e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
þ |
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2006 |
or
o |
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
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Commission file number: 0-9827
PHI, Inc.
(Exact name of registrant as specified in its charter)
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Louisiana
(State or other jurisdiction of incorporation or organization)
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72-0395707
(I.R.S. Employer Identification No.) |
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2001 SE Evangeline Thruway
Lafayette, Louisiana
(Address of principal executive offices)
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70508
(Zip Code) |
Registrants telephone number, including area code: (337) 235-2452
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:
þ No: o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act). See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated
filer: þ
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Non-accelerated filer: o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes: o No: þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class
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Outstanding at July 31, 2006 |
Voting Common Stock
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2,852,616 shares |
Non-Voting Common Stock
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12,422,992 shares |
PHI, INC.
Index Form 10-Q
2
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
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December 31, |
|
|
|
2006 |
|
|
2005 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
217,583 |
|
|
$ |
69,561 |
|
Accounts receivable net of allowance: |
|
|
|
|
|
|
|
|
Trade |
|
|
92,489 |
|
|
|
89,351 |
|
Other |
|
|
7,551 |
|
|
|
6,766 |
|
Inventory, net |
|
|
52,758 |
|
|
|
48,123 |
|
Other current assets |
|
|
11,168 |
|
|
|
10,042 |
|
Refundable income taxes |
|
|
138 |
|
|
|
422 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
381,687 |
|
|
|
224,265 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
306,902 |
|
|
|
311,678 |
|
Other |
|
|
19,681 |
|
|
|
13,266 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
708,270 |
|
|
$ |
549,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
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|
|
|
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Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
35,780 |
|
|
$ |
40,506 |
|
Accrued liabilities |
|
|
12,054 |
|
|
|
10,807 |
|
Accrued vacation payable |
|
|
4,299 |
|
|
|
3,811 |
|
Accrued interest payable |
|
|
3,189 |
|
|
|
3,175 |
|
Accrued wages and salaries |
|
|
2,108 |
|
|
|
2,439 |
|
Notes payable |
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
57,430 |
|
|
|
61,738 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
204,000 |
|
|
|
203,300 |
|
Deferred income taxes |
|
|
37,869 |
|
|
|
38,906 |
|
Other long-term liabilities |
|
|
9,635 |
|
|
|
6,214 |
|
Commitments and contingencies (Note 3) |
|
|
|
|
|
|
|
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Shareholders Equity: |
|
|
|
|
|
|
|
|
Voting common stock par value of $0.10;
authorized shares of 12,500,000 |
|
|
285 |
|
|
|
285 |
|
Non-voting common stock par value of $0.10;
authorized shares of 12,500,000 |
|
|
1,229 |
|
|
|
742 |
|
Additional paid-in capital |
|
|
289,859 |
|
|
|
129,531 |
|
Retained earnings |
|
|
107,963 |
|
|
|
108,493 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
399,336 |
|
|
|
239,051 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
708,270 |
|
|
$ |
549,209 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
107,157 |
|
|
$ |
86,783 |
|
|
$ |
208,529 |
|
|
$ |
161,022 |
|
Gain (loss) on disposition of
property and equipment, net |
|
|
(1,392 |
) |
|
|
(186 |
) |
|
|
(1,162 |
) |
|
|
460 |
|
Other |
|
|
2,497 |
|
|
|
198 |
|
|
|
3,417 |
|
|
|
293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,262 |
|
|
|
86,795 |
|
|
|
210,784 |
|
|
|
161,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Direct expenses |
|
|
89,211 |
|
|
|
72,896 |
|
|
|
176,267 |
|
|
|
136,931 |
|
Selling, general and
administrative expenses |
|
|
6,724 |
|
|
|
5,472 |
|
|
|
13,409 |
|
|
|
10,701 |
|
Interest expense |
|
|
4,129 |
|
|
|
5,159 |
|
|
|
9,202 |
|
|
|
10,276 |
|
Loss on debt restructuring |
|
|
12,790 |
|
|
|
|
|
|
|
12,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,854 |
|
|
|
83,527 |
|
|
|
211,668 |
|
|
|
157,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income
taxes |
|
|
(4,592 |
) |
|
|
3,268 |
|
|
|
(884 |
) |
|
|
3,867 |
|
Income taxes |
|
|
(1,837 |
) |
|
|
1,307 |
|
|
|
(354 |
) |
|
|
1,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(2,755 |
) |
|
$ |
1,961 |
|
|
$ |
(530 |
) |
|
$ |
2,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
14,579 |
|
|
|
6,158 |
|
|
|
12,512 |
|
|
|
5,773 |
|
Diluted |
|
|
14,579 |
|
|
|
6,246 |
|
|
|
12,512 |
|
|
|
5,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.19 |
) |
|
$ |
0.32 |
|
|
$ |
(0.04 |
) |
|
$ |
0.40 |
|
Diluted |
|
$ |
(0.19 |
) |
|
$ |
0.31 |
|
|
$ |
(0.04 |
) |
|
$ |
0.40 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(530 |
) |
|
$ |
2,320 |
|
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
14,453 |
|
|
|
13,202 |
|
Deferred income taxes (benefit) |
|
|
(1,037 |
) |
|
|
836 |
|
(Gain) loss on disposition of property &
equipment, net |
|
|
1,162 |
|
|
|
(460 |
) |
Loss on debt restructuring |
|
|
12,790 |
|
|
|
|
|
Other |
|
|
388 |
|
|
|
658 |
|
Changes in operating assets and liabilities |
|
|
(14,757 |
) |
|
|
(7,197 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
12,469 |
|
|
|
9,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(39,357 |
) |
|
|
(30,910 |
) |
Proceeds from asset dispositions |
|
|
3,163 |
|
|
|
6,052 |
|
Proceeds from sale-leaseback transaction |
|
|
25,069 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(11,125 |
) |
|
|
(24,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds of debt issuance Senior Notes |
|
|
200,000 |
|
|
|
|
|
Premium and costs to retire debt early |
|
|
(10,208 |
) |
|
|
|
|
Repayment of Senior Notes |
|
|
(200,000 |
) |
|
|
|
|
Debt issuance costs |
|
|
(4,629 |
) |
|
|
|
|
Proceeds from (payments to) line of credit, net |
|
|
700 |
|
|
|
(8,275 |
) |
Payments on long term debt |
|
|
|
|
|
|
(2,000 |
) |
Proceeds from stock issuance, net |
|
|
160,815 |
|
|
|
114,317 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
146,678 |
|
|
|
104,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
148,022 |
|
|
|
88,543 |
|
Cash and cash equivalents, beginning of period |
|
|
69,561 |
|
|
|
18,008 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
217,583 |
|
|
$ |
106,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures Cash Flow Information |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
8,784 |
|
|
$ |
9,605 |
|
|
|
|
|
|
|
|
Taxes paid, net |
|
$ |
68 |
|
|
$ |
290 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The accompanying unaudited condensed consolidated financial statements include the accounts of PHI,
Inc. and subsidiaries (PHI or the Company). In the opinion of management, these financial
statements reflect all adjustments, consisting of only normal, recurring adjustments, necessary to
present fairly the financial results for the interim periods presented. These condensed
consolidated financial statements should be read in conjunction with the financial statements
contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2005 and the
accompanying notes and Managements Discussion and Analysis of Financial Condition and Results of
Operations.
The Companys financial results, particularly as they relate to the Companys Domestic Oil and Gas
operations, are influenced by seasonal fluctuations as discussed in the Companys Annual Report on
Form 10-K for the year ended December 31, 2005. Therefore, the results of operations for interim
periods are not necessarily indicative of the operating results that may be expected for a full
fiscal year.
2. Segment Information
We have four operating segments: Domestic Oil and Gas, Air Medical, International and Technical
Services.
Domestic Oil and Gas segment. We transport personnel and, to a lesser extent, parts and equipment
to, from and among offshore platforms, drilling rigs and other offshore facilities in the Gulf of
Mexico. We currently operate 151 aircraft in this segment. In 2005, the Domestic Oil and
Gas segment represented 60% of our total operating revenues.
Air Medical segment. We provide air medical transportation services for hospitals and emergency
service agencies. We currently operate in 14 states with 67 aircraft that are specially outfitted
to accommodate emergency patients, medical personnel and emergency medical equipment. Our
helicopters transport patients between hospitals as well as to hospitals from accident sites or
rural locations where ground transportation would be prohibitively slow. We are paid by either
commercial insurance companies, federal or state agencies such as Medicare and Medicaid, or the
patient. In 2005, approximately 31% of our total operating revenues were generated by our air
medical operations.
International segment. We currently provide helicopter services to a major oil company operating
in Angola and the Democratic Republic of Congo, and to the National Science Foundation in
Antarctica. We generally do not enter international markets without having customer contracts in
place for the region, and are selective in our international customers. We have a total of 16
helicopters currently operating internationally, with 12 of those dedicated to oil and gas
operations and four dedicated to the National Science Foundation in Antarctica. In 2005, our
international operations contributed approximately 8% of our total operating revenues.
Technical Services segment. We perform maintenance and repair services at our Lafayette, Louisiana
facility pursuant to a Federal Aviation Administration repair station license, primarily for our
own fleet, but also for existing customers that own their aircraft. The license includes authority
to repair airframes, engines, avionics, accessories, radios and instruments and to perform
specialized services. Approximately 1% of our total operating revenues in 2005 were generated by
our technical services operations.
Segment operating income is operating revenues less direct expenses and selling, general, and
administrative costs allocated to the operating segment. Unallocated overhead consists primarily
of
6
corporate selling, general, and administrative costs that the Company does not allocate to the
operating segments.
Summarized financial information concerning the Companys reportable operating segments for the
quarter ended June 30, 2006 and 2005 is as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(Thousands of dollars) |
|
|
(Thousands of dollars) |
|
Segment operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
$ |
66,409 |
|
|
$ |
51,573 |
|
|
$ |
127,872 |
|
|
$ |
96,440 |
|
Air Medical |
|
|
33,596 |
|
|
|
28,300 |
|
|
|
64,307 |
|
|
|
49,084 |
|
International |
|
|
5,573 |
|
|
|
5,781 |
|
|
|
13,221 |
|
|
|
12,799 |
|
Technical Services |
|
|
1,579 |
|
|
|
1,129 |
|
|
|
3,129 |
|
|
|
2,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
107,157 |
|
|
|
86,783 |
|
|
|
208,529 |
|
|
|
161,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment direct expenses (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
53,094 |
|
|
|
42,496 |
|
|
|
102,900 |
|
|
|
79,345 |
|
Air Medical |
|
|
30,758 |
|
|
|
25,773 |
|
|
|
62,377 |
|
|
|
47,097 |
|
International |
|
|
4,165 |
|
|
|
3,806 |
|
|
|
8,611 |
|
|
|
8,466 |
|
Technical Services |
|
|
1,194 |
|
|
|
821 |
|
|
|
2,379 |
|
|
|
2,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct expenses |
|
|
89,211 |
|
|
|
72,896 |
|
|
|
176,267 |
|
|
|
136,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
198 |
|
|
|
202 |
|
|
|
540 |
|
|
|
448 |
|
Air Medical |
|
|
1,807 |
|
|
|
1,538 |
|
|
|
3,645 |
|
|
|
2,904 |
|
International |
|
|
17 |
|
|
|
19 |
|
|
|
61 |
|
|
|
63 |
|
Technical Services |
|
|
49 |
|
|
|
2 |
|
|
|
57 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
2,071 |
|
|
|
1,761 |
|
|
|
4,303 |
|
|
|
3,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct and selling, general and administrative
expenses |
|
|
91,282 |
|
|
|
74,657 |
|
|
|
180,570 |
|
|
|
140,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net segment profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
13,117 |
|
|
|
8,875 |
|
|
|
24,432 |
|
|
|
16,647 |
|
Air Medical |
|
|
1,031 |
|
|
|
989 |
|
|
|
(1,715 |
) |
|
|
(917 |
) |
International |
|
|
1,391 |
|
|
|
1,956 |
|
|
|
4,549 |
|
|
|
4,270 |
|
Technical Services |
|
|
336 |
|
|
|
306 |
|
|
|
693 |
|
|
|
671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
15,875 |
|
|
|
12,126 |
|
|
|
27,959 |
|
|
|
20,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net (2) |
|
|
1,105 |
|
|
|
12 |
|
|
|
2,255 |
|
|
|
753 |
|
Unallocated selling, general and administrative costs |
|
|
(4,653 |
) |
|
|
(3,711 |
) |
|
|
(9,106 |
) |
|
|
(7,281 |
) |
Interest expense |
|
|
(4,129 |
) |
|
|
(5,159 |
) |
|
|
(9,202 |
) |
|
|
(10,276 |
) |
Loss on debt restructuring |
|
|
(12,790 |
) |
|
|
|
|
|
|
(12,790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
$ |
(4,592 |
) |
|
$ |
3,268 |
|
|
$ |
(884 |
) |
|
$ |
3,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in direct expense are the depreciation expense amounts below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six Months Ended |
|
|
|
June 30 |
|
|
June 30 |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
$ |
3,848 |
|
|
$ |
3,777 |
|
|
$ |
7,633 |
|
|
$ |
8,033 |
|
Air Medical |
|
|
2,192 |
|
|
|
1,297 |
|
|
|
4,284 |
|
|
|
2,920 |
|
International |
|
|
334 |
|
|
|
235 |
|
|
|
769 |
|
|
|
653 |
|
Technical Services |
|
|
3 |
|
|
|
2 |
|
|
|
14 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,377 |
|
|
$ |
5,311 |
|
|
$ |
12,700 |
|
|
$ |
11,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated SG&A |
|
$ |
884 |
|
|
$ |
807 |
|
|
$ |
1,753 |
|
|
$ |
1,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Including gains (losses) on disposition of property and equipment, and other income. |
7
3. Commitments and Contingencies
Environmental Matters We have an aggregate estimated liability of $0.2 million as of June 30,
2006 for environmental remediation costs that are probable and estimable. We have conducted
environmental surveys of our former Lafayette Facility, which we vacated in 2001, and have
determined that limited soil and groundwater contamination exists at the facility. We have
installed groundwater monitoring wells at the facility and periodically monitor and report on the
contamination. In May 2003, we submitted a Louisiana Risk Evaluation/Corrective Action Plan
(RECAP) Standard Site Assessment Report to the Louisiana Department of Environmental Quality
(LDEQ) fully delineating the extent and type of contamination. LDEQ is reviewing the assessment
report and has requested that the Site Assessment Report be updated to include recent analytical
data and be resubmitted for further LDEQ review. Once LDEQ completes its review and reports on
whether all contamination has been fully defined, an updated risk evaluation in accordance with
RECAP will be submitted and evaluated by LDEQ. At that point, LDEQ will establish what cleanup
standards must be met at the site. When the process is complete, we will be in a position to
develop an appropriate remediation plan and determine the resulting cost of remediation. We have
not recorded any estimated liability for remediation and contamination and, based upon the May 2003
Site Assessment Report and ongoing monitoring, we believe the ultimate remediation costs for the
former Lafayette facility will not be material to our consolidated financial position, results of
operations, or liquidity.
Legal Matters We have been named as a defendant in various legal actions that have arisen in the
ordinary course of business and have not been finally adjudicated. In the opinion of management,
the amount of the ultimate liability with respect to these actions will not have a material adverse
effect on our consolidated financial condition, results of operations, or liquidity.
On June 15, 2005, we received a subpoena from the United States Department of Justice relating to a
grand jury investigation of potential antitrust violations among providers of helicopter
transportation services in the Gulf of Mexico. We are cooperating fully with the investigation and
believe we have provided all documents and other information required by the subpoena. We will
respond to any DOJ request for further information, and will continue to cooperate with the
investigation. At this stage, it is not possible to assess the outcome of this investigation,
although based on the information available to us to date, management does not expect the outcome
of the investigation to have a material adverse effect on our financial condition, results of
operations, or liquidity.
Long-term Debt On April 12, 2006, we issued $200 million of 7 1/8% Senior Unsubordinated Notes
that mature in 2013. These Notes were offered and sold in a private placement under Rule 144A and
Regulation S under the Securities Act of 1933. Net proceeds of $196 million were used to
repurchase $184.8 million of our outstanding 9 3/8% Senior Notes due 2009 pursuant to a tender
offer that also closed on April 12, 2006. Our total cost to repurchase those notes was $201.6
million, including the tender offer premium and accrued interest. We called for redemption on May
1, 2006, the remaining $15.2 million of 9 3/8% notes outstanding, at a redemption price of 104.688%
of their face amount plus accrued and unpaid interest. Interest on the 7 1/8% notes is payable
semi-annually on April 15 and October 15, and those notes mature April 15, 2013. The estimated
annual interest cost of the new notes is $14.3 million, excluding amortization of issuance costs,
which represents a reduction in annual interest cost on the notes of $4.5 million. As a result of
the early redemption of the 9 3/8% notes, a pretax charge of $12.8 million ($7.7 million, net of
tax) was recorded as a charge for debt restructuring in the quarter ended June 30, 2006, which
consists of $9.8 million for the early call premium, $2.6 million of unamortized issuance costs,
and $0.4 million in related expenses for the tender of outstanding notes.
The new notes contain restrictive covenants, including limitations on indebtedness, liens,
dividends, repurchases of capital stock and other payments affecting restricted subsidiaries,
issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset sales, and
mergers and consolidations or sales of assets. We were in compliance with the covenants applicable
to these notes as of June 30, 2006.
8
We have a $35 million revolving credit facility with a commercial bank, which is scheduled to
expire on July 31, 2007. As of June 30, 2006, we had $4.0 million in borrowings and $5.1 million
in letters of credit outstanding under the facility. The facility includes covenants related to
working capital, funded debt to net worth, and consolidated net worth. As of June 30, 2006, we
were in compliance with these covenants.
Operating Leases We lease certain aircraft, facilities, and equipment used in our operations.
The related lease agreements, which include both non-cancelable and month-to-month terms, generally
provide for fixed monthly rentals, and certain real estate leases also include renewal options. We
generally pay all insurance, taxes, and maintenance expenses associated with these aircraft, and
some leases contain renewal and purchase options.
At June 30, 2006, we had approximately $156.6 million in aggregate commitments under operating
leases of which approximately $9.7 million is payable through December 31, 2006, and a total of
$17.5 million is payable over the twelve months ended June 30, 2007. Of the total lease
commitments, $134.2 million represents commitments for aircraft, including a sale-leaseback
transaction completed in the first quarter for three aircraft that had recently been acquired, and
facility lease commitments of $22.4 million, primarily for our facilities in Lafayette, Louisiana.
Purchase Commitments At June 30, 2006, we had purchase commitments totaling $179.3 million for
aircraft which we expect to fund with cash from the equity offerings completed June 2005 and April
2006.
4. Valuation Accounts
We have established an allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, current market conditions, and other information. The allowance for
doubtful accounts was $0.2 million at June 30, 2006 and December 31, 2005.
We have also established valuation reserves related to obsolete and excess inventory. The
inventory valuation reserves were $6.4 million and $6.3 million at June 30, 2006 and December 31,
2005, respectively.
5. Employees
Union Negotiations We have been in contract negotiations since 2004 with the OPEIU
(Office and Professional Employees International Union), which is the union representing our
domestic pilot work force, regarding the renewal of the collective bargaining agreement covering
our domestic pilots. On July 28, 2006, the National Mediation Board released the Company and the
OPEIU from the mediation process. As a result, a 30-day cooling off period commenced and expires
August 28, 2006. Following the cooling off period, the Company is free to do whatever is
reasonably necessary to continue operations, and the union is free to engage in job actions,
including work stoppages or a general strike. Although the outcome of these negotiations cannot be
predicted, it is managements intent to continue operations while working toward an acceptable
renewed collective bargaining agreement.
Employee Incentive Compensation In 2002, we implemented an incentive compensation plan for
non-executive and non-represented employees. The plan allows us to pay up to 7% of earnings before
tax upon achieving a specified earnings threshold. During 2004, we implemented an executive/senior
management plan for certain corporate and business unit management employees. Pursuant to these
plans, we accrued estimated incentive compensation expense of $0.7 million and $1.0 million,
respectively, for the quarter and six months ended June 30, 2006. For the twelve months ended
December 31, 2005, we recorded $2.3 million of incentive compensation expense related to the plans.
9
6. Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123 (R), Share Based Payment. SFAS No. 123 (R) supersedes
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123 (R) is
similar to the approach described in SFAS No. 123. However, SFAS No. 123 (R) requires all
share-based payments to employees, including grants of employee stock options, to be recognized in
the income statement based on their fair values. Pro forma disclosure is no longer an alternative.
As permitted by SFAS No. 123, prior to January 1, 2006, we accounted for share-based payments to
employees using the intrinsic value method of and, as such, generally recognized no compensation
expense for employee stock options. We have adopted SFAS No. 123(R) effective January 1, 2006
using the modified-prospective method. Under the modified-prospective method, the prior periods
financial statements are not restated. As no employee stock options were granted in the current
period, the adoption of SFAS No. 123 (R) had no impact on our results of operations for the quarter
and six months period ended June 30, 2006. The impact on future periods will be dependent on
levels of share based payments granted in the future.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This
statement is a replacement APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting
Accounting Changes in Interim Financial Statements, and it changes the requirements for the
accounting for and reporting a change in accounting principle. The statement applies to all
voluntary changes in accounting principle and to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition provisions. The
statement requires retrospective application to prior periods financial statements of changes in
accounting principle, unless it is impracticable to determine period-specific effects of the change
in one or more prior periods presented. In that case the new accounting principle must be applied
to the balances of assets and liabilities as of the beginning of the earliest period for which
retrospective application is practicable, and a corresponding adjustment must be made to the
opening balance of retained earnings for that period rather that being reported in an income
statement. The new statement also requires the accounting principle to be applied prospectively
from the earliest date when it is impracticable to determine the effect to all prior periods. This
statement is effective for us as of January 1, 2006. Adoption of this statement could have an
impact if there are future voluntary accounting changes and correction of errors.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting and
disclosure for uncertain tax positions, as defined. FIN 48 seeks to reduce the diversity in
practice associated with certain aspects of the recognition and measurement related to accounting
for income taxes. This interpretation is effective for fiscal years beginning after December 15,
2006. The Company is assessing FIN 48 and has not determined yet the impact that the adoption of
FIN 48 will have on its result of operations or financial position.
7. Condensed Consolidating Financial Information
On April 12, 2006, we issued $200 million of 7 1/8% Senior Notes due 2013 and retired $184.8
million of 9 3/8% Series B Senior Notes due 2009. On May 1, 2006, we redeemed the remaining $15.2
million 9 3/8% Series B Senior Notes.
Our 7 1/8 % Senior Notes are fully and unconditionally guaranteed on a joint and several, senior
basis by all of our Guarantor Subsidiaries.
On April 12, 2006, we completed the sale of 4,287,920 non-voting common shares at $35.00 per share
and on May 1, 2006, we completed the sale of the over-allotment of 578,680 shares also at $35.00
per share. Proceeds from the offering were $160.8 million, net of expenses, which will be used to
fund the acquisition of aircraft to be delivered in 2006 and 2007.
10
We had an average of 14.6 million common shares outstanding for the quarter ended June 30, 2006,
compared to an average of 6.2 million shares for the quarter ended June 30, 2005. The increase was
the result of our equity offering(s) in April 2006 and June 2005.
The following supplemental condensed financial information sets forth, on a consolidated basis, the
balance sheet, statement of operations, and statement of cash flows information for PHI, Inc.
(Parent Company Only) and the Guarantor Subsidiaries. The principal eliminating entries
eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and
expenses.
11
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
217,092 |
|
|
$ |
491 |
|
|
$ |
|
|
|
$ |
217,583 |
|
Accounts receivable net of allowance |
|
|
86,712 |
|
|
|
13,328 |
|
|
|
|
|
|
|
100,040 |
|
Inventory |
|
|
52,758 |
|
|
|
|
|
|
|
|
|
|
|
52,758 |
|
Other current assets |
|
|
11,128 |
|
|
|
40 |
|
|
|
|
|
|
|
11,168 |
|
Refundable income taxes |
|
|
44 |
|
|
|
94 |
|
|
|
|
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
367,734 |
|
|
|
13,953 |
|
|
|
|
|
|
|
381,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable |
|
|
|
|
|
|
40,832 |
|
|
|
(40,832 |
) |
|
|
|
|
Other assets |
|
|
19,672 |
|
|
|
9 |
|
|
|
|
|
|
|
19,681 |
|
Investment in subsidiaries and other |
|
|
42,891 |
|
|
|
|
|
|
|
(42,891 |
) |
|
|
|
|
Property and equipment, net |
|
|
299,068 |
|
|
|
7,834 |
|
|
|
|
|
|
|
306,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
729,365 |
|
|
$ |
62,628 |
|
|
$ |
(83,723 |
) |
|
$ |
708,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
49,499 |
|
|
$ |
3,632 |
|
|
$ |
|
|
|
$ |
53,131 |
|
Intercompany payable |
|
|
40,832 |
|
|
|
|
|
|
|
(40,832 |
) |
|
|
|
|
Accrued vacation payable |
|
|
4,011 |
|
|
|
288 |
|
|
|
|
|
|
|
4,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
94,342 |
|
|
|
3,920 |
|
|
|
(40,832 |
) |
|
|
57,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
204,000 |
|
|
|
|
|
|
|
|
|
|
|
204,000 |
|
Deferred income taxes and other long-term
liabilities |
|
|
31,687 |
|
|
|
15,817 |
|
|
|
|
|
|
|
47,504 |
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital |
|
|
291,373 |
|
|
|
4,402 |
|
|
|
(4,402 |
) |
|
|
291,373 |
|
Retained earnings |
|
|
107,963 |
|
|
|
38,489 |
|
|
|
(38,489 |
) |
|
|
107,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
399,336 |
|
|
|
42,891 |
|
|
|
(42,891 |
) |
|
|
399,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity |
|
$ |
729,365 |
|
|
$ |
62,628 |
|
|
$ |
(83,723 |
) |
|
$ |
708,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
69,102 |
|
|
$ |
459 |
|
|
$ |
|
|
|
$ |
69,561 |
|
Accounts receivable net of allowance |
|
|
81,881 |
|
|
|
14,236 |
|
|
|
|
|
|
|
96,117 |
|
Inventory |
|
|
48,123 |
|
|
|
|
|
|
|
|
|
|
|
48,123 |
|
Other current assets |
|
|
9,978 |
|
|
|
64 |
|
|
|
|
|
|
|
10,042 |
|
Refundable income taxes |
|
|
(61 |
) |
|
|
483 |
|
|
|
|
|
|
|
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
209,023 |
|
|
|
15,242 |
|
|
|
|
|
|
|
224,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries |
|
|
38,700 |
|
|
|
|
|
|
|
(38,700 |
) |
|
|
|
|
Intercompany receivable |
|
|
|
|
|
|
39,867 |
|
|
|
(39,867 |
) |
|
|
|
|
Other assets |
|
|
13,253 |
|
|
|
13 |
|
|
|
|
|
|
|
13,266 |
|
Property and equipment, net |
|
|
303,421 |
|
|
|
8,257 |
|
|
|
|
|
|
|
311,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
564,397 |
|
|
$ |
63,379 |
|
|
$ |
(78,567 |
) |
|
$ |
549,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
46,322 |
|
|
$ |
10,605 |
|
|
$ |
|
|
|
$ |
56,927 |
|
Intercompany payable |
|
|
39,867 |
|
|
|
|
|
|
|
(39,867 |
) |
|
|
|
|
Accrued vacation payable |
|
|
3,522 |
|
|
|
289 |
|
|
|
|
|
|
|
3,811 |
|
Notes payable |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
90,711 |
|
|
|
10,894 |
|
|
|
(39,867 |
) |
|
|
61,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
203,300 |
|
|
|
|
|
|
|
|
|
|
|
203,300 |
|
Deferred income taxes and other long-term
liabilities |
|
|
31,335 |
|
|
|
13,785 |
|
|
|
|
|
|
|
45,120 |
|
Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital |
|
|
130,558 |
|
|
|
4,402 |
|
|
|
(4,402 |
) |
|
|
130,558 |
|
Retained earnings |
|
|
108,493 |
|
|
|
34,298 |
|
|
|
(34,298 |
) |
|
|
108,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
239,051 |
|
|
|
38,700 |
|
|
|
(38,700 |
) |
|
|
239,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
564,397 |
|
|
$ |
63,379 |
|
|
$ |
(78,567 |
) |
|
$ |
549,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2006 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenues |
|
$ |
94,010 |
|
|
$ |
13,147 |
|
|
$ |
|
|
|
$ |
107,157 |
|
Management fees |
|
|
579 |
|
|
|
|
|
|
|
(579 |
) |
|
|
|
|
Gain (loss) on dispositions of property and
equipment, net |
|
|
(1,392 |
) |
|
|
|
|
|
|
|
|
|
|
(1,392 |
) |
Other |
|
|
2,493 |
|
|
|
4 |
|
|
|
|
|
|
|
2,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,690 |
|
|
|
13,151 |
|
|
|
(579 |
) |
|
|
108,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
79,748 |
|
|
|
9,463 |
|
|
|
|
|
|
|
89,211 |
|
Management fees |
|
|
|
|
|
|
579 |
|
|
|
(579 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
6,069 |
|
|
|
655 |
|
|
|
|
|
|
|
6,724 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(1,236 |
) |
|
|
|
|
|
|
1,236 |
|
|
|
|
|
Interest expense |
|
|
4,129 |
|
|
|
|
|
|
|
|
|
|
|
4,129 |
|
Loss on debt restructuring |
|
|
12,790 |
|
|
|
|
|
|
|
|
|
|
|
12,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
10,697 |
|
|
|
657 |
|
|
|
112,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
|
(5,810 |
) |
|
|
2,454 |
|
|
|
(1,236 |
) |
|
|
(4,592 |
) |
Income taxes |
|
|
(3,055 |
) |
|
|
1,218 |
|
|
|
|
|
|
|
(1,837 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(2,755 |
) |
|
$ |
1,236 |
|
|
$ |
(1,236 |
) |
|
$ |
(2,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2005 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
73,698 |
|
|
$ |
13,085 |
|
|
$ |
|
|
|
$ |
86,783 |
|
Management fees |
|
|
895 |
|
|
|
|
|
|
|
(895 |
) |
|
|
|
|
Gain (loss) on dispositions of property and
equipment, net |
|
|
(186 |
) |
|
|
|
|
|
|
|
|
|
|
(186 |
) |
Other |
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,605 |
|
|
|
13,085 |
|
|
|
(895 |
) |
|
|
86,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
64,994 |
|
|
|
7,902 |
|
|
|
|
|
|
|
72,896 |
|
Management fees |
|
|
|
|
|
|
895 |
|
|
|
(895 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
4,838 |
|
|
|
634 |
|
|
|
|
|
|
|
5,472 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(2,372 |
) |
|
|
|
|
|
|
2,372 |
|
|
|
|
|
Interest expense |
|
|
5,159 |
|
|
|
|
|
|
|
|
|
|
|
5,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,619 |
|
|
|
9,431 |
|
|
|
1,477 |
|
|
|
83,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
1,986 |
|
|
|
3,654 |
|
|
|
(2,372 |
) |
|
|
3,268 |
|
Income taxes |
|
|
25 |
|
|
|
1,282 |
|
|
|
|
|
|
|
1,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,961 |
|
|
$ |
2,372 |
|
|
$ |
(2,372 |
) |
|
$ |
1,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2006 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenues |
|
$ |
181,387 |
|
|
$ |
27,142 |
|
|
$ |
|
|
|
$ |
208,529 |
|
Management fees |
|
|
1,086 |
|
|
|
|
|
|
|
(1,086 |
) |
|
|
|
|
Gain (loss) on dispositions of property and
equipment, net |
|
|
(1,162 |
) |
|
|
|
|
|
|
|
|
|
|
(1,162 |
) |
Other |
|
|
3,410 |
|
|
|
7 |
|
|
|
|
|
|
|
3,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,721 |
|
|
|
27,149 |
|
|
|
(1,086 |
) |
|
|
210,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
157,628 |
|
|
|
18,639 |
|
|
|
|
|
|
|
176,267 |
|
Management fees |
|
|
|
|
|
|
1,086 |
|
|
|
(1,086 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
12,042 |
|
|
|
1,367 |
|
|
|
|
|
|
|
13,409 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(4,191 |
) |
|
|
|
|
|
|
4,191 |
|
|
|
|
|
Interest expense |
|
|
9,202 |
|
|
|
|
|
|
|
|
|
|
|
9,202 |
|
Loss on debt restructuring |
|
|
12,790 |
|
|
|
|
|
|
|
|
|
|
|
12,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,471 |
|
|
|
21,092 |
|
|
|
3,105 |
|
|
|
211,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
|
(2,750 |
) |
|
|
6,057 |
|
|
|
(4,191 |
) |
|
|
(884 |
) |
Income taxes |
|
|
(2,220 |
) |
|
|
1,866 |
|
|
|
|
|
|
|
(354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(530 |
) |
|
$ |
4,191 |
|
|
$ |
(4,191 |
) |
|
$ |
(530 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2005 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
135,425 |
|
|
$ |
25,597 |
|
|
$ |
|
|
|
$ |
161,022 |
|
Management fees |
|
|
1,153 |
|
|
|
|
|
|
|
(1,153 |
) |
|
|
|
|
Gain on dispositions of property and
equipment, net |
|
|
460 |
|
|
|
|
|
|
|
|
|
|
|
460 |
|
Other |
|
|
293 |
|
|
|
|
|
|
|
|
|
|
|
293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,331 |
|
|
|
25,597 |
|
|
|
(1,153 |
) |
|
|
161,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
121,041 |
|
|
|
15,890 |
|
|
|
|
|
|
|
136,931 |
|
Management fees |
|
|
|
|
|
|
1,153 |
|
|
|
(1,153 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
9,398 |
|
|
|
1,303 |
|
|
|
|
|
|
|
10,701 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(4,918 |
) |
|
|
|
|
|
|
4,918 |
|
|
|
|
|
Interest expense |
|
|
10,276 |
|
|
|
|
|
|
|
|
|
|
|
10,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,797 |
|
|
|
18,346 |
|
|
|
3,765 |
|
|
|
157,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
1,534 |
|
|
|
7,251 |
|
|
|
(4,918 |
) |
|
|
3,867 |
|
Income taxes |
|
|
(786 |
) |
|
|
2,333 |
|
|
|
|
|
|
|
1,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
2,320 |
|
|
$ |
4,918 |
|
|
$ |
(4,918 |
) |
|
$ |
2,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2006 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by operating activities |
|
$ |
12,388 |
|
|
$ |
81 |
|
|
$ |
|
|
|
$ |
12,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(39,308 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
(39,357 |
) |
Proceeds from asset dispositions |
|
|
3,163 |
|
|
|
|
|
|
|
|
|
|
|
3,163 |
|
Proceeds from sale-leaseback transactions |
|
|
25,069 |
|
|
|
|
|
|
|
|
|
|
|
25,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(11,076 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
(11,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds of debt issuance senior notes |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
Premium and costs to retire debt early |
|
|
(10,208 |
) |
|
|
|
|
|
|
|
|
|
|
(10,208 |
) |
Repayment of senior notes |
|
|
(200,000 |
) |
|
|
|
|
|
|
|
|
|
|
(200,000 |
) |
Debt issuance costs |
|
|
(4,629 |
) |
|
|
|
|
|
|
|
|
|
|
(4,629 |
) |
Proceeds from line of credit, net |
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
700 |
|
Proceeds from stock issuance, net |
|
|
160,815 |
|
|
|
|
|
|
|
|
|
|
|
160,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
146,678 |
|
|
|
|
|
|
|
|
|
|
|
146,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
147,990 |
|
|
|
32 |
|
|
|
|
|
|
|
148,022 |
|
Cash and cash equivalents, beginning of
period |
|
|
69,102 |
|
|
|
459 |
|
|
|
|
|
|
|
69,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
217,092 |
|
|
$ |
491 |
|
|
$ |
|
|
|
$ |
217,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2005 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by (used in) operating
activities |
|
$ |
9,208 |
|
|
$ |
151 |
|
|
$ |
|
|
|
$ |
9,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(30,910 |
) |
|
|
|
|
|
|
|
|
|
|
(30,910 |
) |
Proceeds from asset dispositions |
|
|
6,052 |
|
|
|
|
|
|
|
|
|
|
|
6,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(24,858 |
) |
|
|
|
|
|
|
|
|
|
|
(24,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on line of credit, net |
|
|
(10,275 |
) |
|
|
|
|
|
|
|
|
|
|
(10,275 |
) |
Proceeds from stock issuance, net |
|
|
114,317 |
|
|
|
|
|
|
|
|
|
|
|
114,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
104,042 |
|
|
|
|
|
|
|
|
|
|
|
104,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
88,392 |
|
|
|
151 |
|
|
|
|
|
|
|
88,543 |
|
Cash and cash equivalents, beginning of
period |
|
|
17,718 |
|
|
|
290 |
|
|
|
|
|
|
|
18,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
106,110 |
|
|
$ |
441 |
|
|
$ |
|
|
|
$ |
106,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and the notes thereto as well as our audited financial
statements and notes thereto contained in our Annual Report on Form 10-K for the year ended
December 31, 2005, and managements discussion and analysis, risk factors and other information
contained therein.
Forward-Looking Statements
All statements other than statements of historical fact contained in this Form 10-Q, other periodic
reports filed by us with the Securities and Exchange Commission, and other written and oral
statements made by us or on our behalf, are forward-looking statements. When used herein, the
words anticipates, expects, believes, goals, intends, plans, or projects and similar
expressions are intended to identify forward-looking statements. Forward-looking statements are
based on a number of assumptions about future events and are subject to significant risks,
uncertainties, and other factors that may cause our actual results to differ materially from the
expectations, beliefs, and estimates expressed or implied in such forward-looking statements.
Although we believe that the assumptions underlying the forward-looking statements are reasonable,
no assurance can be given that such assumptions will prove correct or even approximately correct.
Factors that could cause our results to differ materially from the expectations expressed in such
forward-looking statements include but are not limited to the following: unexpected variances in
flight hours, the effect on demand for our services caused by volatility of oil and gas prices, the
effect on our operating costs of volatile fuel prices, adverse weather conditions, the availability
and cost of capital required to acquire aircraft, environmental risks, the activities of our
competitors, changes in government regulation, results of collective bargaining negotiations, union
activities or labor strife, operating hazards, risks related to operating in foreign countries, the
ability to obtain adequate insurance at an acceptable cost, and the ability to develop and
implement successful business strategies. All forward-looking statements in this document are
expressly qualified in their entirety by the cautionary statements in this paragraph, the Risk
Factors section of this report, and the Risk Factors section of our Annual Report on Form 10-K for
the year ended December 31, 2005. PHI undertakes no obligation to update any forward-looking
statements, whether as a result of new information, future events, or otherwise.
Overview
In the quarter ended June 30, 2006, we completed the sale of common non-voting shares discussed
below. We also redeemed our outstanding 9 3/8% senior notes and issued new notes at 7 1/8%. As a
result of that transaction, we recorded a charge for debt restructuring in the quarter of $12.8
million related to the early call premium and issuance costs. We also sold six light aircraft in
the quarter, resulting in a net loss of $1.4 million. Because of the refinancing charge and the
loss on the sale of aircraft, we reported a net loss for the quarter of $2.8 million, or $0.19 per
share for the quarter. Also, on July 28, 2006, the National
Mediation Board released the Company and the OPEIU, the union representing the domestic pilots,
from bargaining. It is, however, our intention to reach a reasonable agreement with the pilots
union. The above issues are addressed in the comments below.
During the quarter, we completed the sale of 4,866,600 non-voting common shares at $35.00 per share
which included the sale of an over-allotment of 578,680 shares. Proceeds from the sale were $160.8
million, net of underwriting fees and expenses. Proceeds of the offering will be used to fund the
acquisition of aircraft to be delivered in 2006 and 2007.
During the quarter, we also issued $200 million of 7 1/8% Senior Notes due April 15, 2013 pursuant
to Rule 144A and Regulation S of the Securities Act of 1933. Proceeds were $196 million net of
underwriting fees and expenses, and were used to retire $184.8 million of our existing 9 3/8%
Senior Notes pursuant to a tender offer, at a total cost of $201.6 million including an early call
premium and accrued interest. We subsequently redeemed the remaining $15.2 million of Senior Notes
outstanding on
17
May 1, 2006, at a redemption price of 104.688% of the face amount plus accrued interest. As a
result of the early redemption of the 9 3/8% Senior Notes, we recorded a pretax charge of $12.8
million ($7.7 million, net of tax) in the quarter ended June 30, 2006, which consisted of a $9.8
million early call premium, $2.6 million of unamortized issuance costs, and $0.4 million in related
expenses for the tender of outstanding notes.
Operating revenues increased for the quarter and the six months ended June 30, 2006, compared to
the same periods in 2005. The increases resulted from increased customer demand due to increased
exploration and production activity by our customers in the Gulf of Mexico, and additional flight
hours in the Air Medical segment. Operating revenues for the three months ended June 30, 2006 were
$107.2 million compared to $86.8 million for the three months ended June 30, 2005, an increase of
$20.4 million. For the six months ended June 30, 2006, operating revenues were $208.5 million
compared to $161.0 million for the same period in 2005, an increase of $47.5 million.
Total flight hours were 77,367 for the six months ended June 30, 2006 compared to 69,547 for six
months ended June 30, 2005. The number of aircraft in service at June 30, 2006 was 234 compared to
230 at June 30, 2005. Six light aircraft were sold during the quarter, which is further discussed
below.
The loss before tax for the quarter and six months ended June 30, 2006 was $4.6 million and $0.9
million respectively, compared to the quarter and six months ended June 30, 2005, earnings before
tax of $3.3 million and $3.9 million respectively. As a result of the early redemption of our 9
3/8% Senior Notes, we recorded a pretax charge of $12.8 million in the quarter ended June 30, 2006.
We also recorded a loss on the sale of six light aircraft ($1.4 million), and we expect to sell an
additional five to six light aircraft in the near future, but we expect the remaining sales to
result in a net gain. Earnings for the quarter ended June 30, 2005, included an insurance premium
credit of $0.3 million related to favorable loss experience, and a credit of $3.0 million for the
six months ended June 30, 2005 for the same reason.
We have been in negotiations and mediation with the OPEIU (the Office and Professional Employees
International Union, which is the union representing our domestic pilot work force), since
expiration of the collective bargaining agreement May 31, 2004. On July 28, 2006, the National
Mediation Board released the parties from the mediation process. As a result, a 30-day cooling
off period commenced and expires August 28, 2006. Following the cooling off period, the Company
is free to do whatever is reasonably necessary to continue operations, and the union is free to
engage in job actions, including work stoppages or a general strike. Although the outcome of these
negotiations cannot be predicted, it is managements intent to continue working toward an
acceptable renewed collective bargaining agreement. Refer to Item 1.A. Risk Factors, page 34.
As previously reported, on June 15, 2005, we received a subpoena from the United States Department
of Justice relating to a grand jury investigation of potential antitrust violations among providers
of helicopter transportation services in the Gulf of Mexico. We are cooperating fully with the
investigation and believe we have provided all documents and other information required by the
subpoena. At this stage, it is not possible to assess the outcome of this investigation, although
based on the information available to us to date, management does not expect the outcome of the
investigation to have a material adverse effect on our financial condition, results of operations,
or liquidity.
At June 30, 2006, we had orders for two additional transport category aircraft scheduled for
delivery in 2006 at an approximate cost of $35.4 million. In addition, we had orders for 28
additional aircraft with a total cost of $143.9 million scheduled for delivery throughout 2006 and
2007. The aircraft on order are for service in the Domestic Oil and Gas segment and are based on
customer commitments and our assessment of customer requirements.
18
Operating Statistics
The following tables present certain non-financial operational statistics for the quarter and six
months ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Flight hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
29,151 |
|
|
|
28,090 |
|
|
|
55,243 |
|
|
|
50,396 |
|
Air Medical |
|
|
7,725 |
|
|
|
6,944 |
|
|
|
14,880 |
|
|
|
11,573 |
|
International |
|
|
3,047 |
|
|
|
3,706 |
|
|
|
7,244 |
|
|
|
7,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
39,923 |
|
|
|
38,740 |
|
|
|
77,367 |
|
|
|
69,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Medical Transports (1) |
|
|
5,311 |
|
|
|
4,323 |
|
|
|
10,133 |
|
|
|
7,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Aircraft operated at period end: |
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
151 |
|
|
|
158 |
|
Air Medical |
|
|
67 |
|
|
|
56 |
|
International |
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
|
Total (2) |
|
|
234 |
|
|
|
230 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents individual patient transports for the period. Flight hours for these
transports are included above. |
|
(2) |
|
Includes 12 and 18 aircraft as of June 30, 2006 and 2005, respectively that are customer owned. |
Quarter Ended June 30, 2006 compared with Quarter Ended June 30, 2005
Combined Operations
Revenues Operating revenues for the three months ended June 30, 2006 were $107.2 million
compared to $86.8 million for the three months ended June 30, 2005, an increase of $20.4 million.
This increase was due to an increase in our Domestic Oil and Gas, Air Medical, and Technical
Services segments, offset by a decrease in International. The increase in operating revenues in
the Domestic Oil and Gas segment is due to increased exploration and production activity in the
Gulf of Mexico, particularly in the deepwater areas. The increase in Air Medical revenues is due
to all operating locations being in service for the full quarter compared to the prior year during
which additional locations were being added throughout the year. The increase in Technical
Services revenue is due to certain contractual work with third parties reclassified to the
Technical Services segment previously recorded in Domestic Oil and Gas. The decrease in
International is due to a reduction in flight hour activity and one aircraft released from contract
in the quarter by the customer.
Flight hours were 39,923 for three months ended June 30, 2006, compared to 38,740 flight hours for
the three months ended June 30, 2005. Domestic Oil and Gas and Air Medical segments experienced an
increase in flight hours for the quarter, while flight hours for the International segment
decreased. The number of aircraft at June 30, 2006 was 234 as compared to 230 at June 30, 2005, and
235 at December 31, 2005.
Other Income and Gains Loss on equipment dispositions was $1.4 million for the three
months ended June 30, 2006, compared to a loss of $0.2 million for the three months ended June 30,
2005. The loss for
19
the current quarter was due to the sale of six light aircraft. We expect to sell an additional five
to six light aircraft in the near future, but we expect the remaining sales to result in a net
gain.
Other income was $2.5 million for three months ended June 30, 2006 compared to $0.2 million for
three months ended June 30, 2005, and primarily represents interest income on unspent proceeds from
our recent stock offering.
Direct Expenses Direct operating expense was $89.2 million for the three months ended
June 30, 2006, compared to $72.9 million for three months ended June 30, 2005, an increase of $16.3
million. Direct expense increased in the Domestic Oil and Gas segment ($10.6 million) due to
increased activity mentioned above, and increased in the Air Medical segment ($5.0 million) due to
locations being operational for the full period compared to part of the period in the prior year,
and the remaining two operating segments account for the remaining increase ($0.7 million). These
increases are discussed in the Segment Discussion below.
On a combined basis, the direct expense increased due to increases in employee costs ($5.5
million), aircraft parts usage due to increased flight hour activity ($0.4 million), aircraft rent
($1.7 million) due to additional aircraft on lease, aircraft warranty costs ($2.2 million) due to
additional aircraft covered under manufacturers warranty programs, fuel ($2.4 million) due to
increased prices and flight activity, component repair costs ($0.5 million), and insurance costs
($0.5 million). In addition, there were increases in depreciation ($1.0 million), base security
services ($0.3 million) and contracted base support personnel ($0.8 million) in the Domestic Oil
and Gas segment, non-aircraft supplies purchases ($0.5 million), and other operating expenses ($0.5
million).
Selling, General, and Administrative Expenses Selling, general and administrative
expense was $6.7 million for the three months ended June 30, 2006, compared to $5.5 million for the
three months ended June 30, 2005, an increase of $1.2 million. This increase was a result of
increased legal and consulting costs ($0.4 million), increased employee costs ($0.3 million),
increased insurance costs ($0.2 million), and other items, net ($0.3 million).
Interest Expense Interest expense was $4.1 million for the quarter ended June 30, 2006,
compared to $5.2 million for the quarter ended June 30, 2005. The decrease was a result of
refinancing our $200 million 9 3/8% senior notes at 7 1/8%.
Loss on Debt Restructuring A pretax charge of $12.8 million was recorded due to the
early redemption of the 9 3/8% Senior Notes. This charge consists of $9.8 million early call
premium, $2.6 million of unamortized issuance costs, and $0.4 million in related expenses for the
tender of outstanding notes.
Income Taxes Income tax benefit for the three months ended June 30, 2006 was $1.8
million, an effective rate of 40%, compared to income tax expense of $1.3 million for the three
months ended June 30, 2005, also an effective rate of 40%.
Earnings Our net loss for the three months ended June 30, 2006 was $2.8 million compared
to net income of $2.0 million for the three months ended June 30, 2005. The loss before tax for
the three months ended June 30, 2006 was $4.6 million compared to earnings before tax of $3.3
million for the same period in 2005. The net loss for both the quarter and year-to-date was mainly
attributable to the $12.8 million charge taken in the second quarter for the early redemption of
our 9 3/8% Senior Notes. Exclusive of the loss on debt restructuring and related tax effects,
income for the quarter ended June 30, 2006 was $4.9 million compared to $2.0 million for the
previous year.
20
Segment Discussion
Domestic Oil and Gas Domestic Oil and Gas segment revenues were $66.4 million for the three
months ended June 30, 2006, compared to $51.6 million for the three months ended June 30, 2005.
Flight hours were 29,151 for the current quarter compared to 28,090 for the same quarter in the
prior year. The increase in revenue was due to the increase in flight hours, additional aircraft
under contract and certain contractual rate increases. The increase in flight hours was related to
increased exploration and production activity by our customers, particularly in the deepwater areas
of the Gulf of Mexico.
The number of aircraft in the segment at June 30, 2006 was 151 compared to 158 at June 30, 2005. We
sold or disposed of 17 light aircraft in the Domestic Oil and Gas segment since June 30, 2005, and
we converted three medium aircraft in the segment to air medical use. In total, we have added 13
new aircraft to the Domestic Oil and Gas segment since June 30, 2005. We are currently increasing
the number of aircraft in our Domestic Oil and Gas segment based on customer commitments and
discussions with our customers regarding their planned activities. We have a total of 30 aircraft
on order for delivery in 2006 and 2007.
Direct expense in our Domestic Oil and Gas segment was $53.1 million for the three months ended
June 30, 2006, compared to $42.5 million for the quarter ended June 30, 2005. The increase of
$10.6 million was due to increases in employee costs ($2.6 million), aircraft parts usage due to
increased flight hour activity ($0.2 million), aircraft rent ($1.7 million) due to additional
aircraft on lease, aircraft warranty costs ($1.5 million) due to additional aircraft covered under
manufacturers warranty programs, fuel ($1.6 million) due to increased prices and flight activity
(reimbursement for costs above a contracted per gallon cost is included in revenue), component
repair costs ($0.5 million), and insurance costs ($0.5 million). In addition, there were increases
in base security services ($0.3 million), non-aircraft supplies purchases ($0.5 million),
contracted base support personnel ($0.8 million), and other operating expenses ($0.4 million).
Our Domestic Oil and Gas segments operating income was $13.1 million for the three months ended
June 30, 2006, compared to $8.9 million for the three months ended June 30, 2005. The increase in
operating income was due to the increase in operating revenue, resulting from increased exploration
and production activity by our customers.
Air Medical Air Medical segment revenues were $33.6 million for the three months ended June 30,
2006, compared to $28.3 million for the three months ended June 30, 2005, an increase of $5.3
million or 19%. We experienced a 23% increase in medical transports, increasing to 5,311 in 2006
from 4,323 in 2005. Flight hours were 7,725 for the three months ended June 30, 2006, compared to
6,944 for the three months ended June 30, 2005. The number of aircraft in the segment was 67 at
June 30, 2006, compared to 56 at June 30, 2005. Since inception of the expansion in late 2003, we
have opened 37 additional operating locations, with 22 opened in 2004 and 15 opened in 2005.
Although patient transport volumes continue to improve, new locations typically take a number of
months to build sufficient volume to absorb facility operating costs and achieve profitable
aircraft utilization levels. We expect further volume growth in 2006 and margin improvement due to
reduced expansion activity in 2006.
Direct expenses in our Air Medical segment were $30.8 million for the three months ended June 30,
2006, compared to $25.8 million for the three months ended June 30, 2005, due to more operating
locations, and also due to additional flight hours. The $5.0 million increase was due to increases
in employee costs ($2.9 million), fuel costs ($0.8 million) and depreciation expense ($0.9
million), aircraft warranty costs ($0.7 million) offset by a decrease of other operating expenses
($0.3 million). The individual increases in the cost categories above increased as a result of all
operating locations being in service for the full quarter, compared to the prior year during which
additional locations were being added throughout the year.
21
Selling, general and administrative expense was $1.8 million for the three months ended June 30,
2006, compared to $1.5 million for the three months ended June 30, 2005.
Our Air Medical segments operating income was $1.0 million for the three months ended June 30,
2006, as well as for the three months ended June 30, 2005. During the current quarter, there was a
loss of $0.7 million related to the additional locations that commenced in 2005. New locations
typically take several months to build sufficient volume to absorb facility operating costs and
achieve profitable aircraft utilization levels. We expect further volume and revenue growth in
2006 and have reduced our rate of expansion in 2006. We also expect the rate of increase in
operating costs to slow. As a result, we anticipate improvement in segment operating income over
time. Adjustments will be made with respect to areas that do not achieve acceptable profitability
levels.
International International segment revenues were $5.6 million for the three months ended June
30, 2006, compared to $5.8 million for the three months ended June 30, 2005. The decrease was due
to a reduction in flight hours for the three months ended June 30, 2006 to 3,047, compared to 3,706
for the three months ended June 30, 2005. The number of aircraft in the segment remained at 16 for
June 30, 2006, compared to June 30, 2005.
Direct expenses in our International segment were $4.2 million for the three months ended June 30,
2006, compared to $3.8 million for the three months ended June 30, 2005. The increase in direct
expenses was due primarily to increases in aircraft parts usage of $0.2 million, outside services
of $0.1 million, and depreciation of $0.1 million.
Our International segment had operating income of $1.4 million for the three months ended June 30,
2006, compared to operating income of $2.0 million for the three months ended June 30, 2005. The
decrease in operating income was due to the decrease in revenue and also due to the increase in
direct expense.
Technical Services Technical Services revenues were $1.6 million for the three months ended June
30, 2006, compared to $1.1 million for the three months ended June 30, 2005. The increase in
Technical Services revenue is due to certain contractual work with third parties reclassified to
the Technical Services segment previously recorded in Domestic Oil and Gas.
Direct expenses in our Technical Services segment were $1.2 million for the three months ended June
30, 2006, compared to $0.8 million for the three months ended June 30, 2005. The increase is for
the same reason as described above.
Our Technical Services segment had operating income of $0.3 million for the three months ended June
30, 2006 and June 30, 2005.
Six Months Ended June 30, 2006 compared with Six Months Ended June 30, 2005
Combined Operations
Revenues Operating revenues for the six months ended June 30, 2006, were $208.5 million,
compared to $161.0 million for the six months ended June 30, 2005, an increase of $47.5 million,
due to increased operating revenues in all segments. The increase in operating revenues in the
Domestic Oil and Gas segment ($31.4 million) was due to increased exploration and production
activity in the Gulf of Mexico, particularly in the deepwater areas. The increase in Air Medical
revenues ($15.2 million) was due to all operating locations being in service for the period
compared to the prior period during which additional locations were being added throughout the
period. The increase in International revenues ($0.4 million) was due to contractual rate
increases. The increase in Technical Services revenue ($0.4 million) was due to certain
contractual work with third parties reclassified to the Technical Services segment previously
recorded in Domestic Oil and Gas.
22
Total flight hours were 77,367 for the six months ended June 30, 2006, compared to 69,547 for the
six months ended June 30, 2005. Patient transports were 10,133 for the current six months,
compared to 7,469 for the same period in the prior year.
Other Income and Losses Losses on equipment dispositions was $1.2 million for the six
months ended June 30, 2006, compared to a gain of $0.5 million for the six months ended June 30,
2005. The loss was due to the sale of six light aircraft in the second quarter, 2006. We expect
to sell an additional five to six aircraft in the near future, but we expect the remaining sales to
result in a net gain.
Other income, which primarily represents interest income on unspent proceeds from our recent stock
offering, was $3.4 million for the six months ended June 30, 2006 as compared to $0.3 million for
the six months ended June 30, 2005.
Direct Expenses Direct operating expense was $176.3 million for the six months ended
June 30, 2006, compared to $136.9 million for six months ended June 30, 2005, an increase of $39.4
million. Direct expense increased $23.6 million in the Domestic Oil and Gas segment due to
increased operations, and increased $15.3 million in the Air Medical segment due to more operating
locations for the full period compared to the prior period. Employee compensation cost increased
($14.7 million) due primarily to Air Medical operations for the reasons previously mentioned;
helicopter lease expense increased ($4.1 million) due to additional aircraft on operating leases;
aircraft parts usage increased ($1.4 million) due to increased flight hour activity; aircraft
warranty cost increased ($4.9 million) due to additional aircraft covered under manufacturers
warranty programs; and fuel costs increased ($4.5 million) (fuel costs above a certain contractual
rate are invoiced to the customer and included in operating revenue). Insurance cost increased
($4.3 million) primarily due to a $3.0 million contractual credit related to favorable loss
experience recorded in the prior year and also due to increased hull values related to new aircraft
deliveries. There were also increases in depreciation ($1.0 million), outside services ($2.5
million), non-aircraft supplies ($1.3 million), contract labor ($0.5 million), and other items
($0.2 million).
Selling, General, and Administrative Expenses Selling, general, and administrative
expenses for the six months ended June 30, 2006 were $13.4 million, compared to $10.7 million for
the six months ended June 30, 2005, an increase of $2.7 million. This increase was a result of
increased legal and consulting costs ($1.1 million) of which $0.6 million is related to the
Department of Justice investigation, increased employee costs ($0.5 million), increased insurance
costs ($0.4 million), and other items ($0.7 million).
Interest Expense Interest expense was $9.2 million for the six month period ended June
30, 2006, compared to $10.2 million for the six months ended June 30, 2005. The decrease was due
to early redemption of the 9 3/8% Senior Notes, reissued at 7 1/8% in April, 2006.
Loss on Debt Restructuring A pretax charge of $12.8 million was recorded due to the
early redemption of the 9 3/8% Senior Notes. This charge consists of $9.8 million early call
premium, $2.6 million of unamortized issuance costs, and $0.4 million in related expenses for the
tender of outstanding notes.
Income Taxes Income tax benefit for the six months ended June 30, 2006 was $0.4 million,
an effective rate of 40%, compared to income tax expense of $1.5 million for the six months ended
June 30, 2005, also an effective rate of 40%.
Earnings The loss before tax for the six months ended June 30, 2006 was $0.9 million,
compared to earnings before tax of $3.9 million for the six months ended June 30, 2005. The net
loss after tax for the six months ended June 30, 2006 was $0.5 million, compared to net income
after tax of $2.3 million for the six months ended June 30, 2005. As previously mentioned, the
loss before tax for the six months June 30, 2006, includes a charge of $12.8 million for the early
redemption of our 9 3/8% Senior Notes.
23
Exclusive of the loss on debt restructuring, net of tax effects, earnings for the six months ended
June 30, 2006, were $7.1 million, compared to $2.3 million for the year earlier.
Segment Discussion
Domestic Oil and Gas Domestic Oil and Gas segment operating revenues was $127.9 million for the
six months ended June 30, 2006, compared to $96.4 million for the six months ended June 30, 2005.
Flight hours were 55,243 for the six months ended June 30, 2006, compared to 50,396 for the six
months ended June 30, 2005. The increase in operating revenues was due to the increased
exploration and production activity by our customers, particularly in the deepwater areas of the
Gulf of Mexico.
Direct expense in the Domestic Oil and Gas segment increased $23.6 million for the six months ended
June 30, 2006, as compared to the six months ended June 30, 2005. The increase was due to increases
in employee costs ($3.3 million), aircraft parts usage due to increased flight hour activity ($1.8
million), aircraft rent ($3.7 million), aircraft warranty costs ($3.5 million) due to additional
aircraft covered under manufacturers warranty programs, and fuel costs ($2.9 million). Insurance
expense also increased ($2.9 million) due to a contractual credit recorded in the prior year
related to favorable loss experience. Other increases include component repair costs ($1.5
million), base security services ($0.4 million), contracted base support personnel ($1.4 million),
non-aircraft supplies ($1.2 million), and other items ($1.0 million).
Selling, general and administrative expense charged to the Domestic Oil and Gas segment was $0.5
million for the six months ended June 30, 2006 compared to $0.4 million for the six months ended
June 30, 2005.
Domestic Oil and Gas segment operating income was $24.4 million for the six months ended June 30,
2006, compared to $16.6 million for the six months ended June 30, 2005. The increase was due
primarily to the increase in operating revenue resulting from increased exploration and production
activity by our customers.
Air Medical Air Medical segment operating revenues were $64.3 million for the six months ended
June 30, 2006, compared to $49.1 million for the same period in the prior year. Transports
increased from 7,469 in the six month period ended June 30, 2005 to 10,133 in the comparable six
month period in 2006. Flight hours in this segment were 14,880 for the six months ended June 30,
2006, as compared to 11,573 for the six months ended June 30, 2005. The number of aircraft in the
segment at June 30, 2006 was 67 compared to 56 at June 30, 2005. The increase in operating revenue
was due to all locations being operational for the full period compared to the prior year during
which additional locations were being added throughout the year, and also due to additional flight
hours and patient transport activity as a result. Operating revenues in 2006 from the new
locations opened in 2005 were $16.6 million. Although patient volumes continue to improve, new
locations typically take a number of months to build sufficient volume to absorb facility operating
costs and achieve profitable aircraft utilization levels. We expect further volume growth in 2006
and margin improvement due to reduced expansion activity in 2006.
Direct expense for the six months ended June 30, 2006 was $62.4 million compared to $47.1 million
for the six months ended June 30, 2005. More than half of the increase was due to an increase in
employee costs ($9.0 million) due to additional employees added to support the additional
operations. There were also increases in depreciation expense ($1.4 million), insurance costs
($1.3 million), fuel costs ($1.6 million), and aircraft warranty costs ($1.4 million). There was
an increase in base operating costs ($0.6 million) related to the additional operating bases. This
amount includes rent, utilities, services purchased, supplies, and temporary labor. The increases
in each of the direct expense categories are due to the increased number of operating locations.
Segment selling, general and administrative expense was $3.6 million for the six months ended June
30, 2006 compared to $2.9 million for the six months ended June 30, 2005. This increase is due to
increases in employee costs ($0.2 million), medical management fees ($0.2 million), and other items
($0.3 million).
24
Air Medical segment operating loss was $1.7 million for the six months ended June 30, 2006,
compared to $0.9 million operating loss for the six months ended June 30, 2005. During the period
there was a loss of $2.4 million related to the additional locations that commenced in 2005. New
locations typically take several months to build sufficient volume to absorb facility operating
costs and achieve profitable aircraft utilization levels. We expect further volume and revenue
growth in 2006 and have reduced our rate of expansion in 2006. We also expect the rate of increase
in operating costs to slow. As a result, we anticipate improvement in segment operating income
over time. Adjustments will be made with respect to areas that do not achieve acceptable
profitability levels.
International International segment operating revenues were $13.2 million for the six months
ended June 30, 2006, compared to $12.8 million for the six months ended June 30, 2005. The
increase was due to an increase in customer rates. Flight hours for the six months ended June 30,
2006 were 7,244, compared to 7,578 for the six months ended June 30, 2005.
Direct expense for the six months ended June 30, 2006 was $8.6 million compared to $8.5 million for
the six months ended June 30, 2005.
Segment selling, general and administrative expense was less than $0.1 million for both six month
periods.
The International segment had operating income of $4.5 million for the six months ended June 30,
2006, compared to $4.3 million for the six months ended June 30, 2005. The increase in operating
revenues accounts for this increase.
Technical Services The Technical Services segment operating revenues for the six months ended
June 30, 2006 were $3.1 million, compared to $2.7 million in the comparable period in the prior
year. The increase was due to certain contractual work with third parties reclassified to the
Technical Services segment previously recorded in Domestic Oil and Gas.
Direct expense was $2.4 million for the six months ended June 30, 2006, compared to $2.0 million
for the six months ended June 30, 2005. Increased employee costs ($0.2 million) and other expenses
($0.2 million) account for this increase.
The Technical Services segment had operating income of $0.7 million for the six months ended June
30, 2006 and June 30, 2005.
Liquidity and Capital Resources
General
Our ongoing liquidity requirements arise primarily from the funding of working capital needs such
as the acquisition or leasing of aircraft, the maintenance and refurbishment of aircraft,
improvement of facilities, and acquisition of equipment and inventory. Our principal sources of
liquidity historically have been net cash provided by our operations and borrowings under our
revolving credit facility, as augmented in recent years by the issuance of senior notes in 2002
(which we refinanced in 2006) and the sale of non-voting common stock in 2005 and 2006.
Our cash position at June 30, 2006 was $217.6 million, compared to $69.6 million at December 31,
2005. Working capital was $324.3 million at June 30, 2006, as compared to $162.5 million at
December 31, 2005, an increase of $161.8 million. The increase in working capital was due to the
cash provided by our sale of 4,866,600 non-voting common shares completed in the second quarter of
2006, and the proceeds of a $25 million sale leaseback transaction for three aircraft completed in
the first quarter of 2006. The
25
corresponding leases are classified as operating leases and are included in the commitment table
set forth below.
Operating Activities
Net cash provided by operating activities was $12.5 million for the six months ended June 30, 2006,
compared to net cash provided by operating activities of $9.4 million for the six months ended June
30, 2005. The increase in net cash provided by operating activities was due primarily to an
increase in net earnings of $4.8 million prior to recording the loss on debt restructuring.
Capital expenditures were $39.4 million, and gross proceeds of aircraft sales were $28.2 million,
including the sale-leaseback transaction described above, for the six months ended June 30, 2006,
compared to capital expenditures of $30.9 million and gross proceeds of aircraft and other sales of
$6.0 million for the six months ended June 30, 2005. Capital expenditures primarily involve
purchases, renewals and capability upgrades of aircraft.
Financing Activities
On April 12, 2006, we completed the sale of 4,287,920 non-voting common shares at $35.00 per share
and on May 1, 2006, we completed the sale of the over-allotment of 578,680 shares also at $35.00
per share. Proceeds from the offering were $160.8 million, net of expenses, and will be used to
fund the acquisition of aircraft to be delivered in 2006 and 2007. Also on April 12, 2006, we
issued $200 million of 7 1/8% Senior Notes due 2013. The offering of these notes was made pursuant
to Rule 144A and Regulation S of the Securities Act of 1933. Net proceeds of $196 million were
used to repurchase $184.8 million of our existing 9 3/8% Senior Notes, which were tendered by April
12, 2006, at a total cost of $201.6 million including an early call premium and accrued interest.
We redeemed the remaining $15.2 million of 9 3/8% Senior Notes on May 1, 2006, at a redemption
price of 104.688% of the face amount plus accrued interest. As a result of the refinancing of the
9 3/8% Senior Notes, we recorded a pretax charge of $12.8 million ($7.7 million, net of tax) in the
quarter ended June 30, 2006, which consisted of a $9.8 million early call premium, $2.6 million of
unamortized issuance costs, and $0.4 million in related expenses for the tender of outstanding
notes.
The 7 1/8% Senior Notes mature April 15, 2013, and interest is payable semi-annually on April 15
and October 15. The notes contain restrictive covenants, including limitations on indebtedness,
liens, dividends, repurchases of capital stock and other payments affecting restricted
subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset
sales, and mergers and consolidations or sales of assets. Estimated annual interest cost of the
new Senior Notes is $14.3 million, excluding amortization of issuance costs, which represents a
reduction in annual interest cost on the notes of $4.5 million.
We have a $35 million revolving credit facility with a commercial bank that expires on July 31,
2007. As of June 30, 2006, there were $4.0 million in borrowings and $5.1 million in letters of
credit outstanding under the facility. The facility includes covenants related to working capital,
funded debt to net worth, and consolidated net worth. As of June 30, 2006, we were in compliance
with these covenants.
During the quarter ended June 30, 2006, we took delivery of three aircraft that were funded by
proceeds from the stock sale. At June 30, 2006, we had orders for two additional transport
category aircraft scheduled for delivery in 2006 at an approximate cost of $35.4 million. We also
had orders for 28 additional aircraft for service in the Domestic Oil and Gas segment with a total
cost of $143.9 million and delivery dates scheduled throughout 2006 and 2007.
26
The table below sets forth our annual debt, lease and aircraft purchase obligations through 2010
and the aggregate amounts that will be due thereafter. The operating leases are not recorded as
liabilities on our balance sheet, but payments are treated as an expense as incurred. Each
contractual obligation included in the table contains various terms, conditions, and covenants
which, if violated, accelerate the payment of that obligation. We currently lease 16 aircraft
included in the lease obligations below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beyond |
|
|
|
Total |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(Thousands of dollars) |
|
Aircraft purchase
commitments (1) |
|
$ |
179,275 |
|
|
$ |
123,745 |
|
|
$ |
55,530 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft lease
obligations |
|
|
134,177 |
|
|
|
6,532 |
|
|
|
13,064 |
|
|
|
13,064 |
|
|
|
13,064 |
|
|
|
13,666 |
|
|
|
74,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility lease
obligations |
|
|
22,435 |
|
|
|
3,134 |
|
|
|
2,700 |
|
|
|
2,246 |
|
|
|
1,722 |
|
|
|
1,442 |
|
|
|
11,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit
facility |
|
|
4,000 |
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes (2) |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
539,887 |
|
|
$ |
133,411 |
|
|
$ |
75,294 |
|
|
$ |
15,310 |
|
|
$ |
14,786 |
|
|
$ |
15,108 |
|
|
$ |
285,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These commitments are for aircraft that we intend to fund with proceeds from the
equity offerings completed June 2005 and April 2006. |
|
(2) |
|
Amounts reflect new 7 1/8% Senior Notes issued subsequent to March 31, 2006, that
mature 2013. The 9 3/8% Senior Notes were retired April 12, 2006 ($184.8 million) and May
1, 2006 ($15.2 million). |
Environmental Matters
We have an aggregate estimated liability of $0.2 million as of June 30, 2006 for environmental
remediation costs that are probable and estimable. We have conducted environmental surveys of our
former Lafayette Facility, which we vacated in 2001, and have determined that limited soil and
groundwater contamination exists at the facility. We have installed groundwater monitoring wells
at the facility and periodically monitor and report on the contamination. In May 2003, we
submitted a Louisiana Risk Evaluation/Corrective Action Plan (RECAP) Standard Site Assessment
Report to the Louisiana Department of Environmental Quality (LDEQ) fully delineating the extent
and type of contamination. LDEQ is reviewing the assessment report and has requested that the Site
Assessment Report be updated to include recent analytical data and be resubmitted for further LDEQ
review. Once LDEQ completes its review and reports on whether all contamination has been fully
defined, an updated risk evaluation in accordance with RECAP will be submitted and evaluated by
LDEQ. At that point, LDEQ will establish what cleanup standards must be met at the site. When the
process is complete, we will be in a position to develop an appropriate remediation plan and
determine the resulting cost of remediation. We have not recorded any estimated liability for
remediation and contamination and, based upon the May 2003 Site Assessment Report and ongoing
monitoring, we believe the ultimate remediation costs for the former Lafayette facility will not be
material to our consolidated financial position, results of operations, or liquidity.
27
New Accounting Pronouncements
For a discussion of applicable new accounting pronouncements, see Note 6 to the Condensed
Consolidated Financial Statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market value of our 7 1/8% Senior Notes will vary as changes occur to general market interest
rates, the remaining maturity of the notes, and our credit worthiness. At June 30, 2006, the
market value of the notes was approximately $188.5 million.
Item 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our
disclosure controls and procedures (as is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the Exchange Act)) as of the end of the period covered by this
quarterly report (the Evaluation Date). Based on such evaluation, such officers have concluded
that, as of the Evaluation Date, our disclosure controls and procedures are effective.
There have been no changes in our internal control over financial reporting that occurred during
our most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
We have been named as a defendant in various legal actions that have arisen in the ordinary course
of our business and have not been finally adjudicated. In the opinion of management, the amount of
the ultimate liability with respect to these actions will not have a material adverse effect on our
consolidated financial condition, results of operations, or liquidity.
On June 15, 2005, we received a subpoena from the United States Department of Justice relating to a
grand jury investigation of potential antitrust violations among providers of helicopter
transportation services in the Gulf of Mexico. We are cooperating fully with the investigation and
believe we have provided all documents and other information required by the subpoena. We will
respond to any DOJ request for further information, and will continue to cooperate with the
investigation. At this stage, it is not possible to assess the outcome of this investigation,
although based on the information available to us to date, management does not expect the outcome
of the investigation to have a material adverse effect on our financial condition, results of
operations, or liquidity.
28
Item 1. A. RISK FACTORS
All phases of our operations are subject to significant uncertainties, risks, and other influences.
Important factors that could cause our actual results to differ materially from anticipated
results or other expectations include the following:
RISKS INHERENT IN OUR BUSINESS
Our operations are affected by adverse weather conditions and seasonal factors.
We are subject to three types of weather-related or seasonal factors:
|
|
the tropical storm and hurricane season in the Gulf of Mexico; |
|
|
|
poor weather conditions that often prevail during winter and can
generally develop in any season; and |
|
|
|
reduced daylight hours during the winter months. |
Poor visibility, high winds and heavy precipitation can affect the operation of helicopters and
significantly reduce our flight hours. A significant portion of our operating revenue is dependent
on actual flight hours and a substantial portion of our direct costs is fixed. Thus, prolonged
periods of adverse weather can materially and adversely affect our operating revenues and net
earnings.
In the Gulf of Mexico, the months of December, January and February have more days of adverse
weather conditions than the other months of the year. Also, June through November is tropical storm
and hurricane season in the Gulf of Mexico, with August and September typically being the most
active months. During tropical storms, we are unable to operate in the area of the storm and can
incur significant expense in moving our aircraft to safer locations. In addition, as most of our
facilities are located along the Gulf of Mexico coast, tropical storms and hurricanes may cause
substantial damage to our property, including helicopters that we are unable to relocate.
Because the fall and winter months have fewer hours of daylight, our flight hours are generally
lower at those times, which typically results in a reduction in operating revenues during those
months. Currently, only 44 of the 151 helicopters used in our domestic oil and gas operations are
equipped to fly under instrument flight rules (IFR), which enables these aircraft, when manned by
IFR-rated pilots and co-pilots, to operate when poor visibility or darkness prevents flight by
aircraft that can fly only under visual flight rules (VFR). Not all of our pilots are IFR rated.
Additionally, most of our air medical fleet currently is not equipped with night vision capability.
We may not be able to obtain acceptable customer contracts covering some of our new helicopters and
some of our new helicopters may replace existing helicopters already under contract, which could
adversely affect the utilization of our existing fleet.
We are substantially expanding our fleet of helicopters. Many of our new oil and gas helicopters
may not be covered by customer contracts when they are placed into service, and we cannot assure
you as to when we will be able to utilize these new helicopters or on what terms. To the extent our
helicopters are covered by a customer contract when they are placed into service, many of these
contracts are for a short term, requiring us to seek renewals more frequently.
Once certain new model helicopters are delivered to us, we generally spend between two and three
months installing mission-specific and/or customer-specific equipment before we place them into
service. As a result, there can be a significant delay between the delivery date for a new
helicopter and the time that it is able to generate revenues for us.
29
We expect that some of our customers may request new helicopters in lieu of our existing
helicopters, which could adversely affect the utilization of our existing fleet.
Our contracts generally can be terminated or downsized by our customers without penalty.
Most of our fixed-term contracts contain provisions permitting early termination by the customer,
sometimes with as little as 30 days notice for any reason and generally without penalty. In
addition, many of our contracts permit our customers to decrease the number of aircraft under
contract with a corresponding decrease in the fixed monthly payments without penalty. As a result,
you should not place undue reliance on our customer contracts or the terms of those contracts.
Increased governmental regulations could increase our costs or reduce our ability to operate
successfully.
Our operations are regulated by a number of federal and state agencies. All of our flight
operations are regulated by the Federal Aviation Administration (FAA). Aircraft accidents are
subject to the jurisdiction of the NTSB. Standards relating to the workplace health and safety are
monitored by the federal Occupational Safety and Health Administration (OSHA). Also, we are
subject to various federal and state environmental statutes that are discussed in more detail under
Managements Discussion and Analysis of Financial Condition and Results of Operations
Environmental Matters beginning on page 27 and Notes to Condensed Consolidated Financial
Statements (unaudited) Commitments & Contingencies beginning on page 8.
The FAA has jurisdiction over many aspects of our business, including personnel, aircraft and
ground facilities. We are required to have an Air Taxi Certificate, granted by the FAA, to
transport personnel and property in our helicopters. This certificate contains operating
specifications that allow us to conduct our present operations, but it is potentially subject to
amendment, suspension or revocation in accordance with procedures set forth in the Federal Aviation
Act. The FAA is responsible for ensuring that we comply with all FAA regulations relating to the
operation of our aviation business, and conducts regular inspections regarding the safety, training
and general regulatory compliance of our U.S. aviation operations. Additionally, the FAA requires
us to file reports confirming our continued compliance.
FAA regulations require that at least 75% of our voting securities be owned or controlled by
citizens of the U.S. or one of its possessions, and that our president and at least two-thirds of
our directors be U.S. citizens. Our Chief Executive Officer and all of our directors are U.S.
citizens, and our organizational documents provide for the automatic reduction in voting power of
each share of voting common stock owned or controlled by a non-U.S. citizen if necessary to comply
with these regulations.
We are subject to significant regulatory oversight by OSHA and similar state agencies. We are also
subject to the Communications Act of 1934 because of our ownership and operation of a radio
communications flight-following network throughout the Gulf of Mexico.
Numerous other federal statutes and rules regulate our offshore operations and those of our
customers, pursuant to which the federal government has the ability to suspend, curtail or modify
certain or all offshore operations. A suspension or substantial curtailment of offshore oil and gas
operations for any prolonged period would have an immediate and materially adverse effect on us. A
substantial modification of current offshore operations could adversely affect the economics of
such operations and result in reduced demand for our services.
30
The helicopter services business is highly competitive, which could adversely impact our pricing
and demand for our services.
All segments of our business are highly competitive, which could adversely impact our pricing and
demand for our services. Many of our contracts are awarded after competitive bidding, and the
competition for those contracts generally is intense. The principal aspects of competition are
safety, price, reliability, availability and service.
We have two major competitors and several small competitors operating in the Gulf of Mexico, and
most of our customers and potential customers could operate their own helicopter fleets if they
chose to do so. At least one of our primary competitors is in the process of significantly
expanding its fleet.
Our Air Medical segment competes for business primarily under the independent provider model and,
to a lesser extent, under the hospital-based model. Under the independent provider model, we have
no contracts and no fixed revenue stream, but must compete for transport referrals on a daily basis
with other independent operators in the area. Under the hospital-based model, we contract directly
with the hospital to provide their transportation services, with the contracts typically awarded on
a competitive bid basis. Under both models, we compete against national and regional companies, and
there is usually more than one competitor in each local market. In addition, we compete against
hospitals that operate their own helicopters and, in some cases, against ground ambulances as well.
The failure to maintain our safety record would seriously harm our ability to attract new customers
and maintain our existing customers.
A favorable safety record is one of the primary factors a customer reviews in selecting an aviation
provider. If we fail to maintain our safety and reliability record, our ability to attract new
customers and maintain our current customers will be materially adversely affected.
Helicopter operations involve risks that may not be covered by our insurance or may increase the
cost of our insurance.
The operation of helicopters inherently involves a high degree of risk. Hazards such as aircraft
accidents, collisions, fire and adverse weather are hazards that must be managed by providers of
helicopter services and may result in loss of life, serious injury to employees and third parties,
and losses of equipment and revenues.
We maintain hull and liability insurance on our aircraft, which insures us against physical loss
of, or damage to, our aircraft and against certain legal liabilities to others. In addition, we
carry war risk, expropriation, confiscation and nationalization insurance for our aircraft involved
in international operations. In some instances, we are covered by indemnity agreements from our
customers in lieu of, or in addition to, our insurance. Our aircraft are not insured for loss of
use.
While we believe that our insurance and indemnification arrangements provide reasonable protection
for most foreseeable losses, they do not cover all potential losses and are subject to deductibles,
retentions, coverage limits and coverage exceptions such that severe casualty losses, or the
expropriation or confiscation of significant assets could materially and adversely affect our
financial condition or results of operations. The occurrence of an event that is not fully covered
by insurance could have a material adverse impact on our financial condition and results of
operations.
31
Our air medical operations expose us to numerous special risks, including collection risks, high
start-up costs and potential medical malpractice claims.
We recently have expanded our air medical business. These operations are highly competitive and
expose us to a number of risks that we do not encounter in our oil and gas operations. For
instance, the fees for our air medical services generally are paid by individual patients,
insurance companies, or government agencies such as Medicare and Medicaid. As a result, our
profitability in this business depends not only on our ability to generate an acceptable volume of
patient transports, but also on our ability to collect our transport fees. We are not permitted to
refuse service to patients based on their inability to pay.
As a result of our recent expansion, even if we are able to generate an acceptable volume of
patient transports, we cannot assure you that our new markets will be profitable for us. We
generally incurred significant startup costs and lower utilization rates when we entered new air
medical markets, which impacted our profitability. Finally, we employ paramedics, nurses and other
medical professionals for these operations, which can give rise to medical malpractice claims
against us, which, if not fully covered by our medical malpractice insurance, could materially
adversely affect our financial condition and results of operations.
Our dependence on a small number of helicopter manufacturers poses a significant risk to our
business and prospects.
We contract with a small number of manufacturers for most of our aircraft expansion support and
replacement needs. If any of these manufacturers faced production delays due to, for example,
natural disasters or labor strikes, we may experience a significant delay in the delivery of
previously ordered aircraft or support of existing aircraft, which would adversely affect our
revenues and profitability and could jeopardize our ability to meet the demands of our customers.
We have limited alternatives to find alternate sources of new aircraft.
Our international operations are subject to political, economic and regulatory uncertainty.
Our international operations, which represented approximately 8% of our total operating revenues
for the year ended December 31, 2005, are subject to a number of risks inherent in operating in
lesser developed countries, including:
|
|
political, social and economic instability; |
|
|
|
terrorism, kidnapping and extortion; |
|
|
|
potential seizure or nationalization of assets; |
|
|
|
import-export quotas; and |
|
|
|
currency fluctuations or devaluation. |
Additionally, our competitiveness in international markets may be adversely affected by government
regulation, including regulations requiring:
|
|
the awarding of contracts to local contractors; |
|
|
|
the employment of local citizens; and |
|
|
|
the establishment of foreign subsidiaries with significant ownership
positions reserved by the foreign government for local ownership. |
32
Our failure to attract and retain qualified personnel could adversely affect us.
Our ability to attract and retain qualified pilots, mechanics, nurses, paramedics and other highly
trained personnel will be an important factor in determining our future success. Many of our
customers require pilots of aircraft that service them to have inordinately high levels of flight
experience. The market for these experienced and highly trained personnel is extremely competitive.
Accordingly, we cannot assure you that we will be successful in our efforts to attract and retain
such persons. Some of our pilots and mechanics and those of our competitors are members of the U.S.
military reserves and could be called to active duty. If significant numbers of such persons are
called to active duty, it would reduce the supply of such workers, possibly curtailing our
operations and likely increasing our labor costs.
RISKS SPECIFIC TO OUR COMPANY
We are highly dependent on the offshore oil and gas industry.
Approximately 60% of our 2005 operating revenue was attributable to helicopter support for domestic
offshore oil and gas exploration and production companies. Our business is highly dependent on the
level of activity by the oil and gas companies, particularly in the Gulf of Mexico.
The level of activity by our customers operating in the Gulf of Mexico depends on factors that we
cannot control, such as:
|
|
the supply of, and demand for, oil and natural gas and market
expectations regarding supply and demand; |
|
|
|
actions of OPEC, and Middle Eastern and other oil producing
countries, to control prices or change production levels; |
|
|
|
general economic conditions in the United States and worldwide; |
|
|
|
war, civil unrest or terrorist activities; |
|
|
|
governmental regulation; and |
|
|
|
the price and availability of alternative fuels. |
Any substantial or extended decline in the prices of oil and natural gas could depress the level of
helicopter activity in support of exploration and production activity and thus have a material
adverse effect on our business, results of operations and financial condition.
Additionally, the shallow water Gulf of Mexico is generally considered to be a mature area for oil
and gas exploration, which may result in a continuing decrease in activity over time. This could
materially adversely affect our business, results of operations and financial condition. In
addition, the concentrated nature of our operations subjects us to the risk that a regional event
could cause a significant interruption in our operations or otherwise have a material affect on our
profitability.
Moreover, companies in the oil and gas exploration and production industry continually seek to
implement cost-savings measures. As part of these measures, oil and gas companies have attempted to
improve operating efficiencies with respect to helicopter support services. For example, certain
oil and gas companies have reduced staffing levels by using technology to permit unmanned
production installations and decreased the frequency of transportation of employees offshore by
increasing the lengths of shifts offshore. The continued implementation of such measures could
reduce demand for helicopter services and have a material adverse effect on our business, results
of operations and our financial condition.
33
We currently are negotiating a new collective bargaining agreement covering our pilots.
We have been in negotiations and mediation with the OPEIU (the Office and Professional Employees
International Union, which is the union representing our domestic pilot work force), since
expiration of the collective bargaining agreement May 31, 2004. On July 28, 2006, the National
Mediation Board released the parties from the mediation process. As a result, a 30-day cooling
off period commenced and expires August 28, 2006. Following the cooling off period, the Company
is free to do whatever is reasonably necessary to continue operations, and the union is free to
engage in job actions, including work stoppages or a general strike. Although the outcome of these
negotiations cannot be predicted, it is managements intent to continue working toward an
acceptable renewed collective bargaining agreement.
We cannot predict the outcome of these negotiations nor when they might be concluded and such
negotiations may result in an agreement that will materially increase our operating costs. Failure
to reach a satisfactory agreement could result in work stoppages, strikes or other labor
disruptions that could materially adversely affect our revenues, operations or financial condition.
We depend on a small number of large oil and gas industry customers for a significant portion of
our revenues, and our credit exposure within this industry is significant.
We derive a significant amount of our revenue from a small number of major and independent oil and
gas companies. For the quarter ended June 30, 2006, 19% of our revenues were attributable to our
largest customer. The loss of one of our significant customers, if not offset by revenues from new
or other existing customers, would have a material adverse effect on our business and operations.
In addition, this concentration of customers may impact our overall credit risk in that these
entities may be similarly affected by changes in economic and other conditions.
Our Chairman of the Board and Chief Executive Officer is also our principal stockholder and has
voting control of the Company.
Al A. Gonsoulin, our Chairman of the Board and Chief Executive Officer, beneficially owns stock
representing approximately 52% of our total voting power. As a result, he exercises control over
the election of all of our directors and the outcome of most matters requiring a stockholder vote.
This ownership also may delay or prevent a change in our management or a change in control of us,
even if such changes would benefit our other stockholders and were supported by a majority of our
other stockholders.
Our substantial indebtedness could adversely affect our financial condition and impair our ability
to operate our business.
We are a highly leveraged company and, as a result, have significant debt service obligations. As
of June 30, 2006, our total indebtedness was $204.0 million, including $200 million of our 7 1/8 %
senior notes due 2013. On April 12, 2006, we completed the sale of 4,287,920 non-voting common
shares, and then on May 1, 2006 we completed the sale of the over-allotment of shares of 578,680
non-voting common shares. These transactions resulted in an increase in shareholder equity of
$160.8 million, net of expenses. We also issued $200 million of 7 1/8% Senior Notes due April 15,
2013. Proceeds of the Notes were used to retire our existing $200 million 9 3/8% Senior Notes due
May 1, 2009. These transactions are discussed in more detail under Managements Discussion And
Analysis of Financial Condition and Results of Operations Overview on page 17. As a result of
these transactions, our debt to equity ratio at June 30, 2006 was 0.51 to 1.00, as compared to 0.85
to 1.00 at December 31, 2005.
At June 30, 2006, we had $4.0 million in borrowings and $5.1 million in letters of credit
outstanding under our revolving line of credit. As of June 30, 2006, availability for borrowings
under our revolving credit facility was $25.9 million.
34
Our substantial indebtedness could have significant negative consequences to us that you should
consider. For example, it could:
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|
require us to dedicate a substantial portion of our cash flow from operations to pay principal of, and interest on, our
indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures or other
general corporate purposes, or to carry out other aspects of our business plan; |
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|
increase our vulnerability to general adverse economic and industry conditions and limit our ability to withstand
competitive pressures; |
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limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities; |
|
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place us at a competitive disadvantage compared to our competitors that have less debt; and |
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limit our ability to obtain additional financing to fund future working capital, capital expenditures and other aspects
of our business plan. |
Our ability to meet our debt obligations and other expenses will depend on our future performance,
which will be affected by financial, business, economic, regulatory and other factors, many of
which we are unable to control. Our new 7 1/8% senior notes will come due in 2013. At that time, we
will likely need to enter into new financing arrangements to repay those notes. We may be unable to
obtain that financing on favorable terms, which could adversely affect our business, financial
condition and results of operations. For more information on our indebtedness, please see the
financial statements included elsewhere herein.
Our stock has a low trading volume.
Our common stock is listed for trading on The NASDAQ National Market under the symbol PHIIK for
our non-voting common stock and PHII for our voting common stock. Both classes of common stock
have low trading volume. As a result, a stockholder may not be able to sell shares of our common
stock at the time, in the amounts, or at the price desired.
We do not pay dividends.
We have not paid any dividends on our common stock since 1999 and do not anticipate that we will
pay dividends on our common stock in the foreseeable future. In addition, our ability to pay
dividends is restricted by the indenture governing our 7 1/8% senior notes due 2013 and our bank
credit facility.
Provisions in our articles of incorporation and bylaws and Louisiana law make it more difficult to
effect a change in control of us, which could discourage a takeover of our company and adversely
affect the price of our common stock.
Although an attempted takeover of our company is unlikely by virtue of the ownership by our chief
executive officer of more than 50% of the total voting power of our capital stock, there are also
provisions in our articles of incorporation and bylaws that may make it more difficult for a third
party to acquire control of us, even if a change in control would result in the purchase of your
shares at a premium to the market price or would otherwise be beneficial to you. For example, our
articles of incorporation authorize our board of directors to issue preferred stock without
stockholder approval. If our board of directors elects to issue preferred stock, it could be more
difficult for, or discourage, a third party to acquire us. In addition, provisions of our bylaws,
such as giving the board the exclusive right to fill all board vacancies, could make it more
difficult for a third party to acquire control of us.
35
In addition to the provisions contained in our articles of incorporation and bylaws, the Louisiana
Business Corporation Law (LBCL), includes certain provisions applicable to Louisiana
corporations, such as us, which may be deemed to have an anti-takeover effect. Those provisions
give stockholders the right to receive the fair value of their shares of stock following a control
transaction from a controlling person or group and set forth requirements relating to certain
business combinations. Our descriptions of these provisions are only abbreviated summaries of
detailed and complex statutes. For a complete understanding of the statutes, you should read them
in their entirety.
The LBCLs control share acquisition statute provides that any person who acquires control shares
will be able to vote such shares only if the right to vote is approved by the affirmative vote of
at least a majority of (i) all the votes entitled to be cast by stockholders and (ii) all the votes
entitled to be cast by stockholders excluding interested shares. The control share acquisition
statute permits the articles of incorporation or bylaws of a company to exclude from the statutes
application acquisitions occurring after the adoption of the exclusion. Our bylaws do contain such
an exclusion; however, our board of directors or stockholders, by an amendment to our bylaws, could
reverse this exclusion.
Future sales of our shares could depress the market price of our non-voting common stock.
The market price of our non-voting common stock could decline as a result of issuances and sales by
us of additional shares of non-voting or voting common stock pursuant to our existing shelf
registration statement or otherwise. The market price of our non-voting common stock could also
decline as the result of the perception that these sales could occur. These sales, or the
possibility that these sales may occur, also might make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem appropriate.
The DOJ investigation could result in criminal proceedings and the imposition of fines and
penalties.
On June 15, 2005, we received a subpoena from the United States Department of Justice relating to a
grand jury investigation of potential antitrust violations among providers of helicopter
transportation services in the Gulf of Mexico. We are cooperating fully with the investigation and
believe we have provided all documents and other information required by the subpoena. We will
respond to any DOJ request for further information, and will continue to cooperate with the
investigation.
We cannot predict the ultimate outcome of the DOJ investigation. The outcome of the DOJ
investigation and any related legal proceedings could include civil injunctive or criminal
proceedings, the imposition of fines and other penalties, remedies and/or sanctions, referral to
other governmental agencies and/or the payment of damages in civil litigation, any of which could
have a material adverse effect on our business, financial condition and results of operations.
Additionally, the cost of defending such an action or actions against us could be significant.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 2005 Annual Meeting of Stockholders on May 15, 2006. At the meeting,
shareholders elected each of the following persons listed below to PHIs Board of Directors for a
term ending at the Companys 2006 Annual Meeting of Stockholders. The number of votes cast with
respect
36
to the election of each such person is opposite such persons name. The persons listed below
constituted the entire Board of Directors of the Company at that time.
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Number of Votes Cast |
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Broker |
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Name of Director |
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For |
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Withhold |
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Non-Vote |
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Al A. Gonsoulin |
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1,482,266 |
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0 |
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0 |
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Lance F. Bospflug |
|
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1,482,266 |
|
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0 |
|
|
|
0 |
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Arthur J. Breault, Jr. |
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1,482,266 |
|
|
|
0 |
|
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|
0 |
|
C. Russell Luigs |
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1,482,266 |
|
|
|
0 |
|
|
|
0 |
|
Richard H. Matzke |
|
|
1,482,266 |
|
|
|
0 |
|
|
|
0 |
|
Thomas H. Murphy |
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1,482,266 |
|
|
|
0 |
|
|
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0 |
|
Item 5. OTHER INFORMATION
Related Party Transaction
In June, 2006, the Company executed a lease agreement for a hangar and office facility in New
Iberia, Louisiana, which is owned by Mr. Gonsoulin, our Chairman and Chief Executive Officer.
These facilities replace a facility previously leased from a third party. The lease cost is $4,500
per month, which management believes is at or below a fair market rental. In addition, the Company
will make certain improvements at an estimated cost of $0.5 million to accommodate its operations.
The cost per square foot including the improvements is expected to be $8.80 compared to a cost of
$10.91 per square foot at the prior facility.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 (i) |
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Amended and Restated Articles of Incorporation of the Company. |
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(ii) |
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Amended and Restated By-laws of the Company (incorporated by reference to
Exhibit No. 3.1 (ii) to PHIs Report on Form 10-Q for the quarterly period ended March
31, 2002). |
4.1 |
|
First Supplemental Indenture dated April 12, 2006, among PHI, Inc., the Subsidiary
Guarantors named therein and The Bank of New York, as Trustee (incorporated by reference to
Exhibit 10.1 to PHIs Report on Form 8-K filed on April 13, 2006). |
|
4.2 |
|
Indenture dated April 12, 2006 among PHI, Inc., the Subsidiary Guarantors named therein
and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2 to PHIs
Report on Form 8-K filed on April 13, 2006). |
|
4.3 |
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Registration Rights Agreement dated April 12, 2006 (incorporated by reference to
Exhibit 10.3 to PHIs Report on Form 8-K filed on April 13, 2006). |
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4.4 |
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Third Amendment to Loan Agreement dated April 12, 2006 by and among PHI, Inc., Air Evac
Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), and
International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 8-K filed on April 13, 2006).
|
37
31.1 |
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al A.
Gonsoulin, Chairman and Chief Executive Officer. |
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31.2 |
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Michael J.
McCann, Chief Financial Officer. |
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32.1 |
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al A.
Gonsoulin, Chairman and Chief Executive Officer. |
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32.2 |
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Michael J.
McCann, Chief Financial Officer. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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PHI, Inc.
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August 9, 2006 |
By: |
/s/ Al A. Gonsoulin
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Al A. Gonsoulin |
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Chairman and Chief Executive Officer |
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August 9, 2006 |
By: |
/s/ Michael J. McCann
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Michael J. McCann |
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Chief Financial Officer and Treasurer |
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38
Exhibit Index
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Exhibits |
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Description of Exhibit |
|
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3.1 (i)
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Amended and Restated Articles of Incorporation of the Company. |
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(ii)
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Amended and Restated By-laws of the Company (incorporated by reference to
Exhibit No. 3.1 (ii) to PHIs Report on Form 10-Q for the quarterly period ended March
31, 2002). |
|
|
|
4.1
|
|
First Supplemental Indenture dated April 12, 2006, among PHI, Inc., the Subsidiary
Guarantors named therein and The Bank of New York, as Trustee (incorporated by reference to
Exhibit 10.1 to PHIs Report on Form 8-K filed on April 13, 2006). |
|
|
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4.2
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Indenture dated April 12, 2006 among PHI, Inc., the Subsidiary Guarantors named therein
and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2 to PHIs
Report on Form 8-K filed on April 13, 2006). |
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4.3
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Registration Rights Agreement dated April 12, 2006 (incorporated by reference to
Exhibit 10.3 to PHIs Report on Form 8-K filed on April 13, 2006). |
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4.4
|
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Third Amendment to Loan Agreement dated April 12, 2006 by and among PHI, Inc., Air Evac
Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), and
International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 8-K filed on April 13, 2006). |
|
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Exhibits |
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Description of Exhibit |
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31.1
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al A.
Gonsoulin, Chairman and Chief Executive Officer. |
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31.2
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Michael J.
McCann, Chief Financial Officer. |
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32.1
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al A.
Gonsoulin, Chairman and Chief Executive Officer. |
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32.2
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Michael J.
McCann, Chief Financial Officer. |