Boart Longyear Group
Annual Report 2019

Plain-text annual report

ANNUAL REPORT 2019 CONTENTS 2019 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 I II IV 1 3 5 19 33 37 41 46 47 Supplementary Information Corporate Information 100 BC CORPORATE GOVERNANCE STATEMENT Our Corporate Governance Statement may be found at www.boartlongyear.com/corporate-governance BOART LONGYEAR 2019 ANNUAL REPORT BOART LONGYEAR 2018 ANNUAL REPORT WHO WE ARE Established in 1890, Boart Longyear is celebrating its 130th year as the world’s leading provider of drilling services, orebody-data-collection technology, and innovative, safe and productivity-driven drilling equipment. With its main focus in mining and exploration activities spanning a wide range of commodities, including copper, gold, nickel, zinc, uranium, and other metals and minerals, the company also holds a substantial presence in the energy, oil sands exploration, and environmental sectors. The Global Drilling Services division operates for a diverse mining customer base with drilling methods including diamond coring exploration, reverse circulation, large diameter rotary, mine dewatering, water supply drilling, pump services, production, and sonic drilling services. The Geological Data Services division utilizes innovative scanning technology and down-hole instrumentation tools to capture detailed geological data from drilled core and chip samples. This valuable orebody knowledge gives mining companies the ability to make timely decisions for more efficient exploration activities. The Global Products division offers sophisticated research and development and holds hundreds of patented designs to manufacture, market, and service reliable drill rigs, innovative drill string products, rugged performance tooling, durable drilling consumables, and quality parts for customers worldwide. *EBITDA, Adjusted EBITDA and Adjusted EBIT are non IFRS measures and are used internally by management to assess the performance of the business. Cash from Operations excludes interest and tax. Copyright © 2020 Boart Longyear. All rights reserved. 2019 OVERVIEW 2019 OVERVIEW 2019 2018 2017 Revenue US$745m Adjusted Gross Margin US$144m Adjusted EBITDA US$87m Gross Margin US$139m EBITDA US$67m Net Profit After Tax US$-45m 745 770 739 139 144 131 142 67 87 54 81 -45 -44 111 113 -37 43 -150 Cash from Operations US$77m Number of Employees 5,194 Safety TCIR 1.37 Safety LTIR 0.02 77 5,194 24 -40 4,637 4,604 1.37 1.90 1.62 0.02 0.10 0.22 Drilling Services Revenue US$516m Drilling Services EBITDA US$90m Products Revenue US$229m Products EBITDA US$31m 516 534 501 90 83 69 229 237 239 31 31 11 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% 23% 20% 16% 7% 5% 3% USA Asia Pacific Canada EMEA Latin America 27% 23% 19% 18% 13% Development (Near Mine/Brownfield) Production (In-Pit) 58% 23% Exploration (Greenfield) 12% Non-Mining 7% Gold Copper Non-Mining Water Other Metals Energy Nickel Iron Other 63% 18% 7% 5% 3% 2% 1% 1% I BOART LONGYEAR 2019 ANNUAL REPORTDear Shareholders, It’s an honour to be a part of the Board of Directors for Boart Longyear, and I am pleased to share with you the Company’s financial results for year ended 2019. Despite revenue being up only 1.3% over 2018, we saw an 8% increase in adjusted EBITDA. With a weaker second half, management remained focused on winning new customers while reducing operating costs to increase margins and profitability. Jeff Olsen, Boart Longyear’s CEO, will cover more about the financials in the following pages. 2019 definitely had its challenges resulting in a material decline in global demand through the second half of the year. We attribute most of this decline to increased uncertainty as US/ China trade agreements were renegotiated, as well as several large mergers and acquisitions within our key customer base. These transitions delayed mineral exploration spend and caused a notable reduction in overall market activity. The silver lining to the merger and acquisition activity is that we anticipate there will be medium to long-term benefits to Boart Longyear with demand improving as major and intermediate mining houses expand their exploration investments. Key industry metrics around commodity price, reserve replacement ratios, and improved customer balance sheets, all indicate the need to reinvest in exploration activities. Gold prices continue to strengthen, offsetting some of the weaker commodities. This is encouraging, as gold exploration projects for the Company make up approximately 63% of the Company’s revenue. S&P Global recently reported, “In spite of the decline of drilling activity, grassroots drilling for gold and copper increased in 2019, highlighting a shift in explorers’ focus.” (S&P Global Market Intelligence, World Exploration Trends 2019, March 2020) our customers, employees, and all stakeholders in order to best manage the situation while ensuring the future viability of the company. In spite of current market conditions, the Company’s initiatives are bearing fruit. We continue to invest in advanced drilling techniques and promote the benefits of the Company’s data collection innovations and instrumentation to assist mining companies with their exploration decisions. The coming years are critical in exploration and we are streamlining the business to be agile and lean for what lies ahead. We remain cash positive and are on a very good course to better margins so that we can best address our maturities and overall debt. We have an experienced board of directors with vast knowledge of the mining industry’s trends, cycles, and needed improvements to carry us through these tough times and on to increased profitability. I’ve felt welcome and feel privileged to work with directors Jeff Olsen (CEO), Tye Burt, Jason Ireland, James Kern, Rubin McDougal, Robert Smith, and Conor Tochlin. Together, our board and dedicated Company management team continue to work diligently to bring greater value to the Boart Longyear brand and to your investment. We are entering new territory, as government and industry interventions have been enacted to prevent the spread of COVID-19. The full duration and implications of the COVID-19 outbreak remain to be seen. Material challenges have affected our customers, and the business impacts will likely vary by region depending on each local situation. We continue to work with Sincerely, Kevin McArthur Chairman II II BOART LONGYEAR 2019 ANNUAL REPORTT R O P E R S ’ N A M R A H C I BOART LONGYEAR 2019 ANNUAL REPORT III III BOART LONGYEAR 2019 ANNUAL REPORT T R O P E R S ’ O E C Dear Shareholders, At Boart Longyear, we continue our commitment to improving our financial, operating, and safety performance. This increased emphasis on these important areas in turn provides greater value to our shareholders. I’m pleased to report our team has worked diligently to deliver on these commitments during 2019 as will be shown in this annual report. Each of our divisions—Drilling Services, Drilling Products, and Geological Data Services (GDS)—showed stable growth during 2019 despite delays in exploration spend seen in the latter part of the year. Drilling activity remains in demand but was marginally down due to delays in customer decisions impacted by large mergers in the mining sector, and a continued lack of funding for junior mining companies in certain jurisdictions. The positive news is that we were able to increase Adjusted EBITDA and cash flow from Operations despite lower revenue than 2018. Our Adjusted EBITDA increased IV IV BOART LONGYEAR 2019 ANNUAL REPORT BOART LONGYEAR 2019 ANNUAL REPORT from US$81M to US$87M, as a result of focusing on a number of operational initiatives to reduce cost, deplete older inventory, increase workflow efficiency, and improve margins, while continuing to supply competitive pricing to the marketplace. Variations due to the adoption of the AASB 16 accounting standard during 2019 was also considered. However, overall Revenues for the year closed lower compared to the prior year as they were impacted by foreign exchange currency movements, discontinued operations and higher 2018 sales from initiatives to reduce slow moving inventory. Net Profit After Tax closed at a loss of $45M which was $1M lower over the same period of 2018 due to impairment of intangibles of $9M and additional tax expense of $16M. We experienced a notable improvement in cash from operations through December of $31M ($35M generated through December 2019 compared to $4M through December 2018). As of 31 December 2019, Liquidity was at $45M, which was comprised of cash balances totaling $20M and a further $25M of availability under the Company’s asset-based loan facility. While we have been fortunate through the first few months of the year to see increasing demand over what the business witnessed across the back half of 2019, we are monitoring the impact of COVID-19. Before COVID-19 we were anticipating a strong commercial pipeline for 2020, but the current market conditions are fluid. We are monitoring the global impact of COVID-19 on a region-by-region basis and believe that there will be negative impacts, which may be significant. On a very positive note, Boart Longyear achieved a tremendous safety milestone in 2019 with the accomplishment of over 14.5 million man-hours worked with no Lost Time Injuries (LTI). This included more than 16 consecutive months of completely LTI-free work—a record running from mid-2018 through late 2019. Respected by the industry, excellence in safety is an integral part of Company culture and is the expected standard for drilling and mining customers. The Company continues to place safety as a high priority in 2020 and promote its impressive track record which continues to create opportunities for our drilling services and products. With a renewed emphasis on sustainable solutions and streamlining our operations for greater productivity, our executive team, board, and employees are committed to further improving efficiencies to deliver more value to our Customers and to our Shareholders. Yours sincerely, Jeff Olsen President and CEO V V BOART LONGYEAR 2019 ANNUAL REPORT T R O P E R L A C N A N I F I BOART LONGYEAR LIMITED A.B.N. 49 123 052 728 ANNUAL FINANCIAL REPORT YEAR ENDED 31 DECEMBER 2019 1 1 BOART LONGYEAR 2019 ANNUAL REPORT BOART LONGYEAR 2019 ANNUAL REPORT CONTENTS DIRECTORS’ REPORT REVIEW OF OPERATIONS REMUNERATION REPORT BOARD OF DIRECTORS EXECUTIVE MANAGEMENT TEAM AUDITOR’S INDEPENDENCE DECLARATION INDEPENDENT AUDITOR’S REPORT DIRECTORS’ DECLARATION CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 3 5 19 33 37 38 41 46 47 48 49 50 52 100 BOART LONGYEAR 2019 ANNUAL REPORT 2 2 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 BOART LONGYEAR LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT The Directors present their report together with the financial report of Boart Longyear Limited (the “Parent”) and its controlled entities (collectively the “Company”) for the financial year ended 31 December 2019 (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 Kevin McArthur 1 Tye Burt 2 Kyle Cruz Executive Chairman (retired 1 September 2019) Non-executive Chairman (appointed effective 1 September 2019) Non-executive Director (appointed effective 23 August 2019) Non-executive Director (retired 31 December 2019) Jason Ireland Non-executive Director James Kern Gretchen McClain Jeffrey Olsen Robert Smith Conor Tochilin Richard Wallman Eric Waxman Non-executive Director Non-executive Director (retired 23 August 2019) Executive Director Non-executive Director Non-executive Director (appointed effective 17 January 2020) Non-executive Director Non-executive Director (retired 20 May 2019) (1) Kevin McArthur replaced Marcus Randolph as Chairman of the Board on 1 September 2019 (2) Tye Burt replaced Gretchen McClain as Non-executive Director on 23 August 2019 For a summary of experience and qualifications for each Director, see the Board of Directors section on page 33 of this Report. COMPANY SECRETARIES Robert Closner Philip Mackey PRINCIPAL ACTIVITIES 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 insignia of the world’s leading mining companies. With more than 129 years of drilling expertise, the Company believes its and brand represent the gold standard in the global mineral drilling industry. __________________________________________________________________________________________ 3 3 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 18 June 2019 Ares Management Group of Companies ceased being a substantial shareholder of the Company. On 25 July 2019 it was announced that the Company has agreed on commercial terms with its financiers to increase and extend its Asset Back Lending Revolver and Backstop Term Loan Facility. The amended facilities provide the Company with (i) access to additional liquidity on the ABL which is provided by PNC Bank and (ii) extension of existing facility maturities from 2020 to 2022. On 30 October 2019 the Company completed a consolidation of the issued capital on a basis that every 300 shares be consolidated into 1 share. Refer to Footnote 22 for the number of warrants on issue and the impact of the share consolidation. EVENTS SUBSEQUENT TO REPORTING DATE No subsequent events. DIVIDENDS No dividends have been paid during the financial year. __________________________________________________________________________________________ 4 4 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 REVIEW OF OPERATIONS 1 1. Safety Performance, Market Conditions and Strategies 1.1 Overview 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, which includes our Geological Data Services. Geological Data Services is a rapidly growing segment of Boart Longyear that provides industry leading digital technologies to aid in understanding drilling and ore body properties in real time. 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 continued focus on areas of unique competitive advantage including safety performance, productivity enhancements and operating improvements in our Global Drilling Services division, to meet the needs of our customer base. Similarly, technology and product innovation are central to the future growth of our Global Products division, and we continue to pursue product improvements to meet customer needs. Our successes include the LF160 surface coring drill paired with our Freedom Loader which has set a new benchmark in productivity and hands-free rod handling. Launched in the second half of 2017, our patented Longyear™ coloured diamond bits continue to show improved productivity by lasting longer and cutting faster. Commercial launch of the new XQ™ coring rod continues globally, featuring a greater depth capacity than the RQ™ rod, and faster, easier joint make/breaks for higher productivity. TruCore™ core orientation tools continue to expand geographically and are available globally. The TruShot™ magnetic survey instrument, the second in a future suite of tools, was launched in the first half of 2018 and we are now using our TruScanTM geological sample field screening technology at mine sites with numerous mining customers. These 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. As at 31 December 2019, cash flows from operating activities was $35.3 million. This represents an improvement of $31.6 million over 2018 cash flows from operating activities of $3.7 million. This significant improvement was achieved through continued discipline on cost control and capital management, focused cost reductions, productivity enhancements and working capital management. 1.2 Safety Performance Boart Longyear strives to continuously improve safety performance each year. The Company is driving culture and consistency across the globe through improved systems and programs designed to focus on controlling critical risks and enhancing our competency training programs. For the year ending 31 December 2019, the Company’s performance on key indicators includes a Total Case Incident Rate (TCIR) of 1.37 and Lost Time Injury Rate (LTIR) of 0.02, compared to corresponding rates of 1.90 and 0.10 in 2018. Both TCIR and LTIR are rates calculated based on 200,000 hours worked. Our employees worked over 14 million hours before recording one lost time injury in Q4 2019. Leadership accountability and ownership of safety has led to favourable trends in our injury rates. 2019 is the lowest LTIR in our Company recorded history. The majority of recordable injuries are low severity and are made up of sprain or strain injuries or lacerations to hands. The Company’s injury rate improvements made this year are primarily due to the focus shift from lagging indicators to proactive leading indicator programs. Boart Longyear’s key leading indicator programs focused on critical control verifications and inspections, EHS employee training (BITS), non-conformance corrective action monitoring, and vehicle driver performance – monitored with a fleet of In-Vehicle Monitoring Systems (“IVMS”). The 2020 KPI programs will increase the focus on Critical Risk Management. These programs are measured and reviewed monthly by Boart Longyear’s Executive Committee who drive overall performance. These systems reflect our ongoing priority to identify and mitigate significant and critical risks. (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 5 5 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 1.3 Impact of Market Conditions Market conditions in 2019 were mixed. Whilst overall, the macro trends across the industry have continued to improve as mining companies look to replenish their depleted ore reserves, the spate of M&A activity across several major customers impacted the short-term exploration and drilling activity during the second half of 2019. In the longer term, however, we believe that this M&A activity will result in greater drilling activity across the sector as the new owners look to better understand and expand the newly acquired assets. During 2019, drill rig utilisation declined slightly versus prior year primarily due to lower volumes in the second half across global operations. The Company continues to push for improved terms and conditions in each contract as they mature. We added new exploration drill rigs to the Drilling Services fleet around the world to meet the demand of expanding exploration budgets and we continue to evaluate opportunities where we can help our customers meet their exploration goals, utilising the latest technology improvements that support both safety and productivity enhancements. The Company reported a statutory loss for the period ended 31 December 2019 of $45.4 million (2018: $43.5 million loss) and continues to focus on cost control and productivity improvements. The year ended in a loss, despite reporting a small profit of $2.3 million in June 2019, as a result of softer market conditions in the second half of the year. 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, achieving and maintaining sustainable EBITDA margins, improving returns on capital through disciplined variable and fixed cost management and capital spending programs, and maintaining a rigorous focus on working capital, particularly inventory and accounts receivable. We are committed to driving long-term shareholder value by executing on several initiatives to improve our commercial practices in both our divisions and safety, productivity and profitability in our Global Drilling Services division, including through: focusing on operational efficiencies and productivity at the drill rig level; 1. 2. optimising the commercial organisation to drive value through contracting and pricing processes; 3. 4. controlling SG&A and other overhead related costs. leveraging the supply chain function across the business; and 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. Ultimately, our goal is to help our customers build their ore body knowledge. Through our focus on operational excellence, we will address the risks and challenges of the mining industry cycle while also preserving the significant upside that we may realise in our operations as market conditions improve, combined with a significantly improved cost structure and operating performance. We are also capitalising on longer-term growth opportunities through investment in technologies that will broaden our customer offerings. __________________________________________________________________________________________ 6 6 6 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 2. Financial and Operating Highlights For the year ended 31 December 2019 2018 US$ Millions US$ Millions $ Change % Change Key financial data Revenue NPAT(1) EBITDA(2) Adjusted EBITDA(2) Operating profit (loss) Cash provided by operations Net cash flows generated operating activities Capital expenditures (accrual) Capital expenditures (cash) Weighted Average number of ordinary shares (3) (4) (4) 745.0 (45.4) 66.5 87.3 27.2 77.0 35.3 52.3 50.7 87.7 770.2 (43.5) 54.1 80.6 17.6 24.1 3.7 40.9 39.1 82.2 (25.2) (1.9) 12.4 6.7 9.6 52.9 31.6 11.4 11.6 5.5 Earnings per share (basic and diluted) (51.8) cents (52.9) cents 1.1 cents Average BLY rig utilisation Average Fleet size 41% 691 46% 676 -5% 15 -3.3% -4.4% 22.9% 8.3% 54.5% 219.5% 854.1% 27.9% 29.7% 6.7% 2.1% -10.9% 2.2% (1) NPAT is 'Net profit after tax'. (2) EBITDA is 'Earnings before interest, tax, depreciation and amortisation'. Adjusted EBITDA is 'Earnings before interest, tax, depreciation and amortisation and before major restructuring initiatives, impairments of assets, and other significant and non-recurring transactions outside the ordinary course of business'. These items are identified by management as not representing the underlying performance of the business. See reconciliation in section 3.3 'Significant Items'. (3) Reverse stock split of 300 to 1 occurred on 30 October 2019. (4) The adoption of AASB 16 improves EBITDA and Adjusted EBITDA in 2019 by $9.2 million relative to 2018. 3. Discussion and Analysis of Operational Results and the Income Statement 3.1 Revenue Revenue for the year ended 31 December 2019 of $745.0 million decreased by 3.3%, or $25.2 million, compared to revenue for the prior year ended 31 December 2018 of $770.2 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 2019 was lower than 2018 because the second half of 2019 saw several significant mergers and acquisitions within the mining industry, which in turn delayed mineral exploration projects and reduced overall market activity. __________________________________________________________________________________________ 7 7 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 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 2019 As Reported Significant Items Adjusted Balance As Reported 2018 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 profit (loss) 745.0 (606.3) 138.7 6.8 (83.0) (20.3) - (15.0) 27.2 - 5.2 5.2 - 15.6 - (20.8) - - 745.0 (601.1) 143.9 6.8 (67.4) (20.3) (20.8) (15.0) 27.2 770.2 (639.1) 131.1 10.4 (80.6) (22.1) - (21.2) 17.6 - 11.2 11.2 - 14.5 0.8 (26.5) - - 770.2 (627.9) 142.3 10.4 (66.1) (21.3) (26.5) (21.2) 17.6 Gross margin in 2019 improved to 19.3% compared to 18.5% in 2018. The higher margin is related to cost savings from key improvement initiatives as well as improved margins on fixed costs. 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 $95.9 million in 2019 was 2.3% less than 2018 of $98.2 million. The lower cost structure is driven by lower expenses as a result of continued emphasis on cost savings and delivery of key value initiatives. __________________________________________________________________________________________ 8 8 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 3.3 Significant Items During the years ended 31 December 2019 and 2018, the Company incurred the following restructuring expense, recapitalisation costs and impairment charges: US$ Millions EBITDA(1) Impairments Property, plant and equipment Intangible assets Inventories Employee and related costs Legal provisions Other restructuring expenses Onerous lease Total of significant and non-recurring items Adjusted EBITDA(1) For the year ended 31 December 2019 2018 US$ Millions US$ Millions 66.5 (2) 0.2 9.0 0.8 1.7 2.6 6.2 0.3 20.8 87.3 (2) 54.1 0.1 - 10.9 2.6 - 12.9 - 26.5 80.6 (1) EBITDA is 'Earnings before interest, tax, depreciation and amortisation'. Adjusted EBITDA is 'Earnings before interest, tax, depreciation and amortisation and before major restructuring initiatives, impairments of assets, and other significant and non- recurring transactions outside the ordinary course of business'. These items are identified by management as not representing the underlying performance of the business. (2) The adoption of AASB 16 improves EBITDA and Adjusted EBITDA in 2019 by $9.2 million relative to 2018. __________________________________________________________________________________________ 9 9 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 4. Discussion and Analysis of Cash Flow Cash provided by operations Net cash flows provided by operating activities Net cash flows used in investing activities Net cash flows (used in) provided by financing activities 4.1 Cash Flow used in Operating Activities For the year ended 31 December 2019 2018 US$ Millions US$ Millions $ Change % Change 77.0 35.3 (44.9) (11.0) 24.1 3.7 (25.4) 11.6 52.9 31.6 (19.5) (22.6) 219.5% 854.1% -76.8% -194.8% Cash flow from operating activities for the year ended 31 December 2019 was $35.3 million, which is an improvement of $31.6 million compared to 2018 of $3.7 million. The primary reason for the improvement in cash flows from operating activities is due to working capital changes. We have invested $50.7 million in capital equipment and research and development to support existing operations during 2019, which is higher than the comparable prior period (2018: $39.1 million). Of the 2019 amount, approximately $42.9 million was spent on activities relating to refurbishing the rig fleet and investments in other equipment, $3.8 million was spent on growth equipment in the Geological Data Services business and $4.0 million was spent on product development and intangible assets, including engineering, Globaltech and patent maintenance. The 2019 capital expenditures have been partially offset by proceeds from the sale of property, plant and equipment of $5.8 million (2018: $13.7 million). The decrease in cash flows provided by financing activities is primarily due to higher repayment of borrowings and lease payments from the adoption of AASB 16. 5. Discussion of the Balance Sheet The net liabilities of the Company increased by $49.9 million, to $364.8 million as at 31 December 2019, compared to $314.9 million as at 31 December 2018. This increase results primarily from the global comprehensive loss for the year of $49.9 million. Total assets of $642.0 million were $4.8 million higher than 2018 of $637.2 million primarily as a result of higher property, plant and equipment from the adoption of AASB 16 offset by decreases in intangible assets, tax assets and cash. Total liabilities increased by $54.7 million to $1.0 billion compared to $952.0 million in 2018. This is primarily driven by accreted interest for the period. __________________________________________________________________________________________ 10 10 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 Liquidity and Debt Facilities The Company’s debt is comprised of the following instruments: Description Principal Outstanding as at 31 December 2019 (millions) Accreted Interest as at 31 December 2019 (millions) Interest Rate Scheduled Maturity Security Senior Secured Notes $217.0 $36.6 10%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 $159.97 $13.4 8%3 December 2022 Same as Senior Secured Notes ABL8 $34.91 Nil Variable4 23 July 2022 Term Loan – Tranche A $132.57 $11.1 8%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 ABL8 $45.0 $7.2 11%5 23 October 20225 Same as ABL but including any real property required to be pledged as security for the Senior Secured Notes Senior Unsecured Notes $88.9 $3.2 1.5%6 December 2022 Unsecured (1) (2) (3) (4) (5) (6) (7) (8) $5.6 million in letters of credit were issued in addition to the $34.9 million borrowings that were outstanding. Interest in cash at a reduced interest rate of 10% per annum from 1 January 2019. Interest is 8% payable-in-kind. Based on LIBOR + margin (grid-based margin is currently 3.25%). Interest is payable-in-kind at 11% at Company’s election or 10% cash. Maturity Date is 23 October 2022 or 90 days after the ABL due date. Interest is 1.5% payable-in-kind at Company’s election until maturity. The secured amounts under Term Loan A and Term Loan B are capped at the base principal amounts as agreed in the 2017 recapitalisation amendments. In July 2019 the Company amended terms to provide the Company additional liquidity and extend maturities from July 2020 to July 2022 and from October 2020 to October 2022 for the ABL and Backstop facilities, respectively. See Note 19 for more information. __________________________________________________________________________________________ 11 11 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 6. Review of Segment Operations The following table shows our third-party revenue and revenue from inter-segment sales by our Global Drilling Services division. Segment profit represents earnings before interest and taxes. 2019 US$ Millions Segment Revenue 2018 Segment Profit 2019 2018 US$ Millions US$ Millions US$ Millions Drilling Services 516.3 533.6 63.1 57.1 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 228.7 56.9 236.6 56.0 285.6 (56.9) 745.0 292.6 24.5 23.5 (56.0) 770.2 87.6 80.6 (1) Transactions between segments are carried out at arm’s length and are eliminated on consolidation. __________________________________________________________________________________________ 12 12 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 6.1 Review of Segment Operations - Global Drilling Services For the year ended 31 December 2019 2018 US$ Millions US$ Millions $ Change % Change 516.3 533.6 (17.3) -3.2% 405.9 25.9 431.8 83.6% 76.9 14.9% 7.6 13.1 90.3 284 691 423.9 23.6 447.5 83.9% 77.6 14.5% 8.6 17.3 82.9 310 676 (18.0) 2.3 (15.7) -0.3% (0.7) 0.4% (1.0) (4.2) 7.4 (26) 15 -4.2% 9.7% -3.5% -0.4% -0.9% 2.8% -11.6% -24.3% 8.9% -8.4% 2.2% 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 Other Metrics Average # of Operating Drill Rigs Average # of Drill rigs Safety The Global Drilling Services division’s TCIR for 2019 was 1.51, compared to 2.04 for the comparable period in 2018. The LTIR for 2019 was 0.02, compared to 0.09 for the comparable period in 2018. Our focus is on quality Critical Control Verifications and Inspections; applying meaningful corrective actions globally and in a timely manner; increasing vehicle monitoring and improving driver behaviors; increasing supervisory and field level employees’ competencies through Competency Training Programs; reinforcing our EHST fundamentals via regular BITS training specific to regional risk profiles; and improving EHST Internal Audit protocols. Revenue Global Drilling Services’ revenue in 2019 was $516.3 million, down 3.2% from $533.6 million in 2018. The revenue decrease was driven by volume, primarily due to existing customers cancelling or significantly reducing their programs. The reductions were not specific to a particular region, but several of the decreases were likely the result of M&A activity. In terms of drilling discipline, surface coring and reverse circulation were down year over year primarily due to the reasons listed above. The other disciplines: underground core, percussive, sonic, and water well were relatively flat year over year. Approximately 85% of Global Drilling Services’ revenue for 2019 was derived from major mining companies, including Barrick, Newmont, BHP, Rio Tinto, Goldfields, Kinross, and Freeport. Our top 10 Global Drilling Services customers represented approximately 56% of the division’s revenue in 2019, with no single contract contributing more than 10% of our consolidated revenue. Margins With revenues decreasing from $533.6 million in 2018 to $516.3 million in 2019, Global Drilling Services also saw a corresponding decrease in contribution margin. The 2019 contribution margin was $76.9 million compared to $77.6 million in 2018, a decrease of 0.9%. Throughout 2019 the business continued to focus on improving meters per shift, non-billable hours and revenue per shift while reducing variable and fixed costs to maintain a flat cost structure from a percent of revenue. ______________________________________________________________________________________ 13 13 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 6.2 Review of Segment Operations - Global Products 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 Other Metrics Manufacturing plants Average backlog Inventories 1 For the year ended 31 December 2019 2018 US$ Millions US$ Millions $ Change % Change 228.7 236.6 170.9 0.9 3.7 175.5 76.7% 33.6 14.7% 16.2 14.7 31.0 6 29.5 163.1 175.4 0.3 4.7 180.4 76.2% 39.3 16.6% 16.9 14.3 30.7 6 27.7 165.4 (7.9) (4.5) 0.6 (1.0) (4.9) 0.5% (5.7) -1.9% (0.7) 0.4 0.3 - 1.8 (2.3) -3.3% -2.6% 200.0% -21.3% -2.7% 0.7% -14.5% -11.4% -4.1% 2.8% 1.0% 0.0% 6.5% -1.4% (1) Represents total Company inventories including Global Drilling Services, Global Products and Geological Data Services. Safety In 2019, the TCIR for the Global Products and Manufacturing combined segment was 0.69 recordable incidents per 200,000 hours worked compared to 1.60 in 2018. The LTIR was 0.00, compared to 0.40 for 2018. As with the Global Drilling Services division, these results reflect the positive impact the Company’s continued focus on Leading Indicator programs have had on injury rates. Revenue Revenue of $228.7 million in 2019 is 3.3% lower than 2018 revenue of $236.6 million for the Global Products division. Revenues generated from coring tooling and production tooling were slightly weaker in 2019 relative to the prior period. Margins While revenue for Global Products was down compared to 2018, EBITDA for the year ended 31 December 2019 increased by $0.3 million or 1.0%, primarily driven by Geological Data Services patent defense and ramp up costs, and Products volume decrease, offset by favourable flow through of disciplined cost control in both variable and fixed SG&A and material cost decreases. We continue to operate our manufacturing facilities at lean levels, only producing what is required to meet market demand. Backlog At 31 December 2019, Global Products had a backlog of product orders valued at $35.9 million. This compares to $30.0 million at 31 December 2018. Average backlog during the second half of 2019 was $28.4 million compared to $30.6 million during the first half of 2019. The increase in our backlog year over year – which we define as product orders we believe to be firm – was driven by an increase in demand for consumables. It should be noted that an order shipped within the same month the order is received does not show up in backlog. Also, there is no certainty that orders in our backlog will result in actual sales at the times or in the amounts ordered. ______________________________________________________________________________________ 14 14 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 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 2019, we had 399 issued patents, 452 registered trademarks, 155 pending patent applications and 15 pending trademark applications. One of the most significant products for which we have obtained patent protection during 2018 is our XQ™ wireline coring rod. The XQ™ wireline coring rods feature self-aligning double start threads, rod joints that engage smoothly without wedging or jamming, and exclusive heat treatments to provide stronger, longer lasting rods. 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 amongst our divisions 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 reliability. Prior to their introduction, new products are subjected to extensive testing in various environments, again with assistance from our Global Drilling Services network. New product development efforts remain focused on product changes that continue to drive increased safety and productivity, so customers see real added value regardless of the business environment. Our recent successes include the LF™160 surface coring drill paired with our Freedom™ Loader which has set a new benchmark in productivity and hands-free rod handling. Launched in the second half of 2017, our patented Longyear™ diamond bits continue to show improved productivity by lasting longer and cutting faster. Commercial launch of the new XQ™ coring rod continues globally, featuring a greater depth capacity than the RQ™ rod, and faster, easier joint make/breaks for higher productivity. The easier joint make/breaks also enables hands-free rod handlers to be used successfully with XQ™ due to our patented thread entry design. Under our Geological Data Services business, TruCore™ core orientation tools continue to expand geographically and are available globally. The TruShot™ magnetic survey technology, the second in a future suite of tools, was launched in 2018 and is available globally. Our TruScanTM matrix calibrated XRF and Photo Sample Scanning Technology is currently being used at several locations globally with long term 24/7 utilisation producing results that are being used for real time decision making by the mining client. TruScanTM continues to spread its footprint globally with units deployed in Australia as well as North and South America. TruScanTM improvements in 2019 include chip scanning ability, calibration enhancements, and a quality data environment to assist our clients in targeting ore bodies. These technologies are part of our strategy to provide real-time subsurface resource defining information to mining companies. Inventories Cash continued to be generated from inventory in 2019 due to continued management of demand in our supply chain organisation and continuous efforts to reduce excess inventory. There was a continued push to scrap product that cannot be utilised in the business. The Supply Chain teams scrapped $4.2 million of product that will result in decreased operating expenses and carrying costs. The Company also generated $8.6 million of cash related to third-party sales and consumption in our Global Drilling Services division. As a result of efforts to generate cash and scrap old product, days on hand improved slightly by two days in 2019. There will be ongoing focus in 2020 to increase inventory turnover and improve overall inventory health. The Company also continues to monitor and set appropriate re-order point levels throughout the regions to support the business with leaner inventory levels. ______________________________________________________________________________________ 15 15 BOART LONGYEAR 2019 ANNUAL REPORTBoart Longyear Limited Annual Report 2019 7. Outlook 7.1 Our 2020 Priorities 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 critical risks, continually seeking ways to mitigate those risks and ensuring that, when significant incidents 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. The areas of focus for safety for 2020 will be the continuous improvement of the EHST Lead Indicator KPI’s which include: Critical Risk Management – Critical Control Verifications and Inspections, BITS assigned training modules, In-Vehicle Monitoring System focused on Driver Behavior Improvements, and Corrective Action closure metrics. A Competency Training Program will be implemented to focus on developing and documenting our entry level employee’s abilities to perform tasks safely. 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. Specifically, our goal is to increase our business with our existing customers and find new ways to partner with existing and potential new customers to grow our business. 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 2020, with the goal to continue to be cash positive, through careful management of liquidity and costs. Ongoing improvement in cash generation in 2020 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. 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 2020 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 by embedding a cash return on investment metric throughout the organisation. 7.2 Outlook and Future Developments We are not providing an outlook for 2020 revenue or EBITDA. However, a stronger industry outlook, in combination with our productivity and commercial initiatives are making a positive impact. We anticipate seeing ongoing gains from those identified initiatives which we continue to actively manage. The mining industry is cyclical and 2019 continued to show signs of 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 cash and balance sheet strength of our key customers; 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; and growing attractiveness of the commodities / mining sector as an investment asset class. ______________________________________________________________________________________ 16 16 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 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 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. In prior years 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 current 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 over the past five years, but our future operating results, financial condition and competitiveness 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 2019, our net debt was $764.1 million, with $784.3 million in gross debt and $20.2 million of cash on hand. The Company also has an additional $24.5 million of liquidity available through the Asset-Based Loan (“ABL”) facility. The instruments comprising the Company’s debt and their terms are set out in detail in Note 19 of the financial statements. ______________________________________________________________________________________ 17 17 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 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 10 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 counsel. 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, human rights and modern slavery, 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. Climate Related Risks. The potential impacts of climate change may affect the execution and performance of business strategies as well as the Company’s ability to operate and provide goods and services globally. The Company is currently evaluating the potential impacts of climate change on our strategies, customers and markets in which we operate. However, an assessment of these impacts on global markets, regulatory policies, and technologies are not clear due to the wide range of issues and potential outcomes. Information and Technology Risk: The legal, regulatory and contractual environment surrounding information security, privacy and fraud is constantly evolving and companies that collect and retain information are under increasing attack by cyber- criminals around the world. We are dependent on information technology networks and systems, including the Internet, to process, transmit and store electronic information and, in the normal course of our business, we collect and retain certain information, including financial information and personally identifiable information, from and pertaining to our customers, partners, vendors, and employees. The protection of data is important to us, and we have information security policies to protect our information and information systems. However, the policies and security measures that we put in place could prove to be inadequate and cannot guarantee security, and our information technology infrastructure may be vulnerable to criminal cyber-attacks or data security incidents due to employee negligence, error, malfeasance, or other vulnerabilities. Cyber security attacks are increasingly sophisticated, change frequently, and often go undetected until after an attack has been launched. We may fail to identify these new and complex methods of attack or fail to invest sufficient resources in security measures. We have and will continue to experience cyber-attacks, and we cannot be certain that advances in cyber- capabilities or other developments will not compromise or breach the technology protecting our networks. Public Health Risk: From time to time, various diseases such as the avian flu and recent COVID-19 outbreak, have spread across the world. The Company has global manufacturing facilities, employees, suppliers and customers, and if a disease spreads sufficiently to cause a pandemic (or to cause the fear of a pandemic to rise) or governments regulate or restrict the flow of labour or products, the Company's operations, employees, suppliers, and customers could be severely impacted. Such a pandemic could also have an adverse impact on consumer demand and commodity prices. Any material changes in the Company's supply or demand for products could materially and adversely affect the Company's results of operations and liquidity. 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. ______________________________________________________________________________________ 18 18 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 REMUNERATION REPORT This remuneration report has been prepared in accordance with section 300A of the Australian Corporations Act 2001 and summarises the arrangements in place for the remuneration of directors, Key Management Personnel (“KMP”) and other employees of Boart Longyear for the period from 1 January 2019 to 31 December 2019. Changes in 2019 In late 2018 Brendan Ryan transitioned to the role of Chief Business Development Officer. Additionally, Miguel Desdin replaced Mr Ryan as Chief Financial Officer on 7 January 2019. This change was carefully designed to support the key strategic, financial, growth and human resources objectives of the Company. 1.1 2019 REMUNERATION OVERVIEW The principles guiding our decisions about executive remuneration at Boart Longyear are: • Performance Driven: foster a culture that is aligned with Boart Longyear’s strategic objectives and performance. • Alignment: remuneration should be aligned with shareholder’ interests of creating shareholder value. • The Boart Longyear Culture: drive leadership performance and behaviors to create a culture that promotes safety, diversity, retention and employee satisfaction. • Remuneration should be market based for the business context, geography and the industry. This Report sets out the remuneration arrangements in place for the 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. 1.2 DIRECTORS AND SENIOR EXECUTIVES Directors and senior executives who were KMP during the year ended 31 December 2019 were: Directors Position Senior Executives Position Marcus Randolph Executive Chairman (retired 1 September 2019) Jeffrey Olsen President and Chief Executive Officer Kevin McArthur Non-executive Chairman (appointed effective 1 September 2019) Denis Despres Chief Operating Officer Tye Burt Kyle Cruz Non-executive Director (appointed effective 23 August 2019) Miguel Desdin Chief Financial Officer (appointed effective 7 January 2019) Non-executive Director (retired 31 December 2019) Robert Closner Vice President, General Counsel & Company Secretary Jason Ireland Non-executive Director James Kern Non-executive Director Gretchen McClain Non-executive Director (retired 23 August 2019) Jeffrey Olsen Robert Smith Executive Director Non-executive Director Richard Wallman Non-executive Director Eric Waxman Non-executive Director (retired 20 May 2019) Kari Plaster Chief Human Resources Officer Brendan Ryan Chief Business Development Officer ______________________________________________________________________________________ 19 19 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 1.3 REMUNERATION OUTCOMES The actual remuneration earned by executives is set out below. This information is considered to be relevant as it provides shareholders with a view of the remuneration actually paid to executives for performance for the year ended 31 December 2019. This differs from the remuneration details prepared in accordance with statutory obligations and accounting standards, which are reported on page 28 of this Report. The remuneration calculations reported there 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. Compensation represents base salary. Short Term Incentives (“STI”) 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, and Other represents benefits such as US 401(k) retirement plan, car allowance, relocation pay, tax preparation service reimbursements, sign-on bonuses and other bonuses granted and paid in 2019. Sr. Executive Remuneration US$ Compensation STI1 Jeffrey Olsen Denis Despres Miguel Desdin Robert Closner Kari Plaster Brendan Ryan 675,000 400,000 384,616 263,609 290,000 400,000 767,981 295,200 - 99,187 135,546 226,320 Special Retention Bonus 2 550,685 - - 77,054 - - Other Total 39,569 197,761 249,477 24,968 29,050 29,198 2,033,235 892,961 634,093 464,818 454,596 655,518 (1) Represents the cash paid in respect of the executive’s STI earned for the prior year’s performance but paid in the current reporting year. For further details of the STI plan, see section 3.2. (2) In March 2016, the Board approved Special Strategic Retention Awards to certain key employees. Mr Olsen’s and Mr Closner’s awards vested and were paid during 2019. 1.4 EXECUTIVE REMUNERATION STRATEGY The Board recognises that appropriate remuneration for BLY executives and other employees is linked to the attraction, development, performance and retention of top-level talent and human capital. Given the current economic climate and the ongoing skills shortage, it is essential that adequate measures are in place to attract and retain the required skills. In order to meet the strategic objectives of a high-performance organisation, the remuneration philosophy is positioned to reward strong performance and to maintain that performance over time. The primary objectives of Boart Longyear’s policy are to: • • • • attract, motivate, reward and retain key talent; promote the organisation’s strategic objectives, within its risk appetite; promote positive outcomes across the geographies where we operate; promote an ethical culture and behaviour that are consistent with values and which encourage responsible corporate citizenship. ______________________________________________________________________________________ 20 20 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 2. REMUNERATION FRAMEWORK AND STRATEGY This section outlines the Company’s remuneration governance framework and strategy and explains how the Board and Remuneration, Nominations and Governance Committee (“Remuneration Committee” or “Committee”) make remuneration decisions that underpin the remuneration for senior executives, including the use of external remuneration consultants. The diagram below illustrates the primary design features of the Company’s executive remuneration strategy and how the components of overall remuneration have been designed to support them: Attraction and Retention Best Practice Fairness and Alignment Pay for Performance ▪ Accurate and up-to-date market information and information on trends is a crucial factor in determining the quantum of the remuneration packages. ▪ Remuneration levels are competitive with similar roles in the markets in which the Company competes for talent. ▪ Fixed and at-risk remuneration is appropriately industry and market competitive. ▪ Long-term incentive compensation provides for meaningful retention. ▪ The long-term incentive component is delivered through the Management Incentive Plan. ▪ Reward packages and practices reflect local and international best practice, where appropriate and practical. ▪ There is a significant amount of total executive remuneration which is at-risk and dependent upon achieving challenging key business objectives and safety targets. ▪ Performance management assists in indicating the overall total rewards for each ExCo member. ▪ Compensation is relevant and meaningful to the Executive receiving it. ▪ Remuneration ▪ The framework Committee regularly performs executive compensation benchmarking utilising independent compensation consultants. ▪ Reward measures for executives are aligned with, linked to and influenced by the interests and strategies of BLY and its shareholders. ▪ The aspiration is that our remuneration philosophy, policy and practices, as well as the processes to determine individual pay levels are transparent. ▪ Clawback: where performance achievements are subsequently found to have been misstated, provisions are made for redress. ▪ ▪ encourages consistency, and allows for differentiation where it is fair, rational and explainable. 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 deliver value to executives when performance is achieved over short and longer terms. ▪ Incentive based compensation provides for upside potential with strong performance. 2.1 HOW REMUNERATION DECISIONS ARE MADE Board Responsibility The Board acknowledges its responsibility for the remuneration arrangements of the Executive team and ensures that those arrangements 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 informed by and considers input from management but retains independent decision-making authority. To assist in making decisions related to remuneration, the Board has established a Remuneration Committee. Remuneration Committee The Remuneration Committee has been established to assist the Board with remuneration issues and is responsible for ensuring that the Company compensates appropriately and consistently with market practices. The Committee 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 and create value for shareholders and support the Company’s remuneration related principles. ______________________________________________________________________________________ 21 21 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 The Remuneration Committee’s responsibilities include: • • • • • • • • • • • • • • review of strategic objectives; 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 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 consideration of performance thresholds and regulatory and market requirements; developing performance thresholds for the CEO and reviewing proposed performance thresholds for other KMP; reviewing and approving performance achievement relative to executive incentive plans; overseeing strategies for recruitment, retention and succession planning for Directors and key executive positions; reviewing the composition of the Board and monitoring the performance of the Board and the Directors; overseeing the Company’s compliance and ethics program, including compliance with legal and regulatory requirements other than those related to accounting or financial reporting (which are the responsibility of the Audit Committee), and from time to time, discuss with management, the Company’s compliance and ethics program, as well as the status of pending litigation and/or investigations related to the compliance hotline as well as environmental issues and other areas of oversight, as may be appropriate; overseeing the Company’s policies and initiatives related to Corporate, Environmental and Social Responsibility and General Corporate Governance; overseeing the Company’s compliance with the Code of Conduct, including periodically reviewing and updating the Code of Conduct, and evaluating any actual or potential conflicts of interest of directors, and management’s activities to monitor compliance with the Code of Conduct; identifying the qualities and characteristics the boards needs and drafting recruitment plans to draw qualified board director candidates to them; arranging for board trainings and development; and reviewing and implementing board policies and procedures. 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 Mr Tye Burt, Chairman, Mr Conor Tochilin, and Mr Jason Ireland. The CEO, the Chief Human Resources Officer 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/or External Advisors Where appropriate, the Board seeks and considers advice from independent remuneration consultants and external advisors. 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 2001 and ensures that the remuneration consultant remains free from any undue influence by any member of the KMP to whom the recommendations relate. Consultant remuneration recommendations are provided directly to the Committee. In 2018, 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 (“MIP”). In addition, the Committee continued to rely on the independent market review of KMP compensation obtained from Mercer Consulting. The Company also utilises the AON Radford Network for global rewards benchmarking, workforce metrics and analytics. 2.2 REMUNERATION COMPENSATION STRATEGY There are several components of an executive’s total compensation opportunity: fixed compensation, short and long-term incentives as well as non-monetary benefits. ______________________________________________________________________________________ 22 22 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 Fixed Remuneration: guaranteed package delivered as a cash salary and mix of compulsory and discretionary benefits reflects market-relatedness in conjunction with the individual’s background, competence and potential. This component provides: • A predictable base level of compensation commensurate with the executive’s scope of responsibilities, leadership skills, values, performance and contribution to the Company. • Targets near the median of the competitive talent market using external benchmarking data. Since the majority of the Company’s executives (and a majority of the executive KMP) are located in the US, the competitive talent market is determined to be the US market. • Variability around the median based on the experience, performance, skills, position, business unit size and/or complexity and unique market considerations, where necessary. Short Term Incentive Program: creates a high-performance culture by providing a cash bonus annually. This is determined based on role and responsibility as well as achievement against predetermined performance hurdles for business and personal goals. • This component of compensation is “at-risk” and earned when certain performance metrics are achieved. • Key performance metrics are determined annually, in alignment with the Company’s business strategy. They include some measure of the following (or related) metrics: cash return on investment, adjusted EBITDA, safety performance, and individual strategic goals. • • • These metrics were designed to reflect corporate as well as business unit level performance. This helps to ensure rewards are relevant and affordable as well as reflective of performance. The metrics weight performance in areas which build and promote collaboration and ensure alignment to strategy and shareholder interests. Individual strategic goals can include financial, operational, strategic or project-based targets. Examples include items such as, milestone achievement, revenue growth, cost control goals, cash flow generation, geographic expansion, and productivity programs. 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. Long Term Incentive Program: based on the individual’s performance and value to the business. It is achieved through achievement and alignment with shareholder interests. See section 3.3 of the Remuneration report for more information. • • 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. In January of 2018, the long-term incentive plan design changed where LTIP was replaced with the new MIP. The MIP is driven by Total Enterprise Value (“TEV”). The MIP creates value for participants when specific criteria are reached for performance as well as time vesting. The MIP enables cash and/or share releases to participants as and when its shareholders monetise their shareholdings at various volumes. Other Benefits (Monetary and Non-monetary): provided to ensure executive compensation remains relevant and Executives are well cared for. Non-monetary Benefits include: meaningful work, access to continuous learning and professional growth, recognition and appreciation, career advancement and in some cases flex schedules and/or tele-commuting. Additional Monetary Benefits include: various types of insurance: D&O, life, and regionally based health and welfare insurance for employee and family members; as well as vehicle allowances and/or other regionally based perks. ______________________________________________________________________________________ 23 23 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 3. COMPONENTS OF EXECUTIVE REMUNERATION 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 (“CBP”); and • LTI – being incentives which are tied to vesting conditions, such as EBITDA performance hurdles, and TEV. The relevant proportion of fixed to at-risk components for senior executive remuneration during 2019 are shown below. The table illustrates the annualised remuneration mix for executive KMP, including annualised fixed salary, target STI (assuming that 100% of target bonus performance is achieved). 100% 80% 60% 40% 20% 0% 42% 58% 32% 31% 24% 24% 29% 68% 69% 76% 76% 71% J E F F R E Y O L S E N D E N I S D E S P R E S M I G U E L D E S D I N R O B E R T C L O S N E R K A R I P L A S T E R B R E N D A N R Y A N Fixed At Risk STI Potential 3.1 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 the United States’ 401(k) defined contribution retirement plan. Base salaries are reviewed annually by the Remuneration Committee (or, for the CEO, by the Board) and may be adjusted as appropriate to maintain market competitiveness and/or to make adjustments based on merit in accordance with the CEO’s recommendation. Base salaries are benchmarked against external data. 3.2 SUMMARY OF THE SHORT-TERM INCENTIVE PROGRAM The Short-Term Incentive program, or 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. 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. There are four key Company performance components: (1) cash return on investment; (2) adjusted EBITDA; (3) Safety; and (4) an individual component. Each component has a threshold performance level; a target level of performance, and a maximum stretch level of performance whereby superior results can drive a pay-out up to 200% of that component of the bonus. All bonuses awarded under the CBP are paid in cash. ______________________________________________________________________________________ 24 24 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 The CBP performance components for 2019 and their relative weighting are: (1) Corporate Financial Target - Cash Return on Investment (CRI) - 25% of the Company’s CBP opportunity is linked to the Company’s CRI performance. For the purposes of calculating CRI, the statutory CRI 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 CRI metric was selected to ensure appropriate focus on the critical need to generate cash to fund ongoing operations and reduce debt. (2) Corporate Financial Target – Adjusted EBITDA - 60% of the Company’s CBP opportunity is linked to the Company’s Adjusted EBITDA performance. For the purposes of calculating Adjusted EBITDA, Statutory EBITDA plus significant items, impairment of assets and other significant non-restructuring transactions outside the ordinary course of business = Adjusted EBITDA. (3) Corporate Non-Financial Target - Safety - 15% of the Company’s CBP 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 2019, the Board agreed, on the recommendation of its Audit, Safety and Risk Committee to use TCIR, LTIR, Critical Risk Incident Rate and a set of leading indicators as the measurements of safety performance for the CBP. (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 and specific project or initiative progress. Individual objectives carry individual proportions of 100%. 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. 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. 3.3 SUMMARY OF THE LONG-TERM INCENTIVE PROGRAM On 31 December 2017 the Long-Term Incentive Plan (“LTIP”) and Retention Incentive Grant Agreement (“RIGA”) programs ceased. Retention based awards, under LTIP, were 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, under the LTIP, were cancelled as of 31 December 2017. Effective 1 January 2018 the Board approved a resolution to introduce a new long-term incentive plan, the MIP. The MIP is a long-term incentive plan similar in design to a stock option plan, that allows participants to share in the growth of the Company’s value over time. The executives eligible to participate in the MIP are senior management and corporate executives, including the KMP. The percentage of the MIP payouts vary depending on the participant’s position, skills and contributions to the Company. The percentage amounts are generally based on market averages for comparable roles at similar-sized companies. There are both time and performance vesting hurdles in the MIP. The time vesting portion of the MIP represents 33.3% of the plan and is spread over a 5-year time window. ______________________________________________________________________________________ 25 25 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 The performance vesting portion of the MIP represents 66.7% of the plan and is based on the Company’s gain in TEV, above a baseline of $650 million. The MIP includes two-tiered performance vesting criteria; one set at $900 million TEV, representing 33.3% of the award and the other set at $1.1 billion TEV, which represents the final 33.3% of the award. Performance vesting is based on events aligned with sale of ownership at certain predetermined levels. Upon these events, TEV will be measured and if the criteria are met, business leaders will be paid a percentage of the value accretion, based on their MIP allocation. There has been no trigger event with respect to performance vesting units in accordance with the plan documents. As such, no performance units have vested for 2018 or 2019 and no amounts have been recorded in the Company’s records. When MIP performance units vest, they will be paid in either cash or shares at the discretion of the Board. 3.4 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. 4. PERFORMANCE AND RISK ALIGNMENT Below is a summary of the year-over-year operating performance which underpins the compensation program. Net debt excludes the impact of recapitalisation transactions, letters of credit, CRA & IRS obligations, strategic asset acquisitions and disposals, equity raise, and potential asset backed loans. Dividends per share are calculated as basic EPS divided by closing share price. Financial Year 2019 2018 Closing Share Price1 $A 1.63 1.20 Dividend p/share US$ - - EPS % (45.4%) (62.7%) Revenue US$ millions Adj. EBITDA 2 US$ millions 745 770 87 81 ROE (11.1%) (15.3%) Net Debt US$ millions 764 683 (1) On 30 October 2019 the Company completed a consolidation of the issued capital on a basis that every 300 shares be consolidated into 1 share. Closing share price for each year has been adjusted for the share consolidation. (2) Adjusted EBITDA is 'Earnings before interest, tax, depreciation and amortisation and before significant and other non-recurring items. ______________________________________________________________________________________ 26 26 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 4.1 PERFORMANCE AGAINST SHORT AND LONG-TERM INCENTIVE MEASURES As noted above, a combination of financial and non-financial measures is used to measure performance for STI awards. Business and individual performance against those measures was measured on a weighted average basis. The average proportion of STI awarded, 2015 through 2019 is below: % of target STI awarded 2015 114% 2016 90% 2017 53% 2018 103% 2019 72% STI earned during the year ended 31 December 2019: STI Earned in 2019 STI Earned US$ Target STI US$ STI Earned as % of Target % of STI Forfeited STI as % of Max STI 1 % of Max STI Forfeited Jeffrey Olsen Denis Despres Miguel Desdin Robert Closner Kari Plaster Brendan Ryan 494,775 184,800 168,960 81,802 92,104 165,840 675,000 280,000 240,000 111,600 116,000 240,000 73% 66% 70% 73% 79% 69% 27% 34% 30% 27% 21% 31% 37% 33% 35% 37% 40% 35% 63% 67% 65% 63% 60% 65% (1) The maximum potential award assuming superior performance against all CBP metrics is 200% of target STI. 4.2 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. ______________________________________________________________________________________ 27 27 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 5. EXECUTIVE REMUNERATION IN DETAIL Details of each senior executive’s remuneration during the years ended 31 December 2019 and 2018 are set out in the table below. The remuneration calculations reported in this table 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. Short term benefits 1 Post-employment benefits Other long-term benefits Cash-based compensation Compensation US$ 675,000 625,962 400,000 400,000 Annual bonus 2 US$ 494,775 767,981 184,800 295,200 Other 3 US$ 31,319 28,705 189,511 122,695 384,616 168,960 241,227 263,609 240,941 290,000 271,154 400,000 400,000 81,802 99,187 92,104 135,546 165,840 226,320 24,968 20,543 20,800 40,800 20,948 20,800 Jeffrey Olsen 2019 2018 Denis Despres 2019 2018 Miguel Desdin 2019 Robert Closner 2019 2018 Kari Plaster 2019 2018 Brendan Ryan 2019 2018 Super- annuation benefits 4 US$ Other US$ 8,250 8,250 8,250 6,250 8,250 - - 8,250 5,726 8,250 6,250 - - - - - - - - - - - Retention Cash Rights 5 US$ 550,685 - - 66,667 - 77,439 - - - - - Perform- ance Cash Rights US$ - - - - - - - - - - - Total US$ 1,760,029 1,430,898 782,561 890,812 803,053 447,818 360,671 411,154 453,226 595,038 653,370 (1) There were no non-monetary benefits provided. (2) The 2019 amount represents cash STI payments earned by the executive during the year ended 31 December 2019, which are expected to be paid in 2020 and were approved by the Board in February 2020. The 2018 amount represents cash STI payments earned by the executive during the year ended 31 December 2018, which were paid in 2019. (3) Includes sign-on bonuses, automotive allowances, relocation and reimbursements of financial and tax preparation assistance. (4) Includes 401(k) plan matching contributions made by the employing entity in the United States. (5) In March 2016, Mr Olsen and Mr Closner received Special Strategic Retention Awards. These vested and were paid during 2019. Also, Mr Closner received $385 in cash for vested retention shares. This amount is included his total retention cash right amount. ______________________________________________________________________________________ 28 28 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 5.1 SERVICE CONTRACTS AND TERMINATION PROVISIONS Name and position held at the end of the financial year Duration of contract Notice period by Company Notice period by executive Chief Executive Officer No fixed term None required 180 days Vice President, General Counsel and Company Secretary No fixed term None required 90 days No fixed term None required 90 days Chief Financial Officer; Chief Human Resources Officer; Chief Operating Officer, Chief Business Development Officer 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: • 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 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 at the time of termination for the term of the extension. 5.2 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. All awards granted were reduced on a pro-rata basis due to the new MIP plan implemented in 2018. These awards were granted in the form of cash retention vesting on the third anniversary of the award. Mr Olsen’s and Mr Closner’s awards of $550,685 and $77,054, respectively, vested and were paid out during 2019. Furthermore, in 2018, the Board approved a one-time additional bonus incentive for certain members of senior leadership. The performance bonus is payable upon the Company achieving metrics for the fiscal year ending 2020 which are materially above budget. In the event the Company achieves the performance targets, eligible participants will receive a one-time $200,000 cash payment which would become payable in 2021. All KMP with the exception of the CEO are eligible to participate in this bonus plan. As of 31 December 2019, it is not probable that the Company will achieve the required performance targets. Therefore, the Company has not recognised an expense or accrued a liability for these one-time bonus incentives. ______________________________________________________________________________________ 29 29 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 5.3 SHARE HOLDINGS Shareholdings as at the end of the financial year and activity during the financial year, are as follows: Balance 1 January Granted as remuneration Net other change during year Consolidaiton of share capital 1 Cessation as Non-executive Director Balance 31 December Balance held nominally 2019 Kevin McArthur Marcus Randolph 2 Tye Burt Kyle Cruz Jason Ireland James Kern Gretchen McClain 2 Robert Smith Richard Wallman Eric Waxman Jeffrey Olsen Denis Despres Miguel Desdin Robert Closner Kari Plaster Brendan Ryan - 10,328,767 - - - - 1,966,062 - 9,620,233 - 520,871 - - 86,285 - - - - - - - - - - - - - - - - - - - - 61,285,960 (71,376,011) - - 7,119,285 60,780,330 - 7,199,285 150,640,438 - - - (7,095,554) (60,577,728) (1,959,508) (7,175,554) (159,726,468) - 81,040,438 (81,289,437) 65,778 65,282 - 10,425 61,464 - (85,999) - - - (238,716) - - - - (6,554) - - - - - - - - - - - - - 23,731 202,602 - 23,731 534,203 - 271,872 65,778 65,282 286 10,425 61,464 - - - - - - - - - - - - - - - (1) On 30 October 2019 the Company completed a consolidation of the issued capital on a basis that every 300 shares be consolidated into 1 share. (2) Marcus Randolph and Gretchen McClain retired 1 September 2019 and 23 August 2019, respectively. 5.4 CASH RIGHTS Cash rights as at the end of the financial year, and activity during the year, are as follows: Name Jeffrey Olsen Brendan Ryan Robert Closner Grant date 1-Mar-16 15-Mar-17 15-Mar-17 1-Mar-16 15-Mar-17 Vesting date 1-Mar-19 15-Mar-20 15-Mar-20 1-Mar-19 15-Mar-20 Denis Despres 1-Sep-16 1-Sep-19 15-Mar-17 15-Mar-20 Held at the beginning of the financial year Number of Cash Rights granted as remuneration Number of Cash Rights vested Value of Cash Rights vested US$ 550,685 132,755 66,378 77,054 7,965 100,000 66,378 - - - - - - - 550,685 550,685 - - 77,054 - - - 77,054 - 100,000 100,000 - - Number of Cash Rights Value of Cash Rights forfeited US$ forfeited - - - - - - - Held at the end of the financial year - 132,755 66,378 - 7,965 - 66,378 - - - - - - - 5.5 SHARE RIGHTS At 31 December 2018, Robert Closner held 126,530 retention share rights. The rights were granted on 1 July 2015 and vested on 15 March 2019. Robert received $385 in cash in consideration for his share rights. There were no outstanding share rights as of 31 December 2019. 5.6 OPTIONS Name Effective grant date Vesting date Fair Value per Option at Grant Date USD$ Held at the beginning of the financial year Number of options granted as remuneration Consolidaiton of share capital 1 Exercise price per option USD$ 1 Number of options forfeited Jeffrey Olsen 1-Apr-14 1-Apr-17 0.25 324,204 - (323,123) 96.00 - (1) At 31 December 2018, Jeffrey Olsen held 324,204 options which were vested and exercisable as of 31 December 2018. Due to the equity consolidation on 30 October 2019, the number of vested options Mr Olsen holds was reduced to 1,081. The options vested on 1 April 2017 and will expire on 1 April 2024. Upon the equity consolidation, the exercise price of each option was adjusted from AUD $0.32 to USD $96.00. ______________________________________________________________________________________ 30 30 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 6. 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 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. No shares rights were awarded as remuneration in 2019. 6.1 COMPONENTS OF NON-EXECUTIVE DIRECTOR REMUNERATION Component Explanation Board fees Current base fees per annum are: • US$160,000 for Non-Executive Directors other than the Board Chairman and the resident Australian Directors; • US$300,000 for the Board Chairman (paid in cash and shares); and • AUS$200,000 for the resident Australian Directors. Committee fees Current committee fees for Non-Executive Directors (other than the Board Chairman) are: • US$7,500 annually for committee members; and • US$15,000 annually for committee chairs. Where the Board Chairman sits on a committee, he or she does not receive any additional fee. Other fees/benefits Non-Executive Directors are entitled to be reimbursed for all reasonable out-of-pocket expenses incurred in carrying out their duties, including travel costs. The Board Chairman also is entitled to reimbursement for office and secretarial support. Non-Executive Directors may also, with the approval of the Board, be paid additional fees for extra services or special exertions for the benefit of the Company. Non-Executive Directors are not entitled to receive any performance-related remuneration, such as short-term or long-term incentives. Post- employment benefits Compulsory superannuation contributions for Australian-resident Non-Executive Directors are included in the base fee and additional committee fees set out above. Non-Executive Directors do not receive any retirement benefits other than statutory superannuation contributions. ______________________________________________________________________________________ 31 31 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 6.2 REMUNERATION PAID TO NON-EXECUTIVE DIRECTORS Details of Non-Executive Directors’ remuneration for the year ended 31 December 2019 and 2018 are set out in the table below. Non Executive Directors Remuneration US$ Marcus Randolph 2019 (up to 1 September 2019) 2018 Kevin McArthur 2019 Tye Burt 2019 Jason Ireland 2019 2018 James Kern 2019 2018 Gretchen McClain 2019 (up to 23 August 2019) 2018 Robert Smith 2019 2018 Richard Wallman 2019 2018 Fees (Including committee fees) Superannuation Contributions Shares Total 319,983 481,879 62,500 41,946 139,057 149,671 167,500 167,500 125,000 186,667 138,410 149,725 175,000 157,500 1,154 1,277 - - - - - - - - - - - - - - 37,500 22,813 1 1 - - - - - - - - - 17,500 321,137 483,156 100,000 64,759 139,057 149,671 167,500 167,500 125,000 186,667 138,410 149,725 175,000 175,000 (1) The Board fees have been earned and expensed in 2019 and the shares will be issued in 2020. Mr Cruz and Mr Waxman are not included in the table above as they are employees of Centerbridge and Ares Management, respectively, and therefore did not receive Director fees. Mr Randolph’s remuneration includes director fees of $225,000 and cash salary of $94,983 up to 1 September 2019 (date retired). In 2018, he received director fees of $300,000, and a cash salary of $181,879. Ms McClain remuneration includes director fees of $125,000 up to 23 August 2019 (date retired). In 2018, Ms McClain was appointed the Lead Independent Director. In February 2018, she received an additional $5,000 in committee fees for the appointment. ______________________________________________________________________________________ 32 32 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 Board of Directors A brief summary of the Directors’ work experience and qualifications is as follows. Kevin McArthur Kevin McArthur was appointed a Director of the Company and Chair on 1 September 2019. As Chairman of the Board, Mr McArthur brings more than 35-years’ experience in the global mining industry and over 20 years in CEO and Director positions. Most recently he held roles as the Founder, President and CEO of Tahoe Resources Inc. and prior to that was the President & CEO of Goldcorp Inc. Mr McArthur is a graduate of the University of Nevada where he received a Bachelor of Mining Engineering. Tye Burt Tye Burt was appointed a Director of the Company on 23 August 2019. Mr Burt also became Chair of the Company’s Remuneration Committee and became a member of the Audit Safety and Risk Committee. Mr Burt’s career includes more than 30-years’ experience in the global mining and finance industries in both executive management roles and serving on several boards. From 2005 to 2012 Mr Burt held the role of President and CEO of Kinross Gold Corporation. Prior to joining Kinross Gold, Mr Burt held the position of Vice Chairman and Executive Director of Corporate Development at Barrick Gold Corporation. Other previous positions include: Chairman, Deutsche Bank Canada and Deutsche Bank Securities Canada; global Managing Director, global metals and mining for Deutsche Bank AG; and Managing Director and Co-head of the global mining group at BMO Nesbitt Burns. Mr Burt is a graduate of Osgoode Hall Law School in Toronto and a member of the Law Society of Ontario. He holds a Bachelor of Arts from the University of Guelph. Kyle Cruz Kyle Cruz was appointed a Director of the Company on 1 September 2017. He is a member of the Remuneration Committee. Mr Cruz retired from the Board of Directors on 31 December 2019. 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. Mr Cruz holds a B.B.A from the University of Michigan with high distinction, and a Master’s in Business Administration from the Wharton School of the University of Pennsylvania, with honors. 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 25 years of experience in strategic reviews and implementation of performance improvement and restructuring initiatives 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 2005, 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. (NASDAQ), 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. ______________________________________________________________________________________ 33 33 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 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 of Arts degree 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 specialises 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 Chair 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 of Business Administration from the University of Chicago. Company Secretaries Robert Closner 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 including Regional General Counsel, 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 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. ______________________________________________________________________________________ 34 34 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 DIRECTORS’ MEETINGS The following tables set out for each Director the number of meetings (including meetings of Board committees) held and the number of meetings attended 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. Board of Directors Held Attended Remuneration, Nominations Audit, Safety Annual Meeting & Governance Committee Attended Held & Risk Committee Held Subcommittee Attended Held Attended Tye Burt Kyle Cruz Jason Ireland James Kern Kevin McArthur Gretchen McClain Marcus Randolph Robert Smith Richard Wallman Eric Waxman Jeffrey Olsen 2 5 5 5 2 3 3 5 5 2 5 2 5 5 5 2 3 3 5 5 2 5 DIRECTORS’ SHAREHOLDINGS 1 5 5 4 3 1 5 5 4 3 1 4 3 4 4 1 4 3 4 4 1 1 3 3 3 1 1 3 3 3 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. Kevin McArthur Tye Burt Kyle Cruz Jason Ireland James Kern Jeffrey Olsen Robert Smith Conor Tochilin Richard Wallman Fully paid ordinary shares - - - 23,731 202,602 271,872 23,731 - 534,203 Rights offering ordinary shares Rights and options - - - - - - - - - - - - - - 1,081 - - - Total - - - 23,731 202,602 272,953 23,731 - 534,203 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. GRANTS OF SHARES, RIGHTS OVER SHARES AND OPTIONS GRANTED TO DIRECTORS AND EXECUTIVES At the Annual General Meeting of Shareholders held in May 2018, Shareholders approved a Non-Executive Director share purchase plan (the “Plan”) which allows current and future Non-Executive Directors to elect to receive up to 100% of their director fees in shares in the Company in lieu of cash payments. The election of Non-Executive Directors to receive all or a portion of their compensation in shares of the Company in lieu of cash pursuant to the plan does not result in any additional remuneration for the Non-Executive Directors. It is merely a mechanism for the Non-Executive Directors to elect to invest some of the fees to which they are otherwise entitled in the Company. Under the terms of the Plan, if a Director elects to participate in the Plan, NED Shares are issued quarterly (or at other intervals in compliance with insider trading laws and the requirements of the Company’s Securities Trading Policy) at ______________________________________________________________________________________ 35 35 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 predetermined dates throughout the year. Following issue, Non-Executive Directors are not able to deal in the shares for a 12- month period. After this period, they will be free to deal in the shares subject to the Company’s Securities Trading Policy and any minimum shareholding requirements adopted by the Board. The number of NED Shares to be allocated to Non-Executive Directors who elect to participate in the Plan each quarter is calculated by dividing the amount of director's fees which the relevant Non-Executive Director has elected to contribute to the Plan by the arithmetic average of the daily volume weighted average sale price of the Company’s shares sold on ASX on the ordinary course of trading during the five trading days preceding the issue date of the shares. During 2019, Mr McArthur and Mr Burt participated in the plan and elected to receive $37,500 and $22,813 of their director compensation to be paid in shares, respectively. The shares for these fees will be issued in 2020. During 2018 Mr Wallman participated in the plan and elected to receive $17,500 of his director compensation paid in shares (6,420,233 shares). Shares and rights granted to executives of the Company are included in the Remuneration Report. As of 31 December 2019, Mr Olsen held 1,081 of vested options. The options were granted on 1 April 2014 and vested on 1 April 2017. They have an exercise price of $96 USD and expire on 1 April 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 the financial statements. INDEMNIFICATION OF DIRECTORS, 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. ______________________________________________________________________________________ 36 36 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 EXECUTIVE MANAGEMENT TEAM Jeffrey Olsen Jeffrey Olsen’s experience and qualifications are summarised above on page 34. Miguel Desdin Miguel Desdin was appointed the Company’s Chief financial officer on 7 January 2019. Mr Desdin served more than seven years as CFO and Senior Vice President of TPC Group, a two-billion-dollar chemical company based in Houston, Texas. During his tenure, he helped transition and position the company to take advantage of the cyclical recovery during a downturn in commodity prices. This included serving as interim CEO during the latter part of 2015. Mr Desdin’s career has led him through several key executive and financial roles within the industrial chemicals and related industries including working for Furmanite Corporation, Celanese Corporation, Great Lakes Chemical Corporation, and AlliedSignal, Inc. He earned his MBA in Finance from the Wharton School at the University of Pennsylvania, and a Bachelor of Science in Industrial and Systems Engineering from the University of Florida. 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. Brendan Ryan Brendan Ryan was appointed Chief Financial Officer on 6 September 2016 and in late 2018 was appointed Chief Business Development Officer. 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 of Business Administration degree from the University of Oxford, UK as well as a Bachelor of Engineering (Mining) honors degree from the University of Queensland, Australia. Robert Closner Robert Closner’s experience and qualifications are summarised above on pages 34. Kari Plaster Kari Plaster was appointed Chief Human Resources Officer 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 to help businesses and people to thrive. 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. ______________________________________________________________________________________ 37 37 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 AUDITOR AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration is included on page 40 of this report. NON-AUDIT SERVICES Details of amounts paid or payable for non-audit services provided during the year by the auditor are outlined in Note 7 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 7 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. 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. ______________________________________________________________________________________ 38 38 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 REMUNERATION The Remuneration Report is included beginning at page 19 and forms part of this Directors’ Report. Signed in accordance with a resolution of the Directors. On behalf of the Directors Kevin McArthur Chairman 28 February 2020 ______________________________________________________________________________________ 39 39 BOART LONGYEAR 2019 ANNUAL REPORT 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 2020 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 audit partner for the audit of the financial statements of Boart Longyear Limited for the financial year ended 31 December 2019, 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 Asia Pacific Limited and the Deloitte Network. __________________________________________________________________________________________ 40 40 BOART LONGYEAR 2019 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 2019, 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) giving a true and fair view of the Group’s financial position as at 31 December 2019 and of its financial performance for the year then ended; and (ii) 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. 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. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network. ____________________________________________________________________________________ 41 41 BOART LONGYEAR 2019 ANNUAL REPORT Key Audit Matter Liquidity As detailed in note 1, the Group recorded a total comprehensive loss for the year of $49.9 million. As at 31 December 2019 the Group had net liabilities of $364.8 million due to non-current loans and borrowings of $784.3 million and net current assets of $173.8 million. The Group continues to manage its liquidity closely as disclosed in Note 1 to the financial statements. This requires the achievement of budgets and cash flow forecasts, which include assumptions about those future cash flows and the forecast results, which are inherently uncertain. Taxation The Group operates across a large number of jurisdictions, each with its own taxation regime 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 Notes 10, 20 and 26. As at 31 December 2019, the Group has recorded an income tax expense of $8.5 million, current and non-current tax receivables of $2.5 million and $10.8 million and a net current tax payable of $5.4 million. How the scope of our audit responded to the Key Audit Matter Our audit procedures included, but were not limited to: • Evaluating managements plans in relation to its going concern assessment, whether the outcome of these plans is likely to improve the situation and whether managements plans are feasible; • Assessing last year’s budget with actual results to determine if management can correctly forecast; • Assessing the process undertaken by management to develop the budget and cash flow forecasts for the forecast for a period that is not less than 12 months beyond the date of these financial statements are approved; • • • Evaluating the key assumptions used by the Group in their cash flow forecast for a period that is not less than 12 months beyond the date of these financial statements are approved; Evaluating performance in the period from year end to the audit opinion date against the FY19/FY20 budget; Performing sensitivity analysis to determine the robustness of the cash flow forecast and the impact of changing key assumptions; and • Assessing the appropriateness of the disclosures included in Note 1 to the financial statements. Our procedures performed in conjunction with internal tax specialists, included but were not limited to: • Testing key controls relating to the accounting for and the disclosure of tax related transactions and matters; • Obtaining an understanding of the process that management has taken to determine the taxation balances recognised in the financial statements; • Assessing the appropriateness of the treatment of selected specific transactions in the Group’s tax expense calculations and the rationale on which deferred tax assets and liabilities were recognised; ________________________________________________________________________________________ 42 42 BOART LONGYEAR 2019 ANNUAL REPORT Key Audit Matter In notes 10, 20 and 26, the Group has disclosed its assessment of tax-related contingent liabilities and that they are subject to certain tax and customs audits that arise in the normal course of its business. As at 31 December 2019, the group has recorded a provision for tax contingencies of $63.8 million. The above matters give rise to complexity and uncertainty in respect of the determination of income taxes, deferred income tax assets, the Group’s interpretation of tax law in multiple countries as well as the consideration of contingent liabilities associated with tax years open to audit. This requires significant judgement estimating tax exposures and/or contingent liabilities. How the scope of our audit responded to the Key Audit Matter • • • Evaluating the Group’s tax obligations; 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 • Assessing the appropriateness of the Group’s Note disclosures regarding current and deferred taxes, uncertain tax positions and tax-related contingencies in the financial statements. Other Information The directors are responsible for the other information. The other information comprises the Directors’ Report and Review of Operations, which we obtained prior to the date of this auditor’s report, and also includes the following information which will be included in the Company’s annual report (but does not include the financial report and our auditor’s report thereon): Company overview, Chairman’s Report, CEO’s Report and Shareholder Information, which is expected to be made available to us after that date. 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 identified above 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 on the other information that we obtained prior to the date of this auditor’s report, 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. When we read the Company overview, Chairman’s Report, CEO’s Report and Shareholder Information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. ________________________________________________________________________________________ 43 43 BOART LONGYEAR 2019 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. ________________________________________________________________________________________ 44 44 BOART LONGYEAR 2019 ANNUAL REPORT 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. 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 19 to 32 of the Directors’ Report for the year ended 31 December 2019. In our opinion, the Remuneration Report of Boart Longyear Limited, for the year ended 31 December 2019, 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 2020 ________________________________________________________________________________________ 45 45 BOART LONGYEAR 2019 ANNUAL REPORT Boart Longyear Limited Annual Report 2019 DIRECTORS’ DECLARATION The Directors declare that: (a) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; (b) in the Directors’ opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated in Note 1 to the financial statements; (c) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards, and giving a true and fair view of the financial position and performance of the consolidated entity; and (d) the Directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act 2001. On behalf of the Directors Kevin McArthur Chairman 28 February 2020 ________________________________________________________________________________________ 46 46 BOART LONGYEAR 2019 ANNUAL REPORT Consolidated Statement of Profit or Loss and Other Comprehensive Income CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 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 profit Interest income Finance costs Loss before taxation Note 2019 US$'000 2018 US$'000 3 4 4 5 5 744,982 (606,326) 138,656 6,788 (82,997) (20,331) (14,962) 27,154 50 (64,119) (36,915) 770,167 (639,100) 131,067 10,360 (80,634) (22,138) (21,080) 17,575 889 (69,482) (51,018) Income tax (expense) / benefit 10 (8,456) 7,495 Loss for the year attributable to equity holders of the parent Loss per share: Basic loss per share 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 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 tax on income and expense recognised directly through equity Other comprehensive loss for the year, net of tax 21 10 Total comprehensive loss for the year attributed to equity holders of the parent (45,371) (43,523) 11 (51.8) cents (52.9) cents (45,371) (43,523) (1,566) (15,121) (1,910) (1,047) (4,523) 414 (104) (14,811) (49,894) (58,334) See accompanying Notes to the Consolidated Financial Statements included on pages 52 to 99. _______________________________________________________________________________________ 47 47 BOART LONGYEAR 2019 ANNUAL REPORT Consolidated Statement of Financial Position As at 31 December 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as of 31 December 2019 BOART LONGYEAR LIMITED 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 Non-controlling interest Total equity Note 30 12 13 10 15 16 17 10 10 18 20 10 19 19 10 20 22 2019 US$'000 2018 US$'000 20,240 113,738 163,088 2,504 13,574 313,144 - 313,144 165,037 104,458 27,634 16,875 10,811 4,008 328,823 641,967 111,123 14,437 5,424 8,328 139,312 775,985 16,878 74,544 867,407 1,006,719 (364,752) 1,468,776 (117,797) (137,182) (1,578,162) (364,365) (387) (364,752) 38,942 119,582 165,410 268 12,813 337,015 467 337,482 114,098 103,859 37,763 20,709 16,284 6,975 299,688 637,170 104,982 19,891 8,739 1,183 134,795 720,268 17,502 79,463 817,233 952,028 (314,858) 1,468,776 (116,231) (137,182) (1,532,651) (317,288) 2,430 (314,858) See accompanying Notes to the Consolidated Financial Statements included on pages 52 to 99. _______________________________________________________________________________________ 48 48 BOART LONGYEAR 2019 ANNUAL REPORT ) 3 2 5 , 3 4 ( ) 7 9 9 , 8 5 2 ( ) 1 1 8 , 4 1 ( ) 4 3 3 , 8 5 ( 8 1 5 2 0 3 4 , 2 - - - - - - 0 3 4 , 2 8 1 - 5 2 ) 3 2 5 , 3 4 ( ) 7 9 9 , 8 5 2 ( ) 1 1 8 , 4 1 ( ) 4 3 3 , 8 5 ( ' 0 0 0 $ S U ' 0 0 0 $ S U ' 0 0 0 $ S U - - - ) 3 2 5 , 3 4 ( 0 1 3 ) 3 1 2 , 3 4 ( - - - - - - - - - - - 5 2 - - - - ) 1 2 1 , 5 1 ( ) 1 2 1 , 5 1 ( - - - - - 8 1 ) 8 3 4 , 9 8 4 , 1 ( ) 2 8 1 , 7 3 1 ( 3 8 9 , 0 1 ) 8 1 1 , 2 1 1 ( 8 5 7 , 8 6 4 , 1 ) s s o l ( i n a g i e v s n e h e r p m o c r e h t O s s o l i e v s n e h e r p m o c r e h t o l a t o T x a t f o t e n - d o i r e p e h t r o f n o i t a s n e p m o c d e s a b - e r a h S t s e r e t n i g n i l l o r t n o c - n o N d e u s s i s e r a h S 8 1 0 2 y r a u n a J 1 t a e c n a a B l d o i r e p e h t r o f s s o L l a t o T y t i u q e t s e r e t n I t n e r a p e h t n o N l e b a t u b i r t t a l a t o T g n i l l o r t n o C f o s r e n w o o t l d e t a u m u c c A s e s s o l ' 0 0 0 $ S U 1 r e h t O y t i u q e ' 0 0 0 $ S U d e l t t e s - y t i u q E y c n e r r u c n o i t a s n e p m o c n o i t a l s n a r t e v r e s e r ' 0 0 0 $ S U e v r e s e r ' 0 0 0 $ S U d e u s s I l a t i p a c ' 0 0 0 $ S U n g i e r o F 9 1 0 2 r e b m e c e D 1 3 d e d n e r a e y l i a c n a n fi e h t r o F D E T I M I L R A E Y G N O L T R A O B Y T I U Q E N I i S E G y N t i A u q H E C n F s O e 9 g 1 0 T n 2 N a r h e E b C m M f e o E c e T t D n A 1 3 e T m d S e e d n t D e a E t r S a T e y A d e a D t c a I n L d a n O i f o S e s h N n t o r O o C F C i l i l 49 ) 8 5 8 , 4 1 3 ( 0 3 4 , 2 ) 8 8 2 , 7 1 3 ( ) 1 5 6 , 2 3 5 , 1 ( ) 2 8 1 , 7 3 1 ( 8 0 0 , 1 1 ) 9 3 2 , 7 2 1 ( 6 7 7 , 8 6 4 , 1 8 1 0 2 r e b m e c e D 1 3 t a e c n a l a B ) 1 7 3 , 5 4 ( ) 3 2 5 , 4 ( ) 4 9 8 , 9 4 ( - - - ) 8 5 8 , 4 1 3 ( 0 3 4 , 2 - ) 7 1 8 , 2 ( ) 1 7 3 , 5 4 ( ) 8 8 2 , 7 1 3 ( ) 3 2 5 , 4 ( ) 4 9 8 , 9 4 ( 7 1 8 , 2 ) 1 7 3 , 5 4 ( ) 7 5 9 , 2 ( ) 8 2 3 , 8 4 ( 7 1 8 , 2 - - - - - - - - - - ) 6 6 5 , 1 ( ) 6 6 5 , 1 ( - - - - s s o l i e v s n e h e r p m o c r e h t o l a t o T t s e r e t n i g n i l l o r t n o c - n o N x a t f o t e n - d o i r e p e h t r o f s s o l i e v s n e h e r p m o c r e h t O d o i r e p e h t r o f s s o L ) 1 5 6 , 2 3 5 , 1 ( ) 2 8 1 , 7 3 1 ( 8 0 0 , 1 1 ) 9 3 2 , 7 2 1 ( 6 7 7 , 8 6 4 , 1 9 1 0 2 y r a u n a J 1 t a e c n a a B l ) 2 5 7 , 4 6 3 ( ) 7 8 3 ( ) 5 6 3 , 4 6 3 ( ) 2 6 1 , 8 7 5 , 1 ( ) 2 8 1 , 7 3 1 ( 8 0 0 , 1 1 ) 5 0 8 , 8 2 1 ( 6 7 7 , 8 6 4 , 1 9 1 0 2 r e b m e c e D 1 3 t a e c n a l a B . 7 0 0 2 n i y n a p m o C e h t f o n o i t a e r c n o e v r e s e r n o i t a s n a g r o e r i ’ s y n a p m o C e h t s t n e s e r p e r y t i u q e r e h O t ) 1 ( 9 4 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . 9 9 o t 2 5 s e g a p n o d e d u c n l i s t n e m e t a t S l i i a c n a n F d e t a d i l o s n o C e h t o t i s e t o N g n y n a p m o c c a e e S BOART LONGYEAR 2019 ANNUAL REPORT Consolidated Statement of Cash Flows CONSOLIDATED STATEMENT OF CASH FLOWS For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 BOART LONGYEAR LIMITED Cash flows from operating activities Loss for the year Adjustments provided by operating activities: Income tax expense / (benefit) 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 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 provided by operations Interest paid Interest received Income taxes paid Net cash flows generated in operating activities Note 2019 US$'000 2018 US$'000 (45,371) (43,523) 5 6 5 6 5 8,456 64,119 39,348 (50) (3,161) (6,623) - 9,972 (167) 2,184 6,415 1,161 7,798 (7,056) 77,025 (30,840) 50 (10,927) 35,308 (7,495) 69,482 36,587 (889) (7,794) (17,110) 18 11,493 2,062 3,037 4,023 (980) (18,944) (5,818) 24,149 (6,095) 889 (15,231) 3,712 See accompanying Notes to the Consolidated Financial Statements included on pages 52 to 99. ____________________________________________________________________________________ 50 50 BOART LONGYEAR 2019 ANNUAL REPORT Consolidated Statement of Cash Flows CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 BOART LONGYEAR LIMITED 2019 US$'000 2018 US$'000 Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Intangible costs paid Net cash flows used in investing activities Cash flows from financing activities Payments for debt issuance costs Proceeds from borrowings Repayment of borrowings Net cash flows (used in) 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 30 (47,061) 5,815 (3,625) (44,871) (1,432) 31,350 (40,881) (10,963) (20,526) 38,942 1,824 20,240 (37,095) 13,738 (2,016) (25,373) - 16,964 (5,345) 11,619 (10,042) 43,758 5,226 38,942 See accompanying Notes to the Consolidated Financial Statements included on pages 52 to 99. _______________________________________________________________________________________ 51 51 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 1. GENERAL INFORMATION BOART LONGYEAR LIMITED 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 5650 Tel: +61 (8) 8375 8375 Basis of Preparation Principal place of business 2455 South 3600 West Salt Lake City, Utah 84119 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 2020; - 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. - adopted AASB 16 Leases. The accounting policies have been updated for changes resulting from the adoption of this standard. Refer to Note 25 for further details on the change in accounting policy. - adopted IFRIC 23 Uncertainty Over Income Tax Treatments from 1 January 2019. As part of the adoption of IFRIC 23 and review of the historical classification of provisions for tax contingencies within current tax payables, $6.1 million has been reclassified from trade and other payables compared to $6.2 million in 2018 to non-current provisions. In addition, $57.7 has been reclassified from current tax payable compared to $62.5 million in 2018 to non-current provisions. The impact of the adoption of this standard is discussed in footnote 10. - does not early adopt Accounting Standards and Interpretations that have been issued or amended but are not yet effective. Refer to Note 32 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 Company 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. _______________________________________________________________________________________ 52 52 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 1. GENERAL INFORMATION (CONTINUED) Going Concern BOART LONGYEAR LIMITED 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. During the year ended 31 December 2019, the Company recorded a total comprehensive loss for the year of $49.9 million (2018: loss of $58.3 million), cash inflows from operations of $35.3 million (31 December 2018: $3.7 million), and cash outflows from investing activities of $44.9 million (31 December 2018: $25.4 million). As at 31 December 2019 the Company had net liabilities of $364.8 million (2018: net liabilities of $314.9 million) due to non-current loans and borrowings of $784.3 million (2018: $721.5 million). At 31 December 2019 the Company had net current assets of $173.8 million (2018: $202.7 million as at 31 December). As set out in Note 10 and Note 26, 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 and the Company’s cash flow forecasts include the amounts management believes may be payable during the forecast period. However, the ultimate outcome of these audits is uncertain and unfavourable outcomes in excess of management’s estimate could have a material adverse impact. 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 continue as a going concern is dependent on the successful outcomes of the tax and customs audits, achieving its forecast cash flows by sustaining previously implemented cost reductions, realising cost savings from ongoing and future cost-reduction activities 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. Cash flow Forecasts The Company has prepared detailed cash flow forecasts which incorporate the financial impact of continued actions to address the market environment and estimate amounts payable in regard to the tax and customs audits. 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. 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. We have seen an improvement in the market through 2018, 2019 and into 2020; however, 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, resulting in adverse effects on the Company’s operating results, liquidity and financial condition. Operational risk In response to the recent improvements in the market, the company is seeing higher working capital demand. In order 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. 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. _______________________________________________________________________________________ 53 53 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 1. GENERAL INFORMATION (CONTINUED) Key Judgements and Estimates BOART LONGYEAR LIMITED 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 assets, 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 10 Note 16 Income Tax Goodwill and Other Asset Impairment Considerations 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 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. _______________________________________________________________________________________ 54 54 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 2. SEGMENT REPORTING BOART LONGYEAR LIMITED 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 Global Drilling Services 516,313 533,606 Segment Revenue 2019 US$'000 2018 US$'000 Segment Profit 2019 US$'000 63,065 2018 US$'000 57,137 Global Products revenue Products third party revenue Products inter-segment revenue 1 Total Global Products Less Global Product sales to Global Drilling Services Total third party revenue Total segment profit Unallocated costs 2 Significant items Finance costs Interest income Loss before taxation 228,669 56,898 236,561 56,021 285,567 (56,898) 744,982 292,582 24,468 23,493 (56,021) 770,167 87,533 80,630 (39,571) (20,808) (64,119) 50 (36,915) (36,554) (26,501) (69,482) 889 (51,018) (1) Transactions between segments are carried out at arm's length and are eliminated on consolidation. (2) Unallocated costs include corporate general and administrative costs, as well as, other expense items such as foreign exchange gains or losses. Other segment information Depreciation and amortisation of segment assets 2019 US$'000 2018 US$'000 Additions to non-current assets 2 2019 US$'000 2018 US$'000 28,515 7,350 35,865 3,483 39,348 25,768 7,175 32,943 3,644 36,587 52,794 29,438 82,232 10,612 92,844 27,932 3,013 30,945 10,427 41,372 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 and post-employment assets. For 2019, the amount includes the recognition of $41.5 million in additions of right-of-use assets due to the implementation of AASB 16. _______________________________________________________________________________________ 55 55 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 2. SEGMENT REPORTING (CONTINUED) Geographic information BOART LONGYEAR LIMITED The Company’s two business segments operate in four principal geographic areas – North America, Asia Pacific, Latin America and EMEA. The Company’s revenue from external customers and information about its segment assets by geographical locations are detailed below: North America Asia Pacific Latin America EMEA Total Revenue from external customers 2019 US$'000 2018 US$'000 341,041 172,001 97,555 134,385 744,982 353,206 169,031 110,066 137,864 770,167 Non-current assets 1 2019 2018 US$'000 US$'000 214,841 44,967 23,005 29,135 311,948 201,767 39,922 18,349 18,941 278,979 (1) Non-current assets excluding deferred tax assets and post-employment assets. _______________________________________________________________________________________ 56 56 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 3. REVENUE BOART LONGYEAR LIMITED Boart Longyear operates two different business units throughout various geographical locations – Global Drilling Services and Global Drilling Products. Global Drilling Services The Company performs various types of drilling services within the mining and minerals industry. Contracts entered into can cover services which involve different processes and continuous drilling services activities in a sequential set of mobilisation, drilling, and demobilisation activities which are invoiced to the customer as those activities progress. These processes and activities are highly inter-related, and the Company provides a significant service of integration of such activities. Where this is the case, these activities and processes are accounted for as one performance obligation. Revenue from services rendered is recognised in the statement of profit and loss and other comprehensive income over time. Boart Longyear has a contractual right to consideration from a customer for an amount that corresponds directly with the value to the customer of the performance completed to date (for example, number of meters drilled). As a result, Boart Longyear applies the practical expedient under AASB 15.B16 to recognise revenue at the amount which it has the right to invoice. Customers are invoiced on a fortnightly basis and revenue is recognised in the accounting period in which the right to invoice is obtained. Payment is received following invoice according to standard payment terms, which are generally between 30 to 60 days. There are no significant financing components. Most drilling services contracts do not include variable payment terms. Where variable payment terms exist, these are usually in the form of penalties for late completion. Variable consideration is only recognised to the extent that it is considered highly probable that such amounts will not reverse in the future and is estimated using the expected value approach. Global Drilling Products The Company manufactures, distributes and sells equipment that is necessary for the mining and mineral industry. Sales orders are completed across multiple geographies for products, such as large drill rigs, and drilling components, such as bits and coring rods. Each product promised to the customer is distinct under the contract according to AASB 15.27 and gives rise to a separate performance obligation. Revenue is recognised when control of the products has transferred to the customer. Transfer of control happens at the point the products are delivered to the customer for drilling rigs and at the point the products are shipped to the customer’s specific location for drilling components. The transaction price is allocated to each product on stand-alone basis. Payment is received following invoice according to standard payment terms, which are generally between 30 to 60 days. There are no significant financing components and there is no significant reversal of variable consideration expected at the point of revenue recognition. The components of revenue are as follows: Revenue from the rendering of services Revenue from the sale of goods 2019 US$'000 516,313 228,669 744,982 2018 US$'000 533,606 236,561 770,167 There were no customer(s) that contributed 10% or more to the Company’s revenue in 2019 and 2018. _______________________________________________________________________________________ 57 57 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 4. OTHER INCOME / EXPENSE The components of other income are as follows: BOART LONGYEAR LIMITED Gain on disposal of property, plant and equipment Gain on disposal of scrap Other The components of other income are as follows: Amortisation of intangible assets (1) Value added tax Loss on foreign currency exchange differences Impairment of fixed assets (2) Impairment of Intangible Assets (3) Environmental fees Other Total other expenses 2019 US$'000 2018 US$'000 3,161 610 3,017 6,788 7,794 326 2,240 10,360 2019 US$'000 2018 US$'000 2,587 - 3,879 - 5,787 - 2,709 14,962 4,216 2,938 11,615 79 - 24 2,208 21,080 (1) Total amortization of intangible assets for the year is $4.6 million, as presented in Note 17. Note that $2.0 million of amortization expense for development assets were recorded within research and development expenses, while $2.6 million of amortization was recorded within other expenses. In the year ended 31 December 2018 amortization totalled $5.4 million, while $1.2 million was recorded in research and development, and $4.2 million was recorded within other expenses. (2) Note that fixed asset impairments of $210 thousand were recorded during the year ended 31 December 2019. This impairment was recorded within general and administrative expenses. Impairments of $79 thousand in the year ended 31 December 2018 were recorded in other expenses because these impairments were related to the restructure of certain entities. (3) Total impairment of intangible assets for the year ended 31 December 2019 was $9.0 million, as presented in Note 17. Note that $2.5 million of patent impairments were recorded within general and administrative expenses, and $0.7 million of development asset impairments were recorded within research and development expenses, while the remaining $5.8 million of impairments were recorded within other expense. In the year ended 31 December 2018 $0.4 million of intangibles impairments were recorded within research and development expenses, while the remaining intangible asset impairment was recorded to general and administrative expenses. See Note 17. _______________________________________________________________________________________ 58 58 BOART LONGYEAR 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 5. INTEREST INCOME / FINANCE COSTS BOART LONGYEAR LIMITED Interest income is as follows: Interest income: Bank deposits Finance costs are as follows: Finance costs: Interest on loans and bank overdrafts Amortisation of debt issuance costs Interest on obligations under leases (1) Total finance costs 2019 US$'000 2018 US$'000 50 889 2019 US$'000 2018 US$'000 59,588 1,374 3,157 64,119 67,432 1,902 148 69,482 (1) The Company adopted AASB 16 – Leases as of 1 January 2019 (see Note 25), resulting in an increase in interest expense in 2019. 6. LOSS FOR THE YEAR Loss for the year includes the following: (a) Gains and losses Loss for the year includes the following gains and (losses): Gain on disposal of property, plant and equipment Net foreign exchange losses 2019 US$'000 2018 US$'000 3,161 7,794 (3,879) (11,615) Net change in bad debt expense 305 (228) (b) Employee benefits expenses Salaries and wages Post-employment benefits: Defined contribution plans Defined benefit plans Termination benefits Other employee benefits 1 2019 US$'000 2018 US$'000 (244,125) (244,925) (9,046) (1,514) (3,222) (64,025) (321,932) (6,411) (1,506) (3,164) (66,970) (322,976) (1) For 2019, other employee benefits include items such as medical benefits, workers’ compensation, other fringe benefits and state taxes. The 2018 amount for equity-settled share-based payments for long-term incentive plans of $25 thousand was included in Other Employee Benefits. (c) Other Depreciation of non-current assets Amortisation of non-current assets Rental expense 2019 US$'000 2018 US$'000 (34,764) (4,584) (16,491) (31,129) (5,446) (25,696) _______________________________________________________________________________________ 59 59 BOART LONGYEAR 2019 ANNUAL REPORT Notes to the Consolidated Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 7. REMUNERATION OF AUDITORS BOART LONGYEAR LIMITED Company auditor's remuneration Audit and review of the financial report: Auditor of the parent entity Related practices of the parent entity auditor Non-audit services: Tax Consultation Tax Compliance Tax Audit Support 2019 US$'000 2018 US$'000 833 771 1,604 96 269 298 663 835 757 1,592 65 429 361 855 Total remuneration to Company auditor 2,267 2,447 Boart Longyear Limited’s auditor is Deloitte Touche Tohmatsu. The Company has employed Deloitte Touche Tohmatsu on assignments in addition to their audit duties where their expertise and experience with the Company are important. These assignments principally have been related to tax advice and tax compliance services, the magnitude of which is impacted by the global reach of the Company. The Board and its Audit, Safety & Risk Committee are committed to ensuring the independence of the external auditor. Accordingly, significant scrutiny is given to non-audit engagements of the external auditor. The Company has a formal pre-approval policy which requires the pre-approval of non-audit services by the Chairman of the Audit Committee. Additionally, the total annual fees for such non-audit services cannot exceed the auditor’s annual audit fees without the approval of the Audit Committee. The Audit Committee believes that the combination of these two approaches results in an effective procedure to pre-approve services performed by the external auditor. _______________________________________________________________________________________ 60 60 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 8. KEY MANAGEMENT PERSONNEL COMPENSATION BOART LONGYEAR LIMITED The aggregate compensation made to key management personnel of the Company is set out below. Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments 9. EMPLOYEE LONG TERM INCENTIVE PAYMENTS 2019 US$'000 2018 US$'000 5,301 42 628 60 6,031 4,989 28 67 17 5,101 Effective 1 January 2018 the Board approved a resolution to introduce a long-term incentive plan, the MIP. The MIP is a long-term incentive plan, which is similar in design to a stock option plan, and consistent with many incentive plans in private equity, in that it allows participants to share in the gain of Boart Longyear’s value over time. The MIP was created to give senior leaders an opportunity to share in the growth and value of Boart Longyear’s business success. The executives eligible to participate in the MIP are senior management and corporate executives, including the KMP. The percentage of the MIP payouts vary depending on the participant’s position, skills and contributions to the Company. The percentage amounts are generally based on market averages for comparable roles at similar-sized companies. There are both time and performance vesting hurdles in the MIP. The time vesting portion of the MIP represents 33.3% of the plan and is spread over a 5-year time window. The performance portion of the MIP is based on Boart Longyear’s gain in TEV, which has been set at a baseline of $650 million. The MIP has two performance vesting criteria; one set at $900 million TEV, representing 33.3% of the award and the other set at $1.1 billion TEV, which represents the final 33.3% of the award. Upon sale of ownership at certain predetermined levels, TEV will be measured and if the criteria are met, business leaders will be paid a percentage of the value based on their MIP allocation. No trigger events took place in 2018 or 2019, so no amounts were recorded in the financial statements as of 31 December 2018 and 31 December 2019. The MIP will be paid in either cash or shares at the discretion of the Board. As of 31 December 2019, the Company had no outstanding share rights. As of 31 December 2019, the Company had outstanding cash rights in the amount of $626,000. The cash rights will vest and be paid on 15 March 2020. As of 31 December 2019, the Company had 90,150 outstanding options. The options have grant dates varying from 15 March 2014 to 18 January 2016. Options totaling 43,158 have vested and will expire on various dates in years 2024 through 2026. They have exercise prices varying from USD $57.60 to USD $96.00. On 15 March 2020, the additional 46,992 options will vest. They expire on 26 May 2025 and also have exercise prices varying from USD $57.60 to USD $96.00. _______________________________________________________________________________________ 61 61 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 BOART LONGYEAR LIMITED 10. 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 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 Statement of Financial Position. 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 Statement of Financial Position. 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 Statement of Profit or Loss and Other Comprehensive Income. Current and deferred taxation Income tax expense includes current and deferred tax expense (benefit) and is recognised in Statement of Profit or Loss and Other Comprehensive Income 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. _______________________________________________________________________________________ 62 62 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 10. INCOME TAXES (CONTINUED) Tax consolidation BOART LONGYEAR LIMITED 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. 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. (a) Income tax (benefit)/expense is comprised of: Income tax expense/(benefit): Current tax expense/(benefit) Adjustments recognised in the current year in relation to the current tax of prior years Deferred tax expense/(benefit) 2019 US$'000 2018 US$'000 8,160 (1,597) 1,893 8,456 (5,585) (1,920) 10 (7,495) (b) 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 Net non-deductible/non-assessable items Net unrecognised tax losses and tax credits for the current year 1 Recognition of deferred tax assets arising in prior years Other 2 (Over) / under provision from prior years Income tax expense/(benefit) per the Consolidated (36,915) (51,018) (11,075) 3,528 6,618 10,358 (90) 714 10,053 (1,597) (15,305) (2,292) 13,166 23,452 (6,168) (18,428) (5,575) (1,920) Statement of Profit or Loss and Other Comprehensive Income 8,456 (7,495) (1) Due to the group being in a tax loss position in many jurisdictions during the current financial year, the Company has not recognised a tax benefit for current period losses. (2) The majority of the adjustment in the prior year relates to effectively settling a portion of the disputes in the Canada Revenue Agency tax audit for tax years 2007-2012 (See the Canada note below). _______________________________________________________________________________________ 63 63 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 10. INCOME TAXES (CONTINUED) BOART LONGYEAR LIMITED (c) Income tax recognised directly in equity during the period The following current and deferred amounts were (charged) credited directly to equity during the year: Deferred tax recognised in equity: Actuarial movements on defined benefit plans (d) Tax assets and liabilities Tax assets: Income tax receivable attributable to: Other entities (1) Current tax liabilities: Income tax payable attributable to: Parent Entities other than parent and entities in the consolidated group 2019 US$'000 2018 US$'000 (1,047) (104) 13,315 16,552 1,387 4,037 5,424 1,398 7,341 8,739 (1)The income tax receivable for 2019 is $13.3 million (2018: $16.6 million) of which $2.5 million is classified as current tax receivable and $10.8 million is classified as non-current tax receivable (2018: $0.3 million and $16.3 million respectively). (e) Deferred tax balances Deferred tax comprises: Temporary differences Unused tax losses and credits (f) Provision for tax contingencies (13,291) 13,288 (3) (5,122) 8,329 3,207 Provision for tax contingencies (Note 20) 63,792 68,671 The Company has applied Interpretation 23 from 1 January 2019. The recognition, measurement and disclosure requirements of the standard have been applied to any Uncertain Tax Positions which were under consideration for the period ended 31 December 2019. No material impacts to the financial statements have arisen from the adoption of Interpretation 23. The Company has chosen to present the provision for tax contingencies in non-current provisions (previously classified in current tax payable within current liabilities). The prior year has been amended to reflect the current year presentation. See Note 1. The provision for tax contingencies relates to various jurisdictions. _______________________________________________________________________________________ 64 64 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 10. INCOME TAXES (CONTINUED) BOART LONGYEAR LIMITED Opening Recognised balance US$'000 FX in income differences disposed US$'000 US$'000 Acquired/ Recognised Closing balance in equity US$'000 US$'000 US$'000 -42.4 2019 Deferred tax assets (liabilities) temporary differences Property, plant and equipment Provisions Doubtful debts Other intangible assets Accrued liabilities Pension Inventories Investments in subsidiaries Unrealised foreign exchange Other Unused tax losses and credits: Tax losses 4,087 2,744 16 (16,471) 2,464 (346) 1,977 - (275) 682 (5,122) 8,329 3,207 (257) (2,020) (16) (907) (2,228) (161) 186 (240) (888) (321) (6,852) 4,959 (1,893) (95) (64) - - (57) 8 (46) - - (16) (270) - (270) - - - - - - - - - - - - - Presented in the statement of financial position as follows: Deferred tax asset Deferred tax liability - - - - - (1,047) - - - - (1,047) 3,735 660 - (17,378) 179 (1,546) 2,117 (240) (1,163) 345 (13,291) - (1,047) 13,288 (3) 16,875 (16,878) (3) Where deferred tax assets have been recognised, it is considered probable that the Company will generate sufficient future taxable income to utilise the assets. _______________________________________________________________________________________ 65 65 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 10. INCOME TAXES (CONTINUED) BOART LONGYEAR LIMITED 2018 Deferred tax assets (liabilities) temporary differences Property, plant and equipment Provisions Doubtful debts Other intangible assets Accrued liabilities Pension Inventories Investments in subsidiaries Unrealised foreign exchange Other Unused tax losses and credits: Tax losses Opening Recognised balance US$'000 FX in income differences disposed US$'000 US$'000 Acquired/ Recognised Closing balance in equity US$'000 US$'000 US$'000 3,568 3,326 64 (13,885) 3,314 (441) 1,940 - 171 695 (1,248) 8,406 7,158 941 (188) (40) (228) (458) 147 267 - (446) 72 67 (77) (10) (422) (394) (8) - (392) 52 (230) - - (85) (1,479) - - - (2,358) - - - - - - (2,358) - - - - - (104) - - - - (104) 4,087 2,744 16 (16,471) 2,464 (346) 1,977 - (275) 682 (5,122) - - - 8,329 (1,479) (2,358) (104) 3,207 Presented in the statement of financial position as follows: Deferred tax asset Deferred tax liability 20,709 (17,502) 3,207 Unrecognised deferred tax assets Tax benefit of unused losses 1 Tax benefit of unused capital losses 2 Unused tax credits 3 Tax benefit of temporary differences 2019 US$'000 2018 US$'000 282,843 388,707 15,939 49,526 737,015 217,284 4,071 16,698 63,415 301,468 (1) $79.0 million of the tax benefit of unused losses expire within 3-20 years and $203.8 million related to tax losses that do not expire (2018: $93.0 million and $124.3 million respectively). (2) The losses in the current year arose due to the disposal of shares and intercompany debt. The tax basis was established with reference to historic 2007 initial public offering values. Capital losses can only be offset against capital gains in most jurisdictions. (3) All of the unused tax credits expire within 1-10 years. _______________________________________________________________________________________ 66 66 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 10. INCOME TAXES (CONTINUED) Canadian income tax audits BOART LONGYEAR LIMITED As previously disclosed by the Company, the Canada Revenue Agency (“CRA”) has reassessed the 2007 through 2014 tax years. The Company has resolved the 2007 through 2009 tax years, resulting in a final assessment of additional tax, penalties and interest of C$7.4 million, of which C$1.2 million remains outstanding at the end of 2019. Tax years 2010 through 2014 remain in various stages of appeal with the CRA or are proceeding under the mutual agreement procedure, which is a negotiation between Canada and Switzerland on the allocation of taxable profits between the countries. The remaining unsettled tax, penalties and interest for these years could result in a maximum remaining assessment of C$47 million. After the application of tax credits and payments, the maximum future cash outlay could be C$34 million for the remaining 2010-2014 unsettled issues. The Company plans to vigorously dispute these reassessments. 11. LOSS PER SHARE Basic loss per share Basic loss per share The loss and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows: Loss used in the calculation of basic EPS 2019 US cents per share 2018 US cents per share (51.8) (52.9) 2019 US$'000 2018 US$'000 (45,371) (43,523) On 30 October 2019, the Company completed a consolidation of the Company’s issued capital on a basis that every 300 shares be consolidated into 1 share. The share consolidation reduced the number of outstanding shares by 26,208,559,146. The number of weighted average shares used in the calculation of loss per share for 31 December 2019 and 31 December 2018 were 87,656,260 and 82,203,453, respectively. _______________________________________________________________________________________ 67 67 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 12. TRADE AND OTHER RECEIVABLES BOART LONGYEAR LIMITED Trade receivables are recorded at amortised cost. The Company reviews collectability of trade receivables on an ongoing basis and provides allowances for credit losses when there is evidence that trade receivables may not be collectible. These losses are recognised in the income statement within operating expenses. When a trade receivable is determined to be uncollectible, it is written off against the allowance for doubtful accounts. Subsequent recoveries of amounts previously written off are recorded in other income in profit or loss. Trade receivables Loss allowance Goods and services tax receivable Other receivables The ageing of trade receivables is detailed below: Current Past due 0 - 30 days Past due 31 - 60 days Past due 61 - 90 days Past due 90 days 2019 US$'000 2018 US$'000 102,054 (1,015) 10,183 2,516 113,738 109,195 (1,391) 7,056 4,722 119,582 2019 US$'000 2018 US$'000 90,525 8,655 1,325 480 1,069 102,054 89,315 13,106 2,166 1,243 3,365 109,195 The Company always measures the loss allowance for trade receivables at an amount equal to lifetime expected credit losses (ECL). The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date. The Company has recognised a loss allowance of 100% against all receivables over 120 days past due because historical experience has indicated that these receivables are generally not recoverable. 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. No interest is charged on trade receivables. 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 advance 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 2019 or 2018. 13. 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. _______________________________________________________________________________________ 68 68 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 13. INVENTORIES (CONTINUED) BOART LONGYEAR LIMITED 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. Raw materials Work in progress Finished products 2019 US$'000 2018 US$'000 28,938 5,404 128,746 163,088 30,836 5,488 129,086 165,410 Obsolescence provisions were $20.3 million and $18.7 million as at 31 December 2019 and 2018, respectively. 14. 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 19, 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. Credit risk management The Company reviews the recoverable amount of each trade debt on an individual basis at the end of the reporting period to ensure that adequate loss allowance is made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable. Of the outstanding loans and borrowings, Centerbridge Partners, L.P. accounted for $292.4 million of Term Loans outstanding with $24.5 million of accreted interest. Centerbridge Partner, L.P., and Ascribe Capital hold $17.3 million of the backstop ABL with $3.0 million of accreted interest. There are no significant concentrations of credit risk. The carrying amount reflected above represents the Company’s maximum exposure to credit risk for trade and other receivables. Financial risk management objectives The Company’s corporate treasury function provides services to the business, coordinates access to domestic and international financial markets, and monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. _______________________________________________________________________________________ 69 69 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 14. FINANCIAL RISK MANAGEMENT (CONTINUED) Market risk BOART LONGYEAR LIMITED The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. Foreign currency risk management Company subsidiaries undertake certain transactions denominated in currencies other than their functional currency, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters. The Company did not utilise any derivative instruments during the years ended 31 December 2019 or 2018. The most significant carrying amounts of monetary assets and monetary liabilities (which include intercompany balances with other subsidiaries) that: (1) are denominated in currencies other than the functional currency of the respective Company subsidiary; and (2) cause foreign exchange rate exposure, at 31 December are as follows: Assets 2019 US$'000 2018 US$'000 Liabilities 2019 US$'000 2018 US$'000 48,180 46 9,942 451,962 170,842 269 27,593 143,756 83,294 11,269 19,334 187,169 55,519 22,933 158,496 153,168 Australian Dollar Canadian Dollar Euro US Dollar Foreign currency sensitivity The Company is mainly exposed to exchange rate fluctuations in the Australian Dollar (AUD), Canadian Dollar (CAD), Euro (EUR) and United States Dollar (USD). The Company is also exposed to translation differences as the Company’s presentation currency is different from the functional currencies of various subsidiaries. However, this represents a translation risk rather than a financial risk and consequently is not included in the following sensitivity analysis. The following tables reflect the Company’s sensitivity to a 10% change in the exchange rate of each of the currencies listed above. This sensitivity analysis includes only outstanding monetary items denominated in currencies other than the respective subsidiaries’ functional currencies and remeasures these at the respective year end to reflect a 10% decrease in the indicated currency against the respective subsidiaries’ functional currencies. A positive number indicates an increase in net profit and/or net assets. Net profit Net assets Net profit Net assets 10% decrease in AUD 2018 US$'000 2019 US$'000 10% decrease in CAD 2019 US$'000 2018 US$'000 4,428 3,191 (8,689) (10,485) 1,013 1,013 1,273 2,059 10% decrease in EUR 10% decrease in USD 2019 US$'000 44 44 2018 US$'000 4,692 9,186 2019 US$'000 9,957 (24,072) 2018 US$'000 (5,818) 856 In management’s opinion, the sensitivity analysis is not fully representative of the inherent foreign exchange risk as the year-end exposure may not reflect the exposure during the course of the year. _______________________________________________________________________________________ 70 70 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 14. FINANCIAL RISK MANAGEMENT (CONTINUED) Forward foreign exchange contracts BOART LONGYEAR LIMITED There were no open forward foreign currency contracts as at 31 December 2019 or 2018. Interest rate risk management Most of the Company’s loan portfolio is at fixed interest rates, as such it has less exposure to variable interest rates than fixed interest rates. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Company’s Treasurer and Board. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Liquidity risk The following tables reflect the expected maturities of non-derivative financial liabilities as at 31 December 2019 and 2018. These are based on the undiscounted expected cash flows of financial liabilities based on the maturity profile per the loan agreement. The table includes both interest and principal cash flows. The adjustment column represents the possible future cash flows attributable to the instrument included in the maturity analysis which are not included in the carrying amount on the balance sheet. Weighted average effective interest rate % Less than 1 to 3 3 months to 1 year 1 month months US$'000 US$'000 US$'000 1 - 5 years 5+ years US$'000 US$'000 Adjust- ment US$'000 Total US$'000 31 December 2019 Non-interest bearing payables Variable interest rate instruments Fixed interest rate instruments Leases 31 December 2018 Non-interest bearing payables Variable interest rate instruments Fixed interest rate instruments Leases - 76,338 34,785 - - 5.3% 8.1% 6.6% 154 308 1,386 37,786 - 774 77,266 - 1,447 36,540 - 6,107 7,493 885,421 20,872 944,079 - - - 7,435 7,435 - 111,123 (4,733) 34,901 (170,639) - (175,372) 714,782 36,635 897,441 - 93,091 18,107 - - 5.7% 8.1% 7.1% 142 283 1,274 31,008 - 98 93,331 - 196 18,586 - 884 2,158 916,232 3,765 951,005 - - - - - - 111,198 (2,654) 30,053 (227,760) - (230,414) 688,472 4,943 834,666 _______________________________________________________________________________________ 71 71 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 14. FINANCIAL RISK MANAGEMENT (CONTINUED) Liquidity risk (continued) BOART LONGYEAR LIMITED 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. 2019 Non-interest bearing receivables Cash 2018 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 56,586 20,240 76,826 45,269 11,883 - - 45,269 11,883 113,738 20,240 133,978 62,535 38,942 101,477 48,778 - 48,778 8,269 - 8,269 119,582 38,942 158,524 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. _______________________________________________________________________________________ 72 72 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 15. PROPERTY, PLANT AND EQUIPMENT BOART LONGYEAR LIMITED 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. Leasehold improvement 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 5 - 10 5 - 12 1 - 5 5 - 10 years years years years years 3 - 5 1 - 7 years years Depreciation methods, useful lives and residual values are reassessed at each reporting date. Leased assets The Company adopted AASB 16 as of 1 January 2019. The company used the “modified retrospective” approach for adopting AASB 16, which did not require retrospective application of lease-related balances in comparative periods within the financial statements and disclosures. Property, Plant and Equipment balances for the year ended 31 December 2018 include lease accounting under guidance in IAS 17, classifying agreements as finance leases or operating leases. See Note 25 for a description of the effects of the adoption of AASB 16. Under IAS 17, Leases were classified as finance leases when the terms of the leases transferred substantially all the risks and rewards incidental to ownership of the leased assets to the Company. All other leases were classified as operating leases. _______________________________________________________________________________________ 73 73 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 15. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Land and Buildings US$'000 Plant and Equipment US$'000 Balance at 1 January 2018 Additions Disposal Transfer from CIP Currency movements Balance at 31 December 2018 Additions Adoption of AASB 16 Disposal Asset Classification Transfer Transfer from CIP Currency movements Balance at 31 December 2019 Accumulated depreciation and impairment: Balance at 1 January 2018 Depreciation Impairment Disposal Currency movements Balance at 31 December 2018 Depreciation Impairment Disposal Asset Classification Transfer Currency movements Balance at 31 December 2019 Net book value at 31 December 2018 Net book value at 31 December 2019 47,673 8 (2,067) 5,754 (2,365) 49,003 - - (31) (57) 1,280 364 50,559 (16,500) (1,965) - 1,310 1,403 (15,752) (2,065) - 31 259 (391) (17,918) 33,251 32,641 595,836 1,260 (51,227) 39,084 (35,373) 549,580 2,921 - (32,176) (6,171) 31,741 (3,402) 542,493 (527,092) (29,164) (123) 46,040 28,690 (481,649) (23,424) (210) 29,656 - 3,025 (472,602) 67,931 69,891 Right of Use Assets US$'000 - - - - - - 14,042 26,483 (785) 6,228 - 264 46,232 - - - - - - (9,275) - 282 (259) (1,375) (10,627) - 35,605 BOART LONGYEAR LIMITED Construction in Progress US$'000 Total US$'000 18,213 38,088 - (44,838) 1,453 12,916 45,773 - - - (33,021) 1,232 26,900 - - - - - - - - - - - - 12,916 26,900 661,722 39,356 (53,294) - (36,285) 611,499 62,736 26,483 (32,992) - - (1,542) 666,184 (543,592) (31,129) (123) 47,350 30,093 (497,401) (34,764) (210) 29,969 - 1,259 (501,147) 114,098 165,037 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 salability within a reasonable timeframe. As a result of this exercise, the Company recorded an impairment loss at 31 December 2019 and 31 December 2018 of $0.2 million and $0.1 million, respectively, on property, plant, and equipment. The revised carrying values are then included in the assessment of the recoverable value of the relevant cash generating unit to which the property, plant, and equipment relates. _______________________________________________________________________________________ 74 74 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 16. GOODWILL AND OTHER ASSET IMPAIRMENT CONSIDERATIONS BOART LONGYEAR LIMITED 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 Gross carrying amount: Balance at 1 January 2018 Acquisiton of business Currency movements Balance at 31 December 2018 Balance at 1 January 2019 Currency movements Balance at 31 December 2019 Note US$'000 33 101,196 3,940 (1,277) 103,859 103,859 599 104,458 _______________________________________________________________________________________ 75 75 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 BOART LONGYEAR LIMITED 16. GOODWILL AND OTHER ASSET IMPAIRMENT CONSIDERATIONS (CONTINUED) Allocation of goodwill to cash-generating units Goodwill has been allocated for impairment testing purposes to individual cash-generating units. The carrying amount of goodwill by geographic segment allocated to cash-generating units that are significant individually or in aggregate is as follows: Goodwill by cash-generating units North America Drilling Services Geological Data Services (GDS) 2019 US$'000 100,549 3,909 104,458 2018 US$'000 99,919 3,940 103,859 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. 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 North America Drilling Services CGU, the Company performed a goodwill impairment test at 31 December 2019 and the recoverable amount for the North America Drilling Services CGU exceeded the carrying amount. Goodwill arising from the acquisition of Globaltech was also tested for impairment and the recoverable amount for the Geological Data Services CGU exceeded the carrying amount. Consequently, no goodwill impairments were recorded for the years ended 31 December 2019 and 2018. 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. _______________________________________________________________________________________ 76 76 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 BOART LONGYEAR LIMITED 16. 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 • Rates of inflation in the countries where the Company does business (sourced CapIQ) • Price and volume expectations over the forecast period Expenses In determining gross margin and SG&A expenses, management has considered the impacts of recent programs and other initiatives already taken within the business and similar future initiatives to reduce operational costs. The recoverable value assessment of the North America Drilling Services CGU is based on gross margin increasing as a result of the reduction in costs and improved market conditions. 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 11.1% 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 11.6% and the terminal growth rate of 3.0% 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 individually assessed the impact of a 20.0% decrease to revenue, a 10.0% increase to SG&A expense and a 2.0% reduction to gross margin assumptions, each of which resulted in no impairment. _______________________________________________________________________________________ 77 77 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 17. OTHER INTANGIBLE ASSETS Trademarks and trade names BOART LONGYEAR LIMITED 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. 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 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 2 - 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. _______________________________________________________________________________________ 78 78 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 17. OTHER INTANGIBLE ASSETS (CONTINUED) BOART LONGYEAR LIMITED Gross carrying amount: Balance at 1 January 2018 Additions Acquisition of business Disposals Currency movements Balance at 31 December 2018 Balance at 1 January 2019 Additions Disposals Currency movements Balance at 31 December 2019 Accumulated amortisation: Balance at 1 January 2018 Amortisation for the period Disposals Impairment for the period Currency movements Balance at 31 December 2018 Balance at 1 January 2019 Amortisation for the period Disposals Impairment for the period Currency movements Balance at 31 December 2019 Trademarks Patents US$'000 US$'000 Customer relationships and other US$'000 Develop- ment Software assets US$'000 US$'000 3,060 27 1 - - 3,088 3,088 - (1,140) (1) 1,947 - - - - - - - - 1,140 (1,140) - - 8,097 815 353 (52) (7) 9,206 9,206 726 (1) (3) 9,928 (1,984) (388) - - - (2,372) (2,372) (1,036) - (2,479) - (5,887) 42,960 - - - (2,206) 40,754 40,754 - - 109 40,863 (37,089) (1,124) - - 2,195 (36,018) (36,018) (1,019) - - (108) (37,145) 89,141 - - (12) (29) 89,100 89,100 375 - 2 89,477 (85,432) (2,693) 28 (18) 23 (88,092) (88,092) (532) - - (4) (88,628) 46,842 1,174 7,436 - (244) 55,208 55,208 2,524 (12,486) (184) 45,062 (31,486) (1,241) - (410) 26 (33,111) (33,111) (1,997) 12,490 (5,332) (33) (27,983) Total US$'000 190,100 2,016 7,790 (64) (2,486) 197,356 197,356 3,625 (13,627) (77) 187,277 (155,991) (5,446) 28 (428) 2,244 (159,593) (159,593) (4,584) 13,630 (8,951) (145) (159,643) Net book value at 31 December 2018 Net book value at 31 December 2019 3,088 1,947 6,834 4,041 4,736 3,718 1,008 849 22,097 17,079 37,763 27,634 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 2019 and 31 December 2018 on trademarks, patents and development assets of $9.0 million and $0.4 million, respectively. 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 2019 (2018: $6.6 million). _______________________________________________________________________________________ 79 79 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 18. TRADE AND OTHER PAYABLES BOART LONGYEAR LIMITED Trade payables and other payables are carried at amortised cost. They represent unsecured liabilities for goods and services provided to the Company prior to the end of the financial period that are unpaid and arise when the Company becomes obligated to make future payments. Current Trade payables Accrued payroll and benefits Goods and services tax payable Accrued interest Accrued legal and environmental Professional fees Accrued drilling costs Other sundry payables and accruals 2019 US$'000 2018 US$'000 65,177 23,655 4,457 420 6,339 3,242 2,538 5,295 111,123 52,685 23,834 11,572 192 4,405 4,583 2,572 5,139 104,982 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. _______________________________________________________________________________________ 80 80 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 19. LOANS AND BORROWINGS BOART LONGYEAR LIMITED 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 Secured - at amortised cost Current Lease liabilities Non-current Senior notes Term loans Accreted interest Revolver bank loans Debt issuance costs Original issue discount 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 2019 US$'000 2018 US$'000 88,882 3,159 88,882 1,791 8,328 1,183 217,035 292,441 68,240 79,904 (1,605) (400) 28,329 784,313 8,328 775,985 784,313 8,328 6,897 755,044 4,436 11,613 786,318 (400) (1,605) 784,313 217,035 292,441 43,317 75,054 (1,017) (1,000) 3,765 721,451 1,183 720,268 721,451 1,183 83,020 1,100 637,555 610 723,468 (1,000) (1,017) 721,451 _______________________________________________________________________________________ 81 81 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 19. LOANS AND BORROWINGS (CONTINUED) Senior notes BOART LONGYEAR LIMITED Senior Unsecured Notes The Company has $88.9 million of senior unsecured notes outstanding as at 31 December 2019 and 2018. These 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 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 The Company has $217.0 million of senior secured notes outstanding as at 31 December 2019 and 2018. These notes carry an interest rate of 12% per annum which is payable-in-kind until 31 December 2018 and thereafter in cash at the reduced interest rate of 10% per annum with a scheduled maturity date of December 2022. The Company may redeem all or a portion of the notes prior to maturity subject to certain conditions, including in certain cases the payment of premiums or make-whole amounts. With respect to the senior notes issued by the Company, the indenture governing those senior notes includes covenants that restrict the Company’s ability to engage in certain activities, including incurring additional indebtedness and making certain restricted payments as well as a limitation on the amount of secured debt the Company may incur. The senior notes contain certain provisions that provide the note holders with the ability to declare a default, and accelerate the notes, should a default occur under either of the Term Loans that results in acceleration of such Term Loans. The senior notes do not require maintenance or testing of financial covenant ratios. Revolver Bank Loans ABL Available facility Drawn (i) Letters of credit (ii) Availability block Undrawn (iii) 31 December 2019 US$m 31 December 2018 US$m 75.0 34.9 5.6 10.0 24.5 75.0 50.0 30.0 5.9 - 14.1 50.0 (i) The Company has an asset based revolving bank facility with capacity of $75.0 million (31 December 2018: $50 million) of which $34.9 million (31 December 2018: $30.0 million) was drawn. An availability block of $10.0 million applied as at 31 December 2019, (31 December 2018 no availability block was applicable). As at 31 December 2019 the Facility limit was $65.0 million (31 December 2018 the Facility limit was $50.0 million). (ii) As at 31 December 2019, $5.6 million (31 December 2018: $5.9 million) of outstanding letters of credit were drawn under the facility. (iii) Facility less the availability block of 15% ($9.75 million at 31 December 2019) is to be maintained as of the last day of any month or a trigger event may occur. If a trigger event occurs the agent can provide an activation notice that will allow them to access all funds deposited into “Blocked Bank Accounts.” These funds will become the property of the agent and will be applied to outstanding advances. Interest on drawn amounts and letters of credit are based on a base rate plus margin (30-day USD LIBOR plus 3.20%). The 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 over 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). Scheduled maturity date of the facility is July 2022. As at 31 December 2019 the Company was in compliance with all of its debt covenants. (Refer below). _______________________________________________________________________________________ 82 82 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 19. LOANS AND BORROWINGS (CONTINUED) BOART LONGYEAR LIMITED Backstop ABL The term loan facility 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 2022. As at 31 December 2019 and 2018, the amount outstanding under this facility was $45.0 million. As at 31 December 2019, the Company was in compliance with all of its debt covenants. (Refer below). 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. Since inception and until 31 December 2018, interest of $47.6 million and $34.8 million had accreted for Tranche A and Tranche B loans, respectively. On 31 December 2018, the issuer of these loans was changed from Boart Longyear Management Pty. Ltd. to BL Capital Management LLC and the accreted interest to 31 December 2018 was capitalised to the principal balance. No changes to interest rates or maturity dates were made. Tranche A As at 31 December 2019 and 2018, the amount outstanding was $132.5 million, respectively. 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 2019 and 2018, the amount outstanding under Tranche B was $159.9 million, respectively. 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. The Company’s Term Loans, ABL, and Backstop ABL require that obligors under the term loans account for at least 60% of consolidated Group EBITDA and total Tangible Assets. This covenant is tested at each publicly released financial report. The Group’s position in relation to these metrics was as follows: Metric % of Consolidated EBITDA % of Consolidated Tangible Assets Target Range Equal or more than 60% Equal or more than 60% 2019 71% 73% 2018 82% 64% _______________________________________________________________________________________ 83 83 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 19. LOANS AND BORROWINGS (CONTINUED) BOART LONGYEAR LIMITED Further details around the Issuer/Borrower and Guarantors of the Company’s debt instruments are included below: Description Issuer/Borrower Guarantors Australia: Boart Longyear Australia Pty Limited, Boart Longyear Limited, Boart Longyear Investments Pty Limited and Votraint No. 1609 Pty Limited Canada: Boart Longyear Canada, Boart Longyear Manufacturing Canada Ltd. and Longyear Canada, ULC Senior Secured Notes Boart Longyear Management Pty Limited Chile: Boart Longyear Chile 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., BL Capital Management LLC, BLY US Holdings Inc. and Longyear TM, Inc. Australia: Boart Longyear Australia Pty Limited, Boart Longyear Limited, Boart Longyear Investments Pty Limited and Votraint No. 1609 Pty Limited Canada: Boart Longyear Canada, Boart Longyear Manufacturing Canada Ltd. and Longyear Canada, ULC Senior Unsecured Notes Boart Longyear Management Pty Limited Chile: Boart Longyear Chile 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., BL Capital Management LLC, BLY US Holdings Inc. and Longyear TM, Inc. Australia: Boart Longyear Management Pty Limited, Boart Longyear Australia Pty Limited, Boart Longyear Limited, Boart Longyear Investments Pty Limited and Votraint No. 1609 Pty Limited Canada: Boart Longyear Canada, Boart Longyear Manufacturing Canada Ltd. and Longyear Canada, ULC Term Loan A BL Capital Management LLC Chile: Boart Longyear Chile 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., BLY US Holdings Inc. and Longyear TM, Inc. Term Loan B BL Capital Management LLC Same as Term Loan A Australia: Boart Longyear Australia Pty Limited, Boart Longyear Limited, Boart Longyear Investments Pty Limited and Votraint No. 1609 Pty Limited Canada: Boart Longyear Canada, Boart Longyear Manufacturing Canada Ltd. and Longyear Canada, ULC ABL Boart Longyear Management Pty Limited Chile: Boart Longyear Chile 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., BL Capital Management LLC, BLY US Holdings Inc. and Longyear TM, Inc. Backstop ABL Boart Longyear Management Pty Limited Same as ABL _______________________________________________________________________________________ 84 84 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 20. PROVISIONS BOART LONGYEAR LIMITED 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 based on rates that the Company expects to pay as at the 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 short-term employee benefits 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 the 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 provides statutory product warranties through its contracts with customers and does not offer the option to purchase warranties separately. 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 Due to the adoption of AASB 16 as at 1 January 2019, onerous lease provisions were derecognised and recorded as an adjustment to the lease right of use asset balances. Adoption of AASB 16 does not require retrospective adjustments. As at 31 December 2018 a provision for onerous contracts was recognised when the expected benefits to be derived from a contract were less than the unavoidable cost of meeting its obligations under the contract. The provision was 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) Provision for tax contingencies (Note 10) Onerous leases 2019 US$'000 2018 US$'000 8,820 4,684 933 - 14,437 403 10,349 63,792 - 74,544 88,981 11,561 6,054 1,268 1,008 19,891 1,291 8,682 68,671 819 79,463 99,354 _______________________________________________________________________________________ 85 85 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 21. PENSION AND POST-RETIREMENT BENEFITS BOART LONGYEAR LIMITED 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 2019 and 2018, there were no significant outstanding/prepaid contributions. Company contributions to these plans were $9.0 million and $6.0 million for the years ended 31 December 2019 and 2018, 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 weighted-average maturity profile of the defined benefit obligations in North America was 11.0 years and in Europe was 14.5 years for both 2019 and 2018. 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 2019 by qualified independent actuaries. The estimated market value of the assets of the funded pension plans was $207.9 million and $193.5 million at 31 December 2019, and 2018, 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 2019 and 2018 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. _______________________________________________________________________________________ 86 86 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 21. PENSION AND POST-RETIREMENT BENEFITS (CONTINUED) BOART LONGYEAR LIMITED Company contributions to these plans were $2.7 million and $6.0 million during the years ended 31 December 2019 and 2018, respectively. Contributions in 2020 are expected to be $3.4 million. The principal assumptions used to determine the actuarial present value of benefit obligations and pension costs are detailed below (shown in weighted averages): Discount rates Expected Average Rate Increases: Salaries Pensions in payment Healthcare costs (initial) Healthcare costs (ultimate) 2019 2018 North America 3.3% Europe 0.4% North America 4.3% Europe 1.8% 3.5% - 5.0% 5.0% 3.0% 1.5% - - 3.5% - 5.0% 5.0% 3.0% 1.5% - - Amounts recognised in profit or loss in respect of these defined benefit plans are as follows: 2019 Post- retirement Pension Plan medical Plan US$'000 1,088 415 1,503 US$'000 - 11 11 Total US$'000 1,088 426 Pension Plan US$'000 1,083 411 1,514 1,494 2018 Post- retirement medical Plan US$'000 - 12 12 Total US$'000 1,083 423 1,506 Current service cost Net interest expense Total charge to profit and loss account For the financial years ended 31 December 2019 and 2018, charges of approximately $1.3 million and $1.3 million, respectively, have been included in cost of goods sold and the remainder in general and administrative or sales and marketing expenses. _______________________________________________________________________________________ 87 87 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 BOART LONGYEAR LIMITED 21. PENSION AND POST-RETIREMENT BENEFITS (CONTINUED) Changes in the present value of the defined benefit obligations were as follows: Opening defined benefit obligation Current service cost Interest cost Actuarial losses arising from demographic assumptions Actuarial losses(gains) arising from financial assumptions Exchange differences on foreign plans Benefits paid Closing defined benefit obligation 2019 Post- retirement Medical Plan US$'000 339 - 11 Total US$'000 202,224 1,088 6,374 2018 Post- retirement Medical Plan US$'000 417 - 13 Pension Plan US$'000 223,271 1,083 6,243 - 11 14 (54) 321 168 231 18,296 2,124 (11,979) 218,295 (7,803) (10,388) (10,752) 201,885 - (5) (31) (55) 339 Pension Plan US$'000 201,885 1,088 6,363 168 18,285 2,110 (11,925) 217,974 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 (losses) 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 2019 Post- retirement Medical Plan US$'000 - - - - - 54 (54) - Pension Plan US$'000 193,542 6,032 16,601 (1,215) 2,261 2,650 (11,925) 207,946 Total US$'000 193,542 6,032 16,601 (1,215) 2,261 2,704 (11,979) 207,946 Pension Plan US$'000 211,087 5,911 (6,910) (1,045) (10,647) 5,898 (10,752) 193,542 2018 Post- retirement Medical Plan US$'000 - - - - - 55 (55) - Total US$'000 223,688 1,083 6,256 231 (7,808) (10,419) (10,807) 202,224 Total US$'000 211,087 5,911 (6,910) (1,045) (10,647) 5,953 (10,807) 193,542 Assumed healthcare cost trend rates impact the amounts recognised in profit or loss. A one percentage point change in assumed healthcare cost trend rates would have the following effects: One percentage point increase Effect on the aggregate of the service cost and interest cost Effect on accumulated post-employment benefit obligation One percentage point decrease Effect on the aggregate of the service cost and interest cost Effect on accumulated post-employment benefit obligation 2019 US$'000 2018 US$'000 - 2 - (2) - 1 - (1) _______________________________________________________________________________________ 88 88 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 22. ISSUED CAPITAL BOART LONGYEAR LIMITED 2019 Shares '000 US$'000 2018 Shares '000 US$'000 Ordinary shares Share capital Ordinary shares, fully paid 87,656 1,463,185 26,296,215 1,463,185 Movements in ordinary shares Balance at beginning of year Share consolidation1 Issued to Directors Balance at end of the year Total shares outstanding Shares held in trust Balance at end of the year Issued Warrants Warrants issued but not exercised Share consolidation1 Balance at end of the year 26,296,215 (26,208,559) - 87,656 87,656 - 87,656 1,463,185 - - 1,463,185 1,463,185 - 1,463,185 26,289,795 - 6,420 26,296,215 26,296,215 - 26,296,215 1,463,167 - 18 1,463,185 1,463,185 - 1,463,185 2019 Warrants '000 US$'000 2018 Warrants '000 US$'000 731,082 (728,642) 2,440 5,591 - 5,591 731,082 - 731,082 5,591 - 5,591 (1) On 30 October 2019, the Company completed a consolidation of the Company’s issued capital on a basis that every 300 shares be consolidated into 1 share. _______________________________________________________________________________________ 89 89 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 23. DIVIDENDS BOART LONGYEAR LIMITED No dividend has been determined for 31 December 2019 or 31 December 2018. There are no franking credits available for the years ended 31 December 2019 or 2018. 24. COMMITMENTS FOR EXPENDITURE The Company has the following continuing operational and financial commitments in the normal course of business: Capital commitments Purchase commitments for capital expenditures Lease Commitment for short-term and low-value leases 2019 US$'000 2018 US$'000 3,531 10,574 3,560 8,426 25. LEASE COMMITMENTS AASB 16 – Leases General impact of application of AASB 16 Leases AASB 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements for both lessors and lessees. AASB 16 supersedes the lease guidance including IAS 17 Leases and the related Interpretations when it became effective for the accounting period beginning on 1 January 2019. The date of initial application of AASB 16 for the Company was 1 January 2019. The Company has chosen the modified retrospective application of AASB 16 in accordance with AASB 16.C5(b). Consequently, the Company has not restated the comparative information. Impact of the new definition of a lease The Company has made use of the practical expedient available on transition to AASB 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to apply to those leases entered into, or modified, before 1 January 2019. The change in definition of a lease mainly relates to the concept of control. AASB 16 distinguishes between leases and service contracts on the basis of whether the use of an identified asset is controlled by the customer. Control is considered to exist if the customer has: • • The right to obtain substantially all of the economic benefits from the use of an identified asset; and The right to direct the use of that asset. The Company has applied the definition of a lease and related guidance set out in AASB 16 to all lease contracts entered into or modified on or after 1 January 2019. In preparation for the first-time application of AASB 16, the Company has carried out an implementation project. The project has shown that the new definition in AASB 16 will not change significantly the scope of contracts that meet the definition of a lease for the Company. Impact on Lessee Accounting Operating leases AASB 16 has changed how the Company accounts for leases previously classified as operating leases under IAS 17, which were off-balance sheet. _______________________________________________________________________________________ 90 90 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 25. LEASE COMMITMENTS (CONTINUED) BOART LONGYEAR LIMITED On initial application of AASB 16, for all leases (except as noted below), the Company has: a) Recognised right-of-use (ROU) assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future lease payments; b) Recognised depreciation of ROU assets and interest on lease liabilities in the consolidated statement of profit or loss; c) Separated the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated cash flow statement. Lease incentives (e.g. rent-free period) will be recognised as part of the measurement of the ROU assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease liability incentive, amortised as a reduction of rental expenses on a straight-line basis. Under AASB 16, ROU assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This will replace the previous requirement to recognise a provision for onerous lease contracts. For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and office furniture), the Company recognised a lease expense on a straight-line basis as permitted by AASB 16. The Company recognised ROU assets with a net book value of $31.3 million and lease liability of $33.0 million at 1 January 2019, the adoption date of this standard, valued using a weighted average incremental borrowing rate of 9.52%. At 31 December 2019, the Company has ROU assets with a net book value of $35.6 million and corresponding lease liabilities of $36.6 million. Payments for low-value and short-term leases are presented in the Consolidated Statement of Profit and Loss within expenses contributing to Operating profit/(loss). Payments for low-value leases during 2019 totaled $0.3 million, while payment for short-term rent leases totaled $8.1 million. ROU assets and depreciation by asset type are as follows: Balance at 31 December 2019 Leased Asset Cost Lease Asset Accumulated Depreciation Net book value at 31 December 2019 Land and Plant and Buildings Equipment Total US$'000 US$'000 US$'000 29,516 (5,363) 24,153 16,716 (5,264) 11,452 46,232 (10,627) 35,605 2019 Depreciation Expense 5,474 3,801 9,275 The impact on profit or loss for the year ended 31 December 2019 was to decrease rent expenses by $9.2 million, therefore increasing EBITDA by that amount. There was also an increase in depreciation by $9.3 million, and an increase in interest expense by $2.7 million. Under AASB 117, all lease payments on operating leases were presented as part of cash flows from operating activities. The YTD impact of the changes under AASB 16 resulted in an increase in cashflows from operating activities by $5.6 million and a decrease in cashflows from financing activities by $6.1 million. The Company has made use of the practical expedient to not separate non-lease and lease components at the adoption date (AASB 16:15). _______________________________________________________________________________________ 91 91 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 25. LEASE COMMITMENTS (CONTINUED) Finance leases BOART LONGYEAR LIMITED The main differences between AASB 16 and AASB 117 with respect to assets formerly held under a finance lease is the measurement of the residual value guarantees provided by the lessee to the lessor. AASB 16 requires that the Company recognises as part of its lease liability only the amount expected to be payable under a residual value guarantee, rather than the maximum amount guaranteed as required by AASB 117. Management assessed this change and determined that it does have a significant impact on the amounts recognised between AASB 117 and AASB 16. On initial application, the Company presented equipment previously included in property, plant and equipment within the line item for ROU assets and the lease liability, previously presented within borrowing, are presented in a separate line for lease liabilities. See Note 19. Impact on Lessor Accounting Under AASB 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently. However, AASB 16 has changed and expanded the disclosures required, in particular regarding how a lessor manages the risks arising from its residual interest in leased assets. Under AASB 16, an intermediate lessor accounts for the head lease and the sublease as two separate contracts. The intermediate lessor is required to classify the sublease as a finance or operating lease by reference to the ROU asset arising from the head lease (and not by reference to the underlying asset as was the case under AASB 117). The Company does not currently act as the lessor for any assets, therefore, the impacts of AASB 16 do not have a material effect on the financial statements in either the current or prior years. 26. 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 2019 are as follows: Subsidiary Australia Australia Australia Australia United States United States United States Purpose Secure a facility rental Secure a facility rental Secure a facility rental Secure credit facility Secure workers compensation program Secure DS bonding program Secure insurance program Expiration Date August 2020 September 2020 October 2020 April 2021 January 2020 January 2020 August 2020 Amount US $'000 485 437 56 271 100 2,670 1,600 5,619 Financial guarantee contract liabilities are measured initially at their fair values and subsequently at the higher of the amount recognised as a provision or the amount initially recognised less cumulative amortisation in accordance with the revenue recognition policies described in Note 3. _______________________________________________________________________________________ 92 92 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 26. CONTINGENT LIABILITIES (CONTINUED) A summary of the maturity of issued letters of credit is as follows: Less than 1 year 1 to 3 years Guarantees BOART LONGYEAR LIMITED 2019 US$'000 2018 US$'000 5,348 271 5,619 5,859 - 5,859 The subsidiaries of the Company provide guarantees within the normal course of business which includes payment guarantees to cover import duties, taxes, performance and completion of contracts. In addition, the Parent and certain subsidiaries are guarantors on the Company’s loans and borrowings. See Note 19. Legal contingencies The Company is subject to certain routine legal proceedings that arise in the normal course of its business. Management believes that the ultimate amount of liability, if any, for any pending claims of any type (either alone or combined) will not materially affect the Company’s operations, liquidity, or financial position taken as a whole. However, the ultimate outcome of any litigation is uncertain, and unfavourable outcomes could have a material adverse impact. Tax and customs audits The Company is subject to certain tax and customs audits that arise in the normal course of its business. Management believes that the ultimate amount of liability, if any, for any pending assessments (either alone or combined) would not materially affect the Company’s operations, liquidity, or financial position taken as a whole. However, the ultimate outcome of these audits is uncertain and unfavourable outcomes could have a material adverse impact. See additional disclosure in Note 10. Other contingencies Other contingent liabilities as at 31 December 2019 and 2018 consist of the following: Contingent liabilities Guarantees/counter-guarantees to outside parties 7,035 2,079 2019 US$'000 2018 US$'000 Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Company’s maximum exposure to credit risk without taking account of the value of any collateral obtained. See Note 14. Financial assets and other credit exposure Performance guarantees provided, including letters of credit Maximum credit risk 2019 2018 US$'000 US$'000 12,654 7,938 _______________________________________________________________________________________ 93 93 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 27. PARENT ENTITY DISCLOSURES Financial position BOART LONGYEAR LIMITED Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Reserves Accumulated losses Total equity Financial performance Loss for the year Total comprehensive loss 2019 US$'000 2018 US$'000 6,623 459,103 465,726 56,065 291,291 347,356 118,370 15,087 491,119 506,206 58,639 389,343 447,982 58,224 3,219,236 9,452 (3,110,318) 118,370 3,219,236 9,538 (3,170,550) 58,224 2019 US$'000 60,232 60,232 2018 US$'000 (37,441) (37,441) Guarantees entered into by the parent entity in relation to debts of its subsidiaries Other guarantees are described in Note 26. Contractual obligations As at 31 December 2019 and 2018, 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 10. Other guarantees are described in Note 26. _______________________________________________________________________________________ 94 94 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 28. COMPANY SUBSIDIARIES The Company’s percentage ownership of the principal subsidiaries are as follows: BOART LONGYEAR LIMITED Country of incorporation Business 31 Dec 2019 31 Dec 2018 Subsidiaries BL Capital Management LLC BL DDL Holdings Pty Ltd2 BL DDL II Holdings Pty Ltd1 BL Group Holdings Inc.3 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.2 BLY Mali S.A. BLY Senegal S.A. BLY Sierra Leone Ltd. BLY US Holdings Inc. Boart Longyear (Cambodia) Ltd.2 Boart Longyear (DRC) 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 Burkina Faso Sarl2 Boart Longyear B.V. Boart Longyear Canada Boart Longyear Chile Limitada Boart Longyear Colombia S.A.S.2 Boart Longyear Company Boart Longyear Consolidated Holdings, Inc.1 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 Kazakhstan Boart Longyear Eritrea Ltd. Boart Longyear Finance Ltd.3 Boart Longyear Global Holdco, Inc.1 Boart Longyear GmbH & Co., KG Boart Longyear Holdings (Thailand) Co., Ltd.2 Boart Longyear Incorporated3 Boart Longyear International B.V. Boart Longyear International Holdings, Inc.1 Boart Longyear Investments Pty Ltd Eritrea Canada USA Germany Thailand Canada Netherlands USA Australia USA Australia Australia Holding Company Holding Company Holding Company Cayman Island Holding Company Zambia Ivory Coast Drilling Services Drilling Services United Kingdom Holding Company Gabon Ghana Guinea USA Drilling Services Drilling Services Dormant Holding Company Madagascar Dormant Mali Senegal Sierra Leone USA Cambodia Drilling Services Drilling Services Drilling Services Holding Company Dormant Dem. Rep. of Congo Drilling Services New Zealand Drilling Services Australia Australia Canada Argentina Australia Australia Burkina Faso Netherlands Canada Chile Colombia USA USA Mexico Mexico China Holding Company Holding Company Holding Company Drilling Services Holding Company Drilling Services Drilling Services Drilling Products Drilling Products and Services Drilling Products and Services Dormant Drilling Products and Services Holding Company Drilling Services Dormant Drilling Products and Services Drilling Services Drilling Services Holding Company Holding Company Drilling Products and Services Drilling Services Holding Company Holding Company Holding Company Holding Company 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 - 100 100 100 100 - 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 - 100 100 100 _______________________________________________________________________________________ 95 95 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 28. COMPANY SUBSIDIARIES (CONTINUED) BOART LONGYEAR LIMITED Country of incorporation Business 31 Dec 2019 31 Dec 2018 Subsidiaries Boart Longyear Liberia Corporation Boart Longyear Limitada Boart Longyear Limited Boart Longyear Limited1 Boart Longyear LLC 2 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 2 Boart Longyear RUS2 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 Limited2 Cooperatief Longyear Holdings UA Dongray Industrial Limited2 Drillcorp Pty Ltd1 Geoserv Pesquisas Geologicas S.A. Globaltech Corporation Pty Ltd 4 Inavel S.A. Longyear Canada, ULC Longyear Global Holdings, Inc.4 Longyear Holdings New Zealand, Ltd1 Longyear Holdings, Inc.1 Longyear South Africa (Pty) Ltd Longyear TM, Inc. North West Drilling Pty Limited1 P.T. Boart Longyear Patagonia Drill Mining Services S.A. Resources Services Holdco, Inc.1 Votraint No. 1609 Pty Ltd (1) This entity was merged or dissolved in 2019 (2) This entity is currently in liquidation status (3) This entity was formed in 2019 (4) Boart Longyear became a majority shareholder in 2018 Liberia Brazil Ireland Thailand Drilling Services Drilling Products Drilling Products Drilling Services Russia Federation Drilling Products Australia Canada USA Holding Company Drilling Products Drilling Products Netherlands Holding Company Poland Drilling Products and Services Kazakhstan Drilling Products Russia Federation Drilling Services Peru Drilling Products and Services Saudi Arabia Dormant Laos Switzerland Canada Germany Zambia Drilling Services Holding Company Holding Company Holding Company Drilling Products Netherlands Holding Company United Kingdom Australia Brazil Australia Uruguay Canada USA Dormant Dormant Drilling Services Holding Company Drilling Services Drilling Products Holding Company New Zealand Dormant USA Holding Company South Africa Drilling Products and Services USA Australia Indonesia Argentina USA Australia Holding Company Dormant Drilling Services Drilling Services Holding Company Drilling Services 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 52 100 100 100 - - 100 100 - 100 100 - 100 _______________________________________________________________________________________ 96 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 52 100 100 100 100 100 100 100 100 100 100 100 100 96 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 29. RELATED PARTY TRANSACTIONS Transactions with key management personnel (i) Key management personnel compensation BOART LONGYEAR LIMITED Details of key management personnel compensation are disclosed in Note 8. (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 Term Loan A Term Loan B Backstop ABL Senior Secured Notes Backstop ABL Senior Secured Notes Unsecured Notes Ascribe Balances at 31 Dec 2019 US$'000 Interest expense for the financial year ended 31 Dec 2019 US$'000 143,691 173,219 15,032 21,618 5,270 59,751 41,910 11,094 13,374 1,631 2,162 571 5,975 623 _______________________________________________________________________________________ 97 97 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 30. CASH AND CASH EQUIVALENTS BOART LONGYEAR LIMITED Included in the cash balance at 31 December 2019 is $0.2 million of restricted cash and at 31 December 2018 $1.6 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. 31. 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: • $33.3 million of non-cash interest expense 32. 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 and effective Standard / Interpretation Effective for annual reporting periods beginning on or after Applied in the financial year ended AASB 16 'Leases' 1 January 2019 31 December 2019 Interpretation 23 'Uncertainty over Income Tax Treatments' AASB 16 – Leases 1 January 2019 31 December 2019 Details of the Company’s adoption of AASB 16 Leases is set out in Note 25. Interpretation 23 Uncertainty over Income Tax Treatments Interpretation 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The Interpretation requires an entity to: • • determine whether uncertain tax positions are assessed separately or as a group; and assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings: o o If yes, the entity should determine its accounting tax position consistently with the tax treatment used or planned to be used in its income tax filings. If no, the entity should reflect the effect of uncertainty in determining its accounting tax position. The Interpretation is effective for annual periods beginning on or after 1 January 2019. Entities can apply the Interpretation with either full retrospective application or modified retrospective application without restatement of comparatives retrospectively or prospectively. The Company used the modified retrospective approach for adopting IFRIC 23. Details of the Company’s adoption are set out in Note 10. _______________________________________________________________________________________ 98 98 BOART LONGYEAR 2019 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements For the financial year ended 31 December 2019 For the financial year ended 31 December 2019 33. ACQUISITION OF OPERATIONS BOART LONGYEAR LIMITED On 1 July 2018 the Boart Longyear acquired an additional 11.9% of the issued share capital of Globaltech Corporation Pty Ltd (“Globaltech”), increasing its shareholding to 51.7% and obtaining control of Globaltech. The direct parent entity of Globaltech is Votraint No. 1609 Pty Ltd (“Votraint”). The goodwill arising on the acquisition of Globaltech is related to the designing, development and manufacturing of electronic instrumentation for drilling operations for the mining industry. The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below. Financial assets Property, plant and equipment Research & development assets Current Tax Payable Deferred Tax Liability Financial liabilities Total identifiable assets Goodwill Total Assets Boart Longyear 51.7% share Satisfied by: Converting loans and accrued interest to ordinary shares of GlobalTech Total consideration transferred Fair Value US$’000 1,813 277 7,436 (922) (2,358) (785) 5,461 3,940 9,401 4,860 4,860 4,860 The fair value of the financial assets includes trade receivables with a fair value of $1.0 million. The goodwill of $3.9 million arising from the acquisition consists of the excess of the total consideration transferred and Votraint’s share (51.7%) of the fair value of Globaltech’s net assets at acquisition date. The non-controlling interest (48.3%) recognised at the acquisition date was measured by reference to the non-controlling share of the fair value of the net assets of Globaltech at acquisition date and amounted to $2.4 million. 34. SUBSEQUENT EVENTS None. _______________________________________________________________________________________ 99 99 BOART LONGYEAR 2019 ANNUAL REPORT SUPPLEMENTARY INFORMATION Additional Information as at 18 March 2020 ADDITIONAL INFORMATION as at 18 March 2020 1. Substantial shareholders The substantial shareholders as disclosed to the Company in substantial holders’ notices are: Holder Centerbridge Partners group of Companies (as set out in Form 604: Notice of change of interests of substantial holder lodged 12 June 2019) Ascribe group of Companies (as set out in Form 604: Notice of change of interests of substantial holder lodged 27 September 2017) Number of Ordinary Shares in which relevant interest held *14,156,931,140 **5,497,572,395 Subsequent to completion of the 300:1 Share consolidation on 11 November 2019, the number of shares held by each substantial shareholder is as follows: Centerbridge Partners group of Companies* Ascribe group of Companies** 2. Number of securities on issue and security holders (a) Quoted Securities i) Ordinary share capital 47,189,771 18,325,242 There are 87,753,905 quoted fully paid ordinary shares on issue under the ASX code “BLY”, held by 3,799 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. ii) Warrants There are 2,012,403 quoted warrants expiring 13 September 2024 held by 5,792 individual warrant holders, that are publically traded on the ASX under the code “BLYO”. The quoted warrants do not carry rights to vote (b) Unquoted Securities i) Options There are 90,150 unquoted share options on issue held by 14 individual option holders that are not publically traded on the ASX under the code “BLYAA”. The unquoted share options do not carry rights to vote. ii) Warrants There are 427,816 unquoted warrants held by 9 individual warrant holders that are not publically traded on the ASX under the code “BLYAC”. The unquoted warrants do not carry rights to vote. 3. 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 2859 666 130 119 25 3,799 Boart Longyear Annual Report 2020 131 100 BOART LONGYEAR 2019 ANNUAL REPORT SUPPLEMENTARY INFORMATION Additional Information as at 18 March 2020 4. Unmarketable parcel of shares The number of security investors holding less than a marketable parcel of 944 securities ($0.53 on 18/03/2020) is 2,766 and they hold 701,797 securities. 5. On-market buy back There is no current on-market buy-back of Boart Longyear shares 6. 20 Largest holders of quoted equity securities a) Fully paid ordinary shares No. Holder 1 CCP II DUTCH ACQUISITION - E2, B.V. 2 ASCRIBE II INVESTMENTS LLC 3 CCP CREDIT SC II DUTCH ACQUISITION - E, B.V. 4 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 5 J P MORGAN NOMINEES AUSTRALIA LIMITED 6 CS THIRD NOMINEES PTY LIMITED 7 MERRILL LYNCH (AUSTRALIA) NOMINEES LIMITED 8 CITICORP NOMINEES PTY LIMITED 9 MR JZHONG-WEI MIAO 10 MS LINLIN LI 11 KEONG LIM PTY LIMITED 12 MR JEFFREY OLSEN 13 MRS GUIXING JIAN 14 MR CHRISTOPHER STUART KING 15 RIADIS HOLDINGS PTY LTD 16 MR JAMES DOUGLAS KERN 17 RUSSELL INVESTMENTS 18 MR JIMMY YIP 19 ANDAMAX INVESTMENTS PTY LTD 20 MR ALLAN KEITH CLARKE TOTAL Fully Paid Ordinary Shares 29,544,846 18,301,318 13,467,607 6,820,869 6,155,146 1,264,037 838,584 767,125 450,000 383,334 286,747 270,135 268,688 250,023 245,000 202,602 202,444 189,239 175,000 170,000 80,252,744 Percent held of Issued Capital 33.67 20.86 15.35 7.77 7.01 1.44 0.96 0.87 0.51 0.44 0.33 0.31 0.31 0.28 0.28 0.23 0.23 0.22 0.20 0.19 91.45 Boart Longyear Annual Report 2020 131 101 BOART LONGYEAR 2019 ANNUAL REPORT SUPPLEMENTARY INFORMATION Additional Information as at 18 March 2020 6. 20 Largest holders of quoted equity securities (cont.) b) Warrants No. Holder 1 J P MORGAN NOMINEES AUSTRALIA LIMITED 2 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 3 CITICORP NOMINEES PTY LIMITED 4 SNOWSIDE PTY LTD 5 VFG ASSET MANAGEMENT PTY LTD 6 PACIFIC CUSTODIANS PTY LTD 7 OUTCOME POSITIVE PTY LTD 8 BNP PARIBAS NOMINEES PTY LTD 9 MRS SURANJITA MULVEY 10 MAURICI NOMINEES PTY LTD 11 MR KATSUO RAIMOTO 12 PACIFIC CUSTODIANS PTY LIMITED 13 DR SIL LIN TAN 14 MR BAREND JACOBUS STOLTZ 15 PACIFIC CUSTODIANS PTY LIMITED 16 GAZUMP RESOURCES PTY LTD 17 BUDDY TRADER PTY LTD 18 RIADIS HOLDINGS PTY LTD 19 DR PAUL FRANCIS MORTON 20 BNP PARIBAS NOMS PTY LTD Quoted Warrants 225,116 110,026 101,512 87,478 86,341 70,400 40,000 37,028 36,774 36,046 32,035 25,163 22,654 21,039 20,334 19,395 19,167 18,334 17,752 17,000 Percent held of Quoted Warrants 11.19 5.47 5.04 4.35 4.29 3.50 1.99 1.84 1.83 1.79 1.59 1.25 1.13 1.05 1.01 0.96 0.95 0.91 0.88 0.84 TOTAL 1,043,594 51.86% 7. Holders of 20% or greater of unquoted equity securities: a) Options No. Holder 1 MR RICHARD O’BRIEN TOTAL b) Warrants No. Holder 1 WATFORD RE LTD 2 CITICORP NOMINEES PTY LIMITED TOTAL Unquoted Options 45,737 45,737 Unquoted Warrants 188,750 140,240 328,990 Percent held of Unquoted Options 50.73% 50.73% Percent held of Unquoted Warrants 44.12 32.78 76.90 Boart Longyear Annual Report 2020 131 102 BOART LONGYEAR 2019 ANNUAL REPORT 103 BOART LONGYEAR 2019 ANNUAL REPORT104 BOART LONGYEAR 2019 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 2455 South 3600 West West Valley City, UT 84119 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 2455 South 3600 West West Valley City, UT 84119 United States of America Australia: +61 8 8375 8300 Others: +1 801 952 8343 Email: ir@boartlongyear.com 

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