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CHC announces first quarter results
ST. JOHN'S, NL, Sept. 13 /PRNewswire/ -- CHC Helicopter Corporation (the
"Company") (TSX: FLY.A and FLY.B; NYSE: FLI) today announced consolidated
financial results (unaudited) for the first quarter ended July 31, 2004.
Financial Highlights
(in millions of Canadian dollars, except per share amounts)
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Three Months Ended
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July 31, July 31,
2004 2003
(Unaudited) (Unaudited)
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Revenue $ 232.8 $ 170.4
Consolidated Segment EBITDA(1) 43.9 28.1
Net earnings from operations(2) 23.7 14.6
Net earnings 22.3 13.7
Cash flow(2) 43.1 36.9
Per share information
Net earnings from operations:(2)
Basic $ 1.13 $ 0.70
Diluted 1.04 0.65
Net earnings:
Basic $ 1.07 $ 0.66
Diluted 0.98 0.61
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(1) See "Review of Segment Revenue and Segment EBITDA" in Management's
Discussion and Analysis.
(2) See definitions under "Non-GAAP Financial Measures" in Management's
Discussion and Analysis.
Highlights
- First quarter results were the best in the Company's history.
- Consolidated Segment EBITDA for the quarter increased $15.8 million
(56%), from $28.1 million in the first quarter last year due to the
inclusion of Schreiner Aviation Group ("Schreiner") and growth
throughout the Company's operations.
- Revenue for the quarter was $232.8 million, up $62.4 million from the
same quarter last year. The inclusion of Schreiner contributed $46.8
million to this revenue increase with an additional $11.8 million
attributable to growth in the Company's International flying segment.
- Flying activity in the Company's International flying segment
increased by 1,409 hours (13%) compared to last year.
- During the quarter the Company began the reorganization of its
management structure and operations with a view to strengthening the
Company and securing its leadership position well into the future.
Investor Conference Call
The Company's 1st quarter conference call and webcast will take place
Tuesday, September 14, 2004 at 10:30 a.m. EDT. To listen to the
conference call, dial 416-640-4127 for local and overseas calls, or
toll-free 1-800-814-4853 for calls from within North America. To hear a
replay of the conference call, dial 416-640-1917, or 877-289-8525 and
enter passcode "21093153 followed by the number sign". The replay will be
available until September 17, 2004.
The financial results and a webcast of the conference call will be
available through the Company's website at http://www.chc.ca/ and through
Canada NewsWire at: http://www.cnxmarketlink.com/.
CHC Helicopter Corporation is the world's largest provider of helicopter
services to the global offshore oil and gas industry with aircraft
operating in 30 countries and a team of approximately 3,400 professionals
worldwide.
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This press release may contain projections and other forward-looking
statements within the meaning of the "safe harbour" provision of the
United States Private Securities Litigation Reform Act of 1995. While
these projections and other statements represent our best current
judgment, they are subject to risks and uncertainties including, but not
limited to, factors detailed in the Annual Report on Form 20-F and in
other filings of the Company with the United States Securities and
Exchange Commission and in the Company's annual information form filed
with Canadian security regulatory authorities. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from
those indicated.
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Management's Discussion and Analysis of Financial Condition and Results
of Operations - Three months ended July 31, 2004
Dated September 13, 2004
This management's discussion and analysis ("MD&A") may contain projections and
other forward-looking statements within the meaning of the "safe harbour"
provision of the United States Private Securities Litigation Reform Act of
1995. While these projections and other statements represent our best current
judgment, they are subject to risks and uncertainties including but not limited
to, factors detailed in the Annual Report on Form 20-F and in other filings of
CHC Helicopter Corporation (the "Company") with the United States Securities
and Exchange Commission and in the Company's annual information form filed with
Canadian security regulatory authorities. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those indicated.
This MD&A and the accompanying unaudited consolidated interim financial
statements and notes thereto should be read in conjunction with the Company's
Audited Consolidated Financial Statements and MD&A for the year ended April 30,
2004 and related notes thereto, as set forth in the Company's Annual Report
(the "2004 Annual Filings").
All information reflected herein is expressed in Canadian dollars and is
prepared by management in accordance with Canadian generally accepted
accounting principles and in accordance with generally accepted accounting
principles in the United States except as described in Note 17 to the Company's
unaudited consolidated interim financial statements to which this MD&A relates.
Additional information regarding the Company, including copies of the Company's
continuous disclosure material such as the Company's annual information form,
is available on the Company's website at http://www.chc.ca/ or through the
SEDAR website at http://www.sedar.com/.
Overview
Revenue increased by $62.4 million quarter over quarter, including the
favourable impact of foreign exchange of $6.0 million. Schreiner contributed
$46.8 million of the revenue growth, with the remaining growth due primarily to
increased flying activity in the Company's International flying segment.
Consolidated Segment EBITDA increased $15.8 million quarter over quarter,
including the favourable impact of foreign exchange of $1.4 million, due
primarily to the inclusion of Schreiner and solid growth in the International
flying and Astec repair and overhaul segments.
Net earnings from operations for the quarter were $23.7 million ($1.04 per
share, diluted) on revenue of $232.8 million as compared to net earnings from
operations of $14.6 million ($0.65 per share, diluted) on revenue of $170.4
million last year. The primary factors impacting net earnings from operations
for the year include (i) an increase in Consolidated Segment EBITDA of $15.8
and (ii) a $1.7 million increase in equity in earnings of associated companies,
partially offset by (iii) a $2.6 million increase in amortization expense, (iv)
a $2.4 million increase in financing charges and (v) a $3.4 million increase in
income tax expense.
Net earnings during the quarter were $22.3 million ($0.98 per share, diluted)
compared to net earnings of $13.7 million ($0.61 per share, diluted) in the
same quarter last year, an increase of 63%. In addition to the above noted
change in net earnings from operations, this quarter's results include
after-tax restructuring and debt settlement costs of $1.4 million while last
year's quarter included $0.9 million of after-tax restructuring costs.
Organizational Restructuring
Over the past few months, the Company has performed a thorough examination of
its operations and organizational structure, with a view to strengthening and
standardizing the Company's operations, lowering overhead costs and securing
its leadership position well into the future. As a result, the Company has
commenced the relocation of its head office from St. John's to Vancouver,
Canada. In addition, all current operations will be consolidated into three new
operating divisions as follows:
CHC Global Support, to be led by Neil Calvert, former Managing Director of CHC
Europe, will be responsible for fleet management, repair and overhaul and
procurement for the entire CHC group from our Vancouver headquarters. Also, to
leverage the competitive advantage and success of our European Repair and
Overhaul business, Astec Helicopter Services will now report to CHC Global
Support. With this new structure the Company anticipates tremendous opportunity
to expand its Repair and Overhaul and Logistics Service around the world.
CHC Global Operations, to be led by Christine Baird, former President of CHC's
International Division, will be responsible for all helicopter operations
outside of Europe. The world's multinational oil and gas customers are looking
for one standard of service, and by consolidating all its global operations
under one management group in Vancouver, CHC is clearly leading the way.
CHC Europe, to be led by Ian MacBeath, former President of CHC's Australian
Division, will be responsible for CHC's European operations. CHC Europe has
recently completed a similar reorganization and is now experiencing the
benefits of the restructuring.
The Company expects that this reorganization will not only improve operations,
but will also generate substantial cost savings. The magnitude of these cost
savings will be disclosed as the new structure is implemented. In order to
implement the reorganization and achieve these cost savings, the Company will
incur certain costs. These costs are not yet determinable, however are
potentially significant. Any costs incurred are expected to be recovered in the
short term.
It is estimated that costs associated with general organization restructure
planning and the relocation of the Company's head office to Vancouver, Canada,
which includes severance, termination, relocation, consulting, and other costs,
will approximate $5.0 million and will be mostly incurred within the current
fiscal year.
Revenue
Total revenue for the quarter was $232.8 million compared to $170.4 million for
the same period last year. The change was due primarily to the following
factors:
- Net favourable foreign exchange of $6.0 million. For a discussion on
the nature of this foreign exchange and management's approach to
managing foreign currency exposures, refer to the "Foreign currency"
section in this MD&A.
- Revenue earned during the quarter by recently acquired Schreiner of
$46.8 million, with flying activity of 7,608 hours,
- An increase quarter over quarter (excluding the impact of unfavourable
foreign exchange of $0.1 million) in revenue in the Company's
International flying segment of $11.9 million due to new contracts and
increased flying activity on existing contracts. Quarter over quarter
flying hours increased by 13% or 1,409 hours, and
- A decrease quarter over quarter (excluding the impact of favourable
foreign exchange of $5.8 million) in revenue in the Company's European
flying segment of $2.2 million. Quarter over quarter flying hours
decreased by 5% or 1,136 hours.
The table below provides information on revenue by segment and in total for
each of the eight most recent quarters:
Quarterly Revenue by Segment
(in millions of Canadian dollars)
(Unaudited)
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Total
Flying Astec
Inter- Oper- Repair &
Period Europe national Schreiner ations Overhaul Composites Total
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Q2-F2003 124.4 44.5 - 168.9 19.6 1.2 189.7
Q3-F2003 115.2 46.4 - 161.6 15.9 1.5 179.0
Q4-F2003 107.6 48.0 - 155.6 16.6 2.4 174.6
Q1-F2004 112.0 43.6 - 155.6 13.3 1.5 170.4
Q2-F2004 111.5 46.7 - 158.2 14.4 1.4 174.0
Q3-F2004 104.7 49.0 - 153.7 15.3 1.8 170.8
Q4-F2004 109.4 52.5 39.2 201.1 15.1 2.2 218.4
Q1-F2005 115.6 55.4 46.8 217.8 12.9 2.1 232.8
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Flying Revenue and Hours
The Company derives its flying revenue from hourly and fixed charges.
Approximately 54% (2004 - 59%) of the Company's first quarter flying revenue
was derived from hourly charges (including hourly charges on contracts that
also have fixed charges), and the remaining 46% (2004 - 41%) was generated by
fixed monthly charges. Because of the significant fixed component, an increase
or decrease in flying hours may not result in a proportionate change in
revenue. While flying hours may not correlate directly with revenue, they
remain a good measure of activity level.
The following table provides a quarterly summary of the Company's flying hours
and number of aircraft utilized for the past eight quarters.
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Flying Hours by Quarter
(Unaudited)
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Flying Hours Number of Aircraft
------------------------------------ --------------------------
Period Europe Int'l Schreiner Total Europe Int'l Schreiner
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Q2-F2003 22,994 10,618 - 33,612 73 87 -
Q3-F2003 20,316 11,189 - 31,505 73 90 -
Q4-F2003 19,430 11,067 - 30,497 71 88 -
Q1-F2004 22,351 11,057 - 33,408 72 90 -
Q2-F2004 21,951 11,926 - 33,877 70 94 -
Q3-F2004 19,806 12,066 - 31,872 72 95 -
Q4-F2004 19,939 12,216 5,701 37,856 72 96 38
Q1-F2005 21,215 12,466 7,608 41,289 71 96 40
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The following table provides information on flying revenue mix by segment and
in total by aircraft type (including the impact of foreign exchange) for year
to date fiscal 2005 and 2004. The mix of aircraft type has changed quarter over
quarter, with the percentage of heavy aircraft flying revenue to total flying
revenue decreasing by 8.4%, and the percentage of medium and fixed wing
aircraft flying revenue increasing by 4.5% and 3.9%, respectively. This flying
revenue mix change is primarily due to the inclusion of Schreiner's financial
results in the current quarter.
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Year to Date Flying Revenue Mix
(in thousands of Canadian dollars)
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Three Months Ended
July 31, 2004
(Unaudited)
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Fixed
Heavy Medium Light Wing Total
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Europe $ 89,020 $ 20,611 $ - $ - $ 109,631
International 14,321 35,073 847 1,401 51,642
Schreiner 1,862 11,640 527 7,176 21,205
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Total Flying
Revenue $ 105,203 $ 67,324 $ 1,374 $ 8,577 $ 182,478
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Total % 57.7% 36.9% 0.7% 4.7% 100%
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Three Months Ended
July 31, 2003
(Unaudited)
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Fixed
Heavy Medium Light Wing Total
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Europe $ 84,415 $ 21,276 $ - $ - $ 105,691
International 12,945 26,467 995 1,155 41,562
Schreiner - - - - -
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Total Flying
Revenue $ 97,360 $ 47,743 $ 995 $ 1,155 $ 147,253
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Total % 66.1% 32.4% 0.7% 0.8% 100%
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The following table provides information on the hourly and fixed flying revenue
by segment (including the impact of foreign exchange) for year to date fiscal
2005 and 2004. Fixed flying revenue as a percentage of total flying revenue has
increased from 41% last year to 46% this year.
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Flying Revenue - Hourly vs. Fixed
Three Months Ended July 31,
(in thousands of Canadian dollars)
(Unaudited)
Hourly Fixed Total
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2005 2004 2005 2004 2005 2004
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Europe $ 69,034 $ 72,415 $ 40,597 $ 33,276 $109,631 $105,691
International 18,434 13,916 33,208 27,646 51,642 41,562
Schreiner 10,212 - 10,993 - 21,205 -
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Total $ 97,680 $ 86,331 $ 84,798 $ 60,922 $182,478 $147,253
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The following table provides information on segment flying revenue by industry
sector (including the impact of foreign exchange) for year to date fiscal 2005
and 2004. During the first quarter the Company derived approximately 86% of its
flying revenue from the oil and gas industry compared to 88% during the same
quarter last year. The revenue from this industry is derived from production
support, which accounts for the majority of the Company's oil and gas revenue,
and from exploration and development activity.
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Flying Revenue - By Industry Sector
Three Months Ended July 31,
(in thousands of Canadian dollars)
(Unaudited)
Europe International
------------------------------------------------
2005 2004 2005 2004
------------------------------------------------
Oil & Gas $ 100,556 $ 99,256 $ 38,192 $ 30,374
EMS/SAR(3) 5,913 5,274 9,818 8,338
Other 3,162 1,161 3,632 2,850
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Total $ 109,631 $ 105,691 $ 51,642 $ 41,562
Schreiner Total
------------------------------------------------
2005 2004 2005 2004
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Oil & Gas $ 17,394 $ - $ 156,142 $ 129,630
EMS/SAR(3) 527 - 16,258 13,612
Other 3,284 - 10,078 4,011
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Total $ 21,205 $ - $ 182,478 $ 147,253
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(3) EMS/SAR - emergency medical services and search and rescue services
Aberdeen Airport in the U.K. reports monthly helicopter passenger traffic at
the Company's largest base. Activity at this base represents approximately 35%
of total activity in the Company's European flying segment. The following table
provides a quarterly summary of all helicopter passenger traffic at Aberdeen
Airport for fiscal 2001 to fiscal 2005.
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Aberdeen Airport - Helicopter Passengers
Year Ended April 30,
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2005 2004 2003 2002 2001
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Q1 102,228 101,757 116,102 121,868 103,874
Q2 95,227 112,449 123,012 114,376
Q3 87,588 92,918 114,606 104,381
Q4 89,975 92,686 108,247 101,166
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374,547 414,155 467,733 423,797
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Source: Aberdeen Airport Ltd.
The data in the above table shows that helicopter passenger activity this
quarter has increased 0.5% from the same period in fiscal 2004.
Review of Segment Revenue and Segment EBITDA
The Company provides certain financial and related information about its
operating segments and also about their products and services, the geographic
areas in which they operate and their major customers. The Company's objective
is to provide information about the different types of business activities in
which it engages and the different economic environments in which it operates
in order to help users of its consolidated financial statements (i) better
understand its performance, (ii) better assess its prospects for future net
cash flows and (iii) make more informed judgments about the Company as a whole.
In an effort to achieve this objective, information is provided about segment
revenues and Segment EBITDA because these financial measures are used by the
Company's key decision makers in making operating decisions and assessing
performance. Consolidated segment revenue excludes inter-segment revenues and
is therefore identical to reported revenues. Consolidated Segment EBITDA is the
sum of Segment EBITDA from each of the segments, including the "corporate and
other" segment, and therefore includes all operating expenses allocated to
segments. For additional information about segment revenues and Segment EBITDA,
including a reconciliation of these measures to the consolidated financial
statements, see Note 7 to the unaudited consolidated interim financial
statements to which this MD&A relates.
The Company includes six reporting segments in its financial statements:
European flying, international flying, Schreiner, Astec repair and overhaul,
composites manufacturing and corporate and other. The primary factors
considered in identifying segments are geographic coverage, which also impacts
the nature of the Company's operations, the type of contracts that are entered
into, the type of aircraft that are utilized, and segments used by management
to evaluate the business.
Europe
European Flying Segment
(millions of CAD dollars)
(Unaudited)
--------------------------
Q1-05 Q1-04
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Revenue $115.6 $112.0
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Segment EBITDA $21.9 $19.4
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Segment EBITDA % 18.9% 17.3%
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Revenue from the Company's European flying segment for the first quarter of
this fiscal year was $115.6 million, up $3.6 million from revenue of $112.0
million for the same quarter last year. This $3.6 million increase was
comprised of favourable foreign exchange of $5.8 million and an increase in
other ancillary revenue of $0.7 million offset by a decrease in flying and
training revenue of $1.7 million and $1.2 million respectively. The decrease in
flying revenue was due to a decrease in flying activity of 1,136 hours
partially offset by a higher proportion of fixed flying revenue this quarter.
Segment EBITDA from the European flying segment was $21.9 million for the first
quarter of this fiscal year, up $2.5 million from Segment EBITDA of $19.4
million for the same quarter last year. This $2.5 million improvement was due
to an increase in Segment EBITDA of $0.3 million and favourable foreign
exchange of $2.2 million. Factors contributing to the $0.3 million increase in
Segment EBITDA include (i) lower maintenance expense of $2.3 million in part
due to efficiency, decreased flying activity and certain non-recurring credits
in the current quarter, (ii) a decrease in net lease expense of $1.6 million
due to improved fleet management and the requirement in the first quarter last
year of leasing aircraft under short- term wet lease arrangements in order to
meet customer demand during the Company's pilot's dispute, offset partially by
(iii) the inclusion in the first quarter of last year of a $3.5 million
successful cost recovery claim.
During the quarter, activity in the U.K. was consistent with the first quarter
last year. Margins in the U.K. improved, primarily due to the cost cutting
efforts of the past year. In Norway, however, flying hours were unexpectedly
lower than last year as some customer activity was deferred. Consequently, the
Company retained excess capacity in Norway to fly hours that did not
materialize, negatively affecting margins. Margins in Norway are expected to
increase when new aircraft are introduced later in this fiscal year. Overall in
Europe, margins increased, despite the net one-time cost reductions in the
first quarter of last year.
Effective September 1, 2004 a lockout of oil rig workers on certain Norwegian
mobile oil rigs began. As the Company's contracts are mostly with fixed
installation rigs the impact on the Company's financial results is not expected
to be significant. Certain rigs served by the Company that have been affected
include Polar Pioneer, Transocean Leader and Transocean Searcher.
Subsequent to the quarter end, the Company was awarded two contract renewals in
the North Sea with a combined value of approximately $14.5 million per annum.
PGS Production AS awarded the Company a two-year contract renewal, plus two
one-year options, for the provision of offshore crew change helicopter services
utilizing the Company's fleet of Super Puma aircraft based in Stavanger,
Norway. In addition, Kerr-McGee awarded the Company a one-year contract
renewal, plus two one-year options, for the provision of one dedicated Super
Puma MkII aircraft based in Aberdeen, Scotland.
International
International Flying Segment
(millions of CAD dollars)
(Unaudited)
--------------------------
Q1-05 Q1-04
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Revenue $55.4 $43.6
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Segment EBITDA $9.0 $6.4
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Segment EBITDA % 16.2% 14.7%
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Revenue from the Company's International flying segment was $55.4 million for
the first quarter of this fiscal year compared to $43.6 million for the first
quarter last year. The $11.8 million increase quarter over quarter was due to
(i) flying revenue growth of approximately $8.0 million attributable to oil and
gas customers, (ii) an increase in EMS/SAR flying revenue of approximately $1.0
million, (iii) an increase in other flying revenue of approximately $1.1
million, and (iv) an increase in other ancillary revenue of $1.8 million,
offset by (v) unfavourable foreign exchange of $0.1 million.
Quarter over quarter flying activity from oil and gas customers increased by
1,276 hours, flying activity from EMS/SAR customers decreased by 87 hours and
activity from other customers increased by 220 hours. Increased activity from
other customers was primarily due to increased diamond offshore mining activity
and work for the United Nations. EMS/SAR flying revenue increased while flying
activity decreased due to the percentage of fixed flying revenue to total
flying revenue increasing quarter over quarter from 75.7% to 77.6%.
The net growth of $10.1 million in total flying revenue, excluding the impact
of foreign exchange, was driven largely by (i) $1.8 million in revenue from new
contracts in Africa, (ii) $8.9 million in revenue from new contracts for
customers in Haiti, Malaysia, the Republic of Georgia, India, the Philippines
and Australia, and (iii) $2.8 million in revenue growth from existing
customers, partially offset by (iv) the impact of the expiry of contracts with
customers in Venezuela and Australia of $3.4 million.
Segment EBITDA for the quarter was $9.0 million, up $2.6 million from Segment
EBITDA of $6.4 million for the first quarter last year. This increase was due
to a $3.2 million increase in Segment EBITDA offset by unfavourable foreign
exchange of $0.6 million. The $3.2 million increase in Segment EBITDA was
driven primarily by (i) increased revenue over the first quarter last year,
(ii) reduced maintenance expense due to a non-recurring adjustment of $0.6
million in the current period and (iii) the absence of one time costs incurred
in the first quarter of last year. The Segment EBITDA percentage at 16.2% for
the first quarter was higher than the 14.3% reported in the fourth quarter last
year due primarily to the non-recurring adjustment noted above and increased
activity levels.
During the quarter the Company was awarded a new contract in West Africa for
the provision of one Super Puma MkII aircraft for an initial period of 18
months commencing June 2004. Anticipated revenue over the term of the contract
is approximately $11.0 million. Under the terms of the contract, the Company is
leasing the advanced Super Puma MkII to Sonair, the aeronautical subsidiary of
the Angolan national oil company, Sonangol. The helicopter will be based at
Luanda, Angola.
Schreiner
Schreiner
(millions of CAD dollars)
(Unaudited)
--------------------------
Q1-05 Q1-04
-----------------------------------------------------
Revenue $46.8 N/A
-----------------------------------------------------
Segment EBITDA $7.8 N/A
-----------------------------------------------------
Segment EBITDA % 16.7% N/A
-----------------------------------------------------
The Company acquired Schreiner on February 16, 2004 and, as appropriate, the
results of Schreiner are included in the Company's statement of earnings and
financial position subsequent to that date.
Revenue from Schreiner during the quarter ended July 31, 2004 was $46.8 million
while Segment EBITDA earned during the same period was $7.8 million. The $46.8
million in earned revenue was comprised of (i) $21.2 million in flying revenue
of which $17.4 million and $3.8 million related to oil and gas and other
customers respectively, (ii) $2.6 million of fixed wing maintenance revenue,
(iii) $11.8 million in aircraft parts sales, (iv) $4.1 million associated with
the provision of administrative and personnel support to Aerocontractors
Company of Nigeria Ltd., in which Schreiner has a 40% equity investment, and
(v) $7.1 million in other revenue.
Astec Repair and Overhaul
Astec Repair and Overhaul
(millions of CAD dollars)
(Unaudited)
--------------------------
Q1-05 Q1-04
-----------------------------------------------------
Total Revenue $48.3 $43.0
-----------------------------------------------------
Third-party Revenue $12.9 $13.3
-----------------------------------------------------
Segment EBITDA $10.3 $8.2
-----------------------------------------------------
Segment EBITDA % (x) 21.3% 19.1%
-----------------------------------------------------
(x) EBITDA% is calculated on total revenue
Total revenue from the Company's Astec repair and overhaul segment was $48.3
million for the first quarter this year, up $5.3 million from $43.0 million for
the first quarter last year. Third party revenue from this segment was $12.9
million for the current quarter, down slightly by $0.4 million compared to
$13.3 million for the same period last year. This $0.4 million decrease in
third party revenue was driven by (i) a decrease in revenue from heavy
maintenance projects of $2.1 million, and (ii) a net decrease in revenue from
"power-by-the-hour" ("PBTH") component overhauls of approximately $0.5 million,
offset partially by (iii) favourable foreign exchange of $0.3 million, (iv)
revenue growth of $1.0 million from the acquisition of Whirly Bird Services
Limited ("WBS"), and (v) an increase in parts sales of $0.9 million.
Segment EBITDA for first quarter was $10.3 million, up $2.1 million from $8.2
million for the same period last year. This $2.1 million increase was due to
Segment EBITDA growth of $2.3 million offset by unfavourable foreign exchange
of $0.2 million. Factors contributing to the $2.3 million Segment EBITDA growth
include: (i) $0.3 million due to the acquisition of WBS, (ii) $2.4 million due
primarily to increased inter-company component overhauls and supporting
maintenance, and (iii) an increase in customer flying of $0.8 million, offset
partially by (iv) a decrease in heavy maintenance and PBTH component overhauls
which negatively impacted Segment EBITDA by $1.2 million.
In August 2004, the Company acquired all outstanding shares of Multifabs
Survival Ltd. ("Multifabs"), an Aberdeen-based company specializing in the
production of cold-water survival suits for military forces, emergency services
and offshore oil and gas transportation companies around the world. The Company
acquired Multifabs for a cash payment of $17.0 million, including all
outstanding debt. This acquisition will enhance the Company's ability to
deliver the most comprehensive, cost-effective offshore services package to its
customers in the oil and gas and emergency search and rescue sectors.
Multifab complements the existing third-party marine, military and aviation
safety equipment business of Astec adding an estimated $15.0 million in annual
revenue.
Composites
Composites Manufacturing
(millions of CAD dollars)
(Unaudited)
--------------------------
Q1-05 Q1-04
-----------------------------------------------------
Revenue $2.1 $1.5
-----------------------------------------------------
Segment EBITDA $(0.6) $(0.7)
-----------------------------------------------------
Revenue from the Company's composites manufacturing segment was $2.1 million
for the three months ended July 31, 2004, up $0.6 million from the same period
last year of $1.5 million. This increase is due to increased deliveries for a
contract with Aero Vodochody for the manufacture of S76 components.
Segment EBITDA for the current quarter was a loss of $0.6 million, in line with
the loss of $0.7 million in the same period last year.
The Company is still exploring strategic alternatives for Composites and has
entered into a Memorandum of Understanding for the sale of the business with a
potential buyer which is subject to due diligence and government approval.
Corporate and Other
The Corporate and other segment recorded first quarter costs of $4.5 million
compared to $5.2 million in the same quarter last year. Factors affecting the
$0.7 million decrease in costs include (i) the $0.5 million favourable impact
of various miscellaneous cost reductions, each of which were individually
insignificant, (ii) a $0.3 million decrease in external lease costs, (iii) a
$0.6 million favourable impact related to consolidated eliminations offset
partially by (iv) a $0.7 million increase in compensation and travel costs.
Amortization
Amortization for the first quarter of fiscal 2005 was $8.3 million compared to
$5.7 million in the same quarter last year. Included in this increase was (i)
$2.3 million in amortization related to Schreiner (ii) amortization of
capitalized information system costs, and (iii) an increase in amortization of
helicopter major inspections, offset partially by (iv) a decrease in
amortization related to certain aircraft airframes due to a change in their
estimated useful lives and residual values.
Financing Charges
Financing charges for the quarter ended July 31, 2004, increased by $2.4
million as compared to the same quarter last year. This increase was due
primarily to the inclusion in the first quarter last year of a $2.3 million
foreign exchange gain on the maturity of a foreign currency agreement. Interest
on debt obligations increased by $0.5 million quarter over quarter due to
higher debt levels in connection with the acquisition of Schreiner in late
fiscal 2004 while foreign exchange losses on debt repayments decreased by $0.6
million. See Note 9 to the unaudited consolidated interim financial statements
for a breakdown of financing charges.
The blended average interest rate on the Company's variable-rate senior credit
facilities and senior subordinated notes for the current quarter was
approximately 6.2% compared to 8.4% in the same period last year. The decrease
is due to lower variable rates on the Company's senior credit facilities and a
lower interest rate on the Company's refinanced senior subordinated notes.
Equity in earnings of associated companies
Equity in earnings of associated companies for the quarter ended July 31, 2004
was $3.1 million compared to $1.3 million for the same period last year. The
increase of $1.8 million quarter over quarter is due to (i) the inclusion in
the current quarter of $1.3 million associated with Schreiner's equity
accounted long-term investments and (ii) a $0.5 million increase in the equity
in earnings of 42.75% owned Canadian Helicopters Limited.
Income Taxes
Total income tax provision recorded during the quarter was $6.0 million
compared to $2.9 million recorded in the same quarter last year. During the
quarter, the Company recorded an income tax recovery of $0.8 million on
restructuring costs related to general organization restructure planning and
relocation of the Company's head office to Vancouver, Canada and debt
settlement costs associated with the redemption of the remainder of its 11 3/4%
senior subordinated notes and 8% subordinated debentures. During the same
quarter last year the Company recorded an income tax recovery of $0.4 million
related to restructuring costs associated with the consolidation of its
European operations and other related activities. The income tax provision
included in net earnings from operations was $6.7 million for the quarter
compared to $3.3 million for the same quarter last year.
The effective income tax rate on net earnings from operations for the three
months ended July 31, 2004 was 22.1% compared to 18.4% for the same period last
year. The increase in the effective income tax rate was due primarily to
increased earnings in jurisdictions with higher tax rates.
Cash Flows, Liquidity and Capital Resources
Operating Activities
Cash flow from operations for the first quarter of fiscal 2005 was $28.6
million, up $33.6 million from the first quarter of fiscal 2004. This increase
was comprised of a $6.2 million increase in cash flow and a favourable change
in non-cash working capital of $27.4 million.
The primary reason for the $6.2 million increase in cash flow was the Company's
February 16, 2004 acquisition of Schreiner. In the first quarter of fiscal 2005
Schreiner generated cash flow of $6.1 million.
Non-cash working capital increased by $14.5 million in the first quarter of
fiscal 2005. Schreiner accounted for $3.1 million of this increase. The
remaining increase was due primarily to an increase in receivables. The
increase in receivables was spread throughout the Company's operating units and
was caused by the relative timing of invoicing and cash receipts. The Company
is focused on improving accounts receivable collections.
Financing Activities
The Company's total net debt increased by $30.5 million during the first
quarter of fiscal 2005 as follows:
Change in
Total Net Debt Position During Q1
(in millions of Canadian dollars)
(Unaudited)
-------------------------------
Opening balance, May 1, 2004 (1) $ 446.9
Net increase in debt (2) 16.2
Decrease in cash and cash equivalents (3) 29.2
Foreign exchange (4) (14.9)
-------------------------------
Ending balance July 31, 2004 (5) $ 477.4
-------------------------------
-------------------------------
(1) Comprised of total debt of $514.0 million less cash and cash
equivalents of $67.1 million.
(2) Comprised of proceeds of $36.4 million less repayments of $20.2
million. Proceeds represent net drawdowns on the Company's senior
credit facilities and were used primarily to fund capital asset
additions. Repayments were composed of (i) $10.4 million used to
retire the Company's 8% subordinated debentures and (ii) $9.8 million
(excluding foreign exchange) used to retire the remaining balance of
the Company's 11.75% senior subordinated notes. Repayments were
funded from cash flow.
(3) For details, see the Company's consolidated statement of cash flows
for the three months ended July 31, 2004.
(4) The favourable foreign exchange on debt was attributable primarily to
the Company's U.S. dollar and euro denominated debt as a result of
the weakening of these currencies against the Canadian dollar during
the first quarter of fiscal 2005.
(5) Comprised of total debt of $514.9 million less cash of $37.5 million.
The Company's debt balance reflects the full acquisition price of Schreiner in
the fourth quarter of fiscal 2004, but the statement of earnings only reflects
Schreiner contribution since the acquisition date.
During the first quarter of fiscal 2005, the Company paid cash debt settlement
costs of $2.1 million to repay existing debt. These costs were composed of
realized foreign exchange losses of $1.2 million, and $0.9 million in
make-whole premiums and other out-of-pocket costs such as professional fees.
The realized foreign exchange losses were charged to the Company's cumulative
translation adjustment account because the related debt had been designated as
a hedge of the Company's net investment in its self-sustaining foreign
operations. The remaining cash costs of $0.9 million were charged to debt
settlement expenses on the Company's consolidated statement of earnings for the
first quarter of fiscal 2005. Such debt settlement expenses totalled $1.4
million and included the noted cash costs of $0.9 million as well as a $0.5
million write-off of unamortized deferred financing costs on debt that was
retired during the quarter.
During the first quarter of fiscal 2005 the Company received $0.7 million from
capital stock issued under the Company's employee share purchase plan and in
connection with the exercise of share options.
As at July 31, 2004, the Company had unused capacity under its credit
facilities of $45.7 million and cash and cash equivalents of $37.5 million, for
a total availability of $83.2 million.
Investing Activities
Additions to property and equipment during the first quarter of fiscal 2005
totalled $86.9 million. This was comprised of (i) $72.3 million for the
purchase of six aircraft, (ii) $4.7 million for aircraft modifications, (iii)
$4.8 million in connection with buildings and hangars and (iv) $5.1 million
primarily for other equipment. The aircraft expenditures of $72.3 million were
comprised of the combined aircraft purchase price of $77.4 million reduced by
the application of deposits of $5.1 million. The Company also made additional
aircraft deposits of $12.5 million during the first quarter of fiscal 2005 to
end the quarter with an aircraft deposit balance of $25.2 million.
Capital expenditures for helicopter major components during the first quarter
of fiscal 2005 totalled $21.3 million. Included in operating expenses was major
component amortization of $19.4 million. The Company also spent $4.0 million on
helicopter major inspections in the quarter.
Proceeds from disposals during the quarter totaled $59.9 million and included
(i) $57.4 million received from three aircraft sale-leaseback transactions,
(ii) $1.7 million received on an insurance claim for a Bell 212 helicopter,
(iii) $0.6 million received on the sale of a Bell 206 L-1 and Eurocopter BO105
aircrafts, and (iv) $0.2 million received from miscellaneous disposals. These
dispositions resulted in a total recognized gain of $1.1 million and deferred
gains totaling $3.0 million during the first quarter. The deferred gains were
related to the sale-leaseback transactions and are being amortized against
lease expense on a straight-line basis over the lease terms. The three aircraft
that were sold and leased back under operating leases were acquired during the
first quarter of fiscal 2005 for a total cost of $54.4 million.
Risks and uncertainties
Except for the discussion below on the risk to the Company concerning foreign
currency, there has been no significant change in the risks and uncertainties
to the Company associated with industry exposure, inflation, contract loss,
aviation licenses and reinsurance outlined in the MD&A contained in the
Company's 2004 Annual Filings.
Foreign currency
The Company's reporting currency is the Canadian dollar. However, a significant
portion of revenue and operating expenses are denominated in pound sterling,
Norwegian kroner, U.S. dollars, Australian dollars, South African rand and
euros, the reporting currencies of the Company's principal foreign operating
subsidiaries. In addition, certain revenue and operating expenses are
transacted in currencies other than the reporting currencies of the
subsidiaries, primarily U.S. dollars and euros. Foreign exchange impact on
revenue and Consolidated Segment EBITDA, therefore, is comprised of (i) foreign
exchange on the translation of the financial results of the foreign
subsidiaries into Canadian dollars and (ii) foreign exchange on the translation
of foreign denominated transactions into the reporting currencies of the
subsidiaries.
The translation of the financial results of the Company's foreign subsidiaries
into Canadian dollars resulted in foreign exchange that increased revenue by
$8.9 million for the three months ended July 31, 2004. This favourable foreign
exchange was a result of the strengthening of the pound sterling, Norwegian
kroner, Australian dollar and South African rand somewhat offset by the
weakening of the U.S. dollar. The impact on revenue due to the translation of
U.S. dollar, Danish kroner and euro denominated transactions into the reporting
currencies of the Company's subsidiaries was unfavourable by $2.9 million for
the quarter. The net favourable foreign exchange impact on revenue was $6.0
million for the three months ended July 31, 2004.
For the current quarter, foreign exchange upon translation of the financial
results of the Company's foreign subsidiaries into Canadian dollars favourably
impacted Consolidated Segment EBITDA by $1.6 million. This was partially offset
by unfavourable foreign exchange of $0.2 million attributable to the
translation of foreign denominated transactions into the reporting currencies
of the subsidiaries. The net favourable foreign exchange impact on Consolidated
Segment EBITDA for the three months ended July 31, 2004 was therefore $1.4
million. Since financing charges, amortization, income tax expense, capital
expenditures and debt repayments are also primarily in European currencies and
U.S. dollars, the net impact of foreign exchange on net earnings and cash flow
is not as significant.
The Company's overall approach to managing foreign currency exposure includes
identifying and quantifying its exposure and putting in place the necessary
financial instruments to manage the exposure. The Company operates under a
corporate policy that restricts it from using any financial instrument for
speculative or trading purposes. The policy provides that the Company may
participate in derivative transactions only with Schedule 1 Canadian chartered
banks or other financial instruments with an "A" credit rating.
The Company has developed a risk management plan to mitigate potential risks
with respect to foreign currencies. The strategy is to match cash inflows and
outflows by currency, thereby minimizing net currency exposures to the extent
possible. This is accomplished by ensuring that customer contracts, major
expenditures and debt are denominated in the appropriate currencies.
To mitigate the impact that weakening European currencies could have on
operating cash flows, the Company has denominated, either directly or via
currency swaps, a significant portion of its long-term debt in U.S. dollars,
pound sterling, euros and Norwegian kroner.
As at July 31, 2004, the Company's total net debt was denominated (before
currency swaps) in the following currencies:
(Unaudited)
--------------------------------
Debt in Canadian
Original Currency Equivalent
Currency (000's) (000's)
----------------------------------------------------------------------
Euro (euro) 68,828 $ 110,084
Pound sterling pnds stlg 12,558 30,373
U.S. dollar $ 255,080 339,052
Canadian dollar $ 35,424 35,424
Cash (various currencies) (37,552)
----------------------------------------------------------------------
Total Net Debt $ 477,381
Of the U.S. $255.1 million of debt at July 31, 2004, U.S. $93.5 million, U.S.
$29.7 million and U.S. $26.8 million were converted to pnds stlg 55.0 million,
(euro) 25.0 million and nok 186.3 million through the use of currency swaps as
noted above.
----------------------------------------------------------
Year to Date Average Foreign
Exchange Rates
(Unaudited)
----------------------------------------
July 31, 2004 July 31, 2003
----------------------------------------
USD - CAD 1.3523 1.3720
NOK - CAD 0.1973 0.1953
GBP - CAD 2.4619 2.2431
Euro - CAD 1.6421 1.5826
----------------------------------------------------------
----------------------------------------------------------
Financial Instruments
The Company periodically enters into interest rate swaps, forward foreign
exchange contracts, currency swaps, equity forward pricing agreements and other
derivative instruments to hedge the Company's exposure to interest rate risk,
foreign currency exchange risk and stock price volatility in connection with
its stock appreciation rights plan. The Company does not enter into derivative
transactions for speculative or trading purposes.
As at July 31, 2004, the Company continued its designation of its U.S. $250.0
million 7 3/8% senior subordinated notes and related currency swaps as
effective hedges of the Company's net investments in certain self-sustaining
operations in Canada, the U.K., The Netherlands and Norway. The Company also
has designated its pound sterling and remaining outstanding euro denominated
debt as hedges of its net investments in its self-sustaining operations in the
U.K. and The Netherlands, respectively. As a result of the above effective
hedging relationships, revaluation gains and losses on debt, the net
investments and currency swaps are offset in the cumulative translation
adjustment account in the equity section of the balance sheet in accordance
with Canadian GAAP.
During the current quarter the Company entered into foreign currency forward
contracts to reduce its exposure to currency fluctuations. These derivatives
were designated as effective hedges of anticipated cash flows for certain of
its operations.
Fleet
At July 31, 2004 the Company's fleet consisted of 141 owned aircraft and 66
aircraft under operating leases. Eighty-four of these aircraft are employed in
Europe (primarily in the North Sea) with the other 123 employed in other
international markets. In addition, 296 aircraft are employed in the Company's
42.75% owned Canadian onshore helicopter operations, Canadian Helicopters
Limited, the Company's 40% owned helicopter operations, Aero Contractors of
Nigeria, and the Company's 37.8% owned investment in Inaer, the largest onshore
and offshore helicopter operator in Spain, for a combined total of 503
aircraft.
The following table outlines the changes in the Company's fleet during the
first quarter of fiscal 2005:
-------------------------------------------------------------------------
Fleet Summary (Unaudited)
-------------------------------------------------------------------------
Fixed Operating
Heavy Medium Light Wing Total Owned Leased
----- ------ ----- ---- ----- ----- ------
Fleet at
May 1, 2004 74 106 12 14 206 141 65
Increases
(decreases)
during the
period:
Purchase of
previously
leased
Super Puma
AS332 MII 1 (1)
Super Puma AS332
MIIs acquired
under purchase
sale-lease back
arrangements 2 2 2
Purchase of
Lear Jet 1 1 1
Purchase of
Eurocopter 365N2 1 1 1
Lease of Bell
412HP 1 1 1
Sale of Bell
206L-1 (1) (1) (1)
Total loss due
to accident -
Bell 212 (1) (1) (1)
Return of leased
Bell 212 (1) (1) (1)
Sale of Eurocopter
BO 105 (1) (1) (1)
-------------------------------------------------------------------------
Fleet at
July 31, 2004 76 106 10 15 207 141 66
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In addition to the above transactions, a Super Puma aircraft that had operated
under an operating lease was purchased then immediately sold to and leased back
from a different lessor.
During the quarter, the Company made aircraft operating lease payments of $13.4
million compared to $10.2 million in the same period last year. As at July 31,
2004, there were twenty additional leased aircraft compared to the same period
last year, seven of which related to the acquisition of Schreiner. The increase
in lease payments of $3.2 million therefore is due primarily to an increase in
the number of leased aircraft.
The Company has entered into operating leases with third-party lessors in
respect of 66 aircraft included in the Company's fleet at July 31, 2004.
Sixty-two of these leases are long-term with expiry dates ranging from 2005 to
2012. The Company has an option to purchase the aircraft at market value or
agreed amounts at the end of most of the long-term leases, but has no
commitment to do so.
At July 31, 2004 the Company operated 21 aircraft under operating leases with
eight entities that would be considered variable interest entities ("VIEs")
under U.S. GAAP. These leases have terms and conditions similar to those of the
Company's other operating leases over periods ranging from 2005 to 2011. See
Note 5 to the unaudited consolidated interim financial statements to which this
MD&A relates.
Based on appraisals by independent helicopter valuation companies as at April
30, 2004, the estimated fair market value of the aircraft leased from VIEs is
$211.3 million as at July 31, 2004. The Company has provided junior loans and
advance rentals in connection with operating leases with these VIEs. The
Company's maximum exposure of loss related to junior loans as a result of its
involvement with the VIEs is $9.9 million as at July 31, 2004.
The future minimum lease payments required under aircraft operating leases are
as follows (unaudited - based on July 31, 2004 interest rates and exchange
rates):
2005 $ 53.8 million
2006 45.3 million
2007 36.9 million
2008 31.2 million
2009 28.9 million
and thereafter: 45.8 million
------------
Total $241.9 million
--------------
--------------
In addition to aircraft leases, the Company has approximately $6.0 million in
annual lease commitments for land, buildings and non-aircraft equipment.
Based on an independent appraisal as at April 30, 2004, and, in the case of
aircraft acquired during the current fiscal year, independent appraisals as at
the date of acquisition, the fair market value of the Company's owned aircraft
fleet at July 31, 2004 is U.S. $434.2 million (CDN $577.2 million), exceeding
its recorded net book value by approximately CDN $101.6 million (April 30, 2004
- $102.3 million).
As at July 31, 2004 the Company had ordered and made deposits on six new S76C+
helicopters for its International operations for delivery in fiscal 2005. As at
July 31, 2004 the Company had also ordered and made deposits for the delivery
of four S92 aircraft with orders and deposits made on two additional S92's
subsequent to the quarter end. The Company expects to take delivery of three of
these aircraft in fiscal 2005 and the remaining three aircraft in fiscal 2006.
The Company has some flexibility built into the delivery schedule of these
aircraft in order to match acquisitions with new demand. These aircraft will be
deployed in the Company's European operations. Where possible, the Company
intends to obtain the use of these aircraft through operating leases.
As part of a repair and overhaul contract with the German Ministry of Interior
the Company will modify and sell five of its own Super Puma L model aircraft
from its European operations over the next three years.
Defined Benefit Employee Pension Plans
At July 31, 2004 the Company had a funding deficit of $75.9 million, as
described in Note 8 to the unaudited consolidated interim financial statements,
related to its defined benefit pension plans that require funding by the
Company compared to $67.0 million at April 30, 2004, representing an increase
of $8.9 million. The increase in the funding deficit was primarily caused by a
lower than expected return on plan assets. In addition, the Company's annual
pension payments to the Norwegian plans are made later in the year which will
improve the funding status at that time. Of the $75.9 million funding deficit,
$52.4 million, $17.2 million and $6.3 million are related to plans in the U.K.,
The Netherlands and Norway, respectively. Additionally, the Company had an
obligation of $37.1 million at July 31, 2004 related to plans that do not
require funding compared to $36.6 million at April 30, 2004.
Defined benefit pension plan expense increased from $6.5 million in the first
quarter last year to $6.9 million in the same period this year. The increase of
$0.4 million was driven by (i) the inclusion of Schreiner's results this
quarter increasing pension expense by $1.3 million partially offset by (ii) a
net decrease of $0.9 million, net of $0.2 million unfavourable foreign
exchange, in pension expense related to the Company's other defined benefit
pension plans due primarily to higher expected returns on plan assets as a
result of higher asset levels at the start of the year partially offset by an
increase in interest cost.
Seasonality
In addition to the impact of seasonality on the Company's revenue and net
earnings as discussed under "Quarterly Information", there are seasonal
variations in earnings related to the Company's 42.75% investment in the
onshore operations of Canadian Helicopters Limited and from the Company's 38%
owned investment in onshore and offshore helicopter operations of Inaer.
Share data
The number of issued and outstanding shares as at August 31, 2004 was as
follows:
(000's)
-------
Class A subordinated voting share 18,399
Class B multiple voting shares 2,940
Ordinary shares 11,000
The number of Class A subordinated voting shares that would be issued upon
conversion of Class B multiple voting shares, share options and convertible
debt as at August 31, 2004 remained unchanged from July 31, 2004 as described
in Note 11 to the unaudited consolidated interim financial statements to which
this MD&A relates.
Critical Accounting Estimates
The preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts
of revenue and expenses during the reporting periods. By their nature these
estimates are subject to measurement uncertainty. The effect on the financial
statements of changes in such estimates in future periods could be material and
would be accounted for in the period a change occurs. The Company's critical
accounting estimates are outlined in the MD&A included in the Company's 2004
Annual Filings.
Change in Accounting Policies
A summary of the Company's significant accounting policies is presented in Note
1 to the Company's audited consolidated financial statements for the fiscal
year ended April 30, 2004 included in the 2004 Annual Filings. New accounting
policies which were adopted in this interim period are described in Note 2 to
the Company's unaudited consolidated financial statements to which this MD&A
relates.
Related Party Transactions
The Company has dealings with related parties as outlined in the MD&A included
in the Company's 2004 Annual Filings. Transactions with these related parties
are described in Note 14 to the Company's unaudited consolidated financial
statements to which this MD&A relates.
FIRST AND FINAL ADD TO FOLLOW
DATASOURCE: CHC Helicopter Corporation
CONTACT: Jo Mark Zurel, Senior Vice-President & Chief
Financial Officer, (709) 570-0567; Rick Davis, Vice-President, Financial
Reporting, (709) 570-0772; Chris Flanagan, Director of Communications,
(709) 570-0749. If you wish to be removed or included on the Company's
distribution list, please call (709) 570-0749 or email
.;
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