to provide a relative measure of
more than a single metric, the Board has added TSR to provide a relative measure of
performance. The peer group and index used to measure TSR was selected to provide a
performance. The peer group and index used to measure TSR was selected to provide a
measure of Company performance relative to peers and the industry.
measure of Company performance relative to peers and the industry.
The hurdle used for the LTI is reviewed annually in light of market conditions and to ensure that
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
it continues to encourage executives to achieve outcomes that reflect the actual long term needs
and goals of the business.
and goals of the business.
A senior executiveʼs unvested Rights and Options will generally lapse on the date that they
A senior executiveʼs unvested Rights and Options will generally lapse on the date that they
cease employment, unless the Board determines otherwise. However, where a senior
cease employment, unless the Board determines otherwise. However, where a senior
executiveʼs employment ceases due to their death or total and permanent disability, all of their
executiveʼs employment ceases due to their death or total and permanent disability, all of their
unvested Options and Rights will vest. Also, unless the Board determines otherwise, where a
unvested Options and Rights will vest. Also, unless the Board determines otherwise, where a
senior executiveʼs employment ceases by reason of “Special Circumstances” (which includes
senior executiveʼs employment ceases by reason of “Special Circumstances” (which includes
redundancy, retirement or other circumstances which are considered by the Board to be
redundancy, retirement or other circumstances which are considered by the Board to be
extraordinary):
extraordinary):
• where there is no performance condition attached to an Option or Right (i.e. it is an Option,
• where there is no performance condition attached to an Option or Right (i.e. it is an Option,
Retention Share Right or Retention Cash Right), any applicable time-based condition will be
Retention Share Right or Retention Cash Right), any applicable time-based condition will be
waived and the number of Options, Retention Share Rights and/ or Retention Cash Rights
waived and the number of Options, Retention Share Rights and/ or Retention Cash Rights
that vest will be pro-rated according to the extent of the retention period actually worked;
that vest will be pro-rated according to the extent of the retention period actually worked;
and
and
•
•
where there is a performance condition attached to a Right (i.e. it is a Performance Share
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
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
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
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
Rights that vest will be pro-rated over the period of time actually worked during the
continued service period.
continued service period.
In the event of a takeover or change of control of the Company, any unvested Options will vest
In the event of a takeover or change of control of the Company, any unvested Options will vest
and any outstanding Rights may vest at the Boardʼs discretion.
and any outstanding Rights may vest at the Boardʼs discretion.
Rights and Options granted during the year ended 31 December 2014 are set out in Table 5.2 of
Rights and Options granted during the year ended 31 December 2014 are set out in Table 5.2 of
this Report.
this Report.
__________________________________________________________________________________________
__________________________________________________________________________________________
62
59
59
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
3.5
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 Companyʼs incentive compensation plans. The policy
is applicable to incentive compensation including bonuses, awards or grants of cash or equity under any of the Companyʼs
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.
3.6
Option Plans
In 2014, the Board approved the establishment of the 2014 Option Plan, which authorised the granting of stock options to
certain executives and key employees of the Company. The purpose of the Option Plan was to bolster executive retention
during the economic downturn by providing a grant of options to senior executives (including the CEO) as a component of the
overall long-term incentive structure.
During 2014, shareholders approved that 9,104,258 options be issued to the CEO with a strike price of A$0.192 and vesting in
three equal tranches on the date of the shareholder approval at the 2014 AGM, 1 April 2015 and 1 April 2016. The options
can be exercised for ten years after the vesting date. The Company granted an additional 3,937,849 options to members of
management (including shareholder approval of 1,621,020 to the CEO) with a strike price of A$0.32 which will vest on 15
March 2017 and can be exercised for seven years after the vesting date. The company also granted 324,204 shares to the
CFO, Jeffery Olsen, on 1 April 2014 with a strike price of A$.032 which will vest of 1 April 2017 and can be exercised for seven
years after the vesting date. The combined fair value of all options awarded was approximately $2.7 million.
Details of options that have been granted to senior executives can be found in Table 4.1.8.
4. PERFORMANCE AND RISK ALIGNMENT
4.1. PERFORMANCE ALIGNMENT
While senior executive remuneration is structured to attract and retain talented employees, the amount of remuneration
received by an individual is dependent on the achievement of superior performance and generating value for shareholders.
Table 4.1.1 below summarises the Companyʼs performance over the past five years in respect of the financial and non-
financial indicators identified by the Board to assess the Companyʼs performance and future prospects.
Table 4.1.1: Year-on-year performance
Share perform ance
Earnings perform ance
Closing
share
price
A$
Dividend
p/share
US$ 1
Revenue
US$
m illions
EBITDA
US$
m illions
NPAT
US$
m illions
EPS % 2
0.17
0.38
1.88
2.78
4.56
-
(510.9%)
0.01
0.12
0.08
0.02
(403.7%)
7.7%
13.0%
4.0%
867
1,223
2,012
2,020
1,476
(83)
(337)
254
356
222
(333)
(620)
68
160
85
Financial
year
2014
2013
2012
2011
2010 4
ROE
(133.4%)
(79.3%)
6.0%
14.6%
8.5%
Net Debt
m illions 3
551
n/a
n/a
n/a
n/a
(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) Net debt became a performance criteria beginning in 2014 and forward. (Excludes effects of recapitalisation)
(4) The closing share price for 2009 was A$3.52
__________________________________________________________________________________________
63
60
Boart Longyear Annual Report 2014 Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
Short-term performance indicators and outcomes
Overall, STI awarded increased from 40% (on average) in 2013 to 114% in 2014. This result was driven by solid performance
against all components of the Corporate Bonus Plan in 2014. Additional details on actual performance for each of the bonus
plan components follow.
In addition, the Board placed an overarching criteria on the STI plan that stipulated that the Company must remain in
compliance with its bank covenants, net of earned STI payments, in order to pay any bonus and the Board is satisfied that this
requirement has been met.
Performance against 2014 financial target
For 2014, the Remuneration Committee specifically recommended and the Board approved the following performance payout
matrix for the Free Cash Flow component:
Free Cash Flow Targets
Free Cash Flow
(US$)
Free Cash Flow
(% of Budget)
Payout %
121,030
113,518
>145%
136%
83,469 – 102,367
100%-123%
71,783
<71,783
86%
<86%
200%
125%
100%
50%
0%
Actual free cash flow generation for the year was $89.4 million which resulted in a 100% payout of the targeted amount.
Performance against 2014 non-financial targets
The Company exceeded its performance on its targeted Safety metrics with actual TCIR performance of 1.35 and LTIR of
0.11, representing 150% and 114% achievement, respectively. Senior Executives delivered solid overall performance against
the Strategic Objectives during a particularly challenging year and in recognition of the significant demands and successful
completion of the strategic review and recapitalisation exercise the Board determined that the portion of the strategic
objectives relating to that initiative exceeded targeted performance. The Company understands the desire for transparency of
specific targets that are represented in the Strategic Objectives portion of the STI plan. Given the Companyʼs 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 2014 the Board established and evaluated the CEO against several
specific strategic and operational objectives that included, but were not limited to:
• Conducting and completing the strategic review process providing the Board with qualitative and quantitative analysis
of the full range of strategic options while ensuring the Company and Board advisers receive appropriate assistance
and support from Company leadership and personnel;
• Providing the Board with commercially innovative plans, and executing against those plans, for new product
development pipelines and strategic services for both the Global Drilling Products and Services businesses;
Improving the leading indicator metrics for reporting and analysing safety near miss incidents and management
interactions;
•
• Executing the 2014 operating plan with particular focus on delivering targeted cash flow performance, maintaining
price discipline, while delivering improved variable cost management in both Global Drilling Services and Products
business units, and capturing identified SG&A savings;
• Completing a quantitative and qualitative analysis of our tax strategies and delivering on a plan to bring more
certainty around exposures and issues with key taxing jurisdictions.
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 these strategic initiatives for the CEO was above the targeted
performance established for the year and in particular the recognition of his leadership on successfully completing the
critical strategic review process. For the remaining senior executives the strategic objective component averaged 47.5%
for the group which also reflected the Boardʼs recognition of the contributions, in varying amounts by executive, to the
success of the strategic review.
__________________________________________________________________________________________
64
61
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
Table 4.1.2: Average proportion of STI awarded, 2010 through 2014
% of target STI aw arded 1
(1) Weighted average for senior executives.
2010
88%
2011
97%
2012
72%
2013
40%
2014
122%
Table 4.1.3: STI earned during the year ended 31 December 2014
As described earlier in this report, for 2014 the Companyʼs performance on the free cash flow metric, representing 60.0% of
the total, achieved 60.0% of the bonus. Company performance on the safety metrics representing 10.0% of the total achieved
above the target amount at 13.2%. As explained above performance on strategic objectives which represent 30.0% of the
total, were, on average, achieved at 47.5%
STI earned
US$
Target
STI 1
US$
STI earned
as % of
target STI
% of target
STI forfeited
STI as % of
m axim um
STI 2
% of
m axim um STI
forfeited 2
Richard O'Brien
Jef frey Olsen 3
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
900,000
348,200
277,806
204,873
254,390
215,949
750,000
280,000
208,000
162,225
234,437
170,363
120%
124%
134%
126%
109%
127%
0%
0%
0%
0%
0%
0%
60%
62%
67%
63%
54%
63%
40%
38%
33%
37%
46%
37%
(1) The target potential value of the 2014 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 2014 was nil.
(2) The maximum potential award assuming superior performance against all CBP metrics is 200% of target STI.
(3) Mr Olsenʼs bonus was calculated on his annualised base salary pursuant to his new hire employment agreement on 1
April 2014.
Long-term performance indicators and outcomes
LTI awards are provided 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 2012 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 2015. The vesting dates for all outstanding
awards are shown in Table 4.1.6 below.
Table 4.1.4: Cumulative ROE performance for 2012 grants of performance-based LTI awards
2012
2013
2014
3-year Average
% of Award Earned
ROE Performance
6.0%
(79.3%)
(133.4%)
(68.9%)
0.0%
__________________________________________________________________________________________
65
62
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
Table 4.1.5 shows the actual Net Debt performance achieved in 2014 applicable to the 2014 performance awards. The actual
cumulative Net Debt and resulting percentage of award eligible to vest will be calculated at the close of 2016 for a March 2017
vest date.
Table 4.1.5: Cumulative performance for 2014 grants of performance-based LTI awards
Targets
Thre shold
Target
Maxim um
Actual
Net Debt1
Net Debt
Perform ance
2014
2015 2
2016 2
Cummulative Perf ormance
% of Aw ard Earned
554,500
542,676
530,852
550,758
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
66%
TBD
TBD
TBD
TBD
(1) Excludes impact of recapitalisation transaction.
(2) Net Debt targets for 2015 and 2016 will be determined by the Board at the beginning of each plan year.
The vested Share Rights listed in Table 4.1.6 below include the Retention Share Rights and Performance Share Rights that
were granted in 2011 and vested in 2014. The Performance Share Rights were subject to the performance period ended 31
December 2013 and achieved 0% (nil) of the target award amount (as detailed in last yearʼs remuneration report).
Table 4.1.6: Movement in Share Rights during the year ended 31 December 2014
Nam e
Richard O'Brien 3
Jeff rey Olsen
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
FMV at
Grant
Date
US$
1.32
1.32
1.32
0.25
0.27
4.36
4.50
1.39
0.25
4.36
4.50
1.39
0.25
4.36
4.50
1.39
0.25
4.36
4.50
1.39
0.25
Grant
date
1-Apr-13
1-Apr-13
1-Apr-13
15-Mar-14
1-Apr-14
15-Mar-11
15-Mar-12
15-Mar-13
15-Mar-14
15-Mar-11
15-Mar-12
15-Mar-13
15-Mar-14
15-Mar-11
15-Mar-12
15-Mar-13
15-Mar-14
15-Mar-11
15-Mar-12
15-Mar-13
15-Mar-14
Vesting
date
1-Apr-14
1-Apr-15
1-Apr-16
15-Mar-17
1-Apr-17
15-Mar-14
15-Mar-15
15-Mar-16
15-Mar-17
15-Mar-14
15-Mar-15
15-Mar-16
15-Mar-17
15-Mar-14
15-Mar-15
15-Mar-16
15-Mar-17
15-Mar-14
15-Mar-15
15-Mar-16
15-Mar-17
LTIP
shares
(Total)
315,000
315,000
3,149,000
4,863,060
972,612
70,000
90,000
238,550
972,612
60,000
75,000
180,238
729,459
60,000
70,000
318,066
972,612
50,000
55,000
265,056
778,092
Num ber of
Share
Rights
vested
Value of
Share
Rights
vested
US$ 1
-
-
-
-
-
35,000
-
-
-
30,000
-
-
-
30,000
-
-
-
25,000
-
-
-
-
-
-
-
-
8,846
-
-
-
7,582
-
-
-
7,582
-
-
-
6,318
-
-
-
Num ber of
Share
Rights
Value of
Share
Rights
forfeited
US$ 1
forfeited 2
315,000
315,000
3,149,000
-
-
35,000
-
-
-
30,000
-
-
-
30,000
-
-
-
25,000
-
-
-
64,856
64,856
648,359
-
-
8,846
-
-
-
7,582
-
-
-
7,582
-
-
-
6,318
-
-
-
Num ber of
Share Rights
Outstanding
-
-
-
4,863,060
972,612
-
90,000
238,550
972,612
-
75,000
180,238
729,459
-
70,000
318,066
972,612
-
55,000
265,056
778,092
(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. Mr OʼBrien voluntarily forfeited his Share Rights per shareholder approval at
the 2014 AGM on 19 May 2014.
__________________________________________________________________________________________
66
63
Annual Financial Report
31 December 2014 BOART LONGYEAR LIMITED
(2) A portion of the 2012 outstanding grants relate to performance Share Rights that will not vest due to performance
targets not being reached. These Share Rights will show as forfeited once the vesting date has passed in March
2015.
(3) As disclosed in 2014 the Board approved a special one-off strategic retention award to Mr OʼBrien in 2014 of
$5 million. The award was in the form of a cash retention award divided into three equal tranches due to vest on
the date of the 2014 AGM, 1 April 2015 and 1 April 2016, respectively. The Board received shareholder approval
at the 2014 AGM to convert half of the retention grant into options in order to strengthen the alignment with
shareholders. In addition, Mr OʼBrien agreed to voluntarily forfeit of all outstanding long-term incentive awards
granted in 2013, but further agreed to maintain his requirement to purchase and hold 472,500 shares by 1 April
2016.
The Cash Rights listed in Table 4.1.7 below include the Retention Cash Rights and Performance Cash Rights that were
granted in 2014 and vest in 2014 through 2017.
Table 4.1.7: Movement in Cash Rights during the year ended 31 December 2014
Nam e
Grant
date
Vesting
date
Cash
(total)
US$
Num ber
of Cash
Rights
vested
Value of
Cash
Rights
vested
US$
Num ber
of Cash
Rights
forfeited
Value of
Cash
Rights
forfeited
US$
Num ber of
Cash Rights
Outstanding
Richard O'Brien
31-Jan-14
19-May-14
833,333
833,333 1
833,333
31-Jan-14
1-Apr-15
833,333
31-Jan-14
1-Apr-16
833,334
15-Mar-14
1-Apr-14
15-Mar-14
15-Mar-14
15-Mar-14
15-Mar-14
15-Mar-17
1-Apr-17
15-Mar-17
15-Mar-17
15-Mar-17
15-Mar-17
625,000
125,000
125,000
93,750
125,000
100,000
Jeff rey Olsen
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
833,333
833,334
625,000
125,000
125,000
93,750
125,000
100,000
(1) Mr OʼBrienʼs first tranche of Cash Rights was eligible to vest on 19 May 2014. However, due to the loan covenant
restrictions, the Board exercised its discretion to not vest this award until the restrictions were deemed to have been
satisfied on 30 September 2014.
__________________________________________________________________________________________
67
64
Boart Longyear Annual Report 2014
Annual Financial Report
31 December 2014
BOART LONGYEAR LIMITED
Table 4.1.8: Movement in options during the year ended 31 December 2014
Effective
grant
date
Vesting
date
Options
(total)
Num ber
of
options
vested
Value of
options
vested
US$
Option
price
A$
Num ber
of options
forfeited 1
Num ber of
options
outstanding 2
Nam e
Richard O'Brien
15-Mar-14
15-Mar-17
1,621,020
-
-
19-May-14
19-May-14
3,034,753
3,034,753
576,603
Jeffrey Olsen
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
19-May-14
1-Apr-15
3,034,753
19-May-14
1-Apr-14
18-Jun-09
15-Mar-14
18-Jun-09
15-Mar-14
15-Mar-10
15-Mar-14
18-Jun-09
15-Mar-14
1-Apr-16
1-Apr-17
18-Jun-12
15-Mar-17
18-Jun-12
15-Mar-17
15-Mar-13
15-Mar-17
18-Jun-12
15-Mar-17
3,034,752
324,204
27,500
324,204
27,500
243,153
25,000
324,204
20,000
259,364
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.32
0.19
0.19
0.19
0.32
2.45
0.32
2.45
0.32
3.20
0.32
2.45
0.32
-
-
-
-
-
27,500
-
27,500
-
-
-
20,000
-
1,621,020
3,034,753
3,034,753
3,034,752
324,204
-
324,204
-
243,153
25,000
324,204
-
259,364
(1) The option exercise price was determined using a 10-day VWAP following the Board approval of the option grant and
for Mr OʼBrien, the 10-day VWAP following shareholder approval at the AGM held on 19 May 2014
(2) All options held by executives that vested prior to 2013 have since expired without being exercised.
4.2. RISK ALIGNMENT
4.2.1
Employee and Director Trading in Company Securities
Under the Companyʼs 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 Companyʼs 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 82 of this Annual Financial Report.
__________________________________________________________________________________________
68
65
I
I
D
E
T
M
L
R
A
E
Y
G
N
O
L
T
R
A
O
B
t
r
o
p
e
R
l
a
i
c
n
a
n
F
i
l
a
u
n
n
A
4
1
0
2
R
E
B
M
E
C
E
D
1
3
I
L
A
T
E
D
N
I
I
N
O
T
A
R
E
N
U
M
E
R
E
V
T
U
C
E
X
E
I
.
5
.
s
e
v
i
t
u
c
e
x
e
i
r
o
n
e
s
r
e
h
t
o
d
n
a
O
E
C
e
h
t
r
o
f
s
m
r
e
t
t
c
a
r
t
n
o
c
e
c
v
r
e
s
d
n
a
i
n
o
i
t
a
r
e
n
u
m
e
r
l
a
o
t
t
f
o
s
l
i
t
a
e
d
i
s
e
d
v
o
r
p
n
o
i
t
c
e
s
i
s
h
T
I
N
O
T
A
R
E
N
U
M
E
R
L
A
T
O
T
.
1
.
5
l
.
1
.
5
e
b
a
T
n
i
t
u
o
t
e
s
e
r
a
)
s
d
r
a
d
n
a
t
s
g
n
i
t
n
u
o
c
c
a
l
e
b
a
c
i
l
p
p
a
h
t
i
w
e
c
n
a
d
r
o
c
c
a
n
i
l
l
d
e
t
a
u
c
a
c
(
3
1
0
2
d
n
a
4
1
0
2
r
e
b
m
e
c
e
D
1
3
d
e
d
n
e
s
r
a
e
y
e
h
t
g
n
i
r
u
d
n
o
i
t
a
r
e
n
u
m
e
r
ʼ
s
e
v
i
t
u
c
e
x
e
i
r
o
n
e
s
h
c
a
e
f
o
s
l
i
a
t
e
D
3
0
4
,
7
9
2
,
5
2
6
7
,
0
5
4
,
1
%
2
.
0
3
%
4
.
9
3
8
9
9
7
,
2
2
3
2
5
1
,
2
7
5
9
6
4
,
7
7
2
,
1
2
7
9
,
2
8
3
8
0
,
3
2
9
,
1
0
0
8
,
7
-
-
-
-
-
4
0
4
,
4
9
7
3
2
5
,
0
0
6
8
0
9
,
0
3
2
,
1
3
7
5
,
6
5
9
5
5
0
,
4
7
4
8
6
3
,
8
7
5
1
9
0
,
6
6
1
,
1
0
3
4
,
0
7
4
2
4
4
,
2
0
0
,
1
%
0
.
0
%
8
.
0
1
%
8
.
9
%
7
.
7
1
%
6
.
9
%
8
.
7
1
%
8
.
8
1
%
2
.
0
1
%
8
.
7
%
7
.
7
1
2
5
6
,
5
6
-
7
5
7
,
8
5
6
1
7
,
7
9
1
3
9
2
,
5
4
8
3
3
,
5
5
1
9
6
5
,
5
5
9
2
6
,
9
9
1
2
4
8
,
6
3
6
0
7
,
1
6
1
3
6
2
,
0
2
-
8
9
7
,
9
1
-
9
4
8
,
4
1
-
3
8
6
,
3
8
9
7
,
9
1
9
3
8
,
5
1
-
-
5
2
6
,
5
1
6
2
2
,
2
4
9
5
,
6
1
6
2
2
,
2
6
4
4
,
2
1
7
3
7
,
2
4
9
5
,
6
1
1
9
3
,
1
6
7
2
,
3
1
1
1
4
9
5
,
3
6
2
6
2
2
,
2
1
1
7
1
2
,
5
0
2
6
2
2
,
2
1
1
2
5
5
,
8
4
2
7
3
7
,
2
1
1
7
4
5
,
5
1
2
1
9
3
,
1
5
2
6
,
5
1
-
0
0
8
,
7
-
0
0
8
,
7
-
0
0
8
,
7
-
0
0
8
,
7
-
0
0
8
,
7
-
0
0
8
,
7
-
7
5
2
,
7
-
0
0
8
,
7
0
5
6
,
7
0
0
8
,
7
0
5
6
,
7
0
0
8
,
7
0
5
6
,
7
0
0
8
,
7
0
5
6
,
7
0
8
4
,
5
2
0
1
1
,
9
1
0
0
0
,
0
0
9
0
0
0
,
7
9
2
0
0
0
,
0
5
7
0
0
5
,
2
6
5
-
-
-
0
2
5
,
5
1
0
0
2
,
8
4
3
2
6
4
,
8
9
2
0
0
8
,
3
2
0
0
0
,
4
2
0
0
8
,
3
2
0
0
4
,
4
2
0
0
8
,
0
2
0
0
4
,
1
2
0
0
8
,
3
2
0
0
3
,
4
2
4
6
6
,
9
8
6
0
8
,
7
7
2
0
1
8
,
7
6
3
7
8
,
4
0
2
1
9
2
,
7
9
0
9
3
,
4
5
2
0
9
9
,
0
6
9
4
9
,
5
1
2
0
0
0
,
6
1
4
0
0
0
,
6
1
4
0
5
4
,
4
2
3
0
5
4
,
4
2
3
8
2
7
,
0
9
3
1
0
3
,
7
8
3
5
2
7
,
0
4
3
6
6
8
,
7
3
3
l
a
t
o
T
$
S
U
-
e
r
a
h
S
d
e
s
a
b
%
7
s
t
h
g
i
R
$
S
U
s
n
o
i
t
p
O
$
S
U
-
m
r
o
f
r
e
P
h
s
a
C
e
c
n
a
s
t
h
g
i
R
$
S
U
n
o
i
t
n
e
t
e
R
h
s
a
C
s
t
h
g
i
R
$
S
U
6
r
e
h
t
O
$
S
U
-
r
e
p
u
S
n
o
i
t
a
u
n
n
a
5
s
t
i
f
e
n
e
b
$
S
U
4
r
e
h
t
O
$
S
U
l
a
u
n
n
A
3
s
u
n
o
b
$
S
U
y
r
a
l
a
s
h
s
a
C
$
S
U
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
h
s
a
c
-
n
o
N
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
h
s
a
C
2
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
e
r
a
h
S
s
t
i
f
e
n
e
b
m
r
e
t
-
g
n
o
l
r
e
h
t
O
s
t
i
f
e
n
e
b
t
n
e
m
y
o
l
p
m
e
-
t
s
o
P
1
s
t
i
f
e
n
e
b
m
r
e
t
t
r
o
h
S
n
o
i
t
a
r
e
n
u
m
e
r
e
v
i
t
u
c
e
x
e
i
r
o
n
e
S
:
1
.
5
e
b
a
T
l
8
n
e
i
r
'
B
O
d
r
a
h
c
R
i
4
1
0
2
3
1
0
2
l
9
n
e
s
O
y
e
r
f
f
e
J
4
1
0
2
3
1
0
2
i
t
t
e
s
a
R
o
z
i
r
b
a
F
i
4
1
0
2
3
1
0
2
4
1
0
2
3
1
0
2
r
e
k
a
B
d
a
r
B
4
1
0
2
3
1
0
2
0
1
s
t
o
o
H
t
n
e
K
i
s
e
d
S
n
a
A
l
i
d
e
s
n
g
o
c
e
r
n
o
i
t
a
s
n
e
p
m
o
c
y
t
i
u
q
e
f
o
e
u
a
v
l
r
i
a
f
l
a
c
i
r
o
t
s
h
e
h
t
i
f
o
n
o
i
t
r
o
p
a
s
e
d
u
c
n
l
i
n
o
i
t
a
r
e
n
u
m
e
r
,
d
r
a
o
B
s
d
r
a
d
n
a
t
S
g
n
i
t
n
u
o
c
c
A
n
a
i
l
a
r
t
s
u
A
e
h
t
f
o
s
t
n
e
m
e
r
i
u
q
e
r
e
h
t
h
t
i
w
e
c
n
a
d
r
o
c
c
a
n
I
.
i
d
e
d
v
o
r
p
s
t
i
f
e
n
e
b
y
r
a
t
e
n
o
m
-
n
o
n
o
n
e
r
e
w
e
r
e
h
T
e
h
t
t
a
i
s
a
d
e
n
m
r
e
t
e
d
s
i
s
t
n
e
m
u
r
t
s
n
i
y
t
i
u
q
e
f
o
e
u
a
v
l
r
i
a
f
e
h
T
l
.
)
)
s
(
n
a
P
n
o
i
t
p
O
e
h
t
r
e
d
n
u
d
e
d
r
a
w
a
s
n
o
i
t
p
o
d
n
a
P
T
L
I
e
h
t
r
e
d
n
u
d
e
d
r
a
w
a
s
t
h
g
R
i
.
e
.
i
(
d
o
i
r
e
p
g
n
i
t
s
e
v
e
v
i
t
c
e
p
s
e
r
e
h
t
r
e
v
o
l
y
e
t
a
m
i
t
l
u
y
a
m
s
e
v
i
t
u
c
e
x
e
i
r
o
n
e
s
t
a
h
t
)
y
n
a
f
i
(
t
i
f
e
n
e
b
e
h
t
f
o
e
v
i
t
a
c
d
n
i
i
r
o
o
t
d
e
t
a
e
r
l
t
o
n
s
i
n
o
i
t
a
r
e
n
u
m
e
r
s
a
d
e
d
u
c
n
l
i
t
n
u
o
m
a
e
h
T
.
d
o
i
r
e
p
g
n
i
t
s
e
v
e
h
t
r
e
v
o
d
e
s
n
g
o
c
e
r
i
s
i
d
n
a
e
t
a
d
t
n
a
r
g
6
6
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
69
4
1
0
2
3
1
0
2
)
1
(
)
2
(
Boart Longyear Annual Report 2014
n
o
d
a
p
i
s
a
w
h
c
h
w
i
,
3
1
0
2
r
e
b
m
e
c
e
D
1
3
d
e
d
n
e
r
a
e
y
e
h
t
g
n
i
r
u
d
e
v
i
t
u
c
e
x
e
e
h
t
y
b
d
e
n
r
a
e
s
t
n
e
m
y
a
p
I
T
S
h
s
a
c
s
t
n
e
s
e
r
p
e
r
t
n
u
o
m
a
3
1
0
2
e
h
T
.
5
1
0
2
y
r
a
u
r
b
e
F
1
2
n
o
d
r
a
o
B
e
h
t
y
b
d
e
v
o
r
p
p
a
e
r
e
w
d
n
a
5
1
0
2
h
c
r
a
M
n
i
i
d
a
p
e
b
o
t
d
e
t
c
e
p
x
e
e
r
a
h
c
h
w
i
,
4
1
0
2
r
e
b
m
e
c
e
D
1
3
d
e
d
n
e
r
a
e
y
e
h
t
g
n
i
r
u
d
e
v
i
t
u
c
e
x
e
e
h
t
y
b
d
e
n
r
a
e
s
t
n
e
m
y
a
p
I
T
S
h
s
a
c
s
t
n
e
s
e
r
p
e
r
t
n
u
o
m
a
4
1
0
2
e
h
T
)
3
(
I
I
D
E
T
M
L
R
A
E
Y
G
N
O
L
T
R
A
O
B
n
o
i
t
a
u
a
v
l
l
s
e
o
h
c
S
-
k
c
a
B
a
l
i
g
n
y
p
p
a
l
2
B
S
A
A
h
t
i
w
e
c
n
a
d
r
o
c
c
a
n
i
i
d
e
n
m
r
e
t
e
d
n
e
e
b
s
a
h
t
n
a
r
g
r
i
e
h
t
f
o
e
t
a
d
e
h
t
t
a
s
n
o
i
t
p
o
f
o
e
u
a
v
l
r
i
a
f
e
h
T
.
t
s
e
v
s
t
n
e
m
u
r
t
s
n
i
y
t
i
u
q
e
e
h
t
d
u
o
h
s
e
s
l
i
l
a
e
r
t
r
o
p
e
R
l
a
i
c
n
a
n
F
i
l
a
u
n
n
A
4
1
0
2
R
E
B
M
E
C
E
D
1
3
70
.
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
f
e
h
t
o
t
3
1
e
t
o
N
n
i
t
u
o
t
e
s
e
r
a
l
s
n
o
i
t
a
u
a
v
e
s
e
h
t
g
n
n
n
p
r
e
d
n
u
i
i
s
n
o
i
t
p
m
u
s
s
a
e
h
T
.
d
o
h
e
m
t
e
h
t
n
o
d
e
s
a
b
,
3
1
0
2
d
n
a
2
1
0
2
r
o
f
i
s
t
h
g
R
e
r
a
h
S
e
c
n
a
m
r
o
f
r
e
p
r
o
f
l
a
u
r
c
c
a
e
h
t
f
o
l
a
s
r
e
v
e
r
e
h
t
o
t
e
u
d
d
e
c
u
d
e
r
i
y
l
t
n
a
c
i
f
i
n
g
s
e
r
e
w
3
1
0
2
r
o
f
s
t
n
u
o
m
a
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
e
r
a
h
S
.
t
s
e
v
t
o
n
l
l
i
w
s
t
h
g
i
r
e
s
e
h
t
t
a
h
t
n
o
i
t
a
t
c
e
p
x
e
.
P
M
K
r
e
p
0
0
8
,
7
$
s
a
w
4
1
0
2
n
i
i
h
c
h
w
,
s
e
t
a
t
S
d
e
t
i
n
U
e
h
t
n
i
y
t
i
t
n
e
l
i
g
n
y
o
p
m
e
e
h
t
y
b
e
d
a
m
s
n
o
i
t
u
b
i
r
t
n
o
c
g
n
i
r
a
h
s
t
i
f
o
r
p
)
k
(
1
0
4
s
e
d
u
c
n
l
I
i
.
s
t
h
g
R
e
r
a
h
S
n
o
d
e
v
e
c
e
r
i
s
d
n
e
d
v
d
i
i
d
n
a
,
e
c
n
a
t
s
s
s
a
i
n
o
i
t
a
r
a
p
e
r
p
x
a
t
d
n
a
l
i
a
c
n
a
n
i
f
f
o
s
t
n
e
m
e
s
r
u
b
m
e
r
i
,
s
e
c
n
a
w
o
l
l
a
e
v
i
t
o
m
o
t
u
a
s
e
d
u
c
n
l
I
.
4
1
0
2
h
c
r
a
M
7
.
s
e
t
a
t
S
d
e
t
i
n
U
e
h
t
n
i
y
t
i
t
n
e
i
l
g
n
y
o
p
m
e
e
h
t
y
b
e
d
a
m
s
n
o
i
t
u
b
i
r
t
n
o
c
g
n
h
c
t
a
m
n
a
p
l
i
)
k
(
1
0
4
s
e
d
u
c
n
l
I
)
4
(
)
5
(
)
6
(
)
7
(
.
3
1
0
2
l
i
r
p
A
1
n
o
e
t
a
d
e
r
i
h
i
s
h
t
a
d
e
t
n
a
r
g
s
t
h
g
i
r
f
o
e
r
u
t
i
e
f
r
o
f
y
r
a
t
n
u
o
v
l
i
s
h
o
t
e
u
d
d
e
c
u
d
e
r
o
s
a
e
r
e
w
s
t
h
g
R
l
i
I
T
L
4
1
0
2
ʼ
s
n
e
i
r
ʼ
B
O
.
4
1
0
2
l
i
r
p
A
1
n
o
n
a
g
e
b
t
n
e
m
y
o
p
m
e
l
ʼ
s
n
e
s
O
l
r
M
r
M
)
8
(
)
9
(
.
3
1
0
2
y
r
a
u
n
a
J
1
i
g
n
c
n
e
m
m
o
c
n
o
i
t
a
r
e
n
u
m
e
r
i
s
h
f
o
i
e
v
s
u
c
n
l
i
s
i
e
v
o
b
a
d
e
t
r
o
p
e
r
n
o
i
t
a
r
e
n
u
m
e
r
i
s
h
r
e
v
e
w
o
h
,
3
1
0
2
y
r
a
u
n
a
J
1
3
n
o
n
o
i
t
o
m
o
r
p
i
s
h
l
i
t
n
u
P
M
K
a
d
e
r
e
d
s
n
o
c
i
t
o
n
s
a
w
s
t
o
o
H
r
M
)
0
1
(
.
t
r
o
p
e
R
n
o
i
t
a
r
e
n
u
m
e
R
e
h
t
f
o
i
i
g
n
n
n
g
e
b
e
h
t
t
a
d
e
l
i
a
t
e
d
d
n
a
i
d
e
n
a
p
x
e
l
s
d
r
a
w
a
n
o
i
t
n
e
t
e
r
i
c
g
e
t
a
r
t
s
e
m
i
t
-
e
n
o
l
i
a
c
e
p
s
e
h
t
h
t
i
i
w
d
e
t
a
c
o
s
s
a
e
s
n
e
p
x
e
e
h
t
t
c
e
l
f
e
r
s
t
n
u
o
m
a
4
1
0
2
)
1
1
(
7
6
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
Annual Financial Report
31 DECEMBER 2014
5.2. RIGHTS AND OPTIONS GRANTED
BOART LONGYEAR LIMITED
Table 5.2.1: Rights granted during the year ended 31 December 2014
Share Rights
Cash Rights
Num ber of
Rights
granted1
Future
years
payable 2
Fair value
per Right 3
US$
4,863,060
-
-
-
972,612
972,612
729,459
972,612
778,092
3 yrs
-
-
-
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
0.25
-
-
-
0.27
0.25
0.25
0.25
0.25
Maxim um
value of
grant 4
US$
1,422,445
-
-
-
307,248
284,489
213,367
284,489
227,592
Num ber
of Rights
granted1
Future
years
payable 2
Fair value
per Right 3
US$
625,000
833,333
833,333
833,334
125,000
125,000
93,750
125,000
100,000
3 yrs
< 1 yrs
> 1 yrs
> 2 yrs
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
Maxim um
value of
grant 4
US$
781,250
833,333
833,333
833,334
156,250
156,250
117,188
156,250
125,000
Nam e
Richard O'Brien
Richard O'Brien 5
Richard O'Brien 5
Richard O'Brien 5
Jef f rey Olsen
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
(1) The grants made to senior executives along with the options in table 5.2.2 below constituted 100% of their full LTI
entitlement for 2014 and were made on 15 March 2014. Any Rights that do not vest on the vesting date will be
forfeited.
(2) Rights vest on 15 March 2017 subject to performance over the period from 1 January 2014 to 31 December 2016
and/or continued service until the vesting date. For Mr OʼBrien 833,333 million of the Cash Rights above are eligible
to vest in 2015 and an additional 833,333 to vest in 2016 if service and shareholding requirements have been met.
(3) The fair value was calculated as at the grant date of 15 March 2014 for all except Mr Olsen which was calculated on
his grant date of 1 April 2014.
(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 OʼBrien, the number of Rights granted was approved by shareholders at the 2014 AGM on 19 May 2014.
Table 5.2.2: Options granted during the year ended 31 December 2014 table:
Nam e
Richard O'Brien
Richard O'Brien
Richard O'Brien
Richard O'Brien
Jeff rey Olsen
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
Num ber of
options
granted 1
Future
years
payable
1,621,020
3,034,753
3,034,753
3,034,752
324,204
324,204
243,153
324,204
259,364
3 yrs
< 1 yrs
> 1 yrs
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
Options
Exercise
price per
option
A$
Fair
value
per
option 2
US$
Maxim um
value of
grant 3
US$
0.32
0.19
0.19
0.19
0.32
0.32
0.32
0.32
0.32
0.23
0.19
0.19
0.19
0.25
0.23
0.23
0.23
0.23
372,835
576,603
576,603
576,603
81,051
74,567
55,925
74,567
59,654
(1) For Mr OʼBrien, the number of Options granted was approved by shareholders at the 2014 AGM on 19 May 2014.
(2) The fair value was calculated as at the grant date of 15 March 2014 for all except Mr OʼBrienʼs A$0.19 options that
were calculated on his grant date of 19 May 2014 and for Mr Olsen which was calculated on his grant date of 1 April
2014. An explanation of the pricing model used to calculate these values is set out in Note 13 to the financial
statements.
(3) The maximum fair value of the grant is based on the fair value per instrument and full vesting.
__________________________________________________________________________________________
71
68
Boart Longyear Annual Report 2014 Annual Financial Report
31 DECEMBER 2014
BOART LONGYEAR LIMITED
The Board desired not to accelerate the vesting of outstanding Options in connection with the 2014 recapitalisation and
reached an agreement with participants that accelerated vesting of Options granted prior to the recapitalisation should only
occur if a participant is terminated for reasons other than cause during the 24 month period following the date of the
completion of the recapitalisation (27 January 2015).
5.3. SHARES, RIGHTS AND OPTIONS HOLDINGS
Shares
Table 5.3.1: Share holdings as at the end of the financial year and activity during the financial year, are as follows:
Balance
1 January
Net change
during year
Balance
31 Decem ber
Balance
held nom inally
2014
Barbara Jeremiah
Bruce Brook
Roger Brow n
Peter Day
Roy Franklin
Tanya Fratto
Jonathan Lew insohn
David McLemore
Rex McLennan
Conor Tochilin
Richard O'Brien
Jeff rey Olsen
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
455,000
220,000
100,000
-
165,000
120,000
-
1,155,861
100,000
-
300,000
-
210,582
95,329
69,606
36,663
-
-
-
175,000
135,000
-
-
-
-
-
-
135,000
24,389
20,727
18,833
17,247
455,000
220,000
N/A 1
175,000
300,000
120,000
-
1,155,861
100,000
-
300,000
135,000
234,971
116,056
88,439
53,910
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) The 31 December 2014 share balances for Mr Brown are not reported due to his resignation on 18 December 2014. His
net change for the year is reflected through the termination date.
Share Rights and restricted shares
Table 5.3.2: Rights holdings as at the end of the financial year and activity during the financial year, are as follows:
Held at the
beginning of
the financial
year
3,779,000
-
398,550
315,238
448,066
370,056
Granted as
rem un-
eration
Vested
and issued
during the
year
4,863,060
972,612
972,612
729,459
972,612
778,092
-
-
(35,000)
(30,000)
(30,000)
(25,000)
Forfeited
during the
year
(3,779,000)
-
(35,000)
(30,000)
(30,000)
(25,000)
Held at the
e nd of the
financial
year
4,863,060
972,612
1,301,162
984,697
1,360,678
1,098,148
2014
Richard O'Brien
Jeff rey Olsen
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
__________________________________________________________________________________________
72
69
Annual Financial Report
31 DECEMBER 2014
Cash Rights
BOART LONGYEAR LIMITED
Table 5.3.3: Cash Rights holdings as at the end of the financial year and activity during the financial year, are as follows:
Held at the
beginning of
the financial
year
US$
Granted as
rem un-
eration
US$
-
-
-
-
-
-
3,125,000
125,000
125,000
93,750
125,000
100,000
Vested
and issued
during the
year
US$
(833,333)
-
-
-
-
-
Forfeited
during the
year
US$
-
-
-
-
-
-
Held at the
end of the
financial
year
US$
2,291,667
125,000
125,000
93,750
125,000
100,000
2014
Richard O'Brien
Jef frey Olsen
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
Options
Table 5.3.4: Options holdings as at the end of the financial year and activity during the financial year, are as follows:
Held at the
be ginning of
the financial
Year
-
-
-
-
-
-
Granted as
rem un-
eration
10,725,278
324,204
324,204
243,153
324,204
259,364
Ve sted
during the
year
(3,034,753)
-
-
-
-
-
Forfeited
during the
year
-
-
-
-
-
-
2014
Richard O'Brien
Jef frey Olsen
Fabrizio Rasetti
Brad Baker
Alan Sides
Kent Hoots
Held at the
end of the
financial
year
7,690,525
324,204
324,204
243,153
324,204
259,364
Vested and
exercisable
as at
31 Decem ber
2014
3,034,753
-
-
-
25,000
-
During the year ended 31 December 2014, no shares were issued on the exercise of options previously granted as
compensation to the above individuals.
5.4 SERVICE CONTRACTS AND TERMINATION PROVISIONS
Name and
position held at
the end of the
financial year
Richard OʼBrien
Chief Executive
Officer,
President
Duration of
contract
Notice period by
Company
Notice period
by executive
No fixed term
None required
180 days
Jeffrey Olsen
No fixed term
None required
90 days
Termination payments (where
these are in addition to
statutory entitlements)
For termination with cause,
statutory entitlements only
For termination without cause:
• 12 monthsʼ salary
• Pro-rata bonus to termination
date
• Waiver of medical insurance
premiums for 12 months or 1
April 2015, whichever is later
• Up to $50,000 relocation
expense reimbursement
For termination with cause,
__________________________________________________________________________________________
73
70
Boart Longyear Annual Report 2014
Annual Financial Report
31 DECEMBER 2014
BOART LONGYEAR LIMITED
Name and
position held at
the end of the
financial year
Chief Financial
Officer
(employment
began 1 April
2014)
Fabrizio Rasetti
Senior Vice
President,
General Counsel
and Secretary
Brad Baker
Senior Vice
President, Human
Resources
Alan Sides
Senior Vice
President, Global
Drilling Services
Kent Hoots
Senior Vice
President, Global
Products and
Supply Chain
Duration of
contract
Notice period by
Company
Notice period
by executive
No fixed term
None required
90 days
No fixed term
None required
90 days
No fixed term
None required
90 days
No fixed term
None required
90 days
Termination payments (where
these are in addition to
statutory entitlements)
statutory entitlements only
For termination without cause:
• 12 monthsʼ salary
• Pro-rata bonus to termination
date
• Waiver of medical insurance
premiums for 12 months
For termination with cause,
statutory entitlements only
For termination without cause:
• 12 monthsʼ salary
• Pro-rata bonus to termination
date
• Waiver of medical insurance
premiums for 12 months
For termination with cause,
statutory entitlements only
For termination without cause:
• 12 monthsʼ salary
• Pro-rata bonus to termination
date
• Waiver of medical insurance
premiums for 12 months
For termination with cause,
statutory entitlements only
For termination without cause:
• 12 monthsʼ salary
• Pro-rata bonus to termination
date
• Waiver of medical insurance
premiums for 12 months
For termination with cause,
statutory entitlement only
For termination without cause:
• 12 monthsʼ salary
• Pro-rata bonus to termination
date
• Waiver of medical insurance
premiums for 12 months
Under the terms of the Companyʼs LTIP and option plans, the Board has discretion to provide for early vesting of all or a
portion of unvested Rights and Options depending on the circumstances of an employeeʼs termination. In addition, the
executive employment contracts listed above contain a twelve-month non-competition and non-solicitation covenant in the
Companyʼs favour. The Company may, at its option, extend the term of the covenants upon an executiveʼs termination of
employment for up to an additional twelve months in exchange for monthly payments of the executiveʼs base salary for the
term of the extension.
__________________________________________________________________________________________
74
71
Annual Financial Report
31 DECEMBER 2014
BOART LONGYEAR LIMITED
6. NON-EXECUTIVE DIRECTOR ARRANGEMENTS
This section explains the remuneration structure and outcomes for non-executive Directors.
6.1. NON-EXECUTIVE DIRECTORSʼ FEE STRUCTURE
Non-executive Directors (NED) are remunerated by a fixed annual base fee with additional fees paid for serving on Board
committees. NED who are also employees of Centerbridge Partners, L.P. do not receive any director fees. The payment of
committee fees recognises the additional time commitment required by NED who serve on board committees. The Chair may
attend any committee meetings but does not receive any additional committee fees in addition to base fees.
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$2.0 million, which has not changed since the Companyʼs initial public offering in 2007.
During the financial year, $1,295,435 of the pool was utilised for non-executive Director fees, being approximately 64% of the
fee pool limit.
The Board elected to temporarily reduce its fees effective 1 June 2014 in recognition of the difficulties facing the Company,
notwithstanding the significant time and commitment associated with the successful completion of the strategic review and
recapitalisation process. The Board will not seek any increase to the current NED approved fee pool limit at the 2015 AGM.
Table 6.1: 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 1 June 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.
__________________________________________________________________________________________
75
72
Boart Longyear Annual Report 2014 Annual Financial Report
31 DECEMBER 2014
6.2 NON-EXECUTIVE SHAREHOLDING GUIDELINE
BOART LONGYEAR LIMITED
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 2014 have satisfied the shareholding guideline.
6.3. NON-EXECUTIVE DIRECTOR SHARE ACQUISITION PLAN
In February 2008, the Remuneration Committee recommended, and the Board approved, the establishment of a non-
executive Director Share Acquisition Plan (“NEDSAP”) as foreshadowed in the Companyʼs 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 2014.
__________________________________________________________________________________________
76
73
Annual Financial Report
31 DECEMBER 2014
BOART LONGYEAR LIMITED
6.4. DETAILS OF REMUNERATION PAID TO NON-EXECUTIVE DIRECTORS
Details of non-executive Directorsʼ remuneration for the year ended 31 December 2014 and 2013 are set out in the table
below.
Table 6.4: Non-executive Director remuneration
Fee s (incl.
com m ittee
fees) 1
US$
Superannuation
contributions 2
US$
Shares
US$
Total
US$
Barbara Jeremiah
2014
2013
Bruce Brook
2014
2013
Roger Brow n 3
2014
2013
Peter Day 4
2014
2013
Roy Franklin
2014
2013
Tanya Fratto
2014
2013
Jonathan Lew insohn 5
2014
2013
David McLemore
2014
2013
Rex McLennan
2014
2013
Conor Tochilin 6
2014
2013
285,417
275,000
141,140
148,915
143,125
165,000
104,893
-
160,625
165,000
154,375
150,000
-
-
136,875
365,000
145,893
44,681
-
-
-
-
13,235
13,585
-
-
9,857
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
285,417
275,000
154,375
162,500
143,125
165,000
114,750
-
160,625
165,000
154,375
150,000
-
-
136,875
365,000
145,893
44,681
-
-
(1) Please refer to Table 6.1 above for details of the annual non-executive Director base fees and committee fees.
(2) Includes compulsory superannuation guarantee payments to Australian-resident Directors which are deducted from
their base and additional committee fees.
(3) Mr Brown retired from the Board effective 18 December 2014.
(4) Mr Day was appointed a Director effective 25 February 2014.
(5) Mr Lewinsohn was appointed a Director effective 23 October 2014 and is an employee of Centerbridge Partners, L.P.
Mr Lewinsohn receives no director fees.
(6) Mr Tochilin was appointed a Director effective 18 December 2014 and is an employee of Centerbridge Partners, L.P.
Mr Tochilin receives no director fees.
__________________________________________________________________________________________
77
74
Boart Longyear Annual Report 2014
Annual Financial Report
31 DECEMBER 2014
BOARD OF DIRECTORS
BOART LONGYEAR LIMITED
A brief summary of the Directorsʼ 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. She is a member of the Finance Committee. Ms Jeremiah has announced her retirement from the Board
effective 25 February 2015.
Ms. Jeremiah is a non-executive director of Allegheny Technologies, Inc. (New York Stock Exchange). She also serves on the
board of two 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 Jeremiahʼs professional career includes several senior executive roles for Alcoa, Inc. She retired as Alcoaʼs Executive Vice
President for Corporate Development in 2009 and in that role was responsible for leading Alcoaʼs 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 Alcoaʼs legal department, including corporate secretary and assistant general counsel.
Ms. Jeremiah received her J.D. 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 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.
Peter Day
Peter Day was appointed a Director of the Company on 25 February 2014. He is a member of the Audit, Compliance and Risk
and Remuneration Committees.
Mr Day currently serves as a non-executive Director of, Alumina Limited, Ansell Limited and SAI Global Limited.
Mr Day was formerly a Chairman and Director of Orbital Corporation Limited, a Director of Federation Centres Limited. He was
Chief Financial Officer for Amcor Limited for seven years and has also held senior executive positions with Bonlac Foods, the
Australian Securities and Investments Commission, Rio Tinto, CRA and Comalco. He has a background in finance and
general management across diverse industries.
Mr Day received his LL.B (hons.) from the Queen Victoria University of Manchester (UK) and MBA from Monash University
(Australia). He also holds FCPA, FCA and FAICD designations.
__________________________________________________________________________________________
78
75
Annual Financial Report
31 DECEMBER 2014
Roy Franklin
BOART LONGYEAR LIMITED
Roy Franklin was appointed a Director of the Company on 15 October 2010. He is the Chairman of the Remuneration
Committee and a member of the Finance Committee. Mr. Franklin has announced his retirement from the Board effective 25
February 2015.
Mr Franklin currently serves as Chairman of the Board of Keller Group PLC (London Stock Exchange) and is a director of
Santos Ltd (Australian Securities Exchange) and privately held Cuadrilla Resources. He is also a member of Austrian-listed
OMV A.G.
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 Chairman of the Environmental, Health and
Safety Committee and a member of the Remuneration Committee.
Ms Fratto most recently served as President and Chief Executive Officer of Diamond Innovations, the worldʼs 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.
Jonathan Lewinsohn
Jonathan Lewinsohn was appointed a Director of the Company on 23 October 2014. Mr Lewinsohn is a Partner at
Centerbridge Partners, LP., a major shareholder in the Company that manages approximately $25 billion of assets with a
focus on credit, special situations, and private equity.
Prior to joining Centerbridge Partners, L.P., Mr Lewinsohn was Head of Research and a permanent member of the Investment
Committee at Anchorage Capital Group. He was previously a law clerk to Judge Richard A. Posner of the US Court of Appeals
and began his career at Morgan Stanley in the Mergers & Acquisitions Group.
Mr Lewinsohn received his J.D. from Yale Law School, where he was an editor of the Yale Law Journal, and his BA, summa
cum laude, from Cornell Universityʼs College of Arts and Sciences as a Merrill Presidential Scholar. He is a Term Member of
the Council on Foreign Relations and a member of Economic Club of New York. He previously served on the board of
Martinrea-Honsel BV.
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,
when Richard OʼBrien was appointed Chief Executive Officer.
Mr McLemore is a member of the Audit, Compliance and Risk 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 Internationalʼs
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.
__________________________________________________________________________________________
79
76
Boart Longyear Annual Report 2014 Annual Financial Report
31 DECEMBER 2014
Rex McLennan
BOART LONGYEAR LIMITED
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 and Environmental, Health and Safety
Committee.
Mr McLennan currently serves on the Board of Endeavour Silver Corp. (TSX, NYSE) and is Chairman of its Audit Committee.
He 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 2012. 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 Organising 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, Exxonʼs
Canadian public oil company.
Mr McLennan received his 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 also a member of the Institute of Corporate
Directors (Canada) and received his ICD.D designation in June 2013 having completed all of the institutionʼs certification
requirements.
Richard OʼBrien
Mr OʼBrien 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 OʻBrienʼs 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 OʼBrien 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.
Conor Tochilin
Conor Tochilin was appointed a Director of the Company on 18 December 2014. Mr Tochilin is a Principal at Centerbridge
Partners, L.P., a major shareholder in the Company. Centerbridge Partners, L.P. manages approximately $25 billion of assets
with a focus on credit, special situations, and private equity. Prior to joining Centerbridge Partners, L.P., Mr. Tochilin was an
Associate at TPG-Axon Capital Management in New York and London and a Business Analyst in McKinseyʼs Corporate
Finance Practice in New York.
Mr. Tochilin holds an A.B. in Economics and Philosophy, magna cum laude, from Harvard College, where he was elected to
Phi Beta Kappa, a J.D. from Harvard Law School, and an M.B.A. from Harvard Business School.
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 J.D. 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.
__________________________________________________________________________________________
80
77
Annual Financial Report
31 DECEMBER 2014
EXECUTIVE MANAGEMENT TEAM
BOART LONGYEAR LIMITED
A brief summary of the Executive Management Teamʼs work experience and qualifications is as follows.
Jeffrey Olsen
Jeffrey Olsen joined Boart Longyear and was appointed Chief Financial Officer on 1 April 2014. Prior to Boart Longyear, he
worked for Rio Tinto for 18 years in a variety of locations and roles. Most recently, he was the Chief Commercial Officer for
Rio Tinto Iron & Titanium in London. Prior roles at Rio Tinto included chief financial officer roles for Rio Tinto Minerals in
Denver, Colorado, and Rio Tinto Borax in Los Angeles, California. Mr. Olsenʼs earlier roles at Rio Tinto include Manager of
Rio Tintoʼs Financial Planning and Analysis Group and Financial Executive for Rio Tintoʼs global Copper Group. Earlier in his
career, Mr. Olsen worked in various financial roles for General Chemical Corporation and Xerox Corporation.
Mr. Olsen received his Bachelor of Arts degree in International Politics from the University of Utah, and his Master of Business
Administration from the University of Rochester.
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 GEʼs Power Generation Operations, Asia Sourcing Director, Customer Quality Leader for GE Energy, and Quality
Director for GE Energyʼs 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 GEʼs Manufacturing Management Program and received his Bachelors of Science in Industrial
Engineering from North Carolina State University and his Masterʼs degree in Mechanical Engineering from the University of
Cincinnati.
Fabrizio Rasetti
Mr Rasettiʼs 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 GEʼs 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
Masterʼs of Business Administration from Emory University.
__________________________________________________________________________________________
81
78
Boart Longyear Annual Report 2014 Annual Financial Report
31 DECEMBER 2014
CORPORATE GOVERNANCE STATEMENT
BOART LONGYEAR LIMITED
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 Councilʼs Principles and Recommendations (ASX Guidelines).
The Companyʼs most significant governance policies, including its Board and committee charters, diversity policy and Code of
Conduct, may be found on the Companyʼs 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 Companyʼs 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 Companyʼs annual operating budget and business plans and monitoring the management of the
Companyʼs 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 Companyʼs 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 Companyʼs 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 Companyʼs share
capitalisation, declaration of dividends, the Companyʼs annual operating budget, material acquisitions and divestitures and
changes to corporate strategy. Delegations are periodically reviewed by the Board and may be changed by the Board at any
time.
Composition of the Board and Director Selection process
At the date of this report, the Company has nine non-executive Directors and one Executive Director. Marcus Randolph and
Bret Clayton will join the Board effective 25 February 2015 as independent, non-executive Directors, contemporaneously with
the retirement of Barbara Jeremiah and Roy Franklin from the Board. Mr. Randolph will also assume the responsibilities of
Board Chairman from Ms. Jeremiah.
The foregoing changes to the Companyʼs Board arise from, the Centerbridge Partners, L.P.-led recapitalisation of the
Company. As noted in the Companyʼs 23 October 2014 announcement of the recapitalisation, the Board agreed that
Centerbridge Partners, L.P. may appoint up to four directors, including the right to nominate the Board Chairman subject to the
approval of a majority of the independent directors. Messrs. Clayton and Randolph, along with Messrs. Lewinsohn and
Tochilin, comprise Centerbridge Partners, L.P.ʼs nominated Board appointees.
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 and the ASX Guidelines including, whether a Director:
•
is a substantial shareholder of the Company, or otherwise is associated directly or indirectly with a substantial
shareholder;
__________________________________________________________________________________________
82
79
Annual Financial Report
31 DECEMBER 2014
BOART LONGYEAR LIMITED
•
•
•
•
•
•
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;
has close family ties with any person who falls within any of the categories described above; or
has been a director of the entity for such a period that his or her independence may have been compromised.
The Board charter also defines materiality as being an amount in excess of 5% of Boart Longyearʼs or the advisorʼs, supplierʼs
or customerʼs revenue or expenses, as the case may be.
The Board meets the requirements of the charter and the ASX Guidelines, as a majority of the Board is comprised of non-
executive Directors. Further, a majority of Directors, including the Chairman of the Board and the chairmen of the four Board
committees, meet the independence criteria listed above. Messrs Lewinsohn and Tochilin are not considered independent
due to their employment with Centerbridge Partners, L.P., a significant shareholder in the Company.
The Board has considered whether Mr McLemoreʼs temporary assumption of the chief executive officerʼs duties from October
2012 through March 2013 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 also temporarily relinquished his responsibilities as Chairman 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 committeeʼs 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 Companyʼs short term incentive or long term incentive programs.
The Board also has considered certain Directorsʼ previous and current relationships with the Company's customers, suppliers,
consultants, professional advisors and substantial shareholders. The Board notes that Messrs Brook, Franklin and McLennan
are non-executive directors, respectively, of Newmont Mining Corporation (Newmont), Santos and Endeavor Silver, each of
which was a customer of the Company in 2014 or 2013 The Board has considered each Directorʼs affiliation with those
customers and has concluded that such relationship is not material, does not interfere with the Directorʼs exercise of
independent judgment and does not affect his ability to act in the best interests of the Companyʼs shareholders and other
stakeholders, as the Companyʻs relationship with each such customer is an armʼs length customer-supplier relationship based
on normal commercial terms. None of Messrs Brook, Franklin or McLennan participates directly or indirectly in the terms on
which the Company conducts business with Newmont, Santos or Endeavour Silver. The Board also notes the importance of
having directors with experience in the Company's markets serving on the Board.
Board processes
The Board meets at least six times a year and convenes additional meetings as required. The agenda for Board meetings is
prepared by the Chief Executive Officer, the Secretaries, and other senior management in conjunction with the Chairman and,
along with supporting papers, is distributed to Directors prior to each meeting. Certain senior executives participate in Board
and committee meetings to provide the Directors with access to key operating, financial and compliance personnel on a
regular basis. In addition, the Directors have access to other Company employees in Board and committee meetings and in
other settings. When possible, the Board endeavours to schedule at least one meeting annually at one of the Companyʼs
significant operating locations to meet with the locationʼs management and better familiarise the Board with those operations
and the Companyʼs risks and opportunities.
Board committees
The Board is assisted by the following four committees in discharging its responsibilities:
•
•
•
•
Audit, Compliance & Risk Committee;
Remuneration Committee;
Environment, Health & Safety Committee; and
Finance Committee.
__________________________________________________________________________________________
83
80
Boart Longyear Annual Report 2014 Annual Financial Report
31 DECEMBER 2014
BOART LONGYEAR LIMITED
The committees have written charters that are reviewed annually. All non-executive Directors may attend any committee
meeting. The chairman of each committee reports on committee proceedings at the next Board meeting, and minutes of all
committee meetings are circulated to Directors in 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 Companyʼs financial reports, internal controls, risk management framework and external audits.
The Committee also monitors compliance with laws and regulations and the Companyʼs 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
Peter Day (appointed to Committee effective 25 February 2014)
Roy Franklin (resigned from Committee effective 1 June 2014)
David McLemore (appointed to Committee effective 1 June 2014)
Rex McLennan
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 Committeeʼs 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 key executive positions; and
promoting workforce diversity and monitoring the Companyʼs performance against established diversity objectives.
The Committee consisted of the following non-executive Directors during the financial year:
•
•
•
•
•
Roy Franklin - Chairman (appointed to Committee and as Chairman effective 1 June 2014)
Roger Brown (resigned as Chairman and from the Committee effective 1 June 2014)
Peter Day (appointed to Committee effective 1 June 2014)
Tanya Fratto
David McLemore (resigned from Committee effective 1 June 2014)
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 Australiaʼs work health and safety legislation, and has authority to investigate any matter
within the scope of the Committeeʼs 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 Companyʼs 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
Companyʼs operations.
__________________________________________________________________________________________
84
81
Annual Financial Report
31 DECEMBER 2014
BOART LONGYEAR LIMITED
The Committee consisted of the following non-executive Directors during the financial year:
•
•
•
•
•
Tanya Fratto – Chairman (appointed as Chairman effective 1 June 2014)
Roger Brown (resigned from Committee effective 18 December 2014)
Roy Franklin (resigned as Chairman and from Committee effective 1 June 2014)
David McLemore (resigned from Committee effective 1 June 2014)
Rex McLennan (appointed to Committee effective 1 June 2014)
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 Committeeʼs responsibilities have included:
•
•
overseeing the strategic review of recapitalisation options conducted by the Company in 2014;
assisting the Board with the effective discharge of its responsibilities in relation to the Companyʼs capital structure,
funding requirements and sources of funding;
• monitoring and advising the Board on capital expenditure 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
David McLemore (resigned from Committee effective 1 June 2014)
With completion of the Companyʼs strategic review of recapitalisation option in January 2015, the Company expects to disband
the Finance Committee.
Board and Director nominations and selection
Contrary to the ASX Guidelines, the Board currently does not have a separate nominations committee responsible for
managing director succession planning or recruiting new directors, although the Remuneration Committee has been
responsible for those duties in recent years. Currently, those responsibilities reside with the Board and are managed by the
Board Chairman. The Board notes that Centerbridge Partners, L.P., the Companyʼs largest shareholder, is contractually
entitled to appoint directors not to equal or exceed half of the Board and to nominate the Chairman (subject to Board approval)
as a condition of its investment in the Company pursuant to the recapitalisation transaction agreement entered into with the
Company on 23 October 2014.
Board and Director performance
The Board has a formal assessment process that includes performance assessments of the Board committees and individual
Directors that is conducted on a regular 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. The Board expects that the next Board and committee performance review
will occur in the second half of the 2015 calendar year.
Director induction process
New Directors undergo an induction process to inform them of the nature of the Companyʼs business, strategies, risks and
issues, and expectations about Director performance, including awareness of continuous disclosure principles. The terms of a
non-executive Directorʼs appointment are set out in a letter to the Director from the Company. The letter details the Directorʼs
obligations, including to:
•
•
act in the best interests of the Company at all times;
submit to re-election from time to time as required by the Companyʼs constitution;
__________________________________________________________________________________________
85
82
Boart Longyear Annual Report 2014 Annual Financial Report
31 DECEMBER 2014
BOART LONGYEAR LIMITED
•
•
•
•
•
notify the Chairman of any change in circumstances that might prevent the Director from being regarded as
independent;
comply with the Companyʼs constitution, governance policies and all applicable legal requirements, including the
Companyʼs Securities Trading Policy;
devote sufficient time to prepare for and attend Board meetings and otherwise to discharge the Directorʼs 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 Directorʼs independent judgment, or have an adverse
impact on the Companyʼs 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 Directorʼs 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 Companyʼs induction process also includes meetings with senior management, including the leaders of the Companyʼs
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 impacts the potential incentive an executive may receive under the Companyʼs 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 2014 ranged from 40% 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
200% of a participantʼs target bonus amount. The Companyʼs executive performance assessment process for 2014 and goal-
setting process for 2015 commenced in January 2015 and will be completed in March 2015.
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 Companyʼs 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 Companyʼs 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.
The Board reviews on an annual basis the risk registers prepared by business unit and corporate management. It also is
assisted and advised in its oversight of the Companyʼs 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 recently implemented changes to its risk management
system in 2014 to reflect changes in the Companyʼs operating environment and structure since the initial implementation of its
risk management program in 2007 and to enhance the Companyʼs ability to quantify risks.
__________________________________________________________________________________________
86
83
Annual Financial Report
31 DECEMBER 2014 BOART LONGYEAR LIMITED
Integrity of financial reporting
In accordance with the ASX Guidelines, the Chief Executive Officer and Chief Financial Officer have certified the following
(among other detailed certifications) to the Board in writing:
(1) in their opinion, after having made appropriate enquiries, with regard to the integrity of the financial statements of the
Company for the year ended 31 December 2014:
(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
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 2014:
(i)
(ii)
the statements made in (1) above regarding the integrity of the financial statements are founded on a sound
system of risk management and internal compliance which, in all material respects, implements the policies
adopted by the Board of Directors;
the risk management and internal compliance system, to the extent it relates to financial reporting, is
operating effectively in all material respects based on the risk management model adopted by the Company;
and
(iii)
nothing has come to managementʼs attention since 31 December 2014 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 Chief Financial Officer by the
regional and financial managers of each of the Companyʼs 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 Companyʼs management of material business risks.
Code of Business Conduct and ethical standards
Boart Longyearʼs Directors, management and employees are required to act with integrity at all times and maintain high ethical
standards. The Company has adopted a Code of Business Conduct that covers a broad range of matters, including:
•
•
•
•
•
•
•
•
conflicts of interest and the preservation and proper use of Company assets;
protection of confidential and commercially sensitive information;
employment legislation;
competition law and fair dealing;
environmental, health and safety considerations;
improper payments, bribery and money laundering, including transactions with government officials;
financial reporting and record-keeping; and
each employeeʼs affirmative duty to report violations of policy or law.
The Code of Business Conduct is available on the Companyʼs 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 Companyʼs
legal department or external legal counsel and reported to the Board.
__________________________________________________________________________________________
87
84
Boart Longyear Annual Report 2014 Annual Financial Report
31 DECEMBER 2014 BOART LONGYEAR LIMITED
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 Companyʼs website (www.boartlongyear.com).
The policy sets out the Companyʼs 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 2014 include:
• Continued progress in increasing female representation among senior managers from 5% in 2010 to 13% in 2014;
and
• A specific review of women in senior management positions as part of the Companyʼs 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 21% in 2014.
• During 2014, two new Board members were appointed by Centerbridge Partners, L.P. as a part of the successful
conclusion of our strategic review process. Both Board members chosen by Centerbridge Partners, L.P. were male
which reduced our overall female representation from 25% in 2013 to 22% in 2014.
The levels of gender diversity as at 31 December 2014 are:
Gender Diversity
Total Employees
Total Employees (excl. Drillers and Driller Helpers)
Senior Managers
Board of Directors
Environmental performance
Male
90%
79%
87%
78%
Female
10%
21%
13%
22%
Boart Longyear is committed to achieving a high standard of environmental performance. The Companyʼs 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 Companyʼs operations over several years. Additional information about the
program, including some of the early results it has yielded, is available on the Companyʼs 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 Companyʼs
Environmental, Health and Safety Policy also can be reviewed on the Companyʼs website.
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 Companyʼs operations, financial
results and business prospects. The Companyʼs 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 key operational and financial performance indicators 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
__________________________________________________________________________________________
88
85
Annual Financial Report
31 DECEMBER 2014 BOART LONGYEAR LIMITED
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 Companyʼs 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 Companyʼs charitable giving is overseen by its Executive Committee.
Signed in accordance with a resolution of the Directors.
On behalf of the Directors
Barbara Jeremiah
Chair
23 February 2015
__________________________________________________________________________________________
89
86
Boart Longyear Annual Report 2014
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
PO Box N250
Sydney NSW 1220
Sydney NSW 1220
Tel: +61 2 9322 7000
Tel: +61 2 9322 7000
Fax: +61 2 9322 7001
Fax: +61 2 9322 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
23 February 2015
23 February 2015
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 financial statements of Boart Longyear Limited for the financial year ended 31
As lead audit partner for the audit of the financial statements of Boart Longyear Limited for the financial year ended 31
December 2014, I declare that to the best of my knowledge and belief, there have been no contraventions of:
December 2014, I declare that to the best of my knowledge and belief, there have been no contraventions of:
(i)
(i)
(ii)
(ii)
The auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
The auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
any applicable code of professional conduct in relation to the audit.
any applicable code of professional conduct in relation to the audit.
Yours sincerely
Yours sincerely
DELOITTE TOUCHE TOHMATSU
DELOITTE TOUCHE TOHMATSU
A V Griffiths
A V Griffiths
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
__________________________________________________________________________________________
__________________________________________________________________________________________
90
87
87
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
PO Box N250
Sydney NSW 1220
Sydney NSW 1220
Tel: +61 2 9322 7000
Tel: +61 2 9322 7000
Fax: +61 2 9322 7001
Fax: +61 2 9322 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 2014, the statement of profit or loss and other comprehensive income, the
financial position as at 31 December 2014, the statement of profit or loss and other comprehensive income, the
statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a
statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a
summary of significant accounting policies and other explanatory information, and the directors’ declaration of the
summary of significant accounting policies and other explanatory information, and the directors’ declaration of the
consolidated entity, comprising the company and the entities it controlled at the year’s end or from time to time during
consolidated entity, comprising the company and the entities it controlled at the year’s end or from time to time during
the financial year as set out on pages 90 to 154.
the financial year as set out on pages 93 to 157.
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
________________________________________________________________________________________
________________________________________________________________________________________
88
88
91
Boart Longyear Annual Report 2014
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 2014 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.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 43 to 77 of the directors’ report for the year ended 31
December 2014. 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 2014, complies
with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
A V Griffiths
Partner
Chartered Accountants
Sydney, 23 February 2015
_______________________________________________________________________________________
92
89
Annual Financial Report
31 DECEMBER 2014
DIRECTORSʼ DECLARATION
The Directors declare that:
BOART LONGYEAR LIMITED
(a) in the Directorsʼ 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 Directorsʼ 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 Directorsʼ opinion, the attached financial statements and notes thereto are in accordance with the Corporations
Act 2001, including compliance with accounting standards, and giving a true and fair view of the financial position and
performance of the consolidated entity; and
(d) the directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act 2001.
On behalf of the Directors
Barbara Jeremiah
Chair
23 February 2015
_______________________________________________________________________________________
90
93
Boart Longyear Annual Report 2014 Consolidated Statement of Profit or Loss and
Other Comprehensive Income
For the financial year ended 31 DECEMBER 2014
BOART LONGYEAR LIMITED
Continuing operations
Revenue
Cost of goods sold
Gross margin
Other income
General and administrative expenses
Sales and marketing expenses
Significant items
Other expenses
Operating loss
Interest income
Finance costs
Loss before taxation
Income tax expense
Loss for the year attributable
to equity holders of the parent
Loss per share:
Basic loss per share
Diluted loss per share
Note
2014
US$'000
2013
US$'000
6
7
10
7
8
8
14
15
15
866,588
(750,115)
116,473
7,565
(124,281)
(40,053)
(114,005)
(30,728)
(185,029)
5,487
(72,158)
(251,700)
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)
(81,018)
(114,040)
(332,718)
(619,943)
(70.8) cents
(70.8) cents
(136.1) cents
(136.1) cents
Other comprehensive loss
Loss for the year attributable to equity holders of the parent
(332,718)
(619,943)
Items that may be reclassified subsequently to profit or loss
Exchange loss arising on translation of foreign operations
27
(46,826)
(102,631)
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss) gain related to defined benefit plans
25
Income tax on income and expense recognised directly through equity 25
Other comprehensive loss for the year (net of tax)
(14,280)
4,038
(57,068)
28,008
(8,874)
(83,497)
Total comprehensive loss for the year attributed
to equity holders of the parent
(389,786)
(703,440)
See accompanying Notes to the Consolidated Financial Statements included on pages 99 -157
_______________________________________________________________________________________
94
91
Consolidated Statement of Financial Position
As at 31 DECEMBER 2014
BOART LONGYEAR LIMITED
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax receivable
Prepaid expenses and other assets
Total current assets
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Deferred tax assets
Non-current tax receivable
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
Total equity
Note
35a
16
17
14
19
20
21
14
14
22
24
14
23
23
14
24
26
27
28
2014
US$'000
2013
US$'000
168,784
137,442
241,260
15,446
18,723
581,655
279,306
102,471
77,268
68,427
13,710
17,530
558,712
1,140,367
167,024
23,941
100,223
-
291,188
716,344
17,715
44,903
778,962
1,070,150
70,217
1,159,069
(82,785)
(137,182)
(868,885)
70,217
59,053
196,912
298,947
18,253
25,054
598,219
408,311
103,974
92,028
110,243
6,882
10,824
732,262
1,330,481
153,152
33,263
91,649
84
278,148
585,375
1,179
37,184
623,738
901,886
428,595
1,129,014
(37,312)
(137,182)
(525,925)
428,595
See accompanying Notes to the Consolidated Financial Statements included on pages 99 -157
_______________________________________________________________________________________
92
95
Boart Longyear Annual Report 2014
Consolidated Statement of Changes in Equity
For the financial year ended 31 December 2014
BOART LONGYEAR LIMITED
Foreign
currency
Equity-settled
Issued
capital
US$'000
translation
compensation
reserve
US$'000
reserve
US$'000
Other
equity
US$'000
Accumulated
Total
(losses)/
retained
earnings
US$'000
attributable
to owners of
the parent
US$'000
Balance at 1 January 2013
1,122,189
Loss for the period
Other comprehensiv e (loss) income
for the period
Total other comprehensiv e loss
Payment of div idends
Vesting of LTIP rights, restricted shares
Share-based compensation
-
-
-
-
6,825
-
56,658
-
(102,631)
(102,631)
-
-
-
Balance at 31 December 2013
1,129,014
(45,973)
14,256
-
(137,182)
-
79,496
(619,943)
1,135,417
(619,943)
-
-
-
(6,825)
1,230
8,661
-
-
-
-
-
19,134
(600,809)
(4,612)
-
-
(137,182)
(525,925)
Balance at 1 January 2014
1,129,014
(45,973)
8,661
(137,182)
Loss for the period
Other comprehensiv e loss
for the period
Total other comprehensiv e loss
Issued under recapitalisation program
Vesting of LTIP rights, restricted shares
Share-based compensation
Balance at 31 December 2014
-
-
-
27,158
2,897
-
1,159,069
-
(46,826)
(46,826)
-
-
-
(92,799)
-
-
-
-
(2,897)
4,250
10,014
-
-
-
-
-
(525,925)
(332,718)
(10,242)
(342,960)
-
-
-
(137,182)
-
(868,885)
(83,497)
(703,440)
(4,612)
-
1,230
428,595
428,595
(332,718)
(57,068)
(389,786)
27,158
-
4,250
70,217
See accompanying Notes to the Consolidated Financial Statements included on pages 99 -157
_______________________________________________________________________________________
96
93
Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
For the financial year ended 31 December 2014
For the financial year ended 31 December 2014
BOART LONGYEAR LIMITED
BOART LONGYEAR LIMITED
Note
Note
2014
US$'000
2014
US$'000
2013
US$'000
2013
US$'000
Cash flows from operating activities
Loss for the year
Cash flows from operating activities
Adjustments provided by operating activities:
Loss for the year
Income tax expense recognised in profit
Adjustments provided by operating activities:
Finance costs recognised in profit
Income tax expense recognised in profit
Depreciation and amortisation
Finance costs recognised in profit
Interest income recognised in profit
Depreciation and amortisation
Gain on sale or disposal of non-current assets
Interest income recognised in profit
Loss on disposal of business
Gain on sale or disposal of non-current assets
Impairment of current and non-current assets
Loss on disposal of business
Non-cash foreign exchange loss
Impairment of current and non-current assets
Equity-settled share-based payments
Non-cash foreign exchange loss
Long-term compensation - cash rights
Equity-settled share-based payments
Long-term compensation - cash rights
Changes in net assets and liabilities, net of effects
from acquisition and disposal of business:
Changes in net assets and liabilities, net of effects
Decrease (increase) in assets:
from acquisition and disposal of business:
Trade and other receivables
Decrease (increase) in assets:
Inventories
Trade and other receivables
Other assets
Inventories
Increase (decrease) in liabilities:
Other assets
Trade and other payables
Increase (decrease) in liabilities:
Provisions
Trade and other payables
Cash generated from operations
Provisions
8
9
8
8
9
9
8
34
9
34
9b, 13
9b
9b, 13
9b
Cash generated from operations
Interest paid
Interest received
Interest paid
Income taxes paid
Interest received
Net cash flows (used in) provided by operating activities
Income taxes paid
Net cash flows (used in) provided by operating activities
8
8
(332,718)
(332,718)
81,018
72,158
81,018
102,398
72,158
(5,487)
102,398
(1,716)
(5,487)
-
(1,716)
48,491
-
5,626
48,491
4,250
5,626
4,535
4,250
4,535
44,385
40,677
44,385
(3,353)
40,677
(3,353)
11,054
(16,688)
11,054
54,630
(16,688)
54,630
(60,696)
5,487
(60,696)
(10,674)
5,487
(11,253)
(10,674)
(11,253)
(619,943)
(619,943)
114,040
40,914
114,040
130,724
40,914
(2,851)
130,724
(364)
(2,851)
1,962
(364)
405,016
1,962
2,888
405,016
1,230
2,888
(31)
1,230
(31)
45,851
101,791
45,851
16,427
101,791
16,427
(138,746)
(22,629)
(138,746)
76,279
(22,629)
76,279
(31,616)
2,851
(31,616)
(36,012)
2,851
11,502
(36,012)
11,502
See accompanying Notes to the Consolidated Financial Statements included on pages 99 -157
__________________________________________________________________________________________
See accompanying Notes to the Consolidated Financial Statements included on pages 99 -157
__________________________________________________________________________________________
94
97
94
Boart Longyear Annual Report 2014
Consolidated Statement of Cash Flows
For the financial year ended 31 December 2014
BOART LONGYEAR LIMITED
Note
2014
US$'000
2013
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
Proceeds from issuance of shares
Payments for debt issuance costs
Proceeds from borrowings
Repayment of borrowings
Dividends paid
34
29
Net cash flows provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on the balance
of cash held in foreign currencies
Cash and cash equivalents at the end of the year
35a
(13,827)
6,192
(4,395)
-
(12,030)
27,158
(3,208)
281,000
(161,090)
-
143,860
120,577
59,053
(10,846)
168,784
(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
See accompanying Notes to the Consolidated Financial Statements included on pages 99 -157
_______________________________________________________________________________________
98
95
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014
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 Limitedʼs 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 400
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 Limitedʼs functional and
presentation currency. The financial statements were authorised for issue by the Directors on 23 February 2015.
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
ʻConsolidated Financial Statementsʼ. 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.
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.
_______________________________________________________________________________________
99
96
Boart Longyear Annual Report 2014 Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014
BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basis of preparation (continued)
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 2014 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 Companyʼs predominant currency. Accordingly, management
believes that reporting the Companyʼs financial statements in the US dollar is most representative of the
Companyʼs 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.
_______________________________________________________________________________________
100
97
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014
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 Companyʼs cash-generating units expected to
benefit from the acquisition. Cash-generating units to which goodwill has been allocated are tested for
impairment annually, or more frequently when there is an indication that the carrying value of the unit
may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount,
the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit
and then to the other assets of the unit. An impairment loss recognised for goodwill is not reversed in a
subsequent period.
Upon disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the
profit or loss on disposal.
Trademarks and trade names
Trademarks and trade names recognised by the Company that are considered to have indefinite useful
lives are not amortised. Each period, the useful life of each of these assets is reviewed to determine
whether events and circumstances continue to support an indefinite useful life assessment for the asset.
Trademarks and trade names that are considered to have a finite useful life are carried at cost less
accumulated amortisation and accumulated impairment losses and have an average useful life of three
years. Such assets are tested for impairment at least annually or more frequently if events or
circumstances indicate that the asset might be impaired.
Contractual customer relationships
Contractual customer relationships acquired in business combinations are identified and recognised
separately from goodwill where they satisfy the definition of an intangible asset and their fair values can
be reliably measured. Contractual customer relationships have finite useful lives and are carried at cost
less accumulated amortisation and accumulated impairment losses.
Contractual customer relationships are amortised over 10 – 15 years on a straight-line basis.
Amortisation methods and useful lives are reassessed at each reporting date.
_______________________________________________________________________________________
101
98
Boart Longyear Annual Report 2014 Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 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.
_______________________________________________________________________________________
102
99
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 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
Companyʼs 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 ʻseparate taxpayer within groupʼ 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 Companyʼs 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 assetʼs 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.
_______________________________________________________________________________________
103
100
Boart Longyear Annual Report 2014 Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
Impairment (continued)
Non-financial assets (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 Companyʼs
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.
_______________________________________________________________________________________
104
101
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k)
Provisions (continued)
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.
(l)
Employee benefits
Liabilities for employee benefits for wages, salaries, annual leave, long service leave, and sick leave
represent present obligations resulting from employeesʼ 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 workersʼ 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 Companyʼs 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 Companyʼs 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 Companyʼs estimate of shares that will
eventually vest.
_______________________________________________________________________________________
105
102
Boart Longyear Annual Report 2014 Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l)
Employee benefits (continued)
Share-based payment transactions (continued)
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.
(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.
•
_______________________________________________________________________________________
106
103
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 Companyʼs 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.
(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 acquireeʼs 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 ʻIncome Taxesʼ and AASB 119
ʻEmployee Benefitsʼ, respectively;
liabilities or equity instruments related to the replacement by the Company of an acquireeʼs share-
based payment awards are measured in accordance with AASB 2 ʻShare-based Paymentʼ; and
assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ʻNon-
current Assets Held for Sale and Discontinued Operationsʼ 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 at the acquisition date that, if known, would have affected the
amounts recognised as at 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 at 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.
•
_______________________________________________________________________________________
107
104
Boart Longyear Annual Report 2014 Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s)
Goods and services tax (continued)
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.
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 Companyʼs financial results or consolidated statement of
financial position.
Individual Key Management Personnel Disclosure
AASB 2011 - 4 ʻAmendments to Australian Accounting Standards to Remove Individual Key Management
Personnel Disclosure Requirementʼ removes the requirements to include individual key management personnel
disclosures in the Notes to the Financial Statements, in relation to equity holdings, loans, and other related party
transactions. The application of the amendments did not have any impact on the Financial Statements, other than
removal of duplicated disclosures, as the Company is still required to produce these disclosures in the
Remuneration Report under section 300A of the Corporations Act 2001.
Offsetting Financial Assets and Financial Liabilities
AASB 2011 - 3 ʻAmendments to Australian Accounting Standards – Offsetting Financial Assets and Financial
Liabilitiesʼ clarifies the meaning of ʻcurrently has a legally enforceable right to set-offʼ and the criteria for non-
simultaneous settlement mechanisms of clearing houses to qualify for offsetting. The application of the
amendment does not have any impact on the amounts recognised in the Financial Statements.
The Company did not early adopt any accounting standards during the year. Additional amendments of
Australian Accounting Standards have been issued, the adoption of which management does not believe will
have a significant impact on the Companyʼs financial results or statement of financial position.
Standards and Interpretations issued not yet effective
The accounting standards and AASB Interpretations that will be applicable to the Company and may have an
effect in future reporting periods are detailed below. Apart from these standards and interpretations,
management has considered other accounting standards that will be applicable in future periods, however they
have been considered insignificant to the Company.
Financial Instruments
A finalised version of AASB 9 which contains accounting requirements for financial instruments, replacing AASB
139 Financial Instruments: Recognition and Measurements. The Standard contains requirements in the areas of
classification and measurement, impairment, hedge accounting and derecognition.
Amendments to Australian Accounting Standards
AASB 2010 - 7 ʻAmendments to Australian Accounting Standards arising from AASB 9ʼ (December 2010) (AASB
1, 3, 4 , 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and
Interpretations 2, 5, 10, 12, 19 &127). This Standard makes amendments to other Australian Accounting
Standards and Interpretations arising from the introduction of AASB 9 Financial Instruments.
Defined Benefit
AASB 119 – Defined Benefit Plans: Employee contributions. This Standard makes amendments relating to the
requirement for contributions from employees or third parties that are linked to service.
_______________________________________________________________________________________
108
105
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
3.
ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS (CONTINUED)
Standards and Interpretations issued not yet effective (continued)
Presentation of Financial Statements
Disclosure Initiative Amendments to IAS1. This initiative amends AASB 101 Presentation of Financial Statements
to address perceived impediments to prepares exercising their judgement in presenting their financial report by
making the following changes:
• Clarification the information should not be obscured by aggregating or by providing immaterial
information;
• Clarification that the list of line items to be presented in these statements can be disaggregated and
aggregated as relevant; and
• Additional examples of possible ways of ordering the notes to clarify that understandability and
comparability should be considered when determining the order of the notes.
Revenue from Contracts with Customersʼ
AASB 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers. AASB 15 supersedes the current revenue recognition guidance including AASB 118
ʻRevenue,ʼ AASB 111 ʻConstruction Contractsʼ and the related Interpretations when it becomes effective.
The core principle of AASB 15 is that an entity should recognise revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue
recognition:
• Step 1: Identify the contract(s) with a customer
• Step 2: Identify the performance obligations in the contract
• Step 3: Determine the transaction price
• Step 4: Allocate the transaction price to the performance obligations in the contract
• Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Under AASB 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when
ʻcontrolʼ of the goods or services underlying the particular performance obligation is transferred to the customer.
AASB effective date is 1 January 2017. These amendments will be adopted for the year ending 31 December
2017. Management has not yet assessed the impact of adoption of these amendments.
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:
_______________________________________________________________________________________
109
106
Boart Longyear Annual Report 2014 Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
4.
CRITICAL ACCOUNTING POLICIES (CONTINUED)
(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 Companyʼs 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
(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 managementʼs 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 Companyʼs 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.
(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 Companyʼs 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 managementʼs 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.
_______________________________________________________________________________________
110
107
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
4.
CRITICAL ACCOUNTING POLICIES (CONTINUED)
(e)
Defined Benefit Pension Plans
The Companyʼs 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.
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 Companyʼs two general operating activities:
providing drilling services and 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 Companyʼs 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 profit represents earnings before interest and taxes.
Segment revenue and results
Drilling Services
636,142
917,348
(2,907)
2014
US$'000
2013
US$'000
2014
US$'000
2013
US$'000
40,605
Segment Revenue
Segment Profit
Global Products revenue
Products third party revenue
Products inter-segment revenue 1
Total Products
230,446
72,390
305,505
56,569
302,836
362,074
4,322
2,145
Less Global Product sales to Global Drilling Services
(72,390)
866,588
Total third party revenue
Total segment profit
Unallocated costs 2
Significant items
Finance costs
Interest income
Loss before taxation
(56,569)
1,222,853
1,415
42,750
(72,439)
(114,005)
(72,158)
5,487
(49,425)
(461,165)
(40,914)
2,851
(251,700)
(505,903)
(1) Transactions between segments are carried out at armʼs length and are eliminated on consolidation.
(2) Unallocated costs include corporate general and administrative costs as well as other expense items
such as foreign exchange gains or losses.
_______________________________________________________________________________________
111
108
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
5.
SEGMENT REPORTING (CONTINUED)
Other segment information
Depreciation and amortisation
of segment assets
2014
US$'000
2013
US$'000
Additions to non-current
assets 2
2014
US$'000
2013
US$'000
74,176
11,505
85,681
16,717
102,398
101,316
13,923
115,239
15,485
130,724
16,421
6,506
22,927
2,240
25,167
35,063
6,814
41,877
7,316
49,193
Global Drilling Services
Global Products
Total of all segm ents
Unallocated 1
Total
(1) Unallocated additions to non-current assets relate to the acquisition of general corporate assets such as
software and hardware.
(2) Non-current assets excluding deferred tax assets.
Geographic information
The Companyʼs two business segments operate in five principal geographic areas – North America, Asia Pacific,
Latin America, Europe, Middle East and Africa. The Companyʼs revenue from external customers and
information about its segment assets by geographical locations are detailed below:
Revenue from
external customers
2014
US$'000
378,608
225,777
111,865
150,338
866,588
2013
US$'000
489,037
349,030
153,648
231,138
1,222,853
Non-current assets 1
2014
2013
US$'000
US$'000
279,939
119,749
48,251
42,346
490,285
319,505
147,761
51,646
103,107
622,019
North America
Asia Pacific
Latin America
EMEA
Total
(1) Non-current assets excluding deferred tax assets.
6.
REVENUE
The components of revenue are as follows:
Revenue from the rendering of services
Revenue from the sale of goods
2014
US$'000
636,142
230,446
866,588
2013
US$'000
917,348
305,505
1,222,853
Included in revenues arising from rendering of services are revenues of $141,792,000 (2013: $126,118,000)
which arose from sales to the Companyʼs two largest customers. No other customer(s) contributed 10% or more
to the Companyʼs revenue in either 2014 or 2013.
_______________________________________________________________________________________
112
109
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
7.
OTHER INCOME / EXPENSE
The components of other income are as follows:
Note
2014
US$'000
2013
US$'000
Litigation settlement
Gain on dis posal of property, plant and equipment
Scrap s ales
Gain on termination of pos t-retirem ent medical plan
Other
Total other income
25
3,050
1,716
528
-
2,271
7,565
-
364
651
16,871
265
18,151
The components of other expense are as follows:
Amortis ation of intangible as sets
Los s on foreign currency exchange differences
VAT write-off
Sundry ass et impairments
Other
Total other expenses
8.
INTEREST INCOME / FINANCE COSTS
Interest income is as follows:
Interest income:
Bank depos its
Other
Total interes t income
Finance costs are as follows:
Finance cos ts:
Interest on loans and bank overdrafts
Amortis ation of debt iss uance cos ts
Interest on obligations under finance leases
Total finance cos ts
Finance cos ts due to debt repayment:
Write-off of debt is suance costs
2014
US$'000
2013
US$'000
16,785
5,758
4,478
-
3,707
30,728
18,276
986
1,429
3,195
942
24,828
2014
US$'000
2013
US$'000
4,850
637
5,487
2,807
44
2,851
2014
US$'000
2013
US$'000
62,658
3,416
8
66,082
6,076
6,076
39,022
1,839
53
40,914
-
-
Total finance cos ts
72,158
40,914
_______________________________________________________________________________________
113
110
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
9.
PROFIT (LOSS) FOR THE YEAR
Profit (loss) for the year includes the following:
(a)
Gains and losses
Profit for the year includes the following gains and (losses):
Gain on disposal of property,
plant and equipment
Net foreign exchange loss es
Net expens e reversal of bad debt
(b)
Employee benefits expenses
Salaries and wages
Post-employment benefits :
Defined contribution plans
Defined benefit plans
Long-term incentive plans:
Equity-s ettled share-based payments
Cash rights compensation
Termination benefits
Other em ployee benefits 1
2014
US$'000
2013
US$'000
1,716
(5,758)
(1,497)
364
(986)
(266)
2014
US$'000
2013
US$'000
(311,570)
(394,179)
(12,228)
(1,825)
(16,627)
11,519
(4,250)
(4,535)
(9,234)
(87,881)
(431,523)
(1,230)
31
(35,923)
(120,877)
(557,286)
(1) Other employee benefits include items such as medical benefits, workersʼ compensation, other
fringe benefits, state taxes.
(c)
Other
Depreciation of non-current assets
Amortis ation of non-current as sets
Operating lease rental expens e
Los s on disposal of bus iness
10.
SIGNIFICANT ITEMS
2014
US$'000
2013
US$'000
(84,581)
(17,817)
(24,687)
-
(111,455)
(19,269)
(35,803)
(1,962)
During 2014, the Company continued to reduce operating costs through a series of restructuring activities. The
Companyʼs continuing restructuring efforts include:
• Consolidation of Global Drilling Services zones into larger territories;
• Rationalisation of manufacturing, inventory and administrative facilities;
• Consolidation of the Global Products divisionʼs aftermarket services group with the Global Drilling
Services maintenance group as well as the supply chain groups for both divisions; and
• Consolidation of certain regional financial support services into two shared service locations.
_______________________________________________________________________________________
114
111
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
10.
SIGNIFICANT ITEMS (CONTINUED)
The Company has incurred costs related to executing its restructuring and cost-reduction plans. These costs
include employee separations, exiting leased facilities and impairments of inventory and capital equipment
related to relocating certain manufacturing activities and resizing the business.
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.
Also, in February 2014, the Company commenced strategic review process and ultimately entered into a
recapitalisation transaction with Centerbridge Partners, L.P., in order to provide a more sustainable capital
structure and secure additional liquidity to weather the current mining business cycle. This review process and
transaction incurred significant costs, which are presented separately.
Significant items for the years ended 31 December 2014 and 2013 are, as follows:
Note
2014
US$'000
2013
US$'000
Recapitalisation costs
Impairments:
Equipment
Intangible as set
Inventory
Goodwill
Development asset
Land & buildings
Employee and related costs 1
Other restructuring costs
Onerous leases
Loss on disposal of bus iness
Net of tax 2
19
17
20
19, 21
19
34
45,521
45,975
1,647
687
-
-
112
12,491
6,778
794
-
114,005
80,236
-
104,347
9,090
101,916
166,313
14,595
5,561
44,752
9,919
2,710
1,962
461,165
375,284
(1) Employee and related costs include separation costs, retention and other employee-related costs.
(2) The tax effect was calculated using applicable local country tax rates before application of excess of net
operating losses.
Classification of significant items on the income statement for the years ended 31 December 2014 and 2013 are,
as follows:
General and administrative expens es
Cost of goods s old
Research and development
Selling and marketing expenses
Other expens e
2014
US$'000
2013
US$'000
71,064
40,164
1,562
1,215
-
114,005
59,725
218,282
14,595
2,250
166,313
461,165
_______________________________________________________________________________________
115
112
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
10.
SIGNIFICANT ITEMS (CONTINUED)
Significant items for the years ended 31 December 2014 and 2013 by business segment are, as follows:
Global Drilling Services
Global Products
Unallocated
Impairment Process
2014
US$'000
57,217
2,072
54,716
114,005
2013
US$'000
394,604
54,824
11,737
461,165
In its impairment assessment, the Company calculates the recoverable amounts based on value-in-use
calculations. Cash flow projections are based on the Companyʼs 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 jurisdictionsʼ 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.
•
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:
o Whilst not operating its full asset pool on an individual country basis, where goodwill exists the
Company assesses the recoverability of goodwill within the region in which the original acquisition
generating the goodwill was incurred;
o For the Global 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 impairment charges of $41,200,000 against
property, plant and equipment. 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 to property, plant and equipment.
Key Assumptions
Certain key assumptions are used for CGU impairment testing and are described below.
As noted above cash flow projections are based on the Companyʼs 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 below its internal
models. This factor is one of many indicators of impairment that the Company has considered.
_______________________________________________________________________________________
116
113
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
10.
SIGNIFICANT ITEMS (CONTINUED)
Key Assumptions (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 has used historical performance trends,
overlaying the impacts of recent 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 Bloomberg, the adjusted post-tax discount
rates ranged from 10.2% to 23.3%, as shown in the table below.
Other economic factors
The assumed growth rates are based on the compound average growth rate for the various CGUʼs 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
EMEA
Post-Tax
Discount
Rate
Growth
Rate
11.5%
10.2%
12.1%
12.5%
23.3%
3.0%
2.2%
3.6%
4.2%
6.7%
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 has been examined at levels above and below expected values. The
expected values are based on forecasted 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:
North America
Asia Pacific
Latin America
EMEA
US$'000
8,000
14,000
11,000
17,000
_______________________________________________________________________________________
117
114
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 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 :
Review of tax returns
Tax s ervices
As surance
Other non-audit services
Total remuneration to Company auditor
Remuneration to other accounting firms
Audit s ervices
Non-audit services :
Tax s ervices
Global mobility
Internal audit
Accounting and payroll s ervices
Other
Total remuneration to other accounting firms
2014
US$'000
2013
US$'000
1,347
1,024
2,371
631
644
-
42
1,317
3,688
415
2,491
1,386
284
175
168
4,919
1,607
1,422
3,029
581
1,841
174
21
2,617
5,646
418
1,246
1,798
122
166
702
4,452
Boart Longyear Limitedʼs auditor 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 Board 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 auditorʼs 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.
_______________________________________________________________________________________
118
115
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
12.
KEY MANAGEMENT PERSONNEL COMPENSATION
The aggregate compensation made to key management personnel of the Company is set out below.
Short-term employee benefits
Pos t-employment benefits
Other long-term benefits
Termination benefits
Share-bas ed payments
13.
SHARE-BASED PAYMENTS
2014
US$
6,127,126
116,149
3,029,125
-
2,470,856
11,743,256
2013
US$
4,354,012
56,089
22,726
467,145
859,650
5,759,622
The Company provides long term equity incentives to assist in retaining key employees and encouraging superior
performance on a sustained basis. Annual long term incentive grants generally are made through the Companyʼs
Long-term Incentive Plan (LTIP), which allows for annual grants of share rights to management that will vest
based on the satisfaction of either time-based conditions or both performance-based and time-based conditions.
Vested share rights convert to ordinary fully paid shares on a one-for-one basis.
Under the terms of the LTIP, performance-based share rights vest upon the achievement of performance targets
set by the Board. Awards granted to management KMP 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 for those grants and vesting will be determined
by the Companyʼs actual performance against the targets.
Awards granted to KMP for 2014 are comprised of a combination of options as well as Share Rights and Cash
Rights under the LTIP. The performance Share Rights vest upon the achievement of three-year cumulative net
debt reduction targets in addition to total shareholder return targets set by the Board. Vesting occurs on a linear
basis beginning at 50% of a participantʼs grant once minimum “threshold” performance objectives are met, and
vesting up to 150% of a participantʼs target grant amount is possible if the Companyʼs actual results exceed the
targets established for the three-year period. Participants must also remain continuously employed with the
Company during the performance period. 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 LTIP Share Right 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 share right grants made beginning in 2012, dividends paid on unvested Share Rights will be held in trust and
paid when vesting occurs. None of the performance Share Rights awarded in 2010 through 2013 will vest, as the
performance targets will not be achieved.
The total share-based expense associated with Share Rights granted under the LTIP for the years ended 31
December 2014 and 2013 was $2,799,000 and $1,219,000, respectively.
The Board has, on certain occasions, granted Share Options to certain senior management in order to attract,
retain and properly incentivise those individuals. 345,000 Options granted in June 2009 vested in accordance
with their terms and expired in June 2014. 25,000 Options granted in March 2010 vested in accordance with
their terms and expire in March 2015. During 2014 new Options were granted to Mr OʼBrien as part of a special
one-off strategic award as well as new options granted to senior executives as part of the long-term incentive
plan. The share-based expense associated with Share Options for the years ended 31 December 2014 and
2013 was $1,451,000 and $11,000, respectively. No shares or interests have been issued during the 2014 or
2013 financial years as a result of the exercise of options.
_______________________________________________________________________________________
119
116
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
13.
SHARE-BASED PAYMENTS (CONTINUED)
Share Rights
The following table reflects the Share Rights arrangements that were in existence at 31 December 2014:
Series - Share Rights
1 - Is sued 15 March 2012
2 - Is sued 15 March 2013
3 - Is sued 1 June 2013
4 - Is sued 1 June 2013
5 - Is sued 15 March 2014
6 - Is sued 15 April 2014
Number
1,152,699
2,499,946
50,000
281,500
17,184,215
972,612
Effective
grant date
15-Mar-12
15-Mar-13
1-Jun-13
1-Jun-13
15-Mar-14
1-Apr-14
Vesting
date
15-Mar-15
15-Mar-16
1-Jun-15
1-Jun-16
15-Mar-17
1-Apr-17
Fair value at
grant date
US$
4.50
1.39
0.67
0.67
0.25
0.27
The following reconciles the outstanding Share Rights at the beginning and end of the year:
Share rights
Balance at beginning of year
Granted
Forfeited
Ves ted
Balance at end of year
2014
Number of
rights
'000
2013
Number of
rights
'000
10,101
19,454
(6,631)
(783)
22,141
5,280
8,228
(1,162)
(2,245)
10,101
The following Share Rights vested during 2014:
Vest date range
Grant date
Start
14-Oct-11
11-Jul-11
15-Mar-11
15-Mar-12
15-Mar-13
1-Jun-13
15-Mar-14
14-Oct-14
11-Jul-14
15-Mar-14
3-Feb-14
3-Feb-14
23-Jun-14
1-Aug-14
End
14-Oct-14
11-Jul-14
15-Mar-14
1-Aug-14
1-Oct-14
23-Jun-14
1-Oct-14
Number
of shares
85,000
13,375
527,169
39,854
61,237
7,074
48,823
Fair value at
vest date range A$
Low
High
0.14
0.16
0.28
0.09
0.09
0.20
0.14
0.14
0.16
0.28
0.49
0.49
0.20
0.20
_______________________________________________________________________________________
120
117
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
13.
SHARE-BASED PAYMENTS (CONTINUED)
Options
The following table reflects the Options arrangements that were in existence at 31 December 2014:
Series - Options
1 - Is sued 15 March 2010
2 - Is sued 15 March 2014
3 - Is sued 1 April 2014
4 - Is sued 19 May 2014
5 - Is sued 19 May 2014
6 - Is sued 19 May 2014
Number
25,000
3,937,849
324,204
3,034,753
3,034,753
3,034,752
Effective
grant date
15-Mar-10
15-Mar-14
1-Apr-14
19-May-14
19-May-14
19-May-14
Vesting
date
15-Mar-13
15-Mar-17
1-Apr-17
19-May-14
1-Apr-15
1-Apr-16
Fair value at
grant date
US$
2.24
0.23
0.25
0.19
0.19
0.19
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$
2.93
0.25
0.27
0.21
0.21
0.21
Expected
volatility
92.14%
115.00%
114.00%
114.00%
114.00%
114.00%
Life of
rights
60 months
120 months
120 months
120 months
120 months
120 months
Dividend
yield
Risk-free
interest rate
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
0.74%
0.91%
0.01%
0.09%
0.36%
Series 1
Series 2
Series 3
Series 4
Series 5
Series 6
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
2014
2013
Number of
options
'000
342
13,366
(317)
-
13,391
13,391
Weighted
average
exercise
price
US$
2.43
0.24
2.39
-
0.18
0.18
Number of
options
'000
592
-
(250)
-
342
342
Weighted
average
exercise
price
US$
4.88
-
8.24
-
2.43
2.43
_______________________________________________________________________________________
121
118
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
14.
INCOME TAXES
Income tax expense is as follows:
Income tax expense:
Current tax expense
Adjustm ents recognised in the current year
in relation to the current tax of prior years
Deferred tax expense
2014
US$'000
2013
US$'000
21,517
42,926
(3)
59,504
81,018
4,227
66,887
114,040
(a) Reconciliation of the prima facie income tax expense on pre-tax accounting profit to the income tax
expense in the financial statements:
Loss before taxation
Income tax benefit 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 item s related to im pairments 1
Unrecognised tax losses 2
Profit/Losses subject to double taxation in the US
Withholding tax net of foreign tax credit
Derecognition of net prior year deferred tax assets 2
Other
(Over) under provision from prior years
Income tax expense per the Consolidated
(251,700)
(505,903)
(75,510)
4,040
30,659
617
-
42,423
(4,310)
3,339
68,218
11,545
81,021
(3)
(151,772)
(1,223)
30,083
8,967
50,423
67,565
(519)
9,017
92,653
4,619
109,813
4,227
Statement of Profit or Loss and Other Com prehensive Incom e
81,018
114,040
(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.
_______________________________________________________________________________________
122
119
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 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
4,038
(8,874)
2014
US$'000
2013
US$'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
(78,248)
78,519
28,885
29,156
1
(47,753)
48,727
24,161
25,135
100,223
100,223
91,649
91,649
37,078
13,634
50,712
94,299
14,765
109,064
(1) The income tax receivable for 2014 is $29,156,000 (2013: $25,135,000) of which $15,446,000 is classified
as current tax receivable and $13,710,000 is classified as non-current tax receivable (2013: $18,253,000 and
$6,882,000 respectively).
_______________________________________________________________________________________
123
120
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
14.
INCOME TAXES (CONTINUED)
2014
Deferred tax assets (liabilities)
temporary differences
Property, plant and equipment
Provisions
Doubtful debts
Other intangible assets
Share-issue expenses
Accrued liabilities
Pension
Inventories
Investments in subsidiaries
Unrealised foreign exchange
Other
Unused tax losses and credits:
Tax losses
Foreign tax credits
Opening Recognised
balance
US$'000
in income differences
US$'000
US$'000
FX
Other
US$'000
Recognised Closing
balance
US$'000
in equity
US$'000
34,902
16,080
275
(15,606)
1
1,407
4,122
33,645
(1,500)
17,521
3,452
94,299
-
14,765
109,064
(11,308)
(3,799)
(9)
(1,537)
(1)
(254)
(6,851)
(18,283)
-
(17,057)
726
(58,373)
-
(1,131)
(59,504)
(1,286)
(592)
(10)
575
-
(52)
(152)
(1,239)
-
-
(130)
(2,886)
-
-
(2,886)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,038
-
-
-
-
4,038
4,038
22,308
11,689
256
(16,568)
-
1,101
1,157
14,123
(1,500)
464
4,048
37,078
-
13,634
50,712
68,427
(17,715)
50,712
Presented in the statement of financial position as follows:
Deferred tax asset
Deferred tax liability
_______________________________________________________________________________________
124
121
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
14.
INCOME TAXES (CONTINUED)
2013
Deferred tax assets (liabilities)
temporary differences
Property, plant and equipment
Provisions
Doubtful debts
Other intangible assets
Share-issue expenses
Accrued liabilities
Pension
Debt and interest
Inventories
Investments in subsidiaries
Unrealised foreign exchange
Other
Unused tax losses and credits:
Tax losses
Foreign tax credits
Opening Recognised
balance
US$'000
in income differences
US$'000
US$'000
FX
Other
US$'000
Recognised Closing
balance
US$'000
in equity
US$'000
(4,264)
10,414
352
(9,227)
2,448
4,540
15,275
24,386
24,496
(1,500)
42,269
9,612
118,801
22,129
43,665
65,794
39,163
5,680
(77)
(6,392)
(2,447)
(3,127)
(2,258)
(20,550)
9,183
-
(24,748)
(6,144)
(11,717)
(26,270)
(28,900)
(55,170)
3
(14)
-
13
-
(6)
(21)
(3,836)
(34)
-
-
(16)
(3,911)
-
-
-
184,595
(66,887)
(3,911)
-
-
-
-
-
-
-
-
-
-
-
-
-
4,141
-
4,141
4,141
-
-
-
-
-
-
(8,874)
-
-
-
-
-
(8,874)
-
-
-
34,902
16,080
275
(15,606)
1
1,407
4,122
-
33,645
(1,500)
17,521
3,452
94,299
-
14,765
14,765
(8,874)
109,064
110,243
(1,179)
109,064
Presented in the statem ent of financial position as follows:
Deferred tax asset
Deferred tax liability
Unrecognised deferred tax assets
Tax losses - revenue
Unused tax credits
Temporary differences
2014
US$'000
130,050
50,236
114,394
294,680
2013
US$'000
93,276
61,966
47,910
203,152
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.
_______________________________________________________________________________________
125
122
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
14.
INCOME TAXES (CONTINUED)
Canadian Income Tax Assessments
As previously reported, the Companyʼs Canadian tax returns since 2005 have been subject to review by the
Canada Revenue Agency (CRA). Assessments have been issued or determined for the tax years between 2005
and 2009, with the most significant contested areas of the CRAʼs reviews relating 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. The CRA also has commenced field work for the
tax years from 2010 through 2012. The field work is ongoing and no assessments have been issued for the
period.
2005 – 2006 Audit Periods
On 24 December 2013, the Company received written notice that the CRAʼs 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 has received the final reduced assessments for the period from the CRAʼs Audit division
and the audit has largely been concluded. As a result of the reversal, the security of approximately
C$24,500,000 provided to the CRA to support the Companyʼs appeals of the assessments has been released.
The CRAʼs decision concerning the 2005 through 2006 audit period resulted in the reversal of provincial tax
assessments totaling approximately C$11,000,000 for the same period. The security of approximately
C$11,000,000 provided to provincial tax authorities to challenge the provincial assessments was also released.
2007 – 2009 Audit Periods
The Company received income adjustments by the CRAʼs Audit Division for the 2007 through 2009 tax years on
23 December 2013 and projects that those proposed adjustments, if upheld, would result in federal and provincial
tax liabilities, including interest, of approximately C$70,000,000. In the third quarter of 2014, the CRA notified the
company that it does not intend to pursue penalties related to the proposed adjustment.
The Company notes that the proposed adjustments for the 2007 through 2009 audit period were determined on
substantially the same basis as the assessments for the 2005 to 2006 period that were subsequently reversed by
the CRA. The Company therefore has disputed the assessments through the competent authority resolution
process as well as all other available methods of appeal. The Company also believes that the reversal of the
assessments for 2005 and 2006 provides a favourable background for a positive resolution of such appeals, but
the outcome and timing of any resolution of the 2007 through 2009 assessments are unknown. Interest will
continue to accrue on all disputed and unpaid amounts until they are paid, or, alternatively, unless the disputes
are resolved in the Companyʼs favor.
2010 – 2012 Audit Periods
The CRA has commenced its field work for the audit of 2010 through 2012 taxation years. The Company has no
information about the timing to conclude the audit or its likely outcome.
_______________________________________________________________________________________
126
123
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
15.
LOSS / EARNINGS PER SHARE
Basic loss per share
Diluted loss per share
Basic loss per share
The loss and weighted average number of ordinary shares
used in the calculation of basic loss per share are as follows:
2014
US cents
per share
2013
US cents
per share
(70.8)
(70.8)
(136.1)
(136.1)
2014
US$'000
2013
US$'000
Loss used in the calculation of basic EPS
(332,718)
(619,943)
Weighted average number of ordinary shares for the purposes of
basic loss per share
Diluted loss per share
The loss used in the calculation of diluted loss
per share are as follows:
2014
'000
2013
'000
469,663
455,508
2014
US$'000
2013
US$'000
Loss used in the calculation of diluted EPS
(332,718)
(619,943)
Weighted average number of ordinary shares used in the
calculation of basic EPS
Shares deemed to be issued for no consideration in respect of
LTIP share rights
Weighted average number of ordinary shares used in the
calculation of diluted EPS
2014
'000
2013
'000
469,663
455,508
-
-
469,663
455,508
The following potential shares are anti-dilutive and are therefore excluded from the weighted average
number of ordinary shares for the purposes of diluted earnings per share.
Shares deemed to be issued for no consideration in respect of
LTIP share rights
2014
'000
2013
'000
2,865
1,404
_______________________________________________________________________________________
127
124
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
16.
TRADE AND OTHER RECEIVABLES
Trade receivables
Allowance for doubtful accounts
Goods and services tax receivable
Other receivables
The ageing of trade receivables is detailed below:
Current
Pas t due 0 - 30 days
Pas t due 31 - 60 days
Pas t due 61-90 days
Pas t due 90 days
The ageing of impaired trade receivables is detailed below:
Current
Pas t due 0 - 30 days
Pas t due 31 - 60 days
Pas t due 61-90 days
Pas t due 90 days
2014
US$'000
2013
US$'000
122,391
(2,313)
13,831
3,533
137,442
151,076
(1,374)
41,110
6,100
196,912
2014
US$'000
2013
US$'000
90,637
16,415
5,912
5,545
3,882
122,391
105,591
23,620
6,362
7,196
8,307
151,076
2014
US$'000
2013
US$'000
-
-
-
-
-
-
-
-
(2,313)
(2,313)
(1,374)
(1,374)
The movement in the allowance for doubtful accounts in respect of trade receivables is detailed below:
Opening balance
Additional provisions
Amounts us ed
Amounts reversed
Foreign currency exchange differences
Clos ing balance
2014
US$'000
2013
US$'000
1,374
1,781
(394)
(284)
(164)
2,313
1,841
1,256
(680)
(990)
(53)
1,374
The average credit period on sales of goods is 53 days as at 31 December 2014, compared to 60 days as at 31
December 2013. No interest is charged on trade receivables.
The Companyʼs policy requires customers to pay the Company in accordance with agreed payment terms. The
Companyʼs settlement terms are generally 30 to 60 days from date of invoice. All credit and recovery risk
associated with trade receivables has been provided for in the statement of financial position. Trade receivables
have been aged according to their original due date in the above ageing analysis.
_______________________________________________________________________________________
128
125
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
16.
TRADE AND OTHER RECEIVABLES (CONTINUED)
Credit risk management
The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient
collateral, when appropriate, as a means of mitigating the risk of financial loss from defaults.
Trade receivables consist of a large number of customers, spread across diverse industries and geographical
areas. Ongoing credit evaluation is performed on accounts receivable. The Company holds security for a
number of trade receivables in the form of letters of credit, deposits, and advanced payments.
The Company does not have any significant credit risk exposure to any single counterparty or any group of
counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is
limited because the counterparties are banks with high credit ratings assigned by international credit-rating
agencies. No derivative financial instruments were entered into during 2014 or 2013.
17.
INVENTORIES
Raw materials
Work in progress
Finis hed products
2014
US$'000
2013
US$'000
31,092
2,416
207,752
241,260
43,630
3,458
251,859
298,947
The Company recorded impairment provisions against inventory of $687,000 and $101,916,000 for the years
ended 31 December 2014 and 2013, respectively. Obsolescence provisions were $102,613,000 and
$129,263,000 as at 31 December 2014 and 2013, respectively.
18.
FINANCIAL RISK MANAGEMENT
Capital risk management
The Company manages its capital to ensure that entities in the Company will be able to continue as going
concerns while maximising the return to stakeholders through the optimisation of the debt and equity balances.
The capital structure of the Company consists of debt, which includes the loans and borrowings disclosed in Note
23, cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued
capital, reserves, and accumulated losses/retained earnings as disclosed in Notes 26, 27, and 28, respectively.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis
of measurement and the basis on which income and expenses are recognised, in respect of each class of
financial asset, financial liability and equity instrument are disclosed in Note 2.
Categories of financial instruments
Financial assets
Current
Cash and cash equivalents
Trade and other receivables
Note
16
2014
US$'000
2013
US$'000
168,784
137,442
306,226
59,053
196,912
255,965
_______________________________________________________________________________________
129
126
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
18.
FINANCIAL RISK MANAGEMENT (CONTINUED)
Financial liabilities
Current
Amortis ed cost:
Trade and other payables
Loans and borrowings
Non-current
Amortis ed cost:
Loans and borrowings
2014
US$'000
2013
US$'000
167,024
-
167,024
153,152
84
153,236
716,344
716,344
585,375
585,375
22
23
23
Of the outstanding loans and borrowings, Centerbridge Partners, L.P. accounted for $225,000,000 of Term Loans
outstanding and accreted interest of $4,690,000. There are no significant concentrations of credit risk. The
carrying amount reflected above represents the Companyʼs maximum exposure to credit risk for trade and other
receivables.
Financial risk management objectives
The Companyʼs 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 and other non-derivative strategies to manage these risk exposures. The use of financial
derivatives is governed by the Companyʼs 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 Companyʼs activities expose it primarily to the financial risks of changes in foreign currency exchange rates
and interest rates. The Company seeks to minimise the effects of these risks, where deemed appropriate, by
using derivative financial instruments and other non-derivative strategies to manage these risk exposures 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 entityʼs functional currency,
interest rate swaps to mitigate the risk of rising interest rates; and
other non-derivative strategies.
The Company did not utilise any derivative instruments during the years ended 31 December 2014 or 2013.
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 as well as options in
addition to non-derivative strategies.
_______________________________________________________________________________________
130
127
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
18.
FINANCIAL RISK MANAGEMENT (CONTINUED)
Foreign currency risk management (continued)
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
2014
US$'000
2013
US$'000
2014
US$'000
2013
US$'000
Aus tralian Dollar
Canadian Dollar
Euro
US Dollar
488,274
331
608
269,993
566,664
8,575
3,588
303,429
47,350
78,179
81,318
624,879
54,294
93,443
91,399
622,144
Foreign currency sensitivity
The Company is mainly exposed to exchange rate fluctuations in the Australian Dollar (AUD), Canadian Dollar
(CAD), Euro (EUR) and United States Dollar (USD). The Company is also exposed to translation differences as
the Companyʼs presentation currency is different from the functional currencies of various subsidiaries. However,
this represents a translation risk rather than a financial risk and consequently is not included in the following
sensitivity analysis.
The following tables reflect the Companyʼs sensitivity to a 10% change in the exchange rate of each of the
currencies listed above. This sensitivity analysis includes only outstanding monetary items denominated in
currencies other than the respective subsidiariesʼ functional currencies and remeasures these at the respective
year end to reflect a 10% decrease in the indicated currency against the respective subsidiariesʼ functional
currencies. A positive number indicates an increase in net profit and/or net assets.
10% decrease in AUD
2013
US$'000
2014
US$'000
10% decrease in CAD
2014
US$'000
2013
US$'000
Net profit
Net ass ets
(5,675)
(40,208)
(5,589)
(46,579)
4,077
6,447
5,211
7,715
Net profit
Net ass ets
10% decrease in EUR
10% decrease in USD
2014
US$'000
3,557
7,142
2013
US$'000
7,983
7,983
2014
US$'000
4,059
32,262
2013
US$'000
(787)
28,974
In managementʼs opinion, the sensitivity analysis is not fully representative of the inherent foreign exchange risk
as the year-end exposure may not reflect the exposure during the course of the year.
Forward foreign exchange contracts
There were no open forward foreign currency contracts as at 31 December 2014 or 2013.
_______________________________________________________________________________________
131
128
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
18.
FINANCIAL RISK MANAGEMENT (CONTINUED)
Interest rate risk management
The Company is not exposed to interest rate risk as entities within the Company borrow funds at fixed interest
rates.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Companyʼs Treasurer and Board.
The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecasted and actual cash flows and matching the maturity profiles of
financial assets and liabilities.
Liquidity risk
The following tables reflect the expected maturities of non-derivative financial liabilities as at 31 December 2014.
These are based on the undiscounted expected cash flows of financial liabilities based on the maturity profile per
the loan agreement. The table includes both interest and principal cash flows. The adjustment column
represents the possible future cash flows attributable to the instrument included in the maturity analysis which are
not included in the carrying amount on the balance sheet.
Weighted
average
effective
interest
rate
%
Less
than
1 to 3
3 months
to
1 year
1 month months
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
1 - 5 years 5+ years
Total
Adjust-
ment
31 December 2014
Non-interest bearing
payables
Fixed interest rate
instruments
-
124,209
42,815
-
-
-
-
167,024
9.4%
-
-
40,500
504,031
584,356
(404,198)
724,690
124,209
42,815
40,500
504,031
584,356
(404,198)
891,714
31 December 2013
Non-interest bearing
payables
Finance lease liability
Fixed interest rate
instruments
8.1%
8.5%
126,632
8
26,520
16
-
70
-
2
-
-
-
(8)
153,152
88
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
_______________________________________________________________________________________
132
129
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
18.
FINANCIAL RISK MANAGEMENT (CONTINUED)
Liquidity 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.
2014
Non-interest bearing
receivables
Cash
2013
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
68,854
168,784
237,638
52,788
15,800
-
-
52,788
15,800
137,442
168,784
306,226
77,275
59,053
136,328
76,035
43,602
-
-
76,035
43,602
196,912
59,053
255,965
The liquidity risk tables are based on the Companyʼs 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 Companyʼs senior secured
notes that are trading below their carrying value.
_______________________________________________________________________________________
133
130
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
19.
PROPERTY, PLANT AND EQUIPMENT
Land and
Buildings
US$'000
Plant and
Equipment
US$'000
Construction
in Progress
US$'000
Balance at 1 January 2013
Additions
Dis pos al
Transfer to/from CIP
Transfer from intangible as sets
Currency movements
Balance at 1 January 2014
Additions
Dis pos al
Transfer to/from CIP
Transfer from intangible as sets
Currency movements
Balance at 31 December 2014
Accumulated depreciation and impairment:
Balance at 1 January 2013
Depreciation
Im pairment
Dis pos al
Currency movements
Balance at 1 January 2014
Depreciation
Im pairment
Dis pos al
Currency movements
Balance at 31 December 2014
Net book value at 31 December 2013
Net book value at 31 December 2014
75,441
678
(9,360)
3,055
22
(2,786)
67,050
133
(331)
1,905
-
(2,946)
65,811
(13,992)
(3,276)
(5,561)
503
1,444
(20,882)
(2,632)
(112)
317
1,340
(21,969)
46,168
43,842
949,148
5,521
(25,686)
36,275
2,336
(85,434)
882,160
4,885
(29,012)
30,924
542
(57,884)
831,615
(437,711)
(108,179)
(100,607)
20,385
59,544
(566,568)
(81,949)
(45,975)
24,550
48,607
(621,335)
315,592
210,280
Total
US$'000
1,080,394
38,601
(35,046)
-
1,267
(89,455)
995,761
19,704
(29,343)
-
158
(63,670)
922,610
(451,703)
(111,455)
(106,168)
20,888
60,988
(587,450)
(84,581)
(46,087)
24,867
49,947
(643,304)
55,805
32,402
-
(39,330)
(1,091)
(1,235)
46,551
14,686
-
(32,829)
(384)
(2,840)
25,184
-
-
-
-
-
-
-
-
-
-
-
46,551
25,184
408,311
279,306
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 reviewed
specific assets for impairment. As a result of this exercise, the Company recorded an impairment loss at 31
December 2014 and 31 December 2013 of $4,887,000 and $89,908,000 respectively on property, plant and
equipment, including assets held for sale. The Company also assesses the recoverability of its assets across CGUʼs.
As a result of this process, the Company recorded additional impairment losses of $41,200,000 and $20,000,000 at
31 December 2014 and 31 December 2013, respectively. See Note 10 for details of other assumptions used as part
of this impairment testing.
_______________________________________________________________________________________
134
131
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
20.
GOODWILL
Gross carrying amount:
Balance at 1 January 2013
Impairment loss
Currency movements
Balance at 31 December 2013
Balance at 1 January 2014
Currency movements
Balance at 31 December 2014
Goodwill by cash-generating units
US$'000
290,786
(166,313)
(20,499)
103,974
103,974
(1,503)
102,471
For purposes of impairment testing, goodwill is included in cash-generating units that are significant individually
or in aggregate. All of the carrying amount of goodwill is included in the North America Drilling Services cash-
generating unit
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.
Due to potential indicators of impairment at both the 30 June 2014 and 31 December 2014 reporting periods, the
company performed impairment testing at those dates.
Based on the impairment testing performed during 2014, the recoverable amount from each cash-generating unit
exceeded the goodwill carrying amount. Consequently, no impairments were recorded in 2014.
Impairment tests were also performed at 30 June 2013 and 31 December 2013 and as a result the Company
recognised an impairment loss of $166,313,000 due to the financial performance of various cash-generating units
as well as the expected financial performance of the business at that time.
Goodwill Impairment by cash-generating units
Argentina
Australia
Chile
New Zealand
2014
US$'000
2013
US$'000
-
-
-
-
-
12,226
139,751
12,776
1,560
166,313
Goodwill and intangible assets in Australia, New Zealand, Chile and Argentina have been fully impaired as at 31
December 2013. For the cash-generating units with remaining goodwill and intangible assets being the North
America Drilling Services CGU, there could be potential impairments under certain changes in key assumptions,
as described further in Note 10.
_______________________________________________________________________________________
135
132
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
21.
OTHER INTANGIBLE ASSETS
Gross carrying amount:
Balance at 1 January 2013
Additions
Trans fer to PP&E
Currency movements
Balance at 31 December 2013
Balance at 1 January 2014
Additions
Dispos als
Trans fer to PP&E
Currency movements
Balance at 31 December 2014
Accumulated amortisation:
Balance at 1 January 2013
Amortisation for the period
Impairment for the period
Currency movements
Balance at 31 December 2013
Balance at 1 January 2014
Amortisation for the period
Dispos als
Impairment for the period
Currency movements
Balance at 31 December 2014
Trademarks Patents
US$'000 US$'000
Customer
relationships
and other
US$'000
Develop-
ment
Software
assets
US$'000 US$'000 US$'000
Total
3,983
164
-
-
4,147
4,147
77
-
-
-
4,224
(1,270)
-
-
-
(1,270)
(1,270)
-
-
-
-
(1,270)
5,943
1,368
-
-
7,311
7,311
1,100
(2,692)
-
5
5,724
(1,507)
(283)
-
-
(1,790)
(1,790)
(303)
2,692
(1,338)
2
(737)
57,237
-
-
(4,352)
52,885
52,885
-
(306)
-
(2,501)
50,078
(30,060)
(4,044)
(9,090)
3,240
(39,954)
(39,954)
(1,730)
306
(89)
2,291
(39,176)
80,923
5,369
-
(36)
86,256
86,256
1,072
-
-
(21)
87,307
(22,856)
(13,976)
-
23
(36,809)
(36,809)
(14,754)
-
-
19
(51,544)
47,390
3,691
(1,267)
(2,904)
46,910
46,910
3,214
-
(158)
(344)
49,622
(11,625)
(966)
(13,822)
755
(25,658)
(25,658)
(1,030)
-
(290)
18
(26,960)
195,476
10,592
(1,267)
(7,292)
197,509
197,509
5,463
(2,998)
(158)
(2,861)
196,955
(67,318)
(19,269)
(22,912)
4,018
(105,481)
(105,481)
(17,817)
2,998
(1,717)
2,330
(119,687)
Net book value at 31 December 2013
Net book value at 31 December 2014
2,877
2,954
5,521
4,987
12,931
10,902
49,447
35,763
21,252
22,662
92,028
77,268
Other intangible assets are reviewed at each reporting date to determine whether there is any indication of
impairment. As a result of the Companyʼs review of specific intangible assets, an impairment of $1,717,000 was
recorded at 31 December 2014. In addition, the Company performed impairment tests as at 30 June 2014 and at
31 December 2014 which did not result in additional impairments. Based upon the impairment analysis
performed at 31 December 2013 the Company recognised an intangible asset impairment loss of $9,090,000 for
the year ended 31 December 2013 due to the most recent financial performance of various cash-generating units
as well as the expected financial performance of the business at that time. In its impairment assessment, the
Company assumes the recoverable amount based on a value-in-use calculation. Cash flow projections are based
on the Companyʼs 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, during the period ended 31
December 2013 which has been recognised in the consolidated statement of profit or loss and other
comprehensive income.
The Company recognised $8,072,000 of research and development expenses in the consolidated statement of
profit or loss and other comprehensive income for the year ended 31 December 2014 (2013: $8,427,000).
_______________________________________________________________________________________
136
133
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
22.
TRADE AND OTHER PAYABLES
Current
Trade payables
Accrued payroll and benefits
Accrued recapitalision costs
Goods and services tax payable
Accrued interest
Accrued legal and environm ental
Professional fees
Accrued drilling costs
Other sundry payables and accruals
2014
US$'000
2013
US$'000
68,648
31,188
18,144
13,342
10,371
6,023
5,350
3,443
10,515
167,024
68,962
22,685
-
17,017
13,091
9,596
5,822
3,518
12,461
153,152
The average credit period on purchases of certain goods is 34 days (2013: 31 days). No interest is charged on the
trade payables for this period. Thereafter, various percentages of interest may be charged on the outstanding
balance based on the terms of the specific contracts. The Company has financial risk management policies in place
to ensure that all payables are paid within the credit timeframe.
_______________________________________________________________________________________
134
137
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
23.
LOANS AND BORROWINGS
Unsecured - at amortised cost
Non-current
Senior notes
Debt issuance costs
Secured - at amortised cost
Current
Finance lease liabilities
Non-current
Senior notes
Term loans
Accreted interest
Debt issuance costs
Finance lease liabilities
Disclosed in the financial statements as:
Current borrowings
Non-current borrowings
A summary of the maturity of the Company's borrowings is as follows:
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
More than 4 years
Accreted Interest
Debt issuance costs
2014
US$'000
2013
US$'000
300,000
(3,637)
300,000
(4,219)
-
84
195,000
225,000
4,690
(4,709)
-
716,344
-
716,344
716,344
-
-
-
300,000
420,000
720,000
4,690
(8,346)
716,344
300,000
-
-
(10,410)
4
585,459
84
585,375
585,459
84
4
-
-
600,000
600,088
-
(14,629)
585,459
_______________________________________________________________________________________
138
135
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 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
Companyʼs Australian, Canadian, United States, Chilean, Peruvian and Swiss subsidiaries. See Note 37 on
Subsequent Events.
As at 31 December 2014 the Company has $195,000,000 of senior secured notes at an interest rate of 10% with a
scheduled maturity date of 1 October 2018. 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. On 7
November 2014 the company used proceeds from Tranche B of its new term loan to repay $105,000,000 of the
senior secured notes in addition to paying $8,400,000 and $1,050,000 for a bond premium and accrued interest on
the tendered notes. As at 31 December 2013 the Company had $300,000,000 of senior secured notes outstanding.
Obligors for the senior notes are the Companyʼs Australian, Canadian, United States, Chilean, Peruvian and Swiss
subsidiaries. The secured notes are secured by a first priority lien on substantially all of the issuerʼs and the
guarantorsʼ 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 also secured by a second priority lien on the issuerʼs and
the guarantorsʼ accounts receivable, inventories and cash.
Bank Credit Facility
On 22 October 2014 the Company repaid and closed its bank credit facility, which provided a $140,000,000 secured
revolving bank loan, with proceeds from the new term loan.
Term Loans
As part of the Company recapitalisation in October 2014, the Company entered into a new term loan facility with
Centerbridge Partners, L.P.. The new term loans accrete interest. Structured as Tranche A and Tranche B loans,
the new loans have an interest rate of 12% per annum, which would be reduced to 11% per annum if the Companyʼs
trailing 12 month adjusted EBITDA is greater than $200,000,000. Obligors for the term loans are the Companyʼs
Australian, Canadian, United States, Chilean, Peruvian and Swiss subsidiaries.
On 22 October 2014 the $120,000,000 of proceeds from Tranche A term loan were received. Approximately
$30,000,000 of the net proceeds was used to repay borrowings under the Companyʼs revolving loan facility. This
Tranche contains a maturity of 22 October 2020 and is non-callable for 4 years. It is secured by a first lien on issuerʼs
and the guarantorsʼ accounts receivable, inventories, deposit accounts and cash and a second lien on substantially
all of the issuerʼs and the guarantorsʼ tangible and intangible assets, including equipment intellectual property, the
capital stock of subsidiaries and certain owned real property and contains a provision that allows, under certain
conditions, a portion of the Tranche A to be replaced dollar-for-dollar up to $50,000,000, with no penalties, by a new
asset backed loan.
On 7 November 2014 the $105,000,000 of proceeds from Tranche B term loan were received. This Tranche contains
a maturity of 1 October, 2018 and is non-callable for the life of the loan. It is secured by a first priority lien on
substantially all of the issuerʼs and the guarantorsʼ tangible and intangible assets, including equipment, intellectual
property, the capital stock of subsidiaries and certain owned real property and also secured by a second priority lien
on the issuerʼs and the guarantorsʼ accounts receivable, inventories, deposit accounts and cash.
The accreted interest payable to Centerbridge Partners, L.P., a related party, is guaranteed by an unrestricted
subsidiary funded with assets not to exceed $44 million.
_______________________________________________________________________________________
136
139
Boart Longyear Annual Report 2014 Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
23.
LOANS AND BORROWINGS (CONTINUED)
Covenants and other material items – bank credit facility and senior notes
The Companyʼs revolver that was repaid on 22 October 2014 contained 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.
With respect to the senior notes issued by the Company, the indenture governing those senior notes includes
covenants that restrict the Companyʼs 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 that provide the note holders with the ability to
declare a default, and accelerate the notes, should a default occur under either of the Term Loans that results in
acceleration of such Term Loans. The senior notes do not require maintenance or testing of financial covenant
ratios.
The Term Loans do not require maintenance or testing of financial covenant ratios.
As at 31 December 2014 and 31 December 2013 the Company was in compliance will all of its debt covenants.
Finance leases
The Companyʼs 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 had interest rates ranging from 7.65% to 9.0%, with
repayment periods not exceeding two years. As at 31 December 2014 they have been paid off.
24.
PROVISIONS
Current
Em ployee benefits
Restructuring and term ination cos ts 1
Warranty 2
Onerous leases
Non-current
Em ployee benefits
Pension and post-retirem ent benefits (Note 25)
Onerous leases
2014
US$'000
2013
US$'000
11,084
8,790
190
3,877
23,941
5,425
38,329
1,149
44,903
68,844
13,802
14,235
293
4,933
33,263
2,171
32,284
2,729
37,184
70,447
_______________________________________________________________________________________
140
137
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
24.
PROVISIONS (CONTINUED)
The changes in the provisions for the year ended 31 December 2014 are as follows:
Balance at 1 January 2014
Additional provisions recognised
Reductions arising from paym ents
Reductions resulting from rem easurem ent
Foreign exchange
Balance at 31 December 2014
Restructuring
and termination
costs 1
US$'000
Warranty 2
US$'000
Onerous
lease costs 3
US$'000
14,235
169
(3,753)
(647)
(1,214)
8,790
293
5,153
(317)
(72)
(4,867)
190
7,662
772
(2,997)
-
(411)
5,026
(1) The provision for restructuring and termination costs represents the present value of managementʼs 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 managementʼs best estimate of the future
outflow of economic benefits that will be required under the Companyʼs 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 lost 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
2014, and 2013, there were no significant outstanding/prepaid contributions. Company contributions to these plans
were $12,228,000 and $16,627,000 for the years ended 31 December 2014 and 2013, 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
141
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 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 at various dates and updated to 31
December 2014 by qualified independent actuaries. The estimated market value of the assets of the funded pension
plans was $200,405,000 and $194,937,000 at 31 December 2014, and 2013, 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 84% in 2014 and 88% in 2013, 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 $7,933,000 and $6,844,000 during the years ended 31 December 2014
and 2013, respectively. Contributions in 2015 are expected to be $7,835,000.
The principal assumptions used to determine the actuarial present value of benefit obligations and pension costs are
detailed below (shown in weighted averages):
Discount rates
Expected average rate of increase
2014
2013
North
America
3.9%
Europe
1.8%
North
America
4.7%
Europe
3.4%
in salaries
3.5%
4.0%
3.5%
4.0%
Expected average rate of increase
of pensions in payment
Expected average increase
in healthcare costs (initial)
Expected average increase
in healthcare costs (ultimate)
5.0%
-
1.6%
-
1.8%
5.0%
-
-
6.8%
5.0%
-
-
Amounts recognised in profit or loss in respect of these defined benefit plans are as follows:
2014
Post-
Pension retirement
Plan medical Plan Total
US$'000
US$'000
US$'000
1,022
1,062
(275)
-
-
16
1,022
1,078
(275)
2013
Post-
retirement
medical Plan
US$'000
1,246
797
(16,871)
Total
US$'000
2,605
2,969
(17,093)
Pension
Plan
US$'000
1,359
2,172
(222)
1,809
16
1,825
3,309
(14,828)
(11,519)
Current service cost
Net Interest Expense
Past service cost
Total charge (credit) to profit
and loss account
For the financial years ended 31 December 2014 and 2013, charges of approximately $1,395,000 and $4,218,000,
respectively, have been included in cost of goods sold and the remainder in general and administrative or sales and
marketing expenses.
_______________________________________________________________________________________
142
139
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The following amounts have been recognised in the statement of comprehensive income.
2014
Post-
Pension retirement
Plan Medical Plan
US$'000
US$'000
Total
US$'000
Pension
Plan
US$'000
2013
Post-
retirement
Medical Plan
US$'000
Total
US$'000
Actuarial los ses (gains) during
the year, net of taxes
10,216
26
10,242
1
(17,404)
(1,730)
(19,134)
(1) Amount is the gross actuarial loss of $14,280,000 less $4,038,000 tax.
The amount included in the provisions on the balance sheet arising from the Companyʼs obligations in respect of
defined benefit plans is as follows:
Pres ent value of funded defined benefit
obligations
Fair value of plan assets
Pres ent value of unfunded defined
benefit obligations
Deficit
Net liability aris ing from defined
benefit obligations
2014
Post-
Pension retirement
Plan Medical Plan
US$'000
US$'000
2013
Post-
retirement
Pension
Total
US$'000
plan medical plan
US$'000
US$'000
Total
US$'000
232,198
(200,405)
31,793
-
-
-
232,198
(200,405)
31,793
220,594
(194,937)
25,657
-
-
-
220,594
(194,937)
25,657
6,060
37,853
476
476
6,536
38,329
5,770
31,427
857
857
6,627
32,284
37,853
476
38,329
31,427
857
32,284
Changes in the present value of the defined benefit obligations were as follows:
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from plan participants
Actuarial losses (gains) arising from
demographic assumptions
Actuarial losses (gains) arising from
financial assumptions
Assets distributed on settlements
Past service cost
Exchange differences on foreign plans
Benefits paid
Federal subsidy on benefits paid
Closing defined benefit obligation
2014
Post-
Pension retirement
Plan Medical Plan
US$'000
US$'000
226,364
1,022
9,132
-
3,737
27,553
-
(275)
(17,588)
(11,687)
-
238,258
857
-
16
174
18
9
-
-
(37)
(707)
146
476
Total
US$'000
227,221
1,022
9,148
174
3,755
27,562
-
(275)
(17,625)
(12,394)
146
238,734
2013
Post-
retirement
Pension
plan medical plan
US$'000
US$'000
Total
US$'000
271,629
2,605
10,206
367
19,098
1,246
797
367
(1,008)
(937)
(1,655)
-
(16,871)
(33)
(1,162)
78
857
(12,547)
(10,340)
(17,093)
(4,416)
(12,331)
78
227,221
252,531
1,359
9,409
-
71
(10,892)
(10,340)
(222)
(4,383)
(11,169)
-
226,364
_______________________________________________________________________________________
140
143
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
Changes in the fair value of plan assets were as follows:
2014
Post-
Pension retirement
Plan Medical Plan
US$'000
US$'000
Opening fair value plan of assets
Expected return on plan assets
Actuarial gains arising from
financial assumptions
Administrative expenses paid from the trust
Assets distributed on settlements
Exchange differences on foreign plans
Contributions from the employer
Contributions from plan participants
Benefits paid
Closing fair value of plan assets
194,937
8,070
17,037
(803)
-
(15,082)
7,933
-
(11,687)
200,405
-
-
-
-
-
-
533
174
(707)
-
2013
Post-
Pension retirement
Plan Medical Plan
US$'000
US$'000
191,207
7,237
14,524
-
(9,619)
(4,087)
6,844
-
(11,169)
194,937
-
-
-
-
-
-
795
367
(1,162)
-
Total
US$'000
191,207
7,237
14,524
-
(9,619)
(4,087)
7,639
367
(12,331)
194,937
Total
US$'000
194,937
8,070
17,037
(803)
-
(15,082)
8,466
174
(12,394)
200,405
The allocation of the plan assets for each asset class at the balance sheet date are as follows:
North America
Fair
Value
US$'000
2014
Europe
Fair
Value
US$'000
Total
Fair Value
US$'000
North America
Fair
Value
US$'000
52,028
81,557
2,812
2,812
-
1,407
140,616
20,328
36,471
598
-
598
1,794
59,789
72,356
118,028
3,410
2,812
598
3,201
200,405
82,211
47,376
2,787
2,787
2,787
1,392
139,340
2013
Europe
Fair
Value
US$'000
19,459
34,470
1,112
-
556
-
55,597
Total
Fair Value
US$'000
101,670
81,846
3,899
2,787
3,343
1,392
194,937
At 31 December 2014
Equity
Bonds
Property
Structured Debt
Cash
Other
_______________________________________________________________________________________
144
141
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
The pension and post retirement deficit by geographic region are as follows:
31 December 2014
31 December 2013
North
America
Europe
Total
North
America
Europe
Total
Postretirem ent medical
plan deficit
Pension plan deficit
Total deficit
476
19,089
19,565
-
18,764
18,764
476
37,853
38,329
857
10,006
10,863
-
21,421
21,421
857
31,427
32,284
The history of experience adjustments is as follows:
2014
Post-
retirement
Medical Plan
US$'000
Total
US$'000
Pension
Plan
US$'000
2013
Post-
retirement
Medical Plan
US$'000
Total
US$'000
-
200,405
194,937
-
194,937
(476)
(476)
(238,734)
(38,329)
(226,364)
(31,427)
(857)
(857)
(227,221)
(32,284)
(18)
1,165
3,377
1,360
4,737
-
17,037
14,524
-
14,524
Pension
Plan
US$'000
200,405
(238,258)
(37,853)
1,183
17,037
Fair value of plan as sets
Pres ent value of
defined benefit obligation
Deficit
Experience adjustments
on plan liabilities
Experience adjustments
on plan assets
_______________________________________________________________________________________
142
145
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
2012
Post-
retirement
medical plan
US$'000
Pension
plan
US$'000
Total
US$'000
Pension
plan
US$'000
2011
Post-
retirement
medical plan
US$'000
Total
US$'000
191,207
-
191,207
173,776
-
173,776
(252,531)
(61,324)
(19,098)
(19,098)
(271,629)
(80,422)
(225,616)
(51,840)
(17,238)
(17,238)
(242,854)
(69,078)
3,341
4,615
1
3,077
7,692
-
-
-
-
3,341
141
85
226
4,615
(8,520)
-
(8,520)
3,077
7,692
Fair value of plan as sets
Pres ent value of
defined benefit obligation
Deficit
Experience adjustments
on plan liabilities
Experience adjustments
on plan assets
Effect of Standard change 1
Adjus ted experience adjus tments
on plan as sets
(1) During 2013, the Company implemented the amendments to AASB119 ʻEmployee Benefitsʼ which required
changes to the calculation of the net defined benefit liability and pension expense and requires retroactive
restatement of the periods presented. As this application of this standard did not have a significant impact on the
Companyʼs financial results or consolidated statement of financial position, the Company decided to show the
show the effect of restatement in this note and not restate the 2012 financial results and statement of financial
position.
2010
Post-
retirement
medical plan
US$'000
-
Total
US$'000
194,620
Pension
plan
US$'000
194,620
(209,750)
(15,130)
(14,879)
(14,879)
(224,629)
(30,009)
(643)
106
(537)
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
_______________________________________________________________________________________
146
143
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
25.
PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
Assumed healthcare cost trend rates have a significant effect on the amounts recognised in profit or loss. A one
percentage point change in assumed healthcare cost trend rates would have the following effects:
One percentage point increase
Effect on the aggregate of the service cost and interest cost
Effect on accumulated post-employment benefit obligation
One percentage point decrease
Effect on the aggregate of the service cost and interest cost
Effect on accumulated post-employment benefit obligation
2014
US$'000
2013
US$'000
-
10
-
(10)
307
28
(257)
(28)
26.
ISSUED CAPITAL
2014
2013
Shares
'000
US$'000
Shares
'000
US$'000
Share capital
Ordinary shares , fully paid
634,065
1,159,069
456,955
1,129,014
Movements in ordinary shares
Balance at beginning of year
Iss ued under capital raising program
Vesting of LTIP rights, res tricted shares
Balance at end of the year
456,955
176,327
783
634,065
1,129,014
27,158
2,897
1,159,069
454,710
1,122,189
-
2,245
456,955
-
6,825
1,129,014
Total shares outstanding
Shares held in trust
Balance at end of the year
637,491
(3,426)
634,065
1,175,946
(16,877)
1,159,069
461,163
(4,208)
456,955
1,148,245
(19,231)
1,129,014
_______________________________________________________________________________________
144
147
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
27.
RESERVES
Foreign currency translation
Equity-settled em ployee benefits
2014
US$'000
(92,799)
10,014
(82,785)
2013
US$'000
(45,973)
8,661
(37,312)
During the years ended 31 December 2014 and 2013, the changes in each of the respective reserve accounts were
as follows:
Foreign currency translation
Balance at beginning of year
Exchange losses arising on translation
of foreign operations
Balance at end of year
2014
US$'000
2013
US$'000
(45,973)
56,658
(46,826)
(92,799)
(102,631)
(45,973)
Exchange gain or loss relating to the translation from various functional currencies of the Companyʼs 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
2014
US$'000
2013
US$'000
8,661
4,250
(2,897)
10,014
14,256
1,230
(6,825)
8,661
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 2014 and 2013, the changes in (accumulated losses) retained earnings consist
of:
Balance at beginning of year
Loss for the period attributable
to equity holders of the Parent
Dividends paid
Actuarial (losses) gains on defined benefit
plans (net of tax)
Balance at end of year
2014
US$'000
2013
US$'000
(525,925)
79,496
(332,718)
-
(619,943)
(4,612)
(10,242)
(868,885)
19,134
(525,925)
_______________________________________________________________________________________
148
145
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
29.
DIVIDENDS
No dividend has been determined for any of the half-years ended 30 June 2014, 31 December 2014, 30 June 2013 or
31 December 2013.
The following dividend was paid during the year ended 31 December 2013:
Fully paid ordinary shares
Final 2012 dividend 35% franked
2013
US cents per
share
Total
US$'000
1.0
1.0
4,612
4,612
Below is the combined amount of franking credits available for the next year:
2014
US$'000
2013
US$'000
Adjusted combined franking balance
842
4,295
30.
COMMITMENTS FOR EXPENDITURE
Commitments
The Company has a number of continuing operational and financial commitments in the normal course of business.
Capital commitments
Purchase commitments for capital expenditures
155
511
2014
US$'000
2013
US$'000
The Company entered into a purchase commitment effective 10 July 2014 with an outsourced capital equipment
manufacturer to purchase, over time, $23,500,000 of inventory. The Company expects to purchase and consume
this inventory in the normal course of business. The purchase commitment could be accelerated by the supplier in
the event of a Company change of control.
_______________________________________________________________________________________
146
149
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
30.
COMMITMENTS FOR EXPENDITURE (CONTINUED)
Non-cancellable future operating lease commitments as at 31 December 2014 and 2013 consist of the following:
Payments due within:
1 year
2 to 5 years
After 5 years
31 December 2014
31 December 2013
Land and
buildings
US$'000
Plant and
equipment
US$'000
Land and
buildings
US$'000
Plant and
equipment
US$'000
6,327
21,026
4,249
31,602
3,544
729
95
4,368
12,556
25,406
4,156
42,118
6,467
2,034
21
8,522
Description of operating leases
The Company has operating leases for land, buildings, plant and equipment with the following lease terms:
•
•
•
1 – 20 years for land and buildings with an average lease term of five years
1 – 7 years for machinery and equipment with an average lease term of four years
1 – 7 years for all other property with an average lease term of three years
The Companyʼs 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 2014 are
as follows:
Subsidiary
Australia
Australia
Australia
Australia
United States
Zambia
Expiration
Date
Purpose
Secure a perform ance bond
Secure a facility rental
Secure a facility rental
Secure a facility rental
Secure workers compensation program January 2015
Support Products inventory
February 2015
August 2015
March 2015
September 2016
December 2014
Amount
US $'000
719
94
159
604
405
1,000
2,981
_______________________________________________________________________________________
150
147
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
31.
CONTINGENT LIABILITIES (CONTINUED)
A summary of the maturity of issued letters of credit is as follows:
Less than 1 year
1 to 3 years
Guarantees
2014
US$'000
2013
US$'000
2,377
604
2,981
7,337
3,055
10,392
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 Companyʼs loans and borrowings. See Note 23.
A summary of the Companyʼs subsidiaries which are guarantors of the Companyʼs 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 Lim ited
Boart Longyear Managem ent 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 Lim itada
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 Companyʼs 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.
_______________________________________________________________________________________
148
151
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 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 Companyʼs operations, liquidity, or financial position taken as a whole.
However, the ultimate outcome of these audits is 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 approximately $9,900,000 against Boart Longyear International Zambia Limited, a fully
owned subsidiary of the Company. The Company has already paid approximately $225,000 to resolve some aspects
of the assessment. The balance of the assessment primarily relates to the ZRAʼs contentions that: (1) the declared
value of imported goods was not accurate and was less than actual value; and (2) goods destined for other countries
stored in a Zambian bonded warehouse did not exit the country within the legally stipulated period of time.
The ZRAʼs assessment was based on an extrapolation of findings from a sample of transactions. The Company
performed its own detailed analysis of the transactions, with the results showing there is some substance to the
ZRAʼs claims, but the potential amount of any liability would be considerably less than the assessment. The
Company has shared those findings with the ZRA in a series of discussions resulting in the ZRA reducing its
proposed assessment substantially. The Company still disagrees with the ZRAʼs revised assessment and will
continue to work with the ZRA to share the appropriate data supporting its detailed analysis. The Company expects
additional discussions with the ZRA to attempt to resolve the open areas and believes it is appropriately reserved in
respect to this matter.
Other contingencies
Other contingent liabilities as at 31 December 2014 and 2013 consist of the following:
Contingent liabilities
Guarantees/counter-guarantees to outside parties
23,398
46,989
2014
US$'000
2013
US$'000
Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements,
net of any allowances for losses, represents the Companyʼs maximum exposure to credit risk without taking account
of the value of any collateral obtained. See Note 18.
Financial assets and other credit exposure
Performance guarantees provided, including letters of credit
Maximum credit risk
2014
2013
US$'000
US$'000
26,379
57,381
_______________________________________________________________________________________
152
149
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014
BOART LONGYEAR LIMITED
32.
PARENT ENTITY DISCLOSURES
Financial position
Assets
Current ass ets
Non-current ass ets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net Assets
Equity
Issued capital
Reserves
(Accumulated losses) Retained earnings
Total equity
Financial performance
(Loss) Profit for the year
Other comprehensive income
Total comprehensive (loss) income
2014
US$'000
2013
US$'000
479,785
10,507
490,292
201,991
3,010
205,001
285,291
844,962
142,354
987,316
146,013
582
146,595
840,721
2,915,600
3,859
(2,634,168)
285,291
2,887,901
253
(2,047,433)
840,721
2014
US$'000
(586,735)
-
(586,735)
2013
US$'000
(1,157,469)
-
(1,157,469)
During the year ended 31 December 2014, Boart Longyear Limited recorded a provision against intercompany
accounts of $586,697,000 (2013: $1,200,000,000). 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 2014 and 2013 Boart Longyear Limited did not have any contingent liabilities.
Contractual obligations
As at 31 December 2014 and 2013 Boart Longyear Limited did not have any contractual obligations.
_______________________________________________________________________________________
150
153
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
33.
COMPANY SUBSIDIARIES
The Companyʼs percentage ownership of the principal subsidiaries follows:
Subsidiaries
Country of
incorporation
Business
31 Dec 31 Dec
2014
2013
A.C.N. 066 301 531 Pty Ltd
Aqua Drilling & Grouting Pty Ltd.
BLI Zambia Ltd.
BLY Drilling Private Limited Company
BLY EMEA UK Holdings Ltd.
BLY Gabon S.A.
BLY Ghana Limited
BLY Guinea S.A.
BLY Madagascar S.A.
BLY Mali S.A.
BLY Mexico Servicios S.A. de C.V.
BLY Products Mali S.A.1
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 (NZ) Limited
Boart Longyear (Pty) Ltd1
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
Boart Longyear Company
Boart Longyear Consolidated Holdings, Inc.
Boart Longyear Cote d'Ivoire S.A.
Boart Longyear de Mexico, S.A. de C.V.
Boart Longyear Drilling and Products Mexico, S.A. de C.V.
Boart Longyear Drilling Products (Wuxi) Co., Ltd.
Boart Longyear Drilling Services KZ LLP
Boart Longyear EMEA Cooperatief U.A.
Boart Longyear Eritrea Ltd.
Boart Longyear Financial Services SARL1
Boart Longyear Global Holdco, Inc
Boart Longyear GmbH & Co., KG
Boart Longyear Holdings (Thailand) Co., Ltd.
Boart Longyear India Private Ltd1
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
Drilling Products
Drilling Services
Drilling Services
Drilling Services
Holding Company
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Products
Drilling Services
Drilling Services
Drilling Services
Australia
Australia
Zambia
Ethiopia
United Kingdom
Gabon
Ghana
Guinea
Madagascar
Mali
Mexico
Mali
Senegal
Sierra Leone
Cambodia
Dem. Rep. of Congo Drilling Products and Services
United Kingdom
Hong Kong
New Zealand
Botsw ana
Australia
Australia
Canada
Argentina
Australia
Australia
Bermuda
Burkina Faso
Netherlands
Canada
Chile
Colombia
Chile
USA
USA
Ivory Coast
Mexico
Mexico
China
Kazakhstan
Netherlands
Eritrea
Sw itzerland
USA
Germany
Thailand
India
Netherlands
USA
Australia
Liberia
Brazil
Ireland
Thailand
Holding Company
Drilling Services
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
Holding Company
Drilling Services
Drilling Services
Drilling Products and Services
Drilling Products and Services
Drilling Services
Holding Company
Drilling Services
Products
Holding Company
Drilling Products and Services
Drilling Services
Drilling Products
Holding Company
Holding Company
Holding Company
Drilling Services
Drilling Products
Drilling Products
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
_______________________________________________________________________________________
154
151
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
33.
COMPANY SUBSIDIARIES (CONTINUED)
Subsidiaries
Country of
incorporation
Business
31 Dec 31 Dec
2014
2013
Boart Longyear LLC
Boart Longyear Ltd
Boart Longyear Management Pty Ltd
Boart Longyear Manufacturing Canada Ltd.
Boart Longyear Manufacturing USA Inc.
Boart Longyear Netherlands BV
Boart Longyear Poland Spolka Z.o.o.
Boart Longyear Products KZ LLP
Boart Longyear RUS
Boart Longyear S.a.r.l. 1
Boart Longyear SAC
Boart Longyear Saudi Arabia LLC
Boart Longyear Sole Co., Limited
Boart Longyear Suisse SARL
Boart Longyear Vermogensverw altung GmbH
Boart Longyear Zambia Ltd.
Cooperatief Longyear Holdings UA
Dongray Industrial Limited 2
Drillcorp Pty Ltd
Geoserv Pesquisas Geologicas S.A.
Grimw ood Davies Pty Ltd
Inavel S.A.
J&T Servicios, S.C.
Longyear Calulo Holdings BV1
Longyear Canada, ULC
Longyear Global Holdings, Inc.
Longyear Holdings New Zealand, Ltd.
Longyear Holdings, Inc.
Longyear South Af rica (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 Africa1 South Africa
Prosonic Corporation
Prosonic International, Inc.
Resources Services Holdco, Inc
Votraint No. 1609 Pty Ltd
Russia Federation
Ghana
Australia
Canada
USA
Netherlands
Poland
Kazakhstan
Russia Federation
France
Peru
Saudi Arabia
Laos
Sw itzerland
Germany
Zambia
Netherlands
United Kingdom
Australia
Brazil
Australia
Uruguay
Mexico
Netherlands
Canada
USA
New Zealand
USA
South Africa
USA
Australia
Indonesia
Argentina
Paraguay
USA
USA
USA
Australia
Drilling Products
Dormant
Holding Company
Drilling Products
Drilling Products
Holding Company
Drilling Products and Services
Drilling Products
Drilling Services
Holding Company
Drilling Products and Services
Drilling Services
Drilling Services
Holding Company
Dormant
Drilling Services
Holding Company
Dormant
Drilling Services
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
(1) This entity w as liquidated and dissolved in 2014
(2) This entity is currently in liquidation status
_______________________________________________________________________________________
152
155
Boart Longyear Annual Report 2014
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 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 was consistent with the Companyʼs 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
$1,962,000. The disposal of this business is related to the Companyʼs restructuring activities and the loss has been
included in the total significant items (See Note 10).
Book value of net assets sold
Assets
Liabilities
Net assets disposed
Disposal costs
Loss on disposal
Total proceeds
Cash paid - closing costs
Net cash inflow from disposal of subsidiaries
There were no disposals of operations in the current financial year.
35.
NOTES TO THE CASH FLOW STATEMENT
(a)
Reconciliation of cash and cash equivalents
2013
US$'000
26,698
(298)
26,400
2,065
(1,962)
26,503
(1,693)
24,810
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
2014
US$'000
2013
US$'000
168,784
59,053
Of the cash balance at 31 December 2014, $13,795,000 was considered restricted cash. At 31 December
2013, $4,510,000 was considered restricted cash.
(b)
Businesses acquired
During the years ended 31 December 2014 and 2013 there were no business acquisitions.
(c)
Businesses disposed
During the year ended 31 December 2014 there were no business dispositions. 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.
.
_______________________________________________________________________________________
156
153
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2014 BOART LONGYEAR LIMITED
36.
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.
Transactions with related parties
As a result of the recapitalisation transaction, the Company reimbursed Centerbridge Partners, L.P. $12,647,000 in
fees incurred as a result of the transaction.
37.
SUBSEQUENT EVENTS
Events subsequent to reporting date
On 27 January 2015, the Company finalised the rights offering and received additional proceeds of A$106.2 million.
The Company also completed the acquisition of approximately 7.5 million fully paid ordinary shares at A$0.165 per
share pursuant to the off-market buyback. The Company cancelled the repurchased shares and subsequently sold
an equivalent number of new shares to Centerbridge Partners, L.P. for the same price per share. In addition, the
Company also completed the equitisation of US$16 million of its 7.00% Senior Unsecured Notes, held by
Centerbridge Partners, L.P., and its affiliates and related funds through the issuance of approximately 102.8 million
shares.
Following the completion of the recapitalisation transactions, the Company has 930.9 million fully paid ordinary
shares and 434.0 million fully paid convertible preference shares on issue. Centerbridge Partners, L.P.ʼs holding in
ordinary shares increased to 49.9% or 464.1 million shares and now also includes 434.0 convertible preference
shares at a value of approximately A$71.6 million. Additionally, as all recapitalisation transactions have been
completed, the Company paid the remaining $18.9 million of costs accrued for in 2014 related to the Strategic
Review.
The Company announced changes in the composition of its Board on 23 February 2015. The changes, which will
take effect on 25 February 2015, include the retirement of Barbara Jeremiah and Roy Franklin from the Board and
the appointment of Bret Clayton and Marcus Randolph as new directors. Mr. Randolph will also assume the role of
Chairman from Ms. Jeremiah. The foregoing changes to the Companyʼs Board arise from the recapitalisation
agreements, in which the Board agreed that Centerbridge Partners, L.P. may appoint up to four directors, including
the right to nominate the Board Chairman subject to the approval of a majority of the independent directors. Messrs.
Clayton and Randolph join the Board as independent, non-executive directors and, with Messrs. Lewinsohn and
Tochilin, who were appointed in 2014, comprise Centerbridge Partners, L.P. nominated Board appointees.
_______________________________________________________________________________________
154
157
Boart Longyear Annual Report 2014 SUPPLEMENTARY INFORMATION
ADDITIONAL INFORMATION as at 18 March 2015.
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
Centerbridge Partners group of Companies
(as set out in Change in Substantial Holding Notice
lodged 29 January 2015)
464,501,606
(a) Ordinary share capital
There are 930,864,944 fully paid ordinary shares on issue, held by 14,343 individual shareholders.
Each ordinary shareholder present at a general meeting (whether in person or by proxy or representative)
is entitled to one vote on a show of hands or, on a poll, one vote for each fully paid ordinary share held.
(b) Share rights and share options
There are 13,127,532 share options held by 14 individual option holders. Options do not carry rights to vote.
(c) Preference Shares
There are 434,001,968 preference shares on issue, held by CCP II DUTCH ACQUISITION – E2 B.V.
The preference shares do not carry rights to vote.
Distribution of holders of equity securities
Range
Holders – Fully Paid
Ordinary Shares
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and Over
Total
5,318
4,516
1,799
2,387
323
14,343
The number of security investors holding less than a marketable parcel of 2,381 securities
($.210 on 18/03/2015) is 7,427 and they hold 5,535,303 securities.
158
SUPPLEMENTARY INFORMATION
TOP 20 HOLDERS
No. Holder
Fully Paid
Ordinary Shares
Percent of
Issued Capital Held
CCP II DUTCH ACQUISITION - E2 B.V.
CCP CREDIT SC II DUTCH ACQUISITION – E B.V.
J P MORGAN NOMINEES AUSTRALIA
HSBC CUSTODY NOMINEES (AUSTRALIA)
CITICORP NOMINEES PTY LIMITED
SNOWSIDE PTY LTD
NATIONAL NOMINEES LIMITED
DARRELL JAMES PTY LTD
NATIONAL NOMINEES LIMITED
1
2
3
4
5
6
7
8
9
10 CS FOURTH NOMINEES PTY LTD
11 QIC LIMITED
12 BAND AND CO
13 WARBONT NOMINEES PTY LTD
14 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
15 KEONG LIM PTY LIMITED
16 WARATAH CAPITAL PARTNERS PTY LIMITED
17 GREEN JADE INVESTMENTS PTY LTD
18 MS YING GE
19 PACIFIC CUSTODIANS PTY LTD
20 MR ANTHONY MAURICI
TOTAL FOR TOP 20
245,589,162
160,242,553
107,709,800
85,845,639
72,854,010
25,204,788
14,211,131
6,264,493
5,868,090
4,389,393
3,103,474
2,950,653
2,914,654
2,645,281
2,291,926
1,900,000
1,750,000
1,700,000
1,647,914
1,568,393
750,651,354
26.38
17.21
11.57
9.22
7.83
2.71
1.53
0.67
0.63
0.47
0.33
0.32
0.31
0.28
0.25
0.20
0.19
0.18
0.18
0.17
80.64
159
Boart Longyear Annual Report 2014
This page has been left blank intentionally.
160
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 fi lings with
the Australian Securities Exchange. Signifi cant risks
and uncertainties may relate to, but are not limited
to, fi nancial, 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
defi nitive 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 Offi ce
10808 South River Front
Parkway #400
South Jordan, Utah 84095
Tel: +1 801 972 6430
Fax: +1 801 977 3374
Registered Offi ce
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 River Front
Parkway #400
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 12, 680 George Street
Sydney NSW 2000
Tel: +61 1800 781 633
Annual Meeting
The Annual General Meeting of
Boart Longyear will be held at:
1.00pm (Melbourne time)
on Tuesday, 26 May 2015
in the Clarendon Room A,
Melbourne Exhibition
Centre, 2 Clarendon Street,
South Wharf, Melbourne,
Victoria 3006, Australia
Website
ww w.boartlongyear.com
ww w.precinct.com.au
Boart Longyear Annual Report 2014
Drillers in the fi eld, USA