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. and subsidiaries. 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.
Offshore Logistics, Inc., through its Air Logistics division, is a major supplier of helicopter transportation services to the worldwide offshore oil and gas industry. At June 30, 1996, the Company's operations included 186 aircraft (including 27 aircraft operated through unconsolidated entities). The Company's operations until 1991 also included a Marine Division, wherein the Company owned vessels that supplied marine transportation services to the international oil and gas industry. During 1991, the Company sold substantially all of the remaining assets in its Marine Division and ceased its marine operations.
During 1993, the Company expanded its operations to include production management services by acquiring a 50% interest in Seahawk Services Ltd. ("Seahawk") in a transaction in which Seahawk acquired all of the business of PPI-Seahawk Services, Inc., a company engaged in the production management services business. In October 1993, the Company exchanged its interest in Seahawk for a 27.5% interest in Grasso Corporation whose wholly-owned subsidiary, Grasso Production Management, Inc. ("GPM"), also was engaged in the production management services business. In September 1994, GPM became a wholly-owned subsidiary of the Company through a merger of Grasso Corporation into the Company.
During October 1994, the Company acquired a 75% interest 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, and other metal structures.
On March 27, 1996, the Company announced that it entered into a letter of intent to purchase up to fifty percent of the capital stock of Bristow Helicopter Group Limited ("Bristow"). The seller of the Bristow capital stock is a syndicate of investors led by Morgan Grenfell Development Capital Limited of London. On September 27, 1996, the Company announced that it has also reached an agreement in principle with Caledonia Investments plc ("Caledonia"), the other major shareholder of Bristow. According to the terms of the transaction, Caledonia will reduce its economic interest in Bristow while assuming voting control, and will become a significant shareholder in the Company. Upon completion of the transaction, the Company will hold common stock of the new holding company of Bristow, along with a substantial portion of its subordinated debt. The British Civil Aviation Authority ("CAA") has approved the transaction subject to final review of definitive documentation. The transaction, which values Bristow at approximately $300 million, is also subject to final documentation, completion of a due diligence investigation by the Company, and approval by the respective Boards of Directors. The Company will finance the transaction, with a combination of cash, debt, and common stock.
See Note I 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 three years ended June 30, 1996.
HELICOPTER SERVICES
The Company charters its 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 services are seasonal in nature and influenced by weather conditions and level of offshore construction activity.
The following table sets forth the number and type of aircraft operated by the Company at the end of the year for the past three fiscal years.
The Company owns 158 of the 159 aircraft that it operates. The following table sets forth certain information concerning these aircraft:
In addition to the foregoing 158 aircraft, the Company operates one aircraft pursuant to an operating lease arrangement at June 30, 1996. The Company also provides services and technical support to entities that operate 22 helicopters of various types and five fixed wing aircraft.
Domestic Operations
The Company's domestic helicopter services are conducted primarily from operating facilities along the Gulf of Mexico. As of June 30, 1996, the Company operated 130 aircraft in that area. The Company also operates 13 aircraft in Alaska. Although the Company's business is primarily dependent upon activity levels in the offshore oil and gas industry, the existence of a secondary market for helicopters distinguishes the helicopter business from other segments of the oil service industry. Other uses for which helicopters are employed, include emergency medical transportation, agricultural and forestry support, and general aviation activities. These additional uses enable the Company to scale down operations through the sale of excess equipment to companies in the aforementioned industries. Because of this ability to react to market conditions, management believes the helicopter segment of the oil service industry is less affected by downturns in offshore oil and gas activities.
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 June 30, 1996, the Company operated 16 of its helicopters in international locations, including Brazil, Colombia, and Mexico.
In addition to its direct operations in international areas, the Company has service agreements with, and equity interests in, entities that operate 27 aircraft in Egypt and Mexico. The Company provides services and technical support to these entities and, from time to time, leases aircraft to these entities as additional support for these operations. As of June 30, 1996, four of the Company's helicopters were being leased to its Mexican affiliate for operations in that country.
Customers
The principal customers for the Company's helicopter services are national and international petroleum and offshore construction companies. During 1994, one customer accounted for approximately 13% of the Company's operating revenues. During 1996 and 1995, no one customer accounted for more than 10% of the Company's consolidated operating revenues.
Competition
The Company's business is highly competitive. 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 over the past several years as oil and gas activities moved into deeper water and more sophisticated aircraft were 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 the Company's competitors has substantially more helicopters in service in the Gulf of Mexico and there are at least four companies internationally that operate more helicopters than the Company. Certain of the Company's competitors have substantially greater resources than the Company.
Industry Hazards and Insurance
Hazards, such as adverse weather and marine conditions, crashes, collisions, and fire are inherent in the offshore oil and gas industry and in the related transportation and supply of such industry, and may result in losses of equipment and revenues.
The Company maintains Hull and Liability Insurance which generally insures the Company against certain legal liabilities to others, as well as damage to the aircraft. It is also the Company's policy to carry insurance for, or require its customers to provide indemnification against, expropriation, war risk, and confiscation of its helicopters employed in international operations. There is no assurance that in the future the Company will be able to maintain its existing coverage or that the premiums therefrom will not increase substantially.
Government Regulation
Domestic. As a commercial operator of small aircraft, the Company is subject to regulations pursuant to the Federal Aviation Act of 1958, as amended, and other statutes. The Company carries persons and property in its helicopters pursuant to an Air Taxi Certificate granted by the Federal Aviation Administration ("FAA").
FAA regulates the flight operations of the Company, and in this respect, exercises jurisdiction over personnel, aircraft, ground facilities, and certain technical aspects of the Company's operations. The National Transportation Safety Board is authorized to investigate aircraft accidents and to recommend improved safety standards. The Company 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 the Company's aircraft may be subject to de-registration under the Federal Aviation Act and loss of the privilege of operating within the United States. At June 30, 1996, the Company had approximately 494,000 common shares held by persons with foreign addresses representing approximately 2.5% of the 19,498,398 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.
International. The Company's international operations are subject to local governmental regulations and to uncertainties of economic and political conditions in those areas. Because of the impact of local laws, the Company's international operations are conducted primarily through entities (including joint ventures) in which local citizens own interests and the Company 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 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.
PRODUCTION MANAGEMENT SERVICES
Beginning in 1993, through Seahawk and, subsequent thereto, through a 27.5% equity ownership interest in Grasso Corporation and its wholly-owned subsidiary, GPM, the Company began providing oil and gas production management services. On September 16, 1994, GPM became a wholly-owned subsidiary of the Company through the merger of Grasso Corporation into the Company.
GPM is the leading independent 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 providing 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, 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, joint interest accounting and royalty and working interest revenue disbursement services for certain of its customers.
Operations
GPM's production management services are conducted primarily from production facilities in the Gulf of Mexico. As of June 30, 1996, GPM managed or had personnel assigned to 160 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 the 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 customer to focus their efforts on their core activities, which is the exploration and production of oil and gas. During 1996 and 1995, 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 five to six direct competitors that are substantially 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 competence 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.
Industry Hazards and Insurance
GPM's operations are subject to the normal risks associated of working on an oil and gas production facility. 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, workers' compensation, automobile liability and property and casualty insurance coverages. Management believes GPM is adequately protected from most business risks normally subject to insurance.
Government Regulation
The Mineral Management Service ("MMS") regulates the production operations of GPM, 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.
CATHODIC PROTECTION SERVICES
Cathodic Protection Services Company was established in 1946 in Houston, Texas, as the first commercial engineering firm in the United States solely devoted to corrosion control by cathodic protection. CPS specializes in providing cathodic protection systems and services for the purpose of arresting corrosion in steel structures such as pipelines, oil and gas well casings, offshore facilities, hydrocarbon processing plants, water tanks, oil and gas storage tanks, and other metal structures. CPS revenues have traditionally been derived from three major activities: the construction and installation of cathodic protection systems; the sale of materials for cathodic protection systems; and the engineering, evaluation, and other ancillary services provided for cathodic protection systems. The majority of CPS's revenues are derived from single project contracts and material orders; however, CPS is a party to certain maintenance contracts varying in duration from one to five years and certain "blanket" material contracts that are normally agreed to for one year at a time.
In May 1995, CPS formed an 80% owned subsidiary, CPS Technologies, for the purpose of pursuing various opportunities relating to the remote monitoring of cathodic protection systems by means of low orbital satellite, cellular telephones or other communication media. Management views this subsidiary as a development stage business and, although optimistic as to opportunities, has no assurances as to its ultimate profitability.
CPS provides materials and services to the cathodic protection market in the domestic United States through ten district office locations as follows: Billings, Montana; Carson, California; Farmington, New Mexico; Houston, Texas; Liberal, Kansas; Lombard, Illinois; Metairie, Louisiana; Midland, Texas; Sand Springs (Tulsa), Oklahoma; and Springfield, New Jersey. The Springfield, New Jersey office, in addition to providing normal customer services, specializes in servicing the water tank needs of municipalities throughout the U.S. The Company also has a manufacturing facility in Sand Springs, Oklahoma that assembles various types of cathodic protection anodes and a corporate office in Houston, Texas.
Competition
CPS is the second largest provider of cathodic protection services and materials in the United States. The largest provider of cathodic protection services is the primary competitor of CPS on a nationwide basis. CPS also competes with numerous regional and local cathodic protection companies with respect to engineering, construction and installation, and related services. Many of the regional and local competitors are not able to provide cathodic protection materials to customers without purchasing them from CPS or other manufacturers/suppliers.
Suppliers
Certain of the cathodic protection materials provided by CPS, for example, magnesium anodes and aluminum anodes, depend largely on the supply of the associated base metals. For metals such as magnesium and aluminum there are a limited number of suppliers and, at times, shortages of supply. These factors also cause price volatility for these metals. CPS has developed and maintained relationships with all potential suppliers and protects itself from price risks by passing this risk to customers on virtually all contracts and contract bids. Although shortages of supply can have an impact on the revenues of CPS by delaying sales of materials of this type, it is management's belief that CPS is not placed at a competitive disadvantage in its markets as a result of shortages since all suppliers of cathodic protection materials face the same shortages at the same time.
Industry Hazards and Insurance
The construction and installation of cathodic protection systems and the providing of materials for such systems are subject to seasonality based upon weather conditions. This seasonality can be slightly offset by the providing of engineering services which are not as dependent upon weather conditions. Since the energy industry, including pipelines, refineries and tank farms, is the primary user of cathodic protection systems, the business of CPS is also subject to cyclical downturns caused by oil and gas prices, regulations, and other factors affecting the energy industry. The impact of these factors is slightly offset by sales to other industries such as the marine industry and state and local governments.
CPS carries normal business insurance including workers' compensation, general liability, automobile liability, and property coverage. CPS does not carry professional liability insurance since, in the opinion of management and consistent with traditional industry practices, the engineering services provided by CPS do not involve detail design work. Management believes CPS is adequately protected from most business risks normally protected by insurance.
Government Regulation
CPS believes that its historical and current operations including its use of property, plant, and equipment, conform in all material respects with all applicable laws and regulations. Periodically, the Company is subject to various inspections or reviews by regulatory agencies; however, the Company has not experienced nor does it anticipate, any material claim in connection with environmental, safety, or other regulations.
The business of CPS can be directly impacted by the issuance of government regulations. The recent trends toward increased federal, state, and local involvement in environmental and safety matters should result in an increased emphasis on cathodic protection systems. Many CPS customers must comply with regulations issued by the United States Environmental Protection Agency, the United States Department of Transportation - Office of Pipeline Safety, and other such federal, state, and local agencies. CPS continually monitors the pronouncements of these agencies, and, in the opinion of management, believes that such regulations will have a positive impact rather than a negative impact on the Company's business.
GENERAL
Employees
As of June 30, 1996 and 1995, the Company employed 1,295 and 1,347 persons, respectively, who are or were involved in the following operations:
The Company's employees are not represented by unions. In 1983, the Company was petitioned by the Oil, Chemical, and Atomic Workers Union ("OCAW") for representation of the Company's helicopter pilots. The OCAW effort was defeated by election results in February 1984.
In 1975, the Company was petitioned by the Teamsters Union for an election. However, the Union decided not to seek an election after several months of union solicitation. Union campaigns at a major helicopter competitor in 1970, 1974, and 1980 also failed. If the Company's helicopter pilots were to elect to be represented by a union, the Company would, it believes, be the only unionized company in the domestic helicopter service industry. The Company believes that, in light of current market conditions, being a unionized company in a non-union industry could place the Company at a competitive disadvantage in the industry. This could have a material adverse effect on its revenues from helicopter operations in the Gulf of Mexico and on its results of operations.
ITEM 2.
ITEM 2. Properties
See Business - Helicopter Services for a discussion of the number and types of aircraft operated by the Company.
The Company leases approximately 11 acres of land in the vicinity of Morgan City, Louisiana, under a lease expiring in 2000, with a renewal option for an additional ten year period. The Company has constructed a heliport, hangar, and office facility on the site. The Company is subleasing approximately 50% of the land to Gulf Offshore Marine, a subsidiary of GulfMark International, Inc., who acquired the Company's Marine Division.
The Company leases approximately 8 1/3 acres of land at the Acadiana Regional Airport in New Iberia, Louisiana, under a lease expiring in fiscal year ending 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 8,300 square feet in a building in Lafayette, Louisiana, under a lease expiring in 1998. 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.
GPM's Corporate offices occupy 24,000 square feet in a building in Houston, Texas, under a lease expiring in December 1998. 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.
CPS's Corporate offices occupy 16,000 square feet in a building in Houston, Texas, under a lease expiring in December 1999. Other office and operating facilities throughout the United States and abroad are held under leases, the rental obligations under which are not material in the aggregate.
ITEM 3.
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 D. L. Mud Services Site and the Gulf Coast Vacuum Services Site, both of which are near Abbeville, Louisiana. The Company is among over 300 PRPs identified with respect to each site. The EPA alleged that the Company is a generator or transporter of hazardous substances found at the three 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.
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 two Louisiana sites. 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.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Security Holders
No voting matters were submitted to security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the current fiscal year.
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 September 27, 1996, are as follows:
Mr. Clement joined the Company in 1976 as Controller and served in various financial capacities until 1981 when he was appointed the General Manager - Marine Division. Mr. Clement was elected President and Chief Operating Officer of the Company in May 1986, Chief Executive Officer in November 1987, and Chairman of the Board of Directors in June 1995.
Mr. Small joined the Company in 1977 as Controller and was elected Vice President - Treasurer in 1979, and Chief Financial Officer and Secretary in 1986. He is a CPA.
Mr. Murphy joined the Company in 1984 as Vice President - Corporate Sales. He received a Bachelor of Science degree from Rice University in 1950. He has forty-six years of experience in the oil service industry.
Mr. Graves joined the Company in 1993 as Vice President - Aviation Marketing and was appointed Vice President - Domestic Aviation in 1994. 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-one years of experience in the aviation industry.
Mr. Milke joined the Company in 1988 as Director of Planning and Development and was elected Vice President in 1990. Prior to joining the Company, Mr. Milke was a Manager with Arthur Andersen LLP.
Mrs. Como joined the Company in 1990 as Controller. 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.
PART II
ITEM 5.
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.
The approximate number of holders of record of Common Stock as of August 31, 1996 was 1,500.
The Company has not paid dividends on its Common Stock since January 1984.
ITEM 6.
ITEM 6. Selected Financial Data
1. Includes an extraordinary gain of $1,012,000 in 1993. There were no extraordinary items in 1996, 1995, 1994, or 1992.
2. Includes financial data for GPM and CPS after effective dates of their consolidation (See Note E in Notes to Consolidated Financial Statements).
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
General
Demand for the Company's services has traditionally been influenced by the level of worldwide offshore oil and gas production and drilling activity. During 1992, the Company was engaged exclusively in aviation services and related operations. During 1993, the Company expanded its operations to include production management services through an acquisition of a 50% interest in Seahawk Services Ltd. ("Seahawk"), which acquired all of the business of PPI-Seahawk Services, Inc. Seahawk provided platform and production management services, offshore medical support services, and temporary personnel to the oil and gas industry.
During 1994, the Company exchanged its 50% interest in Seahawk for a 27.5% interest in Grasso Corporation whose wholly-owned subsidiary, Grasso Production Management, Inc. ("GPM"), also was engaged in the production management services business. On September 16, 1994, GPM became a wholly-owned subsidiary of the Company in a merger in which the Company acquired the remaining 72.5% interest in Grasso Corporation by issuing .49 of a share of the Company's Common Stock for each share of Grasso Corporation Common Stock owned. See Note E in "Notes to Consolidated Financial Statements."
In determining to acquire 100% of GPM, the Company's management 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 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 foreign exploration and production. 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, and, second, for companies providing production management services to smaller, independent oil companies, which frequently lack the personnel to operate these properties. Although there can be no assurances, the Company's management believes that, through its acquisition of GPM, the Company will have the opportunity to take advantage of any increase 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.
Cathodic Protection Services Company ("CPS") manufactures, installs, and maintains cathodic protection systems to arrest corrosion in oil and gas drilling and production facilities, pipelines, and other metal structures. In October 1994, the Company acquired 75% of CPS. The minority interest owner may increase their ownership at the end of five years if certain financial goals are met. At that time, the Company has the election to retain a majority ownership in CPS.
On March 27, 1996, the Company announced that it entered into a letter of intent to purchase up to fifty percent of the capital stock of Bristow Helicopter Group Limited ("Bristow"). The seller of the Bristow capital stock is a syndicate of investors led by Morgan Grenfell Development Capital Limited of London. On September 27, 1996, the Company announced that it has also reached an agreement in principle with Caledonia Investments plc ("Caledonia"), the other major shareholder of Bristow. According to the terms of the transaction, Caledonia will reduce its economic interest in Bristow while assuming voting control, and will become a significant shareholder in the Company. Upon completion of the transaction, the Company will hold common stock of the new holding company of Bristow, along with a substantial portion of its subordinated debt. The British Civil Aviation Authority ("CAA") has approved the transaction subject to final review of definitive documentation. The transaction, which values Bristow at approximately $300 million, is also subject to final documentation, completion of a due diligence investigation by the Company, and approval by the respective Boards of Directors. The Company will finance the transaction, with a combination of cash, debt, and common stock.
Results of Operations
Operating results and other income statement information for the three years ended June 30, 1996 follows (in thousands of dollars):
Helicopter Services
The Company's helicopter services are conducted principally in the Gulf of Mexico, where the Company provides helicopter services to support the production and exploration activities of oil and gas companies. The Company also charters helicopters to offshore construction companies and governmental entities involved in offshore oil and gas operations in the Gulf of Mexico. The Company's Alaskan activity is primarily related to providing helicopter services to the Alyeska Pipeline. The Company has service agreements with, and equity interests in, entities that operate aircraft in Egypt and Mexico ("unconsolidated entities"). The Company also operated in various other international areas (including Bolivia, Brazil, Colombia, El Salvador, and Mexico). The Company's 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 the Company and unconsolidated entities.
Operating revenues for helicopter services were $89.8 million, $89.5 million, and $91.7 million for 1996, 1995, and 1994, respectively. Operating expenses for helicopter services were $72.2 million, $66.7 million, and $70.1 million for 1996, 1995, and 1994, respectively. Gross margin percentages for helicopter services, excluding gain or loss on disposal of equipment, were 20%, 25%, and 24% for 1996, 1995, and 1994, respectively. The decrease in consolidated flight hours from 1995 to 1996 contrasted by a small increase in operating revenues reflects a change in the mix of aircraft operating. The Company had a decrease in flight activity for single engine aircraft; primarily the result of lost work for production management companies which compete with GPM. On the other hand, strong drilling activity in the Gulf of Mexico increased the demand for the Company's larger crew change aircraft which normally work at higher revenue rates. High demand for certain aircraft enabled the Company to obtain some price increases, the first since 1990. Management believes that the improved activity levels in the Gulf of Mexico and this small improvement in helicopter rates during late 1996 will have a positive impact on the Company's flight activity and operating revenues in the coming year. Operations in Alaska were down in 1996 compared to 1995 resulting from decreased activity from the Company's major Alaskan customer. International flight activity was strong during 1996, logging over 25% more hours than in 1995. The increase in operating expenses of approximately 8% from 1995 to 1996 is primarily related to increases in maintenance and repair expenditures. Gross margin percentages for 1996 were below the prior year due to the increase in expenditures.
The decrease in operating revenues of approximately 2% from 1994 to 1995 is primarily due to a decrease in International and Alaskan operations. Gulf of Mexico helicopter activity was relatively unchanged from 1994 to 1995. The decrease in operating expenses of approximately 5% from 1994 to 1995 is due to a decrease in International and Alaskan operations, as well as continued cost controls over Gulf of Mexico operations. The increase in gross margin percentages from 1994 to 1995 is due to the improved cost controls in the Gulf of Mexico operations.
During 1994, the Company's helicopter joint venture in Brazil was terminated. Costs associated with this termination of approximately $2.7 million were charged against previously established accruals. The three helicopters involved were redeployed into the Company's other operations. The termination of the venture did not have a material effect on the Company's operations.
Production Management Services
Operating revenues for GPM were $31.2 million and $32.8 million for 1996 and for the period from consolidation through June 30, 1995, respectively. Operating expenses for GPM were $31.4 million and $32.6 million for 1996 and for the period from consolidation through June 30, 1995, respectively. Overall, GPM operations were approximately breakeven for 1996 and for the period from consolidation through June 30, 1995, with operating income (loss) of approximately $(0.2) million and $0.2 million, respectively.
Cathodic Protection Services
Operating revenues for CPS were $39.5 million and $25.3 million for 1996 and for the period from consolidation through June 30, 1995. Operating expenses were $39.1 million and $26.6 million for 1996 and for the period from consolidation through June 30, 1995, respectively. CPS generated $0.4 million in operating income and a $1.3 million operating loss in 1996 and 1995, respectively. Amounts for 1995 contain operating results for only nine months. During 1996, management increased the sales efforts and took measures to reduce overhead costs and its international operations. These measures had a positive impact on CPS's operations during fiscal 1996. In addition, the Company benefited from a stronger market for its magnesium and anode business during 1996.
Consolidated
Net income for 1996 was $15.3 million, compared to net income of $18.5 million and $17.2 million for 1995 and 1994, respectively.
Liquidity and Capital Resources
Cash and cash equivalents and marketable securities were $77.0 million as of June 30, 1996, a $9.1 million increase from 1995. Total debt was $5.6 million as of June 30, 1996, all related to CPS and non-recourse to the Company.
Cash flows provided by operating activities were $22.9 million, $30.8 million, and $18.2 million in 1996, 1995, and 1994, respectively.
Cash flows used in investing activities were $12.3 million, $8.4 million, and $9.5 million for 1996, 1995, and 1994, respectively. Capital expenditures during 1996 of $12.5 million included two new Bell 206L-IV's, four used MBB Boelkow 105's and seven Sikorsky S-76's previously under an operating lease agreement.
During 1995, the Company utilized $8.2 million for the acquisitions of GPM and CPS, net of cash on hand for the two subsidiaries. Capital expenditures during 1995 of $3.2 million included the purchase of one new Bell 206L-IV and two used MBB Boelkow 105's previously under a lease arrangement.
Capital expenditures during 1994 of $11.5 million included the purchase of six new helicopters, five Bell 206L-IV's and one Bell 214ST, and one used Sikorsky S-76. Proceeds from asset dispositions during 1994 of $3.5 million was primarily from the sale of two Bell 212's.
Cash flows used in financing activities were $1.4 million, $1.7 million, and $8.7 million in 1996, 1995, and 1994, respectively. Financing activities during 1996 and 1994 were primarily for the repayment of debt. During 1995, repayment of debt was $4.2 million and the Company received $2.5 million from common stock issued, primarily from the exercise of warrants for 200,000 shares of common stock.
CPS maintains a revolving credit facility with a maximum borrowing limit of $7.5 million. Borrowings are based on eligible receivables, inventory, and equipment of CPS. The facility expires on December 1, 1996 and is recourse to CPS only.
As of June 30, 1996, the Company had a $10 million unsecured working capital line of credit with a bank that expires on January 31, 1997. Management believes that normal operations will provide sufficient working capital and cash flow to meet debt service for the foreseeable future.
The effective income tax rates from continuing operations were 29%, 29%, and 27% for 1996, 1995, and 1994, respectively. The variance between the Federal statutory rate and the effective rate for these periods is due primarily to the utilization of foreign net operating losses 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 and one of over 300 PRPs at two sites 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.
In March 1995, the Statement of Financial Accounting Standards No. 121 - "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" was issued and required to be adopted by the Company no later than the fiscal year ended June 30, 1997. Management believes that such adoption will not have a material effect on the Company's financial statements taken as a whole.
In October 1995, the SFAS No. 123 - "Accounting for Stock- Based Compensation" was issued and required to be adopted by the Company no later than the fiscal year ended June 30, 1997. SFAS No. 123 encourages, but does not require, the adoption of a fair value based method of accounting for employee stock options. Entities electing to continue to measure compensation costs using the intrinsic value based method of accounting prescribed by APB Opinion 25 - "Accounting for Stock Issued to Employees" must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied. The Company plans to continue to account for its employee stock options in accordance with the provisions of APB Opinion 25 and will provide the necessary pro forma disclosures.
ITEM 8.
ITEM 8. 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 June 30, 1996 and 1995, and the related consolidated statements of income, stockholders' investment, and cash flows for each of the three years in the period 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 June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
New Orleans, Louisiana, August 15, 1996
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS June 30, 1996 and 1995
ASSETS
The accompanying notes are an integral part of these statements.
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The accompanying notes are an integral part of these statements.
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
The accompanying notes are an integral part of these statements.
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these statements.
OFFSHORE LOGISTICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A - SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - The Company's most significant area of operation is a major supplier of 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 and manufacturers, installs and maintains cathodic protection systems to arrest corrosion in oil and gas drilling and production facilities and other metal structures.
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.
Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions.
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.
Investment in Marketable Securities - The Company invests in U.S. Treasury Notes with maturities not exceeding three years. Effective July 1, 1994, the Company adopted the provisions of the Statement of Financial Accounting Standards ("SFAS") No. 115 - "Accounting for Certain Investments in Debt and Equity Securities". The effect of the adoption of SFAS No. 115 was not material to the Company's consolidated financial statements and there was no cumulative effect of an accounting change as a result of the adoption.
Accounts Receivable - Trade and other receivables are stated at net realizable value and the allowance for uncollectible accounts was $1,777,000 and $1,568,000 at June 30, 1996 and 1995, respectively. The Company grants credit to its customers, primarily major and independent oil and gas companies operating in the Gulf of Mexico, on a short-term basis.
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 $4,326,000 and $4,324,000 at June 30, 1996 and 1995. There were no related charges to operations in 1996, 1995, or 1994.
Other Assets - In 1996, $23,711,000 of goodwill, net of accumulated amortization of $2,731,000, 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. See Note E. 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.
In March 1995, the SFAS No. 121 - "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" was issued and required to be adopted by the Company no later than fiscal year ended June 30, 1997. The Company will adopt SFAS No. 121 in 1997 and believes the adoption will have no material effect on the Company's results of operations or financial position.
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 is 30% of cost.
Maintenance and repairs are expensed as incurred; betterments and improvements are capitalized. The costs and related reserves 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 SFAS No. 109 - "Accounting for Income Taxes". Under this statement, deferred income taxes are provided for by the asset and liability method.
Earnings per Common Share - Earnings per common share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the years (19,767,039 in 1996; 19,313,276 in 1995; and 17,997,207 in 1994) computed on the treasury stock method.
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 20 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.
Reference is made to the footnotes entitled "Operating Leases" and "Investments in Unconsolidated Entities" for applicable accounting policies.
B - LONG-TERM DEBT
Long-term debt at June 30, 1996 and 1995 consisted of (thousands of dollars):
As of June 30, 1996, the Company had a $10 million unsecured line of credit with a bank that expires on January 31, 1997. There were no amounts outstanding during the year ended June 30, 1996.
The revolving credit facilities are for CPS, a subsidiary of the Company and is recourse to CPS only. The maximum borrowing level is limited to a borrowing base of eligible receivables, inventory, and equipment of CPS. The base cannot exceed $7.5 million. CPS's debt obligations contain covenants related to certain financial ratios and minimum capital levels.
Interest paid during the year was $743,000; $827,000; and $1,138,000 for 1996, 1995, and 1994, respectively.
In the Company's opinion, based on the borrowing rates currently available to the Company and its subsidiaries for loans with similar terms and maturities, total debt at June 30, 1996 approximates the fair value of the debt.
The Company has $4,850,000 of debt maturities due in 1997 and $750,000 due after fiscal year end 2001.
C - 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 June 30, 1996 and 1995, which is less than the estimated fair value of the Company's share of unencumbered assets. In the following unaudited table, HHII represents $3,755,000 and $4,727,000 of the assets and $2,241,000 and $2,984,000 of the equity for June 30, 1996 and 1995, respectively. HHII also represents $10,727,000; $13,685,000; and $19,777,000 of revenues and $1,834,000; $(305,000); and $2,478,000 of net income for the years 1996, 1995, and 1994, respectively. During 1996 and 1995, $1,556,000 and $1,550,000 in dividends were received from HHII. No material dividends were received from HHII during 1994.
The Company has a 25% investment in an Egyptian helicopter venture. The Company's investment in the venture was $5,986,000 at June 30, 1996 and 1995. During 1996, 1995, and 1994, $2,500,000; $2,500,000; and $2,027,000, respectively, in dividends were received from the venture. During 1996, the venture's Board of Directors approved a cash dividend, of which the Company's share applicable to fiscal year 1997 is approximately $2,500,000.
A summary of unaudited financial information of these principal unconsolidated entities is set forth below (thousands of dollars):
During 1996, 1995, and 1994, respectively, revenues of $5,169,000; $5,295,000; and $6,269,000 were recognized for services provided to these affiliates by the Company.
During 1994, the Company's helicopter joint venture in Brazil was terminated. Costs associated with this termination of approximately $2.7 million were charged against previously established accruals. The three helicopters involved were redeployed into the Company's other operations. The termination of the venture did not have a material effect on the Company's operations.
D - INVESTMENT IN MARKETABLE SECURITIES
Under the provision 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 June 30, 1996, the Company classified all of its U.S. Treasury investments, with original maturities of more than 90 days, as available-for-sale. These investments are carried at cost which approximates market value. Approximately $8,001,000 of the U.S. Treasury investments mature within one year and approximately $11,966,000 mature from one to three years. There were $3,985,000 sales of investments in U.S. Treasury investments during the year ended June 30, 1996. The proceeds approximated the carrying cost of the investments. There were no sales of investments in U.S. Treasury investments for the year ended June 30, 1995.
E - ACQUISITIONS
Production Management Services
The Company expanded its operations in July 1992 to include production management services. During fiscal 1993 and until October 29, 1993, the Company owned 50% of Seahawk Services Ltd. ("Seahawk"), a company which provided platform and production management services, offshore medical support services, and temporary personnel to the oil and gas industry. On October 29, 1993, the Company further expanded its interest in production management services when the Company exchanged its 50% investment in Seahawk for a 27.5% interest in Grasso Corporation whose wholly- owned subsidiary, Grasso Production Management, Inc. ("GPM"), also was engaged in the production management services business. The Company's investment in Grasso Corporation was approximately $4,128,000 at June 30, 1994. Revenues of approximately $1,556,000 and $6,232,000 were recognized for helicopter services provided to GPM and Seahawk during 1995, prior to consolidation, and 1994, respectively. The Company's share of net income related to production management services was not material.
On September 16, 1994, GPM became a wholly-owned subsidiary of the Company in a merger in which the Company acquired the remaining 72.5% interest in Grasso Corporation by issuing .49 of a share of the Company's Common Stock for each share of Grasso Corporation Common Stock owned. In addition, holders of Grasso Corporation Class B Warrants received similar warrants for shares of the Company's Common Stock. As of June 30, 1996, 114,983 shares of the Company's Common Stock were reserved for issue upon exercise of the Class B Warrants. The warrants expire on December 22, 1996. The merger was treated as a purchase for accounting purposes which resulted in goodwill of approximately $22.3 million after stepping up the assets and liabilities of Grasso Corporation. The goodwill is being amortized over a 20 year period.
The following summarized unaudited income statement data reflects the impact the GPM merger would have had on the Company's results of operations for 1995 and 1994 had the transaction taken place on July 1, 1993:
Cathodic Protection Services
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. In October 1994, the Company acquired 75% of CPS. The acquisition was treated as a purchase for accounting purposes which resulted in goodwill of approximately $3.8 million. The goodwill is being amortized over a 20 year period. The minority interest owner may increase their ownership at the end of five years if certain financial goals are met. At that time, the Company has the election to retain a majority ownership in CPS. The operating results from CPS have been included in the consolidated operating results since the date of acquisition. The proforma effect of this acquisition as though it had been acquired at the beginning of each of the periods presented is not material to the operating results of the Company.
Bristow Helicopters
On March 27, 1996, the Company announced that it entered into a letter of intent to purchase up to fifty percent of the capital stock of Bristow Helicopter Group Limited ("Bristow"). The seller of the Bristow capital stock is a syndicate of investors led by Morgan Grenfell Development Capital Limited of London. On September 27, 1996, the Company announced that it has also reached an agreement in principle with Caledonia Investments plc ("Caledonia"), the other major shareholder of Bristow. According to the terms of the transaction, Caledonia will reduce its economic interest in Bristow while assuming voting control, and will become a significant shareholder in the Company. Upon completion of the transaction, the Company will hold common stock of the new holding company of Bristow, along with a substantial portion of its subordinated debt. The British Civil Aviation Authority ("CAA") has approved the transaction subject to final review of definitive documentation. The transaction, which values Bristow at approximately $300 million, is also subject to final documentation, completion of a due diligence investigation by the Company, and approval by the respective Boards of Directors. The Company will finance the transaction, with a combination of Cash, debt, and common stock.
F - OPERATING LEASES
The Company has noncancelable operating leases in connection with the lease of certain equipment, land, and facilities. Rental expense incurred under these leases was $1,998,000 in 1996; $2,195,000 in 1995; and $1,741,000 in 1994. As of June 30, 1996, aggregate future payments under noncancelable operating leases are as follows: 1997 - $1,241,000; 1998 - $1,073,000; 1999 - $600,000; 2000 - $281,000; 2001 - $119,000; and thereafter $523,000.
G - INCOME TAXES
The amounts of deferred tax assets and liabilities are as follows (thousands of dollars):
The components of and changes in the net deferred taxes are as follows (thousands of dollars):
Income before provision for income taxes for the years ended June 30 was as follows (thousands of dollars):
The provision for income taxes for each of the three years ended June 30, 1996 consisted of the following (thousands of dollars):
The reconciliation of Federal statutory and effective income tax rates is shown below:
Federal Income Tax returns of the Company and subsidiaries have been settled through 1990. In addition, Federal Income Tax returns of the Company and subsidiaries have been examined through 1994. The Company does not expect any significant net unfavorable adjustment as a result of this examination.
Unremitted foreign earnings reinvested abroad upon which deferred income taxes have not been provided aggregated approximately $18.8 million at June 30, 1996. 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 1996, 1995, and 1994 were $5,656,000; $3,843,000; and $3,097,000, respectively.
H - EMPLOYEE BENEFIT PLANS
Savings and Retirement Plans
The Company currently has four defined contribution plans which cover substantially all employees.
The Offshore Logistics, Inc. Employee Savings and Retirement Plan ("OLOG Plan") covers Corporate and Aviation Division employees, except for those covered under the Alaska Plan. Under the OLOG Plan, 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.
The Air Logistics of Alaska, Inc. Cash or Deferred Profit Sharing Plan and Trust ("Alaska Plan") covers Aviation Division employees working in the State of Alaska. Under the Alaska Plan, 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.
CPS is a participant in the Curran Companies 401(k) Plan which covers eligible CPS employees. The Company matches 50% of each participant's contributions up to 3% of the employee's compensation.
The Company's contributions to the four plans were $744,000; $1,102,000; and $952,000 for the years ended June 30, 1996, 1995, and 1994, respectively.
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 $124,000; $407,000; and $518,000 for the years ended June 30, 1996, 1995, and 1994, respectively.
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.
The Company also has in effect two other stock option plans under which options to purchase the Company's Common Stock have been issued to employees. Since approval of the 1994 Plan and the Annual Plan, no further grants or awards under these two stock option plans can be made. Options were granted at fair market value and expire ten years after date of grant.
A summary of stock option transactions for all of the Company's stock option plans are as follows:
As of June 30, 1996 and 1995, 838,500 and 699,960, respectively, options were exercisable at prices ranging from $1.00 to $15.4375 per share. Under the Company's stock option plans there were 1,764,000 shares of Common Stock reserved for issue at June 30, 1996.
In December 1990, the SFAS No. 106 - "Employers' Accounting for Post Retirement Benefits Other Than Pensions" was issued and required to be adopted by the Company no later than the fiscal year ended June 30, 1994. The Company presently offers no post retirement benefits which would be required to be recorded by the Statement.
In November 1992, the SFAS No. 112 - "Accounting for Post Employment Benefits" was issued and required to be adopted by the Company no later than the fiscal year ended June 30, 1995. The Company presently offers no post employment benefits which would be required to be recorded by the Statement.
In October 1995, the SFAS No. 123 - "Accounting for Stock- Based Compensation" was issued and required to be adopted by the Company no later than the fiscal year ended June 30, 1997. SFAS No. 123 encourages, but does not require, the adoption of a fair value based method of accounting for employee stock options. Entities electing to continue to measure compensation costs using the intrinsic value based method of accounting prescribed by APB Opinion 25 - "Accounting for Stock Issued to Employees" must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied. The Company plans to continue to account for its employee stock options in accordance with the provisions of APB Opinion 25 and will provide the necessary pro forma disclosures.
I - SEGMENT INFORMATION
The Company operates principally in three business segments: Aviation Services, GPM, and CPS. The Company's Aviation Division, Air Logistics, is a major supplier 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. 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. The following shows industry segment information for the fiscal years ended June 30, 1996 and 1995 (in thousands):
(1) Net of Inter-Segment revenues of $4,273,000 and $4,764,000 for 1996 and 1995, respectively.
All of the Company's operating revenues and operating profits for the year ended June 30, 1994, were from Aviation Services.
Segment information by geographic areas for the years ended June 30, 1996, 1995, and 1994 is as follows (thousands of dollars):
During 1996, 1995, and 1994, the Company conducted operations in approximately ten foreign countries as well as in the United States. 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. Identifiable assets in 1996, 1995, or 1994 attributable to operations in any one foreign country or any single customer were not "significant" as defined in SFAS No. 14. The Company earned revenues totaling $11,964,000 from one customer in 1994. Revenue earned from any single customer did not exceed 10% of total revenues during 1996 or 1995. United States registered equipment is chartered to foreign subsidiaries from time to time at rates sufficient to cover costs plus a reasonable return. These revenues ($7,441,000 in 1996; $7,118,000 in 1995; and $5,630,000 in 1994) have been eliminated in the amounts shown above.
J - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
ITEM 9.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
ITEM 10.
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 December 5, 1996.
ITEM 11.
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 December 5, 1996.
ITEM 12.
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 December 5, 1996.
ITEM 13.
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 December 5, 1996.
PART IV
ITEM 14.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements: Report of Independent Public Accountants Consolidated Balance Sheet - June 30, 1996 and 1995 Consolidated Statement of Income for the three years ended June 30, 1996 Consolidated Statement of Stockholders' Investment for the three years ended June 30, 1996 Consolidated Statement of Cash Flows for the three years 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.
* Compensatory Plan or Arrangement
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 February 8, 1996. Information reported was under Item 5 - Other Events Related to the Company's Amended and Restated By-laws.
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/ George M. Small ---------------------------------- George M. Small Vice President - Chief Financial Officer (Principal Financial and Accounting Officer)
September 27, 1996
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.