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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______________ to _________________
Commission File Number 0-5232
Offshore Logistics, Inc.
(Exact name of registrant as specified in its Charter)
Delaware 72-0679819
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
224 Rue de Jean
P. O. Box 5-C, Lafayette, Louisiana 70505
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (318) 233-1221
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class: None Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
Preferred Share Purchase Rights
(Title of Class)
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 for 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
--------
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 29, 1998 was $418,060,179.
The number of shares outstanding of the registrant's Common Stock as of May 29,
1998 was 21,856,921.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on September 29, 1998, are incorporated by reference
into Part III hereof.
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OFFSHORE LOGISTICS, INC.
INDEX--FORM 10-K
Page
PART I
Item 1. Business...................................................................................... 1
Item 2. Properties.................................................................................... 6
Item 3. Legal Proceedings............................................................................. 7
Item 4. Submission of Matters to a Vote of Security Holders........................................... 8
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................... 9
Item 6. Selected Financial Data....................................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 10
Item 8. Consolidated Financial Statements and Supplementary Data...................................... 15
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................................. 47
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 47
Item 11. Executive Compensation........................................................................ 47
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 47
Item 13. Certain Relationships and Related Transactions................................................ 47
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 47
Signatures.................................................................................................... 51
i
PART I
ITEM 1. BUSINESS
Offshore Logistics, Inc. was incorporated in Louisiana in 1969 and its state
of incorporation was changed to Delaware in 1988. Unless the context herein
indicates otherwise, all references to the "Company" refer to Offshore
Logistics, Inc., ("OLOG") and its majority-owned entities and non-majority owned
entities. The Company's executive offices are located at 224 Rue de Jean, Post
Office Box 5-C, Lafayette, Louisiana 70505, and its telephone number is (318)
233-1221.
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. See Note C in "Notes to Consolidated Financial Statements" for
discussion of the Company's investment in Bristow. At March 31, 1998, Air
Log's and Bristow's operations included 379 aircraft (including 78 aircraft
operated through unconsolidated entities).
Through a series of transactions in 1993 and 1994, the Company expanded its
operations to include production management services. In September 1994, Grasso
Production Management, Inc. ("GPM") became a wholly-owned subsidiary of the
Company.
See Note L in "Notes to Consolidated Financial Statements" for information on
the Company's operating revenue, operating profit and identifiable assets by
industry segment and geographical distribution for the year ended March 31,
1998, the nine month period ended March 31, 1997 and the year ended June 30,
1996.
FISCAL YEAR CHANGE
On May 1, 1997, the Board of Directors approved a change in the Company's
fiscal year end from June 30 to March 31, effective for the nine month period
ended March 31, 1997. As a result of this change in year end, this report
includes the fiscal year ended March 31, 1998, the nine month fiscal transition
period from July 1, 1996 through March 31, 1997 and the fiscal year ended June
30, 1996.
FORWARD LOOKING 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. Such forward-looking statements include, without limitation, the
statements herein regarding the timing of future events regarding the Company's
operations, the statements under "Helicopter Activities -- United States
Operations" regarding the ability of the Company to better manage its helicopter
fleet, under "Production Management Services -- Customers" and "Production
Management Services -- Competition" regarding outsourcing and cost structure and
the market for production management operations, under "General -- Union
Activities" regarding the effect of the Company's pilots electing to be
represented by a union, under "Legal Proceedings" regarding the Company's
potential liability on environmental claims, under "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General" and
"Helicopter Activities" regarding, respectively, concentration and globalization
of the helicopter industry, restructuring of the oil and gas industry and
increased levels of activity and their effects on the Company's future prospects
and under "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" regarding the
Company's anticipated future financial position and cash requirements and the
impact of Year 2000 compliance.
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 ability to achieve Year 2000 compliance.
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.
1
HELICOPTER ACTIVITIES
Air Log and Bristow charter their helicopters to customers for use in
transporting personnel and time-sensitive equipment from onshore bases to
offshore drilling rigs, platforms and other installations. The helicopter
charters are for varying periods and, in some cases, may contain provisions for
cancellation prior to completion of the contract. Charges under these charter
agreements are generally based on either a daily or monthly fixed fee plus
additional hourly charges. Helicopter activities are seasonal in nature and
influenced by weather conditions, length of daylight hours, and level of
offshore production, exploration, and construction activity.
The following table sets forth the number and type of aircraft operated by
Air Log and Bristow at the end of the past three fiscal years.
PASSENGER SPEED MARCH 31, MARCH 31, JUNE 30,
TYPE CAPACITY (MPH) 1998 1997 1996
---- --------- ----- ---- ---- ----
AS332L Super Puma.................. 18 160 30 29 --
Sikorsky S-61...................... 19 135 17 17 --
Bell 214ST......................... 18 150 6 5 2
Puma SA 330J....................... 16 150 2 2 --
Sikorsky S-76...................... 12 160 41 36 18
Bell 212........................... 12 115 42 44 11
Bell 412........................... 12 140 6 6 6
Boelkow 105........................ 4 125 21 22 17
Aerospatiale Twinstar.............. 5 135 10 10 8
Bell 407........................... 6 130 16 3 --
Bell 206L Series................... 6 125 68 71 70
Bell 206B Jet Ranger............... 4 115 24 26 25
Other.............................. 18 17 2
---- ---- ----
301 288 159
==== ==== ====
At March 31, 1998, Air Log and Bristow owned or employed pursuant to a
capital lease arrangement 299 of the 301 aircraft that are operated. The
following table sets forth certain information concerning the 299 aircraft:
AS OF
MARCH 31, 1998
--------------------------------
NET
TYPE NUMBER BOOK VALUE
---- ------ ----------
(000's)
AS332L Super Puma................................ 30 $217,956
Sikorsky S-61.................................... 17 41,861
Bell 214ST....................................... 6 14,075
Puma SA 330J..................................... 2 3,006
Sikorsky S-76.................................... 39 54,221
Bell 212......................................... 42 43,990
Bell 412......................................... 6 7,463
Boelkow 105...................................... 21 7,504
Aerospatiale Twinstar............................ 10 2,921
Bell 407......................................... 16 20,755
Bell 206L Series................................. 68 19,163
Bell 206B Jet Ranger............................. 24 2,210
Other............................................ 11 9,848
--- --------
292 444,973
Fixed Wing....................................... 7 3,508
--- --------
299 $448,481
=== ========
In addition to the foregoing 299 aircraft, at March 31, 1998, Air Log and
Bristow operated 2 aircraft pursuant to operating lease arrangements. Bristow
provides engineering and administrative support to 47 aircraft operated in an
unconsolidated entity involved in military training. Air Log and Bristow also
provide services and technical support to other unconsolidated entities that
operate 26 helicopters of various types and 5 fixed wing aircraft.
2
UNITED STATES OPERATIONS
The United States helicopter activities are conducted primarily from
operating facilities along the Gulf of Mexico. As of March 31, 1998, Air Log
operated 142 aircraft in that area. Air Log also operates 12 aircraft in Alaska.
Although the Company's business is primarily dependent upon activity levels in
the offshore oil and gas industry, the existence of other markets for helicopter
services distinguishes the Company's business from other segments of the oil
service industry. Other markets for helicopters include emergency medical
transportation, agricultural and forestry support and general aviation
activities. These other markets enable the Company to better manage its
helicopter fleet by providing both a source of additional aircraft during times
of high demand and potential purchasers for excess Company aircraft during times
of reduced demand.
UNITED KINGDOM/EUROPE OPERATIONS
During 1997, the Company expanded its presence in the United Kingdom and
Europe through its investment in Bristow. As of March 31, 1998, 73 aircraft were
being operated by Bristow in the United Kingdom and Europe, mainly in the
North Sea offshore market. These activities are primarily dependent upon
activity levels in the offshore oil and gas production, exploration and
construction industries in that area.
Bristow also has a 33% interest in an unconsolidated entity that has a 15
year contract to provide pilot training and maintenance services to the British
military. This entity purchased and specially modified 47 aircraft and
maintains a staff of approximately 600 employees dedicated to conducting these
training activities which began in May 1997. In June 1998, Bristow purchased an
additional 17% interest in this entity for approximately (Pounds)1,700,000
($2,800,000).
OTHER INTERNATIONAL OPERATIONS
Utilization of helicopters in international service is dependent on the
worldwide level of oil and gas exploration and development offshore and in
remote areas. This, in turn, is dependent on the funds available to the major
oil companies to conduct such activities and upon the number and location of new
foreign concessions. As of March 31, 1998, Air Log and Bristow operated 74 of
their helicopters in locations outside the United States and Europe. Air Log
operated 19 aircraft in Brazil, Colombia, Egypt and Mexico. Bristow operated 26
aircraft in Africa and 29 aircraft elsewhere throughout the world.
In addition to its direct operations in international areas, Air Log and
Bristow have service agreements with, and equity interests in, entities that
operate 31 aircraft in Egypt and Mexico. Air Log and Bristow provide services
and technical support to these entities and, from time to time, lease aircraft
to these entities as additional support for these operations.
CUSTOMERS
The principal customers for the Company's helicopter activities are national
and international petroleum and offshore construction companies. During 1998,
1997, and 1996, no one customer accounted for more than 10% of the Company's
consolidated operating revenues.
COMPETITION
The helicopter transportation business is highly competitive on a worldwide
basis. Chartering of helicopters is usually done on the basis of competitive
bidding among those having the necessary equipment and resources. The technical
requirements of operating helicopters offshore have increased as oil and gas
activities have moved into deeper water and more sophisticated aircraft are
required to service the market. The number of small helicopter operators in the
Gulf of Mexico has declined over the past several years, as it has become
increasingly difficult to maintain an adequate shorebased infrastructure and
provide the working capital required to conduct such operations, especially when
the associated costs must be spread over a relatively small number of
helicopters. One of Air Log's competitors has substantially more helicopters in
service in the Gulf of Mexico. The harsh conditions in the North Sea demand
larger more sophisticated equipment to conduct operations. Bristow has two
significant competitors in the North Sea.
INDUSTRY HAZARDS AND INSURANCE
Hazards, such as adverse weather and marine conditions, crashes, collisions
and fire are inherent in the offshore transportation industry, and may result in
losses of equipment, revenues or death of personnel.
3
Air Log and Bristow maintain Hull and Liability insurance, which generally
insures them against certain legal liabilities to others, as well as damage to
their aircraft. It is also their policy to carry insurance for or require their
customers to provide indemnification against expropriation, war risk and
confiscation of their helicopters employed in international operations. There
is no assurance that in the future they will be able to maintain their existing
coverage or that the premiums therefrom will not increase substantially.
GOVERNMENT REGULATION
United States. As a commercial operator of small aircraft, Air Log is
subject to regulations pursuant to the Federal Aviation Act of 1958, as amended,
and other statutes. Air Log carries persons and property in its helicopters
pursuant to an Air Taxi Certificate granted by the Federal Aviation
Administration ("FAA").
The FAA regulates the flight operations of Air Log, and in this respect,
exercises jurisdiction over personnel, aircraft, ground facilities and certain
technical aspects of its operations. The National Transportation Safety Board
is authorized to investigate aircraft accidents and to recommend improved safety
standards. Air Log is also subject to the Communications Act of 1934 because of
the use of radio facilities in its operations.
Under the Federal Aviation Act, it is unlawful to operate certain aircraft
for hire within the United States unless such aircraft are registered with the
FAA and the operator of such aircraft has been issued an operating certificate
by the FAA. As a general rule, aircraft may be registered under the Federal
Aviation Act only if the aircraft is owned or controlled by one or more citizens
of the United States and an operating certificate may be granted only to a
citizen of the United States. For the purposes of these requirements, a
corporation is deemed to be a citizen of the United States only if, among other
things, at least 75% of the voting interest therein is owned or controlled by
United States citizens. In the event that persons other than United States
citizens should come to own or control more than 25% of the voting interest in
the Company, the Company has been advised that Air Log's aircraft may be subject
to deregistration under the Federal Aviation Act and loss of the privilege of
operating within the United States. At March 31, 1998, the Company had
approximately 1,563,734 common shares held by persons with foreign addresses
representing approximately 7.2% of the 21,854,921 common shares outstanding.
The Company's operations are subject to federal, state and local laws and
regulations controlling the discharge of materials into the environment or
otherwise relating to the protection of the environment. To date, such laws and
regulations have not had a material adverse effect on the Company's business or
financial condition. Increased public awareness and concern over the
environment, however, may result in future changes in the regulation of the oil
and gas industry, which in turn could adversely affect the Company.
United Kingdom. As a commercial operator of aircraft, Bristow is subject to
the Licensing of Air Carriers Regulations 1992, and Regulations made under the
Civil Aviation Act 1982 and other statutes. Bristow carries persons and property
in its helicopters pursuant to an operating license issued by the Civil Aviation
Authority ("CAA").
The CAA regulates the flight operations of Bristow, and in this respect,
exercises jurisdiction over personnel, aircraft, ground facilities and certain
technical aspects of Bristow's operations. Accident investigations are carried
out by the Accident Investigation Branch of the Department of the Environment,
Transport and the Regions. The CAA often imposes improved safety standards on
the basis of a report of the Inspector.
Under the Licensing of Air Carriers Regulations 1992, it is unlawful to
operate certain aircraft for hire within the United Kingdom unless such aircraft
are approved by the CAA. The holder of an operating license must meet the
ownership and control requirements of Council Regulation 2407/92 (i.e. the
entity that operates under the license must be owned directly or through
majority ownership by United Kingdom or European Economic Area nationals and
must at all times be effectively controlled by them).
Bristow's operations are subject to local laws and regulations controlling
the discharge of materials into the environment or otherwise relating to the
protection of the environment. To date, such laws and regulations have not had a
material adverse effect on Bristow's business or financial condition. Increased
public awareness and concern over the environment, however, may result in future
changes in the regulation of the oil and gas industry, which may in turn have an
adverse affect on the Company.
International. Operations other than in the United States and the United
Kingdom are subject to local governmental regulations and to uncertainties of
economic and political conditions in those areas. Because of the impact of
local laws, these operations are conducted primarily through entities (including
joint ventures) in which local citizens own interests and Air Log or Bristow
holds only a minority interest, or pursuant to arrangements under which the
Company operates assets or conducts operations under contracts with local
entities. There can be no assurance that
4
there will not be changes in local laws, regulations or administrative
requirements, or the interpretation thereof, any of which could have a material
adverse effect on the business or financial condition of the Company or on its
ability to continue operations in certain regions.
CURRENCY FLUCTUATIONS
Bristow's revenues and expenses are reported in British Pounds Sterling
("pound"). For the year ended March 31, 1998, 62% of consolidated operating
revenues were translated from pounds into the United States Dollar. In
addition, a portion of Bristow's revenues are denominated in other currencies
(including Australian Dollars, French Francs, Nigerian Naira and Trinidad and
Tobago Dollars) to cover expenses in the areas in which such expenses are
incurred. To the extent operating revenues are denominated in the same currency
as operating expenses, the Company can reduce its vulnerability to exchange rate
fluctuations. Because the Company maintains its financial statements in United
States Dollars, it is vulnerable to fluctuations in the exchange rate between
the pound and the United States Dollar.
PRODUCTION MANAGEMENT SERVICES
The Company's wholly owned subsidiary, GPM is the leading independent
contract operator of oil and gas production facilities in the Gulf of Mexico. In
addition, GPM also provides services for certain onshore facilities. In
providing these services, GPM operates oil and gas production facilities for
major and smaller independent oil and gas companies. Typical project
assignments may involve full or limited management of operations of oil and gas
production facilities located offshore, particularly in the Gulf of Mexico. The
work involves placing experienced crews, employed by GPM, to operate the
facilities and provide all necessary services and products for the offshore
operations. When servicing offshore oil and gas production facilities, GPM's
employees normally live on the facility for a seven day rotation. GPM's
services include furnishing personnel, engineering, production operating
services, paramedic services and the provision of boat and helicopter
transportation of personnel and supplies between onshore bases and offshore
facilities. GPM also handles regulatory and production reporting for certain of
its customers.
OPERATIONS
GPM's production management services are conducted primarily from production
facilities in the Gulf of Mexico. As of March 31, 1998, GPM managed or had
personnel assigned to 180 production facilities in the Gulf of Mexico. Although
GPM's business is primarily dependent upon activity levels in the offshore oil
and gas industry, 90% of GPM's production management costs consist of labor and
contracted transportation services. This enables GPM to scale down operations
rapidly should market conditions change. Because of this ability to react to
market conditions, management believes the production management segment of the
oil service industry is less affected by downturns in offshore oil and gas
activities.
CUSTOMERS
GPM's customers are primarily major and small independent oil and gas
companies that own oil and gas production facilities in the Gulf of Mexico.
These companies are increasingly inclined to out-source services provided by
companies such as GPM which are able to operate more efficiently and with a
lower cost structure. This allows the customers to focus their efforts on their
core activities, which is the exploration and production of oil and gas. During
1998, 1997 and 1996, no single GPM customer accounted for more than 10% of the
Company's consolidated operating revenues.
COMPETITION
GPM's business is highly competitive. There are a number of competitors that
are smaller than GPM but maintain a Gulf-wide presence. In addition, there are
many smaller operators that compete on a local basis or for single projects or
jobs. Management of the Company anticipates that the market for oil and gas
production management operations will continue to increase over the next few
years as oil and gas producing companies continue to reduce the size of field
personnel and further utilize outside contractors as efforts to reduce their
operating costs continue. Typically, GPM will be requested to bid on one or
more production facilities owned by an oil and gas producer. The two key
elements in the pricing of the bid are personnel and transportation costs. In
addition to price, an additional consideration is the quality of personnel,
training programs, safety record and stability of the operator since this can
greatly affect the revenue flow to the producer and reduce the risk of possible
damage to the production facility. There are no assurances that an increase in
the market for production management will occur.
5
INDUSTRY HAZARDS AND INSURANCE
GPM's operations are subject to the normal risks associated with working on
oil and gas production facilities. These risks could result in damage to or
loss of property and injury to or death of personnel. GPM carries normal
business insurance including general liability, worker's compensation,
automobile liability and property and casualty insurance coverages.
GOVERNMENT REGULATION
The Mineral Management Service ("MMS") regulates the production operations
of GPM's customers and, in this respect, exercises jurisdiction over personnel,
production facilities and certain technical aspects of GPM's operations.
GPM's operations are subject to federal, state and local laws and regulations
controlling the discharge of materials into the environment or otherwise
relating to the protection of the environment. To date, such laws and
regulations have not had a material adverse effect on GPM's business or
financial condition. Increased public awareness and concern over the
environment, however, may result in future changes in the regulation of the oil
and gas industry, which in turn could adversely affect the Company.
GENERAL
EMPLOYEES
As of March 31, 1998 Air Log, Bristow and GPM employed 725, 1,821 and
594 employees worldwide, respectively. The Company's corporate staff consisted
of 25 employees.
UNION ACTIVITIES
On August 6, 1997, the domestic pilots at the Company voted to become members
of the Office and Professional Employees International Union ("OPEIU"). The
Company commenced contract negotiations with the OPEIU on April 1, 1998 and it
is not certain how long this process may take. During the fiscal year ended
March 31, 1998, $98.4 million of operating revenues were from the Company's
domestic helicopter operations. In January 1998, the OPEIU petitioned the
National Mediation Board ("NMB") to organize the Company's domestic mechanics
and ground support personnel. Certain objections to this petition were filed
and the NMB dismissed the OPEIU application on May 12, 1998. Under the Federal
labor law rules, the union is prohibited from petitioning the NMB for one-year
from date of dismissal. The Company does not believe that the result of these
organizing efforts will place it at a competitive disadvantage with its
competitors as management believes that pay scales and work rules will continue
to be similar throughout the industry.
ITEM 2. PROPERTIES
See "Business -- Helicopter Activities" for a discussion of the number and
types of aircraft operated by Air Log and Bristow.
Air Log leases approximately 8 acres of land at the Acadiana Regional Airport
in New Iberia, Louisiana under a lease expiring in 2030. The Company has
constructed office and helicopter maintenance facilities on the site containing
approximately 44,000 square feet of floor space. The property has access to the
airport facilities, as well as a major highway.
The Company's Corporate offices occupy 14,440 square feet in a building in
Lafayette, Louisiana under a lease expiring in 2000. Other office and operating
facilities in the United States and abroad, including most of the operating
facilities along the Gulf of Mexico, are held under leases, the rental
obligations under which are not material in the aggregate.
6
Bristow leases land and facilities at Redhill Aerodrome near London, England
under a lease expiring in 2075. Leases of various hangars, offices and aviation
fuel facilities at the Redhill Aerodrome expire during 2003.
Bristow leases a helicopter terminal, offices and hangar facilities at
Aberdeen Airport under a lease expiring in 2013 with an option to extend to
2023. Additional hangar and office facilities at the Aberdeen Airport are
maintained under a lease expiring in 2030.
Bristow leases various hangars and terminal access at North Denes Airport in
Great Yarmouth, England under a lease expiring in 2014.
Bristow leases office space and hangar facilities at Sumburgh Airport in
Sumburgh, Shetland under a lease expiring in 1999 with renewal options through
2019, and at Unst in Shetland under a lease expiring in 1999 with a renewal
option to 2004.
Bristow owns and leases numerous residential locations near its operating
bases in the United Kingdom, Australia, China and in the Caribbean primarily for
housing pilots and staff supporting those areas of operation.
GPM's Corporate offices occupy 6,000 square feet in a building in Houston,
Texas, under a lease expiring in 2002. Other office and operating facilities
along the Gulf of Mexico are held under leases, the rental obligations under
which are not material in the aggregate.
ITEM 3. LEGAL PROCEEDINGS
In January 1989, the Company received notice from the United States
Environmental Protection Agency ("EPA") that it is a potentially responsible
party ("PRP") for clean up and other response costs at the Sheridan Disposal
Services Superfund Site in Waller County, Texas. The Company is among
approximately 160 PRPs identified with respect to the site. The EPA has
estimated that the cost of remedial activities at the site will be approximately
$30 million. In August 1989, the Company received a similar notice with respect
to the Gulf Coast Vacuum Services Site, which is near Abbeville, Louisiana. The
Company is among over 300 PRPs identified with respect to this site. The EPA
alleged that the Company is a generator or transporter of hazardous substances
found at the two sites. In February 1991, the Company received a request for
information from the EPA relating to the Western Sand and Gravel Superfund Site
in Rhode Island, as to which the Company had been named a PRP after an earlier
request for information from the EPA issued in 1983 - 1984. During 1997, the
Company executed a consent decree with the EPA and settlement documents with the
Performing Parties with respect to the Company's previous exposure at the D.L.
Mudd site. Costs incurred were nominal.
Based on presently available information, the Company believes that it
generated only a small portion, if any, of the substances found at the above
described sites. In addition, many of the other PRPs at all of the
aforementioned sites are large companies with substantial resources. As a
result, the Company believes 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 addition to notification of PRP responsibility, the EPA notices to the
Company also contained information requests regarding the Company's connection
with the various sites. The responses to the information requests were due in
early March 1989 for the Sheridan site and in early September 1989 for the
Louisiana site. Through oversight, the Company did not respond to the requests
until April and May 1990. The EPA is authorized to seek civil penalties for
failure to respond to its information requests in a timely manner in an amount
up to a maximum of $25,000 per day for each day of continued non-compliance;
however, to date, no such penalties have been sought. While it is not possible
to predict whether any civil penalties might be assessed against the Company for
the delays in responding to the EPA requests, the Company believes the amount of
such penalties, if any, will not have a material adverse effect on its business
or financial condition.
The Company is not a party to any other litigation, which, in the opinion of
management, will have a material adverse effect on the Company's business or
financial condition.
7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
All executive officers hereunder are, in accordance with the By-laws, elected
annually and hold office until a successor has been duly elected and qualified.
There are no family relationships among any of the Company's executive officers.
The executive officers of the Company as of June 25, 1998, were as follows:
Name AGE POSITION HELD WITH REGISTRANT
---- --- -----------------------------
George M. Small........................... 53 President and Director
Drury A. Milke............................ 40 Vice President, Chief Financial Officer and Secretary
Gene Graves............................... 49 Vice President -- Marketing
Hans J. Albert............................ 56 Vice President -- International Aviation
Neill Osborne............................. 49 Vice President -- Domestic Aviation
Patricia M. Como.......................... 37 Corporate Treasurer
E. H. Underwood III....................... 41 General Counsel
H. Eddy Dupuis............................ 33 Corporate Controller and Assistant Secretary
Mr. Small joined the Company in 1977 as Controller and was elected Vice
President -- Treasurer in 1979, Chief Financial Officer and Secretary in 1986
and President during the fiscal year ended March 31, 1998.
Mr. Milke joined the Company in 1988 as Director of Planning and Development
and was elected Vice President in 1990 and Chief Financial Officer and Secretary
during the fiscal year ended March 31, 1998. He is a CPA.
Mr. Graves joined the Company in 1993 as Vice President -- Aviation Marketing
and was appointed Vice President -- Domestic Aviation in 1994 and Vice President
- -- Marketing in 1998. Prior to joining the Company, Mr. Graves had 26 years
experience in the commercial helicopter service business in the Gulf of Mexico
as Vice President -- Marketing and several operating positions.
Mr. Albert joined the Company in 1972 as a pilot and served in several
operating capacities before being appointed Director of International Aviation
Operations in 1980. He was elected Vice President in 1987. Mr. Albert has
thirty-three years of experience in the aviation industry.
Mr. Osborne joined the Company in 1993 as Director of Operations for Air
Logistics and was appointed Vice President -- Domestic Aviation in 1998. Prior
to joining the Company, Mr. Osborne had 24 years of aviation experience as a
pilot and a manager. Mr. Osborne is current Chairman of the Helicopter
Association International and the International Federation of Helicopter
Associations.
Mrs. Como joined the Company in 1990 as Controller and was appointed
Treasurer during 1998. Prior to joining the Company, Mrs. Como was a Manager
with Arthur Andersen LLP. She is a CPA.
Mr. Underwood joined the Company in 1995 as General Counsel. He received a
Juris Doctorate from Loyola University in 1987 and has a degree in risk
management from the University of Georgia. Prior to joining the Company, Mr.
Underwood was General Counsel for another oilfield service company.
Mr. Dupuis joined the Company in 1998 as Controller. Prior to joining the
Company, Mr. Dupuis was a Manager with Arthur Andersen LLP.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company is traded in the over-the-counter market and
is reported on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") under the symbol "OLOG". The Company's Common Stock
has been quoted on the NASDAQ National Market System since 1984.
HIGH LOW
---- ---
Fiscal year ended March 31, 1998
First Quarter....................................................... 21 5/8 14 3/4
Second Quarter...................................................... 21 5/8 16 1/4
Third Quarter....................................................... 25 1/4 17 1/2
Fourth Quarter...................................................... 21 7/8 16
Transition period ended March 31, 1997
First Quarter....................................................... 14 1/2 12 1/4
Second Quarter...................................................... 20 7/8 14 1/4
Third Quarter....................................................... 23 5/8 15 3/8
The approximate number of holders of record of Common Stock as of May 29,
1998 was 2,000.
On January 27, 1998, the Company issued $100 million of 7 7/8% Senior Notes
due 2008. The terms of the Senior Notes restrict payment of cash dividends to
shareholders. The Company has not paid dividends on its Common Stock since
January 1984.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial data of the Company and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto included
elsewhere herein. The information presented reflects Cathodic Protection
Services Company ("CPS") as a discontinued operation.
Year Nine Months Year Ended June 30,
Ended March 31, Ended March 31, ----------------------------
1998 1997 (2) 1996 1995 (1) 1994
-------- --------- -------- -------- -------
(in thousands, except per share data)
Statement of Operations Data:
Operating revenues...................... $426,893 $167,128 $117,289 $118,336 $91,666
======== ======== ======== ======== =======
Income from continuing operations...... $ 31,254 $ 17,625 $ 15,024 $ 18,962 $17,247
======== ======== ======== ======== =======
Net income.............................. $ 31,408 $ 17,232 $ 15,276 $ 18,450 $17,247
======== ======== ======== ======== =======
Basic earnings per common share: (3)
Income from continuing
operations............................ $ 1.45 $ 0.88 $ 0.77 $ 1.00 $ 0.98
======== ======== ======== ======== =======
Net income............................. $ 1.46 $ 0.86 $ 0.78 $ 0.97 $ 0.98
======== ======== ======== ======== =======
Diluted earnings per common share: (3)
Income from continuing
operations........................... $ 1.35 0.85 $ 0.76 $ 0.98 $ 0.96
======== ======== ======== ========= =======
Net Income............................ $ 1.36 0.83 $ 0.77 $ 0.96 $ 0.96
======== ======== ======== ========= =======
Balance Sheet Data:
Total assets.......................... $736,011 $674,213 $230,741 $217,983 $174,245
Long-term obligations:................ ======== ======== ======== ======== ========
Long-term debt........................ $251,560 $199,631 $ -- $ -- $ 2,000
======== ======== ======== ======== ========
Cash dividends declared per
common share.......................... $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
9
(1) Includes financial data for GPM after the effective date of the investment
on September 16, 1994.
(2) Includes financial data for Bristow after the effective date of the
investment on December 19, 1996 (See Note C in Notes to Consolidated
Financial Statements).
(3) Earnings per share amounts for the nine months ended March 31, 1997 and for
the years ended June 30, 1996, 1995 and 1994 have been restated for the
adoption of Statement of Financial Accounting Standards No. 128 "Earnings
per share."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The level of worldwide offshore oil and gas exploration and production
activity has traditionally influenced demand for the Company's services. The
Company expanded its aviation services and related operations through its
investment in Bristow that was completed in December 1996. The Company's
investment in Bristow (see Note C in the "Notes to the Consolidated Financial
Statements" for a complete discussion of this investment) was influenced by its
belief that the globalization of helicopter operators has begun with the recent
acquisitions and consolidations completed by two of its major international
competitors. The Company believes that this trend will continue and accelerate
as helicopter operators seek to broaden their exposure to international markets
in order to better serve their customers and increase their access and influence
with financial markets, insurance markets and other suppliers. The Company also
believes that these combinations and alliances will allow greater development of
"in-house core expertise" in dealing with manufacturers and suppliers to reduce
direct operating costs, enhance and promote flight safety, improve efficiencies
to be more competitive in the new global marketplace and provide a more fertile
environment for future investment and growth opportunities. The combined
helicopter activities of Air Log and Bristow result in an operating fleet of 379
aircraft servicing the principal oil and gas markets of the world.
GPM's services include furnishing personnel, engineering, production
operating services, paramedic services and the provision of boat and helicopter
transportation of personnel and supplies between onshore bases and offshore
facilities. The Company's investment in GPM was influenced by its belief that a
restructuring in the United States oil and gas industry is taking place,
resulting in part from the instability of oil and gas prices over the last
several years. As part of this restructuring, major oil companies have been
reducing the size of their field organizations and concentrating more on larger
projects such as deepwater Gulf of Mexico and offshore projects in various
international areas. Management believes that this restructuring is creating
opportunities, first, for smaller, independent oil companies as the major oil
companies have been selling properties in the Gulf of Mexico, second, for
companies providing production management services to smaller, independent oil
companies, which frequently lack the personnel to operate these properties and
finally for major oil companies as they transfer their focus and technical
personnel to new and larger projects. Although there can be no assurances,
management believes that, through GPM, the Company has the opportunity to take
advantage of increases in the market for oil and gas production management
services that may occur over the next few years. Management also believes that
the addition of the production management services business may permit the
Company, by providing helicopter services through the production management
services business to smaller, independent companies, to enhance its market share
for its helicopter transportation services in the very competitive and rapidly
changing Gulf of Mexico environment.
10
RESULTS OF OPERATIONS
Operating results and other income statement information for the year ended
March 31, 1998, the nine month period ended March 31, 1997 and the year ended
June 30, 1996, as restated for the disposal of CPS, follows (in thousands of
dollars):
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
---------- ---------- -----------
Operating revenues.............................. $426,893 $167,128 $117,289
Gain (loss) on disposal of equipment............ (238) 1,222 (446)
-------- -------- --------
426,655 168,350 116,843
-------- -------- --------
Direct cost..................................... 311,641 119,106 85,693
Depreciation and amortization................... 32,240 12,624 8,549
General and administrative...................... 26,310 11,406 9,235
-------- -------- --------
370,191 143,136 103,477
-------- -------- --------
Operating income................................ 56,464 25,214 13,366
Earnings from unconsolidated entities........... 7,205 2,602 4,056
Interest income (expense), net.................. (17,555) (2,228) 3,725
-------- -------- --------
Income before provision for income taxes........ 46,114 25,588 21,147
Provision for income taxes...................... 13,833 7,675 6,123
Minority interest............................... (1,027) (288) --
Discontinued operations......................... 154 (393) 252
-------- -------- --------
Net income...................................... $ 31,408 $ 17,232 $ 15,276
======== ======== ========
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. Bristow also
provides search and rescue work for the British Coast Guard. Air Log's Alaskan
activity is primarily related to providing helicopter services to the Alyeska
Pipeline. Air Log has service agreements with, and equity interests in,
entities that operate aircraft in Egypt and Mexico ("unconsolidated entities").
Air Log and Bristow also operate in various other international areas (including
Australia, Brazil, Brunei, China, Colombia, the Falklands, Mexico, Nigeria and
Trinidad). These international operations are subject to local governmental
regulations and to uncertainties of economic and political conditions in those
areas.
The following table sets forth certain information regarding aircraft
operated by Air Log, Bristow and unconsolidated entities data related to
helicopter activities.
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
--------- --------- --------
Number of aircraft operated (excludes unconsolidated entities):
United States - Air Log................................... 154 141 143
United Kingdom/Europe - Bristow........................... 73 75 --
International............................................. 74 72 16
--- --- ---
Total.......................................................... 301 288 159
=== === ===
Number of aircraft operated by unconsolidated entities......... 78 42 27
== == ==
11
In order to ease comparison of current year information, the following table
sets forth certain operating information from helicopter activities for the
twelve months ended March 31, 1998 compared to the twelve months ended March 31,
1997. Also shown, as presented in the prior year, is the nine months ended
March 31, 1997 and the twelve months ended June 30, 1996.
TWELVE
MONTHS ENDED NINE TWELVE
MARCH 31, MONTHS ENDED MONTHS ENDED
------------------------- MARCH 31, JUNE 30,
1998 1997(1) 1997(1) 1996(1)
---------- ------------ ----------- -----------
(in thousands, except flight hours)
Flight hours (excludes unconsolidated entities):
Air Log................................................... 137,495 115,747 86,638 108,330
Bristow................................................... 95,987 25,683 25,683 --
--------- ---------- --------- ---------
Total Helicopter Activities................................ 233,482 141,430 112,321 108,330
========= ========== ========= =========
Operating revenues:
Air Log................................................... $123,544 $101,182 $ 77,185 $ 89,842
Bristow................................................... 264,612 68,654 68,654 --
Less: Intercompany........................................ (587) (23) -- --
--------- ---------- --------- ---------
Total Helicopter Activities............................. $387,569 $169,813 $145,839 $ 89,842
========= ========== ========= =========
Operating expenses:
Air Log................................................... $ 95,034 $ 77,394 $ 58,323 $ 72,154
Bristow................................................... 236,378 61,514 61,514 --
Less: Intercompany........................................ (587) (23) -- --
--------- ---------- --------- ---------
Total Helicopter Activities............................. $330,825 $138,885 $119,837 $ 72,154
========= ========== ========= =========
Operating income, excluding gain or loss on
disposal of equipment:
Air Log.................................................. $ 28,510 $ 23,788 $ 18,862 $ 17,688
Bristow.................................................. 28,234 7,140 7,140 --
--------- ---------- --------- ---------
Total Helicopter Activities............................. $ 56,744 $ 30,928 $ 26,002 $ 17,688
========= ========== ========= =========
Gross margin, excluding gain or loss on
disposal of equipment:
Air Log.................................................. 23.1% 23.5% 24.4% 19.7%
Bristow.................................................. 10.7% 10.4% 10.4% --%
Total Helicopter Activities............................. 14.6% 18.2% 17.8% 19.7%
(1) Includes data for Bristow after the effective date of the investment on
December 19, 1996.
Helicopter activities reflected exceptional increases during 1998 and 1997
fiscal periods compared to similar periods in prior years primarily as the
result of the Company's investment in Bristow and improved market conditions in
the Gulf of Mexico.
Activity levels in the Gulf of Mexico were strong during fiscal 1998 and 1997.
Increases in helicopter rates in fiscal 1998 and 1997 had a positive impact on
operating revenues in the Gulf of Mexico during 1998 and 1997. Gulf of Mexico
flight hours and operating revenues for 1998 increased 22% and 24%,
respectively, over the similar twelve month period in 1997. Gulf of Mexico
flight hours and operating revenues for the nine months ended March 31, 1997
increased 5% and 17%, respectively, over the similar nine month period in 1996.
Gulf of Mexico operating income increased $3.9 million for 1998, a 25% increase
over the similar period in 1997. Gulf of Mexico operating income increased
$5.2 million for the nine months ended March 31, 1997, a 68% increase over the
similar nine month period in 1996. Operations in Alaska were relatively
unchanged from the prior year.
12
Bristow's flight hours were 95,987 and 25,683 for the year ended March 31,
1998 and for the period from investment (December 19, 1996) to March 31, 1997,
respectively. Operating revenues were $264.6 million and $68.7 million for the
year ended March 31, 1998 and for the period from investment to March 31, 1997,
respectively. Operating income and gross margin percentages attributable to
Bristow were $28.2 million and 10.7% for the year ended to March 31, 1998.
Gross margin percentages for Bristow are lower than Air Log's, primarily due to
different market environments, size of equipment and the cost to operate that
equipment. As a result the consolidated gross margin from helicopter activities
for the 1998 fiscal year was lower than the prior year. In March 1998, Bristow
was awarded a new contract with Shell UK Exploration and Production that is
considered one of the largest helicopter operating contracts in the world
projected to generate (Pounds)225 million ($370 million) over a seven year
period.
International flight activity from Air Log continued to improve during the
year ended March 31, 1998 and the nine months ended March 31, 1997.
International flight hours and operating revenues from Air Log for 1998
increased over 4.3% and 10.7%, respectively, from the similar twelve month
period in 1997. Flight hours and operating revenues increased over 30% in 1997
from the similar nine month period in 1996. International operating income
increased $.9 million in 1998, a 15% increase over the similar period in 1997
and increased $1.0 million in 1997, a 27% increase over the similar nine month
period in 1996.
The high level of activity in the Gulf of Mexico enabled the Company to
obtain rate increases in the first and third quarters of fiscal 1998 on most
aircraft operating in that area. Subsequent to March 31, 1998, the industry
experienced a continued decline in oil commodity prices. If this decline
continues or if commodity prices remain at historically low levels for an
extended period, management would expect a reduction in flight activity and
revenues from the various operating areas. The impact on the Company's
operations will depend on the extent and the duration of these commodity price
reductions and the view that the Company's customers take as to viability of
their individual projects.
PRODUCTION MANAGEMENT SERVICES
GPM's production management activities and results also experienced
significant improvements in 1998 with increases of 39% in revenues and 180% in
operating income over the same period from the prior year. Gross margins were
7.2% for the year ended March 31, 1998, up from 3.2% from the same period in
1997. Operating revenues were $42.8 million, $23.5 million and $31.2 million
for the year ended March 31, 1998, the nine months ended March 31, 1997 and the
year ended June 30, 1996, respectively. Operating expenses for GPM were $39.8
million, $22.3 million and $31.4 million, respectively for those periods. GPM
operating income was $3.1 million, $1.2 million and $(0.2) million for the 1998,
1997 and 1996 fiscal periods, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $56.1 million as of March 31, 1998, a $26.2
million increase from March 31, 1997. Working capital as of March 31, 1998 was
$122.6 million, a $65.1 million increase from March 31, 1997. Total debt was
$260.3 million as of March 31, 1998.
Cash flows provided by operating activities were $68.9 million, $16.0 million
and $22.8 million in 1998, 1997 and 1996, respectively. Cash flows provided by
operating activity increased to $68.9 million from $16.0 million primarily due
to improved market conditions in Gulf of Mexico and having twelve months of
Bristow operations in 1998 compared to approximately three months in 1997.
During 1997, as a result of the growth in helicopter activities, the Company
experienced a $16.7 million increase in accounts receivables.
Cash flows used in investing activities were $54.2 million, $141.2 million
and $12.3 million for 1998, 1997 and 1996, respectively.
During 1998, the Company acquired five aircraft (including four AS332L-Super
Pumas, which had previously been leased by Bristow under short-term operating
leases) for $32.3 million. The Company used existing cash and incurred an
additional $20.0 million of 7.9% fixed rate financing, that amortizes over five
years, to complete this transaction. In addition to the financed aircraft, the
Company used existing cash to purchase 13 Bell 407's, four Sikorsky S76's and
one 214ST in 1998.
During 1997, the Company utilized $155.5 million for the investment in
Bristow, including the issuance of the 6% Notes. Capital expenditures during
1997 of $10.1 million included three new Bell 407's, one used Sikorsky S-76,
three used Boelkow 105's, and one fixed wing.
13
Capital expenditures during 1996 of $12.5 million included two new Bell
206L-IV's, four used Boelkow 105's and seven Sikorsky S-76's previously under an
operating lease agreement.
Cash flows provided by (used in) financing activities were $10.7 million,
$98.1 million and $(1.4) million in 1998, 1997 and 1996, respectively. In
October 1997, the Company repaid (Pounds)11.6 million ($18.7 million) of Bristow
debt with its existing cash. In January 1998, the Company issued $100 million
of 7 7/8% Senior Notes due 2008 discounted to yield 7.915%, which resulted in
net proceeds to the Company of $97.2 million. The proceeds were used to repay
certain indebtness of Bristow of (Pounds)40.7 million ($66.6 million) and to
replace general corporate funds used to repay certain indebtness of Bristow in
October 1997. The Company received $88.4 million from the issuance of the 6%
Notes during 1997. Financing activities during 1996 were primarily for the
repayment of debt.
As of March 31, 1998, Bristow had a (Pounds)15 million ($24 million)
revolving credit facility with a syndicate of United Kingdom banks that matures
on December 31, 2000. Bristow had nothing drawn under this facility as of March
31, 1998.
As of March 31, 1998, OLOG had a $20 million unsecured working capital line
of credit with a bank that expires on September 30, 1999. Management believes
that normal operations and other available financing, will provide sufficient
working capital and cash flow to meet debt service in the foreseeable future.
The effective income tax rates from continuing operations were 30%, 30% and
29% for 1998, 1997 and 1996, respectively. The variance between the Federal
statutory rate and the effective rate for these periods is due primarily to non-
taxable foreign source income and foreign tax credits available to reduce
domestic taxable income.
The Company has received notices from the EPA that it is one of approximately
160 PRPs at one Superfund site in Texas, one of over 300 PRPs at a 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. See
Item 3 -- "Legal Proceedings" for additional information regarding EPA notices.
OTHER MATTERS
During 1998, the Company developed a plan to replace or modify its primary
information systems to be Year 2000 compliant by the third quarter of 1999. The
Company does not expect the costs associated with modifying the current systems
to be material to its financial condition or results of operations. The Company
has not incurred significant costs related to Year 2000 compliance prior to
March 31, 1998 other than internal costs to evaluate and/or modify certain of
its primary systems. The Company expects to incur approximately $500,000 during
its 1999 fiscal year replacing certain of its primary systems. The Company does
not anticipate any significant disruption of its operation as a result of any
failure by the Company to be in compliance.
The Company is in the process of evaluating its Year 2000 exposure on non-
critical computer systems and Year 2000 compliance of its suppliers and
customers. In the event that any of the Company's significant suppliers or
customers fail to achieve Year 2000 compliance, the Company does not believe its
business or operations would be adversely affected.
During fiscal 1998, and subsequent thereto, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income",
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", SFAS No. 132, "Employer's Disclosures about Pension and Other
Postretirement Benefits" and SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities". These pronouncements will be adopted during the
Company's fiscal year ending March 31, 1999. Management believes the adoption
of these pronouncements will not have a material impact on the consolidated
financial statements.
14
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Offshore Logistics, Inc.:
We have audited the accompanying consolidated balance sheets of Offshore
Logistics, Inc. (a Delaware corporation) and subsidiaries as of March 31, 1998
and March 31, 1997, and the related consolidated statements of income,
stockholders' investment and cash flows for the twelve months ended March 31,
1998, the nine month period ended March 31, 1997 and the twelve months ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Offshore Logistics, Inc. and
subsidiaries as of March 31, 1998 and March 31, 1997, and the results of their
operations and their cash flows for the twelve months ended March 31, 1998, the
nine month period ended March 31, 1997 and the twelve months ended June 30,
1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana,
May 21, 1998
15
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, MARCH 31,
1998 1997
-------- --------
(THOUSANDS OF DOLLARS)
Current assets:
Cash and cash equivalents............................................... $ 56,076 $ 29,829
Accounts receivable..................................................... 85,543 88,268
Inventories............................................................. 76,139 70,827
Net assets of discontinued operations................................... -- 6,686
Prepaid expenses........................................................ 5,542 887
--------- --------
Total current assets................................................... 223,300 196,497
Investments in unconsolidated entities................................... 7,866 9,250
Property and equipment -- at cost
Land and buildings...................................................... 13,088 13,175
Aircraft and equipment.................................................. 556,318 497,672
--------- --------
569,406 510,847
Less - Accumulated depreciation and amortization........................ (98,267) (74,465)
--------- --------
471,139 436,382
Other assets............................................................. 33,706 32,084
--------- --------
$736,011 $674,213
========= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable....................................................... $ 31,024 $ 31,166
Accrued liabilities.................................................... 42,612 38,592
Deferred taxes......................................................... 18,335 17,968
Current maturities of long-term debt................................... 8,693 51,240
--------- --------
Total current liabilities........................................... 100,664 138,966
Long-term debt, less current maturities.................................. 251,560 199,631
Deferred credits......................................................... 594 622
Deferred taxes........................................................... 93,455 91,445
Minority interest........................................................ 9,853 8,643
Commitments and contingencies............................................ -- --
Stockholders' investment:
Common stock, $.01 par value, authorized 35,000,000 shares; outstanding
21,854,921 in 1998 and 21,081,133 in 1997 (exclusive of 517,550
treasury shares).................................................... 219 211
Additional paid in capital............................................. 123,061 115,346
Retained earnings...................................................... 152,194 120,786
Cumulative translation adjustment...................................... 4,411 (1,437)
--------- --------
279,885 234,906
--------- --------
$736,011 $674,213
========= ========
The accompanying notes are an integral part of these statements.
16
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
TWELVE NINE TWELVE
MONTHS MONTHS MONTHS
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
-------- -------- --------
(thousands of dollars,
except per share amounts)
Gross revenue:
Operating revenue.......................................... $426,893 $167,128 $117,289
Gain (loss) on disposal of equipment....................... (238) 1,222 (446)
-------- -------- --------
426,655 168,350 116,843
-------- -------- --------
Operating expenses:
Direct cost................................................ 311,641 119,106 85,693
Depreciation and amortization.............................. 32,240 12,624 8,549
General and administrative................................. 26,310 11,406 9,235
-------- -------- --------
370,191 143,136 103,477
-------- -------- --------
Operating income............................................ 56,464 25,214 13,366
Earnings from unconsolidated entities....................... 7,205 2,602 4,056
Interest income............................................. 2,981 3,300 4,025
Interest expense............................................ 20,536 5,528 300
-------- -------- --------
Income from continuing operations before
provision for income taxes................................. 46,114 25,588 21,147
Provision for income taxes.................................. 13,833 7,675 6,123
Minority interest........................................... (1,027) (288) --
-------- -------- --------
Income from continuing operations........................... 31,254 17,625 15,024
Discontinued operations:
Income (loss) from CPS operations.......................... (230) (393) 252
Gain on sale of CPS........................................ 384 -- --
-------- -------- --------
154 (393) 252
-------- -------- --------
Net income.................................................. $ 31,408 $ 17,232 $ 15,276
======== ======== ========
BASIC:
Income per common share:
Continuing operations...................................... $ 1.45 $ 0.88 $ 0.77
Discontinued operations.................................... 0.01 (0.02) 0.01
-------- -------- --------
Net income per common share................................. $ 1.46 $ 0.86 $ 0.78
======== ======== ========
DILUTED:
Income per common share:
Continuing operations...................................... $ 1.35 $ 0.85 $ 0.76
Discontinued operations.................................... 0.01 (0.02) 0.01
-------- -------- --------
Net income per common share................................. $ 1.36 $ 0.83 $ 0.77
======== ======== ========
The accompanying notes are an integral part of these statements.
17
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY TOTAL
------------ PAID IN TRANSLATION RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS INVESTMENT
---------- ------ ------- ---------- -------- ----------
(THOUSANDS OF DOLLARS)
BALANCE - June 30, 1995.......... 19,442,114 $194 $ 95,379 $ -- $ 88,278 $183,851
Net income..................... -- -- -- -- 15,276 15,276
Stock options exercised........ 24,460 -- 197 -- -- 197
GPM warrants exercised......... 26,553 1 286 -- -- 287
Restricted stock issued........ 5,271 -- 72 -- -- 72
---------- ---- -------- ------- -------- --------
BALANCE - June 30, 1996.......... 19,498,398 195 95,934 -- 103,554 199,683
Net income..................... -- -- -- -- 17,232 17,232
Stock options exercised........ 114,000 1 883 -- -- 884
GPM warrants exercised......... 94,040 1 1,015 -- -- 1,016
Restricted stock issued........ 306 -- 4 -- -- 4
Stock issued for Bristow
investment..................... 1,374,389 14 17,510 -- -- 17,524
Translation adjustments........ -- -- -- (1,437) -- (1,437)
---------- ---- -------- ------- -------- --------
BALANCE - March 31, 1997......... 21,081,133 211 115,346 (1,437) 120,786 234,906
Net income..................... -- -- -- -- 31,408 31,408
Stock options exercised........ 745,500 8 7,335 -- -- 7,343
Restricted stock issued........ 28,288 -- 380 -- -- 380
Translation adjustments........ -- -- -- 5,848 -- 5,848
---------- ---- -------- ------- -------- --------
BALANCE - March 31, 1998......... 21,854,921 $219 $123,061 $ 4,411 $152,194 $279,885
========== ==== ======== ======= ======== ========
The accompanying notes are an integral part of these statements.
18
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWELVE NINE MONTHS TWELVE
MONTHS ENDED ENDED MONTHS ENDED
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
----------- ----------- -------------
(thousands of dollars)
Cash flows from operating activities:
Net income................................................................ $ 31,408 $ 17,232 $ 15,276
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................................. 32,240 13,196 9,230
Increase in deferred taxes................................................ 10,826 1,059 1,241
(Gain) Loss on asset dispositions......................................... 238 (1,212) 537
Equity in earnings from unconsolidated entities
over dividends received.................................................. 1,679 145 --
Minority interest in earnings............................................. 1,027 67 (36)
Discontinued operations................................................... 230 -- --
Change in assets and liabilities net of effects from investment in
Bristow:
(Increase) Decrease in accounts receivable................................ 6,694 (16,736) 12
Increase in inventories................................................... (4,187) (4,168) (558)
Increase in prepaid expenses and other.................................... (5,574) (2,381) (63)
Increase (Decrease) in accounts payable................................... (2,860) 5,801 225
Increase (Decrease) in accrued liabilities................................ (2,747) 4,833 (3,055)
Decrease in deferred credits.............................................. (28) (1,865) (13)
--------- --------- --------
Net cash provided by operating activities.................................. 68,946 15,971 22,796
--------- --------- --------
Cash flows from investing activities:
Capital expenditures...................................................... (70,465) (10,106) (12,535)
Proceeds from asset dispositions.......................................... 10,963 6,026 185
Proceeds from CPS disposal................................................ 5,700 -- --
Investment in marketable securities....................................... -- -- (11,952)
Proceeds from sale or maturity of marketable
securities............................................................... -- 20,001 11,988
Bristow investment....................................................... -- (155,451) --
Acquisitions, net of cash received........................................ (353) (1,675) --
--------- --------- --------
Net cash used in investing activities...................................... (54,155) (141,205) (12,314)
--------- --------- --------
Cash flows from financing activities:
Proceeds from borrowings.................................................. 123,538 96,636 --
Repayment of debt......................................................... (120,519) (434) (2,000)
Issuance of common stock.................................................. 7,723 1,899 556
--------- --------- --------
Net cash provided by (used in) financing
activities................................................................ 10,742 98,101 (1,444)
--------- --------- --------
Effect of exchange rate changes in cash.................................... 714 23 --
Net increase (decrease) in cash and cash
equivalents............................................................... 26,247 (27,110) 9,038
Cash and cash equivalents at beginning of period........................... 29,829 56,939 47,901
--------- --------- --------
Cash and cash equivalents at end of period................................. $ 56,076 $ 29,829 $ 56,939
========= ========= ========
The accompanying notes are an integral part of these statements.
19
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- The Company's most significant area of operation is
supplying helicopter transportation services to the worldwide offshore oil and
gas industry. The Company also provides production personnel and medical
support services to the worldwide oil and gas industry.
Basis of Presentation -- The consolidated financial statements include the
accounts of Offshore Logistics, Inc., a Delaware corporation ("OLOG") and its
majority owned entities and non-majority owned entities including Bristow
Aviation Holdings Limited ("Bristow"), collectively referred to as "the
Company", after elimination of all significant intercompany accounts and
transactions. Investments in 50% or less owned affiliates over which the
Company has the ability to exercise significant influence are accounted for
using the equity method. Investments in which the Company does not exercise
significant influence are accounted for under the cost method.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- The Company's cash equivalents includes funds
invested in highly liquid debt instruments with original maturities of 90 days
or less.
Accounts Receivable -- Trade and other receivables are stated at net
realizable value and the allowance for uncollectible accounts was $850,000 and
$1,449,000 at March 31, 1998 and March 31, 1997, respectively. The Company
grants short-term credit to its customers, primarily major and independent oil
and gas companies.
Inventories -- Inventories are stated at the lower of average cost or market
and consist primarily of spare parts. The valuation reserve related to obsolete
and excess inventory was $4,049,000 and $4,074,000 at March 31, 1998 and March
31, 1997. There were no related charges to operations in 1998, 1997, or 1996.
Other Assets -- In 1998, $18,282,000 of goodwill, net of accumulated
amortization of $4,001,000, was included in other assets. Goodwill is amortized
using the straight-line method over a period of 20 years. Goodwill is
recognized for the excess of the purchase price over the value of the
identifiable net assets. Realization of goodwill is periodically assessed by
management based on the expected future profitability and undiscounted future
cash flows of acquired companies and their contribution to the overall
operations of the Company.
Also included in other assets is restricted cash of (Pounds)4.8 million ($8.0
million) and debt issuance costs of $5.4 million, being amortized over the life
of the related debt.
Depreciation and Amortization -- Depreciation and amortization are provided
on the straight-line method over the estimated useful lives of the assets.
Estimated residual value used in calculating depreciation of aircraft ranges
from 30% to 50% of cost.
Maintenance and repairs are expensed as incurred; betterments and
improvements are capitalized. The costs and related accumulated depreciation of
assets sold or otherwise disposed of are removed from the accounts and resultant
gains or losses included in income.
Income Taxes -- Income taxes are accounted for in accordance with the
provisions of the Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". Under this statement, deferred income taxes are
provided for by the asset and liability method.
20
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation -- Bristow maintains their accounting records in
their local currency (British Pounds Sterling). The currencies are converted to
United States Dollars with the effect of the foreign currency translation
reflected as a component of shareholders' investment in accordance with SFAS No.
52, "Foreign Currency Translation." Foreign currency transaction gains or
losses are credited or charged to income, and such amounts are insignificant for
the periods presented.
Derivative Financial Instruments -- The Company enters into forward exchange
contracts from time to time to hedge known transactional exposures denominated
in currencies other than the functional currency of the business. Foreign
currency positions mature at the anticipated currency requirement date and
rarely exceed three months. The purpose of the Company's foreign currency
hedging activities is to protect the Company from the risk that foreign currency
outflows resulting from payments for services and parts to foreign suppliers
will be adversely affected by changes in exchange rates.
Financial instruments are designated as a hedge at inception where there is a
direct relationship to the price risk associated with the service and parts.
Hedges of anticipated transactions are accounted for under the deferral method
with gains and losses recognized in revenues when the hedged transaction occurs.
If the direct relationship to price risk ceases to exist, the difference in the
carrying value and fair value of a forward contract is recognized as a gain or
loss in revenues in the period the relationship ceases to exist.
The Company uses interest rate swaps to manage its interest rate exposure.
Revenues or expenses on interest rate swaps are recognized over the lives of the
agreements as adjustments to interest expense of the liability being hedged.
Any interest rate swap not qualifying for deferred accounting is recorded at
fair value.
Stock Compensation -- On July 1, 1996, the Company elected to continue to use
the intrinsic value method of accounting for stock-based compensation prescribed
by Accounting Principles Board ("APB") Opinion No. 25 and, accordingly, adopted
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
Fiscal-Year Change -- On May 1, 1997, the Board of Directors approved a
change in the Company's fiscal year end from June 30 to March 31, effective for
the nine month period ended March 31, 1997. As a result of this change in year
end, these financial statements include the fiscal year ended March 31, 1998,
the nine month fiscal transition period from July 1, 1996 through March 31, 1997
and the fiscal year ended June 30, 1996.
Effect of Recent Accounting Changes -- During fiscal 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income", SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" and SFAS No. 132, "Employer's Disclosures
about Pension and Other Postretirement Benefits". These pronouncements will be
adopted during the Company's fiscal year ending March 31, 1999. Management
believes the adoption of these pronouncements will not have a material impact on
the consolidated financial statements.
21
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B -- LONG-TERM DEBT
Long-term debt at March 31, 1998 and March 31, 1997 consisted of (thousands
of dollars):
MARCH 31, MARCH 31,
1998 1997
--------- ---------
7 7/8% Senior Notes due 2008............................................. $100,000 $ --
6% Convertible Subordinated Notes due 2003............................... 98,000 98,000
Term Loan with a syndicate of United Kingdom banks....................... 33,456 40,983
Term Loan with a United Kingdom bank..................................... 18,009 --
Series A Guaranteed Deep Discount Loan Note 1997......................... -- 31,568
Series B Guaranteed Deep Discount Loan Note 1998......................... -- 18,413
Unsecured Subordinated Loan Stock........................................ -- 34,647
Revolving Credit Facility................................................ -- 8,197
Capital Lease Obligations................................................ 6,248 13,836
Management Fee Debt (see Note C)......................................... 4,307 4,910
Other.................................................................... 233 317
-------- --------
Total debt............................................................ 260,253 250,871
Less current maturities............................................... 8,693 51,240
-------- --------
Total long-term debt.................................................. $251,560 $199,631
======== ========
On January 27, 1998, the Company issued $100 million aggregate principal
amount of 7 7/8% Senior Notes ("Senior Notes") due 2008 discounted to yield
7.915%. Proceeds of $97.2 million, after debt issuance costs of $2.8 million,
were used to repay approximately (Pounds)40.7 million ($66.6 million) of Bristow
debt and to replace general corporate funds used to repay certain indebtness of
Bristow in October 1997. The weighted average of the stated rates of interest
on the indebtedness retired was 16.6%, but had been adjusted to 8.5% as a result
of purchase accounting for the Company's investment in Bristow. The Senior
Notes are guaranteed by certain of the Company's subsidiaries (see Note N).
On December 17, 1996, the Company issued $98 million of 6% Convertible
Subordinated Notes ("6% Notes") due 2003. The 6% Notes are convertible at any
time into the Company's Common Stock at a conversion price of $22.86 per share
(equivalent to a conversion rate of approximately 43.74 shares per $1,000
principal amount of 6% Notes). The 6% Notes are redeemable at the option of the
Company beginning December 1999. The Company issued $7.5 million of the 6%
Notes to Caledonia (See Note C) in conjunction with the investment in Bristow.
Proceeds of $88.4 million, after debt issuance costs of $2.1 million, were also
used to finance the investment in Bristow.
Bristow renewed a term loan with a syndicate of United Kingdom banks on
January 26, 1998, that is repayable in semi-annual installments varying from
$1.7 to $5.0 million ((Pounds)1.0 to (Pounds)3.0 million) through December 31,
2002. The term loan bears interest at 0.8% above LIBOR rates. The average
interest rate for the term loan during the period from renewal to March 31, 1998
was 8.425%. The term loan is guaranteed by certain United Kingdom subsidiaries
of Bristow and is secured by a negative pledge on all Bristow assets. The
Company entered into an interest rate swap agreement to reduce the impact of
change in interest rates on this floating rate long-term debt. At March 31,
1998, the outstanding notional amount was (Pounds)36.5 million ($61.1 million).
The agreement matures on December 31, 2001. The market value of the notional
amount in excess of the outstanding principal amount of the term loan was not
material.
In May 1997, the Company acquired five aircraft (including four AS332L Super
Pumas, which had previously been leased by Bristow under short-term operating
leases) for $32.3 million. The Company used existing cash and incurred an
additional $20.0 million of 7.9% fixed rate financing, that amortizes over five
years, to complete this transaction.
22
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Obligations under capital leases bear interest at various rates and require
quarterly payments. The leases are secured by the aircraft and the guarantee of
Bristow.
Bristow has a revolving credit facility, with the same syndicate of United
Kingdom banks, as with the term loan, which matures December 31, 2000, and is
available for working capital requirements and general corporate purposes.
Availability under the revolving credit facility is subject to certain borrowing
base limitations based on the value of qualifying helicopters. All advances
under the revolving credit facility bear interest at 0.6% above one, three, or
six month LIBOR rates. The revolving credit facility is guaranteed by certain
United Kingdom subsidiaries of Bristow and is secured by helicopter mortgages
and a negative pledge of all Bristow assets. The availability under the
revolving credit facility is (Pounds)15 million ($24 million). There were no
borrowings under this revolving credit facility as of March 31, 1998.
As of March 31, 1998, the Company had a $20 million unsecured line of credit
with a U.S. bank that expires on September 30, 1999. There were no borrowings
under this line as of March 31, 1998. The rate of interest payable under the
line of credit is, at the Company's option, prime rate or LIBOR rate plus 1.25%.
The agreement requires the Company to pay a quarterly commitment fee at an
annual rate of .25% on the average unused portion of the line.
Aggregate annual maturities for all long-term debt, including the capitalized
lease, for the next five years are as follows: 1999 -- $8,693,000; 2000 --
$9,813,000; 2001 -- $11,620,000; 2002 -- $15,691,000; and 2003 -- $16,435,000.
Interest paid during the year was $23,381,000, $3,620,000 and $300,000 for
1998, 1997, and 1996, respectively.
The estimated fair value of the Company's total debt at March 31, 1998 was
$269.3 million based on quoted market prices for the publicly listed 6% Notes
and the Senior Notes and the current rates offered to the Company on other
outstanding obligations. Total debt at March 31, 1997 approximates the fair
value of the debt.
C -- INVESTMENT IN BRISTOW
On December 19, 1996, OLOG acquired 49% of the common stock and a significant
amount of Bristow subordinated debt as detailed below. Bristow is incorporated
in England and holds all of the outstanding shares in Bristow Helicopter Group
Limited ("BHGL"). Bristow provides helicopter services to the North Sea oil and
gas industry. Services consist of short and long range crew change flights,
offshore-based and inter-platform shuttle operations and search and rescue
missions. Bristow also operates aircraft in Australia, Brunei, Cambodia, China,
Nigeria, South America and Vietnam among others.
Bristow is organized with three different classes of ordinary shares (common
stock) having disproportionate voting rights. The Company, Caledonia
Investments plc and its subsidiary, Caledonia Industrial & Services Limited
(collectively, "Caledonia") and a Norwegian investor (the "E.U. Investor"), own
49%, 49% and 2%, respectively, of Bristow's total outstanding ordinary shares.
The Company paid (Pounds)80.2 million (approximately $132 million) in cash
(funded from existing cash balances and the proceeds of the 6% Notes), issued
$7.5 million of the 6% Notes to Caledonia and issued 1,374,389 shares of common
stock on December 19, 1996. In addition, the Company acquired (Pounds)5.0
million ($8.4 million) principal amount of BHGL's subordinated debt for cash of
approximately (Pounds)5.4 million ($8.9 million) including accrued interest.
Caledonia received 1,300,000 shares of the common stock and BHGL's management
received 74,389 shares.
23
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to its ownership of 49% of Bristow's outstanding ordinary shares
and (Pounds)5.0 million principal amount of Bristow's subordinated debt, the
Company acquired (Pounds)91.0 million (approximately $150 million) principal
amount of subordinated unsecured loan stock (debt) of Bristow bearing interest
at an annual rate of 13.5% and payable semi-annually. Bristow has the right to
defer payment of interest on such debt until January 31, 2002. Any such
deferred interest would also accrue interest at an annual rate of 13.5%.
The Company, Caledonia, the E.U. Investor and Bristow entered into a
shareholders' agreement respecting, among other things, the composition of the
board of directors of Bristow. On matters coming before Bristow's board,
Caledonia's appointees have a total of five votes and the four other directors
have one vote each. So long as Caledonia has a significant interest in the
shares of Common Stock issued to it pursuant to the transaction or maintains its
voting control of Bristow, Caledonia will have the right to nominate two persons
to the board of directors of the Company and to replace any such directors so
nominated.
Caledonia, the Company and the E.U. Investor also entered into a Put/Call
Agreement whereunder, upon giving specified prior notice, the Company has the
right to buy all the Bristow shares held by Caledonia and the E.U. Investor,
who, in turn, each has the right to sell such shares to the Company. Under
current United Kingdom law, the Company would be required, in order for Bristow
to retain its operating license, to find a qualified European investor to own
any Bristow shares it has the right to acquire under the Put/Call Agreement. Any
put or call of the Bristow shares will be subject to the approval of the Civil
Aviation Authority ("CAA"). Caledonia will receive management fees from Bristow
that will be payable semi-annually in advance ranging from (Pounds)500,000 to
(Pounds)900,000 annually for the next six years.
The investment was accounted for by the purchase method of accounting under
Accounting Principals Board Opinion No. 16, as amended, and accordingly, the
results of operations of Bristow for the period from December 19, 1996 forward
are included in the accompanying consolidated financial statements. The total
consideration has been allocated to Bristow's assets and liabilities based on
the estimated fair market value as of December 19, 1996.
The following unaudited pro forma financial information for the Company gives
effect to the Bristow investment as if it had occurred on July 1, 1995. These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations which actually would have
resulted had the acquisitions occurred on the date indicated, or which may
result in the future. The pro forma results follow (in thousands, except per
share data):
NINE MONTHS TWELVE MONTHS
MARCH 31, 1997 JUNE 30, 1996
-------------- --------------
(unaudited) (unaudited)
Gross revenue........................... $296,094 $357,249
======== ========
Income from continuing operations....... $ 19,348 $ 19,821
======== ========
Earnings per common share
Income from continuing operations:
Basic............................. $ 0.92 $ 0.95
======== ========
Diluted........................... $ 0.87 $ 0.93
======== ========
24
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D -- INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company has two principal unconsolidated entities that are accounted for
on the cost method as the Company is unable to exert significant influence over
the operations.
The Company has a 49% investment in Hemisco Helicopters International, Inc.
("HHII") and related venture companies. The Company's investment in HHII was
$2,637,000 at March 31, 1998 and March 31, 1997. In the following unaudited
table, HHII represents $5,147,000 and $3,492,000 of the assets and $3,464,000
and $2,230,000 of the equity for March 31, 1998 and March 31, 1997,
respectively. HHII also represents $14,284,000; $9,806,000 and $10,727,000 of
revenues and $4,002,000; $2,702,000 and $1,834,000 of net income for the year
ended March 31, 1998, the nine month period ended March 31, 1997 and the year
ended June 30, 1996, respectively. During 1998, 1997 and 1996, $2,292,000,
$1,539,000 and $1,556,000, respectively, in dividends were received from HHII.
The Company has a 25% investment in an Egyptian helicopter venture. The
Company's investment in the venture was $5,986,000 at March 31, 1998 and 1997.
During 1998, 1997, and 1996, $2,430,000; $1,827,000 and $2,500,000,
respectively, in dividends were received from the venture. During 1998, the
venture's Board of Directors approved a cash dividend, of which the Company's
share applicable to fiscal year 1999 is approximately $2.0 million.
A summary of unaudited financial information of these principal
unconsolidated entities is set forth below (thousands of dollars):
MARCH 31, MARCH 31,
1998 1997
--------- ---------
(unaudited) (unaudited)
Current assets........................................... $56,443 $58,162
Non-current assets....................................... 34,237 26,858
------- -------
Total assets.......................................... $90,680 $85,020
======= =======
Current liabilities...................................... $10,898 $10,063
Non-current liabilities.................................. 6,758 1,931
Equity................................................... 73,024 73,026
------- -------
Total liabilities and equity.......................... $90,680 $85,020
======= =======
TWELVE MONTHS
TWELVE MONTHS NINE MONTHS ENDED
ENDED ENDED JUNE 30,
MARCH 31, 1998 MARCH 31, 1997 1996
-------------- -------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues............................... $57,542 $41,026 $51,629
======= ======= =======
Gross profit........................... $22,015 $14,122 $20,229
======= ======= =======
Net income............................. $13,845 $ 9,918 $12,537
======= ======= =======
During 1998, 1997 and 1996, respectively, revenues of $6,710,000; $4,673,000
and $5,169,000 were recognized for services provided to these affiliates by the
Company.
25
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1996, Bristow, with two partners, formed FBS Limited ("FBS") which was
awarded a contract to provide pilot training and maintenance services to the
Defense Helicopter Flying School ("DHFS"), a newly established training school
for all branches of the British military, under a fifteen year contract valued
at approximately (Pounds)500 million over the full term. FBS purchased and
specially modified 47 aircraft and maintains a staff of approximately 600
employees dedicated to conducting these training activities which began in May
1997. As of March 31, 1998, each of the partners owned one-third (33%) of FBS.
Prior to FBS, Bristow had provided similar pilot training and maintenance
services to the British Army Air Corp. since 1963. Bristow's partners in FBS
had similar experience at providing training service to other branches of the
British military. Bristow and its partners have given joint and several
guarantees related to the performance of this contract.
E -- DISCONTINUED OPERATIONS
In May 1997, the Company adopted a plan to discontinue its investment in
Cathodic Protection Services Company ("CPS"). CPS manufactures, installs and
maintains cathodic protection systems to arrest corrosion in oil and gas
drilling and production facilities, pipelines, oil and gas well casings,
hydrocarbon processing plants and other metal structures. As a result of the
Company's adoption of the plan, the consolidated financial statements of the
Company and the related Notes to Consolidated Financial Statements and
supplemental data have been adjusted and restated to reflect the results of
operations and net assets of CPS as a discontinued operation in accordance with
generally accepted accounting principles.
F -- UNAUDITED SUPPLEMENTAL DATA FOR THE NINE MONTHS ENDED
MARCH 31, 1996
During 1997, the Company changed its fiscal year end from June 30 to March
31. Therefore, the Company's fiscal year end for 1997 is a nine month period.
The following table represents unaudited data for the nine month period ended
March 31, 1996.
Operating revenue.................... $86,694
=======
Operating income..................... $ 9,774
=======
Income taxes......................... $ 4,494
=======
Income from continuing operations.... $10,991
=======
Net income........................... $11,226
=======
Earnings per common share:
Basic.............................. $ 0.58
=======
Diluted............................ $ 0.57
=======
G -- INVESTMENT IN MARKETABLE SECURITIES
Under the provisions of SFAS No. 115, investments in debt and equity
securities are required to be classified in one of three categories: held-to-
maturity, available-for-sale, or trading. As of March 31, 1998 and 1997, the
Company had (Pounds)4.8 million ($8.0 million and $7.8 million, respectively) of
UK government securities classified as available-for-sale included in other
assets. There were $12,001,000 sales of investments in U.S. Treasury
investments during the nine month period ended March 31, 1997. The proceeds
approximated the carrying cost of the investments. There were $3,985,000 sales
of investments in U.S. Treasury investments for the year ended June 30, 1996.
26
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H -- COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases in connection with the lease
of certain equipment, land and facilities. Rental expense incurred under these
leases was $1,872,000 in 1998; $1,925,000 in 1997 and $1,998,000 in 1996. As of
March 31, 1998, aggregate future payments under noncancelable operating leases
are as follows: 1999 -- $1,983,000; 2000 -- $1,881,000; 2001 --$1,806,000;
2002 -- $1,608,000 and 2003 -- $1,570,000.
On August 6, 1997, the domestic pilots at the Company voted to become
members of the Office and Professional Employees International Union ("OPEIU").
The Company commenced contract negotiations with the OPEIU on April 1, 1998 and
it is not certain how long this process may take. During the fiscal year ended
March 31, 1998, $98.4 million of operating revenues were from the Company's
domestic helicopter operations. In January 1998, the OPEIU petitioned the
National Mediation Board ("NMB") to organize the Company's domestic mechanics
and ground support personnel. Certain objections to this petition were filed and
the NMB dismissed the OPEIU application on May 12, 1998. Under the Federal labor
law rules, the union is prohibited from petitioning the NMB for one-year from
date of dismissal. The Company does not believe that the result of these
organizing efforts will place it at a competitive disadvantage with its
competitors as management believes that pay scales and work rules will continue
to be similar throughout the industry.
I -- INCOME TAXES
The components of deferred tax assets and liabilities are as follows
(thousands of dollars):
MARCH 31, MARCH 31,
1998 1997
--------- ---------
Deferred Tax Assets:
Foreign tax credits.................. $ 112,117 $ 111,650
Other................................ 10,390 13,183
Valuation allowance.................. (50,308) (53,783)
--------- ---------
Total deferred tax assets......... 72,199 71,050
--------- ---------
Deferred Tax Liabilities:
Property and equipment............... (153,716) (155,699)
Inventories.......................... (10,901) (12,197)
Accrual for repairs and maintenance.. (6,859) (5,771)
Other................................ (12,513) (6,796)
--------- ---------
Total deferred tax liabilities.... (183,989) (180,463)
--------- ---------
Net deferred tax liabilities........... $(111,790) $(109,413)
========= =========
The valuation allowance was established for the deferred tax asset related to
foreign tax credits. Companies may use foreign tax credits to offset the United
States income taxes due on income earned from foreign sources. However, the
credit is limited by the total income on the United States income tax return as
well as by the ratio of foreign source income in each statutory category to
total income. Excess foreign tax credits may be carried back two years and
forward five years. As of March 31, 1998 and 1997, the Company did not believe
it was more likely than not that it would generate sufficient foreign sourced
income within the appropriate period to utilize all the foreign tax credits.
27
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income before provision for income taxes for the year ended March 31, 1998,
the nine months ended March 31, 1997 and the year ended June 30, 1996 was as
follows (thousands of dollars):
TWELVE NINE MONTHS TWELVE
MONTHS ENDED ENDED MONTHS ENDED
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
------------ ----------- ------------
Domestic........ $12,675 $13,774 $ 9,791
Foreign......... 33,439 11,814 11,356
------- ------- -------
Total........... $46,114 $25,588 $21,147
======= ======= =======
The provision for income taxes for the year ended March 31, 1998, the nine
month period ended March 31, 1997 and the year ended June 30, 1996 consisted of
the following (thousands of dollars):
TWELVE NINE MONTHS TWELVE
MONTHS ENDED ENDED MONTHS ENDED
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
------------ ----------- ------------
Current:
Domestic........................... $(2,237) $ 3,786 $4,882
Foreign............................ 7,545 1,219 -
------- ------- ------
5,308 5,005 4,882
------- ------- ------
Deferred:
Domestic........................... 9,035 2,671 1,241
Foreign............................ 2,965 (1) --
------- ------- ------
12,000 2,670 1,241
------- ------- ------
Decrease in valuation allowance..... (3,475) -- --
------- ------ -----
Total............................... $13,833 $7,675 $6,123
======= ====== ======
The reconciliation of Federal statutory and effective income tax rates is
shown below:
TWELVE NINE MONTHS TWELVE
MONTHS ENDED ENDED MONTHS ENDED
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
------------ ---------- ------------
Statutory rate.............................. 35% 35% 35%
Utilization of foreign tax credits.......... (3)% (3)% (5)%
Additional taxes on foreign source income... 8% 5% 2%
Foreign source income not taxable........... (3)% (6)% (7)%
Change in valuation allowance............... (7)% -- --
State taxes provided........................ 1% 2% 2%
Other, net.................................. (1)% (3)% 2%
---- ---- ----
Effective tax rate.......................... 30% 30% 29%
==== ==== ====
The Internal Revenue Service has examined the Company's Federal income tax
returns for all years through 1994. The years have been closed through 1994,
either through settlement or expiration of the statute of limitations. The
Company believes that it has made adequate provision for income taxes that may
become payable with respect to open tax years.
28
Unremitted foreign earnings reinvested abroad upon which deferred income
taxes have not been provided aggregated approximately $18.8 million at March 31,
1998. Due to the timing and circumstances of repatriation of such earnings, if
any, it is not practicable to determine the unrecognized deferred tax liability
relating to such amounts. Withholding taxes, if any, upon repatriation would
not be significant.
Income taxes paid during 1998, 1997 and 1996 were $4,516,000; $8,454,000 and
$5,656,000, respectively.
29
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
J -- EMPLOYEE BENEFIT PLANS
SAVINGS AND RETIREMENT PLANS
The Company currently has two qualified defined contribution plans, which
cover substantially all employees other than Bristow employees.
The Offshore Logistics, Inc. Employee Savings and Retirement Plan ("OLOG
Plan") covers Corporate and Air Log employees. Under the OLOG Plan, except for
those employees working in the state of Alaska, the Company matches each
participant's contributions up to 3% of the employee's compensation. In
addition, if net income exceeds 10% of stockholders' investment at the beginning
of the year, the Company contributes funds to acquire Company stock up to an
additional 3% of the employee's compensation, subject to a scheduled vesting
period. Under the OLOG Plan, for Air Log employees working in the state of
Alaska, the Company matches each participant's contributions up to 4% of the
employee's compensation.
The Grasso Production Management, Inc. Thrift & Profit Sharing Trust covers
eligible GPM employees. The Company matches 25% of each participant's
contributions up to 6% of the employee's compensation.
Bristow has a defined benefit retirement plan, which covers all full-time
employees of Bristow. The plan is funded by contributions partly from employees
and partly from Bristow. Members contribute up to 7.5% of pensionable salary
(as defined) and can pay additional voluntary contributions to provide
additional benefits. The benefits are based on the employee's annualized
average last three years pensionable salaries. Plan assets are held in separate
trustee administered funds, which are primarily invested in United Kingdom and
other overseas equities and bonds.
The following table sets forth the plan's funded status and pension costs
recognized by the Company in accordance with the provisions of SFAS No. 87
"Employers' Accounting for Pensions":
Actuarial Present Value of Benefit Obligations (thousands of dollars):
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
Vested benefit obligation........ $ (200,234) $ (164,750)
Accumulated benefit obligation... $ (200,234) $ (164,750)
Projected benefit obligation..... $ (218,760) $ (179,995)
Plan assets at fair value........ 237,133 184,762
---------- ----------
Plan assets in excess of
projected benefit obligation.... 18,373 4,767
Unrecognized net gain............ (17,002) (4,767)
Prior service cost not yet
recognized in net periodic
pension cost.................... -- --
Unrecognized net obligation
being recognized over 15 years.. -- --
---------- ----------
Accrued pension asset............ $ 1,371 $ --
========== ==========
Net periodic pension cost for the twelve months ended March 31, 1998 and the
nine months ended March 31, 1997 were approximately $4,860,000 and $1,200,000,
respectively.
Actuarial assumptions used to develop these components were as follows:
1998 1997
---- ----
Discount rate...................... 6.75% 8.00%
Expected long-term rate of return
on assets......................... 8.25% 9.50%
Rate of increase in Pension
benefits over UK statutory
benefits.......................... 3.00% 3.50%
The Company's contributions to the three plans were $7,190,000; $2,575,000
and $680,000 for the year ended March 31, 1998, the nine month period ended
March 31, 1997 and the year ended June 30, 1996, respectively.
30
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCENTIVE AND STOCK OPTION PLANS
Under the 1994 Long-Term Management Incentive Plan ("1994 Plan"), a total of
900,000 shares of Common Stock, or cash equivalents of Common Stock, are
available for awards to officers and key employees. Awards granted under the
1994 Plan may be in the form of stock options, stock appreciation rights,
restricted stock, deferred stock, other stock-based awards or any combination
thereof. Options become exercisable at such time or times as determined at the
date of grant, and expire no more than ten years after the date of grant.
Incentive stock option prices are determined by the Board and cannot be less
than fair market value at date of grant. Non-qualified stock option prices
cannot be less than 50% of the fair market value at date of grant.
The Annual Incentive Compensation Plan ("Annual Plan") provides for an annual
award of cash bonuses to key employees based on pre-established objective
measures of Company performance. Participants are permitted to receive all or
any part of their annual incentive bonus in the form of shares of Restricted
Stock in accordance with the terms of the 1994 Plan. The amount of bonuses
related to this plan were $838,000; $565,000 and $124,000 for the year ended
March 31, 1998, the nine month period ended March 31, 1997 and the year ended
June 30, 1996, respectively. As of March 31, 1998 there were 28,594 shares of
Restricted Stock outstanding issued at a weighted average price of $18.93 per
share.
The 1991 Non-qualified Stock Option Plan for Non-employee Directors ("1991
Plan") provides for 200,000 shares of Common Stock to be reserved for issuance
pursuant to such plan. As of the date of each annual meeting each non-employee
director, who meets certain attendance criteria, will automatically be granted
an option to purchase 2,000 shares of the Company's Common Stock. The exercise
price of the options granted shall be equal to the fair market value of the
Common Stock on the date of grant and are exercisable not earlier than six
months after the date of grant.
Under the Company's stock option plans there were 876,302 shares of Common
Stock reserved for issue at March 31, 1998.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective for the Company's fiscal year beginning July
1, 1995. Under SFAS No. 123, companies can either record expense based on the
fair value of stock-based compensation upon issuance or elect to remain under
the APB 25 method whereby no compensation cost is recognized upon grant if
certain requirements are met. The Company elected to continue to account for
its stock-based compensation under APB 25. However, pro forma disclosures as if
the Company adopted the cost recognition requirements under SFAS No. 123 are
presented below.
Had compensation cost been determined based on the fair value at the grant
date consistent with the provisions of SFAS No. 123, the Company's net income
and earnings per common share would have approximated the pro forma amounts
below:
TWELVE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31,1998 MARCH 31, 1997 JUNE 30, 1996
------------------- ----------------- -------------------
Net Income (in thousands):
As reported...................... $31,408 $17,232 $15,276
Pro forma........................ $30,109 $16,607 $14,800
Basic earnings per share:
As reported...................... $ 1.46 $ 0.86 $ 0.78
Pro forma........................ $ 1.40 $ 0.83 $ 0.76
Diluted earnings per share:
As reported...................... $ 1.36 $ 0.83 $ 0.77
Pro forma........................ $ 1.31 $ 0.81 $ 0.75
The effects of applying SFAS No. 123 to this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to grants prior to
1995, and additional awards in the future are anticipated.
31
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock options as of March 31, 1998 and 1997, and
June 30, 1996 and changes during the periods ended on those dates is presented
below:
WEIGHTED-AVERAGE NUMBER
EXERCISE PRICE OF SHARES
---------------- ---------
Balance at June 30, 1995............. $ 9.20 862,960
Granted........................... 12.70 164,000
Exercised......................... 8.03 (24,460)
Expired or cancelled.............. 10.97 (14,000)
---------
Balance at June 30, 1996............. 9.78 988,500
Granted........................... 15.48 366,500
Exercised......................... 7.75 (114,000)
Expired or cancelled.............. 12.94 (10,000)
---------
Balance at March 31, 1997............ 11.64 1,231,000
Granted........................... 18.93 219,000
Exercised......................... 9.85 (745,500)
Expired or cancelled.............. 19.38 (35,000)
---------
Balance at March 31, 1998............ $15.62 669,500
=========
As of March 31, 1998 and 1997, and June 30, 1996, the number of options
exercisable under the stock option plans was 349,500; 864,500 and 838,500,
respectively; and the weighted average exercise price of those options was
$12.44; $10.02 and $9.25, respectively.
The weighted average fair value at date of grant for options granted during
1998, 1997 and 1996 was $6.48, $5.30 and $4.35 per option, respectively. The
fair value of options granted during the periods presented is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions: (a) dividend yield of 0.00%; (b) average expected volatility of
40%; (c) average risk-free interest rate of 6.4% and (d) expected life of 3
years.
The following table summarizes information about stock options outstanding as
of March 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ---------------------------
WGTD. AVG. WGTD. AVG. WGTD. AVG.
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTR. LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- ---------- ----------- ----------
$ 7.375 - $11.625 60,000 3.81 $ 8.06 60,000 $ 8.06
$12.125 - $15.875 268,500 6.94 $12.82 263,500 $12.76
$19.00 - $19.625 341,000 9.22 $19.15 26,000 $19.29
------- -------
$ 7.375 - $19.625 669,500 7.82 $15.62 349,500 $12.44
======= =======
32
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K -- EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No.
128 replaced the previously reported primary and fully-diluted earnings per
share with basic and diluted earnings per share.
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 common share for the twelve months and nine months ended
March 31, 1998 and 1997 were determined on the assumptions that the convertible
debt was converted on April 1, 1997 and upon issuance on December 17, 1996,
respectively. The Company adopted SFAS No. 128, "Earnings Per Share", effective
December 15, 1997. All income per share amounts for all periods have been
presented, and where necessary, restated to conform to the requirements of SFAS
No. 128. The following table sets forth the computation of basic and diluted
income from continuing operations per share:
TWELVE NINE MONTHS TWELVE
MONTHS ENDED ENDED MONTHS ENDED
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
------------ ----------- ------------
Income from Continuing Operations
(thousands of dollars):
Income available to common
stockholders....................... $ 31,254 $ 17,625 $ 15,024
Interest on convertible debt,
net of taxes....................... 4,116 1,178 --
---------- ----------- -----------
Income available to common
stockholders, plus assumed
conversions........................ $ 35,370 $ 18,803 $ 15,024
========== =========== ===========
Shares:
Weighted average number of common
shares outstanding................. 21,543,198 20,095,403 19,481,405
Options............................. 269,911 357,385 263,179
Warrants............................ -- 17,120 22,956
Convertible debt.................... 4,286,520 1,615,210 --
---------- ----------- -----------
Weighted average number of common
shares outstanding, plus assumed
conversions........................ 26,099,629 22,085,118 19,767,540
========== =========== ===========
Income from Continuing Operations:
Basic earnings per share........... $ 1.45 $ 0.88 $ 0.77
========== =========== ===========
Diluted earnings per share......... $ 1.35 $ 0.85 $ 0.76
========== =========== ===========
33
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company adopted a stockholder rights plan on February 9, 1996, designed
to assure that the Company's stockholders receive fair and equal treatment in
the event of any proposed takeover of the Company and to guard against partial
tender offers, squeeze-outs, open market accumulations and other abusive tactics
to gain control without paying all stockholders a fair price. The rights plan
was not adopted in response to any specific takeover proposal. Under the rights
plan, the Company declared a dividend of one right ("Right") on each share of
the Company's common stock. Each Right will entitle the holder to purchase one
one-hundredth of a share of a new Series A Junior Participating Preferred
Stock, par value $1.00 per share, at an exercise price of $50.00. Each Right
will entitle its holder to purchase a number of common shares of the Company
having a market value of twice the exercise price. The Rights are not currently
exercisable and will become exercisable only in the event a person or group
acquires beneficial ownership of 10 percent or more of the Company's common
stock. The dividend distribution was made on February 29, 1996 to stockholders
of record on that date. The Rights will expire on February 26, 2006.
L -- SEGMENT INFORMATION
The Company operates principally in two business segments: Helicopter
activities and Production management and related services. Air Log and Bristow
are major suppliers of helicopter transportation services to the worldwide
offshore oil and gas industry. GPM provides production management services,
contract personnel and medical support services to the domestic and
international oil and gas industry. The information presented has been restated
to reflect CPS as discontinued operations. Identifiable assets include net
assets relating to CPS of $6.7 million and $7.2 million as of March 31, 1997 and
June 30, 1996, respectively. The following shows industry segment information
for the year ended March 31, 1998, the nine months ended March 31, 1997 and the
year ended June 30, 1996 (in thousands):
TWELVE TWELVE
MONTHS ENDED NINE MONTHS MONTHS ENDED
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
------------ ----------- ------------
Operating revenues: (1)
Helicopter activities........................ $384,108 $143,647 $ 86,080
Production management and related services... 42,785 23,481 31,209
-------- -------- --------
Total.................................... $426,893 $167,128 $117,289
======== ======== ========
Operating profit (loss):
Helicopter activities........................ $ 59,024 $ 27,142 $ 17,612
Production management and related services... 3,072 1,182 (183)
-------- -------- --------
Total segment operating profit........... 62,096 28,324 17,429
Corporate overhead............................ (5,632) (3,110) (4,063)
Earnings from unconsolidated entities......... 7,205 2,602 4,056
Interest income (expense), net................ (17,555) (2,228) 3,725
-------- -------- --------
Pretax income................................. $ 46,114 $ 25,588 $ 21,147
======== ======== ========
(1) Net of Inter-Segment revenues of $3,461,000; $2,246,000 and $3,823,000 for
March 31, 1998 and 1997 and June 30, 1996, respectively.
34
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CAPITAL
EXPENDITURES
---------------------------
1998 1997 1996
------- -------- --------
Helicopter activities........................ $70,170 $9,835 $11,908
Production management and related services... 140 112 99
Corporate.................................... 155 -- --
------- ------ -------
Total................................... $70,465 $9,947 $12,007
======= ====== =======
DEPRECIATION
AND AMORTIZATION
---------------------------
1998 1997 1996
------- -------- -------
Helicopter activities........................ $30,286 $11,531 $7,083
Production management and related services... 1,364 1,003 1,347
Corporate.................................... 590 90 119
------- ------- ------
Total................................... $32,240 $12,624 $8,549
======= ======= ======
IDENTIFIABLE ASSETS
------------------------------
1998 1997 1996
-------- -------- --------
Helicopter activities........................ $658,461 $607,458 $164,560
Production management and related services... 28,421 26,279 26,684
Corporate and other.......................... 49,129 40,476 39,497
-------- -------- --------
Total................................... $736,011 $674,213 $230,741
======== ======== ========
35
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Segment information by geographic areas for the year ended March 31, 1998,
the nine month period ended March 31, 1997 and the year ended June 30, 1996 is
as follows (thousands of dollars):
TWELVE NINE MONTHS TWELVE
MONTHS ENDED ENDED MONTHS ENDED
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
------------ ----------- ------------
Operating revenue:
United States........... $143,870 $ 83,875 $102,071
United Kingdom/Europe... 177,842 41,736 --
Africa.................. 45,258 12,868 --
International........... 59,923 28,649 15,218
-------- -------- --------
$426,893 $167,128 $117,289
======== ======== ========
Operating profit:
United States........... $ 26,559 $ 16,602 $ 12,655
United Kingdom/Europe... 17,245 4,067 --
Africa.................. 4,903 1,034 --
International........... 13,389 6,621 4,774
-------- -------- --------
$ 62,096 $ 28,324 $ 17,429
======== ======== ========
Identifiable assets:
United States........... $204,830 $163,766 $170,081
United Kingdom/Europe... 357,364 336,693 --
Africa.................. 49,698 55,311 --
International........... 124,119 118,443 60,660
-------- -------- --------
$736,011 $674,213 $230,741
======== ======== ========
During 1998, 1997 and 1996, Air Log and Bristow conducted operations in
approximately 22 foreign countries as well as in the United States and the
United Kingdom. Due to the nature of the principal assets of the Company, they
are regularly and routinely moved between operating areas (both domestic and
foreign) to meet changes in market and operating conditions. Revenue earned from
any single customer did not exceed 10% of total revenues during 1998, 1997 or
1996. Equipment registered in one country is chartered to other operating areas
from time to time at rates sufficient to cover costs plus a reasonable return.
These revenues ($15,406,000 in 1998; $7,063,000 in 1997 and $7,441,000 in 1996)
have been eliminated in the amounts shown above.
36
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
M -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following quarterly financial data has been restated to reflect CPS as
discontinued operations.
QUARTER ENDED
---------------------------------------------------------
JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
------- -------- ------- ------- -------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
1998
Gross revenue............................. $99,981 $107,565 $112,950 $106,159 N/A
Gross profit.............................. $19,497 $ 21,526 $ 21,169 $ 20,582 N/A
Income from continuing operations......... $ 6,593 $ 7,959 $ 7,963 $ 8,739 N/A
Income from discontinued operations....... (15) 169 -- -- N/A
------- -------- -------- --------
Net income................................ $ 6,578 $ 8,128 $ 7,963 $ 8,739 N/A
======= ======== ======== ========
Basic earnings per share:
Income from continuing operations..... $ 0.31 $ 0.37 $ 0.37 $ 0.40 N/A
Income from discontinued operations... -- 0.01 -- -- N/A
------- -------- -------- --------
Net Income.................... $ 0.31 $ 0.38 $ 0.37 $ 0.40 N/A
======= ======== ======== ========
Diluted earnings per share:
Income from continuing operations..... $ 0.30 $ 0.35 $ 0.34 $ 0.37 N/A
Income from discontinued operations... -- 0.01 -- -- N/A
------- -------- -------- --------
Net Income.................... $ 0.30 $ 0.36 $ 0.34 $ 0.37 N/A
======= ======== ======== ========
1997
Gross revenue............................. N/A $ 32,872 $ 41,459 $ 94,019 N/A
Gross profit.............................. N/A $ 8,690 $ 9,347 $ 18,583 N/A
Income from continuing operations......... N/A $ 5,781 $ 5,522 $ 6,322 N/A
Income from discontinued operations....... N/A 74 86 (553) N/A
-------- -------- --------
Net income................................ N/A $ 5,855 $ 5,608 $ 5,769 N/A
======== ======== ========
Basic earnings per share:
Income from continuing operations.... N/A $ 0.30 $ 0.28 $ 0.30 N/A
Income from discontinued operations.. N/A -- -- (0.03) N/A
-------- -------- --------
Net Income................... N/A $ 0.30 $ 0.28 $ 0.27 N/A
======== ======== ========
Diluted earnings per share:
Income from continuing operations..... N/A $ 0.30 $ 0.28 $ 0.29 N/A
Income from discontinued operations... N/A -- -- (0.02) N/A
-------- -------- --------
Net Income.................... $ 0.30 $ 0.28 $ 0.27 N/A
======== ======== ========
37
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996
Gross revenue............................ N/A $28,959 $29,143 $28,592 $30,149
Gross profit............................. N/A $ 6,001 $ 4,877 $ 5,883 $ 5,840
Income from continuing operations........ N/A $ 3,693 $ 3,238 $ 4,060 $ 4,033
Income from discontinued operations...... N/A (34) 218 51 17
------- ------- ------- -------
Net income............................... N/A $ 3,659 $ 3,456 $ 4,111 $ 4,050
======= ======= ======= =======
Basic earnings per share:
Income from continuing operations..... N/A $ 0.19 $ 0.17 $ 0.21 $ 0.21
Income from discontinued operations... N/A -- 0.01 -- --
------- ------- ------- -------
Net Income.......................... N/A $ 0.19 $ 0.18 $ 0.21 $ 0.21
======= ======= ======= =======
Diluted earnings per share:
Income from continuing operations..... N/A $ 0.19 $ 0.17 $ 0.21 $ 0.20
Income from discontinued operations... N/A -- 0.01 -- --
------- ------- ------- -------
Net Income.......................... N/A $ 0.19 $ 0.18 $ 0.21 $ 0.20
======= ======= ======= =======
N -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On January 27, 1998, the Company completed the sale of $100 million 7 7/8%
Senior Notes due 2008, which were discounted to yield 7.915%. The net proceeds
to the Company were $97.2 million. In connection with the sale of the Senior
Notes, 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 an unconsolidated 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 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.
During 1998, the Company formed a new wholly owned subsidiary and contributed
the Company's operating assets, separate from its investment in its
subsidiaries, to the newly formed subsidiary. The subsidiary is a Guarantor
Subsidiary. For purposes of the historical supplemental financial information,
the Company has presented the aforementioned operating assets and related
operating results together with the operating assets and results of other
Guarantor Subsidiaries.
The allocation of the consolidated income tax provision was made using the
with and without allocation method.
38
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Condensed Consolidating Balance Sheet
March 31, 1998
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
ASSETS
- ------
Current assets:
Cash and cash equivalents. $ 34,264 $ 5,192 $ 16,620 $ -- $ 56,076
Accounts receivable....... 599 23,908 63,065 (2,029) 85,543
Inventories............... -- 31,998 44,141 -- 76,139
Prepaid expenses.......... 304 663 4,575 -- 5,542
-------- ----------- ---------- ---------- ----------
Total current assets.... 35,167 61,761 128,401 (2,029) 223,300
Intercompany investment... 218,143 -- -- (218,143) --
Investments in
unconsolidated entities.. 1,108 229 6,529 -- 7,866
Intercompany note
receivables.............. 221,130 2,674 1,441 (225,245) --
Property and equipment--
at cost:
Land and buildings...... -- 3,174 9,914 -- 13,088
Aircraft and equipment.. 3,642 145,648 407,028 -- 556,318
-------- ----------- ---------- --------- ---------
3,642 148,822 416,942 -- 569,406
Less: Accumulated
depreciation and
amortization............. (2,657) (65,050) (30,560) -- (98,267)
-------- ----------- ----------- --------- ---------
985 83,772 386,382 -- 471,139
Other assets.............. 13,447 19,781 368 110 33,706
-------- ----------- ----------- --------- ---------
$489,980 $ 168,217 $ 523,121 $(445,307) $ 736,011
======== =========== =========== ========= =========
LIABILITIES AND
- ---------------
STOCKHOLDERS' INVESTMENT
- ------------------------
Current liabilities:
Accounts payable.......... $ 46 $ 4,389 $ 26,589 $ -- $ 31,024
Accrued liabilities....... 6,027 8,818 30,037 (2,270) 42,612
Deferred taxes............ -- -- 18,335 -- 18,335
Current maturities of
long-term debt........... 2,569 -- 6,124 -- 8,693
-------- ---------- ----------- --------- ---------
Total current
liabilities........... 8,642 13,207 81,085 (2,270) 100,664
Long-term debt, less
current maturities....... 195,374 -- 56,186 -- 251,560
Intercompany notes payable 2,500 -- 222,505 (225,005) --
Deferred credits.......... -- -- 594 -- 594
Deferred taxes............ (4,077) 27,730 69,802 -- 93,455
Minority interest......... 9,853 -- -- -- 9,853
Stockholders' investment:
Common stock............ 219 4,048 1,384 (5,432) 219
Additional paid in
capital................ 123,061 58,318 19,071 (77,389) 123,061
Retained earnings....... 152,194 64,914 72,394 (137,308) 152,194
Cumulative translation
adjustment............. 2,214 -- 100 2,097 4,411
-------- --------- ----------- --------- --------
277,688 127,280 92,949 (218,032) 279,885
-------- --------- ----------- --------- --------
$489,980 $ 168,217 $ 523,121 $(445,307) $736,011
======== ========= =========== ========= ========
39
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Condensed Consolidating Statement of Income
Twelve Months Ended March 31, 1998
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
GROSS REVENUE
Operating revenue......................... $ 20 $141,179 $285,694 $ -- $426,893
Intercompany revenue...................... 280 10,345 308 (10,933) --
Gain (loss) on disposal of equipment...... -- (439) 201 -- (238)
------- -------- -------- -------- --------
300 151,085 286,203 (10,933) 426,655
OPERATING EXPENSES
Direct cost............................... 7 112,246 199,388 -- 311,641
Intercompany expense...................... -- 243 10,690 (10,933) --
Depreciation and amortization............. 589 8,949 22,702 -- 32,240
General and administrative................ 5,632 5,289 15,389 -- 26,310
------- -------- -------- -------- --------
6,228 126,727 248,169 (10,933) 370,191
------- -------- -------- -------- --------
OPERATING INCOME.......................... (5,928) 24,358 38,034 -- 56,464
Earnings from unconsolidated entities..... 27,185 -- 7,207 (27,187) 7,205
Interest income........................... 20,288 282 1,314 (18,903) 2,981
Interest expense.......................... 7,419 -- 32,020 (18,903) 20,536
------- -------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE PROVISION
FOR INCOME TAXES....................... 34,126 24,640 14,535 (27,187) 46,114
Allocation of consolidated income taxes... 1,809 8,028 3,996 -- 13,833
Minority interest......................... (1,016) -- (11) -- (1,027)
------- -------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS............................. 31,301 16,612 10,528 (27,187) 31,254
Discontinued operations:
Income (loss) from CPS operations...... 107 -- 47 -- 154
------- -------- -------- -------- --------
NET INCOME................................ $31,408 $ 16,612 $ 10,575 $(27,187) $ 31,408
======= ======== ======== ======== ========
40
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Condensed Consolidating Statement of Cash Flows
Twelve Months Ended March 31, 1998
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
Net cash provided by operating activities........... $(93,486) $ 27,903 $ 49,389 $ 85,140 $ 68,946
-------- -------- --------- -------- --------
Cash flows from investing activities:
Capital expenditures......................... (155) (27,706) (42,604) -- (70,465)
Proceeds from asset dispositions............. -- 1,450 9,513 -- 10,963
Cash received from CPS disposal.............. -- -- 5,700 -- 5,700
Acquisitions, net of cash received........... -- -- (353) -- (353)
-------- -------- --------- -------- --------
Net cash used in investing activities............... (155) (26,256) (27,744) -- (54,155)
-------- -------- --------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings..................... 98,723 -- 109,955 (85,140) 123,538
Repayment of debt............................ -- -- (120,519) -- (120,519)
Issuance of common stock..................... 7,723 -- -- -- 7,723
-------- -------- --------- -------- --------
Net cash provided by (used in) financing
activities................................... 106,446 - (10,564) (85,140) 10,742
-------- -------- --------- -------- --------
Effect of exchange rate changes in cash............. -- -- 714 -- 714
-------- -------- --------- -------- --------
Net increase in cash and cash equivalents........... 12,805 1,647 11,795 -- 26,247
Cash and cash equivalents at beginning of period.... 21,459 3,545 4,825 -- 29,829
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.......... $ 34,264 $ 5,192 $ 16,620 $ -- $ 56,076
======== ======== ======== ======== ========
41
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Condensed Consolidating Balance Sheet
March 31, 1997
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
ASSETS
- -----
Current assets:
Cash and cash equivalents........ $ 21,459 $ 3,545 $ 4,825 $ -- $ 29,829
Accounts receivable.............. 1,383 19,987 69,762 (2,864) 88,268
Inventories .................... -- 25,258 45,569 -- 70,827
Net assets of discontinued
operations...................... -- -- 6,686 -- 6,686
Prepaid expenses................. 335 518 34 -- 887
-------- -------- -------- --------- --------
Total current assets.......... 23,177 49,308 126,876 (2,864) 196,497
Intercompany investment.......... 170,612 -- -- (170,612) --
Investments in
unconsolidated entities......... 1,109 229 7,912 -- 9,250
Intercompany note
receivables..................... 139,058 -- -- (139,058) --
Property and equipment--at cost:
Land and buildings.............. -- 2,983 10,192 -- 13,175
Aircraft and equipment.......... 3,486 122,593 371,593 -- 497,672
-------- -------- -------- --------- --------
3,486 125,576 381,785 -- 510,847
Less: Accumulated
depreciation
and amortization.................. (2,533) (60,625) (11,307) -- (74,465)
-------- -------- -------- --------- --------
953 64,951 370,478 -- 436,382
Other assets....................... 10,537 21,106 330 111 32,084
-------- -------- -------- --------- --------
$345,446 $135,594 $505,596 $(312,423) $674,213
======== ======== ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' INVESTMENT
- -----------------------------
Current liabilities:
Accounts payable................... $ 151 $ 4,051 $ 26,964 $ -- $ 31,166
Accrued liabilities................ 6,367 6,577 27,512 (1,864) 38,592
Deferred taxes..................... -- -- 17,968 -- 17,968
Current maturities of
long-term debt................... -- -- 51,240 -- 51,240
-------- -------- -------- --------- --------
Total current liabilities........ 6,518 10,628 123,684 (1,864) 138,966
Long-term debt, less
current maturities................ 98,000 -- 101,631 -- 199,631
Intercompany notes payable......... 1,000 111 139,594 (140,705) --
Deferred credits................... -- -- 622 -- 622
Deferred taxes..................... (4,971) 19,696 76,720 -- 91,445
Minority interest.................. 8,643 -- -- -- 8,643
Stockholders' investment:
Common stock...................... 211 1,041 3,796 (4,837) 211
Additional paid in capital........ 115,346 24,269 17,745 (42,014) 115,346
Retained earnings................. 120,786 79,849 41,787 (121,636) 120,786
Cumulative translation
adjustment....................... (87) -- 17 (1,367) (1,437)
-------- -------- -------- --------- --------
236,256 105,159 63,345 (169,854) 234,906
-------- -------- -------- --------- --------
$345,446 $135,594 $505,596 $(312,423) $674,213
======== ======== ======== ========= ========
42
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Condensed Consolidating Statement of Income
Nine Months Ended March 31, 1997
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
GROSS REVENUE
Operating revenue......................... $ 18 $83,440 $83,670 $ -- $167,128
Intercompany revenue...................... 105 7,463 3 (7,571) --
Gain (loss) on disposal of equipment...... 20 1,090 112 -- 1,222
------- ------- ------- -------- --------
143 91,993 83,785 (7,571) 168,350
OPERATING EXPENSES
Direct cost............................... (1) 65,762 53,345 -- 119,106
Intercompany expense...................... -- 3 7,568 (7,571) --
Depreciation and amortization............. 90 5,849 6,685 -- 12,624
General and administrative................ 3,110 3,839 4,457 -- 11,406
------- ------- ------- -------- --------
3,199 75,453 72,055 (7,571) 143,136
------- ------- ------- -------- --------
OPERATING INCOME.......................... (3,056) 16,540 11,730 -- 25,214
Earnings from unconsolidated entities..... 16,841 -- 2,784 (17,023) 2,602
Interest income........................... 6,025 238 1,478 (4,441) 3,300
Interest expense.......................... 1,734 23 8,212 (4,441) 5,528
------- ------- ------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE PROVISION
FOR INCOME TAXES....................... 18,076 16,755 7,780 (17,023) 25,588
Allocation of consolidated income taxes... 170 5,404 2,101 -- 7,675
Minority interest......................... (281) -- (7) -- (288)
INCOME FROM CONTINUING
OPERATIONS............................. 17,625 11,351 5,672 (17,023) 17,625
Discontinued operations:
Income (loss) from CPS operations...... (393) -- (890) 890 (393)
------- ------- ------- -------- --------
NET INCOME................................ $17,232 $11,351 $ 4,782 $(16,133) $ 17,232
======= ======= ======= ========= ========
43
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Condensed Consolidating Statement of Cash Flows
Nine Months Ended March 31, 1997
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------ ------------ ------------ ------------
Net cash provided by operating activities.......... $ 9,120 $ 4,598 $ 1,319 $ 934 $ 15,971
--------- ------- -------- ------- ---------
Cash flows from investing activities:
Capital expenditures............................ (30) (7,108) (2,968) -- (10,106)
Proceeds from asset dispositions................ 20 1,599 4,407 -- 6,026
Bristow investment.............................. (109,286) -- (46,165) -- (155,451)
Acquisitions, net of cash received.............. -- -- (1,675) -- (1,675)
Proceeds from maturity of
marketable securities........................ 5,000 -- 15,001 -- 20,001
--------- ------- -------- ------- ---------
Net cash used in investing activities.............. (104,296) (5,509) (31,400) -- (141,205)
--------- ------- -------- ------- ---------
Cash flows from financing activities:
Proceeds from borrowings........................ 89,094 -- 8,542 (1,000) 96,636
Repayment of debt............................... -- -- (434) -- (434)
Issuance of common stock........................ 1,899 -- -- -- 1,899
--------- ------- -------- ------- ---------
Net cash provided by (used in) financing
activities...................................... 90,993 -- 8,108 (1,000) 98,101
--------- ------- -------- ------- ---------
Effect of exchange rate changes in cash............ -- -- 23 -- 23
--------- ------- -------- ------- ---------
Net decrease in cash and cash equivalents.......... (4,183) (911) (21,950) (66) (27,110)
Cash and cash equivalents at beginning of period... 25,642 4,456 26,775 66 56,939
--------- ------- -------- ------- ---------
Cash and cash equivalents at end of period......... $ 21,459 $ 3,545 $ 4,825 $ -- $ 29,829
========= ======= ======== ======= =========
44
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Condensed Consolidating Statement of Income
Twelve Months Ended June 30, 1996
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
------------- -------------- ------------- ------------ ------------
GROSS REVENUE
Operating revenue......................... $ 18 $101,762 $15,509 $ -- $117,289
Intercompany revenue...................... 124 7,714 -- (7,838) --
Gain (loss) on disposal of equipment...... -- (446) -- -- (446)
------- -------- ------- -------- --------
142 109,030 15,509 (7,838) 116,843
OPERATING EXPENSES
Direct cost............................... (14) 83,674 2,033 -- 85,693
Intercompany expense...................... -- -- 7,838 (7,838) --
Depreciation and amortization............. 119 7,663 767 -- 8,549
General and administrative................ 3,614 5,516 105 -- 9,235
------- -------- ------- -------- --------
3,719 96,853 10,743 (7,838) 103,477
------- -------- ------- -------- --------
OPERATING INCOME.......................... (3,577) 12,177 4,766 -- 13,366
Earnings from unconsolidated entities..... 16,286 -- 4,056 (16,286) 4,056
Interest income........................... 1,762 230 2,168 (135) 4,025
Interest expense.......................... 298 137 -- (135) 300
------- -------- ------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE PROVISION
FOR INCOME TAXES....................... 14,173 12,270 10,990 (16,286) 21,147
Allocation of consolidated income taxes... (851) 3,987 2,987 -- 6,123
------- -------- ------- -------- --------
INCOME FROM CONTINUING
OPERATIONS............................. 15,024 8,283 8,003 (16,286) 15,024
Discontinued operations:
Income (loss) from CPS operations...... 252 -- (143) 143 252
------- -------- ------- -------- --------
NET INCOME................................ $15,276 $ 8,283 $ 7,860 $(16,143) $ 15,276
======= ======== ======= ======== ========
45
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Condensed Consolidating Statement of Cash Flows
Twelve Months Ended June 30, 1996
Parent Non-
Company Guarantor Guarantor
Only Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
Net cash provided by operating activities........ $ 5,398 $ 7,760 $ 9,572 $ 66 $ 22,796
Cash flows from investing activities:
Capital expenditures.......................... -- (7,360) (5,175) -- (12,535)
Proceeds from asset dispositions.............. -- 128 57 -- 185
Investments in marketable securities.......... (2,988) -- (8,964) -- (11,952)
Proceeds from maturity of
marketable securities...................... 2,997 -- 8,991 -- 11,988
-------- --------- -------- ------- --------
Net cash provided by (used in) investing
activities................................. 9 (7,232) (5,091) -- (12,314)
Cash flows from financing activities:
Repayment of debt............................. (2,000) -- -- -- (2,000)
Issuance of common stock...................... 556 -- -- -- 556
-------- --------- -------- ------- --------
Net cash provided by (used in) financing
activities.................................... (1,444) -- -- -- (1,444)
-------- --------- -------- ------- --------
Net increase in cash and cash equivalents........ 3,963 528 4,481 66 9,038
Cash and cash equivalents at beginning of year... 21,679 3,928 22,294 -- 47,901
-------- --------- -------- ------- --------
Cash and cash equivalents at end of year $ 25,642 $ 4,456 $ 26,775 $ 66 $ 56,939
======== ========= ======== ======= ========
46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated by reference herein the information under the caption
"Information Concerning Nominees" contained in the registrant's definitive proxy
statement in connection with the Annual Stockholders' Meeting to be held on
September 29, 1998.
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated by reference herein the information under the caption
"Executive Compensation" contained in the registrant's definitive proxy
statement in connection with the Annual Stockholders' Meeting to be held on
September 29, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated by reference herein the information under the captions
"Security Ownership of Certain Beneficial Owners" and "Information Concerning
Nominees" contained in the registrant's definitive proxy statement in connection
with the Annual Stockholders' Meeting to be held on September 29, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated by reference herein the information under the caption
"Executive Compensation" contained in the registrant's definitive proxy
statement in connection with the Annual Stockholders' Meeting to be held on
September 29, 1998.
47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements --
Report of Independent Public Accountants
Consolidated Balance Sheet -- March 31, 1998 and March 31, 1997
Consolidated Statement of Income for the twelve months ended
March 31, 1998, the nine months ended March 31, 1997 and the twelve
months ended June 30, 1996
Consolidated Statement of Stockholders' Investment for the twelve
months ended March 31, 1998, the nine months ended March 31, 1997
and the twelve months ended June 30, 1996
Consolidated Statement of Cash Flows for the twelve months ended
March 31, 1998, the nine months ended March 31, 1997 and the twelve
months ended June 30, 1996
Notes to Consolidated Financial Statements
All schedules have been omitted since the information required is included
in the financial statements or notes or have been omitted as not applicable or
not required.
INCORPORATED
BY REFERENCE TO
REGISTRATION OR FORM OR EXHIBIT
EXHIBITS FILE NUMBER REPORT DATE NUMBER
-------- --------------- ------- ---- -------
(3) Articles of Incorporation and By-laws
(1) Delaware Certificate of Incorporation 0-5232 10-K June 1989 3(10)
(2) Agreement and Plan of Merger dated De- 0-5232 10-K June 1989 3(11)
cember 29, 1987
(3) Certificate of Merger dated December 29, 0-5232 10-K June 1990 3(3)
1987
(4) Certificate of Correction of Certificate 0-5232 10-K June 1990 3(4)
of Merger dated January 20, 1988
(5) Certificate of Amendment of Certificate 0-5232 10-K June 1990 3(5)
of Incorporation dated November 30, 1989
(6) Certificate of Amendment of Certificate 0-5232 8-K Dec. 1992 3
of Incorporation dated December 9, 1992
(7) Rights Agreement and Form of Rights 0-5232 8A Feb. 1996 4
Certificate
(8) Amended and Restated By-laws 0-5232 8-K Feb. 1996 3(7)
(9) Certificate of Designation of Series A 0-5232 10-K June 1996 3(9)
Junior Participating Preferred Stock
(10) First Amendment to Rights Agreement 0-5232 8-A/A May 1997 5
(4) Instruments defining the rights of security
holders, including indentures
(1) Indenture dated as of December 15, 1996, 0-5232 10-Q Dec. 1996 4(1)
between Fleet National Bank and the Company
(2) Registration Rights Agreement dated 0-5232 10-Q Dec. 1996 4(2)
December 17, 1996, between the Company and
Jefferies & Company, Inc., Simmons &
Company International, and Johnson Rice &
Company L.L.C.
(3) Registration Rights Agreement dated 0-5232 10-Q Dec. 1996 4(3)
December 19, 1996, between the Company and
Caledonia Industrial and Services Limited
48
INCORPORATED BY
REFERENCE TO
REGISTRATION OR FORM OR EXHIBIT
EXHIBITS FILE NUMBER REPORT DATE NUMBER
-------- ----------- ------ ---- ------
(4) (4) Indenture, dated as of January 27, 333-48803 S-4 March 1998 4.1
1998, among the Company, the Guarantors
and State Street Bank and Trust Company
(5) Registration Rights Agreement, dated 333-48803 S-4 March 1998 4.2
as of January 22, 1998, among the
Company, the Guarantors and Jefferies
& Company, Inc.
(10) Material Contracts
(1) Employee Incentive Award Plan * 0-5232 10-K June 1981 10(5)
(2) Executive Welfare Benefit Agreement, 33-9596 S-4 Dec. 1986 10(ww)
similar agreement omitted pursuant to
Instruction 2 to Item 601 of Regulation
S-K *
(3) Executive Welfare Benefit Agreement, 33-9596 S-4 Dec. 1986 10(xx)
similar agreements are omitted pursuant
to Instruction 2 to Item 601 of
Regulation S-K *
(4) Offshore Logistics, Inc. 1989 Incentive 0-5232 10-K June 1990 (28)
Plan *
(5) Offshore Logistics, Inc. 1991 33-50946 S-8 Aug. 1992 4.1
Non-qualified Stock Option Plan for
Non-employee Directors *
(6) Agreement and Plan of Merger dated as 33-79968 S-4 Aug. 1994 2(1)
of June 1, 1994, as amended
(7) Shareholders Agreement dated as of 33-79968 S-4 Aug. 1994 2(2)
June 1, 1994
(8) Proposed Form of Non-competition 33-79968 S-4 Aug. 1994 2(3)
Agreement with Individual
Shareholders
(9) Proposed Form of Joint Venture 33-79968 S-4 Aug. 1994 2(4)
Agreement
(10) Offshore Logistics, Inc. 1994 Long- 33-87450 S-8 Dec. 1994 84
Term Management Incentive Plan*
(11) Offshore Logistics, Inc. Annual 0-5232 10-K June 1995 10(20)
Incentive Compensation Plan*
(12) Indemnity Agreement, similar 0-5232 10-K March 1997 10(14)
agreements with other directors of
the Company are omitted pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
(13) Master Agreement dated December 12, 0-5232 8-K Dec. 1996 2(1)
1996
(14) Change of Control Agreement between 0-5323 10-Q Sept. 1997 10(1)
the Company and George M. Small.
Substantially identical contracts with
five other officers are omitted pursuant
to Item 601 of Regulation S-K Instructions. *
* Compensatory Plan or Arrangement
49
Agreements with respect to certain of the Company's long-term debt are not
filed as Exhibits hereto inasmuch as the debt authorized under any such
Agreement does not exceed 10% of the Company's total assets. The Company agrees
to furnish a copy of each such Agreement to the Securities and Exchange
Commission upon request.
(21) Subsidiaries of the registrant.
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K dated March 27, 1998. Information reported was
under Item 5 - Other Events related to the announcement of two long-term
contracts awarded to the Company's affiliate, Bristow Helicopters, Ltd., by
Shell U.K. Exploration and Production.
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ DRURY A. MILKE
---------------------------
Drury A. Milke
Vice President - Chief Financial Officer
(Principal Financial and Accounting Officer)
June 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ P.N. BUCKLEY
________________________________
Peter N. Buckley Director June 26, 1998
/s/ J.H. CARTWRIGHT
________________________________
Jonathan H. Cartwright Director June 26, 1998
/s/ LOUIS F. CRANE
________________________________
Louis F. Crane Chairman of the Board and Director June 26, 1998
/s/ DAVID M. JOHNSON
_________________________________
David M. Johnson Director June 26, 1998
/s/ KENNETH M. JONES
_________________________________
Kenneth M. Jones Director June 26, 1998
/s/ HARRY C. SAGER
_________________________________
Harry C. Sager Director June 26, 1998
/s/ GEORGE M. SMALL
_________________________________
George M. Small President and Director June 26, 1998
/s/ HOWARD WOLF
_________________________________
Howard Wolf Director June 26, 1998