================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended: June 30, 2004
OR
[ ] 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
PETROLEUM HELICOPTERS, INC
(Exact name of registrant as specified in its charter)
LOUISIANA 72-0395707
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2001 SE EVANGELINE THRUWAY
LAFAYETTE, LOUISIANA 70508
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's 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 [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes: [X] No: [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 30, 2004
- ------------------------ ----------------------------
Voting Common Stock 2,852,616 shares
Non-Voting Common Stock 2,531,392 shares
================================================================================
PETROLEUM HELICOPTERS, INC.
INDEX - FORM 10-Q
Part I - Financial Information
Item 1. Financial Statements - Unaudited
Consolidated Balance Sheets - June 30, 2004 and
December 31, 2003................................................ 3
Consolidated Statements of Operations - Quarter and Six Months
Ended June 30, 2004 and 2003...................................... 4
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 2004 and 2003............................................ 5
Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 16
Item 3. Quantitative and Qualitative Disclosures about
Market Risk......................................................... 24
Item 4. Controls and Procedures.................................................. 24
Part II - Other Information
Item 1. Legal Proceedings....................................................... 24
Item 6. Exhibits and Reports on Form 8-K........................................ 25
Signatures.............................................................. 26
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2004 2003
--------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 18,500 $ 19,872
Accounts receivable - net of allowance
Trade 46,977 41,743
Other 843 1,315
Inventory 39,136 40,405
Other current assets 7,060 6,575
Refundable income taxes 701 225
--------------- ------------
Total current assets 113,217 110,135
Property and equipment, net 259,254 258,526
Other 9,043 8,793
--------------- ------------
Total Assets $ 381,514 $ 377,454
=============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 17,486 $ 18,837
Accrued liabilities 11,642 12,424
Accrued vacation payable 3,370 3,400
Accrued interest payable 3,178 3,174
Notes payable 6,500 2,000
--------------- ------------
Total current liabilities 42,176 39,835
--------------- ------------
Long-term debt 200,000 200,000
Deferred income taxes 26,365 25,597
Other long-term liabilities 5,855 6,029
Commitments and contingencies (Note 3)
Shareholders' Equity:
Voting common stock - par value of $0.10;
authorized shares of 12,500,000 285 285
Non-voting common stock - par value of $0.10;
authorized shares of 12,500,000 253 253
Additional paid-in capital 15,098 15,088
Retained earnings 91,482 90,367
--------------- ------------
Total shareholders' equity 107,118 105,993
--------------- ------------
Total Liabilities and Shareholders' Equity $ 381,514 $ 377,454
=============== ============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Operating revenues $ 70,186 $ 66,339 $ 137,159 $ 130,946
Gain on disposition of property
and equipment, net 507 520 1,180 1,438
Other 62 235 145 368
------------ ------------ ------------ ------------
70,755 67,094 138,484 132,752
------------ ------------ ------------ ------------
Expenses:
Direct expenses 58,048 56,230 115,333 110,805
Selling, general and
administrative expenses 5,610 4,836 10,754 9,738
Interest expense 5,010 5,025 10,026 9,988
------------ ------------ ------------ ------------
68,668 66,091 136,113 130,531
------------ ------------ ------------ ------------
Earnings before income taxes 2,087 1,003 2,371 2,221
Income taxes 974 401 1,255 888
------------ ------------ ------------ ------------
Net earnings $ 1,113 $ 602 $ 1,116 $ 1,333
============ ============ ============ ============
Weighted average shares outstanding:
Basic 5,383 5,383 5,383 5,383
Diluted 5,486 5,486 5,486 5,476
Net earnings per share
Basic $ 0.21 $ 0.11 $ 0.21 $ 0.25
Diluted $ 0.20 $ 0.11 $ 0.20 $ 0.24
The accompanying notes are an integral part of these unaudited condensed
consolidated financials statements.
4
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
---------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,116 $ 1,333
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 13,699 12,593
Deferred income taxes 768 430
Gain on disposition of property & equipment, net (1,180) (1,438)
Other 668 622
Changes in operating assets and liabilities (7,646) (3,686)
----------- -----------
Net cash provided by operating activities 7,425 9,854
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (20,628) (14,617)
Proceeds from asset dispositions 7,331 3,280
----------- -----------
Net cash used in investing activities (13,297) (11,337)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit, net 4,500 --
Proceeds from exercise of stock options -- 50
----------- -----------
Net cash provided by financing activities 4,500 50
----------- -----------
Decrease in cash and cash equivalents (1,372) (1,433)
Cash and cash equivalents, beginning of period 19,872 17,674
----------- -----------
Cash and cash equivalents, end of period $ 18,500 $ 16,241
=========== ===========
SUPPLEMENTAL DISCLOSURES CASH FLOW INFORMATION
Interest paid $ 9,503 $ 9,574
=========== ===========
Taxes paid, net $ 310 $ 969
=========== ===========
The accompanying notes are an integral part of these unaudited condensed
consolidated financials statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The accompanying unaudited condensed consolidated financial statements include
the amounts of Petroleum Helicopters, 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 Company's Annual Report on Form 10-K
for the year ended December 31, 2003 and the accompanying notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
The Company's financial results, particularly as they relate to the Company's
domestic oil and gas operations, are influenced by seasonal fluctuations as
discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003. 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
The Company has identified four principal segments: Domestic Oil and Gas, Air
Medical, International and Technical Services. The Domestic Oil and Gas segment
primarily provides helicopter services to oil and gas customers operating in the
Gulf of Mexico. The Company, both directly and through its subsidiary, Air Evac
Services, Inc. ("Air Evac"), provides air medical transportation services for
hospitals and medical programs under the independent provider model in 11
states. The International segment, which primarily consists of operations off
the West Coast of Africa, provides helicopter services in various foreign
countries to oil and gas customers. The Technical Services segment provides
helicopter repair and overhaul services, primarily to certain military aircraft,
flight operations customers, and original equipment manufacturers.
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 corporate selling, general, and
administrative costs that the Company does not allocate to the operating
segments.
6
Summarized financial information concerning the Company's reportable operating
segments for the quarter and six months ended June 30, 2004 and 2003 is as
follows (in thousands):
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------------
2004 2003 2004 2003
--------- --------- --------- ---------
(Thousands of dollars) (Thousands of dollars)
Segment operating revenues
Domestic Oil and Gas $ 43,402 $ 45,566 $ 85,579 $ 88,774
Air Medical 18,462 12,235 34,478 23,041
International 5,211 4,257 11,170 10,009
Technical Services 3,111 4,281 5,932 9,122
--------- --------- --------- ---------
Total operating revenues 70,186 66,339 137,159 130,946
--------- --------- --------- ---------
Segment direct expense
Domestic Oil and Gas 35,971 40,265 72,645 78,412
Air Medical 14,909 7,740 27,668 15,012
International 4,422 4,973 9,753 10,589
Technical Services 2,746 3,252 5,267 6,792
--------- --------- --------- ---------
Total direct expense 58,048 56,230 115,333 110,805
Segment selling, general and administrative expense
Domestic Oil and Gas 759 1,485 1,266 1,667
Air Medical 1,913 854 3,713 1,790
International 21 36 24 102
Technical Services 4 3 8 5
--------- --------- --------- ---------
Total selling, general and administrative expense 2,697 2,378 5,011 3,564
--------- --------- --------- ---------
Total direct and selling, general and administrative expense 60,745 58,608 120,344 114,369
--------- --------- --------- ---------
Net segment profit
Domestic Oil and Gas 6,672 3,816 11,668 8,695
Air Medical 1,640 3,641 3,097 6,239
International 768 (752) 1,393 (682)
Technical Services 361 1,026 657 2,325
--------- --------- --------- ---------
Total 9,441 7,731 16,815 16,577
Other, net (1) 569 755 1,325 1,806
Unallocated selling, general and administrative costs (2,913) (2,458) (5,743) (6,174)
Interest expense (5,010) (5,025) (10,026) (9,988)
--------- --------- --------- ---------
Earnings before income taxes $ 2,087 $ 1,003 $ 2,371 $ 2,221
========= ========= ========= =========
(1) Including gains on disposition of property and equipment, and other income.
7
3. COMMITMENTS AND CONTINGENCIES
Environmental Matters - The Company has an aggregate estimated liability of $0.6
million as of June 30, 2004 for environmental remediation costs that are
probable and estimable.
In addition, the Company has conducted environmental surveys of the Lafayette
facility that it vacated in 2001, and has determined that contamination exists
at that facility. Appropriate notices of the contamination have been provided to
state regulatory authorities. To date, borings have been installed to determine
the type and extent of contamination. Preliminary results indicate limited soil
and groundwater impacts. Once the extent and type of contamination are fully
defined, a risk evaluation in accordance with the Louisiana Risk
Evaluation/Corrective Action Plan ("RECAP") standard will be submitted and
evaluated by Louisiana Department of Environmental Quality ("LDEQ"). At that
point, LDEQ will establish what cleanup standards must be met at the site. When
the process is complete, the Company will be in a position to develop the
appropriate remediation plan and estimate the resulting cost of remediation. The
Company has not recorded any estimated liability for remediation of
contamination but, based on preliminary surveys and ongoing monitoring, the
Company believes the ultimate remediation costs will not be material to the
Company's consolidated financial position and results of operations.
Legal Matters - The Company is named as a defendant in various legal actions
that have arisen in the ordinary course of its business and have not been
finally adjudicated. The amount, if any, of ultimate liability with respect to
such matters cannot be determined. In the opinion of management, the Company's
ultimate liability with respect to these actions will not have a material
adverse effect on the Company's consolidated financial position and results of
operations.
Long-term Debt - On April 23, 2002, the Company issued $200 million in principal
amount of 9 3/8% Series A Senior Notes due 2009 in a private offering that was
exempt form registration under Rule 144A under the Securities Act of 1933 (the
"Securities Act"). All of the notes were subsequently exchanged for the
Company's 9 3/8% Series B Senior Notes due 2009 (the "Series B Senior Notes"),
pursuant to an exchange offer that was registered under the Securities Act. The
Series B Senior Notes bear annual interest at 9 3/8% payable semi-annually on
May 1 and November 1 of each year and mature in May 2009. The Series B Senior
Notes contain restricted 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. As of June 30, 2004, the Company was in compliance with these
covenants.
Also, on April 23, 2002, the Company executed a new credit agreement with a
commercial bank for a $50 million revolving credit facility to be available
through July 31, 2004. An amendment to this credit agreement was executed June
18, 2004. The amendment reduces the revolving credit facility from $50 million
to $35 million, and extends the expiration date to July 31, 2006. As of June 30,
2004, the Company had $4.5 million in borrowings at an interest rate of 4.5% and
a $1.4 million letter of credit outstanding under the revolving credit facility.
The credit agreement permits borrowings based on both the prime rate and the
London Interbank offer rate ("LIBOR") plus a spread. The spread for LIBOR
borrowings ranges from 2.0% to 3.0%. Any amounts outstanding under the revolving
credit facility are due July 31, 2006. The Company may also obtain letters of
credit issued under the credit facility up to $5.0 million with a 0.125% fee
payable on the amount of letters of credit issued.
The Company is subject to financial covenants under the credit agreement. These
covenants include maintaining certain levels of working capital and
shareholders' equity and contain other limitations including a restriction on
purchases of the Company's stock. The credit agreement also limits the creation,
incurrence, or assumption of Funded Debt (as defined, which includes long-term
debt) and the acquisition of investments in unconsolidated subsidiaries. As of
June 30, 2004, the Company was in compliance with the covenants.
8
Also included in notes payable is $2.0 million related to the interim financing
of a progress payment for the acquisition of the two aircraft described below.
Operating Leases - The Company leases certain aircraft, facilities, and
equipment used in its operations. The related lease agreements, which include
both non-cancelable and month-to-month terms, generally provide for fixed
monthly rentals and, for certain real estate leases, renewal options. The
Company generally pays all insurance, taxes, and maintenance expenses associated
with these aircraft and some leases contain renewal and purchase options. At
June 30, 2004, the Company had approximately $19.6 million in aggregate
commitments under operating leases of which approximately $2.2 million is
payable during the next twelve months. Less than $0.1 million is for aircraft,
and the lease commitment is primarily related to the Company's facility in
Lafayette, which is under a 20 year lease term.
During the year ended December 31, 2003, the Company entered into a purchase
agreement for two aircraft at a combined cost of $32.4 million to be delivered
in the second half of 2004. The Company has made a $2.0 million progress payment
under an interim finance agreement with a commercial lender and intends to
finance the remainder of the acquisition through an operating lease transaction
with the same lender.
During the first quarter of 2004, the Company also exercised its option to
purchase two additional aircraft from the same manufacturer, and executed a
purchase agreement with the same terms and pricing as the first two aircraft
described above. The Company also intends to execute an operating lease with a
commercial lender for these aircraft upon delivery.
Purchase Commitments - At June 30, 2004 and December 31, 2003, the Company had
commitments of $6.4 million and $4.5 million, respectively, for the upgrade and
purchase of aircraft, and the purchase of other equipment.
4. VALUATION OF ACCOUNTS
The Company establishes 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 $0.1 million at
June 30, 2004 and December 31, 2003.
The Company also establishes valuation reserves related to obsolescent and
excess inventory. The inventory valuation reserves were $6.0 million and $5.5
million at June 30, 2004 and December 31, 2003, respectively.
5. EMPLOYEE INCENTIVE COMPENSATION
In 2002, the Company implemented an incentive compensation plan for
non-executive and non-represented employees. The plan allows the Company to pay
up to 7% of earnings before tax upon achieving a specified earnings threshold.
Pursuant to the incentive plan for non-executives, the Company did not record
compensation expense for the quarter and six months ended June 30, 2004 and
recorded $0.1 million and $0.2 million of compensation expense for the quarter
and six months ended June 30, 2003.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities" ("FIN 46"). FIN 46 requires that companies that control
another entity through interest other than voting interests should consolidate
the controlled entity. In December 2003, the FASB issued modifications to FIN 46
("FIN 46R"), resulting in multiple effective dates based on the nature as well
as creation date of a variable interest entity. The Company does not believe
that the Company has interests that would be considered variable interest
entities under FIN 46.
9
7. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On April 23, 2002, the Company issued $200 million in principal amount of 9 3/8%
Series A Senior Notes in a private offering. Shortly thereafter, the Series A
Notes were exchanged for Series B Senior Notes, which are fully and
unconditionally guaranteed on a senior basis, jointly and severally, by all of
the Company's existing 100% owned operating subsidiaries ("Guarantor
Subsidiaries").
The following supplemental condensed financial information sets forth, on a
consolidating basis, the balance sheet, statement of operations, and statement
of cash flows information for Petroleum Helicopters, Inc. ("Parent Company
Only") and the Guarantor Subsidiaries. The principal eliminating entries
eliminate investments in subsidiaries, intercompany balances, and intercompany
revenues and expenses.
10
PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(THOUSANDS OF DOLLARS)
JUNE 30, 2004
--------------------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 18,454 $ 46 $ -- $ 18,500
Accounts receivable - net of allowance 40,504 7,316 -- 47,820
Inventory 39,136 -- -- 39,136
Other current assets 6,165 895 -- 7,060
Refundable income taxes 701 -- -- 701
----------- ----------- ----------- -----------
Total current assets 104,960 8,257 -- 113,217
Investment in subsidiaries and other 19,983 24,391 (35,331) 9,043
Property and equipment, net 253,641 5,613 -- 259,254
----------- ----------- ----------- -----------
Total Assets $ 378,584 $ 38,261 $ (35,331) $ 381,514
=========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 37,741 $ 5,863 $ (11,298) $ 32,306
Accrued vacation payable 3,114 256 -- 3,370
Notes payable 6,500 -- -- 6,500
----------- ----------- ----------- -----------
Total current liabilities 47,355 6,119 (11,298) 42,176
Long-term debt 200,000 -- -- 200,000
Deferred income taxes and other long-term
liabilities 24,111 8,109 -- 32,220
Shareholders' Equity:
Paid-in capital 15,636 4,402 (4,402) 15,636
Retained earnings 91,482 19,631 (19,631) 91,482
----------- ----------- ----------- -----------
Total shareholders' equity 107,118 24,033 (24,033) 107,118
----------- ----------- ----------- -----------
Total Liabilities and
Shareholders' Equity $ 378,584 38,261 (35,331) 381,514
=========== =========== =========== ===========
11
PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(THOUSANDS OF DOLLARS)
DECEMBER 31, 2003
-----------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 19,821 $ 51 $ -- $ 19,872
Accounts receivable - net of allowance 36,831 6,227 -- 43,058
Inventory 40,405 -- -- 40,405
Other current assets 6,526 49 -- 6,575
Refundable income taxes 225 -- -- 225
----------- ----------- ----------- ------------
Total current assets 103,808 6,327 -- 110,135
Investment in subsidiaries and other 18,545 22,739 (32,491) 8,793
Property and equipment, net 254,447 4,079 -- 258,526
----------- ----------- ----------- ------------
Total Assets $ 376,800 $ 33,145 $ (32,491) $ 377,454
=========== =========== =========== ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 41,041 $ 3,504 $ (10,110) $ 34,435
Accrued vacation payable 3,144 256 -- 3,400
Notes payable 2,000 -- -- 2,000
----------- ----------- ----------- ------------
Total current liabilities 46,185 3,760 (10,110) 39,835
Long-term debt 200,000 -- -- 200,000
Deferred income taxes and other long-term
liabilities 24,622 7,004 -- 31,626
Shareholders' Equity
Paid-in capital 15,626 4,402 (4,402) 15,626
Retained earnings 90,367 17,979 (17,979) 90,367
----------- ----------- ----------- ------------
Total shareholders' equity 105,993 22,381 (22,381) 105,993
----------- ----------- ----------- ------------
Total Liabilities and
Shareholders' Equity $ 376,800 $ 33,145 $ (32,491) $ 377,454
=========== =========== =========== ============
12
PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
FOR THE QUARTER ENDED JUNE 30, 2004
-----------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------
Operating revenues $ 46,908 $ 23,278 $ -- $ 70,186
Management fees 939 -- (939) --
Equity in net income of consolidated
subsidiaries 1,361 -- (1,361) --
Gain on dispositions of property and
equipment, net 507 -- -- 507
Other 62 -- -- 62
----------- ----------- ----------- ------------
49,777 23,278 (2,300) 70,755
----------- ----------- ----------- ------------
Expenses:
Direct expenses 39,898 18,150 -- 58,048
Management fees -- 939 (939) --
Selling, general, and administrative 3,690 1,920 -- 5,610
Interest expense 5,010 -- -- 5,010
----------- ----------- ----------- ------------
48,598 21,009 (939) 68,668
----------- ----------- ----------- ------------
Earnings before income taxes 1,179 2,269 (1,361) 2,087
Income taxes 66 908 -- 974
----------- ----------- ----------- ------------
Net earnings $ 1,113 $ 1,361 $ (1,361) $ 1,113
=========== =========== =========== ============
FOR THE QUARTER ENDED JUNE 30, 2003
-----------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------
Operating revenues $ 52,558 $ 13,781 $ -- $ 66,339
Management fees 981 -- (981) --
Equity in net income of consolidated
subsidiaries 2,132 -- (2,132) --
Gain on dispositions of property and
equipment, net 520 -- -- 520
Other 235 -- -- 235
----------- ----------- ----------- ------------
56,426 13,781 (3,113) 67,094
----------- ----------- ----------- ------------
Expenses:
Direct expenses 47,769 8,461 -- 56,230
Management fees -- 981 (981) --
Selling, general, and administrative 4,050 786 -- 4,836
Interest expense 5,025 -- -- 5,025
----------- ----------- ----------- ------------
56,844 10,228 (981) 66,091
----------- ----------- ----------- ------------
Earnings before income taxes (418) 3,553 (2,132) 1,003
Income taxes (1,020) 1,421 -- 401
----------- ----------- ----------- ------------
Net earnings $ 602 $ 2,132 $ (2,132) $ 602
=========== =========== =========== ============
13
PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
FOR THE SIX MONTHS ENDED JUNE 30, 2004
------------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
Operating revenues $ 95,413 $ 41,746 $ -- $ 137,159
Management fees 1,881 -- (1,881) --
Gain on dispositions of property and
equipment, net 1,180 -- -- 1,180
Other 145 -- -- 145
------------ ------------ ------------ ------------
100,270 41,746 (3,532) 138,484
------------ ------------ ------------ ------------
Expenses:
Direct expenses 81,957 33,376 -- 115,333
Management fees -- 1,881 (1,881) --
Selling, general, and administrative 7,018 3,736 -- 10,754
Equity in net income of consolidated
subsidiaries 1,651 -- (1,651) --
Interest expense 10,026 -- -- 10,026
------------ ------------ ------------ ------------
99,001 38,993 (1,881) 136,113
------------ ------------ ------------ ------------
Earnings before income taxes 1,269 2,753 (1,651) 2,371
Income taxes 153 1,102 -- 1,255
------------ ------------ ------------ ------------
Net earnings $ 1,116 $ 1,651 $ (1,651) $ 1,116
============ ============ ============ ============
FOR THE SIX MONTHS ENDED JUNE 30, 2003
------------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
Operating revenues $ 104,408 $ 26,538 $ -- $ 130,946
Management fees 1,655 -- (1,655) --
Equity in net income of consolidated
subsidiaries 3,880 -- (3,880) --
Gain on dispositions of property and
equipment 1,438 -- -- 1,438
Other 368 -- -- 368
------------ ------------ ------------ ------------
111,749 26,538 (5,535) 132,752
------------ ------------ ------------ ------------
Expenses:
Direct expenses 93,955 16,850 -- 110,805
Management fees -- 1,655 (1,655) --
Selling, general, and administrative 8,172 1,566 -- 9,738
Interest expense 9,988 -- -- 9,988
------------ ------------ ------------ ------------
112,115 20,071 (1,655) 130,531
------------ ------------ ------------ ------------
Earnings before income taxes (366) 6,467 (3,880) 2,221
Income taxes (1,699) 2,587 -- 888
------------ ------------ ------------ ------------
Net earnings $ 1,333 $ 3,880 $ (3,880) $ 1,333
============ ============ ============ ============
14
PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
FOR THE SIX MONTHS ENDED JUNE 30, 2004
------------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities $ 7,430 $ (5) $ -- $ 7,425
Cash flows from investing activities:
Purchase of property and equipment (20,628) -- -- (20,628)
Proceeds from asset dispositions 7,331 -- -- 7,331
------------ ------------ ------------ ------------
Net cash used in investing activities (13,297) -- -- (13,297)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from line of credit, net 4,500 -- -- 4,500
------------ ------------ ------------ ------------
Net cash provided by financing activities 4,500 -- -- 4,500
------------ ------------ ------------ ------------
Decrease in cash and cash equivalents (1,367) (5) -- (1,372)
Cash and cash equivalents, beginning of
period 19,821 51 -- 19,872
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 18,454 $ 46 $ -- $ 18,500
============ ============ ============ ============
FOR THE SIX MONTHS ENDED JUNE 30, 2003
------------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities $ 9,864 $ (10) $ -- $ 9,854
Cash flows from investing activities:
Purchase of property and equipment (14,617) -- -- (14,617)
Proceeds from asset dispositions 3,280 -- -- 3,280
------------ ------------ ------------ ------------
Net cash used in investing activities (11,337) -- -- (11,337)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 50 -- -- 50
------------ ------------ ------------ ------------
Net cash provided by financing activities 50 -- -- 50
------------ ------------ ------------ ------------
Decrease in cash and cash equivalents (1,423) (10) -- (1,433)
Cash and cash equivalents, beginning of
period 17,652 22 -- 17,674
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 16,229 $ 12 $ -- $ 16,241
============ ============ ============ ============
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements and the notes thereto as
well as the Company's financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003 and
the MD&A 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 the Company with the Securities and
Exchange Commission, and other written and oral statements made by it or on its
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 the Company's actual results to differ materially from the
expectations, beliefs, and estimates expressed or implied in such
forward-looking statements. Although the Company believes 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 the Company's 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 effects, the
availability and cost of capital required to acquire aircraft, environmental
risks, the activities of our competitors, changes in government regulation,
unionization, operating hazards, risks related to operating in foreign
countries, the ability to obtain adequate insurance at an acceptable cost, and
the ability of the Company 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 and
in the Risk Factors section of the Company's Annual Report on Form 10-K for the
year ended December 31, 2003. PHI undertakes no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events, or otherwise.
OVERVIEW
Earnings before tax for the quarter ended June 30, 2004, were $2.1 million
compared to $1.0 million for the quarter ended June 30, 2003. During the quarter
the Company terminated an agreement with an aircraft manufacturer under which
the manufacturer provided replacement parts as required for a certain model
aircraft, and the Company paid the manufacturer based on flight hours for that
model aircraft. The Company reported a gain of $2.2 million on the termination,
representing the termination payment received from the manufacturer.
As discussed in the Company's March 31, 2004 Form 10-Q and December 31, 2003
Form 10-K, the expansion of the Air Medical segment continued in this current
quarter. The effect on the quarter's results of the 16 Air Medical locations
opened since October 1, 2003 was an increase in operating revenues of $6.6
million and a loss before tax of $0.4 million. In addition, management and
supervisory staff were added to the segment to accommodate increased operations.
The Company expects these increased locations to be profitable in the third
quarter. Additionally, the Company intends to continue expanding operations in
the Air Medical segment.
Segment profit in the Domestic Oil and Gas segment increased for the quarter
$2.9 million due primarily to decreases in costs. Operating revenues in the
segment decreased $2.2 million while direct expense decreased $4.3 million and
selling, general and administrative expense decreased $0.7 million.
16
Segment profit in the Air Medical segment decreased $2.0 million compared to the
prior year quarter. Operating revenues increased $6.2 million while direct
expense increased $7.2 million and selling, general and administrative expense
increased $1.1 million. The increased operating locations and additional
management and supervisory staff associated with the expansion account for this
change.
Earnings before tax for the six months ended June 30, 2004 were $2.4 million
compared to $2.2 million for the six months ended June 30, 2003. Termination of
an agreement with a manufacturer of aircraft parts generated a gain of $2.2
million for the six months, as discussed above. The increased Air Medical
operations had a loss before tax of $1.3 million and operating revenue of $10.4
million for the six months. Additionally, there were additional management and
supervisory staff added to the Air Medical segment.
OPERATING STATISTICS
The following tables present certain non-financial operational statistics for
the quarter and six months ended June 30, 2004 and 2003:
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- ----------------------------------
2004 2003 2004 2003
-------------- -------------- -------------- --------------
FLIGHT HOURS:
Domestic Oil and Gas 25,854 30,131 48,585 57,661
Air Medical 4,942 2,806 9,032 5,166
International 3,608 2,963 7,562 7,203
----------- ----------- ----------- -----------
Total 34,404 35,900 65,179 70,030
=========== =========== =========== ===========
JUNE 30,
----------------------------------
2004 2003
-------------- --------------
AIRCRAFT OPERATED AT PERIOD END:
Domestic Oil and Gas 154 180
Air Medical 47 29
International 20 17
----------- -----------
Total (1) 221 226
=========== ===========
(1) Includes 13 and 16 aircraft as of June 30, 2004 and 2003, respectively that
are customer owned or leased.
QUARTER ENDED JUNE 30, 2004 COMPARED WITH QUARTER ENDED JUNE 30, 2003
COMBINED OPERATIONS
REVENUES - Operating revenues for the three months ended June 30, 2004, were
$70.2 million compared to $66.3 million for the three months ended June 30,
2003, an increase of $3.8 million. The increase in operating revenue was due to
an increase in the Air Medical segment operating revenues ($6.2 million) due to
the additional Air Medical operations. This increase was offset in part by a
decrease in Domestic Oil and Gas operating revenues ($2.2 million) due to a
decrease in flight hour activity and a decrease in Technical Services segment
operating revenues ($1.2 million) also due to a decrease in activity.
Flight hours were 34,404 for three months ended June 30, 2004, compared to
35,900 flight hours for the three months ended June 30, 2003.
17
OTHER INCOME AND LOSSES - Gain (loss) on equipment dispositions was $0.5 million
for the quarter ended June 30, 2004 and the quarter ended June 30, 2003.
Other income was $0.1 million for the quarter ended June 30, 2004 compared to
$0.2 million for the quarter ended June 30, 2003. Other income in both periods
consisted primarily of interest income.
DIRECT EXPENSES - Direct operating expense was $58.0 million for the three
months ended June 30, 2004, compared to $56.2 million for three months ended
June 30, 2003, an increase of $1.8 million. This increase was due to the
additional Air Medical segment operations mentioned above ($7.2 million) and was
comprised of an increase in employee costs ($4.8 million) due to increased staff
related to additional operations, increased depreciation expense due to
increased aircraft ($0.7 million), and increased costs associated with an
increase in the number of operating bases ($1.2 million) which includes rent
expense, utilities, and supplies, and other items increased, ($0.5 million).
This increase was offset in part by a decrease in direct expense in the Domestic
Oil and Gas segment ($4.3 million) due to a decrease in flight hours, which
resulted in a decrease in aircraft parts usage ($1.1 million), the termination
of the manufacturer agreement discussed above ($2.2 million), and a reduction in
employee costs due to a decrease in the number of employees working in the
segment ($2.4 million). These amounts were offset in part by an increase in
operating supplies ($0.6 million), a sales tax refund related to prior periods
received in 2003 ($0.3 million), and an increase in other items ($0.5 million).
The Technical Services segment direct expense decreased ($0.6 million), also due
to a decrease in activity, and direct expense in the International segment
decreased ($0.6 million) due primarily to decreases in outside repairs of
aircraft components.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - Selling, general, and
administrative expenses were $5.6 million for the three months ended June 30,
2004, compared to $4.8 million for the three months ended June 30, 2003. This
increase was attributable to management and supervisory staff added in the Air
Medical segment due to the additional operations mentioned above, and to costs
incurred for software and third party services required to manage Air Medical
billing processes.
INTEREST EXPENSE - Interest expense was $5.0 million for both periods in 2004
and 2003.
INCOME TAXES - Income tax expense for the three months ended June 30, 2004, was
$1.0 million, an effective rate of 47%, compared to $0.4 million, an effective
rate of 40%, for the three months ended June 30, 2003. Included in the tax
provision for the current quarter was $0.2 million in foreign taxes incurred for
which the Company received no credit for U.S. tax purposes due to the
availability of net operating loss carryforwards for U.S. tax purposes. Such
operating loss carryforwards arose from depreciation expense deductions related
to the aircraft purchased in 2002 and 2003.
EARNINGS - The Company's net income for the three months ended June 30, 2004,
was $1.1 million compared to $0.6 million for the three months ended June 30,
2003.
SEGMENT DISCUSSION
Domestic Oil and Gas - Domestic Oil and Gas segment revenues were $43.4 million
for the three months ended June 30, 2004, compared to $45.6 million for the
three months ended June 30, 2003. There was a decrease in flight hour activity
due to a decrease in drilling activity in the Gulf of Mexico by the Company's
customers. Flight hours were 25,854 for the current quarter compared to 30,131
in the same period in the prior year.
The number of aircraft in the segment at June 30, 2004 was 154 compared to 180
aircraft at June 30, 2003. Of this decrease, 13 aircraft were transferred to the
Air Medical segment.
18
Direct expense in the Domestic Oil and Gas segment was $36.0 million for the
three months ended June 30, 2004 compared to $40.3 million for the three months
ended June 30, 2003. The decrease of $4.3 million was due to a decrease in
flight hours, which resulted in a decrease in aircraft parts usage ($1.1
million) to the termination of the manufacturer agreement discussed above ($2.2
million), and to a reduction in employee costs due to a decrease in the number
of employees working in this segment ($2.4 million). These amounts were offset
in part by an increase in operating supplies ($0.6 million), a sales tax refund
related to prior periods received in 2003 ($0.3 million), and an increase in
other items ($0.5 million).
Selling, general and administrative expense charged to the Domestic Oil and Gas
segment was $0.8 million for the three months ended June 30, 2004 compared to
$1.5 million for the three months ended June 30, 2003. This decrease was due to
a decrease in supplies and miscellaneous services.
The Domestic Oil and Gas segment's operating income was $6.7 million for the
three months ended June 30, 2004 compared to $3.8 million for the three months
ended June 30, 2003.
Air Medical - Air Medical segment revenues were $18.5 million for the three
months ended June 30, 2004, compared to $12.2 million for the three months ended
June 30, 2003. The increase in revenues was due to the additional 16 operating
locations established since October 1, 2003 as previously discussed. Flight
hours were 4,942 for the three months ended June 30, 2004 compared to 2,806 for
the three months ended June 30, 2003.
The number of aircraft in the segment was 47 at June 30, 2004, compared to 29 at
June 30, 2003.
Direct expenses in the Air Medical segment were $14.9 million for the three
months ended June 30, 2004 compared to $7.7 million for the three months ended
June 30, 2003, an increase of $7.2 million. This increase was due to an increase
in employee costs ($4.8 million) due to the addition of 274 employees related to
the additional operations, increased depreciation expense due to increased
aircraft ($0.7 million), increased costs associated with an increase in the
number of operating bases ($1.2 million) which includes rent expense, utilities,
and supplies, and an increase in other items ($0.5 million).
Selling, general and administrative expense was $1.9 million for the three
months ended June 30, 2004 compared to $0.9 million for the three months ended
June 30, 2003. Management and supervisory staff were added in the Air Medical
segment, and costs were incurred for certain software and third party services
to manage Air Medical billing processes.
The Air Medical segment's operating income was $1.6 million for the three months
ended June 30, 2004 compared to $3.6 million for the three months ended June 30,
2003. The decrease was due to the costs associated with the start-up of the
additional locations, and additional management and supervisory staff related to
the new operations.
As previously discussed, the Company is expanding in the Air Medical segment
under the independent provider model, and has commenced operations at 16
additional locations since October 1, 2003. The Company anticipates these
additional locations becoming profitable in the third quarter of 2004.
Additionally, the Company intends to further expand its Air Medical operations
throughout 2004.
International - International segment revenues were $5.2 million for the three
months ended June 30, 2004, compared to $4.3 million for the three months ended
June 30, 2003. The increase was due to an increase in rates in the current
period. Additionally, flight hours for the three months ended June 30, 2004
increased to 3,608 compared to 2,963 for the three months ended June 30, 2003.
Direct expenses in the International segment were $4.4 million for the three
months ended June 30, 2004, compared to $5.0 million for the three months ended
June 30, 2003. The decrease in direct expenses was due to a decrease in outside
repairs to aircraft components.
19
Selling, general and administrative expense was less than $0.1 million for both
periods.
The International segment had operating income of $0.8 million for the three
months ended June 30, 2004, compared to operating loss of $0.8 million for the
three months ended June 30, 2003. The increase in operating income was due to
the increase in revenue related to the increase in rates and flight hour
activity, and also due to the decrease in direct expense.
Technical Services - Technical Services revenues were $3.1 million for the three
months ended June 30, 2004 compared to $4.3 million for the three months ended
June 30, 2003. The decrease was due to a decrease in a decrease in military
spending, which is the primary customer for these services.
Direct expenses in the Technical Services segment were $2.7 million for the
three months ended June 30, 2004 compared to $3.3 million for the three months
ended June 30, 2003. The decrease was also due to a decrease in activity.
Selling, general and administrative expense was less than $0.1 million for both
periods.
The Technical Services segment had operating income of $0.4 million for the
three months ended June 30, 2004, compared to $1.0 million for the three months
ended June 30, 2003. The decrease in operating income is due primarily to a
decrease in activity resulting from a decrease in military spending, which is
the primary customer for the segment's services.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2003
COMBINED OPERATIONS
REVENUES - Operating revenues for the six months ended June 30, 2004, were
$137.2 million, compared to $130.9 million for the six months ended June 30,
2003. The increase was due to an increase in the Air Medical segment operating
revenues ($11.4 million) due to the establishment of operations at 16 new
locations since October 2003. There was also an increase in International
segment revenues ($1.2 million) due to an increase in rates and flight hours.
This increase was offset in part by a decrease in Domestic Oil and Gas operating
revenues ($3.2 million) due to a decrease in flight hours. The Technical
Services segment revenues also decreased ($3.2 million) for the six months due
primarily to a decrease in military spending, which is the primary customer for
the segment.
The number of aircraft at June 30, 2004 was 221 as compared to 226 at June 30,
2003. The number of aircraft in the Domestic Oil and Gas segment decreased by 26
for the six months ended June 30, 2004 as compared to the six months in the
prior year. The number of aircraft in the Air Medical segment increased to 47
for June 30, 2004 compared to 29 for June 30, 2003.
OTHER INCOME AND LOSSES - Gain on equipment dispositions was $1.2 million for
the six months ended June 30, 2004, compared to $1.4 million for the six months
ended June 30, 2003.
Other income, which represents interest income and other gains and losses, was
$0.1 million for the six months ended June 30, 2004 as compared to $0.4 million
for the six months ended June 30, 2003.
DIRECT EXPENSES - Direct expenses for the six months ended June 30, 2004 were
$115.3 million, compared to $110.8 million for the comparable period in 2003.
The increase was the result of an increase in direct expense in the Air Medical
segment ($12.7 million) due to the increased operating locations and consisted
of an increase in employee cost ($8.3 million), as 274 employees were added,
additional depreciation expense ($1.4 million), as additional aircraft were
added, additional operating base rent and associated supplies ($1.8 million), as
additional operating bases were added, additional insurance expense due to
additional aircraft ($0.6 million), and an increase in other expense, net, ($0.6
million). This
20
increase was offset in part by a decrease in direct expense in the Domestic Oil
and Gas segment ($5.8 million) resulting from a decrease in employee cost ($2.6
million), a decrease in aircraft parts usage due to fewer flight hours ($2.5
million), the termination of a parts support agreement with an aircraft
manufacturer ($2.2 million), and an increase in other items, net ($1.5 million).
The International segment's direct expense also decreased ($0.8 million) due
primarily to a decrease in outside repair costs of major components, and the
Technical Services segment's direct expense decreased ($1.5 million) due to a
decrease in activity.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - Selling, general, and
administrative expenses for the six months ended June 30, 2004 were $10.8
million, compared to $9.7 million for the six months ended June 30, 2003. The
increase was due to an increase in supervisory and management staff in the Air
Medical segment and costs associated with establishing the additional operating
bases including travel expenses, costs of hiring additional employees, and
freight costs.
INTEREST EXPENSE - Interest expense was $10.0 million for both the six month
periods ended June 30, 2004 and 2003.
INCOME TAXES - Income tax expense for the six months ended June 30, 2004 was
$1.3 million, an effective rate of 53%, compared to $0.9 million, an effective
rate of 40%, for the six months ended June 30, 2003. Included in the tax
provision for the six months is $0.3 million related to foreign taxes paid for
which the Company cannot take a credit for U.S. tax purposes due to the
availability of net operating losses for tax purposes. Such operating loss
carryforwards arose from depreciation expense deductions as a result of the
aircraft purchased in 2002 and 2003.
EARNINGS - The Company's net earnings for the six months ended June 30, 2004 was
$1.1 million, compared to $1.3 million for the six months ended June 30, 2003.
Earnings before tax for the six months ended June 30, 2004 was $2.4 million,
compared to $2.2 million for the six months ended June 30, 2003. Earnings per
diluted share for the six months ended June 30, 2004 was $0.20 as compared to
earnings per diluted share of $0.24 for the six months ended June 30, 2003.
SEGMENT DISCUSSION
Domestic Oil and Gas - Domestic Oil and Gas segment revenues were $85.6 million
for the six months ended June 30, 2004, compared to $88.8 million for the six
months ended June 30, 2003. Flight hours were 48,585 for the six months ended
June 30, 2004, compared to 57,661 for the six months ended June 30, 2003. The
decrease in operating revenues was due to the decrease in flight hours, offset
in part by certain rate increases. The number of aircraft in the segment was 154
at June 30, 2004, as compared to 180 at June 30, 2003.
Direct expenses in the Domestic Oil and Gas segment decreased $5.8 million for
the six months ended June 30, 2004 as compared to the six months ended June 30,
2003. The decrease was due to a decrease in employee complement ($2.6 million),
a decrease in aircraft parts usage due to a decrease in flight hour activity
($2.5 million), a decrease due to termination of a manufacturer aircraft parts
support agreement ($2.2 million), and an increase in other items ($1.5 million).
Selling, general and administrative expense charged to the Domestic Oil and Gas
segment was $1.3 million for the six months ended June 30, 2004 compared to $1.7
million for the six months ended June 30, 2003. This decrease was due to a
reduction in supplies and miscellaneous services.
Domestic Oil and Gas segment operating income was $11.7 million for the six
months ended June 30, 2004, compared to $8.7 million for the six months ended
June 30, 2003. The increase in operating income was due primarily to the
decrease in direct expenses.
21
Air Medical - Air Medical segment revenues were $34.5 million for the six months
ended June 30, 2004, compared to $23.0 million for the same period in the prior
year. The additional Air Medical operations added since October 2003, as
previously discussed, accounted for this increase. Flight hours in this segment
were 9,032 for the six months ended June 30, 2004 as compared to 5,166 for the
six months ended June 30, 2003. The number of aircraft in the segment at June
30, 2004 was 47 compared to 29 at June 30, 2003.
Direct expense for the six months ended June 30, 2004 was $27.7 million compared
to $15.0 million for the six months ended June 30, 2003. The increase was due to
an increase in employee costs ($8.3 million) as 274 employees were added to
support the additional operations. Additionally, there were increases in
depreciation expense ($1.4 million) as additional aircraft were added to the
segment, increases in operating base rent and associated supplies ($1.8 million)
as additional operating bases were added, increased insurance expense due to
additional aircraft ($0.6 million), and increases in other expenses ($0.6
million).
Selling, general and administrative expense was $3.7 million for the six months
ended June 30, 2004 compared to $1.8 million for the six months ended June 30,
2003. Management and supervisory staff were added in the Air Medical segment due
to additional operations as mentioned above, and also costs were incurred
associated with implementation of certain software and third party services to
manage Air Medical billing processes.
Air Medical segment operating income was $3.1 million for the six months ended
June 30, 2004, compared to $6.2 million for the six months ended June 30, 2003.
The decrease was due to the costs associated with the start up of the additional
Air Medical operations and additional management and supervisory staff as
mentioned above.
International - International segment revenues were $11.2 million for the six
months ended June 30, 2004, compared to $10.0 million for the six months ended
June 30, 2003. The increase was due to an increase in rates and also flight
hours. Flight hours for the six months ended June 30, 2004 were 7,562 as
compared to 7,203 for the six months ended June 30, 2003.
Direct expense for the six months ended June 30, 2004 was $9.8 million compared
to $10.6 million for the six months ended June 30, 2003. The decrease was due to
a decrease in outside repairs of aircraft components.
Selling, general and administrative expense was less than $0.1 million for both
six month periods.
The International segment had operating income of $1.4 for the six months ended
June 30, 2004, compared to an operating loss of $0.7 million for the six months
ended June 30, 2003. The increase in operating revenues combined with the
decrease in direct expense account for this change.
Technical Services - The Technical Services segment operating revenues for the
six months ended June 30, 2004 were $5.9 million, compared to $9.1 million in
the comparable period in the prior year. The decrease was due primarily to a
decrease in activity resulting from a decrease in military spending, which is
the primary customer for the segment's services.
Direct expense was $5.3 million for the six months ended June 30, 2004 as
compared to $6.8 million for the six months ended June 30, 2003. The decrease in
direct expense was due to the decrease in activity as mentioned above.
The Technical Services segment had operating income of $0.7 million for the six
months ended June 30, 2004, compared to $2.3 million for the six months ended
June 30, 2003.
22
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at June 30, 2004 was $18.5 million, compared to
$19.9 million at December 31, 2003. Working capital was $71.0 million at June
30, 2004, as compared to $70.3 million at December 31, 2003, an increase of $0.7
million.
Net cash provided by operating activities was $7.4 million for the six months
ended June 30, 2004, compared to $9.9 million for the six months ended June 30,
2003. As discussed below, capital expenditures were $20.6 million and gross
proceeds of aircraft and other sales of $7.3 million for the six months ended
June 30, 2004, compared to capital expenditures of $14.6 million and gross
proceeds of aircraft and other sales of $3.3 million for the six months ended
June 30, 2003.
On April 23, 2002, the Company issued $200 million in principal amount of 9 3/8%
Series A Senior Notes due 2009 in a private offering that was exempt from
registration under Rule 144A under the Securities Act of 1933 (the "Securities
Act"). All of the notes were subsequently exchanged for the Company's 9 3/8%
Series B Senior Notes due 2009 (the "Series B Senior Notes"), pursuant to an
exchange offer that was registered under the Securities Act. The Series B Senior
Notes bear annual interest at 9 3/8% payable semi-annually on May 1 and November
1 of each year and mature in May 2009. The Series B Senior 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. As
of June 30, 2004, the Company was in compliance with these covenants.
As of June 30, 2004 the Company maintained a $50 million revolving credit
facility with a commercial bank, which was scheduled to expire July 31, 2004. An
amendment to this credit agreement was executed June 18, 2004. The amendment
reduces the revolving credit facility from $50 million to $35 million, and
extends the expiration date to July 31, 2006. As of June 30, 2004, the Company
had borrowings of $4.5 million at an interest rate of 4.5% and $1.4 million in
letters of credit outstanding under the revolving credit facility. The credit
agreement includes covenants related to working capital, funded debt to net
worth, and consolidated net worth. As of June 30, 2004, the Company was in
compliance with these covenants.
Capital expenditures totaled $20.6 million for the six months ended June 30,
2004 as compared to $14.6 million for the six months ended June 30, 2003.
Capital expenditures primarily involve purchases, renewals and capability
upgrades of aircraft.
The Company believes that cash flow from operations will be sufficient to fund
required working capital needs, interest payments on the Series B Senior Notes
and capital expenditures for the next twelve months.
On May 1, 2004 the Company paid $9.4 million in interest on the Series B Senior
Notes. Annual interest payments are approximately $19.0 million.
In addition to the above obligations, the Company intends to execute an
operating lease agreement for a term of ten years upon delivery of four medium
transport category aircraft in the last half of 2004, at a cost of $1.4 million
per year per aircraft.
23
ENVIRONMENTAL MATTERS
The Company has an aggregate estimated liability of $0.6 million as of June 30,
2004 for environmental remediation costs that are probable and estimable.
In addition, the Company has conducted environmental surveys of the Lafayette
facility that it vacated in 2001, and has determined that contamination exists
at that facility. Appropriate notices of the contamination have been provided to
state regulatory authorities. To date, borings have been installed to determine
the type and extent of contamination. Preliminary results indicate limited soil
and groundwater impacts. Once the extent and type of contamination are fully
defined, a risk evaluation in accordance with the Louisiana Risk
Evaluation/Corrective Action Plan ("RECAP") standard will be submitted and
evaluated by Louisiana Department of Environmental Quality ("LDEQ"). At that
point, LDEQ will establish what cleanup standards must be met at the site. When
the process is complete, the Company will be in a position to develop the
appropriate remediation plan and estimate the resulting cost of remediation. The
Company has not recorded any estimated liability for remediation of
contamination but, based on preliminary surveys and ongoing monitoring, the
Company believes the ultimate remediation costs will not be material to the
Company's consolidated financial position and results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
For a discussion of new accounting pronouncements applicable to the Company, see
Note 6 to the Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market value of the Company's Series B Senior Notes will vary as changes
occur to general market interest rates, the remaining maturity of the notes, and
the Company's credit worthiness. At June 30, 2004, the market value of the notes
was approximately $210.0 million.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have evaluated
the effectiveness of the Company's disclosure controls and procedures (as is
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934 (the "Exchange Act")) as of a date within 90 days before the filing date of
this quarterly report (the "Evaluation Date"). Based on such evaluation, such
officers have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in alerting them on a timely
basis to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's periodic
filings under the Exchange Act.
Since the Evaluation Date, there have not been any significant changes in the
Company's internal controls or in other factors that could significantly affect
such controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is named as a defendant in various legal actions that have arisen in
the ordinary course of its business and have not been finally adjudicated. The
amount, if any, of ultimate liability with respect to such matters cannot be
determined. In the opinion of management, the amount of the ultimate liability
with respect to these actions is for the most part covered by insurance, and the
uninsured claims will not have a material adverse effect on the Company's
consolidated financial statements.
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 (i) Articles of Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1 (i) to PHI's Report on Form 10-Q
for the quarterly period ended October 31, 1994).
(ii) By-laws of the Company as amended (incorporated by reference
to Exhibit No. 3.1 (ii) to PHI's Report on Form 10-Q for the
quarterly period ended March 31, 2002).
10.1 Indenture dated April 23, 2002 among Petroleum Helicopters,
Inc., the Subsidiary Guarantors named therein and The Bank of
New York, as Trustee (incorporated by reference to Exhibit 4.1
to PHI's Registration Statement on Form S-4, filed on April
30, 2002, File Nos. 333-87288 through 333-87288-08).
10.2 Form of 9 3/8 Senior Note (incorporated by reference to
Exhibit 4.1 to PHI's Registration Statement of Form S-4, filed
on April 30, 2002, File Nos. 333-87288 through 333-87288-08).
10.3 Loan Agreement dated as of April 23, 2002 by and among
Petroleum Helicopters, Inc., Air Evac Services, Inc.
Evangeline Airmotive, Inc. and International Helicopter
Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.3 to PHI's Report on Form 10-Q for the
quarterly period ended June 30, 2002).
10.4 First Amendment dated June 18, 2004, to Loan Agreement dated
as of April 23, 2002 by and among Petroleum Helicopters, Inc.,
Air Evac Services, Inc. Evangeline Airmotive, Inc. and
International Helicopter Transport, Inc. and Whitney National
Bank.
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.
(b) Reports on Form 8-K
On May 10, 2004, the Company filed a Form 8-K, reporting in Item 5 the
Company's earnings for first quarter ended March 31, 2004.
On June 10, 2004, the Company filed a Form 8-K, reporting in Item 5 the
resignation of its Chief Executive Officer and President, Lance F.
Bospflug and the appointment of its Chairman of the Board, Al A.
Gonsoulin, to those positions, effective May 31, 2004.
25
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.
Petroleum Helicopters, Inc.
August 9, 2004 By: /s/ Al A. Gonsoulin
----------------------------------
Al A. Gonsoulin
Chairman and Chief Executive Officer
August 9, 2004 By: /s/ Michael J. McCann
----------------------------------
Michael J. McCann
Chief Financial Officer and Treasurer
26
EXHIBIT INDEX
3.1 (i) Articles of Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1 (i) to PHI's Report on Form 10-Q
for the quarterly period ended October 31, 1994).
(ii) By-laws of the Company as amended (incorporated by reference
to Exhibit No. 3.1 (ii) to PHI's Report on Form 10-Q for the
quarterly period ended March 31, 2002).
10.1 Indenture dated April 23, 2002 among Petroleum Helicopters,
Inc., the Subsidiary Guarantors named therein and The Bank of
New York, as Trustee (incorporated by reference to Exhibit 4.1
to PHI's Registration Statement on Form S-4, filed on April
30, 2002, File Nos. 333-87288 through 333-87288-08).
10.2 Form of 9 3/8 Senior Note (incorporated by reference to
Exhibit 4.1 to PHI's Registration Statement of Form S-4, filed
on April 30, 2002, File Nos. 333-87288 through 333-87288-08).
10.3 Loan Agreement dated as of April 23, 2002 by and among
Petroleum Helicopters, Inc., Air Evac Services, Inc.
Evangeline Airmotive, Inc. and International Helicopter
Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.3 to PHI's Report on Form 10-Q for the
quarterly period ended June 30, 2002).
10.4 First Amendment dated June 18, 2004, to Loan Agreement dated
as of April 23, 2002 by and among Petroleum Helicopters, Inc.,
Air Evac Services, Inc. Evangeline Airmotive, Inc. and
International Helicopter Transport, Inc. and Whitney National
Bank.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 by Al A. Gonsoulin, 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, Chief Executive Officer.
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Michael J. McCann, Chief Financial Officer.