SELECTED FINANCIAL DATA
The following consolidated historical financial data as at and for the fiscal years ended April 30, 2004, 2003, 2002, 2001, and 2000 for CHC Helicopter Corporation ("CHC", "the Company", "the Corporation", "we", "our", or "us") are derived from the audited consolidated financial statements of CHC. The CHC consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), which differ in certain respects from U.S. GAAP. For the reconciliation to U.S. GAAP for the three most recently completed fiscal years, see Note 32 to our audited consolidated financial statements included elsewhere in this Annual Report.
The following data should be read in conjunction with "Operating and Financial Review and Prospects" and our audited consolidated financial statements included elsewhere in this Annual Report.
|
|
|
As at and for the fiscal year ended April 30
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
(1) (2)
|
|
|
(1) (2)
|
|
|
(1) (2)
|
|
|
(1) (2)
|
|
|
|
|
(in
millions of Canadian dollars
except per share amounts)
|
|
Amounts under Canadian GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
733.6
|
|
$
|
718.3
|
|
$
|
617.2
|
|
$
|
593.8
|
|
$
|
534.0
|
|
|
Operating expenses
|
|
|
610.3
|
|
|
577.0
|
|
|
497.0
|
|
|
477.3
|
|
|
440.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before undernoted items
|
|
|
123.3
|
|
|
141.3
|
|
|
120.2
|
|
|
116.5
|
|
|
93.8
|
|
|
Amortization
|
|
|
(25.9
|
)
|
|
(22.6
|
)
|
|
(18.6
|
)
|
|
(20.0
|
)
|
|
(21.6
|
)
|
|
Gain (loss) on disposals of assets
|
|
|
3.3
|
|
|
2.4
|
|
|
1.9
|
|
|
1.0
|
|
|
(0.1
|
)
|
|
Financing charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(31.2
|
)
|
|
(31.1
|
)
|
|
(42.3
|
)
|
|
(53.6
|
)
|
|
(51.3
|
)
|
|
Other
|
|
|
1.7
|
|
|
(3.7
|
)
|
|
(5.7
|
)
|
|
(2.8
|
)
|
|
3.3
|
|
|
Equity in earnings (loss) of associated companies
|
|
|
3.9
|
|
|
2.3
|
|
|
1.1
|
|
|
(0.4
|
)
|
|
2.0
|
|
|
Asset impairment charge
|
|
|
—
|
|
|
(12.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Restructuring and debt settlement costs
|
|
|
(28.9
|
)
|
|
(12.5
|
)
|
|
—
|
|
|
(18.6
|
)
|
|
(7.4
|
)
|
|
Gain on sale of operations and investments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and non-controlling interest
|
|
|
46.2
|
|
|
63.3
|
|
|
56.6
|
|
|
27.9
|
|
|
23.9
|
|
|
Income tax recovery (expense)
|
|
|
17.5
|
|
|
2.2
|
|
|
(9.8
|
)
|
|
5.9
|
|
|
(5.7
|
)
|
|
Non-controlling interest
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
63.7
|
|
$
|
65.5
|
|
$
|
46.8
|
|
$
|
33.8
|
|
$
|
17.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
3.08
|
|
$
|
3.16
|
|
$
|
2.84
|
|
$
|
2.15
|
|
$
|
1.13
|
|
|
Diluted earnings per share
|
|
|
2.83
|
|
|
2.92
|
|
|
2.59
|
|
|
2.01
|
|
|
1.12
|
|
|
Dividends per participating voting share
|
|
|
0.50
|
|
|
0.20
|
|
|
—
|
|
|
0.11
|
|
|
—
|
|
|
Dividends (in U.S. $) per share (3)
|
|
|
0.37
|
|
|
0.13
|
|
|
—
|
|
|
0.07
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding in (000)
|
|
|
21,061
|
|
|
20,728
|
|
|
16,464
|
|
|
15,729
|
|
|
15,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter operations
|
|
$
|
629.4
|
|
$
|
648.9
|
|
$
|
573.6
|
|
$
|
559.5
|
|
$
|
510.6
|
|
|
Schreiner Aviation Group
|
|
|
39.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Astec repair and overhaul
|
|
|
58.1
|
|
|
63.0
|
|
|
43.6
|
|
|
34.3
|
|
|
23.4
|
|
|
Composites
|
|
|
7.0
|
|
|
6.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
733.6
|
|
$
|
718.3
|
|
$
|
617.2
|
|
$
|
593.8
|
|
$
|
534.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at and for the fiscal year ended April 30
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
(1) (2)
|
|
|
(1) (2)
|
|
|
(1) (2)
|
|
|
(1) (2)
|
|
|
|
|
(in millions of Canadian dollars except per share amounts)
|
|
Other Financial Data (cont’d):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter operations
|
|
$
|
97.0
|
|
$
|
128.5
|
|
$
|
113.0
|
|
$
|
106.7
|
|
$
|
85.8
|
|
|
Schreiner Aviation Group
|
|
|
3.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Astec repair and overhaul
|
|
|
41.2
|
|
|
37.4
|
|
|
31.0
|
|
|
24.9
|
|
|
16.7
|
|
|
Composites
|
|
|
(2.0
|
)
|
|
(3.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Corporate and other
|
|
|
(16.1
|
)
|
|
(21.4
|
)
|
|
(23.8
|
)
|
|
(15.1
|
)
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Segment EBITDA
|
|
$
|
123.3
|
|
$
|
141.3
|
|
$
|
120.2
|
|
$
|
116.5
|
|
$
|
93.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter operations Segment EBITDA margin (5)
|
|
|
15.4
|
%
|
|
19.8
|
%
|
|
19.7
|
%
|
|
19.1
|
%
|
|
16.8
|
%
|
|
Consolidated Segment EBITDA margin (6)
|
|
|
16.8
|
%
|
|
19.7
|
%
|
|
19.5
|
%
|
|
19.6
|
%
|
|
17.6
|
%
|
|
Total capital asset additions (7)
|
|
$
|
249.1
|
|
$
|
168.4
|
|
$
|
175.6
|
|
$
|
179.0
|
|
$
|
162.1
|
|
|
Ratio of earnings to fixed charges (8)
|
|
|
1.8x
|
|
|
2.2x
|
|
|
1.8x
|
|
|
1.4x
|
|
|
1.3x
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
345.3
|
|
$
|
289.0
|
|
$
|
313.1
|
|
$
|
190.4
|
|
$
|
175.3
|
|
|
Total assets
|
|
|
1,514.7
|
|
|
1,145.6
|
|
|
1,164.3
|
|
|
995.6
|
|
|
1,064.3
|
|
|
Total debt
|
|
|
514.0
|
|
|
321.3
|
|
|
424.8
|
|
|
464.1
|
|
|
590.2
|
|
|
Total liabilities
|
|
|
1,053.0
|
|
|
732.6
|
|
|
832.0
|
|
|
840.2
|
|
|
947.2
|
|
|
Capital stock
|
|
|
238.4
|
|
|
237.0
|
|
|
236.0
|
|
|
119.5
|
|
|
114.9
|
|
|
Shareholders’ equity
|
|
|
461.7
|
|
|
413.0
|
|
|
332.3
|
|
|
155.4
|
|
|
117.1
|
|
|
Amounts under U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
733.6
|
|
$
|
718.3
|
|
$
|
617.2
|
|
$
|
593.8
|
|
$
|
534.0
|
|
|
Operating expenses
|
|
|
610.2
|
|
|
565.1
|
|
|
503.4
|
|
|
481.0
|
|
|
444.6
|
|
|
Amortization
|
|
|
25.4
|
|
|
22.6
|
|
|
18.7
|
|
|
20.0
|
|
|
22.2
|
|
|
Financing charges
|
|
|
53.1
|
|
|
18.1
|
|
|
48.0
|
|
|
56.4
|
|
|
48.0
|
|
|
Net earnings
|
|
|
45.8
|
|
|
86.6
|
|
|
51.6
|
|
|
20.8
|
|
|
17.3
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.22
|
|
$
|
4.18
|
|
$
|
3.13
|
|
$
|
1.32
|
|
$
|
1.12
|
|
|
Diluted earnings per share
|
|
|
2.04
|
|
|
3.85
|
|
|
2.85
|
|
|
1.24
|
|
|
0.62
|
|
|
Dividends per participating voting share
|
|
|
0.50
|
|
|
0.20
|
|
|
—
|
|
|
0.11
|
|
|
—
|
|
|
Dividends (in U.S. $) per share (3)
|
|
|
0.37
|
|
|
0.13
|
|
|
—
|
|
|
0.07
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding in (000)
|
|
|
21,061
|
|
|
20,728
|
|
|
16,464
|
|
|
15,729
|
|
|
15,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Segment EBITDA (4)
|
|
$
|
123.4
|
|
$
|
153.2
|
|
$
|
113.8
|
|
$
|
112.8
|
|
$
|
89.4
|
|
|
Consolidated Segment EBITDA margin (6)
|
|
|
16.8
|
%
|
|
21.3
|
%
|
|
18.4
|
%
|
|
19.0
|
%
|
|
16.7
|
%
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
346.7
|
|
$
|
299.3
|
|
$
|
309.7
|
|
$
|
183.6
|
|
$
|
171.9
|
|
|
Total assets
|
|
|
1,517.7
|
|
|
1,124.8
|
|
|
1,153.0
|
|
|
989.1
|
|
|
1,095.8
|
|
|
Total debt
|
|
|
515.0
|
|
|
322.2
|
|
|
424.8
|
|
|
464.1
|
|
|
590.2
|
|
|
Total liabilities
|
|
|
1,060.4
|
|
|
742.3
|
|
|
837.0
|
|
|
851.6
|
|
|
980.7
|
|
|
Capital stock
|
|
|
238.5
|
|
|
237.0
|
|
|
236.0
|
|
|
119.5
|
|
|
114.9
|
|
|
Shareholders’ equity
|
|
|
457.3
|
|
|
382.5
|
|
|
316.0
|
|
|
137.5
|
|
|
115.1
|
|
|
(1)
|
The fiscal periods presented do not include any operating results related to the repair and overhaul business of Vector Aerospace Corporation ("Vector"). The fiscal 2000 results include the equity in Vector's earnings for our 20% investment in Vector, which was sold on September 30, 1999. The fiscal 2000 results include the results of Helicopter Services Group AS ("HSG") for the eight and one-half months subsequent to its acquisition by us on August 11, 1999. The fiscal 2001 results include the results of the Canadian onshore helicopter operations for the six months preceding its disposition on October 31, 2000. The prior year includes those operations for twelve months.
|
|
(2)
|
Restated. See Notes 4 & 5 to our audited consolidated financial statements included elsewhere in this Annual Report.
|
|
(3)
|
Amounts have been converted to U.S. dollars at the average exchange rate for the period as provided below.
|
|
(4)
|
Segment EBITDA is revenue less operating expenses allocated to each of our segments. Consolidated Segment EBITDA is the sum of the Segment EBITDA from each of our segments and is equivalent to "Earnings before undernoted items" on our Consolidated Statement of Earnings. See Note 24 to our audited consolidated financial statements included elsewhere in this Annual Report.
|
|
(5)
|
Helicopter operations Segment EBITDA margin represents helicopter operations Segment EBITDA as a percentage of helicopter operations revenue.
|
|
(6)
|
Consolidated Segment EBITDA margin represents Consolidated Segment EBITDA as a percentage of total revenue.
|
|
(7)
|
Total capital asset additions include all asset acquisitions, including aircraft, as well as helicopter major inspection and helicopter component expenditures during the period.
|
|
(8)
|
For the purpose of this calculation "earnings" is defined as earnings before income taxes and undistributed earnings from equity investees. Fixed charges consist of interest, whether expensed or capitalized, amortization of capitalized interest and an estimated portion of rent expense representative of the interest factor.
|
EXCHANGE RATE DATA
The following table sets forth, for the periods indicated, certain exchange rates based on the high and low noon buying rates in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The average exchange rate is based on the average of the exchange rates on the last day of each month during such periods. The rates quoted are the number of United States dollars per one Canadian dollar.
|
|
|
Year ended April 30,
|
|
|
|
|
|
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
|
|
U.S.$
|
|
|
U.S.$
|
|
|
U.S.$
|
|
|
U.S.$
|
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|
U.S.$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange rate at the end of period
|
|
|
0.6749
|
|
|
0.6510
|
|
|
0.6377
|
|
|
0.6975
|
|
|
0.7293
|
|
|
Average exchange rate during period
|
|
|
0.6801
|
|
|
0.6611
|
|
|
0.6370
|
|
|
0.6498
|
|
|
0.7445
|
|
|
High exchange rate during period
|
|
|
0.6969
|
|
|
0.6831
|
|
|
0.6636
|
|
|
0.6975
|
|
|
0.7880
|
|
|
Low exchange rate during period
|
|
|
0.6607
|
|
|
0.6333
|
|
|
0.6179
|
|
|
0.6264
|
|
|
0.7032
|
|
The following table sets forth, for the periods indicated, the monthly high and low U.S. dollar exchange rates based on the high and low noon buying rates in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The rates quoted are the number of United States dollars per one Canadian dollar.
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Month ended
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August 31,
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July 31,
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June 30,
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May 31,
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April 30,
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March 31,
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2004
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2004
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2004
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2004
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2004
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2004
|
|
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|
|
U.S.$
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|
U.S.$
|
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|
U.S.$
|
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|
U.S.$
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U.S.$
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U.S.$
|
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|
|
|
|
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|
|
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High
|
|
|
0.7714
|
|
|
0.7644
|
|
|
0.7459
|
|
|
0.7364
|
|
|
0.7637
|
|
|
0.7645
|
|
|
Low
|
|
|
0.7506
|
|
|
0.7489
|
|
|
0.7261
|
|
|
0.7158
|
|
|
0.7293
|
|
|
0.7418
|
|
We report our financial results in Canadian dollars and, unless otherwise indicated, references herein to "dollars", "$" or "CDN" are to Canadian dollars. Except where otherwise specifically noted, all amounts stated in U.S. dollars are included for convenience and are stated as a matter of arithmetical computation only. Except where otherwise specifically noted, U.S. dollar amounts are based on the April 30, 2004 noon buying rate for cable transfers of the Canadian dollar in New York City of U.S. $0.7293 as certified for customs purposes by the Federal Reserve Bank of New York. These amounts should not be construed as representations that the Canadian dollar amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at these rates. These rates differ from some of the rates used in the preparation of our financial statements included in this Annual Report and therefore U.S. dollar amounts used herein may differ from corresponding actual U.S. dollar amounts that were translated into Canadian dollars in the preparation of these financial statements. On September 13, 2004 the noon buying rate for a Canadian dollar was U.S. $0.7692.
RISK FACTORS
This section is intended to be a summary of more detailed discussions elsewhere in this Annual Report. The risks described below are not the only ones we face. Additional risks may impair our business operations. Our business, results of operations, or financial condition could be materially adversely affected if any of these risks materialize.
Our operations are largely dependent upon the level of activity in the oil and gas industry
Our operations are largely dependent upon the levels of activity in oil and gas production and exploration. To varying degrees these activity levels are affected by trends in oil and gas prices. Historically, the prices for oil and gas have been volatile and are subject to wide fluctuations in response to changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional factors beyond our control. We cannot predict future oil and gas price movements. Any prolonged reduction in oil and gas prices could depress the level of helicopter activity in support of exploration and to a lesser extent, production activity and, therefore, have a material adverse effect on our business, financial condition and results of operations. Approximately 72% of revenue for our fiscal year ended April 30, 2004 was attributable to helicopter support and related services for oil and gas production and exploration companies.
Companies in the oil and gas production and exploration sector continually seek to implement measures aimed at greater cost savings, including helicopter support operations. For example, companies have reduced manning levels on both old and new installations by using new technology to permit unmanned installations. The implementation of such measures could reduce the demand for helicopter transportation services and have a material adverse effect on our business, financial condition and results of operations.
Our overall operations are highly dependent upon the level of activity in the North Sea
Approximately 70% of our oil and gas based revenues for the fiscal year ended April 30, 2004 were derived from our helicopter support services to customers operating in the North Sea. If activity in oil and gas production and exploration in the North Sea declines, our business, financial condition and results of operations would be materially and adversely affected. During fiscal 2004, activity levels in the North Sea decreased, due in part to the decision by a number of large oil and gas producers to sell older assets, allowing them to focus on non-North Sea properties. It is therefore difficult to predict the level of activity in future periods given the uncertain economic climate.
Many of the markets in which we operate are highly competitive, which may result in a loss of market share or a decrease in revenue or profit margins
The markets in which we operate are highly competitive. Contracting for helicopter services is usually done on the basis of competitive bidding among those having the necessary equipment and resources. In our medium and heavy helicopter operations, for which helicopters comprising 87% of our helicopter fleet at April 30, 2004 are used, we compete against a number of helicopter operators including Offshore Logistics Inc. ("OLOG"), which is the other major global commercial helicopter operator, and other local and regional operators. In addition, many of our customers in the oil and gas industry have the financial ability to perform their own helicopter flying operations in-house should they elect to do so.
Our main competitors within the repair and overhaul business are the original equipment manufacturers of helicopters and their components. As such, our main competitors are also our main parts suppliers, which could result in our inability to obtain parts in a timely manner in required quantities at competitive prices.
We rely on a limited number of large, long-term offshore helicopter support contracts and if some of these are discontinued, our revenues could suffer
We derive a significant amount of our revenue from long-term offshore helicopter support contracts with oil and gas companies. A substantial number of our long-term contracts contain provisions permitting early termination by the customer. In addition, upon expiration of their term, these contracts are subject to a bidding process that could result in the loss of these contracts to competitors. The loss of one or more of these large contracts could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to acquire the necessary aircraft, we may not be able to take advantage of growth opportunities
There are lead times of up to 24 months to obtain the primary new heavy and medium aircraft types most often required by our customers. While up to now we have been able to acquire sufficient aircraft, a lack of available aircraft or the failure of our suppliers to deliver the aircraft we have ordered on a timely basis, could limit our ability to take advantage of growth opportunities.
Helicopter operations involve risks that may not be covered by our insurance or may increase the cost of our insurance
Operation of helicopters involves some degree of risk. Hazards, such as aircraft accidents, adverse weather and marine conditions, collisions and fire, are inherent in furnishing helicopter services and can cause personal injury and loss of life, severe damage to and destruction of property and equipment, and suspension of operations. Our inability to renew our liability insurance coverage or the loss, expropriation or confiscation of, or severe damage to, a large number of our helicopters could adversely affect our operations and financial condition. We believe we are adequately covered by insurance in light of our historical need for insurance coverage. The events of September 11, 2001 caused a worldwide increase in insurance rates, particularly in the business in which we operate and restricted the ability of operators to acquire war liability coverage above certain limits. As a result of these and other factors, no assurance can be given that we will be able to maintain adequate insurance in the future at rates we consider reasonable. Furthermore, we are not insured for loss of profit or use of our helicopters.
If we are unable to maintain required government-issued licenses for our operations, we will be unable to conduct helicopter operations in the applicable country
Europe
59.7% of our revenue for the fiscal year ended April 30, 2004 originated from helicopter flying services from our European based operations (UK, Norway, Denmark and Ireland). To operate helicopters in the UK and in the UK sector of the North Sea, an operator must be licensed by the UK Civil Aviation Authority. Under applicable European law, an operator must be "effectively controlled" and "majority owned" by nationals of Member States of the European Union (or the European Economic Area) to maintain its license. Our UK operating subsidiary, CHC Scotia Limited ("Scotia") has been licensed to operate helicopters by the UK Civil Aviation Authority, on the basis that we are (and therefore Scotia is) majority owned and controlled by European Nationals because our Chairman and Chief Executive Officer, Mr. Craig L. Dobbin, a citizen of both Canada and the Republic of Ireland (a Member State of the European Union) holds a sufficient number of securities of CHC. However, the UK Secretary of State (generally acting upon the advice of the UK Civil Aviation Authority) may revoke the license held by Scotia or effectively require us to dispose of our interests in Scotia if at any time we do not satisfy applicable nationality requirements. In 1994, two UK competitors of CHC alleged that we did not satisfy these requirements and that, as a result, Brintel Helicopters Limited ("Brintel"), our only UK helicopter operation at the time, was not entitled to maintain its operating license. Although discussions and correspondence with the European Commission, the United Kingdom Department of Environment, Transport and the Regions and the UK Civil Aviation Authority confirmed that the issuance of ordinary shares to Mr. Dobbin in December 1997 allowed us to satisfy the nationality requirements, this will not necessarily preclude further challenges of Scotia's right to maintain its operating license on this or any other basis. Further, Scotia's eligibility to maintain its license could be adversely affected if Mr. Dobbin were to dispose of the shares he holds in CHC, if his percentage ownership of CHC were to otherwise decrease, or if he were to die and no alternative arrangement acceptable to the UK Civil Aviation Authority were implemented. Our Danish and Irish subsidiaries are subject to the same European Union nationality requirements. The revocation of these licenses would have a material adverse effect on our business, financial condition and results of operations.
Our Norwegian subsidiaries are subject to substantially the same European Union nationality requirements with regard to ownership and control as are our UK subsidiaries due to Norway’s status as a Member State of the European Economic Area, and the agreement between the European Union and the European Economic Area harmonizing aviation relations between the two. On May 9, 1999, in response to objections initiated by the previous management of HSG, the Norwegian Ministry of Transport confirmed in writing that it had adopted the same position as the UK Civil Aviation Authority with regard to CHC's satisfaction of the European Union (and European Economic Area) nationality requirements and therefore would not challenge HSG's eligibility to hold helicopter operating licenses in Norway after our acquisition of HSG. The revocation of these licenses would have a material adverse effect on our business, financial condition and results of operations.
Schreiner Aviation Group ("Schreiner") (See ITEM 4. INFORMATION ON THE COMPANY), through subsidiaries, operates aircraft in Europe and is subject to the same European Union and European Economic Area nationality requirements with regard to ownership and control as are our UK and Norwegian subsidiaries. The Dutch Civil Aviation Authority advised us in writing prior to our acquisition of Schreiner that Schreiner was in compliance with applicable European ownership and control requirements and, based on information provided by us, would continue to be so following its acquisition by us. In accordance with Dutch Civil Aviation procedures, we were required to submit certain information regarding our ownership and control to the Dutch Civil Aviation Authority following our acquisition of Schreiner to formally demonstrate that Schreiner continues to meet the European ownership and control requirements. We have submitted the required information to the Dutch Civil Aviation Authority.
We believe that we are currently "majority owned" and "effectively controlled" within the meaning of European Union and European Economic Area licensing requirements. However, it may be difficult to establish with certainty that we are majority owned by European nationals, given the difficulty of establishing the beneficial ownership of shares held through depositories and nominees.
Canada
Our helicopter operations in Canada are regulated by Transport Canada. Our helicopter operations in Canada and certain other countries are conducted pursuant to an air operator certificate issued by the Minister of Transport (Canada) under the provisions of the Aeronautics Act (Canada). One of our subsidiaries operates heavy helicopters off Canada’s east coast in support of the oil and gas industry. Our ability to conduct our helicopter operating business in Canada is dependent on our ability to maintain this certificate.
South Africa
South African law requires that at least 75% of the voting rights of a holder of a domestic air services license must be held by residents of the Republic of South Africa. Upon acquiring its interest in Court Air (Pty) Ltd. ("Court Air"), HSG obtained a letter from the Ministry of Transport in South Africa, confirming its approval of HSG's indirect acquisition of Court Air on the basis that Court Air's immediate parent, Court Air Holdings (Pty) Ltd., was a South African registered company. Legal advice from our South African counsel confirmed that Court Air's licenses for helicopter operations in South Africa would not be adversely affected by our acquisition of HSG, but cautioned that there is some continuing risk that the South African Ministry of Transport could reverse its prior decision. While no action with respect to these licenses has been taken since our acquisition of HSG in 1999, any such reversal of decision could materially and adversely affect our business, financial condition and results of operations.
Australia
Civil aviation in Australia is governed by the Civil Aviation Act, 1988, and regulations made thereunder. To operate an aircraft in Australia, it must be registered with the Australian Civil Aviation Safety Administration and a valid Certificate of Airworthiness must be obtained, be valid and in effect. The operation of an aircraft for a commercial purpose into, out of or within Australian territory can only be undertaken as authorized by an Air Operators' Certificate. Our ability to offer our helicopter transportation services in Australia is dependent on maintaining these certificates.
Barbados
The Barbados subsidiaries are incorporated pursuant to the Companies Act Chapter 308 of the laws of Barbados as international business companies. As such, they are registered and licensed annually by the Ministry of Economic Development and International Business in accordance with the International Business Companies Act. An IBC license is issued annually which enables the respective companies to engage in international business or international trade and commerce. No registration, licensing or authorization is required with the Civil Aviation Authority which is the local governmental authority that regulates aviation operations in Barbados. Our ability to engage in international business or international trade and commerce is dependent on maintaining these licenses.
Other Countries
Our operations in other foreign countries are regulated to various degrees by their governments and must be operated in compliance with those regulations and, where applicable, in accordance with our international air service licenses and air operator certificates. These regulations may require us to obtain a license to operate in that country, may favor local companies or require operating permits that can only be obtained by locally registered companies and may impose other nationality requirements. Although we have operated in most of these countries for a number of years, we cannot assure you as to what foreign governmental regulations may be applicable in the future to our helicopter operations. In addition, we operate in partnership with local registered companies in many of these other foreign countries. The failure of those companies to maintain their licenses or the termination of our partnerships could have a material adverse impact on our results.
Our international operators may suffer due to political, economic and regulatory uncertainty
A substantial portion of our revenue in recent years has been attributable to operations outside North America and Europe by our international operating segment. 24.2% of revenue for our fiscal year ended April 30, 2004 was generated from these operations. Risks associated with some of our international operations include war and civil disturbances or other events that may limit or disrupt markets, expropriation, requirements to award contracts, concessions or licenses to nationals, international exchange restrictions and currency fluctuations, changing political conditions, licensing requirements and monetary policies of foreign governments. Any of these events could materially adversely affect our ability to provide services to our international customers. Certain of our helicopter leases and certain of our loan agreements impose limitations on our ability, including requiring the prior approval of the lessor or the lender, to locate particular helicopters in certain countries. We cannot assure you that these limitations will not affect our ability to allocate resources in the future.
Fluctuations in currencies may make it more costly for us to pay our debt
We prepare our financial statements in Canadian dollars. Because many of our revenues and expenses are incurred in currencies other than Canadian dollars, including the U.S. dollar, the pound sterling, the Norwegian kroner and the Euro, we are exposed to exchange rate and currency risks. In preparing our financial statements, we must convert all non-Canadian dollar financial statement items to Canadian dollars at varying rates of exchange. This may ultimately result in a currency gain or loss at the end of each fiscal period, the outcome of which we cannot predict. Furthermore, we may sometimes be required to make capital expenditures, or payments on debt, from revenues earned in other currencies. The same is true of expenses in pounds sterling, Norwegian kroner and Euros. To the extent that the currency of our revenues weakens relative to the currency of our expenses, we are exposed to exchange rate losses.
In general, our cash outflows exceed our cash inflows to a significant extent in only two currencies, the Canadian dollar and the Euro. Where appropriate, we hedge our exposure to losses from fluctuations in exchange rates. Losses from changes in the value of foreign currencies relative to the Canadian dollar could materially affect our business, financial condition and results of operations.
The loss of key personnel could affect our growth and future success
Our success has been dependent on the quality of our key management personnel, including Craig L. Dobbin, our Chairman and Chief Executive Officer, and Sylvain A. Allard, our President. The loss of Mr. Dobbin or Mr. Allard, due to time constraints, illness, death or any other reason, could have a material adverse effect on our business. In addition, since we have independent management teams at our divisions, loss of the services of other key management personnel at our corporate and divisional headquarters without being able to attract personnel of equal ability could have a material adverse effect upon us.
We may experience work stoppages that could cause disruptions in our operations
The Norwegian pilots have a three year agreement which expires April 30, 2006. Approximately 450 of our repair and overhaul employees at Astec (in Norway and the UK) are represented by unions with collective agreements extending to April 30, 2005 and April 30, 2006. Engineers and ground staff at CHC HS have a two-year collective agreement extending to October 2004. Negotiations are currently ongoing to ratify a new agreement.
In the UK, we have collective agreements with our pilot workforce and separately with our engineers and other ground staff, covering the period from May 1, 2002 to June 30, 2005. Similarly, in Denmark, we have multi-year collective agreements with our pilots, which expire in March 2007, and separately with our engineers extending to March 2005. In Ireland, we have collective pay agreements in place with our pilots, aircrewmen and engineers covering the period May 1, 2003 to April 30, 2006. In Australia, we have a collective agreement with our pilots to April 2005. Our 3-year union agreement with crewmen in Australia expired in December 2003 and the new agreement will go out to vote in the coming weeks. Our engineers’ agreement in Australia expires August 31, 2005. In Nigeria, we have a collective agreement with our pilot and engineer workforce which is up for renewal. Negotiations have not yet commenced. Employees at our other helicopter operations are not unionized. We also have a collective agreement with certain of the employees at Composites that expires on October 15, 2006.
During the past three years we have had work stoppages at three of our operating units which lasted from seven to 43 days. In addition, there have been some short-term national strikes in Nigeria that have had no significant impact on our Nigerian operations.
We cannot assure you that we will not experience strikes, lockouts or other significant work stoppages in the future or that our relationship with our employees will continue to be good, either of which may adversely affect our business, financial condition and results of operations.
We are controlled by our principal shareholder who can determine the outcome of matters to be decided by our shareholders
As of July 31, 2004, Mr. Dobbin, directly and indirectly through Discovery Helicopters Inc. ("Discovery") and O.S. Holdings Inc., beneficially owned 14.8% of our Class A Subordinate Voting Shares (which are entitled to one vote per share), 94.5% of our Class B Multiple Voting Shares (which are entitled to 10 votes per share) and all of our Ordinary Shares (which are entitled to one vote per 10 shares), representing in the aggregate 62.9% of the voting power on matters put before our shareholders. Mr. Dobbin has advised us that if we issue additional shares of voting securities, he intends to purchase, through Discovery, sufficient voting shares to enable him to maintain control of more than 50% of the
voting power attached to all outstanding voting shares. As a result, Mr. Dobbin would, subject to certain exceptions, continue to (1) control the outcome of all matters requiring a majority vote of shareholders, including the power to elect all of the directors but excluding those matters that require an affirmative vote of the majority of disinterested minority shareholders, (2) be able to prevent the approval of any matter requiring shareholder approval and (3) be likely to determine the outcome of any matter that under applicable corporate law would require a shareholders' resolution passed by not less than two-thirds of the votes cast, such as the sale by us of all or substantially all of our assets or an amalgamation with an unrelated corporation.
If our Norwegian operating subsidiaries incur substantial operating losses, they may be subject to liquidation under Norwegian law
The corporate law under which our Norwegian subsidiaries operate differs from Canadian and U.S. law in a number of areas, including with respect to corporate liquidation. Under Norwegian law, if the losses of any of our Norwegian subsidiaries reduce that subsidiary's equity to an amount less than 50% of its share capital or the equity of the subsidiary becomes inadequate compared to the risks and the size of the subsidiary's business, the directors of the subsidiary would be obligated by law to convene a general shareholders' meeting to resolve to balance the amount of such equity and share capital by either:
|
·
|
increasing the equity in an amount sufficient to achieve such balance and to ensure that the equity of the subsidiary becomes adequate compared to the risks and the size of the subsidiary's business; or
|
|
|
|
|
·
|
reducing the share capital to pay off losses in an amount sufficient to achieve such balance.
|
To the extent reductions in the share capital of our Norwegian subsidiaries as a result of operating losses are substantial and if no appropriate resolutions are made, they could ultimately result in liquidation, which would have a material adverse effect on our business, financial condition and results of operations.
Failure to maintain a record of acceptable safety performance may have an adverse impact on our ability to attract and retain customers
Our customers consider safety and reliability two primary attributes when selecting a provider of helicopter transportation services. If we fail to maintain a record of safety and reliability that is satisfactory to our customers, our ability to retain current customers and attract new customers may be adversely affected.
Assimilating the recent acquisition of Schreiner or any future material acquisition into our corporate structure may strain our resources and have an adverse impact on our business
The assimilation of Schreiner, or any future material acquisitions we may make, into our company will require substantial time, effort, attention and dedication of management resources and may distract our management in unpredictable ways from our ordinary operations. The transition process could create a number of potential challenges and adverse consequences for us, including the possible unexpected loss of key employees, customers or suppliers, a possible loss of revenues or an increase in operating or other costs. Inefficiencies and difficulties may arise because of unfamiliarity with new assets and the business associated with them, new geographic areas and new regulatory systems. These types of challenges and uncertainties could have a material adverse effect on our business, financial condition and results of operations. We may not be able to effectively manage the combined operations and assets or realize any of the anticipated benefits of acquiring Schreiner or any future material acquisition.
If the assets in our pension plans are not sufficient to meet the plans’ obligations, we may be required to make substantial cash contributions and our liquidity may be adversely affected
We sponsor funded and unfunded defined benefit pension plans for our employees principally in Canada, the UK and Norway. As of April 30, 2004, there was a $67.0 million funding deficit related to our various defined benefit pension plans which require ongoing funding by us and a $36.6 million obligation related to our various unfunded plans.
Our estimate of liabilities and expenses for pensions incorporates significant assumptions, including interest used to discount future liabilities and expected long-term rates of return on plan assets. Our pension contributions and expense, results of operations, liquidity or shareholders’ equity in a particular period could be materially adversely affected by market returns that are less than the plans’ expected long-term rates of return, a decline in the rate used to discount future liabilities and changes in the currency exchange rates.
If the assets of our pension plans do not achieve expected investment returns for a fiscal year, such deficiency may require increases in our pension expense. Changing economic conditions, poor pension investment returns or other factors may require us to make substantial cash contributions to our pension plans in the future, preventing the use of such cash for other purposes and adversely affecting our liquidity.
Our customers are concentrated in the oil and gas industry and, as a result, our credit exposure within this industry is significant
The majority of our customers are engaged in oil and gas production and exploration. This concentration may impact our overall exposure to credit risk because changes in economic and industry conditions that adversely affect the oil and gas industry could affect the majority of our customers. We generally do not require letters of credit or other collateral to support our trade receivables. Accordingly, a sudden or protracted downturn in the economic conditions of the oil and gas industry could adversely impact our ability to collect our receivables and thus our financial condition.
We are subject to certain environmental regulations which may have an adverse impact on our business
We are subject to extensive laws, rules, regulations and ordinances relating to pollution and protection of the environment, including those relating to emissions to the air, discharges to waters, the use, storage and disposal of petroleum and other regulated materials and the remediation of contaminated sites.
Our operations sometimes involve the use, handling and storage of material that may be classified as environmentally hazardous. Laws protecting the environment have become more stringent in Canada and certain other countries in recent years and may, in certain circumstances, impose liability for cleanup of releases of regulated materials and related environmental damage without regard to negligence or fault. These laws also may expose us to liability for the conduct of, or conditions caused by others such as historic spills of regulated materials at our facilities or for our acts that were in compliance with all applicable laws at the time these acts were performed. We believe we are in substantial compliance with applicable environmental requirements and that ensuring compliance has not, to date, had a material adverse effect on our financial position. We cannot, however, predict the likelihood of change to these laws or in their enforcement nor the impact of any such change, or discovery of previously unknown conditions which may require unanticipated costs, on our financial position.
The reorganization and consolidation of our operations may strain our resources and have an adverse impact on our business
The reorganization and consolidation of our operations into a new organizational structure and the relocation of the St. John’s head office to Vancouver, Canada will require substantial time, effort, attention and dedication of management resources and may distract our management in unpredictable ways from our ordinary operations. The transition process could create a number of potential challenges and adverse consequences for us, including the possible loss of key employees, customers or suppliers, a possible loss of revenue or an increase in operating or other costs. These types of challenges and uncertainties could have a material adverse effect on our business, financial condition and results of operations. We may not be able to effectively manage the reorganized operations and assets or realize any of the anticipated benefits from the restructuring.
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