VANCOUVER, Sept. 13 /PRNewswire-FirstCall/ -- CHC Helicopter
Corporation (the "Company") (TSX: FLY.SV.A and FLY.MV.B; NYSE: FLI)
today announced unaudited financial results for the three months
ended July 31, 2005. Financial Highlights (in millions, except per
share amounts) Three Months Ended
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July 31, July 31, 2005 2004
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Revenue $ 231.3 $ 225.5 Operating income 33.4 36.8 Net earnings
from continuing operations 18.7 23.3 Net loss from discontinued
operations (0.4) (0.9) Net earnings 18.3 22.3 Per share
information(1) Basic Weighted average number of shares 42.0 41.9
Net earnings from continuing operations $ 0.45 $ 0.56 Net loss from
discontinued operations (0.01) (0.03) Net earnings 0.44 0.53
Diluted Weighted average number of shares 46.1 45.8 Net earnings
from continuing operations $ 0.41 $ 0.51 Net loss from discontinued
operations (0.01) (0.02) Net earnings 0.40 0.49
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(1) Comparative share information has been adjusted to reflect the
April 2005 2-for-1 stock split. Highlights - Revenue increased
$25.3 million or 11.2% compared to the first quarter of last year,
offset by a negative foreign exchange impact ("FX") of
approximately $19.4 million. Excluding FX, revenue in both the
Global Operations and Heli-One segments increased by more than 20%
from the first quarter of last year. - Excluding FX, segment
EBITDAR increased in all segments and most significantly in Global
Operations where segment EBITDAR increased 25.2% from the first
quarter of last year. - Operating income for the first quarter was
$33.4 million, a decrease of $3.4 from the same period last year.
This decrease was primarily the result of increased restructuring
costs of $2.9 million and negative FX of approximately $2.8
million, which was partially offset by increases in segment EBITDAR
in each of the Company's segments. - Net earnings from continuing
operations for the first quarter were $18.7 million ($0.41 per
share, diluted), a decrease of $4.6 million from the first quarter
of last year. A comparison of first quarter earnings from
continuing operations should consider the following significant
variances: a) Direct cost increases of approximately $2.0 million
(after-tax $1.5 million) or $0.03 per share, diluted, expensed
primarily in the Global Operations segment to support short-term
future growth. b) Restructuring costs and debt settlement cost
increases of $1.5 million (after-tax $1.2 million) or $0.03 per
share, diluted. Restructuring and debt settlement costs were $3.7
million (after- tax $2.6 million) or $0.06 per share, diluted, in
the first quarter and $2.2 million (after-tax $1.4 million) or
$0.03 per share, diluted, for the same period last year. c) An
unfavourable foreign exchange impact of $2.8 million (after-tax
$2.1 million) or $0.05 per share, diluted, on operating income
largely due to the translation of our foreign subsidiaries results
to Canadian dollars. d) Interest expense increases of approximately
$2.6 million (after-tax $2.0 million) or $0.04 per share, diluted,
primarily as a result of higher debt levels related to investments
in aircraft deposits, aircraft purchases and other capital assets
to support future growth. e) Effective average income tax rate
increase of 2.7%, which equates to additional income tax expense of
$0.6 million or $0.01 per share, diluted. f) Direct and general and
administration cost reductions in the first quarter of
approximately $1.5 million (after-tax $1.1 million) or $0.02 per
share, diluted. - Subsequent to quarter end, the Company has agreed
to terms for an operating lease facility with a major European bank
to finance U.S.$ 90 million over the next 18 months. The Company
has identified aircraft that it owned at the end of the first
quarter that will be financed via this facility, which will result
in significant cash inflows for the Company in the second and third
quarters. Investor Conference Call The Company's first quarter
conference call and webcast will take place Wednesday, September
14, 2005 at 10:30 a.m. EDT. To listen to the conference call, dial
416-640-4127 for local and overseas calls, or toll-free
1-800-814-4857 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 "21150479 followed by the number sign". The
financial results and a live webcast of the conference call will be
available at http://www.chc.ca/. The webcast is also available
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 more than 30 countries. If you wish to
be removed or included on the Company's distribution list, please
contact .
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This document 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, 2005 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, related notes thereto, and MD&A for the
year ended April 30, 2005 as set forth in the Company's Annual
Report (the "2005 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 13 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/. This MD&A
has been prepared as at September 13, 2005. Overview of Results
Revenue for the first quarter was $231.3 million, an increase of
$5.8 million from the same period last year. This increase was
primarily due to a $25.3 million or 11.2% increase in revenues
offset by a negative foreign exchange impact ("FX") of
approximately $16.0 million on the translation of our self
sustaining foreign operations to Canadian dollars and approximately
$3.4 million on the conversion of revenues transacted in currencies
other than the reporting currencies of foreign operations (see
Foreign Currency). Operating income for the first quarter was $33.4
million, a decrease of $3.4 million from the same period last year.
This decrease was primarily the result of an increase in
restructuring costs of $2.9 million and a negative foreign exchange
impact of $2.8 million, which was partially offset by increases in
segment EBITDAR in each of the Company's segments. Net earnings
from continuing operations for the first quarter was $18.7 million
($0.41 per share, diluted) on revenue of $231.3 million as compared
to $23.3 million ($0.51 per share, diluted) on revenue of $225.5
million for the same period last year. The decrease of $4.6 million
was due primarily to the decrease in operating income as noted
above and an increase in interest expense of $2.6 million,
primarily as a result of higher debt levels related to investments
in aircraft deposits, aircraft purchases and other capital assets
to support future growth. The net loss from discontinued operations
for the first quarter was $0.4 million ($0.01 per share, diluted)
as compared to a net loss from discontinued operations of $0.9
million ($0.02 per share, diluted) for the same period last year.
Net losses from discontinued operations in the current quarter are
for the results of CHC Composites Inc. ("Composites"), which has
not yet been sold. Net losses from discontinued operations in the
first quarter of last year include the results of Schreiner Canada
Ltd. ("Schreiner Canada") and Schreiner Aircraft Maintenance B.V.
("SAMCO") that were disposed of in the third quarter of the prior
year. Net earnings during the first quarter were $18.3 million
($0.40 per share, diluted) compared to net earnings of $22.3
million ($0.49 per share, diluted) for the same period last year.
Significant Events New Organizational Structure Effective May 1,
2005 the Company is organized under a new operational and
management structure. This new organizational structure will
provide the Company with opportunities for external growth and
operational efficiencies that were not realizable prior to the
restructuring. Consistent with this new structure the Company has
revised its segmented reporting and will report its results under
four segments, as follows: Global Operations Global Operations,
headquartered in Vancouver, Canada, combines the helicopter flying
operations of Africa, the Middle East, Asia, Australia and the
Americas. Global Operations services oil and gas, emergency medical
services ("EMS") and search and rescue ("SAR") customers in all
jurisdictions outside of Europe. European Operations European
Operations, headquartered in Aberdeen, Scotland, combines the oil
and gas flying operations of North Sea bases in Scotland, Norway,
the Netherlands, Denmark and Ireland as well as EMS/SAR and
training operations throughout Europe. Heli-One Heli-One,
headquartered in Vancouver, Canada, combines the Company's
helicopter services support capabilities including repair and
overhaul, maintenance, integrated logistics support and aircraft
leasing to both internal and external customers. Heli-One operates
repair and overhaul facilities in Norway, Canada, Australia and
Africa. Heli-One also provides survival suit manufacturing and
supply services. Corporate and Other Corporate and Other consists
of the Company's corporate offices located in various
jurisdictions. Inter-segment Transactions and Measurement of
Segment Results Heli-One owns or leases substantially all of the
Company's aircraft fleet and provides tip-to-tail maintenance and
logistics support to both Global Operations and European Operations
in addition to a growing base of external customers. As a result,
all aircraft used by the Company's flying segments are leased from
and serviced by Heli-One. Lease, maintenance (power by the hour or
"PBH") and associated transactions between Heli-One and the
Company's flying divisions are at rates benchmarked to industry
standards. As the owner or lessor of the Company's fleet and as the
provider of substantially all maintenance services, Heli-One will
recognize a substantial portion of the Company's segment EBITDAR
and operating income and will be responsible for the majority of
the Company's capital assets. All transactions between Heli-One,
Global Operations and European Operations are eliminated on
consolidation. The Company has provided segment revenues, segment
EBITDAR and operating income because these are the financial
measures used by the Company's key decision makers in making
operating decisions and assessing performance. Comparative Figures
for Segmented Reporting Comparative figures for the first quarter
of the prior fiscal year have been restated to reflect the new
operational structure as if certain lease, PBH and associated
transactions between the Company's operating segments, as detailed
above, had occurred for that period as well. The restatement is
based on management's best estimate of how these transactions would
have been recorded if the operational and management restructuring
had been effective on May 1, 2004. The Company's comparative
consolidated results remain unchanged from those previously
reported as the restatement relates only to internal and eliminated
transactions. Current Restructuring and Related Activities The
Company continued with its global restructuring initiative in the
first quarter and expensed $3.7 million (after-tax $2.6 million) of
costs primarily consisting of voluntary retirement and involuntary
severance costs, professional and consulting fees, and costs
associated with the relocation of a Heli-One repair and overhaul
shop from Port Alberni to Vancouver, British Columbia.
Restructuring costs of $0.8 million (after-tax $0.5 million) were
expensed in the same period of last year. The Company expects to
expense further costs of approximately $15 million in the remainder
of the year on the current restructuring initiative. These
remaining costs will consist primarily of similar items to those
expensed in the first quarter of the current fiscal year and
planning for the implementation of a new European ownership
structure. As well, the Company expects increased costs in relation
to the development of standard IT applications, reporting and
control processes. In addition, the Company may incur additional
expenses in relation to foreign exchange losses and derivative
cancellation costs as a result of transaction, cashflow and legal
entity changes made in relation to the restructuring. In the first
quarter, the Company realized direct and general and administration
cost reductions of approximately $1.5 million in relation to
restructuring changes in all operating segments. To date, the
Company has reduced the workforce by approximately 100 primarily in
the U.K and in the Netherlands, which includes substantial
reductions from Schreiner, which is now consolidated into the
Company's new operating segments. When the current restructuring
initiative is complete the Company expects substantial cost savings
from these reductions and the following additional items: - Further
headcount reductions to be realized primarily in Europe, impacting
the European Operations and the Heli-One segments. It is important
to note that the Company has temporarily increased the number of
employees in some jurisdictions to manage the restructuring
initiatives in progress and has increased the number of support and
line personnel to support newly acquired and developing businesses
and future growth. Global Operations, for example, has recently
hired over 80 new pilots and engineers to support future contracts.
- Reduced infrastructure support costs including carrying and lease
costs for facilities no longer required (St. John's, Canada and
Hoofddorp, the Netherlands). - Improvements in fleet management,
procurement, logistics and other operating efficiencies. - European
ownership restructuring which will provide the Company with
increased flexibility in meeting its licensing requirements and
reduce average effective tax rates and/or cash tax outflows. These
savings will positively impact operating margins and net income
progressively throughout fiscal 2006. In addition to the
restructuring costs incurred in the first quarter, approximately
$2.0 million was expensed for costs to prepare for new activities
and contracts for which revenue and EBITDAR will start to be
realized in the second half of the current fiscal year. These costs
were primarily incurred in the Global Operations segment to
mobilize new and reposition existing aircraft, recruitment and
training of pilots and engineers, and other costs in the Heli-One
segment where North American repair and overhaul capabilities and
new services including aircraft leasing are being developed.
Divestiture Activities On September 9, 2005, the Company sold its
remaining interest in Canadian Helicopters Limited ("CHL") and
realized net proceeds of approximately $48 million. The Company
will record a combined pre-tax gain and dividend income of
approximately $20 million on this divestiture in the second
quarter. The final gain on sale is subject to adjustments of
closing costs and expenses and equity accruals from July 31, 2005
to the date of the sale. Equity earnings of CHL were $1.7 million
for the first quarter (2005 - $1.8 million). During the quarter,
the Company signed a Letter of Intent for the sale of its 38%
shareholdings in Inversiones Aereas S.L. ("Inaer"), which operates
light and medium aircraft primarily in the Spanish helicopter
market. The transaction is subject to several conditions including
satisfactory due diligence and regulatory approval and is expected
to close in October 2005. Proceeds are estimated at $45 million.
The book value of the investment in Inaer is approximately $22
million at July 31, 2005. Professional fees and other direct costs
associated with realizing this potential sale are not yet
determinable and will reduce the potential gain on sale arising
from this transaction. Equity earnings of Inaer was $1.3 million
for the first quarter and approximately the same in the first
quarter of last year. The Company continues to discuss the
potential sale of Composites with a number of interested parties.
To date no agreement has been reached and any potential agreement
is subject to approval by the Government of Newfoundland and
Labrador. Potential Future Acquisition Subsequent to the quarter
end, the Company announced it was granted an irrevocable option to
acquire an equity position in Brazilian Helicopter Services ("BHS")
and provide, on an exclusive basis, operational expertise
including: safety management systems, maintenance procedures,
technical support and flight standards. Heli-One will provide
helicopter leasing services and access to its worldwide fleet of
aircraft and PBH maintenance support. BHS is one of the largest
helicopter operators in the Brazilian offshore sector, employing a
team of more than 200 professionals and operating a fleet of 11
aircraft, including AS332 Super Puma Mk2 and Sikorsky S76
helicopters. BHS operates out of Sao Paulo, Macae and Farol de Sao
Tome, transporting an average of 14,000 passengers per month and
has been providing passenger air transport services to Petrobras
since 1992. There are currently 50 aircraft operating in the
Brazilian offshore market primarily for Petrobras. Petrobras, the
state-owned oil company, said it plans to invest US$22 billion in
exploration and production in order to expand output and build
another 10 platforms. In addition, Petrobras has announced its
intention to replace a portion of its existing helicopter fleet
with new aircraft in the coming year. This may translate into a
significant opportunity for both BHS and the Company. In signing
the agreement, BHS and the Company are establishing a mutually
beneficial, long-term relationship in the rapidly expanding
Brazilian offshore sector. Flying Revenue and Hours The Company
derives its flying revenue from two primary types of contracts.
Approximately 50% (2005 - 54%) 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 50% (2005 - 46%) was generated by fixed monthly charges.
Because of the significant fixed component, a change 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 levels. 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
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Flying Hours Number of Aircraft ------------------------------
------------------------------ Global European Global European
Period Operations Operations Total Operations Operations Heli-One
----------------------------------------
------------------------------ Q2-2004 11,926 21,951 33,877 90 66 8
Q3-2004 12,066 19,806 31,872 90 68 9 Q4-2004 15,405 22,451 37,856
110 83 13 Q1-2005 16,481 24,468 40,949 112 82 13 Q2-2005 16,364
24,028 40,392 114 80 13 Q3-2005 17,070 22,927 39,997 122 79 13
Q4-2005 16,778 22,183 38,961 121 81 13 Q1-2006 17,355 23,713 41,068
127 77 14
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The following table provides year-to-date information on flying
revenue mix by segment and in total by aircraft type for fiscal
2006 and 2005. The mix of aircraft types has changed over the same
period in the prior year, with heavy aircraft flying revenue as a
percentage of total flying revenue decreasing by 3% and the
percentage of medium revenue and fixed wing aircraft flying revenue
increasing by 3%. This flying revenue mix change is due primarily
to the growth of medium aircraft in the Global Operations segment.
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Year-to-date Flying Revenue Mix (in thousands of Canadian dollars)
-------------------------------------------------- Three Months
Ended July 31, 2005
-------------------------------------------------- Fixed Heavy
Medium Light wing Total
-------------------------------------------------- Global Ops $
16,994 $ 48,723 $ 963 $ 6,395 $ 73,075 European Ops 86,500 29,051 -
- 115,551 -------------------------------------------------- Total
Flying Revenue $103,494 $ 77,774 $ 963 $ 6,395 $188,626
-------------------------------------------------- Total % 55% 41%
1% 3% 100%
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Year-to-date Flying Revenue Mix (in thousands of Canadian dollars)
------------------------------------------------- Three Months
Ended July 31, 2004
------------------------------------------------- Fixed Heavy
Medium Light wing Total
------------------------------------------------- Global Ops $
14,321 $ 38,867 $ 847 $ 8,429 $ 62,464 European Ops 90,882 28,605
527 - 120,014 -------------------------------------------------
Total Flying Revenue $105,203 $ 67,472 $ 1,374 $ 8,429 $182,478
------------------------------------------------- Total % 58% 37%
1% 4% 100%
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The following table provides year-to-date information on the hourly
and fixed flying revenue by segment (without adjusting for the
impact of foreign exchange) for fiscal 2006 and 2005. Fixed flying
revenue as a percentage of total flying revenue has increased from
46% last year to 50% this year primarily due to growth in the
Company's Global Operations segment, which includes a higher
percentage of fixed charge contracts.
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Flying Revenue - Hourly vs. Fixed Three Months Ended July 31 (in
thousands of Canadian dollars)
----------------------------------------------------------- Hourly
Fixed Total
----------------------------------------------------------- 2005
2004 2005 2004 2005 2004 ------------------- -------------------
------------------- Global Operations $ 23,050 $ 20,803 $ 50,025 $
41,661 $ 73,075 $ 62,464 European Operations 71,698 76,877 43,853
43,137 115,551 120,014 ------------------- -------------------
------------------- Total $ 94,748 $ 97,680 $ 93,878 $ 84,798
$188,626 $182,478 % of Total 50% 54% 50% 46% 100% 100%
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The following table provides year-to-date information on segment
flying revenue by industry sector for fiscal 2006 and 2005. During
the quarter the Company derived approximately 86% of its flying
revenue from the oil and gas industry, compared to 85% in the first
quarter of last year. Revenue from this industry is primarily
derived from oil and gas production support.
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Flying Revenue - By Industry Sector Three Months Ended July 31 (in
thousands of Canadian dollars)
----------------------------------------------------------- Global
Operations European Operations Total
----------------------------------------------------------- 2005
2004 2005 2004 2005 2004 ------------------- -------------------
------------------- Oil & Gas $ 56,901 $ 46,572 $106,094
$109,254 $162,995 $155,826 EMS/SAR(1) 11,566 10,134 5,316 6,440
16,882 16,574 Other 4,608 5,758 4,141 4,320 8,749 10,078
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Total $ 73,075 $ 62,464 $115,551 $120,014 $188,626 $182,478
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(1) Emergency medical services and search and rescue services. The
Company regularly compares its activity levels against available
industry data. Aberdeen Airport Ltd. in the U.K. reports monthly
helicopter passenger traffic for all helicopter operations in
Aberdeen, Scotland, which is the Company's largest base (accounting
for approximately 28% of total European Operations revenue) as
measured by the number of aircraft and revenue. The following table
provides a quarterly summary of all helicopter passenger traffic at
Aberdeen Airport from fiscal 2002 to fiscal 2006.
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Aberdeen Airport - Helicopter Passengers Year Ended April 30
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2006 2005 2004 2003 2002
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Q1 115,696 102,228 101,757 116,102 121,868 Q2 104,715 95,227
112,449 123,012 Q3 95,896 87,588 92,918 114,606 Q4 101,132 89,975
92,686 108,247
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115,696 403,971 374,547 414,155 467,733
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Source: Aberdeen Airport Ltd. The data in the above table shows
that helicopter passenger activity this quarter has increased 13.2%
from the same period in fiscal 2005. This 13.2% increase is greater
than the increase experienced by the European Operations segment in
the first quarter primarily due to the loss of the bp and Talisman
contracts in the prior fiscal year. However, it is in part because
of the general activity increases that the European Operations
segment has substantially replaced this lost revenue with new
contracts and ad hoc work. It also demonstrates the seasonality in
activity levels from quarter to quarter. Review of Segment Revenue,
EBITDAR and Operating Income The Company includes four reporting
segments in its financial statements: Global Operations, European
Operations, Heli-One and Corporate and Other. The primary factors
considered in identifying segments are: consistency with the
Company's internal operational and management structure, geographic
coverage, type of contracts that are entered into, type of aircraft
that are utilized and information used by the Company's key
decision makers to evaluate results of operations. The following
table provides first quarter external revenue, segment EBITDAR and
operating income variance analysis between fiscal 2006 and 2005.
The numbers in this analysis are referred to in the review of each
operating segment that follows the table.
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Segment Revenue from External Customers - Variance Analysis (in
thousands of Canadian dollars)
----------------------------------------------------------- Inter-
Global European segment Opera- Opera- Corporate Elimi- tions tions
Heli-One & other nations Total
----------------------------------------------------------- Three
months ended July 31, 2004 $ 71,161 $125,029 $ 29,213 $ 68 N/A
$225,471 Foreign exchange impact(2) (8,892) (8,075) (2,474) (3) N/A
(19,444) Revenue increase (decrease) 14,555 3,961 6,813 (11) N/A
25,318 -----------------------------------------------------------
Three months ended July 31, 2005 $ 76,824 $120,915 $ 33,552 $ 54
N/A $231,345
-----------------------------------------------------------
----------------------------------------------------------- Total
revenue increase (decrease) $ 5,663 $ (4,114) $ 4,339 N/A N/A $
5,874 % increase (decrease) 8.0% (3.3%) 14.9% N/A N/A 2.6% %
increase (decrease) excluding FX 20.5% 3.2% 23.3% N/A N/A 11.2%
Segment EBITDAR Variance Analysis (in thousands of Canadian
dollars)
----------------------------------------------------------- Inter-
Global European segment Opera- Opera- Corporate Elimi- tions tions
Heli-One & other nations Total
----------------------------------------------------------- Three
months ended July 31, 2004 $ 19,553 $ 28,836 $ 55,453 $ (8,053)
$(36,818) $ 58,971 Foreign exchange impact(2) (2,692) (2,531) (137)
28 - (5,332) Segment EBITDAR increase (decrease) 4,924 607 55 1,994
(260) 7,320
----------------------------------------------------------- Three
months ended July 31, 2005 $ 21,785 $ 26,912 $ 55,371 $ (6,031)
$(37,078) $ 60,959
-----------------------------------------------------------
----------------------------------------------------------- Segment
EBITDAR margin(1) - Last year 27.5% 23.1% 46.5% N/A N/A 26.2% -
This year 28.4% 22.3% 44.7% N/A N/A 26.3% Total Segment EBITDAR
increase (decrease) $ 2,232 $ (1,924) $ (82) $ 2,022 $ (260) $
1,988 % increase (decrease) 11.4% (6.7%) (0.1%) (25.1%) N/A 3.4% %
increase (decrease) excluding FX 25.2% 2.1% 0.1% (24.8%) N/A 12.4%
Operating Income Variance Analysis (in thousands of Canadian
dollars)
----------------------------------------------------------- Inter-
Global European segment Opera- Opera- Corporate Elimi- tions tions
Heli-One & other nations Total
----------------------------------------------------------- Three
months ended July 31, 2004 $ 1,506 $ 5,806 $ 38,700 $ (9,167) N/A $
36,845 Foreign exchange impact(2) (2,096) (2,194) 1,379 125 N/A
(2,786) Operating income increase (decrease) 1,147 3,050 (5,508)
629 N/A (682)
----------------------------------------------------------- Three
months ended July 31, 2005 $ 557 $ 6,662 $ 34,571 $ (8,413) N/A $
33,377 -----------------------------------------------------------
----------------------------------------------------------- Total
operating income increase (decrease) $ (949) $ 856 $ (4,129) $ 754
N/A $ (3,468) % increase (decrease) (63.0%) 14.7% (10.7%) (8.2%)
N/A (9.4%) % increase (decrease) excluding FX 76.2% 52.5% (14.2%)
(6.9%) N/A (1.9%)
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(1) Segment EBITDAR as a percent of revenue from external
customers, except for the Heli-One segment, which is a percent of
total revenue. (2) Includes both translation and transaction
foreign exchange impact. See discussion under Foreign Currency.
Divisional Review Global Operations Revenue from the Company's
Global Operations segment for the first quarter was $76.8 million,
an increase of $5.7 million from the same period last year. This
increase was primarily the result of increased flying revenue of
$14.6 million (excluding FX) from new and expanded contracts in
Turkey, Sudan, Nigeria, Venezuela, Australia and Azerbaijan which
was partially offset by a negative foreign exchange impact of $8.9
million. Flying hours increased by 874 hours in the first quarter
compared to the first quarter last year, and by 577 hours compared
to the fourth quarter of last year. Segment EBITDAR for the first
quarter was $21.8 million, an increase of $2.2 million from the
same period last year. This increase was primarily attributable to
a segment EBITDAR increase of $4.9 million earned on increased
revenue offset by an unfavourable foreign exchange impact of $2.7
million. Global Operations segment EBITDAR has increased 25.2% from
the same quarter last year. Because Global Operations continues to
expand at a rapid rate incremental costs of approximately $1.8
million were expensed in the first quarter primarily in relation to
the repositioning and mobilization of aircraft and the hiring in
recent months of approximately 80 new pilots and engineers to crew
these aircraft in various jurisdictions. Operating income for the
first quarter was $0.6 million, a decrease of $0.9 million from the
same period last year, primarily due to a $4.9 million increase in
segment EBITDAR, offset by increased lease costs of $2.8 million
charged by Heli-One, restructuring costs of $0.4 million and a
negative foreign exchange impact of $2.1 million. Lease costs have
increased primarily due to the increase in the number of aircraft
in the Global Operations segment from the first quarter last year.
Growth in the Global Operations segment is expected to continue as
contracts already awarded generate additional revenue and segment
EBITDAR and as new opportunities develop in Brazil in relation to
the Company's potential acquisition of an equity position in BHS
and in West Africa where additional fixed-wing aircraft will be
deployed by the fourth quarter of fiscal 2006. Subsequent to the
quarter end, Global Operations, through BHS, has submitted a tender
to Petrobras for a total of 22 new medium helicopters. The contract
award is expected to be announced in October for a potential start
next spring. At July 31, 2005 there were 127 aircraft operating in
this segment consisting of 20 heavy, 85 medium, 8 light and 14
fixed-wing. European Operations Revenue from the Company's European
Operations segment for the first quarter was $120.9 million, a
decrease of $4.1 million from the same period last year. This
decrease was attributable to an unfavourable foreign exchange
impact of $8.1 million partially offset by an increase in flying
revenue of $4.0 million (excluding the impact of foreign exchange).
The increase in flying revenue relates primarily to increased
revenue from Norsk Hydro, Total and increases from other long-term
and ad hoc customers throughout the North Sea. Flying revenue
increases were realized despite lower revenue from bp and Talisman
as these contracts have expired. Flying hours of 23,713 decreased
by 755 hours in the first quarter versus the first quarter last
year primarily due to the loss of the low margin bp contract and
Talisman contract together representing 2,724 flying hours in the
first quarter of last year. European Operations flying hours have
increased 1,530 hours from the recent fourth quarter of last year
and will continue to increase in the second quarter with the
start-up of the recently announced Nexen Petroleum U.K. Limited and
Marathon Oil U.K. Ltd contracts. Segment EBITDAR for the first
quarter was $26.9 million, a decrease of $1.9 million from the same
period last year. This decrease was primarily attributable to an
unfavourable foreign exchange impact of $2.5 million partially
offset by an increase in segment EBITDAR of $0.6 million earned on
the increase in flying revenue noted above. Operating income for
the first quarter was $6.7 million, an increase of $0.9 million
from the same period last year, primarily due to increased segment
EBITDAR of $0.6 million and decreased lease costs of $3.1 million,
charged by Heli-One, partially offset by an unfavourable foreign
exchange impact of $2.2 million. Lease costs have decreased as
several aircraft previously deployed in the North Sea have been
reassigned to contracts in Global Operations. Segment EBITDAR was
also negatively impacted by incremental direct costs as a result of
delays in deployment of certain aircraft in the quarter. During the
first quarter the Company successfully negotiated a five-year U.K.
pilot union agreement. The agreement provides a 5-year pay deal and
a restructuring of the final 5-day pension agreement which will
yield lower pension costs. Subsequent to the quarter, European
Operations submitted a bid to the Maritime and Coast Guard Agency,
U.K. Department for Transport for search and rescue services for
the provision of seven heavy aircraft. The contract award is
expected to be announced this fall for a July 2007 start. At July
31, 2005 there were 77 aircraft operating in this segment,
consisting of 51 heavy and 26 medium aircraft. Heli-One Revenue
from external customers for the Heli-One segment for the first
quarter was $33.6 million, an increase of $4.3 million from the
first quarter of last year. This increase was primarily
attributable to growth from newly acquired businesses which
generated revenue of $6.3 million. Revenue from these businesses
was slowed somewhat in the first quarter by the relocation of one
of the Company's repair and overhaul facilities from Port Alberni,
Canada to Vancouver, Canada. Revenue growth was partially offset by
an unfavourable foreign exchange impact of $2.5 million. Internal
revenues for Heli-One were $90.3 million, an increase of $0.2
million from the first quarter of last year. Internal revenues are
expected to grow as Global Operations and European Operations
deploy more aircraft and increase flying activity. Heli-One's total
revenue in the quarter was $123.8 million compared to $119.3
million in the first quarter of last year. Segment EBITDAR for the
first quarter was $55.4 million, a decrease of $0.1 million from
the first quarter of last year. This decrease was primarily
attributable to an increase in direct costs in relation to the
development of Heli-One and a small unfavourable foreign exchange
impact offset by a small increase in segment EBITDAR from increased
revenue. Direct costs incurred to build-up Heli-One capabilities
included costs to consolidate and develop North American repair and
overhaul facilities and develop new services including aircraft
leasing for external customers. Operating income for the first
quarter was $34.6 million, a decrease of $4.1 million from the
first quarter last year. This decrease was primarily due to
restructuring costs of $1.0 million, increased amortization of $0.9
million, reduced gains from the sale of assets of $0.9 million and
increased lease costs of approximately $1.3 million due to the
introduction of higher cost aircraft, including two S-92
helicopters, and an increase in the interest component of lease
costs. These items were partially offset by a favourable foreign
exchange impact of $1.4 million. The Company believes future
opportunities for Heli-One are significant. Heli-One has committed
to purchase seven heavy and 27 medium aircraft expected to be
delivered by the end of fiscal 2007 and has options to purchase up
to four heavy and 31 medium aircraft over the next five years. The
Company expects that the majority of these aircraft will be used
internally to support continued growth. As well, significant
opportunities exist from the continued development of Heli-One's
North American repair and overhaul facilities. Corporate and Other
Corporate and Other segment EBITDAR costs of $6.0 million in the
first quarter decreased $2.0 million from the same period last
year. The primary reasons for the decrease were adjustments in
claim reserves for various insured risks and a reduction in the
Schreiner corporate office costs as a result of restructuring
changes made in that jurisdiction offset by increases in variable
compensation costs. Debt Settlement Costs No debt settlement costs
were incurred in the first quarter, compared to $1.4 million in the
first quarter of last year. Debt settlement costs were incurred in
the first quarter of last year in relation to the redemption of the
Company's remaining 11 3/4% senior subordinated notes and 8%
subordinated debentures. Financing Charges Financing charges of
$12.0 million were expensed in the first quarter, compared to $9.0
million expensed in the first quarter of last year. The increase of
$3.0 million relates primarily to a $2.6 million increase in
interest on long-term debt relating to the increase in total debt
due to investment in aircraft deposits, aircraft purchases and
other capital assets made in the last twelve months and an increase
of $0.4 million in foreign exchange losses on foreign currency
denominated working capital and long-term debt. Equity Earnings of
Associated Companies Equity earnings of associated companies for
the first quarter was $3.2 million compared to $3.1 million in the
first quarter of last year. Equity earnings for both Inaer and CHL
were the same as the prior year. Income Taxes Income tax provision
on earnings from continuing operations for the first quarter was
$5.8 million compared to $6.3 million in the same period last year.
The Company's average effective tax rate, excluding tax associated
with discontinued operations restructuring and debt settlement
costs, for the first quarter was 24.8% compared to 22.1% for the
same period last year. The higher rate was primarily the result of
increased earnings in jurisdictions with higher income tax rates as
noted below. Corporate restructuring initiatives should have a
positive impact on the Company's future average effective tax rate.
Operating activities The Company generated $46.3 million of
operating cash flow (before changes in non-cash working capital)
during the first quarter, an increase of $5.8 million from the
$40.5 million generated during the first quarter of last year. This
increase is due primarily to an $8.4 million decrease in advance
rental payments, offset by a $4.6 million reduction in net earnings
from continuing operations and various other differences. Increases
in working capital during the first quarter was $56.1 million (2005
- $14.5 million), primarily due to a $28.2 million reduction in
accounts payable and a $25.2 million increase in accounts
receivable. The $28.2 million decrease in accounts payable included
a $10 million semi-annual payment of interest on the Company's
senior subordinate notes, and the paying down of some large payable
balances that had accrued at April 30, 2005. The $25.2 million
increase in accounts receivable included, - An approximate $6
million increase in accounts receivable from a customer which is in
dispute with the Company for failure to deliver aircraft on
specified dates. Approximately $3 million of this amount has now
been collected. - Temporary increases of receivables in the U.K.
and Africa of approximately $18 million. Approximately 50% of these
amounts have now been collected since July 31, 2005. In addition to
these increases, the Company invested $5.3 million in new inventory
to support its expanding fleet of aircraft operated by the
Company's flying segments and Heli-One's third party customers. As
a result of this increase in working capital, net operating cash
flow for the quarter was ($9.8) million, a decrease of $35.8
million from the first quarter of last year. Financing activities
The Company's total net debt increased by $72.9 million primarily
to support investing activities during the first quarter of fiscal
2006 as follows: Change in Total Net Debt Position(1) During Q1 -
2006 (in millions of Canadian dollars)
--------------------------------- Opening balance, April 30, 2005
$575.7 Increase in net debt 94.0 Foreign exchange (21.1)
--------------------------------- Ending balance, July 31, 2005
$648.6 --------------------------------- (1) Net debt is comprised
of total debt, less cash and cash equivalents. Financing activities
generated cash of $75.7 million for the first quarter compared to
$12.0 million generated for the first quarter last year. Total
long-term debt proceeds of $85.4 million were offset by $6.7
million in long-term debt repayments. The net proceeds were used
primarily to support investing activities for the first quarter.
Subsequent to quarter end, the Company has agreed to terms for an
operating lease facility with a major European bank to lease
finance U.S.$90 million of helicopters over the next 18 months.
This facility will allow the Company to move aircraft among
jurisdictions, as long as pre-negotiated percentages of facility
value are maintained in primary and non-primary operating
jurisdictions. The Company has identified aircraft that it owned at
the end of the first quarter that will be financed via this
facility, which will result in significant net cash inflows for the
Company in the second and third quarters of fiscal 2006. During the
quarter the Company paid a quarterly dividend of $3.2 million. At
July 31, 2005, the Company had unused capacity under its credit
facilities of $157.7 million (April 30, 2005 - $232.7 million) and
cash and cash equivalents of $33.8 million, for a total of $191.5
million (April 30, 2005 - $284.1 million). Investing activities
Cash used for investing activities was $79.3 million for the first
quarter compared to $61.6 million for the first quarter last year.
Additions to property and equipment during the quarter totalled
$24.2 million. This was comprised of (i) $14.4 million for the
purchase of two aircraft; (ii) $4.1 million for aircraft
modifications; (ii) $1.1 million related to buildings and hangars;
and (iv) $4.6 million for other equipment. Aircraft expenditures
were comprised of a combined aircraft purchase price of $29.1
million less the application of deposits of $14.7 million, for a
net amount of $14.4 million. The Company made additional aircraft
deposits of $41.2 million during the first quarter. Capital
expenditures for helicopter major components during the first
quarter totalled $12.7 million. The Company also incurred
expenditures of $1.0 million for helicopter major inspections.
Risks and Uncertainties Except for the discussion contained
elsewhere in this MD&A, there has been no significant change in
the risks and uncertainties to the Company as outlined in the
MD&A contained in the Company's 2005 Annual Filings and as
detailed in the Company's 2005 Annual Information Form filed with
Canadian Securities Administrators and in the Annual Report on Form
20-F filed with the United States Securities and Exchange
Commission. Foreign currency The Company's reporting currency is
the Canadian dollar. However, a significant portion of revenue and
operating expenses are denominated in the reporting currencies of
the Company's principal foreign operating subsidiaries which
consist primarily of pound sterling, Norwegian kroner, U.S.
dollars, Australian dollars, South African rand and euros. In
addition, certain revenue and operating expenses are transacted in
currencies other than the reporting currencies of these
subsidiaries. The foreign exchange impact on revenue and segment
EBITDAR is comprised of (i) foreign exchange on the translation of
the financial results of the foreign subsidiaries into Canadian
dollars ("translation impact"); and (ii) foreign exchange on the
translation of foreign denominated transactions into the reporting
currencies of the subsidiaries ("transaction impact"). The total
unfavourable foreign exchange impact on revenue for the three
months ended July 31, 2005 was $19.4 million. This consisted of an
unfavourable translation impact of $16.0 million and a $3.4 million
unfavourable transaction impact. The total unfavourable foreign
exchange impact on operating income for the three months ended July
31, 2005 was $2.8 million. This consisted of an unfavourable
translation impact of $2.1 million and an unfavourable transaction
impact of $0.7 million As at July 31, 2005, the Company's total net
debt was denominated (before currency swaps) in the following
currencies:
-------------------------------------------------------------------------
(Thousands) ------------------------------ Debt in Canadian
Currency Original Currency Equivalent
-------------------------------------------------------------------------
Euro Euro 56,433 $ 83,905 Pound sterling GBP 9,583 20,669 U.S.
dollar $ 463,000 567,592 Canadian dollar U.S.$ 10,224 10,224 Cash
and cash equivalents (various currencies) (33,805)
-------------------------------------------------------------------------
Total Net Debt $ 648,585
-------------------------------------------------------------------------
Of the U.S. $463 million of US dollar denominated debt at July 31,
2005, U.S. $94 million, U.S. $30 million and U.S. $137 million were
converted to pnds stlg 55 million, (euro) 25 million and NOK 856
million respectively through the use of currency swaps.
-------------------------------------------------------------------------
Year-to-date Average Foreign Exchange Rates
------------------------------ July 31, July 31, 2005 2004
------------------------------ USD - CAD 1.2398 1.3523 NOK - CAD
0.1914 0.1973 GBP - CAD 2.2430 2.4619 Euro - CAD 1.5247 1.6421
-------------------------------------------------------------------------
As the table above indicates, the Canadian dollar has strengthened
against all currencies listed. 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. During the period
ended July 31, 2005, the Company continued its designation of its
U.S. $400 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 other pound
sterling, euro and U.S. dollar denominated debt as hedges of its
net investments in its self- sustaining operations in the U.K., the
Netherlands, and Canada respectively. As a result of these
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. The Company has
also entered into foreign currency forward contracts to reduce its
exposure to currency fluctuations. These derivatives were
designated as effective hedges of anticipated foreign currency
revenues or expenses for certain of its operations. In addition,
the Company has hedged its obligations under its stock appreciation
rights plans using an equity forward price agreement to reduce
volatility in cash flow and earnings due to possible future
increases in the Company's share price. Fleet At July 31, 2005 the
Company's fleet consisted of 154 owned aircraft and 64 aircraft
under operating leases. Seventy-seven of these aircraft are
deployed in European Operations (primarily in the North Sea) with
the other 141 deployed throughout the world. In addition, 236
aircraft were deployed in the Company's 41.75% owned Canadian
onshore helicopter operations (Canadian Helicopters Limited), the
Company's 40% owned Nigeria helicopter operations (Aero Contractors
of Nigeria) and the Company's 38% owned investment in Inaer, the
largest onshore and offshore helicopter operator in Spain, for a
combined total of 454 aircraft. The following table outlines the
changes in the Company's fleet during the first quarter of fiscal
2006: Fleet Summary
-------------------------------------------------------------------------
Fleet Summary
-------------------------------------------------------------------------
Operat- Fixed ing Heavy Medium Light Wing Total Owned Lease -----
------ ----- ----- ----- ----- ----- Fleet at April 30, 2005 76 115
10 14 215 152 63 Increases (decreases) during the period: Purchase
of AS365N3 1 1 1 Lease of AS365N2 1 1 1 Purchase of S-92 1 1 1
----------------------------------------------- Fleet at July 31,
2005 77 117 10 14 218 154 64
----------------------------------------------- Fleet deployment as
at July 31, 2005 Global Operations 20 85 8 14 127 103 24 European
Operations 51 26 - - 77 40 37 Heli-One 6 6 2 - 14 11 3
----------------------------------------------- 77 117 10 14 218
154 64
-------------------------------------------------------------------------
During the first quarter, the Company incurred aircraft operating
lease costs of $15.4 million compared to $14.6 million in the same
period last year. As at July 31, 2005, there were two fewer leased
aircraft compared to the same period last year. Lease costs
increased due to new leases of higher cost aircraft including two
S-92 aircraft compared to the first quarter of the previous year
and an increase in the interest component of lease charges. The
Company has entered into operating leases with third-party lessors
in respect of 64 aircraft included in the Company's fleet at July
31, 2005. Forty-six of these leases are long-term with expiry dates
ranging from 2006 to 2013. The Company has an option to purchase
these aircraft at market values or agreed amounts at the end of the
majority of these long-term leases. At July 31, 2005 the Company
operated 19 aircraft under operating leases with seven entities
that would be considered variable interest entities ("VIEs") under
Canadian GAAP. These leases have terms and conditions similar to
those of the Company's other operating leases over periods ranging
from 2006 to 2012. Based on appraisals by independent helicopter
valuation companies as at April 30, 2005, the estimated fair market
value of the aircraft leased from VIEs is $165.4 million as at July
31, 2005. The Company has provided junior loans and loans
receivable in connection with operating leases with these VIEs. The
Company's maximum exposure to loss related to the junior loans and
loans receivable as a result of its involvement with the VIEs is
$16.4 million as at July 31, 2005. The future minimum lease
payments required under aircraft operating leases are as follows
(based on July 31, 2005 interest rates and foreign exchange rates):
2006 $ 41.1 million 2007 44.3 million 2008 38.9 million 2009 35.7
million 2010 31.0 million And thereafter: 35.3 million
---------------- Total $ 226.3 million ----------------
---------------- In addition to aircraft leases, the Company has
approximately $4 million in annual lease commitments for land,
buildings and non-aircraft equipment. Based on an independent
appraisal as at April 30, 2005, 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, 2005 was US $523.7 million (CDN
$641.9 million), exceeding its recorded net book value by
approximately CDN $71.8 million (April 30, 2005 - $53.2 million).
The increase in the appraisal surplus from April 30, 2005 is
primarily attributable to the strengthening of the U.S. dollar, the
currency in which appraisals are performed, against the functional
currency of the Company's foreign subsidiaries. As at July 31, 2005
the Company had ordered and made deposits for a number of aircraft.
At July 31, 2005, the Company had committed to purchase seven heavy
and 27 medium aircraft. Where possible, the Company intends to
obtain the use of these aircraft through operating leases.
Executive and Senior Management Compensation Plans During the first
quarter, the Company revised its Short Term Incentive Plan ("STIP")
for executives and senior management employees. The purpose of the
revised STIP is to reward plan participants based on controllable
factors which contribute to improved performance of the Company.
Participants receive a bonus based upon the Company's performance
measured against predetermined targets, with bonuses based on a
percentage of base salary. During the quarter, the Company also
initiated a Long-Term Incentive Plan for executives and senior
management employees. The plan is designed to reward the
participants based upon long-term performance of the Company. Under
the plan, executives and senior management are granted performance
stock units ("LTIP PSUs"), which are a notional Class A subordinate
voting share. These LTIP PSUs have a three-year vesting term after
which the holder is entitled to a cash award calculated on the
basis of the market value of t
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