|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended December 31, 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 January 31, 2003:
22,500,921 shares of Common Stock, $.01 par value
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- --------- -----------
GROSS REVENUE
Operating revenue......................................... $ 140,187 $ 126,891 $ 418,832 $ 381,677
Gain (loss) on disposal of assets......................... (946) 1,228 1,307 2,388
----------- ----------- ----------- -----------
139,241 128,119 420,139 384,065
OPERATING EXPENSES
Direct cost............................................... 101,555 95,147 308,112 276,506
Depreciation and amortization............................. 9,575 8,875 27,860 25,893
General and administrative................................ 9,170 7,407 26,227 23,088
----------- ----------- ----------- -----------
120,300 111,429 362,199 325,487
----------- ----------- ----------- -----------
OPERATING INCOME.......................................... 18,941 16,690 57,940 58,578
Earnings from unconsolidated entities, net................ 3,277 2,341 6,728 4,979
Interest income........................................... 474 312 1,121 1,833
Interest expense.......................................... 3,615 3,910 10,893 12,258
Other income (expense), net............................... (1,244) 552 (4,473) (291)
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST............................ 17,833 15,985 50,423 52,841
Provision for income taxes................................ 5,350 4,796 15,127 16,221
Minority interest......................................... (465) (394) (1,313) (1,138)
----------- ----------- ----------- -----------
NET INCOME................................................ $ 12,018 $ 10,795 $ 33,983 $ 35,482
=========== =========== =========== ===========
Net income per common share:
Basic..................................................... $ 0.53 $ 0.49 $ 1.52 $ 1.62
========== =========== =========== ===========
Diluted................................................... $ 0.49 $ 0.45 $ 1.39 $ 1.47
========== =========== =========== ===========
December 31, March 31,
2002 2002
--------------- ------------
ASSETS
- ------
Current Assets:
Cash and cash equivalents................................................ $ 55,303 $ 42,670
Accounts receivable...................................................... 139,754 120,292
Inventories.............................................................. 113,366 100,849
Prepaid expenses and other............................................... 7,605 9,391
--------------- ------------
Total current assets.................................................. 316,028 273,202
Investments in unconsolidated entities....................................... 25,362 21,103
Property and equipment - at cost:
Land and buildings....................................................... 16,652 13,686
Aircraft and equipment................................................... 734,685 653,225
--------------- ------------
751,337 666,911
Less: accumulated depreciation and amortization............................. (226,297) (191,942)
--------------- ------------
525,040 474,969
Other assets................................................................. 44,058 38,027
--------------- ------------
$ 910,488 $ 807,301
=============== ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
Current Liabilities:
Accounts payable......................................................... $ 29,604 $ 30,312
Accrued liabilities...................................................... 81,240 71,935
Deferred taxes........................................................... 9,564 7,212
Current maturities of long-term debt..................................... 95,981 16,793
--------------- ------------
Total current liabilities............................................. 216,389 126,252
Long-term debt, less current maturities...................................... 114,000 191,221
Other liabilities and deferred credits....................................... 39,647 37,520
Deferred taxes............................................................... 112,845 99,276
Minority interest............................................................ 16,392 12,998
Stockholders' Investment:
Common Stock, $.01 par value, authorized 35,000,000 shares;
outstanding 22,500,921 and 22,298,921 at December 31 and
March 31, respectively (exclusive of 1,281,050 treasury shares) 225 223
Additional paid-in capital............................................... 138,864 135,886
Retained earnings........................................................ 290,351 256,368
Accumulated other comprehensive income (loss)............................ (18,225) (52,443)
--------------- ------------
411,215 340,034
--------------- ------------
$ 910,488 $ 807,301
=============== ============
Nine Months Ended
December 31,
----------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net income................................................................... $ 33,983 $ 35,482
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................................ 27,860 25,893
Increase (decrease) in deferred taxes........................................ 8,482 12,256
Gain on asset dispositions................................................... (1,307) (2,388)
Equity in earnings from unconsolidated entities
over (under) dividends received........................................... (3,575) (2,028)
Minority interest in earnings................................................ 1,313 1,138
(Increase) decrease in accounts receivable................................... (17,591) (23,051)
(Increase) decrease in inventories........................................... (7,483) (12,150)
(Increase) decrease in prepaid expenses and other............................ 571 2,938
Increase (decrease) in accounts payable...................................... 1,903 3,836
Increase (decrease) in accrued liabilities................................... 8,207 6,117
Increase (decrease) in other liabilities and deferred credits................ (2,031) 656
------------ -----------
Net cash provided by (used in) operating activities.............................. 50,332 48,699
------------ -----------
Cash flows from investing activities:
Capital expenditures......................................................... (41,454) (61,032)
Assets purchased on behalf of affiliate...................................... (26,019) --
Proceeds from sale of assets to affiliate.................................... 26,019 --
Proceeds from asset dispositions............................................. 17,575 8,958
Acquisitions, net of cash received........................................... (15,953) 554
Investments.................................................................. -- (576)
------------ -----------
Net cash provided by (used in) investing activities.............................. (39,832) (52,096)
------------ -----------
Cash flows from financing activities:
Proceeds from borrowings..................................................... 45,286 1,513
Repayment of debt............................................................ (48,391) (10,489)
Issuance of common stock..................................................... 2,926 1,263
------------ -----------
Net cash provided by (used in) financing activities.............................. (179) (7,713)
------------ -----------
Effect of exchange rate changes in cash.......................................... 2,312 235
------------ -----------
Net increase (decrease) in cash and cash equivalents............................. 12,633 (10,875)
Cash and cash equivalents at beginning of period................................. 42,670 54,794
------------ -----------
Cash and cash equivalents at end of period....................................... $ 55,303 $ 43,919
============ ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest..................................................................... $ 10,076 $ 10,496
Income taxes................................................................. $ 6,733 $ 3,981
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 (consisting only of normal recurring adjustments) necessary for a fair presentation have been included. Operating results for the nine months ended December 31, 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 nine months ended December 31, 2002 excluded 217,500 and 244,167 stock options, respectively, at a weighted average exercise price of $21.34 which were outstanding during the periods but were anti-dilutive. Diluted earnings per share for the three and nine months ended December 31, 2001 excluded 443,000 and 203,495 stock options, respectively, at a weighted average exercise price of $20.24 and $21.34, respectively, which were outstanding during the periods but were anti-dilutive. The following table sets forth the computation of basic and diluted net income per share:
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income (thousands of dollars):
Income available to common stockholders.................... $ 12,018 $ 10,795 $ 33,983 $ 35,482
Interest on convertible debt, net of taxes................. 955 941 2,864 2,823
------------ ------------ ------------ -------------
Income available to common stockholders,
plus assumed conversions.............................. $ 12,973 $ 11,736 $ 36,847 $ 38,305
============ ============ ============ =============
Shares:
Weighted average number of common
shares outstanding.................................... 22,498,903 21,951,943 22,404,145 21,903,886
Options.................................................... 164,144 164,514 165,775 218,706
Convertible debt........................................... 3,976,928 3,976,928 3,976,928 3,976,928
------------ ------------ ------------ -------------
Weighted average number of common
shares outstanding, plus assumed conversions.......... 26,639,975 26,093,385 26,546,848 26,099,520
============ ============ ============ =============
Net income per share:
Basic...................................................... $ 0.53 $ 0.49 $ 1.52 $ 1.62
============ ============ ============ =============
Diluted.................................................... $ 0.49 $ 0.45 $ 1.39 $ 1.47
============ ============ ============ =============
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 have progressed to the point of presenting an economic package. Negotiations are scheduled to continue on March 21, 2003. On December 17, 2002, Air Logistics of Alaska was notified by the National Mediation Board (NMB) that one of its mechanics had filed an application for a new election to oust the IUOE. The IUOE has objected to the application on several bases, and the matter is pending before the NMB. Unless and until the NMB extinguishes the IUOE’s certification to represent the group, Air Logistics of Alaska remains obligated to bargain in good faith with the IUOE.
A collective bargaining agreement between the OPEIU, representing Air Logistics, L.L.C. pilots, and Offshore Logistics, Inc. is amendable in May 2003. Negotiations relative to an amended collective bargaining agreement are expected to begin on or before the amendable date. The Company does not believe that the amended collective bargaining agreement 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.
The engineers and staff at Bristow Helicopters’ North Sea operations are represented by the Amicus union. Annual contracts, primarily addressing salary matters, with these employees are negotiated and have a term that runs from July to June. The contract commencing July 1, 2002 was finalized on February 4, 2003. The Company has accrued for the retro salary adjustment that will result from the contract. The Company does not believe that the contract 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. CAA, Air Accident Investigation Branch, 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 failure resulted 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.
Subsequent to December 31, 2002, one of the Company’s helicopters operating in the Gulf of Mexico was involved in an accident that resulted in one fatality and 2 injured passengers. The accident occurred during a landing attempt on an offshore platform and is still under investigation. Company personnel are cooperating with all aspects of the investigation. The Company maintains insurance coverage for such situations, and believes that its coverages are adequate for any claims that may result.
During November 2002, the Company sold assets related to its operations in Italy. The Company recognized a pre-tax loss on the disposal of these assets during the quarter ended December 31, 2002 of $2.1 million, recorded in the gain (loss) on disposal of assets in the accompanying consolidated statements of income. These assets accounted for approximately $12.8 million of the Company’s consolidated revenues for the nine months ended December 31, 2002. The loss represents the excess of book value over sales proceeds, and certain obligations totaling $0.9 million which have been reflected in the December 31, 2002 consolidated balance sheet. The sale of three aircraft involved in the sale agreement have not closed. These aircraft are currently under operating leases by the Company and the buyer. The sales of the aircraft are contingent upon the Company exercising purchase options under the leases and the closing of the sale to the buyer. Gains resulting from these aircraft sales are projected to be approximately $4.3 million.
At December 31, 2002, the Company had recorded on its balance sheet a $34.8 million pension liability related to the Bristow pension plan representing the excess of the present value of the defined benefit pension plan liabilities over the fair value of plan assets that existed at March 31, 2002. Since that measurement date, the value of plan assets and market interest rates have declined. Plan assets are primarily (approximately 70%) invested in equity securities, of which approximately 49% are concentrated in United Kingdom Companies. Since March 31, 2002 the FTSE100 index has decreased by approximately 32%. Accordingly, at March 31, 2003, the next measurement date, the Company expects to record additional pension liabilities to recognize the increase in the under- funded status of the plan. The increase in the liability to be recorded will depend on the value of plan assets and market interest rates at March 31, 2003 and based on currently available information, market conditions and exchange rates as of January 31, 2003, is expected to be in the range of $75 to $90 million. Depending upon further movements in the market value of plan assets and interest rates, the amount actually recorded at March 31, 2003 could be materially different. In accordance with the accounting prescribed by SFAS No. 87, the liability will be recorded through a direct charge to stockholders' investment. In addition to the recognition of the minimum pension liability, the United Kingdom rules governing pension plan funding require the company to make additional cash contributions into the plan over the next three years in the range of $5 to $6 million per year. The company has not yet determined the manner in which these additional contributions will be made (either through periodic lump sum payments or through an increase of the existing contribution rate). As a result of this significant change in the under-funded status of the plan, the Company also expects that its net periodic pension cost charged to earnings for fiscal 2004 will increase over the amounts expensed in fiscal 2003, in the range of $11 to $14 million, although this estimate could also be materially different when finally determined at March 31, 2003. Additional charges to earnings will be required in future years, the amount of which will be dependent on market conditions as of such dates and their impact on the plan. Actuarial assumptions used to develop the estimates above include a discount rate of 5.5% and expected return on plan assets of 6.5%.
Comprehensive income is as follows (thousands of dollars):
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ -----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net Income..................................................... $ 12,018 $ 10,795 $ 33,983 $ 35,482
Other Comprehensive Income (Loss):
Currency translation adjustment and other.................. 9,929 (2,940) 34,218 6,322
---------- ---------- ---------- ----------
Comprehensive Income........................................... $ 21,947 $ 7,855 $ 68,201 $ 41,804
========== ========== ========== ==========
On July 1, 2002, the Company purchased a controlling interest in a West Africa helicopter operating company and purchased 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.
The Company has $90.9 million of 6% convertible subordinated notes outstanding at December 31, 2002, which mature on December 15, 2003. Accordingly, this debt has been classified as current in the accompanying consolidated balance sheet. The Company is currently reviewing options to refinance this debt, and expects to have a refinancing transaction completed prior to maturity.
The classification as current of the convertible subordinated notes caused the Company’s current ratio to drop below the minimum current ratio required to be maintained under the covenants of the Company’s $30 million line of credit facility. The Company has obtained a waiver of this violation through January 1, 2004 from the bank. The Company is in compliance with all other covenants of its debt agreements.
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 $0.8 million for the three and nine months ended December 31, 2001, respectively. Had the goodwill amortization not been recorded for the three and nine months ended December 31, 2001, the Company’s net income would have been $11.0 million and $36.1 million, respectively and diluted earnings per share would have been $0.46 and $1.49, 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. In addition, 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 December 31, 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.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation, and also amends the disclosure provision of SFAS No. 123 to require disclosure in the summary of significant accounting policies the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earning per share in annual and interim financial statements. The disclosure provision is required for all companies with stock-based employee compensation, regardless of whether the company utilizes the fair method of accounting described in SFAS No. 123 or the intrinsic value method described in APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 148's amendment of the transition and annual disclosure provisions of SFAS No. 123 are effective for fiscal years ending after December 15, 2002. The disclosure requirements for interim financial statements containing condensed consolidated financial statements are effective for interim periods beginning after December 15, 2002. The Company currently uses the intrinsic value method of accounting for stock-based employee compensation described by APB Opinion No. 25.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities”. In general, a variable interest entity (formerly referred to as a Special Purpose Entity or SPE) is a corporation, partnership, trust or any other legal structure used for business purposes that either (a.) does not have equity investors with voting rights or (b.) has equity investors that do not provide sufficient financial resources for the entity to support its activities. Interpretation No. 46 requires consolidation of a variable interest entity by a company if that company is subject to the majority of risk of loss or residual return from the variable interest entity’s activities. Interpretation No. 46 is effective immediately for variable interest entities created after January 31, 2003. The consolidation requirements for variable interest entities created prior to January 31, 2003, begins with the first fiscal year or interim period beginning after June 15, 2003.
The Company leases two aircraft under an operating lease from a lessor that may be determined to be a variable interest entity. The Company has no investment in the lessor; however, the aircraft involved are mortgaged by the lessor to a U.K. bank, and the Company has provided the U.K. bank a residual value guarantee of up to 15% ($3.8 million) of the aircraft’s original cost. These guarantees represent the maximum amount of loss exposure to the Company as a result of its involvement with the lessor, and have been previously disclosed in the footnotes to its annual financial statements, along with the contractual commitment from the operating lease. The Company is currently evaluating whether in fact the lessor is a variable interest entity and whether the Company could be considered to have a majority of the risk associated with the lessor, and expects to make this determination prior to the finalization of its March 31, 2003, financial statements.
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 nine months ended December 31, 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 Nine Months Ended
December 31, December 31,
------------------------- ------------------------
2002 2001 2002 2001
---------- ----------- ---------- ----------
Segment operating revenue from external customers:
Helicopter activities:
Air Log................................................... $ 34,369 $ 36,314 $ 104,938 $ 111,907
Bristow................................................... 43,928 40,475 134,259 117,057
International............................................. 42,347 34,542 120,525 105,501
Technical Services........................................ 7,546 4,677 22,932 12,456
----------- ----------- ----------- -----------
Total Helicopter Activities.................................... 128,190 116,008 382,654 346,921
Production management and related services..................... 11,820 10,787 35,729 34,448
----------- ----------- ----------- -----------
Total segment operating revenue....................... $ 140,010 $ 126,795 $ 418,383 $ 381,369
=========== =========== =========== ===========
Intersegment operating revenue:
Helicopter activities:
Air Log................................................... $ 3,792 $ 2,802 $ 10,048 $ 7,837
Bristow................................................... 3,935 4,135 12,463 13,539
International............................................. 675 540 2,028 2,025
Technical Services........................................ 2,161 2,345 7,372 6,730
----------- ----------- ----------- -----------
Total Helicopter Activities.................................... 10,563 9,822 31,911 30,131
Production management and related services..................... 17 -- 47 --
----------- ----------- ----------- -----------
Total intersegment operating revenue.................. $ 10,580 $ 9,822 $ 31,958 $ 30,131
=========== =========== =========== ===========
Consolidated operating revenue reconciliation:
Helicopter activities:
Air Log................................................... $ 38,161 $ 39,116 $ 114,986 $ 119,744
Bristow................................................... 47,863 44,610 146,722 130,596
International............................................. 43,022 35,082 122,553 107,526
Technical Services........................................ 9,707 7,022 30,304 19,186
----------- ----------- ----------- -----------
Total Helicopter Activities.................................... 138,753 125,830 414,565 377,052
Production management and related services..................... 11,837 10,787 35,776 34,448
Corporate...................................................... 2,904 3,084 8,790 8,652
Intersegment eliminations...................................... (13,307) (12,810) (40,299) (38,475)
----------- ----------- ----------- -----------
Total consolidated operating revenue.................. $ 140,187 $ 126,891 $ 418,832 $ 381,677
=========== =========== =========== ===========
Consolidated operating income reconciliation:
Helicopter activities:
Air Log................................................... $ 5,727 $ 8,106 $ 14,681 $ 24,692
Bristow................................................... 6,783 2,233 19,524 12,462
International............................................. 6,436 5,703 20,416 19,231
Technical Services........................................ 1,237 180 2,510 479
----------- ----------- ----------- -----------
Total Helicopter Activities.................................... 20,183 16,222 57,131 56,864
Production management and related services..................... 686 291 2,479 1,858
Gain (loss) on disposal of assets.............................. (946) 1,228 1,307 2,388
Corporate...................................................... (982) (1,051) (2,977) (2,532)
----------- ----------- ----------- -----------
Total consolidated operating income................... $ 18,941 $ 16,690 $ 57,940 $ 58,578
=========== =========== =========== ===========
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.
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
ASSETS
- ------
Current assets:
Cash and cash equivalents.............. $ 11,132 $ 4,066 $ 40,105 $ -- $ 55,303
Accounts receivable.................... 3,206 37,624 105,445 (6,521) 139,754
Inventories............................ -- 63,232 50,141 (7) 113,366
Prepaid expenses and other............. 164 3,591 3,850 -- 7,605
----------- ----------- ----------- ----------- -------------
Total current assets................. 14,502 108,513 199,541 (6,528) 316,028
Intercompany investment.................. 263,286 -- -- (263,286) --
Investments in unconsolidated entities... -- -- 25,362 -- 25,362
Intercompany note receivables............ 402,866 -- 13,963 (416,829) --
Property and equipment--at cost:
Land and buildings..................... 135 8,417 8,100 -- 16,652
Aircraft and equipment................. 2,641 247,413 484,631 -- 734,685
----------- ----------- ----------- ----------- -------------
2,776 255,830 492,731 -- 751,337
Less: accumulated depreciation
and amortization..................... (2,134) (91,404) (132,759) -- (226,297)
----------- ----------- ----------- ----------- -------------
642 164,426 359,972 -- 525,040
Other assets............................. 9,814 13,989 20,145 110 44,058
----------- ----------- ----------- ----------- -------------
$ 691,110 $ 286,928 $ 618,983 $ (686,533) $ 910,488
=========== =========== =========== =========== =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
Current liabilities:
Accounts payable....................... $ 521 $ 9,247 $ 26,357 $ (6,521) $ 29,604
Accrued liabilities.................... 7,075 15,861 52,393 5,911 81,240
Deferred taxes......................... 1,079 -- 19,723 (11,238) 9,564
Current maturities of long-term debt... 90,922 -- 5,059 -- 95,981
----------- ----------- ----------- ----------- -------------
Total current liabilities............ 99,597 25,108 103,532 (11,848) 216,389
Long-term debt, less current maturities.. 114,000 -- -- -- 114,000
Intercompany notes payable............... 13,963 53,692 349,174 (416,829) --
Other liabilities and deferred credits... 279 2,789 36,579 -- 39,647
Deferred taxes........................... 14,777 50,276 42,466 5,326 112,845
Minority interest........................ 16,392 -- -- -- 16,392
Stockholders' investment:
Common stock........................... 225 4,062 13,579 (17,641) 225
Additional paid in capital............. 138,864 51,168 8,015 (59,183) 138,864
Retained earnings...................... 290,358 99,833 83,709 (183,549) 290,351
Accumulated other comprehensive
income (loss)........................ 2,655 -- (18,071) (2,809) (18,225)
----------- ----------- ----------- ----------- -------------
432,102 155,063 87,232 (263,182) 411,215
----------- ----------- ----------- ----------- -------------
$ 691,110 $ 286,928 $ 618,983 $ (686,533) $ 910,488
=========== =========== =========== =========== =============
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
GROSS REVENUE
Operating revenue.......................... $ 428 $ 140,725 $ 277,679 $ -- $ 418,832
Intercompany revenue....................... -- 7,041 1,989 (9,030) --
Gain on disposal of assets................. 11 707 589 -- 1,307
----------- ----------- ----------- ----------- -------------
439 148,473 280,257 (9,030) 420,139
OPERATING EXPENSES
Direct cost................................ -- 111,933 196,179 -- 308,112
Intercompany expense....................... 20 1,969 6,319 (8,308) --
Depreciation and amortization.............. 408 8,816 18,636 -- 27,860
General and administrative................. 4,390 7,349 15,210 (722) 26,227
----------- ----------- ----------- ----------- -------------
4,818 130,067 236,344 (9,030) 362,199
----------- ----------- ----------- ----------- -------------
OPERATING INCOME (LOSS).................... (4,379) 18,406 43,913 -- 57,940
Earnings from unconsolidated entities, net. 27,569 -- 6,728 (27,569) 6,728
Interest income............................ 27,000 29 700 (26,608) 1,121
Interest expense........................... 10,944 -- 26,557 (26,608) 10,893
Other income (expense), net................ (638) 73 (3,908) -- (4,473)
----------- ----------- ----------- ----------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES AND
MINORITY INTEREST........................ 38,608 18,508 20,876 (27,569) 50,423
Allocation of consolidated income taxes.... 3,312 5,552 6,263 -- 15,127
Minority interest.......................... (1,313) -- -- -- (1,313)
----------- ----------- ----------- ----------- -------------
NET INCOME................................. $ 33,983 $ 12,956 $ 14,613 $ (27,569) $ 33,983
=========== =========== =========== =========== =============
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities..................... $ (28,530) $ 35,558 $ 17,154 $ 26,150 $ 50,332
----------- ----------- ----------- ----------- -------------
Cash flows from investing activities:
Capital expenditures..................... (113) (34,708) (6,633) -- (41,454)
Assets purchased on behalf of affiliate.. -- -- (26,019) -- (26,019)
Proceeds from sale of assets to affiliate -- -- 26,019 -- 26,019
Proceeds from asset dispositions......... 22 2,606 14,947 -- 17,575
Acquisitions, net of cash received....... -- -- (15,953) -- (15,953)
Investments in subsidiaries.............. 2,098 (2,098) -- -- --
----------- ----------- ----------- ----------- -------------
Net cash provided by (used in)
investing activities..................... 2,007 (34,200) (7,639) -- (39,832)
----------- ----------- ----------- ----------- -------------
Cash flows from financing activities:
Proceeds from borrowings................. 24,150 -- 47,286 (26,150) 45,286
Repayment of debt........................ -- -- (48,391) -- (48,391)
Issuance of common stock................. 2,926 -- -- -- 2,926
----------- ----------- ----------- ----------- -------------
Net cash provided by (used in) financing
activities............................... 27,076 -- (1,105) (26,150) (179)
----------- ----------- ----------- ----------- -------------
Effect of exchange rate changes in cash.... -- -- 2,312 -- 2,312
----------- ----------- ----------- ----------- -------------
Net increase (decrease) in cash and
cash equivalents......................... 553 1,358 10,722 -- 12,633
Cash and cash equivalents
at beginning of period.................. 10,579 2,708 29,383 -- 42,670
----------- ----------- ----------- ----------- -------------
Cash and cash equivalents
at end of period....................... $ 11,132 $ 4,066 $ 40,105 $ -- $ 55,303
=========== =========== =========== =========== =============
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.......................... -- -- 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
========== ============ ============ ========== ============
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
GROSS REVENUE
Operating revenue.......................... $ 340 $ 146,694 $ 234,643 $ -- $ 381,677
Intercompany revenue....................... 4 6,407 1,041 (7,452) --
Gain (loss) on disposal of assets.......... (338) 1,435 1,291 -- 2,388
----------- ----------- ----------- ----------- -------------
6 154,536 236,975 (7,452) 384,065
OPERATING EXPENSES
Direct cost................................ 7 111,512 164,987 -- 276,506
Intercompany expense....................... 1 1,040 5,689 (6,730) --
Depreciation and amortization.............. 413 7,387 18,093 -- 25,893
General and administrative................. 4,919 6,300 12,591 (722) 23,088
----------- ----------- ----------- ----------- -------------
5,340 126,239 201,360 (7,452) 325,487
----------- ----------- ----------- ----------- -------------
OPERATING INCOME (LOSS).................... (5,334) 28,297 35,615 -- 58,578
Earnings from unconsolidated
entities, net............................ 30,776 -- 4,979 (30,776) 4,979
Interest income............................ 24,661 118 828 (23,774) 1,833
Interest expense........................... 10,811 -- 25,221 (23,774) 12,258
Other income (expense), net................. (84) 4 (211) (291)
----------- ----------- ----------- ----------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES AND MINORITY
INTEREST................................... 39,208 28,419 15,990 (30,776) 52,841
Allocation of consolidated income taxes.... 2,588 8,725 4,908 -- 16,221
Minority interest.......................... (1,138) -- -- -- (1,138)
----------- ----------- ----------- ----------- -------------
NET INCOME................................. $ 35,482 $ 19,694 $ 11,082 $ (30,776) $ 35,482
=========== =========== =========== =========== =============
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities..................... $ (16,394) $ 52,390 $ 26,376 $ (13,673) $ 48,699
----------- ----------- ----------- ----------- -------------
Cash flows from investing activities:
Capital expenditures..................... (33) (51,386) (9,613) -- (61,032)
Proceeds from asset dispositions......... 947 4,387 3,624 -- 8,958
Acquisitions, net of cash received...... 554 -- -- -- 554
Investments.............................. 4,570 (4,570) (576) -- (576)
----------- ----------- ----------- ----------- -------------
Net cash provided by (used in)
investing activities..................... 6,038 (51,569) (6,565) -- (52,096)
----------- ----------- ----------- ----------- -------------
Cash flows from financing activities:
Proceeds from borrowings................. -- -- 1,513 -- 1,513
Repayment of debt........................ -- -- (24,162) 13,673 (10,489)
Issuance of common stock................. 1,263 -- -- -- 1,263
----------- ----------- ----------- ----------- -------------
Net cash provided by (used in) financing
activities............................... 1,263 -- (22,649) 13,673 (7,713)
----------- ----------- ----------- ----------- -------------
Effect of exchange rate changes in cash.... -- -- 235 -- 235
----------- ----------- ----------- ----------- -------------
Net increase (decrease) in cash and
cash equivalents......................... (9,093) 821 (2,603) -- (10,875)
Cash and cash equivalents
at beginning of period................... 19,633 3,130 32,031 -- 54,794
----------- ----------- ----------- ----------- -------------
Cash and cash equivalents
at end of period........................ $ 10,540 $ 3,951 $ 29,428 $ -- $ 43,919
=========== =========== =========== =========== =============
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”).
A summary of operating results and other income statement information for the applicable periods is as follows (in thousands of dollars):
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Operating revenue.......................................... $ 140,187 $ 126,891 $ 418,832 $ 381,677
Gain (loss) on disposal of assets.......................... (946) 1,228 1,307 2,388
Operating expenses......................................... (120,300) (111,429) (362,199) (325,487)
----------- ----------- ----------- -----------
Operating income........................................... 18,941 16,690 57,940 58,578
Earnings from unconsolidated entities, net................. 3,277 2,341 6,728 4,979
Interest income (expense), net............................. (3,141) (3,598) (9,772) (10,425)
Other income (expense), net................................ (1,244) 552 (4,473) (291)
----------- ----------- ----------- -----------
Income before provision for income taxes and
minority interest....................................... 17,833 15,985 50,423 52,841
Provision for income taxes................................. 5,350 4,796 15,127 16,221
Minority interest.......................................... (465) (394) (1,313) (1,138)
----------- ----------- ----------- -----------
Net income................................................. $ 12,018 $ 10,795 $ 33,983 $ 35,482
=========== =========== =========== ===========
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 nine months ended December 31, 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 Nine Months Ended
December 31, December 31,
------------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------- ------------ ------------
(in thousands, except flight hours)
Flight hours (excludes unconsolidated entities):
Helicopter Activities:
Air Log........................................ 29,859 31,465 96,879 103,601
Bristow........................................ 12,226 12,897 37,835 38,331
International.................................. 22,438 19,370 63,849 62,296
Technical Services............................. 310 265 1,027 942
------------ ------------- ------------ ------------
Total....................................... 64,833 63,997 199,590 205,170
============ ============= ============ ============
Operating revenues:
Helicopter Activities:
Air Log....................................... $ 38,161 $ 39,116 $ 114,986 $ 119,744
Bristow....................................... 47,863 44,610 146,722 130,596
International................................. 43,022 35,082 122,553 107,526
Technical Services............................ 9,707 7,022 30,304 19,186
Less: Intercompany........................... (9,047) (8,747) (27,346) (25,728)
------------ ------------- ------------ ------------
Total....................................... 129,706 117,083 387,219 351,324
Production management and related services........ 11,837 10,787 35,776 34,448
Corporate......................................... 2,904 3,084 8,790 8,652
Less: Intersegment............................... (4,260) (4,063) (12,953) (12,747)
------------ ------------- ------------ ------------
Consolidated total.......................... $ 140,187 $ 126,891 $ 418,832 $ 381,677
============ ============= ============ ============
Operating income, excluding gain or
loss on disposal of assets:
Helicopter Activities:
Air Log....................................... $ 5,727 $ 8,106 $ 14,681 $ 24,692
Bristow....................................... 6,783 2,233 19,524 12,462
International................................. 6,436 5,703 20,416 19,231
Technical Services............................ 1,237 180 2,510 479
------------ ------------- ------------ ------------
Total....................................... 20,183 16,222 57,131 56,864
Production management and related services........ 686 291 2,479 1,858
Corporate......................................... (982) (1,051) (2,977) (2,532)
------------ ------------- ------------ ------------
Consolidated total.......................... $ 19,887 $ 15,462 $ 56,633 $ 56,190
============ ============= ============ ============
Operating margin, excluding gain or
loss on disposal of assets:
Helicopter Activities:
Air Log....................................... 15.0% 20.7% 12.8% 20.6%
Bristow....................................... 14.2% 5.0% 13.3% 9.5%
International................................. 15.0% 16.3% 16.7% 17.9%
Technical Services............................ 12.7% 2.6% 8.3% 2.5%
Total....................................... 15.6% 13.9% 14.8% 16.2%
Production management and related services........ 5.8% 2.7% 6.9% 5.4%
Consolidated total.......................... 14.2% 12.2% 13.5% 14.7%
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 respective operations in the following countries: Australia, Brazil, China, Colombia, India, Kazakhstan, 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 revenues from helicopter activities increased by 10.8% and 10.2% during the three and nine months ended December 31, 2002, respectively, over the prior year comparable periods, with operating expenses increasing 8.6% and 12.1%, respectively. Changes in operating revenue, expenses and income are explained by division below.
Air Log - Air Log’s flight activity for the three and nine-month periods ended December 31, 2002 is below the similar prior year levels by 5.1% and 6.5%, respectively. Revenues for the same periods were down 2.4% and 4.0%, respectively. Revenue for the three and nine month periods ended December 31, 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. Additionally, for the three months ended December 31, 2002, revenue was favorably impacted by an increase in ad hoc flight hours, which is generally performed at a premium rate. Flight hours and revenue generated from larger, crew change aircraft in the Gulf of Mexico decreased 15.6% and 9.7%, respectively, from the similar quarter in the prior year, while smaller, production related aircraft decreased 2.8% and 1.7%, respectively. For the nine month period, flight hours and revenue generated from larger, crew change aircraft in the Gulf of Mexico decreased 26.7% and 18.1%, respectively, over the prior year, while flight hours for smaller, production-related aircraft decreased 4.8% and revenue remained constant. Air Log’s operating margin of 15.0% and 12.8% for the three and nine months ended December 31, 2002 decreased over the comparable prior year periods, which had margins of 20.7% and 20.6%, respectively. The decrease in operating margin for the three and nine months ended December 31, 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.
A collective bargaining agreement between the Office and Professional Employees International Union (“OPEIU”), representing Air Logistics, L.L.C. pilots, and Offshore Logistics, Inc. is amendable in May 2003. Negotiations relative to an amended collective bargaining agreement are expected to begin on or before the amendable date. The Company does not believe that the amended collective bargaining agreement 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.
In May 2002, a customer notified Air Log of its intention to change helicopter operators. For the three and nine months ended December 31, 2002, the customer accounted for nil and $5.0 million of Air Log’s revenue compared to $3.6 million and $11.4 million for three and nine month periods ended December 31, 2001, respectively. Monthly contracts with other customers have been added during the current year, substantially mitigating the impact of this lost work.
The drilling rigs under contract in the Gulf of Mexico have averaged 129 per month for the nine months ended December 31, 2002 compared to 156 per month for the nine months ended December 31, 2001. Consequently, utilization of Air Log’s crew change fleet, used primarily in support of drilling activities, has significantly decreased in recent quarters. Until the drilling activity in the Gulf of Mexico increases, 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 nine month periods ended December 31, 2002 increased by 7.3% and 12.4%, respectively, from the similar periods in the prior year. Excluding the foreign exchange effect, Bristow’s revenue for the three months ended December 31, 2002 decreased 1.5% while revenue for the nine months ended December 31, 2002 increased 5.5%. Bristow’s flight hours for the three and nine month periods ended December 31, 2002 decreased by 5.2% and 1.3%, respectively, from the similar periods in the prior year. The decrease in revenue for the three months ended December 31, 2002 was primarily a result of the sale of assets related to Bristow’s operations in Italy on November 12, 2002 (see discussion below). Excluding Italy, revenue would have increased by 3.8% for the current quarter compared to the prior year quarter. The increase in Bristow 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. CAA, Air Accident Investigation Branch, 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 failure resulted 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 £1.0 million ($1.6 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.
During November 2002, the Company sold assets related to its operations in Italy. The Company recognized a pre-tax loss on the disposal of these assets during the quarter ended December 31, 2002 of $2.1 million, recorded in the gain (loss) on the disposal of assets in the accompanying consolidated statements of income. These assets accounted for approximately $12.8 million of the Company’s consolidated revenues for the nine months ended December 31, 2002. The loss represents the excess of book value over sales proceeds, and certain obligations totaling $0.9 million which have been reflected in the December 31, 2002 consolidated balance sheet. The sale of three aircraft involved in the sale agreement have not closed. These aircraft are currently under operating leases by the Company and the buyer. The sales of the aircraft are contingent upon the Company exercising purchase options under the leases and the closing of the sale to the buyer. Gains resulting from these aircraft sales are projected to be approximately $4.3 million.
Bristow’s operating margin increased to 14.2% in the current quarter from 5.0% for the three months ended December 31, 2001 and to 13.3% for the nine months ended December 31, 2002 from 9.5% for the nine months ended December 31, 2001. The improvement in margin for the three and nine months ended December 31, 2002 was due primarily to the revenue increase discussed above offset by higher insurance costs in the current year.
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 for the three and nine months ended December 31, 2002 increased by 15.8% and 2.5%, respectively, from the similar periods in the prior year. Revenue increased during the three and nine months ended December 31, 2002 by 22.6% and 14.0%, 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 nine month periods ended December 31, 2002 was above the similar prior year levels by 25.9% and 25.8%, respectively. Revenue for the same periods was up 29.1% and 22.0%, respectively. The increase in flight activity and revenue was primarily due to additional work performed for a major customer. Three aircraft were mobilized to Mexico, in the first half of calendar 2002, as a result of this demand. The revenue generated from these three aircraft accounted for approximately 58.4% and 69.8% of the increase in revenue for the three and nine months periods ended December 31, 2002, respectively.
In Nigeria, revenue was up by 21.2% and 18.8% for the three and nine months ended December 31, 2002, respectively, over the prior year periods. Flight activity increased 22.8% for the three months ended December 31, 2002 over the prior year quarter and 3.2% for the nine months ended December 31, 2002 over the prior year period. On July 1, 2002, the Company purchased a controlling 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 in Nigeria decreased for the three and nine months ended December 31, 2002 by 36.6% and 34.4%, respectively, over the comparable prior year periods, while revenue for the same periods decreased by 16.1% and 7.9%, respectively. The disproportionate decrease in flight activity and revenue is primarily due to a change on one contract whereby the customer now 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 nine months ended December 31, 2002 increased by 43.3% and 42.4%, respectively, over the prior year periods while revenue for the same periods increased by 33.0% and 53.4%, respectively over the similar periods in the prior year. Revenue for the nine months ended December 31, 2002 was favorably impacted by 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 nine months ended December 31, 2002 from the similar periods in the prior year. The operating margin for the nine months ended December 31, 2002 increased to 8.3% from 2.5% in the similar period in the prior year. The increase in operating revenue and improvement in margin for the nine months ended December 31, 2002 was primarily due to the acquisition of an engine repair and overhaul facility in December 2001.
Operating revenues for GPM increased by 9.7% and 4.0% during the three and nine-month periods ended December 31, 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 5.8% and 6.9% for the three and nine months ended December 31, 2002, respectively, improved over the comparable periods in the prior year of 2.7% and 5.4%, respectively.
General and administrative expenses increased during the three and nine month periods ended December 31, 2002, primarily due to increased compensation costs related to the Company’s performance based incentive compensation plan costs and increased professional fees. Consolidated 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 nine months ended December 31, 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 effective income tax rate was approximately 30% for the nine months ended December 31, 2002 and approximately 30.7% for the nine months ended December 31, 2001.
At December 31, 2002, the Company had recorded on its balance sheet a $34.8 million pension liability related to the Bristow pension plan representing the excess of the present value of the defined benefit pension plan liabilities over the fair value of plan assets that existed at March 31, 2002. Since that measurement date, the value of plan assets and market interest rates have declined. Plan assets are primarily (approximately 70%) invested in equity securities, of which approximately 49% are concentrated in United Kingdom Companies. Since March 31, 2002 the FTSE100 index has decreased by approximately 32%. Accordingly, at March 31, 2003, the next measurement date, the Company expects to record additional pension liabilities to recognize the increase in the under-funded status of the plan. The increase in the liability to be recorded will depend on the value of plan assets and market interest rates at March 31, 2003 and based on currently available information, market conditions and exchange rates as of January 31, 2003, is expected to be in the range of $75 to $90 million. Depending upon further movements in the market value of plan assets and interest rates, the amount actually recorded at March 31, 2003 could be materially different. In accordance with the accounting prescribed by SFAS No. 87, the liability will be recorded through a direct charge to stockholders' investment. In addition to the recognition of the minimum pension liability, the United Kingdom rules governing pension plan funding require the Company to make additional cash contributions into the plan over the next three years in the range of $5 to $6 million per year. The Company has not yet determined the manner in which these additional contributions will be made (either through periodic lump sum payments or through an increase of the existing contribution rate). As a result of this significant change in the under-funded status of the plan, the Company also expects that its net periodic pension cost charged to earnings for fiscal 2004 will increase over the amounts expensed in fiscal 2003, in the range of $11 to $14 million, although this estimate could also be materially different when finally determined at March 31, 2003. Additional charges to earnings will be required in future years, the amount of which will be dependent on market conditions as of such dates and their impact on the plan. Actuarial assumptions used to develop the estimates above include a discount rate of 5.5% and expected return on plan assets of 6.5%.
Cash and cash equivalents were $55.3 million as of December 31, 2002, a $12.6 million increase from March 31, 2002. Working capital as of December 31, 2002 was $99.6 million, a $47.3 million decrease from March 31, 2002. This decrease is primarily attributed to the classification of the Company’s 6% convertible notes due December 2003 as a current liability (see further discussion below). Total debt was $210.0 million as of December 31, 2002.
As of December 31, 2002, Bristow had a £9 million ($14.5 million) revolving credit facility with a United Kingdom bank on which any borrowings are payable on demand. As of December 31, 2002, Bristow had £4.9 million ($7.8 million) of letters of credit utilized, however no other funds were drawn under this credit facility. As of December 31, 2002, the Company had a $30 million unsecured working capital line of credit with a bank that expires on August 31, 2004. The Company had $14 million drawn on this facility as of December 31, 2002. These funds were used to finance the acquisition discussed in Note E to the consolidated financial statements. The Company’s convertible subordinated notes mature in December 2003 and are classified in current maturities of long-term debt in the consolidated balance sheet. The Company is currently evaluating its options with regard to the refinancing of this obligation, which is expected to be completed prior to maturity. The classification as current of the convertible subordinated notes caused the Company’s current ratio to drop below the minimum current ratio required to be maintained under the covenants of the Company’s $30 million line of credit facility. The Company has obtained a waiver of the violation through January 1, 2004 from the bank. The Company is in compliance with all other covenants of its debt agreements. Normal operations, lines of credit and available financing will provide sufficient working capital and cash flow to meet the Company’s other cash needs.
During the nine months ended December 31, 2002, the Company received proceeds of $17.6 million primarily from the disposition of twelve aircraft and proceeds from the sale of the Company’s operations in Italy discussed in Note C to the consolidated financial statements. The Company also purchased two Bell 407's for $2.6 million, one EC 120 for $1.0 million, three Bell 412's for $6.5 million and four 206L4's for $5.0 million. Additionally, the Company paid $3.5 million of the balance due on an AS 332L2 Super Puma. An additional £2.6 million ($4.2 million) relating to this aircraft is payable in November 2003. These aircraft acquisitions were made to fulfill customer requirements.
In November 2002, the Company’s Board of Directors approved a fleet and facilities renewal and refurbishment program. Under the program, the Company expects to incur approximately $155.5 million of capital expenditures over the next five to seven years to replace certain of its aircraft and upgrade strategic base facilities. At December 31, 2002, the Company has expended $16.3 million as deposits and progress payments, and incurred firm purchase commitments of $108.5, under this program. Sales and trade-in of older aircraft will reduce the projected expenditures discussed above. The Company plans to use internally generated funds and available financing, when needed, to meet its maturing obligations under the program.
During the nine months ended December 31, 2001, the Company received proceeds of $9.0 million from eight separate disposals of aircraft and purchased six Bell 407's for $8.1 million, five Bell 412's for $25.3 million, four 206 L-4's for $3.5 million, five EC 120's for $4.7 million, one 206 L-3 for $0.7 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.
The Company has the following contractual obligations as of December 31, 2002 (millions of dollars):
Payments Due by Period
------------------------------------------------------------------
Less than After
Total 1 year 1-3 years 4-5 years 5 years
------------------------------------------------------------------
Contractual Obligations:
------------------------
Long-Term Debt $ 210.0 $ 96.0 $ 14.0 $ -- $ 100.0
Operating Leases 31.0 1.3 13.5 7.2 9.0
Unconditional Purchase Obligations 92.2 32.0 60.2 -- --
----------- -------- -------- ---------- ---------
Total Contractual Obligations $ 333.2 $ 129.3 $ 87.7 $ 7.2 $ 109.0
=========== ======== ======== ========== =========
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 $ 24.1 $ -- $ -- $ -- $ 24.1
Residual Value Guarantee 3.8 -- -- 3.8 --
Letters of Credit 7.8 5.2 1.8 0.8 --
Other 0.9 0.9 -- -- --
--------- ------- --------- ---------- --------
Total Commercial Commitments $ 36.6 $ 6.1 $ 1.8 $ 4.6 $ 24.1
========= ======= ========= ========== ========
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.
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 $0.8 million for the three and nine months ended December 31, 2001, respectively. Had the goodwill amortization not been recorded for the three and nine months ended December 31, 2001, the Company’s net income would have been $11.0 million and $36.1 million, respectively and diluted earnings per share would have been $0.46 and $1.49, 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. In addition, 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 December 31, 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.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation, and also amends the disclosure provision of SFAS No. 123 to require disclosure in the summary of significant accounting policies the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earning per share in annual and interim financial statements. The disclosure provision is required for all companies with stock-based employee compensation, regardless of whether the company utilizes the fair method of accounting described in SFAS No. 123 or the intrinsic value method described in APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 148's amendment of the transition and annual disclosure provisions of SFAS No. 123 are effective for fiscal years ending after December 15, 2002. The disclosure requirements for interim financial statements containing condensed consolidated financial statements are effective for interim periods beginning after December 15, 2002. The Company currently uses the intrinsic value method of accounting for stock-based employee compensation described by APB Opinion No. 25.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities”. In general, a variable interest entity (formerly referred to as a Special Purpose Entity or SPE) is a corporation, partnership, trust or any other legal structure used for business purposes that either (a.) does not have equity investors with voting rights or (b.) has equity investors that do not provide sufficient financial resources for the entity to support its activities. Interpretation No. 46 requires consolidation of a variable interest entity by a company if that company is subject to the majority of risk of loss or residual return from the variable interest entity’s activities. Interpretation No. 46 is effective immediately for variable interest entities created after January 31, 2003. The consolidation requirements for variable interest entities created prior to January 31, 2003, begins with the first fiscal year or interim period beginning after June 15, 2003.
The Company leases two aircraft under an operating lease from a lessor that may be determined to be a variable interest entity. The Company has no investment in the lessor; however, the aircraft involved are mortgaged by the lessor to a U.K. bank, and the Company has provided the U.K. bank a residual value guarantee of up to 15% ($3.8 million) of the aircraft’s original cost. These guarantees represent the maximum amount of loss exposure to the Company as a result of its involvement with the lessor, and have been previously disclosed in the footnotes to its annual financial statements, along with the contractual commitment from the operating lease. The Company is currently evaluating whether in fact the lessor is a variable interest entity and whether the Company could be considered to have a majority of the risk associated with the lessor, and expects to make this determination prior to the finalization of its March 31, 2003, financial statements.
This 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.
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 December 31, 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.
| 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. |
There were no Form 8-K filings during the quarter ended December 31, 2002.
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 (on behalf of Registrant and as Principal Financial Officer) | |
| DATE: February 13, 2003 |
February 13, 2003
Securities and Exchange Commission
Washington, DC 20549
Ladies and Gentlemen:
I, George M. Small, CEO and President, certify that:
Dated: February 13, 2003
| BY: /s/ George M. Small George M. Small CEO and President |
February 13, 2003
Securities and Exchange Commission
Washington, DC 20549
Ladies and Gentlemen:
I, H. Eddy Dupuis, CFO and Vice President, certify that:
Dated: February 13, 2003
| BY: /s/ H. Eddy Dupuis H. Eddy Dupuis CFO and Vice President |