Annual Report 2015
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Circa 1900: E J. Longyear drillers at work.
CELEBRAT
Boart Longyear Limited ABN 49 123 052 728
CELEBRATINGBoart Longyear’s 125th
anniversary is dedicated
to all the people who built
– and continue to build and
support – this fine company.
We have had the privilege
of driving the growth and
success of the drilling
industry for more than 125
years. We remain driven by
the challenge of finding ways
to contribute to the success
of our customers, some of
whom we have supported
for nearly a century, and to
lead our industry into its next
century of innovation and
safety improvements. As we
celebrate our past, we are
moving confidently toward
the future.
125 Years
Top Row L-R The Q® Wireline System invented in 1953. An E J. Longyear driller at work circa 1900.
Bottom Row L-R Canadian Longyear Ltd. circa 1930. Drillers at work in the field circa 1900.
Underground drillers at work circa 1900. Cuba in 1912, E J. Longyear’s first international job.
Boart Longyear Annual Report 2015
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Contents
125th Anniversary
Overview
Chairman’s Report
CEO’s Report
Our 125-Year History
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
IFC
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4
6
8
10
11
13
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71
75
80
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83
143
IBC
Corporate Governance Statement
Our Corporate Governance Statement may be found
at www.boartlongyear.com/corporate-governance
Financial Calendar
2015 Final Results
29 February 2016
Annual General Meeting
2016 Half Year End
2016 Interim Results
2016 Year End
24 May 2016
30 June 2016
22 August 2016
31 December 2016
Annual General Meeting
The Annual General Meeting of
Boart Longyear will be held at:
Adelaide Convention Centre
– Riverbank Room 6,
North Terrace, Adelaide 5000,
South Australia.
Commencing 11.00am
(Adelaide time) on Tuesday,
24 May 2016.
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Who we are
Celebrating our 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.
We also have a substantial
presence in aftermarket parts
and service, energy, mine de-
watering, oil sands exploration
and production drilling.
Our 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.
Our Products division designs, manufactures and sells
drilling equipment, performance tooling and aftermarket
parts and services to customers in over 100 countries.
Our customers rely on our unique ability to develop,
field test and deliver any combination of drilling
consumables, capital equipment and expertise
directly to any corner of the world.
*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. These adjusted figures
have been derived from the Company’s financial statements by
adding back significant items and other non-recurring items.
Cash from Operations: excludes interest and tax.
2015 OVERVIEW
2015
2014
2013
Revenue
US$735m
Adjusted Gross Margin
US$77m
Adjusted EBITDA
US$0m
Adjusted
Net Profit After Tax
US$-132m
735
867
77
84
0*
31*
-132*
-142*
1,223
202
107*
-94*
Cash from Operations
(after interest and tax)
US$-55m
-55
-11
12
Number of Employees
4,725
Safety
(per 200,000 hours)
TCIR 1.24
LTIR 0.18
4,725
5,933
5,681
1.24
1.35
1.62
0.11
0.18
0.19
Drilling Services
Revenue
US$528m
EBITDA
US$41m
Products
Revenue
US$207m
EBITDA
US$14m
528
636
41
69
207
230
917
142
306
14
14
16
Company Revenue
(Products and Services)
Company Revenue
by Region (Products
and Services)
Drilling Services
Revenue by Stage
Drilling Services
Revenue by Commodity
Performance Tooling
Surface Coring
Rotary/RC
Underground Coring
Drilling Equipment
Other
Production Drilling
22%
22%
22%
19%
7%
5%
3%
USA
Asia Pacific
Canada
EMEA
Latin America
27%
22%
19%
16%
16%
Development
(Near Mine/Brownfield) 54%
Production (In-Pit)
Water Services
18%
15%
Exploration (Greenfield) 7%
Non-Mining
6%
Boart Longyear Annual Report 2015
Gold
Copper
Energy
Other
Other Metals
Non-Mining Water
Nickel
Iron
47%
21%
8%
7%
5%
5%
5%
2%
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CHAIRMAN’S REPORT
I am proud to have been the Chairman of
Boart Longyear during its 125th anniversary.
The celebrations that went along with this
event were a strong reminder of the drilling
excellence and innovative technology that have
made us the industry leader that we are today.
Dear Shareholders
I am proud to have been the Chairman
of Boart Longyear during its 125th
anniversary. The celebrations that went
along with this event were a strong
reminder of the drilling excellence and
innovative technology that have made
us the industry leader that we are today.
Regarding our results, 2015 was a
year of two halves. During the first
half we completed the recapitalization
with Centerbridge Partners. This
was a comprehensive restructure
that included $225 million in new
loan financing and approximately
$127 million of new equity capital. As
important as the new funds were, the
restructure also included a substantial
easing of our debt covenants as well
as deferring principal and interest
payments on the new debt until 2018.
As a result, we emerged with a strong
cash balance and good liquidity but
retained high debt levels.
The most important outcome of the
restructuring was it allowed us to
move from worrying about financing
to focusing on running the world’s
leading drilling services and drilling
products company. This increased
focus on operations during the
second half of the year has been
highly successful, and we expect
to realize further improvements
throughout the coming year.
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1. In August we began an initiative to
improve our drilling performance.
We are already seeing measurably
improved meters (and revenue) per
drill shift, less downtime and more
satisfied customers.
2. Our current S, G & A charges are
down $25 million per year from the
run rate of one year ago.
3. We have increased our focus on
the commercial side of our drilling
services business, including the
creation of a vice president position
that reports directly to the CEO. We
are having early wins through sharper
bidding and more balanced contract
structures.
4. We continued to liberate cash
through tight controls on capital
spending as well as reductions in
inventory.
These changes improved cash from
operations in the second half of the
year to $30 million, $27 million better
than the same period the prior year.
The startling part of this change was
that it occurred when our revenue
declined by $97 million versus the
equivalent period in the prior year.
Effectively, we are doing very well at
managing what we can control but the
market for our business is very tough.
Since peaking at $21.5 billion in 2012,
total non-ferrous mineral exploration
expenditures have fallen steadily to
approximately $10 billion in 2015. This
drop in exploration spend has largely
tracked the decline in mineral prices.
Particularly in copper and iron ore, price
declines accelerated in 2015.
Mineral prices and exploration
spending have always been cyclical. At
Boart Longyear, we cannot change our
pricing environment. What we can do,
however, is lead the industry in drilling
productivity, safety, and our ability to
complete the tough holes.
The other area where we can lead the
industry is in innovation. The last major
change in drilling technology was the
introduction (by Boart Longyear) of
wireline drilling in 1953. The value of
core drilling has never been the hole; it
is the information that the hole and drill
core can provide. In this area we are
seeing dramatic changes in surveying,
geophysics, logging and assaying.
Your company is committed to quickly
leading the industry in developing site-
based and down-the-hole tools that
can produce results instantaneously
and by our drill crews without the need
for specialised technicians, additional
people or off-site work. We started
this process with the launch of the
TruCore™ core orientation tool, and will
be introducing TruShot™, our down-
the-hole survey tool, in 2016 with further
new product introductions to follow.
Our people celebrating
our 125-year anniversary
across the world.
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I am also very pleased with the changes
that have occurred in our senior
management team. Jeff Olsen was
promoted from CFO to CEO with effect
from March 1, 2016. Jeff earned this
promotion through the excellent work
he did on the recapitalisation as well as
the strong role he has had in improving
drilling productivity and upgrading our
commercial processes. I am delighted
to have him by my side. Jeff’s team has
been assisted by the addition of Mark
Irwin as vice president of commercial
for Drilling Services.
Bringing in new people does mean we
have to say goodbye to old friends.
Barbara Jeremiah retired as Chair in
February and Richard O’Brian retired as
CEO in September. I thank them both
for their services and commitment to
Boart Longyear.
At the Board level, we have also had
rejuvenation. Bret Clayton, Jeff Long,
Gretchen McClain and Deborah O’Toole
all joined the Board during the year.
They bring a mix of operating, financial,
commercial and engineering talent and
experience that benefits the Board and
management and they will be excellent
representatives for our shareholders.
Finally, I thank our employees. Our
gains in productivity and our cost
cutting exercises have meant that every
one of them has had to work harder and
more effectively. They stepped up and I
am proud of every one of them.
Looking forward, I am optimistic that
things are going to get better. My
expectation is that we are going to
continue to improve our speed and
capability in drilling services and that
our new products, especially in data
services, are going to move us into new
and more profitable areas.
We will eventually see a recovery in
minerals exploration. My commitment
to our shareholders is that when that
happens we will be ready to capitalise
on it with highly productive, innovative
and technically capable drilling services
and products.
Yours sincerely,
Marcus Randolph
Chairman
1. Wuxi, China. 2. Jakarta, Indonesia.
3. North Bay, Canada. 4. Belo-Horizonte,
Brazil. 5. Adelaide, Australia.
Boart Longyear Annual Report 2015
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CEO’S REPORT
We are energised by a renewed vigour and
discipline and a commitment to deliver
value to you. As we celebrated our long and
successful past in 2015, we are now more than
ever moving confidently toward the future.
Dear Shareholders
Let me begin by saying that it is an
honour to be appointed President and
CEO of your Company and a privilege
to lead an organisation with such a
long and proud history. We have a
global workforce of dedicated and
highly professional people and a large
and loyal customer base, including
some who have relied on us for a
century or more. I am mindful of the
challenges ahead of us but I am also
excited about the significant growth
opportunities Boart Longyear can
achieve by continuing to execute on the
operational improvement and product
innovation initiatives outlined in the
Chairman’s Report. I assure you that
my team and I will give 100% to ensure
we deliver long-term value to you, our
shareholders. That we celebrated our
125th anniversary in 2015 is proof of
our tenacity and resilience. We see
the challenges of our markets as
opportunities to improve and transform
our business.
In 2015, Boart Longyear’s safety
performance was solid, including
the achievement of our lowest ever
recorded TCIR (Total Case Incident
Rate). During 2015, we completed the
recapitalisation of our balance sheet by
partnering with Centerbridge, and we
continued to make progress on costs
in both the overhead and operational
areas of our business.
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We substantially improved cash
generation in the second half of 2015
versus the same period in 2014 and
believe that there is room for further
improvement in 2016. Our debt levels
are still too high, although we now
have a more favourable structure to
aid our overall strategy. Our vision and
mission are to lead the next generation
of innovation in the drilling industry. We
are focused on the short-term demands
of our business, but we have not lost
sight of the future.
As part of Boart Longyear’s executive
leadership team for the past two
years, I have been intimately involved
in designing and implementing the
initiatives to improve our business.
Those initiatives are delivering benefits,
and I am dedicated to their continuation
and success.
The Chairman’s Report has covered
many of the achievements of 2015,
so I would like to outline the clear
and simple priorities that we have
put in place for 2016. I am personally
committed to each of these five
priorities.
1. Safety and Integrity
Safety and integrity must always
be cornerstone values for Boart
Longyear’s employees. Over the
years, we have invested significantly in
resources, education and programs to
support and enforce these values, but
our commitment is to develop a culture
where these values are intrinsic to our
workforce and all employees recognise
their personal accountability to have the
dual objectives of safety and integrity
guide their actions every day.
2. Customer
Being closer to our customers and
understanding their current and
longer-term needs are critical to our
success. We are investing in increased
resources and improved commercial
processes to better listen to our
customers and offer them better
service, value and innovation. We are
driven by the desire to find more ways
to help our customers continuously
decrease costs, increase productivity
and improve safety. For them, attaining
these goals can be the difference
between success and failure, and we
are dedicated to their success.
3. People
To help drive our productivity
initiatives we need to continue to
enhance the skills of our people
and drive a mindset of continuous
improvement in productivity and
efficiency. We are aligning incentives
to our business priorities. We will
celebrate our wins but will also ensure
we learn from our mistakes.
better position Boart Longyear to
succeed in all market conditions and
phases of the commodities cycle.
We are energised by a renewed vigour
and discipline and a commitment to
deliver value to you. As we celebrated
our long and successful past in 2015,
we are now more than ever moving
confidently toward the future.
Yours sincerely,
Jeff Olsen
President and CEO
4. Productivity and Efficiency
Our productivity and efficiency
initiatives are well underway, and
significant achievements were
made in this area in 2015. We
are confident much more can be
achieved and believe that with
continuous improvement, we
can further drive costs down and
improve our service delivery.
Boart Longyear remains unique
as the only global drilling services
provider with a significant global
drilling products business.
Harnessing the potential synergies
of these businesses through more
effective support and collaboration
can be one of the Company’s
unrivaled competitive advantages
and we intend to fully capitalise on
that advantage. Our best days are
ahead of us, and we are determined
to deliver positive results for you.
5. Cash
Cash generation is critical to our
ability to ride out the current resources
downturn. As we highlighted in our 2015
results presentation, we have reduced
our overall expenditure profile by
about $1.3 billion since 2012. Ongoing
efforts to simplify our operating model
and reduce our cost base will result
in a more efficient and more flexible
business. These improvements will
Boart Longyear Annual Report 2015
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OUR 125-YEAR
HISTORY
Little did Edmund J. Longyear know in 1890 when he sank
his first diamond drill hole on the Minnesota Mesabi Range
that he was starting something that 125 years later would end
up being the world’s leading provider of drilling services,
drilling equipment and performance tooling for mining and
drilling companies globally. Boart Longyear has a rich 125-year
history that has withstood the ups and downs of the mining cycles.
1890
1910–1930
Growth and
International Expansion
The company expands
rapidly in the U.S. and
begins drilling for copper
in Cuba – its first
international project.
Founding Year
Edmund J. Longyear, a mining
engineer from the first graduating
class at the Michigan Mining School,
drills the first diamond core hole in
the Mesabi Iron Range in northern
Minnesota. Shortly thereafter, he
forms a contract diamond drilling
company to serve the rapidly growing
U.S. iron ore mining and steel industry.
1924
Robert Longyear Takes Charge
E J.’s son becomes president
of E J. Longyear Company,
preserving the chain of family
ownership and management
that would continue for another
40 years.
1953
Longyear Revolutionises
Drilling with the Q® Wireline
System
Growth in the ’50s fueled
new technology, and in 1953,
Longyear patented the world’s
first wireline core retrieval
system. The Q® Wireline System
revolutionised the diamond
drilling industry by increasing
productivity and making
tripping core from the bottom of
the hole safer. The advantages
of the genuine Q® system
quickly generated industry-
wide adoption, securing the
company’s place in the history
of drilling technology.
First Drilling Contract
On May 19th, 1891,
Edmund J. Longyear
and Mallmann Iron
Mining Company entered
into the Company’s first
ever drilling services
contract. That historic drill
site is maintained to this
day and is frequented
by visitors to the
Hoyt Lakes region.
1891
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Longyear & Hodge Begin
to Manufacture Drill Rigs
Longyear and John E. Hodge
form a manufacturing partnership
called Longyear & Hodge,
expanding their business to
include contract drilling, shaft-
sinking, mineral ventures and
related consulting work.
1903
1928
E J. Longyear Company
Performs Drilling for the
Iconic Golden Gate Bridge
E J. Longyear Company drillers
were contracted to determine
the nature of rock formations
that would bear the weight of
the proposed structure, unlike
any other bridge to date in
the world. Longyear was paid
$15,000 for its complicated
drilling. The bridge, completed
in May 1937, cost $35,000,000.
2006–2012
Boart Longyear Continues to
Manufacture Products to Improve
Productivity and Enhance Safety
• Heli-portable
• Patented bit
LF™130F surface
drill rig with integrated
rod handling: a rig
for the most remote
jobs that provides
the latest in safety
technology.
• Roller Latch™
underground
head assembly for
increased safety in
underground coring
applications.
technologies that
increase productivity
and life.
• The Drill Control
Interface (DCi)
provides drillers
with a fully electronic
interface to safely
and efficiently operate
underground drilling
equipment, away
from moving parts
and hydraulic hoses.
1980s
Revolutionary Bit Design
In the 1980s, the company
secured a reliable source of
high-performance synthetic
diamonds which triggered the
development of a revolutionary
bit design – the impregnated
diamond bit. With decades of
powder metallurgy experience
behind them, Longyear engineers
developed a new design that
could drill further and faster than
surface-set bits and cut through
much harder material.
Second Largest IPO
in ASX History
In October 2006, Advent
sold Boart Longyear
to Macquarie Bank and
in April 2007, Macquarie
took the company public
in an AUD$2.3 billion
IPO on the Australian
Securities Exchange.
2006
1995
The Company Changes its
name to Boart Longyear
After more than 30 years of
Anglo American ownership, Boart
Longyear was considered a non-
core asset for the Johannesburg
based mining company.
2015
Boart Longyear
Celebrates 125 Years
Boart Longyear’s 125th
Anniversary during 2015
was dedicated to the people
who built – and continue to
build – this fine Company.
2014
Edmund J. Longyear
Inducted into the
International Mining
Technology Hall of Fame
Edmund J. Longyear’s
contribution to exploration
and drilling technology
is written into history
almost 125 years since he
drilled that first diamond
core hole in the Mesabi
Iron Range in northern
Minnesota.
Boart Longyear Annual Report 2015
9
FINANCIAL
REPORT
Contents
Directors’ Report
Review of Operations
Remuneration Report
Board of Directors
Executive Management Team
Auditor’s Independence Declaration
Independent Auditor’s Report
Directors’ Declaration
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes In Equity
Consolidated Statement of Cash Flows
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13
38
71
75
79
79
82
83
84
85
86
Notes to the Consolidated Financial Statements 88
Supplementary Information
Corporate Information
143
IBC
10
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
DIRECTORS’ REPORT
The Directors present their report together with the financial report of Boart Longyear Limited (the “Parent”) and its controlled
entities (collectively the “Company”) for the financial year ended 31 December 2015 (financial year) and the Independent
Auditor’s Report thereon.
Financial results and information contained herein are presented in United States (“US”) dollars unless otherwise noted.
DIRECTORS
The Directors of the Company (the “Directors”) in office during the financial year and as at the date of this report are set out
below.
Directors
Position
Marcus Randolph
Bret Clayton
Peter Day
Jonathan Lewinsohn
Jeffrey Long
Gretchen McClain
Rex McLennan
Deborah O'Toole
Interim CEO and Executive Chairman (from 1 September 2015). Previously Non-Executive
Chairman (appointed effective 23 February 2015)
Non-executive Director (appointed effective 23 February 2015)
Non-executive Director
Non-executive Director
Non-executive Director (appointed effective 1 October 2015)
Non-executive Director (appointed effective 15 November 2015)
Non-executive Director and Senior Independent Director
Non-executive Director (appointed effective 1 October 2015)
On 29 February 2016, the Company announced that Jeffrey Olsen was appointed to the Board effective 1 March 2016 in
conjunction with his appointment as President and Chief Executive Officer.
Others who held office as Directors during the financial year were:
Non-executive
Directors
Barbara Jeremiah
Bruce Brook
Roy Franklin
Tanya Fratto
David McLemore
Conor Tochilin
Position
Non-executive Director (retired 25 February 2015)
Non-executive Director (retired 30 June 2015)
Non-executive Director (retired 25 February 2015)
Non-executive Director (retired 26 May 2015)
Non-executive Director (retired 26 May 2015)
Non-executive Director (retired 1 October 2015)
For a summary of experience and qualifications for each Director, see the Board of Directors section on page 71 of this
Report.
COMPANY SECRETARIES
Fabrizio Rasetti
•
• Philip Mackey (appointed effective 29 January 2016)
PRINCIPAL ACTIVITIES
Boart Longyear is the world’s leading integrated provider of drilling services, drilling equipment and performance tooling for
mining and mineral drilling companies globally. The Company offers 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 the Company’s vertically
integrated business model. These factors, in combination with the Company’s global footprint, have allowed the Company to
establish and maintain long-standing relationships with a diverse and blue-chip customer base worldwide that includes many
of the world’s leading mining companies. With more than 125 years of drilling expertise, the Company believes its
insignia
and brand represent the gold standard in the global mineral drilling industry.
__________________________________________________________________________________________
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Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that
were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the
Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions
represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing
and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former
revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical
downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements:
•
Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete
interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term
loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the
time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes.
• Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately
$27.2 million, the first in October 2014 and the second in December 2014.
• Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and
received additional proceeds of A$106.2 million.
• Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at
A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent
number of new shares to Centerbridge for the same price per share.
• Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes,
held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares.
Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the
Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible
preference shares.
As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs
during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and
administrative (“SG&A”) costs for the respective years.
On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and
Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr
O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive
Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s
President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s
Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016.
EVENTS SUBSEQUENT TO REPORTING DATE
On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President
and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as
Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the
Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The
Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the
Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim
CFO. Mr Olsen’s biography may be found on page 76 of this report).
DIVIDENDS
No dividends have been paid during the financial year.
No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
__________________________________________________________________________________________
12
4
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
REVIEW OF OPERATIONS 1
1. Safety Performance, Market Conditions and Strategies
1.1 Overview
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
Services and Global Products.
We aim to create value for our customers through 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. Further, while maintaining a primary focus on safety and a disciplined approach to capital
expenditures, we continue to invest in productivity enhancements and operating improvements in our Global Drilling Services
division while also pursuing improved project margins through reducing administrative costs. New product development efforts
in our Global Products division remain concentrated for the time being, on incremental product improvements that customers
will need at any point in the mining cycle and responding to the increasing demand for information by our customers. In the
full-year period 2015, we launched four new products – the LS250TM Mini Sonic drill rig, a reverse circulation hammer, a new
forged sonic drill rod, and the TruCore core orientation tool.
1.2 Safety Performance
Central to our strategy is a clear focus on continuing to drive safety improvements. We regard safety as fundamental to our
relationships with our employees, customers and all stakeholders. We also consider our safety performance both to be a
significant opportunity and a risk, as our current and targeted customers look to safety as a basis to differentiate their
suppliers.
In 2015, the Company reported good safety performance, with a Total Case Incident Rate (“TCIR”) of 1.24 and Lost-Time
Injury Rate (“LTIR”) of 0.18, compared to corresponding rates of 1.35 and 0.11 for 2014. (Both TCIR and LTIR are rates
calculated based on 200,000 hours worked.) While Company performance continues to be solid, including the achievement of
the lowest TCIR in the Companyʼs recorded history, we remain committed to providing our employees and customers with an
injury-free workplace and industry-leading safety performance. In 2015, our employees experienced 76 injuries that required
some medical treatment and 11 injuries that resulted in lost work time. We believe that significant improvements in our safety
record are a moral imperative and are possible, and we are pursuing such improvements through initiatives focused upon
critical risk management, risk-focused field leadership and employee-centric safety messaging initiatives.
1.3 Impact of Market Conditions
2015 continued to be a difficult period for the mineral drilling industry and the Company, as most of the worldʼs mining
companies continued to tightly control their exploration, development and capital expenditures during the period and to seek
savings from their suppliers.
During 2015, drill rig utilisation remained at historical lows and weak pricing due to the global oversupply of drilling capacity
continued to adversely impact the Companyʼs financial performance.
As a result of challenging market conditions as well as asset impairments, a detrimental tax rate, ongoing finance costs, and
unfavourable currency movements, the Company reported a statutory loss for the 2015 financial year of $326.3 million, which
was an improvement of $6.4 million compared to the prior year (2014: $332.7 million loss). Adjusted net loss after tax for the
year (adding back the significant and non-recurring items) was $132.2 million, compared to an adjusted net loss after tax for
2014 of $141.8 million, a decrease in loss of $9.6 million. See reconciliation in Section 7 ʻNon-IFRS Financial Informationʼ.
__________________________________________________________________________________________
(1) The Review of Operations contains information sourced from our audited financial statements as well as additional supplemental information
5
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.
13
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
1.4 Objectives and Strategies
We continue to prioritise cash generation and net debt reduction 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, improving returns on capital through disciplined variable and fixed
cost management and capital spending programs, and rigorous focus in working capital particularly inventory and accounts
receivable.
In addition to reducing our absolute level of debt, over time, we are committed to driving long-term shareholder value by
executing on several initiatives to improve our commercial practices and increase productivity and profitability in our Global
Drilling Services division, including through:
focusing on operational efficiencies and productivity at the drill rig level;
1.
2. optimising the commercial organisation to drive value through contracting and pricing processes;
3.
4. controlling SG&A and other overhead related costs
leveraging the supply chain function across the business; and
Ultimately, our goal is operational excellence to preserve liquidity and reduce our overall net debt profile to weather the current
mining industry cycle while also preserving for our equity holders the significant upside that we may realise in our operations
when market conditions change and our operating leverage improves as a result of our significantly improved cost structure
and operating performance.
__________________________________________________________________________________________
14
6
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
2. Financial and Operating Highlights
Key financial data
Revenue
NPAT(1)
Adjusted NPAT(1)
EBITDA (2)
Adjusted EBITDA (2)
Operating Loss
Loss from Trading Activities (3)
Cash generated from operations
Net cash flow s used in operating activities
Capital expenditures (accrual)
Capital expenditures (cash)
For the year ended 31 Decem ber
2015
2014
US$ Millions
US$ Millions
$ Change
% Change
(131.4)
-15.2%
-
735.2
(326.3)
(132.2)
(115.3)
(0.1)
(199.2)
(45.8)
11.4
(54.9)
20.4
24.5
-
866.6
(332.7)
(141.8)
(82.6)
31.4
(185.0)
(47.9)
54.6
(11.3)
25.2
18.2
6.4
9.6
(32.7)
(31.5)
(14.2)
2.1
(43.2)
(43.6)
(4.8)
6.3
1.9%
6.8%
-39.6%
-100.3%
-7.7%
4.4%
-79.1%
-385.8%
-19.0%
34.8%
92.8%
49.2%
49.2%
-2.7%
-2.8%
Weighted Average number of ordinary shares
905.5
469.7
435.8
Earnings per share (basic)
Earnings per share (diluted)
Average BLY rig utilisation
Average Fleet size
(36.0) cents
(70.8) cents
34.8 cents
(36.0) cents
(70.8) cents
34.8 cents
36%
921
37%
948
-1%
(27)
(1) NPAT is 'Net profit after tax'. Adjusted NPAT is 'Net profit after tax and before significant and other non-recurring 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 and other non-recurring items'.
See reconciliation in section 7 'Non-IFRS Financial Information'.
(3) Loss from Trading Activities is a non-IFRS measure and is used internally by management to assess the underlying
performance of the business and has been derived from the Companyʼs financial results by eliminating from Operating
Loss charges relating to significant and other expense/income items.
__________________________________________________________________________________________
7
15
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
3 Discussion and Analysis of Operational Results and the Income Statement
3.1 Revenue
Revenue for the year of $735.2 million was $131.4 million, or 15.2%, lower than revenue for 2014 (2014: $866.6 million).
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 2015
was 37% and 35%, respectively (2014: 36% and 39%). Global Productsʼ sales of drilling equipment in 2015 totaled $48.1
million (2014: $47.3 million), and sales of performance tooling fell to $159.2 million in 2015 (2014: $183.1million).
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. Price within our
Global Drilling Services division continues to be unfavourable when compared to 2014 as a result of lower demand and
continued over supply, but did not worsen throughout the course of the year
In addition to pricing pressure, revenues for the year ended 31 December 2015, were lower as a result of mining industry
spending on exploration and development, which continued to decline, and unfavourable foreign currency impacts.
3.2 Cost of Goods Sold, Sales and Marketing Expense, and General and Administrative Expense
The following pro forma income statement shows the effects of removing significant items from their respective income
statement line. The adjusted balances will be used in the following narrative to reflect cost categories after removing the
impact of significant items.
Pro forma Income Statement
For the year ended 31 Decem ber
2015
As
Reported
Significant
Item s
Adjusted
Balance
As
Reported
2014
Significant
Items
Adjusted
Balance
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
735.2
(734.8)
0.4
2.2
(119.1)
(25.2)
-
76.2
76.2
-
21.1
0.7
-
(98.0)
(57.5)
(199.2)
-
-
735.2
(658.6)
76.6
2.2
(98.0)
(24.5)
(98.0)
(57.5)
(199.2)
866.6
(822.9)
43.7
7.6
(176.2)
(29.4)
-
40.2
40.2
-
71.1
2.7
-
(114.0)
(30.7)
(185.0)
-
-
866.6
(782.7)
83.9
7.6
(105.1)
(26.7)
(114.0)
(30.7)
(185.0)
Total adjusted Cost of Goods Sold (“COGS”), adjusted Sales and Marketing expenses (“S&M”) and adjusted General and
Administrative expenses (“G&A”) for the Company for the year ended 31 December 2015 were $781.1 million, compared to
$914.5 million in 2014, a decrease of $133.4 million, or 14.6%.
Total adjusted COGS for the year ended 31 December 2015 was $658.6 million, representing a decrease of 15.9% compared
to adjusted COGS of $782.7 million for 2014. COGS as a percentage of revenue decreased as we continue to focus on cost
control. In addition, depreciation expense has decreased due to a lower base of assets to depreciate.
__________________________________________________________________________________________
16
8
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Sales and Marketing Expense
For the year ended 31 Decem ber
2015
2014
US$ Millions
US$ Millions
$ Change
% Change
Total Adjusted Sales and Marketing Expenses
Adjusted S&M as a % of Revenue
24.5
3.3%
26.7
3.1%
(2.2)
0.2%
-8.2%
6.5%
Total adjusted S&M expenses for 2015 of $24.5 million decreased 8.2%, or $2.2 million, from the same period of 2014 (2014:
$26.7 million). Although, adjusted S&M expenses decreased during 2015 as a result of cost reduction actions, there was an
increase of $1.2 million in bad debt expense during 2015 which is partly what contributed to adjusted S&M expenses
increasing as a percentage of revenue.
General and Administrative Expense
For the year ended 31 Decem ber
2015
2014
US$ Millions
US$ Millions
$ Change
% Change
Adjusted General and Adm inistrative Expenses
Compensation and benefits expense
Occupancy costs
Professional f ees
Travel and transportation
Other
Adjusted Total General and Adm inis trative Expenses
Adjusted G&A as a % of Revenue
54.5
15.0
12.1
3.8
12.6
98.0
13.3%
59.6
15.7
16.3
4.4
9.1
105.1
12.1%
(5.1)
(0.7)
(4.2)
(0.6)
3.5
(7.1)
1.2%
-8.6%
-4.5%
-25.8%
-13.6%
38.5%
-6.8%
9.9%
Total adjusted G&A expenses for 2015 were $98.0 million, representing a decrease of 6.8%, or $7.1 million, compared to
$105.1 million for the same period of 2014. Although adjusted G&A expenses decreased due to aggressive cost reduction
actions taken from 2012 and continuing throughout 2013, 2014 and 2015, as a percentage of revenue they have increased
slightly due to lower revenues and the fixed nature of certain expenses.
In response to weakening industry conditions, the Company has taken a series of initiatives to reset its cost base and to
reduce its overall expenditure profile. The initiatives have included the removal of certain operating expenses, SG&A
expense, other overhead-related expense and capital expenditures. From 2012 to 2015, the Company estimates that it has
reduced its overall expenditure profile by approximately $1.3 billion.
In 2015, the Company undertook further cost reduction actions which should result in annualised SG&A cash savings of
approximately $25 million.
__________________________________________________________________________________________
9
17
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Em ployee headcount reduction
Sales, marketing, general and administrative
% reduction from prior year
% reduction from 2011
For the year ended 31 Dece m ber
2015
2014
2013
2012
794
-8.3%
-45.3%
866
-4.0%
902
-27.8%
1,249
-14.0%
For the year ended 31 Decem ber
2015
2014
2013
2012
Adjusted sales, m arketing, general and adm inistrative expenses reduction
Sales, marketing, general and administrative (US$ millions)
% reduction from prior year
% reduction from 2011
122.5
-7.1%
-52.0%
131.8
-18.1%
161.0
-35.3%
251.2
-1.6%
Despite the significant cost actions occurring over the last 30 months, the Company and its employees remain committed to
driving more sustainable efficiencies across our business platform, while still delivering safe, reliable and productive drilling
services and innovative products to customers.
3.3 Significant Items
During 2015 and 2014, the Company incurred significant expenses related to its restructuring and recapitalisation activities, as
well as impairments of inventories, property, plant and equipment and intangible assets related to the current market
conditions. We are showing these items separately in order to present the results of the underlying business adjusted for
these significant items.
Significant item s
Recapitalisation costs
Impairments
Property, plant and equipment
Intangible assets
Inventories
Employee and related costs 1
Other restructuring expenses
Total significant item s
Net of tax
For the year ended 31 Decem ber
2015
2014
$
US$ Millions
US$ Millions
Change
0.6
36.8
0.6
34.5
16.0
9.5
98.0
89.6
45.5
46.1
1.6
0.7
12.5
7.6
114.0
80.2
(44.9)
(9.3)
(1.0)
33.8
3.5
1.9
(16.0)
9.4
(1) Employee and related costs include separation costs, retention and other employee-related costs.
__________________________________________________________________________________________
18
10
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Significant items decreased to $98.0 million during 2015 (2014: $114.0 million), of which $36.8 million related to impairment
charges in the carrying value of certain plant and equipment following reviews of asset carrying values (2014: $46.1 million)
and $34.5 million related to the write-down of inventory to net realisable value as the market continues to be weak and the
Company restructures and withdraws operations in certain jurisdictions (2014: $0.7 million).
3.4 Other Income/Expenses
Other income decreased to $2.2 million during the year ended 31 December 2015 (2014: $7.6 million) mainly due to a $3.1
million gain on a litigation settlement recorded in 2014, which did not recur in 2015.
Other expenses, principally amortisation of intangible assets and net losses on foreign currency exchange, VAT-related items
and a loss on liquidation of a subsidiary, increased $26.8 million to $57.5 million during 2015 (2014: $30.7 million). The loss
on foreign currency exchange increased to $17.0 million during 2015 due to strengthening of the US dollar and increased
volatility of certain currencies. The Company continues to actively review 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 2015
and 2014, the Company did not employ such methods to manage its currency exposures since most of the Companyʼs
currency risk relates to intercompany transactions.
3.5 Income Tax Expense
Income Tax Expense on the pre-tax loss of $267.9 million for 2015 was $58.3 million. This tax expense can be attributed to
several factors including:
•
•
•
the non-recognition of certain current period losses;
the de-recognition of deferred tax assets recognised in prior periods as a result of the Company reducing its forecast
earnings and restructuring or withdrawing from operations in certain jurisdictions due to continuing adverse business
conditions; and
the impact of different tax rates and results in the jurisdictions in which the Company operates.
3.6 Earnings (Losses)
NPAT for the Company for the year ended 31 December 2015 was negative $326.3 million (2014: NPAT of negative $332.7
million), and EBITDA for the year was a loss of $115.3 million (2014: $82.6 million EBITDA loss). Both results were driven by
operating losses in Global Drilling Services as well as significant restructuring expenses, recapitalisation costs and impairment
charges.
Adjusted NPAT for 2015 was a loss of $132.2 million (2014: adjusted loss $141.8 million), and adjusted EBITDA decreased by
$31.5 million to an adjusted EBITDA loss of $100 thousand for 2015 (2014: $31.4 million). See reconciliation in Section 7
ʻNon-IFRS Financial Informationʼ.
4 Discussion and Analysis of Cash Flow
Cash generated f rom operations
Net cash flow s used in operating activities
Net cash flow s used in investing activities
Net cash flow s provided by f inancing activities
For the year ended 31 Decem ber
2015
2014
US$ Millions US$ Millions
$ Change
% Change
11.4
(54.9)
(25.0)
47.1
54.6
(11.3)
(12.0)
143.9
(43.2)
(43.6)
(13.0)
(96.8)
-79.1%
-385.8%
-108.3%
-67.3%
__________________________________________________________________________________________
11
19
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
4.1 Cash Flow used in Operating Activities
Cash flows used in operating activities for 2015 were $54.9 million, a deterioration of $43.6 million from the prior year (2014:
cash used in operating activities $11.3 million). The decrease in 2015 was mainly due to:
•
•
•
•
•
•
an improvement of $6.4 million in the loss for the year;
a decrease in cash generated from trade and other receivables balances of $36.6 million as compared to prior year;
a decrease in cash generated from the sale of inventory from the prior year of $19.5 million;
cash used from decreasing trade and other payables of $4.9 million, as compared to cash provided from increasing trade
and other payables of $11.1 million during 2014, which represents a $16.0 million reduction in cash;
a decrease in interest paid during the year of $13.3 million; and
an increase in cash taxes paid during the year of $12.2 million.
4.2 Cash Flow from Investing Activities
For the year ended 31 Decem ber
2015
2014
US$ Millions US$ Millions
$ Change
% Change
Purchase of property, plant and equipment
(21.8)
(13.8)
Proceeds f rom sale of property, plant and equipment
Intangible costs paid
Investment in unaffiliated companies
2.4
(2.8)
(2.9)
6.2
(4.4)
-
(8.0)
(3.8)
1.6
(2.9)
Total net cash flow s used in investing activities
(25.0)
(12.0)
(13.0)
-58.0%
-61.3%
36.4%
-100.0%
-108.3%
The Company continued to invest in capital equipment to support existing operations, which resulted in capital expenditures of
$21.8 million, up 58% on the prior year (2014: $13.8 million). Of the 2015 amount, $14.8 million was spent on sustainment
activities relating to refurbishing current rigs and other support equipment. $2.8 million was spent on product development
activities, including engineering and patent maintenance. The remaining amount related to miscellaneous expenditures. The
Company initiatives to conserve cash during the year included 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 Centerbridge, which successfully completed 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 including
an initial equity placement and a conditional placement to Centerbridge. In January 2015, the Company raised an additional
$83.7 million through a renounceable rights offer to shareholders that was underwritten by Centerbridge. While non-cash, a
further $16.0 million of equity was raised in January 2015 via equitisation of $16.0 million of 7.0% Senior Unsecured Notes
held by Centerbridge. See Note 22 for additional discussion.
Debt Refinancing
The recapitalisation provided $225.0 million of new term loans that accrete (i.e., accumulate and compound) interest and does
not require financial maintenance covenants. Structured as Term Loan-Tranche A and Term Loan-Tranche B, the new loans
carry an interest rate of 12.0% per annum. The Term Loans have provided incremental liquidity as a result of accretive
interest and full access to funds in the form of cash on the Companyʼs balance sheet.
__________________________________________________________________________________________
20
12
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
On 1 June 2015, the Company entered into a $40.0 million asset-based loan facility (“ABL”). Simultaneous with this
transaction, the Company retired $35.0 million principal amount of its Term Loan -Tranche A (and thereby reduced the total
principal amount of the Term Loans from $225.0 million to $190.0 million). The ABL facility, which is currently undrawn,
provides for a commitment of up to $40.0 million in revolving borrowings and other extensions of credit, such as for letters of
credit, at a more favourable interest rate than for the Term Loans.
5 Discussion of the Balance Sheet
For the year ended 31 Decem ber
2015
2014
US$ Millions
US$ Millions
$ Change
% Change
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 (Deficiency in Equity) Equity
113.4
110.1
166.3
16.4
176.5
99.7
54.4
41.9
13.2
791.9
145.0
44.5
92.8
689.8
972.1
1,262.4
(120.8)
(137.2)
(1,184.6)
(180.2)
168.8
137.4
241.3
18.7
279.3
102.5
77.3
97.6
17.5
1,140.4
167.0
68.9
118.0
716.3
1,070.2
1,159.1
(82.8)
(137.2)
(868.9)
70.2
(55.4)
(27.3)
(75.0)
(2.3)
(102.8)
(2.8)
(22.9)
(55.7)
(4.3)
(348.5)
(22.0)
(24.4)
(25.2)
(26.5)
(98.1)
103.3
(38.0)
-
(315.7)
(250.4)
-32.8%
-19.9%
-31.1%
-12.3%
-36.8%
-2.7%
-29.6%
-57.1%
-24.6%
-30.6%
-13.2%
-35.4%
-21.4%
-3.7%
-9.2%
8.9%
-45.9%
0.0%
-36.3%
-356.7%
The net assets of the Company decreased by $250.4 million, to negative $180.2 million, as at 31 December 2015, compared
to $70.2 million as at 31 December 2014. Some of the major drivers of this decrease were reductions of inventories,
impairments of property, plant and equipment, depreciation expense, amortization of intangibles, the write-off of deferred tax
assets and unfavourable foreign currency movements. 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 decreased by $55.4 million, or 32.8%, to $113.4 million as at 31 December 2015 (2014: $168.8
million). $35.0 million of this change was due to partial repayment of Senior Secured Notes.
Trade and other receivables decreased by $27.3 million, or 19.9% to $110.1 million as at 31 December 2015 (2014: $137.4
million) reflecting decreased revenues and increased focus on cash collections by all divisions. Days Sales Outstanding
(“DSO”) at 31 December 2015 remained flat from the prior year at 53 days, despite a very challenging collections environment.
__________________________________________________________________________________________
13
21
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
This result was achieved through intense focus on collections as well as continued emphasis on prompt customer billing by
our Global Drilling Services division.
Inventories decreased by $75.0 million, or 31.1 %, to $166.3 million as at 31 December 2015 (2014: $241.3 million). Of the
decrease, $34.5 million relates to write-downs of inventories to net realisable value as the market continues to be weak and
the Company withdraws from operations in certain jurisdictions, $21.2 million related to third party sales and Global Drilling
Services consumption, $19.3 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 $102.8 million to $176.5 million as at 31 December 2015 (2014:
$279.3 million) mainly due to asset impairment charges of $36.8 million, depreciation expense of $66.2 million, foreign
currency exchange losses of $23.1 million, partially offset by additions of $18.4 million.
Goodwill remained relatively stable at $99.7 million as at 31 December 2015 compared to 2014 (2014: $102.5 million)
Other intangible assets decreased by $22.9 million, or 29.6%, to $54.4 million as at 31 December 2015 (2014: $77.3 million)
mainly due to amortisation for the year of $17.7 million and impairments of $571 thousand, which were partially offset by
trademark, patent, software and development asset additions of $2.0 million and foreign currency exchange impacts.
Tax assets decreased by $55.7 million, or 57.1%, to $41.9 million as at 31 December 2015 (2014: $97.6 million) mainly due to
the write down of deferred tax assets as a result of adverse business conditions resulting in the Company reducing its forecast
earnings at 31 December 2015 and restructuring or withdrawing from operations in certain jurisdictions.
Trade and other payables decreased by $22.0 million, or 13.2% as at 31 December 2015 to $145.0 million (2014: $167.0
million). The average credit period on purchases of certain goods decreased by 3 days to 31 days. Trade payables represent
14.9% of the Companyʼs total liabilities. The reduction in trade and other payables was driven by the lower level of
manufacturing activity and continued focus on cost control as well as the accrued recapitalisation costs of $18.1 million at 31
December 2014 that were paid during 2015.
Provisions of $44.5 million as at 31 December 2015 decreased by 35.4%, or $24.4 million, compared to the prior year (2014:
$68.9 million), and represent 4.6% of total Company liabilities. The decrease is mainly due to gains during 2015 on the
defined benefit plans.
Borrowings of $689.8 million representing 71.0% of the Companyʼs liabilities decreased by $26.5 million during the year ended
31 December 2015 (2014: $716.3 million). The Companyʼs net debt (gross debt less cash and cash equivalents) increased
by $28.8 million, to $576.4 million, as at 31 December 2015 (2014: $547.6 million). The decrease was a result of the $35.0
million partial repayment of Senior Secured Notes and the equitisation of $16.0 million of Senior Unsecured Notes, partially
offset by accreted interest on the Term Loans of $23.7 million.
__________________________________________________________________________________________
22
14
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Liquidity and Debt Facilities
The Companyʼs debt is comprised of the following instruments:
Description
Principal
Outstanding
as at 31
December
2015
(millions)
Accreted
Interest
as at 31
December
2015
(millions)
Interest
Rate
Scheduled
Maturity
Security
Senior Secured Notes
$195.0
10%
1 October
2018
Second lien on the accounts receivable,
inventories, deposit accounts and cash
(“Working Capital Assets”) of the Term Loan B
and 10% Secured Notes guarantors that are not
ABL guarantors, a third lien on the Working
Capital Assets of the Term Loan B and 10%
Secured Notes issuer and the Term Loan B and
10% Secured Notes guarantors that are also
ABL guarantors, and a first lien on substantially
all of the Non-Working Capital Assets of the
Term Loan B and 10% Secured Notes issuer and
guarantors, including equipment, intellectual
property, the capital stock of subsidiaries and
certain owned real property.
Term Loan – tranche B
$105.0
$14.4
12%2
1 October
2018
Same as Senior Secured Notes
ABL
$0.01
Variable3
29 May
20204
Term Loan – tranche A
$85.0
$13.9
12%2
22 October
2020
First lien on the Working Capital Assets of the
ABL borrower and guarantors and a third lien on
substantially all of the other tangible and
intangible assets (“Non-Working Capital Assets”)
of the ABL borrower and guarantors, including
equipment, intellectual property and the capital
stock of subsidiaries (but excluding real
property).
First lien on the Working Capital Assets of the
Term Loan A guarantors that are not ABL
guarantors, a second lien on the Working Capital
Assets of the Term Loan A issuer and the Term
Loan A guarantors that are also ABL guarantors,
and a second lien on substantially all of the Non-
Working Capital Assets of the Term Loan A
issuer and guarantors, including equipment,
intellectual property, the capital stock of
subsidiaries and certain owned real property.
Senior unsecured
Notes
$284.0
7%
1 April 2021 Unsecured
(1) No drawn borrowings were outstanding; however, $12.0 million in note 28 of the financial statements in letters of credit were
issued.
Interest rate may be reduced to 11% if the Companyʼs trailing 12 month adjusted EBITDA is greater than $200 million.
(2)
(3) Based on LIBOR + margin (grid-based margin is currently 3.5%).
(4)
If Term Loan-tranche B and Senior Secured Notes have not been refinanced prior to July 2018, maturity accelerates to 1 July
2018.
__________________________________________________________________________________________
15
23
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Effective 27 January 2015, $16.0 million principal amount of the Companyʼs Senior Unsecured Notes held by Centerbridge,
and its affiliates and related funds were equitised as part of the recapitalisation.
Effective 1 June 2015, the Company entered into a $40.0 million asset-based loan facility (ABL). Simultaneous with this
transaction, the Company retired $35.0 million principal amount of its Term Loan-tranche A. The ABL facility provides for a
commitment of up to $40.0 million in revolving borrowings and other extensions of credit such as for letters of credit. This
facility is a secured loan with a first-priority lien on the issuerʼs and guarantorsʼ accounts receivable, inventories, and cash.
Scheduled maturity is the earliest of (i) 90 days prior to maturity of Existing Senior Secured Notes (or any Indebtedness
refinancing the security) (ii) 90 days prior to maturity of Term Loan A (or any Indebtedness refinancing the security) (iii) 90
days prior to maturity of Term Loan B (or any Indebtedness refinancing the maturity of the security) and (iv) 29 May 2020.
Pricing the facility is based on LIBOR, plus a grid- based spread, currently 3.5%. The facility does not include ongoing
financial maintenance covenants. Restrictions under the facility currently exist that limit maximum borrowings to $35.0 million
and require $5.0 million in cash to be held in a restricted account with the lender. These restrictions are lifted once the
Company satisfies a 1.0x fixed charge coverage test for four consecutive quarters related to the restricted borrowings and two
consecutive quarters as it relates to the restricted cash.
The following table shows the outstanding debt with maturities.
During the year, the Company debt ratings were upgraded by Standard and Poorʼs Rating Services. The corporate credit
rating with Standard and Poorʼs was revised to CCC+ from CCC, with issue level ratings revised to B from B- and to CCC+
from CCC for the Companyʼs Senior Secured Notes and Senior Unsecured Notes, respectively. The corporate family rating
with Moodyʼs Investor Services remained unchanged during 2015 at Caa1, with issue level ratings also unchanged at B3 and
Caa2 for the Companyʼs Senior Secured Notes and Senior Unsecured Notes, respectively.
__________________________________________________________________________________________
24
16
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
6 Review of Segment Operations
The following table shows the Companyʼs third party revenue and revenue from inter-segment sales by our Global Drilling
Services division. Segment profit represents earnings before interest and taxes.
2015
US$ Millions
Segment Revenue
2014
Segm ent Profit
2015
2014
US$ Millions
US$ Millions US$ Millions
Drilling Services
527.9
636.1
(2.6)
(2.9)
Global Products revenue
Products third party revenue
Products inter-segment revenue 1
Total Global Products
Less Global Product sales to Global Drilling Services
Total third party revenue
Total segment profit
207.3
52.5
230.4
72.4
259.8
(52.5)
735.2
302.8
5.6
4.3
(72.4)
866.5
3.0
1.4
(1) Transactions between segments are carried out at armʼs length and are eliminated on consolidation.
Revenue by Type 1
Revenue by Geography 1
(1) Based on percentages of total Company revenue for the year ended 31 December 2015.
__________________________________________________________________________________________
17
25
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
6.1 Review of Segment Operations - Global Drilling Services
For the year ended 31 Decem ber
2015
2014
US$ Millions
US$ Millions
$ Change
% Change
527.9
636.1
(108.2)
-17.0%
438.1
54.5
492.6
93.3%
23.3
4.4%
12.0
26.0
40.9
14.6
331
921
3,127
527.0
69.9
596.9
93.8%
25.5
4.0%
13.8
28.3
68.6
16.3
354
948
4,172
(88.9)
(15.4)
(104.3)
-0.5%
(2.2)
0.4%
(1.8)
(2.3)
(27.7)
(1.7)
(23)
(27)
(1,045)
-16.9%
-22.0%
-17.5%
-0.5%
-8.6%
10.0%
-13.0%
-8.1%
-40.4%
-10.4%
-6.5%
-2.8%
-25.0%
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
Safety
The Global Drilling Services divisionʼs Total Case Incident Rate (TCIR) for 2015 was 1.32, compared to 1.51 for full-year 2014.
Its Lost-Time Incident Rate (LTIR) for 2015 was 0.21, compared to 0.14 for 2014. These results reinforce our determination to
improve the management and mitigation of critical safety risks through a variety of initiatives and processes, including the
following:
• Better reporting and analysis of high-potential near-miss incidents and significant injuries and ensuring that corrective
•
•
•
•
actions from those incidents are applied globally;
increasing managementʼs safety interactions at drill sites and other operating locations;
increasing supervisory competencies through training;
reinforcing hazard assessments for non-standardised tasks; and
increasing drill rig inspection frequency; and creating an environment where employees are empowered to stop work
or take other actions to assure their own safety as well as that of their fellow workers.
____________________________________________________________________________________
26
18
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Key Safety Metrics
TCIR
LTIR
2015
1.32
0.21
2014
1.51
0.14
2013
1.79
0.21
Rig fleet
Our drill rig fleet, consisting of 912 rigs as at 31 December 2015, 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 $500 thousand 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 five-year period, whereas surface core rigs are depreciated over 10 years and rotary
rigs over 12 years, or their estimated useful life.
Revenue
Consistent with the second-half of 2013 and full-year 2014, mining industry spending on exploration and development declined
in 2015 and, as a result, Global Drilling Servicesʼ revenue in 2015 was $527.9 million, down 17% from $636.1 million in 2014.
The year-over-year revenue decrease was driven by a combination of volume, price and changes in foreign exchange rates.
Volume decreases resulted in $40.0 million of the year-over-year decrease and was driven largely by reduced spending by
major mining customers on exploration projects. The strengthening of the US Dollar, our reporting currency, against key
trading currencies, primarily the Canadian and Australian dollar, resulted in a $36.5 million reduction in year-over-year
revenues. Lastly, price decreases averaging 5% as a percentage of revenue reduced year-over-year revenue by a further
$31.7 million. Revenue for the second half of 2015 was $246.7 million, compared to $281.2 million in the first half of 2015, a
decrease of 12.3%. The half year over half year decrease in revenue can be attributed to some customers expending their
drilling budgets in the first half of 2015 with no additional budget dollars being allocated to drilling in the second half of the
year, a softening of gold prices in the second half of 2015 and a strengthening of the US Dollar against foreign currencies
resulting in reduced revenues due to translation.
Approximately 85% of Global Drilling Servicesʼ revenue for the year ended 31 December 2015 was derived from major mining
companies, including Barrick Gold Corporation, BHP Billiton Limited, Freeport-McMoRan, GoldCorp, Newmont Mining and Rio
Tinto. Our top 10 Global Drilling Services customers represented approximately 62% of Global Drilling Servicesʼ revenue for
the year ended 31 December 2015, with no contract contributing more than 4% of our consolidated revenue. No other
customer contributed 10% or more to the Companyʼs revenue in either 2015 or 2014. We believe this diversified revenue base
provides greater revenue stability.
__________________________________________________________________________________________
19
27
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Revenue by Customer Type
Revenue by Drill Type
Revenues from drilling disciplines closely tied to mine production proved more stable in 2015 than those linked to green field
exploration. In particular, our underground coring and percussive drilling operations, while not immune to reductions,
collectively experienced only a 9% reduction in overall revenue. Drilling disciplines more closely tied to green field exploration,
such as surface coring and rotary drilling experienced more significant declines in 2015 and drove the majority of the volume
reductions experience in the business. Rotary revenues for 2015 were $70.6 million as compared to 2014 revenues of $109.4
million, a decrease of 35.5%. Surface coring revenues for 2015 were $165.6 million as compared to 2014 revenues of $202.4
million, a decrease of 18.2%. Water well drilling continued to be relatively strong, experiencing only an 8% decline, due to
continued strategic diversification into agricultural and municipal well drilling.
__________________________________________________________________________________________
28
20
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Revenue by Stage 1
Non-Mining,
6%
Greenfield, 7%
Water Services,
15%
Production,
(in-Pit) 18%
Development
(Near Mine/
Brownfield),
54%
(1) Based on percentages of total Company revenue for the year ended 31 December 2015
Revenue by Drill Type 1
2015
2014
2013
US$
Millions
165.6
142.8
90.2
70.6
39.9
18.8
527.9
% of
Total
31.4%
27.0%
17.1%
13.4%
7.6%
3.5%
US$
Millions
% of
Total
US$
Millions
% of
Total
202.4
154.8
98.5
109.4
45.4
25.6
636.1
31.8%
24.3%
15.5%
17.2%
7.1%
4.1%
341.5
188
133.2
129.2
63.5
61.9
917.3
37.2%
20.5%
14.5%
14.1%
6.9%
6.8%
Surface Coring
UG Coring
Water Well
Rotary
Percussive
Sonic
Grand Total
(1) Total Global Drilling Services revenue as reported in 2013, includes revenues from the E&I environmental business of $29.6
million. The E&I business was sold in 2013.
Revenue by commodity
Gold and copper continue to be the primary commodities our customers were spending their exploration budgets on in 2015
representing 47.4% and 21.0% of revenue, respectively. Reductions in commodity prices have negatively impacted our
revenues, as mining customers have elected to reduce exploration budgets in response to a lower pricing environment. In
particular, Global Drilling Servicesʼ revenue associated with gold has decreased to $250.1 million for 2015, compared to
$285.7 million for the year ended 2014, a decrease of 12.5%. For the same time periods, revenue associated with copper has
decreased by 8.3%.
__________________________________________________________________________________________
21
29
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Revenue by Commodity 1
(1) Based on percentages of total Company revenue for the year ended 31 December 2015
Revenue by Commodity 1
2015
2014
2013
US$
Millions
% of
Total
US$
Millions
% of
Total
US$
Millions
% of
Total
Gold
Copper
Energy
Iron
Water Services
Nickel
Environmental
Other Metals
Grand Total
250.1
110.8
44.1
9.2
33.9
26.9
1.5
51.4
527.9
47.4%
21.0%
8.4%
1.7%
6.4%
5.1%
0.3%
9.7%
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%
(1) Total Global Drilling Services revenue as reported in 2013, includes revenues from the E&I environmental business of $29.6
million. The E&I business was sold in 2013.
Margins
Global Drilling Servicesʼ EBITDA for 2015 was $40.9 million, down 40.4% from $68.6 million in 2014. The primary drivers for
the decrease in EBITDA were price reductions, which had a negative $31.7 million impact and foreign exchange, which had a
negative $5.4 million impact. These negative impacts were offset by $17.3 million of productivity improvements and cost
savings initiatives delivered upon in 2015.
__________________________________________________________________________________________
30
22
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
6.2 Review of Segment Operations - Global Products
Financial Inform ation
Third party revenue
COGS
Materials/labor/overhead/other
Inventory obsolescence
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 basis)
Other Metrics
Manufacturing plants
Average backlog
Inventories 1
# of Employees
For the year ended 31 De cem ber
2015
2014
US$ Millions
US$ Millions
$ Change
% Change
207.3
230.4
(23.1)
-10.0%
159.1
(1.0)
7.9
166.0
80.1%
19.9
9.6%
21.4
14.3
14.5
2.5
6
16.8
166.3
1,258
175.6
0.3
10.0
185.9
80.7%
18.1
7.9%
24.5
15.7
14.0
3.0
6
17.9
241.3
1,393
(16.5)
(1.3)
(2.1)
(19.9)
-0.6%
1.8
1.7%
(3.1)
(1.4)
0.5
(0.5)
-
(1.1)
(75.0)
(135)
-9.4%
-433.3%
-21.0%
-10.7%
-0.7%
9.9%
21.5%
-12.7%
-8.9%
3.6%
-16.7%
0.0%
-6.1%
-31.1%
-9.7%
(1) Represents total Company inventories including Global Services and Global Products.
Safety
In 2015, the Total Case Incident Rate (TCIR) for the Global Products segment was 1.05 recordable incidents per 200,000
hours worked and the Lost-Time Incident Rate (LTIR) was 0.09 lost-time injuries per 200,000 hours worked. To improve on
these results, our focus areas in our manufacturing operations 2016 will be on risk identification and sharing best practices,
particularly between our factories in Eiterfeld, Germany, and Wroclaw, Poland, in relation to forklift operations, load shifting
and other highly manual tasks. In our Supply Chain organisation, our efforts in 2016 will remain centered on traffic
management planning, overhead load-shifting and placement and pallet racking use and maintenance.
Revenue
The year ended 31 December 2015 was another difficult year for the Global Products division. Revenue for the year was
$207.3 million, down 10.0% from $230.4 million in 2014. The primary driver of the decrease was unfavourable currency
translation as the US dollar strengthened significantly against most other major currencies. Price was relatively flat year-over-
year and volume was up slightly net of currency movements. We expect to see a relatively flat environment in the near-term.
Of Global Productsʼ revenue for the year ended 31 December 2015, approximately 76.8% was comprised of performance
tooling components, and the remaining 23.2% was comprised of drilling equipment and spares. Through a worldwide network
of over 100 sales and customer service representatives, we primarily sell our products to drilling services contractors. No
external Global Products customer represented more than 2% of consolidated revenue for the year. Global Products also
provides many of the products necessary for our Global Drilling Services division.
__________________________________________________________________________________________
23
31
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Margins
Although revenue was down 10.0% year-over-year, EBITDA for Global Products was up 3.6%. This result was achieved
through disciplined cost control, as evidenced by an 11.2% decrease in SG&A costs. We also saw improved fixed cost
leverage at our manufacturing facilities as production levels increased marginally compared to the prior year. As a result of the
large reduction in inventories over the past three years, we have started producing key products which have benefited the
segmentʼs margins as manufacturing recoveries improve.
Backlog
At 31 December 2015, Global Products had a backlog of product orders valued at $12.9 million. This compares to $18.2
million at 30 June 2015 and $19.5 million at 31 December 2014. Average backlog during the second-half of 2015 was $15.0
million, compared to $18.6 million during the first-half of the year. A key driver for the decrease in our backlog – which we
define as product orders we believe to be firm - is unfavourable currency translation. There is no certainty that backlog orders
will result in actual sales at the times or in the amounts ordered because our customers generally can cancel their orders
without penalty (with some exceptions on capital equipment orders).
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 2015, we
had 411 issued patents, 641 registered trademarks, 293 pending patent applications and 30 pending trademark applications.
One of the most significant patents is for 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
Our Global Products division employs 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 sharing 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 their
introduction, new products are subjected to extensive testing in various environments, again with assistance from our Global
Drilling Services network around the world. In 2015, 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 also continue to make progress against our strategy of developing a market
leading geological data services business.
Inventories
Inventory levels in 2015 continued to reduce due in part, to controls to carefully manage demand with our suppliers and
manufacturing facilities. We reduced inventory by $75.0 million during the year, of which $21.1 million was related to third party
sales and consumption by our Global Drilling Services division, $34.5 million relates to write-downs of inventories to net
realisable value as the market continues to be weak and the Company withdraws from operations in certain jurisdictions, and
$19.4 million was attributable to foreign currency and other non-cash changes. Global Drilling Services continues to consume
their products at a slow pace due to low rig utilisation in their fleet, and we may incur future costs related to moving inventory
from certain underperforming projects or territories to other projects or territories to speed consumption and delay
manufacturing-related costs.
__________________________________________________________________________________________
32
24
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Non-IFRS Financial Information
US$ Millions
US$ Millions
US$ Millions
US$ Millions
US$ Millions
For the ye ar ended 31 Decem be r
2015
2015
2014
2014
EBITDA(1)
NPAT(2)
Recapitalisation costs
Impairments
Property, plant and equipment
Intangible assets
Inventories
Employee and related costs
Other restructuring expenses
Other non-recurring items
Tax ef fect of items and other tax w rite offs (3)
Total of significant and non-recurring item s
Adjusted EBITDA(1)
Adjusted NPAT(2)
(115.3)
(82.6)
(326.3)
(332.7)
0.6
36.8
0.6
34.5
16.0
9.5
17.2
-
115.2
(0.1)
0.6
36.8
0.6
34.5
16.0
9.5
17.2
78.9
194.1
(132.2)
45.5
46.1
1.6
0.7
12.5
7.6
-
-
114.0
31.4
45.5
46.1
1.6
0.7
12.5
7.6
-
76.9
190.9
(141.8)
(1) EBITDA is 'Earnings before interest, tax, depreciation and amortisation'. Adjusted EBITDA is 'Earnings before interest, tax,
depreciation and amortisation and signif icant and other non-recurring items'.
(2) NPAT is 'Net prof it after tax'. Adjusted NPAT is 'Net prof it after tax and before significant and other non-recurring items'.
(3) Includes tax expense on derecognition of deferred tax assets and unrecognised tax losses of $107.6 million.
__________________________________________________________________________________________
25
33
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
8. Outlook
8.1 Our 2016 Priorities
Our key priorities for 2016 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 and enhancing our
business development capabilities and processes;
effectively manage customer relationships, pricing and contract terms;
create new products and respond to new Global Drilling Services customers within a constrained capital budget;
preserve liquidity and 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 critical to the Company, our employees and our customers, both in determining the success of our business and in
ensuring the ongoing well-being of our employees and others with whom we come into contact. We are dedicated to
eliminating job-related injuries and providing a safe work environment for every employee. We adhere to high safety
standards, continually seeking ways to maintain and enhance the safety of our Global Drilling Services and Global Products
businesses and ensuring that, when injuries or near-misses occur, we thoroughly investigate the root causes of those
incidents and apply the lessons learned from them broadly. We also promote a culture where employees and managers at all
levels are actively engaged in promoting safe work practices.
Expand our mining and minerals drilling customer base by focusing on efficiency and productivity. We remain
focused on providing our customers with a full range of drilling services offerings backed by more than 125 years of
experience and innovation. Our commitment is underpinned by initiatives to improve the efficiency and productivity with which
we deliver services and information to our customers and enhancements of our commercial practices and capabilities to
ensure alignment with our customersʼ most important needs. Ultimately, our goal is to be the driller of choice for our clients,
particularly at their ʻflagshipʼ projects, which tend to be less volatile, higher volume, and involve longer-term contracts, and
thereby allow us to leverage costs and develop site-specific expertise that brings value both to the customer and to Boart
Longyear.
Effectively manage customer relationships, pricing and contract terms. Our Global Drilling Services business has
implemented a rigorous internal process for evaluating the performance of all projects on an ongoing basis and developing
corrective actions on a case-by-case basis at underperforming sites. Such corrective actions may include operational
improvements, amendment of contract terms with our clients or, in some cases, termination of unprofitable work. We also are
focused on establishing a standardised process for reviewing and establishing contacts. 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 and
ensure our contracts reflect the full value delivered by Global Drilling Services and 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 in line with recent years until rig utilisation rates
increase materially. 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, on strategic technologies and high value-added and more profitable activities.
Preserve liquidity and efficiently manage our variable and fixed costs, including capital. Our goal is to achieve a cost
structure that allows us to operate our business with significant flexibility in response to the market environment. In 2015, we
commenced business initiatives focused on improving our fixed and variable cost structures in five keys areas of the business
to improve liquidity in 2016 and beyond. A comprehensive review of our Supply Chain and corporate overhead costs to
optimise organisational efficiency was completed in December 2015, and we expect to realise the cash benefit of this initiative
throughout 2016 and subsequent years. Our Global Drilling Services business commenced a review to optimise manufacturing
and administrative programs in order to improve our operating efficiency. We continue to focus on process improvements and
structural changes to improve customer support and responsiveness and drive long-term efficiencies. Furthermore, 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. 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.
__________________________________________________________________________________________
34
26
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Strengthen our financial position by reducing net debt over time –The Company entered the most recent cyclical
downturn with too much debt and, as our revenue and EBITDA profiles have decreased over the last several years, our overall
net debt position remains too high. Accordingly, our top priorities support cash generation and preservation to reduce net debt
as much as possible.
8.2 Outlook and Future Developments
The Company is not providing an outlook for 2016 revenue or EBITDA. While 2015 continued to be a difficult year for the
resources sector, the Companyʼs productivity and cost cutting initiatives are making a positive impact as significant
improvements in results were achieved in the second half of 2015. We expect to continue to see gains in both of these areas
going forward.
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:
•
•
continued industrialisation and urbanisation of developing economies, which are expected to support structural
increases in demand for minerals and metals; and
although volatile, continued high commodity prices relative to price levels over the past decade.
As a result, we believe natural resources companies will be compelled to produce throughout the cycle and supplement and
replace their reserves over time, driving exploration, development and capital spending. As the leading drilling services
provider globally with the worldʼs largest drilling fleet we continue to drive operational improvements, technological innovation
and engineering excellence in both Global Drilling Services and Global Products. We believe we will benefit from increased
market opportunities.
We remain focused on our core mining markets and intend to continue to invest in high-potential organic growth opportunities
in those markets in a selective and disciplined manner. Examples of such opportunities include ongoing expansion of the
Companyʼs mine and agriculture 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
and productivity. In addition, the Company continues to pursue operational enhancements to improve operating margins, cash
generation and debt reduction.
Further information about likely developments in the operations of the Company in future years, expected results of those
operations, and strategies of the Company and its prospects for future financial years have been omitted from this report
because disclosure of the information would be speculative or could be prejudicial to the Company.
8.3 Key Risks
The Company maintains an Enterprise Risk Management (“ERM”) system by which we systematically assess the
consequences of risk in areas such as health and safety, environmental, financial, compliance, and reputation. We also
identify and track appropriate mitigation. A range of material risks have been identified, as follows, that could adversely affect
the Company. These risks are not listed in order of significance. Nor are they all-encompassing. Rather, they reflect the most
significant risks identified at a whole-of-entity or consolidated level.
Market Risk. The Companyʼs operating results, financial condition and ability to achieve shareholder returns are directly
linked to underlying market demand for drilling services and drilling products. Demand for our drilling services and products
depends in significant part upon the level of mineral exploration, production and development activities conducted by mining
companies, particularly with respect to gold, copper and other base metals. We have experienced significant declines in our
financial performance as a result of declining demand for, and global oversupply of, the Companyʼs services and products due
to the global contraction in exploration and development spending in the commodities sector and by our mining customers.
Mineral exploration, production and development activities could remain at depressed levels for an extended period of time or
decline even further, resulting in adverse effects on our operating results, liquidity and financial condition.
We seek to mitigate the risk associated with volatility and weak demand conditions in our core mining markets by pursuing
business development opportunities in other markets, such as agricultural and municipal water drilling in our Global Drilling
Services business and infrastructure and geotechnical applications for our Global Products business. In addition, as
previously outlined, our business priorities for 2015 and 2016 include ongoing initiatives to gain market share in our core
markets and expand our mining industry customer base by improving the efficiency and productivity with which we deliver
services and information to our customers and making additional investments in our commercial organisation to augment our
business development efforts and improve commercial practices for better alignment with our customersʼ most important
needs.
__________________________________________________________________________________________
27
35
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Operational Risks. The majority of our drilling contracts are either short-term or may be cancelled upon short notice by our
customers, and our products backlog is subject to cancellation. We seek through our contracting practices to minimise the
financial cost associated with the termination or suspension of customer contracts or orders but often are limited by industry
practice as to the degree to which we can allocate termination risks and obligations to our customers.
The Company has implemented significant cost savings and efficiencies during the course of the ongoing industry downturn
but believes its future operating results, financial condition and competiveness, particularly in its Global Drilling Services
division, in part depend on its ability to sustain previously implemented reductions and realise cost savings from ongoing and
future cost-reduction and efficiency initiatives. We may not be able to achieve expected cost savings and operational
improvements in anticipated amounts or within expected time periods, and, if achieved, we may not be able to sustain them.
Accordingly, we have implemented a project management organisation and rigorous monitoring processes around our key
operational improvement programmes to track progress against project objectives, quantify results that are being achieved
and ensure process improvements are sustainable.
Risks Related to Indebtedness. At 31 December 2015, our net debt was $576.4 million, with $689.8 million in gross debt
and $113.4 million of cash on hand and availability through our asset-based lending (“ABL”) facility. The instruments
comprising the Companyʼs debt and their terms are set out in detail in note 22 of the financial statements.
Based on the Companyʼs capital structure and the terms of our debt facilities, our ability to secure additional capital in the
future, to the extent it becomes necessary to do so, is uncertain at present. Accordingly, our ability to fund operations and
make further investments in the business may depend on the adequacy of current sources of liquidity to meet such needs until
market conditions improve or additional operating improvements can be achieved to improve cash generated by our
operations. In addition, certain of the Companyʼs debt instruments bear maturities beginning in October 2018. Our ability to
refinance or renew our debt when it becomes due depends on our ability to generate cash flow and, potentially, other
circumstances, such as existing market conditions at the time of refinancing. Given the lack of clarity around the short-term
outlook for the Companyʼs markets, our top corporate priorities, which are directly linked to management incentive
compensation, largely are directed at cash preservation in order to preserve our existing sources of liquidity and ensure they
are adequate to sustain the business for the foreseeable future.
Tax Risk. As previously disclosed and further detailed in note 13 of the financial statements, the Company is contesting a
series of tax audits performed by the Canada Revenue Agency (“CRA”). We also are responding to audits that are underway
or anticipated to be performed by the CRA. The resolution of existing and potential assessments by Canadian tax authorities
may adversely affect our liquidity. While the timing and resolution of the Companyʼs appeals of the CRAʼs assessments are
uncertain, we are pursuing strategies to mitigate the risks of an adverse outcome with the assistance of our external legal and
tax experts.
The recent closure of our centralised operating structure based in Switzerland and the establishment of a master distributor
entity based in the United States could result in audits or assessments in many of the jurisdictions in which we operate and
could lead to a higher effective tax rate and tax payments. Assessments related to these issues may adversely affect our
liquidity in the event we are required to pay assessments, or post security to maintain challenges to such assessments. In
making the decision to move to the master distributor entity, management and our external advisors carefully evaluated the
operational requirements of the business, future tax risk and potential forecast scenarios and considered that the US-based
master distributor structure effectively balances business objectives and tax risks inherent in any reorganisation.
Government and Regulatory Risk. Changes in, or failure to comply with, the laws, regulations, policies or conditions of any
jurisdiction in which we conduct our business could have a material adverse effect on our financial condition, liquidity, results
of operations and cash flows. Our operations are subject to numerous laws, regulations and guidelines (including anti-bribery,
tax, health and safety, and environmental regulations) that could result in material liabilities or increases in our operating costs,
or lead to the decline in the demand for our services or products. We therefore carefully monitor, and educate our employees
and business partners about, legal requirements and developments to make sure our operations remain aware of applicable
laws and regulations at all times. Further, we have implemented various internal and external resources and controls to
promptly detect and address any potential non-compliance.
__________________________________________________________________________________________
36
28
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
8.4 Forward Looking Statements
This report contains forward looking statements, including statements of current intention, opinion and expectation regarding
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
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 Securities
Exchange Listing Rules, disclaims any obligation or undertaking to publicly update such forward looking statements.
9 Quarterly Income Statement and Related Information
Total Com pany
Revenue (US$ millions)
EBITDA (US$ millions)
Adjusted EBITDA (US$ millions)
Operating Loss
(Loss) Prof it from Trading Activities
Net cash f low s (used in) provided by
operating activities
Net Debt (US$ millions)
Adjusted SG&A (US$ millions)
# of employees
Global Drilling Services
Revenue (US$ millions)
EBITDA (US$ millions)
Average rig utilisation
Average # of drill rigs (w ith E&I)
Average # of drill rigs (w ithout E&I)
Quarters ended 2015
Quarters ended 2014
Quarters ended 2013
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
160.9
186.8
(75.2)
(4.9)
(0.7)
3.1
(90.4)
(24.8)
(10.3)
(7.7)
200.3
(25.2)
11.2
(44.6)
(3.6)
187.2
205.8
239.3
(14.2)
(61.9)
(9.5)
(3.2)
12.3
15.9
(39.4)
(83.3)
(15.7)
(24.2)
(14.3)
(6.2)
224.1
(31.1)
14.9
(56.6)
(4.1)
197.4
224.5
279.5
348.7
370.2
(1.9)
(100.8)
(1.2)
(269.7)
3.8
8.0
18.8
40.1
34.6
40.3
(29.4)
(130.8)
(30.4)
(304.3)
(2.2)
(23.3)
(19.3)
(4.9)
16.4
7.9
28.2
2.0
(10.2)
(74.9)
(6.8)
10.1
(8.3)
(6.3)
4.1
36.1
17.8
(46.5)
576.4
554.6
5.0
37.9
4,725
5,089
556.1
40.0
5,151
538.1
547.6
550.9
39.5
31.6
32.7
5,537
5,933
5,972
555.8
34.6
5,871
544.4
526.4
523.0
563.8
571.3
32.7
35.0
40.0
39.2
46.8
5,593
5,681
6,020
7,270
8,283
111.3
135.4
145.1
136.1
151.8
176.0
168.7
139.6
163.4
216.3
265.3
272.3
3.0
33%
914
914
15.8
37%
917
917
18.1
38%
921
921
4.0
35%
933
933
9.1
38%
944
944
22.9
40%
953
953
25.4
39%
945
945
11.2
32%
950
950
15.5
42.7
42.6
41.1
31%
37%
43%
39%
1,031
1,037
1,139
1,146
1,031
1,037
1,037
1,044
# of employees
3,127
3,420
3,478
3,833
4,172
4,208
4,130
3,874
4,338
4,737
5,859
6,749
Global Products
Revenue (US$ millions)
EBITDA (US$ millions)
Average backlog (US$ millions)
# of employees 1
49.6
4.0
13.3
51.4
3.4
16.7
55.2
4.5
18.4
51.1
2.6
18.9
53.9
1.2
19.3
63.3
7.0
20.3
55.4
5.0
16.9
57.8
0.8
15.2
1,258
1,314
1,321
1,338
1,393
1,407
1,382
1,363
61.1
2.6
19.4
910
63.2
(8.2)
19.8
899
83.3
8.7
31.5
97.9
13.0
43.3
990
1,103
(1)
Increase in 2014 Global Products employees is due to the consolidation of maintenance and supply chain operations into the Global
Products division at the end of 2013.
__________________________________________________________________________________________
29
37
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
REMUNERATION REPORT
This remuneration report sets out Boart Longyear’s remuneration policies and practices, the rationale underlying them and
their outcomes for the year ended 31 December 2015 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 Company’s policies have been developed within a framework that seeks to fairly reconcile and balance:
-
-
-
the overall objective of attracting, retaining, aligning and motivating management in order to achieve the highest
levels of performance from them for the benefit of all shareholders;
high standards of fairness, transparency and sound corporate governance principles; and
the particular business environment in which Boart Longyear operates, recognising that:
o
o
o
the Company’s 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 2015
Each of the changes outlined below, were carefully designed to support the key financial, strategic and human resources
objectives of the Company during difficult market conditions.
1. Change in CEO – In August 2015, the Board announced that Richard O’Brien would be stepping down as the Company’s
President and Chief Executive Officer. Marcus Randolph, the Company’s Chairman, became Executive Chairman and
CEO on an interim basis while a CEO search is conducted. Mr O’Brien’s employment continued with the Company until
31 October 2015 on a transitional basis. The Board considered both internal as well as external candidates in the search
for a new CEO, which concluded on 29 February 2016 with the announcement of Jeffrey Olsen as the Company’s next
President and Chief Executive Officer. The Company will undertake a search for a chief financial officer to succeed Mr
Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and
Drilling Services Finance, will serve as Interim CFO.
2. Change in Short Term Incentive Plan (STI) payout formula - The Board modified the STI Plan in 2014 to focus on cash
flow generation to fund ongoing business cash needs. This strategic focus was deemed critical to maintaining business
operations and funding cash requirements for other priorities. Another modification to the STI Plan in 2015 is the
requirement that the Company’s free cash flow performance metric must be met as a condition precedent to payment of
any amount for the achievement of management strategic objectives. For 2015, the minimum Company threshold for free
cash flow was defined as meeting 30% of the free cash flow operating plan.
3. Changes in Long Term Incentive (LTI) – The Board adopted an LTI structure providing performance-based options
rather than share rights. The LTI performance metric was changed in 2015 from net debt and total shareholder return
(TSR) measures to share price appreciation. Given the challenging business environment faced by the Company, the
highly leveraged capital structure and the investment made by Centerbridge and other shareholders as part of the
recapitalisation that was completed in January 2015, the Board believes a focus on share price appreciation appropriately
aligns management equity incentives to the interests of the Company’s shareholders.
4. Change in Non-Executive Director (NED) Remuneration Structure – At the Company’s 2015 general meeting,
shareholders approved a change to the remuneration structure for the Company’s NEDs to further improve alignment with
shareholders and preserve cash. Effective 1 July 2015, Directors were required to receive 50% of their annual base fees
in ordinary shares of Company shares. The Directors are not able to trade the shares, net of sales to cover income taxes,
for a period of twelve months following their allocation.
The Company continues to monitor its remuneration plans and arrangements to ensure they remain appropriate for
executives, Directors and shareholders and could determine to modify the arrangements at some time during 2016. If so,
details will be provided in the 2016 remuneration report.
__________________________________________________________________________________________
38
30
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
2015 business impacts on incentives
The year ended 31 December 2015 was another difficult year for the resources sector, the third consecutive year of lower
activity. The sectorʼs difficulties were particularly acute for mining services and support companies like Boart Longyear, which
tend to experience greater demand volatility than other industry participants. Lower demand in the Companyʼs key markets
and lower pricing, primarily within the Companyʼs drilling services division, have resulted in a year-over-year decrease in
revenue of $131.4 million, or 15.2%, although negative NPAT improved during the year from a loss of $332.7 million in 2014 to
a loss of $326.3 million in 2015. Company results were heavily impacted by unfavourable movements in foreign currency
translation. Revenue was reduced by $74.4 million and EBITDA was reduced by $7.3 million due to foreign exchange. The
negative impact to EBITDA was partially offset by favourable currency translation on SG&A costs. Compared to the companyʼs
operating plan, revenue was below plan by $65.0 million (below plan by $37.6 million net of foreign exchange). Adjusted
EBITDA was below plan by $10.8 million (below plan by $7.8 million net of foreign exchange).
The management team continued to respond to the on-going depressed market conditions by eliminating over $129 million in
expenditures from the organisation (on top of the $329 million eliminated during 2014 and $807 million in 2013). In addition to
the aggressive cost reduction efforts, the Company also continued to increase 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 $32.0 million. Generating this level of cash flow on
significantly reduced revenue helped maximise liquidity in the face of difficult and unprecedented market conditions. As a
result of cash generation and overall safety performance exceeding expected results, short-term incentive achievement for the
Companyʼs executive KMP in 2015 was on average 113%.
Driven by the extended adverse market forces, the performance-based LTI awards granted in 2012, which were subject to a
three-year return on equity performance hurdle, did not vest in 2015 and were forfeited. Similarly, the performance rights
awarded in 2013 and which were also subject to a three-year return on equity performance hurdle, will not vest and will be
forfeited in 2016. The retention rights granted in 2012, representing 50% of the long-term incentive award to the Companyʼs
executive KMP and which were not subject to a performance hurdle, vested in 2015, as detailed in table 1.3.
Chief Executive Officer Transition
Richard OʼBrienʼs employment with the Company terminated effective 31 October 2015, and the Companyʼs Chairman,
Marcus Randolph, was appointed Executive Chairman and Interim Chief Executive Officer on a temporary basis until a
permanent replacement is appointed by the Board. Mr Randolph has served as the Companyʼs Chairman since February 2015
and has more than 35 years in the mining industry in a range of global, senior executive roles. As disclosed on 24 November
2015, in addition to his Director fees as disclosed in section 6 of this report, and in light of the substantial additional demands
of serving as Interim CEO, the Board approved additional compensation for Mr Randolph of US$50,000 per month. Mr
Randolph is also eligible to receive, subject to meeting certain objectives determined by the Board, a performance bonus
amount of up to US$500,000 on an annualised basis, which, if achieved, would be pro-rated based on the period of his
performance of executive duties, including supporting a new CEO with the assumption of his duties. The Board will assess Mr
Randolphʼs performance on objectives that include, but are not limited to, the successful selection, hiring and on-boarding of
the Companyʼs new CEO, achieving established targets of EBITDA performance, achieving targeted reductions in sales,
general and administrative expenses and establishing an effective commercial strategy. These measures have been chosen
because they reflect the importance of ensuring continuity of leadership as the Company responds to ongoing market
challenges and the key operational priorities while Mr Randolph carries out his additional management responsibilities.
Mr Randolph also will be eligible to participate in the Companyʼs medical and retirement plans on the same basis as other
employees during his tenure as Interim CEO.
These arrangements are effective from 1 September 2015 and will continue through 30 June 2016.
Consistent with Mr OʼBrienʼs employment agreement approved by shareholders at the 2013 Annual General
Meeting, Mr OʼBrien became entitled to the following termination benefits upon his termination:
o
o
o
o
o
o
severance payments equal to twelve months of his base salary;
pro-rata payment of his 2015 annual bonus under the Companyʼs Corporate Bonus Plan through his
termination date, subject to achievement of specified corporate and personal goals;
a waiver of medical premiums for twelve months;
accelerated vesting on a pro-rata basis of retention rights granted under the LTI Plan;
eligibility for pro-rata performance rights granted under the LTI Plan to vest in accordance with established
performance conditions at the normal testing date; and
accelerated vesting of all options granted before 2015.
__________________________________________________________________________________________
31
39
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Mr OʼBrien also received reimbursement for relocation moving expenses of US$3,087. The Board determined that Mr OʼBrien
would have achieved his personal strategic goals under the Corporate Bonus Plan at 100% of target. No tax gross-up payment
will be made in association with the termination benefits Mr OʼBrien will receive.
The expense of these termination benefits and equity awards has been brought forward as required under applicable
accounting standards and fully expensed in the 2015 financial statements. The extent to which Mr OʼBrien receives any value
from unvested LTI performance rights for which he remains eligible depends upon the Companyʼs achievement of the
established performance metrics during the relevant performance period for those awards.
In exchange for these termination benefits, Mr OʼBrien is subject to non-competition and non-solicitation covenants for twelve
months from the date of his termination, as well as other obligations.
Report Structure
This Remuneration Report (“Report”) is presented in six sections, as follows:
1
2
3
4
5
6
Section
2015
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 2015.
•
•
Remuneration
framework and
strategy
•
Sets out the Companyʼs remuneration governance framework and explains how the
Board and its Remuneration and Nominations 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.
Performance
and risk
alignment
Executive
remuneration
in detail
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 2015 and 2014.
Provides details of the rights granted to executives during the year ended 31 December
2015 under the long-term incentive plan.
Summarises the key terms of executive service contracts (including termination
entitlements).
•
Explains the Non-executive Directorsʼ (NED) remuneration structure, including the basis
on which NED remuneration is set and the components.
• Outlines key features of the NED Share Acquisition Plan.
•
Sets out the NEDsʼ remuneration during the years ended 31 December 2015 and 2014.
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40
32
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
1. 2015 REMUNERATION OVERVIEW
1.1. EXECUTIVE REMUNERATION STRATEGY
The diagram below illustrates the primary objectives of the Companyʼs executive remuneration strategy and how the
components of overall remuneration have been designed to support them:
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33
41
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 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 2015 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 2015
Directors
Position
Marcus Randolph
Bret Clayton
Peter Day
Jonathan Lewinsohn
Jeffrey Long
Gretchen McClain
Rex McLennan
Deborah O'Toole
Interim CEO and Executive Chairman (from 1 September 2015). Previously Non-Executive
Chairman (appointed effective 23 February 2015)
Non-executive Director (appointed effective 23 February 2015)
Non-executive Director
Non-executive Director
Non-executive Director (appointed effective 1 October 2015)
Non-executive Director (appointed effective 15 November 2015)
Non-executive Director and Senior Independent Director
Non-executive Director (appointed effective 1 October 2015)
Senior executives
Position
Richard O'Brien
Jeffrey Olsen
Fabrizio Rasetti
Brad Baker
Terry Kirkey
Alan Sides
Kent Hoots
Chief Executive Officer (terminated employment effective 31 October 2015)
Chief Financial Officer
Senior Vice President, General Counsel and Secretary
Senior Vice President, Human Resources
Vice President, Drilling Services Operations (promoted effective 1 September 2015,
previously Regional General Manager for the Americas)
Senior Vice President, Global Drilling Services operations (terminated employment effective 31 July 2015)
Senior Vice President, Global Products
Others who held office as Directors during the year ended 31 December 2015 were:
Non-executive
Directors
Barbara Jeremiah
Barbara Jeremiah
Bruce Brook
Roy Franklin
Tanya Fratto
David McLem ore
Conor Tochilin
Position
Chair and Non-executive Director (retired 25 February 2015)
Non-executive Director (retired 25 February 2015)
Non-executive Director (retired 30 June 2015)
Non-executive Director (retired 25 February 2015)
Non-executive Director (retired 26 May 2015)
Non-executive Director (retired 26 May 2015)
Non-executive Director (retired 1 October 2015)
1.3. REMUNERATION OUTCOMES
Actual remuneration
Details of CEO and other senior executive remuneration for the year ended 31 December 2015, 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 table 1.3, below, which shows the actual compensation realised by the senior executives who were KMP at
the end of 2015. Table 1.3 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.
__________________________________________________________________________________________
42
34
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Table 1.3: Actual remuneration received by senior executives who were KMP on 31 December 2015
Base salary
US$
STI 1
US$
LTI 2
US$
LTI (cash)
US$
Other 3
US$
Jeff rey Olsen
Fabrizio Rasetti
Brad Baker
Terry Kirkey 4
Kent Hoots
400,000
416,000
324,450
291,231
340,725
348,200
277,806
204,873
72,178
215,949
-
10,505
8,754
-
6,420
-
-
-
42,011
-
36,550
40,245
40,985
26,808
41,362
Total
US$
784,750
744,556
579,062
432,228
604,455
(1) Represents the cash paid in respect of the executiveʼs STI award earned for the prior yearʼs performance, but paid in the current
reporting year. 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 2015 (based on the market value of shares at the
vesting date: A$0.22 on 15 March 2015). Share Rights granted under the Companyʼs LTI Plan and options granted under the
Companyʼs option plan during other grant years that have not reached their respective vesting dates do not appear in this table, as
they do not vest until the conclusion of the performance period and/or continued service requirement. For further details of the LTI
Plan and option plans, see section 3.4 of this Report.
(3) Represents benefits such as US 401(k) retirement plan, Company matching and/or profit sharing contributions, car allowance and
tax preparation service reimbursement.
(4) Mr Kirkey was promoted and became a KMP effective 1 September 2015. His actual base salary reported above represents the
combined total amount associated with his former position from January through August and his current position from September
through December.
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 that underpin the remuneration arrangements for senior executives,
including the use of external remuneration consultants.
2.1. HOW REMUNERATION DECISIONS ARE MADE
Board responsibility
The Board acknowledges its responsibility 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 and Nominations Committee.
Remuneration and Nominations Committee (“Remuneration Committee” or “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:
•
•
reviewing, monitoring and overseeing the implementation of the executive remuneration policy;
reviewing all aspects of remuneration of the CEO and the proposed remuneration of other members of the KMP, including
any proposed change to the terms of their employment and any proposed termination payments;
reviewing executive incentive plans, including equity-based plans and including a consideration of performance thresholds
and regulatory and market requirements;
developing performance hurdles for the CEO and reviewing proposed performance hurdles for other KMP;
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.
The Committee members as at the date of this Report are Mr Peter Day, Chairman, Ms Gretchen McClain and Ms Deborah
OʼToole. 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
__________________________________________________________________________________________
35
43
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
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 it in assessing
market practice so that base salary and targeted short-term and long-term compensation are in line with comparable roles.
When remuneration consultants are engaged, the Committee ensures their independence, as necessary, from Company
management in accordance with the assignment or advice being sought. Thus, the Committee may determine that complete
independence from management is required, or it may direct the consultant 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 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 2015, the Committee engaged Willis Towers Watson as an independent compensation advisor to the Board. The
Committee selected Willis Towers Watson because it has a well-established and extensive executive compensation practice
and has extensive experience with clients in the mining and natural resources industries. The Board also engaged Mercer
Consulting to work with management and Centerbridge to provide recommendations to the Board for a new LTI plan design
that aligns with the interests of investors after the completion of the Companyʼs recapitalisation in January 2015. The Board
also requested Mercer to provide an independent review of market remuneration for each KMP, as well as other key senior
executives.
During 2015, Willis Towers Watson and Mercer Consulting each made remuneration recommendations, as defined in the
Corporations Act, with respect to the components of the remuneration package for the Companyʼs Board of Directors and the
KMP, respectively. 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 amounts paid to Willis Towers Watson and Mercer Consulting for remuneration recommendations made during 2015 were
US$21,400 and US$91,000 respectively.
The table below sets out details of the remuneration consultants (and other external advisers) engaged to assist with
compensation issues and a summary of the services they provided during the year ended 31 December 2015.
Table 2.1: Remuneration consultant and other external adviser arrangements
Remuneration consultant
Willis Towers Watson
Mercer Consulting
Nature of services provided
The Committee engaged Willis Towers Watson to assist with
establishing the remuneration package for the Non-executive
Directors.
The Committee engaged Mercer Consulting to assist with design
changes to the 2015 LTI Plan and to provide an independent market
analysis on remuneration for the KMP and other senior executives of
the Company.
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.
__________________________________________________________________________________________
44
36
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
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 meet the Companyʼs specific business needs and objectives and are consistent
with good market practice. An additional challenge impacting 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
Australian arrangements.
Accordingly, the Companyʼs senior executive remuneration program has been structured so that it:
•
•
•
•
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;
is an appropriately balanced mix of fixed and “at-risk” remuneration; and
is reasonable in the context of the definition in the Corporations Act 2001.
The Company and the Remuneration Committee regularly review all elements of the remuneration program to ensure that it
remains appropriate to business strategy, is competitive and is consistent with relevant contemporary market practice. The
remuneration initiatives introduced in 2015, which were designed to assist the Company achieve key goals during a very
challenging time, demonstrate this.
__________________________________________________________________________________________
37
45
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
The diagram below illustrates three primary components of an executiveʼs total compensation opportunity and how the
components are structured to achieve the remuneration strategy and align with shareholder interests:
Fixed Remuneration
Short-term Incentive
(Corporate Bonus Plan)
Long-term Incentive
• Provides a predictable base level
of compensation commensurate
with the executiveʼs scope of
responsibilities, leadership skills,
values, performance and
contribution to the Company.
• Generally targeted to be near the
median of the competitive talent
market using external
benchmarking data. Since the
majority of the Companyʼs
executives (and all of the
executive KMP) are located in
the US, the competitive talent
market is determined to be the
US market.
• Variability around the median is
based on the experience,
performance, skills, position,
business unit size and/or
complexity and unique market
considerations, where
necessary.
•
This component of compensation
is “at-risk” and earned only if
challenging performance metrics
are achieved.
• Key performance metrics for
2015 include free cash flow,
safety performance, and
individual strategic goals.
•
•
•
•
These metrics were designed to
weight performance on free cash
flow and safety to overall
Company performance in order
to promote collaboration and to
align with shareholder interests.
Individual strategic goals can
include financial and/or strategic
targets for a business unit or
function. Examples include
business unit growth, cost
control goals, cash flow
generation, geographic
expansion, and productivity
programs.
The metrics used for the CBP
are reviewed annually to ensure
that they continue to support the
Companyʼs business strategy.
The STI is awarded in cash.
•
•
•
•
•
This component of compensation
is “at-risk” and earned only if
challenging performance metrics
are achieved and/or continued
service requirements are met
over a multi-year performance
period.
The Board selected share price
appreciation targets as the key
measure for performance-based
long-term incentive awards in
2015. In addition, the use of
share rights, which had been
granted in recent years, were
replaced with the use of
performance-based options. The
hurdle used for the LTI is
reviewed annually to achieve
outcomes deemed important at
that time by the Board.
The share price appreciation
targets used in 2015 included a
minimum threshold performance,
below which no value is
achieved. The performance
target was established based on
the offer price for the
recapitalisation rights issue.
The combination of using
performance-based options and
share price appreciation provides
a strong link to shareholder
value.
The LTI is awarded in equity
and/or cash.
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 the Companyʼs current market capitalisation may cause some shareholders and analysts to consider certain
compensation components and/or total remuneration to be higher than market comparison models would suggest. Given the
volatility of the Companyʼs markets and the complexity of operating a global and complex business, the Board believes that
__________________________________________________________________________________________
46
38
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
maintaining its executive compensation benchmarking to levels that reflect the Companyʼs size through the upper end of the
market cycle 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
complex, global and highly cyclical environment.
The relevant proportion of fixed to at-risk components for senior executive remuneration during 2015 are shown below in table
3.1. It illustrates the annualised remuneration mix for executive 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 the date of grant
(assuming 100% performance and vesting requirements are achieved). The Board decided, after discussions with
Centerbridge and other significant investors, that aligning executives with the recapitalisation offer price paid by subscribers to
the January 2015 rights offer would provide equivalent potential rewards to executives and shareholders. In light of this
decision, the LTI component was increased for 2015 only (with corresponding decreases in subsequent years). See section
3.4, Long-term Incentive, for further information.
Table 3.1: Remuneration mix
Fixed
At risk STI potential
At risk LTI potential
100%
80%
60%
40%
20%
0%
Richard
O'Brien
Jeffrey
Olsen
Fabrizio
Rasetti
Brad
Baker
Terry
Kirkey
Kent
Hoots
3.2. FIXED REMUNERATION
The fixed component of executive remuneration consists primarily of base salary. Senior executives also receive other
benefits, such as a vehicle allowance. In addition, the Company contributes to retirement programs, such as Australiaʼs
compulsory superannuation scheme or the United Statesʼ 401(k) defined contribution retirement plan.
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 CEOʼs recommendation (for
senior executives other than the CEO).
__________________________________________________________________________________________
39
47
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
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
The Short Term Incentive program, or Corporate Bonus Plan (“CBP”), provides certain
employees with the potential to receive an annual bonus if the Company meets annual financial
employees with the potential to receive an annual bonus if the Company meets annual financial
and safety objectives established by the Board and participants satisfy specific annual objectives
and safety objectives established by the Board and participants satisfy specific annual objectives
and targets that are pre-determined by the CEO and/or Board.
and targets that are pre-determined by the CEO and/or Board.
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?
Potential incentives under the CBP range between 10% and 200% of an employeeʼs base salary
Potential incentives under the CBP range between 10% and 200% of an employeeʼs base salary
depending on the employeeʼs role. The actual bonus that an employee will receive under the
depending on the employeeʼs role. The actual bonus that an employee will receive under the
CBP (if any) will vary depending on the Companyʼs and the individualʼs performance against
CBP (if any) will vary depending on the Companyʼs and the individualʼs performance against
established annual objectives and targets, as detailed more fully below.
established annual objectives and targets, as detailed more fully below.
133 senior employees, including the senior executive KMP, participated in the CBP in 2015.
133 senior employees, including the senior executive KMP, participated in the CBP in 2015.
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
operational targets;
align individual efforts with Company and shareholder interests; and
reward for superior individual and Company performance.
focus eligible employees on maximising Company performance in key financial, safety and
operational targets;
align individual efforts with Company and shareholder interests; and
reward for superior individual and Company performance.
By putting a significant proportion of senior executive remuneration at-risk under the CBP
against challenging targets, the CBP aligns executive interests with the Companyʼs financial and
safety performance and with the operational and/or functional objectives of their relevant
business unit or function.
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
safety performance and with the operational and/or functional objectives of their relevant
business unit or function.
What are the
What are the
performance
performance
conditions?
conditions?
There are three key performance components to the CBP that were used in 2015. Each
There are three key performance components to the CBP that were used in 2015. 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 reviewed by the
The Companyʼs annual financial target for the purposes of the CBP is reviewed by the
Remuneration Committee and approved by the Board. The Remuneration Committeeʼs
Remuneration Committee and approved by the Board. The Remuneration Committeeʼs
philosophy in setting financial targets is to establish threshold targets that represent the desired
philosophy in setting financial targets is to establish threshold targets that represent the desired
minimum outcome for each goal (below which no bonus is payable for that goal) and stretch
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 excellent outcomes for each goal.
targets that can only be met by the achievement of 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 2015 and their relative weighting are:
The three performance components for 2015 and their relative weighting are:
(1) Corporate Financial Target - Free Cash Flow (FCF) - 60% of a participantʼs CBP
(1) Corporate Financial Target - Free Cash Flow (FCF) - 60% of a participantʼs CBP
opportunity is linked to the Companyʼs FCF performance. For participants in Drilling
opportunity is linked to the Companyʼs FCF performance. For participants in Drilling
Services and Products, 30% is based on their specific business unit performance and
Services and Products, 30% is based on their specific business unit performance and
30% on overall Company performance. For the purposes of calculating FCF, the
30% on overall Company performance. For the purposes of calculating FCF, the
statutory FCF is adjusted to eliminate the impact of items such as cash restructuring
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 payments,
costs, pension plan pre-funding, interest and income tax receipts or payments,
acquisition or disposals of subsidiaries, and cash flows from financing activities,
acquisition or disposals of subsidiaries, and cash flows from financing activities,
including, but not limited to, proceeds from equity raisings and borrowings.
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
critical need to generate cash to fund ongoing operations and reduce debt.
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 reduce debt.
__________________________________________________________________________________________
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48
40
40
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
For 2015, the Board approved the following performance payout matrix for the CBP
Free Cash Flow component:
Free Cash Flow
% of
Budget
≥ 150%
100%
≤ 30%
FCF
US$ʼ000
≥ 43,868
29,245
≤ $8,773
Payout %
200%
100%
0%
Any actual performance falling between threshold and target, or target and maximum
achievement will be calculated linearly.
(2) Strategic Objectives - 25% of a participantʼs CBP opportunity is dependent upon
performance against strategic objectives relevant to the employeeʼs 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,
new product introductions, leadership, talent retention and development, specific
project or initiative progress, etc.
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 performance. Strategic objectives should be pursued regardless of the
business or market pressures impacting the overall corporate financial performance.
Stretch performance on strategic objectives can be achieved to a maximum of 200%
(i.e. 50%) of the weighting of this component. Depending on the nature of the objective,
stretch performance can be defined when the objective is approved at the beginning of
the year, or in some circumstances be determined by the CEO and approved by the
Board at the end of the year. The Board has discretion to modify the amount of the
strategic objective award up or down as appropriate.
In 2015, to further emphasise FCF generation during the year, the Board added an
additional condition that at least 30% of the Companyʼs FCF target must be achieved in
order to pay any bonus under a participantʼs individual Strategic Objectives component.
(3) Safety - 15% of a participantʼs CBP opportunity is dependent upon the Companyʼs
overall safety performance.
The Board and management believe that a component of the CBP based on safety
results appropriately focuses Company employees on adopting safe work practices,
continuously identifying ways to reduce or eliminate hazards or unsafe behaviours and
getting employees home safely every day. Further, safety is paramount to the
Companyʼs customers, and the Companyʼs ability to secure or retain work is impacted
by its safety performance.
For 2015, the Board agreed, on the recommendation of its Environmental, Health and
Safety Committee, to total case incident rates (TCIR), lost time incident rates (LTIR),
and significant near-miss closure rates (a new leading indicator metric targeting prompt
remediation of significant hazards) as the measurements of safety performance to be
incorporated into the CBP with the following performance payout targets:
Safety TCIR
1.70
1.25
1.01
Near Miss
Closure Days
105
75
45
Safety LTIR
Payout %
0.20
0.13
0.06
50%
100%
200%
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41
49
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
The payout is linear between levels for each safety metric, and each metric is weighted
equally at 5% of the CBP.
In addition to the operation of the CBP, as set out above, the Board retains discretion to
administer the CBP, including adjusting the bonus any participant receives. For example, if a
participant fails to adhere to corporate leadership values, such as legal compliance, the Board
may reduce the participantʼs annual bonus by up to 100%.
How are the
performance
conditions
measured?
Performance is assessed against the relevant targets annually based on the Companyʼs fiscal
year. The final determination of the Companyʼs financial performance is determined after
reviewing the Companyʼs audited financial results for the relevant period. Financial metrics are
assessed quantitatively against pre-determined targets. Where possible, non-financial targets
are also assessed quantitatively, or otherwise, they are assessed by periodic qualitative
performance appraisal.
The Remuneration Committee recommends the amount of bonus to be paid to the CEO for
Board approval. For senior executives, the Remuneration Committee will evaluate and approve
recommendations from the CEO.
Sample calculation
Following is an example of how a bonus would be calculated, assuming the following:
• Employee earns $150,000 with a 40% target bonus amount
• Corporate Free Cash Flow of (80% achievement)
• Safety and strategic objectives achievement both at target performance
Free Cash Flow of 80% = 71% component payout (per Free Cash Flow table above)
Safety performance at target = 100% component payout
Strategic Objectives at target = 100% component payout
Calculation:
Step 1: Determine component subtotal
+
+
=
Free Cash Flow = (71% x 60% weighting)
Safety performance = (100% x 15% weighting)
Strategic objectives = (100% x 25% weighting)
Subtotal achievement
= 43%
= 15%
= 25%
= 83%
Step 2: Calculate Bonus
$150,000 x 40% Target Bonus x 83% Bonus achievement = $49,800 Bonus
All bonuses awarded under the CBP are paid as a cash bonus.
Bonuses earned by the executive KMP under the CBP for the year ended 31 December 2015
are set out in Table 4.1.3 in section 4.1 of this Report. The bonuses will be paid in or after March
2016.
In what form is the
STI delivered?
What STI awards
did senior
executives earn in
2015?
What if a senior
executive ceases
employment?
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 ceases for reasons other than for cause or good reason, any earned bonus will be
pro-rated and paid for the amount of time actually worked during the plan year.
__________________________________________________________________________________________
50
42
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015.
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
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
purpose of the LTI?
What is the
purpose of the LTI?
The Companyʼs LTI arrangements are designed to:
The Companyʼs LTI arrangements are designed to:
• align senior executive rewards with shareholder value;
• align senior executive rewards 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 Companyʼs share price.
and fall in value in line with the Companyʼs share price.
Who participates in
the LTI?
Who participates in
the LTI?
The executives eligible to participate in the LTI are senior management and corporate
The executives eligible to participate in the LTI are senior management and corporate
executives, including the KMP. The target value of annual LTI grants varies depending on the
executives, including the KMP. The target value of annual LTI grants varies depending on the
participantʼs position, skills and contributions to the Company. The target amounts are generally
participantʼs position, skills and contributions to the Company. The target amounts are generally
based on market averages for comparable roles at similar-sized companies. The Company
based on market averages for comparable roles at similar-sized companies. The Company
made grants to approximately 75 participants during the year ended 31 December 2015. See
made grants to approximately 75 participants during the year ended 31 December 2015. See
Section 4.1 for details on LTI awards made to KMP.
Section 4.1 for 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?
Senior executives are typically offered grants that represent approximately 39% - 44% (59% for
Senior executives are typically offered grants that represent approximately 39% - 44% (59% for
the CEO) of their total remuneration (on an annualised basis). However, those senior executives
the CEO) of their total remuneration (on an annualised basis). However, those senior executives
and other LTI Plan participants derive no actual value from their LTI grants unless applicable
and other LTI Plan participants derive no actual value from their LTI grants unless applicable
performance hurdles and/or service conditions are satisfied.
performance hurdles and/or service conditions are satisfied.
In 2015, a change was made to the program for the CEO, the senior executives reporting to him
In 2015, a change was made to the program for the CEO, the senior executives reporting to him
and other company vice-presidents. Specifically, the Board decided to make a one-time increase
and other company vice-presidents. Specifically, the Board decided to make a one-time increase
to the value of the LTI grant for 2015, equal to 200% of the executiveʼs typical annual grant
to the value of the LTI grant for 2015, equal to 200% of the executiveʼs typical annual grant
value, and reduce subsequent grants in 2016, 2017 and 2018 to 67% of the typical annual grant
value, and reduce subsequent grants in 2016, 2017 and 2018 to 67% of the typical annual grant
value. This change was made to more strongly align senior management with investors who
value. This change was made to more strongly align senior management with investors who
participated in the Centerbridge-led recapitalisation.
participated in the Centerbridge-led recapitalisation.
How is reward
How is reward
delivered under the
delivered under the
LTI?
LTI?
Under the LTIP Rules and the Option Plan Rules, the Board has flexibility to offer different types
Under the LTIP Rules and the Option Plan Rules, the Board has flexibility to offer different types
of incentives (e.g., Share Rights, Cash Rights, Options, or a combination of the three) as an
of incentives (e.g., Share Rights, Cash Rights, Options, or a combination of the three) as an
executiveʼs LTI award. The composition of the grants from year-to-year will depend on what, in
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, having regard to the Companyʼs
the Boardʼs view, will best incentivise and reward executives, having regard to the Companyʼs
circumstances. An Option is an entitlement to purchase a share at a pre-determined share price
circumstances. An Option is an entitlement to purchase a share at a pre-determined share price
set at the grant date. A Share Right is an entitlement to receive a fully-paid ordinary share in the
set at the grant date. A Share Right is an entitlement to receive a fully-paid ordinary share in the
Company, and a Cash Right is an entitlement to receive a cash bonus up to a set maximum.
Company, and a Cash Right is an entitlement to receive a cash bonus up to a set maximum.
Although the Board may elect to grant Cash Rights for any reason, they have typically been
Although the Board may elect to grant Cash Rights for any reason, they have typically been
used to supplement Share Rights in order to limit share dilution when the stock price is low at the
used to supplement Share Rights in order to limit share dilution when the stock price is low at the
time of the award.
time of the award.
The 2015 LTI Plan awards to the CEO, his direct reports and other Company vice-presidents
The 2015 LTI Plan awards to the CEO, his direct reports and other Company vice-presidents
was solely comprised of performance-based Options. The Board considered this to be
was solely comprised of performance-based Options. The Board considered this to be
appropriate for 2015, as it most effectively achieved three key objectives: aligning executivesʼ
appropriate for 2015, as it most effectively achieved three key objectives: aligning executivesʼ
interests with shareholders who subscribed to the recapitalisation; motivating executives to focus
interests with shareholders who subscribed to the recapitalisation; motivating executives to focus
on sustained share price growth over the longer term; and retaining key executive talent, which
on sustained share price growth over the longer term; and retaining key executive talent, which
is critical to the Companyʼs long term success. The performance-based Options were granted
is critical to the Companyʼs long term success. The performance-based Options were granted
on terms and conditions determined by the Board, including vesting conditions linked to service
on terms and conditions determined by the Board, including vesting conditions linked to service
and share price appreciation over a specified period (in this case four years).
and share price appreciation over a specified period (in this case four years).
Do participants pay
for Options?
Do participants pay
for Options?
Options are offered at a pre-determined share price, which the recipient must pay in 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 Options by making a payment to the Company,
executing a cashless (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 the Option, or by a combination of the foregoing.
Options are offered at a pre-determined share price, which the recipient must pay in 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 Options by making a payment to the Company,
executing a cashless (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 the Option, or by a combination of the foregoing.
__________________________________________________________________________________________
__________________________________________________________________________________________
43
43
51
Boart Longyear Annual Report 2015Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
Do participants pay
for Share Rights or
Cash Rights?
What rights are
attached to the
Options or Share
Rights
Share Rights and Cash Rights are offered at no cost to the LTIP participants, and no amount is
payable to the Company by the participant if they vest.
Options and Share Rights do not carry voting rights. Shares allocated upon vesting of Share
Rights or the 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
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. For Share Rights granted
beginning in 2012, all dividends paid on unvested Share Rights will be held in trust and payable
when the underlying Share Right vests.
Company employees are not entitled to trade or hedge their unvested Rights or Options.
What are the
vesting
conditions?
For the 2015 LTI grant to KMP and certain other senior executives, the vesting conditions are as
follows:
LTI Incentive Percentage of grant
Vesting condition
Partial vesting
100%
Performance
Options
(granted to the
CEO, his direct
reports and
other Company
vice-presidents)
Vesting may occur on a
pro-rata basis according
to the conditions set out
below.
Satisfaction of share
price appreciation
condition within five
years of the grant date,
as tested at each of
three testing dates.
PLUS
Continued employment
by the recipient as of the
relevant testing date.
__________________________________________________________________________________________
52
44
Annual Financial Report 31 December 2015 BOART LONGYEAR LIMITED __________________________________________________________________________________________ 4 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 27 January 2015, the Company finalised the series of recapitalisation transactions with Centerbridge Partners, L.P. that were announced in October 2014. The recapitalisation transactions involved the entry into new term loans between the Company and Centerbridge Partners, L.P. (“Centerbridge”), equity placements to Centerbridge, 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’s holding in Boart Longyear’s Senior Unsecured notes. The recapitalisation transactions represented a solution to the Company’s previously announced process to identify strategic alternatives to address refinancing and liquidity risks, as they eliminated the potential risk of default from expected covenant breaches of the Company’s former revolving credit facility and were expected to stabilise the Company’s balance sheet during the mining industry’s cyclical downturn. The following recapitalisation transactions were executed and recorded in the Company’s financial statements: • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes. • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014. • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million. • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share. • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares. Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares, or approximately 464.5 million shares, and an additional 434.0 million in non-voting convertible preference shares. As a result of the recapitalisation transactions, the Company incurred approximately $45.5 million of transaction related costs during 2014 and an additional $577 thousand during 2015. These costs have been recorded in sales, general and administrative (“SG&A”) costs for the respective years. On 24 August 2015, the Board announced that Mr Richard O’Brien would be stepping down as the Company’s President and Chief Executive Officer (“CEO”) and that Mr Marcus Randolph, the Chairman of the Board of Directors, would be assuming Mr O’Brien’s executive duties on an interim basis. Mr Randolph has served as the Company’s Interim CEO and Executive Chairman since 1 September 2015 while the Board of Directors considered candidates to assume the duties of the Company’s President and CEO on a permanent basis. The Board announced on 29 February 2016 that Jeffrey Olsen, the Company’s Chief Financial Officer, will become the Company’s President and Chief Executive Officer effective 1 March 2016. EVENTS SUBSEQUENT TO REPORTING DATE On 29 February 2016, Jeffrey Olsen, the Company’s Chief Financial Officer, was announced as the Company’s new President and Chief Executive Officer effective 1 March 2016. With Mr Olsen’s appointment, Mr Randolph relinquishes his duties as Boart Longyear’s Interim CEO and the associated day-to-day operating responsibilities. Mr Randolph will remain as the Company’s Executive Chairman for the foreseeable future to assist with Mr Olsen’s assumption of his new duties. The Company will undertake a search for a chief financial officer to succeed Mr Olsen. In the meantime, Mark Hauber, the Company’s Vice President, Corporate Financial Planning and Analysis and Drilling Services Finance, will serve as Interim CFO. Mr Olsen’s biography may be found on page 76 of this report). DIVIDENDS No dividends have been paid during the financial year. No dividend was determined for either of the half-years ended 30 June 2015 or 31 December 2015. Annual Financial Report
31 December 2015 BOART LONGYEAR LIMITED
How is the Share
Price Appreciation
hurdle measured
for Options granted
to the CEO, his
direct reports and
other vice-
presidents?
Share Price Appreciation is defined as the volume-weighted average share price of the highest
60 out of 90 trading days during each testing period.
All or a portion of the Options will vest and become exercisable on 14 March 2018, 14 March
2019, and/or 14 March 2020 (each a Testing Date) depending on the sustained share price
achieved during each testing period. On each Testing Date, the Board will determine the highest
60-day volume-weighted average share price of the Companyʼs shares on the ASX during any
90-day trading period commencing (i) in the case of the first Testing Date, on or after 15 March
2015, or (ii) in the case of the second or third Testing Date, on or after the most recent Testing
Date, and the portion of the performance Option that shall be vested and exercisable in the
aggregate on such testing date, if any, shall be determined pursuant to the following table:
Highest 60-Day
VWAP
Percent of Option
Vested