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EXCEL - IDEA: XBRL DOCUMENT - PHI INC | Financial_Report.xls |
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EX-31.1 - EX-31.1 - PHI INC | h83153exv31w1.htm |
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: June 30, 2011
or
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the transition period from
to
Commission file number: 0-9827
PHI, Inc.
(Exact name of registrant as specified in its charter)
Louisiana (State or other jurisdiction of incorporation or organization) |
72-0395707 (I.R.S. Employer Identification No.) |
|
2001 SE Evangeline Thruway Lafayette, Louisiana (Address of principal executive offices) |
70508 (Zip Code) |
Registrants telephone number, including area code: (337) 235-2452
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes: þ No: o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes: þ No: o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer: o | Accelerated filer: þ | Non-accelerated filer: o (Do not check if a smaller reporting company) | Smaller reporting company: o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes: o No: þ
Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
Class | Outstanding at July 29, 2011 | |
Voting Common Stock | 2,852,616 shares | |
Non-Voting Common Stock | 12,458,992 shares |
PHI, INC.
Index Form 10-Q
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | FINANCIAL STATEMENTS |
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
(Thousands of dollars)
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash |
$ | 2,874 | $ | 3,628 | ||||
Short-term investments |
89,750 | 150,072 | ||||||
Accounts receivable net |
||||||||
Trade |
95,952 | 84,768 | ||||||
Other |
1,773 | 4,891 | ||||||
Inventories of spare parts net |
57,288 | 59,336 | ||||||
Other current assets |
12,830 | 16,233 | ||||||
Income taxes receivable |
925 | 558 | ||||||
Total current assets |
261,392 | 319,486 | ||||||
Other |
32,424 | 29,120 | ||||||
Property and equipment net |
672,937 | 596,533 | ||||||
Total assets |
$ | 966,753 | $ | 945,139 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 19,173 | $ | 22,404 | ||||
Accrued liabilities |
26,631 | 28,319 | ||||||
Other current liabilities |
45,800 | | ||||||
Total current liabilities |
91,604 | 50,723 | ||||||
Long-term debt |
316,189 | 331,074 | ||||||
Deferred income taxes |
80,790 | 81,988 | ||||||
Other long-term liabilities |
7,550 | 8,938 | ||||||
Total liabilities |
496,133 | 472,723 | ||||||
Commitments and contingencies (Note 3) |
||||||||
Shareholders Equity: |
||||||||
Voting
common stock par value of $0.10: 12,500,000 shares authorized, 2,852,616 issued and outstanding |
285 | 285 | ||||||
Non-voting
common stock par value of $0.10: 25,000,000 shares authorized, 12,458,992
issued and outstanding |
1,246 | 1,246 | ||||||
Additional paid-in capital |
291,403 | 291,403 | ||||||
Accumulated other comprehensive loss |
(10 | ) | (162 | ) | ||||
Retained earnings |
177,696 | 179,644 | ||||||
Total shareholders equity |
470,620 | 472,416 | ||||||
Total liabilities and equity |
$ | 966,753 | $ | 945,139 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Table of Contents
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of dollars and shares, except per share data)
(Thousands of dollars and shares, except per share data)
(Unaudited)
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Operating revenues, net |
$ | 135,976 | $ | 139,597 | $ | 255,616 | $ | 261,206 | ||||||||
Gain on
dispositions of assets, net |
77 | 117 | 223 | 123 | ||||||||||||
Other, principally interest income |
93 | 5 | 636 | 36 | ||||||||||||
136,146 | 139,719 | 256,475 | 261,365 | |||||||||||||
Expenses: |
||||||||||||||||
Direct expenses |
120,443 | 116,101 | 228,649 | 220,308 | ||||||||||||
Selling,
general and administrative expenses |
7,736 | 7,678 | 17,279 | 14,403 | ||||||||||||
Interest expense |
6,761 | 4,183 | 13,793 | 8,179 | ||||||||||||
134,940 | 127,962 | 259,721 | 242,890 | |||||||||||||
Earnings
(loss) before income taxes |
1,206 | 11,757 | (3,246 | ) | 18,475 | |||||||||||
Income tax expense (benefit) |
483 | 4,703 | (1,298 | ) | 7,390 | |||||||||||
Net earnings (loss) |
$ | 723 | $ | 7,054 | $ | (1,948 | ) | $ | 11,085 | |||||||
Weighted average shares
outstanding: |
||||||||||||||||
Basic |
15,312 | 15,312 | 15,312 | 15,312 | ||||||||||||
Diluted |
15,474 | 15,312 | 15,312 | 15,312 | ||||||||||||
Net earnings (loss) per share: |
||||||||||||||||
Basic |
$ | 0.05 | $ | 0.46 | $ | (0.13 | ) | $ | 0.72 | |||||||
Diluted |
$ | 0.05 | $ | 0.46 | $ | (0.13 | ) | $ | 0.72 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Table of Contents
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Thousands of dollars and shares)
(Unaudited)
(Thousands of dollars and shares)
(Unaudited)
Accumulated | Total | |||||||||||||||||||||||||||||||
Voting | Non-Voting | Additional | Other Com- | Share- | ||||||||||||||||||||||||||||
Common Stock | Common Stock | Paid-in | prehensive | Retained | Holders | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | Earnings | Equity | |||||||||||||||||||||||||
Balance at December 31, 2010 |
2,853 | $ | 285 | 12,459 | $ | 1,246 | $ | 291,403 | $ | (162 | ) | $ | 179,644 | $ | 472,416 | |||||||||||||||||
Net loss |
| | | | | | (1,948 | ) | (1,948 | ) | ||||||||||||||||||||||
Unrealized
gain on short-term investments |
| | | | | 151 | | 151 | ||||||||||||||||||||||||
Changes in
pension plan assets and benefit obligations |
| | | | | 1 | | 1 | ||||||||||||||||||||||||
Total comprehensive income |
(1,796 | ) | ||||||||||||||||||||||||||||||
Balance at June 30, 2011 |
2,853 | $ | 285 | 12,459 | $ | 1,246 | $ | 291,403 | $ | (10 | ) | $ | 177,696 | $ | 470,620 | |||||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||||||
Voting | Non-Voting | Additional | Other Com- | Share- | ||||||||||||||||||||||||||||
Common Stock | Common Stock | Paid-in | prehensive | Retained | Holders | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | Earnings | Equity | |||||||||||||||||||||||||
Balance at December 31, 2009 |
2,853 | $ | 285 | 12,459 | $ | 1,246 | $ | 291,403 | $ | (13 | ) | $ | 172,527 | $ | 465,448 | |||||||||||||||||
Net earnings |
| | | | | | 11,085 | 11,085 | ||||||||||||||||||||||||
Changes in
pension plan assets and benefit obligations |
| | | | | (13 | ) | | (13 | ) | ||||||||||||||||||||||
Total
comprehensive income, net of income taxes |
11,072 | |||||||||||||||||||||||||||||||
Balance at June 30, 2010 |
2,853 | $ | 285 | 12,459 | $ | 1,246 | $ | 291,403 | $ | (26 | ) | $ | 183,612 | $ | 476,520 | |||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Table of Contents
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
(Thousands of dollars)
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Operating activities: |
||||||||
Net (loss) earnings |
$ | (1,948 | ) | $ | 11,085 | |||
Adjustments
to reconcile net (loss) earnings to net cash provided by operating activities: |
||||||||
Depreciation |
15,316 | 13,442 | ||||||
Deferred income taxes |
(1,198 | ) | 7,099 | |||||
Gain on asset dispositions |
(223 | ) | (123 | ) | ||||
Other |
615 | 577 | ||||||
Changes in operating assets and liabilities |
(6,314 | ) | (4,607 | ) | ||||
Net cash provided by operating activities |
6,248 | 27,473 | ||||||
Investing activities: |
||||||||
Purchase of property and equipment |
(44,378 | ) | (33,932 | ) | ||||
Proceeds from asset dispositions |
2,000 | 1,164 | ||||||
Purchase of short-term investments |
(153,812 | ) | (1,004 | ) | ||||
Proceeds from sale of short-term investments |
212,993 | | ||||||
Deposits on aircraft |
(8,920 | ) | | |||||
Net cash provided by (used in) investing activities |
7,883 | (33,772 | ) | |||||
Financing activities: |
||||||||
Proceeds from line of credit |
19,065 | 32,000 | ||||||
Payments on line of credit |
(33,950 | ) | (25,518 | ) | ||||
Net cash (used in) provided by financing activities |
(14,885 | ) | 6,482 | |||||
(Decrease) increase in cash |
(754 | ) | 183 | |||||
Cash, beginning of period |
3,628 | 2,501 | ||||||
Cash, end of period |
$ | 2,874 | $ | 2,684 | ||||
Supplemental Disclosures Cash Flow Information |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 15,112 | $ | 7,422 | ||||
Income taxes |
$ | 507 | $ | 607 | ||||
Noncash investing activities: |
||||||||
Other current liabilities and accrued payables
related to
purchase of property and equipment |
$ | 46,007 | $ | 21 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
1. General
The accompanying unaudited condensed consolidated financial statements include the accounts of PHI,
Inc. and subsidiaries (PHI or the Company or we or our). In the opinion of management,
these condensed consolidated 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 consolidated financial statements contained in the Companys Annual Report on Form 10-K
for the year ended December 31, 2010 and the accompanying notes.
The Companys financial results, particularly as they relate to the Companys Oil and Gas
operations, are influenced by seasonal fluctuations as discussed in the Companys Annual Report on
Form 10-K for the year ended December 31, 2010. 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
PHI is primarily a provider of helicopter services, including helicopter maintenance and repair
services. We use a combination of factors to identify reportable segments as required by
Accounting Standards Codification 280, Segment Reporting. The overriding determination of our
segments is based on how the chief operating decision maker of our Company evaluates our results of
operations. The underlying factors include customer bases, types of service, operational
management, physical locations, and underlying economic characteristics of the types of work we
perform.
A segments operating profit is its operating revenues less its direct expenses and selling,
general and administrative expenses. Each segment has a portion of selling, general and
administrative expenses that are charged directly to the segment and a portion that is allocated.
Direct charges represent the vast majority of the segments selling, general and administrative
expenses. Allocated selling, general and administrative expenses are based primarily on total
segment direct expenses as a percentage of total direct expenses. Unallocated overhead consists
primarily of corporate selling, general, and administrative expenses that we do not allocate to the
reportable segments.
Effective June 30, 2011, the Company made changes to the presentation of reportable segments to
reflect changes in the way its chief operating decision maker evaluates the performance of its
operations, develops strategy and allocates capital resources. These changes resulted from how our
chief operating decision maker views the roles of certain corporate departments whose duties had
previously been considered company-wide but now are considered to focus solely on our Oil & Gas
segments operations. The change resulted in the reclassification of certain selling, general and
administrative expenses from within the Companys unallocated selling, general and administrative
expenses to the Oil & Gas segments selling, general, and
administrative expenses. The total amount of the
reclassification was $2.2 million for the six months ended June 30, 2010, and $1.4 million for the
three months ended June 30, 2010. The Companys historical segment disclosures have been recast to
be consistent with the current presentation.
Oil and Gas Segment. Our Oil and Gas segment, headquartered in Lafayette, Louisiana, provides
helicopter services primarily for the major integrated and independent oil and gas production
companies transporting personnel and/or equipment to offshore platforms in the Gulf of Mexico. Our
customers include Shell Oil Company (Shell), BP America Production Company and ConocoPhillips
Company, with whom we have worked for 30 or more years, and ExxonMobil Production Co. and ENI
Petroleum, with whom we have worked for more than 15 years. We currently operate 164 aircraft in
this segment.
7
Table of Contents
Operating revenue from the Oil and Gas segment is derived mainly from contracts that include a
fixed monthly rate for a particular model of aircraft, plus a variable rate for flight time.
Operating costs for the Oil and Gas operations are primarily aircraft operations costs, including
costs for pilots and maintenance personnel. Total fuel cost is included in direct expense and
reimbursement of a portion of these costs above a contracted per-gallon amount is included in
revenue. Our Oil and Gas operations generated approximately 66% and 68% of our total operating
revenue for the quarters ended June 30, 2011 and 2010, respectively, and approximately 66% and 69%
of our total operating revenue for the six months ended June 30, 2011 and 2010, respectively.
Air Medical Segment. Air Medical operations are headquartered in Phoenix, Arizona, where we
maintain significant separate facilities and administrative staff dedicated to this segment. Those
costs are charged directly to the Air Medical segment.
We provide air medical transportation services for hospitals and emergency service agencies in 19
states using approximately 88 aircraft at 65 separate locations. Our Air Medical segment operates
primarily under the independent provider model and, to a lesser extent, under the hospital-based
model. Under the independent provider model, we have no contracts and no fixed revenue stream, and
compete for transport referrals on a daily basis with other independent operators in the area.
Under the hospital-based model, we contract directly with the hospital to provide their
transportation services, with the contracts typically awarded on a competitive bid basis. For the
quarters ended June 30, 2011 and 2010, approximately 33% and 31% of our total operating revenues
were generated by our Air Medical operations, respectively. For the six months ended June 30, 2011
and 2010, approximately 32% and 29% of our total operating revenues were generated by our Air
Medical operations, respectively.
As an independent provider, we bill for our services on the basis of a flat rate plus a variable
charge per loaded mile, regardless of aircraft model. Revenues are recorded net of contractual
allowances under agreements with third party payors and estimated uncompensated care when the
services are provided. Contractual allowances and uncompensated care are estimated based on
historical collection experience by payor category. The main payor categories are Medicaid,
Medicare, Insurance, and Self-Pay. Payor mix and changes in reimbursement rates are the factors
most subject to sensitivity and variability in calculating our allowances. We compute a historical
payment analysis of accounts paid in full, by category. The allowance percentages calculated are
applied to the payor categories, and the necessary adjustments are made to the revenue allowance.
The allowance for contractual discounts was $40.0 million and $40.1 million as of June 30, 2011 and
June 30, 2010, respectively. The allowance for uncompensated care was $34.4 million and $29.9
million as of June 30, 2011 and June 30, 2010, respectively.
Provisions for contractual discounts and estimated uncompensated care for Air Medical operations as
a percentage of gross billings are as follows:
Revenue | ||||||||||||||||
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Gross billings |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Provision for contractual discounts |
55 | % | 53 | % | 55 | % | 54 | % | ||||||||
Provision for uncompensated care |
9 | % | 10 | % | 9 | % | 9 | % |
Net reimbursement per transport from commercial payors generally increases when a rate
increase is implemented. Net reimbursement from certain commercial payors, as well as Medicare and
Medicaid, does not increase proportionately with rate increases.
8
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Net revenue attributable to Medicaid, Medicare, Insurance, and Self-Pay as a percentage of net Air
Medical revenues are as follows:
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Medicaid |
16 | % | 15 | % | 15 | % | 16 | % | ||||||||
Medicare |
22 | % | 21 | % | 24 | % | 21 | % | ||||||||
Insurance |
61 | % | 63 | % | 60 | % | 62 | % | ||||||||
Self-Pay |
1 | % | 1 | % | 1 | % | 1 | % |
We also have a limited number of contracts with hospitals under which we receive a fixed
monthly rate for aircraft availability and an hourly rate for flight time. Those contracts
generated approximately 19% and 16% of the segments revenues for the quarters ended June 30, 2011
and 2010, respectively, and approximately 20% and 17% of the segments revenues for the six months
ended June 30, 2011 and 2010, respectively
Technical Services Segment. The Technical Services segment provides helicopter repair and overhaul
services for customer owned aircraft. Costs associated with these services are primarily labor,
and customers are generally billed at a percentage above cost. We currently operate five aircraft
for the National Science Foundation in Antarctica under this segment.
Approximately 1% of our total operating revenues for the quarter ended June 30, 2011 and
approximately 2% for the six months ended June 30, 2011 were generated by our Technical Services
operations. Approximately 1% and 2% of our total operating revenues for the quarter ended June,
30, 2010 and six months ended June 30, 2010 were generated by our Technical Services operations.
9
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Summarized financial information concerning our reportable operating segments for the quarters
and six months ended June 30, 2011 and 2010 is as follows:
Certain reclassifications have been made to prior fiscal year amounts to conform with the current
fiscal year presentation, as discussed above. These changes had no impact on consolidated net
sales or operating income.
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Thousands of dollars) | (Thousands of dollars) | |||||||||||||||
Segment operating revenues |
||||||||||||||||
Oil and Gas |
$ | 90,200 | $ | 94,734 | $ | 167,681 | $ | 179,674 | ||||||||
Air Medical |
44,214 | 43,101 | 82,596 | 76,670 | ||||||||||||
Technical Services |
1,562 | 1,762 | 5,340 | 4,862 | ||||||||||||
Total operating revenues |
135,976 | 139,597 | 255,616 | 261,206 | ||||||||||||
Segment direct expenses (1) |
||||||||||||||||
Oil and Gas |
79,779 | 75,845 | 149,377 | 146,098 | ||||||||||||
Air Medical |
38,793 | 38,385 | 75,420 | 70,011 | ||||||||||||
Technical Services |
1,871 | 1,871 | 3,852 | 4,199 | ||||||||||||
Total direct expenses |
120,443 | 116,101 | 228,649 | 220,308 | ||||||||||||
Segment selling, general and administrative expenses |
||||||||||||||||
Oil and Gas |
883 | 1,577 | 1,764 | 2,595 | ||||||||||||
Air Medical |
856 | 1,004 | 1,788 | 2,299 | ||||||||||||
Technical Services |
6 | 7 | 19 | 14 | ||||||||||||
Total selling, general and administrative expenses |
1,745 | 2,588 | 3,571 | 4,908 | ||||||||||||
Total direct and selling, general and administrative expenses |
122,188 | 118,689 | 232,221 | 225,216 | ||||||||||||
Net segment profit |
||||||||||||||||
Oil and Gas |
9,538 | 17,312 | 16,539 | 30,981 | ||||||||||||
Air Medical |
4,565 | 3,712 | 5,388 | 4,360 | ||||||||||||
Technical Services |
(315 | ) | (116 | ) | 1,469 | 649 | ||||||||||
Total |
13,788 | 20,908 | 23,396 | 35,990 | ||||||||||||
Other, net (2) |
170 | 122 | 859 | 159 | ||||||||||||
Unallocated selling, general and administrative costs (1) |
(5,991 | ) | (5,090 | ) | (13,708 | ) | (9,495 | ) | ||||||||
Interest expense |
(6,761 | ) | (4,183 | ) | (13,793 | ) | (8,179 | ) | ||||||||
Earnings before income taxes |
$ | 1,206 | $ | 11,757 | $ | (3,246 | ) | $ | 18,475 | |||||||
(1) | Included in direct expenses and unallocated selling, general, and administrative costs are the depreciation expense amounts below: |
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Oil and Gas |
$ | 5,385 | $ | 4,467 | $ | 10,325 | $ | 8,725 | ||||||||
Air Medical |
2,132 | 1,962 | 4,259 | 3,951 | ||||||||||||
Technical Services |
(1 | ) | 18 | 96 | 145 | |||||||||||
Total |
$ | 7,516 | $ | 6,447 | $ | 14,680 | $ | 12,821 | ||||||||
Unallocated SG&A |
$ | 303 | $ | 306 | $ | 636 | $ | 621 | ||||||||
(2) | Consists of gains on disposition of property and equipment, and other income. |
3. Commitments and Contingencies
Commitments In 2010, we executed a contract to acquire ten new medium aircraft for aggregate
acquisition costs of approximately $127.0 million, related to
our new contract with a major customer,
10
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two of which were delivered in December 2010. The purchase price of these two
aircraft was financed through our revolving credit facility. The third aircraft was delivered in
June 2011 at a purchase price of $12.0 million and was also financed through our revolving credit
facility. The remaining seven are scheduled for delivery in 2011 and through late 2012, with an
aggregate acquisition cost of approximately $85.6 million. We have traded in two aircraft in
exchange for a credit of approximately $20.3 million towards these acquisition costs, of which a
credit of $16.8 million remained as of June 30, 2011.
During the second quarter of 2011, we entered into a contract to acquire six new heavy transport aircraft for
an aggregate purchase price of approximately $148.0 million. In June 2011, we took initial delivery of the
first two baseline aircraft and title passed to PHI. The aircraft will be finally delivered in November 2011
when completion services are finished. In conjunction with the
initial delivery of the baseline aircraft, we
obtained short-term financing for the $45.8 million initial delivery payment. We intend to fund the total
purchase price with an operating lease with a commercial bank at final delivery in November for both
aircraft. The amount financed was recorded in other current liabilities. Two of the remaining aircraft have a
delivery date in late 2011, and the balance of the deliveries will occur in 2012. These aircraft will be
utilized in our Oil and Gas segment.
Total aircraft deposits of $23.2 million are included in Other Assets. This amount represents
deposits for the medium and heavy transport aircraft contracts.
We may finance some of the remaining acquisition costs for the medium and heavy transport aircraft
with net proceeds from our 8.625% Senior Notes due 2018, and expect to finance the balance through
some combination of cash on hand or cash flow generated from operations, operating leases and
borrowings under our revolving credit facility.
Environmental Matters We have recorded an aggregate estimated probable liability of $0.2 million
as of June 30, 2011 and December 31, 2010 for environmental response costs. The Company has
conducted environmental surveys of its former Lafayette facility located at the Lafayette Regional
Airport, which it vacated in 2001, and has determined that limited soil and groundwater
contamination exists at the facility. The Company has installed groundwater monitoring wells at
the facility and periodically monitors and reports on the contamination to the Louisiana Department
of Environmental Quality (LDEQ). The Company previously submitted a Risk Evaluation/Corrective
Action Plan Standard Site Assessment Report to the LDEQ fully delineating the extent and type of
contamination and updated the Report to include additional analytical data in April 2006. LDEQ
reviewed the Assessment Report and requested an Action Plan (the Plan) from the Company. LDEQ approved the Corrective Action Plan (CAP) for the remediation of the former PHI Plant I location
on August 23, 2010. All Louisiana Department of Natural Resources (DNR) approvals were received and
the project began on May 16, 2011. Based upon the
May 2003 Site Assessment Report, the April 2006 update and
ongoing monitoring and the August 2010 Corrective Action Plan, the Company believes
the ultimate remediation costs for the former Lafayette facility will not be material to its
consolidated financial position, results of operations, or cash flows.
Legal Matters The Company is named as a defendant in various legal actions that have arisen
in the ordinary course of business and have not been finally adjudicated. In the opinion of
management, the amount of the ultimate liability with respect to these actions will not have a
material effect on the Companys consolidated financial position, results of operations, or cash
flows.
Superior Offshore International Inc. v. Bristow Group Inc., ERA Helicopters, LLC, Seacor Holdings
Inc., ERA Group Inc., ERA Aviation, Inc., and PHI, Inc., Civil Action No. 1:09-cv-00438 on the
docket of the United States District Court for the District of Delaware. This purported class
action was filed on June 12, 2009, on behalf of a class defined to include all direct purchasers of
offshore helicopter services in the
11
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Gulf of Mexico from the defendants at any time from January 1, 2001 through December 31, 2005. The
suit alleged that the defendants acted jointly to fix, maintain, or stabilize prices for offshore
helicopter services during the above time frame in violation of the federal antitrust laws. The
plaintiff sought unspecified treble damages, injunctive relief, costs, and attorneys fees. On
September 14, 2010, the Court granted defendants motion to dismiss (filed on September 4, 2009)
and dismissed the complaint. On November 30, 2010, the court granted plaintiff leave to amend the
complaint, limited discovery to the new allegations, and established a schedule for briefing
dispositive motions. The defendants filed a motion for summary judgment on February 11, 2011. On
June 23, 2011, the court granted the defendants motion for summary judgment, entered final
judgment in favor of the defendants, and dismissed all of the plaintiffs claims. On July 22,
2011, the plaintiff filed a notice of appeal with the U.S. Court of Appeals, Third Circuit.
As previously reported, the Company has been involved in Federal Court litigation in the Western
District of Louisiana and the Fifth Circuit Court of Appeals with the Office and Professional
Employees International Union (OPEIU), the union representing the Companys domestic pilots.
This litigation involves claims of bad faith bargaining, compensation of striking pilots both at
the time of the strike and upon their return to work under both the Railway Labor Act (RLA) and
Louisiana state law, and the terms of employment for the Companys pilots since the strike ended
including non-payment of retention bonuses. After approximately two years of bargaining between
the Company and OPEIU for a second collective bargaining agreement, including negotiations mediated
by the National Mediation Board, both parties entered a self-help period as defined by the
applicable labor law, the RLA. At that time the pilots commenced a strike in September 2006 and
immediately prior to that strike the Company implemented its own terms and conditions of employment
for the pilots. The strike ended in November 2006 and a court-approved return to work process
began in January 2007 for those pilots who had not already returned to work or left the Companys
employment. This process was essentially completed in April 2007. The Companys pilots continue to
work under the terms and conditions of employment determined by the Company since the strike began.
By Order dated July 9, 2010, the Court dismissed both the Companys and OPEIUs claims that the
other had violated the RLA by bargaining in bad faith before exercising self-help. By Order dated
July 30, 2010, the Court dismissed all claims that the Company violated the RLA in the manner in
which it returned pilots to work following the strike. Also, the Court dismissed all but claims by
47 pilots under Louisiana state law. On August 27, 2010, the OPEIU and the individual pilot
plaintiffs filed a notice of appeal with the Fifth Circuit Court of Appeals. Then, by Order
entered September 27, 2010, the district court dismissed the Louisiana-law claims of the remaining
47 individual pilots. On October 22, 2010, the unions and the individual pilots filed a second
notice of appeal to the Fifth Circuit Court of Appeals, by which they appeal the district courts
dismissal of all their RLA and Louisiana-law wage payment claims against PHI. On November 5, 2010,
PHI filed a cross-appeal of the district courts dismissal of PHIs bad-faith bargaining claim
against the unions.
On December 31, 2009, the OPEIU filed another case against the Company in the Western District of
Louisiana in which the OPEIU asserts that its acceptance in 2009 of the terms and conditions of
employment for the Companys pilots initially implemented by the Company prior to the strike has
created a binding collective bargaining agreement and that the Company has inappropriately made
unilateral revisions to those terms including failing to pay a retention bonus. The Court
administratively stayed this case pending the completion of appellate briefing in the consolidated
cases, which briefing concluded on April 15, 2011. The Court has administratively stayed this case
pending the appellate courts decision in the consolidated cases described above, which cases are
scheduled for oral argument on August 31, 2011. Management does not expect the outcome of this
litigation to have a material adverse effect on our consolidated financial position, results of
operations or cash flows.
Operating Leases We lease certain aircraft, facilities, and equipment used in our operations.
The related lease agreements, which include both non-cancelable and month-to-month terms, generally
provide for fixed monthly rentals, and certain real estate leases also include renewal options. We
generally pay all insurance, taxes, and maintenance expenses associated with these leases. Some of
the
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facility leases contain renewal options. Aircraft leases contain purchase options exercisable at
certain dates in the lease agreements.
At June 30, 2011, we had approximately $153.4 million in aggregate commitments under operating
leases of which approximately $13.7 million is payable through December 31, 2011, and a total of
$27.1 million is payable over the twelve months ending June 30, 2012. The total lease commitments
include $138.1 million for aircraft and $15.3 million for facility lease commitments.
As of June 30, 2011, we had options to purchase aircraft under lease becoming exercisable in 2011
through 2014 for the following aggregate purchase prices, respectively: $27.7 million, $51.0
million, $38.8 million and $114.4 million. Subject to market conditions, we intend to exercise
these options as they become exercisable, and intend to finance some of these acquisition costs
with the net proceeds of our 8.625% Senior Notes. On July 5, 2011, we exercised an option to
acquire one medium aircraft for $6.9 million, funded with our revolving credit facility, leaving
$20.8 million in lease purchase options eligible to be exercised in the remainder of 2011.
4. Long-term Debt
As of June 30, 2011, our total long-term indebtedness was $316.2 million, consisting of $300
million of our 8.625% Senior Notes due 2018 (the 8.625% Senior Notes), and $16.2 million borrowed
under our revolving credit facility.
On September 23, 2010, we issued $300 million of 8.625% Senior Notes that mature in 2018. Interest
is payable semi-annually in arrears on April 15 and October 15 of each year. Net proceeds of
$295.5 million were used to repurchase $189.5 million of our $200 million outstanding 7.125% Senior
Notes due 2013 (the 7.125% Senior Notes) pursuant to a tender offer and consent solicitation that
also settled on September 23, 2010. Our total cost to repurchase those notes was $9.5 million,
including the tender offer premium of $7.6 million and $1.9 million of unamortized issuance costs.
We called for redemption on October 25, 2010 the remaining $10.5 million of 7.125% Senior Notes
outstanding, at a redemption price of 103.563% of their face amount plus accrued interest.
Mr. Al A. Gonsoulin, our Chairman and CEO and the Matzke Family Trust, of which Richard Matzke, one
of our directors, is trustee, purchased $2 million and $1 million of the 8.625% Senior Notes,
respectively.
The 8.625% Senior Notes are unconditionally guaranteed on a senior basis by our domestic
subsidiaries, and are general, unsecured obligations of ours and the subsidiary guarantors. We
have the option to redeem some or all of the notes at any time on or after October 15, 2014 at
specified redemption prices, and prior to that time pursuant to certain make-whole provisions.
The 8.625% Senior Notes contain restrictive covenants, including limitations on incurring
indebtedness, creating liens, selling assets and entering into certain transactions with
affiliates. The covenants limit our ability to pay cash dividends on common stock, repurchase or
redeem common or preferred equity, prepay subordinated debt and make certain investments. There are
no restrictions on dividends from a subsidiary to the parent company, nor any restrictions on
contributions from the parent company to a subsidiary. Upon the occurrence of a Change in
Control (as defined in the indenture governing the notes), each holder of the notes will have the
right to require us purchase that holders notes for a cash price equal to 101% of their principal
amount. Upon the occurrence of an Event of Default (as defined in the indenture), the trustee or
the holders of the notes may declare all of the outstanding notes to be due and payable
immediately. We were in compliance with the covenants applicable to the notes as of June 30, 2011.
In connection with the issuance of the 8.625% Senior Notes, we entered into a registration rights
agreement, pursuant to which we agreed to offer to exchange the notes for a new issue of
substantially
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identical notes registered under the Securities Act of 1933, as amended (the Securities Act).
Pursuant to the registration rights agreement, the unregistered 8.625% Senior Notes that were
tendered were exchanged January 19, 2011 for substantially identical notes registered under the
Securities Act.
Our senior secured revolving credit facility permits borrowings up to $75 million, contains a
borrowing base of 80% of eligible receivables (as defined in the credit agreement) and 50% of the
value of parts and is due September 1, 2012. The interest rate is the prime rate plus 100 basis
points. We may prepay the revolving credit facility at any time in whole or in part without
premium or penalty. All obligations under the revolving credit facility are secured by a perfected
first priority security interest in all of our eligible receivables and parts, and are guaranteed
by certain of our domestic subsidiaries.
As of June 30, 2011, we had $16.2 million in borrowings under the facility. As of December 31,
2010, we had $31.1 million in borrowings under the facility. We maintain a separate letter of
credit facility that had $5.5 million in letters of credit outstanding as of June 30, 2011 and
December 31, 2010. During the six months ended June 30, 2011 and 2010, the weighted average
effective interest rate on amounts borrowed under the revolving credit facility was 4.25%. We
reviewed interest expense for the quarters ended June 30, 2011 and 2010 that could be capitalized
for certain projects and any such amounts were immaterial.
The revolving credit facility includes financial covenants related to working capital, funded debt
to consolidated net worth, and consolidated net worth, and other covenants including restrictions
on additional debt, liens and a change of control. Events of default include a change of control, a
default in any other material credit agreement, including the 8.625% Senior Notes, and customary
events of default. As of June 30, 2011, we were in compliance with all of the covenants under the
revolving credit facility.
Our $300 million outstanding 8.625% Senior Notes bear interest at a fixed rate of 8.625% and
therefore changes in market interest rates do not affect our interest payment obligations on the
notes. The fair market value of our 8.625% Senior Notes will vary as changes occur to general
market interest rates, the remaining maturity of the notes, and our credit worthiness. At June 30,
2011, the market value of the notes was approximately $296.3 million, based on quoted market
indications.
5. Valuation Accounts
We have established an allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, current market conditions, and other information. The allowance for
doubtful accounts was approximately $0.1 million at June 30, 2011 and December 31, 2010.
Revenues related to emergency flights generated by the Companys Air Medical segment are recorded
net of contractual allowances under agreements with third party payors and estimated uncompensated
care when the services are provided. The allowance for contractual discounts was $40.0 million and
$34.7 million as of June 30, 2011 and December 31, 2010, respectively. The allowance for
uncompensated care was $34.4 million and $39.3 million as of June 30, 2011 and December 31, 2010,
respectively.
The allowance for contractual discounts and estimated uncompensated care as a percentage of gross
accounts receivable are as follows:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Gross Accounts Receivable |
100 | % | 100 | % | ||||
Allowance for Contractual Discounts |
37 | % | 33 | % | ||||
Allowance for Uncompensated Care |
32 | % | 37 | % |
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We have also established valuation reserves related to obsolete and excess inventory. The
inventory valuation reserves were $11.4 million at June 30, 2011 and December 31, 2010.
6. Employee Compensation
Employee Incentive Compensation Pursuant to our incentive compensation plans, we accrued $1.1
million and $1.3 million for the quarter and six months ended June 30, 2010, respectively. For the
quarter and six months ended June 30, 2011, we did not accrue incentive compensation expense as
certain thresholds were not met.
We also have a Safety Incentive Plan related to Occupational Safety and Health Administration
recordable incidents, for which we expensed $0.2 million and $0.3 million for the quarter and six
months ended June 30, 2011, respectively. For the quarter and six months ended June 30, 2010, we
expensed $0.1 million and $0.3 million, respectively.
7. Fair Value Measurements
Accounting standards require that assets and liabilities carried at fair value will be classified
and disclosed in one of the following three categories:
Level 1:
Quoted market prices in active markets for identical assets or
liabilities.
Level 2: Observable market based inputs or unobservable inputs that
are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following table summarizes the valuation of our short-term investments and financial
instruments by the above pricing levels as of the valuation dates listed:
June 30, 2011 | ||||||||||||
Total | (Level 1) | (Level 2) | ||||||||||
(Thousands of dollars) | ||||||||||||
Short-term investments: |
||||||||||||
Money Market Mutual Funds |
$ | 38,941 | $ | 38,941 | $ | | ||||||
Commercial Paper |
12,997 | | 12,997 | |||||||||
Corporate bonds and notes |
37,812 | | 37,812 | |||||||||
89,750 | 38,941 | 50,809 | ||||||||||
Investments in other assets |
2,868 | 2,868 | | |||||||||
Total |
$ | 92,618 | $ | 41,809 | $ | 50,809 | ||||||
December 31, 2010 | ||||||||||||
Total | (Level 1) | (Level 2) | ||||||||||
(Thousands of dollars) | ||||||||||||
Short-term investments: |
||||||||||||
Money Market Mutual Funds |
$ | 33,968 | $ | 33,968 | $ | | ||||||
Commercial Paper |
42,455 | | 42,455 | |||||||||
U.S. Government Agencies |
8,013 | | 8,013 | |||||||||
Corporate bonds and notes |
65,636 | | 65,636 | |||||||||
150,072 | 33,968 | 116,104 | ||||||||||
Investments in other assets |
3,547 | 3,547 | | |||||||||
Total |
$ | 153,619 | $ | 37,515 | $ | 116,104 | ||||||
The Company holds its short-term investments in an investment fund consisting of high quality
money market instruments of governmental and private issuers, which is classified as short-term
investments.
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Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active
markets. These items are traded with sufficient frequency and volume to provide pricing on an
ongoing basis. The fair values of the shares of these funds are based on observable market
prices, and therefore, have been categorized in Level 1 in the fair value hierarchy. Level 2
inputs reflect quoted prices for identical assets or liabilities that are not active. These items
may not be traded daily; examples include corporate bonds and U.S. government agencies. Assets are
valued based on prices derived by independent third parties that use inputs such as benchmark
yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be
challenged with the independent parties and/or overridden by the Company, if it is believed such
would be more reflective of fair value. Investments included in other assets, which relate to the
liability for the Officers Deferred Compensation Plan, consist mainly of multiple investment funds
that are highly liquid and diversified.
Cash, accounts receivable, accounts payable and accrued liabilities all had fair values
approximating their carrying amounts at June 30, 2011 and December 31, 2010.
8. Investments
We classify all of our short-term investments as available-for-sale. We carry these at fair value
and report unrealized gains and losses, net of taxes, in other comprehensive income until realized.
These gains and losses are reflected as a separate component of shareholders equity in our
consolidated balance sheets and our consolidated statements of shareholders equity. Cost, gains,
and losses are determined using the specific identification method.
Investments consisted of the following as of June 30, 2011:
Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Thousands of dollars) | ||||||||||||||||
Short-term investments: |
||||||||||||||||
Money Market Mutual Funds |
$ | 38,941 | $ | | $ | | $ | 38,941 | ||||||||
Commercial Paper |
12,997 | 1 | (1 | ) | 12,997 | |||||||||||
Corporate bonds and notes |
37,797 | 36 | (21 | ) | 37,812 | |||||||||||
Subtotal |
89,735 | 37 | (22 | ) | 89,750 | |||||||||||
Investments in other assets |
2,868 | | | 2,868 | ||||||||||||
Total |
$ | 92,603 | $ | 37 | $ | (22 | ) | $ | 92,618 | |||||||
Investments consisted of the following as of December 31, 2010:
Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Thousands of dollars) | ||||||||||||||||
Short-term investments: |
||||||||||||||||
Money Market Mutual Funds |
$ | 33,968 | $ | | $ | | $ | 33,968 | ||||||||
Commercial Paper |
42,471 | | (16 | ) | 42,455 | |||||||||||
U.S. Government Agencies |
8,022 | | (10 | ) | 8,012 | |||||||||||
Corporate bonds and notes |
65,847 | 4 | (214 | ) | 65,637 | |||||||||||
Subtotal |
150,308 | 4 | (240 | ) | 150,072 | |||||||||||
Investments in other assets |
3,547 | | | 3,547 | ||||||||||||
Total |
$ | 153,855 | $ | 4 | $ | (240 | ) | $ | 153,619 | |||||||
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The following table presents the cost and fair value of our debt investments based on
maturities as of June 30, 2011.
Amortized | Fair | |||||||
Cost | Value | |||||||
(Thousands of dollars) | ||||||||
Due in one year or less |
$ | 23,610 | $ | 23,613 | ||||
Due within two years |
27,184 | 27,196 | ||||||
Total |
$ | 50,794 | $ | 50,809 | ||||
The following table presents the cost and fair value of our debt investments based on
maturities as of December 31, 2010.
Amortized | Fair | |||||||
Cost | Value | |||||||
(Thousands of dollars) | ||||||||
Due in one year or less |
$ | 58,740 | $ | 58,704 | ||||
Due within two years |
57,600 | 57,400 | ||||||
Total |
$ | 116,340 | $ | 116,104 | ||||
The following table presents the average coupon rate percentage and the average days to
maturity of our debt investments as of June 30, 2011.
Average | Average | |||||||
Coupon | Days To | |||||||
Rate (%) | Maturity | |||||||
Commercial Paper |
0.258 | 35 | ||||||
Corporate bonds and notes |
5.215 | 365 |
The following table presents the fair value and unrealized losses related to our investments
that have been in a continuous unrealized loss position for less than twelve months as of June 30,
2011.
Unrealized | ||||||||
Fair Value | Losses | |||||||
(Thousands of dollars) | ||||||||
Commercial Paper |
$ | 5,499 | $ | (1 | ) | |||
Corporate bonds and notes |
13,287 | (21 | ) | |||||
$ | 18,786 | $ | (22 | ) | ||||
The following table presents the fair value and unrealized losses related to our investments
that have been in a continuous unrealized loss position for less than twelve months as of December
31, 2010.
Unrealized | ||||||||
Fair Value | Losses | |||||||
(Thousands of dollars) | ||||||||
Commercial Paper |
$ | 42,471 | $ | (16 | ) | |||
U.S. Government Agencies |
3,993 | (10 | ) | |||||
Corporate bonds and notes |
60,501 | (214 | ) | |||||
$ | 106,965 | $ | (240 | ) | ||||
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As of June 30, 2011 and December 31, 2010, we had no investments in a continuous unrealized
loss position for more than twelve months.
We consider the decline in market value to be due to market conditions, and we do not plan to sell
these investments prior to a recovery of cost. For these reasons, we do not consider any of our
investments to be other than temporarily impaired at June 30, 2011. The assessment of whether an
investment in a debt security has suffered an other-than-temporary impairment is based on whether
the Company has the intent to sell or more likely than not will be required to sell the debt
security before recovery of its amortized costs. Further, if the Company does not expect to recover
the entire amortized cost basis of the debt security, an other-than-temporary impairment is
considered to have occurred and it is measured by the present value of cash flows expected to be
collected less the amortized cost basis (credit loss). The Company did not have any
other-than-temporary impairments relating to credit losses on debt securities for the six months
ended June 30, 2011.
9. Shareholders Equity
We had an average of 15.3 million common shares outstanding for the quarters ended June 30, 2011
and 2010.
Accumulated other comprehensive loss is included in the shareholders equity section of the
condensed consolidated balance sheets of the Company. Accumulated other comprehensive loss in the
condensed consolidated balance sheets included the following components:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Unrealized gain (loss) on short-term investments |
$ | 9 | $ | (142 | ) | |||
Changes in pension plan assets and benefit obligations |
(19 | ) | (20 | ) | ||||
$ | (10 | ) | $ | (162 | ) | |||
10. Condensed Consolidating Financial Information
Our 8.625% Senior Notes are fully and unconditionally guaranteed on a joint and several, senior
basis by all of our domestic subsidiaries. All of our domestic subsidiaries are 100% owned.
The following supplemental condensed financial information sets forth, on a consolidated basis, the
balance sheet, statement of operations, and statement of cash flows information for PHI, Inc.
(Parent Company Only) and the guarantor subsidiaries. The eliminating entries eliminate
investments in subsidiaries, intercompany balances, and intercompany revenues and expenses. The
condensed consolidating financial statements have been prepared on the same basis as the
consolidated financial statements of PHI, Inc. The equity method is followed by the parent company
within these financials.
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Table of Contents
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
June 30, 2011 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets: |
||||||||||||||||
Cash |
$ | 1,957 | $ | 917 | $ | | $ | 2,874 | ||||||||
Short-term investments |
89,750 | | | 89,750 | ||||||||||||
Accounts receivable net |
88,336 | 9,389 | | 97,725 | ||||||||||||
Intercompany receivable |
| 84,123 | (84,123 | ) | | |||||||||||
Inventories of spare parts net |
57,288 | | | 57,288 | ||||||||||||
Other current assets |
12,816 | 14 | | 12,830 | ||||||||||||
Income taxes receivable |
925 | | | 925 | ||||||||||||
Total current assets |
251,072 | 94,443 | (84,123 | ) | 261,392 | |||||||||||
Investment in subsidiaries and other |
78,617 | | (78,617 | ) | | |||||||||||
Other assets |
32,403 | 21 | | 32,424 | ||||||||||||
Property and equipment net |
660,399 | 12,538 | | 672,937 | ||||||||||||
Total assets |
$ | 1,022,491 | $ | 107,002 | $ | (162,740 | ) | $ | 966,753 | |||||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||||||||
Current Liabilities: |
||||||||||||||||
Accounts payable |
$ | 18,515 | $ | 658 | $ | | $ | 19,173 | ||||||||
Accrued liabilities |
21,481 | 5,150 | | 26,631 | ||||||||||||
Other current liabilities |
45,800 | | | 45,800 | ||||||||||||
Intercompany payable |
84,123 | | (84,123 | ) | | |||||||||||
Total current liabilities |
169,919 | 5,808 | (84,123 | ) | 91,604 | |||||||||||
Long-term debt |
316,189 | | | 316,189 | ||||||||||||
Deferred income taxes and other long-term |
||||||||||||||||
liabilities |
65,763 | 22,577 | | 88,340 | ||||||||||||
Shareholders Equity: |
||||||||||||||||
Common stock and paid-in capital |
292,934 | 2,674 | (2,674 | ) | 292,934 | |||||||||||
Accumulated other comprehensive loss |
(10 | ) | | | (10 | ) | ||||||||||
Retained earnings |
177,696 | 75,943 | (75,943 | ) | 177,696 | |||||||||||
Total shareholders equity |
470,620 | 78,617 | (78,617 | ) | 470,620 | |||||||||||
Total liabilities and
shareholders equity |
$ | 1,022,491 | $ | 107,002 | $ | (162,740 | ) | $ | 966,753 | |||||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. |
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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
December 31, 2010 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets: |
||||||||||||||||
Cash |
$ | 2,957 | $ | 671 | $ | | $ | 3,628 | ||||||||
Short-term investments |
150,072 | | | 150,072 | ||||||||||||
Accounts receivable net |
81,393 | 8,266 | | 89,659 | ||||||||||||
Intercompany receivable |
| 79,810 | (79,810 | ) | | |||||||||||
Inventories of spare parts net |
59,336 | | | 59,336 | ||||||||||||
Other current assets |
16,224 | 9 | | 16,233 | ||||||||||||
Income taxes receivable |
558 | | | 558 | ||||||||||||
Total current assets |
310,540 | 88,756 | (79,810 | ) | 319,486 | |||||||||||
Investment in subsidiaries and others |
75,114 | | (75,114 | ) | | |||||||||||
Other assets |
29,099 | 21 | | 29,120 | ||||||||||||
Property and equipment, net |
583,091 | 13,442 | | 596,533 | ||||||||||||
Total assets |
$ | 997,844 | $ | 102,219 | $ | (154,924 | ) | $ | 945,139 | |||||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||||||||
Current Liabilities: |
||||||||||||||||
Accounts payable |
$ | 22,191 | $ | 213 | $ | | $ | 22,404 | ||||||||
Accrued liabilities |
23,482 | 4,837 | | 28,319 | ||||||||||||
Intercompany payable |
79,810 | | (79,810 | ) | | |||||||||||
Total current liabilities |
125,483 | 5,050 | (79,810 | ) | 50,723 | |||||||||||
Long-term debt |
331,074 | | | 331,074 | ||||||||||||
Deferred income taxes and other long-term |
||||||||||||||||
liabilities |
68,871 | 22,055 | | 90,926 | ||||||||||||
Shareholders Equity: |
||||||||||||||||
Common stock and paid-in capital |
292,934 | 2,674 | (2,674 | ) | 292,934 | |||||||||||
Accumulated other comprehensive |
||||||||||||||||
loss |
(162 | ) | | | (162 | ) | ||||||||||
Retained earnings |
179,644 | 72,440 | (72,440 | ) | 179,644 | |||||||||||
Total shareholders equity |
472,416 | 75,114 | (75,114 | ) | 472,416 | |||||||||||
Total liabilities and
shareholders equity |
$ | 997,844 | $ | 102,219 | $ | (154,924 | ) | $ | 945,139 | |||||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. |
20
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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
For the quarter ended June 30, 2011 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Operating revenues, net |
$ | 120,033 | $ | 15,943 | $ | | $ | 135,976 | ||||||||
Management fees |
637 | | (637 | ) | | |||||||||||
Gain on dispositions of assets, net |
77 | | | 77 | ||||||||||||
Other, principally interest income |
93 | | | 93 | ||||||||||||
120,840 | 15,943 | (637 | ) | 136,146 | ||||||||||||
Expenses: |
||||||||||||||||
Direct expenses |
108,180 | 12,263 | | 120,443 | ||||||||||||
Management fees |
| 637 | (637 | ) | | |||||||||||
Selling, general, and administrative
expenses |
7,479 | 257 | | 7,736 | ||||||||||||
Equity in net income of consolidated
subsidiaries |
(1,670 | ) | | 1,670 | | |||||||||||
Interest expense |
6,761 | | | 6,761 | ||||||||||||
120,750 | 13,157 | 1,033 | 134,940 | |||||||||||||
Earnings before income taxes |
90 | 2,786 | (1,670 | ) | 1,206 | |||||||||||
Income tax (benefit) expense |
(633 | ) | 1,116 | | 483 | |||||||||||
Net earnings |
$ | 723 | $ | 1,670 | $ | (1,670 | ) | $ | 723 | |||||||
For the quarter ended June 30, 2010 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Operating revenues, net |
$ | 123,442 | $ | 16,155 | $ | | $ | 139,597 | ||||||||
Management fees |
647 | | (647 | ) | | |||||||||||
Gain on dispositions of assets, net |
117 | | | 117 | ||||||||||||
Other, principally interest income |
5 | | | 5 | ||||||||||||
124,211 | 16,155 | (647 | ) | 139,719 | ||||||||||||
Expenses: |
||||||||||||||||
Direct expenses |
102,422 | 13,679 | | 116,101 | ||||||||||||
Management fees |
| 647 | (647 | ) | | |||||||||||
Selling, general and administrative
expenses |
7,357 | 321 | | 7,678 | ||||||||||||
Equity in net income of consolidated
subsidiaries |
(905 | ) | | 905 | | |||||||||||
Interest expense |
4,183 | | | 4,183 | ||||||||||||
113,057 | 14,647 | 258 | 127,962 | |||||||||||||
Earnings before income taxes |
11,154 | 1,508 | (905 | ) | 11,757 | |||||||||||
Income tax expense |
4,100 | 603 | | 4,703 | ||||||||||||
Net earnings |
$ | 7,054 | $ | 905 | $ | (905 | ) | $ | 7,054 | |||||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. |
21
Table of Contents
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
For the six months ended June 30, 2011 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Operating revenues, net |
$ | 224,434 | $ | 31,182 | $ | | $ | 255,616 | ||||||||
Management fees |
1,247 | | (1,247 | ) | | |||||||||||
Gain on dispositions of assets, net |
223 | | | 223 | ||||||||||||
Other, principally interest income |
636 | | | 636 | ||||||||||||
226,540 | 31,182 | (1,247 | ) | 256,475 | ||||||||||||
Expenses: |
||||||||||||||||
Direct expenses |
205,103 | 23,546 | | 228,649 | ||||||||||||
Management fees |
| 1,247 | (1,247 | ) | | |||||||||||
Selling, general and administrative
expenses |
16,730 | 549 | | 17,279 | ||||||||||||
Equity in net income of consolidated
subsidiaries |
(3,503 | ) | | 3,503 | | |||||||||||
Interest expense |
13,793 | | | 13,793 | ||||||||||||
232,123 | 25,342 | 2,256 | 259,721 | |||||||||||||
(Loss) earnings before income taxes |
(5,583 | ) | 5,840 | (3,503 | ) | (3,246 | ) | |||||||||
Income tax (benefit) expense |
(3,635 | ) | 2,337 | | (1,298 | ) | ||||||||||
Net (loss) earnings |
$ | (1,948 | ) | $ | 3,503 | $ | (3,503 | ) | $ | (1,948 | ) | |||||
For the six months ended June 30, 2010 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Operating revenues, net |
$ | 227,492 | $ | 33,714 | $ | | $ | 261,206 | ||||||||
Management fees |
1,349 | | (1,349 | ) | | |||||||||||
Gain on dispositions of assets, net |
123 | | | 123 | ||||||||||||
Other, principally interest income |
36 | | | 36 | ||||||||||||
229,000 | 33,714 | (1,349 | ) | 261,365 | ||||||||||||
Expenses: |
||||||||||||||||
Direct expenses |
193,534 | 26,774 | | 220,308 | ||||||||||||
Management fees |
| 1,349 | (1,349 | ) | | |||||||||||
Selling, general and administrative
expenses |
13,637 | 766 | | 14,403 | ||||||||||||
Equity in net income of consolidated
subsidiaries |
(2,895 | ) | | 2,895 | | |||||||||||
Interest expense |
8,179 | | | 8,179 | ||||||||||||
212,455 | 28,889 | 1,546 | 242,890 | |||||||||||||
Earnings before income taxes |
16,545 | 4,825 | (2,895 | ) | 18,475 | |||||||||||
Income tax expense |
5,460 | 1,930 | | 7,390 | ||||||||||||
Net earnings |
$ | 11,085 | $ | 2,895 | $ | (2,895 | ) | $ | 11,085 | |||||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. |
22
Table of Contents
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
For the six months ended June 30, 2011 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Net cash provided by operating activities |
$ | 6,002 | $ | 246 | $ | | $ | 6,248 | ||||||||
Investing activities: |
||||||||||||||||
Purchase of property and equipment |
(44,378 | ) | | | (44,378 | ) | ||||||||||
Purchase of short-term investments |
(153,812 | ) | | | (153,812 | ) | ||||||||||
Proceeds from asset dispositions |
2,000 | | | 2,000 | ||||||||||||
Proceeds from sale of short-term
investments |
212,993 | | | 212,993 | ||||||||||||
Deposits on aircraft |
(8,920 | ) | | | (8,920 | ) | ||||||||||
Net cash used in investing activities |
7,883 | | | 7,883 | ||||||||||||
Financing activities: |
||||||||||||||||
Payments on line of credit, net |
(14,885 | ) | | | (14,885 | ) | ||||||||||
Net cash used in financing activities |
(14,885 | ) | | | (14,885 | ) | ||||||||||
(Decrease) increase in cash |
(1,000 | ) | 246 | | (754 | ) | ||||||||||
Cash, beginning of period |
2,957 | 671 | | 3,628 | ||||||||||||
Cash, end of period |
$ | 1,957 | $ | 917 | $ | | $ | 2,874 | ||||||||
For the six months ended June 30, 2010 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Net cash provided by operating activities |
$ | 25,786 | $ | 1,687 | $ | | $ | 27,473 | ||||||||
Investing activities: |
||||||||||||||||
Purchase of property and equipment |
(32,388 | ) | (1,544 | ) | | (33,932 | ) | |||||||||
Proceeds from asset dispositions |
1,164 | | | 1,164 | ||||||||||||
Purchase of short-term investments, net |
(1,004 | ) | | | (1,004 | ) | ||||||||||
Net cash used in investing activities |
(32,228 | ) | (1,544 | ) | | (33,772 | ) | |||||||||
Financing activities: |
||||||||||||||||
Proceeds from line of credit, net |
6,482 | | | 6,482 | ||||||||||||
Net cash provided by financing activities |
6,482 | | | 6,482 | ||||||||||||
Increase in cash |
40 | 143 | | 183 | ||||||||||||
Cash, beginning of period |
1,678 | 823 | | 2,501 | ||||||||||||
Cash, end of period |
$ | 1,718 | $ | 966 | $ | | $ | 2,684 | ||||||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. |
23
Table of Contents
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and the notes thereto as well as our audited
consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for
the year ended December 31, 2010, managements discussion and analysis, risk factors and other
information contained therein.
Forward-Looking Statements
All statements other than statements of historical fact contained in this Form 10-Q and other
periodic reports filed by PHI, Inc. (PHI or the Company or we or our) 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, projects and similar words and 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 Companys 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 Companys 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 and the level of
exploration and production activity in the Gulf of Mexico, the effect on the demand for our
services as a result of the Deepwater Horizon incident, the effect on our operating costs of
volatile fuel prices, the availability of capital required to acquire aircraft, environmental
risks, hurricanes and other adverse weather conditions, 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. For a more detailed description
of risks, see the Risk Factors section in Item 1.A. of our Form 10-K for the year ended December
31, 2010 and in Part II Item 1.A. of our subsequently filed quarterly reports on Form 10-Q (the
SEC Filings). All forward-looking statements in this document are expressly qualified in their
entirety by the cautionary statements in this paragraph and the Risk Factors section of our SEC
Filings. PHI undertakes no obligation to update publicly any forward-looking statements, whether
as a result of new information, future events, or otherwise.
Overview
Operating revenues for the three months ended June 30, 2011 were $136.0 million, compared to $139.6
million for the three months ended June 30, 2010, a decrease of $3.6 million. Oil and Gas
operating revenues decreased $4.5 million for the quarter ended June 30, 2011, related primarily to
decreased medium aircraft flight hours and revenues resulting mainly from the continuing impact on
our business of the Deepwater Horizon incident. Operating revenues in the Air Medical segment
increased $1.1 million primarily due to increased revenues for hospital based contracts of $1.3
million due to increased flight hours for those contracts. There was an offsetting decrease in
revenues of $0.4 million in the independent provider programs due to decreased patient transports.
Flight hours for the quarter ended June 30, 2011 were 38,734 compared to 40,258 for the quarter
ended June 30, 2010. Oil and Gas segments flight hours decreased 1,145 hours due to decreases in
medium aircraft flight hours related to some deepwater drilling rigs that demobilized or remained
on site with reduced crews, in connection with the drilling moratorium subsequent to the Deepwater
Horizon incident. Air Medical segment flight hours decreased 379 hours for the quarter ended June
30, 2011. Individual patient transports in the Air Medical segment were 4,525 for the quarter
ended June 30, 2011, compared to transports of 5,002 for the quarter ended June 30, 2010, a
decrease of 477 transports.
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Net Oil and Gas segment profit was $9.5 million for the quarter ended June 30, 2011, compared to
$17.3 million for the quarter ended June 30, 2010. The decrease of $7.8 million was primarily due
to decreased revenues of $4.5 million primarily in medium aircraft revenue related to the Deepwater
Horizon impact, and increased direct expenses discussed further in the Segment Discussion.
Net segment profit for the Air Medical segment was $4.6 million for the quarter ended June 30,
2011, compared to $3.7 million for the quarter ended June 30, 2010. The increase in segment profit
in the Air Medical segment was primarily due to the increased revenues.
Net income for the quarter ended June 30, 2011 was $0.7 million, or $0.05 per diluted share,
compared to net earnings of $7.1 million for the quarter ended June 30, 2010, or $0.46 per diluted
share. The pre-tax earnings were $1.2 million for the quarter ended June 30, 2011, compared to
pre-tax earnings of $11.8 million for the same period in 2010. Oil and Gas segment earnings
decreased $7.8 million as discussed above and in the Segment Discussion, and interest expense
increased $2.6 million due to the issuance of the 8.625% Senior Notes.
Year-to-date operating revenues for June 30, 2011 were $255.6 million, compared to $261.2 million
for the six months ended June 30, 2010, a decrease of $5.6 million. Oil and Gas operating revenues
decreased $12.0 million for the six months ended June 30, 2011, related primarily to decreased
medium aircraft flight hours and revenues resulting mainly from the continuing impact on our
business of the Deepwater Horizon incident and the resulting decline in deepwater drilling activity
in the Gulf of Mexico. Operating revenues in the Air Medical segment increased $5.9 million
primarily due to increased revenues for hospital based contracts of $3.0 million due to increased
flight hours for those contracts. There was also an increase in revenues of $2.6 million in the
independent provider programs primarily due to an improved payor mix and rate increases implemented
in the prior year.
Flight hours for the six months ended June 30, 2011 were 71,172 compared to 74,870 for the six
months ended June 30, 2010. Oil and Gas segments flight hours decreased 3,928 hours due to a
decrease in deepwater drilling activity in the Gulf of Mexico. Air Medical segment flight hours
increased 153 hours for the six months ended June 30, 2011 due to increased flight hours on
traditional hospital programs. Individual patient transports in the Air Medical segment were 8,560
for the six months ended June 30, 2011, compared to transports of 8,975 for the six months ended
June 30, 2010, a decrease of 415 transports.
Net Oil and Gas segment profit was $16.5 million for the six months ended June 30, 2011, compared
to $30.9 million for the six months ended June 30, 2010. The decrease of $14.4 million was
primarily due to decreased revenues of $12.0 million primarily in medium aircraft revenue related
to the Deepwater Horizon incident and the resulting decline in deepwater drilling activity in the
Gulf of Mexico. In addition, direct expense increased $3.3 million which is discussed in the
Segment Discussion.
Net segment profit for the Air Medical segment was $5.4 million for the six months ended June 30,
2011, compared to $4.4 million for the six months ended June 30, 2010. There was a manufacturer
warranty credit in the first quarter of 2010 of $3.1 million. The increase in segment profit in
the Air Medical segment was primarily due to the increased revenues, and a reduction in selling,
general and administrative expense.
Net loss for the six months ended June 30, 2011 was $1.9 million, or $0.13 per diluted share,
compared to net earnings of $11.1 million for the six months ended June 30, 2010, or $0.72 per
diluted share. The pre-tax loss was $3.2 million for the six months ended June 30, 2011, compared
to pre-tax earnings of $18.5 million for the same period in 2010. The decrease in earnings is due
primarily to the decrease in Oil and Gas segment profit of $14.4 million, an increase in selling,
general and administrative expense of $2.9 million, and increase in interest expense of $5.6
million due to the issuance of the 8.625% Senior Notes.
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Table of Contents
Earnings for the six months ended June 30, 2010 included a credit of $4.3 million in direct expense
in the first quarter related to termination of a manufacturers warranty program on certain
aircraft.
During the second quarter of 2011, we entered into a contract to acquire six new heavy transport
aircraft for an aggregate purchase price of approximately $148.0 million, two of which were
delivered in June 2011. The remaining four are scheduled for delivery in late 2011 and 2012. We
also have on order seven medium aircraft for delivery in 2011 and 2012, at a total approximate cost
of $85.6 million. These heavy and medium aircraft are for our Oil and Gas segment. For additional
information, see Note 3 to the financial statements in this report.
Operating Statistics
The following tables present certain non-financial operational statistics for the quarters and six
months ended June 30, 2011 and 2010:
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Flight hours: |
||||||||||||||||
Oil and Gas |
29,997 | 31,142 | 54,250 | 58,178 | ||||||||||||
Air Medical (1) |
8,737 | 9,116 | 16,360 | 16,207 | ||||||||||||
Technical Services |
| | 562 | 485 | ||||||||||||
Total |
38,734 | 40,258 | 71,172 | 74,870 | ||||||||||||
Air Medical Transports (2) |
4,525 | 5,002 | 8,560 | 8,975 | ||||||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Aircraft operated at period end: |
||||||||
Oil and Gas (3) |
164 | 164 | ||||||
Air Medical (4) |
88 | 85 | ||||||
Technical Services |
5 | 4 | ||||||
Total (3) (4) |
257 | 253 | ||||||
(1) | Flight hours include 2,495 flight hours associated with hospital-based contracts, compared to 2,273 flight hours in the prior year quarter, and 4,622 flight hours year-to-date, compared to 4,073 in the prior year-to-date. | |
(2) | Represents individual patient transports for the period. | |
(3) | Includes nine aircraft as of June 30, 2011 and 2010 that are customer owned. | |
(4) | Includes seven aircraft as of June 30, 2011 and 2010 that are customer owned. |
Results of Operations
Quarter Ended June 30, 2011 compared with Quarter Ended June 30, 2010
Combined Operations
Revenues Operating revenues for the three months ended June 30, 2011 were $136.0
million, compared to $139.6 million for the three months ended June 30, 2010, a decrease of $3.6
million. Oil and Gas operating revenues decreased $4.5 million for the quarter ended June 30,
2011, related primarily to decreased medium aircraft flight hours due to decreased deepwater
drilling activity as a result of the Deepwater Horizon incident in 2010 and the delays in the
resumption of drilling due to the new regulatory permitting process.
Flight hours for the quarter ended June 30, 2011 were 38,734 compared to 40,258 for the quarter
ended June 30, 2010. Oil and Gas segments flight hours decreased 1,145 hours, and Air Medical
segment flight hours decreased 379 hours for the quarter ended June 30, 2011. Transports in the
independent provider
26
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programs were 4,525 for the quarter ended June 30, 2011, compared to 5,002 for the quarter ended
June 30, 2010, a decrease of 477 transports.
Other Income and Gains Gains on asset dispositions were $0.1 million for the three
months ended June 30, 2011 and June 30, 2010.
Other income was $0.1 million for the three months ended June 30, 2011 and less than $0.1 million
for the three months ended June 30, 2010.
Direct Expenses Direct operating expense was $120.4 million for the three months ended
June 30, 2011, compared to $116.1 million for the three months ended June 30, 2010, an increase of
$4.3 million. Aircraft fuel expense increased ($2.6 million) primarily due to increased per-gallon
fuel costs. Aircraft rent decreased ($1.5 million) due to the purchase of four heavy aircraft in
2010 previously under lease pursuant to purchase options. Aircraft depreciation increased ($1.1
million) due to additional aircraft purchased in the prior year, including those purchased off
lease. We also experienced an increase in aircraft parts usage ($2.2 million). Other items
increased, net ($0.1 million).
Selling, General, and Administrative Expenses Selling, general and administrative
expenses were $7.7 million for the three months ended June 30, 2011 and the three months ended June
30, 2010.
Interest Expense Interest expense was $6.8 million for the three months ended June 30,
2011, compared to $4.2 million for the three months ended June 30, 2010. The increase is due to
refinancing our $200 million 7.125% Senior Notes due 2013 with the $300 million 8.625% Senior Notes
due 2018.
Income Taxes Income tax expense for the three months ended June 30, 2011 was $0.5
million compared to income tax expense of $4.7 million for the three months ended June 30, 2010.
The effective tax rate was 40% for the three months ended June 30, 2011 and 2010.
Net Earnings Our net income for the three months ended June 30, 2011 was $0.7 million
compared to net income of $7.1 million for the three months ended June 30, 2010. Earnings before
income taxes for the three months ended June 30, 2011 was $1.2 million compared to $11.8 million
earnings before income taxes for the same period in 2010. Earnings per diluted share was $0.05 for
the current quarter compared to earnings per diluted share of $0.46 for the prior year quarter.
The decrease in earnings before taxes for the quarter ended June 30, 2011, compared to the quarter
ended June 30, 2010, was primarily due to a decrease in Oil and Gas segment earnings of $7.8
million and an increase in interest expense of $2.6 million, due to the refinancing of our $200
million 7.125% Senior Notes. We had 15.3 million common shares outstanding during the three months
ended June 30, 2011 and 2010.
Segment Discussion
Oil and Gas Oil and Gas segment revenues were $90.2 million for the three months ended June 30,
2011, compared to $94.7 million for the three months ended June 30, 2010, a decrease of $4.5
million. Flight hours were 29,997 for the current quarter compared to 31,142 for the same quarter
in the prior year. The decrease in revenue is due to decreased medium aircraft revenue due
primarily to a decrease in deepwater drilling rig support following the Deepwater Horizon incident
and delays in the resumption of drilling due to the new regulatory drilling permit process. It is
not possible to estimate when further improvements in drilling operations will occur in the
deepwater Gulf of Mexico due to uncertainties surrounding the timing of resumption of drilling
after permits are issued, the timing of issuance of drilling permits by the Department of Interior
and new regulations related to drilling operations.
The number of aircraft in the segment was 164 at June 30, 2011 and June 30, 2010. We have sold or
disposed of three light and one medium aircraft in the Oil and Gas segment since June 30, 2010. We
also traded in two medium aircraft related to our contract with a major customer. We added five
new aircraft to the Oil and Gas segment since June 30, 2010, consisting of two light, one medium
and two heavy
27
Table of Contents
aircraft. Inter-segment aircraft transfers account for the remaining amount. We also purchased
four heavy aircraft off lease since June 30, 2010, which does not affect the segment aircraft
count. In addition, in the second quarter of 2011, we entered into the heavy transport aircraft
contract, as further discussed in Note 3 to our Financial Statements included in this report.
Direct expense in our Oil and Gas segment was $79.8 million for the three months ended June 30,
2011, compared to $75.8 million for the three months ended June 30, 2010, an increase of $4.0
million. Fuel expense increased ($2.1 million) as a result of increased per-gallon fuel costs.
Total fuel cost is included in direct expense and reimbursement of a portion of these costs above a
contracted per-gallon amount is included in revenue. Aircraft rent expense decreased ($1.5
million) due to the purchase of four heavy aircraft previously under lease in 2010. There was an
increase in aircraft depreciation ($0.9 million) due to additional aircraft added to the fleet in
the prior year. Aircraft parts usage increased ($2.3 million), and other items increased, net
($0.2 million).
Our Oil and Gas segments operating income was $9.5 million for the three months ended June 30,
2011, compared to $17.3 million for the three months ended June 30, 2010. Operating margins were
11% for the three months ended June 30, 2011, compared to 18% for the three months ended June 30,
2010. The decrease in Oil and Gas segment operating income and operating margin is due to the
effects of the Deepwater Horizon incident and the new drilling permitting process mentioned above.
The Oil and Gas segment revenues are primarily driven by contracted aircraft and flight hours.
Costs are primarily fixed and are driven by the number of aircraft. The variable portion is driven
by flight hours.
Air Medical Air Medical segment revenues were $44.2 million for the three months ended June 30,
2011, compared to $43.1 million for the three months ended June 30, 2010, an increase of $1.1
million. The increase was primarily due to increased revenue of $1.3 million related to hospital
based contracts. Revenues for the independent provider programs decreased ($0.4 million) due to
decreased transports. Total patient transports were 4,525 for the three months ended June 30,
2011, compared to 5,002 for the three months ended June 30, 2010, a decrease of 477 transports.
Flight hours were 8,737 for the three months ended June 30, 2011, compared to 9,116 for the three
months ended June 30, 2010. The number of aircraft in the segment was 88 at June 30, 2011,
compared to 85 at June 30, 2010. Since June 30, 2010, we added one medium aircraft related to a
hospital contract. We also acquired one fixed wing aircraft.
Direct expense in our Air Medical segment was $38.8 million for the three months ended June 30,
2011, compared to $38.4 million for the three months ended June 30, 2010. Aircraft fuel expense
increased ($0.5 million) due to increased per-gallon fuel costs. Aircraft depreciation also
increased ($0.2 million) due to additional aircraft added to the segment fleet. Other items
decreased, net ($0.1 million).
Selling, general and administrative expenses were $0.9 million for the three months ended June 30,
2011, compared to $1.0 million for the three months ended June 30, 2010. The $0.1 million decrease
is primarily due to decreased employee costs ($0.1 million) in the Air Medical segment. Air
Medical operations are headquartered in Phoenix, Arizona, where we maintain significant separate
facilities and administrative staff dedicated to this segment.
Our Air Medical segments operating income was $4.6 million for the three months ended June 30,
2011, compared to $3.7 million for the three months ended June 30, 2010. Operating margins were
10% for the three months ended June 30, 2011, compared to 9% for the three months ended June 30,
2010.
Technical Services Technical Services revenues were $1.6 million for the three months ended June
30, 2011, compared to $1.8 million for the three months ended June 30, 2010. The $0.2 million
decrease was a result of decreased customer activity compared to the prior year quarter. Direct
expenses in our Technical Services segment were $1.9 million for the three months ended June 30,
2011 and June 30,
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2010. Our Technical Services segments operating loss was $0.3 million for the three months ended
June 30, 2011, compared to operating loss of $0.1 million for the three months ended June 30, 2010.
Six Months Ended June 30, 2011 compared with Six Months Ended June 30, 2010
Combined Operations
Revenues Operating revenues for the six months ended June 30, 2011 were $255.6 million,
compared to $261.2 million for the six months ended June 30, 2010, a decrease of $5.6 million. Oil
and Gas operating revenues decreased $12.0 million for the six months ended June 30, 2011, related
primarily to decreased medium aircraft revenue due to a decrease in deepwater drilling rig support,
related to the Deepwater Horizon incident and delays in the resumption of drilling due to the new
regulatory drilling permitting process. There was also an increase in revenue of $2.1 million
related to fuel charges due to an increase in fuel per-gallon cost. Total fuel cost is included in
direct expense and reimbursement of a portion of these costs above a contracted per-gallon amount
is included in revenue. Operating revenues in the Air Medical segment increased $5.9 million
primarily due to increased hospital based contract revenues ($3.0 million) and increased revenues
in the independent provider programs ($2.6 million) due to improved payor mix and rate increases.
Flight hours for the six months ended June 30, 2011 were 71,172 compared to 74,870 for the six
months ended June 30, 2010. Oil and Gas segments flight hours decreased 3,928 hours due to a
decrease in deepwater drilling activity in the Gulf of Mexico. Air Medical segment flight hours
increased 153 hours for the six months ended June 30, 2010, primarily due to increased hospital
based contract flight hours. Transports in the independent provider programs were 8,560 for the
six months ended June 30, 2010, compared to 8,975 transports for the six months ended June 30,
2010.
Other Income and Gains Gain on dispositions of assets was $0.2 million for the six
months ended June 30, 2011, compared to a gain of $0.1 million for the six months ended June 30,
2010. These amounts represent gains on sales of aircraft that no longer meet our strategic needs.
Other income was $0.6 million for the six months ended June 30, 2011, compared to less than $0.1
million for the six months ended June 30, 2010.
Direct Expenses Direct operating expense was $228.7 million for the six months ended
June 30, 2011, compared to $220.3 million for the six months ended June 30, 2010, an increase of
$8.4 million. This increase was primarily due to a $4.3 million credit recorded in the prior year
related to termination of a warranty program for certain aircraft. We also experienced increases
in fuel expense ($3.2 million) due to increased per-gallon fuel costs compared to the prior year,
and aircraft depreciation ($1.9 million) due to additional aircraft added to the fleet. Aircraft
parts usage also increased ($2.6 million). Aircraft rent decreased ($3.1 million) due to the
purchase of four heavy aircraft off lease.
Selling, General, and Administrative Expenses Selling, general and administrative
expenses were $17.3 million for the six months ended June 30, 2011, compared to $14.4 million for
the six months ended June 30, 2010. The $2.9 million increase was primarily due to increased legal
and accounting fees ($1.4 million). Of this amount, $1.0 million is due to expenses incurred in
assessing a potential acquisition for which we were unsuccessful. Other increases included
contract services ($0.6 million), promotional and printing
expenses ($0.4 million), expense associated with the issuance of
restricted stock units in 2010 ($0.7 million), and other
items, net ($0.2 million).
Interest Expense Interest expense was $13.8 million for the six months ended June 30,
2011, compared to $8.2 million for the six months ended June 30, 2010. This increase is due to
refinancing our $200 million 7.125% Senior Notes due 2013 with the $300 million 8.625% Senior Notes
due 2018.
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Income Taxes Income tax benefit for the six months ended June 30, 2011 was $1.3 million
compared to income tax expense of $7.4 million for the six months ended June 30, 2010. The
effective tax rate was 40% for the six months ended June 30, 2011 and 2010.
Net Earnings Our net loss for the six months ended June 30, 2011 was $1.9 million
compared to operating income of $11.1 million for the six months ended June 30, 2010. Loss per
diluted share was $0.13 for the six months ended June 30, 2011, compared to earnings per diluted
share of $0.72 for the prior year period. We had 15.3 million common shares outstanding during the
six months ended June 30, 2011 and 2010. Loss before income taxes for the six months ended June
30, 2011 was $3.2 million compared to earnings before income taxes of $18.5 million for the same
period in 2010. The decrease in earnings before income taxes for the six months ended June 30,
2011 compared to the prior year period was primarily due to a decrease in Oil and Gas segment
earnings of $14.5 million, an increase in interest expense of $5.6 million due to the refinancing
of our $200 million 7.125% Senior Notes, and an increase in selling, general and administrative
expense related to an increase in legal and accounting fees both due to a $1.0 million cost of
diligence effort in an unsuccessful acquisition, and $0.7 million related to severance costs.
Segment Discussion
Oil and Gas Oil and Gas segment revenues were $167.7 million for the six months ended June 30,
2011, compared to $179.7 million for the six months ended June 30, 2010, a decrease of $12.0
million. Flight hours were 54,250 for the six months ended June 30, 2011, compared to 58,178 for
the same period in 2010. The decrease in Oil and Gas revenues was related primarily to decreased
medium aircraft flight hours and revenue due to decreased deepwater drilling activity in the Gulf
of Mexico related to the Deepwater Horizon incident in 2010 and delays in the resumption of
drilling due to the new regulatory drilling permit process.
Direct expense in our Oil and Gas segment was $149.4 million for the six months ended June 30,
2011, compared to $146.1 million for the six months ended June 30, 2010, an increase of $3.3
million. Fuel expense increased ($2.6 million) as a result of increased per-gallon fuel costs.
Total fuel cost is included in direct expense and reimbursement of a portion of these costs above a
contracted per-gallon amount is included in revenue. Aircraft rent expense decreased ($3.1
million) due to the purchase of four heavy aircraft previously under lease in 2010. There was an
increase in aircraft depreciation ($1.6 million) due to additional aircraft added to the fleet in
the prior year. Aircraft parts usage also increased ($2.0 million), and other items increased, net
($0.2 million).
Selling, general and administrative expenses were $1.8 million for the six months ended June 30,
2011, compared to $2.6 million for the six months ended June 30, 2010. The decrease was primarily
related to decreased employee compensation expense.
Our Oil and Gas segments operating income was $16.5 million for the six months ended June 30,
2011, compared to $30.9 million for the six months ended June 30, 2010. The $14.4 million decrease
was due to the decrease in revenues of $12.0 million and the increase in direct expenses of $3.3
million, offset by the decrease in selling, general and administrative expenses. Operating margins
were 10% for the six months ended June 30, 2011, compared to 17% for the six months ended June 30,
2010. The decrease in operating income and margin is primarily due to decreased medium aircraft
revenue due to decreased deepwater drilling activity in the Gulf of Mexico as discussed above. The
Oil and Gas segment revenues are primarily driven by contracted aircraft and flight hours. Costs
are primarily fixed and are driven by the number of aircraft, and a portion is variable which is
driven by flight hours.
Air Medical Air Medical segment revenues were $82.6 million for the six months ended June 30,
2011, compared to $76.7 million for the six months ended June 30, 2010, an increase of $5.9 million
or 8%. Patient transports were 8,560 for the six months ended June 30, 2011, compared to 8,975 for
the six months ended June 30, 2010, a decrease of 415 transports. Flight hours were 16,360 for the
six months
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ended June 30, 2011, compared to 16,207 for the six months ended June 30, 2010. This increase was
due to the increase in hospital based contract flight hours.
Direct expense in our Air Medical segment was $75.4 million for the six months ended June 30, 2011,
compared to $70.0 million for the six months ended June 30, 2010. The $5.4 million increase is
primarily due to increased aircraft warranty costs ($2.8 million) due to a $3.1 million credit
recorded in segment direct expense in the first quarter of 2010. All new aircraft come with a
manufacturers warranty that covers defective parts. The warranty we terminated was an additional
warranty purchased from the manufacturer to cover replacement or refurbishment of aircraft parts on
certain aircraft in accordance with manufacturer specifications. A monthly fee was paid to the
manufacturer based on flight hours for the aircraft covered under this warranty. In return, the
manufacturer provided replacement parts required for maintaining the aircraft. There were also
increases in employee compensation expense ($0.5 million) primarily due to compensation rate
increases, aircraft fuel expense ($0.5 million) due to increased per-gallon fuel costs, and
aircraft parts usage ($0.6 million) and component repair costs ($0.6 million). Aircraft
depreciation also increased ($0.3 million) due to additional aircraft added to the segments fleet.
Other items increased, net ($0.1 million).
Selling, general and administrative expenses were $1.8 million for the six months ended June 30,
2011, compared to $2.3 million for the six months ended June 30, 2010. The $0.5 million decrease
was primarily due to decreased employee costs ($0.5 million).
Our Air Medical segments operating income was $5.4 million for the six months ended June 30, 2011,
compared to $4.4 million for the six months ended June 30, 2010. Operating margins were 7% and 6%
for the six months ended June 30, 2011 and 2010, respectively. Operating income for the six months
ended June 30, 2010 includes a credit of $3.1 million related to the termination of a
manufacturers warranty program. The increase in revenue and decrease in selling, general and
administrative expenses contributed to the improved operating margin in the Air Medical segment.
Technical Services Technical Services revenues were $5.3 million for the six months ended June
30, 2011, compared to $4.9 million for the six months ended June 30, 2010. Direct expenses in our
Technical Services segment were $3.9 for the six months ended June 30, 2011, compared to $4.2
million for the six months ended June 30, 2010. Our Technical Services segments operating income
was $1.5 million for the six months ended June 30, 2011, compared to $0.6 million for the six
months ended June 30, 2010. Operating margins were 28% for the six months ended June 30, 2011,
compared to 12% for the six months ended June 30, 2010.
Technical Services provides maintenance and repairs performed for our existing customers that own
their aircraft. These services are generally labor intensive with higher operating margins as
compared to other segments. In addition, the Technical Services segment conducts flight operations
for the National Science Foundation in Antarctica, which are typically conducted in the first and
fourth quarters each year.
Liquidity and Capital Resources
General
Our ongoing liquidity requirements arise primarily from the funding of working capital needs, the
purchase or leasing of aircraft, the maintenance and refurbishment of aircraft, improvement of
facilities, and acquisition of equipment and inventory. Our principal sources of liquidity
historically have been net cash provided by our operations and borrowings under our revolving
credit facility, senior notes, and the sale of non-voting common stock in 2005 and 2006. To the
extent we do not use cash, short-term investments or borrowings to finance our aircraft
acquisitions, we can typically enter into operating leases to fund these acquisitions.
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On September 23, 2010, we issued $300 million of 8.625% Senior Notes due 2018 and have repurchased
or redeemed all of our $200 million 7.125% Senior Notes due 2013. These transactions are discussed
in Note 4 to our financial statements included in this report, and below under Long Term Debt.
We expect our existing cash and short-term investments, cash flow from operations and borrowings
under our revolving credit facility will fund our cash requirements for the next twelve months.
Cash Flow
Our cash position was $2.9 million at June 30, 2011, compared to $3.6 million at December 31, 2010.
Short-term investments were $89.8 million at June 30, 2011, compared to $150.1 million at December
31, 2010. Working capital was $169.8 million at June 30, 2011, compared to $268.8 million at
December 31, 2010, a decrease of $99.0 million. The decrease was primarily due to a decrease in
short-term investments of $60.3 million and an increase in current liabilities of $40.9 million.
The increase in current liabilities is due primarily to the other current liability amount of $45.8
million due November 1, 2011 incurred in connection with the contract to purchase six heavy
transport aircraft, described in Note 3 to the financial statements, upon delivery of two baseline
aircraft in June 2011, which are reflected in property and equipment net, as of June 30, 2011.
Proceeds from the sale of short-term investments were used primarily to purchase two aircraft off
lease for $25.6 million, pay down a net $14.9 million on the revolver balance and pay $14.5 million
in interest on the 8.625% Senior Notes.
Net cash provided by operating activities was $6.2 million for the six months ended June 30, 2011,
compared to $27.5 million for the same period in 2010, a decrease of $21.3 million. This decrease
is primarily due to a $14.4 million decrease in Oil and Gas segment profit as previously discussed,
and a $5.6 million increase in interest expense related to our 8.625% Senior Notes.
Net cash provided by investing activities was $7.9 million for the six months ended June 30, 2011,
compared to a use of cash of $33.8 million for the same period in 2010. Purchases and sales of
short-term investments provided a net $59.1 million in cash during the six months ended June 30,
2011 compared to a net use of $1.0 million in the comparable prior year period. The increased net
proceeds from short-term investments were used to reduce the revolving credit facility balance,
purchase two heavy aircraft off lease, and pay interest due on our 8.625% Senior Notes. Capital
expenditures were $44.4 million for the six months ended June 30, 2011, compared to $33.9 million
for the same period in 2010. Capital expenditures for 2011 included $41.8 million for aircraft
purchases, upgrades, and refurbishments. Capital expenditures for 2010 included $28.4 million for
aircraft purchases, upgrades, and refurbishments. Gross proceeds from aircraft dispositions were
$2.0 million for the six months ended June 30, 2011, compared to $1.2 million for the same period
in 2010.
Financing activities for the six months ended June 30, 2011 include only proceeds of and payments
on the revolving credit facility. In 2011, we paid $14.9 million on the revolver balance, compared
to borrowing $6.5 million, net on the revolver for the same period in 2010.
Long Term Debt
As of June 30, 2011, our total long-term debt was $316.2 million, consisting of our $300 million
8.625% Senior Notes due 2018 and $16.2 million outstanding on our revolving credit facility.
Our senior secured credit facility provides a $75 million revolving credit facility maturing in
September 2012. The interest rate is the prime rate plus 100 basis points. At June 30, 2011, we
had $16.2 million in borrowings under the facility. During the quarter ended June 30, 2011, $16.2
million was the highest loan balance, with a weighted average balance of $2.4 million. During the
same period for 2010, $38.2 million was the highest loan balance, with a weighted average balance
of $31.8 million.
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On September 23, 2010, we issued $300 million of 8.625% Senior Notes that mature October 15, 2018.
These Notes were offered and sold in private placements under the Securities Act. Net proceeds of
$295.5 million were used to repurchase $189.5 million of our $200 million outstanding 7.125% Senior
Notes due 2013 pursuant to a tender offer and consent solicitation that also settled on September
23, 2010. The tender offer for the 7.125% Senior Notes included a tender premium and interest
totaling $7.6 million. The remaining $10.5 million of 7.125% Senior Notes outstanding were
redeemed October 25, 2010, at a redemption price of 103.563% of their face amount plus accrued
interest.
For a description of our 8.625% Senior Notes and our senior secured revolving credit facility, see
Note 4 to our financial statements included in this report.
After the repurchase and redemption of all of our outstanding $200 million 7.125% Senior Notes as
described above, we had remaining net proceeds of approximately $82.0 million. We intend to use
these proceeds for general corporate purposes, including the exercise of purchase options for
aircraft currently leased, and for the purchase of aircraft related to our a contract with a major customer. For additional information regarding these anticipated aircraft acquisitions, see
Note 3 to our financial statements included in this report. Pending these uses, we have invested
the net proceeds in U.S. Government Agencies and investment grade securities as of June 30, 2011,
reflected in short-term investments on our balance sheet. As a result of the issuance of our
8.625% Senior Notes and repurchase of our 7.125% Senior Notes, our annualized interest cost will
increase by $11.6 million. We anticipate that over time this increased interest cost will be
offset by reductions in lease expense from the exercise of purchase options for aircraft currently
leased.
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Contractual Obligations
The table below sets out our contractual obligations as of June 30, 2011 related to our operating
lease obligations, aircraft purchase commitments, revolving credit facility, and the 8.625% Senior
Notes due 2018. The operating leases are not recorded as liabilities on our balance sheet. Each
contractual obligation included in the table contains various terms, conditions, and covenants
that, if violated, accelerate the payment of that obligation. We were in compliance with the
covenants applicable to these contractual obligations as of June 30, 2011, and expect to remain in
compliance through the year ending December 31, 2011. As of June 30, 2011, we leased 19 aircraft
included in the lease obligations below.
Payment Due by Year | ||||||||||||||||||||||||||||
Beyond | ||||||||||||||||||||||||||||
Total | 2011 | 2012 | 2013 | 2014 | 2015 | 2015 | ||||||||||||||||||||||
(Thousands of dollars) | ||||||||||||||||||||||||||||
Aircraft purchase
commitments (1) |
$ | 185,136 | $ | 72,556 | $ | 112,580 | $ | | $ | | $ | | $ | | ||||||||||||||
Aircraft lease
obligations (2) |
138,111 | 12,014 | 24,457 | 24,823 | 24,822 | 24,545 | 27,450 | |||||||||||||||||||||
Other lease
obligations |
15,309 | 1,673 | 2,461 | 1,858 | 1,563 | 1,483 | 6,271 | |||||||||||||||||||||
Other current
liabilities (1) |
45,800 | 45,800 | | | | | | |||||||||||||||||||||
Long-term debt |
316,189 | | 16,189 | | | | 300,000 | |||||||||||||||||||||
Senior notes
interest |
181,126 | 12,938 | 25,875 | 25,875 | 25,875 | 25,875 | 64,688 | |||||||||||||||||||||
$ | 881,671 | $ | 144,981 | $ | 181,562 | $ | 52,556 | $ | 52,260 | $ | 51,903 | $ | 398,409 | |||||||||||||||
(1) | For information about these aircraft purchase commitments and other current liabilities, see footnote 3 to the financial statements in this report. | |
(2) | On July 5, 2011, we purchased one medium aircraft pursuant to a purchase option in the lease contract. The total purchase price was $6.9 million and was funded with our revolving credit facility. The future lease obligation amount included in the table above related to this aircraft was $4.6 million. |
As of June 30, 2011, we had options to purchase aircraft under lease becoming exercisable in
2011 through 2014 for the following aggregate purchase prices, respectively: $27.7 million, (of
which one aircraft was purchased on July 5, 2011 for $6.9 million), $51.0 million, $38.8 million
and $114.4 million. Subject to market conditions, we intend to exercise these options as they
become exercisable, and intend to finance some of these acquisition costs with the net proceeds of
our 8.625% Senior Notes. On July 5, 2011, we exercised an option to acquire one medium aircraft
for $6.9 million, funded with our revolving credit facility.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings are subject to changes in short-term interest rates due to the variable interest rate
on our revolving credit facility. Based on the $16.2 million in borrowings outstanding at June 30,
2011, a 10% increase (0.425%) in the interest rate would reduce our annual pre-tax earnings
approximately $0.4 million.
Our $300 million outstanding 8.625% Senior Notes due 2018 bear interest at a fixed rate of 8.625%
and therefore changes in market interest rates do not affect our interest payment obligations on
the notes. The
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fair market value of our 8.625% Senior Notes will vary as changes occur to general market interest
rates, the remaining maturity of the notes, and our credit worthiness. At June 30, 2011, the
market value of the notes was approximately $296.3 million, based on quoted market indications.
Market risk is the risk of changes in the value of financial instruments, or in future net income
or cash flows, in response to changing market conditions. The Company holds financial instruments
that are exposed to the following significant market risks: the interest rate risk associated with
the Companys investments in money market funds, U.S. Government Agencies, commercial paper, and
corporate bonds and notes. See Note 8 to the financial statements for details regarding our
short-term investments.
Item 4. CONTROLS AND PROCEDURES
The Companys management, with the participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by
this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures were effective as of such date to ensure
that information required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and Exchange Commission,
including to ensure that such information is accumulated and communicated to management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
There have been no changes in our internal control over financial reporting that occurred during
our most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
For information regarding legal proceedings, see Legal Matters in Note 3 to our financial
statements included in this report, which is incorporated herein by reference.
Item 1. A. RISK FACTORS
Item 1.A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2010
includes a discussion of our risk factors. Except as described below, there have been no
significant changes to our risk factors.
We must obtain additional financing in order to fund our aircraft purchase and other obligations.
As of June 30, 2011, we had obligations related to aircraft purchase commitments totaling
approximately $231.0 million due in 2011 and 2012, along with other significant contractual
obligations as described in this report. As of June 30, 2011, we had approximately $92.6 million
in cash and short-term investments and $58.8 million available under our $75.0 million revolving
credit facility. We intend to seek to obtain operating leases and/or additional debt financing to
fund these obligations. We have no current commitments or arrangements with respect to such
financing, and no assurances can be given that such financing will be available to us on acceptable
terms. Our inability to obtain such financing could have a material adverse affect on our
business, financial condition and results of operations.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. (REMOVED AND RESERVED)
Item 5. OTHER INFORMATION
Item 5(a). On August 2, 2011, the Compensation Committee of the Board of Directors of PHI granted
one-time cash bonus awards totaling $491,480 to certain executives and senior managers of the
Company including the following:
Amount of | ||||||||
Name of Executive Officer | Title | Award | ||||||
Al A. Gonsoulin |
Chairman and Chief Executive Officer | $ | 111,451 | |||||
Lance F. Bospflug |
President and Chief Operating Officer | $ | 92,962 | |||||
Michael J. McCann |
Chief Financial Officer and Secretary | $ | 29,479 | |||||
Richard A. Rovinelli |
Chief Administrative Officer and Director of Human Resources | $ | 27,478 |
The awards were in an amount equal to the reduction imposed under the terms of the Annual Incentive
Plan, as discussed in our Information Statement filed April 15, 2011. The Compensation Committee
concluded the awards were warranted due to the individuals strong performance during 2010 under
challenging operational circumstances.
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Item 6. EXHIBITS
(a) Exhibits
3.1 | (i) | Composite Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to PHIs Report on Form 10-Q filed on August 7, 2008). | |||
(ii) | Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.1 to PHIs Report on Form 8-K filed December 18, 2007). |
4.1 | Amended and Restated Loan Agreement dated as of March 31, 2008 by and among PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.1 to PHIs Report on Form 10-Q filed on May 8, 2008). | ||
4.2 | First Amendment dated as of August 5, 2009 to Amended and Restated Loan Agreement dated as of March 31, 2008 by and among PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.2 to PHIs Report on Form 10-Q filed on August 10, 2009). | ||
4.3 | Second Amendment dated September 13, 2010 to Amended and Restated Loan Agreement dated March 31, 2008 by and among PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. and International Helicopter Transport, Inc., and Whitney National Bank (incorporated by reference to Exhibit 4.3 to PHIs Report on Form 10-Q filed on November 8, 2010). | ||
4.4 | Indenture dated as of September 23, 2010 by and among PHI, Inc., the subsidiary guarantors and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to PHIs Report on Form 8-K filed on September 23, 2010). | ||
4.5 | Form of 8.625% Senior Note due 2018 (incorporated by reference to Exhibit 4.2 to PHIs Report on Form 8-K filed on September 23, 2010). | ||
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. | ||
101.INS | XBRL Instance Document | ||
101.SCH | XBRL Taxonomy Extension Schema | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
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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.
PHI, Inc. |
||||
August 3, 2011 | By: | /s/ Al A. Gonsoulin | ||
Al A. Gonsoulin | ||||
Chairman and Chief Executive Officer | ||||
August 3, 2011 | By: | /s/ Michael J. McCann | ||
Michael J. McCann | ||||
Chief Financial Officer | ||||
38