/FIRST AND FINAL ADD - TO045 - CHC first quarter results/

Share Name	Share Symbol	Market	Type
Flight Centre Travel Group Limited	TG:FLI	Tradegate	Ordinary Share

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	0.30	2.22%	13.80	13.50	14.00	13.50	13.50	13.50	1,300	22:50:00

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/FIRST AND FINAL ADD - TO045 - CHC first quarter results/ Quarterly Information The table below provides a summary of the Company's consolidated revenue, net earnings, total assets, total long-term financial liabilities, cash dividends per share and net earnings per share for each of the eight most recent quarters (unaudited). Total Cash long-term divi- finan- dends cial per Net Total liabil- share Net earnings Period Revenue earnings assets ities declared per share ------------------------------------------------------------------------- (in millions of Canadian dollars) (basic) (diluted) ------------------------------------------------------------------------- Q2-F2003 $189.7 $18.5 $1,180.6 $613.8 $0.20 $0.89 $0.82 Q3-F2003 179.0 15.5 1,204.5 624.4 - 0.75 0.69 Q4-F2003 174.6 22.7 1,145.6 570.2 - 1.09 1.01 Q1-F2004 170.4 13.7 1,110.2 567.0 - 0.66 0.61 Q2-F2004 174.0 15.5 1,114.4 555.9 - 0.75 0.69 Q3-F2004 170.8 9.0 1,162.0 572.7 0.50 0.45 0.40 Q4-F2004 218.4 25.4 1,514.7 800.8 - 1.22 1.12 Q1-F2005 232.8 22.3 1,520.7 824.0 - 1.07 0.98 ------------------------------------------------------------------------- ------------------------------------------------------------------------- There is some impact of seasonality in the quarterly results in the foregoing table. The seasonal variations are due primarily to variations in the activity levels of the Company's oil and gas industry customers' exploration and development activities. Generally, the third quarter is most negatively impacted by seasonality. The second quarter, which includes a portion of the peak summer period, has historically been the strongest. Typically, the Company's net earnings also follow this pattern. Net earnings consists of net earnings from operations in addition to asset impairment charges, restructuring and debt settlement costs and certain tax recoveries. Non-GAAP Financial Measures The Company's continuous disclosure documents may provide discussion and analysis of non-GAAP financial measures. These financial measures do not have standard definitions prescribed by Canadian GAAP and therefore may not be comparable to similar measures disclosed by other companies. The Company utilizes these measures in making operating decisions and assessing its performance. Certain investors, analysts, and others, utilize these measures in assessing the Company's financial performance and as an indicator of its ability to service debt. These non-GAAP financial measures have not been presented as an alternative to either (i) net income in accordance with Canadian GAAP, as an indicator of operating performance, or (ii) cash flows from operating, investing and financing activities in accordance with Canadian GAAP. The following table provides a reconciliation of (i) net earnings from operations to Canadian GAAP net earnings, (ii) basic and diluted net earnings from operations per share to Canadian GAAP basic and diluted net earnings per share, (iii) cash flow to Canadian GAAP cash flow from operations and (iv) total net debt to total debt. Reconciliation of Non-GAAP Financial Measures (Unaudited) (in thousands of Canadian dollars, except per share amounts) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended ------------------------- July 31, July 31, 2004 2003 (Unaudited) (Unaudited) ------------------------------------------------------------------------- Revenue $ 232,845 $ 170,424 Operating expenses 188,984 142,325 ----------------------- Earnings before undernoted items (Consolidated Segment EBITDA) 43,861 28,099 ----------------------- Undernoted items: Amortization (8,252) (5,688) Gain on disposals of assets 1,062 1,092 Financing charges (9,293) (6,882) Equity in earnings of associated companies 3,092 1,330 ----------------------- (13,391) (10,148) ----------------------- Net earnings from operations before income taxes 30,470 17,951 Income taxes provision thereon (6,734) (3,311) ----------------------- Net earnings from operations (1) 23,736 14,640 ----------------------- Restructuring and debt settlement costs (2)(3) (2,176) (1,280) Income tax recovery thereon 783 371 ----------------------- (1,393) (909) ----------------------- Net earnings $ 22,343 $ 13,731 ----------------------- ----------------------- Per share Basic Net earnings from operations $ 23,736 $ 14,640 Weighted average number of shares (000's) 20,952 20,871 Basic net earnings from operations per share (4) $ 1.13 $ 0.70 ----------------------- ----------------------- Diluted Net earnings from operations $ 23,736 $ 14,640 Effect of dilutive securities 96 119 ----------------------- $ 23,832 $ 14,759 Weighted average number of shares (000's) 22,920 22,594 Diluted net earnings from operations per share (5) $ 1.04 $ 0.65 ----------------------- ----------------------- Cash Flow (6) Cash flow from operations $ 28,640 $ (4,992) Change in non-cash working capital 14,509 41,890 ----------------------- ----------------------- $ 43,149 $ 36,898 ----------------------- ----------------------- Total net debt (7) Total debt $ 514,933 $ 514,026 Cash and cash equivalents (37,552) (67,093) ----------------------- ----------------------- $ 477,381 $ 446,933 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Definitions of Non-GAAP Financial Measures (1) Net earnings from operations is defined as net earnings before restructuring and debt settlement costs and taxes thereon. (2) Restructuring costs are defined as costs incurred to implement a fundamental and material change to the operating and/or management structures of the Company. Restructuring costs may include severance, termination, relocation, consulting and other incremental costs directly associated with the restructuring activities. (3) Debt settlement costs are defined as costs incurred to retire all, or a portion of, an existing debt facility before its scheduled maturity date. Debt settlement costs may include penalties, premiums, professional fees and other incremental costs directly associated with the debt settlement activities. (4) Basic net earnings from operations per share is defined as net earnings from operations divided by the weighted average number of shares outstanding for the period. (5) Diluted net earnings from operations per share is defined as net earnings from operations divided by the diluted weighted average number of shares for the period. (6) Cash flow is defined as cash flow from operations as prescribed by Canadian GAAP, but excluding the impact of changes in non-cash working capital. (7) Total net debt is defined as total debt less cash and cash equivalents. Summary financial data - U.S. Dollars Certain summary financial data from the July 31, 2004 unaudited consolidated interim financial statements have been translated into U.S. dollars. This translation is included solely as supplemental information for the convenience of the reader. The data has been translated at the exchange rate at July 31, 2004 of $1.3292 (equal sign) U.S. $1.00. Financial Highlights (in millions of U.S. dollars, except per share amounts) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended Year Ended ------------------------------- July 31, April 30, 2004 2004 (Unaudited) (Unaudited) ------------------------------------------------------------------------- Revenue $ 175.1 $ 552.0 Consolidated Segment EBITDA(4) 33.0 92.8 Net earnings from operations(5) 17.8 62.2 Net earnings 16.8 47.9 Cash flow(5) 32.5 140.4 Per share information Net earnings from operations(5): Basic $ 0.85 $ 3.01 Diluted 0.78 2.76 Net earnings: Basic $ 0.80 $ 2.32 Diluted 0.74 2.13 ------------------------------------------------------------------------- ------------------------------------------------------------------------- -------------------------------------- (4) See "Review of Segment Revenue and Segment EBITDA" in Management's Discussion and Analysis. (5) See definition under "Non-GAAP Financial Measures" in Management's Discussion and Analysis. CHC HELICOPTER CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of Canadian dollars) Incorporated under the laws of Canada As at ----------------------- ----------------------- July 31, April 30, 2004 2004 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 37,552 $ 67,093 Receivables 210,301 193,728 Future income tax assets 18,955 18,955 Inventory (Note 4) 208,101 215,147 Prepaid expenses 13,274 12,123 ----------------------- 488,183 507,046 Property and equipment, net (Notes 3 and 4) 745,714 733,034 Investments 57,739 49,728 Other assets (Note 8) 186,466 177,557 Future income tax assets 42,644 47,358 ----------------------- $1,520,746 $1,514,723 ----------------------- ----------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and shareholders' equity Current liabilities Payables and accruals $ 192,601 $ 193,185 Deferred revenue 7,977 7,219 Dividends payable 2,531 5,194 Income taxes payable 7,930 6,328 Future income tax liabilities 2,147 2,212 Current portion of debt obligations 19,781 38,046 ----------------------- 232,967 252,184 Long-term debt 162,852 133,305 Senior subordinated notes 332,300 342,675 Other liabilities (Note 8) 151,641 143,951 Future income tax liabilities 177,229 180,896 Shareholders' equity 463,757 461,712 ----------------------- $1,520,746 $1,514,723 ----------------------- ----------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes CHC HELICOPTER CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands of Canadian dollars, except per share amounts) Three Months Ended ----------------------- July 31, July 31, 2004 2003 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Revenue $ 232,845 $ 170,424 Operating expenses 188,984 142,325 ----------------------- Earnings before undernoted items 43,861 28,099 Amortization (8,252) (5,688) Gain on disposals of assets 1,062 1,092 Financing charges (Note 9) (9,293) (6,882) Equity in earnings of associated companies 3,092 1,330 Restructuring and debt settlement costs (Note 10) (2,176) (1,280) ----------------------- Earnings before income taxes 28,294 16,671 Income tax provision (5,951) (2,940) ----------------------- Net earnings $ 22,343 $ 13,731 ----------------------- ----------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per share (Note 12) Basic $ 1.07 $ 0.66 Diluted $ 0.98 $ 0.61 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes CHC HELICOPTER CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (in thousands of Canadian dollars, except per share amounts) Three Months Ended ----------------------- July 31, July 31, 2004 2003 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Retained earnings, beginning of period $ 229,866 $ 177,862 Net earnings 22,343 13,731 ----------------------- Retained earnings, end of period 252,209 191,593 Capital stock (Note 11) 239,161 237,024 Contributed surplus 3,291 3,432 Foreign currency translation adjustment (30,904) (21,213) ----------------------- Total shareholders' equity $ 463,757 $ 410,836 ----------------------- ----------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Dividends declared per participating voting share $NIL $NIL ---- ---- ---- ---- ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes CHC HELICOPTER CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of Canadian dollars) Three Months Ended ----------------------- ----------------------- July 31, July 31, 2004 2003 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating activities Net earnings $ 22,343 $ 13,731 Non-operating items and items not involving cash: Amortization expense 8,252 5,688 Amortization of major components recorded as operating expense (Note 4) 19,383 19,036 Gain on disposals of assets (1,062) (1,092) Equity in earnings of associated companies (3,092) (1,330) Future income taxes 1,672 1,026 Non-cash financing charges 842 995 Debt settlement costs 1,360 - Defined benefit pension plans 4,452 4,554 Deferred revenue (1,049) (1,538) Advance aircraft rental payments (8,038) (4,765) Pre-operating costs (433) (513) Other (1,481) 1,106 ----------------------- 43,149 36,898 Change in non-cash working capital (14,509) (41,890) ----------------------- Cash flow from operations 28,640 (4,992) ----------------------- Financing activities Long-term debt proceeds 36,458 3,202 Long-term debt repayments (20,227) (1,060) Debt settlement (2,083) - Deferred financing costs (176) - Dividends paid (2,663) - Capital stock issued 733 61 ----------------------- 12,042 2,203 ----------------------- Investing activities Additions to property and equipment (86,865) (20,939) Helicopter major inspections (4,028) (2,723) Helicopter components (Note 4) (21,300) (13,688) Proceeds from disposal 59,935 2,098 Aircraft deposits (12,497) 1,508 Long-term receivables repaid (advanced) 1,068 (61) Other (6,270) 3,458 ----------------------- (69,957) (30,347) ----------------------- Effect of exchange rate changes on cash and cash equivalents (266) (985) ----------------------- Change in cash and cash equivalents during the period (29,541) (34,121) Cash and cash equivalents, beginning of period 67,093 58,104 ----------------------- Cash and cash equivalents, end of period $ 37,552 $ 23,983 ----------------------- ----------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes ------------------------------------------------------------------------- ------------------------------------------------------------------------- CHC Helicopter Corporation Notes to the Unaudited Consolidated Interim Financial Statements For the three months ended July 31, 2004 and 2003 (Unless otherwise indicated, tabular amounts in thousands of Canadian dollars, except per except per share amounts) 1. Basis of presentation The unaudited consolidated interim financial statements ("the Statements") include the accounts of CHC Helicopter Corporation and its direct and indirectly controlled subsidiaries (collectively, the "Company"). These Statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") and are in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") except as described in Note 17. Not all disclosures required by Canadian GAAP and U.S. GAAP for annual financial statements are presented and thus the Statements should be read in conjunction with the Company's annual audited consolidated financial statements. In the opinion of management, any adjustments considered necessary for a fair presentation have been included. The Statements follow the same accounting policies and methods of application as the most recent annual audited consolidated financial statements for the fiscal year ended April 30, 2004, except as disclosed in Note 2 with respect to hedging relationships and derivatives. ------------------------------------------------------------------------- ------------------------------------------------------------------------- 2. Change in accounting policies Hedging relationships and derivatives Effective May 1, 2004, the Company prospectively adopted the new Canadian Accounting Guideline, AcG-13, with respect to hedging relationships as it relates to the identification, designation, documentation and effectiveness of hedging relationships for the purpose of applying hedge accounting. The Company also adopted at May 1, 2004, the Canadian Emerging Issues Committee Abstract 128 ("EIC-128"). Under EIC-128, if a derivative financial instrument is not part of a qualifying hedging relationship, the Company is required to record such instrument on the balance sheet at fair value, with changes in fair value recognized in current earnings. As at May 1, 2004, upon application of AcG-13 and EIC-128, the Company determined that a percentage of the equity forward price agreement is not an effective hedge and as such has been recognized at fair value with changes in that fair value recognized in earnings immediately rather than upon settlement. The impact on operating expenses during the three month period ended July 31, 2004 was favourable by $0.9 million. The Company has not adopted AcG-13 or EIC-128 retroactively. ------------------------------------------------------------------------- ------------------------------------------------------------------------- 3. Change in accounting estimates Effective May 1, 2004, based on the Company's review of its amortization policy with respect to aircraft airframes, the percentage of aircraft cost attributable to certain airframes has been decreased from 30% to 25% and the estimated useful life of such airframes has been increased from 15 years to 25 years. The effect of these accounting estimate changes has been accounted for prospectively in fiscal 2005 resulting in a decrease in amortization for the three months ended July 31, 2004 of $0.8 million. ------------------------------------------------------------------------- ------------------------------------------------------------------------- 4. Comparative figures Certain comparative figures have been reclassified to conform to the current year's presentation. The most significant changes include: (i) The reclassification of $52.4 million of inventory at April 30, 2004 to property and equipment. This reclassification relates to certain inventory items on hand in the Company's repair and overhaul segment that are intended to be used and capitalized with respect to future inter-company major repair and overhaul work; and (ii) The reclassification in the consolidated statement of cash flows for the three months ended July 31, 2003 of the $19.0 million non cash impact of the amortization of major components recorded as operating expense from 'helicopter components' in investing activities to items not involving cash in operating activities. ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5. Variable interest entities 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. At April 30, 2003 U.S. GAAP (per FASB Interpretation No. 46 ("FIN 46")), was effective for all VIEs created after January 31, 2003 and was effective for those VIEs created prior to January 31, 2003 for the Company's interim period which commenced November 1, 2003. The Canadian guidance applies to all annual and interim periods beginning on or after November 1, 2004. Canadian guidance on this issue (AcG-15) is essentially consistent with the provisions contained in U.S. GAAP with regard to the disclosure and consolidation requirements for VIEs. As at July 31, 2004, under FIN 46 and the revisions under FIN 46-R, the Company has concluded it is not the primary beneficiary of any of the aforementioned VIEs and that it is not required to consolidate any of these VIEs in its consolidated financial statements. The application of FIN 46 and FIN 46-R has not had any impact on the Company's consolidated financial statements. 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 to loss related to the junior loans as a result of its involvement with the VIEs is $9.9 million as at July 31, 2004. ------------------------------------------------------------------------- ------------------------------------------------------------------------- 6. Cash flow information Cash interest paid during the quarter was $2.5 million (2004 - $9.7 million) while cash taxes paid was $2.7 million (2004 - $1.4 million). ------------------------------------------------------------------------- ------------------------------------------------------------------------- 7. Segment information The Company's operations are segregated into six reportable segments. The segments are European flying operations, international flying operations, Schreiner, Astec repair and overhaul operations, composites manufacturing and corporate and other. Three Months Ended July 31, 2004 --------------------------------------------------------------- Astec repair Corporate European Int'l and Compo- and flying flying Schreiner overhaul sites other (2) (3) (4) (5) (6) (7) Total -------- -------- -------- -------- -------- -------- -------- Total revenue $121,891 $ 59,407 $ 46,827 $ 48,340 $ 2,064 $ 5,008 $283,537 Less: Inter- segment revenues (6,286) (3,961) - (35,437) - (5,008) (50,692) -------- -------- -------- -------- -------- -------- -------- Revenue from external customers 115,605 55,446 46,827 12,903 2,064 - 232,845 Operating expenses 93,684 46,443 39,054 2,627 2,646 4,530 188,984 -------- -------- -------- -------- -------- -------- -------- Segment EBITDA (1) $ 21,921 $ 9,003 $ 7,773 $ 10,276 $ (582) $(4,530) 43,861 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Amorti- zation (8,252) Gain on disposals of assets 1,062 Financing charges (9,293) Equity in earnings of assoc- iated companies 3,092 Restruct- uring and debt settle- ment costs (2,176) -------- Earnings before income taxes 28,294 Income tax provision (5,951) -------- Net earnings $ 22,343 -------- -------- ------------------------------------------------------------------------- Notes: (1) Segment EBITDA is defined as segment earnings before amortization, gain (losses) on disposals of assets, financing charges, equity in earnings (losses) of associated companies, restructuring and debt settlement costs, and income taxes. (2) Europe - includes flying operations in the U.K., Norway, Ireland and Denmark. (3) International - includes operations in Australia, Africa and Asia and offshore work in eastern Canada and in other locations around the world. (4) Schreiner - includes flying operations primarily in The Netherlands, Africa and Asia and includes other ancillary businesses including aircraft parts sales and fixed wing repair and overhaul. (5) Astec repair and overhaul - includes helicopter repair and overhaul operations based in Stavanger, Norway and Aberdeen, Scotland and survival suit and safety equipment production businesses. (6) Composites - includes composite and metal aviation component manufacturing operations in Canada. (7) Corporate and other - includes corporate head office activities and applicable consolidation eliminations. Three Months Ended July 31, 2003 ------------------------------------------------------ Astec repair Corporate European Int'l and Compo- and flying flying overhaul sites other Total -------- -------- -------- -------- -------- -------- Total revenue $115,377 $ 46,281 $ 42,960 $ 1,488 $ 3,151 $209,257 Less: Inter- segment revenues (3,378) (2,664) (29,640) - (3,151) (38,833) -------- -------- -------- -------- -------- -------- Revenue from external customers 111,999 43,617 13,320 1,488 - 170,424 Operating expenses 92,577 37,225 5,129 2,217 5,177 142,325 -------- -------- -------- -------- -------- -------- Segment EBITDA $ 19,422 $ 6,392 $ 8,191 $ (729) $(5,177) 28,099 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Amortization (5,688) Gain on disposals of assets 1,092 Financing charges (6,882) Equity in earnings of associated companies 1,330 Restructuring costs (1,280) -------- Earnings before income taxes 16,671 Income tax provision (2,940) -------- Net earnings $ 13,731 -------- -------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- 8. Employee pension plans The Company maintains either defined benefit or defined contribution pension plans for substantially all of its employees. Selected summary information about the Company's defined benefit pension plans as at July 31, 2004 as compared to April 30, 2004 is as follows: As at ----------------------- July 31, April 30, 2004 2004 ----------- ----------- Benefit obligations $ 537,749 $ 543,906 ----------- ----------- ----------- ----------- Fair value of plan assets $ 424,716 $ 440,222 ----------- ----------- ----------- ----------- Funded status Defined benefit plans - funded (1) $ (75,923) $ (67,045) Defined benefit plans - unfunded (2) (37,110) (36,639) ----------- ----------- Total (113,033) (103,684) Unrecognized net actuarial and experience losses, prior service costs and transition amounts 156,006 152,826 Pension guarantee deposits 2,562 2,696 ----------- ----------- Net asset recognized on the balance sheet $ 45,535 $ 51,838 ----------- ----------- ----------- ----------- (1) Funded plans require contributions to be made by the Company. (2) Unfunded plans do not require contributions from the Company. Of the net asset recognized on the balance sheet at July 31, 2004, $84.5 million (April 30, 2004 - $90.1 million) related to the funded plans is recorded in other assets and $39.0 million (April 30, 2004 - $38.3 million) related to certain funded and the unfunded plans is recorded as an accrued pension obligation in other liabilities. The Company's net defined pension plan expense for the three months ended July 31 is as follows: Three Months Ended ----------------------- July 31, July 31, 2004 2003 ----------------------- Current service cost $ 5,156 $ 3,798 Interest cost 7,622 5,914 Expected return on plan assets (7,379) (5,272) Amortization of net actuarial and experience losses 2,083 2,426 Amortization of prior service costs 153 153 Amortization of transition amounts 123 100 Participant contributions (901) (667) ----------------------- Net defined benefit pension plan expense $ 6,857 $ 6,452 ----------------------- ----------------------- Employer contributions expected to be paid to the defined benefit pension plans during fiscal 2005 as required by funding regulations and law is $29.5 million. While the asset mix varies in each plan, overall the asset mix at July 31, 2004 was 42.0% equities, 33.0% fixed income and 25.0% money market. The significant weighted average actuarial assumptions adopted in measuring the Company's net defined benefit pension plan expense year-to- date July 31 are as follows: Three Months Ended ----------------------- July 31, July 31, 2004 2003 ----------------------- Discount rate 5.58% 5.90% Expected long-term rate of return on plan assets 6.63% 6.92% ------------------------------------------------------------------------- ------------------------------------------------------------------------- 9. Financing Charges Three Months Ended ----------------------- July 31, July 31, 2004 2003 ----------------------- Interest on debt obligations $ 8,191 $ 7,701 Amortization of deferred financing costs 738 786 Foreign exchange loss from operating activities and working capital revaluation 193 94 Foreign exchange loss on debt repayment - 630 Foreign exchange loss on revaluation of long-term debt 37 - Foreign exchange gain on foreign currency agreement - (2,251) Other 134 (78) ----------------------- Total $ 9,293 $ 6,882 ----------------------- ----------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- 10. Restructuring and debt settlement costs a) Restructuring costs During the three months ended July 31, 2004, the Company incurred restructuring costs of $0.8 million (after tax $0.5 million) in connection with the examination and evaluation of its organizational structure and operations outside of those examined in the prior fiscal year. These restructuring costs relate to general organization restructure planning and relocation of the Company's head office to Vancouver, Canada. Restructuring costs were comprised of severance, termination, relocation, consulting and other associated incremental costs directly associated with these activities. Of the $0.8 million incurred to date, $0.2 million relates to severance and termination. The total estimated costs to be incurred related to general organization restructure planning and relocation of Global Headquarters is approximately $5.0 million and will be incurred over a number of future periods. Additional restructuring costs that may be incurred in relation to other operations and activities are not yet determinable because specific plans, timing and approvals have not yet been determined or obtained at this time. During the three months ended July 31, 2003 the Company incurred $1.3 million ($0.9 million after tax) in costs in connection with the consolidation of its European operations and other related activities. The composition of such restructuring costs is similar to that incurred during the current quarter in relation to other operations. The consolidation of European operations was complete as of April 30, 2004 with no additional costs incurred during the three months ended July 31, 2004. The following table provides a reconciliation of the Company's restructuring cost accrual for the three month period ended July 31, 2004: Restructuring accrued May 1, 2004 $1,833 Additional restructuring cost accrued during the period 409 Restructuring cost paid during the period (502) ------- Restructuring accrued July 31, 2004 $1,740 ------- ------- b) Debt settlement costs During the quarter ended July 31, 2004, the Company incurred $1.4 million (after tax, $0.9 million) of debt settlement costs in connection with the redemption in May and July 2004 of (euro) 1.0 million or approximately $1.8 million and (euro) 5.9 million or approximately $9.7 million, respectively, of its remaining 11 3/4% senior subordinated notes. Additionally, in June 2004, the Company redeemed the remaining $10.4 million of its 8% subordinated debentures. The debt settlement costs during the quarter were comprised of premiums, professional fees, write-off of deferred financing costs and other incremental costs directly associated with debt settlement activities. ------------------------------------------------------------------------- ------------------------------------------------------------------------- 11. Capital stock Authorized: Unlimited number of each of the following: First preferred shares, issuable in series Second preferred shares, issuable in series Class A subordinate voting shares, no par value Class B multiple voting shares, no par value Ordinary shares, no par value Number of Shares 000's As at ----------------------------------- July 31, April 30, July 31, 2004 2004 2003 ----------- ----------- ----------- Issued: Class A subordinate voting shares 18,399 18,378 17,921 Class B multiple voting shares 2,940 2,940 2,955 Ordinary shares 11,000 11,000 11,000 Class A subordinate voting shares that would be issued upon conversion of the following: Class B multiple voting shares 2,940 2,940 2,955 Share options 1,404 1,425 1,967 Convertible debt 690 690 690 Consideration 000's As at ----------------------------------- July 31, April 30, July 31, 2004 2004 2003 ----------- ----------- ----------- Class A subordinate voting shares $ 222,130 $ 221,532 $ 218,209 Class B multiple voting shares 18,719 18,719 18,815 Ordinary shares 33,000 33,000 33,000 Share loan (33,000) (33,000) (33,000) Class A subordinate voting share employee purchase loans (1,688) (1,823) - ----------- ----------- ----------- $ 239,161 $ 238,428 $ 237,024 ----------- ----------- ----------- ----------- ----------- ----------- Contributed surplus $ 3,291 $ 3,291 $ 3,432 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 12. Per share information Three Months Ended July 31, 2004 ----------------------------------- Weighted average number of Net Net shares earnings earnings (000's) per share ----------------------------------- $ 22,343 21,320 Shares as security for Class A subordinate voting share employee purchase loans - (368) ----------------------- Basic 22,343 20,952 $1.07 Effect of potential dilutive securities: Share options - 910 Convertible debt 96 690 Shares as security for Class A subordinate voting share employee purchase loans - 368 ----------------------- Diluted $ 22,439 22,920 $0.98 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended July 31, 2003 ----------------------------------- Weighted average number of Net Net shares earnings earnings (000's) per share ----------------------------------- Basic $ 13,731 20,871 $0.66 Effect of potential dilutive securities: Share options - 936 Convertible debt 119 690 ----------------------- 13,850 22,497 Anti-dilutive impact Share options - 97 ----------------------- Diluted $ 13,850 22,594 $0.61 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Per share amounts are calculated using the treasury stock method. Under this method, the proceeds from the exercise of options are assumed to be used to repurchase the Company's shares on the open market. The difference between the number of shares assumed purchased and the number of options assumed exercised is added to the actual number of shares outstanding to determine diluted shares outstanding for purposes of calculating diluted earnings per share. Therefore, the number of shares in the diluted earnings per share calculation will increase as the average share price increases. There were 11 million ordinary shares outstanding at July 31, 2004 and at April 30, 2004, all of which are owned by the Company's majority shareholder (See Note 11). The payment of dividends on these ordinary shares requires minority shareholder approval. The shares also have no conversion rights in the hands of their holder. Therefore, these ordinary shares have not been included in the calculation of basic and diluted earnings per share. ------------------------------------------------------------------------- ------------------------------------------------------------------------- 13. Share option plan Effective May 1, 2003, the Company began expensing share-option awards using the fair value method. This accounting change was applied prospectively in fiscal 2004 relating to share options issued on or after May 1, 2003. There was no impact on the financial results for the three months ended July 31, 2004 and July 31, 2003 as a result of adopting this accounting policy change, as no new share options were granted during these periods. The table below presents pro-forma net earnings, basic earnings per share and diluted earnings per share had the fair value method been used to account for share options. These pro-forma disclosures pertain to certain share options granted in fiscal 2003 upon adoption of the new stock-based compensation standards May 1, 2002. There was no impact on the pro-forma earnings for the three month period ended July 31, 2004 as all share options granted in fiscal 2003 had vested as at April 30, 2004. Three Months Ended ----------------------- July 31, July 31, 2004 2003 ----------- ----------- Net earnings As reported $ 22,343 $ 13,731 Share-based employee compensation expense determined under fair value based method - (60) ----------- ----------- Pro-forma $ 22,343 $ 13,671 ----------- ----------- Basic earnings per share As reported $1.07 $0.66 Pro-forma 1.07 0.66 Diluted earnings per share As reported $0.98 $0.61 Pro-forma 0.98 0.61 The Black Scholes option pricing model was used to fair value the options using the following estimates and assumptions: Expected life 5 years Expected dividend yield 0.6% Risk-free interest rate 5.0% Stock volatility 40.0% As at July 31, 2004 total outstanding options were 1,404,372 (July 31, 2003 - 1,967,040). At July 31, 2004 all of the share options outstanding were exercisable (July 31, 2003 - 1,781,679). The weighted average exercise price of the total outstanding options at July 31, 2004 was $14.22 compared to $13.66 at July 31, 2003. ------------------------------------------------------------------------- ------------------------------------------------------------------------- 14. Related party transactions a) During fiscal 2000, in connection with securing tender credit facilities, the Company received an unsecured, subordinated, convertible 12% loan from an affiliate of the controlling shareholder in the amount of $5.0 million. This loan is subordinated to the Company's senior credit facilities and its senior subordinated notes. The loan is convertible into Class A subordinated voting shares at $7.25 per share. The estimated value of the loan proceeds attributable to the conversion feature of $951,000 was allocated to contributed surplus. The equivalent reduction in the carrying value of the loan is amortized to earnings over the term of the loan. Interest expense of $180,000 (2003 - $175,000), including amortization of the above noted discount, was recorded on the loan during the three month period ended July 31, 2004. b) The Company uses properties owned by companies affiliated with the controlling shareholder for customer events, meetings, conferences and social functions. Rent and usage fees of $143,000 (2003 - $159,000) were incurred with these companies during the three month period ended July 31, 2004 and 2003. These transactions were recorded at their exchange amounts. c) During the three month period ended July 31, 2004, $189,000 (2003 - $99,000) was paid to Canadian Helicopters Limited, in which the Company has a 42.75% equity investment. These amounts related to the provision of helicopter flying services to the Company and were recorded at their exchange amounts. d) During fiscal 2004, construction began on a new hangar facility in Vancouver, Canada. The facility is being constructed by a subsidiary of a company owned by a relative of the Company's controlling shareholder. As at July 31, 2004, $2.7 million (2003 - $0.2 million) was paid to this subsidiary with such amount being capitalized to fixed assets and was recorded at its exchange amount. Such subsidiary will also receive a fee of $500,000 for managing the construction of the building. e) From May 1, 2004 to July 31, 2004 the Company recorded $14.9 million in revenue from ACN, in which the Company has a 40% equity investment. Such revenue was primarily associated with the flying of aircraft and related activities, sale of aircraft parts and amounts billed under PBH contracts. These transactions were recorded at their exchange amounts. ------------------------------------------------------------------------- ------------------------------------------------------------------------- 15. Guarantees The Company has given guarantees to certain lessors in respect of operating leases. If the Company fails to meet the senior credit facilities' financial ratios or breaches any of the covenants of those facilities and, as a result, the senior lenders accelerate debt repayment, the leases provide for a cross-acceleration that could give the lessors and financial institutions that are lenders to those lessors the right to terminate the leases and require return of the aircraft and payment of the present value of all future lease payments and certain other amounts. If the realized value of the aircraft is insufficient to discharge the indebtedness due to those lessors in respect of the present value of the future lease payments, those lessors' lenders could obtain payment of that deficiency from the Company under these guarantees. The Company has provided limited guarantees to third parties under some of its operating leases in connection with a portion of the aircraft values at the termination of the leases. The leasees have terms expiring between 2005 and 2012. The Company's exposure under the asset value guarantees and junior loans is approximately $27.0 million at July 31, 2004 compared to $25.5 million at April 30, 2004. The resale market for the aircraft type for which the Company has provided guarantees remains strong, and as a result, the Company does not anticipate incurring any liability or loss with respect to these guarantees. ------------------------------------------------------------------------- ------------------------------------------------------------------------- 16. Subsequent event In August 2004, the Company announced that it had 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. Multifabs was acquired for a cash payment of $17.0 million, including all outstanding debt. ------------------------------------------------------------------------- ------------------------------------------------------------------------- 17. Reconciliation to accounting principles generally accepted in the United States In certain respects, Canadian GAAP differs from U.S. GAAP. If U.S. GAAP were employed, the consolidated statements of earnings for the periods indicated would be adjusted as follows: ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended July 31, July 31, 2004 2003 (Unaudited) (Unaudited) ------------------------------------------------------------------------- Net earnings according to Canadian GAAP $ 22,343 $ 13,731 Pre-operating expenses (301) 341 Gain on sale of assets/amortization expense (14) (10) Ineffective portion of net investment hedge - (6,902) Effect of foreign currency indemnity agreements (138) (1,506) Effect of currency swaps (3,466) - Effect of revaluation of U.S. debt 6,225 - Effect of equity forward price agreement 707 - Internal-use software expenses (94) (52) Effect of asset value guarantees (144) - (Increase) decrease in income tax expense (203) 1,534 Other 30 - ----------------------- Net earnings according to U.S. GAAP 24,945 7,136 Other comprehensive earnings, net of income tax: Foreign currency translation adjustment (22,274) (17,329) Ineffective portion of net investment hedge - 5,535 Minimum pension liability adjustment (19,860) 29,063 Interest rate swap adjustment - 1,126 Foreign currency cash flow hedge adjustment (902) - Fair value adjustment of available-for-sale securities 206 - ----------------------- Comprehensive (loss) earnings according to U.S. GAAP $ (17,885) $ 25,531 ----------------------- ----------------------- Earnings per share according to U.S. GAAP ----------------------- ----------------------- Basic $ 1.19 $ 0.34 ----------------------- ----------------------- Diluted $ 1.09 $ 0.32 ----------------------- ----------------------- The consolidated balance sheet would vary in some respects when restated for U.S. GAAP purposes. The most significant variances pertaining to the July 31, 2004 balance sheet are listed below: - Property and equipment would increase by $1.7 million to record acquisition and amortization differences. - Long-term investments would increase by $0.3 million to adjust available-for-sale securities to fair market value. - Other assets would decrease by $28.0 million to recognize the fair value impact of an aircraft lease guarantee, deferred startup cost adjustment and minimum pension liability adjustment on net earnings. - Future income tax assets would decrease by $0.5 million to tax-effect adjustments to net earnings and comprehensive earnings under U.S. GAAP. - Other liabilities would increase by $12.9 million to recognize the minimum pension liability, and foreign currency translation adjustments related to currency swaps recorded in comprehensive earnings as well as the fair value impact of forward foreign currency contracts, lease guarantees, foreign currency indemnity agreements, and equity forward price agreements on net earnings and retained earnings. - Future tax liability would decrease by $16.8 million due to tax effect adjustments to net earnings and comprehensive income under U.S. GAAP. - Accumulated other comprehensive earnings would be recorded at $(53.0) million under U.S. GAAP for foreign currency translation, minimum pension liability, interest rate swap adjustments, currency swap adjustments, the impact of the ineffective portion of the net investment hedge, foreign currency cash flow hedge adjustments and the fair-value adjustment of available-for-sale securities. - Retained earnings would be decreased by $0.7 million to reflect the cumulative net effect of Canadian and U.S. GAAP differences. END FIRST AND FINAL ADD DATASOURCE: CHC Helicopter Corporation CONTACT: PR Newswire -- Sept. 13

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FLI Flight Centre Travel Group Limited