CHC announces first quarter results ST. JOHN'S, NL, Sept. 13
/PRNewswire/ -- CHC Helicopter Corporation (the "Company") (TSX:
FLY.A and FLY.B; NYSE: FLI) today announced consolidated financial
results (unaudited) for the first quarter ended July 31, 2004.
Financial Highlights (in millions of Canadian dollars, except per
share amounts)
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Three Months Ended
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July 31, July 31, 2004 2003 (Unaudited) (Unaudited)
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Revenue $ 232.8 $ 170.4 Consolidated Segment EBITDA(1) 43.9 28.1
Net earnings from operations(2) 23.7 14.6 Net earnings 22.3 13.7
Cash flow(2) 43.1 36.9 Per share information Net earnings from
operations:(2) Basic $ 1.13 $ 0.70 Diluted 1.04 0.65 Net earnings:
Basic $ 1.07 $ 0.66 Diluted 0.98 0.61
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(1) See "Review of Segment Revenue and Segment EBITDA" in
Management's Discussion and Analysis. (2) See definitions under
"Non-GAAP Financial Measures" in Management's Discussion and
Analysis. Highlights - First quarter results were the best in the
Company's history. - Consolidated Segment EBITDA for the quarter
increased $15.8 million (56%), from $28.1 million in the first
quarter last year due to the inclusion of Schreiner Aviation Group
("Schreiner") and growth throughout the Company's operations. -
Revenue for the quarter was $232.8 million, up $62.4 million from
the same quarter last year. The inclusion of Schreiner contributed
$46.8 million to this revenue increase with an additional $11.8
million attributable to growth in the Company's International
flying segment. - Flying activity in the Company's International
flying segment increased by 1,409 hours (13%) compared to last
year. - During the quarter the Company began the reorganization of
its management structure and operations with a view to
strengthening the Company and securing its leadership position well
into the future. Investor Conference Call The Company's 1st quarter
conference call and webcast will take place Tuesday, September 14,
2004 at 10:30 a.m. EDT. To listen to the conference call, dial
416-640-4127 for local and overseas calls, or toll-free
1-800-814-4853 for calls from within North America. To hear a
replay of the conference call, dial 416-640-1917, or 877-289-8525
and enter passcode "21093153 followed by the number sign". The
replay will be available until September 17, 2004. The financial
results and a webcast of the conference call will be available
through the Company's website at http://www.chc.ca/ and through
Canada NewsWire at: http://www.cnxmarketlink.com/. CHC Helicopter
Corporation is the world's largest provider of helicopter services
to the global offshore oil and gas industry with aircraft operating
in 30 countries and a team of approximately 3,400 professionals
worldwide.
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This press release may contain projections and other
forward-looking statements within the meaning of the "safe harbour"
provision of the United States Private Securities Litigation Reform
Act of 1995. While these projections and other statements represent
our best current judgment, they are subject to risks and
uncertainties including, but not limited to, factors detailed in
the Annual Report on Form 20-F and in other filings of the Company
with the United States Securities and Exchange Commission and in
the Company's annual information form filed with Canadian security
regulatory authorities. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those
indicated.
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Management's Discussion and Analysis of Financial Condition and
Results of Operations - Three months ended July 31, 2004 Dated
September 13, 2004 This management's discussion and analysis
("MD&A") may contain projections and other forward-looking
statements within the meaning of the "safe harbour" provision of
the United States Private Securities Litigation Reform Act of 1995.
While these projections and other statements represent our best
current judgment, they are subject to risks and uncertainties
including but not limited to, factors detailed in the Annual Report
on Form 20-F and in other filings of CHC Helicopter Corporation
(the "Company") with the United States Securities and Exchange
Commission and in the Company's annual information form filed with
Canadian security regulatory authorities. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially
from those indicated. This MD&A and the accompanying unaudited
consolidated interim financial statements and notes thereto should
be read in conjunction with the Company's Audited Consolidated
Financial Statements and MD&A for the year ended April 30, 2004
and related notes thereto, as set forth in the Company's Annual
Report (the "2004 Annual Filings"). All information reflected
herein is expressed in Canadian dollars and is prepared by
management in accordance with Canadian generally accepted
accounting principles and in accordance with generally accepted
accounting principles in the United States except as described in
Note 17 to the Company's unaudited consolidated interim financial
statements to which this MD&A relates. Additional information
regarding the Company, including copies of the Company's continuous
disclosure material such as the Company's annual information form,
is available on the Company's website at http://www.chc.ca/ or
through the SEDAR website at http://www.sedar.com/. Overview
Revenue increased by $62.4 million quarter over quarter, including
the favourable impact of foreign exchange of $6.0 million.
Schreiner contributed $46.8 million of the revenue growth, with the
remaining growth due primarily to increased flying activity in the
Company's International flying segment. Consolidated Segment EBITDA
increased $15.8 million quarter over quarter, including the
favourable impact of foreign exchange of $1.4 million, due
primarily to the inclusion of Schreiner and solid growth in the
International flying and Astec repair and overhaul segments. Net
earnings from operations for the quarter were $23.7 million ($1.04
per share, diluted) on revenue of $232.8 million as compared to net
earnings from operations of $14.6 million ($0.65 per share,
diluted) on revenue of $170.4 million last year. The primary
factors impacting net earnings from operations for the year include
(i) an increase in Consolidated Segment EBITDA of $15.8 and (ii) a
$1.7 million increase in equity in earnings of associated
companies, partially offset by (iii) a $2.6 million increase in
amortization expense, (iv) a $2.4 million increase in financing
charges and (v) a $3.4 million increase in income tax expense. Net
earnings during the quarter were $22.3 million ($0.98 per share,
diluted) compared to net earnings of $13.7 million ($0.61 per
share, diluted) in the same quarter last year, an increase of 63%.
In addition to the above noted change in net earnings from
operations, this quarter's results include after-tax restructuring
and debt settlement costs of $1.4 million while last year's quarter
included $0.9 million of after-tax restructuring costs.
Organizational Restructuring Over the past few months, the Company
has performed a thorough examination of its operations and
organizational structure, with a view to strengthening and
standardizing the Company's operations, lowering overhead costs and
securing its leadership position well into the future. As a result,
the Company has commenced the relocation of its head office from
St. John's to Vancouver, Canada. In addition, all current
operations will be consolidated into three new operating divisions
as follows: CHC Global Support, to be led by Neil Calvert, former
Managing Director of CHC Europe, will be responsible for fleet
management, repair and overhaul and procurement for the entire CHC
group from our Vancouver headquarters. Also, to leverage the
competitive advantage and success of our European Repair and
Overhaul business, Astec Helicopter Services will now report to CHC
Global Support. With this new structure the Company anticipates
tremendous opportunity to expand its Repair and Overhaul and
Logistics Service around the world. CHC Global Operations, to be
led by Christine Baird, former President of CHC's International
Division, will be responsible for all helicopter operations outside
of Europe. The world's multinational oil and gas customers are
looking for one standard of service, and by consolidating all its
global operations under one management group in Vancouver, CHC is
clearly leading the way. CHC Europe, to be led by Ian MacBeath,
former President of CHC's Australian Division, will be responsible
for CHC's European operations. CHC Europe has recently completed a
similar reorganization and is now experiencing the benefits of the
restructuring. The Company expects that this reorganization will
not only improve operations, but will also generate substantial
cost savings. The magnitude of these cost savings will be disclosed
as the new structure is implemented. In order to implement the
reorganization and achieve these cost savings, the Company will
incur certain costs. These costs are not yet determinable, however
are potentially significant. Any costs incurred are expected to be
recovered in the short term. It is estimated that costs associated
with general organization restructure planning and the relocation
of the Company's head office to Vancouver, Canada, which includes
severance, termination, relocation, consulting, and other costs,
will approximate $5.0 million and will be mostly incurred within
the current fiscal year. Revenue Total revenue for the quarter was
$232.8 million compared to $170.4 million for the same period last
year. The change was due primarily to the following factors: - Net
favourable foreign exchange of $6.0 million. For a discussion on
the nature of this foreign exchange and management's approach to
managing foreign currency exposures, refer to the "Foreign
currency" section in this MD&A. - Revenue earned during the
quarter by recently acquired Schreiner of $46.8 million, with
flying activity of 7,608 hours, - An increase quarter over quarter
(excluding the impact of unfavourable foreign exchange of $0.1
million) in revenue in the Company's International flying segment
of $11.9 million due to new contracts and increased flying activity
on existing contracts. Quarter over quarter flying hours increased
by 13% or 1,409 hours, and - A decrease quarter over quarter
(excluding the impact of favourable foreign exchange of $5.8
million) in revenue in the Company's European flying segment of
$2.2 million. Quarter over quarter flying hours decreased by 5% or
1,136 hours. The table below provides information on revenue by
segment and in total for each of the eight most recent quarters:
Quarterly Revenue by Segment (in millions of Canadian dollars)
(Unaudited)
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Total Flying Astec Inter- Oper- Repair & Period Europe national
Schreiner ations Overhaul Composites Total
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Q2-F2003 124.4 44.5 - 168.9 19.6 1.2 189.7 Q3-F2003 115.2 46.4 -
161.6 15.9 1.5 179.0 Q4-F2003 107.6 48.0 - 155.6 16.6 2.4 174.6
Q1-F2004 112.0 43.6 - 155.6 13.3 1.5 170.4 Q2-F2004 111.5 46.7 -
158.2 14.4 1.4 174.0 Q3-F2004 104.7 49.0 - 153.7 15.3 1.8 170.8
Q4-F2004 109.4 52.5 39.2 201.1 15.1 2.2 218.4 Q1-F2005 115.6 55.4
46.8 217.8 12.9 2.1 232.8
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Flying Revenue and Hours The Company derives its flying revenue
from hourly and fixed charges. Approximately 54% (2004 - 59%) of
the Company's first quarter flying revenue was derived from hourly
charges (including hourly charges on contracts that also have fixed
charges), and the remaining 46% (2004 - 41%) was generated by fixed
monthly charges. Because of the significant fixed component, an
increase or decrease in flying hours may not result in a
proportionate change in revenue. While flying hours may not
correlate directly with revenue, they remain a good measure of
activity level. The following table provides a quarterly summary of
the Company's flying hours and number of aircraft utilized for the
past eight quarters.
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Flying Hours by Quarter (Unaudited)
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Flying Hours Number of Aircraft
------------------------------------ --------------------------
Period Europe Int'l Schreiner Total Europe Int'l Schreiner
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Q2-F2003 22,994 10,618 - 33,612 73 87 - Q3-F2003 20,316 11,189 -
31,505 73 90 - Q4-F2003 19,430 11,067 - 30,497 71 88 - Q1-F2004
22,351 11,057 - 33,408 72 90 - Q2-F2004 21,951 11,926 - 33,877 70
94 - Q3-F2004 19,806 12,066 - 31,872 72 95 - Q4-F2004 19,939 12,216
5,701 37,856 72 96 38 Q1-F2005 21,215 12,466 7,608 41,289 71 96 40
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The following table provides information on flying revenue mix by
segment and in total by aircraft type (including the impact of
foreign exchange) for year to date fiscal 2005 and 2004. The mix of
aircraft type has changed quarter over quarter, with the percentage
of heavy aircraft flying revenue to total flying revenue decreasing
by 8.4%, and the percentage of medium and fixed wing aircraft
flying revenue increasing by 4.5% and 3.9%, respectively. This
flying revenue mix change is primarily due to the inclusion of
Schreiner's financial results in the current quarter.
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Year to Date Flying Revenue Mix (in thousands of Canadian dollars)
---------------------------------------------------------- Three
Months Ended July 31, 2004 (Unaudited)
---------------------------------------------------------- Fixed
Heavy Medium Light Wing Total
---------------------------------------------------------- Europe $
89,020 $ 20,611 $ - $ - $ 109,631 International 14,321 35,073 847
1,401 51,642 Schreiner 1,862 11,640 527 7,176 21,205
---------------------------------------------------------- Total
Flying Revenue $ 105,203 $ 67,324 $ 1,374 $ 8,577 $ 182,478
---------------------------------------------------------- Total %
57.7% 36.9% 0.7% 4.7% 100%
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Three Months Ended July 31, 2003 (Unaudited)
---------------------------------------------------------- Fixed
Heavy Medium Light Wing Total
---------------------------------------------------------- Europe $
84,415 $ 21,276 $ - $ - $ 105,691 International 12,945 26,467 995
1,155 41,562 Schreiner - - - - -
---------------------------------------------------------- Total
Flying Revenue $ 97,360 $ 47,743 $ 995 $ 1,155 $ 147,253
---------------------------------------------------------- Total %
66.1% 32.4% 0.7% 0.8% 100%
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The following table provides information on the hourly and fixed
flying revenue by segment (including the impact of foreign
exchange) for year to date fiscal 2005 and 2004. Fixed flying
revenue as a percentage of total flying revenue has increased from
41% last year to 46% this year.
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Flying Revenue - Hourly vs. Fixed Three Months Ended July 31, (in
thousands of Canadian dollars) (Unaudited) Hourly Fixed Total
------------------------------------------------------------ 2005
2004 2005 2004 2005 2004
------------------------------------------------------------ Europe
$ 69,034 $ 72,415 $ 40,597 $ 33,276 $109,631 $105,691 International
18,434 13,916 33,208 27,646 51,642 41,562 Schreiner 10,212 - 10,993
- 21,205 -
------------------------------------------------------------ Total
$ 97,680 $ 86,331 $ 84,798 $ 60,922 $182,478 $147,253
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The following table provides information on segment flying revenue
by industry sector (including the impact of foreign exchange) for
year to date fiscal 2005 and 2004. During the first quarter the
Company derived approximately 86% of its flying revenue from the
oil and gas industry compared to 88% during the same quarter last
year. The revenue from this industry is derived from production
support, which accounts for the majority of the Company's oil and
gas revenue, and from exploration and development activity.
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Flying Revenue - By Industry Sector Three Months Ended July 31, (in
thousands of Canadian dollars) (Unaudited) Europe International
------------------------------------------------ 2005 2004 2005
2004 ------------------------------------------------ Oil & Gas
$ 100,556 $ 99,256 $ 38,192 $ 30,374 EMS/SAR(3) 5,913 5,274 9,818
8,338 Other 3,162 1,161 3,632 2,850
------------------------------------------------ Total $ 109,631 $
105,691 $ 51,642 $ 41,562 Schreiner Total
------------------------------------------------ 2005 2004 2005
2004 ------------------------------------------------ Oil & Gas
$ 17,394 $ - $ 156,142 $ 129,630 EMS/SAR(3) 527 - 16,258 13,612
Other 3,284 - 10,078 4,011
------------------------------------------------ Total $ 21,205 $ -
$ 182,478 $ 147,253
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(3) EMS/SAR - emergency medical services and search and rescue
services Aberdeen Airport in the U.K. reports monthly helicopter
passenger traffic at the Company's largest base. Activity at this
base represents approximately 35% of total activity in the
Company's European flying segment. The following table provides a
quarterly summary of all helicopter passenger traffic at Aberdeen
Airport for fiscal 2001 to fiscal 2005.
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Aberdeen Airport - Helicopter Passengers Year Ended April 30,
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2005 2004 2003 2002 2001
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Q1 102,228 101,757 116,102 121,868 103,874 Q2 95,227 112,449
123,012 114,376 Q3 87,588 92,918 114,606 104,381 Q4 89,975 92,686
108,247 101,166
--------------------------------------------------------- 374,547
414,155 467,733 423,797
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Source: Aberdeen Airport Ltd. The data in the above table shows
that helicopter passenger activity this quarter has increased 0.5%
from the same period in fiscal 2004. Review of Segment Revenue and
Segment EBITDA The Company provides certain financial and related
information about its operating segments and also about their
products and services, the geographic areas in which they operate
and their major customers. The Company's objective is to provide
information about the different types of business activities in
which it engages and the different economic environments in which
it operates in order to help users of its consolidated financial
statements (i) better understand its performance, (ii) better
assess its prospects for future net cash flows and (iii) make more
informed judgments about the Company as a whole. In an effort to
achieve this objective, information is provided about segment
revenues and Segment EBITDA because these financial measures are
used by the Company's key decision makers in making operating
decisions and assessing performance. Consolidated segment revenue
excludes inter-segment revenues and is therefore identical to
reported revenues. Consolidated Segment EBITDA is the sum of
Segment EBITDA from each of the segments, including the "corporate
and other" segment, and therefore includes all operating expenses
allocated to segments. For additional information about segment
revenues and Segment EBITDA, including a reconciliation of these
measures to the consolidated financial statements, see Note 7 to
the unaudited consolidated interim financial statements to which
this MD&A relates. The Company includes six reporting segments
in its financial statements: European flying, international flying,
Schreiner, Astec repair and overhaul, composites manufacturing and
corporate and other. The primary factors considered in identifying
segments are geographic coverage, which also impacts the nature of
the Company's operations, the type of contracts that are entered
into, the type of aircraft that are utilized, and segments used by
management to evaluate the business. Europe European Flying Segment
(millions of CAD dollars) (Unaudited) --------------------------
Q1-05 Q1-04 -----------------------------------------------------
Revenue $115.6 $112.0
----------------------------------------------------- Segment
EBITDA $21.9 $19.4
----------------------------------------------------- Segment
EBITDA % 18.9% 17.3%
----------------------------------------------------- Revenue from
the Company's European flying segment for the first quarter of this
fiscal year was $115.6 million, up $3.6 million from revenue of
$112.0 million for the same quarter last year. This $3.6 million
increase was comprised of favourable foreign exchange of $5.8
million and an increase in other ancillary revenue of $0.7 million
offset by a decrease in flying and training revenue of $1.7 million
and $1.2 million respectively. The decrease in flying revenue was
due to a decrease in flying activity of 1,136 hours partially
offset by a higher proportion of fixed flying revenue this quarter.
Segment EBITDA from the European flying segment was $21.9 million
for the first quarter of this fiscal year, up $2.5 million from
Segment EBITDA of $19.4 million for the same quarter last year.
This $2.5 million improvement was due to an increase in Segment
EBITDA of $0.3 million and favourable foreign exchange of $2.2
million. Factors contributing to the $0.3 million increase in
Segment EBITDA include (i) lower maintenance expense of $2.3
million in part due to efficiency, decreased flying activity and
certain non-recurring credits in the current quarter, (ii) a
decrease in net lease expense of $1.6 million due to improved fleet
management and the requirement in the first quarter last year of
leasing aircraft under short- term wet lease arrangements in order
to meet customer demand during the Company's pilot's dispute,
offset partially by (iii) the inclusion in the first quarter of
last year of a $3.5 million successful cost recovery claim. During
the quarter, activity in the U.K. was consistent with the first
quarter last year. Margins in the U.K. improved, primarily due to
the cost cutting efforts of the past year. In Norway, however,
flying hours were unexpectedly lower than last year as some
customer activity was deferred. Consequently, the Company retained
excess capacity in Norway to fly hours that did not materialize,
negatively affecting margins. Margins in Norway are expected to
increase when new aircraft are introduced later in this fiscal
year. Overall in Europe, margins increased, despite the net
one-time cost reductions in the first quarter of last year.
Effective September 1, 2004 a lockout of oil rig workers on certain
Norwegian mobile oil rigs began. As the Company's contracts are
mostly with fixed installation rigs the impact on the Company's
financial results is not expected to be significant. Certain rigs
served by the Company that have been affected include Polar
Pioneer, Transocean Leader and Transocean Searcher. Subsequent to
the quarter end, the Company was awarded two contract renewals in
the North Sea with a combined value of approximately $14.5 million
per annum. PGS Production AS awarded the Company a two-year
contract renewal, plus two one-year options, for the provision of
offshore crew change helicopter services utilizing the Company's
fleet of Super Puma aircraft based in Stavanger, Norway. In
addition, Kerr-McGee awarded the Company a one-year contract
renewal, plus two one-year options, for the provision of one
dedicated Super Puma MkII aircraft based in Aberdeen, Scotland.
International International Flying Segment (millions of CAD
dollars) (Unaudited) -------------------------- Q1-05 Q1-04
----------------------------------------------------- Revenue $55.4
$43.6 ----------------------------------------------------- Segment
EBITDA $9.0 $6.4
----------------------------------------------------- Segment
EBITDA % 16.2% 14.7%
----------------------------------------------------- Revenue from
the Company's International flying segment was $55.4 million for
the first quarter of this fiscal year compared to $43.6 million for
the first quarter last year. The $11.8 million increase quarter
over quarter was due to (i) flying revenue growth of approximately
$8.0 million attributable to oil and gas customers, (ii) an
increase in EMS/SAR flying revenue of approximately $1.0 million,
(iii) an increase in other flying revenue of approximately $1.1
million, and (iv) an increase in other ancillary revenue of $1.8
million, offset by (v) unfavourable foreign exchange of $0.1
million. Quarter over quarter flying activity from oil and gas
customers increased by 1,276 hours, flying activity from EMS/SAR
customers decreased by 87 hours and activity from other customers
increased by 220 hours. Increased activity from other customers was
primarily due to increased diamond offshore mining activity and
work for the United Nations. EMS/SAR flying revenue increased while
flying activity decreased due to the percentage of fixed flying
revenue to total flying revenue increasing quarter over quarter
from 75.7% to 77.6%. The net growth of $10.1 million in total
flying revenue, excluding the impact of foreign exchange, was
driven largely by (i) $1.8 million in revenue from new contracts in
Africa, (ii) $8.9 million in revenue from new contracts for
customers in Haiti, Malaysia, the Republic of Georgia, India, the
Philippines and Australia, and (iii) $2.8 million in revenue growth
from existing customers, partially offset by (iv) the impact of the
expiry of contracts with customers in Venezuela and Australia of
$3.4 million. Segment EBITDA for the quarter was $9.0 million, up
$2.6 million from Segment EBITDA of $6.4 million for the first
quarter last year. This increase was due to a $3.2 million increase
in Segment EBITDA offset by unfavourable foreign exchange of $0.6
million. The $3.2 million increase in Segment EBITDA was driven
primarily by (i) increased revenue over the first quarter last
year, (ii) reduced maintenance expense due to a non-recurring
adjustment of $0.6 million in the current period and (iii) the
absence of one time costs incurred in the first quarter of last
year. The Segment EBITDA percentage at 16.2% for the first quarter
was higher than the 14.3% reported in the fourth quarter last year
due primarily to the non-recurring adjustment noted above and
increased activity levels. During the quarter the Company was
awarded a new contract in West Africa for the provision of one
Super Puma MkII aircraft for an initial period of 18 months
commencing June 2004. Anticipated revenue over the term of the
contract is approximately $11.0 million. Under the terms of the
contract, the Company is leasing the advanced Super Puma MkII to
Sonair, the aeronautical subsidiary of the Angolan national oil
company, Sonangol. The helicopter will be based at Luanda, Angola.
Schreiner Schreiner (millions of CAD dollars) (Unaudited)
-------------------------- Q1-05 Q1-04
----------------------------------------------------- Revenue $46.8
N/A ----------------------------------------------------- Segment
EBITDA $7.8 N/A
----------------------------------------------------- Segment
EBITDA % 16.7% N/A
----------------------------------------------------- The Company
acquired Schreiner on February 16, 2004 and, as appropriate, the
results of Schreiner are included in the Company's statement of
earnings and financial position subsequent to that date. Revenue
from Schreiner during the quarter ended July 31, 2004 was $46.8
million while Segment EBITDA earned during the same period was $7.8
million. The $46.8 million in earned revenue was comprised of (i)
$21.2 million in flying revenue of which $17.4 million and $3.8
million related to oil and gas and other customers respectively,
(ii) $2.6 million of fixed wing maintenance revenue, (iii) $11.8
million in aircraft parts sales, (iv) $4.1 million associated with
the provision of administrative and personnel support to
Aerocontractors Company of Nigeria Ltd., in which Schreiner has a
40% equity investment, and (v) $7.1 million in other revenue. Astec
Repair and Overhaul Astec Repair and Overhaul (millions of CAD
dollars) (Unaudited) -------------------------- Q1-05 Q1-04
----------------------------------------------------- Total Revenue
$48.3 $43.0 -----------------------------------------------------
Third-party Revenue $12.9 $13.3
----------------------------------------------------- Segment
EBITDA $10.3 $8.2
----------------------------------------------------- Segment
EBITDA % (x) 21.3% 19.1%
----------------------------------------------------- (x) EBITDA%
is calculated on total revenue Total revenue from the Company's
Astec repair and overhaul segment was $48.3 million for the first
quarter this year, up $5.3 million from $43.0 million for the first
quarter last year. Third party revenue from this segment was $12.9
million for the current quarter, down slightly by $0.4 million
compared to $13.3 million for the same period last year. This $0.4
million decrease in third party revenue was driven by (i) a
decrease in revenue from heavy maintenance projects of $2.1
million, and (ii) a net decrease in revenue from
"power-by-the-hour" ("PBTH") component overhauls of approximately
$0.5 million, offset partially by (iii) favourable foreign exchange
of $0.3 million, (iv) revenue growth of $1.0 million from the
acquisition of Whirly Bird Services Limited ("WBS"), and (v) an
increase in parts sales of $0.9 million. Segment EBITDA for first
quarter was $10.3 million, up $2.1 million from $8.2 million for
the same period last year. This $2.1 million increase was due to
Segment EBITDA growth of $2.3 million offset by unfavourable
foreign exchange of $0.2 million. Factors contributing to the $2.3
million Segment EBITDA growth include: (i) $0.3 million due to the
acquisition of WBS, (ii) $2.4 million due primarily to increased
inter-company component overhauls and supporting maintenance, and
(iii) an increase in customer flying of $0.8 million, offset
partially by (iv) a decrease in heavy maintenance and PBTH
component overhauls which negatively impacted Segment EBITDA by
$1.2 million. In August 2004, the Company acquired all outstanding
shares of Multifabs Survival Ltd. ("Multifabs"), an Aberdeen-based
company specializing in the production of cold-water survival suits
for military forces, emergency services and offshore oil and gas
transportation companies around the world. The Company acquired
Multifabs for a cash payment of $17.0 million, including all
outstanding debt. This acquisition will enhance the Company's
ability to deliver the most comprehensive, cost-effective offshore
services package to its customers in the oil and gas and emergency
search and rescue sectors. Multifab complements the existing
third-party marine, military and aviation safety equipment business
of Astec adding an estimated $15.0 million in annual revenue.
Composites Composites Manufacturing (millions of CAD dollars)
(Unaudited) -------------------------- Q1-05 Q1-04
----------------------------------------------------- Revenue $2.1
$1.5 ----------------------------------------------------- Segment
EBITDA $(0.6) $(0.7)
----------------------------------------------------- Revenue from
the Company's composites manufacturing segment was $2.1 million for
the three months ended July 31, 2004, up $0.6 million from the same
period last year of $1.5 million. This increase is due to increased
deliveries for a contract with Aero Vodochody for the manufacture
of S76 components. Segment EBITDA for the current quarter was a
loss of $0.6 million, in line with the loss of $0.7 million in the
same period last year. The Company is still exploring strategic
alternatives for Composites and has entered into a Memorandum of
Understanding for the sale of the business with a potential buyer
which is subject to due diligence and government approval.
Corporate and Other The Corporate and other segment recorded first
quarter costs of $4.5 million compared to $5.2 million in the same
quarter last year. Factors affecting the $0.7 million decrease in
costs include (i) the $0.5 million favourable impact of various
miscellaneous cost reductions, each of which were individually
insignificant, (ii) a $0.3 million decrease in external lease
costs, (iii) a $0.6 million favourable impact related to
consolidated eliminations offset partially by (iv) a $0.7 million
increase in compensation and travel costs. Amortization
Amortization for the first quarter of fiscal 2005 was $8.3 million
compared to $5.7 million in the same quarter last year. Included in
this increase was (i) $2.3 million in amortization related to
Schreiner (ii) amortization of capitalized information system
costs, and (iii) an increase in amortization of helicopter major
inspections, offset partially by (iv) a decrease in amortization
related to certain aircraft airframes due to a change in their
estimated useful lives and residual values. Financing Charges
Financing charges for the quarter ended July 31, 2004, increased by
$2.4 million as compared to the same quarter last year. This
increase was due primarily to the inclusion in the first quarter
last year of a $2.3 million foreign exchange gain on the maturity
of a foreign currency agreement. Interest on debt obligations
increased by $0.5 million quarter over quarter due to higher debt
levels in connection with the acquisition of Schreiner in late
fiscal 2004 while foreign exchange losses on debt repayments
decreased by $0.6 million. See Note 9 to the unaudited consolidated
interim financial statements for a breakdown of financing charges.
The blended average interest rate on the Company's variable-rate
senior credit facilities and senior subordinated notes for the
current quarter was approximately 6.2% compared to 8.4% in the same
period last year. The decrease is due to lower variable rates on
the Company's senior credit facilities and a lower interest rate on
the Company's refinanced senior subordinated notes. Equity in
earnings of associated companies Equity in earnings of associated
companies for the quarter ended July 31, 2004 was $3.1 million
compared to $1.3 million for the same period last year. The
increase of $1.8 million quarter over quarter is due to (i) the
inclusion in the current quarter of $1.3 million associated with
Schreiner's equity accounted long-term investments and (ii) a $0.5
million increase in the equity in earnings of 42.75% owned Canadian
Helicopters Limited. Income Taxes Total income tax provision
recorded during the quarter was $6.0 million compared to $2.9
million recorded in the same quarter last year. During the quarter,
the Company recorded an income tax recovery of $0.8 million on
restructuring costs related to general organization restructure
planning and relocation of the Company's head office to Vancouver,
Canada and debt settlement costs associated with the redemption of
the remainder of its 11 3/4% senior subordinated notes and 8%
subordinated debentures. During the same quarter last year the
Company recorded an income tax recovery of $0.4 million related to
restructuring costs associated with the consolidation of its
European operations and other related activities. The income tax
provision included in net earnings from operations was $6.7 million
for the quarter compared to $3.3 million for the same quarter last
year. The effective income tax rate on net earnings from operations
for the three months ended July 31, 2004 was 22.1% compared to
18.4% for the same period last year. The increase in the effective
income tax rate was due primarily to increased earnings in
jurisdictions with higher tax rates. Cash Flows, Liquidity and
Capital Resources Operating Activities Cash flow from operations
for the first quarter of fiscal 2005 was $28.6 million, up $33.6
million from the first quarter of fiscal 2004. This increase was
comprised of a $6.2 million increase in cash flow and a favourable
change in non-cash working capital of $27.4 million. The primary
reason for the $6.2 million increase in cash flow was the Company's
February 16, 2004 acquisition of Schreiner. In the first quarter of
fiscal 2005 Schreiner generated cash flow of $6.1 million. Non-cash
working capital increased by $14.5 million in the first quarter of
fiscal 2005. Schreiner accounted for $3.1 million of this increase.
The remaining increase was due primarily to an increase in
receivables. The increase in receivables was spread throughout the
Company's operating units and was caused by the relative timing of
invoicing and cash receipts. The Company is focused on improving
accounts receivable collections. Financing Activities The Company's
total net debt increased by $30.5 million during the first quarter
of fiscal 2005 as follows: Change in Total Net Debt Position During
Q1 (in millions of Canadian dollars) (Unaudited)
------------------------------- Opening balance, May 1, 2004 (1) $
446.9 Net increase in debt (2) 16.2 Decrease in cash and cash
equivalents (3) 29.2 Foreign exchange (4) (14.9)
------------------------------- Ending balance July 31, 2004 (5) $
477.4 -------------------------------
------------------------------- (1) Comprised of total debt of
$514.0 million less cash and cash equivalents of $67.1 million. (2)
Comprised of proceeds of $36.4 million less repayments of $20.2
million. Proceeds represent net drawdowns on the Company's senior
credit facilities and were used primarily to fund capital asset
additions. Repayments were composed of (i) $10.4 million used to
retire the Company's 8% subordinated debentures and (ii) $9.8
million (excluding foreign exchange) used to retire the remaining
balance of the Company's 11.75% senior subordinated notes.
Repayments were funded from cash flow. (3) For details, see the
Company's consolidated statement of cash flows for the three months
ended July 31, 2004. (4) The favourable foreign exchange on debt
was attributable primarily to the Company's U.S. dollar and euro
denominated debt as a result of the weakening of these currencies
against the Canadian dollar during the first quarter of fiscal
2005. (5) Comprised of total debt of $514.9 million less cash of
$37.5 million. The Company's debt balance reflects the full
acquisition price of Schreiner in the fourth quarter of fiscal
2004, but the statement of earnings only reflects Schreiner
contribution since the acquisition date. During the first quarter
of fiscal 2005, the Company paid cash debt settlement costs of $2.1
million to repay existing debt. These costs were composed of
realized foreign exchange losses of $1.2 million, and $0.9 million
in make-whole premiums and other out-of-pocket costs such as
professional fees. The realized foreign exchange losses were
charged to the Company's cumulative translation adjustment account
because the related debt had been designated as a hedge of the
Company's net investment in its self-sustaining foreign operations.
The remaining cash costs of $0.9 million were charged to debt
settlement expenses on the Company's consolidated statement of
earnings for the first quarter of fiscal 2005. Such debt settlement
expenses totalled $1.4 million and included the noted cash costs of
$0.9 million as well as a $0.5 million write-off of unamortized
deferred financing costs on debt that was retired during the
quarter. During the first quarter of fiscal 2005 the Company
received $0.7 million from capital stock issued under the Company's
employee share purchase plan and in connection with the exercise of
share options. As at July 31, 2004, the Company had unused capacity
under its credit facilities of $45.7 million and cash and cash
equivalents of $37.5 million, for a total availability of $83.2
million. Investing Activities Additions to property and equipment
during the first quarter of fiscal 2005 totalled $86.9 million.
This was comprised of (i) $72.3 million for the purchase of six
aircraft, (ii) $4.7 million for aircraft modifications, (iii) $4.8
million in connection with buildings and hangars and (iv) $5.1
million primarily for other equipment. The aircraft expenditures of
$72.3 million were comprised of the combined aircraft purchase
price of $77.4 million reduced by the application of deposits of
$5.1 million. The Company also made additional aircraft deposits of
$12.5 million during the first quarter of fiscal 2005 to end the
quarter with an aircraft deposit balance of $25.2 million. Capital
expenditures for helicopter major components during the first
quarter of fiscal 2005 totalled $21.3 million. Included in
operating expenses was major component amortization of $19.4
million. The Company also spent $4.0 million on helicopter major
inspections in the quarter. Proceeds from disposals during the
quarter totaled $59.9 million and included (i) $57.4 million
received from three aircraft sale-leaseback transactions, (ii) $1.7
million received on an insurance claim for a Bell 212 helicopter,
(iii) $0.6 million received on the sale of a Bell 206 L-1 and
Eurocopter BO105 aircrafts, and (iv) $0.2 million received from
miscellaneous disposals. These dispositions resulted in a total
recognized gain of $1.1 million and deferred gains totaling $3.0
million during the first quarter. The deferred gains were related
to the sale-leaseback transactions and are being amortized against
lease expense on a straight-line basis over the lease terms. The
three aircraft that were sold and leased back under operating
leases were acquired during the first quarter of fiscal 2005 for a
total cost of $54.4 million. Risks and uncertainties Except for the
discussion below on the risk to the Company concerning foreign
currency, there has been no significant change in the risks and
uncertainties to the Company associated with industry exposure,
inflation, contract loss, aviation licenses and reinsurance
outlined in the MD&A contained in the Company's 2004 Annual
Filings. Foreign currency The Company's reporting currency is the
Canadian dollar. However, a significant portion of revenue and
operating expenses are denominated in pound sterling, Norwegian
kroner, U.S. dollars, Australian dollars, South African rand and
euros, the reporting currencies of the Company's principal foreign
operating subsidiaries. In addition, certain revenue and operating
expenses are transacted in currencies other than the reporting
currencies of the subsidiaries, primarily U.S. dollars and euros.
Foreign exchange impact on revenue and Consolidated Segment EBITDA,
therefore, is comprised of (i) foreign exchange on the translation
of the financial results of the foreign subsidiaries into Canadian
dollars and (ii) foreign exchange on the translation of foreign
denominated transactions into the reporting currencies of the
subsidiaries. The translation of the financial results of the
Company's foreign subsidiaries into Canadian dollars resulted in
foreign exchange that increased revenue by $8.9 million for the
three months ended July 31, 2004. This favourable foreign exchange
was a result of the strengthening of the pound sterling, Norwegian
kroner, Australian dollar and South African rand somewhat offset by
the weakening of the U.S. dollar. The impact on revenue due to the
translation of U.S. dollar, Danish kroner and euro denominated
transactions into the reporting currencies of the Company's
subsidiaries was unfavourable by $2.9 million for the quarter. The
net favourable foreign exchange impact on revenue was $6.0 million
for the three months ended July 31, 2004. For the current quarter,
foreign exchange upon translation of the financial results of the
Company's foreign subsidiaries into Canadian dollars favourably
impacted Consolidated Segment EBITDA by $1.6 million. This was
partially offset by unfavourable foreign exchange of $0.2 million
attributable to the translation of foreign denominated transactions
into the reporting currencies of the subsidiaries. The net
favourable foreign exchange impact on Consolidated Segment EBITDA
for the three months ended July 31, 2004 was therefore $1.4
million. Since financing charges, amortization, income tax expense,
capital expenditures and debt repayments are also primarily in
European currencies and U.S. dollars, the net impact of foreign
exchange on net earnings and cash flow is not as significant. The
Company's overall approach to managing foreign currency exposure
includes identifying and quantifying its exposure and putting in
place the necessary financial instruments to manage the exposure.
The Company operates under a corporate policy that restricts it
from using any financial instrument for speculative or trading
purposes. The policy provides that the Company may participate in
derivative transactions only with Schedule 1 Canadian chartered
banks or other financial instruments with an "A" credit rating. The
Company has developed a risk management plan to mitigate potential
risks with respect to foreign currencies. The strategy is to match
cash inflows and outflows by currency, thereby minimizing net
currency exposures to the extent possible. This is accomplished by
ensuring that customer contracts, major expenditures and debt are
denominated in the appropriate currencies. To mitigate the impact
that weakening European currencies could have on operating cash
flows, the Company has denominated, either directly or via currency
swaps, a significant portion of its long-term debt in U.S. dollars,
pound sterling, euros and Norwegian kroner. As at July 31, 2004,
the Company's total net debt was denominated (before currency
swaps) in the following currencies: (Unaudited)
-------------------------------- Debt in Canadian Original Currency
Equivalent Currency (000's) (000's)
----------------------------------------------------------------------
Euro (euro) 68,828 $ 110,084 Pound sterling pnds stlg 12,558 30,373
U.S. dollar $ 255,080 339,052 Canadian dollar $ 35,424 35,424 Cash
(various currencies) (37,552)
----------------------------------------------------------------------
Total Net Debt $ 477,381 Of the U.S. $255.1 million of debt at July
31, 2004, U.S. $93.5 million, U.S. $29.7 million and U.S. $26.8
million were converted to pnds stlg 55.0 million, (euro) 25.0
million and nok 186.3 million through the use of currency swaps as
noted above.
---------------------------------------------------------- Year to
Date Average Foreign Exchange Rates (Unaudited)
---------------------------------------- July 31, 2004 July 31,
2003 ---------------------------------------- USD - CAD 1.3523
1.3720 NOK - CAD 0.1973 0.1953 GBP - CAD 2.4619 2.2431 Euro - CAD
1.6421 1.5826
----------------------------------------------------------
----------------------------------------------------------
Financial Instruments The Company periodically enters into interest
rate swaps, forward foreign exchange contracts, currency swaps,
equity forward pricing agreements and other derivative instruments
to hedge the Company's exposure to interest rate risk, foreign
currency exchange risk and stock price volatility in connection
with its stock appreciation rights plan. The Company does not enter
into derivative transactions for speculative or trading purposes.
As at July 31, 2004, the Company continued its designation of its
U.S. $250.0 million 7 3/8% senior subordinated notes and related
currency swaps as effective hedges of the Company's net investments
in certain self-sustaining operations in Canada, the U.K., The
Netherlands and Norway. The Company also has designated its pound
sterling and remaining outstanding euro denominated debt as hedges
of its net investments in its self-sustaining operations in the
U.K. and The Netherlands, respectively. As a result of the above
effective hedging relationships, revaluation gains and losses on
debt, the net investments and currency swaps are offset in the
cumulative translation adjustment account in the equity section of
the balance sheet in accordance with Canadian GAAP. During the
current quarter the Company entered into foreign currency forward
contracts to reduce its exposure to currency fluctuations. These
derivatives were designated as effective hedges of anticipated cash
flows for certain of its operations. Fleet At July 31, 2004 the
Company's fleet consisted of 141 owned aircraft and 66 aircraft
under operating leases. Eighty-four of these aircraft are employed
in Europe (primarily in the North Sea) with the other 123 employed
in other international markets. In addition, 296 aircraft are
employed in the Company's 42.75% owned Canadian onshore helicopter
operations, Canadian Helicopters Limited, the Company's 40% owned
helicopter operations, Aero Contractors of Nigeria, and the
Company's 37.8% owned investment in Inaer, the largest onshore and
offshore helicopter operator in Spain, for a combined total of 503
aircraft. The following table outlines the changes in the Company's
fleet during the first quarter of fiscal 2005:
-------------------------------------------------------------------------
Fleet Summary (Unaudited)
-------------------------------------------------------------------------
Fixed Operating Heavy Medium Light Wing Total Owned Leased -----
------ ----- ---- ----- ----- ------ Fleet at May 1, 2004 74 106 12
14 206 141 65 Increases (decreases) during the period: Purchase of
previously leased Super Puma AS332 MII 1 (1) Super Puma AS332 MIIs
acquired under purchase sale-lease back arrangements 2 2 2 Purchase
of Lear Jet 1 1 1 Purchase of Eurocopter 365N2 1 1 1 Lease of Bell
412HP 1 1 1 Sale of Bell 206L-1 (1) (1) (1) Total loss due to
accident - Bell 212 (1) (1) (1) Return of leased Bell 212 (1) (1)
(1) Sale of Eurocopter BO 105 (1) (1) (1)
-------------------------------------------------------------------------
Fleet at July 31, 2004 76 106 10 15 207 141 66
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In addition to the above transactions, a Super Puma aircraft that
had operated under an operating lease was purchased then
immediately sold to and leased back from a different lessor. During
the quarter, the Company made aircraft operating lease payments of
$13.4 million compared to $10.2 million in the same period last
year. As at July 31, 2004, there were twenty additional leased
aircraft compared to the same period last year, seven of which
related to the acquisition of Schreiner. The increase in lease
payments of $3.2 million therefore is due primarily to an increase
in the number of leased aircraft. The Company has entered into
operating leases with third-party lessors in respect of 66 aircraft
included in the Company's fleet at July 31, 2004. Sixty-two of
these leases are long-term with expiry dates ranging from 2005 to
2012. The Company has an option to purchase the aircraft at market
value or agreed amounts at the end of most of the long-term leases,
but has no commitment to do so. At July 31, 2004 the Company
operated 21 aircraft under operating leases with eight entities
that would be considered variable interest entities ("VIEs") under
U.S. GAAP. These leases have terms and conditions similar to those
of the Company's other operating leases over periods ranging from
2005 to 2011. See Note 5 to the unaudited consolidated interim
financial statements to which this MD&A relates. Based on
appraisals by independent helicopter valuation companies as at
April 30, 2004, the estimated fair market value of the aircraft
leased from VIEs is $211.3 million as at July 31, 2004. The Company
has provided junior loans and advance rentals in connection with
operating leases with these VIEs. The Company's maximum exposure of
loss related to junior loans as a result of its involvement with
the VIEs is $9.9 million as at July 31, 2004. The future minimum
lease payments required under aircraft operating leases are as
follows (unaudited - based on July 31, 2004 interest rates and
exchange rates): 2005 $ 53.8 million 2006 45.3 million 2007 36.9
million 2008 31.2 million 2009 28.9 million and thereafter: 45.8
million ------------ Total $241.9 million --------------
-------------- In addition to aircraft leases, the Company has
approximately $6.0 million in annual lease commitments for land,
buildings and non-aircraft equipment. Based on an independent
appraisal as at April 30, 2004, and, in the case of aircraft
acquired during the current fiscal year, independent appraisals as
at the date of acquisition, the fair market value of the Company's
owned aircraft fleet at July 31, 2004 is U.S. $434.2 million (CDN
$577.2 million), exceeding its recorded net book value by
approximately CDN $101.6 million (April 30, 2004 - $102.3 million).
As at July 31, 2004 the Company had ordered and made deposits on
six new S76C+ helicopters for its International operations for
delivery in fiscal 2005. As at July 31, 2004 the Company had also
ordered and made deposits for the delivery of four S92 aircraft
with orders and deposits made on two additional S92's subsequent to
the quarter end. The Company expects to take delivery of three of
these aircraft in fiscal 2005 and the remaining three aircraft in
fiscal 2006. The Company has some flexibility built into the
delivery schedule of these aircraft in order to match acquisitions
with new demand. These aircraft will be deployed in the Company's
European operations. Where possible, the Company intends to obtain
the use of these aircraft through operating leases. As part of a
repair and overhaul contract with the German Ministry of Interior
the Company will modify and sell five of its own Super Puma L model
aircraft from its European operations over the next three years.
Defined Benefit Employee Pension Plans At July 31, 2004 the Company
had a funding deficit of $75.9 million, as described in Note 8 to
the unaudited consolidated interim financial statements, related to
its defined benefit pension plans that require funding by the
Company compared to $67.0 million at April 30, 2004, representing
an increase of $8.9 million. The increase in the funding deficit
was primarily caused by a lower than expected return on plan
assets. In addition, the Company's annual pension payments to the
Norwegian plans are made later in the year which will improve the
funding status at that time. Of the $75.9 million funding deficit,
$52.4 million, $17.2 million and $6.3 million are related to plans
in the U.K., The Netherlands and Norway, respectively.
Additionally, the Company had an obligation of $37.1 million at
July 31, 2004 related to plans that do not require funding compared
to $36.6 million at April 30, 2004. Defined benefit pension plan
expense increased from $6.5 million in the first quarter last year
to $6.9 million in the same period this year. The increase of $0.4
million was driven by (i) the inclusion of Schreiner's results this
quarter increasing pension expense by $1.3 million partially offset
by (ii) a net decrease of $0.9 million, net of $0.2 million
unfavourable foreign exchange, in pension expense related to the
Company's other defined benefit pension plans due primarily to
higher expected returns on plan assets as a result of higher asset
levels at the start of the year partially offset by an increase in
interest cost. 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 42.75% investment in the onshore
operations of Canadian Helicopters Limited and from the Company's
38% owned investment in onshore and offshore helicopter operations
of Inaer. Share data The number of issued and outstanding shares as
at August 31, 2004 was as follows: (000's) ------- Class A
subordinated voting share 18,399 Class B multiple voting shares
2,940 Ordinary shares 11,000 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, 2004 remained unchanged from July 31, 2004 as described
in Note 11 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 and liabilities and the
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenue and
expenses during the reporting periods. 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 are outlined in
the MD&A included in the Company's 2004 Annual Filings. Change
in Accounting Policies A summary of the Company's significant
accounting policies is presented in Note 1 to the Company's audited
consolidated financial statements for the fiscal year ended April
30, 2004 included in the 2004 Annual Filings. New accounting
policies which were adopted in this interim period are described in
Note 2 to the Company's unaudited consolidated financial statements
to which this MD&A relates. Related Party Transactions The
Company has dealings with related parties as outlined in the
MD&A included in the Company's 2004 Annual Filings.
Transactions with these related parties are described in Note 14 to
the Company's unaudited consolidated financial statements to which
this MD&A relates. FIRST AND FINAL ADD TO FOLLOW DATASOURCE:
CHC Helicopter Corporation CONTACT: Jo Mark Zurel, Senior
Vice-President & Chief Financial Officer, (709) 570-0567; Rick
Davis, Vice-President, Financial Reporting, (709) 570-0772; Chris
Flanagan, Director of Communications, (709) 570-0749. If you wish
to be removed or included on the Company's distribution list,
please call (709) 570-0749 or email .; Archived images on this
organization are available through CNW E-Pix at
http://www.newswire.ca/. Images are free to members of The Canadian
Press.; To request a free copy of this organization's annual
report, please go to http://www.newswire.ca/ and click on
reports@cnw.
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