-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KifXFCyxy3LhxqzIDhjiNIXmUZ8FA+HrzmW87axh4ajIfPlWuCK/3wchGzQAC87f +QcbJEhS2tbPl6woQ5Oasw== 0000899243-98-001228.txt : 19980629 0000899243-98-001228.hdr.sgml : 19980629 ACCESSION NUMBER: 0000899243-98-001228 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980626 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OFFSHORE LOGISTICS INC CENTRAL INDEX KEY: 0000073887 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, NONSCHEDULED [4522] IRS NUMBER: 720679819 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-05232 FILM NUMBER: 98654905 BUSINESS ADDRESS: STREET 1: 224 RUE DE JEAN STREET 2: PO BOX 5C CITY: LAFAYETTE STATE: LA ZIP: 70505 BUSINESS PHONE: 3182331221 MAIL ADDRESS: STREET 1: 224 RUE DE JEAN 70508 STREET 2: PO BOX 5C CITY: LAFAYETTE STATE: LA ZIP: 70505 10-K 1 FORM 10-K ================================================================================ 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. ================================================================================ 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
EX-21 2 LIST OF SUBSIDIARIES EXHIBIT 21 OFFSHORE LOGISTICS, INC. Subsidiaries of the Registrant at March 31, 1998
Percentage Place of of Voting Company Incorporation Stock Owned ------- ------------- ----------- Air Logistics of Alaska, Inc................... Alaska 100% Air Logistics, L.L.C........................... Louisiana 100% Aircopter Maintenance International, Inc....... Panama 49% Airlog International, Inc...................... Panama 100% Airlog Part Sales, Inc......................... Louisiana 100% Brilog Leasing Limited......................... Cayman Islands 100% Bristow Aviation Holdings Limited.............. England 49% Bristow Helicopters Australia Pty. Ltd......... Australia 49% * Bristow Helicopters International Limited...... England 49% Bristow Helicopters Limited.................... England 49% Bristow Helicopters Nigeria Limited............ Nigeria 40% * Bristow Helicopter Group Limited............... England 49% Grasso Corporation............................. Delaware 100% Guaranty Financial International, N.A.......... Netherlands Antilles 49% Heliflight Services, Inc....................... Texas 49% Heliservicio Campeche S.A. de C.V.............. Mexico 49% Hemisco Helicopters International, Inc........ Panama 49% Medic Systems International, Inc............... Panama 100% Medic Systems, Inc............................. Delaware 100% Offshore Logistics International, Inc.......... Panama 100% Offshore Logistics Management Services, Inc.... Louisiana 100% Petroleum Air Services......................... Egypt 25%
* percentage owned by Bristow Helicopters Limited EX-23 3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated May 21, 1998 included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-87450, 33-50946, 33-14800, 333-23355 and 33-50948. ARTHUR ANDERSEN LLP New Orleans, Louisiana June 26,1998 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-31-1998 APR-01-1997 MAR-31-1998 56,076 0 85,543 0 76,139 223,300 569,406 98,267 736,011 100,664 251,560 0 0 219 279,666 736,011 426,893 426,655 311,641 370,191 0 0 20,536 46,114 13,833 31,254 154 0 0 31,408 1.46 1.36
EX-27.2 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. BALANCE SHEET DATA FOR JUNE 30, 1996 IS NOT DISCLOSED IN THE ACCOMPANYING FINANCIAL STATEMENTS AND THUS A VALUE OF ZERO HAS BEEN SHOWN FOR PURPOSES OF THIS FINANCIAL DATA SCHEDULE. 1,000 9-MOS YEAR MAR-31-1997 JUN-30-1996 JUL-01-1996 JUL-01-1995 MAR-31-1997 JUN-30-1996 29,829 0 0 0 88,268 0 0 0 70,827 0 196,497 0 510,847 0 74,465 0 674,213 0 138,966 0 199,631 0 0 0 0 0 211 0 234,695 0 674,213 0 167,128 117,289 168,350 116,843 119,106 85,693 143,136 103,477 0 0 0 0 5,528 300 25,588 21,147 7,675 6,123 17,625 15,024 (393) 252 0 0 0 0 17,232 15,276 .86 .78 .83 .77
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