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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: March 31, 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 April 30, 2004
Voting Common Stock 2,852,616 shares
Non-Voting Common Stock 2,525,722 shares
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PETROLEUM HELICOPTERS, INC.
INDEX - FORM 10-Q
Part I - Financial Information
Item 1. Financial Statements - Unaudited
Consolidated Balance Sheets - March 31, 2004 and
December 31, 2003................................................ 3
Consolidated Statements of Operations - Quarter Ended
March 31, 2004 and 2003........................................... 4
Consolidated Statements of Cash Flows - Quarter Ended
March 31, 2004 and 2003........................................... 5
Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 15
Item 3. Quantitative and Qualitative Disclosures about
Market Risk......................................................... 20
Item 4. Controls and Procedures.................................................. 20
Part II - Other Information
Item 1. Legal Proceedings....................................................... 20
Item 6. Exhibits and Reports on Form 8-K........................................ 21
Signatures.............................................................. 22
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)
MARCH 31, DECEMBER 31,
2004 2003
--------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 23,121 $ 19,872
Accounts receivable - net of allowance
Trade 42,228 41,743
Other 1,037 1,315
Inventory 39,459 40,405
Other current assets 7,571 6,575
Refundable income taxes 116 225
--------- ----------
Total current assets 113,532 110,135
Property and equipment, net 259,679 258,526
Other 8,409 8,793
--------- ----------
Total Assets $ 381,620 $ 377,454
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 16,660 $ 18,837
Accrued liabilities 11,054 12,424
Accrued vacation payable 3,343 3,400
Accrued interest payable 7,881 3,174
Notes payable 5,000 2,000
--------- ----------
Total current liabilities 43,938 39,835
--------- ----------
Long-term debt 200,000 200,000
Deferred income taxes 25,611 25,597
Other long-term liabilities 6,082 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 15,088 15,088
Retained earnings 90,363 90,367
--------- ----------
Total shareholders' equity 105,989 105,993
--------- ----------
Total Liabilities and Shareholders' Equity $ 381,620 $ 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
MARCH 31,
------------------------
2004 2003
--------- --------
Operating revenues $ 66,973 $ 64,607
Gain on disposition of property
and equipment, net 673 918
Other 83 133
--------- --------
67,729 65,658
--------- --------
Expenses:
Direct expenses 57,285 54,575
Selling, general and
administrative expenses 5,144 4,902
Interest expense 5,016 4,963
--------- --------
67,445 64,440
--------- --------
Earnings before income taxes 284 1,218
Income taxes 281 487
--------- --------
Net earnings $ 3 $ 731
========= ========
Weighted average shares outstanding:
Basic 5,383 5,378
Diluted 5,486 5,468
Net earnings per share
Basic $ -- $ 0.14
Diluted $ -- $ 0.13
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)
QUARTER ENDED
MARCH 31,
------------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3 $ 731
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 6,710 5,869
Deferred income taxes 14 218
Gain on disposition of property & equipment, net (673) (918)
Other 331 313
Changes in operating assets and liabilities 889 4,037
----------- -----------
Net cash provided by operating activities 7,274 10,250
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (13,006) (7,144)
Proceeds from asset dispositions 5,981 1,460
----------- -----------
Net cash used in investing activities (7,025) (5,684)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 3,000 --
----------- -----------
Net cash provided by financing activities 3,000 --
----------- -----------
Increase in cash and cash equivalents 3,249 4,566
Cash and cash equivalents, beginning of period 19,872 17,674
----------- -----------
Cash and cash equivalents, end of period $ 23,121 $ 22,240
=========== ===========
SUPPLEMENTAL DISCLOSURES CASH FLOW INFORMATION
Interest paid $ 69 $ 130
=========== ===========
Taxes paid, net $ 1 $ 105
=========== ===========
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 12
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 quarters ended March 31, 2004 and 2003 is as follows (in
thousands):
QUARTER ENDED
MARCH 31,
---------------------
2004 2003
------ ------
(Thousands of dollars)
Segment operating revenues
Domestic Oil and Gas 42,177 43,208
Air Medical 16,016 10,806
International 5,959 5,752
Technical Services 2,821 4,841
------ ------
Total operating revenues 66,973 64,607
------ ------
Segment direct expense
Domestic Oil and Gas 36,674 38,147
Air Medical 12,759 7,272
International 5,331 5,616
Technical Services 2,521 3,540
------ ------
Total direct expense 57,285 54,575
Segment selling, general and administrative expense
Domestic Oil and Gas 26 182
Air Medical 1,800 936
International 3 66
Technical Services 4 2
------ ------
Total selling, general and administrative expense 1,833 1,186
------ ------
Total direct and selling, general and administrative expense 59,118 55,761
------ ------
Net segment profit
Domestic Oil and Gas 5,477 4,879
Air Medical 1,457 2,598
International 625 70
Technical Services 296 1,299
------ ------
Total 7,855 8,846
Other, net (1) 756 1,051
Unallocated selling, general and administrative costs (3,311) (3,716)
Interest expense (5,016) (4,963)
------ ------
Earnings before income taxes 284 1,218
====== ======
(1) Including gains on disposition of property and equipment, equity in losses
of unconsolidated subsidiaries, and other income.
7
3. COMMITMENTS AND CONTINGENCIES
Environmental Matters - The Company has an aggregate estimated liability of $0.6
million as of March 31, 2004 for environmental remediation costs that are
probable and estimable.
In addition, the Company has conducted environmental surveys of the Lafayette
facility, which it vacated in 2001, and has determined that contamination exists
at that facility. 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 determine the resulting cost of remediation.
However, the Company has not recorded any estimated liability for remediation of
contamination and, based on preliminary surveys and ongoing monitoring, the
Company believes the ultimate remediation costs for the Lafayette facility will
not be material to the Company's consolidated financial position, results of
operations or liquidity.
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 amount of
the ultimate liability with respect to these actions will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
Long-term Debt - On April 23, 2002, the Company issued Notes of $200 million
that have an interest rate of 9 3/8% payable semi-annually on May 1 and November
1 of each year, beginning November 1, 2002, and maturing in May 2009. The Notes
contain certain 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 March 31, 2004, the Company was in compliance with 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 2004. As of March 31, 2004, the Company had $3.0 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
both prime rate based borrowings and London Interbank offer rate ("LIBOR")
borrowings 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, 2004. 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. It is the Company's intention to renew the revolving credit
facility upon expiration in July 2004.
The Company is subject to certain financial covenants under the credit
agreement. These covenants included maintaining certain levels of working
capital and shareholders' equity and contain other provisions 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 March 31, 2004, the Company was in compliance with the
covenants.
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
8
generally pays all insurance, taxes, and maintenance expenses associated with
these aircraft and some of these leases contain renewal and purchase options. At
March 31, 2004, the Company had approximately $19.4 million in aggregate lease
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 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 2004, the Company also exercised its option to purchase
two additional aircraft with the same manufacturer. Although a purchase
agreement has not been executed, the Company anticipates the terms and pricing
to be similar to the first two aircraft described above. The Company also
intends to execute an operating lease with a commercial lender for these
aircraft.
Purchase Commitments - At March 31, 2004 and December 31, 2003, the Company had
commitments of $5.1 million and $4.5 million, respectively, for the upgrade and
purchase of certain aircraft, and the purchase of other equipment.
4. VALUATION 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
March 31, 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 March 31, 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, net of the incentive compensation. Pursuant to
the incentive plan for non-executives, the Company did not record compensation
expense for the quarter ended March 31, 2004 and recorded $0.1 million of
compensation expense for the quarter ended March 31, 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 Notes of $200 million that 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)
MARCH 31, 2004
-------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 23,084 $ 37 $ -- $ 23,121
Accounts receivable - net of allowance 35,906 7,359 -- 43,265
Inventory 39,459 -- -- 39,459
Other current assets 7,571 -- -- 7,571
Refundable income taxes 116 -- -- 116
--------- ------------ ----------- ------------
Total current assets 106,136 7,396 -- 113,532
Investment in subsidiaries and other 18,621 22,855 (33,067) 8,409
Property and equipment, net 255,739 3,940 -- 259,679
--------- ------------ ----------- ------------
Total Assets $ 380,496 $ 34,191 $ (33,067) $ 381,620
========= ============ =========== ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 34,428 $ 3,681 $ (10,395) $ 27,714
Accrued vacation payable 3,087 256 -- 3,343
Accrued interest payable 7,881 -- -- 7,881
Notes payable 5,000 -- -- 5,000
--------- ------------ ----------- ------------
Total current liabilities 50,396 3,937 (10,395) 43,938
Long-term debt 200,000 -- -- 200,000
Deferred income taxes and other long-term
liabilities 24,111 7,582 -- 31,693
Shareholders' Equity:
Paid-in capital 15,626 4,402 (4,402) 15,626
Retained earnings 90,363 18,270 (18,270) 90,363
--------- ------------ ----------- ------------
Total shareholders' equity 105,989 22,672 (22,672) 105,989
--------- ------------ ----------- ------------
Total Liabilities and
Shareholders' Equity $ 380,496 $ 34,191 $ (33,067) $ 381,620
========= ============ =========== ============
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 $ 37,867 $ 3,504 $ (10,110) $ 31,261
Accrued vacation payable 3,144 256 -- 3,400
Accrued interest payable 3,174 -- -- 3,174
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 MARCH 31, 2004
-------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------
Operating revenues $ 48,505 $ 18,468 $ -- $ 66,973
Management fees 942 -- (942) --
Gain on dispositions of property and
equipment, net 673 -- -- 673
Other 83 -- -- 83
--------- ------------ ----------- ------------
50,203 18,468 (942) 67,729
--------- ------------ ----------- ------------
Expenses:
Direct expenses 42,060 15,225 -- 57,285
Management fees -- 942 (942) --
Selling, general, and administrative 3,328 1,816 -- 5,144
Equity in net income of consolidated
subsidiaries (291) -- 291 --
Interest expense 5,016 -- -- 5,016
--------- ------------ ----------- ------------
50,113 17,983 (651) 67,445
--------- ------------ ----------- ------------
Earnings before income taxes 90 485 (291) 284
Income taxes 87 194 -- 281
--------- ------------ ----------- ------------
Net earnings $ 3 $ 291 $ (291) $ 3
========= ============ =========== ============
FOR THE QUARTER ENDED MARCH 31, 2003
-------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------
Operating revenues $ 51,850 $ 12,757 $ -- $ 64,607
Management fees 674 -- (674) --
Gain on dispositions of property and
equipment, net 918 -- -- 918
Other 133 -- -- 133
--------- ------------ ----------- ------------
53,575 12,757 (674) 65,658
--------- ------------ ----------- ------------
Expenses:
Direct expenses 46,186 8,389 -- 54,575
Management fees -- 674 (674) --
Selling, general, and administrative 4,122 780 -- 4,902
Equity in net income of consolidated
subsidiaries (1,748) -- 1,748 --
Interest expense 4,963 -- -- 4,963
--------- ------------ ----------- ------------
53,523 9,843 1,074 64,440
--------- ------------ ----------- ------------
Earnings before income taxes 52 2,914 (1,748) 1,218
Income taxes (679) 1,166 -- 487
--------- ------------ ----------- ------------
Net earnings $ 731 $ 1,748 $ (1,748) $ 731
========= ============ =========== ============
13
PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
FOR THE QUARTER ENDED MARCH 31, 2004
-------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------
Net cash provided by operating activities $ 7,288 $ (14) $ -- $ 7,274
Cash flows from investing activities:
Purchase of property and equipment (13,006) -- -- (13,006)
Proceeds from asset dispositions 5,981 -- -- 5,981
--------- ----------- ---------- -----------
Net cash used in investing activities (7,025) -- -- (7,025)
--------- ----------- ---------- -----------
Cash flows from financing activities:
Proceeds from line of credit 3,000 -- -- 3,000
--------- ----------- ---------- -----------
Net cash provided by financing activities 3,000 -- -- 3,000
--------- ----------- ---------- -----------
Increase in cash and cash equivalents 3,263 (14) -- 3,249
Cash and cash equivalents, beginning of
period 19,821 51 -- 19,872
--------- ----------- ---------- -----------
Cash and cash equivalents, end of period $ 23,084 $ 37 $ -- $ 23,121
========= =========== ========== ===========
FOR THE QUARTER ENDED MARCH 31, 2003
-------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------
Net cash provided by operating activities $ 10,249 $ 1 $ -- $ 10,250
Cash flows from investing activities:
Purchase of property and equipment (7,144) -- -- (7,144)
Proceeds from asset dispositions 1,460 -- -- 1,460
--------- ------------ ---------- -----------
Net cash used in investing activities (5,684) -- -- (5,684)
--------- ------------ ---------- -----------
Increase in cash and cash equivalents 4,565 1 -- 4,566
Cash and cash equivalents, beginning of
period 17,652 22 -- 17,674
--------- ------------ ---------- -----------
Cash and cash equivalents, end of period $ 22,217 $ 23 $ -- $ 22,240
========= ============ ========== ===========
14
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 Annual Report on Form 10-K for the year ended December 31,
2003 and MD&A 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 under the Securities Exchange
Act of 1934, and other written or 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. It is important
to note that forward-looking statements are based on a number of assumptions
about future events and are subject to various risks, uncertainties, and other
factors that may cause the Company's actual results to differ materially from
the views, beliefs, and estimates expressed or implied in such forward-looking
statements. Although the Company believes that the assumptions reflected in
forward-looking statements are reasonable, no assurance can be given that such
assumptions will prove correct. Factors that could cause the Company's results
to differ materially from the results discussed in such forward-looking
statements include but are not limited to the following: flight variances from
expectations, volatility of oil and gas prices, weather effects, the substantial
capital expenditures and commitments required to acquire aircraft, environmental
risks, competition, government regulation, unionization, operating hazards,
risks related to international operations, the ability to obtain insurance, and
the ability of the Company to implement its business strategy. All
forward-looking statements in this document are expressly qualified in their
entirety by the cautionary statements in this paragraph. PHI undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise.
OVERVIEW
Earnings decreased in the first quarter 2004 compared to the first quarter 2003
due to the start up costs associated with the Company's expansion of its Air
Medical operations that began in the fourth quarter of 2003. This expansion is
under the independent provider model whereby the Company responds to medical
facilities requiring interfacility transfers, or to patients requiring air
medical transport and is paid by either a commercial insurance company, federal
or state agency, or the patient. The number of aircraft in the Air Medical
segment at March 31, 2004 was 46 compared to 29 at March 31, 2003, an increase
of 17 aircraft. The Company has commenced operations at ten new locations since
October 1, 2003. In addition, 189 employees have been added to the Air Medical
segment due to the expansion. The Company anticipates these additional programs
being fully operational by mid-2004.
The Company will further expand its Air Medical operations throughout 2004.
The Domestic Oil and Gas segment had an increase in earnings ($0.6 million) due
to a decrease in costs ($1.6 million), offset by a revenue decline ($1.0
million) due to a decrease in flight hour activity.
Technical Services revenues and earnings also declined due to a decrease in
activity. Operating revenues were $2.8 million for the current quarter compared
to $4.8 million for the same period prior year. Operating income was $0.3
million compared to $1.3 million, a decline of $1.0 million.
15
OPERATING STATISTICS
The following tables present certain non-financial operational statistics for
the quarters ended March 31, 2004 and 2003:
QUARTER ENDED
MARCH 31,
-------------------------
2004 2003
------ ------
FLIGHT HOURS:
Domestic Oil and Gas 22,731 27,530
Air Medical 4,090 2,360
International 3,955 4,240
------ ------
Total 30,776 34,130
====== ======
AIRCRAFT OPERATED AT PERIOD END:
Domestic Oil and Gas 157 188
Air Medical 46 29
International 19 18
------ ------
Total (1) 222 235
====== ======
(1) Includes 14 and 17 aircraft as of March 31, 2004 and 2003, respectively
that are customer owned or leased by customers.
QUARTER ENDED MARCH 31, 2004 COMPARED WITH QUARTER ENDED MARCH 31, 2003
COMBINED OPERATIONS
REVENUES - Operating revenues for the three months ended March 31, 2004, were
$67.0 million compared to $64.6 million for the three months ended March 31,
2003, an increase of $2.4 million. The increase in operating revenue was due to
an increase in the Air Medical segment's operating revenues ($5.2 million) due
primarily to the additional Air Medical operating locations established
commencing in the fourth quarter of 2003, which was offset in part by a decrease
in Domestic Oil and Gas operating revenues ($1.0 million) due to a decrease in
flight hour activity, and a decrease in Technical Services segment operating
revenues ($2.0 million) also due to a decrease in activity.
Flight hours were 30,776 for three months ended March 31, 2004, compared to
34,130 flight hours for the three months ended March 31, 2003, a decrease of
3,354.
OTHER INCOME AND LOSSES - Gain (loss) on equipment dispositions was $0.7 million
for the quarter ended March 31, 2004 compared to $0.9 million for the quarter
ended March 31, 2003, an decrease of $0.2 million.
Other income was $0.1 million for both periods.
16
DIRECT EXPENSES - Direct operating expense was $57.3 million for the three
months ended March 31, 2004, compared to $54.6 million for three months ended
March 31, 2003, an increase of $2.7 million. This increase was due to the
additional Air Medical segment operations as mentioned above ($5.5 million),
offset in part by a decrease in direct expense in the Domestic Oil and Gas
segment ($1.5 million) due to a decrease in flight hour activity, and a decrease
in direct expense in the Technical Services segment ($1.0 million), also due to
a decrease in activity. The increase in direct expense in the Air Medical
segment is due to an increase in employee complement ($3.7 million), as
operational staff were added in support of the additional Air Medical
operations. Also in the Air Medical segment, aircraft depreciation expense
increased ($0.7 million) due to additional aircraft, insurance expense increased
due also to additional aircraft ($0.3 million), aircraft fuel expense increased
($0.1 million), and other items primarily operating base costs increased ($0.7
million). This decrease in Domestic Oil and Gas segment direct expense is due
mainly to a decrease in aircraft parts usage ($2.0 million), offset by an
increase in depreciation expense ($0.9 million) due to capital expenditure items
being placed in service.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - Selling, general, and
administrative expenses were $5.1 million for the three months ended March 31,
2004, compared to $4.9 million for the three months ended March 31, 2003.
Management and supervisory staff were added in the Air Medical segment ($0.3
million) due to additional operations as mentioned above. In addition, there
were increases in other expense, net, ($0.6 million) due primarily to increases
in supplies, rent, and other expenses related to the additional Air Medical
bases. These amounts were offset in part by decreases in selling, general and
administrative expense in Domestic Oil and Gas and unallocated corporate
expenses ($0.7 million).
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 March 31, 2004, was
$0.3 million. Included in the tax provision for the quarter is $0.2 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 deductions
as a result of the aircraft purchased in 2002 and 2003. The tax provision in the
prior year quarter was $0.5 million and the effective tax rate was 40%.
EARNINGS - The Company's net income for the three months ended March 31, 2004,
was less than $0.1 million compared to net income of $0.7 million for the three
months ended March 31, 2003. The effect of the additional Air Medical segment
operations which were added in the fourth quarter of 2003 was a loss of $0.8
million on earnings before tax. Additionally, there was a net decrease in flight
hour activity in the quarter of 3,354 flight hours as compared to the prior year
quarter.
SEGMENT DISCUSSION
Domestic Oil and Gas - Domestic Oil and Gas segment revenues were $42.2 million
for the three months ended March 31, 2004, compared to $43.2 million for the
three months ended March 31, 2003, a decrease of $1.0 million. There was a
decrease in flight hour activity as flight hours were 22,731 compared to 27,530
in the same period in the prior year, a decrease of 4,799 flight hours.
The number of aircraft in the segment at March 31, 2004 was 157 compared to 188
aircraft at March 31, 2003, a decrease of 31 aircraft. Of this decrease, 12
aircraft were transferred to the Air Medical segment.
Direct expenses in the Domestic Oil and Gas segment were $36.7 million for the
three months ended March 31, 2004, compared to $38.1 million for the three
months ended March 31, 2003, a decrease of $1.5 million. This decrease was
represented by a decrease in aircraft parts usage ($2.0 million), offset by an
increase in depreciation expense ($0.9 million) due to capital expenditure items
being placed in service. Other items, net, also decreased ($0.4 million).
Selling, general and administrative expense charged to the Domestic Oil and Gas
segment was less than
17
($0.1 million) for the three months ended March 31, 2004, compared to $0.2
million for the three months ended March 31, 2003.
The Domestic Oil and Gas segment's operating income increased ($0.6 million) due
primarily to the decrease in direct expense.
Air Medical - Air Medical segment revenues were $16.0 million for the three
months ended March 31, 2004, compared to $10.8 million for the three months
ended March 31, 2003, an increase of $5.2 million. The increase in Air Medical
revenues is due primarily to the additional Air Medical operating locations
established commencing in the fourth quarter of 2003.
The number of aircraft in the segment was 46 at March 31, 2004, compared to 29
at March 31, 2003.
Direct expenses in the Air Medical segment was $12.8 million for the three
months ended March 31, 2004 compared to $7.3 million for the three months ended
March 31, 2003, an increase of $5.5 million. The increase in direct expense was
due to the additional Air Medical operating locations mentioned above. This
increase in direct expense is represented by an increase in employee complement
($3.7 million), as operational staff were added in support of the additional Air
Medical operational locations. Also, aircraft depreciation expense increased
($0.7 million) due to additional aircraft, insurance expense increased due also
to additional aircraft ($0.3 million), aircraft fuel expense increased ($0.1
million), and other items, primarily operating base costs, increased ($0.7
million).
The Air Medical segment's operating income was $1.5 million for the three months
ended March 31, 2004 compared to $2.6 million for the three months ended March
31, 2003. The decrease was due to the costs associated with the start up of the
additional Air Medical operations opened in the fourth quarter of 2003.
As previously discussed, the Company is expanding in the Air Medical segment
under the independent provider model, and has commenced operations at ten
additional locations since October 1, 2003. Also, 189 additional employees have
been added to the Air Medical segment. The Company anticipates these additional
programs being fully operational by mid-2004.
The Company will further expand its Air Medical operations throughout 2004.
International - International segment revenues were $6.0 million for the three
months ended March 31, 2004, compared to $5.8 million for the three months ended
March 31, 2003, an increase of $0.2 million. The increase in operating revenue
was due to an increase in rates in the current period.
Direct expenses in the International segment was $5.3 million for the three
months ended March 31, 2004 compared to $5.6 million for the three months ended
March 31, 2003. The decrease in direct expenses was due to a decrease in outside
repairs to aircraft components.
Selling, general and administrative expense was less than $0.1 million for the
three months ended March 31, 2004, compared to $0.1 million for the three months
ended March 31, 2003.
The International segment had operating income of $0.6 million for the three
months ended March 31, 2004, compared to operating income of $0.1 million for
the three months ended March 31, 2003. The increase in operating income was due
to the increase in revenue related to the increase in rates, and also due to a
decrease in direct expense.
Technical Services - Technical Services segment revenues were $2.8 million for
the three months ended March 31, 2004 compared to $4.8 million for the three
months ended March 31, 2003, a decrease of $2.0 million. This decrease was due
to a decrease in activity.
18
Direct expenses in the Technical Services segment was $2.5 million for the three
months ended March 31, 2004 compared to $3.5 million for the three months ended
March 31, 2003, a decrease of $1.0 million. This 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 $0.3 million for the
three months ended March 31, 2004, compared to $1.3 million for the three months
ended March 31, 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at March 31, 2004 was $23.1 million, compared to
$19.9 million at December 31, 2003. Working capital was $69.6 million at March
31, 2004, as compared to $70.3 million at December 31, 2003, a decrease of $0.7
million.
Net cash provided by operating activities was $7.3 million for the three months
ended March 31, 2004, compared to $10.3 million for the three months ended March
31, 2003. As discussed below, capital expenditures were $13.0 million and gross
proceeds of aircraft sales of $6.0 million for the three months ended March 31,
2004, compared to capital expenditures of $7.1 million and gross proceeds of
aircraft sales of $1.5 million for the three months ended March 31, 2003.
On April 23, 2002, the Company issued Notes of $200 million that carry an
interest rate of 9 3/8% payable semi-annually on May 1 and November 1 of each
year that commenced on November 1, 2002, and maturing in May 2009. The Notes
contain certain 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 March 31, 2004, the Company was in compliance with these covenants.
The Company maintains a revolving credit facility with a commercial bank for $50
million which expires July 2004. As of March 31, 2004, the Company had
borrowings of $3.0 million at an interest rate of 4.5% and $1.4 million 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 March 31, 2004, the Company was in compliance with
these covenants. It is the Company's intention to renew the revolving credit
facility upon expiration in July 2004.
Capital expenditures totaled $13.0 million for the three months ended March 31,
2004 as compared to $7.1 million for the three months ended March 31, 2003.
Capital expenditures for 2004 include $7.3 million related to the Air Medical
expansion. Capital expenditures primarily include amounts for the upgrade of
capability and renewals of certain aircraft, and the purchase of aircraft.
The Company believes that cash flow from operations will be sufficient to fund
required working capital needs, interest payments on the Notes and capital
expenditures for the next twelve months.
On May 1, 2004 the Company paid interest amounts due on the Notes of $9.4
million. Annual required 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 2004, at a cost of $1.4 million per year per
aircraft.
19
ENVIRONMENTAL MATTERS
The Company has an aggregate estimated liability of $0.6 million as of March 31,
2004 for environmental remediation costs that are probable and estimable.
In addition, the Company has conducted environmental surveys of the Lafayette
facility, which it vacated in 2001, and has determined that contamination exists
at that facility. 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 determine the resulting cost of remediation.
However, the Company has not recorded any estimated liability for remediation of
contamination and, based on preliminary surveys and ongoing monitoring, the
Company believes the ultimate remediation costs for the Lafayette facility will
not be material to the Company's consolidated financial position, results of
operations or liquidity.
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
On April 23, 2002, the Company issued Notes of $200 million that have an
interest rate of 9 3/8% payable semi-annually on May 1 and November 1 of each
year, beginning November 1, 2002, and maturing in May 2009. The market value of
the Notes will vary as changes occur to general market interest rates, the
remaining maturity of the Notes, and the Company's credit worthiness. At March
31, 2004, the market value of the Notes were approximately $219.8 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
officer 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
20
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.
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. 31 (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).
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 by Lance F. Bospflug, 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 Lance F. Bospflug, 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 March 16, 2004, the Company filed a Form 8-K, reporting in Item 5
the Company's earnings for Year End December 31, 2003.
21
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.
May 7, 2004 By: /s/ Lance F. Bospflug
------------------------------------
Lance F. Bospflug
President and Chief Executive Officer
May 7, 2004 By: /s/ Michael J. McCann
------------------------------------
Michael J. McCann
Chief Financial Officer and Treasurer
22
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).
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 by Lance F. Bospflug, 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 Lance F. Bospflug, Chief Executive Officer.
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 by Michael J. McCann, Chief Financial Officer.