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) ------------------------------------------------------------------------- Three Months Ended ------------------------------------------------------------------------- July 31, July 31, 2004 2003 (Unaudited) (Unaudited) ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- (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. ------------------------------------------------------------------------- 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. ------------------------------------------------------------------------- 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) ------------------------------------------------------------------------- Total Flying Astec Inter- Oper- Repair & Period Europe national Schreiner ations Overhaul Composites Total ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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. ------------------------------------------------------------------------- Flying Hours by Quarter (Unaudited) ------------------------------------------------------------------------- Flying Hours Number of Aircraft ------------------------------------ -------------------------- Period Europe Int'l Schreiner Total Europe Int'l Schreiner ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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. ------------------------------------------------------------------------- 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% ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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% ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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. ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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. ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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. ------------------------------------------------------------------------- Aberdeen Airport - Helicopter Passengers Year Ended April 30, ------------------------------------------------------------------------- 2005 2004 2003 2002 2001 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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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