ELECTRO OPTIC SYSTEMS HOLDINGS LIMITED
ACN 092 708 364
ANNUAL
REPORT
2013
www.eos‑aus.com
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CONTENTS
Review of Operations
Directors’ Report
Auditors’ 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 and forming part of the Financial Statements
ASX Additional Information
Twenty Largest Shareholders
Corporate Governance Statement
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1
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013
REVIEW OF OPERATIONS
1. RESULTS FOR FULL‑YEAR
ENDING 31 DECEMBER 2013
The consolidated entity earned a net profit during
the year of $1,562,746 (2012: $10,181,971 loss)
on revenues of $29,882,393 (2012: $21,919,748).
Net cash used by operating activities was $2,646,482
(2012 ‑ $3,784,501 provided by). As at 31 December 2013,
the consolidated entity had cash of $4,048,005
(2012 ‑ $6,686,194) of which $97,000 (2012 ‑ $400,393)
is restricted as it secures bank guarantees on existing
contracts with local and overseas customers. The cash
will become unrestricted when the contract is concluded
or renegotiated.
These results are broadly in line with management
expectations. The expected break‑even result
was improved by a small increase in revenue late
in 2013 but otherwise the full year was executed
to a management plan.
The overall net profit was 5.2% of revenue compares
favourably to the significant loss from the previous year.
EOS undertook a significant restructure in 2012
to permit break‑even operations on reduced revenue
of $30 million, and the result confirms the outcome
of that restructure.
It is also noteworthy that for the first time both
the defence systems sector and the space sector
were profitable. The respective profit levels bear
little relation to the outlook for these sectors, but the
results do indicate improving execution of contracts
and programs in both sectors. This will be particularly
important going forward.
2. DEFENCE SYSTEMS SECTOR
This sector develops, markets, manufactures and
supports remote weapon systems [RWS] and related
products in global markets. Key developments during
2013 relate to markets, partnerships, and new products.
Markets
Most EOS customers are undergoing dual crises
in defence spending, as they face severe budget
issues at the same time as the high and inescapable
2
costs associated with drawing down forces from
active theatres. In the period 2012‑2016 deliveries
of new RWS from all sources to EOS customers in US,
NATO and Australia are now expected to be less than
10% of the aggregate number delivered in the preceding
5 years by all providers. This tightening is more severe
than expected.
Recovery of the RWS market from 2016 will largely be
through new products and new technology. The promise
of new capabilities is contributing to the decline of
markets for current products as customers plan future
outlays around new technology and capabilities. EOS is
well placed here because it has new technology in hand,
and is closely linked to the future requirements of its key
customers through collaborative development programs.
These factors indicate the RWS market is
undergoing fundamental and irreversible change.
Competition has been very strong in the past few years,
but can be expected to thin as the years of tight market
conditions continue and the high cost of new technology
and low production rates eat into industry reserves.
Industry consolidation is likely and the competitive
landscape will change. With its strong customer loyalty
and co‑funding for advanced technology programs EOS
expects to emerge as a market leader from this difficult
period for the RWS industry.
For EOS the escalation of budget problems in its
home market in Australia has been problematic,
and the company expects that no new RWS deliveries
will be made to Australia during the next few years.
Growth markets for RWS are currently limited to Asia
and the Middle East. Although customer procurement
activity continued in these markets in 2012‑13 and EOS
has achieved some success, these programs will not
require production before 2015.
The RWS market is in transition through a prolonged and
severe reduction in customer budgets and requirements.
The market will not recover to its prior state, but will
emerge from 2016 with demands for new technology
and products that most providers will not have been
able to invest in due to reduced revenue and profits.
This situation presents both operational threats and
strategic opportunities for EOS.
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 REVIEW OF OPERATIONS (CONT)
New Products
EOS is committed to two key efforts to develop new
RWS products and technology:
A. On 26 June 2013 EOS announced a $3.4 million
award from the Australian Defence Force for the
development of next‑generation RWS for potential
ADF future requirements. The award was made
pursuant to RWS being classified as a Priority
Industry Capability by the Department of Defence.
Other customers are also contributing towards
similar developments for their own future needs.
This effort is on track to produce next‑generation
products by 2016.
In addition, product upgrades will be released during
2014 and 2015 to provide early access to new technology
through existing products. A new model of the EOS
R‑400 RWS, designated R‑400S, has been developed.
This will field a lightweight 30 mm canon for special
applications requiring light weapon systems with
firepower previously available only on heavy platforms.
B. EOS is also applying its RWS technology to
the development of remote unmanned turrets.
In 2006 EOS joined with a partner to develop a
turret to provide unprecedented 30‑40 mm canon
firepower to armoured vehicles. This turret has
met all performance goals and is now undergoing
pre‑production trials with production from 2016,
subject to continued customer funding. The company
expects to achieve strong market share in this
US$8 billion segment notwithstanding the
emergence of several strong competitors.
Each of these efforts has financial support and
participation from EOS’ customers. These joint programs
give EOS good insight to the scale and timing of the
recovery in customer funding for new RWS technology.
Strategic Partnerships
The emphasis on executing business through strategic
partners increased in 2013:
A. EOS announced on 30 October 2013 that it had
established an advanced RWS support facility
in Singapore in collaboration with Singapore
Technologies Kinetics [STK]. This is the latest step in
a long‑standing collaboration with STK. The facility
will allow RWS to be repaired from a base centrally
located in South East Asia and with excellent
transport and communications links to current and
potential customers in that region.
B. In Korea EOS is teamed with Hyundai‑Wia whose
Korean plants can now produce up to 70% of each
RWS required for the expanding Korean market.
EOS is collaborating with Hyundai to meet new
RWS requirements arising from major defence
contracts awarded to Hyundai as a prime contractor
during 2013.
C. EOS has identified a potential strategic partner
in the Middle East with strong market presence
and substantial current requirements for RWS.
EOS has exchanged written expressions of
intent with that entity relating to the potential
establishment of a RWS production site in the
Middle East in 2015.
3. SPACE SECTOR
This sector develops long‑range space sensors to
acquire unique data in space to support the provision
by EOS of data and/or services in global space markets.
The business model relates to applications of the data.
Sensors are not normally sold but deployed and operated
by EOS or its strategic partners.
Space Data
During 2013 EOS completed the automation of
operations for its space tracking sensors as well as a
wide range of operational testing. Formal completion
of testing spilled into Q1 2014 but all tests have been
successfully completed. These developments clear the
way for commercialisation of the technology which has
now commenced.
This is a major milestone in the long development and
testing program. EOS space customers have contributed
over $10 million towards the testing and performance
improvement of EOS’ current space sensors. EOS’ space
sensors can now be cost‑effectively reproduced to meet
the data requirements of space customers.
Data acquisition operations are expected to commence
from 1 July 2014. EOS has been offered new contracts
for data delivery and is on track to complete those
negotiations and execute the contracts before
1 July 2014.
The company’s ability to undertake sensor deployment
is a pre‑requisite to securing additional space
data contracts. EOS believes it has appropriate
arrangements in place to fund at least the initial stages
of space infrastructure deployment in 2014 and 2015.
3
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013
REVIEW OF OPERATIONS (CONT)
These sensor deployment arrangements are sufficient
to support all planned data marketing activities through
2014 and may be extendable to cover further expansion
of the business.
EOS is cautiously expanding its resources and
capabilities in space as it transitions from development
to commercial operations in 2014 and 2015.
Space CRC and Precinct
With the maturing of the space data business, EOS is
segregating its research and development activities
from its commercial operations. EOS is now sufficiently
confident of its commercial sensor program that it is
sharing its background technology towards the solution
of major problems for space industry and society,
such as the space debris threat.
EOS has led a team of the world’s major space research
entities which has won Commonwealth government
funding support for a Cooperative Research Centre
for Space Environment Management. CRC funding
from all participants will be around $60 million
over 5 years from 2014, including $20 million from
the Commonwealth. The CRC will research technological
solutions for major problems for space industry and
society in general, such as the space debris threat.
By pooling funds and resources through the CRC,
participants can more quickly achieve research
objectives with benefits to both participants and the
wider community. In the case of space there is a
significant premium on accelerating research outcomes.
EOS will undertake leadership of this CRC program
pursuant to a funding offer from the Australian
government for this CRC. This will be a completely
separate research activity from EOS commercial space
activities but will likely impact those commercial
activities in later years when more advanced
technologies will be required.
EOS has also led a large group of space industry
entities in seeking funding for the establishment of a
“Space Precinct” at Mount Stromlo. This initiative was
also successful but the level of government funding is
uncertain at this time. The Precinct is intended to draw
out synergies from among industry and publicly funded
entities engaged in space, to create more collective
opportunities and foster more cost‑effective solutions.
Partnerships
As in the Defence Systems sector, partnerships are
the preferred basis for expansion. For the Space
Systems sector, these partnerships are focussed on both
technology development and commercial exploitation.
EOS continues to work closely with its academic partners.
EOS has long‑term alliances with the Australian
National University [ANU] and the Royal Melbourne
Institute of Technology for technology development for
space applications. These collaborations are making good
progress towards our collective technical objectives.
EOS and ANU also continue to co‑develop new
technology in adaptive optics.
During 2013 EOS terminated an exclusive agreement
with Northrop Grumman Corporation relating to certain
collaborative space activities, to allow each organisation
to pursue those activities individually or through
new partnerships.
EOS also maintains agreements with European and
US aerospace entities to facilitate customer access
to EOS space data in those markets. New strategic
agreements with major aerospace entities globally
are in negotiation now that the space data business
is moving to commercialisation.
4. SUMMARY AND OUTLOOK
During 2013 the company has consolidated and
entrenched the major structural reforms implemented
in 2012. The key financial benefit of these changes
was forecast to be a reduction in fixed costs of at
least $5.5 million, and this target was achieved in the
first full year of implementation in 2013. Staff numbers
reduced to 94 at the end of the year compared to
104 at the end of the previous year.
This significant saving combined with careful execution
of a modest revenue program were the key elements in
the delivery of a satisfactory result in 2013.
The full‑year result is marginally better than the
management expectation at the outset of 2013 due to a
small increase in revenue over expectations late in 2013.
Company operations were conducted largely as planned
and expected by management.
4
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 REVIEW OF OPERATIONS (CONT)
In 2013 both EOS business sectors were profitable,
for the first time. However the outlook for the
company’s two sectors differs going forward.
The outlook for space sector is positive. The significant
investments made by EOS and its customers in
recent years to refine space sensor performance
have been successful and notwithstanding severe
constraints in funds in both government and commercial
customer segments, EOS expects its space sector to
be profitable in 2014 and that its revenue will grow in
coming years. In recent years demand has increased
for EOS’ planned space products and services.
The outlook for defence systems sector is mixed.
In the short term [2014] the outlook is similar
to recent years, where EOS achieved sufficient
revenue to sustain its capabilities and position for
the future. The longer term outlook for this sector
is more promising, with new technology and products
emerging from 2016. Strong ongoing customer
investment in those developments, combined with
success in meeting program objectives, gives EOS
confidence they will be contracted for delivery from
2016 and restore this sector’s revenue base.
However the confirmed order backlog for defence
systems sector product deliveries going forward are
substantially lower than customary. Less than 12 months
of order backlog is now held, and this will erode during
2014 unless new orders are obtained. Although customer
requirements can emerge rapidly, EOS has previously
held sufficient long term orders to ensure this sector’s
financial performance for up to two years going forward.
This shortfall in medium term orders is a new challenge
for the company, but EOS’ technology development and
product enhancement programs remain well funded
by customers. Those technology programs are a strong
foothold on future market position and the longer term
prospects for this EOS business are strong.
The RWS industry will probably not survive more
lean years to 2016 without change. Expectations of
a market recovery from 2016 for those providers
with new products and technology will likely trigger
industry consolidation. EOS expects to play a role in any
consolidation of the RWS industry because it is already
well placed to timely meet future market expectations.
Financial uncertainties can adversely impact the
governments which are EOS customers. The company
cannot be certain that future customer procurements
will continue as usual or that business conditions will
not deteriorate from current expectations.
As set out in Note 1(a) the financial statements have
been prepared on the basis that the company and the
consolidated entity are going concerns, which assumes
continuity of normal business activities and the
realisation of assets and the settlement of liabilities in
the ordinary course of business. Due to the uncertainties
disclosed in Note 1(a) the audit opinion includes an
emphasis of matter paragraph regarding going concern.
Ben Greene
Chief Executive Officer
18 March 2014
5
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 DIRECTORS’ REPORT
The directors of Electro Optic Systems Holdings Limited submit herewith the annual financial report of the company
for the year ended 31 December 2013. In order to comply with the provisions of the Corporations Act 2001, the directors
report as follows:
Directors
The names and particulars of the directors of the company during or since the end of the financial year are:
Name
Particulars
Fred Bart
Dr Ben
Greene
Chairman (Age 59). He has been Chairman and Director of numerous public and private companies
since 1980, specialising in manufacturing, property, technology and cancer research through the use
of immunotherapy. He is a member of the Australian Institute of Company Directors and is a member
of the Remuneration Committee. Appointed to the Board on 8 May 2000.
BE (Hons), PhD in Applied Physics (Age 63) is the Chief Executive Officer of Electro Optic Systems.
Dr Greene was involved in the formation of Electro Optic Systems. He is published in the subject
areas of weapon system design, laser tracking, space geodesy, quantum physics, satellite design,
laser remote sensing, and the metrology of time. Dr Greene is a member of Australia’s
Prime Ministers Science, Engineering and Innovation Council (PMSEIC), CEO of the Cooperative
Research Centre for Space Environment Management and Deputy Chair of the Western Pacific
Laser Tracking Network (WPLTN). Appointed to the Board on 11 April 2002.
Ian Dennis BA, C.A. (Age 56) is a Chartered Accountant with experience as director and secretary in various public
listed companies and unlisted technology companies in Australia and overseas. He has been involved in
the investment banking industry and stockbroking industry for the past twenty five years. Prior to that,
he was with KPMG, Chartered Accountants in Sydney. Appointed to the Board on 8 May 2000. He is a
member of the Australian Institute of Company Directors and is a member of the Audit Committee and
Remuneration Committee. He is also company secretary of Electro Optic Systems Holdings Limited.
Mark
Ureda
Lt Gen Peter
Leahy AC
Kevin
Scully
Non‑executive director (Age 59). Appointed to the Board on 28 April 2005. Mark was vice president,
Strategy and Technology for Northrop Grumman Corporation, a global defence company until
August 2010. Mark is now Vice President and General Manager of the Harman Professional
Loudspeaker Group. Mark received a bachelor’s degree in Engineering from the University of California
at Los Angeles, a master’s degree in Acoustics from the Pennsylvania State University and a master’s
degree in Finance from the UCLA Graduate School of Management.
Non‑executive director (Age 61). Appointed to the Board on 4 May 2009. Peter Leahy AC retired from
the Australian Army in July 2008 as a Lieutenant General in the position of Chief of Army. Among his
qualification he holds a BA (Military Studies), a Master of Military Arts and Science and is a member
of the Australian Institute of Company Directors. He is a Professor and the foundation Director of the
National Security Institute at the University of Canberra. He is a director of Codan Limited, the Kokoda
Foundation, a member of the Defence South Australia Advisory Board and Chairman of the Red Shield
Appeal in the ACT and the charity Soldier On. He is Chairman of the Audit Committee.
Non‑executive director (Age 56). Appointed to the Board on 19 September 2011. Kevin Scully has more
than 30 years of experience in equities research and analysis, corporate advisory and related matters,
having worked for more than 12 years in various positions such as the head of research and director
of Schroders and the Netresearch group (which he founded). Kevin is an advisor to two regulatory
authorities of the Singaporean Government (Commercial Affairs Department and the Monetary
Authority of Singapore) since 1999. In March 2014 he was appointed Adjunct Professor in the School of
Human Development and Social Services at SIM University. He is a member of the Audit Committee.
The above named directors held office during and since the end of the financial year.
6
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 DIRECTORS’ REPORT (CONT)
Directorships of Other Listed Companies
Directorships of other listed companies held by directors in the three years immediately before the end of the financial
year were as follows:
Name
Fred Bart
Ian Dennis
Company
Period of directorship
Audio Pixels Holdings Limited
5 September 2000 to date
Audio Pixels Holdings Limited
5 September 2000 to date
Lt Gen Peter Leahy AC
Codan Limited
19 September 2008 to date
Kevin Scully
PNE Micron Holding Limited
11 April 2011 to date
Principal Activities
The principal activities of the consolidated entity are in the space and defence systems business.
The company is listed on the Australian Securities Exchange.
Review of Operations
A detailed review of operations is included on pages 2 to 5 of this financial report.
Changes to the State of Affairs
There was no significant changes in the state of affairs of the consolidated entity that occurred during the
financial period.
Subsequent Events
There has not been any matter or circumstance that has arisen since the end of the financial year, that has significantly
affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state
of affairs of the consolidated entity in future financial years.
Future Developments
The company will continue to operate in the space and defence systems business.
Please see the review of operations for further details.
7
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 DIRECTORS’ REPORT (CONT)
Environmental Regulations
In the opinion of the directors the consolidated entity is in compliance with all applicable environmental legislation
and regulations.
Dividends
The directors recommend that no dividend be paid and no amount has been paid or declared by way of dividend since
the end of the previous financial year and up to the date of this report.
Share Options
Share options granted to directors and executives
During and since the end of the financial year no share options were granted to any directors of the company or
consolidated entity as part of their remuneration. On 10 December 2009 the Company issued 1,800,000 options to
staff including the executives listed in the Remuneration Report under the terms of the Employee Share Option Plan.
These options had an exercise price of $1.30 and expired on 8 December 2013. No options have been issued to
executives since the end of the financial year.
Share options on issue at year end or exercised during the year
There were no unissued shares or interests under option at year end and no options were exercised during the year.
There were no shares or interests issued during the financial year as a result of exercise of an option.
Indemnification and Insurance of Officers and Auditors
During the financial year, the company paid a premium in respect of a contract insuring the Directors and Officers of the
Company and any related body corporate against a liability incurred as such a Director or Officer to the extent permitted
by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the coverage provided
and the amount of the premium. The Company has agreed to indemnify the current Directors, Company Secretary and
Executive Officers against all liabilities to other persons that may arise from their position as Directors or Officers of the
Company and its controlled entities, except where to do so would be prohibited by law. The agreement stipulates that
the Company will meet the full amount of any such liabilities, including costs and expenses.
The Company has not, during or since the financial year indemnified or agreed to indemnify an auditor of the company
or of any related body corporate against any liability incurred as such an auditor.
8
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 DIRECTORS’ REPORT (CONT)
Directors’ Meetings
The following table sets out the number of directors’ meetings (including meetings of committees of directors)
held during the financial year and the number of meetings attended by each director (while they were a director
or committee member). During the financial year, 16 Board meetings, 2 audit committee meetings and no
Remuneration committee meetings were held.
Directors
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Board of directors
Audit committee
Remuneration committee
Held
Attended
Held
Attended
Held
Attended
16
16
16
16
16
16
16
16
16
16
14
16
‑
‑
2
‑
2
2
‑
‑
2
‑
2
2
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Directors’ Shareholdings
The following table sets out each Director’s relevant interest in shares and options of the company or a related body
corporate as at the date of this report.
Fully paid ordinary shares
Options
Directors
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
5,309,075
3,954,185
170,050
‑
15,000
‑
Remuneration Report (Audited)
The key management personnel of Electro Optic Systems Holdings Limited during the year were:
Mr Fred Bart (Chairman, Non executive director)
Dr Ben Greene (Chief Executive Officer and director)
Mr Ian Dennis (Non‑executive director)
Mr Mark Ureda (Non‑executive director)
Lt Gen Peter Leahy AC (Non‑executive director)
Mr Kevin Scully (Non‑executive director)
Mr Mark Bornholt (Chief Executive Officer of Defence Systems)
Dr Craig Smith (Chief Executive Officer of EOS Space Systems Pty Limited)
Mr Scott Lamond (Chief Financial Officer ‑ Electro Optic Systems Pty Limited)
‑
‑
‑
‑
‑
‑
9
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 DIRECTORS’ REPORT (CONT)
Remuneration Report (cont)
This report outlines the remuneration arrangements
in place for Directors and Executives of the Group.
The Directors are responsible for remuneration policies
and packages applicable to the Board members and
executives of the Group. The Group has a separate
Remuneration Committee. The broad remuneration
policy is to ensure the remuneration package properly
reflects the persons duties and responsibilities.
Remuneration structure
In accordance with best practice corporate governance,
the structure of Non‑Executive Director and senior
manager remuneration is separate and distinct.
Non‑Executive Director remuneration
Objective
The Board seeks to set aggregate remuneration
at a level which provides the Company with
the ability to attract and retain directors of the
highest calibre, whilst incurring a cost which
is acceptable to shareholders.
Structure
The Company’s Constitution and the Australian
Securities Exchange Listing Rules specify the
aggregate remuneration of Non‑Executive Directors
shall be determined from time to time by a General
Meeting of shareholders. An amount not exceeding
the amount determined is then divided between the
Directors as agreed. The latest determination was
at the Annual General Meeting held on 31 May 2012,
when shareholders approved a maximum aggregate
remuneration of $350,000 per year excluding options.
The amount of aggregate remuneration approved
by shareholders, the manner in which it is apportioned
amongst Directors, and the policy of granting options
to Directors, are reviewed by directors at least every
two years.
Each Non‑Executive Director receives a fee for serving
as a Director of the Company. No additional fees are paid
to any Director for serving on a committee of the Board.
A company associated with Mr Ian Dennis receives
a fee in recognition of additional services provided
to the Group.
Executive Director and Senior
Management remuneration
Objective
The Group aims to award Executives with a level and mix
of remuneration commensurate with their position and
responsibilities within the Group and so as to:
■ reward Executives for Group and individual
performance against targets set by reference
to suitable benchmarks;
■ align the interests of Executives with those
of shareholders; and
■ ensure that the total remuneration paid
is competitive by market standards.
Structure
The remuneration paid to Executives is set with
reference to prevailing market levels and typically
comprises a fixed salary and option component.
Options are granted to Executives in line with their
respective levels of experience and responsibility.
Details of the amounts paid and the number of options
granted to Executives are disclosed elsewhere in the
Directors’ Report.
Employment contracts
There are no employment contracts in place with any
Non‑Executive Director of the Group. Executive Directors
and Senior Management are employed under standard
employment contracts which contain no unusual terms.
Beyond accrued leave benefits, there are no other
termination payments or golden parachutes for any
directors or senior executives.
10
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 DIRECTORS’ REPORT (CONT)
Remuneration Report (cont)
Director remuneration
The following tables disclose the remuneration of the directors of the Company:
Short term
Post Employment
Equity
Non‑monetary
$
Superannuation
$
Options
$
2013
Mr Fred Bart
Dr Ben Greene*
Mr Ian Dennis#
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Salary
& Fees
$
61,000
370,032
157,500
40,875
37,500
40,875
* Executive Director during the financial year
707,782
20,054
# Includes fees for additional services provided of $120,000 (2012: $160,000)
Short term
Post Employment
Equity
Non‑monetary
$
Superannuation
$
Options
$
2012
Mr Fred Bart
Dr Ben Greene*
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Salary
& Fees
$
61,000
439,994
197,500
40,875
37,500
40,875
* Executive Director during the financial year
817,744
28,726
5,566
33,476
3,422
‑
3,422
‑
45,886
‑
‑
‑
‑
‑
‑
‑
5,490
37,177
3,375
‑
3,375
‑
49,417
‑
‑
‑
‑
‑
‑
‑
‑
20,054
‑
‑
‑
‑
‑
28,726
‑
‑
‑
‑
Other
Long
Term
Benefits
$
‑
‑
‑
‑
‑
‑
‑
Other
Long
Term
Benefits
$
‑
‑
‑
‑
‑
‑
‑
Total
$
66,566
423,562
160,922
40,875
40,922
40,875
737,722
Total
$
66,490
505,897
200,875
40,875
40,875
40,875
895,887
11
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 DIRECTORS’ REPORT (CONT)
Remuneration Report (cont)
Executive remuneration
No executives are employed by the holding company. The following table discloses the remuneration of the executives
of the consolidated entity:
2013
Dr Craig Smith
Mr Mark Bornholt
Mr Scott Lamond
2012
Dr Craig Smith
Mr Mark Bornholt
Mr John Palisi **
Mr Scott Lamond **
Mr Hugo Keyner **
Short term
Post
Employment
Equity
Non‑monetary
$
Superannuation
$
Options
$
Salary
& Fees
$
210,000
210,000
185,000
605,000
‑
‑
‑
‑
19,163
18,575
16,881
54,619
Short term
Post
Employment
Salary
& Fees
$
210,000
210,000
80,324
167,556
85,976
753,856
Non‑monetary
$
Superannuation
$
‑
‑
‑
‑
749
749
18,900
18,900
2,326
15,080
‑
55,206
‑
‑
‑
‑
Equity
Options
$
18,152
‑
‑
3,630
18,152
39,934
Other
Long
Term
Benefits
$
‑
‑
‑
‑
Other
Long
Term
Benefits
$
‑
‑
‑
‑
‑
‑
Total
$
229,163
228,575
201,881
659,619
Total
$
247,052
228,900
82,650
186,266
104,877
849,745
** John Palisi, Scott Lamond and Hugo Keyner were executives for part of the financial year (See Note 21)
Non‑monetary includes the provision for motor vehicles and health benefits.
No options were granted to, or exercised by any director or executive during 2012 or 2013 or since the end
of the financial year.
12
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 DIRECTORS’ REPORT (CONT)
Remuneration Report (cont)
Elements of remuneration related to performance
There are no performance conditions other than service attached to the above remuneration to directors and executives.
Directors and senior executives receive options as disclosed in the above tables which are not subject to specific
performance conditions other than service. The overall performance of the company as measured by the share price
will determine whether the options are exercised and whether the director or executive receives any benefit from
these options. The time service condition has been chosen by the Board as an appropriate condition as it helps in the
retention and motivation of staff. Options issued to certain directors and executives are also subject to vesting provisions
as disclosed below.
Key management personnel option holdings
On 10 December 2009, The Directors’ issued 1,800,000 unlisted options to executives and staff. The options issued to
executives and staff had an exercise price of $1.30 and expired on 8 December 2013. These options vested 20% after
12 months, 30% after 2 years and the balance after 3 years.
2013
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr Scott Lamond
Mr Hugo Keyner
Balance at
1/1/13
Granted as
remuneration
(Lapsed)
Balance at
31/12/13
No.
No.
No.
No.
Balance
vested at
31/12/13
No.
Options
vested
during
year
‑
‑
‑
‑
‑
‑
‑
160,000
32,000
160,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
(160,000)
(32,000)
(160,000)
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
13
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 DIRECTORS’ REPORT (CONT)
Remuneration Report (cont)
2012
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr John Palisi
Mr Scott Lamond
Mr Hugo Keyner
Balance at
1/1/12
Granted as
remuneration
(Lapsed)
Balance at
31/12/12
No.
No.
No.
No.
Balance
vested at
31/12/12
No.
Options
vested
during
year
‑
‑
‑
‑
‑
‑
‑
160,000
160,000
32,000
160,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
160,000
160,000
80,000
(160,000)
‑
‑
‑
‑
32,000
32,000
160,000
160,000
‑
16,000
80,000
The Board policy is not to allow any person to hedge their exposure to risk in relation to the options granted. This policy
may be reviewed should the options become in the money.
The table below sets out summary information about the company’s earnings and movements in shareholder wealth for
the last 5 financial years.
31 December
2013
$
31 December
2012
$
31 December
2011
$
31 December
2010
$
31 December
2009
$
Revenue
Net profit/(loss) before tax
Net profit/(loss) after tax
29,882,393
21,919,748
32,775,391
33,828,658
37,005,723
1,562,746
(10,181,971)
180,188
3,175,142
2,436,249
1,562,746
(10,181,971)
180,188
3,175,142
2,436,249
31 December
2013
$
31 December
2012
$
31 December
2011
$
31 December
2010
$
31 December
2009
$
Share price at start of year
Share price at end of year
Dividends paid
0.30
0.42
‑
0.55
0.30
‑
1.35
0.55
‑
1.05
1.35
‑
0.41
1.05
‑
14
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013
DIRECTORS’ REPORT (CONT)
Audit Committee
The Board appointed three non‑executive directors to form the committee, with a majority of independent directors and the
Chairman being an independent person. The current members of the committee are Lt Gen Peter Leahy AC (Chairman),
Mr Ian Dennis and Mr Kevin Scully.
Non‑audit Services
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. The Directors have formed this view based on the fact that the nature and scope of each type
of non‑audit service provided means that the audit independence was not compromised.
Details of amounts paid or payable to the auditor for non‑audit services provided during the year by the auditor
are contained in Note 10 to the financial statements.
Auditor’s Independence Declaration
The auditor’s independence declaration is included on page 16 of the annual report.
Signed in accordance with a resolution of directors made pursuant to s.298(2) of the Corporations Act 2001.
On behalf of the Directors
I A Dennis
Director
Dated at Sydney this 18 day of March 2014
15
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 16
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013
pages 19 to 77.
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 17
pages 9 to 14
18
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013
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 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 company and the consolidated entity;
(c) the directors have been given the declarations required by s.295A of the Corporations Act 2001; and
(d) the attached financial statements are in compliance with International Financial Reporting Standards,
as stated in Note 1 to the financial statements.
Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.
On behalf of the Directors
I A Dennis
Director
Dated at Sydney this 18 day of March 2014.
19
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013
Revenue
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
29,882,393
21,919,748
77,845
166,211
Note
2
Changes in inventories of finished goods and
work in progress
(1,031,378)
4,744,819
Raw materials and consumables used
(13,366,167)
(17,883,251)
Employee benefits expense
2(b)
(10,705,460)
(11,998,930)
Administration expenses
Amortisation of intangibles
Finance costs
Depreciation and amortisation of property,
plant and equipment
Impairment of intangibles
Gain/(loss) on disposal of fixed assets
Foreign exchange (losses)/gains
Occupancy costs
(Provision for)/ Reversal of non‑recovery of loan
Provision for non‑recovery of investment
Other expenses
(Loss)/Profit before income tax benefit
Income tax benefit
2(b)
2(b)
2(b)
2(b)
2(b)
2(b)
2(b)
2(b)
2
4
‑
‑
‑
‑
(360,467)
(343,404)
(389,990)
(394,804)
‑
‑
(197)
‑
(788)
5,617
‑
‑
‑
(657)
‑
‑
772
‑
(1,161,923)
2,824,983
‑
‑
(204,209)
‑
(2,420,883)
(2,723,142)
‑
(82,464)
(131,519)
(112,741)
(211,807)
(1,886,926)
‑
(565,119)
43,891
4,603
507,604
(196,299)
(786,814)
(1,136,400)
‑
‑
‑
‑
(266,169)
(216,814)
1,562,746
(10,181,971)
(1,783,317)
2,002,306
‑
‑
‑
‑
(Loss)/Profit for the period
20
1,562,746
(10,181,971)
(1,783,317)
2,002,306
Other comprehensive income
Items that may be reclassified subsequently
to profit and loss
Exchange differences arising on translation of
foreign operations
20,222
4,173
‑
‑
Total comprehensive (Loss)/income for the period
1,582,968
(10,177,798)
(1,783,317)
2,002,306
(Loss)/Earnings per share
Basic (cents per share)
Diluted (cents per share)
3
3
2.7
2.7
(17.9)
(17.9)
Notes to the financial statements are included on pages 24 to 77.
20
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2013
Consolidated
Company
December
2013
$
December
2012
$
December
2013
$
December
2012
$
Note
CURRENT ASSETS
Cash and cash equivalents
22
4,048,005
6,686,194
1,739,217
3,502,600
Trade and other receivables
Inventories
Other
6
7
8
3,069,803
1,874,896
5,979
26,983
5,320,861
3,855,850
332,811
588,939
‑
‑
‑
‑
TOTAL CURRENT ASSETS
12,771,480
13,005,879
1,745,196
3,529,583
NON‑CURRENT ASSETS
Property, plant and equipment
11
TOTAL NON‑CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Borrowings
Provisions
TOTAL CURRENT LIABILITIES
NON‑CURRENT LIABILITIES
Borrowings
Provisions
TOTAL NON‑CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Reserves
Accumulated losses
TOTAL EQUITY
12
13
14
13
14
17
19
20
461,305
461,305
538,106
538,106
‑
‑
985
985
13,232,785
13,543,985
1,745,196
3,530,568
3,882,221
5,774,085
95,435
97,490
‑
102,191
4,535,627
4,605,482
‑
‑
‑
‑
8,417,848
10,481,758
95,435
97,490
‑
478,045
478,045
15,032
293,271
308,303
‑
‑
‑
‑
‑
‑
8,895,893
10,790,061
95,435
97,490
4,336,892
2,753,924
1,649,761
3,433,078
75,383,567
75,383,567
75,383,567
75,383,567
7,797,978
7,777,756
7,727,803
7,727,803
(78,844,653)
(80,407,399)
(81,461,609)
(79,678,292)
4,336,892
2,753,924
1,649,761
3,433,078
Notes to the financial statements are included on pages 24 to 77.
21
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013
Consolidated
2013
Balance at 1 January 2013
Profit for the year
Accumulated
losses
$
Total
$
Issued
capital
$
Foreign
currency
translation
reserve
$
Employee
equity
settled
benefits
reserve
$
2,753,924
(80,407,399)
75,383,567
49,953
7,727,803
1,562,746
1,562,746
‑
‑
‑
‑
20,222
20,222
‑
‑
‑
Exchange differences arising on translation
of foreign operations
20,222
‑
Total comprehensive (loss)/income for the year
1,582,968
1,562,746
Balance at 31 December 2013
4,336,892
(78,844,653)
75,383,567
70,175
7,727,803
2012
Balance at 1 January 2012
Loss for the year
12,727,513
(70,225,428)
75,383,567
45,780
7,523,594
(10,181,971)
(10,181,971)
Exchange differences arising on translation
of foreign operations
4,173
‑
Total comprehensive (loss)/income for the year
(10,177,798)
(10,181,971)
Recognition of share based payments
204,209
‑
‑
‑
‑
‑
‑
4,173
4,173
‑
‑
‑
‑
204,209
Balance at 31 December 2012
2,753,924
(80,407,399)
75,383,567
49,953
7,727,803
Company
2013
Balance at 1 January 2013
(Loss) for the year
2012
Balance at 1 January 2012
Profit for the year
3,433,078
(79,678,292)
75,383,567
(1,783,317)
(1,783,317)
Total comprehensive income for the year
(1,783,317)
(1,783,317)
Balance at 31 December 2013
1,649,761
(81,461,609)
75,383,567
1,226,563
(81,680,598)
75,383,567
2,002,306
2,002,306
Total comprehensive income for the year
2,002,306
2,002,306
Recognition of share based payments
204,209
‑
Balance at 31 December 2012
3,433,078
(79,678,292)
75,383,567
Notes to the financial statements are included on pages 24 to 77.
22
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
7,727,803
‑
‑
7,727,803
7,523,594
‑
‑
204,209
7,727,803
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Note
Cash flows from operating activities
Receipts from customers
25,626,116
28,382,072
9,822
13,868
Payments to suppliers and employees
(28,264,414)
(24,656,527)
(679,305)
(813,318)
Interest received
74,280
171,697
68,023
152,342
Interest and other costs of finance paid
(82,464)
(112,741)
‑
‑
Net cash inflows/(outflows) from
operating activities
Cash flows from investing activities
Advances (to) from wholly‑owned
controlled entities
Proceeds from sale of property,
plant and equipment
22(b)
(2,646,482)
3,784,501
(601,460)
(647,108)
‑
‑
(1,161,923)
2,824,982
Payment for property, plant and equipment
(143,264)
(45,234)
65,466
59,543
‑
‑
‑
‑
Net cash inflows/(outflows) from
investing activities
Cash flows from financing activities
(77,798)
14,309
(1,161,923)
2,824,982
Repayment of borrowings
(117,223)
(1,991,867)
Net cash (outflows)/inflows from
financing activities
Net increase/(decrease) in cash and
cash equivalents
(117,223)
(1,991,867)
‑
‑
‑
‑
(2,841,503)
1,806,943
(1,763,383)
2,177,874
Cash and cash equivalents at the beginning of
the financial year
6,686,194
4,885,761
3,502,600
1,324,726
Effects of exchange rate fluctuations on the
balances of cash held in foreign currencies
203,314
(6,510)
‑
‑
Cash and cash equivalents at the end of the
financial year
22(a)
4,048,005
6,686,194
1,739,217
3,502,600
Notes to the financial statements are included on pages 24 to 77.
23
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013
Judgments made by management in the application
of A‑IFRS that have significant effects on the
financial statements and estimates with a significant
risk of material adjustments in the next year are
disclosed, where applicable, in the relevant notes
to the financial statements. The areas of judgement
made by management are in the areas of asset
impairment of property, plant and equipment,
inventory obsolescence and percentage completion
of construction contracts. Accounting policies
are selected and applied in a manner which
ensures that the resulting financial information
satisfies the concepts of relevance and reliability,
thereby ensuring that the substance of the
underlying transactions or other events is reported.
The following significant accounting policies have
been adopted in the preparation and presentation of
the financial report:
(a) Going concern
The financial report has been prepared on the basis
that the company and the consolidated entity are
going concerns, which assumes continuity of normal
business activities and the realisation of assets and
the settlement of liabilities in the ordinary course
of business.
The consolidated entity earned a net profit during
the year of $1,562,746 (2012: $10,181,971 loss).
Net cash used by operating activities was
$2,646,482 (2012 ‑ $3,784,501 provided).
As at 31 December 2013, the consolidated entity
had cash of $4,048,005 (2012 ‑ $6,686,194) of which
$97,000 (2012 ‑ $400,393) is restricted as it secures
bank guarantees on existing contracts with local
and overseas customers. The cash will become
unrestricted if the contracts are concluded
or renegotiated.
1. Summary of Accounting Policies
Statement of compliance
The financial report is a general purpose
financial report which has been prepared in
accordance with the Corporations Act 2001 and
Accounting Standards and complies with other
requirements of the law: The financial statements
comprise the consolidated financial statements
of the Group. For the purposes of preparing the
consolidated financial statements, the Company
is a for‑profit entity. Accounting Standards include
Australian equivalents to International Financial
Reporting Standards (“A‑IFRS”). The financial report
includes the separate financial statements of the
company and the consolidated financial statements
of the group. Compliance with A‑IFRS ensures that
the financial statements and notes of the company
and the consolidated entity comply with International
Financial Reporting Standards (“IFRS”).
The financial statements were authorised for issue
by the Directors on 18 March 2014.
Basis of preparation
The financial report has been prepared on the basis
of historical cost. Cost is based on the fair values
of the consideration given in exchange for assets.
All amounts are presented in Australian dollars,
unless otherwise stated.
In the application of A‑IFRS management is required
to make judgments, estimates and assumptions
about carrying values of assets and liabilities
that are not readily apparent from other sources.
The estimates and associated assumptions are
based on historical experience and various other
factors that are believed to be reasonable under
the circumstance, the results of which form the
basis of making the judgments. 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 period in which the estimate
is revised if the revision affects only that period, or
in the period of the revision and future periods if the
revision affects both current and future periods.
24
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
1. Summary of Accounting Policies (cont)
(c) Cash and cash equivalents
(a) Going concern (cont)
Notwithstanding the net cash used by operations
and the profit earned during the year, as at the date
of this report having considered:
■ the cash balances held at 31 December 2013;
■ the willingness of key military and government
customers to make timely payments for goods
supplied in accordance with contractual terms;
■ the future trading prospects of the group; and
■ the ability to raise capital from existing or new
shareholders should the need arise
in the opinion of the directors, the company and the
consolidated entity can continue as going concerns
and pay their debts as and when they become due
and payable.
If the consolidated entity is unable to secure
additional profitable contracts or timely payments
for goods supplied to key military and government
customers are not made in accordance with
contractual terms or the company is not able to
raise further capital, significant uncertainty would
exist as to the ability of the consolidated entity to
continue as a going concern and therefore, it may
be required to realise its assets and extinguish
its liabilities other than in the normal course of
business and at amounts different from those stated
in the financial report.
No adjustments have been made to the financial
report relating to the recoverability and classification
of recorded asset amounts or to the amounts and
classification of liabilities that might be necessary
should the consolidated entity not continue as a
going concern.
(b) Borrowings
Borrowings are recorded initially at fair value, net of
transaction costs. Subsequent to initial recognition,
borrowings are measured at amortised cost with any
difference between the initial recognised amount
and the redemption value being recognised in profit
or loss over the period of the borrowing using the
effective interest rate method.
Cash and cash equivalents comprise cash on hand,
cash in banks and investments in money market
instruments, net of outstanding bank overdrafts.
Cash and cash equivalents includes restricted cash
to the extent it relates to operating activities.
(d) Construction contracts and work
in progress
Where the outcome of a construction contract can be
estimated reliably, revenue and costs are recognised
by reference to the stage of completion of the
contract activity at the reporting date, as measured
by the proportion that contract costs incurred for
work performed to date bear to the estimated
total contract costs, except where this would not
be representative of the stage of completion.
Variations in contract work, claims and incentive
payments are included to the extent that they have
been agreed with the customer.
Where the outcome of a construction contract
cannot be estimated reliably, contract revenue
is recognised to the extent of contract costs
incurred that it is probable will be recoverable.
Contract costs are recognised as expenses in
the period in which they are incurred. When it
is probable that total contract costs will exceed
total contract revenue, the expected loss is
recognised as an expense immediately.
Deferred revenue is represented by advance billings
on contracts and the basis of recognition is the
percentage of completion basis.
(e) Embedded derivatives
Derivatives embedded in other financial instruments
or other host contracts are treated as separate
derivatives when their risks and characteristics are
not closely related to those of host contracts and the
host contracts are not measured at fair value with
changes in fair value recognised in profit or loss.
(f) Employee benefits
Provision is made for benefits accruing to employees
in respect of wages and salaries, annual leave,
and long service leave when it is probable that
settlement will be required and they are capable of
being measured reliably.
25
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
1. Summary of Accounting Policies (cont)
(f) Employee benefits (cont)
Provisions made in respect of short term employee
benefits are measured at their nominal values using
the remuneration rate expected to apply at the time
of settlement.
Provisions made in respect of long term employee
benefits are measured as the present value of the
estimated future cash outflows to be made by the
consolidated entity in respect of services provided by
employees up to the reporting date.
Defined contribution plans ‑ Contributions to defined
benefit contribution superannuation plans are
expensed when incurred.
(g) Financial assets
Subsequent to initial recognition, investments in
subsidiaries are measured at cost less any impairment.
Other financial assets are classified into the
following specified categories: held to maturity
investments and loans and receivables.
The classification depends on the nature
and purpose of the financial assets and is
determined at the time of the initial recognition.
Held to maturity investments
Bills of exchange are recorded at amortised
cost using the effective interest method less
impairment, with revenue recognised on an
effective yield basis. The effective interest method
is a method of calculating the amortised cost of a
financial asset and of allocating interest income
over the relevant period. The effective interest
rate is the rate that exactly discounts estimated
future cash receipts through the expected life
of the financial asset, or, where appropriate,
a shorter period.
Loans and receivables
Trade receivables, loans and other receivables are
recorded at amortised cost less impairment.
(h) Financial instruments issued by
the company
Debt and equity instruments
Debt and equity instruments are classified as
either liabilities or as equity in accordance with the
substance of the contractual arrangement.
Transaction costs on the issue of
equity instruments
Transaction costs arising on the issue of equity
instruments are recognised directly in equity as a
reduction of the proceeds of the equity instruments to
which the costs relate. Transaction costs are the costs
that are incurred directly in connection with the issue
of those equity instruments and which would not have
been incurred had those instruments not been issued.
Interest
Interest is classified as an expense consistent with
the statement of financial position classification of
the related debt.
(i) Foreign currency
Foreign currency transactions
All foreign currency transactions during the
financial year are bought to account using the
exchange rate in effect at the date of the transaction.
Foreign currency monetary items at reporting date
are translated at the exchange rate existing at
reporting date. Non‑monetary assets and liabilities
carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing
at the date when the fair value was determined.
Exchange differences are recognised in profit or loss
in the period they arise.
Foreign operations
On consolidation, the assets and liabilities of
the consolidated entity’s overseas operations
are translated at exchange rates prevailing at the
reporting date. Income and expense items are
translated at the average exchange rates for the
period unless exchange rates fluctuate significantly.
Exchange differences arising, if any, are recognised
in the foreign currency translation reserve,
and recognised in profit or loss on disposal
of the foreign operation.
26
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
1. Summary of Accounting Policies (cont)
(j) Goods and services tax
Revenues, expenses and assets are recognised net
of the amount of goods and services tax (GST), except:
i. 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
ii.
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 statement of cash
flows 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.
(k) Government grants
Government grants are assistance by the
government in the form of transfers of resources
to the consolidated entity in return for past
or future compliance with certain conditions
relating to the operating activities of the entity.
Government grants include government assistance
where there are no conditions specifically relating
to the operating activities of the consolidated entity
other than the requirement to operate in certain
regions or industry sectors.
Government grants relating to income are
recognised as income over the periods
necessary to match them with the related costs.
Government grants that are receivable as
compensation for expenses or losses already
incurred or for the purpose of giving immediate
financial support to the consolidated entity
with no future related costs are recognised as
income in the period in which it becomes receivable.
(l) Impairment of assets
At each reporting date, the consolidated entity
reviews the carrying amounts of its tangible and
intangible assets to determine whether there is
any indication that those assets have suffered
an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated
in order to determine the extent of the impairment
loss (if any). Where the asset does not generate
cash flows that are independent from other assets,
the consolidated entity estimates the recoverable
amount of the cash‑generating unit to which the
asset belongs.
Goodwill, intangible assets with indefinite useful
lives and intangible assets not yet available for
use are tested for impairment annually and
whenever there is an indication that the asset
may be impaired. An impairment of goodwill is
not subsequently reversed. Recoverable amount
is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated
future cash flows are discounted to their present
value using a pre‑tax discount rate that reflects
current market assessments of the time value
of money and the risks specific to the asset for
which the estimates of future cash flows have not
been adjusted.
If the recoverable amount of an asset
(or cash‑generating unit) is estimated to be less
than its carrying amount, the carrying amount
of the asset (cash‑generating unit) is reduced to
its recoverable amount. An impairment loss is
recognised in profit or loss immediately.
Where an impairment loss subsequently
reverses, the carrying amount of the asset
(cash‑generating unit) is increased to the revised
estimate of its recoverable amount, but only to the
extent that the increased carrying amount does not
exceed the carrying amount that would have been
determined had no impairment loss been recognised
for the asset (cash‑generating unit) in prior years.
A reversal of an impairment loss is recognised in
profit or loss immediately.
(m) Income tax
Current tax
Current tax is calculated by reference to the amount
of income taxes payable or recoverable in respect
of the taxable profit or tax loss for the period.
It is calculated using tax rates and tax laws that
have been enacted or substantively enacted by
reporting date. Current tax for current and prior
periods is recognised as a liability (or asset) to the
extent that it is unpaid (or refundable).
27
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
1. Summary of Accounting Policies (cont)
(m) Income tax (cont)
Deferred tax
Deferred tax is accounted for using the
comprehensive balance sheet liability method
in respect of temporary differences arising from
differences between the carrying amount of assets
and liabilities in the financial statements and the
corresponding tax base of those items.
In principle, deferred tax liabilities are recognised
for all taxable temporary differences. Deferred tax
assets are recognised to the extent that it is probable
that sufficient taxable amounts will be available
against which deductible temporary differences or
unused tax losses and tax offsets can be utilised.
However, deferred tax assets and liabilities are not
recognised if the temporary differences giving rise
to them arise from the initial recognition of assets
and liabilities (other than as a result of business
combination) which affects neither taxable income
nor accounting profit. Furthermore, a deferred
tax liability is not recognised in relation to taxable
temporary differences arising from goodwill.
Deferred tax liabilities are recognised for taxable
temporary differences arising on investments in
subsidiaries except where the consolidated entity
is able to control the reversal of the temporary
differences and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets arising from deductible
temporary differences associated with these
investments and interests are only recognised to the
extent that it is probable that there will be sufficient
taxable profits against which to utilise the benefits of
the temporary differences and they are expected to
reverse in the foreseeable future.
Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply to the
period(s) when the assets and liabilities giving
rise to them are realised or settled, based on
tax rates (and tax laws) that have been enacted
or substantively enacted by reporting date.
The measurement of deferred tax liabilities and
assets reflects the tax consequences that would
follow from the manner in which the consolidated
entity expects, at the reporting date, to recover
or settle the carrying amount of its assets
and liabilities.
28
Deferred tax assets and liabilities are offset when
they relate to income taxes levied by the same
taxation authority and the company/consolidated
entity intends to settles its current tax assets and
liabilities on a net basis.
Current and deferred tax for the period
Current and deferred tax is recognised as an
expense or income in the statement of profit
or loss and other comprehensive income,
except when it relates to items credited or
debited directly to equity, in which case the
deferred tax is also recognised directly in equity,
or where it arises from the initial accounting for a
business combination, in which case it is taken into
account in the determination of goodwill or excess.
Tax consolidation
The company and all its wholly‑owned Australian
resident entities are part of a tax consolidated
group under Australian taxation law. Electro Optic
Systems Holdings Limited is the head entity in
the tax‑consolidated group. Tax expense/income,
deferred tax liabilities and deferred tax assets
arising from temporary differences of the members
of the tax‑consolidated group are recognised in the
separate financial statements of the members of the
tax‑consolidated group using the ‘separate taxpayer
within the group’ approach.
Current tax liabilities and assets and deferred
tax assets arising from unused tax losses and tax
credits of the members of the tax‑consolidated
group are recognised by the company (as head
entity in the tax‑consolidated group).
There are no formal tax funding arrangements
within companies within the tax‑consolidated entity.
(n) Intangible assets
Research and development costs
Expenditure on research activities is recognised
as an expense in the period in which it is incurred.
Where no internally‑generated intangible assets
can be recognised, development expenditure is
recognised as an expense in the period as incurred.
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
1. Summary of Accounting Policies (cont)
(n) Intangible assets (cont)
Intangible assets acquired in a
business combination
Intangible assets acquired in a business combination
are identified and recognised separately from
goodwill where they satisfy the definition of
an intangible asset and their fair value can be
measured reliably.
Subsequent to initial recognition, intangible assets
acquired in a business combination are reported
at cost less accumulated amortisation and
accumulated impairment losses, on the same
basis as intangible assets acquired separately.
(o) Inventories
Inventories are measured at the lower of cost and
net realisable value. Costs are assigned on a first‑in
first‑out basis. Net realisable value represents the
estimated selling price less all estimated costs of
completion and costs to be incurred in marketing,
selling and distribution.
(p) Leased assets
Leases are classified as finance leases whenever the
terms of the lease transfer substantially all the risks
and rewards of ownership to the lessee. All other
leases are classified as operating leases.
Consolidated entity as lessee
Assets held under finance leases are initially
recognised at their fair value or, if lower,
at amounts equal to the present value of the
minimum lease payments, each determined at the
inception of the lease. The corresponding liability
to the lessor is included in the statement of financial
position as a finance lease obligation.
Lease payments are apportioned between finance
charges and reduction of the lease obligation so
as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges
are charged directly against income.
Finance leased assets are amortised on a straight
line basis over the estimated useful life of the asset.
Operating lease payments are recognised as an
expense on a straight‑line basis over the lease term,
except where another systematic basis is more
representative of the time pattern in which economic
benefits from the leased assets are consumed.
Lease incentives
In the event that lease incentives are received to
enter into operating leases, such incentives are
recognised as a liability. The aggregate benefits of
incentives are recognised as a reduction of rental
expenses on a straight‑line basis, except where
another systematic basis is more representative of
the time pattern in which economic benefits from
the leased assets are consumed.
(q) Payables
Trade payable and other accounts payable are
recognised when the consolidated entity becomes
obliged to make future payments resulting from the
purchase of goods and services.
(r) Basis of consolidation
The consolidated financial statements incorporate
the financial statements of the Company and entities
controlled by the Company. Control is achieved when
the Company:
■ Has power over the investee;
■ Is exposed, or has rights, to variable returns
from its involvement with the investee; and
■ Has the ability to use its power to affect
its returns.
The Company reassesses whether or not it controls
an investee if facts and circumstances indicate
that there are changes to one or more of the three
elements of control listed above.
Consolidation of a subsidiary begins when the
Company obtains control over the subsidiary
and ceases when the Company loses control of
the subsidiary. Specifically, income and expenses
of a subsidiary acquired or disposed of during the
year are included in the consolidated statement of
profit or loss and other comprehensive income from
the date the Company gains control until the date
when the Company ceases to control the subsidiary.
29
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
1. Summary of Accounting Policies (cont)
(s) Property, plant and equipment
Plant and equipment, leasehold improvements
and equipment under finance lease are stated
at cost less accumulated depreciation and
impairment. Cost includes expenditure that is
directly attributable to the acquisition of an item.
In the event that settlement of all or part of
the purchase consideration is deferred, cost is
determined by discounting the amounts payable
in the future to their present value as at the
date of acquisition.
Depreciation is provided on property, plant
and equipment. Depreciation is calculated so as
to write off the net cost or other revalued amount
of each asset over its expected useful life to its
estimated residual value. Leasehold improvements
are depreciated over the period of the lease or
estimated useful life, whichever is the shorter,
using the straight line method. The estimated
useful lives, residual values and depreciation
method is reviewed at the end of each annual
accounting period.
All intra group assets and liabilities, equity,
income, expenses, and cash flows relating to
transactions between members of the group
are eliminated in full on consolidation.
The following estimated useful lives are used in the
calculation of depreciation:
Plant and equipment
5 to 15 years
Leasehold improvements
3 to 5 years
Equipment under finance lease
3 to 5 years
Office equipment
5 to 15 years
Furniture, fixture and fittings
5 to 15 years
Motor vehicles
3 to 5 years
(t) Provisions
Provisions are recognised when the consolidated
entity has a present obligation, the future sacrifice
of economic benefits is probable, and the amount of
the provision can be measured reliably.
When some or all of the economic benefits required
to settle a provision are expected to be recovered
from a third party, the receivable is recognised
as an asset if it is probable that recovery will be
received and the amount of the receivable can be
measured reliably.
The amount recognised as a provision is the best
estimate of the consideration required to settle
the present obligation, taking into account the
risks and uncertainties surrounding the obligation.
Where a provision is measured using the cash
flows estimated to settle the present obligation,
its carrying amount is the present value of those
cash flows.
Warranties ‑ Provisions for warranty costs are
recognised as agreed in individual sales contracts,
at the directors best estimate of the expenditure
required to settle the consolidated entity’s liability.
Contract losses ‑ Present obligations arising under
onerous contracts are recognised and measured as
a provision. An onerous contract is considered to
exist where the Group has a contract under which
the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits
expected to be received under it.
Decommissioning cost ‑ a provision for
decommissioning cost is recognised when there is
a present obligation, it is probable that an outflow
of economic benefits will be required to settle the
obligation, and the amount of the provision can be
measured reliably. The estimated future obligations
include the costs of removing the facilities and
restoring the premises.
(u) Revenue recognition
Construction revenue is recognised on the basis of
the terms of the contract adjusted for any variations
or claims allowable under the contract.
Revenue from contracts to provide services is
recognised on a monthly basis in accordance with
the services contracts.
Interest income is recognised as it accrues.
Revenue from the sale of goods is recognised when
the consolidated entity has transferred to the buyer
the significant risks and rewards of ownership of
the goods.
30
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
1. Summary of Accounting Policies (cont)
Impact of the application of AASB 10
AASB 10 replaces the parts of AASB127
“Consolidated and Separate Financial Statements”
that deal with consolidated financial statements
and Interpretation 112 “Consolidation ‑ Special
Purpose Entities”. AASB 10 changes the definition
of control such that an investor controls an
investee when a) it has power over the investee,
b) it is exposed, or has rights, to variable returns
from its involvement with the investee, and c) has the
ability to use its power to affect its returns. All three
of these criteria must be met for an investor to have
control over an investee. Previously, control was
defined as the power to govern the financial and
operating policies of an entity so as to obtain
benefits from its activities. Additional guidance
has been included in AASB 10 to explain when an
investor has control over an investee.
The directors of the Company made an assessment
as at the date of the initial application of AASB 10
(i.e. 1 January 2013) as to whether or not the Group
has control over the entities listed in Note 24 in
accordance with the new definition of control and the
related guidance set out in AASB 10. The directors
concluded that the Company has control over the
entities listed in Note 24 on the basis of it’s 100%
shareholding and it’s ability to use it’s power to
affect it’s variable returns.
The application of AASB 10 has not had any
material impact on the amounts recognised in the
consolidated financial statements.
Impact of the application of AASB 12
AASB 12 is a new disclosure standard
and is applicable to entities that have
interests in subsidiaries, joint arrangements,
associates and /or unconsolidated structured entities.
In general, the application of AASB 12 has resulted
in more extensive disclosures in the consolidated
financial statements. However this did not result
in any changes to the amounts recognised in the
consolidated financial statements.
(v) Share based payments to employees
Equity‑settled share‑based payments are measured
at fair value at the date of the grant. Fair value is
measured by use of a modified Cox‑Rubenstein
binomial model. The expected life used in the model
has been adjusted, based on management best
estimates, for the effects of non‑transferability,
exercise restrictions and behavioural considerations.
The fair value determined at the grant date of the
equity‑settled share based payments is expensed
on a straight‑line basis over the vesting period,
based on the consolidated entity’s estimate of
shares that will eventually vest.
(w) Application of new and revised
accounting standards
The Group has adopted all of the new and revised
Standards and Interpretations issued by the
Australian Accounting Standards Board (the AASB)
that are relevant to their operations and effective for
the current year.
New and revised Standards and amendments
thereof and Interpretations effective for the current
year that are relevant to the Group include:
■ AASB 10 “Consolidated Financial Statements”
and AASB 2011‑7 “Amendments to Australian
Accounting Standards arising from the
consolidation and Joint Arrangements standards”
■ AASB 12 “Disclosure of Interests in
Other Entities” and AASB 2011‑7
“Amendments to Australian Accounting
Standards arising from the consolidation
and Joint Arrangements standards”
■ AASB 127 “Separate Financial Statements”
(2011) and AASB 2011‑7 “Amendments to
Australian Accounting Standards arising from the
consolidation and Joint Arrangements standards”
■ AASB 13 “Fair Value Measurement” and
AASB 2011‑8 “Amendments to Australian
Accounting Standards arising from AASB 13”
■ AASB 119 “Employee Benefits” (2011)
and AASB 2011‑10 ‘Amendments to
Australian Accounting Standards arising
from AASB 119 (2011)”
31
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
1. Summary of Accounting Policies (cont)
(w) Application of New and Revised Accounting Standards (cont)
Impact of the application of AASB 13
The Group has applied AASB 13 for the first time in the current year. AASB 13 establishes a single source of
guidance for fair value measurements and disclosures about fair value measurements. The scope of AASB 13
is broad; the fair value measurement requirements of AASB 13 apply to both financial instrument items and
non‑financial instrument items for which other AASBs require or permit fair value measurements and disclosures
about fair value measurements, except for share‑based payment transactions that are within the scope of AASB 2
“Share‑based Payment”, leasing transactions that are within the scope of AASB 17 “Leases”, and measurements
that have some similarities to fair value but are not fair value (e.g. net realisable value for the purposes of
measuring inventories or value in use for impairment assessment purposes).
AASB 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction in the principal (or most advantageous) market at the measurement date under current market
conditions. Fair value under AASB 13 is an exit price regardless of whether the price is directly observable or
estimated using another valuation technique. Also, AASB 13 includes extensive disclosure requirements.
AASB 13 requires prospective application from 1 January 2013. In addition, specific transitional provisions were
given to entities such that they need not apply the disclosure requirements set out in the Standard in comparative
information provided for periods before the initial application of the Standard. In accordance with these transitional
provisions, the Group has not made any new disclosures required by AASB 13 for the 2012 comparative period,
the application of AASB 13 has not had material impact on the amounts recognised in the consolidated
financial statements.
Impact of the application of AASB 119
In the current year, the Group has applied AASB 119 (as revised in 2011) “Employee Benefits” and the related
consequential amendments for the first time.
The revised AASB 119 changes the definition of short‑term benefits. Only benefits that are expected to be settled
wholly within 12 months after the end of the end of the annual reporting period in which the employees render the
service are classified as short‑term employee benefits.
Specific transitional provisions are applicable to first‑time application of AASB 119 (as revised in 2011).
The Group has applied the relevant transitional provisions and restated the comparative amounts on a
retrospective basis. The amount of these restatements is not material.
31 December
2013
$
31 December
2012
$
Impact on total comprehensive income for the year of the application of
AASB 119 (as revised in 2011)
Impact on profit/(loss) for the year
(Decrease)/increase in employee benefits expenses
(Decrease)/increase in profit/(loss) for the year
(19,048)
19,048
2,148
(2,148)
32
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
1. Summary of Accounting Policies (cont)
(w) Application of New and Revised Accounting Standards (cont)
Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in
issue but not yet effective.
Standard/Interpretation
AASB 9 Financial Instruments
AASB 2010‑7 Amendments to Australian Accounting
Standards arising from AASB 9 (December 2010) [AASB 1, 3,
4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132,
136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12,
19 & 127]
AASB 2011‑4 Amendments to Australian Accounting
Standards to Remove Individual Key Management Personnel
Disclosure Requirements [AASB 124]
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
1‑Jan‑17
31‑Dec‑17
1‑Jan‑17
31‑Dec‑17
1‑Jul‑13
31‑Dec‑14
The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no
material financial impact on the financial statements of the company or the consolidated entity but may change
disclosures made.
As at 01/01/2012 as
previously reported
(Consolidated)
AASB 119
adjustments
As at 01/01/2012
as restated
(Consolidated)
Impact on assets, liabilities and
equity as at 1 January 2012 of the
application of the above new and
revised Standards
Current employee benefits obligation
Total effect on net assets
Accumulated losses
Total effect on equity
2,126,061
12,660,247
(70,292,694)
12,660,247
(67,266)
67,266
67,266
67,266
2,058,835
12,727,513
(70,225,428)
12,727,513
33
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
1. Summary of Accounting Policies (cont)
(w) Application of New and Revised Accounting Standards (cont)
As at 31/12/2012 as
previously reported
(Consolidated)
AASB 119
adjustments
As at 31/12/2012 as
restated
(Consolidated)
Impact on assets, liabilities and
equity as at 31 December 2012 of
the application of the above new
and revised Standards
Current employee benefits obligation
Total effect on net assets
Accumulated losses
Total effect on equity
2,382,606
2,688,806
(80,472,517)
2,688,806
(65,118)
65,118
65,118
65,118
Impact on assets, liabilities and equity as at 31 December 2013
of the application of the amendments to AASB 119 (as revised in 2011)
Decrease in current employee benefits obligation
2,317,488
2,753,924
(80,407,399)
2,753,924
AASB 119
adjustments
19,048
(x) Comparative amounts
Where the Group changes the presentation or classification of items in its financial statements, it reclassifies the
comparative amounts for consistency and comparability between financial years.
34
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
2. (Loss)/Profit from Operations
(a) Revenue
Revenue from operations consisted of the
following items:
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Revenue from the sale of goods
23,296,205
16,432,289
Revenue from the rendering of services
1,947,178
2,720,460
Construction contract revenue
4,543,313
2,575,955
29,786,696
21,728,704
‑
‑
‑
‑
‑
‑
‑
‑
Interest revenue:
Bank deposits
Other
Other
74,280
171,697
68,023
152,342
21,417
19,347
29,882,393
21,919,748
9,822
77,845
13,869
166,211
35
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
2. (Loss)/Profit from Operations (cont)
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
(b) (Loss)/profit before income tax has been
arrived at after charging the following expenses:
Borrowing costs
Finance lease finance charges
82,464
104,363
Interest paid ‑ Other entities
‑
8,378
82,464
112,741
Depreciation and amortisation ‑ property, plant
and equipment
211,807
1,886,926
Amortisation ‑ intangibles
Impairment of intangibles
(Reversal of)/ provision for non‑recovery
of loan ‑ wholly‑owned controlled entity
Provision for non‑recovery of investment
in subsidiary
Writedown of inventory to net realisable value
Loss/(Profit) on sale of property,
plant and equipment
‑
‑
‑
‑
‑
131,519
565,119
‑
‑
1,342,530
‑
‑
‑
197
‑
‑
‑
‑
‑
657
‑
‑
1,161,923
(2,824,983)
‑
‑
204,209
‑
‑
(43,891)
(4,603)
788
Foreign exchange (gain)/loss
(507,604)
196,299
(5,617)
(772)
Operating lease rental expenses:
Minimum lease payments
Employee benefit expense:
Share based payments:
Equity settled
Contributions to defined contribution
superannuation plans
Other employee benefits
501,730
500,552
‑
204,209
‑
‑
‑
‑
896,508
917,051
9,808,952
10,877,670
10,705,460
11,998,930
12,410
348,057
360,467
12,240
377,750
389,990
36
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
3. Earnings/(Loss) per Share
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Basic Earnings/(Loss) per Share
Earnings/(loss) (a)
Weighted average number of ordinary shares (b)
Consolidated
31 December
2013
$
31 December
2012
$
2.7 cents
(17.9 cents)
2.7 cents
(17.9 cents)
1,562,746
(10,181,971)
56,845,926
56,845,926
(a) Earnings/(loss) used in the calculation of basic earnings per share are the same as the net profit/(loss) in the
statement of profit or loss and other comprehensive income.
(b) Options are considered to be potential ordinary shares and are therefore excluded from the weighted average
number of shares used in the calculation of basic earnings per share. Where dilutive, potential ordinary shares are
included in the calculation of diluted earnings per share (see below).
Diluted Earnings/(Loss) per Share
Earnings/(loss) (a)
Weighted average number of ordinary shares (b)
1,562,746
(10,181,971)
56,845,926
56,845,926
(a) Earnings/(loss) used in the calculation of diluted earnings per share are the same as the net profit/(loss) in the
statement of profit or loss and other comprehensive income.
(b) The weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted
earnings per share are as follows:
Weighted average number of shares used in the calculation of basic earnings
per share
Staff Share plan
56,845,926
56,845,926
‑
‑
Weighted average number of shares used in the calculation of diluted earnings
per share
56,845,926
56,845,926
The following potential ordinary shares are not dilutive and therefore excluded from the weighted average number
of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share:
Staff Share plan
‑
1,025,000
(d) Weighted average number of converted, lapsed, or cancelled potential ordinary shares used in the calculation of
diluted earnings per share:
None used as they are not considered dilutive.
37
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
4. Income Tax
(a) The prima facie income tax benefit on pre‑tax accounting profit/(loss) from operations reconciles to the income
tax benefit in the financial statements as follows:
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Profit/(Loss) from operations
1,562,746
(10,181,971)
(1,783,317)
2,002,306
Income tax (benefit)/expense calculated at 30%
468,824
(3,054,591)
(534,995)
600,692
Non‑deductible (assessable) provision for
non‑recovery of loan
Share based payments
Previously unrecognised and unused tax losses
now recognised
‑
‑
‑
348,577
(847,495)
61,263
‑
61,263
Other non‑deductible/ non assessable items
(133,706)
(21,587)
(2,488)
(6,058)
335,118
(3,014,915)
(188,906)
(191,598)
Unused tax losses and tax offsets not recognised
as deferred tax assets
(335,118)
3,014,915
188,906
191,598
Income tax attributable to operating (Loss)/profit
‑
‑
‑
‑
The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate
entities on taxable profits under Australian tax law, 25% in Germany, 17% in Singapore and the federal tax rate
applicable in the USA and the State of Arizona has been assumed to approximate a combined rate 40% as their tax
rates apply on a sliding scale. There has been no change in the corporate tax rate when compared with the previous
reporting period.
(b) Unrecognised deferred tax balances
The following deferred tax assets have not been
bought to account as assets
Tax losses ‑ revenue
Temporary differences
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
20,973,928
21,309,046
6,765,429
6,576,523
1,504,102
1,489,161
‑
‑
22,478,030
22,798,207
6,765,429
6,576,523
38
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
4. Income Tax (cont)
(b) Unrecognised deferred tax balances (cont)
Tax consolidation
Relevance of tax consolidation to the consolidated entity
The company and its wholly‑owned Australian resident entities have formed a tax‑consolidated group with
effect from 1 January 2003 and are therefore taxed as a single entity from that date. The head entity within the
tax‑consolidated group is Electro Optic Systems Holdings Limited. The members of the tax‑consolidated entity
group are identified in Note 24.
Nature of tax funding arrangements and tax sharing agreements
There are no formal tax funding or tax sharing arrangements within the tax‑consolidated group.
5. Other Financial Assets
Non‑Current ‑ at cost
Unlisted shares in controlled entities
at cost
provision for non recovery
Carrying value at start of financial year
share options provided at no cost
provision for non recovery
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
4,016,132
4,016,132
(4,016,132)
(4,016,132)
‑
‑
‑
‑
‑
‑
‑
204,209
(204,209)
‑
The directors have assessed the carrying value of the unlisted shares held in controlled entities and have
determined that, as at 31 December 2013, based upon the net asset position of the controlled entities, the current
and historic trading results and the foreseeable future results from signed contracts on hand the investments are
fully impaired.
39
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
6. Trade and Other Receivables
Current
Trade receivables
GST receivable
Rental deposit related party
Amounts due from customers under
construction contracts (Note 30)
Other debtors
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
1,849,340
1,507,256
60,339
‑
81,785
5,843
1,153,498
274,847
6,626
5,165
‑
5,979
‑
‑
‑
‑
21,140
5,843
‑
‑
3,069,803
1,874,896
5,979
26,983
The average credit period on sales of goods is 30 days. No interest is charged on late payments and no general
allowance for doubtful debts has been made as most contracts are with governments and government agencies.
Ageing of past due not impaired
31‑60 days
61‑90 days
120 days +
Ageing of past due and impaired
120 days +
Total
Movement in allowance for doubtful debts
Balance at the beginning of the financial year
Amount released
Balance at the end of the financial year
851,463
344,008
17,954
48,302
1,217
9,114
917,719
354,339
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
40
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
7. Current Inventories
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Raw materials ‑ at net realisable value
2,974,805
2,541,172
Work in progress ‑ at cost
2,346,056
1,314,678
5,320,861
3,855,850
8. Other Assets
Current
Prepayments
Non‑current
332,811
588,939
‑
‑
‑
‑
‑
‑
‑
‑
Amounts due from wholly‑owned controlled entity
Less Allowance for uncollectible amounts
Movement in allowance for uncollectible amounts
Balance at the beginning of the financial year
Provision recognised in profit and loss
Reversal of provision recognised in profit or loss
Balance at the end of the financial year
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
66,419,924
65,258,001
(66,419,924)
(65,258,001)
‑
‑
65,258,001
68,082,984
1,161,923
‑
‑
(2,824,983)
66,419,924
65,258,001
41
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
9. Intangibles
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
License agreement
‑
‑
‑
‑
On 3 December 2009 as part of the acquisition of the assets of Recon Optical Inc of the USA, the consolidated entity
acquired a licence for the Kollmorgen Licensed patents. The license expires on the expiry of the patents which
expire on 16 July 2017 and relates to the manufacturing of gimbals. The full value of the licence agreement was
impaired during the prior period based on the forecasted future cash flows from signed contracts on hand.
Movement in intangible assets
Gross carrying amount
Balance at the beginning of the financial year
Amortisation
Impairment
Net foreign currency exchange differences
Balance at the end of the financial year
Net book value
10. Auditors Remuneration
(a) Auditor of the Parent Entity
‑
‑
‑
‑
‑
‑
714,830
(131,519)
(565,119)
(18,192)
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Audit or review of the financial report
174,450
186,031
162,450
186,031
Taxation services
25,200
13,500
25,200
13,500
199,650
199,531
187,650
199,531
(b) Network firm of the Parent Entity Auditor
Audit or review of the financial report
Taxation services
(c) Other Auditor
Audit or review of the financial report
Taxation services
‑
‑
‑
3,996
2,664
6,660
10,821
2,126
12,947
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
The auditor of Electro Optic Systems Holdings Limited is Deloitte Touche Tohmatsu.
42
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
11. Property, Plant and Equipment
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
(a) Plant and equipment ‑ at cost
6,623,866
5,905,447
Less accumulated depreciation and impairment
(6,497,766)
(5,755,546)
126,100
149,901
(b) Leased assets ‑ at cost
10,863
361,997
Less accumulated amortisation and impairment
(10,863)
(144,845)
‑
217,152
(c) Office equipment ‑ at cost
3,343,929
2,755,422
Less accumulated depreciation and impairment
(3,013,886)
(2,589,636)
330,043
165,786
(d) Furniture, fixtures and fittings ‑ at cost
316,896
280,703
Less accumulated depreciation and impairment
(311,734)
(275,436)
5,162
5,267
(e) Leasehold improvements ‑ at cost
1,220,701
1,128,493
Less accumulated depreciation and impairment
(1,220,701)
(1,128,493)
‑
‑
(f) Motor vehicle ‑ at cost
20,338
17,736
Less accumulated depreciation and impairment
(20,338)
(17,736)
(g) Satellite ‑ at cost
Less impairment
Total net book value of Property,
Plant and Equipment
‑
‑
7,000,000
7,000,000
(7,000,000)
(7,000,000)
‑
‑
461,305
538,106
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
15,048
(14,063)
985
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
985
43
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
11. Property, Plant and Equipment (cont)
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Cost
Plant and equipment
Balance at beginning of year
5,905,447
6,013,397
Additions
Asset transfers
Disposals
60,541
18,640
‑
‑
9,730
(65,066)
Net foreign currency exchange differences
657,878
(71,254)
Balance at end of year
6,623,866
5,905,447
Leased assets
Balance at beginning of year
361,997
362,181
Asset transfer
Disposals
Net foreign currency exchange differences
Balance at end of year
(324,074)
(28,450)
1,390
10,863
‑
‑
(184)
361,997
Office equipment
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Balance at beginning of year
2,755,422
2,752,175
15,048
15,048
Additions
Asset transfers
Disposals
82,723
324,074
(38,189)
26,594
4,979
(3,862)
Net foreign currency exchange differences
219,899
(24,464)
Balance at end of year
3,343,929
2,755,422
‑
‑
(15,048)
‑
‑
‑
‑
‑
‑
15,048
44
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
11. Property, Plant and Equipment (cont)
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Furniture, fixtures and fittings
Balance at beginning of year
280,703
300,212
Asset transfers
‑
(14,709)
Net foreign currency exchange differences
36,193
(4,800)
Balance at end of year
316,896
280,703
Leasehold improvements
Balance at beginning of year
1,128,493
1,140,721
Net foreign currency exchange differences
92,208
(12,228)
Balance at end of year
1,220,701
1,128,493
Motor vehicle
Balance at beginning of year
Net foreign currency exchange differences
Balance at end of year
17,736
2,602
20,338
18,081
(345)
17,736
Satellite
Balance at beginning of year
7,000,000
7,000,000
Balance at end of year
7,000,000
7,000,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
45
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
11. Property, Plant and Equipment (cont)
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Accumulated Depreciation/
Amortisation/ Impairment
Plant and equipment
Balance at beginning of year
(5,755,546)
(4,944,358)
Depreciation
Disposals
(95,835)
(898,344)
‑
12,305
74,851
Net foreign currency exchange differences
(646,385)
Balance at end of year
(6,497,766)
(5,755,546)
Leased plant and equipment
Balance at beginning of year
(144,845)
(77,607)
Amortisation expense
(2,678)
(67,422)
Transfers
Disposals
Net foreign currency exchange differences
129,788
8,263
(1,391)
‑
‑
184
Balance at end of year
(10,863)
(144,845)
Office equipment
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Balance at beginning of year
(2,589,636)
(1,996,675)
(14,063)
(13,406)
Depreciation
Transfers
Disposals
(113,189)
(619,166)
(129,788)
36,802
‑
1,683
24,522
(197)
‑
14,260
‑
‑
(657)
‑
‑
‑
(14,063)
Net foreign currency exchange differences
(218,075)
Balance at end of year
3,013,886
(2,589,636)
46
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
11. Property, Plant and Equipment (cont)
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Furniture, fixtures and fittings
Balance at beginning of year
(275,436)
(274,814)
Depreciation
Net foreign currency exchange differences
Balance at end of year
(105)
(36,193)
(5,422)
4,800
(311,734)
(275,436)
Leasehold improvements
Balance at beginning of year
(1,128,493)
(844,149)
Amortisation
‑
(296,572)
Net foreign currency exchange differences
(92,208)
12,228
Balance at end of year
(1,220,701)
(1,128,493)
Motor vehicle
Balance at beginning of year
(17,736)
(18,081)
Net foreign currency exchange differences
(2,602)
345
Balance at end of year
(20,338)
(17,736)
Satellite
Balance at beginning of year
(7,000,000)
(7,000,000)
Balance at end of year
(7,000,000)
(7,000,000)
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
47
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
11. Property, Plant and Equipment (cont)
Aggregate depreciation, impairment and amortisation allocated during the period is recognised as an expense and
disclosed in Note 2 to the financial statements.
Impairment of property, plant and equipment
The consolidated entity has assessed the carrying amount of plant and equipment in the Queanbeyan and Tucson
facilities and determined an impairment (reversal) charge for the year of Nil (2012: Nil). The basis to assess for any
potential impairment was fair value less costs to sell and fair value determined by reference to an active market for
second hand manufacturing equipment.
12. Current Trade and Other Payables
Trade payables
Accruals
Amounts due to customers under construction
contracts (Note 30)
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
2,358,432
1,473,693
1,084,797
511,974
18,976
76,459
10,831
86,659
438,992
3,788,418
‑
‑
3,882,221
5,774,085
95,435
97,490
The average credit period on purchases of goods is 30 days and no interest is payable on goods purchased within
agreed credit terms. The consolidated entity has financial risk management policies in place to ensure that all
payables are paid within the credit timeframe.
13. Borrowings
Secured ‑ At amortised cost
Current
Finance lease liabilities (Note 26)
Non‑current
Finance lease liabilities (Note 26)
‑
‑
102,191
15,032
‑
‑
‑
‑
The finance lease liabilities are secured by the leased assets. The average weighted interest rate charged on the
finance leases was 10.03% (2012 ‑ 10.03%).
48
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
14. Provisions
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Current
Employee benefits (Note 16)
2,135,760
2,317,488
Contract losses
Contract credit
Decommissioning costs
Warranty (Note 15)
Non‑current
286,084
‑
250,000
222,191
308,776
250,000
1,863,783
1,507,027
4,535,627
4,605,482
Employee Benefits (Note 16)
478,045
293,271
Movement in contract loss provision
Balance at 1 January
Additional provision recognised
222,191
22,422
63,893
222,191
Reductions resulting from re‑measurement
‑
(22,422)
Balance as at 31 December
286,084
222,191
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
The provision for contract losses is based on assessment by management of the additional costs to complete
existing contracts not recoverable from the customer.
Movement in contract credit provision
Balance at 1 January
Additional provision recognised
Balance as at 31 December
308,776
(308,776)
‑
‑
308,776
308,776
The provision is for an agreed credit to be provided to a customer.
Movement on decommissioning costs
Balance at 1 January
Balance as at 31 December
250,000
250,000
250,000
250,000
‑
‑
‑
‑
‑
The provision for decommissioning costs relate to an obligation to dismantle and refurbish a telescope at a
future date.
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
49
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
15. Warranty Provisions
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Movement in warranty provision
Balance at 1 January
1,507,027
2,047,061
Reductions resulting from re‑measurement
(356,539)
(1,212,164)
Additional provisions recognised
713,295
672,130
Balance as at 31 December
1,863,783
1,507,027
‑
‑
‑
‑
‑
‑
‑
‑
The provision for warranty claims represents the present value of the directors’ best estimate of the future sacrifice
of economic benefits that will be required under the consolidated entity’s 12‑month warranty program for military
products and telescopes. The estimate has been made on the basis of historical industry accepted warranty
trends and may vary as a result of new materials, altered manufacturing processes or other events affecting
product quality.
16. Employee Benefits
The aggregate employee benefits liability recognised in the financial statements is as follows:
Provision for employee entitlements
Current (Note 14)
Non‑Current (Note 14)
2,135,760
2,317,488
478,045
293,271
‑
‑
‑
‑
50
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
17. Issued Capital
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Balance at the beginning of the financial year ‑
Ordinary shares
75,383,567
75,383,567
75,383,567
75,383,567
Balance at the end of the financial year
75,383,567
75,383,567
75,383,567
75,383,567
Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share
capital from 1 July 1998. Therefore, the company does not have a limited amount of authorised capital and issued
shares do not have a par value.
Fully Paid Ordinary Shares
Number
Number
Number
Number
Balance at the beginning of financial year
56,845,926
56,845,926
56,845,926
56,845,926
Balance at end of financial year
56,845,926
56,845,926
56,845,926
56,845,926
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
18. Directors and Employee Share Option Plan
(a) Unlisted Options issued under the Employee Share Option Plan
The consolidated entity has an ownership‑based compensation scheme for employees (including directors) of
the company. In accordance with the provisions of the scheme, as approved by shareholders at a previous annual
general meeting, employees with more than three months service with the company may be granted options to
purchase ordinary shares at exercise prices determined by the directors based on market prices at the time the
issue of options were made.
Each share option converts to one ordinary share in Electro Optic Systems Holdings Limited. No amounts are paid
or payable by the recipient on receipt of the options. The options carry neither rights to dividends nor voting rights.
Options may be exercised at any time from the date of vesting to the date of expiry.
The number of options granted is determined by the directors and takes into account the company’s and individual
achievements against both qualitative and quantitive criteria.
On 28 June 2002, shareholders approved the adoption of an Employee Share Option Plan.
On 10 December 2009 Directors approved the issue of 1,800,000 unlisted options to staff at an exercise price
of $1.30 exercisable on or before 8 December 2013.
51
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
18. Directors and Employee Share Option Plan (cont)
(b) Unlisted Options issued under the Employee Share Option Plan
2013
2012
Weighted
average
exercise
price
$
Number
Weighted
average
exercise
price
$
Number
Balance at the beginning of the financial year (i)
1,025,000
1.30
1,538,000
1.30
Granted during the year (ii)
Exercised during the year (iii)
‑
‑
Lapsed during the year (iv)
(1,025,000)
Balance at the end of the financial year (v)
Exercisable at end of the year
‑
‑
‑
‑
1.30
1.30
‑
‑
(513,000)
1,025,000
‑
1,025,000
‑
‑
1.30
1.30
‑
(i) Balance at the beginning of the year
2013
Staff options
2012
Staff options
Number
Grant date
Expiry date
Exercise
Price
Fair value at
grant date
1,025,000
10/12/09
8/12/13
$1.30
$987,075
Number
Grant date
Expiry date
Exercise
Price
Fair value at
grant date
1,538,000
10/12/09
8/12/13
$1.30
$1,481,094
Staff and Director options carry no rights to dividends and no voting rights.
(ii) Granted during the year
There were no options issued during 2013 or 2012.
(iii) Exercised during the year
There were no options exercised during 2013 or 2012.
52
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
18. Directors and Employee Share Option Plan (cont)
(iv) Lapsed during the year
Number
of Options
Lapsed
Grant
Date
Exercise
Date
Expiry
Date
Exercise
Price
No. of
Shares
Issued
Fair
Value
Received
Fair Value
of Shares
at Date of
Issue
2013
Staff
2012
Staff
1,025,000
10/12/09
513,000
10/12/09
‑
‑
8/12/13
$1.30
8/12/13
$1.30
‑
‑
‑
‑
‑
‑
(v) Balance at the end of the financial year
2013
Staff options
2012
Staff options
Number
Grant date
Expiry date
Exercise
Price
Fair value at
grant date
‑
10/12/09
8/12/13
$1.30
$Nil
Number
Grant date
Expiry date
Exercise
Price
Fair value at
grant date
1,025,000
10/12/09
8/12/13
$1.30
$987,075
Staff and Director options carry no rights to dividends and no voting rights.
All the options granted to staff during 2009 vested over a three year period with 20% vesting after 12 months,
a further 30% after 2 years and the balance after 3 years. No options were issued during 2010, 2011, 2012 and 2013.
The difference between the total market value of the options issued during the financial year, at the date of issue,
and the total amount received from employees (nil) is recognised in the financial statements over the vesting period
as disclosed in Note 18 to the financial statements.
53
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
19. Reserves
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Foreign currency translation
70,175
49,953
‑
‑
Employee equity‑settled benefits
7,727,803
7,727,803
7,727,803
7,727,803
7,797,978
7,777,756
7,727,803
7,727,803
Foreign currency translation
Balance at beginning of financial year
Translation of foreign operations
Balance at end of financial year
49,953
20,222
70,175
45,780
4,173
49,953
‑
‑
‑
‑
‑
‑
Exchange differences relating to the translation from US dollars, being the functional currency of the consolidated
entity’s foreign controlled entities in the USA, Euros, being the functional currency of the consolidated entity’s
foreign controlled entity in Germany and Singaporean dollars, being the functional currency of the consolidated
entity’s foreign controlled entity in Singapore, into Australian dollars are brought to account by entries made
directly to the foreign currency translation reserve. Exchange differences previously accumulated in the foreign
currency translation reserve (in respect to translating the net assets of foreign operations) are reclassified to profit
or loss on disposal of the foreign operation.
Employee equity‑settled benefits
Balance at beginning of financial year
7,727,803
7,523,594
7,727,803
7,523,594
Share based payment
‑
204,209
‑
204,209
Balance at end of financial year
7,727,803
7,727,803
7,727,803
7,727,803
The employee equity‑settled benefits reserve arises on the grant of share options to directors and executives
under the Employee Share Option plan. Further information about share‑based payments to employees is made
in Note 18 to the financial statements. Items included in employee equity‑settled benefits reserve will not be
reclassified subsequently to profit or loss.
20. Accumulated Losses
Balance at beginning of financial year
(80,407,399)
(70,225,428)
(79,678,292)
(81,680,598)
Net profit/ (loss) attributable to members of
the parent entity
1,562,746
(10,181,971)
(1,783,317)
2,002,306
Balance at end of financial year
(78,844,653)
(80,407,399)
(81,461,609)
(79,678,292)
54
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
21. Key Management Personnel Compensation
The key management personnel of Electro Optic Systems Holdings Limited during the year were:
Mr Fred Bart (Chairman, Non‑executive director)
Dr Ben Greene (Chief Executive Officer and director)
Mr Ian Dennis (Non‑executive director)
Mr Mark Ureda (Non‑executive director)
Lt Gen Peter Leahy AC (Non‑executive director)
Mr Kevin Scully (Non‑executive director)
Dr Craig Smith (Chief Executive Officer of EOS Space Systems Pty Limited)
Mr Mark Bornholt (Chief Executive Officer Defence Systems)
Mr Scott Lamond (Chief Financial Officer ‑ Electro Optic Systems Pty Limited)
Key management personnel compensation policy
The board reviews the remuneration packages of all key management personnel on an annual basis.
Remuneration packages are reviewed and determined with regard to current market rates and are benchmarked
against comparable industry salaries, adjusted by a performance factor to reflect changes in the performance
of the company.
The aggregate compensation of the key management personnel of the consolidated entity and company is set
out below:
Consolidated
Company
2013
$
2012
$
2013
$
2012
$
Short‑term employee benefits
1,332,836
1,601,075
337,750
377,750
Post‑employment benefits
117,780
104,623
12,410
12,240
Share‑based payment
Other long term benefits
‑
‑
39,934
‑
‑
‑
‑
‑
1,450,616
1,745,632
350,160
389,990
55
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
21. Key Management Personnel Compensation (cont)
The compensation of the non‑executive directors is paid by the holding company and is the same for both the
holding company and the consolidated entity. The compensation for Dr Ben Greene and the senior executives are
paid by subsidiary companies.
Short term
Equity
settled
Share based
payments
Post
Employment
Non‑monetary
$
Superannuation
$
Options
$
2013
Directors
Mr Fred Bart
Dr Ben Greene*
Mr Ian Dennis
Mr Mark Ureda
Salary
& Fees
$
61,000
370,032
157,500
40,875
Lt Gen Peter Leahy AC
37,500
‑
20,054
‑
‑
‑
‑
5,566
33,476
3,422
‑
3,422
‑
20,054
45,886
‑
‑
‑
‑
19,163
18,575
16,881
54,619
40,875
707,782
210,000
210,000
185,000
605,000
1,312,782
20,054
100,505
Other
Long
Term
Benefits
$
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Total
$
66,566
423,562
160,922
40,875
40,922
40,875
731,722
229,163
228,575
201,881
659,619
1,391,341
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Mr Kevin Scully
Executives
Dr Craig Smith
Mr Mark Bornholt
Mr Scott Lamond
* Executive director
56
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
21. Key Management Personnel Compensation (cont)
Short term
Equity
settled
Share based
payments
Post
Employment
Non‑monetary
$
Superannuation
$
Options
$
2012
Directors
Mr Fred Bart
Dr Ben Greene*
Mr Ian Dennis
Mr Mark Ureda
Salary
& Fees
$
61,000
439,994
197,500
40,875
Lt Gen Peter Leahy AC
37,500
Mr Kevin Scully
Executives
Dr Craig Smith
Mr Mark Bornholt
Mr John Palisi
Mr Scott Lamond
Mr Hugo Keyner
40,875
817,744
210,000
210,000
80,324
167,556
85,976
753,856
‑
28,726
‑
‑
‑
‑
5,490
37,177
3,375
‑
3,375
‑
28,726
49,417
‑
‑
‑
‑
749
749
18,900
18,900
2,326
15,080
‑
55,206
104,623
‑
‑
‑
‑
‑
‑
‑
18,152
‑
‑
3,630
18,152
39,934
39,934
1,571,600
29,475
* Executive director
Non‑monetary includes the provision for motor vehicles and health benefits.
Further details on options can be found in Note 18.
Other
Long
Term
Benefits
$
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Total
$
66,490
505,897
200,875
40,875
40,875
40,875
895,887
247,052
228,900
82,650
186,266
104,877
849,745
1,745,632
57
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
22. Notes to the Cash Flow Statement
(a) Reconciliation of Cash and cash equivalents
For the purposes of the cash flow statement, cash includes cash on hand and at call deposits with banks
or financial institutions, investments in money market instruments maturing within less than two months
and net of bank overdrafts. Cash at the end of the financial year as shown in the statements of cash flows
is reconciled to the related items in the statement of financial position as follows:
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Cash and cash equivalents
4,048,005
6,686,194
1,739,217
3,502,600
(b) Reconciliation of (Loss)/profit for the year to net cash flows from operating activities
Profit/ (Loss) for the period
1,562,746
(10,181,971)
(1,783,317)
2,002,306
Loss/(profit) on disposal of fixed assets
(43,891)
Equity settled share‑based payments
Amortisation of intangibles
Impairment of intangibles
Depreciation of fixed assets
Foreign exchange movements
Provision for non‑recovery of loan
Provision for non‑recovery of investment
Writedown of inventory
(Increase)/decrease in assets
Current receivables
Inventories
Other current assets
Increase/(decrease) in liabilities
(4,603)
204,209
131,519
565,119
‑
‑
‑
211,807
1,886,926
(196,409)
25,220
788
‑
‑
‑
197
‑
‑
‑
‑
‑
657
‑
‑
‑
‑
‑
‑
1,342,530
1,161,923
(2,824,982)
‑
‑
204,209
‑
(1,194,907)
7,960,131
21,004
(5,827)
(1,465,011)
5,506,344
256,128
(487,623)
‑
‑
‑
‑
‑
‑
Provisions
114,919
180,647
Current trade and other payables
884,739
(1,978,231)
(2,055)
(23,471)
Other
572,823
216,665
Deferred income and amounts due to customers
under construction contracts
(3,349,426)
(1,582,381)
‑
‑
‑
‑
Net cash (outflows)/ inflows from
operating activities
(2,646,482)
3,784,501
(601,460)
(647,108)
58
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
23. Related Party Disclosures
(a) Equity interests in related parties
Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 24.
(b) Key management personnel compensation
Details of key management personnel compensation are disclosed in Note 21.
(c) Key management personnel equity holdings (represented by holdings of fully paid ordinary shares in Electro
Optic Systems Holdings Limited)
2013
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr Scott Lamond
Balance at
1/1/13
No.
Granted as
remuneration
No.
Received on
exercise of
options
No.
Net other
change
No.
Balance at
31/12/13
No.
5,309,075
3,954,185
170,050
‑
15,000
‑
‑
89,450
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
5,309,075
3,954,185
170,050
‑
15,000
‑
‑
89,450
‑
59
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
23. Related Party Disclosures (cont)
2012
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Mr John Palisi
Dr Craig Smith
Mr Scott Lamond
Mr Hugo Keyner
Balance at
1/1/12
No.
Granted as
remuneration
No.
Received on
exercise of
options
No.
Net other
change
No.
Balance at
31/12/12
No.
5,309,075
3,954,185
170,050
‑
15,000
‑
‑
‑
89,450
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
5,309,075
3,954,185
170,050
‑
15,000
‑
‑
‑
89,450
‑
‑
(d) Key management personnel option holdings
Balance at
1/1/13
No.
Granted as
remuneration
No.
Exercised
(Lapsed)
No.
Balance at
31/12/13
No.
Balance
vested and
exercisable
at 31/12/13
No.
Options
vested
during
year
‑
‑
‑
‑
‑
‑
‑
160,000
32,000
160,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
(160,000)
(32,000)
(160,000)
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
2013
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr Scott Lamond
Mr Hugo Keyner
The Company did not issue any options during the year ended 31 December 2010, 2011, 2012 and 2013
to Key management personnel. Refer to Note 18 for further details of options outstanding.
60
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
23. Related party disclosures (cont)
Balance
at 1/1/12
No.
Granted as
remuneration
No.
Exercised
(Lapsed)
No.
Balance at
31/12/12
No.
Balance
vested and
exercisable
at 31/12/12
No.
Options
vested
during
year
‑
‑
‑
‑
‑
‑
‑
160,000
160,000
32,000
160,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
160,000
160,000
80,000
(160,000)
‑
‑
‑
‑
‑
32,000
32,000
16,000
160,000
160,000
80,000
2012
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr John Palisi
Mr Scott Lamond
Mr Hugo Keyner
The Company did not issue any options during the year ended 31 December 2010, 2011 and 2012
to Key management personnel. Refer to Note 18 for further details of options outstanding.
(e) Transactions with other related parties
Other related parties includes:
■ the parent entity;
■ entities with significant influence over the consolidated entity; and
■ subsidiaries.
Amounts receivable from entities in the wholly‑owned group are disclosed in Note 8 to the financial statements.
Certain entities within the group have lent money to other entities within the wholly‑owned group on an interest
free basis. The amounts receivable by the ultimate parent entity in the wholly‑owned group are disclosed in Note 8
to the financial statements. The ultimate parent entity in the wholly‑owned group has provided for this amount
based upon the net asset position of the controlled entities.
61
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
23. Related party disclosures (cont)
(f) Other transactions with key management personnel
During the year, the Company paid a total of $66,566 (2012: $66,490) to 4F Investments Pty Limited,
a company associated with Mr Fred Bart in respect of directors fees and superannuation for Fred Bart.
During the year, the Company received $9,822 (2012: $13,868) from 4F Investments Pty Limited,
a company associated with Mr Fred Bart in respect of shared Sydney office facilities.
During the year, the Company paid $40,922 (2012: $40,875) to Dennis Corporate Services Pty Limited,
a company associated with Mr Ian Dennis in respect of directors fees and superannuation for Ian Dennis.
During the year, the Company paid $120,000 (2012: $160,000) to Dennis Corporate Services Pty Limited,
a company associated with Mr Ian Dennis in respect of consulting fees for company secretarial and accounting services.
During the year, the Company paid $11,927 (2012: 5,543) to Audio Pixels Holdings Limited, a company of
which Fred Bart and Ian Dennis are directors and shareholders in respect of shared Sydney office facilities.
The Company also paid a rental deposit of Nil (2012: $5,843) to Audio Pixels Holdings Limited included in Note 6.
(g) Parent entity
The parent entity in the consolidated group is Electro Optic Systems Holdings Limited.
24. Controlled Entities
Name of Entity
Parent Entity
Country of
Incorporation
December
2013
%
December
2012
%
Electro Optic Systems Holdings Limited
Australia #
Controlled Entities
Electro Optic Systems Pty Limited
Fire Control Systems Pty Limited
FCS Technology Holdings Pty Limited
EOS Space Systems Pty Limited
EOS Optronics GmbH
EOS Defense Systems Pte Limited
EOS USA, Inc. (Inc in Nevada)
EOS Technologies, Inc. (Inc in Arizona)
EOS Defense Systems, Inc (Inc in Arizona)
Australia #
Australia #
Australia #
Australia #
Germany
Singapore
USA
USA
USA
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
# These companies form part of the Australian consolidated tax entity.
All entities are audited by Deloitte Touche Tohmatsu apart from EOS Defense Systems Pte Limited.
62
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
25. Contingent Liabilities
(a) Entities within the consolidated entity are involved in contractual disputes in the normal course
of contracting operations. The directors believe that the entities within the consolidated entity
can settle any contractual disputes with customers and should any customers commence legal
proceedings against the company, the directors believe that any actions can be successfully defended.
As at the date of this report no legal proceedings have been commenced against any entity within the group.
26. Capital and Leasing Commitments
(a) Finance leasing commitments
Payable ‑ minimum future lease payments not
later than one year
later than one year and not later than five years
later than five years
Minimum lease payments
Less future finance charges
Total lease liability
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
‑
‑
‑
‑
‑
‑
108,663
17,038
‑
125,701
(8,478)
117,223
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
63
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
26. Capital and Leasing Commitments (cont)
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
(b) Finance leasing commitments
Payable ‑ Present value of minimum future
lease payments
not later than one year
later than one year and not later than five years
later than five years
Present value of minimum lease payments
Represented by:
Current liability (Note 13)
Non‑current liability (Note 13)
(c) Operating lease commitments
Non‑cancellable operating leases contracted for
but not recognised in the financial statements:
Payable:
‑
‑
‑
‑
‑
‑
‑
102,191
15,032
‑
117,223
102,191
15,032
117,223
not later than one year
279,490
500,552
later than one year and not later than five years
later than five years
‑
‑
‑
‑
279,490
500,552
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
64
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
26. Capital and Leasing Commitments (cont)
Operating Leases
Leasing arrangements
Operating leases relate to:
Premises at 2500 N. Tucson Boulevard, Suite 100, Tuscon Arizona with a lease term which expires on
30 September 2014. There is no option to renew after 30 September 2014 and future lease payments are fixed
under the contract. There is no option to purchase the property.
Premises at 2112 N. Dragoon, Units 11, 12 and 19 Tucson Arizona with a lease term which expires on 30 April 2014.
There is no option to renew after 30 April 2014 and future lease payments are fixed under the contract. There is no
option to purchase the property.
Premises in Queanbeyan, Australia for a 5 year period to 31 December 2008 with a 5 year option. The Company
has the first right of refusal in respect of the purchase of the property. The Company is on a month to month basis
whilst a new lease is negotiated.
Premises at EOS House at Mt Stromlo, Australia with a lease term which expires on 31 December 2014. There is
an option to renew after 31 December 2014 and future lease payments are fixed under a contract. There is no option
to purchase the property.
Premises at 34 Lowe Street, Suite 401, Level 4 Queanbeyan are the subject of an expired lease. The Company
occupies the property on a month to month basis and there is no make good requirement.
Shared premises in Sydney which are on a month to month arrangement with Audio Pixels Holdings Limited,
a company associated with directors Mr Fred Bart and Mr Ian Dennis.
Finance Leases
Leasing arrangements
Finance leases relate to motor vehicles, computer and office equipment with lease terms of between one and
three years. The consolidated entity has options to purchase the computer and office equipment for a nominal
amount at the conclusion of the lease arrangements. The consolidated entity has options to purchase motor
vehicles for agreed residual amounts at the conclusion of the lease arrangements.
27. Subsequent Events
The Directors are not aware of any significant subsequent events since the end of the financial period and
up to the date of this report.
65
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
28. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise receivables, payables, borrowings, finance leases, cash and
short term deposits.
Due to the small size of the group significant risk management decisions are taken by the board of directors.
These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk,
liquidity risk and cash flow interest rate risk.
The Group does not use derivative financial instruments to hedge these risk exposures.
The directors consider that the carrying amount of financial assets and liabilities recognised in these financial
statements approximate their fair values.
Risk Exposures and Responses
(a) Interest rate risk
The Group’s exposure to market interest rates relates primarily to the Group’s cash holdings.
At balance date, the Group had the following mix of financial assets and liabilities exposed to Australian variable
interest rate risk that are not designated in cash flow hedges:
Consolidated
Company
2013
$
2012
$
2013
$
2012
$
Financial assets
Cash and cash equivalents
4,048,005
6,686,194
1,739,217
3,502,600
Financial Liabilities
Lease liabilities
‑
(117,223)
‑
‑
4,048,005
6,568,971
1,739,217
3,502,600
The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential
renewals of existing positions, alternative financing and the mix of fixed and variable interest rates.
66
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
28. Financial Risk Management Objectives and Policies (cont)
At 31 December 2013, if interest rates had moved, as illustrated in the table below, with all other variables
held constant, post tax profit and equity would have been affected as follows:
Judgements of reasonably possible movements
Consolidated
+1% (100 basis points)
‑.5% (50 basis points)
Company
+1% (100 basis points)
‑.5% (50 basis points)
Post Tax Profit
Higher/(Lower)
Equity
Higher/(Lower)
2013
$
2012
$
2013
$
2012
$
40,480
66,862
40,480
66,862
(20,240)
(33,431)
(20,240)
(33,431)
17,392
(8,696)
35,026
(17,513)
17,392
(8,696)
35,026
(17,513)
The movements in profits are due to lower interest rates on cash balances. The cash balances were lower in 2013
than in 2012 and accordingly the sensitivity is lower.
(b) Foreign currency risk
As a result of purchases of inventory denominated in United States Dollars, the Group’s statement of financial
position can be affected significantly by movements in the US$/A$ exchange rates. Exchange rates are managed
within approved policy parameters using natural hedges and no derivatives are used.
The Group also has transactional currency exposures. Such exposures arise from sales or purchases by an
operating entity in currencies other than the functional currency.
The policy of the Group is to convert surplus foreign currencies to Australian dollars. The group also holds cash
deposits in US dollars to secure US dollar bank guarantees to overseas customers.
67
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
28. Financial Risk Management Objectives and Policies (cont)
(b) Foreign currency risk (cont)
At 31 December 2013, the Group had the following exposure to US$ foreign currency:
Consolidated
Company
Financial assets
Cash and cash equivalents
Trade and other receivables
2013
$
2012
$
1,252,409
1,176,313
1,811,154
1,155,120
3,063,563
2,331,433
Financial liabilities
Trade and other payables
1,125,216
554,568
Finance leases
‑
‑
1,125,216
554,568
2013
$
7,979
‑
7,979
‑
‑
‑
2012
$
520
‑
520
‑
‑
‑
Net exposure
1,938,347
1,776,865
7,979
520
All US$ denominated financial instruments were translated to A$ at 31 December 2013 at the exchange rate
of 0.8874 (2012: 1.0374).
At 31 December 2013, had the Australian Dollar moved, as illustrated in the table below, with all other variables
held constant, post tax profit and equity would have been affected as follows:
Judgements of reasonably possible movements
Consolidated
AUD/USD +10%
AUD/USD ‑5%
Company
AUD/USD +10%
AUD/USD ‑5%
68
Post Tax Profit
Higher/(Lower)
Equity
Higher/(Lower)
2013
$
2012
$
2013
$
2012
$
299,343
(275,905)
299,343
(275,905)
652,663
(38,911)
652,663
(38,911)
1,232
2,687
(64)
(7)
1,232
2,687
(64)
(7)
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
28. Financial Risk Management Objectives and Policies (cont)
(b) Foreign currency risk (cont)
Management believes the balance date risk exposures are representative of risk exposure inherent in
financial instruments.
As noted, foreign currency transactions entered into during the financial year are managed within approved
policy parameters using natural hedges. The director’s do not consider that the net exposure to foreign currency
transactions is material after considering the effect of natural hedges.
(c) Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial
loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties which are
continuously monitored.
The credit risk on liquid funds is limited because the counterparties are banks with high credit‑ratings assigned
by international credit agencies.
(d) Liquidity risk management
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due.
Ultimate responsibility for liquidity risk management rests with the board of directors, who has built an
appropriate risk management framework for the management of the Group’s short, medium and long term
funding and liquidity requirements. The Group manages liquidity by maintaining adequate cash reserves by
continuously monitoring forecast and actual cash flows and managing maturity profiles of financial assets.
Significant uncertainties relating to the ability of the company and the consolidated entity to continue as going
concerns and pay their debts as and when they fall due are set out in Note 1(a).
69
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
28. Financial Risk Management Objectives and Policies (cont)
(d) Liquidity risk management (cont)
Liquidity and interest tables
The following tables detail the Company’s and the Group’s remaining contractual maturity for its non‑derivative
financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities
based on the earliest date on which the Group can be required to pay. The table includes both interest and
principal cash flows.
Weighted
average
effective
interest rate
%
Less than 1
month
$
1‑3 months
$
3 months to
1 year
$
1‑5 years
$
Consolidated
2013
Other non interest bearing liabilities
Finance lease liability
‑
‑
3,443,229
‑
2012
Other non interest bearing liabilities
0.00
1,985,667
‑
‑
‑
‑
‑
‑
‑
‑
‑
Finance lease liability
10.03
12,067
24,133
108,603
11,857
Company
2013
Other non interest bearing liabilities
2012
Other non interest bearing liabilities
‑
‑
95,435
97,490
‑
‑
‑
‑
‑
‑
70
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
28. Financial risk management objectives and policies (cont)
(d) Liquidity risk management (cont)
The following tables detail the Company’s and the Group’s remaining contractual maturity for its non‑derivative
financial assets. The tables have been drawn up based on the undiscounted contractual maturities of the financial
assets including interest that will be earned on these assets except where the Company/Group anticipates that the
cash flow will occur in a different period.
Weighted
average
effective
interest rate
%
Less than 1
month
$
1‑3 months
$
3 months
to 1 year
$
1‑5 years
$
Consolidated
2013
Non interest bearing
Variable interest rate instruments
‑
‑
1,317,127
‑
Fixed interest rate instruments
1.94
2,636,337
2012
Non interest bearing
Variable interest rate instruments
3,953,464
‑
‑
2,361,884
‑
Fixed interest rate instruments
3.10
4,320,267
6,682,151
‑
‑
15,126
15,126
‑
‑
15,197
15,197
Company
2013
Non interest bearing
Variable interest rate instruments
‑
‑
7,979
‑
‑
‑
Fixed interest rate instruments
2.74
1,717,840
15,126
2012
Non interest bearing
Variable interest rate instruments
‑
‑
520
‑
‑
Fixed interest rate instruments
3.22
3,496,714
19,270
‑
‑
82,153
82,153
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
71
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
28. Financial risk management objectives and policies (cont)
(e) Price risk
The Group’s exposure to commodity price risk is minimal. The Group does not make investments in
equity securities.
29. Segment Information
AASB 8 requires operating segments to be identified on the basis of internal reports about components of the
Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the
segment and to assess performance.
The identification of the Group’s reportable segments has changed from those disclosed in the previous
2012 Annual Report. The Group’s reportable segments are now Defence Systems and Space. Space Systems and
Space Surveillance are now combined into one sector called Space for the year ended 31 December 2013.
The consolidated entity operates in Australia, USA, Singapore and Germany in the development, manufacture and
sale of telescopes and dome enclosures, laser satellite tracking systems and the manufacture of electro‑optic fire
control systems.
Product and Services within each Segment
Space
EOS’s laser‑based space surveillance systems have been demonstrated in customer trials and EOS is now
well‑placed to be a major contributor to the next generation of space tracking capability. Future business is
dependent on large government contracts being awarded in the space sector.
In addition, EOS has substantial space resources in its own right, and may enter the market for space data provision
in the future.
Defence Systems
EOS develops, manufactures and markets advanced fire control, surveillance, and weapon systems to approved
military customers. These products either replace or reduce the role of a human operator for a wide range of
existing and future weapon systems in the US, Australasia, Middle East and other markets.
72
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
29. Segment Information (cont)
Segment Revenues
Space
Defence systems
Consolidated
31 December
2013
$
31 December
2012
$
5,592,858
4,785,798
24,215,255
16,962,253
Total of all segments
29,808,113
21,748,051
Unallocated
Total
Segment Results
Space
Defence systems
74,280
171,697
29,882,393
21,919,748
1,463,696
(1,165,051)
720,444
(8,194,298)
Total of all segments
2,184,140
(9,359,349)
Unallocated
(621,394)
(822,622)
(Loss)/profit before income tax expense
1,562,746
(10,181,971)
Income tax expense
‑
‑
(Loss)/profit for the period
1,562,746
(10,181,971)
The revenue reported above represents revenue from external customers. There were no intersegment sales
during the period. There were no discontinued operations during the period.
The consolidated entity has one customer who provided in excess of 10% of consolidated revenue. This customer is
within the Defence segment with total revenue of $17,975,010 (2012 ‑ $15,475,370).
73
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
29. Segment Information (cont)
Segment Assets and Liabilities
Space
Defence systems
Assets
Liabilities
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
1,240,622
545,258
1,829,722
3,287,349
7,944,158
6,312,533
7,066,171
7,385,489
Total all segments
9,184,780
6,857,791
8,895,893
10,672,838
Unallocated
4,048,005
6,686,194
‑
117,223
Consolidated
13,232,785
13,543,985
8,895,893
10,790,061
Assets used jointly by reportable segments are allocated on the basis of the revenue earned by the individual
reportable segments.
Depreciation, impairment
and amortisation of
segment assets
Acquisition of segment
assets
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
12,008
94,039
26,881
94,807
1,781,830
116,383
9,748
35,485
Other Segment Information
Space
Defence systems
Total all segments
106,815
1,875,869
143,264
45,234
Unallocated
Consolidated
104,992
707,695
‑
‑
211,807
2,583,564
143,264
45,234
74
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
29. Segment Information (cont)
Information on Geographical Segments
31 December 2013
Geographical Segments
Australasia
North America
Germany
Total
31 December 2012
Geographical Segments
Australasia
North America
Germany
Total
Revenue from
External Customers
$
28,513,050
1,359,718
9,625
Segment Assets
$
10,510,079
2,707,757
14,949
29,882,393
13,232,785
Acquisition of
Segment Assets
$
84,936
56,791
1,537
143,264
Revenue from
External Customers
$
21,420,123
498,084
1,541
Segment Assets
$
11,276,983
2,239,679
27,323
21,919,748
13,543,985
Acquisition of
Segment Assets
$
30,223
14,331
680
45,234
75
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
30. Construction Contracts
Consolidated
Company
31 December
2013
$
31 December
2012
$
31 December
2013
$
31 December
2012
$
Construction work in progress
11,157,390
12,481,076
Less
Provision for losses
Progress billings
(286,084)
(221,191)
(10,156,800)
(15,773,456)
714,506
(3,513,571)
Recognised and included in the financial
statements as amounts due:
From customers under construction contracts:
Current (Note 6)
1,153,498
274,847
To customers under construction contracts:
Current (Note 12)
(438,992)
(3,788,418)
714,506
(3,513,571)
Retentions included in progress billings
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
76
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 (CONT)
31. Additional Company Information
Electro Optic Systems Holdings Limited is a listed public company in Australia, incorporated in Australia.
The company and its subsidiaries operate in Australia, North America, Singapore and Germany.
Principal Place of Business
EOS House
Mt Stromlo Observatory
Cotter Road
Weston Creek ACT 2611
Australia
Tel: 02 6222 7900
Fax: 02 6299 7687
German Operations
Ulrichsberger Str. 17 3 OG
94469 Deggendorf
Germany
Tel: +49 991 2910083
Fax: +49 991 2910399
Registered Office
Suite 2, Level 12
75 Elizabeth Street
Sydney NSW 2000
Australia
Tel: 02 9233 3915
Fax: 02 9232 3411
USA Operations
2500 N. Tucson Boulevard
Suite 100
Tucson, Arizona 85716
USA
Tel: +1 (520) 624 6399
Fax: +1 (520) 624 1906
Singapore Operations
4 Shenton Way #28‑01
SGX Centre II
Singapore 068807
Tel: +65 6224 0100
Fax: +65 6227 6002
77
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 ASX ADDITIONAL INFORMATION
Additional information required by the Australian Stock Exchange Listing Rules and not disclosed elsewhere in this report.
HOME EXCHANGE
The Company’s ordinary shares are quoted on the Australian Stock Exchange Limited under the trading symbol “EOS”.
The Home Exchange is Sydney.
SUBSTANTIAL SHAREHOLDERS
At 13 March 2014 the following substantial shareholders were registered:
Fred Bart Group
Technology Investments Pty Limited Group
Northrop Grumman Space and Mission Systems Corp.
Ordinary shares
Percentage of total
Ordinary shares
5,309,075
3,954,185
5,000,000
14,263,260
9.34%
6.96%
8.80%
25.10%
VOTING RIGHTS
At 13 March 2014 there were 1,012 holders of fully paid ordinary shares.
Rule 74 of the Company’s Constitution stipulates the voting rights of members as follows:
“Subject to any rights or restrictions for the time being attached to any class or classes of shares and to this Constitution:
(a) on a show of hands every person present in the capacity of a Member or a proxy, attorney or representative
(or in more than one of these capacities) has one vote; and
b) On a poll every person present who is a Member or proxy, attorney or Representative has member present has:
(i) For each fully paid share that the person holds or represents ‑ one vote; and
(ii) For each share other than a fully paid share that the person holds or represents ‑ that proportion
of one vote that the amount paid (not credited) on the shares bears to the total amount paid and
payable on the share (excluding amounts credited).”
OTHER INFORMATION
In accordance with Listing Rule 4.10.19, the Company has used the cash and assets in a form readily convertible to cash
that it had at the time of admission in a way consistent with its business objectives.
The Company has a sponsored Level 1 American Depositary Receipt (ADR) program on the Over‑The‑Counter (OTC)
market in the USA with the ADR ticker symbol of EOPSY. The ration of ADR’s to Ordinary shares is 1:5 and the CUSIP
Number is 28520B1070. The local custodian is National Australia Bank Limited and the US Depositary Bank is BNY Mellon.
78
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 ASX ADDITIONAL INFORMATION (CONT)
DISTRIBUTION OF SHAREHOLDINGS
At 13 March 2014 the distribution of share and option holdings were:
Range
1‑1,000
1,001 ‑ 5,000
5,001 ‑ 10,000
10,001 ‑ 100,000
100,001 and over
Ordinary Shareholders
180
340
190
235
67
1,012
Number of
Shares
103,493
1,022,632
1,655,058
8,299,812
45,764,931
56,845,926
There were 188 ordinary shareholders with less than a marketable parcel.
There is no current on‑market buy‑back.
79
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 TWENTY LARGEST ORDINARY SHAREHOLDERS ‑ QUOTED
TWENTY LARGEST ORDINARY SHAREHOLDERS ‑ QUOTED
At 13 March 2014 the 20 largest ordinary shareholders held 62.27% of the total issued fully paid quoted ordinary
shares of 56,845,926.
Shareholder
Fully Paid Ordinary Shares
Percentage of Total
1. Citicorp Nominees Pty Limited
2. N & J Properties Pty Limited
3. Mr Kevin Tay Hak Leong
4. Technology Transformations Pty Limited
5. Leo James Casey+Frances Mary Casey
6. Emichrome Pty Limited
7. Crea8ive Nominees Pty Limited
8. Capitol Enterprises Limited
9. A & D Wire Limited
10. Landed Investments Limited
11. Technology Investments Pty Limited
12. Justin Casey <2 A/C>
13. Landed Investments NZ Limited
14. Emichrome Pty Limited
15. DBS Vickers Securities (Singapore) Pte Ltd
16. National Nominees Limited
17. Kam Superannuation Fund Pty Limited
18. Tony Peter Vucic+Diane Vucic
19. JP Morgan Nominees Australia Limited
20. Innovation Investments Pty Limited
6,241,016
4,090,000
2,854,969
2,754,185
2,532,000
2,516,488
1,901,328
1,550,000
1,457,276
1,255,201
1,200,000
1,080,351
1,010,000
997,450
922,000
906,409
693,000
525,000
463,763
450,000
10.98%
7.20%
5.02%
4.85%
4.45%
4.43%
3.34%
2.73%
2.56%
2.21%
2.11%
1.90%
1.78%
1.75%
1.62%
1.59%
1.22%
0.92%
0.82%
0.79%
35,400,436
62.27%
80
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 CORPORATE GOVERNANCE STATEMENT
Electro Optic Systems Holdings Limited’s corporate
governance practices were in place throughout the year
ended 31 December 2013 and embrace the Council’s
best practice recommendations which are being put in
place as appropriate.
The Audit Committee was formed on 28 April 2005
and consists of three non‑executive directors.
The members of the Audit Committee
are Lt Gen Peter Leahy AC (Chairman),
Mr Ian Dennis and Mr Kevin Scully. The majority
of the Audit Committee are independent directors
and the Chairman is an independent person.
The Remuneration Committee was formed on
23 March 2007. The members of the Remuneration
Committee are Lt Gen Peter Leahy AC (Chairman),
Mr Ian Dennis and Mr Kevin Scully. The majority of
the Remuneration Committee are independent directors
and the Chairman is an independent person.
The Company has documented risk management
policies and procedures in accordance with its
ISO 9001 certification for its operating activities which
are regularly reviewed. During the current year the
Directors have adopted a formal risk assessment
plan in order to comply with Principle 7.
Additional information regarding the Company’s
corporate governance policies, its Directors, Insider
Trading Policy, Equality and Diversity in the Workplace
Policy and other relevant information can be found
on the Company’s website: www.eos‑aus.com
The Board of Directors of Electro Optic Systems Holdings
Limited is responsible for the corporate governance of
the consolidated entity. The Board guides and monitors
the business and affairs of Electro Optic Systems
Holdings Limited on behalf of the shareholders by whom
they are elected and to whom they are accountable.
The Directors are committed to protecting stakeholders’
interests and keeping investors fully informed about
the performance of the Company, while meeting
stakeholders’ expectations of sound corporate
governance practices.
To ensure the best representation of Shareholder
interests, the Board will regularly review its
corporate governance practices.
The Corporate Governance Statement follows the
Australian Stock Exchange Corporate Governance
Council’s (the “Council’s”) amendments to the
2nd edition of the Corporate Governance Principles
and Recommendations released 30 June 2010 in relation
to diversity, remuneration, trading policies and briefings.
In accordance with the Council’s recommendations,
the Corporate Governance Statement must now contain
certain specific information and must disclose the extent
to which the Company has followed the guidelines
during the period. Where a recommendation has not
been followed, that fact must be disclosed, together with
the reasons for the departure. Electro Optic Systems
Holdings Limited’s Corporate Governance Statement
is now structured with reference to the Corporate
Governance Council’s principles and recommendations,
which are as follows:
Principle 1. Lay solid foundations for management
and oversight
Principle 2. Structure the Board to add value
Principle 3. Promote ethical and responsible
decision making
Principle 4. Safeguard integrity in financial reporting
Principle 5. Make timely and balanced disclosure
Principle 6. Respect the rights of shareholders
Principle 7. Recognise and manage risk
Principle 8. Remunerate fairly and responsibly
81
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 CORPORATE GOVERNANCE STATEMENT (CONT)
Structure of the Board
The skills, experience and expertise relevant to the position of director held by each Director in office at the date
of this Annual Report is included in the Directors’ Report on page 6. Directors of Electro Optic Systems Holdings
Limited are considered to be independent when they are independent of management and free from any business or
other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with,
the exercise of their unfettered and independent judgement.
In the context of director independence, “materiality” is considered from both the Company and individual
director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements.
An item is presumed to be quantitatively immaterial if it is equal or less than 5 percent of the appropriate base amount.
It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10 percent
of the appropriate base amount. Qualitative factors considered include whether a relationship is strategically important,
the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other
factors which point to the actual ability of the director in question to shape the direction of the Company’s loyalty.
In accordance with the definition of independence above, and the materiality thresholds set, the following Directors
of Electro Optic Systems Holdings Limited are considered to be independent:
Name
Position
Mr. Ian Dennis
Non‑Executive Director and Company Secretary
Lt Gen Peter Leahy AC
Non‑Executive Director
Mr Kevin Scully
Non‑Executive Director
There are procedures in place, agreed by the Board, to enable directors, in furtherance of their duties, to seek
independent professional advice at the Company’s expense.
The term in office held by each Director in office at the date of this report is as follows:
Name
Mr Fred Bart
Dr Ben Greene
Mr. Ian Dennis
Mr Mark Ureda
Position
Non‑Executive Chairman
Executive Director
Non‑Executive Director
Non‑Executive Director
Lt Gen Peter Leahy AC
Non‑Executive Director
Mr Kevin Scully
Non‑Executive Director
Term in Office
13 years
11 years
13 years
9 years
4 years
2 years
For additional details regarding board appointments, please refer to the Company’s website.
Nomination Committee
The Board does not currently have a formal Nomination Committee. However, the Board continues to operate
within the established guidelines, including when necessary, selecting candidates for the position of Director and,
where appropriate, seeking the services of an independent consultant who is not a director of the Company to provide
assistance in the recruitment of potential Directors.
82
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 CORPORATE GOVERNANCE STATEMENT (CONT)
Performance
Equality and Diversity Policy
The performance of the Board and key executives
is reviewed regularly against both measurable and
qualitative indicators. During the reporting period,
an assessment of the performance of each Board
member and key executive against specific and
measurable qualitative and quantitative performance
criteria was undertaken. The performance criteria
against which directors and executives are assessed is
aligned with the financial and non‑financial objectives of
Electro Optic Systems Holdings Limited. Directors whose
performance is consistently unsatisfactory may be asked
to retire.
Remuneration
One of the Company’s key objectives is to provide
maximum stakeholder benefits from the retention of a
high quality Board and executive team by remunerating
Directors and key executives fairly and appropriately
with reference to relevant employment market
conditions. A Remuneration Committee was formed
on 23 March 2007. The nature and amount of Executive
Directors’ and Officers’ emoluments are linked to the
Company’s financial and operational performance.
The expected outcomes of the remuneration structure are:
■ Retention and motivation of key executives;
■ Attraction of quality management to
the Company; and
■ Performance incentives which allow executives to
share the rewards of the success of Electro Optic
Systems Holdings Limited.
For details regarding the amount of remuneration
and all monetary and non‑monetary components for
Directors and executives, refer to Note 21 of the Notes
to the Financial Statements. In relation to the payment
of bonuses, options and other incentive payments,
discretion is exercised by the Board, having regard to the
overall performance of Electro Optic Systems Holdings
Limited and the performance of the individual during
the period.
There is no scheme to provide retirement benefits, other
than statutory superannuation, to non‑executive directors.
The Board is responsible for determining and
reviewing compensation arrangements for the
Directors themselves, the Chief Executive Officer
and the executive team.
The Company values diversity and recognises the
benefits it can bring to the organisation’s ability to
achieve its goals. Accordingly, the Company has issued
the Equality and Diversity Policy which outlines its
equality and diversity objectives in relation to gender,
sexual preference, transgender status, marital status,
disability, religion, cultural and racial background,
political preference, trade unionism, pregnancy and age.
It includes requirements for the Board to establish
measurable objectives for achieving diversity, and
for the Board to assess annually both the objectives,
and the Company’s progress made in achieving them.
EOS Group has a publicly accessible diversity policy which
complies with the recommendations of the Australian
Stock Exchange Corporate Governance Principles.
In relation to the achievement of the diversity policy
objectives, as at 31 December 2013, EOS Group employed
94 staff. 20% (19) of these staff were female and 3% (3)
of these women were employed in management roles
with management defined as staff having direct report
employees. There were no female directors. In 2013 one
workplace harassment complaints were investigated and
concluded through mediation. 17% (16) of employees
accessed flexible workplace arrangements including
early commencement times and alternative work days.
5 employees accessed company education assistance
for tertiary study.
The Equality and Diversity Policy of the Company
is available on the Company’s web site at
www.eos‑aus.com
Safeguard integrity in financial reporting
The chief executive officer and the chief financial officer
are required to state in writing to the board that the
company’s financial reports present a true and fair view,
in all material respects, of the company’s financial
condition and operational results and are in accordance
with relevant accounting standards.
Policy on Trading in Securities
Directors and employees of EOSH should not buy or
sell securities in EOSH, when EOSH is in possession of
price sensitive information that is not generally available
to the market.
The Securities Trading Policy of the Company is available
on the Company’s website at www.eos‑aus.com and has
been lodged with ASX Limited.
83
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 CORPORATE DIRECTORY
Directors
Mr Fred Bart (Chairman)
Dr Ben Greene (Chief Executive Officer)
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Company Secretary
Mr Ian Dennis
Registered Office
Suite 2, Level 12
75 Elizabeth Street
Sydney NSW 2000
Australia
Telephone +61 2 9233 3915
Facsimile +61 2 9232 3411
Web site www.eos‑aus.com
Share Registry
Computershare Investor Services Pty Limited
Level 3, 60 Carrington Street
Sydney NSW 2000
GPO Box 7045
Sydney NSW 1115
Australia
Telephone 1300 855 080 or +61 3 9611 5711 outside Australia
Facsimile 1300 137 341
Auditors
Deloitte Touche Tohmatsu
Chartered Accountants
Eclipse Tower
Level 19, 60 Station Street
Parramatta NSW 2150
Australia
84
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2013 u
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ELECTRO OPTIC SYSTEMS HOLDINGS LIMITED
ACN 092 708 364
ANNUAL
REPORT
2013
www.eos‑aus.com