Seasonality In addition to the impact of seasonality on the
Company's revenue and net earnings as discussed under "Quarterly
Information", there are seasonal variations in earnings related to
the Company's 41.75% investment in Canadian Helicopters Limited and
from the Company's 38% investment in Inaer. Both companies have
significant revenue from onshore operations that is more seasonal
than offshore operations. Share Data The number of issued and
outstanding shares and stock options as at August 31, 2005 was as
follows: (000's) ------------------------------ Class A subordinate
voting shares 36,837 Class B multiple voting shares 5,866 Ordinary
shares 22,000 Stock Options 1,913 The number of Class A
subordinated voting shares that would be issued upon conversion of
Class B multiple voting shares, share options and convertible debt
as at August 31, 2005 remained unchanged from July 31, 2005 as
detailed in Note 7 to the unaudited consolidated interim financial
statements to which this MD&A relates. Critical Accounting
Estimates The preparation of the Company's consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent liabilities as at and
during the reported dates. By their nature these estimates are
subject to measurement uncertainty. The effect on the financial
statements of changes in such estimates in future periods could be
material and would be accounted for in the period a change occurs.
The Company's critical accounting estimates outlined in the
MD&A included in the Company's 2005 Annual Filings remain
unchanged at July 31, 2005. Change in Accounting Policies There
have been no changes in accounting policies and methods of their
application from the 2005 audited annual financial statements of
the Company. Related Party Transactions 1. In the course of its
regular business activities, the Company enters into routine
transactions with parties subject to significant influence by the
Company (most significantly Aero Contractors of Nigeria) and, as
well, parties affiliated with the controlling shareholder. These
transactions are measured at the amounts exchanged, which is the
amount of consideration determined and agreed to by the related
parties. Transactions with related parties for the three month
periods ended July 31, 2005 and 2004 are summarized as follows:
Three Months Ended --------------------------- July 31, July 31,
2005 2004
-------------------------------------------------------------------------
Revenues $ 14,198 $ 15,118
-------------------------------------------------------------------------
Direct costs $ 38 $ 349
-------------------------------------------------------------------------
Capital asset additions $ 1,434 $ 2,670
-------------------------------------------------------------------------
-------------------------------------------------------------------------
July 31, April 30, 2005 2005
-------------------------------------------------------------------------
Net amounts receivable in respect of such revenues, direct costs
and capital asset additions $ 17,115 $ 15,044
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2. 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
subordinate voting shares at $3.63 per share. The estimated value
of the loan proceeds attributable to the conversion feature of $1.0
million 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 $0.2
million (2005 - $0.2 million), including amortization of the above
noted discount, was recorded on the loan during the three month
period ended July 31, 2005. Contingent Liability The Company was
not able to deploy certain heavy aircraft in Norway, as specified
by contract, in the fourth quarter of the previous fiscal year and
in the first quarter of the current fiscal year due to the late
delivery of aircraft by the manufacturer. The customer believes it
is entitled to compensation for the late deployment of these
aircraft. The Company's interpretation of the contract is that no
compensation is payable. The customer and the Company continue with
discussions to resolve this issue however, the eventual outcome of
these discussions is currently unknown. Quarterly Information The
table below provides a summary of the Company's revenue, net
earnings from continuing operations, net earnings (loss), total
assets, total long term financial liabilities, cash dividends per
share, net earnings per share from continuing operations and net
earnings per share for each of the eight most recent quarters. Net
earnings from Net Total continuing earnings Total long-term Period
Revenue(1) operations (loss) assets liabilities
-------------------------------------------------------------------------
(in millions of Canadian dollars)
-------------------------------------------------------------------------
Q2-2004 $172.6 16.0 15.5 1,114.4 555.9 Q3-2004 $169.0 10.0 9.0
1,162.0 572.7 Q4-2004 $209.4 25.8 25.4 1,534.9 814.3 Q1-2005 $225.5
23.3 22.3 1,520.7 824.0 Q2-2005 $225.3 16.0 (1.3) 1,534.2 846.7
Q3-2005 $226.1 17.3 22.8 1,644.7 915.0 Q4-2005 $226.4 17.0 18.8
1,743.2 942.0 Q1-2006 $231.3 18.7 18.3 1,702.8 972.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash dividends Net earnings per share per share Net earnings Period
declared Continuing Operations (loss) per share
-------------------------------------------------------------------------
Basic Diluted Basic Diluted
-------------------------------------------------------------------------
Q2-2004 - 0.38 0.35 0.37 0.34 Q3-2004 0.25 0.24 0.22 0.23 0.20
Q4-2004 - 0.62 0.57 0.61 0.56 Q1-2005 - 0.56 0.51 0.53 0.49 Q2-2005
0.30 0.38 0.35 (0.03) (0.03) Q3-2005 - 0.41 0.38 0.55 0.50 Q4-2005
- 0.40 0.37 0.44 0.41 Q1-2006 - 0.45 0.41 0.44 0.40
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 and the
Company's equity accounted investments. Foreign exchange has had
significant impact on quarterly revenue levels on a year over year
basis. Quarterly revenues in fiscal 2006 and 2005, in comparison to
quarterly revenues for fiscal 2005 and 2004, have been impacted by
foreign exchange in the following amounts: Q1 - $19.4 million, Q2 -
$1.3 million, Q3 - $(3.4) million and Q4 - $(3.8) million.
Quarterly revenue net earnings from continuing operations and net
earnings in the table above were impacted by the following items
that affect their comparability: 1. In Q2 of fiscal 2005, the
Company incurred a tax asset reduction of $4.2 million relating to
a tax rate change in the Netherlands which increased income tax
expense by the same amount in the period. 2. In Q2 of fiscal 2005,
the Company recorded a fair value adjustment for Composites of
$14.3 million. 3. In Q3 of fiscal 2005, the Company incurred
net-of-tax gain on the sale of SAMCO and Schreiner Canada of $7.5
million included in discontinued operations. The remaining $1.1
million net-of-tax gain on the sale of SAMCO and Schreiner Canada
was incurred in Q4 of fiscal 2005. Summary financial data - U.S.
Dollars Certain summary financial data from the July 31, 2005
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, 2005 of
$1.2259 (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, 2005 2005
-------------------------------------------------------------------------
Revenue $ 188.7 $ 736.9 Operating income 27.2 107.1 Net earnings
from continuing operations 15.2 60.0 Net loss from discontinued
operations (0.3) (9.0) Net earnings 14.9 51.0 Per Share Information
Basic Net earnings from continuing operations $ 0.37 $ 1.43 Net
loss from discontinued operations (0.01) (0.21) Net earnings 0.36
1.22 Diluted Net earnings from continuing operations $ 0.33 $ 1.31
Net loss from discontinued operations (0.01) (0.20) Net earnings
0.32 1.11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CHC Helicopter Corporation Consolidated Balance Sheets Unaudited
(in thousands of Canadian dollars) Incorporated under the laws of
Canada As at --------------------------- July 31, April 30, 2005
2005
-------------------------------------------------------------------------
Assets Current assets Cash and cash equivalents $ 33,805 $ 51,391
Receivables 233,673 216,810 Future income tax assets 21,423 23,802
Inventory 203,891 216,513 Prepaid expenses 10,663 7,991 Assets of
discontinued operations (Note 2) 13,889 12,657
--------------------------- 517,344 529,164 Property and equipment,
net 816,608 851,210 Investments (Note 14) 59,892 58,806 Intangible
assets 6,113 6,499 Goodwill 7,550 8,861 Other assets 247,034
235,016 Future income tax assets 44,847 50,184 Assets of
discontinued operations (Note 2) 3,402 3,495
--------------------------- $ 1,702,790 $ 1,743,235
--------------------------- --------------------------- Liabilities
and shareholders' equity Current liabilities Payables and accruals
$ 167,308 $ 212,965 Deferred revenue and redelivery obligations
11,888 22,574 Dividends payable 3,201 6,404 Income taxes payable
28,616 23,628 Future income tax liabilities 215 705 Current portion
of debt obligations 23,358 26,812 Liabilities of discontinued
operations (Note 2) 2,186 2,153 --------------------------- 236,772
295,241 Long-term debt 168,672 97,543 Senior subordinated notes
490,360 502,760 Other liabilities 128,815 142,507 Future income tax
liabilities 181,656 195,692 Liabilities of discontinued operations
(Note 2) 3,325 3,493 Shareholders' equity 493,190 505,999
--------------------------- $ 1,702,790 $ 1,743,235
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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, 2005 2004
-------------------------------------------------------------------------
Revenue $ 231,345 $ 225,471 Direct costs (179,609) (172,313)
General and administration costs (6,176) (8,759) Amortization
(8,617) (7,800) Restructuring costs (Note 6) (3,735) (816) Gain on
disposals of assets 169 1,062 --------------------------- Operating
income 33,377 36,845 Debt settlement costs - (1,360) Financing
charges (Note 5) (12,041) (8,999) ---------------------------
Earnings from continuing operations before income taxes and
undernoted items 21,336 26,486 Non-controlling interest (3) -
Equity earnings of associated companies (Note 14) 3,179 3,092
Income tax provision (5,831) (6,312) ---------------------------
Net earnings from continuing operations 18,681 23,266 Net loss from
discontinued operations (Note 2) (428) (923)
--------------------------- Net earnings $ 18,253 $ 22,343
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share (Note 8) 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 Net earnings from
continuing operations $ 0.41 $ 0.51 Net loss from discontinued
operations (0.01) (0.02) Net earnings 0.40 0.49
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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, 2005 2004
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 279,620 $ 229,866 Net
earnings 18,253 22,343 --------------------------- Retained
earnings, end of period 297,873 252,209 Capital stock (Note 7)
239,525 239,161 Contributed surplus 3,446 3,291 Foreign currency
translation adjustment (47,654) (30,904)
--------------------------- Total shareholders' equity $ 493,190 $
463,757
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes CHC Helicopter Corporation Consolidated
Statements of Cash Flows Unaudited (in thousands of Canadian
dollars) Three Months Ended --------------------------- July 31,
July 31, 2005 2004
-------------------------------------------------------------------------
Operating activities Net earnings from continuing operations $
18,681 $ 23,266 Non-operating items and items not involving cash:
Amortization 8,617 7,800 Amortization of major components recorded
as operating expense 15,961 16,991 Gain on disposals of assets
(169) (1,062) Equity in earnings of associated companies (3,179)
(3,092) Future income taxes (541) 1,672 Defined benefit pension
plans 4,486 4,452 Amortization of contract credits and deferred
gains (3,099) (2,800) Non-cash financing charges 559 842 Advance
aircraft rental payments 388 (8,038) Other 4,551 503
--------------------------- 46,255 40,534 Change in non-cash
working capital (56,073) (14,509) --------------------------- Cash
flow from operations (9,818) 26,025 ---------------------------
Financing Activities Long-term debt proceeds 85,431 36,458
Long-term debt repayments (6,719) (20,227) Dividends paid (3,203)
(2,663) Capital stock issued 55 733 Deferred financing costs 174
(176) Other - (2,083) --------------------------- 75,738 12,042
--------------------------- Investing activities Property and
equipment additions (24,182) (86,865) Helicopter major inspections
(1,028) (4,028) Helicopter components (12,749) (18,908) Proceeds
from disposal of assets 17 59,935 Aircraft deposits (41,227)
(12,497) Restricted cash (1,336) 6,014 Other 1,248 (5,202)
--------------------------- (79,257) (61,551)
--------------------------- Effect of exchange rate changes on cash
and cash equivalents (2,280) (266) --------------------------- Cash
used in continuing operations (15,617) (23,750) Cash provided by
(used in) discontinued operations (Note 2) (1,969) 223
--------------------------- Change in cash and cash equivalents
during the period (17,586) (23,527) Cash and cash equivalents,
beginning of period 51,391 61,079 --------------------------- Cash
and cash equivalents, end of period $ 33,805 $ 37,552
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes CHC Helicopter Corporation Notes to the
Unaudited Consolidated Interim Financial Statements (Unaudited) For
the periods ended July 31, 2005 and 2004 (Unless otherwise
indicated, tabular amounts in thousands of Canadian dollars, except
per share amounts) 1. Basis of presentation These unaudited,
interim, consolidated financial statements include the accounts of
CHC Helicopter Corporation and its directly and indirectly
controlled subsidiaries (collectively, the "Company"). These
statements have been prepared in accordance with Canadian generally
accepted accounting principles ("GAAP") applicable to interim
consolidated financial statements and are in accordance with
generally accepted accounting principles in the United States
("U.S. GAAP") except as described in Note 13. The disclosures in
these interim financial statements do not meet all disclosure
requirements of generally accepted accounting principles for annual
financial statements and should be read in conjunction with the
Company's 2005 audited annual consolidated financial statements.
These interim financial statements follow the same accounting
policies and methods of application as the annual financial
statements of the Company. In the opinion of Management, all
adjustments necessary for a fair presentation are reflected in the
interim consolidated financial statements. Such adjustments are of
a normal and recurring nature. Financial results for the three
months ended July 31, 2005 are not necessarily indicative of
financial results for the full year. Certain prior period amounts
have been reclassified to conform to the current period's
presentation. The most significant changes are to the Company's
segmented reporting due to the current restructuring (Note 3) and
discontinued operations (Note 2).
-------------------------------------------------------------------------
2. Discontinued operations During the third quarter of fiscal 2005
the Company sold two non-core components of the Schreiner group of
companies legally operating as Schreiner Canada Ltd. ("Schreiner
Canada") and Schreiner Aircraft Maintenance B.V. ("SAMCO") and
realized a net gain on sale of $8.6 million. The potential sale of
the remaining business held for sale, CHC Composites Inc.
("Composites"), to any potential acquirer will be contingent on the
acceptance of certain terms and conditions by the Government of
Newfoundland and Labrador. The sale of Composites has not yet been
consummated and therefore the disposal has not been reflected in
these statements nor have the long-term assets and liabilities of
this business been reclassified as current at July 31, 2005. The
assets and liabilities of this business were measured using
discounted future cash flows at the lower of their carrying amounts
and their estimated fair value less costs to sell. As a result, a
fair value adjustment of $14.3 million was recorded in Q2 of the
prior fiscal year and allocated to property and equipment ($11.4
million) and other long-term assets ($2.9 million) of this
business. This fair value estimate is subject to adjustment as the
sale of this remaining business is consummated or as assumptions
used in the valuation change. The operating results from these
discontinued businesses have been recorded in earnings from
discontinued operations, up to the date of disposition. Operating
results from discontinued businesses include imputed interest on
debt assumed by the buyer or required to be repaid as a result of
the proposed disposal transaction. The following tables present the
consolidated balance sheets and consolidated statements of earnings
of discontinued operations included in the consolidated financial
statements: As at --------------------------- July 31, April 30,
2005 2005
-------------------------------------------------------------------------
Assets Receivables $ 6,121 $ 5,455 Inventory 7,371 6,804 Prepaid
expenses 397 398 --------------------------- 13,889 12,657 Property
and equipment, net 3,402 3,495 --------------------------- 17,291
16,152 --------------------------- Liabilities Payables and
accruals 2,186 2,153 Other liabilities 3,325 3,493
--------------------------- 5,511 5,646 ---------------------------
Net assets of discontinued operations $ 11,780 $ 10,506
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended --------------------------- July 31, July 31,
2005 2004
-------------------------------------------------------------------------
Revenue from discontinued operations $ 3,009 $ 7,373
--------------------------- Operating loss from discontinued
operations $ (428) $ (1,290) --------------------------- Net loss
from discontinued operations $ (428) $ (923)
---------------------------
-------------------------------------------------------------------------
3. Segment information On May 1, 2005, as a result of a
restructuring, the Company's operating segments were revised to
reflect the current operating and management structure. The Company
now operates under the following segments: - Global Operations, -
European Operations, - Heli-One, and - Corporate and Other. This
new segment classification is representative of the Company's
current business strategy and reflects the Company's revised
internal reporting practices. 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. Transactions
between operating segments are at standard industry rates. Three
Months Ended July 31, 2005
------------------------------------------------------------ Inter-
Global European Corporate segment Operations Operations Heli-One
and Other elimi- Consoli- (4) (5) (6) (7) nations dated ---------
--------- --------- --------- --------- ---------- Revenue from
external customers $ 76,824 $120,915 $ 33,552 $ 54 $ - $ 231,345
Inter-segment revenues 319 2,102 90,258 91 (92,770) - ---------
--------- --------- --------- --------- ---------- Total revenue
77,143 123,017 123,810 145 (92,770) 231,345 Direct costs(1)
(55,358) (96,105) (68,439) - 55,692 (164,210) General and
administration costs - - - (6,176) - (6,176) --------- ---------
--------- --------- --------- ---------- Segment EBITDAR(2) 21,785
26,912 55,371 (6,031) (37,078) 60,959 Aircraft lease and associated
costs(1) - Internal (18,026) (18,322) (608) (122) 37,078 - -
External (1,817) (239) (13,343) - - (15,399) --------- ---------
--------- --------- --------- ---------- Segment EBITDA(3) 1,942
8,351 41,420 (6,153) - 45,560 Amortization (931) (1,345) (6,048)
(293) - (8,617) Restructuring costs (443) (345) (990) (1,957) -
(3,735) Gain (loss) on disposal of assets (11) 1 189 (10) - 169
--------- --------- --------- --------- --------- ----------
Operating income (loss) $ 557 $ 6,662 $ 34,571 $ (8,413) $ - 33,377
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- Financing charges (12,041)
---------- Earnings from continuing operations before income taxes
and undernoted items 21,336 Non-controlling interest (3) Equity
earnings of associated companies 3,179 Income tax provision (5,831)
---------- Net earnings from continuing operations 18,681 Net loss
from discontinued operations (428) ---------- Net earnings $ 18,253
---------- ---------- Three Months Ended July 31, 2004(8)
------------------------------------------------------------ Inter-
Global European Corporate segment Operations Operations Heli-One
and Other elimi- Consoli- (4) (5) (6) (7) nations dated ---------
--------- --------- --------- --------- ---------- Revenue from
external customers $ 71,161 $125,029 $ 29,213 $ 68 $ - $ 225,471
Inter-segment revenues - 3,213 90,080 638 (93,931) - ---------
--------- --------- --------- --------- ---------- Total revenue
71,161 128,242 119,293 706 (93,931) 225,471 Direct costs(1)
(51,608) (99,406) (63,840) - 57,113 (157,741) General and
administration costs - - - (8,759) - (8,759) --------- ---------
--------- --------- --------- ---------- Segment EBITDAR(2) 19,553
28,836 55,453 (8,053) (36,818) 58,971 Aircraft lease and associated
costs(1) - Internal (15,174) (21,644) - - 36,818 - - External
(1,910) - (12,662) - - (14,572) --------- --------- ---------
--------- --------- ---------- Segment EBITDA(3) 2,469 7,192 42,791
(8,053) - 44,399 Amortization (963) (1,386) (5,153) (298) - (7,800)
Restructuring costs - - - (816) - (816) Gain on disposal of assets
- - 1,062 - - 1,062 --------- --------- --------- ---------
--------- ---------- Operating income (loss) $ 1,506 $ 5,806 $
38,700 $ (9,167) $ - 36,845 --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- Debt
settlement costs (1,360) Financing charges (8,999) ----------
Earnings from continuing operations before income taxes and
undernoted items 26,486 Equity earnings of associated companies
3,092 Income tax provision (6,312) ---------- Net earnings from
continuing operations 23,266 Net loss from discontinued operations
(923) ---------- Net earnings $ 22,343 ---------- ---------- Notes:
1. Direct costs in this note exclude aircraft lease and associated
costs. In the consolidated income statement these costs are
combined. 2. Segment EBITDAR is defined as segment EBITDA before
lease and aircraft lease and associated costs. 3. Segment EBITDA is
defined as segment earnings before amortization, restructuring
costs, gain (loss) on disposals of assets, debt settlement costs,
financing charges, non-controlling interest, equity in earnings of
associated companies, and income tax provision. 4. Global
Operations - includes flying operations in Australia, Africa, the
Middle East, the Americas and Asia. 5. European Operations -
includes flying operations in the U.K., Netherlands, Norway,
Ireland and Denmark, as well as emergency medical services and
search and rescue services throughout Europe. 6. Heli-one -
includes helicopter lease and repair and overhaul operations based
in Norway, the U.K., and Canada and the survival suit and safety
equipment production businesses. 7. Corporate and other - includes
corporate offices costs in various jurisdictions. 8. Comparative
information has been reclassified to reflect the results of
discontinued operations (Note 2) and the change in the Company's
operating segments. Comparative figures have also been restated to
reflect segment results as if certain lease, Power-by-the-hour
("PBH") and associated transactions between the Company's segments
had occurred for the comparative 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. After giving effect to this
restatement the Company's consolidated results remain unchanged as
the restatement relates only to internal and eliminated
transactions.
-------------------------------------------------------------------------
4. Employee pension plans The Company's net defined benefit pension
plan expense was as follows: Three Months Ended
--------------------------- July 31, July 31, 2005 2004
--------------------------- Current service cost $ 4,784 $ 5,156
Interest cost 7,473 7,622 Expected return on plan assets (7,209)
(7,379) Amortization of net actuarial and experience losses 2,512
2,083 Amortization of prior service costs (6) 153 Amortization of
transition amounts 12 123 Participation contributions (667) (901)
--------------------------- Total $ 6,899 $ 6,857
---------------------------
-------------------------------------------------------------------------
5. Financing charges Three Months Ended ---------------------------
July 31, July 31, 2005 2004 --------------------------- Interest on
debt obligations $ 10,825 $ 8,191 Amortization of deferred
financing costs 617 738 Foreign exchange loss from operating
activities and working capital revaluations 1,359 193 Foreign
exchange loss (gain) on revaluation of long-term debt (775) 37
Other interest and expenses 15 (160) ---------------------------
Total $ 12,041 $ 8,999 ---------------------------
-------------------------------------------------------------------------
6. Restructuring costs During the three months ended July 31, 2005,
the Company expensed restructuring costs of $3.7 million (2005 -
$0.8 million) in connection with restructuring activities.
Restructuring costs were comprised 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. Of
the $3.7 million expensed in the three-month period, $1.5 million
relates to severance and termination costs. Additional costs are
expected to be expensed in relation to these restructuring
initiatives with the majority of future costs relating to
termination, severance, consulting, foreign exchange losses and
derivative cancellation costs. The timing and final amount of these
additional costs are dependent on a number of factors that are not
yet fully known or determinable and will be expensed in future
periods. The following table provides a reconciliation of the
Company's restructuring cost accrual for the three months ended
July 31, 2005: Restructuring Costs
-------------------------------------------------------------------------
Accrual at April 30, 2005 $ 7,678 Expensed during the three months
ended July 31, 2005 3,735 Paid during the three months ended July
31, 2005 (5,125) ------------- Accrual at July 31, 2005 $ 6,288
------------- -------------
-------------------------------------------------------------------------
7. 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
Consideration ------------------------- -------------------------
July 31, April 30, July 31, April 30, 2005 2005 2005 2005
------------------------- ------------------------- Issued: Class A
subordinate voting shares 36,837 36,833 $ 222,727 $ 222,727 Class B
multiple voting shares 5,866 5,866 18,431 18,431 Ordinary shares
22,000 22,000 33,000 33,000 Ordinary share loan - - (33,000)
(33,000) Class A subordinate voting shares Employee purchase loans
(1,633) (1,689) ------------------------- $ 239,525 $ 239,469
------------------------- Contributed surplus $ 3,446 $ 3,291
------------------------- ------------------------- Class A
subordinate voting shares that would be issued upon conversion of
the following: Class B multiple voting shares 5,866 5,866 Share
options 3,825 2,815 Convertible debt 1,379 1,379
------------------------------------------------------------------------
8. Per share information Three Months Ended July 31, 2005
-------------------------------------------------------- Weighted
average Net earnings Net earnings number per share
----------------------- of ------------------------ Cont. Disc.
shares Cont. Disc. ops. ops. Total (000's) ops. ops. Total
-------------------------------------------------------- $18,681 $
(428) $18,253 42,701 Shares as security for Class A subordinate
voting share employee purchase loans (729)
------------------------------- Basic 18,681 (428) 18,253 41,972 $
0.45 $(0.01) $ 0.44 Effect of potential dilutive securities: Share
options 2,042 Convertible debt 97 - 97 1,379 Shares as security for
Class A subordinate voting share employee purchase loans 729
-------------------------------------------------------- Diluted
$18,778 $ (428) $18,350 46,122 $ 0.41 $(0.01) $ 0.40
--------------------------------------------------------
-------------------------------------------------------- Three
Months Ended July 31, 2004(1)
-------------------------------------------------------- Weighted
average Net earnings Net earnings number per share
----------------------- of ------------------------ Cont. Disc.
shares Cont. Disc. ops. ops. Total (000's) ops. ops. Total
-------------------------------------------------------- $23,266 $
(923) $22,343 42,640 Shares as security for Class A subordinate
voting share employee purchase loans (736)
------------------------------- Basic 23,266 (923) 22,343 41,904 $
0.56 $(0.03) $ 0.53 Effect of potential dilutive securities: Share
options 1,820 Convertible debt 97 - 97 1,379 Shares as security for
Class A subordinate voting share employee purchase loans 736
-------------------------------------------------------- Diluted
$23,363 $ (923) $22,440 45,839 $ 0.51 $(0.02) $ 0.49
--------------------------------------------------------
-------------------------------------------------------- (1)
Comparative share information has been adjusted to reflect the
April 2005 2-for-1 stock split. There were 22 million ordinary
shares outstanding at July 31, 2005 and at April 30, 2005, all of
which are owned by the Company's majority shareholder. The payment
of dividends on these ordinary shares requires minority shareholder
approval which has never been requested or granted. 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.
-------------------------------------------------------------------------
9. Related party transactions a) In the course of its regular
business activities, the Company enters into routine transactions
with parties subject to significant influence by the Company (most
significantly Aero Contractors of Nigeria) and, as well, parties
affiliated with the controlling shareholder. These transactions are
measured at the amounts exchanged, which is the amount of
consideration determined and agreed to by the related parties.
Transactions with related parties for the three-month periods ended
July 31, 2005 and 2004 are summarized as follows: Three Months
Ended --------------------------- July 31, July 31, 2005 2004
---------------------------------------------------------------------
Revenues $ 14,198 $ 15,118
---------------------------------------------------------------------
Direct costs $ 38 $ 349
---------------------------------------------------------------------
Capital asset additions $ 1,434 $ 2,670
---------------------------------------------------------------------
---------------------------------------------------------------------
July 31, April 30, 2005 2005
---------------------------------------------------------------------
Net amounts receivable in respect of such revenues, direct costs
and capital asset additions $ 17,115 $ 15,044
---------------------------------------------------------------------
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b) 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
subordinate voting shares at $3.63 per share. The estimated value
of the loan proceeds attributable to the conversion feature of $1.0
million 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 $0.2
million (2005 - $0.2 million), including amortization of the above
noted discount, was recorded on the loan during the three month
period ended July 31, 2005.
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10. Supplementary cash flow information Cash interest paid during
the quarter was $14.7 million (2005 - $2.5 million) and cash taxes
paid was $1.9 million (2005 - $2.7 million).
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11. 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 obligations 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 relating to a
portion of the aircraft values at the termination of the leases.
The leases have terms expiring between 2006 and 2013. The Company's
exposure under the asset value guarantees including guarantees in
the form of junior loans, loans receivable and deferred payments is
approximately $50.1 million at July 31, 2005 compared to $51.9
million at April 30, 2005. 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.
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12. Contingent liability The Company entered into a contract that
required the deployment of new aircraft during the fourth quarter
of the prior fiscal year. This contract commitment was not met due
to the late delivery of the aircraft by the manufacturer. The
Company was able to substitute aircraft to meet the customer's
flying needs. However, the customer believes it is entitled to
compensation for the delay. The Company's interpretation of the
contract is that no compensation is payable. The customer and the
Company continue with discussions to resolve this issue however,
the potential outcome and amount of any settlement are presently
unknown. As a result, no amounts have been accrued in relation to
this issue as at July 31, 2005.
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13. 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,
2005 2004
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Net earnings according to Canadian GAAP $ 18,253 $ 22,343
Pre-operating expenses 1,187 (433) Tax impact of pre-operating
expenses (398) 257 Gain on derivative instruments and hedging
activities 23,378 3,327 Tax impact of gain on derivative
instruments and hedging activities (4,063) (444) Internal use
software expenses 80 (94) Tax impact of internal use software
expenses (25) 43 Amortization of guarantees recognized (202) (144)
Tax impact of amortization of guarantees recognized 55 75 Other,
net of tax 11 16 --------------------------- Net earnings according
to U.S. GAAP 38,276 24,946 Other comprehensive earnings, net of
income tax Foreign currency translation adjustment (50,770)
(22,274) Minimum pension liability adjustment 18,798 (28,318) Tax
impact of minimum pension liability adjustment (5,744) 8,458
Foreign currency cash flow hedge adjustment 3,151 (1,241) Tax
impact of foreign currency cash flow hedge adjustment (1,151) 339
Other, net of tax 381 206 --------------------------- Comprehensive
earnings (loss) according to U.S. GAAP $ 2,941 $ (17,884)
--------------------------- --------------------------- Net
earnings per share according to U.S. GAAP Basic $ 0.91 $ 0.60
--------------------------- --------------------------- Diluted $
0.83 $ 0.55 --------------------------- ---------------------------
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, 2005 balance sheet are listed below: -
Current assets would decrease by $7.3 million to record the current
prepaid portion of asset value guarantees and the fair value impact
of forward foreign currency contracts. - Property and equipment
would increase by $1.1 million to record acquisition and
amortization differences. - Long-term investments would increase by
$2.1 million to adjust available-for-sale securities to fair market
value. - Other assets would decrease by $27.9 million to recognize
minimum pension liability adjustment and the pre-operating costs
adjustment, offset by the prepaid portion of asset value
guarantees. - Future income tax assets would increase by $15.3
million to tax-effect adjustments to net earnings and comprehensive
earnings under U.S. GAAP. - Current liabilities would decrease by
$5.9 million to recognize the fair value impact of the foreign
currency contracts. - Other liabilities would increase by $47.3
million to recognize the minimum pension liability adjustment,
foreign currency translation adjustments related to hedged
long-term debt and currency swaps recorded in comprehensive
earnings, asset value guarantees, and foreign currency indemnity
agreements. - Future income tax liabilities would decrease by $8.3
million to tax- effect adjustments to net earnings and
comprehensive income under U.S. GAAP. - Long-term debt would
increase by $0.4 million to record the full proceeds received from
the issuance of convertible debt, and contributed surplus would
decrease by $1.0 million. - Foreign currency translation adjustment
would be eliminated and accumulated other comprehensive losses
would be recorded at $109.9 million under U.S. GAAP for foreign
currency translation, minimum pension liability, foreign currency
cash flow hedges and other adjustments.
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14. Subsequent event On September 9, 2005 the Company sold its
remaining interest in Canadian Helicopters Limited ("CHL") and
realized net proceeds of approximately $48.3 million. The Company
will record a combined pre-tax gain and dividend income of
approximately $20 million on this divestiture. 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 sale. Equity
earnings of CHL were $1.7 million for the first quarter of the
current fiscal year and the carrying value of the investment in CHL
was $28.3 million at July 31, 2005.
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END FIRST AND FINAL ADD DATASOURCE: CHC Helicopter Corporation
CONTACT: PR Newswire -- Sept. 13
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