/FIRST AND FINAL ADD - TO071 - CHC Helicopter Corporation earnings/
CHC Helicopter Corporation Notes to the Unaudited Consolidated
Interim Financial Statements For the periods ended October 31, 2004
and 2003 (Unless otherwise indicated, tabular amounts in thousands
of Canadian dollars, except per share amounts) 1. Basis of
presentation These unaudited consolidated interim financial
statements (the "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 ("Canadian GAAP") and are in accordance with
generally accepted accounting principles in the United States
("U.S. GAAP") except as described in Note 18. Not all disclosures
required by Canadian GAAP and U.S. GAAP for annual financial
statements are presented and thus the Statements should be read in
conjunction with the Company's annual audited consolidated
financial statements. In the opinion of management, any adjustments
considered necessary for a fair presentation have been included.
The Statements follow the same accounting policies and methods of
application as the most recent annual audited consolidated
financial statements for the fiscal year ended April 30, 2004,
except as disclosed in Note 2 with respect to hedging relationships
and derivatives. Financial results for the six months ended October
31, 2004 are not necessarily indicative of financial results for
the full year.
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2. Change in accounting policies Hedging relationships and
derivatives Effective May 1, 2004, the Company prospectively
adopted the new Canadian Accounting Guideline, AcG-13, with respect
to hedging relationships as it relates to the identification,
designation, documentation and effectiveness of hedging
relationships for the purpose of applying hedge accounting. The
Company also adopted at May 1, 2004, the Canadian Emerging Issues
Committee Abstract 128 ("EIC-128"). Under EIC-128, if a derivative
financial instrument is not part of a qualifying hedging
relationship, the Company is required to record such instrument on
the balance sheet at fair value, with changes in fair value
recognized in current earnings. The Company has not applied AcG-13
or EIC-128 retroactively.
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3. Change in accounting estimates Effective May 1, 2004, based on
the Company's review of its amortization policy with respect to
aircraft airframes, the percentage of aircraft cost attributable to
certain airframes has been decreased from 30% to 25% and the
estimated useful life of such airframes has been increased from 15
years to 25 years. The effect of these accounting estimate changes
has been accounted for prospectively in fiscal 2005 resulting in a
decrease in amortization for the three and six months ended October
31, 2004 of $0.8 million and $1.6 million respectively.
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4. Comparative figures Certain comparative figures have been
reclassified to conform to the current period's presentation. The
most significant changes include: (i) The reclassification of $52.4
million of inventory at April 30, 2004 to property and equipment.
This reclassification relates to certain inventory items on hand in
the Company's repair and overhaul segment that are intended to be
used and capitalized with respect to future inter-company major
repair and overhaul work; and (ii) The reclassification in the
consolidated statements of cash flows for the three and six months
ended October 31, 2003 of the $14.7 million and $33.7 million
respectively non-cash impact of the amortization of major
components recorded as operating expense from 'helicopter
components' in investing activities to items not involving cash in
operating activities. (iii) The comparative consolidated balance
sheet, statement of earnings and cash flow have been reclassified
to reflect the results of businesses held for sale (discontinued
operations) consistent with the current years presentation (Note
8).
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5. Variable interest entities At October 31, 2004 the Company
operated 21 aircraft under operating leases with eight entities
that would be considered variable interest entities ("VIEs") under
U.S. GAAP. These leases have terms and conditions similar to those
of the Company's other operating leases over periods ranging from
2005 to 2011. At April 30, 2003 U.S. GAAP (per FASB Interpretation
No. 46 ("FIN 46")), was effective for all VIEs created after
January 31, 2003 and was effective for those VIEs created prior to
January 31, 2003 for the Company's interim period which commenced
November 1, 2003. The Canadian guidance applies to all annual and
interim periods beginning on or after November 1, 2004. Canadian
guidance on this issue (AcG-15) is essentially consistent with the
provisions contained in U.S. GAAP with regard to the disclosure and
consolidation requirements for VIEs. As at October 31, 2004, under
FIN 46 and the revisions under FIN 46-R, the Company has concluded
it is not the primary beneficiary of any of the aforementioned VIEs
and that it is not required to consolidate any of these VIEs in its
consolidated financial statements. The application of FIN 46 and
FIN 46-R has not had any impact on the Company's consolidated
financial statements. Based on appraisals by independent helicopter
valuation companies as at April 30, 2004, the estimated fair market
value of the aircraft leased from VIEs is $194.0 million as at
October 31, 2004. The Company has provided junior loans, advance
rentals and asset value guarantees in connection with operating
leases with these VIEs. The Company's maximum exposure to loss
related to the junior loans and asset value guarantees as a result
of its involvement with the VIEs is $10.0 million as at October 31,
2004.
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6. Cash flow information Cash interest paid and cash taxes paid
were as follows: Three Months Ended Six Months Ended
--------------------------------------- October October October
October 31, 2004 31, 2003 31, 2004 31, 2003
--------------------------------------- Cash interest paid $ 3,133
$ 5,947 $ 5,674 $ 15,632 Cash taxes paid $ 2,646 $ 3,469 $ 5,370 $
4,869
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7. Acquisitions On August 17, 2004 the Company acquired 100% of the
shares of Multifabs Survival Ltd. ("Multifabs"), an Aberdeen based
company specializing in the production of cold-water survival suits
for military forces, emergency services and offshore oil and gas
companies around the world. On September 23, 2004 the Company also
acquired a majority of the shares of Aero Turbine Support Ltd.
("ATSL"), an independent aircraft engine repair and overhaul
company servicing General Electric CT58/T58 and Pratt & Whitney
Canada, PT6T turboshaft engines. The total purchase price to
acquire these companies was $18.3 million, including the assumption
of debt and was financed through current operating facilities.
These acquisitions were accounted for using the purchase method
with results of operations included in the consolidated financial
statements from the acquisition dates. Under the purchase method of
accounting, the total estimated purchase price is allocated to the
assets acquired and liabilities assumed based on their estimated
fair market values as of the date of the completion of the
acquisition. The following purchase price allocation is preliminary
and has been allocated based on an estimate of the fair market
values of the assets acquired and the liabilities assumed. The
purchase price will remain preliminary until (i) a third party
valuation of property and equipment, investments and significant
intangible assets acquired is completed, (ii) a detailed review of
the future income tax assets and liabilities is conducted, and
(iii) the fair value of other assets and liabilities acquired is
evaluated. The final determination of the purchase price allocation
may differ significantly from the preliminary amounts presented.
Based on the preliminary valuation, the purchase price was
allocated based on the fair value of the net identifiable assets
acquired as at the date of acquisition as follows: Multifabs ATSL
Total
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Cash $ 4 $ 860 $ 864 Other current assets 4,730 1,343 6,073
Intangible assets(1) 5,691 - 5,691 Goodwill(2) 7,668 542 8,210
Property and equipment 1,810 1,615 3,425 Current liabilities
(2,108) (1,083) (3,191) Long-term debt (2,498) - (2,498) Other
liabilities (670) - (670) Non-controlling interest - (240) (240)
Future income tax liabilities (1,490) (337) (1,827)
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$ 13,137 $ 2,700 $ 15,837
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(1) Of the $5.7 million of acquired intangible assets, $2.9 million
was assigned to customer contracts and relationships, $2.2 million
for patents and registered designs and $0.6 million for trademarks
and trade names. The intangible assets will be amortized on a
straight- line basis over their estimated useful lives ranging from
8 - 15 years. (2) Goodwill of $8.2 million is not expected to be
deductible for tax purposes and is related to businesses included
in the Repair and overhaul segment.
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8. Businesses held for sale (discontinued operations) The Company
has entered into separate agreements to sell its composites
business segment CHC Composites Inc. ("Composites") and non-core
components of the Schreiner business segment legally operating as
Schreiner Target Services Canada Ltd. ("Schreiner Canada") and
Schreiner Aircraft Maintenance B.V. ("SAMCO"). Total proceeds
expected from these divestitures are estimated at $18.1 million
consisting of $13.9 million of cash and $4.2 million of non-cash
consideration. The combined net asset value of the businesses held
for sale (discontinued operations) at October 31, 2004 was $10.6
million. Total proceeds and any resulting gain or loss on sale will
be impacted by closing date working capital, net total debt and
other adjustments. The sale of these businesses has not yet been
consummated and therefore the disposals have not been reflected in
these statements nor have the discontinued businesses long-term
assets and liabilities been reclassified as current at October 31,
2004. The assets and liabilities of these businesses are measured
at the lower of their carrying amount and their estimated fair
value less costs to sell which has been benchmarked against sale
proceeds estimated from the current proposed sales transactions. As
a result, a fair value adjustment of $16.8 million, which includes
$11.3 million allocated to property and equipment, has been
recorded in the second quarter of the current year. This adjustment
has been recorded in earnings from discontinued operations along
with operating results from these discontinued businesses,
including imputed interest on debt assumed by the buyer or required
to be repaid as a result of the proposed disposal transactions. The
following tables present the consolidated balance sheets and
consolidated statements of losses of the businesses held for sale
(discontinued operations) included in the consolidated financial
statements: As at ------------------- October April 31, 2004 30,
2004
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Assets Receivables $ 10,327 $ 10,138 Future income tax assets 5,819
6,139 Inventory 12,771 11,782 Prepaid expenses 723 878
------------------- 29,640 28,937 Property and equipment, net 6,481
18,789 Intangible assets 4,458 4,678 Future income tax assets -
3,046 ------------------- Total assets of discontinued operations
40,579 55,450 ------------------- Liabilities Payables and accruals
24,685 23,856 Other liabilities 3,681 4,172 Future income tax
liabilities 1,612 1,708 ------------------- Total liabilities of
discontinued operations 29,978 29,736 ------------------- Net
assets of discontinued operations $ 10,601 $ 25,714
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Three Months Ended Six Months Ended
--------------------------------------- October October October
October 31, 2004 31, 2003 31, 2004 31, 2003
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Revenue $ 7,221 $ 1,353 $ 14,594 $ 2,841 Operating expenses 7,294
1,753 15,204 3,967 ---------------------------------------- Loss
before undernoted items (73) (400) (610) (1,126) Amortization (448)
(137) (899) (229) Financing charges (295) (87) (593) (174)
---------------------------------------- Loss before income taxes
(816) (624) (2,102) (1,529) Income tax recovery 243 137 606 336
---------------------------------------- (573) (487) (1,496)
(1,193) Fair value adjustment (16,783) - (16,783) -
---------------------------------------- Net loss from discontinued
operations $(17,356) $ (487) $(18,279) $ (1,193)
---------------------------------------
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9. Segment information The Company's operations are segregated into
five reportable segments. The segments are European flying,
International flying, Schreiner, Repair and overhaul and Corporate
and other. Three Months Ended October 31, 2004
----------------------------------------------------------- Repair
Corporate European Int'l and and flying flying Schreiner overhaul
other (2) (3) (4) (5) (6) Total --------- --------- ---------
--------- --------- --------- Total revenue $115,282 $ 60,163 $
39,414 $ 53,106 $ 4,125 $272,090 Less: Inter- segment revenues
(5,188) (3,097) - (34,381) (4,125) (46,791) --------- ---------
--------- --------- --------- --------- Revenue from external
customers 110,094 57,066 39,414 18,725 - 225,299 Operating expenses
89,915 45,665 30,076 9,027 7,727 182,410 --------- ---------
--------- --------- --------- --------- Segment EBITDA(1) $ 20,179
$ 11,401 $ 9,338 $ 9,698 $ (7,727) 42,889 --------- ---------
--------- --------- --------- --------- --------- ---------
--------- --------- Amortization (6,602) Loss on disposals of
assets (10) Financing charges (9,220) Equity in earnings of
associated companies 2,774 Restructuring and debt settlement costs
(4,138) --------- Earnings before income taxes from continuing
operations 25,693 Income tax provision (9,680) --------- Net
earnings from continuing operations $ 16,013 --------- ---------
Three Months Ended October 31, 2003
----------------------------------------------------------- Repair
Corporate European Int'l and and flying flying Schreiner overhaul
other (2) (3) (4) (5) (6) Total(7) --------- --------- ---------
--------- --------- --------- Total revenue $115,822 $ 49,540 $ - $
46,310 $ 3,414 $215,086 Less: Inter- segment revenues (4,253)
(2,830) - (31,892) (3,414) (42,389) --------- --------- ---------
--------- --------- --------- Revenue from external customers
111,569 46,710 - 14,418 - 172,697 Operating expenses 93,128 40,144
- 2,866 6,428 142,566 --------- --------- --------- ---------
--------- --------- Segment EBITDA(1) $ 18,441 $ 6,566 $ - $ 11,552
$ (6,428) 30,131 --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- Amortization
(6,057) Loss on disposals of assets (493) Financing charges (4,111)
Equity in earnings of associated companies 2,446 Restructuring and
debt settlement costs (2,536) --------- Earnings before income
taxes from continuing operations 19,380 Income tax provision
(3,400) --------- Net earnings from continuing operations $ 15,980
--------- --------- Six Months Ended October 31, 2004
----------------------------------------------------------- Repair
Corporate European Int'l and and flying flying Schreiner overhaul
other (2) (3) (4) (5) (6) Total --------- --------- ---------
--------- --------- --------- Total revenue $237,173 $119,570 $
80,932 $101,445 $ 9,133 $548,253 Less: Inter- segment revenues
(11,474) (7,058) (69,818) (9,133) (97,483) --------- ---------
--------- --------- --------- --------- Revenue from external
customers 225,699 112,512 80,932 31,627 - 450,770 Operating
expenses 183,600 92,108 63,867 11,653 12,254 363,482 ---------
--------- --------- --------- --------- --------- Segment EBITDA(1)
$ 42,099 $ 20,404 $ 17,065 $ 19,974 $(12,254) 87,288 ---------
--------- --------- --------- --------- --------- ---------
--------- --------- --------- Amortization (14,402) Gain on
disposals of assets 1,053 Financing charges (18,215) Equity in
earnings of associated companies 5,867 Restructuring and debt
settlement costs (6,314) --------- Earnings before income taxes
from continuing operations 55,277 Income tax provision (15,992)
--------- Net earnings from continuing operations $ 39,285
--------- --------- Six Months Ended October 31, 2003
----------------------------------------------------------- Repair
Corporate European Int'l and and flying flying Schreiner overhaul
other (2) (3) (4) (5) (6) Total(7) --------- --------- ---------
--------- --------- --------- Total revenue $231,196 $ 95,821 $ - $
89,270 $ 6,565 $422,852 Less: Inter- segment revenues (7,628)
(5,494) - (61,532) (6,565) (81,219) --------- --------- ---------
--------- --------- --------- Revenue from external customers
223,568 90,327 - 27,738 - 341,633 Operating expenses 185,068 77,170
- 7,995 12,446 282,679 --------- --------- --------- ---------
--------- --------- Segment EBITDA(1) $ 38,500 $ 13,157 $ - $
19,743 $(12,446) 58,954 --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Amortization (11,654) Gain on disposals of assets 598 Financing
charges (10,905) Equity in earnings of associated companies 3,776
Restructuring and debt settlement costs (3,816) --------- Earnings
before income taxes from continuing operations 36,953 Income tax
provision (6,539) --------- Net earnings from continuing operations
$ 30,414 --------- --------- Notes: 1. Segment EBITDA is defined as
segment earnings before amortization, gain (losses) on disposals of
assets, financing charges, equity in earnings (losses) of
associated companies, restructuring and debt settlement costs, and
income taxes. 2. Europe - includes flying operations in the U.K.,
Norway, Ireland and Denmark. 3. International - includes operations
in Australia, Africa and Asia and offshore work in eastern Canada
and in other locations around the world. 4. Schreiner - includes
flying operations primarily in the Netherlands, Africa and Asia and
includes other ancillary businesses including aircraft parts sales.
5. Repair and overhaul - includes helicopter repair and overhaul
operations based in Norway, Scotland, and Canada and survival suit
and safety equipment production businesses. 6. Corporate and other
- includes corporate head office activities and applicable
consolidation eliminations. 7. Comparative information has been
reclassified to reflect the results of businesses held for sale
(discontinued operations) (Note 8).
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10. Employee pension plans The Company maintains either defined
benefit or defined contribution pension plans for substantially all
of its employees. Selected summary information about the Company's
defined benefit pension plans as at October 31, 2004 and April 30,
2004, is as follows: As at ------------------- October April 31,
2004 30, 2004 ------------------- Benefit obligations $516,104
$543,906 ------------------- Fair value of plan assets $430,342
$440,222 ------------------- Funded status Defined benefit plans -
funded(1) $(45,672) $(67,045) Defined benefit plans - unfunded(2)
(40,091) (36,639) ------------------- Total (85,763) (103,684)
Unrecognized net actuarial and experience losses, prior service
costs and transition amounts 125,257 152,826 Pension guarantee
deposits 2,562 2,696 ------------------- Net asset recognized on
the balance sheet $ 42,056 $ 51,838 -------------------
------------------- (1) Funded plans require contributions to be
made by the Company. (2) Unfunded plans do not require
contributions from the Company Of the net asset recognized on the
balance sheet at October 31, 2004, $64.8 million (April 30, 2004 -
$90.1 million) related to the funded plans is recorded in other
assets and $22.7 million (April 30, 2004 - $38.3 million) related
to the unfunded plans is recorded as an accrued pension obligation
in other liabilities. The Company's net defined benefit pension
plan expense for the periods ended October 31 is as follows: Three
Months Ended Six Months Ended
--------------------------------------- October October October
October 31, 2004 31, 2003 31, 2004 31, 2003
--------------------------------------- Current service cost $
4,445 $ 3,241 $ 9,601 $ 7,039 Interest costs 6,968 5,743 14,590
11,657 Expected return on plan assets (7,163) (5,097) (14,512)
(10,369) Amortization of net actuarial and experience losses 1,971
2 4,054 2,248 Amortization of prior service costs (411) 2,699 (258)
2,852 Amortization of transition amounts 118 98 244 198
Participation contributions (971) (624) (1,872) (464)
--------------------------------------- Total $ 4,957 $ 6,062 $
11,847 $ 13,161 ---------------------------------------
--------------------------------------- Employer contributions
expected to be paid to the defined benefit pension plans during
fiscal 2005 as required by funding regulations and law is $28.7
million. While the asset mix varies in each plan, overall the asset
mix at October 31, 2004 was 41.4% equities, 32.7% fixed income and
25.9% money market. The significant weighted average actuarial
assumptions adopted in measuring the Company's net defined benefit
pension plan expense year-to- date October 31, 2004 compared to
fiscal 2004 are as follows: Six Months Ended October October 31,
2004 31, 2003 ------------------- Discount rate 5.74% 5.78%
Expected long-term rate of return on plan assets 6.73% 6.92%
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11. Financing Charges Three Months Ended Six Months Ended
--------------------------------------- October October October
October 31, 2004 31, 2003 31, 2004 31, 2003 (Note 4) (Note 4)
--------------------------------------- Interest on debt
obligations $ 7,582 $ 6,977 $ 15,773 $ 14,678 Amortization of
deferred financing costs 829 786 1,567 1,572 Foreign exchange loss
from operating activities and working capital revaluation 1,006
2,159 1,199 2,253 Foreign exchange gain on debt repayment - (2,137)
- (1,507) Foreign exchange gain on revaluation of long-term debt
(415) - (378) - Foreign exchange gain on foreign currency agreement
- (3,785) - (6,036) Other 218 111 54 (55)
--------------------------------------- Total $ 9,220 $ 4,111 $
18,215 $ 10,905 ---------------------------------------
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12. Restructuring and debt settlement costs a) Restructuring costs
During the three and six months ended October 31, 2004, the Company
incurred restructuring costs of $4.1 million and $5.0 million
respectively in connection with restructuring activities outside of
those performed the prior fiscal year. These restructuring costs
relate to general organization restructure planning and relocation
of the Company's head office to Vancouver, Canada and additional
costs associated with related restructuring initiatives incurred
primarily in Europe. Restructuring costs were comprised of
severance, termination, relocation, consulting and other associated
incremental costs directly associated with these activities. Of the
$5.0 million incurred to date, $0.9 million relates to severance
and termination costs. It is estimated that total costs directly
associated with general organization restructure planning and the
decision to relocate its Company's head office to Vancouver, Canada
which includes severance, termination, relocation, consulting and
other costs will approximate $5.2 million of which $3.5 million has
been incurred to date. Additional restructuring costs that will be
incurred in relation to other initiatives and activities are not
yet determinable because specific plans, timing and approvals have
not yet been determined or obtained. $1.5 million of these costs
have been incurred to date. During the three and six months ended
October 31, 2003 the Company incurred $2.5 million (after tax $1.7
million) and $3.8 million (after tax $2.6 million) in costs in
connection with the consolidation of its European operations and
other related activities. The following table provides a
reconciliation of the Company's restructuring cost accrual for the
three month period ended October 31, 2004: Restructuring accrued
July 31, 2004 $ 2,489 Additional restructuring cost accrued during
the period 1,626 Restructuring cost paid during the period (89)
--------- Restructuring accrued October 31, 2004 $ 4,026 ---------
--------- b) Debt settlement costs During the first quarter of the
current fiscal year, the Company incurred $1.3 million (after tax,
$0.9 million) of debt settlement costs in connection with the
redemption in May and July 2004 of (euro) 1.0 million or
approximately $1.8 million and (euro) 5.9 million or approximately
$9.7 million, respectively, of its remaining 11 3/4% senior
subordinated notes. Additionally, in June 2004, the Company
redeemed the remaining $10.4 million of its 8% subordinated
debentures. The debt settlement costs incurred during the first
quarter of the current fiscal year were comprised of premiums,
professional fees, write-off of deferred financing costs and other
incremental costs directly associated with debt settlement
activities.
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13. 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,
----------------------------- ----------------------------- October
April October 31, 2004 30, 2004 31, 2003
----------------------------- Issued: Class A subordinate voting
shares 18,410 18,378 18,017 Class B multiple voting shares 2,933
2,940 2,955 Ordinary shares 11,000 11,000 11,000 Class A
subordinate voting shares that would be issued upon conversion of
the following: Class B multiple voting shares 2,933 2,940 2,955
Share options 1,400 1,425 1,766 Convertible debt 690 690 690
Consideration 000's As at -----------------------------
----------------------------- October April October 31, 2004 30,
2004 31, 2003 ----------------------------- Class A subordinate
voting shares $222,281 $221,532 $218,551 Class B multiple voting
shares 18,719 18,719 18,815 Ordinary shares 33,000 33,000 33,000
Share loan (33,000) (33,000) (33,000) Class A subordinate voting
shares Employee purchase loans (1,688) (1,823) -
----------------------------- $239,312 $238,428 $237,366
----------------------------- Contributed surplus $ 3,291 $ 3,291 $
3,291
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14. Per share information Three Months Ended October 31, 2004
---------------------------------------------------------------
---------------------------------------------------------------
Weighted Net earnings (loss) Net earnings (loss) average per share
----------------------------- number of -----------------------
Cont. Disc. shares Cont. Disc. ops. ops. Total (000's) ops. ops.
Total
--------------------------------------------------------------- $
16,013 $(17,356) $ (1,343) 21,343 Shares as security for Class A
subordinate voting share employee purchase loans - - - (368)
--------------------------------------- Basic 16,013 (17,356)
(1,343) 20,975 $ 0.76 $(0.82) $(0.06) Effect of potential dilutive
securities: Share options 969 Convertible debt 96 - 96 690 Shares
as security for Class A subordinate voting share employee purchase
loans 368
---------------------------------------------------------------
Diluted $ 16,109 $(17,356) $ (1,247) 23,002 $ 0.70 $(0.75) $(0.05)
---------------------------------------------------------------
--------------------------------------------------------------- Six
Months Ended October 31, 2004
---------------------------------------------------------------
---------------------------------------------------------------
Weighted Net earnings (loss) Net earnings (loss) average per share
----------------------------- number of -----------------------
Cont. Disc. shares Cont. Disc. ops. ops. Total (000's) ops. ops.
Total
--------------------------------------------------------------- $
39,285 (18,279) 21,006 21,329 Shares as security for Class A
subordinate voting share employee purchase loans - - - (368)
--------------------------------------- Basic 39,285 (18,279)
21,006 20,961 $ 1.87 $(0.87) $ 1.00 Effect of potential dilutive
securities: Share options 942 Convertible debt 192 - 192 690 Shares
as security for Class A subordinate voting share employee purchase
loans 368
---------------------------------------------------------------
Diluted $ 39,477 $(18,279) $ 21,198 22,961 $ 1.72 $(0.80) $ 0.92
---------------------------------------------------------------
---------------------------------------------------------------
Three Months Ended October 31, 2003
---------------------------------------------------------------
---------------------------------------------------------------
Weighted Net earnings (loss) Net earnings (loss) average per share
----------------------------- number of -----------------------
Cont. Disc. shares Cont. Disc. ops. ops. Total (000's) ops. ops.
Total
---------------------------------------------------------------
Basic $ 15,980 $ (487) $ 15,493 20,911 $ 0.76 $(0.02) $ 0.74 Effect
of potential dilutive securities: Share options 1,009 Convertible
debt 123 - 123 690
---------------------------------------------------------------
Diluted $ 16,103 $ (487) $ 15,616 22,610 $ 0.71 $(0.02) $ 0.69
---------------------------------------------------------------
--------------------------------------------------------------- Six
Months Ended October 31, 2003
---------------------------------------------------------------
---------------------------------------------------------------
Weighted Net earnings (loss) Net earnings (loss) average per share
----------------------------- number of -----------------------
Cont. Disc. shares Cont. Disc. ops. ops. Total (000's) ops. ops.
Total
---------------------------------------------------------------
Basic $ 30,414 $ (1,193) $ 29,221 20,891 $ 1.46 $(0.06) $ 1.40
Effect of potential dilutive securities: Share options 1,020
Convertible debt 245 - 245 690
---------------------------------------------------------------
Diluted $ 30,659 $ (1,193) $ 29,466 22,601 $ 1.36 $(0.06) $ 1.30
---------------------------------------------------------------
--------------------------------------------------------------- Per
share amounts are calculated using the treasury stock method. Under
this method, the proceeds from the exercise of options are assumed
to be used to repurchase the Company's shares on the open market.
The difference between the number of shares assumed purchased and
the number of options assumed exercised is added to the actual
number of shares outstanding to determine diluted shares
outstanding for purposes of calculating diluted earnings per share.
Therefore, the number of shares in the diluted earnings per share
calculation will increase as the average share price increases.
There were 11 million ordinary shares outstanding at October 31,
2004 and at April 30, 2004, all of which are owned by the Company's
majority shareholder (See Note 13). 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.
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15. Share option plan Effective May 1, 2003, the Company began
expensing share-option awards using the fair value method. This
accounting change was applied prospectively in fiscal 2004 relating
to share options issued on or after May 1, 2003. There was no
impact on the financial results for the three and six months ended
October 31, 2004 and October 31, 2003 as a result of adopting this
accounting policy change, as no new share options were granted
during these periods. The table below presents pro-forma net
earnings, basic earnings per share and diluted earnings per share
had the fair value method been used to account for share options.
These pro-forma disclosures pertain to certain share options
granted in fiscal 2003 upon adoption of the new stock-based
compensation standards May 1, 2002. There was no impact on the
pro-forma earnings for the three and six month period ended October
31, 2004 as all share options granted in fiscal 2003 had vested as
at April 30, 2004. Three Months Ended Six Months Ended
--------------------------------------- October October October
October 31, 2004 31, 2003 31, 2004 31, 2003
--------------------------------------- Net (loss) earnings As
reported $ (1,343) $ 15,493 $ 21,006 $ 29,221 Pro-forma (1,343)
15,412 21,006 29,080 Basic (loss) earnings per share As reported $
(0.06) $ 0.74 $ 1.00 $ 1.40 Pro-forma (0.06) 0.74 $ 1.00 1.39
Diluted (loss) earnings per share As reported $ (0.05) $ 0.69 $
0.92 $ 1.30 Pro-forma (0.05) 0.68 $ 0.92 1.29 The Black Scholes
option pricing model was used to fair value the options using the
following estimates and assumptions: Expected life 5 years Expected
dividend yield 0.6% Risk-free interest rate 5.0% Stock volatility
40.0% As at October 31, 2004 total outstanding options were
1,400,672 (October 31, 2003 - 1,766,206). At October 31, 2004 all
of the share options outstanding were exercisable (October 31, 2003
- 1,607,790). The weighted average exercise price of the total
outstanding options at October 31, 2004 was $14.19 compared to
$13.43 at October 31, 2003.
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16. Related party transactions a) During fiscal 2000, as a
condition of securing tender credit facilities, the Company
received an unsecured, subordinated, convertible 12% loan from an
affiliate of the controlling shareholder in the amount of $5.0
million. This loan is subordinated to the Company's senior credit
facilities and its senior subordinated notes. The loan is
convertible into Class A subordinated voting shares at $7.25 per
share. The estimated value of the loan proceeds attributable to the
conversion feature of $951,000 was allocated to contributed
surplus. The equivalent reduction in the carrying value of the loan
is amortized to earnings over the term of the loan. Interest
expense of $180,000 (2003 - $176,000) and $360,000 (2003 -
$351,000) amortization of the above noted discount, was recorded on
the loan during the three and six month periods ended October 31,
2004 respectively. b) The Company uses properties owned by
companies affiliated with the controlling shareholder for customer
events, meetings, conferences and social functions. Rent and usage
fees of $49,000 (2003 - $143,000) and $192,000 (2003 - $302,000)
were incurred with these companies during the three and six month
periods ended October 31, 2004 respectively. These transactions
were recorded at their exchange amounts. c) During the three and
six months period ended October 31, 2004, $144,000 (2003 -
$602,000) and $333,000 (2003 - $701,000) respectively was paid to
Canadian Helicopters Limited, in which the Company has a 42.75%
equity investment. These amounts related to the provision of
helicopter flying services to the Company and were recorded at
their exchange amounts. d) During fiscal 2004, construction began
on a new hangar and office building in Vancouver, Canada. The
construction project is being managed by a subsidiary of a company
owned by a relative of the Company's controlling shareholder. Such
subsidiary will receive a fee of 7% including costs for managing
the construction of the building. As at October 31, 2004, $5.5
million (2003 - $1.1 million) was paid for construction costs with
such amount being capitalized to fixed assets and was recorded at
its exchange amount. e) From May 1, 2004 to October 31, 2004 the
Company recorded $26.5 million in revenue from ACN, in which the
Company has a 40% equity investment. Such revenue was primarily
associated with the flying of aircraft and related activities, sale
of aircraft parts and amounts billed under PBH contracts. These
transactions were recorded at their exchange amounts.
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17. Guarantees The Company has provided limited guarantees to third
parties under some of its operating leases in connection with a
portion of the aircraft values at the termination of the leases.
The leasees have terms expiring between 2005 and 2012. The
Company's exposure under the asset value guarantees including
guarantees in the form of junior loans and deferred payments is
approximately $27.5 million at October 31, 2004 compared to $25.5
million at April 30, 2004. The resale market for the aircraft type
for which the Company has provided guarantees remains strong, and
as a result, the Company does not anticipate incurring any
liability or loss with respect to these guarantees.
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18. 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 Six Months Ended
--------------------------------------- October October October
October 31, 2004 31, 2003 31, 2004 31, 2003
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Net earnings (loss) according to Canadian GAAP $ (1,343) $ 15,493 $
21,006 $ 29,221 Pre-operating expenses (400) 472 (701) 813 Loss
(gain) on sale of assets/amortization expense (14) 515 (28) 505
Ineffective portion of net investment hedge - (605) - (7,507)
Effect of foreign currency indemnity agreements (140) (3,778) (278)
(5,284) Effect of revaluation of US $ debt 16,275 - 22,500 - Effect
of asset value guarantees 266 - 122 - Effect of currency swaps
(7,186) - (10,652) - Internal-use software expenses 50 - (44) (52)
Decrease in income tax expense 2,394 894 2,445 2,428 Other 13 - 42
- --------------------------------------- Net earnings according to
U.S. GAAP 9,915 12,991 33,412 20,124 Other comprehensive earnings,
net of income tax: Foreign currency translation adjustment (16,665)
(7,732) (38,939) (25,061) Ineffective portion of net investment
hedge - 485 - 6,020 Minimum pension liability adjustment 25,661 8
5,800 29,071 Interest rate swap adjustment - 827 - 1,953 Foreign
currency cashflow hedge adjustment 8,064 - 7,162 - Fair value
adjustment of available-for-sale securities (1,255) - (1,049) -
Effect of equity forward price agreement 237 - 691 -
--------------------------------------- Comprehensive earnings
according to U.S. GAAP $ 25,957 $ 6,579 $ 8,077 $ 32,107
---------------------------------------
--------------------------------------- Basic net earnings per
share according to U.S. GAAP $ 0.47 $ 0.62 $ 1.64 $ 0.96
---------------------------------------
--------------------------------------- Diluted net earnings per
share according to U.S. GAAP $ 0.43 $ 0.58 $ 1.50 $ 0.89
---------------------------------------
--------------------------------------- The consolidated balance
sheet would vary in some respects when restated for U.S. GAAP
purposes. The most significant variances pertaining to the October
31, 2004 balance sheet are listed below: - Current assets would
increase by $5.5 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 $1.6
million to record acquisition and amortization differences. -
Long-term investments would decrease by $1.3 million to adjust
available-for-sale securities to fair market value. - Other assets
would decrease by $6.1 million to recognize the fair value impact
of asset value guarantees, pre-operating costs adjustment, minimum
pension liability adjustment, and the fair value impact of forward
foreign currency contracts. - Future income tax assets would
increase by $5.6 million to tax-effect adjustments to net earnings
and comprehensive earnings under U.S. GAAP and to reverse tax
changes not yet enacted. - Other liabilities would decrease by $7.5
million to recognize the minimum pension liability adjustment,
foreign currency translation adjustments related to currency swaps
recorded in comprehensive earnings, asset value guarantees, and
foreign currency indemnity agreements. - Future tax liabilities
would decrease by $1.9 million to tax-effect adjustments to net
earnings and comprehensive income under U.S. GAAP. - Long-term debt
would increase by $0.5 million to record the full proceeds received
from the issuance of convertible debt. - Accumulated other
comprehensive earnings would be recorded at $(36.5) million under
U.S. GAAP for foreign currency translation, minimum pension
liability, interest rate swap adjustments, currency swap
adjustments, the impact of the ineffective portion of the net
investment hedge, foreign currency cash flow hedge adjustments,
equity forward price agreements, and the fair-value adjustment of
available-for-sale securities. - Retained earnings would increase
by $10.1 million to reflect the cumulative net effect of Canadian
and U.S. GAAP differences.
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19. Subsequent events a) Subsequent to quarter end the Company
agreed to the terms of revised senior credit facilities to replace
the existing facilities which were due to mature in July 2005. The
new senior facilities consist of a revolving facility of US dollar
175 million (existing US dollar 105 million), a revolving facility
of pound sterling 6.8 million (existing pound sterling 6.8
million), a non-revolving facility of pound sterling 7.9 million
(existing pound sterling 7.9 million) and a non-revolving facility
of euro 66.1 million (existing euro 66.1 million). The terms of the
revised senior credit facilities provide for increased flexibility
in both financial and non-financial covenants, extension of the
maturity dates for periods of three to five years, lower interest
rates and increased borrowing limits. The revised senior credit
facility will be provided by a syndicate of banks. b) Subsequent to
quarter end the Company announced an agreement to acquire the
assets and capabilities of Coulson Aero Technologies Ltd. ("CAT"),
a B.C.-based helicopter component and turbine engine maintenance
repair and overhaul (MRO) company with annual revenues of
approximately $6.5 million. With this agreement, and the recent
acquisition of Aero Turbine Support and announced start-up of CHC's
S61/S76 dynamic component overhaul facility, CHC Global Support
immediately gains the capability to support, on a nose-to-tail
basis, its entire fleet of more than 80 S76 and S61 aircraft, and
to compete for helicopter support work for a worldwide fleet of
more than 500 aircraft in this sector. The Company will also enter
into a five-year agreement to provide exclusive MRO services, for
major components and engines, to Coulson Aircrane Ltd. ("CAL"), a
B.C.-based company operating five Sikorsky S61 aircraft. END FIRST
AND FINAL ADD DATASOURCE: CHC Helicopter Corporation CONTACT:
PRNewswire -- Dec. 13
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