e10vq
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: September 30, 2006
or
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number: 0-9827
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.
Large accelerated filer o Accelerated filer: þ 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 November 3, 2006 |
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Voting Common Stock
Non-Voting Common Stock
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2,852,616 shares
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)
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September 30, |
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December 31, |
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2006 |
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2005 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
164,601 |
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$ |
69,561 |
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Accounts receivable net of allowance: |
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Trade |
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96,931 |
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89,351 |
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Other |
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4,695 |
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6,766 |
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Inventory, net |
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54,814 |
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48,123 |
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Assets held for sale |
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2,384 |
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Other current assets |
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11,289 |
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10,042 |
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Refundable income taxes |
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138 |
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422 |
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Total current assets |
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334,852 |
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224,265 |
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Property and equipment, net |
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337,934 |
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311,678 |
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Other |
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47,180 |
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13,266 |
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Total Assets |
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$ |
719,966 |
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$ |
549,209 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
36,971 |
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$ |
40,506 |
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Accrued liabilities |
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8,828 |
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10,807 |
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Accrued vacation payable |
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3,498 |
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3,811 |
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Accrued interest payable |
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6,774 |
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|
3,175 |
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Accrued wages and salaries |
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5,647 |
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2,439 |
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Notes payable |
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1,000 |
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Total current liabilities |
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61,718 |
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61,738 |
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Long-term debt |
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203,500 |
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203,300 |
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Deferred income taxes |
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41,006 |
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38,906 |
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Other long-term liabilities |
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9,377 |
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6,214 |
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Commitments and contingencies (Note 3) |
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Shareholders Equity: |
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Voting common stock par value of $0.10;
authorized shares of 12,500,000 |
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285 |
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285 |
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Non-voting common stock par value of $0.10;
authorized shares of 12,500,000 |
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1,229 |
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742 |
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Additional paid-in capital |
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289,766 |
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129,531 |
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Retained earnings |
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113,085 |
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108,493 |
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Total shareholders equity |
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404,365 |
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239,051 |
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Total liabilities and shareholders equity |
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$ |
719,966 |
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$ |
549,209 |
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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)
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Quarter Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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Operating revenues |
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$ |
109,315 |
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$ |
100,018 |
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$ |
317,844 |
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$ |
261,040 |
|
Gain (loss) on disposition of
property and equipment, net |
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621 |
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26 |
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(541 |
) |
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486 |
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Other |
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2,659 |
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|
861 |
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6,076 |
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1,155 |
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112,595 |
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100,905 |
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323,379 |
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262,681 |
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Expenses: |
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Direct expenses |
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93,224 |
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80,184 |
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269,492 |
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217,115 |
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Selling, general and
administrative expenses |
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6,795 |
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6,561 |
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20,203 |
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17,263 |
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Interest expense |
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4,039 |
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5,061 |
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13,241 |
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15,337 |
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Loss on debt restructuring |
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12,790 |
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|
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104,058 |
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91,806 |
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315,726 |
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|
249,715 |
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Earnings before income taxes |
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8,537 |
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|
9,099 |
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|
7,653 |
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|
|
12,966 |
|
Income taxes |
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|
3,415 |
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|
|
3,639 |
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|
3,061 |
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5,186 |
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Net earnings |
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$ |
5,122 |
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$ |
5,460 |
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$ |
4,592 |
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$ |
7,780 |
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Weighted average shares
outstanding: |
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Basic |
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15,288 |
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|
10,271 |
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|
13,447 |
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|
7,288 |
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Diluted |
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|
15,306 |
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|
10,295 |
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|
13,463 |
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|
7,314 |
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Net earnings per share |
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|
|
|
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Basic |
|
$ |
0.34 |
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|
$ |
0.53 |
|
|
$ |
0.34 |
|
|
$ |
1.07 |
|
Diluted |
|
$ |
0.33 |
|
|
$ |
0.53 |
|
|
$ |
0.34 |
|
|
$ |
1.06 |
|
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)
|
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Nine Months Ended |
|
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September 30, |
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2006 |
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|
2005 |
|
Cash flows from operating activities: |
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|
|
|
|
|
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|
Net earnings |
|
$ |
4,592 |
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$ |
7,780 |
|
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
|
|
|
|
|
|
|
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Depreciation |
|
|
22,389 |
|
|
|
19,923 |
|
Deferred income taxes |
|
|
2,100 |
|
|
|
3,806 |
|
(Gain) loss on disposition of property &
equipment, net |
|
|
541 |
|
|
|
(486 |
) |
Loss on debt restructuring |
|
|
12,790 |
|
|
|
|
|
Other |
|
|
594 |
|
|
|
983 |
|
Changes in operating assets and liabilities |
|
|
(20,226 |
) |
|
|
(15,187 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
22,780 |
|
|
|
16,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(81,622 |
) |
|
|
(59,636 |
) |
Deposit on aircraft |
|
|
(23,000 |
) |
|
|
|
|
Proceeds from asset dispositions |
|
|
5,728 |
|
|
|
6,147 |
|
Proceeds from sale-leaseback transaction |
|
|
25,069 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(73,825 |
) |
|
|
(53,489 |
) |
|
|
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|
|
|
|
|
|
|
|
|
|
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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 |
) |
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|
|
|
Proceeds from (payments to) line of credit, net |
|
|
200 |
|
|
|
(4,775 |
) |
Proceeds from stock issuance, net |
|
|
160,722 |
|
|
|
113,909 |
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
1,081 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
146,085 |
|
|
|
110,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
95,040 |
|
|
|
73,545 |
|
Cash and cash equivalents, beginning of period |
|
|
69,561 |
|
|
|
18,008 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
164,601 |
|
|
$ |
91,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures Cash Flow Information |
|
|
|
|
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|
|
|
Interest paid |
|
$ |
9,021 |
|
|
$ |
9,887 |
|
|
|
|
|
|
|
|
Taxes paid, net |
|
$ |
68 |
|
|
$ |
296 |
|
|
|
|
|
|
|
|
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 150 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 69 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 September 30, 2006 and 2005 is as follows:
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|
|
Quarter Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(Thousands of dollars) |
|
|
(Thousands of dollars) |
|
Segment operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
$ |
66,240 |
|
|
$ |
58,952 |
|
|
$ |
194,111 |
|
|
$ |
155,392 |
|
Air Medical |
|
|
35,735 |
|
|
|
33,905 |
|
|
|
100,042 |
|
|
|
82,989 |
|
International |
|
|
5,438 |
|
|
|
6,766 |
|
|
|
18,660 |
|
|
|
19,565 |
|
Technical Services |
|
|
1,902 |
|
|
|
395 |
|
|
|
5,031 |
|
|
|
3,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
109,315 |
|
|
|
100,018 |
|
|
|
317,844 |
|
|
|
261,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment direct expenses (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
55,407 |
|
|
|
46,773 |
|
|
|
158,306 |
|
|
|
126,116 |
|
Air Medical |
|
|
32,560 |
|
|
|
28,701 |
|
|
|
94,938 |
|
|
|
75,799 |
|
International |
|
|
4,137 |
|
|
|
4,358 |
|
|
|
12,749 |
|
|
|
12,824 |
|
Technical Services |
|
|
1,120 |
|
|
|
352 |
|
|
|
3,499 |
|
|
|
2,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct expenses |
|
|
93,224 |
|
|
|
80,184 |
|
|
|
269,492 |
|
|
|
217,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
282 |
|
|
|
256 |
|
|
|
822 |
|
|
|
704 |
|
Air Medical |
|
|
1,758 |
|
|
|
1,741 |
|
|
|
5,403 |
|
|
|
4,645 |
|
International |
|
|
20 |
|
|
|
118 |
|
|
|
81 |
|
|
|
182 |
|
Technical Services |
|
|
13 |
|
|
|
1 |
|
|
|
71 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
2,073 |
|
|
|
2,116 |
|
|
|
6,377 |
|
|
|
5,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct and selling, general and administrative
expenses |
|
|
95,297 |
|
|
|
82,300 |
|
|
|
275,869 |
|
|
|
222,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net segment profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
10,551 |
|
|
|
11,923 |
|
|
|
34,983 |
|
|
|
28,572 |
|
Air Medical |
|
|
1,417 |
|
|
|
3,463 |
|
|
|
(299 |
) |
|
|
2,545 |
|
International |
|
|
1,281 |
|
|
|
2,290 |
|
|
|
5,830 |
|
|
|
6,559 |
|
Technical Services |
|
|
769 |
|
|
|
42 |
|
|
|
1,461 |
|
|
|
713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
14,018 |
|
|
|
17,718 |
|
|
|
41,975 |
|
|
|
38,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net (2) |
|
|
3,280 |
|
|
|
887 |
|
|
|
5,535 |
|
|
|
1,641 |
|
Unallocated selling, general and administrative costs |
|
|
(4,722 |
) |
|
|
(4,445 |
) |
|
|
(13,826 |
) |
|
|
(11,727 |
) |
Interest expense |
|
|
(4,039 |
) |
|
|
(5,061 |
) |
|
|
(13,241 |
) |
|
|
(15,337 |
) |
Loss on debt restructuring |
|
|
|
|
|
|
|
|
|
|
(12,790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
$ |
8,537 |
|
|
$ |
9,099 |
|
|
$ |
7,653 |
|
|
$ |
12,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in direct expense are the depreciation expense amounts below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Domestic Oil and Gas |
|
$ |
4,199 |
|
|
$ |
4,002 |
|
|
$ |
11,832 |
|
|
$ |
12,035 |
|
Air Medical |
|
|
2,343 |
|
|
|
1,711 |
|
|
|
6,627 |
|
|
|
4,631 |
|
International |
|
|
323 |
|
|
|
233 |
|
|
|
1,092 |
|
|
|
886 |
|
Technical Services |
|
|
24 |
|
|
|
1 |
|
|
|
38 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,889 |
|
|
$ |
5,947 |
|
|
$ |
19,589 |
|
|
$ |
17,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated SG&A |
|
$ |
1,047 |
|
|
$ |
776 |
|
|
$ |
2,800 |
|
|
$ |
2,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 September
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
consisted 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 September 30, 2006.
8
We have a $35 million revolving credit facility with a commercial bank, which is scheduled to
expire on September 1, 2008. As of September 30, 2006, we had $3.5 million in borrowings and $5.2
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 September
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 September 30, 2006, we had approximately $151.7 million in aggregate commitments under operating
leases of which approximately $4.1 million is payable through December 31, 2006, and a total of
$16.1 million is payable over the twelve months ended September 30, 2007. Of the total lease
commitments, $130.9 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 $20.8 million, primarily for our facilities in Lafayette, Louisiana.
Purchase Commitments At September 30, 2006, we had purchase commitments totaling $248.6 million
for aircraft, $72.5 million which we intend to fund with operating leases, and $176.1 million 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 September 30, 2006 and December 31, 2005.
We have also established valuation reserves related to obsolete and excess inventory. The
inventory valuation reserves were $7.0 million and $6.3 million at September 30, 2006 and December
31, 2005, respectively.
5. Employees
Union Negotiations We were 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. This release started the 30-day cooling off period which expired on August
28, 2006. Since the end of the cooling off period, the Company has been free to do whatever is
reasonably necessary to continue operations, and the union has been free to engage in job actions,
including work stoppages or a general strike. At the conclusion of the cooling off period, we
implemented our proposed compensation plan for our pilots which, we believe places those wages
slightly above those of our competitors in the relevant sectors.
On September 20, 2006, approximately 237 pilots, out of a total pilot work force of 565, commenced
a strike. Currently, approximately 176 pilots remain on strike. Although we implemented our
contingency plan on that date, approximately 15% of flight hours in our Domestic Oil and Gas
segment, and 10% of flight hours in our Air Medical segment, remain curtailed. Currently, there
are no negotiations taking place and there can be no assurance that further negotiations would be
successful or any assurance as to the terms of any agreement that may be reached.
9
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 have not accrued estimated incentive compensation expense for the nine months ended
September 30, 2006. In the quarter ended September 30, 2006, amounts accrued at June 30, 2006 of
approximately $1.0 million were reversed due to the estimated impact of the pilot strike on
achieving the specified earnings threshold. For the twelve months ended December 31, 2005, we
recorded $2.3 million of incentive compensation expense related to the plans.
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 nine months period ended September 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 was adopted 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 results of operations or financial position.
In September 2006, FASB issued SFAS No. 157, Fair Value Measurements which defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles and
expands disclosures about fair value measurements. This Statement is effective for financial
statements issued for
10
fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.
Earlier application is encouraged provided that the reporting entity has not yet issued financial
statements for that fiscal year including financial statements for an interim period within that
fiscal year. The Company is assessing SFAS No. 157 and has not determined yet the impact that the
adoption of SFAS No. 157 will have on its results 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 $160.7 million, net of expenses, which will be used to
fund the acquisition of aircraft to be delivered in 2006 and 2007.
We had an average of 15.3 million common shares outstanding for the quarter ended September 30,
2006, compared to an average of 10.3 million shares for the quarter ended September 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)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
164,128 |
|
|
$ |
473 |
|
|
$ |
|
|
|
$ |
164,601 |
|
Accounts receivable net of allowance |
|
|
87,118 |
|
|
|
14,508 |
|
|
|
|
|
|
|
101,626 |
|
Inventory |
|
|
54,814 |
|
|
|
|
|
|
|
|
|
|
|
54,814 |
|
Assets held for sale |
|
|
2,384 |
|
|
|
|
|
|
|
|
|
|
|
2,384 |
|
Other current assets |
|
|
11,264 |
|
|
|
25 |
|
|
|
|
|
|
|
11,289 |
|
Refundable income taxes |
|
|
44 |
|
|
|
94 |
|
|
|
|
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
319,752 |
|
|
|
15,100 |
|
|
|
|
|
|
|
334,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable |
|
|
|
|
|
|
41,739 |
|
|
|
(41,739 |
) |
|
|
|
|
Other assets |
|
|
47,172 |
|
|
|
8 |
|
|
|
|
|
|
|
47,180 |
|
Investment in subsidiaries and other |
|
|
44,395 |
|
|
|
|
|
|
|
(44,395 |
) |
|
|
|
|
Property and equipment, net |
|
|
329,945 |
|
|
|
7,989 |
|
|
|
|
|
|
|
337,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
741,264 |
|
|
$ |
64,836 |
|
|
$ |
(86,134 |
) |
|
$ |
719,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
54,146 |
|
|
$ |
4,074 |
|
|
$ |
|
|
|
$ |
58,220 |
|
Intercompany payable |
|
|
41,739 |
|
|
|
|
|
|
|
(41,739 |
) |
|
|
|
|
Accrued vacation payable |
|
|
3,209 |
|
|
|
289 |
|
|
|
|
|
|
|
3,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
99,094 |
|
|
|
4,363 |
|
|
|
(41,739 |
) |
|
|
61,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
203,500 |
|
|
|
|
|
|
|
|
|
|
|
203,500 |
|
Deferred income taxes and other long-term
liabilities |
|
|
34,305 |
|
|
|
16,078 |
|
|
|
|
|
|
|
50,383 |
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital |
|
|
291,280 |
|
|
|
4,402 |
|
|
|
(4,402 |
) |
|
|
291,280 |
|
Retained earnings |
|
|
113,085 |
|
|
|
39,993 |
|
|
|
(39,993 |
) |
|
|
113,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
404,365 |
|
|
|
44,395 |
|
|
|
(44,395 |
) |
|
|
404,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity |
|
$ |
741,264 |
|
|
$ |
64,836 |
|
|
$ |
(86,134 |
) |
|
$ |
719,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended September 30, 2006 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenues |
|
$ |
94,968 |
|
|
$ |
14,347 |
|
|
$ |
|
|
|
$ |
109,315 |
|
Management fees |
|
|
574 |
|
|
|
|
|
|
|
(574 |
) |
|
|
|
|
Gain on dispositions of property and
equipment, net |
|
|
621 |
|
|
|
|
|
|
|
|
|
|
|
621 |
|
Other |
|
|
2,651 |
|
|
|
8 |
|
|
|
|
|
|
|
2,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,814 |
|
|
|
14,355 |
|
|
|
(574 |
) |
|
|
112,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
82,158 |
|
|
|
11,066 |
|
|
|
|
|
|
|
93,224 |
|
Management fees |
|
|
|
|
|
|
574 |
|
|
|
(574 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
6,042 |
|
|
|
753 |
|
|
|
|
|
|
|
6,795 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(1,564 |
) |
|
|
|
|
|
|
1,564 |
|
|
|
|
|
Interest expense |
|
|
4,039 |
|
|
|
|
|
|
|
|
|
|
|
4,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,675 |
|
|
|
12,393 |
|
|
|
990 |
|
|
|
104,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
8,139 |
|
|
|
1,962 |
|
|
|
(1,564 |
) |
|
|
8,537 |
|
Income taxes |
|
|
3,017 |
|
|
|
398 |
|
|
|
|
|
|
|
3,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
5,122 |
|
|
$ |
1,564 |
|
|
$ |
(1,564 |
) |
|
$ |
5,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended September 30, 2005 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenues |
|
$ |
86,863 |
|
|
$ |
13,155 |
|
|
$ |
|
|
|
$ |
100,018 |
|
Management fees |
|
|
476 |
|
|
|
|
|
|
|
(476 |
) |
|
|
|
|
Gain on dispositions of property and
equipment, net |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
26 |
|
Other |
|
|
861 |
|
|
|
|
|
|
|
|
|
|
|
861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,226 |
|
|
|
13,155 |
|
|
|
(476 |
) |
|
|
100,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
71,028 |
|
|
|
9,156 |
|
|
|
|
|
|
|
80,184 |
|
Management fees |
|
|
|
|
|
|
476 |
|
|
|
(476 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
5,881 |
|
|
|
680 |
|
|
|
|
|
|
|
6,561 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(1,913 |
) |
|
|
|
|
|
|
1,913 |
|
|
|
|
|
Interest expense |
|
|
5,061 |
|
|
|
|
|
|
|
|
|
|
|
5,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,057 |
|
|
|
10,312 |
|
|
|
1,437 |
|
|
|
91,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
8,169 |
|
|
|
2,843 |
|
|
|
(1,913 |
) |
|
|
9,099 |
|
Income taxes |
|
|
2,709 |
|
|
|
930 |
|
|
|
|
|
|
|
3,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
5,460 |
|
|
$ |
1,913 |
|
|
$ |
(1,913 |
) |
|
$ |
5,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2006 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenues |
|
$ |
276,355 |
|
|
$ |
41,489 |
|
|
$ |
|
|
|
$ |
317,844 |
|
Management fees |
|
|
1,660 |
|
|
|
|
|
|
|
(1,660 |
) |
|
|
|
|
Loss on dispositions of property and
equipment, net |
|
|
(541 |
) |
|
|
|
|
|
|
|
|
|
|
(541 |
) |
Other |
|
|
6,061 |
|
|
|
15 |
|
|
|
|
|
|
|
6,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
283,535 |
|
|
|
41,504 |
|
|
|
(1,660 |
) |
|
|
323,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
239,786 |
|
|
|
29,706 |
|
|
|
|
|
|
|
269,492 |
|
Management fees |
|
|
|
|
|
|
1,660 |
|
|
|
(1,660 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
18,083 |
|
|
|
2,120 |
|
|
|
|
|
|
|
20,203 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(5,755 |
) |
|
|
|
|
|
|
5,755 |
|
|
|
|
|
Interest expense |
|
|
13,241 |
|
|
|
|
|
|
|
|
|
|
|
13,241 |
|
Loss on debt restructuring |
|
|
12,790 |
|
|
|
|
|
|
|
|
|
|
|
12,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278,145 |
|
|
|
33,486 |
|
|
|
4,095 |
|
|
|
315,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
5,390 |
|
|
|
8,018 |
|
|
|
(5,755 |
) |
|
|
7,653 |
|
Income taxes |
|
|
798 |
|
|
|
2,263 |
|
|
|
|
|
|
|
3,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
4,592 |
|
|
$ |
5,755 |
|
|
$ |
(5,755 |
) |
|
$ |
4,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2005 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenues |
|
$ |
222,288 |
|
|
$ |
38,752 |
|
|
$ |
|
|
|
$ |
261,040 |
|
Management fees |
|
|
1,629 |
|
|
|
|
|
|
|
(1,629 |
) |
|
|
|
|
Gain on dispositions of property and
equipment, net |
|
|
486 |
|
|
|
|
|
|
|
|
|
|
|
486 |
|
Other |
|
|
1,155 |
|
|
|
|
|
|
|
|
|
|
|
1,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,558 |
|
|
|
38,752 |
|
|
|
(1,629 |
) |
|
|
262,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
192,081 |
|
|
|
25,034 |
|
|
|
|
|
|
|
217,115 |
|
Management fees |
|
|
|
|
|
|
1,629 |
|
|
|
(1,629 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
15,280 |
|
|
|
1,983 |
|
|
|
|
|
|
|
17,263 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(6,843 |
) |
|
|
|
|
|
|
6,843 |
|
|
|
|
|
Interest expense |
|
|
15,337 |
|
|
|
|
|
|
|
|
|
|
|
15,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,855 |
|
|
|
28,646 |
|
|
|
5,214 |
|
|
|
249,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
9,703 |
|
|
|
10,106 |
|
|
|
(6,843 |
) |
|
|
12,966 |
|
Income taxes |
|
|
1,923 |
|
|
|
3,263 |
|
|
|
|
|
|
|
5,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
7,780 |
|
|
$ |
6,843 |
|
|
$ |
(6,843 |
) |
|
$ |
7,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2006 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by operating activities |
|
$ |
22,572 |
|
|
$ |
208 |
|
|
$ |
|
|
|
$ |
22,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(81,428 |
) |
|
|
(194 |
) |
|
|
|
|
|
|
(81,622 |
) |
Deposit on aircraft |
|
|
(23,000 |
) |
|
|
|
|
|
|
|
|
|
|
(23,000 |
) |
Proceeds from asset dispositions |
|
|
5,728 |
|
|
|
|
|
|
|
|
|
|
|
5,728 |
|
Proceeds from sale-leaseback transactions |
|
|
25,069 |
|
|
|
|
|
|
|
|
|
|
|
25,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(73,631 |
) |
|
|
(194 |
) |
|
|
|
|
|
|
(73,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
200 |
|
Proceeds from stock issuance, net |
|
|
160,722 |
|
|
|
|
|
|
|
|
|
|
|
160,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
146,085 |
|
|
|
|
|
|
|
|
|
|
|
146,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
95,026 |
|
|
|
14 |
|
|
|
|
|
|
|
95,040 |
|
Cash and cash equivalents, beginning of
period |
|
|
69,102 |
|
|
|
459 |
|
|
|
|
|
|
|
69,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
164,128 |
|
|
$ |
473 |
|
|
$ |
|
|
|
$ |
164,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2005 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by operating activities |
|
$ |
16,673 |
|
|
$ |
146 |
|
|
$ |
|
|
|
$ |
16,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(59,636 |
) |
|
|
|
|
|
|
|
|
|
|
(59,636 |
) |
Proceeds from asset dispositions |
|
|
6,147 |
|
|
|
|
|
|
|
|
|
|
|
6,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(53,489 |
) |
|
|
|
|
|
|
|
|
|
|
(53,489 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on line of credit, net |
|
|
(4,775 |
) |
|
|
|
|
|
|
|
|
|
|
(4,775 |
) |
Proceeds from stock issuance, net |
|
|
113,909 |
|
|
|
|
|
|
|
|
|
|
|
113,909 |
|
Proceeds from exercise of stock options |
|
|
1,081 |
|
|
|
|
|
|
|
|
|
|
|
1,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
110,215 |
|
|
|
|
|
|
|
|
|
|
|
110,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
73,399 |
|
|
|
146 |
|
|
|
|
|
|
|
73,545 |
|
Cash and cash equivalents, beginning of
period |
|
|
17,701 |
|
|
|
307 |
|
|
|
|
|
|
|
18,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
91,100 |
|
|
$ |
453 |
|
|
$ |
|
|
|
$ |
91,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 with
the union representing our pilots, or the effects of not reaching any agreement with the union; the
strike that was recently initiated by some of our pilots and any unanticipated developments in or
outcomes from that strike; the effects of any other labor strife, whether or not related to the
pilots strike; operating hazards; risks related to operating in foreign countries; the ability to
obtain adequate insurance at an acceptable cost, and the effects on our ability to do so of the
location of many of our operations in areas that are vulnerable to hurricanes; 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
Operating revenues for the third quarter of 2006 were $109.3 million compared to $100.0
million for 2005, an increase of $9.3 million. The increase in the Domestic Oil and Gas segment
was due to additional aircraft on contract, related to increased exploration and production
activity by our customers in the Gulf of Mexico, particularly in the deepwater areas. Air Medical
segment revenues increased due to all operating locations being in service for the full quarter
compared to the prior year when additional locations were being added throughout the year.
Technical Services revenue increased as a result of reclassifying to the Technical Services segment
certain contractual third party work that was previously recorded in Domestic Oil and Gas.
International revenues declined due to a reduction in flight hour activity and the scheduled
release of one aircraft from contract by the customer in the previous quarter. Although revenue
increased for the quarter, the estimated effect on revenue of the strike by some of our pilots,
which began on September 20, was a decrease of $2.2 million in the Domestic Oil and Gas and $0.8
million in the Air Medical segments as compared to amounts that would have been realized based on
pre-strike business activity. The strike also caused us to incur additional costs, including pilot
overtime, last paychecks for striking pilots, and additional security at our Lafayette corporate
headquarters and at all bases. The total of those additional costs was $0.9 million for the month
of September. These amounts were partially offset by the reversal of an accrual for incentive
compensation of $1.0 million, as it is not probable that we will meet the requirements of the plan.
The effects of the strike beyond September 2006 are discussed below.
17
Net earnings were $5.1 million ($0.33 per diluted share) for the quarter ended September 30, 2006,
compared to net earnings of $5.5 million ($0.53 per diluted share) for the quarter ended September
30, 2005. Fully diluted shares outstanding at September 30, 2006, were 15,306,000, compared to
10,295,000 at September 30, 2005. Earnings before tax for the quarter ended September 30, 2006 were
$8.5 million compared to $9.1 million for the quarter ended September 30, 2005.
Flight hours were 39,534 for the three months ended September 30, 2006, compared to 41,696 flight
hours for the three months ended September 30, 2005. The effect of the strike was an initial
reduction of approximately 20% in flight hours, which then improved to an average of 15% after the
first few days of the strike. Flight hours in the Domestic Oil and Gas segment were running ahead
of the prior year until the strike went into effect resulting in a decrease for the full quarter.
The Air Medical segment experienced an increase in flight hours for the quarter although there was
a decrease in flight hours in September 2006 related to the strike. Flight hours for the
International segment decreased for the quarter. The number of aircraft in service at September 30,
2006 was 235 as compared to 234 at September 30, 2005. Since September 30, 2005, we have sold or
disposed of 22 light aircraft and added 23 new aircraft.
We are continuing to increase the number of aircraft in our Domestic Oil and Gas and International
segments. During the quarter, we ordered an additional two transport category aircraft, four
medium, and twelve light aircraft. Certain of these additional aircraft are replacement aircraft.
At September 30, 2006, we had orders for four additional transport category aircraft scheduled for
delivery in 2006 and 2007 at an approximate cost of $72.5 million. In addition, we had orders for
39 additional light and medium aircraft with a total cost of $176.1 million scheduled for delivery
throughout 2006, 2007 and 2008. The aircraft on order are for service in the Domestic Oil and Gas
and International segments and are based on a combination of customer commitments and our
assessment of customer requirements.
As we reported in a press release September 20, 2006, the pilots represented by the OPEIU (the
Office and Professional Employees International Union), commenced a general strike effective
September 20, 2006, which affected both the Domestic Oil and Gas and Air Medical segments.
Approximately 237 pilots initially participated in this strike, out of a total pilot work force of
564, which excludes pilots on sick leave or leave of absence. Approximately 176 pilots currently
remain on strike, as 42 pilots have returned to work and others took permanent positions elsewhere.
Additionally, we have been hiring additional pilots since September 1, 2006, following
implementation of a new compensation package that is identical to the package we offered in our
negotiations with OPEIU and we believe this package is superior to those provided by our principal
competitors in the Gulf of Mexico and in the air medical industry. To date, through our hiring
program and the return of striking pilots, we have increased our total pilot workforce to 454, 17
of whom are still in training, and we continue to process new applications. As a result, less than
one-half of the pilot positions are unfilled when compared to the initial number of striking
pilots. The flight qualifications and experience of those being hired equal or exceed PHIs
requirements in all cases.
We estimate that the continuing effects of the strike in October 2006 will be a reduction in
revenue of $4.5 to $5.0 million as compared to amounts that would have been realized based on
pre-strike business activity. The reduction in revenue is expected to continue until a sufficient
number of additional pilots can be hired, trained and deployed to allow us to return to normal
operating levels. We believe that improvements in revenue will begin to occur in November 2006.
If additional striking pilots return to work, that will also favorably affect flight hours and
revenue. We expect to incur monthly operating losses until the pilot complement that existed
before the strike is restored through the hiring and training process, and/or a sufficient number
of striking pilots return to work. It is difficult to assess the time frame over which that will
occur or the level of losses that will be incurred over that period. In managements opinion,
however, the unfavorable economic impact of acceding to the unions demands and the negative impact
on the long term health of PHIs future growth plans substantially outweigh the short term negative
effects of this strike.
18
Operating Statistics
The following tables present certain non-financial operational statistics for the quarter and nine
months ended September 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Flight hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
28,678 |
|
|
|
29,896 |
|
|
|
83,921 |
|
|
|
80,292 |
|
Air Medical |
|
|
7,986 |
|
|
|
7,811 |
|
|
|
22,866 |
|
|
|
19,384 |
|
International |
|
|
2,870 |
|
|
|
3,989 |
|
|
|
10,114 |
|
|
|
11,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
39,534 |
|
|
|
41,696 |
|
|
|
116,901 |
|
|
|
111,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Medical Transports (1) |
|
|
5,661 |
|
|
|
5,018 |
|
|
|
15,794 |
|
|
|
12,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2006 |
|
2005 |
Aircraft operated at period end: |
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
150 |
|
|
|
158 |
|
Air Medical |
|
|
69 |
|
|
|
60 |
|
International |
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
Total (2) |
|
|
235 |
|
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents individual patient transports for the period. Flight hours for these
transports are included above. |
|
(2) |
|
Includes 12 aircraft as of September 30, 2006 and 2005, respectively that are customer owned. |
Quarter Ended September 30, 2006 compared with Quarter Ended September 30, 2005
Combined Operations
Revenues Operating revenues for the three months ended September 30, 2006 were $109.3
million compared to $100.0 million for the three months ended September 30, 2005, an increase of
$9.3 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. Although revenue increased for
the quarter, the effect on revenue of the strike, which began on September 20, was a decrease of
$2.2 million in Domestic Oil and Gas and $0.8 million in the Air Medical segments. The increase in
operating revenues in the Domestic Oil and Gas segment was due to increased exploration and
production activity by our customers in the Gulf of Mexico, particularly in the deepwater areas.
The increase in Air Medical revenues was due to all operating locations being in service for the
full quarter compared to the prior year when additional locations were being added throughout the
year. The increase in Technical Services revenue resulted from reclassifying to the Technical
Services segment certain contractual work for third parties that was previously recorded in
Domestic Oil and Gas. The decrease in International was due to a reduction in flight hour activity
and the scheduled release of one aircraft from contract by the customer in the previous quarter.
Flight hours were 39,534 for the three months ended September 30, 2006, compared to 41,696 flight
hours for the three months ended September 30, 2005. Flight hours in the Domestic Oil and Gas
segment were running ahead of the prior year until the strike commenced causing a decrease for the
full quarter. The Air Medical segment experienced an increase in flight hours for the quarter
although there was a
decrease in flight hours in September related to the strike. Flight hours for the International
segment
19
decreased for the quarter. The number of aircraft in service at September 30, 2006 was 235
as compared to 234 at September 30, 2005, and 235 at December 31, 2005. We have sold or disposed
of 22 light aircraft since September 30, 2005, and added 23 new aircraft during this period. We
are continuing to increase 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
currently have 43 aircraft on order for delivery through 2008.
Other Income and Gains Gain on equipment dispositions was $0.6 million for the three
months ended September 30, 2006, compared to a gain of less than $0.1 million for the three months
ended September 30, 2005. The gain for the current quarter was due to the sale of three light
aircraft.
Other income was $2.7 million for the three months ended September 30, 2006 compared to $0.9
million for three months ended September 30, 2005, and primarily represents interest income on
unspent proceeds from our recent stock offering.
Direct Expenses Direct operating expense was $93.2 million for the three months ended
September 30, 2006, compared to $80.2 million for three months ended September 30, 2005, an
increase of $13.0 million. Direct expense increased in the Domestic Oil and Gas segment ($8.6
million) due to increased activity mentioned above, and increased in the Air Medical segment ($3.9
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 ($0.5
million). These increases are discussed in the Segment Discussion below.
On a combined basis, the direct expense increased due to increases in employee costs ($6.3 million)
as a result of payroll increases and additional personnel due to the expansion in the Air Medical
segment ($3.7 million) and additional personnel and overtime increases in all other segments ($2.6
million), aircraft rent ($1.5 million) due to additional aircraft on lease, aircraft warranty costs
($2.0 million) due to additional aircraft covered under manufacturers warranty programs, and fuel
($0.9 million) due to increased prices and flight activity. In addition, there were increases in
depreciation ($1.1 million), contracted base support personnel ($0.6 million) and contract pilots
($0.6 million) in the Domestic Oil and Gas segment.
Selling, General, and Administrative Expenses Selling, general and administrative expense
was $6.8 million for the three months ended September 30, 2006, compared to $6.6 million for the
three months ended September 30, 2005, an increase of $0.2 million. This increase was primarily a
result of increased property insurance costs.
Interest Expense Interest expense was $4.0 million for the quarter ended September 30,
2006, compared to $5.1 million for the quarter ended September 30, 2005. The decrease was a result
of refinancing our $200 million 9 3/8% senior notes at 7 1/8%.
Income Taxes Income tax expense for the three months ended September 30, 2006 was $3.4
million, an effective rate of 40%, compared to $3.6 million for the three months ended September
30, 2005, also an effective rate of 40%.
Earnings Our net income for the three months ended September 30, 2006 was $5.1 million
compared to net income of $5.5 million for the three months ended September 30, 2005. Earnings
before tax for the three months ended September 30, 2006 was $8.5 million compared to $9.1 million
for the same period in 2005. We estimate that the effect of the strike on earnings before tax was
$3.9 million ($2.3 million after tax).
Segment Discussion
Domestic Oil and Gas Domestic Oil and Gas segment revenues were $66.2 million for the three
months
ended September 30, 2006, compared to $58.9 million for the three months ended September 30, 2005.
20
Domestic Oil and Gas revenue for the quarter increased $7.3 million as a result of an increase of
$9.5 million due to additional aircraft under contract and certain contractual rate increases,
offset by a $2.2 million negative impact due to the strike. The segment also experienced a
decrease in flight hours as a result of the strike. We estimate an average decrease of 15% in
flight hours for the period impacted by the strike. Flight hours were 28,678 for the current
quarter compared to 29,896 for the same quarter in the prior year.
The number of aircraft in the segment at September 30, 2006 was 150 compared to 158 at September
30, 2005. We sold or disposed of 22 light aircraft in the Domestic Oil and Gas segment since
September 30, 2005, and we converted five medium aircraft in the segment to air medical use. In
total, we have added 19 new aircraft to the Domestic Oil and Gas segment since September 30, 2005.
We continue to increase 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 43 aircraft on order for delivery through 2008. Certain of the aircraft on order
are for replacement of older aircraft.
Direct expense in our Domestic Oil and Gas segment was $55.4 million for the three months ended
September 30, 2006, compared to $46.8 million for the quarter ended September 30, 2005. The
increase of $8.6 million was due to increases in employee costs ($2.5 million) due to an increase
in the number of employees and increases in overtime pay; aircraft rent ($1.4 million) due to
additional aircraft on lease; aircraft warranty costs ($1.6 million) due to additional aircraft
covered under manufacturers warranty programs; fuel ($0.3 million) due to increased prices
(reimbursement for costs above a contracted per gallon cost is included in revenue); component
repair costs ($0.5 million); and insurance costs ($0.2 million). In addition, there were increases
in contract pilot costs ($0.6 million), non-aircraft supplies purchases ($0.5 million), contracted
base support personnel ($0.6 million), depreciation expense ($0.2 million), and other operating
expenses ($0.2 million).
Our Domestic Oil and Gas segments operating income was $10.6 million for the three months ended
September 30, 2006, compared to $11.9 million for the three months ended September 30, 2005. We
estimate the decrease directly related to the strike was $2.7 million, which includes the revenue
reduction and the net of additional costs.
Air Medical Air Medical segment revenues were $35.7 million for the three months ended September
30, 2006, compared to $33.9 million for the three months ended September 30, 2005, an increase of
$1.8 million. Notwithstanding the increase in revenue, the effect of the strike was a decrease of
$0.8 million in operating revenues. We experienced a 13% increase in medical transports,
increasing to 5,661 in 2006 from 5,018 in 2005. Flight hours were 7,986 for the three months ended
September 30, 2006, compared to 7,811 for the three months ended September 30, 2005. The number of
aircraft in the segment was 69 at September 30, 2006, compared to 60 at September 30, 2005. Since
inception of the expansion in late 2003, we have opened 37 operating locations, with 22 opened in
2004 and 15 opened in 2005. Although patient transport volumes improved in the quarter, the strike
had an unfavorable impact on transport volume. Unless the strike continues for a protracted
period, 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 $32.6 million for the three months ended September
30, 2006, compared to $28.7 million for the three months ended September 30, 2005, due to more
operating locations and additional flight hours. The $3.9 million increase was primarily due to
increases in employee costs ($3.7 million). Of this increase, $3.4 million was a result of the new
locations opened in the prior year being in service for the full quarter. Other items increased
$0.2 million.
Selling, general and administrative expense was $1.8 million for the three months ended September
30, 2006, compared to $1.7 million for the three months ended September 30, 2005.
Our Air Medical segments operating income was $1.4 million for the three months ended September
30, 2006, compared to $3.5 million for the three months ended September 30, 2005. We estimate that the
21
effect of the strike on segment operating income was $1.2 million. New locations typically take
several months to build sufficient volume to absorb facility operating costs and achieve profitable
aircraft utilization levels. Unless the strike continues for a protracted period, we expect
further volume and revenue growth 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 $5.4 million for the three months ended
September 30, 2006, compared to $6.8 million for the three months ended September 30, 2005. The
decrease was due to a reduction in flight hours for the three months ended September 30, 2006 to
2,870, compared to 3,989 for the three months ended September 30, 2005, as a result of the
scheduled release of one aircraft from contract by the customer in the second quarter. The number
of aircraft in the segment was 16 for the three months ended September 30, 2006 and September 30,
2005. We are pursuing certain international projects, and as a result, have dedicated certain of
the aircraft on order to the International segment.
Direct expenses in our International segment were $4.1 million for the three months ended September
30, 2006, compared to $4.4 million for the three months ended September 30, 2005. The decrease was
due primarily to a decrease in aircraft parts usage of $0.3 million due to decreased flight hour
activity.
Our International segment had operating income of $1.3 million for the three months ended September
30, 2006, compared to operating income of $2.3 million for the three months ended September 30,
2005. The decrease in operating income was due to the decrease in revenue.
Technical Services Technical Services revenues were $1.9 million for the three months ended
September 30, 2006, compared to $0.4 million for the three months ended September 30, 2005. The
increase in Technical Services revenue is due to the reclassification of certain contractual work
for third parties to Technical Services that was previously recorded in Domestic Oil and Gas.
Direct expenses in our Technical Services segment were $1.1 million for the three months ended
September 30, 2006, compared to $0.4 million for the three months ended September 30, 2005. The
increase was for the same reason described in the previous paragraph.
Our Technical Services segment had operating income of $0.8 million for the three months ended
September 30, 2006, compared to less than $0.1 million for the three months ended September 30,
2005.
Nine
Months Ended September 30, 2006 compared with Nine Months Ended September 30, 2005
Combined Operations
Revenues Operating revenues for the nine months ended September 30, 2006, were $317.8
million, compared to $261.0 million for the nine months ended September 30, 2005, an increase of
$56.8 million, due to increased operating revenues in all segments except International. The
increase in operating revenues in the Domestic Oil and Gas segment ($38.7 million) was due to
increased exploration and production activity by our customers in the Gulf of Mexico, particularly
in the deepwater areas. The increase in Air Medical revenues ($17.1 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 International segment revenues
decreased ($0.9 million) a reduction in flight hours. The increase in Technical Services revenue
($1.9 million) was due to reclassifying to the Technical Services segment certain contractual third
party work previously recorded in Domestic Oil and Gas.
Total flight hours were 116,901 for the nine months ended September 30, 2006, compared to 111,243
for the nine months ended September 30, 2005. Patient transports were 15,794 for the current nine
months, compared to 12,489 for the same period in the prior year.
22
Other Income and Losses Losses on equipment dispositions was $0.5 million for the nine
months ended September 30, 2006, compared to a gain of $0.5 million for the nine months ended
September 30, 2005. The net loss was due primarily to the sale of six light aircraft in the second
quarter, 2006.
Other income, which primarily represents interest income on unspent proceeds from our recent stock
offering, was $6.1 million for the nine months ended September 30, 2006 as compared to $1.2 million
for the nine months ended September 30, 2005.
Direct Expenses Direct operating expense was $269.5 million for the nine months ended
September 30, 2006, compared to $217.1 million for nine months ended September 30, 2005, an
increase of $52.4 million. Direct expense increased $32.2 million in the Domestic Oil and Gas
segment due to increased operations, and increased $19.1 million in the Air Medical segment due to
more operating locations for the full period compared to the prior period. Direct expense also
increased $1.1 million in the Technical Services segment due to certain contractual work with third
parties reclassified from Domestic Oil and Gas segment. Employee compensation cost increased
($19.9 million) due primarily to Air Medical operations for the reasons previously mentioned;
helicopter lease expense increased ($5.5 million) due to additional aircraft on operating leases;
aircraft warranty cost increased ($6.9 million) due to additional aircraft covered under
manufacturers warranty programs; and fuel costs increased ($5.4 million) (fuel costs above a
certain contractual rate are invoiced to the customer and included in operating revenue).
Insurance cost increased ($4.4 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. Contract pilot costs increased ($1.4 million) as well as other
contract base support personnel ($1.1 million). There were also increases in depreciation ($2.2
million), component repair costs ($1.6 million), property taxes ($0.4 million), field base security
costs ($0.6 million), medical billing services ($0.8 million), non-aircraft supplies ($1.4
million), and other items ($0.8 million).
Selling, General, and Administrative Expenses Selling, general, and administrative
expenses for the nine months ended September 30, 2006 were $20.2 million, compared to $17.3 million
for the nine months ended September 30, 2005, an increase of $2.9 million. This increase was a
result of increases in employee costs ($0.6 million), depreciation expense ($0.4 million),
insurance costs ($0.7 million), consulting fees ($0.3 million) and other items ($0.9 million).
Interest Expense Interest expense was $13.2 million for the nine month period ended
September 30, 2006, compared to $15.3 million for the nine months ended September 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 expense for the nine months ended September 30, 2006 was $3.1
million, an effective rate of 40%, compared to income tax expense of $5.2 million for the nine
months ended September 30, 2005, also an effective rate of 40%.
Earnings Earnings before tax for the nine months ended September 30, 2006 was $7.7
million, compared to earnings before tax of $13.0 million for the nine months ended September 30,
2005. Net income after tax for the nine months ended September 30, 2006 was $4.6 million, compared
to net income after tax of $7.8 million for the nine months ended September 30, 2005. As
previously mentioned, net
income before tax for the nine months ended September 30, 2006, includes a charge of $12.8 million
for the early redemption of our 9 3/8% Senior Notes. Exclusive of the loss on debt restructuring,
net of tax effects, earnings for the nine months ended September 30, 2006, were $12.3 million,
compared to $7.8 million for the year earlier. Also as previously discussed, the strike by the
pilots union had a negative impact on earnings.
23
Segment Discussion
Domestic Oil and Gas Domestic Oil and Gas segment operating revenues were $194.1 million for the
nine months ended September 30, 2006, compared to $155.4 million for the nine months ended
September 30, 2005. Flight hours were 83,921 for the nine months ended September 30, 2006,
compared to 80,292 for the nine months ended September 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 $32.2 million for the nine months
ended September 30, 2006, as compared to the nine months ended September 30, 2005. The increase
was due to increases in employee costs ($5.8 million), aircraft parts usage due to increased flight
hour activity ($0.8 million), aircraft rent ($5.2 million), aircraft warranty costs ($5.2 million)
due to additional aircraft covered under manufacturers warranty programs, and fuel costs ($3.2
million). Insurance expense also increased ($3.0 million) due to a contractual credit recorded in
the prior year related to favorable loss experience. Other increases include component repair
costs ($2.1 million), contracted base support personnel ($1.1 million), contract pilot costs ($1.4
million), other contracted services ($0.3 million), lodging expenses ($1.1 million), non-aircraft
supplies ($1.5 million), base security costs ($0.6 million), training costs ($0.3 million), and
other items ($0.6 million).
Selling, general and administrative expense charged to the Domestic Oil and Gas segment was $0.7
million for the nine months ended September 30, 2006 and September 30, 2005.
Domestic Oil and Gas segment operating income was $35.0 million for the nine months ended September
30, 2006, compared to $28.6 million for the nine months ended September 30, 2005. The increase was
due primarily to the increase in operating revenue resulting from increased exploration and
production activity by our customers. The strike by the pilots union also had a negative impact
on the segments earnings.
Air Medical Air Medical segment operating revenues were $100.0 million for the nine months ended
September 30, 2006, compared to $83.0 million for the same period in the prior year. Transports
increased to 15,794 in the nine months ended September 30, 2006, from 12,489 in the nine month
period ended September 30, 2005. Flight hours in this segment were 22,866 for the nine months
ended September 30, 2006, as compared to 19,384 for the nine months ended September 30, 2005. The
number of aircraft in the segment at September 30, 2006 was 69 compared to 60 at September 30,
2005. The increase in operating revenue was due to all locations being operational for the full
period compared to the prior year during when 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 $11.3 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. Unless the strike continues for a protracted period, we expect further volume growth in
2006 and margin improvement due to reduced expansion activity in 2006.
Direct expense for the nine months ended September 30, 2006 was $95.0 million compared to $75.8
million for the nine months ended September 30, 2005. More than half of the increase was due to an
increase in employee costs ($12.7 million) due to additional employees added to support the
additional operations. There were also increases in depreciation expense ($2.0 million), insurance
costs ($1.3
million), fuel costs ($2.2 million), and aircraft warranty costs ($1.7 million), and a decrease in
other items ($0.7 million). The increases in each of the direct expense categories are due to the
operating locations opened in 2005 being in service for the full period in 2006.
24
Segment selling, general and administrative expense was $5.4 million for the nine months ended
September 30, 2006 compared to $4.6 million for the nine months ended September 30, 2005. This
increase is due to increases in employee costs ($0.2 million), medical management fees ($0.2
million), facilities rent and utilities ($0.2 million), and other items ($0.2 million).
Air Medical segment operating loss was $0.3 million for the nine months ended September 30, 2006,
compared to $2.5 million operating income for the nine months ended September 30, 2005. During the
period there was a loss of $2.1 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. Unless the strike continues
for a protracted period, we expect further volume and revenue growth 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. There was also a negative impact as a result of the strike by the
pilots union.
International International segment operating revenues were $18.7 million for the nine months
ended September 30, 2006, compared to $19.6 million for the nine months ended September 30, 2005.
The decrease was due to a decrease in flight hours. Flight hours for the nine months ended
September 30, 2006 were 10,114, compared to 11,567 for the nine months ended September 30, 2005.
Direct expense for the International segment was $12.7 million for the nine months ended September
30, 2006, compared to $12.8 million for the nine months ended September 30, 2005.
Segment selling, general and administrative expense was less than $0.1 million for the nine month
ended September 30, 2006, compared to $0.2 million for the nine months ended September 30, 2005.
The International segment had operating income of $5.8 million for the nine months ended September
30, 2006, compared to $6.6 million for the nine months ended September 30, 2005. The decrease in
operating revenues accounts for this decrease.
Technical Services The Technical Services segment operating revenues for the nine months ended
September 30, 2006 were $5.0 million, compared to $3.1 million in the comparable period in the
prior year. The increase was due to reclassifying to the Technical Services segment certain
contractual third party work that was previously recorded in Domestic Oil and Gas.
Direct expense was $3.5 million for the nine months ended September 30, 2006, compared to $2.4
million for the nine months ended September 30, 2005. Increased employee costs ($0.3 million) and
other expenses ($0.8 million) account for this increase.
The Technical Services segment had operating income of $1.5 million for the nine months ended
September 30, 2006, compared to $0.7 million for the nine months ended September 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.
25
Our cash position at September 30, 2006 was $164.6 million, compared to $69.6 million at December
31, 2005. Working capital was $273.1 million at September 30, 2006, as compared to $162.5 million
at December 31, 2005, an increase of $110.6 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 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 $22.8 million for the nine months ended September 30,
2006, compared to $16.8 million for the nine months ended September 30, 2005. The increase was due
primarily to an increase in net earnings of $4.5 million prior to recording the loss on debt
restructuring. Capital expenditures were $81.6 million, and gross proceeds of aircraft sales were
$30.8 million, including the sale-leaseback transaction described above, for the nine months ended
September 30, 2006, compared to capital expenditures of $59.6 million and gross proceeds of
aircraft and other sales of $6.1 million for the nine months ended September 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 $160.7 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 of the tender for the 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 as compared to our previous 9 3/8%
Senior Notes.
We have a $35 million revolving credit facility with a commercial bank that expires on September 1,
2008. As of September 30, 2006, there were $3.5 million in borrowings and $5.2 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 September 30, 2006, we were
in compliance with these covenants.
During the quarter ended September 30, 2006, we took delivery of six aircraft that were funded by
proceeds from the stock sale. At September 30, 2006, we had orders for four additional transport
category aircraft scheduled for delivery in 2006 and 2007 at an approximate cost of $72.5 million.
We intend to execute an operating lease for these aircraft. We also had orders for 39 additional
aircraft primarily for service in the Domestic Oil and Gas segment, but also some of which are for
the
26
International segment with a total cost of $176.1 million and delivery dates scheduled
throughout 2006, 2007 and 2008.
We believe that cash flow from operations and available lines of credit will be sufficient to fund
operating requirements and required interest payments on the Notes for the next twelve months. We
believe we will be able to fund aircraft acquisitions from available cash and operating lease
agreements.
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) |
|
$ |
248,570 |
|
|
$ |
92,119 |
|
|
$ |
139,222 |
|
|
$ |
17,229 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft lease
obligations |
|
|
130,911 |
|
|
|
3,266 |
|
|
|
13,064 |
|
|
|
13,064 |
|
|
|
13,064 |
|
|
|
13,666 |
|
|
|
74,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility lease
obligations |
|
|
20,783 |
|
|
|
818 |
|
|
|
2,963 |
|
|
|
2,433 |
|
|
|
1,816 |
|
|
|
1,529 |
|
|
|
11,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit
facility |
|
|
3,500 |
|
|
|
|
|
|
|
|
|
|
|
3,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes (2) |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
603,764 |
|
|
$ |
96,203 |
|
|
$ |
155,249 |
|
|
$ |
36,226 |
|
|
$ |
14,880 |
|
|
$ |
15,195 |
|
|
$ |
286,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These commitments are for aircraft that we intend to fund with proceeds from the
equity offerings completed June 2005 and April 2006, with the exception of $72.5 million
related to transport category aircraft that will be funded with an operating lease. |
|
(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 September 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,
27
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.
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 September 30, 2006, the
market value of the notes was approximately $189.0 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:
Ø |
|
the tropical storm and hurricane season in the Gulf of Mexico; |
|
Ø |
|
poor weather conditions that often prevail during winter and can generally develop in any season; and |
|
Ø |
|
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.
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
30
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.
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.
31
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:
Ø |
|
political, social and economic instability; |
|
Ø |
|
terrorism, kidnapping and extortion; |
|
Ø |
|
potential seizure or nationalization of assets; |
|
Ø |
|
import-export quotas; and |
|
Ø |
|
currency fluctuations or devaluation. |
Additionally, our competitiveness in international markets may be adversely affected by government
regulation, including regulations requiring:
Ø |
|
the awarding of contracts to local contractors; |
|
Ø |
|
the employment of local citizens; and |
|
Ø |
|
the establishment of foreign subsidiaries with
significant ownership positions reserved by the foreign
government for local ownership. |
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.
32
RISKS SPECIFIC TO OUR COMPANY
Approximately 176 of our pilots are currently conducting a general strike.
We were 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. This
started the 30-day cooling off period which expired on August 28, 2006. Since the end of the
cooling off period, the Company has been free to do whatever is reasonably necessary to continue
operations, and the union has been free to engage in job actions, including work stoppages or a
general strike. At the conclusion of the cooling off period, we implemented our proposed
compensation for our pilots which, we believe places those wages slightly above those of our
competitors in the relevant sectors.
On September 20, 2006, approximately 237 pilots commenced a strike. Currently, approximately 176
pilots remain on strike. Although we implemented our contingency plan on that date, approximately
15% of flight hours in our Domestic Oil and Gas segment, and 10% of flight hours in our Air Medical
segment, remain curtailed. The strike adversely affected our revenues and operating results in the
third quarter and is expected to continue to do so until we are able to restore operations to
normal levels through additional hiring, the return of striking pilots or a settlement of the
strike. Currently, there are no negotiations taking place and there can be no assurance that any
such negotiations would be successful or any assurance as to the terms of any agreement that may be
reached.
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:
Ø |
|
the supply of, and demand for, oil and natural gas and market expectations regarding supply and demand; |
|
Ø |
|
actions of OPEC, and Middle Eastern and other oil producing countries, to control prices or change production
levels; |
|
Ø |
|
general economic conditions in the United States and worldwide; |
|
Ø |
|
war, civil unrest or terrorist activities; |
|
Ø |
|
governmental regulation; and |
|
Ø |
|
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
33
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.
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 September 30, 2006, 18% 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 September 30, 2006, our total indebtedness was $203.5 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 September 30, 2006 was 0.51 to 1.00, as compared
to 0.85 to 1.00 at December 31, 2005.
At September 30, 2006, we had $3.5 million in borrowings and $5.2 million in letters of credit
outstanding under our revolving line of credit. As of September 30, 2006, availability for
borrowings under our revolving credit facility was $26.3 million.
34
Our substantial indebtedness could have significant negative consequences to us that you should
consider. For example, it could:
Ø |
|
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; |
|
Ø |
|
increase our vulnerability to general adverse economic and industry conditions and limit our ability to
withstand competitive pressures; |
|
Ø |
|
limit our flexibility in planning for, or reacting to, changes in our business and future business
opportunities; |
|
Ø |
|
place us at a competitive disadvantage compared to our competitors that have less debt; and |
|
Ø |
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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
None.
36
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
|
3.1 |
(i) |
Amended and Restated Articles of Incorporation of the Company. (Incorporated by
reference to Exhibit No. 3.1(i) to PHIs Report on Form 10-Q for the quarterly period ended
June 30, 2006). |
|
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|
(ii) |
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). |
|
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4.3 |
|
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 |
|
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). |
|
|
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al A.
Gonsoulin, Chairman and Chief Executive Officer. |
|
|
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Michael J.
McCann, Chief Financial Officer. |
|
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al A.
Gonsoulin, Chairman and Chief Executive Officer. |
|
|
32.2 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Michael J.
McCann, Chief Financial Officer. |
37
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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November 9, 2006
|
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By:
|
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/s/ Al A. Gonsoulin
Al A. Gonsoulin
|
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Chairman and Chief Executive Officer |
|
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November 9, 2006
|
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By:
|
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/s/ Michael J. McCann
Michael J. McCann
|
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Chief Financial Officer and Treasurer |
|
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38
EXHIBIT INDEX
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al A.
Gonsoulin, Chairman and Chief Executive Officer. |
|
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Michael J.
McCann, Chief Financial Officer. |
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al A.
Gonsoulin, Chairman and Chief Executive Officer. |
|
32.2 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Michael J.
McCann, Chief Financial Officer. |