|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2002
|_| Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period _____ to _____
Commission File Number 0-5232
Offshore
Logistics, Inc.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
72-0679819 (IRS Employer Identification Number) | |||
| 224 Rue de Jean P.O. Box 5-C, Lafayette, Louisiana (Address of principal executive offices) | 70505 (Zip Code) |
Registrant's telephone number, including area code: (337) 233-1221
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or of such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of November 1, 2002:
22,500,921 shares of Common Stock, $.01 par value
Item 1. Financial Statements
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- --------- -------------
GROSS REVENUE
Operating revenue......................................... $ 143,576 $ 131,502 $ 278,645 $ 254,786
Gain on disposal of assets................................ 1,966 735 2,253 1,160
----------- ----------- ----------- -----------
145,542 132,237 280,898 255,946
OPERATING EXPENSES
Direct cost............................................... 105,886 92,946 206,557 181,359
Depreciation and amortization............................. 9,344 8,640 18,285 17,018
General and administrative................................ 8,734 8,015 17,057 15,681
----------- ----------- ----------- -----------
123,964 109,601 241,899 214,058
----------- ----------- ----------- -----------
OPERATING INCOME.......................................... 21,578 22,636 38,999 41,888
Earnings from unconsolidated entities, net................ 1,668 1,676 3,451 2,638
Interest income........................................... 309 373 647 1,521
Interest expense.......................................... 3,602 4,080 7,278 8,348
Other income (expense), net............................... (1,485) (752) (3,229) (843)
------------ ----------- ------------ -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES AND MINORITY
INTEREST............................................... 18,468 19,853 32,590 36,856
Provision for income taxes................................ 5,540 6,155 9,777 11,425
Minority interest......................................... (445) (382) (848) (744)
------------ ----------- ------------ -----------
NET INCOME................................................ $ 12,483 $ 13,316 $ 21,965 $ 24,687
=========== =========== =========== ===========
Net income per common share:
Basic..................................................... $ 0.56 $ 0.61 $ 0.98 $ 1.13
=========== =========== =========== ===========
Diluted................................................... $ 0.51 $ 0.55 $ 0.90 $ 1.02
=========== =========== =========== ===========
September 30, March 31,
-------------- ------------
2002 2002
-------------- ------------
ASSETS
- ------
Current Assets:
Cash and cash equivalents....................................................$ 52,125 $ 42,670
Accounts receivable.......................................................... 137,083 120,292
Inventories.................................................................. 109,745 100,849
Prepaid expenses and other................................................... 37,090 9,391
-------------- ------------
Total current assets...................................................... 336,043 273,202
Investments in unconsolidated entities........................................... 24,158 21,103
Property and equipment - at cost:
Land and buildings........................................................... 16,358 13,686
Aircraft and equipment....................................................... 707,938 653,225
-------------- ------------
724,296 666,911
Less: accumulated depreciation and amortization................................. (223,455) (191,942)
--------------- ------------
500,841 474,969
Other assets..................................................................... 46,311 38,027
-------------- ------------
$ 907,353 $ 807,301
============== ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
Current Liabilities:
Accounts payable.............................................................$ 29,630 $ 30,312
Accrued liabilities.......................................................... 81,456 71,935
Deferred taxes............................................................... 9,570 7,212
Current maturities of long-term debt and other............................... 27,424 16,793
-------------- ------------
Total current liabilities................................................. 148,080 126,252
Long-term debt, less current maturities.......................................... 208,931 191,221
Other liabilities and deferred credits........................................... 39,274 37,520
Deferred taxes................................................................... 106,755 99,276
Minority interest................................................................ 15,214 12,998
Stockholders' Investment:
Common Stock, $.01 par value, authorized 35,000,000 shares;
outstanding 22,489,421 and 22,298,921 at September 30
and March 31, respectively (exclusive of 1,281,050 treasury shares) 225 223
Additional paid-in capital................................................... 138,695 135,886
Retained earnings............................................................ 278,333 256,368
Accumulated other comprehensive income (loss)................................ (28,154) (52,443)
--------------- ------------
389,099 340,034
-------------- ------------
$ 907,353 $ 807,301
============== ============
Six Months Ended
September 30,
----------------------------
2002 2001
------------- ------------
Cash flows from operating activities:
Net income....................................................................$ 21,965 $ 24,687
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization................................................. 18,285 17,018
Increase (decrease) in deferred taxes......................................... 4,983 8,753
(Gain) Loss on asset dispositions............................................. (2,253) (1,160)
Equity in earnings from unconsolidated entities
(over) under dividends received............................................ (1,896) (787)
Minority interest in earnings................................................. 848 744
(Increase) decrease in accounts receivable.................................... (10,146) (18,063)
(Increase) decrease in inventories............................................ (3,658) (9,254)
(Increase) decrease in prepaid expenses and other............................. (322) 3,736
Increase (decrease) in accounts payable....................................... (2,600) 2,924
Increase (decrease) in accrued liabilities.................................... 5,461 7,200
Increase (decrease) in other liabilities and deferred credits................. (1,516) 1,166
------------- ------------
Net cash provided by (used in) operating activities............................... 29,151 36,964
------------- ------------
Cash flows from investing activities:
Capital expenditures.......................................................... (11,684) (46,756)
Assets purchased on behalf of affiliate....................................... (26,019) --
Proceeds from asset dispositions.............................................. 7,126 3,054
Acquisitions, net of cash received............................................ (15,953) --
Investments................................................................... -- (576)
------------- ------------
Net cash provided by (used in) investing activities............................... (46,530) (44,278)
------------- ------------
Cash flows from financing activities:
Proceeds from borrowings from affiliate....................................... 26,019 --
Proceeds from borrowings under credit facilities.............................. 14,000 --
Repayment of debt............................................................. (16,645) (9,788)
Issuance of common stock...................................................... 2,757 1,065
------------- ------------
Net cash provided by (used in) financing activities............................... 26,131 (8,723)
------------- ------------
Effect of exchange rate changes in cash........................................... 703 391
------------- ------------
Net increase (decrease) in cash and cash equivalents.............................. 9,455 (15,646)
Cash and cash equivalents at beginning of period.................................. 42,670 54,794
------------- ------------
Cash and cash equivalents at end of period........................................$ 52,125 $ 39,148
============= ============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest......................................................................$ 7,138 $ 7,628
Income taxes..................................................................$ 4,122 $ 2,693
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of management, any adjustments considered necessary for a fair presentation have been included. Operating results for the six months ended September 30, 2002, are not necessarily indicative of the results that may be expected for the year ending March 31, 2003. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2002.
Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share for the three and six months ended September 30, 2002 excluded 424,000 and 257,500 stock options, respectively, at a weighted average exercise price of $20.46 and $21.34, respectively, which were outstanding during the period but were anti-dilutive. Diluted earnings per share for the three months ended September 30, 2001 excluded 432,826 stock options at a weighted average exercise price of $20.45, which were outstanding during the period but were anti-dilutive. The following table sets forth the computation of basic and diluted net income (loss) per share:
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ -------------
Net income (thousands of dollars):
Income available to common stockholders.................... $ 12,483 $ 13,316 $ 21,965 $ 24,687
Interest on convertible debt, net of taxes................. 955 941 1,909 1,882
------------ ------------ ------------ -------------
Income available to common stockholders,
plus assumed conversions.............................. $ 13,438 $ 14,257 $ 23,874 $ 26,569
============ ============ ============ =============
Shares:
Weighted average number of common
shares outstanding......................................... 22,398,223 21,895,606 22,356,507 21,879,727
Options.................................................... 127,989 171,704 167,850 232,849
Convertible debt........................................... 3,976,928 3,976,928 3,976,928 3,976,928
------------ ------------ ------------ -------------
Weighted average number of common
shares outstanding, plus assumed conversions.......... 26,503,140 26,044,238 26,501,285 26,089,504
========== ============ ============ =============
Net income (loss) per share:
Basic...................................................... $ 0.56 $ 0.61 $ 0.98 $ 1.13
============ ============ ============ =============
Diluted.................................................... $ 0.51 $ 0.55 $ 0.90 $ 1.02
============ ============ ============ =============
On November 16, 1999, the Office and Professional Employees International Union (“OPEIU”) petitioned the National Mediation Board (“NMB”) to conduct an election among the mechanics and related personnel employed by Air Logistics, L.L.C. and Air Logistics of Alaska, Inc. Subsequently, two separate union elections were held at Air Logistics, L.L.C., the first on March 13, 2000 and the second on March 19, 2002. In both instances the mechanics voted against union representation. With respect to the Alaska-based mechanics (approximately 20 employees), the NMB dismissed the matter on January 24, 2000, but due to extraordinary circumstances, the NMB did accept another representation application covering the Air Logistics of Alaska, Inc. mechanics and related employees. The Alaska election was held on July 21, 2000 with the mechanics voting in favor of the International Union of Operating Engineers (“IUOE”). Negotiations with the IUOE are in progress. The Company does not believe that current ongoing efforts will place it at a disadvantage with its competitors and management believes that pay scales, benefits, and work rules will continue to be similar throughout the industry.
On July 16, 2002, one of the Company’s S-76 helicopters, while ferrying passengers for a customer, crashed in the southern sector of the North Sea, killing all 11 persons onboard. A comprehensive investigation was immediately initiated involving the U.K. Aircraft Accident Investigation Bureau, Company and customer personnel, and manufacturer’s representatives. It has been determined that the cause of the accident was a main rotor blade which failed during flight. The cause of this failure is still under investigation but is believed to result from a manufacturing anomaly in the construction of the blade which when combined with a subsequent lightning strike, weakened the structural integrity of the blade. The Company maintains insurance coverage for such situations, and believes its coverages and that of the blade manufacturer are adequate for any claims that may result.
Comprehensive income is as follows (thousands of dollars):
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- ---------------------
2002 2001 2002 2001
------------ ---------- --------- ---------
Net Income..................................................... $ 12,483 $ 13,316 $ 21,965 $ 24,687
Other Comprehensive Income:
Currency translation adjustment............................ 7,308 11,060 24,289 9,262
---------- ---------- --------- ----------
Comprehensive Income........................................... $ 19,791 $ 24,376 $ 46,254 $ 33,949
========== ========== ========= ==========
On July 1, 2002, the Company made an investment in a West Africa helicopter operating company and ten single engine helicopters and three fixed wing aircraft for $16 million. The acquisition was financed by using $2 million in existing cash and borrowing $14 million under the Company’s line of credit facility. The acquisition was accounted for under the purchase method. The purchase price was allocated to the assets and liabilities acquired based upon estimated fair values. According to initial information, approximately $6.2 million, representing the excess of the purchase price over the fair market value of the tangible net assets acquired was allocated to goodwill. The Company is in the process of obtaining additional information about the fair value of the tangible net assets, therefore the purchase price allocation is preliminary and subject to change. The pro forma effect of operations of the acquisition when presented as of the beginning of the periods presented was not material to the Company’s consolidated statement of income.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” The standards significantly changed the Company’s prior practices by: (i) terminating the use of the pooling-of-interests method of accounting for future business combinations, (ii) ceasing goodwill amortization, and (iii) requiring impairment testing of goodwill based on a fair value concept. SFAS No. 142 requires that impairment testing of the opening goodwill balances be performed within six months from the start of the fiscal year in which the standard is adopted and that any impairment be written off and reported as a cumulative effect of a change in accounting principle. It also requires that another impairment test be performed during the fiscal year of adoption of the standard and that impairment tests be performed at least annually thereafter, with interim testing required under certain circumstances. Any impairment charges recorded as a result of these subsequent tests will be recorded as operating expenses. The Company adopted SFAS No. 142 as of April 1, 2002. Accordingly, the Company ceased to amortize goodwill in fiscal 2003. Goodwill amortization was approximately $0.3 million and $0.6 million for the three and six months ended September 30, 2001, respectively. Had the goodwill amortization not been recorded for the three and six months ended September 30, 2001, the Company’s net income would have been $13.6 million and $25.1 million, respectively and diluted earnings per share would have been $0.56 and $1.03, respectively. As of the beginning of the current fiscal year, the Company had unamortized goodwill of $13.8 million and $6.3 million relating to its production management and technical services business units, respectively. At September 30, 2002, the Company completed a goodwill impairment test of these opening balances, which involved the use of estimates related to the fair market value of the Company’s business units to which goodwill was allocated. The test indicated the goodwill was not impaired. The Company has no reason to believe that the goodwill of $6.2 million recorded in connection with the acquisition discussed in Note E has been impaired as of September 30, 2002.
The FASB also issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” effective for fiscal years beginning after June 15, 2002. This statement will require the Company to record the fair value of liabilities related to future asset retirement obligations in the period the obligation is incurred. The Company expects to adopt SFAS No. 143 on April 1, 2003. Although the Company has not yet determined the transition amounts, the nature of its operations does not create significant asset retirement obligations; therefore, management does not expect the adoption of this standard to materially impact the Company’s financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.” The new statement also supersedes certain aspects of APB 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” with regard to reporting the effects of a disposal of a segment of a business and will require expected future operating losses from discontinued operations to be reported in discontinued operations in the period incurred rather than as of the measurement date as presently required by APB 30. Additionally, certain dispositions may now qualify for discontinued operations treatment. The Company adopted SFAS No. 144 effective April 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the Company’s financial statements.
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and requires that the liabilities associated with these costs be recorded at their fair value in the period in which the liability is incurred. SFAS No. 146 will be effective for the Company for disposal activities initiated after December 31, 2002. The Company does not expect the adoption of SFAS No. 146 to have a material impact on the Company’s statement of financial position or operations.
The Company's Technical Services Business Unit contracted with two affiliates to purchase and modify aircraft on the affiliates behalf. The funds to acquire the aircraft (£16.7 million) were advanced from the affiliates to the Company and is reflected in the accompanying balance sheet as current maturities and other short term obligations. The related aircraft costs are reflected in the balance sheet in prepaids and other current assets. During October 2002, title to the aircraft in question was transferred to the affiliates, and the debt was repaid. No gain or loss was recorded on the transfer of title to the affiliates, however modification to the aircraft by the Technical Services Business Unit are still in progress and are priced on arms length terms.
The Company operates principally in two business segments: helicopter activities and production management and related services. The following shows reportable segment information for the three and six months ended September 30, 2002 and 2001, reconciled to consolidated totals, and prepared on the same basis as the Company’s consolidated financial statements (in thousands):
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- ---------------------------
2002 2001 2002 2001
----------- ---------- ------------- ----------
Segment operating revenue from external customers:
Helicopter activities:
Air Log................................................... $ 34,303 $ 39,910 $ 70,569 $ 75,593
Bristow................................................... 48,777 40,331 90,331 76,582
International............................................. 40,934 35,245 78,178 70,959
Technical Services........................................ 7,538 4,300 15,386 7,779
----------- ----------- ----------- -----------
Total Helicopter Activities.................................... 131,552 119,786 254,464 230,913
Production management and related services..................... 11,914 11,617 23,909 23,661
----------- ----------- ----------- -----------
Total segment operating revenue....................... $ 143,466 $ 131,403 $ 278,373 $ 254,574
=========== =========== =========== ===========
Intersegment operating revenue:
Helicopter activities:
Air Log................................................... $ 3,349 $ 2,603 $ 6,256 $ 5,035
Bristow................................................... 4,199 5,500 8,528 9,404
International............................................. 677 675 1,353 1,485
Technical Services........................................ 1,629 2,188 5,211 4,385
----------- ----------- ----------- -----------
Total Helicopter Activities.................................... 9,854 10,966 21,348 20,309
Production management and related services..................... 15 -- 30 --
----------- ----------- ----------- -----------
Total intersegment operating revenue.................. $ 9,869 $ 10,966 $ 21,378 $ 20,309
=========== =========== =========== ===========
Consolidated operating revenue reconciliation:
Helicopter activities:
Air Log................................................... $ 37,652 $ 42,513 $ 76,825 $ 80,628
Bristow................................................... 52,976 45,831 98,859 85,986
International............................................. 41,611 35,920 79,531 72,444
Technical Services........................................ 9,167 6,488 20,597 12,164
----------- ----------- ----------- -----------
Total Helicopter Activities.................................... 141,406 130,752 275,812 251,222
Production management and related services..................... 11,929 11,617 23,939 23,661
Corporate...................................................... 2,837 2,770 5,886 5,568
Intersegment eliminations...................................... (12,596) (13,637) (26,992) (25,665)
------------ ----------- ------------ -----------
Total consolidated operating revenue.................. $ 143,576 $ 131,502 $ 278,645 $ 254,786
=========== =========== =========== ===========
Consolidated operating income reconciliation:
Helicopter activities:
Air Log................................................... $ 4,970 $ 8,948 $ 8,954 $ 16,586
Bristow................................................... 7,202 7,034 12,741 10,229
International............................................. 7,181 5,962 13,980 13,528
Technical Services........................................ 529 418 1,273 299
----------- ----------- ----------- -----------
Total Helicopter Activities.................................... 19,882 22,362 36,948 40,642
Production management and related services..................... 898 754 1,793 1,567
Gain on disposal of assets..................................... 1,966 735 2,253 1,160
Corporate...................................................... (1,168) (1,215) (1,995) (1,481)
----------- ----------- ----------- -----------
Total consolidated operating income................... $ 21,578 $ 22,636 $ 38,999 $ 41,888
=========== =========== =========== ===========
In connection with the sale of the Company’s $100 million 7 7/8% Senior Notes due 2008, certain of the Company’s subsidiaries (the “Guarantor Subsidiaries”) jointly, severally and unconditionally guaranteed the payment obligations under the Senior Notes. The following supplemental financial information sets forth, on a consolidating basis, the balance sheet, statement of income and cash flow information for Offshore Logistics, Inc. (“Parent Company Only”), for the Guarantor Subsidiaries and for Offshore Logistics, Inc.’s other subsidiaries (the “Non-Guarantor Subsidiaries”). The Company has not presented separate financial statements and other disclosures concerning the Guarantor Subsidiaries because management has determined that such information is not material to investors.
The supplemental condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include all disclosures included in annual financial statements, although the Company believes that the disclosures made are adequate to make the information presented not misleading. Certain reclassifications were made to conform all of the financial information to the financial presentation on a consolidated basis. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses.
The allocation of the consolidated income tax provision was made using the with and without allocation method.
Supplemental Condensed Consolidating Balance Sheet
September 30, 2002
(thousands of dollars)
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ -------------
ASSETS
- ------
Current assets:
Cash and cash equivalents.............. $ 11,727 $ 2,985 $ 37,413 $ -- $ 52,125
Accounts receivable.................... 4,098 37,538 103,040 (7,593) 137,083
Inventories............................ -- 60,847 49,035 (137) 109,745
Prepaid expenses and other............. 220 2,596 34,274 -- 37,090
---------- ----------- ---------- ----------- -------------
Total current assets................. 16,045 103,966 223,762 (7,730) 336,043
Intercompany investment.................. 261,818 -- -- (261,818) --
Investments in unconsolidated entities... -- -- 24,158 -- 24,158
Intercompany note receivables............ 371,709 -- 3,000 (374,709) --
Property and equipment--at cost:
Land and buildings..................... 135 7,320 8,903 -- 16,358
Aircraft and equipment................. 2,659 227,795 477,484 -- 707,938
---------- ----------- ---------- ----------- -------------
2,794 235,115 486,387 -- 724,296
Less: Accumulated depreciation
and amortization..................... (2,054) (89,974) (131,427) -- (223,455)
---------- ----------- ---------- ----------- -------------
740 145,141 354,960 -- 500,841
Other assets............................. 9,792 14,023 22,386 110 46,311
---------- ----------- ---------- ----------- -------------
$ 660,104 $ 263,130 $ 628,266 $ (644,147) $ 907,353
=========== ============ ========== =========== =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
Current liabilities:
Accounts payable....................... $ 318 $ 7,690 $ 29,215 $ (7,593) $ 29,630
Accrued liabilities.................... 6,734 15,392 53,419 5,911 81,456
Deferred taxes......................... 1,079 -- 19,729 (11,238) 9,570
Current maturities of long-term debt
and other............................ -- -- 27,424 -- 27,424
----------- ------------ ---------- ----------- -------------
Total current liabilities............ 8,131 23,082 129,787 (12,920) 148,080
Long-term debt, less current maturities.. 204,922 -- 4,009 -- 208,931
Intercompany notes payable............... 3,844 36,561 334,304 (374,709) --
Other liabilities and deferred credits... 275 2,780 36,219 -- 39,274
Deferred taxes........................... 12,728 48,635 40,066 5,326 106,755
Minority interest........................ 15,214 -- -- -- 15,214
Stockholders' investment:
Common stock........................... 225 4,062 9,238 (13,300) 225
Additional paid in capital............. 138,694 51,168 8,016 (59,183) 138,695
Retained earnings...................... 278,470 96,842 82,720 (179,699) 278,333
Accumulated other comprehensive
income (loss)........................ (2,399) -- (16,093) (9,662) (28,154)
----------- ------------ ---------- ----------- -------------
414,990 152,072 83,881 (261,844) 389,099
----------- ------------ ---------- ----------- -------------
$ 660,104 $ 263,130 $ 628,266 $ (644,147) $ 907,353
=========== ============ ========== =========== =============
Supplemental Condensed Consolidating Statement of Income
Six Months Ended September 30, 2002
(thousands of dollars)
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ -------------
GROSS REVENUE
Operating revenue......................... $ 273 $ 94,540 $ 183,832 $ -- $ 278,645
Intercompany revenue...................... -- 3,924 1,332 (5,256) --
Gain on disposal of assets................ 8 826 1,419 -- 2,253
---------- ------------ ---------- ----------- -------------
281 99,290 186,583 (5,256) 280,898
OPERATING EXPENSES
Direct cost............................... -- 75,670 130,887 -- 206,557
Intercompany expense...................... 19 1,312 3,444 (4,775) --
Depreciation and amortization............. 273 5,718 12,294 -- 18,285
General and administrative................ 2,960 4,721 9,857 (481) 17,057
---------- ------------ ---------- ----------- -------------
3,252 87,421 156,482 (5,256) 241,899
---------- ------------ ---------- ----------- -------------
OPERATING INCOME (LOSS)................... (2,971) 11,869 30,101 -- 38,999
Earnings from unconsolidated entities, net 17,997 -- 3,451 (17,997) 3,451
Interest income........................... 17,470 20 375 (17,218) 647
Interest expense.......................... 7,246 -- 17,250 (17,218) 7,278
Other income (expense), net............... (373) 61 (2,917) -- (3,229)
---------- ------------ ---------- ----------- -------------
INCOME BEFORE PROVISION FOR
INCOME TAXES AND MINORITY
INTEREST................................ 24,877 11,950 13,760 (17,997) 32,590
Allocation of consolidated income taxes... 2,064 3,585 4,128 -- 9,777
Minority interest......................... (848) -- -- -- (848)
---------- ------------ ---------- ----------- -------------
NET INCOME ............................... $ 21,965 $ 8,365 $ 9,632 $ (17,997) $ 21,965
========== ============ ========== =========== =============
Supplemental Condensed Consolidating Statement of Cash Flows
Six Months Ended September 30, 2002
(thousands of dollars)
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ -------------
Net cash provided by (used in)
operating activities.................... $ (15,550) $ 4,472 $ 24,229 $ 16,000 $ 29,151
---------- ------------ ---------- ----------- -------------
Cash flows from investing activities:
Capital expenditures.................... (73) (6,309) (5,302) -- (11,684)
Assets purchased on behalf of affiliate. -- -- (26,019) -- (26,019)
Proceeds from asset dispositions........ 14 2,114 4,998 -- 7,126
Acquisitions, net of cash received...... -- -- (15,953) -- (15,953)
Net cash provided by (used in)
investing activities.................... (59) (4,195) (42,276) -- (46,530)
---------- ------------ ---------- ----------- -------------
Cash flows from financing activities:
Proceeds from borrowings from affiliate. -- -- 42,019 (16,000) 26,019
Proceeds from borrowings under credit
facilities............................ 14,000 -- -- -- 14,000
Repayment of debt....................... -- -- (16,645) -- (16,645)
Issuance of common stock................ 2,757 -- -- -- 2,757
---------- ------------ ---------- ----------- -------------
Net cash used in financing activities..... 16,757 -- 25,374 (16,000) 26,131
---------- ------------ ---------- ----------- -------------
Effect of exchange rate changes in cash... -- -- 703 -- 703
---------- ------------ ---------- ----------- -------------
Net increase (decrease) in cash and
cash equivalents........................ 1,148 277 8,030 -- 9,455
Cash and cash equivalents
at beginning of period.................. 10,579 2,708 29,383 -- 42,670
---------- ------------ ---------- ----------- -------------
Cash and cash equivalents
at end of period......................... $ 11,727 $ 2,985 $ 37,413 $ -- $ 52,125
========== ============ ========== =========== =============
Supplemental Condensed Consolidating Balance Sheet
March 31, 2002
(thousands of dollars)
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
- ------
Current assets:
Cash and cash equivalents......... $ 10,579 $ 2,708 $ 29,383 $ -- $ 42,670
Accounts receivable............... 1,786 34,586 89,137 (5,217) 120,292
Inventories....................... -- 56,408 44,292 149 100,849
Prepaid expenses and other........ 245 2,448 6,698 -- 9,391
----------- ----------- ------------ ----------- ------------
Total current assets......... 12,610 96,150 169,510 (5,068) 273,202
Intercompany investment.......... 269,019 -- -- (269,019) --
Investments in unconsolidated
entities...................... -- -- 21,103 -- 21,103
Intercompany notes receivable.... 317,141 -- -- (317,141) --
Property and equipment--at cost:
Land and buildings............. 135 6,032 7,519 -- 13,686
Aircraft and equipment......... 2,601 223,020 427,604 -- 653,225
----------- ---------- ------------ ----------- ------------
2,736 229,052 435,123 -- 666,911
Less: Accumulated depreciation
and amortization.......... (1,796) (85,532) (104,614) -- (191,942)
----------- ----------- ------------ ----------- ------------
940 143,520 330,509 -- 474,969
Other assets..................... 9,424 14,097 14,396 110 38,027
----------- ----------- ------------ ----------- ------------
$ 609,134 $ 253,767 $ 535,518 $ (591,118) $ 807,301
=========== =========== ============ =========== ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
Current liabilities:
Accounts payable................. $ 146 $ 8,010 $ 27,373 $ (5,217) $ 30,312
Accrued liabilities.............. 7,020 14,685 45,792 4,438 71,935
Deferred taxes................... 934 -- 17,734 (11,456) 7,212
Current maturities of long-term
debt and other................ -- -- 16,793 -- 16,793
----------- ----------- ------------ ----------- ------------
Total current liabilities... 8,100 22,695 107,692 (12,235) 126,252
Long-term debt, less current
maturities.................... 190,922 -- 299 -- 191,221
Intercompany notes payable....... 3,844 37,238 274,586 (315,668) --
Other liabilities and deferred
credits....................... 275 2,802 34,443 -- 37,520
Deferred taxes................... 20,280 45,588 27,862 5,546 99,276
Minority interest................ 12,998 -- -- -- 12,998
Stockholders' investment:
Common stock................... 223 4,062 4,021 (8,083) 223
Additional paid in capital..... 135,886 51,168 8,014 (59,182) 135,886
Retained earnings.............. 256,219 90,214 87,431 (177,496) 256,368
Accumulated other comprehensive
income (loss)............. (19,613) -- (8,830) (24,000) (52,443)
----------- ----------- ------------ ----------- ------------
372,715 145,444 90,636 (268,761) 340,034
----------- ----------- ------------ ----------- ------------
$ 609,134 $ 253,767 $ 535,518 $ (591,118) $ 807,301
=========== =========== ============ =========== ============
Supplemental Condensed Consolidating Statement of Income
Six Months Ended September 30, 2001
(thousands of dollars)
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ -------------
GROSS REVENUE
Operating revenue......................... $ 227 $ 99,402 $ 155,157 $ -- $ 254,786
Intercompany revenue...................... 2 4,403 668 (5,073) --
Gain (loss) on disposal of assets......... (5) 1,125 40 -- 1,160
---------- ------------ ---------- ----------- -------------
224 104,930 155,865 (5,073) 255,946
OPERATING EXPENSES
Direct cost............................... 5 75,484 105,870 -- 181,359
Intercompany expense...................... -- 668 4,405 (5,073) --
Depreciation and amortization............. 275 4,754 11,989 -- 17,018
General and administrative................ 3,424 4,444 7,813 -- 15,681
---------- ------------ ---------- ----------- -------------
3,704 85,350 130,077 (5,073) 214,058
---------- ------------ ---------- ----------- -------------
OPERATING INCOME (LOSS)................... (3,480) 19,580 25,788 -- 41,888
Earnings from unconsolidated entities, net 21,468 -- 2,638 (21,468) 2,638
Interest income........................... 16,482 101 601 (15,663) 1,521
Interest expense.......................... 7,146 -- 16,865 (15,663) 8,348
Other income (expense), net............... (119) 2 (726) -- (843)
---------- ------------ ---------- ----------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES AND
MINORITY INTEREST....................... 27,205 19,683 11,436 (21,468) 36,856
Allocation of consolidated income taxes... 1,774 6,102 3,549 -- 11,425
Minority interest......................... (744) -- -- -- (744)
---------- ------------ ---------- ----------- -------------
NET INCOME................................ $ 24,687 $ 13,581 $ 7,887 $ (21,468) $ 24,687
========== ============ ========== =========== =============
Supplemental Condensed Consolidating Statement of Cash Flows
Six Months Ended September 30, 2001
(thousands of dollars)
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ -------------
Net cash provided by (used in)
operating activities.................... $ (7,435) $ 40,119 $ 16,068 $ (11,788) $ 36,964
---------- ------------ ----------- ----------- -------------
Cash flows from investing activities:
Capital expenditures.................... (27) (41,435) (5,294) -- (46,756)
Proceeds from asset dispositions........ -- 2,930 124 -- 3,054
Investments............................. 3,570 (3,570) (576) -- (576)
---------- ------------ ----------- ----------- -------------
Net cash provided by (used in)
investing activities.................... 3,543 (42,075) (5,746) -- (44,278)
---------- ------------ ----------- ----------- -------------
Cash flows from financing activities:
Repayment of debt....................... -- -- (21,576) 11,788 (9,788)
Issuance of common stock................ 1,065 -- -- -- 1,065
---------- ------------ ----------- ----------- -------------
Net cash provided by (used in) financing
activities.............................. 1,065 -- (21,576) 11,788 (8,723)
---------- ------------ ----------- ----------- -------------
Effect of exchange rate changes in cash... -- -- 391 -- 391
---------- ------------ ----------- ----------- -------------
Net increase (decrease) in cash and
cash equivalents........................ (2,827) (1,956) (10,863) -- (15,646)
Cash and cash equivalents
at beginning of period.................. 19,633 3,130 32,031 -- 54,794
---------- ------------ ----------- ----------- -------------
Cash and cash equivalents
at end of period....................... $ 16,806 $ 1,174 $ 21,168 $ -- $ 39,148
========== ============ =========== =========== =============
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Company, through its Air Logistics' subsidiaries ("Air Log") and with its investment in Bristow Aviation Holdings Limited ("Bristow"), is a major supplier of helicopter transportation services to the worldwide offshore oil and gas industry. The Company also provides production management services to the domestic offshore oil and gas industry through its wholly owned subsidiary, Grasso Production Management, Inc. ("GPM").
Results of Operations
A summary of operating results and other income statement information for the applicable periods is as follows (in thousands of dollars):
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- ----------
Operating revenue.......................................... $ 143,576 $ 131,502 $ 278,645 $ 254,786
Gain on disposal of assets................................. 1,966 735 2,253 1,160
Operating expenses......................................... (123,964) (109,601) (241,899) (214,058)
----------- ----------- ----------- -----------
Operating income........................................... 21,578 22,636 38,999 41,888
Earnings from unconsolidated entities, net................. 1,668 1,676 3,451 2,638
Interest income (expense), net............................. (3,293) (3,707) (6,631) (6,827)
Other income (expense), net................................ (1,485) (752) (3,229) (843)
----------- ----------- ----------- -----------
Income before provision for income taxes and
minority interest...................................... 18,468 19,853 32,590 36,856
Provision for income taxes................................. 5,540 6,155 9,777 11,425
Minority interest.......................................... (445) (382) (848) (744)
----------- ----------- ----------- -----------
Net income................................................. $ 12,483 $ 13,316 $ 21,965 $ 24,687
=========== =========== =========== ===========
The following table sets forth certain operating information, which forms the basis for discussion of the Company's helicopter activities and production management and related services. Certain reclassifications have been made to the information presented for the three and six months ended September 30, 2001 to conform to the current presentation of the Company's Technical Services operation as a separate business unit within the helicopter activities segment. The respective international operations of Air Log (headquartered in the United States) and Bristow (headquartered in the United Kingdom) are managed and reported as a separate division. The International division encompasses all helicopter activities outside of the United States Gulf of Mexico and Alaska (reported as "Air Log") and the United Kingdom and Europe Sectors of the North Sea (reported as "Bristow").
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------- ------------ ------------
(in thousands, except flight hours)
Flight hours (excludes unconsolidated entities):
Helicopter Activities:
Air Log........................................ 31,905 36,051 67,020 72,136
Bristow........................................ 13,143 12,900 25,609 25,434
International.................................. 21,766 21,086 41,411 42,926
Technical Services............................. 319 356 717 677
------------ ------------- ------------ ------------
Total....................................... 67,133 70,393 134,757 141,173
============ ============= ============ ============
Operating revenue:
Helicopter Activities:
Air Log....................................... $ 37,652 $ 42,513 $ 76,825 $ 80,628
Bristow....................................... 52,976 45,831 98,859 85,986
International................................. 41,611 35,920 79,531 72,444
Technical Services............................ 9,167 6,488 20,597 12,164
Less: Intercompany........................... (8,369) (8,737) (18,299) (16,981)
------------- ------------- ------------- ------------
Total....................................... 133,037 122,015 257,513 234,241
Production management and related services........ 11,929 11,617 23,939 23,661
Corporate......................................... 2,837 2,770 5,886 5,568
Less: Intersegment............................... (4,227) (4,900) (8,693) (8,684)
------------- ------------- ------------- ------------
Consolidated total.......................... $ 143,576 $ 131,502 $ 278,645 $ 254,786
============ ============= ============ ============
Operating income, excluding gain or
loss on disposal of assets:
Helicopter Activities:
Air Log....................................... $ 4,970 $ 8,948 $ 8,954 $ 16,586
Bristow....................................... 7,202 7,034 12,741 10,229
International................................. 7,181 5,962 13,980 13,528
Technical Services............................ 529 418 1,273 299
------------ ------------- ------------ ------------
Total....................................... 19,882 22,362 36,948 40,642
Production management and related services........ 898 754 1,793 1,567
Corporate......................................... (1,168) (1,215) (1,995) (1,481)
------------ ------------- ------------ ------------
Consolidated total.......................... $ 19,612 $ 21,901 $ 36,746 $ 40,728
============ ============= ============ ============
Operating margin, excluding gain or
loss on disposal of assets:
Helicopter Activities:
Air Log....................................... 13.2% 21.0% 11.7% 20.6%
Bristow....................................... 13.6% 15.3% 12.9% 11.9%
International................................. 17.3% 16.6% 17.6% 18.7%
Technical Services............................ 5.8% 6.4% 6.2% 2.5%
Total....................................... 14.9% 18.3% 14.3% 17.4%
Production management and related services........ 7.5% 6.5% 7.5% 6.6%
Consolidated total.......................... 13.7% 16.7% 13.2% 16.0%
Helicopter Activities
Air Log and Bristow conduct helicopter activities principally in the Gulf of Mexico and the North Sea, respectively, where they provide support to the production, exploration and construction activities of oil and gas companies. Air Log also charters helicopters to governmental entities involved in regulating offshore oil and gas operations in the Gulf of Mexico and provides helicopter services to the Alyeska Pipeline in Alaska. Bristow also provides search and rescue work for the British Coast Guard. International's activities include Air Log and Bristow's operations in the following countries: Australia, Brazil, China, Colombia, Congo, India, Kazakhstan, Macedonia, Mexico, Nigeria, The Maldives and Trinidad. These international operations are subject to local governmental regulations and to uncertainties of economic and political conditions in those areas. International also includes Air Log's service agreements with, and equity interests in, entities that operate aircraft in Brazil, Egypt and Mexico ("unconsolidated entities").
Operating revenue from helicopter activities increased by 9.0% and 9.9% during the three and six months ended September 30, 2002, respectively, over the prior year comparable periods, with operating expenses increasing 13.5% and 13.9%, respectively. Changes in operating revenue, expenses and income are explained by division below.
Air Log - Air Log's flight activity for the three and six-month periods ended September 30, 2002 is below the similar prior year levels by 11.5% and 7.1%, respectively. Revenues for the same periods were down 11.4% and 4.7%, respectively. Revenue for the six months ended September 30, 2002 did not decline at the same rate as the flight hours due to the 30% rate increase that began phase in during June 2001. Flight hours and revenue generated from larger, crew change aircraft in the Gulf of Mexico decreased 31.9% and 29.4%, respectively, from the similar quarter in the prior year, while smaller, production related aircraft decreased 10.1% and 7.1%, respectively. For the six month period flight hours and revenue generated from larger, crew change aircraft in the Gulf of Mexico decreased 31.6% and 22.2%, respectively, over the prior year, while flight hours for the smaller, production related aircraft decreased 5.7% and revenue increased 1.0%. The decline in flight hours for the larger, crew change aircraft is consistent with the percentage decline in contracted rigs in the Gulf of Mexico during the same period. Air Log's operating margin of 13.2% and 11.7% for the three and six months ended September 30, 2002 decreased over the comparable prior year periods, which had margins of 21.0% and 20.6%, respectively. The decrease in the operating margin for the six months ended September 30, 2002 was primarily a result of wage increases for pilots, mechanics and other operational employees effective July 2001 in response to increases in the market wages for these employee groups and higher insurance costs. Higher depreciation costs as a result of aircraft purchased in prior year, also contributed to the decline in the operating margin for the three and six months ended September 30, 2002.
In May 2002, a customer notified Air Log of its intention to change helicopter operators. During the quarter ended June 30, 2002, the customer had ten aircraft on full-time contract (two crew change aircraft and eight smaller aircraft). Seven aircraft were released at the end of June with the remaining three ending in mid July. For the three and six months ended September 30, 2002, the customer accounted for $0.3 million and $5.0 million, respectively of Air Log's revenue compared to $4.8 million and $10.2 million for comparable periods in the prior year, respectively. Thirteen monthly contracts with other customers have been added during the current year, which serves to mitigate this lost work.
Currently, there are 119 drilling rigs under contract in the Gulf of Mexico compared to 135 a year ago. Consequently, utilization of Air Log's crew change fleet has significantly decreased in recent quarters. If the drilling activity in the Gulf of Mexico does not increase, it is likely that Air Log will continue to experience reduced demand for its crew change services.
Bristow - Bristow's revenue for the three and six-month periods ended September 30, 2002 increased by 15.6% and 15.0%, respectively, from the similar periods in the prior year. Excluding the foreign exchange effect, Bristow's revenue for the three and six months ended September 30, 2002 increased 7.4% and 9.1%, respectively. Bristow's flight hours for the three and six-month periods ended September 30, 2002 increased by 1.9% and 1.0%, respectively, from the similar periods in the prior year. The increase in North Sea revenue stems from consistent oil industry activity, rate increases Bristow has achieved on customer contracts both mid-term, and upon renewal and a change in the mix of aircraft operated in the current year.
On July 16, 2002, one of the Company's S-76 helicopters, while ferrying passengers for a customer, crashed in the southern sector of the North Sea, killing all 11 persons onboard. A comprehensive investigation was immediately initiated involving the U.K. Aircraft Accident Investigation Bureau, Company and customer personnel, and manufacturer's representatives. It has been determined that the cause of the accident was a main rotor blade which failed during flight. The cause of this failure is still under investigation but is believed to result from a manufacturing anomaly in the construction of the blade which when combined with a subsequent lightning strike, weakened the structural integrity of the blade. The Company maintains insurance coverage for such situations, and believes its coverages and that of the blade manufacturer are adequate for any claims that may result.
As a result of the accident, the customer immediately grounded the six S-76 helicopters it had under contract with Bristow. This grounding was lifted by the customer for two aircraft on August 7, 2002 and in early September for the remaining four aircraft. Bristow covered the customer's requirements by using a different aircraft type. Accordingly, flight hours were not significantly impacted by the accident. The Company has incurred approximately £0.7 million ($1.1 million) in costs related to the accident that are not covered by insurance. These costs primarily relate to the retiring of main rotor blades that had a similar history.
Bristow's operating margin decreased to 13.6% in the current quarter from 15.3% for the three months ended September 30, 2001 and increased to 12.9% for the six months ended September 30, 2002 from 11.9% for the six months ended September 30, 2001. The decline in margin for the three months ended September 30, 2002 is due primarily to higher maintenance and insurance costs in the current year. While the higher maintenance and insurance costs adversely affected the six months ended September 30, 2002, the revenue increase for that period more than offset the increase in the costs.
During April 2002, the U.K. Government instituted a progressive tax regime which directly impacts oil production and exploration in the North Sea. Several oil companies have publicly expressed their view of the new tax regime as a deterrent to future capital spending. Should the oil companies significantly reduce their exploration and development budgets as a result of the tax change, demand for the Company's services could be negatively impacted.
International - Internationally, flight hours increased during the three months ended September 30, 2002 by 3.2% and decreased for the six months ended September 30, 2002 by 3.5% from the similar periods in the prior year. Revenue increased during the three and six months ended September 30, 2002 by 15.8% and 9.8%, respectively, from the similar periods in the prior year. An increase in activity was prevalent in Mexico, Nigeria and Trinidad.
In Mexico, flight activity for the three and six-month periods ended September 30, 2002 was above the similar prior year levels by 42.5% and 25.8%, respectively. Revenue for the same periods was up 24.6% and 18.6%, respectively. The increase in flight activity and revenue was primarily due to additional ad hoc work performed for PEMEX. Three aircraft were mobilized to Mexico, one in January 2002, one in April 2002 and one in June 2002, to be utilized by PEMEX on an ad hoc basis. The revenue generated from these three aircraft accounted for approximately 66% and 79% of the increase in revenue for the three and six months periods ended September 30, 2002, respectively.
In Nigeria, revenue was up by 27.9% and 17.5% for the three and six months ended September 30, 2002, respectively, over the prior year periods. Flight activity increased 4.3% for the three months ended September 30, 2002 over the prior year quarter and decreased 6.3% for the six months ended September 30, 2002 over the prior year period. On July 1, 2002, the Company acquired an interest in a West Africa helicopter operating company and ten single engine helicopters and three fixed wing aircraft for $16 million. The acquisition was financed by using $2 million in existing cash and borrowing $14 million under the Company's line of credit facility. The operating company acquired primarily provides services to a major oil company under a five-year contract. Excluding the flight activity and revenue relating to this contract, flight activity decreased for the three and six months ended September 30, 2002 by 47.9% and 33.4%, respectively over the comparable prior year periods, while revenue for the same periods decreased by 13.0% and 3.7%, respectively. The disproportionate decrease in flight activity and revenue is primarily due to a change on one contract whereby the customer provides its own aircraft and Bristow provides the crew, maintenance and technical support needed to operate the aircraft for this customer. Additionally, the completion of a contract and a decrease in ad hoc work between the periods had a negative effect on flight activity and revenue.
Trinidad's flight activity for the three and six months ended September 30, 2002 increased by 44.1% and 41.9%, respectively over the prior year periods while revenue for the same periods increased by 95.6% and 66.9%, respectively over the similar periods in the prior year. The disproportionate increase in revenue over flight activity was due primarily to a rate increase effective October 1, 2001. The increase in flight activity and revenue was primarily due to a short-term contract in the current year and increased drilling activity.
Technical Services - Operating revenue for Technical Services increased during the three and six months ended September 30, 2002 from the similar periods in the prior year. The operating margin for the six months ended September 30, 2002 increased to 6.2% from 2.5% in the similar period in the prior year. The increase in operating revenue and improvement in margin for the six months ended September 30, 2002 was primarily due to the acquisition of an engine repair and overhaul facility in December 2001.
Production Management and Related ServicesOperating revenue for GPM increased by 2.7% and 1.2% during the three and six-month periods ended September 30, 2002, as compared to the similar periods in the prior year. The increase in revenue is primarily due to the addition of a contract with a major customer in January 2002. GPM's operating margin of 7.5% for the three and six months ended September 30, 2002, improved over the comparable periods in the prior year of 6.5% and 6.6%, respectively.
Corporate and OtherConsolidated net interest expense declined during the current year due primarily to a reduction in interest expense as a result of lower average balances on interest bearing debt in the current year as compared to the same period in the prior year. Other expenses increased during the three and six months ended September 30, 2002 from the similar periods in the prior year primarily due to higher foreign currency exchange losses during the current year. The Company has operations in many countries, which utilize many different functional currencies. Translation gains or losses resulting from foreign denominated assets and liabilities result in direct charges or credits to the statement of income for changes in the strength of these countries currencies relative to the US dollar. The weakening of the US dollar against the Great Britain pound resulted in an increase in the foreign exchange losses recorded in the current year. The effective income tax rate was approximately 30% for the six months ended September 30, 2002 and 31% for the six months ended September 30, 2001.
Liquidity and Capital ResourcesCash and cash equivalents were $52.1 million as of September 30, 2002, a $9.5 million increase from March 31, 2002. Working capital as of September 30, 2002 was $187.9 million, a $41.0 million increase from March 31, 2002. Total debt was $236.4 million as of September 30, 2002.
As of September 30, 2002, Bristow had a £9 million ($14.1 million) revolving credit facility with a United Kingdom bank on which any borrowings are payable on demand. As of September 30, 2002, Bristow had £4.4 million ($6.9 million) of letters of credit utilized, however no other funds were drawn under this credit facility. As of September 30, 2002, the Company had a $30 million unsecured working capital line of credit with a U.S. bank that expires on August 31, 2004. The Company had $14 million drawn on this facility as of September 30, 2002. These funds were used to finance the acquisition discussed in Note E to the consolidated financial statements. Management believes that its normal operations, lines of credit and available financing will provide sufficient working capital and cash flow to meet operating requirements and debt service needs for the foreseeable future.
The Company's Technical Services Business Unit contracted with two affiliates to purchase and modify aircraft on the affiliates behalf. The funds to acquire the aircraft (£16.7 million) were advanced from the affiliates to the Company and is reflected in the accompanying balance sheet as current maturities and other short term obligations. The related aircraft costs are reflected in the balance sheet in prepaids and other current assets. During October 2002, title to the aircraft in question was transferred to the affiliates, and the debt was repaid. No gain or loss was recorded on the transfer of title to the affiliates, however modification to the aircraft by the Technical Services Business Unit are still in progress and are priced on arms length terms.
During the six months ended September 30, 2002, the Company received proceeds of $7.1 million primarily from the disposition of nine aircraft and purchased one Bell 407 for $1.1 million, one EC 120 for $1.0 million and one Bell 412 for $2.5 million. Additionally, the Company paid $3.5 million of the balance due on an AS 332L2 Super Puma. An additional £2.6 million ($4.0 million) relating to this aircraft is payable in November 2003. Subsequent to September 30, 2002, the Company made deposits for four 206 L-4's for $0.7 million. These aircraft acquisitions were made to fulfill customer requirements. During the six months ended September 30, 2001, the Company received proceeds of $3.1 million from four separate disposals of aircraft and purchased six Bell 407's for $8.1 million, five Bell 412's for $25.3 million, three 206 L-4's for $2.7 million and placed a deposit on an AS 332 L2 Super Puma of $3.8 million. These aircraft acquisitions were made with existing cash and were made to fulfill customer contract requirements.
Payments Due by Period
------------------------------------------------------------------
Less than After
Total 1 year 1-3 years 4-5 years 5 years
------------------------------------------------------------------
Contractual Obligations:
------------------------
Long-Term Debt $ 236.4 $ 27.4 $ 109.0 $ -- $ 100.0
Operating Leases 30.8 2.4 12.6 7.1 8.7
----------- ------ -------- ---------- ---------
Total Contractual Cash Obligations $ 267.2 $ 29.8 $ 121.6 $ 7.1 $ 108.7
=========== ====== ======== ========== =========
Amount of Commitment Expiration Per Period
------------------------------------------------------------------
Less than Over
Total 1 year 1-3 years 4-5 years 5 years
------------------------------------------------------------------
Other Commercial Commitments:
-----------------------------
Debt Guarantee $ 23.6 $ -- $ -- $ -- $ 23.6
Residual Value Guarantee 3.8 -- -- 3.8 --
Letters of Credit 6.9 4.4 0.2 2.3 --
----------- ------ --------- ---------- ---------
Total Commercial Commitments $ 34.3 $ 4.4 $ 0.2 $ 6.1 $ 23.6
=========== ====== ========= ========== =========
Legal Matters
The Company has received notices from the United States Environmental Protection Agency that it is one of approximately 160 potentially responsible parties ("PRP") at one Superfund site in Texas, one of over 300 PRPs at one site in Louisiana and a PRP at one site in Rhode Island. The Company believes, based on presently available information, that its potential liability for clean up and other response costs in connection with these sites is not likely to have a material adverse effect on the Company's business or financial condition.
Recent Accounting PronouncementsIn July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." The standards significantly changed the Company's prior practices by: (i) terminating the use of the pooling-of-interests method of accounting for future business combinations, (ii) ceasing goodwill amortization, and (iii) requiring impairment testing of goodwill based on a fair value concept. SFAS No. 142 requires that impairment testing of the opening goodwill balances be performed within six months from the start of the fiscal year in which the standard is adopted and that any impairment be written off and reported as a cumulative effect of a change in accounting principle. It also requires that another impairment test be performed during the fiscal year of adoption of the standard and that impairment tests be performed at least annually thereafter, with interim testing required under certain circumstances. Any impairment charges recorded as a result of these subsequent tests will be recorded as operating expenses. The Company adopted SFAS No. 142 as of April 1, 2002. Accordingly, the Company ceased to amortize goodwill in fiscal 2003. Goodwill amortization was approximately $0.3 million and $0.6 million for the three and six months ended September 30, 2001, respectively. Had the goodwill amortization not been recorded for the three and six months ended September 30, 2001, the Company's net income would have been $13.6 million and $25.1 million, respectively and diluted earnings per share would have been $0.56 and $1.03, respectively. As of the beginning of the current fiscal year, the Company had unamortized goodwill of $13.8 million and $6.3 million relating to its production management and technical services business units, respectively. At September 30, 2002, the Company completed a goodwill impairment test on these opening balances, which involved the use of estimates related to the fair market value of the Company's business units to which goodwill was allocated. The test indicated the goodwill was not impaired. The Company has no reason to believe that the goodwill of $6.2 million recorded in connection with the acquisition discussed in Note E to the consolidated financial statements has been impaired as of September 30, 2002.
The FASB also issued SFAS No. 143, "Accounting for Asset Retirement Obligations," effective for fiscal years beginning after June 15, 2002. This statement will require the Company to record the fair value of liabilities related to future asset retirement obligations in the period the obligation is incurred. The Company expects to adopt SFAS No. 143 on April 1, 2003. Although the Company has not yet determined the transition amounts, the nature of its operations does not create significant asset retirement obligations; therefore, management does not expect the adoption of this standard to materially impact the Company's financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The new statement also supersedes certain aspects of APB 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," with regard to reporting the effects of a disposal of a segment of a business and will require expected future operating losses from discontinued operations to be reported in discontinued operations in the period incurred rather than as of the measurement date as presently required by APB 30. Additionally, certain dispositions may now qualify for discontinued operations treatment. The Company adopted SFAS No. 144 effective April 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and requires that the liabilities associated with these costs be recorded at their fair value in the period in which the liability is incurred. SFAS No. 146 will be effective for the Company for disposal activities initiated after December 31, 2002. The Company does not expect the adoption of SFAS No. 146 to have a material impact on the Company’s statement of financial position or operations.
Forward Looking StatementsThis report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements included herein other than statements of historical fact are forward-looking statements.
Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") may include, but are not limited to, demand for Company services, worldwide activity levels in oil and natural gas exploration, development and production, fluctuations in oil and natural gas prices, unionization and the response thereto by the Company's customers, currency fluctuations, international political conditions and the ability to manage operating expenses. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company does use off-balance sheet hedging instruments to manage its risks associated with its operating activities conducted in foreign currencies. In limited circumstances and when considered appropriate, the Company will utilize forward exchange contracts to hedge anticipated transactions. The Company has historically used these instruments primarily in the buying and selling of certain spare parts, maintenance services and equipment. The Company attempts to minimize its exposure to foreign currency fluctuations by matching its revenues and expenses in the same currency for its contracts. Most of Bristow's revenues and expenses are denominated in British Pounds Sterling ("pound"). As of September 30, 2002, the Company did not have any nominal forward exchange contracts outstanding. Management does not believe that its limited exposure to foreign currency exchange risk necessitates the extensive use of forward exchange contracts.
Item 4. Controls and Procedures
(a) Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
(b) Internal controls are controls that pertain to the preparation of financial statements for external purposes that are fairly presented in conformity with generally accepted accounting principles. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out this evaluation.
Item 2. Changes in Securities and Use of Proceeds.
| During the quarter ended September 30, 2002, two recipients of options under the Company’s 1994 Long Term Management Incentive Plan (the “1994 Plan”) exercised options that resulted in the sale by the Company of 86,000 unregistered shares of common stock. These options and the shares of OLOG common stock issued upon the exercise of the options were authorized by the Company and the 1994 Plan was approved by the Company’s stockholders. However, the 86,000 shares issued upon the exercise of options in the quarter ended September 30, 2002, as well as 118,000 shares issued upon the exercise of options in previous quarters, appear to have exceeded the number of shares that were registered pursuant to a registration statement on Form S-8 filed December 15, 1994 (Commission File Number 33-87450). The Company has subsequently filed another registration statement on Form S-8 (Commission File Number 333-100017) registering the additional shares of common stock that may be distributed under the 1994 Plan, as amended. |
| The total proceeds received by the Company from the payment of the exercise price upon the exercise of the options during the quarter was $1,004,870. These amounts were used for general corporate purposes. |
Item 4. Submission of Matters to a Vote of Security Holders.
Nominee For Withheld
------------------ ----------------- -------------------
Peter N. Buckley 18,531,417 524,048
Stephen J. Cannon 18,797,916 257,549
Jonathan H. Cartwright 17,997,646 1,057,819
David M. Johnson 12,710,316 6,345,149
Kenneth M. Jones 18,000,184 1,055,281
Pierre H. Jungels, CBE 18,797,916 257,549
George M. Small 18,548,871 506,594
Ken C. Tamblyn 18,797,416 258,049
Robert W. Waldrup 18,794,769 260,696
Howard Wolf 17,975,167 1,080,298
For Against Abstain
----------------- ----------------- -------------------
18,773,470 269,447 12,548
For Against Abstain
------------------ ----------------- -------------------
16,102,622 2,932,646 20,197
Item 6. Exhibits and Reports on Form 8-K
| Exhibit Number | Description of Exhibit |
| 3.1 | Delaware Certificate of Incorporation of the Company (filed as Exhibit 3(10) to the Company’s Form 10-K for the fiscal year ended June 30, 1989), and incorporated herein by reference. |
| 3.2 | Certificate of Amendment of Certificate of Incorporation dated November 30, 1989 (filed as Exhibit 3(5) to the Company’s Form 10-K for the fiscal year ended June 30, 1990), and incorporated herein by reference. |
| 3.3 | Certificate of Amendment of Certificate of Incorporation dated December 9, 1992 (filed as Exhibit 3 to the Company’s Form 8-K filed in December 1992), and incorporated herein by reference. |
| 3.4 | Amended and Restated By-laws of the Company (filed as Exhibit 3(7) to the Company’s Form 8-K filed in February 1996), and incorporated herein by reference. |
| 3.5 | Certificate of Designation of Series A Junior Participating Preferred Stock (filed as Exhibit 3(9) to the Company’s Form 10-K for the fiscal year ended June 30, 1996), and incorporated herein by reference. |
| 4.1 | Offshore Logistics, Inc. 1994 Long-Term Management Incentive Plan, as amended (filed as Exhibit 4.12 to the Company's Form S-8 filed on September 23, 2002), and incorporated herein by reference. |
On July 9, 2002, the Company filed a report on Form 8-K announcing the Board of Directors had determined to increase the size of the Board of Directors to ten members, effective as of the Annual Meeting held September 16, 2002.
On July 12, 2002, the Company filed a report on Form 8-K announcing that Arthur Andersen LLP would no longer be engaged as the Company's independent public accountants.
On July 22, 2002, the Company filed a report on Form 8-K announcing that KPMG LLP had been engaged to serve as the Company's independent public accountants.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OFFSHORE
LOGISTICS, INC.
| |
| BY: /s/ H. Eddy Dupuis H. EDDY DUPUIS Vice President - Chief Financial Officer | |
| DATE: November 14, 2002 |
November 14, 2002
Securities and Exchange Commission
Washington, DC 20549
Ladies and Gentlemen:
I, George M. Small, CEO and President, certify that:
Dated: November 14, 2002
| BY: /s/ George M. Small George M. Small CEO and President |
November 14, 2002
Securities and Exchange Commission
Washington, DC 20549
Ladies and Gentlemen:
I, H. Eddy Dupuis, CFO and Vice President, certify that:
Dated: November 14, 2002
| BY: /s/ H. Eddy Dupuis H. Eddy Dupuis CFO and Vice President |