ANNUAL REPORT 2017
CONTENTS
2017 Overview
Chairman’s Report
CEO’s Report
Financial Report
Directors’ Report
Review of Operations
Remuneration Report
Board of Directors
Executive Management Team
Independent Auditor’s Report
Directors’ Declaration
Financial Statements
1
2
4
6
7
9
25
59
64
69
75
76
Supplementary Information
Corporate Information
131
BC
CORPORATE GOVERNANCE STATEMENT
Our Corporate Governance Statement may be found
at www.boartlongyear.com/corporate-governance
WHO WE ARE
Established in 1890, Boart
Longyear is the world’s leading
provider of drilling services,
drilling equipment and
performance tooling for mining
and drilling companies. it also
has a substantial presence in
aftermarket parts and service,
energy, mine dewatering, oil
sands exploration, production
drilling, and down-hole
instrumentation.
The Global Drilling Services division
operates for a diverse mining customer
base spanning a wide range of
commodities, including copper, gold,
nickel, zinc, uranium, and other metals
and minerals.
The Global Products division designs,
manufactures and sells drilling
equipment, performance tooling,
down-hole instrumentation and parts
and services.
Our customers rely on our unique
ability to develop, field test and deliver
any combination of drilling consumables,
capital equipment and expertise
worldwide.
*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.
Cash from Operations excludes interest and tax.
ii Boart Longyear 2017 Annual Report
Copyright © 2018 Boart Longyear. All rights reserved.
Boart Longyear 2017 Annual Report 2017 OVERVIEW
2017 OVERVIEW
2017 2016 2015
Revenue
US$739m
Adjusted Gross Margin
US$113m
Adjusted EBITDA
US$43m
Gross Margin US$111m
EBITDA US$-37m
Adj. Net Profit After Tax
US$-58m
Net Profit After Tax US$-150m
739
642
735
113
111
89
86
77
-37
43
32
2
0
-115
-150
-58
-157
-108
-132
-326
Cash from Operations
US$-40m
Number of Employees
4,604
Safety
TCIR 1.62
Safety
LTIR 0.22
-40
-1
11
4,604
4,337
4,725
1.62
1.41
1.24
0.22
0.11
0.18
Drilling Services
Revenue
US$501m
Drilling Services
EBITDA
US$69m
Products
Revenue
US$239m
Products
EBITDA
US$11m
501
448
528
69
52
41
239
195
207
11
13
15
Company Revenue
(Products and Services)
Company Revenue
by Region (Products
and Services)
Drilling Services
Revenue by Stage
Drilling Services
Revenue by Commodity
Surface Coring
Performance Tooling
Rotary/RC
Underground Coring
Drilling Equipment
Production Drilling
Other
26%
25%
18%
16%
7%
5%
3%
USA
Asia Pacific
Canada
EMEA
Latin America
27%
21%
19%
19%
14%
Development
(Near Mine/Brownfield)
Production (In-Pit)
57%
24%
Exploration (Greenfield)
10%
Non-Mining
9%
Gold
Copper
Nickel
Other
Energy
Iron
Non-Mining Water
Other Metals
54%
20%
6%
5%
4%
4%
4%
3%
1
CHAIRMAN’S REPORT
Dear Shareholders,
With the 128 years of Boart Longyear’s existence, the company has
experienced many ups and downs due to the cyclical nature of the
mining industry. This is to be expected as the company is positioned
within the exploration sector where demand for drilling products and
services can be greatly affected. Although downturns are anticipated
from trends seen in the industry over the last century, the good
news for us is, after a five-year period of declining revenues, we
saw revenue growth in 2017. All indications are that this growth will
continue through at least the next couple of years.
The challenge for us is to productively use this improved industry
environment to make Boart Longyear a better and stronger
company. We see this as having several critical elements:
1. Reduce debt to levels appropriate for a highly cyclical industry.
2. Keep overhead costs at current levels as we grow.
3. Continue to be the company that drills tough holes at low cost.
4. Provide a steady stream of innovative drilling products.
5. Accelerate our transition from not only being a provider of
drilling services and products but also being a data provider
to our customers.
Regarding the last point, people drill holes because they want
information. For us, this typically means the location, orientation,
and assays of minerals in the subsurface.
Boart Longyear’s historical role has been to provide the equipment
and services to drill the holes. Third parties would then do the
assaying, core logging and survey work. Having our drillers and
equipment on standby while other parties complete work on our
rig no longer makes sense. Our drill crews are already delivering
to customers downhole survey and core orientation results using
Boart Longyear equipment at many of our sites. We are trialling
with some selected customers our assay-at-site technology—
TruScan™—with very good results.
2 Boart Longyear 2017 Annual Report
These three products fundamentally alter our service offering. We
are now able to deliver the results from our drilling activities to
our customer in a fast, low cost and user-friendly format. No extra
people are required and the results are immediate. When bundled
with the company that already is the best driller in the industry,
we believe we have a very compelling and complete offering for
our customers.
As a final comment, we have already reached the level where
our data business is self-funding. Effectively, we are growing a
new and highly attractive business within your company without
having to come up with additional cash. This is critical as it means
that the five objectives outlined above are mutually compatible.
During 2017, we also completed a financial restructuring. This
transaction bought us the runway to “put our house in order”.
While our debt levels remain too high, we have no meaningful
debt repayment until 2022. Our objective during the coming
three years is to deliver on the five elements noted above. As
this occurs, we believe we will be able to offer substantial value
growth to our shareholders.
Your Board of Directors is overseeing these developments. As part
of the recapitalization, the new shareholders nominated several
Directors to the Board. This process meant that we said goodbye
to a number of Directors who did an excellent job of guiding the
company through turbulent times. Your new Directors are: Kyle
Cruz, Jason Ireland, James Kern, Robert Smith, Richard Wallman
and Eric Waxman. They join continuing directors Jeff Olsen
(CEO), Gretchen McClain and myself. As a group, I am confident
this Board has the skills and expertise to guide a very strong
management team during an exciting time for your company.
Yours sincerely,
Marcus Randolph
Chairman
3
CEO’S REPORT
Dear Shareholders,
I’m happy to report that since our 2017 Annual
General Meeting (AGM), we are seeing a steady
recovery of commodity prices and an increased
demand for drilling. Estimates show a 15% - 20%
increase in exploration spending expected in
2018*. As a result, our customers are enjoying
significantly improved equity values and junior
mining companies are seeing the strongest levels
of capital raisings since 2013.
The company has made some great strides
forward with a renewed focus on optimizing
performance and increasing safety. We ended
the year’s performance with improvements in
virtually all of our financial and operating metrics
in both drilling services and drilling products.
We are seeing increased utilisation of our drill
fleet and improvement in our product revenues
and backlogs.
Safety is of the utmost importance as we
benefit from this greater utilisation of our people
and equipment. We are continually improving
our safety efforts and are proud of our safety
innovations and certifications as we strive to
exceed the expectations of our clients.
This all comes on the heels of achieving an
important milestone with the completion of our
recapitalisation and financial restructuring. Our
shareholders overwhelmingly supported the
transaction, as did our debt holders. We were
able to accomplish our three primary goals of
significantly reducing our debt, pushing out our
remaining debt maturities to 2022 with reduced
interest rates, and gaining increased liquidity in
the form of new money.
Driven by higher volumes both in the Drilling
Services and Products divisions, our full-year
revenues for 2017 were up $97 million, 15%
higher than 2016. Comparing full-year 2017
to full-year 2016, adjusted EBITDA (excluding
restructuring costs) was improved by $11 million,
which was an increase of 35%.
Significant items for 2017 totalled $80 million,
compared to $30 million recorded in 2016. These
items primarily related to restructuring charges
associated with the recapitalisation program, and
4 Boart Longyear 2017 Annual Report
other organisational structural changes
associated with operational improvements.
We now have a strengthened capital structure
and a more secure company as we prepare for
a market recovery. We are on track for achieving
our business plan targets to ensure continued
success and a sustainable future.
With the restructuring, we saw some leadership
changes in our Executive Team and welcomed
Kari Plaster as the Vice President of Human
Resources, and Robert Closner as Vice
President, General Counsel.
We have learned a lot about the business
and how to make it better. We are being more
deliberate in where we choose to do business
with restructuring activities that included exiting
some countries in 2017 where our returns were
insufficient. In Salt Lake City, we consolidated
four separate facilities to reduce overhead and
bring together several groups into one Operations
Centre that includes our bit plant manufacturing
facility, engineering, drilling services, parts and
services, IT and technology service groups. A
consolidated and focussed approach will reduce
costs and allow us to better serve our customers.
Boart Longyear has a rich heritage and we
continue to lead the market and build on the
company’s history of innovation, drilling expertise,
and longstanding customer relationships. With
placing the customer at the core of our strategic
priorities, we can identify, develop and respond
rapidly to needs and new opportunities, through
improved safety standards, higher productivity,
product innovations and new downhole digital
tools.
We recently launched a versatile new line of
Longyear™ diamond coring bits engineered and
proven to drill faster, last longer and outperform
existing bit technology. We also introduced the
Boart Longyear XQ™ Drill Rod. This new rod
features an innovative and patented self-aligning
thread-start geometry that engages smoothly
to keep the rig running with less downtime and
quicker attainment of target depths.
Through our Drilling Services teams we are adding
value to our service offerings by utilising innovative
and proprietary TruScan™ technology. Calibrated
to the site’s geology, this XRF technology
captures accurate, real-time geological data at the
exploration site which is much quicker than sending
core samples off to assay labs for analysis.
These innovations represent steps in executing
the company’s strategy to be the drilling partner
of choice. We believe our new products and
innovations (survey geophysics, logging, core
orientation and assay) are technologies that will
help move Boart Longyear from being a drilling
company that not only provides core, but also to
an industry-leading provider of exploration data
and analytics. Additional digital technologies,
along with new products within our traditional
product lines are being developed for introduction
in 2018.
We learned from our restructuring and
recapitalisation. We are better at measuring our
activities and are leveraging a healthier business
for better results. Our accumulated knowledge,
engineering abilities, and focus on safety give us
huge competitive advantages in the marketplace
and enable us to respond to customers
professionally and responsibly.
Our Executive Team, Board and Employees are
committed to keeping the momentum going for
2018. As we see the gradual but steady recovery
in the exploration and mining industry, Boart
Longyear is positioned to take advantage of the
opportunities on the horizon. We are committed
to being the best global drilling services and
drilling products company while delivering
value to our Customers and to You—our loyal
Shareholders.
Yours sincerely,
Jeff Olsen
President and CEO
*Source: S&P Global Market Intelligence Report, as of
January 31, 2018
5
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
Notes to the Consolidated Financial Statements
Supplementary Information
Corporate Information
7
9
25
59
64
68
69
75
76
77
78
79
81
131
BC
T
R
O
P
E
R
L
A
C
N
A
N
I
F
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6 Boart Longyear 2017 Annual Report
Annual Financial Report
31 December 2017
DIRECTORS’ REPORT
BOART LONGYEAR LIMITED
The Directors present their report together with the financial report of Boart Longyear Limited (the “Parent”) and its controlled
entities (collectively the “Company”) for the financial year ended 31 December 2017 (the “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
Kyle Cruz
Jason Ireland
James Kern
Gretchen McClain
Jeff Olsen
Robert Smith
Richard Wallman
Eric Waxman
Executive Chairman
Non-executive Director (appointed effective 1 Septem ber 2017)
Non-executive Director (appointed effective 1 Septem ber 2017)
Non-executive Director (Appointed effective 20 February 2018)
Non-executive Director
Executive Director
Non-executive Director (appointed effective 1 September 2017)
Non-executive Director (appointed effective 1 September 2017)
Non-executive Director (appointed effective 29 September 2017)
Others who held office as Directors during the financial year were:
Directors
Position
Bret Clayton
Peter Day
Lawrence First
Jonathan Lewinsohn
Jeffrey Long
Rex McLennan
Deborah O'Toole
Matthew Sheahan
Conor Tochilin
Non-executive Director (retired 1 September 2017)
Non-executive Director (retired 1 September 2017)
Non-executive Director (appointed effective 1 September 2017; retired 20 February 2018)
Non-executive Director (retired 20 January 2017)
Non-executive Director (retired 1 September 2017)
Non-executive Director and Senior Independent Director (retired 1 September 2017)
Non-executive Director (retired 1 September 2017)
Non-executive Director (appointed effective 1 September 2017; retired 29 September 2017)
Non-executive Director (appointed effective 20 January 2017; retired 1 September 2017)
For a summary of experience and qualifications for each Director, see the Board of Directors section on page 59 of this
Report.
COMPANY SECRETARIES
•
•
•
Fabrizio Rasetti (through 5 December 2017)
Robert Closner (appointed Company Secretary effective 5 December 2017)
Philip Mackey
__________________________________________________________________________________________
3
7
Annual Financial Report
31 December 2017
PRINCIPAL ACTIVITIES
BOART LONGYEAR LIMITED
Boart Longyear is the global leading integrated provider of drilling services, drilling equipment and performance tooling for
mining and mineral drilling companies. 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, combined 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.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
On 1 September 2017 the Company announced the completion of its recapitalisation, which achieved three primary objectives
that include reduced debt, improved liquidity and extended maturities. The $284.0 million outstanding principal amount of the
7% Unsecured Notes due 2021 plus accrued and unpaid interest has been reduced by approximately $196.0 million in
exchange for ordinary shares. Interest on all debt facilities may be paid in kind (rather than cash) at the Company’s election
until December 2018. Maturities on existing debt have been extended until December 2022. Refer to the loans and borrowings
note on page 108 for more information.
During 2017 the Company announced substantial changes to its Board of Directors in conjunction with the recapitalisation. In
addition, the Board considered the composition of the Board committees and implemented a proposal to reduce the overall
number of committees by eliminating the Environment, Health and Safety Committee (“EHS Committee”). Certain EHS
Committee duties were transferred to the Audit, Compliance and Risk Committee.
Throughout 2017, the Company announced several changes to its senior management team. Robert Closner was appointed
VP, General Counsel, and Kari Plaster was appointed to the role of VP, Human Resources. Mr Closner and Ms Plaster
commenced their new roles on 16 October 2017 and 30 October 2017, respectively. In addition, the Company announced the
departure of Mr Mark Irwin, Chief Commercial Officer; Mr Fabrizio Rasetti, Senior VP, General Counsel and Secretary; and Mr
Brad Baker, Senior VP, Human Resources. The role of Chief Commercial Officer was not replaced and the duties of the role
were distributed to other senior leaders.
EVENTS SUBSEQUENT TO REPORTING DATE
On 26 January 2018 the Company announced a new Management Incentive Plan (“MIP”), that has been implemented as of 1
January 2018, subject to shareholder approval. The MIP has been created to give senior leaders an opportunity to share in the
growth and value of Boart Longyear’s business success. This plan is replacing the Long Term Incentive Plan (“LTIP”) and the
Retention Incentive Grant Agreements (“RIGA”).
The new MIP is a private equity based long-term incentive plan, which is similar in design to a stock option plan, in that it
allows participants to share in the gain of the Company’s value over time. Specifically, the MIP offers two ways to achieve
payment: 1) time vesting and 2) performance thresholds. The time vesting portion represents 33.3% of the plan, spread over a
5-year time window. The performance portion of the MIP is based on the Company’s improvement in Total Enterprise Value
(“TEV”).
There are two performance vesting criteria; one set at $900 million TEV, representing another 33.3% and the other set at $1.1
billion TEV, the final 33.3%. Awards are denominated in MIP Units, which represent proportional interest in the gain in
enterprise value. These units will be shared amongst a pool of the Company’s senior leaders. Vested MIP Units will be paid in
either cash or shares at the discretion of the Board of Directors.
LTIP accruals of Share Rights and Cash Rights will cease as of 31 December 2017. Therefore, LTIP Share Rights and Cash
Rights will be calculated on a pro-rata basis on the applicable grant date through 31 December 2017. The pro-rated LTIP cash
and shares will be paid out on the LTIP Vesting Date, in compliance with the continued employment condition provisions and
other applicable provisions in the LTIP agreement. Likewise, the Target Retention Grant Value of the RIGA will be calculated
on a pro-rata basis on the date of grant through 31 December 2017. The pro-rata amount will be paid out to RIGA holders
employed on their Vesting Date set forth in their RIGA agreement (subject to the existing RIGA provisions).
DIVIDENDS
No dividends have been paid during the financial year.
__________________________________________________________________________________________
4
8
Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
REVIEW OF OPERATIONS 1
1. Safety Performance, Market Conditions and Strategies
1.1 Overview
BOART LONGYEAR LIMITED
Boart Longyear is the world’s leading integrated provider of drilling services, drilling equipment and performance tooling for
mining and mineral drilling companies globally. We conduct our business activities through two 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 and high safety standards of Global Drilling Services and the
innovation, engineering excellence and global manufacturing capabilities of Global Products.
Our operating and commercial priorities include solidifying our competitive advantages with sustained investments in safety
performance, productivity enhancements and operating improvements in our Global Drilling Services division, while remaining
focused on the needs of our customer base. Similarly, technology and product innovation are central to the strength and
future growth of our Global Products division, and we continue to pursue incremental product improvements that customers
will need at all points in the mining cycle. New product development efforts remain focused on incremental product changes
that increase productivity. Launched in the second half of 2017, our patented Longyear™ coloured diamond bits improve
productivity by lasting longer and cutting faster. Development of the new XQ™ coring rod continues, featuring a greater depth
capacity than RQ™ rod, and faster, easier joint make/breaks for higher productivity. TruCore™ core orientation tools continue
to expand geographically and are now available globally. The TruShot™ magnetic survey instrument, the second in a future
suite of tools, is now under test with our Global Drilling Services team. Both instruments are part of our strategy to be the
global technology leader in providing subsurface resource information to mining companies through our Geological Data
Services business.
Our capital structure exposes us to a variety of market, operational and liquidity risks. To address these risks, we completed
the recapitalisation on 1 September 2017. We continue to be focused on being cash positive in 2018 as a primary goal for the
business, which we intend to achieve through continued disciplined expense control and capital management, opportunistic
cost reductions and productivity enhancements.
1.2 Safety Performance
Central to our success is a clear focus on driving 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 customers often look to safety as a basis to differentiate their suppliers.
In 2017, the Company reported safety performance, with a Total Case Incident Rate (“TCIR”) of 1.62 and Lost-Time Injury
Rate (“LTIR”) of 0.22, compared to corresponding rates of 1.41 and 0.11 for 2016. (Both TCIR and LTIR are rates calculated
based on 200,000 hours worked.) While Company performance continues to be solid, we are committed to providing our
employees and customers with an injury-free workplace and industry-leading safety performance. During this full-year period,
our employees experienced 71 injuries that required some medical treatment and eleven injuries that resulted in lost work
time. We believe that significant improvements in our safety record are a moral imperative, and we are pursuing
improvements through initiatives focused upon critical risk management, risk-focused field leadership, industry-leading training
and competency verification and employee-centric safety messaging initiatives.
Four areas of focus for 2017 that will benefit our safety in 2018 are (1) the implementation of the BLY Integrated Training
System (BITS); (2) implementation of global incident management training; (3) the implementation and refocus on our global
Field Level Risk Assessment (FLRA) process; and (4) EHS Lead Indicator KPI’s which will include: Management Interactions,
BITS assigned training modules, In-Vehicle Monitoring System performance scorecard, and Corrective Action closure metrics.
(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.
__________________________________________________________________________________________
5
9
Annual Financial Report
31 December 2017
1.3 Impact of Market Conditions
BOART LONGYEAR LIMITED
Market conditions in 2017 saw a modest improvement on the lows of 2016 as most of the world’s mining companies increased
exploration and capital expenditures. During 2017, drill rig utilisation improved; however, this has not yet translated into
increased pricing conditions for our goods and services. Our Products business has historically been a leading indicator of
activity in our Drilling Services business, so we see that the improved demand in the Products sector, particularly in the
second half of 2017, as a positive sign. This trend is further supported by improved commodity prices and strong equity
raisings by junior mining companies.
Despite the improving market conditions, the Company reported a statutory loss for the 2017 financial year of $150.0 million,
which was an improvement of $6.8 million compared to the prior year (2016: $156.8 million loss). Adjusted net loss after tax
for the year (adding back significant items and other non-recurring items) was $57.8 million, compared to an adjusted net loss
after tax for 2016 of $108.4 million, an improvement of $50.6 million. See reconciliation in Section 3.3 ‘Significant Items’.
Objectives and Strategies
In addition to our prime goal of returning our employees home safely each day, we continue to position the business to operate
more efficiently across all phases of the mining cycle. Key elements of this strategy include focusing more closely on cash
generation, maintaining and improving sustainable operating margins, improving returns through disciplined capital
management, and rigorous focus on working capital particularly inventory and accounts receivable.
We are committed to driving long-term shareholder value, improved safety, productivity and profitability performance in our
Global Drilling Services division, via:
1.
2.
3.
4.
focusing on operational efficiencies and productivity at the drill rig;
optimising the commercial organisation to drive value through contracting and pricing processes;
leveraging the supply chain function across the business; and
controlling SG&A and other overhead related costs.
We are also pursuing market leadership in providing subsurface resource information to our mining customers in an
integrated, real-time and cost-effective manner through our Geological Data Services business.
In our Global Products division, we are focused on improving our commercial practices and product development to more
closely align with customer priorities and product innovation requirements. Through ongoing technology and manufacturing
leadership, we aim to deliver more cost-effective product offerings, with improved productivity and safety features.
Ultimately, our goal is operational excellence to help us address the risks and challenges of any mining industry cycle. We will
do this by both preserving the significant upside that we can realise in our operations in order to grow with the industry, as well
as working on improving our cost structure and operating performance. We also aim to capitalise on longer-term growth
opportunities through investment in technologies that will broaden our customer offerings.
__________________________________________________________________________________________
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10
Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
2 Financial and Operating Highlights
Key financial data
Revenue
NPAT(1)
Adjusted NPAT(1)
EBITDA(2)
Adjusted EBITDA(2)
Operating Loss
Profit/(Loss) from Trading Activities (3)
Cash used in operations
Net cash flows used in operating activities
Capital expenditures (accrual)
Capital expenditures (cash)
BOART LONGYEAR LIMITED
For the year ended 31 December
2017
2016
US$ Millions
US$ Millions
$ Change
% Change
-
739.1
(150.0)
(57.8)
(36.6)
43.1
(87.7)
10.0
(40.4)
(54.0)
30.4
28.4
-
642.4
(156.8)
(108.4)
1.6
32.0
(60.8)
(23.9)
(1.4)
(50.4)
20.4
22.4
96.7
6.8
50.6
(38.2)
11.1
(26.9)
33.9
(39.0)
(3.6)
10.0
6.0
15.1%
4.3%
46.7%
-2387.5%
34.7%
-44.2%
141.8%
-2785.7%
-7.1%
49.0%
26.8%
886.1%
90.5%
34.4%
-19.0%
Weighted Average number of ordinary shares
9,225.9
935.6
8,290.3
Earnings per share (basic and diluted)
(1.6) cents
(16.8) cents
15.2 cents
Average BLY rig utilisation
Average Fleet size
43%
720
32%
889
11%
(169)
(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 3.3 'Significant Items'.
(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 3.3 'Significant Items'.
(3) Profit/(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 Company’s financial results by eliminating from Operating Loss charges relating to
significant and other expense/income items.
3 Discussion and Analysis of Operational Results and the Income Statement
3.1 Revenue
Revenue for the year ended 31 December 2017 of $739.1 million increased by 15.1%, or $96.7 million, compared to revenue
for the prior year ended 31 December 2016 of $642.4 million.
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.
Revenue during 2017, was higher as a result of higher volumes due to strengthening sentiment in the mining industry,
resulting in improved spending on exploration and development when compared to the same period in 2016. We continue to
face some headwinds from price on revenue but it was less in 2017 than in 2016.
__________________________________________________________________________________________
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11
Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
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.
For the year ended 31 December
2017
As Reported
Significant
Items
Adjusted
Balance
As Reported
2016
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
739.1
(628.5)
110.6
6.6
(152.9)
(27.4)
-
(24.7)
(87.8)
-
2.7
2.7
-
76.5
0.5
(79.7)
-
-
739.1
(625.8)
113.3
6.6
(76.4)
(26.9)
(79.7)
(24.7)
(87.8)
642.4
(556.6)
85.8
8.9
(108.8)
(28.4)
-
(18.3)
(60.8)
-
3.0
3.0
-
22.1
2.4
(27.5)
-
-
642.4
(553.6)
88.8
8.9
(86.7)
(26.0)
(27.5)
(18.3)
(60.8)
Gross margin in 2017 improved to 15.3% compared to 13.8% in 2016. The higher margin is related to cost savings from key
improvement initiatives as well as improved margins on fixed costs relative to stronger sales volumes.
The total of other income, general and administrative expenses (“G&A”), sales and marketing expenses (“S&M”) and other
expenses (adjusted for significant items) of $121.4 million in 2017 was relatively flat compared to 2016 of $122.1 million.
Lower G&A costs were offset by higher other expenses, which were driven by foreign currency exchange losses and VAT
related items.
__________________________________________________________________________________________
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Boart Longyear 2017 Annual Report
Annual Financial Report
31 December 2017
3.3 Significant Items
BOART LONGYEAR LIMITED
During the years ended 31 December 2017 and 2016, the Company incurred the following restructuring expense,
recapitalisation costs and impairment charges:
US$ Millions
EBITDA(1)
NPAT(2)
Recapitalisation costs
Impairments
Property, plant and equipment
Intangible assets
Employee and related costs
Other restructuring expenses
Other non-recurring items
Tax effect of items and other tax write offs(3)
Total of significant and non-recurring items
Adjusted EBITDA(1)
Adjusted NPAT(2)
For the year ended 31 December
2017
2017
2016
2016
US$ Millions
US$ Millions
US$ Millions
US$ Millions
(36.6)
50.5
0.1
-
15.1
14.0
-
-
79.7
43.1
(150.0)
50.5
0.1
-
15.1
14.0
-
12.5
92.2
1.6
7.5
0.9
1.0
8.0
10.1
2.9
-
30.4
32.0
(156.8)
7.5
0.9
1.0
8.0
10.1
2.9
18.0
48.4
(57.8)
(108.4)
(1) 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'.
(2) NPAT is 'Net profit after tax'. Adjusted NPAT is 'Net profit 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 $36.3 million.
__________________________________________________________________________________________
9
13
Annual Financial Report
31 December 2017
4 Discussion and Analysis of Cash Flow
Cash used in operations
Net cash flows used in operating activities
Net cash flows used in investing activities
Net cash flows provided by financing activities
4.1 Cash Flow used in Operating Activities
BOART LONGYEAR LIMITED
For the year ended 31 December
2017
2016
US$ Millions US$ Millions
$ Change
% Change
(40.4)
(54.0)
(15.4)
46.4
(1.4)
(50.4)
(7.9)
17.5
(39.0)
-2785.7%
(3.6)
(7.5)
28.9
-7.1%
-94.9%
165.1%
Cash flow from operating activities for the year ended 31 December 2017 was negative $54.0 million, which is slightly lower
than 2016 of negative $50.4 million. Cash generated from higher EBITDA was offset by fees related to the recapitalisation.
We have invested $25.5 million in capital equipment to support existing operations during 2017, which is higher than the
comparable prior period (2016: $19.2 million). Of the 2017 amount, approximately $19.0 million was spent on sustainment
activities relating to refurbishing current rigs and other support equipment, $3.0 million was spent on product development
activities, including engineering and patent maintenance and the remaining amount related to facilities and other
miscellaneous expenditures. 2017 capital expenditures have been partially offset by proceeds from the sale of property, plant
and equipment of $13.8 million (2016: $16.4 million).
The increase in cash flows provided by financing activities is a direct result of the upsized ABL received as part of the
recapitalisation.
5 Discussion of the Balance Sheet
The net liabilities of the Company increased by $78.5 million, to negative $259.0 million as at 31 December 2017, compared to
negative $337.5 million as at 31 December 2016. This increase results primarily from lower long-term debt from equitising the
majority of the 7% Unsecured Notes offset by the loss incurred in the year.
There were no significant movements in total assets during 2017. Working capital (assets and inventory) increased as the
trading environment improved. This was offset by normal depreciation on property, plant and equipment.
Total liabilities decreased by $82.0 million to $932.1 million. This is primarily driven by lower debt as a result of the equitisation
of approximately $196.0 million of the 7% Unsecured Notes, which is partly offset by capitalising the accrued interest and debt
issuance costs from Term Loans A and B and the 10% Secured notes, combined with $45.0 million of new money from an
upsized asset backed loan.
__________________________________________________________________________________________
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Boart Longyear 2017 Annual Report
Annual Financial Report
31 December 2017
Liquidity and Debt Facilities
The Company’s debt is comprised of the following instruments:
BOART LONGYEAR LIMITED
Description
Principal
Outstanding
as at 31
December
2017
(millions)
Accreted
Interest
as at 31
December
2017
(millions)
Interest
Rate
Scheduled
Maturity
Security
Senior Secured Notes
$217.0
$8.7
12%2
December
2022
Second lien on the accounts receivable,
inventories, deposit accounts and cash
(“Working Capital Assets”) of the Term Loan B
and Senior Secured Notes guarantors that are
not ABL or Backstop ABL guarantors, a third lien
on the Working Capital Assets of the Term Loan
B and Senior Secured Notes issuer and the other
Term Loan B and Senior Secured Notes
guarantors that are also ABL or Backstop ABL
guarantors, and a first lien on substantially all of
the other tangible and intangible assets (“Non-
Working Capital Assets”) of the Term Loan B and
Senior Secured Notes issuer and other
guarantors, including equipment, intellectual
property, the capital stock of subsidiaries and
certain owned real property (in any case,
excluding assets of BLY IP, Inc.)
Term Loan – Tranche B
$105.0
$39.9
10%3
December
2022
Same as Senior Secured Notes
ABL
$17.0 1
Variable3
23 July
2020
Term Loan – Tranche A
$85.0
$34.9
10%3
December
2022
First lien on the Working Capital Assets of the
ABL borrower and guarantors and a third lien on
substantially all of the Non-Working Capital
Assets of the ABL borrower and guarantors,
including equipment, intellectual property and the
capital stock of subsidiaries (but excluding real
property), and in any case excluding assets of
BLY IP, Inc., Boart Longyear Suisse Sarl and
Boart Longyear S.A.C.
First lien on the Working Capital Assets of the
Term Loan A guarantors that are not ABL or
Backstop ABL guarantors, a second lien on the
Working Capital Assets of the Term Loan A
issuer and the other Term Loan A guarantors
that are also ABL and Backstop 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 (in
any case, excluding assets of BLY IP, Inc.)
Backstop ABL
$45.0
$1.6
11%
23 October
20205
Same as ABL but including any real property
required to be pledged as security for the Senior
Secured Notes
Senior Unsecured
Notes
$88.9
$0.4
1.5%
December
2022
Unsecured
(1) $12.0 million in letters of credit were issued in addition to the $17.0 million borrowings that were outstanding.
(2)
Interest rate payable-in kind at an interest rate of 12% per annum at the Company’s election until December 2018 and thereafter in
cash at a reduce interest rate of 10% per annum.
Interest is 10% payable-in-kind through December 2018 and 8% payable in-kind thereafter.
(3)
(4) Based on LIBOR + margin (grid-based margin is currently 3.5%).
(5) Maturity Date is 23 October 2020 or 90 days after the ABL due date.
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Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
The Company’s ABL facility provides for a commitment of up to $50.0 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 issuer’s and guarantors’
accounts receivable, inventories, and cash. Scheduled maturity is 23 July 2020. Pricing for the facility is based on LIBOR
plus a grid based spread, which spread currently is 3.5%. The facility does not include ongoing financial maintenance
covenants. Certain restrictions under the facility currently limit maximum borrowings to $45.0 million and require $5.0 million in
cash to be held in a restricted account with the lender. These restrictions will be lifted if the Company satisfies a 1.1x fixed
charge coverage test for four consecutive quarters.
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Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
6
Review of Segment Operations
BOART LONGYEAR LIMITED
The following table shows our third party revenue and revenue from inter-segment sales by our Global Drilling Services
division. Segment profit represents earnings before interest and taxes.
2017
US$ Millions
Segment Revenue
2016
Segment Profit
2017
2016
US$ Millions
US$ Millions
US$ Millions
Drilling Services
500.6
447.7
36.4
10.7
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
238.5
54.5
194.7
57.7
293.0
(54.5)
739.1
252.4
2.8
4.2
(57.7)
642.4
39.2
14.9
(1) Transactions between segments are carried out at arm’s length and are eliminated on consolidation.
(1) Based on percentages of total Company revenue for the year ended 31 December 2017.
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13
17
Annual Financial Report
31 December 2017
6.1 Review of Segment Operations - Global Drilling Services
BOART LONGYEAR LIMITED
For the year ended 31 December
2017
2016
US$ Millions
US$ Millions
$ Change
% Change
500.6
447.7
52.9
11.8%
398.4
30.2
428.6
85.6%
62.8
12.5%
9.3
21.1
69.1
20.8
308
720
3,320
363.0
38.3
401.3
89.6%
35.6
8.0%
10.7
21.3
51.6
15.0
287
889
3,011
35.4
(8.1)
27.3
-4.0%
27.2
4.5%
(1.4)
(0.2)
17.5
5.8
21
(169)
309
9.8%
-21.1%
6.8%
-4.5%
76.4%
56.3%
-13.1%
-0.9%
33.9%
38.7%
7.3%
-19.0%
10.3%
Financial Information
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 period-end
Safety
The Global Drilling Services division’s Total Case Incident Rate (“TCIR”) for the year ended 31 December 2017 was 1.96,
compared to 1.43 for 2016. The Lost-Time Incident Rate (“LTIR”) for 2017 was 0.28, compared to 0.10 for 2016. Although the
beginning of 2017 was challenging for Global Drilling Services in terms of TCIR performance, strong safety performance in
recent months have continued the trend over several years of improving safety performance. We believe this trend supports
the effectiveness of the divisions safety initiatives, which include better analysis of high-potential near miss incidents and
significant injuries; applying corrective actions globally; increasing management safety interactions at operating locations;
increasing supervisory competencies through training; reinforcing hazard assessments; and increasing drill rig inspection
frequency.
Revenue
Consistent with recent commodity trends, mining industry spending on exploration and development and non-mining services
increased in 2017 and, as a result, Global Drilling Services’ revenue in 2017 was $500.6 million, up 11.8% from $447.7 million
in 2016. The year-over-year revenue increase was driven by $49.4 million and $3.5 million improvements in volume and
foreign exchange rates, respectively. Volume increases can be attributed primarily to the increase in Surface Coring and
RC/Rotary in the US, and increases in existing customers programs in Latin America and EMEA.
Approximately 87% of Global Drilling Services’ revenue for 2017 was derived from major mining companies, with the majority
of these customers servicing the copper and gold industries. There was no single customer that contributed more than 10% of
the Company’s revenue in 2017. We believe this diversified revenue base provides greater revenue stability.
____________________________________________________________________________________
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Boart Longyear 2017 Annual Report
Annual Financial Report
31 December 2017
Margins
BOART LONGYEAR LIMITED
With Revenues increasing from $447.7 million in 2016 to $500.6 million in 2017, an 11.8% increase, Global Drilling Services
also achieved an increase in Contribution Margin. The 2017 Contribution Margin was $62.8 million compared to $35.6 million
in 2016, an increase of 76.4%. The primary drivers for the increase in Contribution Margin were the cost control initiatives
undertaken by the business and the productivity and commercial improvements commenced in 2017. The Drilling Services
business improved in meters per shift, non-billable hours and revenue per shift while reducing variable and fixed cost to
maintain a flat cost structure from a percentage of revenue perspective.
EBITDA in 2017 was $69.1 million, up 33.9% from $51.6 million in 2016. The largest improvement was seen in our USA
operations; EBITDA in the USA drilling services increased $10.1 million in 2017 primarily driven by an uplift of $24.6 million in
revenue. Other regions of the Global Drilling Services business have had varied EBITDA results, but we continue to focus on
the cost structure of all our operations and on driving continued improvement in productivity and commercial practices.
__________________________________________________________________________________________
15
19
Annual Financial Report
31 December 2017
6.2 Review of Segment Operations - Global Products
BOART LONGYEAR LIMITED
Financial Information
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)
Other Metrics
Manufacturing plants
Average backlog
Inventories 1
# of Employees
For the year ended 31 December
2017
2016
US$ Millions
US$ Millions
$ Change
% Change
238.5
194.7
43.8
22.5%
189.8
1.4
6.1
197.3
82.7%
20.5
8.6%
21.3
16.0
11.3
1.1
6
25.9
174.4
976
152.4
(6.9)
6.7
152.2
78.2%
22.6
11.6%
20.0
17.0
13.4
1.9
6
14.6
165.0
1,001
37.4
8.3
(0.6)
45.1
4.5%
(2.1)
-3.0%
1.3
(1.0)
(2.1)
(0.8)
-
11.3
9.4
(25)
24.5%
120.3%
-9.0%
29.6%
5.8%
-9.3%
-25.9%
6.5%
-5.9%
-15.7%
-42.1%
0.0%
77.4%
5.7%
-2.5%
(1) Represents total Company inventories including Global Services and Global Products.
Safety
In 2017, the Total Case Incident Rate (“TCIR”) for the Global Products segment was 1.16 recordable incidents per 200,000
hours worked and the Lost-Time Incident Rate (“LTIR”) was 0.00. As with the Global Drilling Services division, these results
reflect the Company’s continued focus on programs to reinforce hazard recognition and consistently apply the Company’s
EHS management system across all operations. With the release of the Company’s updated EHS management system,
redefined and expanded EHS standards will continue to drive continuous improvement with a streamlined and comprehensive
approach to best practices in safety.
Revenue
The year ended 31 December 2017 was significantly improved from prior year for the Global Products division. Revenue for
the year was $238.5 million, up 22.5% from $194.7 million in 2016. The primary driver of the increase was coring tools and drill
rigs.
Margins
Although revenue for Global Products increased by 22.5%, EBITDA for the year ended 31 December 2017 was down 15.7%
when compared to 2016. The drop in EBITDA was primarily driven by improved trading conditions resulting in higher
throughput in the manufacturing plants.
__________________________________________________________________________________________
16
20
Boart Longyear 2017 Annual Report
Annual Financial Report
31 December 2017
Backlog
BOART LONGYEAR LIMITED
At 31 December 2017, Global Products had a backlog of product orders valued at $33.5 million. This compares to $19.0
million at 31 December 2016. Average backlog during the second half of 2017 was $29.1 million compared to $22.7 million
during the first half of 2017. The increase in our backlog, which we define as firm product orders, was driven by increase in
demand for capital equipment and consumables. It should be noted that an order shipped within the same month the order is
received does not reflect in backlog. Also, there is no certainty that orders in our backlog will result in actual sales because
customers may have the ability to cancel orders depending on contract terms.
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 2017, we
had 429 issued patents, 608 registered trademarks, 204 pending patent applications and 20 pending trademark applications.
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 opportunities and develop technical
solutions for issues that arise on site. We believe that sharing best practices accelerates innovation and 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. New product development efforts remain focused on incremental product changes that increase productivity so
customers are willing to pay for them regardless of the business environment. Launched in the second half of 2017, our
patented Longyear™ coloured diamond bits improve productivity by lasting longer and cutting faster. Development of the new
XQ™ coring rod continues smoothly, featuring a greater depth capacity than RQ™ rod, and faster, easier joint make/breaks
for higher productivity. TruCore™ core orientation tools continue to expand geographically and are now available globally. The
TruShot™ magnetic survey instrument, the second in a future suite of tools, is now under test with our Global Drilling Services.
Both instruments are part of our strategy to be the global technology leader in providing subsurface resource information to
mining companies through our Geological Data Services business.
Inventories
Cash continued to be generated from inventory in 2017 due to careful management of demand in our supply chain
organisation and continuous efforts to reduce excess inventory. While we generated $12.7 million related to third-party sales
and consumption in our Global Drilling Services division, this was partially offset by an increase of $6.8 million related to
foreign currency translation and $13.9 million related to a net increase in other non-cash items.
__________________________________________________________________________________________
17
21
Annual Financial Report
31 December 2017
7. Outlook
7.1 Our 2018 Priorities
BOART LONGYEAR LIMITED
Continue to eliminate job related injuries and significant safety risks 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 providing a safe work environment for every employee and contractor and implementing state-
of-the-art safety tools and practices to become the safety leader in our industry. We are particularly focused on significant
risks, continually seeking ways to mitigate those risks and ensuring that, when significant injuries or high-potential 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.
Four areas of focus for 2017 that will benefit our safety in 2018 are (1) the implementation of the BLY Integrated Training
System (BITS); (2) implementation of global incident management training; (3) the implementation and refocus on our global
Field Level Risk Assessment (FLRA) process; and (4) EHS Lead Indicator KPI’s which will include: Management Interactions,
BITS assigned training modules, In-Vehicle Monitoring System performance scorecard, and Corrective Action closure metrics.
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. Our commitment is underpinned
by initiatives to improve the efficiency and productivity with which we deliver services and information to our customers,
combined with enhancements of our commercial practices and capabilities to ensure alignment with our customers’ most
important needs. Our goal is to be the driller of choice for our customers and thereby bring value both to the customer and to
Boart Longyear.
Effectively manage customer relationships, pricing and contract terms. Our Global Drilling Services and Global Products
businesses have implemented rigorous internal processes to ensure our products and services reflect the full value delivered
to our customers and to solidify and create lasting customer relationships.
Create new products and respond to new opportunities within a constrained capital budget. We will continue to pursue
disciplined investments in our business to drive returns and capitalise on high-value opportunities in which we can leverage
distinctive competencies. We also will continue to pursue strategic technologies and high value-added and more profitable
activities, such as expanding our product and services offerings to provide subsurface resource information to our mining
customers through our Geological Data Services business.
Improve cash generation in 2018, with the goal to continue to be cash positive, through careful management of
liquidity and costs. Being cash positive in 2018 is a primary goal for the business, which we intend to achieve through
continued disciplined expense and capital management, opportunistic cost reductions and productivity enhancements. For
2018, we will continue to drive business initiatives focused on improving our fixed and variable cost structures in keys areas of
the business and we expect these benefits to improve liquidity in 2018 and beyond. Furthermore, we will continue to focus on
process improvements, streamlined working capital management and structural changes to improve customer support and
responsiveness and drive long-term efficiencies.
7.2 Outlook and Future Developments
We are not providing an outlook for 2018 revenue or EBITDA. However, increased drilling activity, in combination with our
productivity and commercial initiatives are making a positive impact as demonstrated by the improved underlying 2017 results.
We anticipate seeing ongoing gains from those identified initiatives which we continue to actively manage.
The mining industry is cyclical. Notwithstanding the reduced activity since 2012, 2016 appeared to have been an inflection
point, marking a return to the longer-term growth outlook for the industry, underpinned by:
•
•
•
•
continued industrialisation and urbanisation of developing economies, which are expected to support structural
increases in demand for minerals and metals broadly in line with global GDP;
improving commodity prices and corresponding customer margins relative to those of recent years;
improving supply/demand fundamentals in key commodities like copper;
reduced reserve to production ratios at many gold mines.
As a result, we retain confidence in our belief that natural resources companies will continue to produce throughout the cycle.
This will continue to drive the need to both replace and supplement ongoing depletion of reserves and resources, driving future
investment in exploration, development and capital spending. As the leading global drilling services provider to the mineral
__________________________________________________________________________________________
18
22
Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
industry, we continue to drive operational improvements and technological innovation across our global fleet of assets, which
we believe will continue to benefit the business through increased market opportunities.
We remain focused on our core mining markets and intend to continue to invest in growth opportunities in a selective and
disciplined manner. We will continue to invest to develop the next generation of rod-handling solutions across our range of
drilling rigs and expand the provision of subsurface resource information to our mining customers through our Geological Data
Services business. In addition, we continue to pursue operational enhancements through safety and productivity
improvements to deliver value to our customers and improve bottom line operating performance of our business.
Further information about likely developments in the operations of the Company in the 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.
7.3 Key Risks
The Company maintains an Enterprise Risk Management (“ERM”) system by which we systematically assess the
consequences of risk in areas such as market, health and safety, environment, finance, legal compliance, and reputation. We
also identify and track appropriate mitigation actions for identified risks. 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 Company’s 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 the global contraction in exploration and development spending in the commodities sector,
and the subsequent impact on our mining customers. Mineral exploration, production and development activities remain
uncertain and 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 selectively
pursuing opportunities in other markets, such as infrastructure and geotechnical applications for our Global Products business,
and new technology offerings such as our Geological Data Services business. In addition, our business priorities include
ongoing initiatives to further improve the underlying cost structure and simplify the business. We also seek to gain market
share and expand our customer base in our core mining market by improving the efficiency and productivity with which we
deliver services and information, and improve commercial practices for better alignment with our customers’ needs.
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 to strengthen customer relationships and lessen
retention risks through active customer selection, improved commercial practices and ongoing initiatives targeted at
strengthening our operational and safety performance. We also pursue contracting practices to minimise the financial cost
associated with the termination or suspension of customer contracts or orders. The degree to which we can allocate
termination risks and obligations to our customers remain somewhat limited by industry practice.
We have implemented significant cost savings, productivity improvements and efficiencies during the course of the ongoing
industry downturn but our future operating results, financial condition and competiveness depend on our ability to sustain
previously implemented reductions and realise additional savings and improvements from ongoing and future productivity
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 Liquidity and Indebtedness. At 31 December 2017, our net debt was $598.9 million, with $642.7 million in
gross debt and $43.8 million of cash on hand and availability through our Asset-Based Loan (“ABL”) facility. The instruments
comprising the Company’s debt and their terms are set out in detail in Note 21 of the financial statements.
As announced on 1 September 2017 the Company successfully completed its recapitalisation, which achieved three primary
objectives that reduced debt, improved liquidity and extended maturities. The $284.0 million outstanding principal amount of
the 7% Unsecured Notes due 2021 plus accrued and unpaid interest has been reduced by approximately $196.0 million in
exchange for ordinary shares. Interest on all debt facilities may be paid in kind (rather than cash) at the Company’s election
until December 2018. Maturities on existing debt have been extended until December 2022.
__________________________________________________________________________________________
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Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
The annual financial report has been prepared on a going concern basis, which contemplates the realisation of assets and the
settlement of liabilities in the ordinary course of business. The Directors reaffirm that current and expected operating cash
flow, cash on hand and available drawings under the Company’s asset-based loan facility provide sufficient liquidity to meet its
debts as and when they fall due.
Tax Risk. As previously disclosed and further detailed in Note 11 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 Company’s appeals of the CRA’s 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.
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.
7.4 Forward Looking Statements
This report contains forward looking statements, including statements of current intention, opinion and expectation regarding
the Company’s present and future operations, possible future events and future financial prospects. While these statements
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.
__________________________________________________________________________________________
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Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
REMUNERATION REPORT
BOART LONGYEAR LIMITED
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 2017 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
o
the Company’s business is global and the senior executive team is based and operates 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
disclosures and practices.
safety is fundamental to relationships with employees, customers and all stakeholders. The Company also
considers safety performance to be both a significant opportunity and a risk, as our customers often look to
safety as a basis to differentiate their suppliers. The Company continues to be committed to providing our
employees and customers with an injury-free workplace and industry-leading safety performance.
Changes in 2017
Each of the changes outlined below, were carefully designed to support the key strategic, financial and human resources
objectives of the Company.
1. Changes in Executive Leadership – In October 2017, the Company announced that Mr Brad Baker, Senior Vice
President of Human Resources, and Mr Fabrizio Rasetti, Senior Vice President and Legal Counsel, would exit the
business at the end of October, 2017 and ceased employment as of 31 December 2017. As a result of these
changes, Ms Kari Plaster was appointed Vice President of Human Resources, effective 30 October 2017, and Mr
Robert Closner was appointed Vice President and General Counsel, effective 16 October 2017. Both Ms Plaster and
Mr Closner serve on the Executive Committee and report to Mr Jeffrey Olsen, Chief Executive Officer. Furthermore,
Mr Mark Irwin, Chief Commercial Officer (“CCO”), ceased employment as of 30 September 2017. As of 8 September
2017, Mr Robert Closner assumed the interim position of the CCO and duties as assigned. Mr Closner was then
appointed Vice President and General Counsel, effective 16 October 2017. The position of CCO was subsequently
eliminated and those duties have been divided amongst other senior leaders.
2.
Introduction of the Management Incentive Plan (MIP) – Effective 31 December 2017 the Long Term Incentive
Plan (“LTIP”) and Retention Incentive Grant Agreement (“RIGA”) programs ceased and are replaced by the new
Management Incentive Plan (“MIP”), which is effective 1 January 2018 and subject to shareholder approval.
Retention based awards have been calculated on a pro-rata basis as of 31 December 2017 and will be paid on the
original payment date for current employees as per the award agreement. Performance based awards and stock
option plans are cancelled as of 31 December 2017. The new MIP program will focus on aligning performance
objectives to the total enterprise value of the Company. As the markets begin to stabilise, the Board believes that
restructuring the incentive plan program provides a balanced long-term focus on both share price appreciation and
continued improvement of the underlying operational and financial performance of the Company.
The Company continuously monitors its remuneration plans and arrangements to ensure they remain appropriate for
executives, Directors and shareholders. Changes to remuneration arrangements are detailed in note 34 and in the 2018
Remuneration Report.
__________________________________________________________________________________________
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Annual Financial Report
31 December 2017
2017 business impacts on incentives
BOART LONGYEAR LIMITED
The year ended 31 December 2017 showed improvement from 2016 as the mining services market began to stabilise, which
has translated into improvement in revenue, marginally higher utilisation of our drill fleet and further improvement in our
product backlog compared to 2016. Our Products business has historically been a leading indicator of activity in our Drilling
Services business, so we see that the improvement in Products revenues is a positive sign. This trend is further supported by
improved commodity prices, increased exploration spend, and strong equity raisings by junior mining companies. These
factors contributed to a year-over-year increase in revenue of $96.7 million, or 15.1%. Despite revenue coming in $96.7 million
higher than the prior year, EBITDA was lower by $38.2 million and NPAT increased by $6.8 million compared to 2016. The
lower EBITDA was primarily related to approximately $60 million of fees and other one-time recapitalisation costs associated
with the recapitalisation announced on 1 September 2017. Adjusted EBITDA improved by $11.1 million, or 34.7%, exceeding
target in the Short Term Incentive (“STI”) plan, and adjusted NPAT improved by $50.6 million.
As markets stabilised during 2017, the Company continued its focus on net cash generation, primarily through increased
productivity as part of the Hard Work Cycle initiative and other corporate improvement initiatives. Rig utilisation increased as
commodity prices improved and exploration spend increased. As a result, further capital was invested in working capital and
other variable costs, such as labour and mobilisation to meet demand. As a result, free cash flow (defined for the purposes of
Short Term Incentive (“STI”) calculations in section 3 of the annual report) for the business below target at negative $20.6
million. In addition, some safety metrics were below improvement targets. However, individuals met targets in general. Short-
term incentive achievement for the Company’s executive KMP in 2017 was on average 53%.
The performance-based LTIP awards granted in 2014 were subject to a three-year Cumulative Net Debt target, adjusted for a
Total Shareholder Return (“TSR”) modifier metric. Boart Longyear’s TSR was below that of our peers’ and so this metric was
not achieved. Due to challenging market conditions, the 2014 LTIP awards vested on 15 March 2017 at 61.2% of the target.
This is derived by the Cumulative Net Debt achievement of 68% of the LTIP target, adjusted by a further 10% modifier as our
total shareholder return metric did not meet the target (68% - (68% x 10%) = 61.2%).
Changes to the Board of Directors
During 2017 the Company announced changes to its Board of Directors in conjunction with the recapitalisation. The majority
of Directors resigned from the Board, in or prior to September 2017. In addition, the Board considered the composition of the
Board committees and implemented a proposal to reduce the overall number of committees by eliminating the Environment,
Health and Safety Committee (“EHS Committee”). Certain EHS Committee duties were transferred to the Audit, Compliance
and Risk Committee.
__________________________________________________________________________________________
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Boart Longyear 2017 Annual Report Annual Financial Report
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Report Structure
This Remuneration Report (“Report”) is presented in six sections, as follows:
BOART LONGYEAR LIMITED
1
2
3
4
5
6
Section
2017
remuneration
overview
Description of content
• Outlines the Company’s remuneration practices and explains how executive
remuneration is structured to support the Company’s strategic objectives.
Sets out the Directors and senior executives who are covered by this Report.
Details the actual remuneration earned by the CEO and other senior executives during
the year ended 31 December 2017.
•
•
Remuneration
framework and
strategy
•
Sets out the Company’s 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 Company’s remuneration strategy.
Components
of executive
remuneration
•
•
Provides a breakdown of the various components of executive remuneration.
Details the components of executive remuneration that are fixed and therefore not “at-
risk.”
• Outlines the key features of the short-term incentive plan that applies to the Company’s
Performance
and risk
alignment
Executive
remuneration
in detail
Non-executive
Director
arrangements
executives.
• Outlines the key features of the long-term incentive plan and option plan that apply to the
Company’s executives.
•
•
•
•
•
Explains how executive remuneration is aligned with performance and outlines short-
term and long-term performance indicators and outcomes.
Explains how executive remuneration is structured to encourage behaviour that supports
long-term financial soundness and the Company’s risk management framework.
Sets out the total remuneration provided to executives (calculated pursuant to the
accounting standards) during the years ended 31 December 2017 and 2016.
Provides details of the rights granted to executives during the year ended 31 December
2017 under the long-term incentive plan.
Summarises the key terms of executive service contracts (including termination
entitlements).
•
Explains the Non-executive Directors’ (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 NEDs’ remuneration during the years ended 31 December 2017 and 2016.
__________________________________________________________________________________________
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Annual Financial Report
31 December 2017
1. 2017 REMUNERATION OVERVIEW
1.1. EXECUTIVE REMUNERATION STRATEGY
BOART LONGYEAR LIMITED
The diagram below illustrates the primary objectives of the Company’s executive remuneration strategy and how the
components of overall remuneration have been designed to support them:
Attract, Retain
and Reward
Top Talented
Executives
Alignment
between Total
Compensation
and Delivered
Performance
Remuneration
Strategy
Appropriate
Mix of Fixed
and “At Risk”
Remuneration
Total
Remuneration is
Reasonable and
Aligned with
Shareholder
Interests
Attract, Retain and Reward
Top Talented Executives
Appropriate Mix of Fixed
and “At Risk”
Remuneration
Total Remuneration is
Reasonable and Aligned
wit Shareholder Interests
Alignment Between Total
Compensation and
Delivered Performance
Remuneration levels are
competitive with similar
roles in the markets in
which the Company
competes for talent.
Incentive based
compensation provides for
upside potential with
superior performance.
Lont-term incentive
compensation provides for
a meaningful retention.
There is a significant
The remuneratin committee
amount of total executive
remuneration which is at
risk and dependent upon
achieving challenging
performance and safety
metrics.
Fixed remuneration is
appropriately market
competitive and
consistently higher
performing executives are
rewarded through higher
base compensation.
Performance management
assists in indicating the
overall total rewards for
each ExCo member.
regularly performs
executive compensation
benchmarking utilising
independent compensation
consultants.
The long-term incentive
component for 2017
remuneration is primarily
delivered through equity
share rights linked to the
Company’s ordinary shares.
Executive and Directors
cannot hedge equity share
rights that are unvested or
subject to restrictions.
In some circumstances the
Board may also elect to
provide long-term
incentives in the form of
cash.
Incentive based
compensation is designed
to reward executives for
delivered performance
against important Company
safety, financial and
strategic objectives.
Incentive plans utilise an
appropriate mix of
challenging performance
measures designed to only
deliver value to executives
if target performance is
achieved over both the
short long terms.
__________________________________________________________________________________________
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Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
1.2. DIRECTORS AND SENIOR EXECUTIVES
BOART LONGYEAR LIMITED
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 2017 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 2017
Directors
Position
Marcus Randolph
Kyle Cruz
Lawrence First
Jason Ireland
James Kern
Gretchen McClain
Robert Smith
Richard Wallman
Eric Waxman
Executive Chairman
Non-executive Director (appointed effective 1 September 2017)
Non-executive Director (appointed effective 1 September 2017)
Non-executive Director (appointed effective 1 September 2017)
Non-executive Director (Appointed effective 29 September 2017, alternate director to
for Mr Lawrence First)
Non-executive Director
Non-executive Director (appointed effective 1 September 2017)
Non-executive Director (appointed effective 1 September 2017)
Non-executive Director (appointed effective 29 September 2017)
Senior executives
Position
Jeffrey Olsen
Brendan Ryan
Robert Closner
Fabrizio Rasetti
Kari Plaster
Brad Baker
Denis Despres
Mark Irwin
Chief Executive Officer
Chief Financial Officer
Vice President, General Counsel (appointed effective 16 October 2017)
Senior Vice President, General Counsel and Secretary (ceased employment 31 December 2017)
Vice President, Human Resources (effective 30 October 2017)
Senior Vice President, Human Resources (ceased employment 31 December 2017)
Chief Operating Officer
Chief Commercial Officer (ceased employment 30 September 2017)
Others who held office as Directors during the financial year were:
Directors
Position
Bret Clayton
Peter Day
Lawrence First
Jonathan Lewinsohn
Jeffrey Long
Rex McLennan
Deborah O'Toole
Matthew Sheahan
Conor Tochilin
Non-executive Director (retired 1 September 2017)
Non-executive Director (retired 1 September 2017)
Non-executive Director (appointed effective 1 September 2017; retired 20 February 2018)
Non-executive Director (retired 20 January 2017)
Non-executive Director (retired 1 September 2017)
Non-executive Director and Senior Independent Director (retired 1 September 2017)
Non-executive Director (retired 1 September 2017)
Non-executive Director (appointed effective 1 September 2017; retired 29 September 2017)
Non-executive Director (appointed effective 20 January 2017; retired 1 September 2017)
Changes to KMP after 31 December 2017:
1) Lawrence First resigned from the Board effective 20 February 2018.
2) With the resignation of Lawrence First, James Kern was appointed as his replacement effective 20 February 2018.
__________________________________________________________________________________________
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Annual Financial Report
31 December 2017
1.3. REMUNERATION OUTCOMES
Actual remuneration
BOART LONGYEAR LIMITED
Details of CEO and other senior executive remuneration for the year ended 31 December 2017, 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 2017. Table 1.3 illustrates how the Company’s remuneration strategy for senior executives translates into practice.
It is important to note that the STI and LTI amounts are amounts earned on performance during the prior plan year(s) and
vested and/or paid in the current year.
Table 1.3: Actual remuneration received by senior executives who were KMP on 31 December 2017
Base salary
US$
STI 1
US$
LTI 2
US$
LTI (cash)
US$
Other 3
US$
Jeffrey Olsen
Brendan Ryan
Robert Closner 4
Kari Plaster 5
Denis Despres
586,154
400,000
186,800
41,538
400,000
554,400
70,430
70,811
-
72,320
51,067
-
9,277
-
-
100,750
-
10,088
-
166,667
6
33,580
59,559
24,237
23,512
30,878
Total
US$
1,325,951
529,989
301,213
65,050
669,865
(1) Represents the cash paid in respect of the executive’s STI award earned for the prior year’s 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 2017 (based on the market value of shares at the
vesting date: A$0.09 on 15 March 2017 and A$0.06 on 3 April 2017). Share Rights granted under the Company’s LTI Plan and options
granted under the Company’s 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, relocation
fees, and tax preparation service reimbursement. Also includes sign-on bonuses and other bonuses granted and paid in 2017.
(4) Mr Closner was promoted and became a KMP effective 16 October 2017. His actual base salary reported above represents the
combined total amount associated with his former position from January through September and his current position October through
December.
(5) Ms Plaster was hired on 30 October 2017, as such, her actual remuneration received reflects a partial year of earnings from her date of
hire. Ms Plaster was given a $40,000 sign-on bonus that will be paid in two installments of $20,000 each (once upon her joining BLY and
again on her first anniversary date).
(6)
In 2016, Mr Despres was granted a one-time, sign-on cash award of $300,000 and a share award of $200,000 to be paid in equal
installments of one-third on each anniversary of his hire date (1 September 2016) beginning with the first anniversary and ending on the
third. The shares were to be calculated by dividing one third of the share award by the 5-day volume weighted average share price for
the five trading days immediately preceding and including the relevant anniversary date. As of 1 September 2017, $100,000 of the cash
award and one-third of the share award vested. Mr Despres opted to receive cash, for the vested share award, instead of Company
shares, resulting in a total cash payment of $166,667.
2. REMUNERATION FRAMEWORK AND STRATEGY
This section outlines the Company’s 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 Company’s remuneration arrangements and ensures that they are equitable
and aligned with the long-term interests of the Company and its shareholders. In performing this function and making
decisions about executive remuneration, the Board is fully informed and acts independently of management. To assist in
making decisions related to remuneration, the Board has established a Remuneration and Nominations Committee.
__________________________________________________________________________________________
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Boart Longyear 2017 Annual Report
Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
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
Company’s remuneration programs and strategies will attract and retain high-calibre Directors, executives and employees and
will motivate them to maximise the Company’s long-term business, create value for shareholders and support the Company’s
goals and values.
The Remuneration Committee’s responsibilities include:
•
•
•
•
•
•
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 Company’s website at www.boartlongyear.com.
The Committee members as at the date of this Report are Ms Gretchen McClain, Chairman, Mr Kyle Cruz, Mr Jason Ireland,
and Mr Eric Waxman. The CEO, the Vice President, Human Resources and other members of senior management attend
meetings of the Remuneration Committee, as appropriate, to provide information necessary for the Remuneration Committee
to discharge its duties. Individual executives do not attend or participate in discussions where recommendations regarding
their own circumstances are determined.
Use of remuneration consultants and external advisers
Where appropriate, the Board seeks and considers advice from independent remuneration consultants and external advisers.
Remuneration consultants are engaged by, and report directly to, the Remuneration Committee and support 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 2017, the Committee relied on the external review of Mercer subject matter experts as well as key Centerbridge Partners in
the creation and administration of the new Management Incentive Plan. In addition, the Committee continued to rely on the
independent market review of KMP compensation obtained from Mercer Consulting.
2.2. REMUNERATION POLICY AND STRATEGY
The Company’s executive remuneration strategy is designed to attract, motivate and retain high performing individuals and
align the interests of executives with shareholders.
The Company’s remuneration program has been designed to ensure that the structure, mix of fixed and “at-risk” remuneration
and quantum of senior executive remuneration meet the Company’s 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.
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Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
Accordingly, the Company’s 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 are designed to assist the Company in achieving key business goals and objectives.
The diagram below illustrates three primary components of an executive’s total compensation opportunity and how the
components are structured to achieve the remuneration strategy and align with shareholder interests:
Fixed Remuneration
Short-term Incentive
(Corporate Bonus Plan)
Long-term Incentive
•
Provides a predictable base
level of compensation
commensurate with the
executive’s scope of
responsibilities, leadership skills,
values, performance and
contribution to the Company.
• Generally targeted to be near
the median of the competitive
talent market using external
benchmarking data. Since the
majority of the Company’s
executives (and all of the
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
2017 include free cash flow,
adjusted EBITDA, safety
performance, and individual
strategic goals.
These metrics were
designed to weight
performance on free cash
flow, adjusted EBITDA and
safety to overall Company
performance in order to
promote collaboration and
to align with shareholder
interests.
Individual strategic goals
can include financial,
operational and/or strategic
targets. Examples include
revenue growth, cost control
goals, cash flow generation,
geographic expansion, new
product/market
development and
productivity programs.
The metrics used for the
CBP are reviewed annually
to ensure that they continue
to support the Company’s
business strategy.
The STI is awarded in cash
and will either be paid all at
once, or in a staggered
fashion, dependent on key
business factors at the
discretion of the Board.
•
•
•
•
•
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 cumulative
EBITDA as the key measure of
performance-based long-term
incentive awards in 2017.
Performance cash rights are
measured against cumulative
adjusted EBITDA from fiscal year
2017 through 2019. The hurdles
used for the LTI are reviewed
annually to achieve outcomes
deemed important at that time by
the Board.
The LTI performance criteria used
in 2017 included a minimum
threshold performance, below
which no value is achieved.
The Board believes the 2017 LTI
performance criteria provides an
appropriate balance for long term
shareholder return and underlying
financial performance of the
company.
Long Term Incentive Plan (LTIP)
and Retention Incentive Grant
Agreement (RIGA) programs will
cease and be replaced by the new
MIP, which is effective 1 January
2018. Retention based awards
have been calculated on a pro-rata
basis as of 31 December 2017 and
will be paid on the original payment
date as per the award agreement.
Performance based awards and
stock option plans are cancelled as
of 31 December 2017.
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Boart Longyear 2017 Annual Report Annual Financial Report
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3. COMPONENTS OF EXECUTIVE REMUNERATION
BOART LONGYEAR LIMITED
The remuneration policy and programs set out in this section of the Report apply to all executive KMP and to other members
of the Company’s 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 States’ 401(k) payments) and variable “at-risk”
remuneration. The variable remuneration has two “at-risk” components:
•
•
STI – being an annual bonus granted under the Company’s Corporate Bonus Plan; and
LTI – being equity or cash grants tied to vesting conditions, such as performance hurdles and continued employment.
The Board notes the Company’s 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 Company’s markets and the complexity of operating a global and complex business, the Board believes that
maintaining its executive compensation benchmarking at levels that reflect the Company’s size through the middle 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 highly
leveraged company in a complex, global and highly cyclical environment.
The relevant proportion of fixed to at-risk components for senior executive remuneration during 2017 are shown below in table
3.1. The table 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). See section 3.4, Long-term Incentive, for further
information.
Table 3.1: Remuneration mix
(1) Mr Closner was not a KMP on the date of the 2017 LTI grant award; therefore, Mr Closner’s “fixed” vs “at-risk” remuneration is not
representative of the remuneration mix awarded to KMPs in 2017.
(2) Ms Plaster was hired as of 30 October 2017. Due to the changes to the LTI plan that were to be implemented on 31 December
2017 and the implementation of the new MIP on 1 January 2018, Ms Plaster was not given an LTI award upon hire. Ms Plaster will
be eligible to participate in the 2018 MIP plan. Her 2017 remuneration mix is skewed due to the lack of an LTI award in 2017 (with
the exception of the long-term portion ($20,000) of her awarded sign-on bonus of $40,000).
3.2. FIXED REMUNERATION
The fixed component of executive remuneration consists primarily of base salary. Senior executives also receive other
benefits, such as a vehicle allowance. In addition, the Company contributes to retirement programs, such as Australia’s
compulsory superannuation scheme or the United States’ 401(k) defined contribution retirement plan.
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BOART LONGYEAR LIMITED
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 to make adjustments based on merit in accordance with the CEO’s
recommendation.
3.3. SHORT-TERM INCENTIVE
Table 3.3: Summary of the Short Term Incentive program
What is the STI
program?
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
and safety objectives, which are reviewed and approved by the Remuneration Committee.
Who participates in
the STI program?
Why does the
Board consider the
STI program an
appropriate
incentive?
Potential target incentives under the CBP range between 10% and 100% of an employee’s base
salary depending on the employee’s role. The actual bonus that an employee will receive under
the CBP (if any) will vary depending on the Company’s and the individual’s performance against
established annual objectives and targets, as detailed more fully below.
97 senior employees, including BLY’s senior executive KMP.
The CBP and the performance conditions set under the CBP have been designed to:
•
•
•
focus eligible employees on maximising Company performance in key financial, safety and
operational targets;
align individual efforts with Company and shareholder interests; and
reward for superior individual and Company performance.
By putting a significant proportion of senior executive remuneration at-risk against challenging
targets, the CBP aligns executive interests with the Company’s financial and safety performance
and with the relevant operational and/or functional objectives.
What are the
performance
conditions?
There are three key Company performance components and Individual Strategic Objectives to
the CBP that were used in 2017. Each component has a threshold performance level; a target
level of performance where 100% of the bonus can be earned; and a maximum stretch level of
performance whereby superior results can earn up to 200% of that component of the bonus.
The Company’s annual financial target for the purposes of the CBP is reviewed by the
Remuneration Committee and approved by the Board. The Remuneration Committee’s
philosophy in setting financial and safety 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 targets that can only be met by the achievement of excellent outcomes.
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).
The CBP performance components for 2017 and their relative weighting are:
(1) Corporate Financial Target - Free Cash Flow (FCF) - 35% of the Company’s CBP
Metrics opportunity is linked to the Company’s FCF performance. For the purposes of
calculating FCF, the statutory FCF is adjusted to eliminate the impact of items such as
cash restructuring costs, pension plan pre-funding, interest and income tax receipts or
payments, acquisition or disposals of subsidiaries, and cash flows from financing
activities, including, but not limited to, proceeds from equity raisings and borrowings.
The free cash flow metric was selected to ensure proper alignment and focus on the
critical need to generate cash to fund ongoing operations and reduce debt.
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BOART LONGYEAR LIMITED
For 2017, the Board approved the following performance payout matrix for the CBP
Free Cash Flow component:
Free Cash Flow (35%)
FCF
US$'000
>48,182
24,091
< 6,023
% of
Budget
>200%
100%
29%
Payout %
200%
100%
0%
Any actual performance falling between threshold and target, or target and maximum
achievement will be calculated linearly.
(2) Corporate Financial Target – Adjusted EBITDA - 35% of the Company’s CBP Metrics
opportunity is linked to the Company’s Adjusted EBITDA performance. For the
purposes of calculating Adjusted EBITDA, Statutory EBITDA plus Restructure Costs =
Adjusted EBITDA.
For 2017, the Board approved the following performance payout matrix for the CBP
Adjusted EBITDA component:
Adjusted EBITDA (35%)
US$'000
>80,000
40,000
< 10,000
% of
Budget
>200%
100%
25%
Payout %
200%
100%
0%
(3) Corporate Non-Financial Target - Safety - 30% of the Company’s CBP Metrics
opportunity is dependent upon the Company’s 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
Company’s customers, and the Company’s ability to secure or retain work is impacted
by its safety performance.
For 2017, the Board agreed, on the recommendation of its Audit, Safety and Risk
Committee to use total case incident rates (TCIR), severity, and Critical Risk Incident
Correction Action Closure rates as the measurements of safety performance for the
CBP with the following performance payout targets:
Safety TCIR
1.69
1.24
0.90
Critical Risk
Incident Correction
Action Closure
93
70
47
Safety Severity
Payout %
2.74
1.66
1.20
50%
100%
200%
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The payout is linear between levels for each safety metric, and TCIR and severity are
weighted equally at 11% and Critical Risk Incident Correction Action Closure is
weighted at 8% of the CBP. In order to receive any accelerated payout above target,
the lost time incident rate must be at or below 0.20.
(4)
Individual Strategic Objectives - 100% of the Individual Strategic Objective CBP
opportunity is dependent upon performance against strategic objectives relevant to the
employee’s operational or functional responsibility. Examples of strategic objectives
may include: operational 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
operational or functional priorities that have a positive impact on current and/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% 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 addition to the operation of the CBP, as set out above, the Board retains discretion to
administer the CBP, including adjusting the bonus a participant receives.
How are the
performance
conditions
measured?
Performance is assessed against the relevant targets annually based on the Company’s fiscal
year. The final determination of the Company’s financial performance is determined after
reviewing the Company’s 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 30% target bonus amount
Corporate Free Cash Flow of (70% achievement)
Adjusted EBITDA of (80% achievement)
Safety at target performance (100%)
Individual Strategic Objectives of (95% achievement)
Free Cash Flow of 70% = 70% component payout (per Free Cash Flow table above)Adjusted
Ajdusted EBITDA of 80% = 80% component payout (per Adjusted EBITDA table above)
Safety performance at target = 100% component payout
Strategic Objectives at target = 95% component payout
Calculation:
Step 1: Determine Company Metrics achievement
Free Cash Flow = (70% x 35% weighting)
Safety performance = (100% x 30% weighting)
Adjusted EBITDA = (80% x 35% weighting)
Company achievement
+
+
=
= 25%
= 30%
= 28%
= 80%
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Step 2: Individual Strategic Objectives = 95%
Step 3: Calculate Bonus
Multiply Company Metrics achievement of 86% and Individual Strategic Objectives achievement
of 95% to arrive at totally bonus achievement of 81.7%
$150,000 x 30% Target Bonus = $45,000 x 80% Bonus achievement = $36,000 Bonus
All bonuses awarded under the CBP are paid in cash.
Bonuses earned by the executive KMP under the CBP for the year ended 31 December 2017
are set out in Table 4.1.3 in section 4.1 of this Report. The bonuses will be paid in July 2018.
In what form is the
STI delivered?
What STI awards
did senior
executives earn in
2017?
What if a senior
executive ceases
employment?
A senior executive’s entitlement to a CBP payment ceases on the date that they cease
employment, unless the Board determines otherwise. However, where a senior executive’s
employment ceases for reasons other than for cause or good reason, any earned bonus will be
pro-rated for the amount of time actually worked during the plan year.
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Annual Financial Report
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3.4. Long-term incentives
Table 3.4: Summary of the Long-term Incentive
BOART LONGYEAR LIMITED
What is the
purpose of the LTI?
The Company’s LTI arrangements are designed to:
• align senior executive rewards with shareholder value;
• assist in retaining key executives;
• encourage superior performance on a sustained basis; and
• provide executives with an opportunity to share in the growth and value of the Company
by tying the LTI component of senior executive remuneration to equity awards that rise
and fall in value in line with the Company’s share price.
Who participates in
the LTI?
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
participant’s 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
made grants to approximately 76 participants during the year ended 31 December 2017. See
Section 4.1 for details on LTI awards made to KMP.
What proportion of
total remuneration
does the LTI
program
represent?
Senior executives are typically offered grants that represent approximately 35% - 45% (54% for
the CEO) (this is exclusive of Vice-president, Human Resources and Vice-president, General
Counsel; due to timing of LTI awards- see table 3.1) 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 performance hurdles and/or service
conditions are satisfied.
How is reward
delivered under the
LTI?
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
executive’s LTI award. The composition of the grants from year-to-year will depend on what, in
the Board’s view, will best incentivise and reward executives, having regard to the Company’s
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
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 the option to
supplement Share Rights in order to limit share dilution when the stock price is low at the time of
the award.
The 2017 LTI Plan awards to the CEO, his direct reports and other senior leaders were
comprised of a combination of performance-based Cash Rights and retention-based Cash
Rights. The Board considered this to be appropriate for 2017 as it most effectively achieved
three key objectives: aligning executives’ interests with shareholders; motivating executives to
focus on earnings targets over the longer term; and retaining key executive talent, which is
critical to the Company’s long term success. The performance-based Cash Rights were granted
on terms and conditions determined by the Board, including vesting conditions linked to service
and earnings achievement over a specified period (in this case three years).
Do participants pay
for Options?
When Options are granted, they 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.
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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. 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 2017 LTI grant to KMP and certain other senior executives, the vesting conditions are as
follows:
LTI Incentive Percentage of grant
Vesting condition
Partial vesting
50%
50%
Performance
Cash Rights
(granted to the
CEO, his direct
reports and
other senior
leaders)
Retention Cash
Rights
(granted to the
CEO, his direct
reports and
other senior
leaders)
Satisfaction of
cumulative adjusted
EBITDA targets within
three years of the grant
date.
PLUS
Continued employment
by the recipient as of the
relevant testing date.
Continued employment
by the recipient as of the
relevant testing date.
Vesting may occur on a
pro-rata basis according
to the conditions set out
below.
Vesting may occur on a
pro-rata basis according
to the conditions set out
below.
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BOART LONGYEAR LIMITED
How are the
Performance
Rights measured
for awards granted
to the CEO, his
direct reports and
other vice-
presidents?
Performance Cash Rights:
The earnings target is defined as earnings before interest, tax, depreciation and amortisation
(EBITDA) adjusted to exclude impairments, restructuring and other non-recurring items. The
Board has established a minimum target adjusted EBITDA performance for the 2018 fiscal year
that must be achieved for any Cash Rights to vest. Due to market sensitivity, the adjusted
EBITDA targets will be communicated in the Remuneration Report for the period following the
close of the 2019 plan year.
Performance Cash Rights, subject to the Continued Employment Condition and a cumulative
adjusted EBITDA target set by the Board for the 3-year performance period. For purposes of this
performance condition, Adjusted EBITDA is defined as Earnings Before Interest Taxes and
Depreciation minus impairments, restructuring and other non-recurring items consistent with the
Company’s reported financial results for the financial year ending 31 December 2019.
Performance against the EBITDA target will be measured on a cumulative basis over a three-
year performance period and determined by the Board in its discretion, subject to any inclusions
or exclusions it considers appropriate. Performance Rights will vest in accordance with the
following schedule:
Performance
Thresholds
3-yr Cummulative
Adj. EBITDA
Payout %
Max
Target
Theshold
>336
296
174
156
91
< 91
150%
125%
100%
75%
50%
0%
Why have the
performance
hurdles been
chosen?
The Board believes that earnings targets as the LTI metrics (each weighted as 50% of the total)
provide a balanced long-term focus on both absolute shareholder returns and continued
improvement of the underlying operational and financial performance of the Company. Given the
challenging business environment in which the Company is currently operating, the highly
leveraged capital structure and the investment made by our shareholders, the Board believes a
balanced focus appropriately aligns management equity incentives to the interests of the
Company’s shareholders.
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BOART LONGYEAR LIMITED
What if a senior
executive ceases
employment?
What happens in
the event of a
change of control?
What Options or
Rights were
granted in 2017?
What is the impact
of MIP
Implementation on
the LTI?
A senior executive’s unvested LTI awards will generally lapse on the date the executive ceases
employment, unless the Board determines otherwise. However, where a senior executive’s
employment ceases due to death or total and permanent disability, all unvested awards will vest.
Also, unless the Board determines otherwise, where a senior executive’s employment ceases by
reason of “Special Circumstances” (which includes redundancy, retirement or other
circumstances which are considered by the Board to be extraordinary):
•
•
where there is no performance condition attached to an Option or Right (i.e. it is an Option,
Retention Share Right or Retention Cash Right), any applicable time-based condition will be
waived and the number of Options, Retention Share Rights and/ or Retention Cash Rights
that vest will be pro-rated according to the extent of the retention period actually worked; and
where there is a performance condition attached to an Option or Right (i.e. it is a
performance-based Option, Performance Share Right or Performance Cash Right), there will
be no accelerated vesting of the performance-based Options or Rights and instead, the
performance-based Options or Rights will remain “on foot” and be tested in the ordinary
course and against the applicable performance condition. However, the number of
performance-based Options or Rights that vest will be pro-rated over the period of time
actually worked during the continued service period.
In the event of a takeover or change of control of the Company, the Plan provisions will be
applied in accordance with the Plan and the Board’s discretion.
Rights granted during the year ended 31 December 2017 are set out in Table 5.2 of this Report.
Effective 1 January 2018 the Board approved a resolution to introduce a new Management
Incentive Plan (MIP) subject to shareholder approval, which will replace the LTIP program (STIP
program remains in place).
Effective 31 December 2017 the Long Term Incentive Plan (LTIP) and Retention Incentive Grant
Agreement (RIGA) programs will cease and be replaced by the new MIP program, which is
effective 1 January 2018. Retention based awards will be calculated on a pro-rata basis as of 31
December 2017 and will be paid on the original payment date as per the award agreement.
Performance based awards and stock option plans are cancelled as of 31 December 2017.
3.5 Executive Remuneration Clawback Policy
The Company has an incentive compensation clawback policy applicable to current and former senior executives, including
the KMP listed in this report, as well as any other management of the Company who participated in the Company’s incentive
compensation plans. The policy is applicable to incentive compensation including bonuses, awards or grants of cash or equity
under any of the Company’s short or long-term incentive or bonus plans where bonuses, awards or grants are based in whole
or in part on the achievement of financial results. If the Board determines that a covered employee was overpaid as a result of
his or her fraud or willful misconduct that requires a restatement of the reported financial results, the Board may seek to
recover the amount of the overpayment by a repayment or through a reduction or cancellation of outstanding future bonus or
awards. The Board can make determinations of overpayment at any time through the third fiscal year following the year for
which the inaccurate performance criteria were measured.
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Annual Financial Report
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3.6 Option Plans
BOART LONGYEAR LIMITED
The Board established the 2015 Option Plan, as described above, which authorised the granting of stock options to the CEO,
his direct reports and other Company vice-presidents. The options granted pursuant to the 2015 Option Plan are subject to a
share-price appreciation performance condition and, subject to meeting that condition, in part or in full on any of the 14 March
2018, 14 March 2019 and 14 March 2020 testing dates. The options can be exercised for 10 years after the vesting date
unless an employee terminates employment with the Company, in which case the Board may shorten the exercise period to
no less than six months from the termination date.
During 2016, 1,000,000 options were issued under the 2015 Option Plan to Mr Mark Irwin, as a part of his new hire offer, with
an exercise price of A$0.199. The fair value of the options awarded was approximately US$70 thousand. The terms and
conditions of this award, including performance conditions, are the same as the 2015 LTI awards granted to other members of
the KMP, as disclosed in the 2015 Remuneration Report.
No new options were granted in 2017. Details of options that have been granted to senior executives historically can be found
in Table 4.1.7. In accordance with the transition from the LTIP program to the MIP, all Stock Options are cancelled effective 31
December 2017.
4. PERFORMANCE AND RISK ALIGNMENT
4.1. PERFORMANCE ALIGNMENT
While senior executive remuneration is structured to attract and retain talented employees, the amount of remuneration
received by an individual is dependent on the achievement of superior performance and generating value for shareholders.
Table 4.1.1 below summarises the Company’s performance over the past five years in respect of the financial and non-
financial indicators identified by the Board to assess the Company’s performance and future prospects.
Table 4.1.1: Year-on-year performance
Share perform ance
Earnings perform ance
Closing
share
price
A$
Dividend
p/share
US$ 1
Financial
year
2017
2016
2015
2014
2013
0.01
0.13
0.06
0.17
0.38
EPS % 2
(205.1%)
(179.4%)
(822.4%)
(510.9%)
-
-
-
-
Revenue
US$
m illions
EBITDA
US$
m illions
NPAT
US$
m illions
739
642
735
867
(37)
2
(115)
(83)
(337)
(150)
(157)
(326)
(333)
(620)
ROE
(50.3%)
(60.6%)
(596.1%)
(133.4%)
(79.3%)
Net Debt
m illions 3
599
681
586
551
n/a
0.01
(403.7%)
1,223
(1) Dividends per share are shown based upon the cash amounts paid in each year.
(2) Calculated as basic EPS divided by closing share price.
(3) Net debt was selected as a performance criteria in 2014. Excludes impact of recapitalisation transaction, letters of credit, CRA & IRS
obligations, strategic asset acquisitions & disposals, equity raise, potential asset backed loans, etc.
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Short-term performance indicators and outcomes
BOART LONGYEAR LIMITED
Overall, STI earned and awarded to KMP in 2017 was 53% on average (down from 89% in 2016). This result was due to lower
than expected safety performance and under-performance against the free cash flow component of the Corporate Bonus Plan
in 2017. Additional details on actual performance for each of the bonus plan components follow.
Performance against 2017 financial targets
For 2017, the Remuneration Committee specifically recommended, and the Board approved, the following performance payout
matrix for the Free Cash Flow component:
Free Cash Flow (35%)
FCF
US$'000
>48,182
24,091
< 6,023
% of
Budget
>200%
100%
29%
Payout %
200%
100%
0%
Actual corporate free cash flow generation for the year was $(20.6) million, which resulted in a 0% achievement and 0%
payout of the targeted amount.
In addition to the free cash flow component, for 2017, the Remuneration Committee specifically recommended, and the Board
approved, the following performance payout matrix for the Adjusted EBITDA component:
Adjusted EBITDA (35%)
US$'000
>80,000
40,000
< 10,000
% of
Budget
>200%
100%
25%
Payout %
200%
100%
0%
Actual EBITDA for the year was $43.1 million, which resulted in a 108% achievement, or 37.7% payout of the target of 35%.
Performance against 2017 non-financial targets
For 2017, the Remuneration Committee specifically recommended, and the Board approved, the following performance payout
matrix for the Safety component:
Safety TCIR
1.69
1.24
0.90
Critical Risk
Incident Correction
Action Closure
93
70
47
Safety Severity
Payout %
2.74
1.66
1.20
50%
100%
200%
The Company did not meet its performance on its targeted overall Safety metrics with actual TCIR performance of 1.62,
Severity Rate of 3.70, and Critical Risk of 82, representing 57.8%, 0.0%, and 200% achievement, respectively, although the
Critical Risk performance is capped at 100% due the LTIR gateway exceeding the acceptable threshold of 0.20 with a final
performance of 0.22.
2017 was a particularly challenging year as the Senior Leadership Team restructured and recapitalized BLY requiring
significant focus and attention on all aspects of our business. We continue to look for additional efficiencies and cost savings in
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Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
the business. Leadership changes at Boart Longyear impacted the Board of Directors, as well as Senior Leadership. The
business delivered solid overall performance against 2017’s objectives including revenue, cost reductions and growth in
underlying earnings. Boart Longyear understands the importance of transparent reporting in all facets of our business, as well
as those that are represented in our incentive structures. Given the Company’s size and position in the industry, it believes
disclosing certain detailed financial or strategic performance targets would put it at a competitive disadvantage due to
commercial sensitivities. However, in 2017 the Board established several specific strategic and operational objectives that
included, but were not limited to:
• Delivering 2017 business performance in a difficult market environment by:
o driving cost and efficiency improvements in corporate, business and functional areas;
o reducing SG&A and overhead costs in 2017;
o improving cash management and working capital related to our supply chain;
o delivering targeted savings on drilling services efficiency and commercial initiatives;
o and completing the recapitalisation
Focusing on next generation engineering and manufacturing;
•
• Challenging our global footprint and streamlining as well as executing on a revised organisational structure to
improve commercial, functional and operational alignment;
• Defining key customer strategic alliance plans and measurably improving customer relationships and benefits by
increasing the commercial capabilities of the Company, particularly in our Drilling Services business;
• Achieving an improved safety culture through:
o improved awareness across the entire organisation;
o focusing on the THINK process;
o increased transparency in reporting; and
o increased use of engineering solutions to make our equipment safer.
These objectives applied to all senior executives as they relate to their operation, function or region.
Management’s incentive plan is based upon quantitative measures of safety, adjusted EBITDA, and free cash flow. While
there were significant improvements made in the cost structure of our business and targets for EBITDA were achieved, our
safety performance did not reach our targets and much higher than anticipated working capital requirements in the fourth
quarter of 2017 resulted in under achievement versus cash flow targets. The consequence of these results is a significant
incentive plan underachievement.
Table 4.1.2: Average proportion of STI awarded, 2012 through 2017.
% of target STI aw arded 1
2012
72%
2013
40%
2014
122%
2015 2
114%
2016
90%
2017
53%
(1) Weighted average for senior executives.
(2) Not including Mr Kirkey who was on his former bonus plan through 2015.
__________________________________________________________________________________________
40
44
Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
Table 4.1.3: STI earned during the year ended 31 December 2017
BOART LONGYEAR LIMITED
STI earned
US$
Target
STI 1
US$
STI earned
as % of
target STI
% of target
STI forfeited
STI as % of
m axim um
STI 2
% of
m axim um STI
forfeited 2
Jeffrey Olsen
Brendan Ryan
Fabrizio Rasetti 3
Robert Closner 4
Brad Baker 3
Kari Plaster 5
Denis Despres
Mark Irw in 3
312,120
131,090
108,202
40,584
84,389
58,991
128,593
117,045
600,000
240,000
208,000
78,016
162,225
108,000
240,000
225,000
52%
55%
52%
52%
52%
55%
54%
52%
48%
45%
48%
48%
48%
45%
46%
48%
26%
27%
26%
26%
26%
27%
27%
26%
74%
73%
74%
74%
74%
73%
73%
74%
(1) The target potential value of the 2017 STI awards for the CEO and senior executives (who receive STI awards wholly in cash) is the
amount disclosed. A minimum level of performance must be achieved before any STI is awarded. Therefore, the minimum potential
value of the STI for all participants in 2017 was nil.
(2) The maximum potential award assuming superior performance against all CBP metrics is 200% of target STI.
(3) Mr Rasetti, Mr Baker and Mr Irwin’s employment with the Company ceased prior to or on 31 December 2017. However, they were
eligible to receive a prorated STI bonus. Pursuant to their separation agreements, their prorated amounts assumed achievement of
individual strategic performance at target.
(4) Mr Closner was a KMP from 16 October through 31 December 2017, however the bonus reflected in table 4.1.3 represents his target
and earned bonus for the entire year.
(5) Ms Plaster’s target and earned bonus was calculated on her annualized base salary prorated from her date of hire on 30 October
2017.
Long-term performance indicators and outcomes
LTI awards are provided to assist in retaining key executives, encourage superior performance on a sustained basis, and
provide such executives with an opportunity to share in the growth and value of the Company.
The performance-based LTIP awards granted in 2014 were subject to a three-year Cumulative Net Debt target, adjusted for a
Total Shareholder Return modifier. Due to challenging market conditions, the 2014 LITP awards vested at 61.2% of the target.
This is derived by the Cumulative Net Debt achievement of 68% of the LTIP target, adjusted by a further 10% modifier as our
total shareholder return was below our peers (68% - (68% x 10%) = 61.2%).
Table 4.1.4: Cumulative Net Debt performance for 2014 grants of performance-based LTI awards
Targets
Threshold
Target
Maxim um
Actual Net
Debt1
Net Debt
Perform ance
2014
2015
2016
Cumulative Performance
% of Aw ard Earned
554,500
602,200
687,289
1,843,989
50%
542,676
573,500
654,537
530,852
550,758
544,800
586,272
621,885
681,044
1,770,713
100%
1,697,537
150%
1,818,074
68%
66%
78%
60%
68%
68%
(1) Excludes impact of recapitalisation transaction, letters of credit, CRA & IRS obligations, strategic asset acquisitions & disposals,
equity raise, potential asset backed loans, etc.;
The vested Share Rights listed in Table 4.1.5 below include the Retention Share Rights and Performance Share Rights that
were granted in 2014 and vested in 2017. The Performance Share Rights were subject to the performance period ended 31
December 2016 achieved 61.2% of the target award amount (as detailed in the narrative and table 4.1.4 above).
__________________________________________________________________________________________
41
45
Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
Table 4.1.5: Movement in Share Rights during the year ended 31 December 2017
Nam e
Jeffrey Olsen
Brendan Ryan
Fabrizio Rasetti
Robert Closner
Brad Baker
Grant
date
1-Apr-14
15-Mar-16
6-Sep-16
15-Mar-14
15-Mar-16
15-Mar-14
1-Jul-15
15-Mar-16
15-Mar-14
15-Mar-16
Denis Despres
1-Sep-16
Mark Irw in
15-Mar-16
FMV at
Grant
Date
US$
0.27
0.05
0.08
0.25
0.05
0.25
0.05
0.25
0.05
0.08
0.05
Vesting
date
1-Apr-17
15-Mar-19
6-Sep-19
15-Mar-17
15-Mar-19
15-Mar-17
15-Mar-19
15-Mar-19
15-Mar-17
15-Mar-19
1-Sep-19
15-Mar-19
Held at the
beginning of
the financial
year
Num ber of
Share Rights
granted as
rem uneration
Number of
Share
Rights
vested
Value of
Share
Rights
vested
US$ 1
Num ber of
Share
Rights
forfeited 2
Held at the
end of the
financial year
972,612
8,362,602
3,900,000
972,612
2,241,177
106,650
370,000
464,630
729,459
1,820,957
2,600,000
1,961,030
-
-
-
-
-
-
-
-
-
-
-
-
846,821
36,169
125,791
-
8,362,602
-
-
846,821
-
106,650
-
-
-
58,256
-
7,337
-
-
3,900,000
125,791
1,023,321 3
-
243,470
464,630
94,343
-
-
-
-
1,217,856
-
126,530
-
-
635,116
43,692
-
-
-
-
-
-
831,448 4
989,509
2,600,000
-
950,903 5
1,010,127
(1)
(2)
Represents the value of Share Rights vested during the year based on the market value of shares at the vesting and forfeiture date.
A portion (38.8%) of the 2014 Performance Share Rights were forfeited due to performance targets not being reached at 100%, the
remaining 61.2% vested in accordance with the met performance conditions (see table 4.1.4). In addition, a pro-rated portion of the
outstanding 2015 and 2016 Retention Share Rights were forfeited due to the current LTIP plan being replaced by a new MIP plan to be
implemented in 2018. All 2015 and 2016 outstanding Performance Share Rights were forfeited at year-end due to the MIP mentioned
above. An exception to the year-end MIP pro-rating are employees who were terminated prior to 31 December 2017 and received a
pro-rated letter based on their individual termination dates.
(3) Mr Rasetti’s employment terminated on 31 December 2017, his outstanding Performance Share Rights were pro-rated upon his end
date of 31 October 2017. This resulted in the forfeiture of 1,023,321 Performance Share Rights. The balance of 1,217,856 Performance
Rights remain on foot and remain subject to meeting the performance condition.
(4) Mr Baker’s employment terminated on 31 December 2017, his outstanding Performance Share Rights were pro-rated upon his end date
of 31 October 2017. This resulted in the forfeiture of 831,448 Performance Share Rights. The balance of 989,509 Performance Rights
remain on foot and remain subject to meeting the performance condition.
(5) Mr Irwin’s employment terminated on 30 September 2017, at which time his outstanding Performance Share Rights were pro-rated
upon his termination date. This resulted in the forfeiture of 950,903 Performance Share Rights. The balance of 1,010,127 Performance
Rights remain on foot and remain subject to meeting the performance condition.
__________________________________________________________________________________________
42
46
Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
The Cash Rights listed in Table 4.1.6 below include the Retention Cash Rights and Performance Cash Rights that were
granted in 2014 and vested in 2017, the Special Retention Rights granted in 2016 which will vest in 2019, and Retention Cash
Rights and Performance Cash Rights granted in 2017 which will vest in 2020.
Table 4.1.6: Movement in Cash Rights during the year ended 31 December 2017
Nam e
Jeffrey Olsen
Brendan Ryan
Fabrizio Rasetti
Robert Closner
Brad Baker
Denis Despres
Grant
date
Vesting
date
1-Apr-14
15-Mar-16
1-Mar-16
15-Mar-17
6-Sep-16
15-Mar-17
15-Mar-14
15-Mar-16
1-Mar-16
15-Mar-17
15-Mar-14
15-Mar-16
1-Mar-16
15-Mar-17
15-Mar-14
15-Mar-16
1-Mar-16
15-Mar-17
1-Sep-16
1-Sep-16
1-Apr-17
15-Mar-19
1-Mar-19
15-Mar-20
6-Sep-19
15-Mar-20
15-Mar-17
15-Mar-19
1-Mar-19
15-Mar-20
15-Mar-17
15-Mar-19
1-Mar-19
15-Mar-20
15-Mar-17
15-Mar-19
1-Mar-19
15-Mar-20
1-Sep-17
1-Sep-17
1-Sep-16
1-Sep-18
1-Sep-16
1-Sep-19
1-Sep-16
1-Sep-19
Held at the
beginning
of the
financial
year
Num ber of
Cash Rights
granted as
rem uneration
Num ber
of Cash
Rights
vested
Value of
Cash
Rights
vested
US$
Value of
Cash
Rights
forfeited
US$
Held at the
end of the
financial
year
Num ber of
Cash Rights
forfeited 1
125,000
500,000
900,000
-
200,000
-
125,000
134,000
624,000
-
10,000
25,260
128,619
-
93,750
108,875
487,000
-
100,000
66,667
100,000
100,000
200,000
-
-
-
1,000,000
-
500,000
-
-
-
400,000
-
-
-
60,000
-
-
-
325,000
1
2
1
1
-
-
-
-
-
100,750
-
-
-
-
-
100,750
-
-
42,120
10,000
-
-
-
75,562
-
-
34,223
100,000
66,667
-
-
-
-
-
-
2
3
4
5
100,750
-
-
-
-
-
100,750
-
-
42,120
10,000
-
-
-
75,562
-
-
34,223
100,000
66,667
-
-
-
-
-
-
24,250
500,000
349,315
867,245
200,000
433,622
24,250
61,184
276,931
315,760
-
25,260
51,565
52,035
18,188
49,712
216,130
256,554
-
-
-
-
200,000
433,622
56,854
247,877
408,800
2
2
2
3
3
3
6
6
6
24,250
500,000
349,315
867,245
200,000
433,622
24,250
61,184
276,931
315,760
-
25,260
51,565
52,035
18,188
49,712
216,130
256,554
-
-
-
-
200,000
433,622
56,854
247,877
408,800
-
-
550,685
132,755
-
66,378
-
72,816
347,069
42,120
-
-
77,054
7,965
-
59,163
270,870
34,223
-
-
100,000
100,000
-
66,378
60,396
277,123
45,600
15-Mar-17
15-Mar-20
-
500,000
Mark Irw in
15-Mar-16
15-Mar-19
1-Mar-16
1-Mar-19
117,250
525,000
-
-
15-Mar-17
15-Mar-20
-
500,000
45,600
6
45,600
(1) A portion (38.8%) of the 2014 Performance Cash Rights were forfeited due to performance targets not being reached at 100%, the
remaining 61.2% vested in accordance with the met performance conditions (see table 4.1.4). In addition, a pro-rated portion of the
outstanding 2016 and 2017 Retention Cash Rights were forfeited due to the current LTIP plan being replaced by a new MIP plan to be
implemented in 2018. All 2016 and 2017 outstanding Performance Cash Rights were forfeited at year-end due to the new MIP
mentioned above. An exception to the year-end MIP pro-rating are employees who were terminated prior to 31 December 2017 and
received a pro-rated letter based on their individual termination dates.
(2) Mr Rasetti’s employment ceased on 31 December 2017 at which time he received a pro-rata vesting of 42,120 outstanding Retention
Cash Rights based on his end date of 31 October 2017. The balance of 157,880 outstanding Retention Cash Rights were forfeited. He
also received a pro-rata portion of his Special Retention Rights which will remain outstanding until the scheduled vesting date in March
2019. The amount of 276,931 Special Retention Rights were forfeited. In addition, Mr Rasetti’s outstanding Performance Cash Rights
were also pro-rated based upon his end date resulting in the forfeiture of 219,064 Performance Cash Rights. The balance of 114,936
Performance Cash Rights remain on foot and are subject to meeting the performance conditions.
(3) Mr Baker’s employment ceased on 31 December 2017 at which time he received a pro-rata vesting of 34,223 outstanding Retention
Cash Rights based on his end date of 31 October 2017. The balance of 128,277 outstanding Retention Cash Rights were forfeited. He
also received a pro-rata portion of his Special Retention Rights which will remain outstanding until the scheduled vesting date in March
2019. The amount of 216,130 Special Retention Rights were forfeited. In addition, Mr Baker’s outstanding Performance Cash Rights
were also pro-rated based upon his end date resulting in the forfeiture of 177,989 Performance Cash Rights. The balance of 93,386
Performance Cash Rights remain on foot and are subject to meeting the performance conditions.
__________________________________________________________________________________________
43
47
Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
(5)
(4)
In 2016, Mr Despres received a one-time new hire sign-on award of $300,000 to be paid in equal instalments of one-third each
on the anniversary of his hire date (1 September 2016) beginning with the first anniversary and ending on the third. There
were no performance conditions on these amounts and one third of the award vested in 2017.
In 2016, Mr Despres was granted a sign-on share award of $200,000 to be paid in equal installments of one-third on each
anniversary of his hire date (1 September 2016) beginning with the first anniversary and ending on the third. The shares were
to be calculated by dividing one third of the share award by the 5-day volume weighted average share price for the five trading
days immediately preceding and including the relevant anniversary date. As of 1 September 2017, one-third of the award
vested and Mr Despres opted to receive cash instead of Company shares, resulting in a cash payment of $66,667.
(6) Mr Irwin’s employment ceased on 30 September 2017 at which time he received a pro-rata vesting of 45,600 outstanding
Retention Cash Rights upon his termination date. The balance of 204,400 outstanding Retention Cash Rights were forfeited.
He also received a pro-rata portion of his Special Retention Rights which will remain outstanding until the scheduled vesting
date in March 2019. The amount of 247,877 Special Retention Rights were forfeited. In addition, Mr Irwin’s outstanding
Performance Cash Rights were also pro-rated based upon his cessation date resulting in the forfeiture of 261,254 Performance
Cash Rights. The balance of 105,996 Performance Cash Rights remain on foot and are subject to meeting the performance
conditions.
Table 4.1.7: Movement in options during the year ended 31 December 2017
Nam e
Jeffrey Olsen
Fabrizio Rasetti 2
Effective
grant
date
1-Apr-14
1-Jul-15
15-Mar-14
1-Jul-15
Vesting
date
1-Apr-17
15-Mar-20
15-Mar-17
15-Mar-20
Brad Baker 3
15-Mar-14
15-Mar-17
Mark Irw in 4
1-Jul-15
18-Jan-16
15-Mar-20
15-Mar-20
Held at the
beginning of
the financial
year
Num ber of
options
granted as
rem uneration
324,204
8,265,360
324,204
5,289,830
243,153
4,297,990
1,000,000
-
-
-
-
-
-
-
Number
of
options
vested
324,204
-
324,204
-
243,153
-
-
Exercise
price per
option
A$
Num ber
of options
forfeited
Held at the
end of the
financial year
Vested and
exercisable
as at 31 Dec
2017
0.32
0.20
0.32
0.20
0.32
0.20
0.20
1
-
8,265,360
-
2,504,205
-
2,034,668
590,900
324,204
-
324,204
2,785,625
243,153
2,263,322
409,100
324,204
-
324,204
-
243,153
-
-
(1) Mr Olsen’s outstanding options were forfeited in 2017 due to the LTIP plan being replaced by a new MIP plan in 2018.
(2) Mr Rasetti’s employment ceased on 31 December 2017, his Options were pro-rated based on his end date of 31 October 2017.
Options granted in 2015 were pro-rated from the date of the grant and the portion that was not forfeited remain on foot and subject
to continuing performance conditions.
(3) Mr Baker’s employment ceased on 31 December 2017, his Options were pro-rated based on his end date of 31 October 2017.
Options granted in 2015 were pro-rated from the date of the grant and the portion that was not forfeited remain on foot and subject
to continuing performance conditions.
(4) Mr Irwin’s employment ceased on 30 September 2017. Options granted in 2015 were pro-rated from the date of the grant and the
portion that was not forfeited remain on foot and subject to continuing performance conditions.
4.2. RISK ALIGNMENT
4.2.1
Employee and Director Trading in Company Securities
Under the Company’s Securities Trading Policy, Directors and employees (including senior executives) are prohibited from
entering into transactions that limit the economic risk of holding unvested Rights or options that have been received as part of
their remuneration. The Company treats compliance with this policy as a serious issue and takes appropriate measures to
ensure the policy is adhered to, including imposing appropriate sanctions where an employee is found to have breached the
policy.
Further restrictions also apply to Directors and senior executives with respect to their dealing in the Company’s shares and
other securities under the Securities Trading Policy, which may be found in the Corporate Governance section on the
Company website at www.boartlongyear.com.
__________________________________________________________________________________________
44
48
Boart Longyear 2017 Annual Report I
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49
Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
(1) There were no non-monetary benefits provided.
(2)
In accordance with the requirements of the Australian Accounting Standards Board, remuneration includes a portion of the
historical fair value of equity compensation recognised over the respective vesting period (i.e. Rights awarded under the
LTIP and options awarded under the Option Plan(s)). The fair value of equity instruments is determined as at the grant date
and is recognised over the vesting period. The amount included as remuneration is not related to or indicative of the benefit
(if any) that senior executives may ultimately realise should the equity instruments vest. The fair value of options at the
date of their grant has been determined in accordance with AASB 2 applying Black-Scholes and Brownian Motion valuation
methods. The assumptions underpinning these valuations are set out in Note 10 to the financial statements.
(3) The 2017 amount represents cash STI payments earned by the executive during the year ended 31 December 2017, which
are expected to be paid in July and were approved by the Board in February 2018. The 2016 amount represents cash STI
payments earned by the executive during the year ended 31 December 2016, which were paid in March 2017.
(4)
Includes automotive allowances, reimbursements of financial and tax preparation assistance, relocation expenses, and
dividends received on Share Rights, if any.
(5)
Includes 401(k) plan matching contributions made by the employing entity in the United States.
(6) Mr Ryan was hired on 6 September 2016, as such, his 2016 actual remuneration received reflects a partial year of
earnings from his date of hire.
(7) Mr Rasetti ceased employment on 31 December 2017.
(8) Mr Closner was considered a KMP on 16 October 2017, however, his remuneration above for 2017 includes remuneration
received during the entire year.
(9) Mr Baker ceased employment on 31 December 2017.
(10) Ms Plaster was hired on 30 October 2017, as such, her actual remuneration received reflects a partial year of earnings
from her date of hire. The annual bonus column represents the first of two $20,000 sign-on bonus payments.
(11) Mr Despres was hired on 1 September 2016, as such his 2016 remuneration received reflects a partial year of earnings
from his hire date.
(12) Mr Irwin ceased employment on 30 September 2017. However, Mr Irwin remained employed and provided assistance to
the CEO as needed from 1 October to 31 December and received post-notice pay for these services. His severance pay
did not begin until 1 January 2018. Therefore, no termination benefits are disclosed for Mr Irwin above. Mr Irwin was hired
on 18 January 2016, as such, his 2016 remuneration received reflects a partial year of earnings from his date of hire.
(13) Amounts reflect a portion of the expense associated with the special exertion award granted in 2017 which was granted,
vested and paid in 2017.
50
Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
5.2. RIGHTS AND OPTIONS GRANTED
No options were granted in 2017.
No share rights were granted in 2017.
BOART LONGYEAR LIMITED
Table 5.2: Cash Rights granted during the year ended 31 December 2017 table:
Cash Rights
Num ber of
Special
Retention
Rights
granted
Future
years
payable
Maxim um
value of
grant
US$
-
-
-
-
-
-
-
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
3 yrs
1,000,000
500,000
400,000
60,000
325,000
500,000
500,000
Num ber
of LTI
Rights
granted
1,000,000
500,000
400,000
60,000
325,000
500,000
500,000
Nam e
Jeffrey Olsen
Brendan Ryan
Fabrizio Rasetti
Robert Closner
Brad Baker
Denis Despres
Mark Irw in
5.3. SHARE HOLDINGS
Shares
Table 5.3.1: Share holdings as at the end of the financial year and activity during the financial year, are as follows:
Balance
1 January
Granted as
remuneration
Received on
exercise of
options/rights
Net other change
during year
Balance
31 Decem ber
Balance
held nom inally
2017
Marcus Randolph
Kyle Cruz
Law rence First
Jason Ireland
James Kern
Gretchen McClain
Robert Smith
Richard Wallman
Eric Waxman
Jeffrey Olsen
Brendan Ryan
Robert Closner
Kari Plaster
Denis Despres
5,550,356
3,348,199
-
-
-
-
819,242
-
-
-
135,000
-
37,441
-
-
-
-
-
-
1,146,820
-
-
-
846,821
-
106,650
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,430,212
10,328,767
-
-
-
-
-
-
-
-
(460,950)
-
(57,806)
-
-
-
-
-
-
1,966,062
-
-
-
520,871
-
86,285
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
______________________________________________________________________________________
47
51
Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
Share holdings activity during the financial year for KMP and Directors who ceased employment or resigned prior to 31
December 2017, were as follows:
Balance
1 January
Granted as
remuneration
Received on
exercise of
options/rights
Net other change
during year
Balance
as of retirem ent date
Balance
held nom inally
2017
Bret Clayton 1
Peter Day 2
Jonathan Lew insohn 3
Jeffrey Long 4
Rex McLennan 5
Deborah O'Toole 6
Matthew Sheahan 7
Conor Tochilin 8
Fabrizio Rasetti 9
Brad Baker 10
Mark Irw in 11
1,548,091
1,608,865
-
955,215
1,163,684
914,111
-
-
344,300
200,796
-
803,569
803,569
-
803,569
506,248
803,569
-
-
846,821
635,116
-
(14) Mr Clayton resigned 1 September 2017.
(15) Mr Day resigned 1 September 2017.
(16) Mr Lewinsohn resigned 20 January 2017.
(17) Mr Long resigned 1 September 2017.
(18) Mr McLennan resigned 1 September 2017.
(19) Ms O’Toole resigned 1 September 2017.
-
-
-
-
-
-
-
-
-
-
-
(300,000)
-
-
-
-
-
-
-
(398,242)
(321,855)
-
2,051,660
2,412,434
-
1,758,784
1,669,932
1,717,680
-
-
792,879
514,057
-
-
-
-
-
-
-
-
-
-
-
-
(20) Mr Sheahan was appointed effective 1 September 2017 and resigned 29 September 2017.
(21) Mr Tochilin was appointed effective 20 January 2017 and resigned 29 September 2017.
(22) Mr Rasetti’s employment ceased 31 December 2017.
(23) Mr Baker’s employment ceased 31 December 2017.
(24) Mr Irwin’s employment ceased 30 September 2017.
______________________________________________________________________________________
48
52
Boart Longyear 2017 Annual Report
Annual Financial Report
31 December 2017
5.4 SERVICE CONTRACTS AND TERMINATION PROVISIONS
BOART LONGYEAR LIMITED
Name and
position held at
the end of the
financial year
Jeffrey Olsen
Chief Executive
Officer
Brendan Ryan
Chief Financial
Officer
Robert Closner
Vice President,
General Counsel
and Company
Secretary
Duration of
contract
No fixed term
Notice period by
Company
None required
Notice period
by executive
180 days
No fixed term
None required
90 days
No fixed term
None required
90 days
Kari Plaster
Vice President,
Human Resources
No fixed term
None required
90 days
Denis Despres
Chief Operating
Officer
No fixed term
None required
90 days
Termination payments (where
these are in addition to
statutory entitlements)
For termination with cause,
statutory entitlements only
For termination without cause:
• 12 months’ salary
• Pro-rata bonus to termination
date
• Waiver of medical insurance
premiums for 12 months
For termination with cause,
statutory entitlements only
For termination without cause:
• 12 months’ salary
• Pro-rata bonus to termination
date
Waiver of medical insurance
premiums for 12 months
For termination with cause,
statutory entitlements only
For termination without cause:
• One month per year of
service with a minimum of 12
months and a maximum of 24
months.
• Pro-rata bonus to termination
date
• Waiver of medical insurance
premiums for 12 months
For termination with cause,
statutory entitlements only
For termination without cause:
• 12 months’ salary
• Pro-rata bonus to termination
date
• Waiver of medical insurance
premiums for 12 months
For termination with cause,
statutory entitlements only
For termination without cause:
• 12 months’ salary
• Pro-rata bonus to termination
date
Waiver of medical insurance
premiums for 12 months
______________________________________________________________________________________
49
53
Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
Under the terms of the Company’s LTIP and option plans, the Board has discretion to provide for early vesting of all or a
portion of unvested Rights and Options depending on the circumstances of an employee’s termination. The executive
employment contracts listed above contain a twelve-month non-competition and non-solicitation covenant in the Company’s
favour. The Company may, at its option, extend the term of the covenants upon an executive’s termination of employment for
up to an additional twelve months in exchange for monthly payments of the executive’s base salary for the term of the
extension.
5.5 SPECIAL STRATEGIC RETENTION AWARDS FOR KEY EMPLOYEES (including the KMP)
In March 2016, the Board approved special strategic retention awards to certain key employees that include the KMP in March
2016. The Board recognises there has been continued contraction in both the industry and the Company, with no immediately
visible signs of recovery. The Board further recognises the importance of retaining key leaders during a time of heightened
uncertainty and that current outstanding equity awards have little-to-no visible retention value. These awards will be in the form
of cash retention and will vest on the third anniversary of the award. If the senior executive is terminated for reasons other than
for cause, the award will be prorated (with a minimum of one third the original award value) and remain outstanding and
payable on the original vesting date. For the Company’s KMP, all awards will vest in March 2019 and are in the following
amounts:
Jeff Olsen (1)
Fabrizio Rasetti (2)
Robert Closner (3)
Brad Baker (4)
Mark Irwin (5)
$900,000
$624,000
$131,468
$487,000
$525,000
(1) Mr Olsen’s amount above was reduced to $550,685 as a result of his pro-rated forfeitures due to the new MIP plan in 2018. This
amount will remain outstanding until the scheduled vesting date in March 2019.
(2) Mr Rasetti’s amount above was reduced to $347,069 as a result of his cessation of employment and will remain outstanding until the
scheduled vesting date in March 2019.
(3) Mr Closner’s amount above was reduced to $80,439 as a result of his pro-rated forfeitures due to the new MIP plan in 2018. This
amount will remain outstanding until the scheduled vesting date in March 2019.
(4) Mr Baker’s amount above was reduced to $270,870 as a result of his cessation of employment and will remain outstanding until the
scheduled vesting date in March 2019.
(5) Mr Irwin’s amount above was reduced to $277,123 as a result of his cessation of employment and will remain outstanding until the
scheduled vesting date in March 2019.
6. NON-EXECUTIVE DIRECTOR ARRANGEMENTS
This section explains the remuneration structure and outcomes for non-executive Directors.
6.1. NON-EXECUTIVE DIRECTORS’ FEE STRUCTURE
Non-executive Directors (NED) are remunerated by a fixed annual base fee with additional fees paid for serving on Board
committees. NED who are also employees of Centerbridge, Ares or Ascribe do not receive any Director fees. The payment of
committee fees recognises the additional time commitment required by NED who serve on board committees. The Chairman
may attend any committee meetings but does not receive any additional committee fees in addition to base fees.
The fees are determined within a maximum aggregate fee pool that is approved by shareholders. The approved fee pool limit
is US$2.0 million, which aside from changing the currency exchange rate at the 2015 general meeting has not changed in
quantum since the Company’s initial public offering in 2007. During the financial year, US$1.0 million of the pool was utilised
for non-executive Director fees, being approximately 50% of the fee pool limit.
In 2015, the Board retained Willis Towers Watson to provide an independent review of NED remuneration with the aim of
ensuring an appropriate balance existed between North American and Australian Director pay practices. Effective 1 July 2015,
NEDs were required to receive 50% of their annual base fees in ordinary shares of Company stock. This change was made to
further strengthen the alignment of NED remuneration with shareholder interests and be more competitive with North
American pay practices by including company stock as a component of the NED fee structure. The share issue occurred every
three months by taking 50% of the base fees earned in US dollars, converting it to Australian dollars using the exchange rate
on issue date and then dividing it by the volume weighted average price of the shares traded on the ASX in the first five days
after each relevant fee period. The shares are then issued and deposited into each NED personal brokerage account. As
described in Section 6.2 below, the Directors are not able to trade the shares, net of sales to cover income taxes, for a period
of twelve months from when they are allocated. With the completion of the recapitalisation this practice was suspended as of 1
September 2017. Additionally, the base Board fee was increased by $40,000 per annum to a total of $160,000, while
Committee fees were reduced from $15,000 per member to $7,500 and Committee Chair fees were reduced to $15,000 from
$30,000.
______________________________________________________________________________________
50
54
Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
Table 6.1: Components of Non-executive Director Remuneration
Component
Explanation
BOART LONGYEAR LIMITED
Board fees
Committee fees
Other fees/benefits
Post-employment benefits
Current base fees per annum are:
•
US$160,000 for non-executive Directors other than
the Board Chairman and the resident Australian
Directors (US$120,000 to 1 September 2017);
US$300,000 for the Board Chairman; and
AUS$200,000 for the resident Australian Directors.
•
•
Current committee fees for non-executive Directors (other
than the Board Chairman) are:
•
US$7,500 annually for committee members
(US$15,000 up to 1 September 2017); and
US$15,000 annually for committee chairs (US$30,000
up to 1 September 2017).
•
Where the Board Chairman sits on a committee, he or she
does not receive any additional fee.
Non-executive Directors are entitled to be reimbursed for all
reasonable out-of-pocket expenses incurred in carrying out
their duties, including travel costs. The Board Chairman also
is entitled to reimbursement for office and secretarial
support.
Non-executive Directors may also, with the approval of the
Board, be paid additional fees for extra services or special
exertions for the benefit of the Company.
Non-executive Directors are not entitled to receive any
performance-related remuneration, such as short-term or
long-term incentives.
During the term Mr Randolph serves as the Executive
Chairman he is eligible to participate in the Company’s
medical and dental plans.
Compulsory superannuation contributions for Australian-
resident non-executive Directors are included in the base
fee and additional committee fees set out above.
Non-executive Directors do not receive any retirement
benefits other than statutory superannuation contributions.
During the term Mr Randolph serves as the Executive
Chairman he is eligible to participate in the Company’s
401(k) retirement plan, including receiving a 3% matching
contribution by the Company up to a maximum of US$8,100
per annum.
______________________________________________________________________________________
51
55
Annual Financial Report
31 December 2017
6.2 NON-EXECUTIVE SHAREHOLDING GUIDELINE
BOART LONGYEAR LIMITED
In 2015, the Board implemented a shareholding guideline requiring non-executive Directors to be paid 50% of their base fees
in Company shares and hold these shares for a minimum of one year. With the completion of the recapitalization this practice
was suspended effective 1 September 2017.
6.3. NON-EXECUTIVE DIRECTOR SHARE ACQUISITION PLAN
In February 2008, the Remuneration Committee recommended, and the Board approved, the establishment of a non-
executive Director Share Acquisition Plan (“NEDSAP”) as foreshadowed in the Company’s prospectus.
The NEDSAP is a fee sacrifice plan in which only non-executive Directors may participate. Participation in the NEDSAP is
voluntary and non-executive Directors may elect to sacrifice up to 100% of their pre-tax base and committee fees to acquire
ordinary shares at the prevailing market price.
Shares acquired under the NEDSAP will be subject to a holding lock for up to 10 years, during which they are unable to deal
with their shares. The holding lock may be removed in certain circumstances, including a cessation of Directorship.
No shares were purchased under this plan during the year ended 31 December 2017.
______________________________________________________________________________________
52
56
Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
6.4. DETAILS OF REMUNERATION PAID TO NON-EXECUTIVE DIRECTORS
Details of non-executive Directors’ remuneration for the year ended 31 December 2017 and 2016 are set out in the table
below.
Table 6.4: Non-executive Director Remuneration
Fees (incl.
com m ittee
fees) 1
US$
Superannuation
contributions 2
US$
Shares
US$
Total
US$
Marcus Randolph 3
2017
2016
Bret Clayton 4
2017
2016
Kyle Cruz 5
2017
Peter Day 6
2017
2016
Law rence First 7
2017
Jason Ireland 8
2017
James Kern 9
2017
Jonathan Lew insohn 10
2017
2016
Jeffrey Long 11
2017
2016
Gretchen McClain
2017
2016
Rex McLennan 12
2017
2016
Deborah O'Toole 13
2017
2016
Matthew Sheahan 14
2017
Robert Smith 15
2017
Conor Tochilin 16
2017
Richard Wallman 17
2017
Eric Waxman 18
2017
538,906
1,159,975
3
3
100,000
105,000
-
91,324
95,891
-
51,710
41,875
-
-
80,000
75,000
138,958
75,000
114,000
117,000
78,539
68,493
-
51,710
-
57,083
-
8,100
7,950
166,664
250,000
713,670
1,417,925
-
-
-
40,000
60,000
140,000
165,000
-
-
8,676
9,109
40,000
60,000
140,000
165,000
-
-
-
-
-
-
-
-
-
-
-
7,461
6,507
-
-
-
-
-
-
-
-
-
-
40,000
60,000
40,000
60,000
40,000
60,000
40,000
60,000
-
-
-
-
-
-
51,710
41,875
-
-
120,000
135,000
178,958
135,000
154,000
177,000
126,000
135,000
-
51,710
-
57,083
-
______________________________________________________________________________________
53
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Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
(1) Please refer to Table 6.1 above for details of the annual non-executive Director base fees and committee fees. Some Director’s
(2)
(3)
2017 fees also include a special exertion fee paid in 2017.
Includes compulsory superannuation guarantee payments to Australian-resident Directors which are deducted from their base and
additional committee fees.
Includes director fees, cash salary and performance bonus. In consideration for acting as interim CEO and Executive Chair, Mr
Randolph received a cash salary of US$360,570 and performance bonus of US$45,000 in 2017 and cash salary of US$509,975 and
performance bonus of US$500,000 in 2016.
(4) Mr. Clayton resigned as of 1 September 2017.
(5) Mr Cruz was appointed effective 1 September 2017. He is an employee of Centerbridge and receives no Director fees.
(6) Mr Day resigned as of 1 September 2017.
(7) Mr First was appointed effective 1 September 2017 and resigned effective 20 February 2018. He is an employee of Ascribe Capital
and received no Director fees.
(8) Mr Ireland was appointed effective 1 September 2017.
(9) Mr Kern was appointed as an alternate director for Mr. First effective 29 September 2017 and was appointed as a director effective
20 February 2018.
(10) Mr Lewinsohn resigned as of 20 January 2017. He is an employee of Centerbridge and received no Director fees.
(11) Mr Long resigned as of 1 September 2017.
(12) Mr Rex McLennan resigned as of 1 September 2017.
(13) Ms O’Toole resigned as of 1 September 2017.
(14) Mr Sheahan was appointed effective 1 September 2017 and resigned 29 September 2017. Mr Sheahan is an employee of Ares
Management and received no Director fees.
(15) Mr Smith was appointed effective 1 September 2017.
(16) Mr Tochilin was appointed effective 20 January 2017 and resigned 1 September 2017. Mr Tochilin is an employee of Centerbridge
and received no Director fees.
(17) Mr Wallman was appointed effective 1 September 2017.
(18) Mr Waxman was appointed effective 29 September 2017. He is an employee of Ares Management and receives no Director fees.
______________________________________________________________________________________
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Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
BOARD OF DIRECTORS
BOART LONGYEAR LIMITED
A brief summary of the Directors’ work experience and qualifications is as follows.
Marcus Randolph
Marcus Randolph was appointed a Director of the Company and Chair on 23 February 2015. Mr Randolph has served more
than 35 years in the mining industry in a variety of global, senior executive roles. Most recently, he was Chief Executive of
BHP Billiton’s Ferrous and Coal business from July 2007 to September 2013, located in Melbourne, and was a member of
BHP’s Group Management Committee.
Prior to that role, he also held several other senior executive roles at BHP, including as its Chief Organisation Development
Officer, President Diamonds and Specialty Products, Chief Development Officer Minerals and Chief Strategic Officer Minerals.
His earlier career includes Chief Executive Officer, First Dynasty Mines, Mining and Minerals Executive, Rio Tinto Plc, Director
of Acquisitions and Strategy, Kennecott Inc., General Manager Corporacion Minera Nor Peru, Asarco Inc., and various mine
operating positions in the US with Asarco Inc.
Mr Randolph holds a Bachelor of Sciences degree in Mining Engineering from the Colorado School of Mines in the United
States and also holds a Master’s in Business Administration from Harvard University.
Kyle Cruz
Kyle Cruz was appointed a Director of the Company on 1 September 2017. He is a member of the Remuneration and
Nominations Committee. Mr Cruz is a Senior Managing Director at Centerbridge Partners, L.P., the Company’s largest
shareholder and investor. Prior to joining Centerbridge in 2007, he served as Vice President at Diamond Castle Holdings, a
private equity firm founded by former senior professionals of DLJ Merchant Banking (DLJMB).
Previously, he worked as an Associate at DLJMB and J.W. Childs Associates, a Boston-based private equity firm. He began
his career as an analyst in the Mergers and Acquisitions department of Goldman Sachs.
Jason Ireland
Jason Ireland was appointed a Director of the Company on 1 September 2017. He is a member of the Remuneration and
Nominations Committee. Mr Ireland is the Head of McGrath Nicol’s Advisory Business and is based in Sydney, Australia. He
has over 24 years of experience in strategic reviews and implementation of performance improvement and restructuring
initiative across a range of industries. In the past five years, he has spent considerable time in the mining services sector,
advising boards and financiers on operations in key mining regions around the world. Prior to joining McGrath Nicol in 2006,
Mr Ireland was a Senior Manager at KPMG.
Mr Ireland holds a Bachelor of Business from Charles Sturt University and is a member of the Institute of Chartered
Accountants in Australia.
James Kern
James Kern was appointed as a Director of the Company on 20 February 2018. He is a member of the Audit, Safety & Risk
Committee. Mr Kern has served as Managing partner of Majestic Ventures 1 LLC, a consulting and investment partnership
focused on early stage growth companies, since 2014, In addition, he currently serves on boards of THL Credit Inc.
(NASDAZ), a middle market lending company, PlaySight Interactive, an Israeli-based sports data analytics business and Basic
Energies Services (NYSE), an oilfield services company.
From 2010 to 2014, Mr Kern was a Managing Director at Nomura Securities, serving as Head of Global Finance Financial
Institution Group (“FIG”) and Specialty Finance Investment Banking for the Americas. He previously served as Managing
Director at J. P. Morgan securities within the FIG practice and was focused on Asset Management and Specialty Finance
clients. From 1994-2008, he was a Senior Managing Director at Bear Stearns, where he held several positions, including
Head of Strategic Finance-FIG, head of Corporate Derivatives and was a founding member of the firm’s Structured Equity
Products group.
Mr Kern has a B.S. from the Marshall School of Business at the University of Southern California.
______________________________________________________________________________________
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Annual Financial Report
31 December 2017
Gretchen McClain
BOART LONGYEAR LIMITED
Gretchen W. McClain was appointed a Director of the Company on 15 November 2015. She is the Chairperson of the
Remuneration and Nominations Committee and is also a member of the Audit, Safety & Risk Committee. She has more than
25 years of global experience in both Fortune 500 corporations and government service, including serving as founding CEO of
an S&P 500 global water technology company, Xylem Inc., and NASA’s Chief Director of the International Space Station. Ms.
McClain brings extensive business, developmental, strategic and technical expertise having served a broad industrial market.
McClain serves as a Board of Director for publicly traded companies: AMETEK, Inc., Booz Allen Hamilton Holding Corporation,
and Boart Longyear Limited, and a private family owned business, J.M. Huber Corp and serves as an Advisor to EPIC
Ventures. Through her own consulting practice, she provides leadership and business services to executives, frequently
working with start-up businesses and private equity firms.
She graduated from the University of Utah with a B.S. in Mechanical Engineering and received the University’s prestigious
Founders Award in 2015. McClain was inducted into the Utah Technology Council Hall of Fame and is the first woman to
receive this honor.
Jeffrey Olsen
Jeffrey Olsen was appointed President and Chief Executive Officer on 1 March 2016 after serving as Chief Financial Officer
since 2014. Before joining Boart Longyear, he served as Chief Commercial Officer for Rio Tinto’s Iron & Titanium business
since 2010. Prior to that time, he was Chief Financial Officer for Rio Tinto’s Borax and Minerals divisions for approximately
eight years, and held other financial roles at Rio Tinto. Mr Olsen’s experience also includes financial roles at General Chemical
Corporation and Xerox Corporation in the United States.
Mr Olsen holds a Bachelor’s of Arts from the University of Utah and a Master of Business Administration from the Simon
School of Business at the University of Rochester.
Robert Smith
Robert Smith was appointed a Director of the Company on 1 September 2017. He is a member of the Audit, Safety & Risk
Committee. Mr Smith is a Partner of McGrath Nicol. Based in Melbourne, Australia, he specializes in business restructuring
and performance improvement and has led numerous complex assignments often involving prominent listed entities and/or
multi-lender banking syndicates. Mr. Smith’s experience covers a wide variety of industries, including mining and mining
services, energy, power and utilities, manufacturing, retail, media, information technology and financial services. Prior to
joining McGrath Nicol in 2009, Mr. Smith was an Associate Director in Ernst & Young’s Transaction and Assurance divisions.
Mr. Smith began his career as an accountant with Arthur Andersen.
Mr Smith is a Member of Chartered Accountants Australia and New Zealand, a Member of the Australian Institute of Company
Directors and a Registered Liquidator. He holds a Bachelor of Commerce from the University of Melbourne and a Graduate
Diploma in Applied Finance and Investment.
Richard Wallman
Richard Wallman was appointed a Director of the Company on 1 September 2017 and is Chairperson of the Audit, Safety and
Risk Committee. Mr Wallman’s distinguished career includes senior executive roles in finance, as well as non-executive
director roles at several large, publicly listed US companies. His executive experience includes serving as the Chief Financial
Officer and Senior Vice President at Honeywell International, Inc. and its predecessor, AlliedSignal, from 1995 until his
retirement in 2003. He also has held senior financial positions with the IBM Corporation and Chrysler Corporation and worked
at Ford Motor Company earlier in his career.
Mr Wallman currently is a non-executive director of Roper Technologies, Inc. (NYSE), Charles River Laboratories
International, Inc. (NYSE), Wright Medical Group, Inc. (NASDAQ) and Extended Stay America, Inc (NYSE).Mr Wallman holds
a Bachelor of Engineering degree from Vanderbilt University in the United States and also holds a Master’s in Business
Administration from the University of Chicago.
______________________________________________________________________________________
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Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
Eric Waxman
BOART LONGYEAR LIMITED
Eric Waxman was appointed a Director of the Company on 29 September 2017. He is a member of the Remuneration and
Nominations Committee. Mr Waxman is a Senior Advisor within Ares Management L.P.’s (“Ares”) Private Equity Group. Mr
Waxman works on both the acquisition and disposition of Ares portfolio assets and assists Ares portfolio companies in dealing
with a range of significant legal issues, including corporate governance, regulatory inquiries and litigation. Prior to joining Ares
in 2016, he was a partner at Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates, where he practiced for more than 30
years.
Mr Waxman holds a B.A. from the University of California Los Angeles in Economics and a J.D. from the University of
California Davis School of Law.
COMPANY SECRETARIES
Fabrizio Rasetti was appointed Company Secretary on 26 February 2007. He joined Boart Longyear in April 2006. Prior to
that time, he worked at SPX Corporation (New York Stock Exchange), where he held various management roles in the legal
department and for business development over a period of almost nine years. He also worked in the private law firms of
Howrey & Simon and Towey & Associates in Washington, DC. He received his BS in Foreign Service and J.D. from
Georgetown University.
Robert Closner was appointed Vice President, General Counsel in October 2017 and later appointed as Company Secretary
on 7 December 2017. He began his career as an associate at one of the leading law firms in Toronto, Canada and prior to
joining Boart Longyear served as the General Counsel and Corporate Secretary of Ivernia Inc. Since joining the Company in
2008, Mr Closner has served in several key leadership positions for Boart Longyear as Regional General Counsel, most
recently responsible for the Americas where he oversaw compliance matters, provided legal guidance and corporate
commercial support. Prior to his Vice President appointment, Mr Closner held the position of Interim Chief Commercial Officer.
Mr Closner received a Bachelor of Arts in Economics and Political Science from McGill University in Montreal, Quebec and
attained his Juris Doctorate in Law from Queen’s University in Kingston, Ontario.
Philip Mackey was appointed Company Secretary on 29 January 2016. He has over three decades of company secretarial
and commercial experience and is a member of the Company Matters’ secretariat team. Previously, he served as Company
Secretary of ASX & SGX dual listed Australand Group Limited and Deputy Company Secretary of AMP Limited. Mr Mackey’s
commercial experience includes appointment as Chief Operating Officer (Specialised Funds) of Babcock & Brown and at
Bressan Group. He is a Fellow of Governance Institute Australia and a Graduate Member of the Australian Institute of
Company Directors.
______________________________________________________________________________________
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Annual Financial Report
31 December 2017
DIRECTORS’ MEETINGS
BOART LONGYEAR LIMITED
The following tables set out for each Director the number of Directors’ meetings (including meetings of Board committees) held
and the number of meetings attended by each Director during the financial year while he/she was a Director or committee
member. The tables do not reflect the Directors’ attendance at committee meetings in an “ex-officio” capacity. The tables also
do not reflect special or informal meetings of the Board or its committees.
Pre Recapitalisation (Jan to Sep 2017)
Board of
Directors
Special Board
Meetings 1
Remuneration
Committee
Held
Attended Held
Attended
Held
Attended
Audit, Compliance
& Risk Committee 2
Held
Attended
Environment,
Health &
Safety Committee 2
Attended
Held
Bret Clayton
Peter Day
Jonathan Lewinsohn
Jeffrey Long
Gretchen McClain
Rex McLennan
Deborah O'Toole
Marcus Randolph
Jeffrey Olsen
5
4
0
5
5
5
5
5
5
5
5
0
5
5
5
5
5
5
15
15
2
15
15
15
15
15
15
15
14
2
12
14
13
14
15
14
Post Recapitalisation (Sep to Dec 2017)
3
3
3
3
3
3
3
3
3
3
3
3
2
2
2
2
2
2
Board Status
Change
During 2017
Retired 1 September 2017
Retired 1 September 2017
Retired 20 January 2018
Retired 1 September 2017
Retired 1 September 2017
Retired 1 September 2018
Appointed 1 March 2016
Board of
Directors
Remuneration
Audit, Safety
Committee
& Risk Committee 2
Board Status
Change
Held
Attended Held
Attended
Held
Attended
During 2017
Kyle Cruz
Lawrence First
Jason Ireland
James Kern
Gretchen McClain
Marcus Randolph
Robert Smith
Richard Wallman
Eric Waxman
Jeffrey Olsen
3
3
3
3
3
3
3
3
3
3
3
0
3
3
3
3
3
2
3
3
2
2
2
2
2
2
2
2
1
1
1
1
1
1
1
1
Appointed 1 September
Appointed 1 September
Appointed 1 September
Appointed 29 September
Appointed 1 September
Appointed 1 September
Appointed 29 September
(1) Special Board Meetings were held during 2017 to discuss the recapitalisation and other relevant topics.
(2) The Board combined the Audit, Compliance & Risk and the Environment, Health & Safety committees into a single committee called
the Audit, Safety & Risk Committee following the recapitalisation.
______________________________________________________________________________________
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Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
DIRECTORS’ SHAREHOLDINGS
BOART LONGYEAR LIMITED
The following table sets out each Director’s relevant interest in shares, debentures, and rights or options over shares or
debentures of the Company or a related body corporate as at the date of this report.
Marcus Randolph
Kyle Cruz
Lawrence First
Jason Ireland
James Kern
Gretchen McClain
Robert Smith
Richard Wallman
Eric Waxman
Fully paid
ordinary shares
10,328,767
-
-
-
-
1,966,062
-
-
-
Rights offering
ordinary shares
Rights and
options
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
10,328,767
-
-
-
-
1,966,062
-
-
-
The Board adopted a non-executive Director shareholding guideline which recommends that non-executive Directors acquire
and hold at least 30,000 Company shares within five years of their appointment. The target share amount was established to
be roughly equivalent to one year’s Directors’ fees and was based on the value of the Company shares at the time. The target
shareholding amount may be adjusted from time to time to track movements in the Company’s share price.
______________________________________________________________________________________
59
63
Annual Financial Report
31 December 2017
BOART LONGYEAR LIMITED
GRANTS OF SHARES, RIGHTS OVER SHARES AND OPTIONS GRANTED TO DIRECTORS AND EXECUTIVES
At the Company’s 2015 general meeting, shareholders approved a change to the remuneration structure for the Company’s
non-executive Directors 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 stock. 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. Shares granted to
non-executive Directors and the Executive Chairman in lieu of their base fees are set out in Table 5.3.1 of the Remuneration
Report. Prior to the implementation of the revised remuneration structure for non-executive Directors, no shares or rights over
shares of the Company were granted to non-executive Directors since the Company’s initial public offering in April 2007.
Shares and rights granted to executives of the Company are included in the Remuneration Report. As detailed more fully in
the Remuneration Report, the Company has at various times in 2009, 2010 and 2014 granted options to former and current
members of senior management. 345,000 of these options granted in June 2009 vested in accordance with their terms and
expired in June 2014, with none having been exercised. 25,000 of these options granted in March 2010 vested in accordance
with their terms and expire in March 2015. 891,561 of these options granted in March and April of 2014 vested in accordance
with their terms and expire in March and April of 2024. No shares or interests have been issued during the financial year as a
result of the exercise of options.
DIRECTORS' AND OFFICERS’ INTERESTS IN CONTRACTS
Except as noted herein, no contracts involving Directors' or officers’ interests existed during, or were entered into, since the
end of the financial year other than the transactions detailed in Note 30 to the financial statements.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND AUDITORS
The Directors and officers of the Company are indemnified by the Company to the maximum extent permitted by law against
liabilities incurred in their respective capacities as Directors or officers. In addition, during the financial year, the Company
paid premiums in respect of contracts insuring the Directors and officers of the Company and any related body against
liabilities incurred by them to the extent permitted by the Corporations Act 2001. The insurance contracts prohibit disclosure of
the nature of the liability and the amount of the premium.
The Company has not paid any premiums in respect of any contract insuring Deloitte Touche Tohmatsu against a liability
incurred in the role as an auditor of the Company.
EXECUTIVE MANAGEMENT TEAM
A brief summary of the Executive Management Team’s work experience and qualifications is as follows.
Jeffrey Olsen
Mr Olsen’s experience and qualifications are summarised above on page 60.
Denis Despres
Denis Despres was appointed the Company’s Chief Operating Officer on 6 September 2016. He began his career with Boart
Longyear in 1981 and held various positions with progressive responsibility in the Company’s drilling services and products
divisions over the next 26 years, including as Senior VP, Drilling Services. After leaving Boart Longyear in 2007, Mr Despres
founded his own drilling business, which was acquired by Major Drilling in 2010. He most recently served as Major’s Chief
Operating Officer prior to rejoining Boart Longyear.
Mr Despres studied in Ontario, Canada, and received a diploma in mechanical engineering technology from Algonquin
College, a Bachelor of Engineering from Lakehead University and a Master of Business Administration from Queen’s
University, all of which are in Ontario, Canada.
______________________________________________________________________________________
60
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Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
Brendan Ryan
BOART LONGYEAR LIMITED
Brendan Ryan was appointed Chief Financial Officer on 6 September 6 2016. Mr Ryan’s experience includes over 24 years
within the mining industry, spent predominantly with Rio Tinto and Shell / Anglo Coal, working in a variety of key commercial
and operating roles. Prior to a year working with Private Equity, Mr Ryan held the role of Global Head of Business Evaluation
for Rio Tinto in London where he was accountable for managing the group capital planning and allocation process. Earlier
roles during his 13 years with Rio Tinto included Head of Business Development for the Rio Tinto Copper & Diamonds Group
in London, VP Projects & Expansion at Kennecott Utah Copper in Salt Lake City, as well as other Business Evaluation and
Business Analysis roles in London and Australia.
Mr Ryan holds a Master’s of Business Administration from the University of Oxford, UK as well as a Bachelor of Engineering
(Mining) honors degree from the University of Queensland, Australia.
Robert Closner
Mr Closner’s experience and qualifications are summarised above on page 61.
Kari Plaster
Kari Plaster was appointed Vice President of Human Resources on 30 October 2017. Most recently, Ms Plaster served as
CEO and Founder of Kindling Potential, a private coaching and consulting business using brain based strategies from the
Neuroleadership Institute. Prior to this, Ms Plaster held several senior HR roles within Rio Tinto including General Manager,
Leadership Model; VP HR, HSE Governance and External Relations; and Americas Director, Capability Development. She
has worked in many different locations and businesses including Kennecott Utah Copper, US Borax and Iron Ore Company of
Canada.
Ms Plaster holds a Bachelor of Science Degree from Boise State University in Criminal Justice Administration, and has
designed and attended several senior leadership programs for Rio Tinto in cooperation with Duke’s Corporate Education
Programs.
______________________________________________________________________________________
61
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Annual Financial Report
31 December 2017
AUDITOR
AUDITOR’S INDEPENDENCE DECLARATION
The auditor’s independence declaration is included on page 68 of this report.
NON-AUDIT SERVICES
BOART LONGYEAR LIMITED
Details of amounts paid or payable for non-audit services provided during the year by the auditor are outlined in Note 8 to the
financial statements.
The auditor of Boart Longyear Limited is Deloitte Touche Tohmatsu. The Company has employed Deloitte Touche Tohmatsu
on assignments additional to their audit duties where their expertise and experience with the Company are important. These
assignments principally have been related to tax advice and tax compliance services, the magnitude of which is impacted by
the global reach of the Company.
The Company and its Audit, Safety & Risk Committee (Audit Committee) are committed to ensuring the independence of the
external auditor. Accordingly, significant scrutiny is given to non-audit engagements of the external auditor. The Company
has a formal pre-approval policy that requires the pre-approval of non-audit services by the Chairman of the Audit Committee.
Additionally, the total annual fees for such non-audit services cannot exceed the auditor’s annual audit fees without the
approval of the Audit Committee. The Audit Committee believes that the combination of these two approaches results in an
effective procedure to control services performed by the external auditor.
None of the services performed by the auditor undermine the general principles relating to auditor independence as set out in
Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical
Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity
for the Company, acting as an advocate for the Company or jointly sharing economic risks and rewards.
The Directors are satisfied that the provision of non-audit services during the year by the auditor (or by another person or firm
on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act
2001 and are of the opinion that the services, as disclosed in Note 8 to the financial statements, do not compromise the
external auditor’s independence.
PROCEEDINGS ON BEHALF OF COMPANY
No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings to
which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those
proceedings. The Company was not a party to any such proceedings during the financial year.
ROUNDING OF AMOUNTS
Boart Longyear Limited is a company of a kind referred to in ASIC Corporations (Rounding in Financial / Directors’ Report)
Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of
amounts in the Directors’ Report and Financial Report. Amounts in the Directors’ Report and the Financial Report are
presented in US dollars and have been rounded off to the nearest thousand dollars in accordance with that Instrument, unless
otherwise indicated.
______________________________________________________________________________________
62
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Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
REMUNERATION
BOART LONGYEAR LIMITED
The Remuneration Report is included beginning at page 25 and forms part of this Directors’ Report.
Signed in accordance with a resolution of the Directors.
On behalf of the Directors
Marcus Randolph
Chairman
28 February 2018
______________________________________________________________________________________
63
67
Deloitte Touche Tohmatsu
ABN 74 490 121 060
u
Tower 2, Brookfield Place
123 St Georges Terrace
Perth WA 6000
GPO Box A46
Perth WA 6837 Australia
Tel: +61 8 9365 7000
Fax: +61 8 9365 7001
www.deloitte.com.au
The Directors
Boart Longyear Limited
26 Butler Boulevard
Adelaide Airport SA 5650
Australia
28 February 2018
Dear Directors
Boart Longyear Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of
independence to the directors of Boart Longyear Limited.
As lead audit partner for the audit of the financial statements of Boart Longyear Limited for the financial year ended 31
December 2017, I declare that to the best of my knowledge and belief, there have been no contraventions of:
(i)
(ii)
The auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
A T Richards
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
__________________________________________________________________________________________
64
68
Boart Longyear 2017 Annual Report Deloitte Touche Tohmatsu
ABN 74 490 121 060
Tower 2, Brookfield Place
123 St Georges Terrace
Perth WA 6000
GPO Box A46
Perth WA 6837 Australia
Tel: +61 8 9365 7000
Fax: +61 8 9365 7001
www.deloitte.com.au
Independent Auditor’s Report
to the members of Boart Longyear Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Boart Longyear Limited (the Company) and its subsidiaries (the Group), which
comprises the consolidated statement of financial position as at 31 December 2017, the consolidated statement of profit or
loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of
cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting
policies, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 31 December 2017 and of its financial performance
for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are
further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the
ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical
responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of
the Company, would be in the same terms if given to the directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
________________________________________________________________________________________
65
69
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
Liquidity
How the scope of our audit responded to the Key
Audit Matter
At 31 December 2017, the Group has net liabilities of
$259.0 million and net current assets of $107.8 million.
Our audit procedures included, but were not limited to:
As referred to below the Group completed the debt
recapitalisation on 1 September 2017.
The Group continues to manage its liquidity closely as
disclosed in Note 1. This requires the achievement of
budgets and cash flow forecasts which include
assumptions about future cash flows and forecast
results, which are uncertain.
Accounting for debt recapitalisation
On 1 September 2017 the Group completed the debt
recapitalisation which achieved three primary
objectives – reduced debt, improved liquidity and
extended the maturities of the remaining debt.
The Group was required to issue certain equity
instruments in order to extinguish $196.0 million of
debt, reduce the interest cost through a reduction in
rates and extend the maturities of the remaining debt
to December 2022.
The accounting for the debt recapitalisation required a
significant level of judgement the basis of which is
disclosed in Note 21.
•
•
•
•
•
•
Assessing the process undertaken by
management to develop the budget and cash flow
forecasts for the 15 months period ending 30 June
2019 (‘FY18/FY19’)
Evaluating the key assumptions underlying the
FY18/FY19 budget
Assessing the quantum and timing of forecast
cash flows
Performing sensitivity analysis on the forecast
cash flows, with reference to available cash
balances and forecast cash flows from operating
activities
Evaluating performance in the period from year
end to audit opinion date against the FY18/FY19
budget
Assessing the appropriateness of the disclosures
included in Note 1 to the financial statements.
Our audit procedures included, but were not limited to:
•
•
•
•
•
•
Reading relevant agreements and supporting
documents in relation to the terms of the debt
recapitalisation
Assessing the accounting treatment in conjunction
with the requirements of Australian Accounting
Standards
Challenging management’s assessment with
respect to the conclusion that the fair value of the
equity instruments issued could not be reliably
estimated and the face value of the recapitalised
debt was equal to fair value at the transaction
date
Testing that the necessary accounting entries
were appropriately recorded in the Group’s
financial records
Testing on a sample basis the costs incurred to
supporting documentation
Assessing the appropriateness of the disclosures
included in Note 21 of the financial statements.
________________________________________________________________________________________
66
70
Boart Longyear 2017 Annual Report Carrying value of goodwill
As disclosed in Note 18, the Group has goodwill of
$101.2 million which relates solely to the North
America Drilling Services Cash Generating Unit
(‘CGU’).
AASB 136 requires goodwill to be tested for
impairment on an annual basis and the Group’s testing
date is 31 December.
The evaluation of the recoverable amount (based on a
Value in Use model) of the goodwill in the North
America Drilling Services CGU requires significant
judgement in determining the key assumptions
including those relating to forecast revenue, gross
margin, expenses, working capital, capital expenditure
and discount rates applicable to the specific CGU.
Our procedures included but were not limited to:
•
Understanding the process that management has
undertaken to assess the recoverable amount of
the goodwill
Assessing management’s determination of the
Group’s CGUs based on our understanding of the
nature of the Group’s business and the economic
environment in which the segments operate
In conjunction with our corporate finance
specialists, challenging the Group’s significant
inputs, assumptions and estimates used as
described in Note 18 to determine the recoverable
value of the goodwill in the North America Drilling
Services CGU including:
o
o
forecast revenue, gross margin,
expenses, working capital, capital
expenditure by reference to actual
results in the current period and
approved budgets for the forecast period;
and
discount rates by reference to external
data and Deloitte developed discount
rates
Testing, on a sample basis, the mathematical
accuracy of the cash flow model
Performing sensitivity analysis in relation to key
assumptions, with particular focus on the gross
margin, discount rate and terminal growth rate
assumptions
Assessing the appropriateness of the disclosures
included in Note 18 to the financial statements.
•
•
•
•
•
________________________________________________________________________________________
67
71
Taxation
The Group operates across a large number of
jurisdictions and is subject to periodic challenges by
local tax authorities on a range of tax matters during
the normal course of business including application of
transfer pricing rules, indirect taxes, and transaction-
related tax matters as disclosed in Note 11 and 27.
Our procedures performed in conjunction with relevant
tax specialists, included but were not limited to:
• Obtaining an understanding of the process that
management has taken to determine the taxation
balances recognised in the financial report
At 31 December 2017, the Group has recorded an
income tax expense of $6.9 million, current and non-
current tax receivables of $1.7 million and $18.0
million, net current tax payables of $99.6 million and
net deferred tax assets of $7.2 million and has
disclosed its assessment of tax-related contingent
liabilities in Notes 11 and 27.
As disclosed in Note 11, the Group is under tax audit
in Canada.
The above matters give rise to complexity and
uncertainty in respect of the determination of income
taxes and deferred income tax assets as well as in the
consideration of contingent liabilities associated with
tax years open to audit. This requires significant
judgement in estimating tax exposures and/or
contingent liabilities.
•
•
•
•
•
Assessing the appropriateness of the treatment of
selected specific transactions in the Group’s tax
expense calculations
Evaluating the appropriateness of management’s
assumptions and estimates in relation to the
likelihood of generating future taxable income to
support the recognition of deferred income tax
assets with reference to forecast taxable income
Evaluating the consistency of the forecast used
by management to derive forecast taxable income
to support the recognition of deferred tax assets
against the forecast used for assessing the
carrying value of intangible assets and property,
plant and equipment
Challenging and evaluating management’s
assessment of uncertain tax positions including
contingent liabilities and conclusions on complex
tax arrangements through enquiries of the Group
Taxation department, obtaining and considering
the Group’s correspondence with local tax
authorities and advice received from third parties
Considering the adequacy of the Group’s
disclosures regarding current and deferred taxes,
uncertain tax positions and tax-related
contingencies.
Other Information
The directors are responsible for the other information. The other information comprises the information included in the annual
report, but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information we are
required to report that fact. We have nothing to report in this regard.
________________________________________________________________________________________
68
72
Boart Longyear 2017 Annual Report Directors’ Responsibilities for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors
determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing
Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions
of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain
professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s
internal control.
•
•
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of
our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going
concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether
the financial report represents the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and
performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
________________________________________________________________________________________
69
73
We also provide the directors with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on
our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most significance in the audit of
the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s
report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 25 to 58 of the directors’ report for the year ended 31 December
2017.
In our opinion, the Remuneration Report of Boart Longyear Limited, for the year ended 31 December 2017, complies with
section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance
with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report,
based on our audit conducted in accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
A T Richards
Partner
Chartered Accountants
Perth, 28 February 2018
________________________________________________________________________________________
70
74
Boart Longyear 2017 Annual Report Annual Financial Report
31 December 2017
DIRECTORS’ DECLARATION
The Directors declare that:
BOART LONGYEAR LIMITED
(a)
(b)
(c)
in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as
and when they become due and payable;
in the Directors’ opinion, the attached financial statements are in compliance with International Financial Reporting
Standards, as stated in Note 1 to the financial statements;
in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations
Act 2001, including compliance with accounting standards, and giving a true and fair view of the financial position and
performance of the consolidated entity; and
(d)
the Directors have been given the declarations required by section 295A of the Corporations Act 2001.
The Directors draw the reader’s attention to Note 1 on page 81 concerning the going concern basis of preparation of the
financial report.
Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act 2001.
On behalf of the Directors
Marcus Randolph
Chairman
28 February 2018
________________________________________________________________________________________
71
75
Consolidated Statement of Profit or Loss and
Other Comprehensive Income
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
Continuing operations
Revenue
Cost of goods sold
Gross margin
Other income
General and administrative expenses
Sales and marketing expenses
Other expenses
Operating loss
Interest income
Finance costs
Loss before taxation
Income tax expense
Loss for the year attributable
to equity holders of the parent
Loss per share:
Basic loss per share
Diluted loss per share
Note
2017
US$'000
2016
US$'000
3
4
4
5
5
739,063
(628,461)
1
110,602
1
1
6,637
(152,858)
(27,449)
(24,679)
(87,747)
1,783
(57,155)
(143,119)
642,404
(556,569)
1
85,835
1
1
8,939
(108,842)
(28,394)
(18,360)
(60,822)
2,486
(72,713)
(131,049)
11
(6,925)
(25,790)
(150,044)
(156,839)
12
12
(1.6) cents
(1.6) cents
(16.8) cents
(16.8) cents
Other comprehensive loss
Loss for the year attributable to equity holders of the parent
Items that may be reclassified subsequently to profit or loss
Exchange gain (loss) arising on translation of foreign operations
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss) gain related to defined benefit plans
Income benefit (tax) on income and expense recognised directly through equity
Other comprehensive loss for the year, net of tax
23
Total comprehensive loss for the year attributed
to equity holders of the parent
(150,044)
(156,839)
18,543
364
7,791
(752)
25,582
(6,075)
1,116
(4,595)
(124,462)
(161,434)
(1) In the current period significant items have not been separately presented but have been included in the relevant line items. Details of items
considered to be significant are included in note 7.
See accompanying Notes to the Consolidated Financial Statements included on pages 81 to 130
_______________________________________________________________________________________
72
76
Boart Longyear 2017 Annual Report
Consolidated Statement of Financial Position
As at 31 December 2017
BOART LONGYEAR LIMITED
Note
2017
US$'000
2016
US$'000
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax receivable
Prepaid expenses and other assets
Asset classified as held for sale
Total current assets
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Deferred tax assets
Non-current tax receivable
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Provisions
Current tax payable
Loans and borrowings
Total current liabilities
Non-current liabilities
Loans and borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net liabilities
Equity
Issued capital
Reserves
Other equity
Accumulated losses
Total deficiency in equity
31
13
14
11
16
17
18
19
11
11
20
22
11
21
21
11
22
24
43,758
131,861
174,375
1,657
13,749
365,400
530
365,930
118,130
101,196
34,109
20,597
18,033
15,134
307,199
673,129
138,248
19,451
99,590
794
258,083
641,884
13,439
18,720
674,043
932,126
(258,997)
1,468,758
(101,135)
(137,182)
(1,489,438)
(258,997)
59,343
107,898
165,020
4,399
13,604
350,264
5,923
356,187
127,660
100,036
43,920
19,465
19,035
10,326
320,442
676,629
126,589
13,014
94,577
140
234,320
734,987
18,884
25,941
779,812
1,014,132
(337,503)
1,263,798
(117,686)
(137,182)
(1,346,433)
(337,503)
See accompanying Notes to the Consolidated Financial Statements included on pages 81 to 130
_______________________________________________________________________________________
73
77
Consolidated Statement of Changes in Equity
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
Foreign
currency Equity-settled
translation compensation Other 1
equity
reserve
US$'000
US$'000
reserve
US$'000
Issued
capital
US$'000
Total
attributable
Accumulated to owners of
losses
US$'000
the parent
US$'000
1,262,431
-
(131,025)
-
10,212
-
(137,182)
-
(1,184,635)
(156,839)
(180,199)
(156,839)
-
-
717
650
-
1,263,798
364
364
-
-
-
(130,661)
-
-
-
(650)
3,413
12,975
-
-
-
-
-
(137,182)
(4,959)
(161,798)
-
-
-
(1,346,433)
(4,595)
(161,434)
717
-
3,413
(337,503)
1,263,798
-
(130,661)
-
12,975
-
(137,182)
-
(1,346,433)
(150,044)
(337,503)
(150,044)
-
-
200,464
485
1,642
2,369
-
1,468,758
18,543
18,543
-
-
-
-
-
(112,118)
-
-
-
(438)
(1,642)
(2,369)
2,457
10,983
-
-
-
-
-
-
-
(137,182)
7,039
(143,005)
-
-
-
-
-
(1,489,438)
25,582
(124,462)
200,464
47
-
-
2,457
(258,997)
Balance at 1 January 2016
Loss for the period
Other comprehensive loss
for the period - net of tax
Total other comprehensive loss
Shares issued to directors
Vesting of LTIP rights, restricted shares
Share-based compensation
Balance at 31 December 2016
Balance at 1 January 2017
Loss for the period
Other comprehensive loss
for the period - net of tax
Total other comprehensive loss
Shares issued
Shares issued to directors
Vesting of LTIP rights, restricted shares
Cancellation of LTIP share rights
Share-based compensation
Balance at 31 December 2017
(1) Other equity represents the Company’s reorganisation reserve on creation of the Company in 2007.
See accompanying Notes to the Consolidated Financial Statements included on pages 81 to 130
_______________________________________________________________________________________
74
78
Boart Longyear 2017 Annual Report
Consolidated Statement of Cash Flows
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
Note
2017
US$'000
2016
US$'000
(150,044)
(156,839)
5
6
5
6
6b, 10
6b
Cash flows from operating activities
Loss for the year
Adjustments provided by operating activities:
Income tax expense recognised in profit
Finance costs recognised in profit
Depreciation and amortisation
Interest income recognised in profit
Gain on sale or disposal of non-current assets
Other non-cash items
Shares issued to directors
Impairment of current and non-current assets
Non-cash foreign exchange (gain)/loss
Equity-settled share-based payments
Long-term compensation - cash rights
Changes in net assets and liabilities, net of effects
from acquisition and disposal of business:
(Increase) decrease in assets:
Trade and other receivables
Inventories
Other assets
(Decrease) increase in liabilities:
Trade and other payables
Provisions
Cash (used in) provided by operations
Interest paid
Interest received
Income taxes paid
Net cash flows used in operating activities
5
6,925
57,155
51,108
(1,783)
(4,385)
(15,235)
485
2,175
(4,162)
2,457
2,178
(19,041)
12,672
(2,680)
18,323
3,444
(40,408)
(7,384)
1,783
(8,006)
(54,015)
25,790
72,713
62,470
(2,486)
(3,807)
(18,829)
717
2,048
10,309
3,413
1,830
1,755
21,372
7,579
(16,469)
(12,997)
(1,431)
(45,296)
2,486
(6,177)
(50,418)
See accompanying Notes to the Consolidated Financial Statements included on pages 81 to 130
____________________________________________________________________________________
75
79
Consolidated Statement of Cash Flows
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
2017
US$'000
2016
US$'000
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Intangible costs paid
Investment in unaffiliated companies
Net cash flows used in investing activities
Cash flows from financing activities
Proceeds from issuance of shares
Payments for debt issuance costs
Proceeds from borrowings
Repayment of borrowings
Net cash flows provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on the balance
of cash held in foreign currencies
Cash and cash equivalents at the end of the year
31
(25,501)
13,791
(2,850)
(859)
(15,419)
4,464
(2,550)
96,071
(51,594)
46,391
(23,043)
59,343
7,458
43,758
(19,190)
16,410
(3,173)
(1,905)
(7,858)
-
(82)
25,671
(8,105)
17,484
(40,792)
113,357
(13,222)
59,343
See accompanying Notes to the Consolidated Financial Statements included on pages 81 to 130
_______________________________________________________________________________________
76
80
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
1. GENERAL INFORMATION
Boart Longyear Limited (the “Parent”) is a public company listed on the Australian Securities Exchange Limited (ASX)
and is incorporated in Australia. Boart Longyear Limited and subsidiaries (collectively referred to as the “Company”)
operate in four geographic regions, which are defined as North America, Latin America, Asia Pacific, and Europe/Africa
(EMEA).
Boart Longyear Limited’s registered office and its principal place of business are as follows:
Registered office
26 Butler Boulevard
Burbridge Business Park
Adelaide Airport, SA 5950
Tel: +61 (8) 8375 8375
Basis of Preparation
Principal place of business
2570 West 1700 South
Salt Lake City, Utah 84104
United States of America
Tel: +1 (801) 972 6430
This financial report is a general purpose financial report which:
- has been prepared in accordance with the requirements of applicable accounting standards including Australian
interpretations and the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other
requirements of the law. Accounting Standards include Australian Accounting Standards. Compliance with
Australian Accounting Standards ensures that the financial statements and notes of the Company comply with
IFRS. The financial report includes the consolidated financial statements of the Company. For purposes of
preparing the consolidated financial statements, the Company is a for-profit entity;
-
is presented in United States dollars, which is Boart Longyear Limited’s functional and presentation currency. All
values have been rounded to the nearest thousand dollars (US’000) unless otherwise stated, in accordance with
ASIC Corporations (Rounding in Financial/Directors’ Reports) instrument 2016/191. The financial statements were
authorised for issue by the Directors on 28 February 2018;
- applies Accounting policies in a manner which ensures that the resulting financial information satisfies the concepts
of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is
reported. These accounting policies have been consistently applied by each entity in the Company;
-
is prepared by combining the financial statements of all of the entities that comprise the consolidated entity, Boart
Longyear Limited and subsidiaries as defined in AASB 10 ‘Consolidated Financial Statements’. Consistent
accounting policies are applied by each entity and in the preparation and presentation of the consolidated financial
statements; Subsidiaries are all entities for which the Company (a) has power over the investee (b) is exposed or
has rights, to variable returns from involvement with the investee and (c) has the ability to use its power to affect its
return. All three of these criteria must be met for the Company to have control over the investee. Subsidiaries are
fully consolidated from the date on which control is transferred to the Company until such time as the Company
ceases to control such entity.
- all inter-company balances and transactions, and unrealised income and expenses arising from inter-company
transactions, are eliminated.
- adopts all new and revised accounting standards and interpretations issued by the AASB that are relevant to the
Company. The accounting policies and methods of computation are the same as those in the prior annual financial
report; and
- does not early adopt Accounting Standards and Interpretations that have been issued or amended but are not yet
effective. Refer to Note 33 for further details.
The financial report has been prepared on a historical cost basis, except for the revaluation of certain financial
instruments that are stated at fair value. Cost is based on fair values of the consideration given in exchange for assets.
The financial report has also been prepared on the basis that the consolidated entity is a going concern, which
assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the
ordinary course of business.
_______________________________________________________________________________________
81
77
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
1. GENERAL INFORMATION (CONTINUED)
Going Concern
The financial report has been prepared on a going concern basis, which contemplates the realisation of assets and the
settlement of liabilities in the ordinary course of business.
At 31 December 2017, the Company has net liabilities of $259.0 million (2016: net liabilities of $337.5 million as at 31
December). The decrease in net liabilities is mainly a result of the equitisation of the 7% Unsecured Notes. At 31
December 2017, the Company has net current assets of $107.8 million (2016: $121.9 million as at 31 December).
In preparing the financial report, the Directors have made an assessment of the ability of the Company to continue as a
going concern. The Company’s ability to meet its ongoing operational and financing obligations requires the Company
to achieve its forecast cash flows by sustaining previously implemented cost reductions, realise cost savings from
ongoing and future cost-reduction and actively managing cash flows. The Directors reaffirm that current and expected
operating cash flow, cash on hand and available drawings under the Company’s asset-based loan facility provide
sufficient liquidity to meet its debts as and when they fall due.
Restructure
On 1 September 2017 the Company announced the completion of its recapitalisation, which achieved three primary
objectives – reduced debt, improved liquidity and extended maturities. The $284.0 million outstanding principal amount
of the 7% Unsecured Notes due 2021 plus accrued and unpaid interest has been reduced by approximately $196.0
million in exchange for ordinary shares. Interest on all debt facilities may be paid in kind (rather than cash) at the
Company’s election through to December 2018. Maturities on existing debt have been extended until December 2022.
Refer to the loans and borrowings note 21 for more information.
The Company remains heavily leveraged even after implementation of the restructuring. While interest on all of the
Company's debt facilities (other than the revolving ABL facility with PNC Bank) is payable in kind until December 2018,
interest on the 10% Secured Notes is payable in cash thereafter. The Company may therefore be required to dedicate
a significant portion of its cash flow from operations to fund the payment of interest in the future, reducing the
availability of cash flow to fund working capital, capital expenditures, development activity, acquisitions and other
general corporate purposes. The Company’s ability to refinance or renew its debt in December 2022, when it is
scheduled to come due, will still depend on its ability to generate cash flow and, potentially, other circumstances, such
as existing market conditions at the time of refinancing.
Cash flow Forecasts
The Company has prepared detailed cash flow forecasts which incorporate the financial impact of continued actions to
address the market environment. In preparing the cash flow forecasts the Company has used best estimate
assumptions. The Directors have assessed the Company’s cash flow forecasts and revenue projections based on
current market conditions and on results achieved to date attributable to ongoing cash-generating actions as well as
continuing to evaluate risks and opportunities to this best estimate. Some of the key assumptions underpinning the
cash flow forecasts and revenue projections are inherently uncertain and are subject to variation due to factors which
are outside the control of the Company. The key assumptions are discussed below.
Market risk
The Company experienced significant declines in financial performance through mid-2016, as a result of declining
demand for, and global oversupply of, the Company’s services and products. This decline was driven by the global
contraction in exploration and development spending across the commodities sector and by mining customers in
particular. Despite recent improvements in the market, and increasing revenues, mineral exploration, production and
development activities and contract pricing could remain at depressed levels for an extended period of time or decline
even further than assumed in the cash flow forecasts, resulting in adverse effects on the Company’s operating results,
liquidity and financial condition.
82
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78
Boart Longyear 2017 Annual Report Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
1. GENERAL INFORMATION (CONTINUED)
Going Concern (continued)
Operational risk
In response to the recent improvements in the market, the company is seeing higher working capital demand. In order
to to meet these working capital and payment obligations, the Company has implemented significant cost savings and
cash management initiatives. These initiatives are aggressively managing fixed, variable and capital costs and, in
particular, improving operational efficiencies and commercial practices.
The cash flow forecasts assume that the Company is able to maintain and improve on current volumes of work, sustain
previously implemented reductions and realise additional cost savings from both ongoing and future cost-reduction and
efficiency initiatives.
Other key assumptions
The cash flow forecasts also include a number of other key assumptions, in particular:
•
•
assumptions relating to the timing and outcome of the tax audits detailed in Note 11 of the financial statements,
that the US dollar remains consistent with current levels, particularly in relation to the Australian and Canadian
dollars.
Notwithstanding the uncertainties set out above, the Directors believe at the date of signing of the financial report that
there are reasonable grounds to continue to prepare the financial report on the going concern basis.
Key Judgements and Estimates
In applying Australian Accounting Standards, management is required to make judgments, estimates and form
assumptions that affect the application of accounting policies and reported amounts of assets and liabilities and the
disclosure of contingent liabilities at the date of the financial statements, and the reported revenue and expenses
during the periods presented herein. On an ongoing basis, management evaluates its judgments and estimates in
relation to asset, liabilities, contingent liabilities, revenues and expenses. The estimates and associated assumptions
are based on historical experience and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the respective periods in which they are revised if only those periods are affected, or in the respective
periods of the revisions as well as future periods if the revision affects both current and future periods.
The key judgments, estimates and assumptions that have or could have the most significant effect on the amounts
recognised in the financial statements are found in the following notes:
Note 1
Note 11
Note 14
Note 17
Note 18
Note 27
Going Concern
Income Tax
Inventories
Property, Plant and Equipment
Goodwill and Other Asset Impairment Considerations
Contingent Liabilities
_______________________________________________________________________________________
83
79
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
1. GENERAL INFORMATION (CONTINUED)
Foreign Currency
The Company’s presentation currency is the US dollar. The financial statements of the Company and its subsidiaries
have been translated into US dollars using the exchange rates at each balance sheet date for assets and liabilities and
at an average exchange rates for revenue and expenses throughout the period. The effects of exchange rate
fluctuations on the translation of assets and liabilities are recorded as movements in the foreign currency translation
reserve (“FCTR”).
The Company determines the functional currency of its subsidiaries based on the currency used in their primary
economic environment, and, as such, foreign currency translation adjustments are recorded in the FCTR for those
subsidiaries with a functional currency different from the US dollar. The cumulative currency translation is transferred
to the income statement when a subsidiary is disposed of or liquidated.
Transaction gains and losses, and unrealised translation gains and losses on short-term inter-company and operating
receivables and payables denominated in a currency other than the functional currency, are included in other income
or other expenses in profit or loss. Where an inter-company balance is, in substance, part of the Company’s net
investment in an entity, exchange gains and losses on that balance are taken to the FCTR.
Other accounting policies
Significant and other accounting policies that summarise the measurement basis used and are relevant to an
understanding of the financial statements are provided throughout the notes to the financial statements.
84
_______________________________________________________________________________________
80
Boart Longyear 2017 Annual Report Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
2. SEGMENT REPORTING
Information reported to the chief operating decision maker for the purposes of resource allocation and assessment of
segment performance is based on the Company’s two general operating activities: Global Drilling Services and Global
Products. The Global Drilling Services segment provides a broad range of drilling services to companies in mining,
energy and other industries. The Global Products segment manufactures and sells drilling equipment and performance
tooling to customers in the drilling services and mining industries.
Information regarding these segments is presented below. The accounting policies of the reportable segments are the
same as the Company’s accounting policies. Segment profit shown below is consistent with the income reported to the
chief operation decision maker for the purposes of resource allocation and assessment of segment performance.
Segment profit represents earnings before interest and taxes.
Segment revenue and results
Drilling Services
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
Unallocated costs 2
Significant items
Finance costs
Interest income
Loss before taxation
Segment Revenue
2017
US$'000
2016
US$'000
500,583
447,656
Segment Profit
2017
US$'000
36,395
2016
US$'000
10,679
238,480
54,507
194,748
57,704
292,987
(54,507)
739,063
252,452
(57,704)
642,404
2,803
4,214
39,198
14,893
(47,259)
(79,686)
(57,155)
1,783
(143,119)
(48,230)
(27,485)
(72,713)
2,486
(131,049)
(1) Transactions between segments are carried out at arm's length and are eliminated on consolidation.
(2) Unallocated costs include corporate general and administrative costs, as well as, other expense items such as foreign
exchange gains or losses.
Other segment information
Depreciation and amortisation
of segment assets
2017
US$'000
2016
US$'000
Additions to non-current
assets 2
2017
US$'000
2016
US$'000
32,663
8,599
41,262
9,846
51,108
40,916
9,271
50,187
12,283
62,470
20,805
3,904
24,709
5,657
30,366
15,028
1,980
17,008
3,459
20,467
Global Drilling Services
Global Products
Total of all segments
Unallocated 1
Total
(1) Unallocated additions to non-current assets relate to the acquisition of general corporate assets such as software and hardware.
(2) Non-current assets excluding deferred tax assets.
_______________________________________________________________________________________
85
81
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
2. SEGMENT REPORTING (CONTINUED)
Geographic information
The Company’s two business segments operate in four principal geographic areas – North America, Asia Pacific,
Latin America and EMEA. The Company’s revenue from external customers and information about its segment
assets by geographical locations are detailed below:
Revenue from
external customers
2017
US$'000
2016
US$'000
338,818
156,502
108,627
135,116
739,063
297,309
157,299
85,573
102,223
642,404
Non-current assets 1
2017
2016
US$'000
US$'000
210,440
45,476
23,054
7,632
286,602
218,460
56,188
24,232
2,097
300,977
North America
Asia Pacific
Latin America
EMEA
Total
(1) Non-current assets excluding deferred tax assets.
3. REVENUE
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns
and allowances, trade discounts, volume rebates and sales tax. Revenue is recognised when the significant risks and
rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated
costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with
the goods.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale and with local statute, but
are generally when title and insurance risk has passed to the customer and the goods have been delivered to a
contractually agreed location.
Revenue from services rendered is recognised in the statement of profit and loss and other comprehensive income in
proportion to the stage of completion of the transaction at the reporting date. The stage of completion of the contract is
determined as follows:
•
•
revenue from drilling services contracts is recognised on the basis of actual meters drilled or other services
performed for each contract; and
revenue from time and material contracts is recognised at the contractual rates as labour hours are delivered
and direct expenses are incurred.
The components of revenue are as follows:
Revenue from the rendering of services
Revenue from the sale of goods
2017
US$'000
500,583
238,480
739,063
2016
US$'000
447,656
194,748
642,404
There were no customer(s) that contributed 10% or more to the Company’s revenue in 2017 and 2016.
86
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82
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
4.
OTHER INCOME / EXPENSE
The components of other income are as follows:
Gain on disposal of property, plant and equipment
Gain on foreign currency exchange differences
Gain on disposal of scrap
Other
The components of other expense are as follows:
Amortisation of intangible assets
VAT write-off
Drilling services rework
Loss on foreign currency exchange differences
Impairment of Fixed Assets
Environmental fees
Other
Total other expenses
5.
INTEREST INCOME / FINANCE COSTS
Interest income is as follows:
Interest income:
Bank deposits
Finance costs are as follows:
Finance costs:
Interest on loans and bank overdrafts
Amortisation of debt issuance costs
Interest on obligations under finance leases
Total finance costs
Finance costs due to debt repayment:
Write-off of debt issuance costs
2017
US$'000
2016
US$'000
4,385
-
805
1,447
6,637
3,807
1,616
309
3,207
8,939
US$'000
US$'000
10,657
3,323
-
6,564
1,936
1,179
1,020
24,679
12,745
2,897
603
-
-
-
2,115
18,360
2017
US$'000
2016
US$'000
1,783
2,486
2017
US$'000
2016
US$'000
52,243
2,012
60
54,315
2,840
2,840
70,643
2,070
-
72,713
-
-
Total finance costs
57,155
72,713
_______________________________________________________________________________________
87
83
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
6.
LOSS FOR THE YEAR
Loss for the year includes the following:
(a)
Gains and losses
Loss for the year includes the following gains and (losses):
Gain on disposal of property,
plant and equipment
Net foreign exchange losses
Net reversal of bad debt expense
(b)
Employee benefits expenses
Salaries and wages
Post-employment benefits:
Defined contribution plans
Defined benefit plans
Long-term incentive plans:
Equity-settled share-based payments
Cash rights compensation
Termination benefits
Other employee benefits 1
2017
US$'000
2016
US$'000
4,385
(6,564)
(1,343)
3,807
1,616
(181)
2017
US$'000
2016
US$'000
(244,119)
(240,094)
(5,751)
(1,902)
(2,457)
(2,178)
(11,625)
(69,827)
(337,859)
(6,497)
(1,337)
(3,413)
(1,830)
(6,833)
(66,540)
(326,544)
(1) Other employee benefits include items such as medical benefits, workers’ compensation, other fringe benefits
and state taxes.
(c)
Other
Depreciation of non-current assets
Amortisation of non-current assets
Operating lease rental expense
2017
US$'000
2016
US$'000
(39,236)
(11,872)
(15,753)
(48,558)
(13,912)
(18,180)
88
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84
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
7. SIGNIFICANT ITEMS
During 2017, the Company continued to reduce operating costs through a series of restructuring activities. The
Company’s restructuring efforts included:
•
•
•
•
controlling SG&A and other overhead related costs;
exiting certain loss-making drilling services project or territories;
leveraging the supply chain function across the business, and
focusing on operational efficiencies and productivity at the drill rig level and across the global
organisation.
The Company has incurred costs related to executing the recapitalisation, completed effective 1 September 2017 and
its restructuring and cost-reduction plans. These costs include employee separations, exiting leased facilities and
impairments of capital equipment related to relocating certain manufacturing activities and resizing the business.
In addition, the Company reassessed the carrying value of certain assets, including goodwill, intangible assets, plant
and equipment and inventories, resulting in impairment charges and provisions.
Significant items for the years ended 31 December 2017 and 2016 are, as follows:
Recapitalisation costs 1
Impairments:
Equipment
Intangible assets
Employee and related costs 2
Other restructuring costs 3
Onerous leases
Net of tax 4
Note
17
19
2017
US$'000
2016
US$'000
50,471
136
26
15,116
12,175
1,762
79,686
78,931
7,456
878
1,012
8,008
8,121
2,010
27,485
27,189
(1) Recapitalisation costs include fees for legal, finance and other advisory services.
(2) Employee and related costs include separation costs, retention and other employee-related costs.
(3) Other restructuring costs include fees and other advisory costs for business and operational improvement initiatives.
(4) The tax effect was calculated using applicable local country tax rates before application of excess of net operating losses.
The net operating losses were largely not benefitted.
Classification of significant items on the income statement for the years ended 31 December 2017 and 2016 are, as
follows:
General and administrative expenses
Cost of goods sold
Research and development
Sales and marketing expenses
2017
US$'000
2016
US$'000
76,511
2,669
189
317
79,686
22,096
3,015
2,278
96
27,485
_______________________________________________________________________________________
89
85
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
7. SIGNIFICANT ITEMS (CONTINUED)
Significant items for the years ended 31 December 2017 and 2016 by business segment are, as follows:
Global Drilling Services1
Global Products2
Unallocated
2017
US$'000
2016
US$'000
6,320
5,316
68,050
79,686
11,209
2,397
13,879
27,485
(1) Transactions between segments are carried out at arm’s length and are eliminated in consolidation.
(2) Unallocated costs include corporate general and administrative costs, as well as, other expense items such as foreign
exchange gains or losses and recapitalisation costs.
8. REMUNERATION OF AUDITORS
Company auditor's remuneration
Audit and review of the financial report:
Auditor of the parent entity
Related practices of the parent entity auditor
Non-audit services:
Review of tax returns
Tax services
2017
US$'000
2016
US$'000
974
927
1,901
449
308
757
1,031
1,136
2,167
489
360
849
Total remuneration to Company auditor
2,658
3,016
Remuneration to other accounting firms
Audit services
Non-audit services:
Tax services
Global mobility
Accounting and payroll services
Other
Total remuneration to other accounting firms
229
2,116
196
363
105
3,009
184
2,362
342
280
83
3,251
Boart Longyear Limited’s auditor is Deloitte Touche Tohmatsu. The Company has employed Deloitte Touche
Tohmatsu on assignments in addition to their audit duties where their expertise and experience with the Company are
important. These assignments principally have been related to tax advice and tax compliance services, the
magnitude of which is impacted by the global reach of the Company.
The Board and its Audit, Safety & Risk Committee are committed to ensuring the independence of the external
auditor. Accordingly, significant scrutiny is given to non-audit engagements of the external auditor. The Company
has a formal pre-approval policy which requires the pre-approval of non-audit services by the Chairman of the Audit
Committee. Additionally, the total annual fees for such non-audit services cannot exceed the auditor’s annual audit
fees without the approval of the Audit Committee. The Audit Committee believes that the combination of these two
approaches results in an effective procedure to pre-approve services performed by the external auditor.
90
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86
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
9. KEY MANAGEMENT PERSONNEL COMPENSATION
The aggregate compensation made to key management personnel of the Company is set out below.
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
2017
US$
4,940,895
65,048
430,161
-
1,899,097
7,335,201
2016
US$
4,823,617
64,670
1,729,127
321,544
1,600,722
8,539,680
10. EMPLOYEE LONG TERM INCENTIVE PAYMENTS
As disclosed in note 34, effective 31 December 2017 the Long Term Incentive Plan (“LTIP”) and Retention Incentive
Grant Agreement (“RIGA”) programs were cancelled and replaced by the new Management Incentive Plan (“MIP”).
Total share-based expense charged to the profit or loss was $6.2 million in 2017 prior to the LTIP and RIGA plan
cancellation.
_______________________________________________________________________________________
91
87
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
11.
INCOME TAXES
Income Taxes
The Company is subject to income taxes in Australia and other jurisdictions around the world in which the Company
operates. Significant judgment is required in determining the Company’s current tax assets and liabilities. Judgments
are required about the application of income tax legislation and its interaction with income tax accounting principles.
Tax positions taken by the Company are subject to challenge and audit by various income tax authorities in
jurisdictions in which the group operates.
Judgment is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised
on the balance sheet. Deferred tax assets, including those arising from unrecouped tax losses, capital losses, foreign
tax credits and temporary differences, are recognised only where it is considered more likely than not that they will be
recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the
generation of future taxable profits and repatriation of retained earnings depend on management’s estimates of future
cash flows.
These judgments and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in
circumstances will alter expectations, which may impact the amount of deferred tax assets and tax liabilities
recognised on the balance sheet. In such circumstances, some or all of the carrying amount of recognised deferred
tax assets and tax liabilities may require adjustment, resulting in a corresponding credit or charge to the income
statement.
Current and deferred taxation
Income tax expense includes current and deferred tax expense (benefit) and is recognised in profit or loss except to
the extent that 1) amounts relate to items recognised directly in equity, in which case the income tax expense (benefit)
is also recognised in equity, or 2) amounts that relate to a business combination, in which case the income tax
expense (benefit) is recognised in goodwill.
Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the
reporting date, and any adjustment to tax payable in respect of previous years. Management periodically evaluates
provisions taken in tax returns with respect to situations in which applicable tax regulation is open to interpretation.
The Company establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities.
Deferred income tax is provided on all temporary differences for which transactions or events that result in an
obligation to pay more tax in the future or a right to pay less tax in the future have occurred but have not reversed at
the balance sheet date. Temporary differences are differences between the Company’s taxable income and its profit
before taxation, as reflected in profit or loss, that arise from the inclusion of profits and losses in tax assessments in
periods different from those in which they are recognised in profit or loss.
Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial
recognition of assets or liabilities in a transaction that is not a business combination and that affects neither
accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they likely will
not reverse in the foreseeable future.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they
reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets are regarded as recoverable and therefore recognised only when, on the basis of all available
evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future
reversal of the underlying temporary differences can be deducted. Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer probable that sufficient taxable profit will be available to all or
part of the deferred tax asset to be realised.
United States of America Tax Cuts and Jobs Act
In the United States, the Tax Cuts and Jobs Act (the Tax Act) was signed into law on 22 December 2017. The Tax Act
changed many aspects of U.S. corporate income taxation and included a reduction of the corporate income tax rate
from 35% to 21%, and an imposition of a tax on deemed repatriated earnings of foreign subsidiaries. We recognized
the tax effects of the Tax Act in the year ended December 31, 2017 and recorded a $5 million tax benefit relating
primarily to the remeasurement of deferred tax items to the 21% tax rate. We also recorded a $1 million tax charge
related to the tax on deemed repatriated earnings. Upon completion of our 2017 U.S. income tax return in 2018, we
may identify additional remeasurement adjustments related to the Tax Act. We will continue to assess our provision
for income taxes as future guidance is issued but do not currently anticipate significant revisions will be necessary.
92
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88
Boart Longyear 2017 Annual Report Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
11.
INCOME TAXES (CONTINUED)
Tax consolidation
The Company includes tax consolidated groups for the entities incorporated in Australia and the United States. The
Parent Entity and its wholly-owned Australian resident entities are part of the same tax-consolidated group and are
therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Boart Longyear
Limited. Companies within the US group also form a tax-consolidated group within the United States.
Tax expense (benefit) and deferred tax assets/liabilities arising from temporary differences of the members of each
tax-consolidated group are recognised in the separate financial statements of the members of that tax-consolidated
group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate
financial statements of each entity. Tax credits of each member of the tax-consolidated group are recognised by the
head entity in that tax-consolidated group.
Entities within the Australian tax-consolidated group have entered into tax-funding arrangements with the head entity.
Under the terms of the tax-funding arrangements, the tax-consolidated groups and each of the entities within the tax-
consolidated group agrees to pay a tax equivalent payment to or from the head entity, based on the current tax
liability or current tax asset of the entity. Such amounts are reflected in amounts receivable or payable to other
entities in the tax-consolidated group.
Income tax expense is as follows:
Income tax expense:
Current tax expense
Adjustments recognised in the current year
in relation to the current tax of prior years
Deferred tax (income) expense
2017
US$'000
2016
US$'000
13,199
664
(6,938)
6,925
13,217
6,238
6,335
25,790
(a) Reconciliation of the prima facie income tax expense on pre-tax accounting profit to the income tax
expense in the financial statements:
Loss before taxation
Income tax benefit calculated at
Australian rate of 30%
Impact of Non-Australia Tax Rates
Change In Deferred taxes as result US Tax Law Change 1
Net non-deductible/non-assessable items other
Unrecognised tax losses 2
Profit/(Loss) subject to double taxation in the US
Withholding tax net of foreign tax credit
Recognition of net prior year deferred tax assets
Other
Under provision from prior years
Income tax expense per the Consolidated
(143,119)
(131,049)
(42,936)
3,313
(5,020)
10,832
38,493
211
3,619
(2,180)
(71)
6,261
664
(39,315)
2,059
-
20,692
31,094
(4,947)
2,035
(4,879)
12,813
19,552
6,238
Statement of Profit or Loss and Other Comprehensive Income
6,925
25,790
(1) On 22 December 2017, the United States of America (“US”) enacted the Tax Cuts and Jobs Act (the “TCJA”). Among
other things, the TCJA reduces the US federal corporate tax rate from 35% to 21% percent effective on 1 January 2018.
The combined federal and state statutory tax rate for the Company’s US subsidiaries for the measurement of deferred
taxes for 2018 has been estimated at 25%. The Group will continue to monitor various US state law changes in reaction to
the TCJA as changes are enacted.
(2) Due to the group being in a tax loss position in many jurisdictions during the current financial year, the Company has not
recognised current period losses.
_______________________________________________________________________________________
93
89
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
11.
INCOME TAXES (CONTINUED)
Deferred tax recognised in equity:
Actuarial movements on defined benefit plans
(c) Tax assets and liabilities
Tax assets:
Income tax receivable attributable to:
Parent
Other entities in the tax consolidated group
Other entities
Current tax liabilities:
Income tax payable attributable to:
Parent
Entities other than parent
and entities in the consolidated group
(d) Deferred tax balances
Deferred tax comprises:
Temporary differences
Unused tax losses and credits
2017
US$'000
2016
US$'000
(752)
1,116
(91,015)
91,015
19,690
19,690
1
-
99,590
99,590
(80,971)
80,971
23,434
23,434
-
94,577
94,577
(1,248)
8,406
7,158
(7,502)
8,083
581
(1) The income tax receivable for 2017 is $19.7 million (2016: $23.4 million) of which $1.7 million is classified as current tax
receivable and $18.0 million is classified as non-current tax receivable (2016: $4.4 million and $19.0 million respectively).
94
_______________________________________________________________________________________
90
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
11.
INCOME TAXES (CONTINUED)
2017
Deferred tax assets (liabilities)
temporary differences
Property, plant and equipment
Provisions
Doubtful debts
Other intangible assets
Accrued liabilities
Pension
Inventories
Investments in subsidiaries
Unrealised foreign exchange
Other
Unused tax losses and credits:
Tax losses
Foreign tax credits
Opening Recognised
balance
US$'000
US$'000
in income differences
FX
US$'000
38
228
-
-
50
17
35
-
-
23
391
-
-
-
Recognised Closing
balance
US$'000
in equity
US$'000
-
-
-
-
-
(752)
-
-
-
-
(752)
-
-
-
3,568
3,326
64
(13,885)
3,314
(441)
1,940
-
171
695
(1,248)
8,406
-
8,406
1,304
7,854
-
(19,429)
1,703
600
1,186
(1,500)
(46)
826
(7,502)
5,717
2,366
8,083
2,226
(4,756)
64
5,544
1,561
(306)
719
1,500
217
(154)
6,615
2,689
(2,366)
323
581
6,938
391
(752)
7,158
Presented in the statement of financial position as follows:
Deferred tax asset
Deferred tax liability
20,597
(13,439)
7,158
Where deferred tax assets have been recognised, it is considered probable that the Company will generate sufficient
future taxable income to utilise the assets.
_______________________________________________________________________________________
95
91
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
11.
INCOME TAXES (CONTINUED)
2016
Deferred tax assets (liabilities)
temporary differences
Property, plant and equipment
Provisions
Doubtful debts
Other intangible assets
Accrued liabilities
Pension
Inventories
Investments in subsidiaries
Unrealised foreign exchange
Other
Unused tax losses and credits:
Tax losses
Foreign tax credits
Opening Recognised
balance
US$'000
US$'000
in income differences
FX
Recognised Closing
balance
US$'000
in equity
US$'000
-
-
-
-
-
1,116
-
-
-
-
1,116
-
-
-
1,304
7,854
-
(19,429)
1,703
600
1,186
(1,500)
(46)
826
(7,502)
5,717
2,366
8,083
US$'000
(101)
(182)
(1)
-
(22)
(2)
(79)
-
-
(28)
(415)
-
-
-
4,767
8,637
30
(15,246)
1,056
79
3,728
(1,500)
(810)
1,368
2,109
4,106
-
4,106
(3,362)
(601)
(29)
(4,183)
669
(593)
(2,463)
-
764
(514)
(10,312)
1,611
2,366
3,977
6,215
(6,335)
(415)
1,116
581
Presented in the statement of financial position as follows:
Deferred tax asset
Deferred tax liability
19,465
(18,884)
581
Unrecognised deferred tax assets
Tax losses - revenue
Unused tax credits
Temporary differences
2017
US$'000
2016
US$'000
228,309
23,089
62,633
314,031
171,488
39,369
126,105
336,962
$87,679 expires within 3-20 years and $138,630 of the unrecognized deferred tax assets in relation to lax losses
(revenue do not expire).
$23,089 expires within 1-10 years of the unrecognised deferred tax assets in relation to unused tax credits.
96
_______________________________________________________________________________________
92
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
11.
INCOME TAXES (CONTINUED)
Canadian income tax audits
The Company’s Canadian income tax returns for the tax years 2007-2012 have been reassessed by the Canada
Revenue Agency (“CRA”). These reassessments are being appealed through a multi-national dispute resolution
process, known as “competent authority” to prevent the double-taxation of income assessed by multiple jurisdictions.
The assessment for the 2007 through 2012 tax years, if upheld, would result in federal and provincial tax liabilities
(including interest) of approximately C$109.4 million.
The outcome and timing of any resolution of the Canadian reassessments are unknown. Interest will continue to
accrue on all disputed and unpaid amounts until they are paid, or, alternatively, until the disputes are resolved in the
Company’s favour.
The Company has recorded a tax provision related to the CRA’s audits of the 2007 through 2012 tax years. The
provision reflects the uncertainties regarding the outcome of those audits. While the Company believes it is
appropriately reserved in respect of the CRA tax disputes, the resolution of those disputes on terms substantially as
assessed by the CRA for the 2007 through 2012 tax years could be material to the Company’s financial position or
results of operations. The Company’s liquidity could also be impacted negatively by the CRA reassessments.
_______________________________________________________________________________________
97
93
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
12. LOSS PER SHARE
Basic loss per share
Diluted loss per share
Basic loss per share
The loss and weighted average number of ordinary shares
used in the calculation of basic loss per share are as follows:
Loss used in the calculation of basic EPS
Weighted average number of ordinary shares for the purposes of
basic loss per share
Diluted loss per share
The loss used in the calculation of diluted loss
per share are as follows:
Loss used in the calculation of diluted EPS
Weighted average number of ordinary shares used in the
calculation of diluted EPS
2017
US cents
per share
2016
US cents
per share
(1.6)
(1.6)
(16.8)
(16.8)
2017
US$'000
2016
US$'000
(150,044)
(156,839)
2017
'000
2016
'000
9,225,868
935,553
2017
US$'000
2016
US$'000
(150,044)
(156,839)
2017
'000
2016
'000
9,225,868
935,553
The following potential shares are anti-dilutive and are therefore excluded from the weighted average
number of ordinary shares for the purposes of diluted earnings per share.
Shares deemed to be issued for no consideration in respect of
LTIP share rights
2017
'000
2016
'000
2,270
16,596
98
_______________________________________________________________________________________
94
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
13. TRADE AND OTHER RECEIVABLES
Trade receivables are recorded at amortised cost. The Company reviews collectability of trade receivables on an
ongoing basis and provides allowances for credit losses when there is evidence that trade receivables may not be
collectible. These losses are recognised in the income statement within operating expenses. When a trade receivable
is determined to be uncollectible, it is written off against the allowance for doubtful accounts. Subsequent recoveries
of amounts previously written off are recorded in other income in profit or loss.
Trade receivables
Allowance for doubtful accounts
Goods and services tax receivable
Other receivables
The ageing of trade receivables is detailed below:
Current
Past due 0 - 30 days
Past due 31 - 60 days
Past due 61-90 days
Past due 90 days
2017
US$'000
2016
US$'000
123,554
(1,844)
8,229
1,922
131,861
94,220
(1,278)
13,194
1,762
107,898
2017
US$'000
2016
US$'000
90,156
18,963
6,338
3,338
4,759
123,554
68,591
14,682
4,134
3,259
3,554
94,220
The average credit period on sales of goods is 60 days as at 31 December 2017, compared to 53 days at 31
December 2016. No interest is charged on trade receivables.
The Company’s policy requires customers to pay the Company in accordance with agreed payment terms. The
Company’s settlement terms are generally 30 to 60 days from date of invoice. All credit and recovery risk associated
with trade receivables has been provided for in the statement of financial position. Trade receivables have been
aged according to their original due date in the above ageing analysis.
Credit risk management
The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient
collateral, when appropriate, as a means of mitigating the risk of financial loss from defaults.
Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas.
Ongoing credit evaluation is performed on accounts receivable. The Company holds security for a number of trade
receivables in the form of letters of credit, deposits, and advanced payments.
The Company does not have any significant credit risk exposure to any single counterparty or any group of
counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is
limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.
No derivative financial instruments were entered into during 2017 or 2016.
14.
INVENTORIES
Inventories are measured at the lower of cost or net realisable value. The cost of most inventories is based on a
standard cost method, which approximates actual cost on a first-in first-out basis, and includes expenditures incurred
in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured
inventories and work in progress, cost includes an appropriate share of production overhead expenses (including
depreciation) based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and selling expenses.
Allowances are recorded for inventory considered to be excess or obsolete and damaged items are written down to
the net realisable value. Due to the decline in the demand for products, and consumables used in our Global Drilling
Services business, and the high inventory balances across the group and the speed at which inventory is turning in
the current market, significant judgment is required in determining net realisable value of inventory.
_______________________________________________________________________________________
99
95
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
14.
INVENTORIES (CONTINUED)
Raw materials
Work in progress
Finished products
2017
US$'000
2016
US$'000
28,023
3,265
143,087
174,375
25,726
3,364
135,930
165,020
The Company did not record any additional provisions against inventory for the years ended 31 December 2017 and
2016. Obsolescence provisions were $25.0 million and $36.9 million as at 31 December 2017 and 2016, respectively.
15. FINANCIAL RISK MANAGEMENT
Capital risk management
The Company manages its capital to ensure that entities in the Company will be able to continue as going concerns
while maximising the return to stakeholders through the optimisation of the debt and equity balances.
The capital structure of the Company consists of debt, which includes the loans and borrowings disclosed in Note 21,
cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued capital,
reserves, and accumulated losses/retained earnings.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial
asset, financial liability and equity instrument are disclosed throughout these notes.
Of the outstanding loans and borrowings, Centerbridge Partners, L.P. accounted for $190.0 million of Term Loans
outstanding and accreted interest of $74.8 million. The backstop ABL of $45.0 million and accreted interest of $1.6
million was provided by Centerbridge Partner, L.P., Ares Management L.P. and Ascribe Capital. There are no
significant concentrations of credit risk. The carrying amount reflected above represents the Company’s maximum
exposure to credit risk for trade and other receivables.
Financial assets
A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between
its carrying amount, and the present value of the estimated future cash flows discounted at the original effective
interest rate. An impairment loss is not recognised directly for trade receivables because the carrying amount is
reduced through the use of an allowance account.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk characteristics.
Financial risk management objectives
The Company’s corporate treasury function provides services to the business, coordinates access to domestic and
international financial markets, and monitors and manages the financial risks relating to the operations of the
Company through internal risk reports which analyse exposures by degree and magnitude of risks. These risks
include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and
cash flow interest rate risk.
100
_______________________________________________________________________________________
96
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
15. FINANCIAL RISK MANAGEMENT (CONTINUED)
Market risk
The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and
interest rates. The Company seeks to minimise the effects of these risks, where deemed appropriate, by using
derivative financial instruments and other non-derivative strategies to manage these risk exposures to interest rate
and foreign currency risk, including:
•
•
•
foreign exchange forward contracts to hedge the exchange rate risk arising from transactions not recorded in an
entity’s functional currency,
interest rate swaps to mitigate the risk of rising interest rates; and
other non-derivative strategies.
Foreign currency risk management
Company subsidiaries undertake certain transactions denominated in currencies other than their functional currency,
hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy
parameters, which may include utilising forward foreign exchange contracts as well as options in addition to non-
derivative strategies. The Company did not utilise any derivative instruments during the years ended 31 December
2017 or 2016.
The most significant carrying amounts of monetary assets and monetary liabilities (which include intercompany
balances with other subsidiaries) that: (1) are denominated in currencies other than the functional currency of the
respective Company subsidiary; and (2) cause foreign exchange rate exposure, at 31 December are as follows:
Assets
2017
US$'000
2016
US$'000
Liabilities
2017
US$'000
2016
US$'000
94,116
190
30,454
131,041
310,407
1,032
23,218
167,783
163,003
27,577
146,070
336,060
117,848
43,048
114,206
593,271
Australian Dollar
Canadian Dollar
Euro
US Dollar
Foreign currency sensitivity
The Company is mainly exposed to exchange rate fluctuations in the Australian Dollar (AUD), Canadian Dollar (CAD),
Euro (EUR) and United States Dollar (USD). The Company is also exposed to translation differences as the
Company’s presentation currency is different from the functional currencies of various subsidiaries. However, this
represents a translation risk rather than a financial risk and consequently is not included in the following sensitivity
analysis.
The following tables reflect the Company’s sensitivity to a 10% change in the exchange rate of each of the currencies
listed above. This sensitivity analysis includes only outstanding monetary items denominated in currencies other than
the respective subsidiaries’ functional currencies and remeasures these at the respective year end to reflect a 10%
decrease in the indicated currency against the respective subsidiaries’ functional currencies. A positive number
indicates an increase in net profit and/or net assets.
Net profit
Net assets
Net profit
Net assets
10% decrease in AUD
2016
US$'000
2017
US$'000
10% decrease in CAD
2017
US$'000
2016
US$'000
(1,247)
6,264
(2,965)
(19,538)
1,557
2,483
1,616
3,835
10% decrease in EUR
10% decrease in USD
2017
US$'000
3,919
7,886
2016
US$'000
1,753
5,566
2017
US$'000
9,035
18,638
2016
US$'000
8,120
38,681
In management’s opinion, the sensitivity analysis is not fully representative of the inherent foreign exchange risk as
the year-end exposure may not reflect the exposure during the course of the year.
_______________________________________________________________________________________
101
97
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
15. FINANCIAL RISK MANAGEMENT (CONTINUED)
Forward foreign exchange contracts
There were no open forward foreign currency contracts as at 31 December 2017 or 2016.
Interest rate risk management
The Company is not currently exposed to interest rate risk as entities within the Company borrow funds at fixed
interest rates.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Company’s Treasurer and Board.
The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial
assets and liabilities.
Liquidity risk
The following tables reflect the expected maturities of non-derivative financial liabilities as at 31 December 2017 and
2016. These are based on the undiscounted expected cash flows of financial liabilities based on the maturity profile
per the loan agreement. The table includes both interest and principal cash flows. The adjustment column represents
the possible future cash flows attributable to the instrument included in the maturity analysis which are not included in
the carrying amount on the balance sheet.
Weighted
average
effective
interest
rate
%
Less
than
3 months
1 to 3
to
1 year
1 month months
US$'000 US$'000 US$'000
1 - 5 years 5+ years
US$'000
US$'000
Adjust-
ment
US$'000
Total
US$'000
-
93,196
45,052
-
-
5.1%
8.9%
4.6%
73
146
656
18,376
-
66
93,335
-
132
45,330
-
595
1,251
930,935
1,877
951,188
-
91,064
35,525
-
-
4.2%
9.5%
4.7%
61
122
548
19,328
-
10
91,135
-
24
35,671
39,380
106
40,034
913,994
495
933,817
-
-
-
-
-
-
-
-
-
-
-
138,248
(2,240)
17,011
(304,421)
-
(306,661)
626,514
2,670
784,443
-
126,589
(2,493)
17,566
(230,595)
-
(233,088)
722,779
635
867,569
31 December 2017
Non-interest bearing
payables
Variable interest rate
instruments
Fixed interest rate
instruments
Financial Lease
31 December 2016
Non-interest bearing
payables
Variable interest rate
instruments
Fixed interest rate
instruments
Financial Lease
102
_______________________________________________________________________________________
98
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
15. FINANCIAL RISK MANAGEMENT (CONTINUED)
Liquidity risk (continued)
The following tables reflect the expected maturities of non-derivative financial assets. These are based on the
undiscounted expected cash flows of the financial assets.
2017
Non-interest bearing
receivables
Cash
2016
Non-interest bearing
receivables
Cash
Less
than
1 month
US$'000
1 to 3
months
US$'000
3 months
to
1 year
US$'000
Total
US$'000
61,399
43,758
105,157
60,582
-
60,582
9,880
-
9,880
131,861
43,758
175,619
52,830
59,343
112,173
40,503
14,565
-
-
40,503
14,565
107,898
59,343
167,241
The liquidity risk tables are based on the Company’s intent to collect the assets or settle the liabilities in accordance
with the contractual terms.
Fair value of financial instruments
The fair values of financial assets and financial liabilities are determined as follows:
•
•
•
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with
the substance of the contractual arrangements.
The fair value of financial assets and financial liabilities with standard terms and conditions and traded
on active liquid markets are determined with reference to quoted market prices.
The fair value of other financial assets and financial liabilities (excluding derivative instruments) are
determined in accordance with generally accepted pricing models based on discounted cash flow
analyses using prices from observable current market transactions.
Management considers that the carrying amounts of financial assets and financial liabilities recorded at amortised
cost in the financial statements materially approximate their fair values.
16. ASSETS CLASSIFIED AS HELD FOR SALE
Based on current market conditions and future outlook, the Company has classified certain property, plant and
equipment assets in the amount of $530 thousand as held for sale as at 31 December 2017 (31 December 2016:
$5.9 million). These assets consist primarily of excess rigs and ancillary equipment. The opportunity for a gain by
the disposition of these targeted assets allows the Company to rationalise its assets, raise capital and eliminate
ongoing costs associated with maintaining these assets.
_______________________________________________________________________________________
103
99
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
17. PROPERTY, PLANT AND EQUIPMENT
The Company’s assets are held in various differing geographical, political and physical environments across the
world, therefore, the estimation of useful lives of assets is an area of significant judgment. Our current estimate has
been based on historical experience. In addition, the condition of the assets is assessed at least annually and
considered against the remaining useful life. Adjustments to useful lives are made when considered necessary.
Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Costs
include expenditures that are directly attributable to the acquisition of the asset, including the costs of materials and
direct labour and other costs directly attributable to bringing the asset to a working condition for the intended use.
Purchased software that is integral to the functionality of the related equipment is capitalised as part of that
equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for
as separate assets.
Subsequent costs related to previously capitalised assets are capitalised only when it is probable that they will result
in commensurate future economic benefit and the costs can be reliably measured. All other costs, including repairs
and maintenance, are recognised in profit or loss as incurred.
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each item of
property, plant and equipment. Leased assets are depreciated over the shorter of the lease terms or their useful
lives. Items in the course of construction or not yet in service are not depreciated.
The following useful lives are used in the calculation of depreciation:
Buildings
Plant and machinery
Drilling rigs
Other drilling equipment
Office equipment
Computer equipment:
Hardware
Software
20-40 years
years
5-10
years
5-12
years
1-5
years
5-10
3-5
1-7
years
years
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
Leased assets
Leases are classified as finance leases when the terms of the leases transfer substantially all the risks and rewards
incidental to ownership of the leased assets to the Company. All other leases are classified as operating leases.
Assets held under finance leases are initially recognised at fair value or, if lower, at amounts equal to the present
value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to
the lessor is included in the statement of financial position as a finance lease obligation.
Finance lease payments are apportioned between finance charges and reductions of the lease obligations so as to
achieve a constant rate of interest on the remaining balance of the liability. Finance leased assets are amortised on a
straight-line basis over the shorter of the lease terms or the estimated useful lives of the assets.
Operating lease payments are recognised as expenses on a straight-line basis over the lease terms.
104
_______________________________________________________________________________________
100
Boart Longyear 2017 Annual Report Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
17. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Land and
Buildings
US$'000
Plant and
Equipment
US$'000
Construction
in Progress
US$'000
Total
US$'000
Balance at 1 January 2016
Additions
Disposal
Transfers to assets held for sale
Transfer to/from CIP
Transfer to intangible assets
Currency movements
Balance at 1 January 2017
Additions
Disposal
Transfer from CIP
Transfer from intangible assets
Currency movements
Balance at 31 December 2017
Accumulated depreciation and impairment:
Balance at 1 January 2016
Depreciation
Reversal of/(impairment of)
Disposal
Transfers to assets held for sale
Currency movements
Balance at 1 January 2017
Depreciation
Impairment
Disposal
Currency movements
Balance at 31 December 2017
Net book value at 31 December 2016
Net book value at 31 December 2017
61,630
40
(12,814)
-
59
-
(1,571)
47,344
34
(3,022)
562
-
2,755
47,673
(20,982)
(2,106)
167
8,116
-
(338)
(15,143)
(1,723)
(196)
1,854
(1,292)
(16,500)
32,201
31,173
711,122
962
(81,565)
(29,529)
16,531
-
(8,853)
608,668
797
(63,956)
18,063
723
31,541
595,836
(586,460)
(46,452)
(1,045)
73,660
23,606
13,909
(522,782)
(37,513)
(1,875)
61,111
(26,033)
(527,092)
85,886
68,744
11,165
16,542
-
-
(16,590)
(1,536)
(8)
9,573
26,684
-
(18,625)
-
581
18,213
-
-
-
-
-
-
-
-
-
-
-
-
9,573
18,213
783,917
17,544
(94,379)
(29,529)
-
(1,536)
(10,432)
665,585
27,515
(66,978)
-
723
34,877
661,722
(607,442)
(48,558)
(878)
81,776
23,606
13,571
(537,925)
(39,236)
(2,071)
62,965
(27,325)
(543,592)
127,660
118,130
Property, plant and equipment is reviewed at each reporting date to determine whether there is any indication of
impairment. Assets are first considered individually to determine whether there is any impairment related to specific
assets due to factors such as technical obsolescence, declining market value, physical condition or saleability within a
reasonable timeframe. As a result of this exercise, the Company recorded an impairment loss at 31 December 2017
and 31 December 2016 of $2.1 million and $878 thousand, respectively on property, plant and equipment.
_______________________________________________________________________________________
105
101
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
18. GOODWILL AND OTHER ASSET IMPAIRMENT CONSIDERATIONS
Goodwill resulting from business combinations is recognised as an asset at the date that control is acquired. Goodwill
is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in
the acquiree, and the fair value of the previously held equity interest in the acquiree (if any) over the net amounts of
the identifiable assets acquired and the liabilities assumed.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing,
goodwill is allocated to each of the Company’s cash-generating units expected to benefit from the acquisition. Cash-
generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when
there is an indication that the carrying value of the unit may be impaired. If the recoverable amount of the cash-
generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of
any goodwill allocated to the unit and then to the other assets of the unit. An impairment loss recognised for goodwill
is not reversed in a subsequent period.
Upon disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss
on disposal.
Goodwill, intangible assets and property, plant and equipment
The Company determines whether goodwill is impaired on an annual basis and assesses impairment of all other
assets at each reporting date by evaluating whether indicators of impairment exist. This evaluation includes
consideration of the market conditions specific to the industry in which the group operates, the increase, or decline in
demand for our drilling services and rig utilisation rates, the political environment in countries in which the group
operates, technological changes, expectations in relation to future cash flows and the Company’s market
capitalisation. Where an indication of impairment exists the recoverable amount of the asset is determined.
Recoverable amount is the greater of fair value less costs to sell and value in use. Impairment is considered for
individual assets, or cash generating units (“CGU”). Judgments are made in determining appropriate cash generating
units. When considering whether impairments exist at a CGU, the Company uses the value in use methodology.
The value in use calculation requires the Company to estimate the future cash flows expected to arise from a cash-
generating unit and a suitable discount rate in order to calculate present value. These estimates are subject to risk
and uncertainty; hence there is a possibility that changes in circumstances will alter these projections, which may
impact the recoverable amount of the assets.
Goodwill by cash-generating units
Gross carrying amount:
Balance at 1 January 2016
Currency movements
Balance at 31 December 2016
Balance at 1 January 2017
Currency movements
Balance at 31 December 2017
US$'000
99,658
378
100,036
100,036
1,160
101,196
The carrying amount of goodwill of $101.2 million as at 31 December 2017 and $100.0 million as at 31 December
2016 was in the North America Drilling Services CGU.
The carrying amount of goodwill is tested for impairment annually at 31 December and whenever there is an indicator
that the asset may be impaired. If goodwill is impaired, it is written down to its recoverable amount.
106
_______________________________________________________________________________________
102
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
18. GOODWILL AND OTHER ASSET IMPAIRMENT CONSIDERATIONS (CONTINUED)
Goodwill impairment by cash-generating units
Goodwill and intangible assets in the EMEA, Latin America and Asia Pacific Drilling Services CGUs have been fully
impaired. For the cash-generating units with remaining goodwill and intangible assets, being the North America
Drilling Services CGU, the Company performed a goodwill impairment test at 31 December 2017 and the recoverable
amount for the North America Drilling Services CGU exceeded the goodwill carrying amount. Consequently, no
goodwill impairments were recorded for the year ended 31 December 2017.
Key assumptions
Certain key assumptions are used for CGU impairment testing and are described below.
In its impairment assessment, the Company calculates the recoverable amounts based on value-in-use calculations.
Cash flow projections are based on the Company’s expected performance over a ten-year period, which
approximates the length of a typical mining business cycle based on historical industry experience, with a terminal
value. Central to the approach adopted is the assumption that the mining industry will continue to follow its historical
trend of cycles. In assessing value in use, the estimated future cash flows are discounted to their present value using
a post-tax discount rate that reflects the current market assessments of the time value of money and risks specific to
the asset. The post-tax discount rate is applied to post tax cash flows that include an allowance for tax based on the
respective jurisdictions’ tax rate. No allowance is made for existing timing differences or carry-forward losses.
This method is used to approximate the requirement of the accounting standards to apply a pre-tax discount rate to
pre-tax cash flows as the Company determined it was not feasible to calculate a stand-alone pre-tax discount rate.
_______________________________________________________________________________________
107
103
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
18. GOODWILL AND OTHER ASSET IMPAIRMENT CONSIDERATIONS (CONTINUED)
Revenue – NAM Drilling Services
In determining the growth rates applied to revenue through the mining cycle, we have had regard to the following:
• Average revenue growth over previous mining cycles, with revenue in the forecast period and terminal
year based on the average actual revenue in the last five years.
• Rates of inflation in the countries where the Company does business (sourced from Bloomberg and
CapIQ).
• Price and volume expectations over the forecast period.
Expenses
In determining gross margin and SG&A expenses management has used historical performance trends, overlaying
the impacts of recent programs and other initiatives already taken within the business to reduce costs.
Working capital and capital expenditure
Working capital and capital expenditure assumptions are assumed to be in line with historic trends given the level of
utilisation and operating activity.
Discount rate and terminal growth rate
A global discount rate of 11.5% is used and adjusted on a case-by-case basis for regional variations in the required
equity rate of return. Based on information published by Bloomberg, the adjusted post-tax discount rate for the North
American region is 10.8% and the terminal growth rate of 2.1% does not exceed the long-term average growth rate
for the industry.
As part of our impairment test we have considered a number of different scenarios that consider the impact on the
value-in-use calculations if key assumptions were to vary from those used in the calculations. We analysed the impact
If revenue and gross margins do not improve as forecast in our impairment analysis due to lower than expected price
and volume recovery and the Company is unable to adjust its cost structure. The analysis resulted in no impairment
under these scenarios.
108
_______________________________________________________________________________________
104
Boart Longyear 2017 Annual Report Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
19. OTHER INTANGIBLE ASSETS
Trademarks and trade names
Trademarks and trade names recognised by the Company that are considered to have indefinite useful lives are not
amortised. Each period, the useful life of each of these assets is reviewed to determine whether events and
circumstances continue to support an indefinite useful life assessment for the asset. Trademarks and trade names
that are considered to have a finite useful life are carried at cost less accumulated amortisation and accumulated
impairment losses and have an average useful life of three years. Such assets are tested for impairment at least
annually or more frequently if events or circumstances indicate that the asset might be impaired.
Contractual customer relationships
Contractual customer relationships acquired in business combinations are identified and recognised separately from
goodwill where they satisfy the definition of an intangible asset and their fair values can be reliably measured.
Contractual customer relationships have finite useful lives and are carried at cost less accumulated amortisation and
accumulated impairment losses.
Contractual customer relationships are amortised over 10 – 15 years on a straight-line basis. Amortisation methods
and useful lives are reassessed at each reporting date.
Patents
Patents are measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is
charged on a straight-line basis over estimated useful lives of 10 - 20 years. Amortisation methods and useful lives
are reassessed at each reporting date.
Research and development costs
Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and
understanding, are recognised in profit or loss when incurred.
Development activities involve a plan or design for the production of new or substantially improved products and
processes. Development costs are capitalised only if development costs can be measured reliably, the product or
process is technically and commercially feasible, future economic benefits are probable, and the Company intends to
and has sufficient resources to complete development and to use or sell the asset. Capitalised costs include the cost
of materials, direct labour and overhead costs directly attributable to preparing the asset for its intended use. Other
development costs are expensed when incurred.
Capitalised development costs are measured at cost less accumulated amortisation and accumulated impairment
losses. Amortisation is recognised on a straight-line basis over the estimated useful lives, which on average is 15
years.
_______________________________________________________________________________________
109
105
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
19. OTHER INTANGIBLE ASSETS (CONTINUED)
Gross carrying amount:
Balance at 1 January 2016
Additions
Disposals
Transfer from PP&E
Currency movements
Balance at 31 December 2016
Balance at 1 January 2017
Additions
Disposals
Transfer to PP&E
Currency movements
Balance at 31 December 2017
Accumulated amortisation:
Balance at 1 January 2016
Amortisation for the period
Disposals
Impairment for the period
Currency movements
Balance at 31 December 2016
Balance at 1 January 2017
Amortisation for the period
Disposals
Impairment for the period
Currency movements
Balance at 31 December 2017
Trademarks Patents
US$'000
US$'000
Customer
relationships
and other
US$'000
Develop-
ment
Software
assets
US$'000 US$'000
4,253
40
-
-
-
4,293
4,293
33
(1,266)
-
-
3,060
(1,270)
-
-
-
-
(1,270)
(1,270)
-
1,270
-
-
-
6,250
891
(4)
-
-
7,137
7,137
961
(1)
-
-
8,097
(1,025)
(488)
-
-
-
(1,513)
(1,513)
(471)
-
-
-
(1,984)
46,675
-
-
-
(146)
46,529
46,529
-
(5,321)
-
1,752
42,960
(37,705)
(1,609)
-
-
238
(39,076)
(39,076)
(1,622)
5,321
-
(1,712)
(37,089)
87,471
1,626
(5)
-
19
89,111
89,111
12
(2)
-
20
89,141
(66,184)
(10,653)
-
-
(9)
(76,846)
(76,846)
(8,568)
-
-
(18)
(85,432)
43,940
362
(164)
1,536
71
45,745
45,745
1,844
(1)
(723)
(23)
46,842
(28,001)
(1,162)
143
(1,170)
-
(30,190)
(30,190)
(1,211)
-
(104)
19
(31,486)
Total
US$'000
188,589
2,919
(173)
1,536
(56)
192,815
192,815
2,850
(6,591)
(723)
1,749
190,100
(134,185)
(13,912)
143
(1,170)
229
(148,895)
(148,895)
(11,872)
6,591
(104)
(1,711)
(155,991)
Net book value at 31 December 2016
Net book value at 31 December 2017
3,023
3,060
5,624
6,113
7,453
5,871
12,265
3,709
15,555
15,356
43,920
34,109
Other intangible assets are reviewed at each reporting date to determine whether there is any indication of
impairment. As a result of the Company’s review of specific intangible assets, the Company recorded an impairment
loss at 31 December 2017 and 31 December 2016 of $104 thousand and $1.2 million, respectively.
The Company has reassessed the carrying value of certain development assets relating to its Global Products
business. The 31 December 2017 review did not lead to an impairment for that period.
The Company recognised $8.1 million of research and development expenses in the consolidated statement of profit
or loss and other comprehensive income for the year ended 31 December 2017 (2016: $1.1 million).
110
_______________________________________________________________________________________
106
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
20. TRADE AND OTHER PAYABLES
Trade payables and other payables are carried at amortised cost. They represent unsecured liabilities for goods and
services provided to the Company prior to the end of the financial period that are unpaid and arise when the Company
becomes obligated to make future payments.
Current
Trade payables
Accrued payroll and benefits
Accrued recapitalision costs
Goods and services tax payable
Accrued interest
Accrued legal and environmental
Professional fees
Accrued drilling costs
Other sundry payables and accruals
2017
US$'000
2016
US$'000
65,486
26,759
9,898
13,229
1,051
5,625
4,535
2,484
9,181
138,248
55,082
24,000
4,150
11,128
10,036
1,866
7,351
2,798
10,178
126,589
The average credit period on purchases of certain goods is 39 days (2016: 37 days). No interest is charged on the trade
payables for this period. Thereafter, various percentages of interest may be charged on the outstanding balance based
on the terms of the specific contracts. The Company has financial risk management policies in place to ensure that all
payables are paid within the credit timeframe.
Goods and services tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (“GST”), except:
•
•
where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the
cost of acquisition of an asset or as part of an item of expense; or
for receivables and payables which are recognised inclusive of GST.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or
payables.
Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from
investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as operating
cash flows.
_______________________________________________________________________________________
107
111
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
21. LOANS AND BORROWINGS
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable
transaction costs. Debt issuance costs are amortised using the effective interest rate method over the life of the
borrowing. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer
settlement of the liability for at least 12 months after the balance sheet date.
Unsecured - at amortised cost
Non-current
Senior notes
Accreted interest
Debt issuance costs
Secured - at amortised cost
Current
Finance lease liabilities
Non-current
Senior notes
Term loans
Accreted interest
Revolver bank loans
Debt issuance costs
Original issue discount
Finance lease liabilities
Disclosed in the financial statements as:
Current borrowings
Non-current borrowings
A summary of the maturity of the Company's borrowings is as follows:
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
More than 4 years
Original issue discount
Debt issuance costs
2017
US$'000
2016
US$'000
88,882
444
-
284,000
-
(2,473)
794
140
217,035
190,000
85,153
62,011
(1,917)
(1,600)
1,876
642,678
794
641,884
642,678
794
657
64,255
562
579,927
646,195
(1,600)
(1,917)
642,678
195,000
190,000
53,779
17,566
(3,380)
-
495
735,127
140
734,987
735,127
140
328,576
156
128,068
284,040
740,980
(5,853)
735,127
_______________________________________________________________________________________
108
112
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
21. LOANS AND BORROWINGS (CONTINUED)
Recapitalisation
On 3 April 2017, the Company announced a proposed recapitalisation with Centerbridge Partners L.P., Ares Capital Ltd.,
and Ascribe Capital LLC to reduce the Company’s debt and interest costs which would provide the Company with a more
sustainable capital structure to support its operations (known as the “Recapitalisation”). The Recapitalisation was
completed at the end of September 2017, effective 1 September 2017 and resulted in:
•
•
•
reduction of the 7% unsecured debt (both principal and accrued interest costs) through a $196.0 million reduction in
the principal amount and $16.4 million reduction in accrued interest and reduced interest rates (from 7% to 1.5%
payable-in-kind1 (“PIK”) backdated to 1 January 2017),
reduction in the interest burden on other debt instruments through a combination of a decrease in interest rates and
deferral of interest payment through payable-in-kind (“PIK”)/interest capitalisation arrangements; and
deferring the maturity of retained debt funding to December 2022.
In order to achieve the Recapitalisation, the Company issued 24.9 billion shares and warrants (see note 24 for further
details on the equity instruments issued). Accounting for the equity instruments issued under the Recapitalisation
requires the determination of fair value. As a result of the financial position of the Group at the time of the
Recapitalisation, and the dilutionary impact of the number of equity instruments issued there was a wide range of
possible fair value estimates requiring a significant level of judgement. Further the probabilities of the various
estimates could not be reasonably assessed and it was concluded that the fair value of the equity could not be
reliably measured and was recorded based on the net reduction in the recorded value of the loans and borrowings
pre and post the Recapitalisation. Further, the Company has determined that the fair value of the revised loans and
borrowings is the face value of such instruments.
The movements in the loans and borrowings in the period are complex and include significant non cash transactions
and debt reductions. The following table provides the movement in the material line items of loans and borrowings:
Description
US$'000 US$'000
US$'000
US$'000
US$'000
US$'000 US$'000 US$'000
2016
Debt
Drawn
Debt
Reduction
Backstop
ABL
Capitalised
Interest
2017
Interest
Other
2017
Senior Unsecured Notes
Senior Unsecured Notes
Accreted Interest
Senior Secured Notes
Term Loans
Term Loan A
Term Loan B
Total Term Loans
Accreted Interest
Revolver Bank Loans
Bank credit facility
ABL
DDL Loan
Backstop ABL
Total Revolver Bank Loans
Other
Total
284,000
-
195,000
85,000
105,000
190,000
53,779
-
-
-
-
-
-
(196,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
882
444
22,035
-
-
-
-
-
-
-
-
-
-
-
-
-
88,882
444
217,035
85,000
105,000
190,000
(22,035)
51,722
1,687
85,153
17,566
-
-
-
17,566
14,709
15,400
20,930
-
51,039
(15,264)
(15,400)
(20,930)
-
(51,594)
-
-
-
45,000
45,000
(5,218)
-
-
-
735,127
51,039
(247,594)
45,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,011
-
-
45,000
62,011
4,107
264
(847)
57,155
1,951
642,678
1 Payable-in-kind interest refers to non-cash capitalised interest paid on maturity of the debt.
_______________________________________________________________________________________
109
113
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
21. LOANS AND BORROWINGS (CONTINUED)
Senior notes
Senior Unsecured Notes
As of 31 December 2016 there was $284.0 million of senior unsecured notes outstanding at an interest rate of 7% with a
scheduled maturity date of 1 April 2021. As part of the Recapitalisation as noted above, the Company restructured its
senior unsecured notes. The $284.0 million outstanding principal amount of the 7% Unsecured Notes due 2021 has been
reduced by $196.0 million in exchange for ordinary shares (see note 24 for further details on the equity instruments
issued). Interest rate on the senior unsecured notes carry an interest rate of 1.5% per annum, which is payable-in-kind
(i.e. non cash) until maturity in December 2022. The Company has $88.9 million of senior unsecured notes outstanding at
31 December 2017. The Company may redeem all or a portion of the notes prior to maturity subject to certain conditions,
including in certain cases the payment of premiums or make-whole amounts.
Senior Secured Notes
As of 31 December 2016 there was $195.0 million of senior secured notes outstanding at an interest rate of 10% with a
scheduled maturity date of 1 October 2018. As part of the Recapitalisation as noted above, the Company restructured its
senior secured notes. Accrued and unpaid interest of $22.0 million has been capitalised on 1 September 2017 as part of
the Recapitalisation. The Company has $217.0 million of senior secured notes outstanding at 31 December 2017 that
carry a payable-in-kind interest rate of 12% per annum at the Company’s election until December 2018 and thereafter in
cash at the reduced interest rate of 10% per annum with a scheduled maturity date of December 2022. The Company
may redeem all or a portion of the notes prior to maturity subject to certain conditions, including in certain cases the
payment of premiums or make-whole amounts.
Bank Credit Facility
The Company has an asset-based, revolving bank credit facility (the “ABL”) that was amended in July 2017 that increased
its capacity from $40.0 million to $50.0 million of capacity for loans or other purposes such as letters of credit. As at 31
December 2017 there was $17.0 million outstanding under this facility (31 December 2016: $17.6 million outstanding). In
addition, as at 31 December 2017 there were outstanding letters of credit totalling $13.0 million that reduced the amount
available to draw under the ABL commitments (31 December 2016: $11.9 million outstanding letters of credit). Interest
rates on usage/drawings (we pay this on letters of credit which are not “borrowings”) are based on a base rate plus an
applicable margin. The base rate is generally based on 30-day USD LIBOR, while the margin is determined based on the
Company’s leverage according to a pricing grid. As at 31 December 2017 the applicable margin was 3.5% for LIBOR-
based loans.
The ABL facility is secured by a first lien on the accounts receivable, inventories, deposit accounts and cash (“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). Provisions in the facility currently restrict
availability by $5.0 million until the Company maintains an unadjusted fixed charge coverage ratio of at least 1.0:1.0 for
four consecutive quarters. Provisions also require that $5.0 million of cash be held in a restricted bank account with the
lender until the Company maintains an unadjusted fixed charge coverage ratio of at least 1.0:1.0 for four consecutive
quarters, at which time the restricted cash shall be released. Following release of the restricted cash, but only to the
extent that less than $7.5 million of excess availability exists under the facility. the facility contains a requirement to
maintain a minimum liquidity of $10.0 million at all times in the facility through 30 June 2018 after that time there is a
springing Fixed Charge Coverage Ratio (“FCCR”) of 1.1:1.0 if excess availability is less than $7.5 million. Scheduled
maturity has been extended until July 2020.
Backstop ABL
As part of the Recapitalisation on 1 September 2017, the Company entered into a new term loan facility. The new term
loan has an interest rate of 11% per annum payable-in kind or 10% per annum payable in cash at the option of the
borrower. It is secured by substantially the same collateral as the ABL credit facility and contains a maturity of October
2020. As at 31 December 2017 the amount outstanding under this facility was $45.0 million.
_______________________________________________________________________________________
110
114
Boart Longyear 2017 Annual Report Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
21. LOANS AND BORROWINGS (CONTINUED)
Term Loans
The Company has a term loan facility which is structured as Tranche A and Tranche B loans. As part of the
Recapitalisation in September 2017 the Company restructured its Term Loans. Interest on Term Loans A and B is
reduced from 12% to 10% payable –in-kind through to December 2018 and 8% payable-in-kind thereafter. Maturity was
extended until December 2022. The term loan tranches are structured to accrete interest, which is payable to the term
loan lender, Centerbridge Partners, L.P., a related party.
Tranche A
As at 31 December 2017 and 2016 the amount outstanding was $85.0 million. This tranche contains a maturity of
December 2022 and is non-callable for the first 4 years. It is secured by a 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.
Tranche B
As at 31 December 2017 and 2016 the amount outstanding under Tranche B was $105.0 million. This tranche contains a
maturity of December 2022 and is non-callable for the life of the loan. It is secured by a second lien on the Working
Capital Assets of the Term Loan B and Senior Secured Notes guarantors that are not ABL guarantors, a third lien on the
Working Capital Assets of the Term Loan B and Senior Secured Notes issuer and the Term Loan B and Senior 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 Senior Secured Notes issuer and guarantors, including equipment, intellectual property, the capital
stock of subsidiaries and certain owned real property.
Covenants and other material items – bank credit facility and senior notes
The Company’s ABL term loans do not require maintenance or testing of financial covenant ratios.
With respect to the senior notes issued by the Company, the indenture governing those senior notes includes covenants
that restrict the Company’s ability to engage in certain activities, including incurring additional indebtedness and making
certain restricted payments as well as a limitation on the amount of secured debt the Company may incur. The senior
notes contain certain provisions that provide the note holders with the ability to declare a default, and accelerate the
notes, should a default occur under either of the Term Loans that results in acceleration of such Term Loans. The senior
notes do not require maintenance or testing of financial covenant ratios.
The Company’s ABL includes a covenant that requires the Company to maintain $10.0 million minimum liquidity in the
facility through 30 June 2018 after that there is a springing Fixed Charge Coverage Ratio (“FCCR”) of 1.1:1.0 if excess
availability is less than $7.5 million.
As at 31 December 2017 the Company was in compliance with all of its debt covenants.
_______________________________________________________________________________________
111
115
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017 BOART LONGYEAR LIMITED
21. LOANS AND BORROWINGS (CONTINUED)
Covenants and other material items – bank credit facility and senior notes (continued)
Further details around the Issuer/Borrower and Guarantors of the Company’s debt instruments are included below:
Description
Issuer/Borrower Guarantors
Senior
Secured
Notes
Boart
Longyear
Management
Pty Limited
Australia: Boart Longyear Australia Pty Limited, Boart Longyear Limited and Votraint No. 1609 Pty Limited
Canada: Boart Longyear Canada, Boart Longyear Manufacturing Canada Ltd. And Longyear Canada ULC
Chile: Boart Longyear Chile Limitada and Boart Longyear Commercializadora Limitada
Peru: Boart Longyear S.A.C.
Switzerland: Boart Longyear Suisse Sarl
United States: Boart Longyear Company, Boart Longyear Manufacturing and Distribution, Inc.,Longyear
Holdings, Inc., BLY IP Inc, and Longyear TM, Inc.
Term Loan
Tranche B
Same as
Senior
Secured Notes
Same as Term Loan – tranche A
ABL
Same as
Senior
Secured Notes
Australia: Boart Longyear Australia Pty Limited, Boart Longyear Limited and Votraint No. 1609 Pty Limited
Canada: Boart Longyear Canada, Boart Longyear Manufacturing Canada Ltd. And Longyear Canada ULC
Chile: Boart Longyear Chile Limitada and Boart Longyear Commercializadora Limitada
Peru: Boart Longyear S.A.C.
Switzerland: Boart Longyear Suisse Sarl
United States: Boart Longyear Company, Boart Longyear Manufacturing and Distribution, Inc.,Longyear
Holdings, Inc., BLY IP Inc. and Longyear TM, Inc., BL DDL NY Holdings Inc.
Backstop
ABL
Same as
Senior
Secured Notes
Same as ABL
Term Loan
Tranche A
Same as
Senior
Secured Notes
Senior
Unsecured
Notes
Same as
Senior
Secured Notes
Australia: Boart Longyear Australia Pty Limited, Boart Longyear Limited, Votraint No. 1609 Pty Limited, BL
DDL Holdings Pty. Ltd, and BL DDL II Holdings. Ltd,
Canada: Boart Longyear Canada, Boart Longyear Manufacturing Canada Ltd. And Longyear Canada ULC,
BL Canada DDL Inc., and BL Canada Holdings Inc.
Chile: Boart Longyear Chile Limitada and Boart Longyear Commercializadora Limitada
Peru: Boart Longyear S.A.C.
Switzerland: Boart Longyear Suisse Sarl
United States: Boart Longyear Company, Boart Longyear Manufacturing and Distribution, Inc.,Longyear
Holdings, Inc., BLY IP Inc. and Longyear TM, Inc., BL DDL NY Holdings Inc.
Australia: Boart Longyear Australia Pty Limited, Boart Longyear Limited and Votraint No. 1609 Pty Limited
Canada: Boart Longyear Canada, Boart Longyear Manufacturing Canada Ltd. And Longyear Canada ULC
Chile: Boart Longyear Chile Limitada and Boart Longyear Commercializadora Limitada
Peru: Boart Longyear S.A.C.
Switzerland: Boart Longyear Suisse Sarl
United States: Boart Longyear Company, Boart Longyear Manufacturing and Distribution, Inc.,Longyear
Holdings, Inc., and Longyear TM, Inc.
_______________________________________________________________________________________
112
116
Boart Longyear 2017 Annual Report Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
22. PROVISIONS
A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that
can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability.
Employee benefits
Liabilities for employee benefits for wages, salaries, annual leave, long service leave, and sick leave represent present
obligations resulting from employees’ services provided and are calculated at discounted amounts based on rates that the
Company expects to pay as at reporting date, including costs such as workers’ compensation insurance and payroll tax,
when it is probable that settlement will be required and they are capable of being reliably measured.
Liabilities recognised in respect of employee benefits which are not expected to be settled within 12 months are measured
as the present value of the estimated future cash outflows to be made by the Company in respect of services provided by
employees up to reporting date.
Non-accumulating non-monetary benefits, such as medical care, housing, cars and free or subsidised goods and
services, are expensed based on the net marginal cost to the Company as the benefits are provided to the employees.
Provisions are recognised for amounts expected to be paid under short-term cash bonus or profit-sharing plans if the
Company has present legal or constructive obligations to pay these amounts as a result of past service provided by
employees and the obligations can be reliably estimated.
Warranties
The Company maintains warranty reserves for products it manufactures. A provision is recognised when the following
conditions are met: 1) the Company has an obligation as a result of an implied or contractual warranty; 2) it is probable
that an outflow of resources will be required to settle the warranty claims; and 3) the amount of the claims can be reliably
estimated.
Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived from a contract are less than the
unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the
lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract.
The following table reflects the provision balances:
Current
Employee benefits
Restructuring and termination costs
Warranty
Onerous leases
Non-current
Employee benefits
Pension and post-retirement benefits (Note 23)
Onerous leases
2017
US$'000
2016
US$'000
8,995
7,644
1,299
1,513
19,451
4,607
12,601
1,512
18,720
38,171
9,935
590
885
1,604
13,014
1,559
22,435
1,947
25,941
38,955
_______________________________________________________________________________________
113
117
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017 BOART LONGYEAR LIMITED
23. PENSION AND POST-RETIREMENT BENEFITS
Defined contribution pension plans and post-retirement benefits
A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity.
The Company has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets
to pay all employees the benefits relating to employee service in the current and prior periods. The amount recognised as
an expense in profit or loss in respect of pension costs and other post-retirement benefits is the contributions payable in
the year. Differences between contributions payable in the year and contributions actually paid are shown as either
accruals or prepayments in the statement of financial position.
Defined contribution plans
Pension costs represent actual contributions paid or payable by the Company to the various plans. At 31 December
2017, and 2016, there were no significant outstanding/prepaid contributions. Company contributions to these plans were
$5.8 million and $6.5 million for the years ended 31 December 2017 and 2016, respectively.
The assets of the defined contribution plans are held separately in independently administered funds. The charge in
respect of these plans is calculated on the basis of contributions payable by the Company during the fiscal year.
Defined Benefit Pension Plans
The Company’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the
amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit
is discounted to determine its present value, and the fair value of any fund assets is deducted.
The discount rate is the yield at the balance sheet date on high quality corporate bonds that have maturity dates
approximating the terms of the Company’s defined benefit obligations. The calculation is performed by a qualified actuary
using the projected unit credit method. Actuarial gains and losses arising from experience adjustments and related
changes in actuarial assumptions are charged or credited to retained earnings.
The Company provides defined contribution and defined benefit pension plans for the majority of its employees. It also
provides post-retirement medical arrangements in North America.
The Company’s accounting policy for defined benefit pension plans requires management to make annual estimates and
assumptions about future returns on classes of assets, future remuneration changes, employee attrition rates,
administration costs, changes in benefits, inflation rates, exchange rates, life expectancy and expected remaining periods
of service of employees. In making these estimates and assumptions, management considers advice provided by
external advisers, such as actuaries. Where actual experience differs to these estimates, actuarial gains and losses are
recognised directly in equity.
Full actuarial valuations of the defined benefit pension plans were performed as at various dates and updated to 31
December 2017 by qualified independent actuaries. The estimated market value of the assets of the funded pension
plans was $211.1 million and $185.5 million at 31 December 2017, and 2016, respectively. The market value of assets
was used to determine the funding level of the plans. The market value of the assets of the funded plans was sufficient to
cover 90% in 2017 and 2016, of the benefits that had accrued to participants after allowing for expected increases in
future earnings and pensions. Entities within the Company are paying contributions as required by statutory requirements
and in accordance with local actuarial advice.
The majority of the defined benefit pension plans are funded in accordance with minimum funding requirements by local
regulators. The assets of these plans are held separately from those of the Company, in independently administered
funds, in accordance with statutory requirements or local practice throughout the world.
The majority of the defined benefit pension plans are closed to new participants. Under the projected unit credit method,
service cost will increase as the participant ages until retirement when it goes to zero. In addition, changes to the
discount rate can increase or decrease service cost.
_______________________________________________________________________________________
114
118
Boart Longyear 2017 Annual Report Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
23. PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
Defined Benefit Pension Plans (Continued)
Company contributions to these plans were $5.8 million and $6.8 million during the years ended 31 December 2017 and
2016, respectively. Contributions in 2018 are expected to be $10.4 million.
The principal assumptions used to determine the actuarial present value of benefit obligations and pension costs are
detailed below (shown in weighted averages):
Discount rates
Expected Average Rate Increases:
Salaries
Pensions in payment
Healthcare costs (initial)
Healthcare costs (ultimate)
2017
2016
North
America
3.5%
Europe
1.6%
North
America
4.0%
Europe
1.4%
3.5%
-
5.0%
5.0%
3.0%
1.5%
-
-
3.5%
-
5.0%
5.0%
3.0%
1.5%
-
-
Amounts recognised in profit or loss in respect of these defined benefit plans are as follows:
2017
Post-
retirement
Pension
Plan medical Plan
US$'000
1,226
665
-
US$'000
-
11
-
Total
US$'000
1,226
675
-
2016
Post-
retirement
medical Plan
US$'000
-
13
-
Total
US$'000
1,173
682
(518)
Pension
Plan
US$'000
1,173
669
(518)
1,891
11
1,901
1,324
13
1,337
Current service cost
Net interest expense
Past service cost
Total charge to profit
and loss account
For the financial years ended 31 December 2017 and 2016, charges of approximately $1.6 million and $1.1 million,
respectively, have been included in cost of goods sold and the remainder in general and administrative or sales and
marketing expenses.
_______________________________________________________________________________________
115
119
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
23. PENSION AND POST-RETIREMENT BENEFITS (CONTINUED)
Changes in the present value of the defined benefit obligations were as follows:
Opening defined benefit obligation
Current service cost
Interest cost
Actuarial gains arising from
demographic assumptions
Actuarial losses arising from
financial assumptions
Past service cost
Exchange differences on foreign plans
Benefits paid
Closing defined benefit obligation
2017
Post-
retirement
Medical Plan
US$'000
324
-
11
Pension
Plan
US$'000
207,653
1,226
6,487
Total
US$'000
207,977
1,226
6,498
2016
Post-
retirement
Medical Plan
US$'000
356
-
13
Pension
Plan
US$'000
201,488
1,173
7,049
Total
US$'000
201,844
1,173
7,062
(1,197)
-
(1,197)
(802)
-
(802)
3,983
-
15,910
(10,791)
223,271
115
-
28
(61)
417
4,098
-
15,938
(10,852)
223,688
10,925
(518)
(1,145)
(10,517)
207,653
5
-
10
(60)
324
10,930
(518)
(1,135)
(10,577)
207,977
Changes in the fair value of the plan assets were as follows:
Opening fair value plan of assets
Expected return on plan assets
Actuarial gains arising from
financial assumptions
Administrative expenses paid from the trust
Exchange differences on foreign plans
Contributions from the employer
Benefits paid
Closing fair value of plan assets
2017
Post-
retirement
Medical Plan
US$'000
-
-
-
-
61
(61)
-
Total
US$'000
185,542
5,823
10,536
(1,141)
15,341
5,838
(10,852)
211,087
Pension
Plan
US$'000
180,529
6,380
4,079
(1,028)
(729)
6,828
(10,517)
185,542
2016
Post-
retirement
Medical Plan
US$'000
-
-
-
-
-
60
(60)
-
Total
US$'000
180,529
6,380
4,079
(1,028)
(729)
6,888
(10,577)
185,542
Pension
Plan
US$'000
185,542
5,823
10,536
(1,141)
15,341
5,777
(10,791)
211,087
Assumed healthcare cost trend rates impact the amounts recognised in profit or loss. A one percentage point change in
assumed healthcare cost trend rates would have the following effects:
One percentage point increase
Effect on the aggregate of the service cost and interest cost
Effect on accumulated post-employment benefit obligation
One percentage point decrease
Effect on the aggregate of the service cost and interest cost
Effect on accumulated post-employment benefit obligation
2017
US$'000
2016
US$'000
-
2
-
(2)
-
7
-
(7)
_______________________________________________________________________________________
116
120
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017 BOART LONGYEAR LIMITED
24. ISSUED CAPITAL
Ordinary shares
Share capital
2017
Shares
'000
US$'000
2016
Shares
'000
US$'000
Ordinary shares, fully paid
26,289,795
1,463,167
940,585
1,204,291
Movements in ordinary shares
Balance at beginning of year
Issued to Directors
Issued under the recapitalisation
Conversion of perferred shares
Vesting of LTIP rights
Cancellation of LTIP rights
Purchase of shares for LTIP
940,585
12,758
24,895,916
434,002
6,534
-
-
1,204,291
485
194,873
59,507
1,642
2,369
-
Balance at end of the year
26,289,795
1,463,167
Total shares outstanding
Shares held in trust
Balance at end of the year
26,289,795
1,463,167
-
-
26,289,795
1,463,167
929,062
11,243
-
-
2,209
-
(1,929)
940,585
942,108
(1,523)
940,585
Convertible Preference shares
Preferred shares, fully paid
Conversion of perferred shares
Balance at end of the year
2017
Shares
'000
US$'000
2016
Shares
'000
434,002
(434,002)
-
59,507
(59,507)
434,002
-
-
434,002
1,202,924
717
-
-
650
-
-
1,204,291
1,204,622
(331)
1,204,291
US$'000
59,507
-
59,507
Issued Warrants
Warrants issued but not exercised
Balance at end of the year
Total ordinary, convertible
preference shares and warrants
Impact of the recapitalisation
2017
Warrants
'000
US$'000
2016
Warrants
'000
US$'000
731,082
731,082
5,591
5,591
-
-
-
-
1,468,758
1,263,798
Accounting for the equity instruments issued under the Recapitalisation requires the determination of fair value. As a
result of the financial position of the Group at the time of the Recapitalisation, and the dilutionary impact of the number of
equity instruments issued there was a wide range of possible fair value estimates requiring a significant level of
judgement. Further the probabilities of the various estimates could not be reasonably assessed and it was concluded that
the fair value of the equity could not be reliably measured and was recorded based on the net reduction in the recorded
value of the loans and borrowings pre and post the Recapitalisation.
Transaction costs on the issue of equity instruments
Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the
proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in
connection with the issue of those equity instruments and which would not have been incurred had those instruments not
been issued.
_______________________________________________________________________________________
117
121
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
25. DIVIDENDS
No dividend has been determined for any of the half-years ended 30 June 2017, 31 December 2017, 30 June 2016 or 31
December 2016.
There are no franking credits available for the years ended 31 December 2017 or 2016.
26. COMMITMENTS FOR EXPENDITURE
The Company has a number of continuing operational and financial commitments in the normal course of business.
Capital commitments
Purchase commitments for capital expenditures
3,298
2,030
2017
US$'000
2016
US$'000
Non-cancellable future operating lease commitments as at 31 December 2017 and 2016 consist of the following:
Payments due within:
1 year
2 to 5 years
After 5 years
31 December 2017
31 December 2016
Land and
buildings
US$'000
Plant and
equipment
US$'000
Land and
buildings
US$'000
Plant and
equipment
US$'000
8,908
8,711
22,242
39,861
719
1,256
334
2,309
10,476
14,999
19,333
44,808
628
931
-
1,559
Description of operating leases
The Company has operating leases for land, buildings, plant and equipment with the following lease terms:
•
•
•
1 – 20 years for land and buildings with an average lease term of six years
1 – 8 years for machinery and equipment with an average lease term of five years
1 – 11 years for all other property with an average lease term of five years
The Company’s property operating leases generally contain escalation clauses, which are fixed increases generally
between 3% and 8%, or increase subject to a national index. The Company does not have any significant purchase
options.
Contingent rental payments exist for certain pieces of equipment and are not significant compared with total rental
payments. These are based on excess wear and tear and excess use.
_______________________________________________________________________________________
118
122
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
27. CONTINGENT LIABILITIES
The recognition of provisions for legal disputes is subject to a significant degree of judgment. Provisions are established
when (a) the Company has a present legal or constructive obligation as a result of past events, (b) it is probable that an
outflow of resources will be required to settle the obligation, and (c) the amount of that outflow has been reliably
estimated.
Letters of credit
Standby letters of credit primarily issued in support of commitments or other obligations as at 31 December 2017 are as
follows:
Subsidiary
Australia
Australia
Australia
United States
United States
United States
Purpose
Secure credit facility
Secure a facility rental
Secure a facility rental
Secure workers compensation program
Secure a performance bond
Secure insurance program
Expiration
Date
April 2018
August 2018
September 2018
January 2018
June 2018
August 2018
Amount
US $'000
195
579
619
100
11,000
500
12,993
Financial guarantee contract liabilities are measured initially at their fair values and subsequently at the higher of the
amount recognised as a provision or the amount initially recognised less cumulative amortisation in accordance with the
revenue recognition policies described in Note 3.
A summary of the maturity of issued letters of credit is as follows:
Less than 1 year
Guarantees
2017
US$'000
2016
US$'000
12,993
11,872
The subsidiaries of the Company provide guarantees within the normal course of business which includes payment
guarantees to cover import duties, taxes, performance and completion of contracts. In addition, the Parent and certain
subsidiaries are guarantors on the Company’s loans and borrowings. See Note 21.
Legal contingencies
The Company is subject to certain routine legal proceedings that arise in the normal course of its business. Management
believes that the ultimate amount of liability, if any, for any pending claims of any type (either alone or combined) will not
materially affect the Company’s operations, liquidity, or financial position taken as a whole. However, the ultimate
outcome of any litigation is uncertain, and unfavourable outcomes could have a material adverse impact.
Tax and customs audits
The Company is subject to certain tax and customs audits that arise in the normal course of its business. Management
believes that the ultimate amount of liability, if any, for any pending assessments (either alone or combined) would not
materially affect the Company’s operations, liquidity, or financial position taken as a whole. However, the ultimate
outcome of these audits is uncertain and unfavourable outcomes could have a material adverse impact. See additional
disclosure in Note 11.
_______________________________________________________________________________________
119
123
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
27. CONTINGENT LIABILITIES (CONTINUED)
Other contingencies
Other contingent liabilities as at 31 December 2017 and 2016 consist of the following:
Contingent liabilities
Guarantees/counter-guarantees to outside parties
2,717
4,495
2017
US$'000
2016
US$'000
Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements, net
of any allowances for losses, represents the Company’s maximum exposure to credit risk without taking account of the
value of any collateral obtained. See Note 15.
Financial assets and other credit exposure
Performance guarantees provided, including letters of credit
Maximum credit risk
2017
2016
US$'000
US$'000
15,710
16,367
_______________________________________________________________________________________
120
124
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
28. PARENT ENTITY DISCLOSURES
Financial position
Assets
Current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net Assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
Financial performance
Loss for the year
Total comprehensive loss
2017
US$'000
2016
US$'000
465,648
465,648
311,312
311,312
64,525
310,491
375,016
90,632
56,026
254,515
310,541
771
3,219,218
4,523
(3,133,109)
90,632
3,015,893
11,690
(3,026,812)
771
2017
US$'000
(128,028)
(128,028)
2016
US$'000
(155,483)
(155,483)
During the year ended 31 December 2017 there was no provision recorded against intercompany accounts (31 December
2016: $253.1 million). This provision has no impact on the consolidated financial statements.
Guarantees entered into by the parent entity in relation to debts of its subsidiaries
Other guarantees are described in Note 27.
Contingent liabilities
As at 31 December 2017 and 2016, Boart Longyear Limited did not have any contingent liabilities.
Contractual obligations
As at 31 December 2017 and 2016, Boart Longyear Limited did not have any contractual obligations.
Guarantees entered into by the parent entity in relation to debts of its subsidiaries
The Parent has entered into agreements with the Canada Revenue Agency and Ministry of Finance for the province of
Ontario to guarantee the payment of all amounts finally determined to be due and payable by its Canadian affiliates in
respect of contested tax assessments for the tax years from 2007 through 2012. See Note 11. Other guarantees are
described in Note 27.
_______________________________________________________________________________________
121
125
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
29. COMPANY SUBSIDIARIES
The Company’s percentage ownership of the principal subsidiaries are as follows:
Subsidiaries
A.C.N. 066 301 531 Pty Ltd1
Aqua Drilling & Grouting Pty Ltd.2
BL Canada DDL Inc.¹
BL Canada Holdings Inc.¹
BL DDL Holdings Pty Ltd
BL DDL II Holdings Pty Ltd
BL DDL NY Holdings Inc.
BL DDL US Holdings Inc.¹
BLI Zambia Ltd.
BLY Cote d'Ivoire S.A.
BLY EMEA UK Holdings Ltd.
BLY Gabon S.A.
BLY Ghana Limited
BLY Guinea S.A.2
BLY IP Inc.
BLY Madagascar S.A.
BLY Mali S.A.
BLY Mexico Servicios S.A. de C.V.1
BLY Senegal S.A.
BLY Sierra Leone Ltd.
Boart Longyear (Cambodia) Ltd.²
Boart Longyear (D.R.C.) S.A.
Boart Longyear (NZ) Limited
Boart Longyear (Vic) No. 1 Pty Ltd
Boart Longyear (Vic) No. 2 Pty Ltd
Boart Longyear Alberta Limited
Boart Longyear Argentina S.A.
Boart Longyear Australia Holdings Pty Limited
Boart Longyear Australia Pty Ltd
Boart Longyear Bermuda Limited¹
Boart Longyear Burkina Faso Sarl
Boart Longyear B.V.
Boart Longyear Canada
Boart Longyear Chile Limitada
Boart Longyear Colombia S.A.S.
Boart Longyear Comercializadora Limitada¹
Boart Longyear Company
Boart Longyear Consolidated Holdings, Inc.
Boart Longyear de Mexico, S.A. de C.V.
BLY Drilling Services and Products Mexico, S.A. de C.V.2
Boart Longyear Drilling Products (Wuxi) Co., Ltd.
Boart Longyear Drilling Services KZ LLP
Boart Longyear Eritrea Ltd.
Boart Longyear Global Holdco, Inc
Boart Longyear GmbH & Co., KG
Boart Longyear Holdings (Thailand) Co., Ltd.
Boart Longyear International B.V.
Boart Longyear International Holdings, Inc.
Boart Longyear Investments Pty Ltd
Boart Longyear Liberia Corporation
Boart Longyear Limitada
Boart Longyear Limited
Boart Longyear Limited
Country of
incorporation
Business
31 Dec
2017
31 Dec
2016
Australia
Dormant
Australia
Dormant
Canada
Holding Company
Canada
Holding Company
Australia
Holding Company
Australia
Holding Company
USA
Holding Company
USA
Holding Company
Zambia
Drilling Services
Ivory Coast
Drilling Services
United Kingdom
Holding Company
Gabon
Drilling Services
Ghana
Drilling Services
Guinea
Dormant
USA
Holding Company
Madagascar
Drilling Services
Mali
Drilling Services
Mexico
Dormant
Senegal
Drilling Services
Sierra Leone
Drilling Services
Drilling Services
Cambodia
Dem. Rep. of Congo Drilling Services
Drilling Services
New Zealand
Holding Company
Australia
Holding Company
Australia
Holding Company
Canada
Drilling Services
Argentina
Holding Company
Australia
Drilling Services
Australia
Holding Company
Bermuda
Drilling Services
Burkina Faso
Drilling Products
Netherlands
Drilling Products and Services
Canada
Drilling Products and Services
Chile
Drilling Services
Colombia
Chile
Drilling Products
Drilling Products and Services
USA
Holding Company
USA
Drilling Services
Mexico
Dormant
Mexico
Drilling Products and Services
China
Drilling Services
Kazakhstan
Drilling Services
Eritrea
Holding Company
USA
Drilling Products and Services
Germany
Drilling Services
Thailand
Holding Company
Netherlands
Holding Company
USA
Holding Company
Australia
Drilling Services
Liberia
Drilling Products
Brazil
Drilling Products
Ireland
Drilling Services
Thailand
-
100
-
-
100
100
100
-
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
_______________________________________________________________________________________
122
126
Boart Longyear 2017 Annual Report
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
29. COMPANY SUBSIDIARIES (CONTINUED)
Subsidiaries
Boart Longyear LLC
Boart Longyear Management Pty Ltd
Boart Longyear Manufacturing Canada Ltd.
Boart Longyear Manufacturing and Distribution Inc.
Boart Longyear Netherlands BV
Boart Longyear Poland Spolka Z.o.o.
Boart Longyear Products KZ LLP
Boart Longyear RUS
Boart Longyear S.A.C.
Boart Longyear Saudi Arabia LLC2
Boart Longyear Sole Co., Limited
Boart Longyear Suisse Sàrl
Boart Longyear Ventures Inc.
Boart Longyear Vermogensverwaltung GmbH
Boart Longyear Zambia Limited
Cooperatief Longyear Holdings UA
Dongray Industrial Limited2
Drillcorp Pty Ltd²
Geoserv Pesquisas Geologicas S.A.
Grimwood Davies Pty Ltd²
Inavel S.A.
Longyear Canada, ULC
Longyear Global Holdings, Inc.
Longyear Holdings New Zealand, Ltd2
Longyear Holdings, Inc.
Longyear South Africa (Pty) Ltd
Longyear TM, Inc.
North West Drilling Pty Limited
P.T. Boart Longyear
Patagonia Drill Mining Services S.A.
Portezuelo S.A.
Prosonic Corporation2
Resources Services Holdco, Inc
Votraint No. 1609 Pty Ltd
‘(1) This entity was merged, liquidated or dissolved in 2017.
‘(2) This entity is currently in liquidation status.
Country of
incorporation
Russia Federation
Australia
Canada
USA
Netherlands
Poland
Kazakhstan
Russia Federation
Peru
Saudi Arabia
Laos
Switzerland
Canada
Germany
Zambia
Netherlands
United Kingdom
Australia
Brazil
Australia
Uruguay
Canada
USA
New Zealand
USA
South Africa
USA
Australia
Indonesia
Argentina
Paraguay
USA
USA
Australia
Business
31 Dec
2017
31 Dec
2016
Drilling Products
Holding Company
Drilling Products
Drilling Products
Holding Company
Drilling Products and Services
Drilling Products
Drilling Services
Drilling Products and Services
Drilling Services
Drilling Services
Holding Company
Holding Company
Holding Company
Drilling Products
Holding Company
Dormant
Drilling Services
Drilling Services
Drilling Services
Drilling Services
Drilling Products
Holding Company
Dormant
Holding Company
Drilling Products and Services
Holding Company
Dormant
Drilling Services
Drilling Services
Drilling Services
Dormant
Holding Company
Drilling Services
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
_______________________________________________________________________________________
123
127
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
30. RELATED PARTY TRANSACTIONS
Transactions with key management personnel
(i)
Key management personnel compensation
Details of key management personnel compensation are disclosed in Note 9.
(ii)
Other transactions with key management personnel of the Company
None.
(iii)
During the year the Company incurred the following interest expenses associated with the relevant parties
and corresponding debt facilities:
Centerbridge Partners, L.P. and entities related to Centerbridge Partners, L.P. – Term Loans A and B of
$11.0 million and $13.2 million, respectively from 1 January 2017 to 31 December 2017.
Ares Capital, Ltd. and entities related to Ares Capital, Ltd. – Sr. Unsecured Notes, $72.8 thousand, from 1
September 2017 to 31 December 2017
Ares Capital, Ltd. and entities related to Ares Capital, Ltd. – Sr. Secured Notes, $101.4 thousand, from 1
September 2017 to 31 December 2017
Ascribe Capital, LLC and entities related to Ascribe Capital, LLC – Sr. Unsecured Notes, $202.2 thousand,
from 1 September 2017 to 31 December 2017
Ascribe Capital, LLC and entities related to Ascribe Capital, LLC – Sr. Secured Notes, $2.0 million, from 1
September 2017 to 31 December 2017
(iv)
Amounts owing (principal and accreted interest) at 31 December 2017:
- Centerbridge Partners, L.P. and entities related to Centerbridge Partners, L.P.:
$264.8 million
- Ares Capital, Ltd. and entities related to Ares Capital, Ltd.
(Sr. Unsecured/Secured Notes):
- Ascribe Capital, LLC and entities related to Ascribe Capital, LLC
(Sr. Unsecured/Secured Notes):
$17.3 million
$93.8 million
_______________________________________________________________________________________
124
128
Boart Longyear 2017 Annual Report Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017 BOART LONGYEAR LIMITED
31. CASH AND CASH EQUIVALENTS
Included in the cash balance at 31 December 2017 is $5.8 million of restricted cash and at 31 December 2016 $6.9 million
of restricted cash. The Company cannot access these cash balances until certain conditions are met. These conditions
pertain to the Company’s ABL facility as well as restrictions to secure facility leases.
32. NON-CASH TRANSACTIONS
During the current year, the Company entered into the following non-cash financing activities, which are not reflected in
the consolidated statement of cash flows:
•
•
•
$53.0 million of non-cash interest expense;
$22.9 million of capitalised interest on the Sr. Unsecured and Sr. Secured Notes; and
$196.0 million of reduction in the principal amount of the Sr. Unsecured Notes.
33. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS
The Company has adopted all of the new and revised standards and interpretations issued by the Australian Accounting
Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period.
These standards and interpretations are set forth throughout the notes to the financial statements. The adoption of each
standard individually did not have a significant impact on the Company’s financial results or consolidated statement of
financial position.
Standards and Interpretations issued not yet effective
The accounting standards and AASB Interpretations that will be applicable to the Company and may have an effect in
future reporting periods are detailed below. Apart from these standards and interpretations, management has considered
other accounting standards that will be applicable in future periods, however they have been considered insignificant to
the Company.
• AASB 15 Revenue from Contracts with Customers
The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers
contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on
the principle that revenue is recognised when control of a good or service transfers to a customer. An entity
recognises revenue in accordance with that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligation in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
The standard permits either a full restrospective or a modified restrospective approach for the adoption.
Management has not yet determined the effects of applying the new standard on the Company’s financial statements.
The standard is mandatory for financial years commencing on or after 1 January 2018.
• AASB 16 Leases
IFRS 16 was issued in January 2016. For lessees it will result in almost all leases being recognised on the balance
sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the
right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term
and low-value leases.
The accounting for lessors will not significantly change.
_______________________________________________________________________________________
125
129
Notes to the Consolidated Financial Statements
For the financial year ended 31 December 2017
BOART LONGYEAR LIMITED
33. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS (CONTINUED)
The standard will affect primarily the accounting for the Company’s operating leases. As at the reporting date, the
Company has non-cancellable operating lease commitments of $42.2 million (see note 26). The Company has not yet
assess what adjustments, if any, are necessary because of the requirement to recognise the Right-of-use asset and
lease liability including consideration of other related matters including a change in definition of the lease term and
the treatment of variable lease payments and of extension and termination options. It is therefore not yet possible to
estimate the amount of right-of-use assets and lease liabilities that will have to be recognised on adoption of the new
standard and how this may affect the Company’s profit or loss and classification of cash flows going forward.
Mandatory for financial years commencing 1 January 2019. At this stage, the Company does not intend to adopt the
standard before its effective date.
•
AASB 9 Financial Instruments
AASB 9 contains accounting requirement for financial instruments, replacing AASB 139 and will be effective 1
January 2018. The standard:
a. Contains a simpler model for classification and measurement of financial assets;
b. A single, forward looking ‘expected loss’ impairment model that will require more timely recognition of expected
credit losses;
c. A substantially reformed approach to hedge accounting including changes to hedge effectiveness testing,
treatment of hedging costs, risk components that can be hedged and disclosures.
Management has not yet determined the impact of this standard on the financial statements.
34. SUBSEQUENT EVENTS
On 26 January 2018 the Company announced a new Management Incentive Plan (MIP) that has been implemented as of
1 January 2018. The MIP has been created to give senior leaders an opportunity to share in the growth and value of Boart
Longyear’s business success. This plan is replacing the LTIP and the Retention Incentive Grant Agreements (RIGA).
The new MIP is a private equity based long-term incentive plan, which is similar in design to a stock option plan, in that it
allows participants to share in the gain of the Company’s value over time. Specifically, the MIP offers two ways to achieve
payment: 1) time vesting and 2) performance thresholds. The time vesting portion represents 33.3% of the plan, spread
over a 5-year time window. The performance portion of the MIP is based on the Company’s improvement in Total
Enterprise Value (TEV), which has been set at a baseline of $650.0 million.
There are two performance vesting criteria; one set at $900.0 million TEV, representing another 33.3% and the other set
at $1.1 billion TEV, the final 33.3%. Awards are denominated in MIP Units, which represent proportional interest in the
gain in opportunity value. These units will be shared amongst a pool of the Company’s senior leaders. Vested MIP Units
will be paid in either cash or shares at the discretion of the Board of Directors.
LTIP accruals of Share Rights and Cash Rights will cease as of 31 December 2017. Therefore, LTIP Share Rights and
Cash Rights will be calculated on a pro-rata basis on the applicable grant date through 31 December 2017. The pro-rated
LTIP cash and shares will be paid out on the LTIP Vesting Date, in compliance with the continued employment condition
provisions and other applicable provisions in the LTIP agreement. Likewise, the Target Retention Grant Value of the RIGA
will be calculated on a pro-rata basis on the date of grant through 31 December 2017. The pro-rata amount will be paid
out to RIGA holders employed on their Vesting Date set forth in their RIGA agreement (subject to the existing RIGA
provisions).
_______________________________________________________________________________________
126
130
Boart Longyear 2017 Annual Report SUPPLEMENTARY INFORMATION
ADDITIONAL INFORMATION as at 23 March 2018.
Substantial shareholders
The substantial shareholders as disclosed to the Company in substantial holders’ notices are:
Holder
Number of Ordinary Shares in
which relevant interest held
Centerbridge Partners group of Companies
(as set out in Form 604: Notice of change of interests
of substantial holder lodged 17 October 2017)
Ascribe group of Companies
(as set out in Form 604: Notice of change of interests
of substantial holder lodged 27 September 2017)
Ares Management group of Companies
(as set out in Form 604: Notice of change of interests
of substantial holder lodged 9 January 2018)
13,368,237,284
5,497,572,395
4,341,739,051
(a) Ordinary share capital
There are 26,289,795,216 fully paid ordinary shares on issue, held by 7,613 individual shareholders.
Each ordinary shareholder present at a general meeting (whether in person or by proxy or
representative) is entitled to one vote on a show of hands or, on a poll, one vote for each fully paid
ordinary share held.
(b) Share rights and share options
There are 27,828,976 unquoted share options held by 15 individual option holders. The share options do not carry
rights to vote.
There are 602,739,424 quoted share options that are publically traded on the ASX under reference “BLYO”.
The share options do not carry rights to vote.
Distribution of holders of equity securities
Range
Holders - Fully Paid
Ordinary Shares
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Total
1,111
1,490
1,048
1,917
2,047
7,613
The number of security investors holding less than a marketable parcel of 50,000
securities ($0.01 on 23/03/2018) is 4,847 and they hold 40,876,304 securities.
131
SUPPLEMENTARY INFORMATION
TOP 20 HOLDERS
No. Holder
Fully Paid
Ordinary Shares
Percent of
Issued Capital Held
1
2
3
4
5
6
7
8
9
CCP II DUTCH ACQUISITION - E2, B.V.
ASCRIBE II INVESTMENTS LLC
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CCP CREDIT SC II DUTCH ACQUISITION - E, B.V.
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
CS THIRD NOMINEES PTY LIMITED
PACIFIC CUSTODIANS PTY LTD
RUSSELL INVESTMENTS
10 HISHENK PTY LTD
11 MR JIMMY YIP
12 KEONG LIM PTY LIMITED
13 MS LINLIN LI
14 MERRILL LYNCH (AUSTRALIA) NOMINEES LIMITED
15 RIADIS HOLDINGS PTY LTD
16 SIGFRIDO - SCA SICAV - SIF
17 SNOWSIDE PTY LTD
18 CLASSIC ROOFING PTY LIMITED
19 MR MARK ANTHONY LEE
20 ALCESTIS INVESTMENT SICAV
20 DUNCORMICK - AG GLOBAL SICAV
8,833,932,993
5,490,395,109
4,689,925,565
4,069,802,685
789,138,568
447,130,623
167,711,045
61,306,706
60,733,162
50,000,000
45,665,797
41,418,211
26,000,000
23,121,131
22,000,000
18,190,630
17,460,439
17,000,000
16,872,398
14,552,504
14,552,504
33.60
20.88
17.84
15.48
3.00
1.70
0.64
0.23
0.23
0.19
0.17
0.16
0.10
0.09
0.08
0.07
0.07
0.06
0.06
0.06
0.06
TOTAL FOR TOP 20
24,916,910,070
94.78
132
Boart Longyear 2017 Annual Report Listing
Boart Longyear Limited is listed on the
Australian Securities Exchange under the
symbol ‘BLY’
Share Registry
Link Market Services Limited
Level 12, 680 George Street
Sydney, New South Wales 2000
Tel: +61 1800 781 633
Website
www.boartlongyear.com
CORPORATE INFORMATION
Headquarters
Global Headquarters
2570 West 1700 South
Salt Lake City, Utah 84104
United States of America
Tel: +1 801 972 6430
Fax: +1 801 977 3374
Registered Office
26 Butler Boulevard
Burbridge Business Park
Adelaide Airport, SA 5950
Tel: +61 8 8375 8375
Fax: +61 8 8375 8497
Auditors
Deloitte Touche Tohmatsu
Company Secretaries
Robert Closner
Phil Mackey
Shareholder Enquiries
Boart Longyear Investor Relations
2570 West 1700 South
Salt Lake City, Utah 84104
United States of America
Australia: +61 8 8375 8300
Others: +1 801 952 8343
Email: ir@boartlongyear.com