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 --------------------------------------------------------------------- --------------------------------------------------------------------- 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. ------------------------------------------------------------------------- 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). ------------------------------------------------------------------------- 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. ------------------------------------------------------------------------- 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. ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- 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. ------------------------------------------------------------------------- 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. ------------------------------------------------------------------------- END FIRST AND FINAL ADD DATASOURCE: CHC Helicopter Corporation CONTACT: PR Newswire -- Sept. 13

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