e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: March 31, 2010
or
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number: 0-9827
PHI, Inc.
(Exact name of registrant as specified in its charter)
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Louisiana
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72-0395707 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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2001 SE Evangeline Thruway |
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Lafayette, Louisiana
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70508 |
(Address of principal executive offices)
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(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: o 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.
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Large accelerated filer: o |
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Accelerated filer: þ |
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Non-accelerated filer: o (Do not check if a smaller reporting company) |
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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.
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Class |
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Outstanding at April 30, 2010 |
Voting Common Stock
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2,852,616 shares |
Non-Voting Common Stock
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12,458,992 shares |
PHI, INC.
Index Form 10-Q
2
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
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March 31, |
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December 31, |
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2010 |
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2009 |
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ASSETS |
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Current Assets: |
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Cash |
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$ |
7,353 |
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$ |
2,501 |
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Short-term investments |
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76,140 |
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75,138 |
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Accounts receivable net |
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Trade |
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85,723 |
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90,518 |
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Other |
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4,367 |
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3,885 |
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Inventories of spare parts net |
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62,184 |
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61,501 |
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Other current assets |
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11,399 |
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11,018 |
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Income taxes receivable |
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729 |
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740 |
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Total current assets |
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247,895 |
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245,301 |
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Other |
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10,819 |
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11,669 |
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Property and equipment net |
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548,128 |
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548,536 |
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Total assets |
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$ |
806,842 |
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$ |
805,506 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
12,728 |
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$ |
14,935 |
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Accrued liabilities |
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30,663 |
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23,342 |
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Total current liabilities |
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43,391 |
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38,277 |
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Long-term debt |
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208,105 |
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218,305 |
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Deferred income taxes |
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76,089 |
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73,409 |
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Other long-term liabilities |
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9,786 |
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10,067 |
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Total liabilities |
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337,371 |
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340,058 |
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Commitments and contingencies (Note 3) |
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Shareholders Equity: |
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Voting common stock |
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285 |
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285 |
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Non-voting common stock |
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1,246 |
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1,246 |
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Additional paid-in capital |
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291,403 |
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291,403 |
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Accumulated other comprehensive loss |
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(21 |
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(13 |
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Retained earnings |
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176,558 |
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172,527 |
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Total shareholders equity |
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469,471 |
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465,448 |
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Total liabilities and shareholders equity |
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$ |
806,842 |
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$ |
805,506 |
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The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of dollars and shares, except per share data)
(Unaudited)
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Quarter Ended |
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March 31, |
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2010 |
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2009 |
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Operating revenues, net |
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$ |
121,609 |
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$ |
116,952 |
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Gain on disposition of assets, net |
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272 |
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Other, principally interest income |
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37 |
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63 |
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121,646 |
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117,287 |
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Expenses: |
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Direct expenses |
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104,207 |
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102,127 |
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Selling, general and
administrative expenses |
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6,725 |
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7,824 |
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Interest expense |
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3,996 |
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3,879 |
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114,928 |
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113,830 |
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Earnings before income taxes |
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6,718 |
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3,457 |
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Income tax expense |
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2,687 |
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1,382 |
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Net earnings |
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$ |
4,031 |
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$ |
2,075 |
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Weighted average shares
outstanding: |
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Basic |
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15,312 |
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15,302 |
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Diluted |
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15,312 |
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15,317 |
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Net earnings per share |
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Basic |
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$ |
0.26 |
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$ |
0.14 |
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Diluted |
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$ |
0.26 |
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$ |
0.14 |
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The accompanying notes are an integral part of these unaudited condensed consolidated
financial statements.
4
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Thousands of dollars and shares)
(Unaudited)
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Accumulated |
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Total |
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Voting |
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Non-Voting |
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Additional |
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Other Com- |
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Share- |
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Common Stock |
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Common Stock |
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Paid-in |
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prehensive |
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Retained |
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Holders |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Earnings |
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Equity |
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Balance at December 31, 2009 |
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2,853 |
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$ |
285 |
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12,459 |
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$ |
1,246 |
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$ |
291,403 |
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$ |
(13 |
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$ |
172,527 |
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$ |
465,448 |
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Net earnings |
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4,031 |
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4,031 |
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Changes in pension plan assets and
benefit obligations |
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(8 |
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(8 |
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Total comprehensive income,
net of income taxes |
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4,023 |
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Balance at March 31, 2010 |
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2,853 |
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$ |
285 |
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12,459 |
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$ |
1,246 |
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$ |
291,403 |
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$ |
(21 |
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$ |
176,558 |
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$ |
469,471 |
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Accumulated |
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Total |
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Voting |
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Non-Voting |
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Additional |
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Other Com- |
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Share- |
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Common Stock |
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Common Stock |
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Paid-in |
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prehensive |
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Retained |
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Holders |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Earnings |
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Equity |
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Balance at December 31, 2008 |
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2,853 |
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$ |
285 |
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12,449 |
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$ |
1,245 |
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$ |
291,262 |
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$ |
45 |
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$ |
159,559 |
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$ |
452,396 |
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Net earnings |
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2,075 |
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2,075 |
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Changes in pension plan assets and
benefit obligations |
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(49 |
) |
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(49 |
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Total comprehensive income,
net of income taxes |
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2,026 |
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Balance at March 31, 2009 |
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2,853 |
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$ |
285 |
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12,449 |
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$ |
1,245 |
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$ |
291,262 |
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$ |
(4 |
) |
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$ |
161,634 |
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$ |
454,422 |
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The accompanying notes are an integral part of these unaudited condensed consolidated
financial statements.
5
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
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Quarter Ended |
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March 31, |
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2010 |
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2009 |
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Operating activities: |
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Net earnings |
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$ |
4,031 |
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$ |
2,075 |
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Adjustments to reconcile net earnings to net cash
provided by operating activities: |
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Depreciation |
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6,689 |
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7,079 |
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Deferred income taxes |
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2,680 |
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1,349 |
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Gain on asset dispositions |
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(272 |
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Other |
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233 |
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233 |
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Changes in operating assets and liabilities |
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8,383 |
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646 |
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Net cash provided by operating activities |
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22,016 |
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11,110 |
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Investing activities: |
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Purchase of property and equipment |
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(5,963 |
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(11,254 |
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Proceeds from asset dispositions |
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8,826 |
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Purchase of short-term investments |
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(1,001 |
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(14,368 |
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Proceeds from sale of short-term investments |
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7,562 |
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Net cash used in investing activities |
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(6,964 |
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(9,234 |
) |
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Financing activities: |
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Payments on line of credit |
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(10,200 |
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Net cash used in financing activities |
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(10,200 |
) |
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Increase in cash and cash equivalents |
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4,852 |
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1,876 |
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Cash and cash equivalents, beginning of period |
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2,501 |
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|
1,159 |
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Cash and cash equivalents, end of period |
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$ |
7,353 |
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$ |
3,035 |
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Supplemental Disclosures Cash Flow Information |
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Cash paid during the period for: |
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Interest |
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$ |
243 |
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$ |
93 |
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Income taxes |
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$ |
5 |
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$ |
12 |
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Noncash investing activities: |
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Accrued payables related to purchase of property and
equipment |
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$ |
376 |
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$ |
153 |
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|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The accompanying unaudited condensed consolidated financial statements include the accounts of PHI,
Inc. and subsidiaries (PHI or the Company). In the opinion of management, these 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, 2009 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, 2009. 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 used a combination of factors to identify reportable segments as required by
Accounting Standards Codification (ASC) 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 income 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.
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, resulting in a disproportionate share of selling, general and
administrative expenses compared to the Companys other reportable segments.
Oil and Gas Segment. Our Oil and Gas segment, headquartered in Lafayette, Louisiana, provides
helicopter services primarily for the major oil and gas production companies transporting personnel
and/or equipment to offshore platforms in the Gulf of Mexico and the Democratic Republic of Congo.
We currently operate 163 aircraft in this segment.
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. Approximately 70% and 64% of our total operating
revenue was generated by our Oil and Gas operations for the quarter ended March 31, 2010 and 2009,
respectively.
As reported in our Form 10-K for 2009, there were a number of contract awards since December 31,
2009, in our Oil and Gas segment. One award was a five year contract from an existing customer
commencing June 2011 upon the expiration of the current contract. There were also seven other
contract
7
awards from existing customers each with terms that are from three to five years. These contract
awards commenced in the first quarter of 2010. The above awards are for a minimum of 20 light, 17
medium, and three heavy aircraft.
Air Medical Segment. We provide air medical transportation services for hospitals and emergency
service agencies in 18 states using approximately 86 aircraft at 64 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. Our Air Medical operations are headquartered in Phoenix, Arizona. The Air Medical
segments operating revenues accounted for 27% and 33% of consolidated operating revenues for the
quarter ended March 31, 2010 and 2009, respectively.
As reported in our Form 10-K, our Air Medical segment was awarded two new traditional hospital
contracts with terms of ten years and the second contract term being three years. Additionally, we
were awarded a new three year contract on an independent provider model format but which includes
certain revenue guarantees. These contracts represent incremental revenues.
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 $35.1 million and $36.6 million as of March 31, 2010
and March 31, 2009, respectively. The allowance for uncompensated care was $28.5 million and $21.9
million as of March 31, 2010 and March 31, 2009, respectively.
Provisions for contractual discounts and estimated uncompensated care for Air Medical operations
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts |
|
|
Revenue |
|
Receivable |
|
|
Quarter Ended |
|
Quarter Ended |
|
|
March 31, |
|
March 31, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Gross billings |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Provision for contractual
discounts (1) |
|
|
55 |
% |
|
|
53 |
% |
|
|
38 |
% |
|
|
35 |
% |
Provision for uncompensated care |
|
|
8 |
% |
|
|
9 |
% |
|
|
30 |
% |
|
|
20 |
% |
|
|
|
1) |
|
The increase in the provision for contractual discounts is related to rate increases
in gross billings, as a higher percentage of the rate increase portion of the gross
billing is not collected. |
8
Amounts attributable to Medicaid, Medicare, Insurance and Self Pay as a percentage of net Air
Medical revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
March 31, |
|
|
2010 |
|
2009 |
Medicaid |
|
|
17 |
% |
|
|
13 |
% |
Medicare |
|
|
21 |
% |
|
|
19 |
% |
Insurance |
|
|
61 |
% |
|
|
65 |
% |
Self Pay |
|
|
1 |
% |
|
|
3 |
% |
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 14% of the segments revenues for the quarters ended March 31, 2010 and 2009,
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 six aircraft
for the National Science Foundation in Antarctica under this segment.
Approximately 3% of our total operating revenues for the quarters ended March 31, 2010 and March
31, 2009 were generated by our Technical Services operations.
9
Summarized financial information concerning our reportable operating segments for the quarter ended
March 31, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Thousands of dollars) |
|
Segment operating revenues |
|
|
|
|
|
|
|
|
Oil and Gas |
|
$ |
84,940 |
|
|
$ |
74,825 |
|
Air Medical |
|
|
33,569 |
|
|
|
39,093 |
|
Technical Services |
|
|
3,100 |
|
|
|
3,034 |
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
121,609 |
|
|
|
116,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment direct expenses (1) |
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
70,253 |
|
|
|
61,284 |
|
Air Medical |
|
|
31,626 |
|
|
|
38,878 |
|
Technical Services |
|
|
2,328 |
|
|
|
1,965 |
|
|
|
|
|
|
|
|
Total direct expenses |
|
|
104,207 |
|
|
|
102,127 |
|
|
|
|
|
|
|
|
|
|
Segment selling, general and administrative expenses |
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
267 |
|
|
|
387 |
|
Air Medical |
|
|
1,295 |
|
|
|
1,489 |
|
Technical Services |
|
|
7 |
|
|
|
14 |
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
1,569 |
|
|
|
1,890 |
|
|
|
|
|
|
|
|
Total direct and selling, general and administrative expenses |
|
|
105,776 |
|
|
|
104,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net segment profit (loss) |
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
14,420 |
|
|
|
13,154 |
|
Air Medical |
|
|
648 |
|
|
|
(1,274 |
) |
Technical Services |
|
|
765 |
|
|
|
1,055 |
|
|
|
|
|
|
|
|
Total net segment profit |
|
|
15,833 |
|
|
|
12,935 |
|
|
|
|
|
|
|
|
|
|
Other, net (2) |
|
|
37 |
|
|
|
335 |
|
Unallocated selling, general and administrative costs (1) |
|
|
(5,156 |
) |
|
|
(5,934 |
) |
Interest expense |
|
|
(3,996 |
) |
|
|
(3,879 |
) |
|
|
|
|
|
|
|
Earnings before income taxes |
|
$ |
6,718 |
|
|
$ |
3,457 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in direct expenses and unallocated selling, general, and administrative costs are
the depreciation expense amounts below: |
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Oil and Gas |
|
$ |
4,240 |
|
|
$ |
4,243 |
|
Air Medical |
|
|
1,989 |
|
|
|
1,985 |
|
Technical Services |
|
|
127 |
|
|
|
100 |
|
|
|
|
|
|
|
|
Total |
|
$ |
6,356 |
|
|
$ |
6,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated SG&A |
|
$ |
333 |
|
|
$ |
751 |
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Consists of gains on disposition of property and equipment, and other income. |
10
3. Commitments and Contingencies
Environmental Matters We have recorded an aggregate estimated liability of $0.2 million as of
March 31, 2010 and December 31, 2009 for environmental monitoring costs that are probable and
estimable. The Company has conducted environmental surveys of its former Lafayette facility, 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. The Company previously submitted a
Louisiana Risk Evaluation/Corrective Action Plan (RECAP) Standard Site Assessment Report to the
Louisiana Department of Environmental Quality (LDEQ) fully delineating the extent and type of
contamination and updated the report to include recent analytical data. LDEQ has reviewed the
assessment report and has requested an action plan from the Company. When the action plan is
complete, the Company will be in a position to estimate the resulting cost of remediation. The
Company has not recorded any estimated liability for remediation and contamination and, based upon
the May 2003 Site Assessment Report, the April 2006 update and ongoing monitoring, it 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 adverse effect on the Companys consolidated financial position, results of operations, or
cash flows.
As previously reported, the Company has been involved in Federal Court litigation in the Western
District of Louisiana with the Office and Professional Employees International Union (OPEIU), the
union representing domestic pilots, over claims of bad faith bargaining and issues relating to the
return to work of striking pilots. The pilots commenced a strike in September 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, and this was essentially completed in April
2007. Pilots continue to work basically under the same terms and conditions of employment set
forth in the final implementation proposals made by the Company at the end of collective bargaining
negotiations in August 2006 as modified consistent with the Companys ongoing business
needs. A trial date on strike-related matters has been postponed from June 29, 2009 until July 6,
2010. In addition, on December 31, 2009, the OPEIU filed another case against the Company in the
Western District of Louisiana, currently set for trial on July 5, 2011, asserting that its
acceptance in 2009 of PHIs implementation proposals created a binding collective bargaining
agreement, which the Company denies. Management does not expect the outcome of these cases to have
a material adverse effect on our 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 Gulf of Mexico from the defendants at any time from January 1,
2001 through December 31, 2005. The suit alleges 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 seeks unspecified treble damages,
injunctive relief, costs, and attorneys fees. Defendants motion to dismiss filed on September 4,
2009 is pending. The outcome of this matter cannot be reasonably assessed at this time. The
Company intends to aggressively defend itself in this matter.
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
11
generally pay all insurance, taxes, and maintenance expenses associated with these aircraft leases,
and some of these leases contain renewal and purchase options at fair market value.
At March 31, 2010, we had approximately $239.0 million in aggregate commitments under operating
leases of which approximately $26.8 million is payable through December 31, 2010, and a total of
$35.9 million is payable over the twelve months ending March 31, 2011. The total lease commitments
include $221.5 million for aircraft and $17.5 million for facility lease commitments, primarily for
our facilities in Lafayette, Louisiana.
4. Long-term Debt
On April 12, 2006, we completed the sale of $200 million of 7.125% senior notes. Net proceeds from
the sale of the senior notes were used to repurchase our outstanding $200 million 9.375 senior
notes due 2009 pursuant to a tender offer. The senior notes are due on April 15, 2013, are
unconditionally guaranteed on a senior basis by our domestic subsidiaries and interest is payable
on the senior notes semi-annually on April 15 and October 15. The senior notes and the guarantees
are general, unsecured obligations. We may redeem some or all of these notes at our option at any
time on or after April 15, 2010 at the following redemption prices (expressed as a percentage of
principal amount), plus accrued and unpaid interest to the redemption date: if redeemed during the
12-month period beginning April 15, 2010, 103.563%; if redeemed during the 12-month period
beginning April 15, 2011, 101.781%; and if redeemed during the 12-month period beginning April 15,
2012, 100.000%. The indenture governing the senior notes contains restrictive covenants, including
limitations on incurring indebtedness, creating liens, selling assets and entering into certain
transaction with affiliates. The covenants also limit our ability to pay cash dividends on common
stock, repurchase or redeem common or preferred equity, prepay subordinated debt and make certain
investments. Under the indenture, upon the occurrence of a change in control, each holder of the
senior notes has the right to require us to purchase that holders notes for a cash price equal to
101% of the principal amount of the senior notes to be purchased. At March 31, 2010, the market
value of the notes was approximately $194.0 million, based on quoted market indicators. We were in
compliance with the covenants applicable to these notes as of March 31, 2010.
Effective August 5, 2009, we executed a new credit agreement with a syndicate of three commercial
banks, which replaced the prior facility, providing a $75 million revolving credit facility
maturing in September 2011. The interest rate is the prime rate plus 100 basis points. As of
March 31, 2010, we had $8.1 million in borrowings and $5.1 million in letters of credit outstanding
under the facility. The credit agreement includes covenants related to working capital, funded
debt to net worth, and consolidated net worth, and other covenants including restrictions on
additional debt, encumbrances and a change of control. As of March 31, 2010, we were in compliance
with these covenants. The credit agreement is collaterized by accounts receivable and inventory
and guaranteed by our domestic subsidiaries. The agreement contains a borrowing base of 80% of
eligible receivables and 50% of the value of parts. We reviewed interest expense for the quarter
ended March 31, 2010 that could be capitalized for certain projects and any such amounts were
immaterial.
On April 1, 2010, we purchased two heavy aircraft off lease pursuant to purchase options in the
lease contract. This purchase was funded with our revolving line of credit and we drew $24.7
million for the acquisition. In addition, on April 15, 2010 we funded the payment of interest on
the Senior Notes with $7.0 million from the revolving credit facility. Currently, the principal
amount outstanding under the revolving credit facility is $35.5 million.
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 March 31, 2010 and December 31, 2009.
12
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 uncompensated care when
the services are provided. The allowance for contractual discounts was $35.1 million and $32.1
million as of March 31, 2010 and December 31, 2009, respectively. The allowance for uncompensated
care was $28.5 million and $28.1 million as of March 31, 2010 and December 31, 2009, respectively.
The allowance for contractual discounts and estimated uncompensated care as a percentage of gross
accounts receivable are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2010 |
|
2009 |
Gross Accounts Receivable |
|
|
100 |
% |
|
|
100 |
% |
Allowance for Contractual Discounts |
|
|
38 |
% |
|
|
34 |
% |
Allowance for Uncompensated Care |
|
|
30 |
% |
|
|
30 |
% |
We have also established valuation reserves related to obsolete and excess inventory. The
inventory valuation reserves were $9.5 million and $9.2 million at March 31, 2010 and December 31,
2009, respectively.
6. Employees
Employee Incentive Compensation In 2002, we implemented an incentive compensation plan for
non-executive and non-represented employees. For calendar year 2007, the represented pilots were
added to this plan as part of our implemented contract proposals. The plan allows us to pay up to
8.25% of earnings before tax upon achieving a specified earnings threshold. During 2004, we
implemented an executive/senior management plan for certain corporate and business unit management
employees. Pursuant to these plans, we accrued $0.3 million and $0.2 million incentive
compensation expense for the three months ended March 31, 2010 and 2009, respectively.
We also have a Safety Incentive Plan related to Occupational Safety and Health Administration
recordable incidents, for which we expensed $0.2 million for the three months ended March 31, 2010.
We did not accrue Safety Incentive Compensation expense for the quarter ended March 31, 2009 as
certain established requirements were not met.
7. Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, applies to all assets and liabilities that are
being measured and reported on a fair value basis. ASC 820 establishes a framework for measuring
fair value in Generally Accepted Accounting Principles (GAAP), and expands disclosure about fair
value measurements. This statement enables the reader of the financial statements to assess the
inputs used to develop those measurements by establishing a hierarchy for ranking the quality and
reliability of the information used to determine fair values. The statement requires that assets
and liabilities carried at fair value 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.
13
The following table summarizes the valuation of our short-term investments and financial
instruments by the above ASC 820 pricing levels as of the valuation dates listed:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Quoted prices in |
|
|
Quoted prices in |
|
|
|
active markets for |
|
|
active markets for |
|
|
|
Identical Assets |
|
|
Identical Assets |
|
|
|
(Level 1) |
|
|
(Level 1) |
|
|
|
(Thousands of dollars) |
|
Short-term investments |
|
$ |
76,140 |
|
|
$ |
75,138 |
|
|
|
|
|
|
|
|
|
|
Investments in other assets |
|
|
3,859 |
|
|
|
4,239 |
|
|
|
|
|
|
|
|
Total |
|
$ |
79,999 |
|
|
$ |
79,377 |
|
|
|
|
|
|
|
|
We hold our short-term investments in a money market fund consisting mainly of government backed
securities, which is classified as a short-term investment. In accordance with ASC 320,
Investments-Debt and Equity Securities, these short-term investments are classified as available
for sale. We have not recorded any unrealized gains or losses associated with short-term
investments as the carrying value approximates fair value at March 31, 2010 and December 31, 2009.
Investments included in other assets consist mainly of investment funds that are highly liquid and
diversified. These investments are amounts related to the liability for the Officers Deferred
Compensation Plan.
8. Recent Accounting Pronouncements
The FASB issued authoritative accounting guidance that became effective in the first quarter 2010
that revises the manner in which entities evaluate whether consolidation is required for variable
interest entities (VIE). Under the revised guidance, the primary beneficiary of a VIE is the
entity that has the power to direct the activities of the VIE that most significantly affect the
VIEs economic performance, and has the obligation to absorb losses or has the right to residual
returns that would potentially be significant to the entity. In conjunction with the adoption of
the new guidance, the Company has reviewed various lease arrangements and other agreements and has
determined that these do not represent a variable interest.
9. Shareholders Equity
We had an average of 15.3 million common shares outstanding for the quarter ended March 31, 2010
and 2009.
10. Condensed Consolidating Financial Information
Our 7.125% Senior Notes are fully and unconditionally guaranteed on a joint and several, senior
basis by all of our wholly-owned Guarantor Subsidiaries.
The following supplemental condensed financial information sets forth, on a consolidated basis, the
balance sheet, statement of operations, and statement of cash flows information for PHI, Inc.
(Parent Company Only) and the Guarantor Subsidiaries. The principal eliminating entries
eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and
expenses.
14
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6,633 |
|
|
$ |
720 |
|
|
$ |
|
|
|
$ |
7,353 |
|
Short-term investments |
|
|
76,140 |
|
|
|
|
|
|
|
|
|
|
|
76,140 |
|
Accounts receivable net |
|
|
79,017 |
|
|
|
11,073 |
|
|
|
|
|
|
|
90,090 |
|
Intercompany receivable |
|
|
|
|
|
|
74,495 |
|
|
|
(74,495 |
) |
|
|
|
|
Inventories of spare parts net |
|
|
62,184 |
|
|
|
|
|
|
|
|
|
|
|
62,184 |
|
Other current assets |
|
|
11,375 |
|
|
|
24 |
|
|
|
|
|
|
|
11,399 |
|
Income taxes receivable |
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
236,078 |
|
|
|
86,312 |
|
|
|
(74,495 |
) |
|
|
247,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries and other |
|
|
73,281 |
|
|
|
|
|
|
|
(73,281 |
) |
|
|
|
|
Other assets |
|
|
10,791 |
|
|
|
28 |
|
|
|
|
|
|
|
10,819 |
|
Property and equipment net |
|
|
535,299 |
|
|
|
12,829 |
|
|
|
|
|
|
|
548,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
855,449 |
|
|
$ |
99,169 |
|
|
$ |
(147,776 |
) |
|
$ |
806,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
11,923 |
|
|
$ |
805 |
|
|
$ |
|
|
|
$ |
12,728 |
|
Accrued liabilities |
|
|
25,628 |
|
|
|
5,035 |
|
|
|
|
|
|
|
30,663 |
|
Intercompany payable |
|
|
74,495 |
|
|
|
|
|
|
|
(74,495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
112,046 |
|
|
|
5,840 |
|
|
|
(74,495 |
) |
|
|
43,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
208,105 |
|
|
|
|
|
|
|
|
|
|
|
208,105 |
|
Deferred income taxes and other long-term
liabilities |
|
|
65,827 |
|
|
|
20,048 |
|
|
|
|
|
|
|
85,875 |
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital |
|
|
292,934 |
|
|
|
2,674 |
|
|
|
(2,674 |
) |
|
|
292,934 |
|
Accumulated other comprehensive loss |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
(21 |
) |
Retained earnings |
|
|
176,558 |
|
|
|
70,607 |
|
|
|
(70,607 |
) |
|
|
176,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
469,471 |
|
|
|
73,281 |
|
|
|
(73,281 |
) |
|
|
469,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
855,449 |
|
|
$ |
99,169 |
|
|
$ |
(147,776 |
) |
|
$ |
806,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
15
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,678 |
|
|
$ |
823 |
|
|
$ |
|
|
|
$ |
2,501 |
|
Short-term investments |
|
|
75,138 |
|
|
|
|
|
|
|
|
|
|
|
75,138 |
|
Accounts receivable net |
|
|
83,247 |
|
|
|
11,156 |
|
|
|
|
|
|
|
94,403 |
|
Intercompany receivable |
|
|
|
|
|
|
71,484 |
|
|
|
(71,484 |
) |
|
|
|
|
Inventories of spare parts net |
|
|
61,501 |
|
|
|
|
|
|
|
|
|
|
|
61,501 |
|
Other current assets |
|
|
11,001 |
|
|
|
17 |
|
|
|
|
|
|
|
11,018 |
|
Income taxes receivable |
|
|
740 |
|
|
|
|
|
|
|
|
|
|
|
740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
233,305 |
|
|
|
83,480 |
|
|
|
(71,484 |
) |
|
|
245,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries and others |
|
|
71,291 |
|
|
|
|
|
|
|
(71,291 |
) |
|
|
|
|
Other assets |
|
|
11,549 |
|
|
|
120 |
|
|
|
|
|
|
|
11,669 |
|
Property and equipment, net |
|
|
535,539 |
|
|
|
12,997 |
|
|
|
|
|
|
|
548,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
851,684 |
|
|
$ |
96,597 |
|
|
$ |
(142,775 |
) |
|
$ |
805,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
13,746 |
|
|
$ |
1,189 |
|
|
$ |
|
|
|
$ |
14,935 |
|
Accrued liabilities |
|
|
19,028 |
|
|
|
4,314 |
|
|
|
|
|
|
|
23,342 |
|
Intercompany payable |
|
|
71,484 |
|
|
|
|
|
|
|
(71,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
104,258 |
|
|
|
5,503 |
|
|
|
(71,484 |
) |
|
|
38,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
218,305 |
|
|
|
|
|
|
|
|
|
|
|
218,305 |
|
Deferred income taxes and other long-term
liabilities |
|
|
63,673 |
|
|
|
19,803 |
|
|
|
|
|
|
|
83,476 |
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and paid-in capital |
|
|
292,934 |
|
|
|
2,674 |
|
|
|
(2,674 |
) |
|
|
292,934 |
|
Accumulated other comprehensive
loss |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
Retained earnings |
|
|
172,527 |
|
|
|
68,617 |
|
|
|
(68,617 |
) |
|
|
172,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
465,448 |
|
|
|
71,291 |
|
|
|
(71,291 |
) |
|
|
465,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
851,684 |
|
|
$ |
96,597 |
|
|
$ |
(142,775 |
) |
|
$ |
805,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
16
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 31, 2010 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenues, net |
|
$ |
104,050 |
|
|
$ |
17,559 |
|
|
$ |
|
|
|
$ |
121,609 |
|
Management fees |
|
|
702 |
|
|
|
|
|
|
|
(702 |
) |
|
|
|
|
Other, principally interest income |
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,789 |
|
|
|
17,559 |
|
|
|
(702 |
) |
|
|
121,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
91,112 |
|
|
|
13,095 |
|
|
|
|
|
|
|
104,207 |
|
Management fees |
|
|
|
|
|
|
702 |
|
|
|
(702 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
6,280 |
|
|
|
445 |
|
|
|
|
|
|
|
6,725 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(1,990 |
) |
|
|
|
|
|
|
1,990 |
|
|
|
|
|
Interest expense |
|
|
3,996 |
|
|
|
|
|
|
|
|
|
|
|
3,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,398 |
|
|
|
14,242 |
|
|
|
1,288 |
|
|
|
114,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
5,391 |
|
|
|
3,317 |
|
|
|
(1,990 |
) |
|
|
6,718 |
|
Income tax expense |
|
|
1,360 |
|
|
|
1,327 |
|
|
|
|
|
|
|
2,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
4,031 |
|
|
$ |
1,990 |
|
|
$ |
(1,990 |
) |
|
$ |
4,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 31, 2009 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenues, net |
|
$ |
100,214 |
|
|
$ |
16,738 |
|
|
$ |
|
|
|
$ |
116,952 |
|
Management fees |
|
|
670 |
|
|
|
|
|
|
|
(670 |
) |
|
|
|
|
Gain on dispositions of assets, net |
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
272 |
|
Other, principally interest income |
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,219 |
|
|
|
16,738 |
|
|
|
(670 |
) |
|
|
117,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
87,579 |
|
|
|
14,548 |
|
|
|
|
|
|
|
102,127 |
|
Management fees |
|
|
|
|
|
|
670 |
|
|
|
(670 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
7,211 |
|
|
|
613 |
|
|
|
|
|
|
|
7,824 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(544 |
) |
|
|
|
|
|
|
544 |
|
|
|
|
|
Interest expense |
|
|
3,879 |
|
|
|
|
|
|
|
|
|
|
|
3,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,125 |
|
|
|
15,831 |
|
|
|
(126 |
) |
|
|
113,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
3,094 |
|
|
|
907 |
|
|
|
(544 |
) |
|
|
3,457 |
|
Income tax expense |
|
|
1,019 |
|
|
|
363 |
|
|
|
|
|
|
|
1,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
2,075 |
|
|
$ |
544 |
|
|
$ |
(544 |
) |
|
$ |
2,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
17
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 31, 2010 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by operating activities |
|
$ |
21,849 |
|
|
$ |
167 |
|
|
$ |
|
|
|
$ |
22,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(5,693 |
) |
|
|
(270 |
) |
|
|
|
|
|
|
(5,963 |
) |
Purchase of short-term investments |
|
|
(1,001 |
) |
|
|
|
|
|
|
|
|
|
|
(1,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(6,694 |
) |
|
|
(270 |
) |
|
|
|
|
|
|
(6,964 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on line of credit |
|
|
(10,200 |
) |
|
|
|
|
|
|
|
|
|
|
(10,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(10,200 |
) |
|
|
|
|
|
|
|
|
|
|
(10,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
4,955 |
|
|
|
(103 |
) |
|
|
|
|
|
|
4,852 |
|
Cash and cash equivalents, beginning of
period |
|
|
1,678 |
|
|
|
823 |
|
|
|
|
|
|
|
2,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
6,633 |
|
|
$ |
720 |
|
|
$ |
|
|
|
$ |
7,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 31, 2009 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by operating activities |
|
$ |
10,597 |
|
|
$ |
513 |
|
|
$ |
|
|
|
$ |
11,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(10,957 |
) |
|
|
(297 |
) |
|
|
|
|
|
|
(11,254 |
) |
Proceeds from asset dispositions |
|
|
8,826 |
|
|
|
|
|
|
|
|
|
|
|
8,826 |
|
Purchase of short-term investments, net |
|
|
(6,806 |
) |
|
|
|
|
|
|
|
|
|
|
(6,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(8,937 |
) |
|
|
(297 |
) |
|
|
|
|
|
|
(9,234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
1,660 |
|
|
|
216 |
|
|
|
|
|
|
|
1,876 |
|
Cash and cash equivalents, beginning of
period |
|
|
559 |
|
|
|
600 |
|
|
|
|
|
|
|
1,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
2,219 |
|
|
$ |
816 |
|
|
$ |
|
|
|
$ |
3,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
18
|
|
|
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, 2009, 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. (the Company or PHI) 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 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, 2009 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 March 31, 2010 were $121.6 million, compared to
$116.9 million for the three months ended March 31, 2009, an increase of $4.7 million. Oil and Gas
operating revenues increased $10.1 million for the quarter ended March 31, 2010, due to an increase
in medium and heavy aircraft revenue related primarily to increased deepwater activity in the Gulf
of Mexico. There was also an increase in revenue related to fuel charges due to an increase in
fuel prices. 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. These amounts were offset in
part by a decrease in revenue for light aircraft related to decreased activity on the continental
shelf. Although Oil and Gas revenues increased for the quarter, there were unfavorable weather
conditions this year as compared to last year resulting in decreased flight hours and revenue. Oil
and Gas revenues for the quarter ended March 31, 2009, were adversely affected approximately $3.1
million due to the grounding of certain aircraft due to an accident in that quarter. Operating
revenues in the Air Medical segment decreased $5.5 million due to decreased patient transports in
the independent provider programs. Contributing to the decrease was the closure of four bases in
2009 and one base in early 2010 that were generating less than acceptable transport volumes. We
did not incur any significant costs as a result of these closures. In addition, we experienced
unfavorable weather conditions in the current year as compared to the prior year, also contributing
to the decrease. We believe the remainder of the decrease is primarily attributable to economic
conditions.
19
Flight hours for the quarter ended March 31, 2010 were 34,612 compared to 35,063 for the quarter
ended March 31, 2009. Oil and Gas segments flight hours increased 556 hours due to an increase in
deepwater activity in the Gulf of Mexico. There was a decrease of 1,114 flight hours in the Air
Medical segment for the quarter ended March 31, 2010 due to a 976 decrease in patient transports in
the independent provider programs as mentioned above, of which approximately 200 transports related
to the base closures, and approximately 250 transports related to the unfavorable weather as
compared to the prior year. We believe the remaining decrease in transports was primarily
attributable to the current economic environment.
Net segment profit for the Oil and Gas segment was $14.4 million for the quarter ended March 31,
2010, compared to $13.2 million for the quarter ended March 31, 2009. The increase of $1.2 million
was due to increased medium and heavy aircraft revenue related to deepwater activity in the Gulf of
Mexico, partially offset by increases in direct expense discussed in Combined Operations below.
These items are discussed in detail in the Segment Discussion below.
Net segment profit for the Air Medical segment was $0.6 million for the quarter ended March 31,
2010, compared to a net segment loss of $1.3 million for the quarter ended March 31, 2009. The
$1.9 million increase was due to a $7.3 million decrease in direct expense related to termination
of the warranty program for certain aircraft and cost savings related to the closing of five bases
discussed further in the Segment Discussion below. In addition, there was increased hospital-based
contract revenue, offset in part by a decrease in revenue in the independent provider programs due
to decreased transports as previously mentioned.
Net earnings for the quarter ended March 31, 2010 were $4.0 million, or $0.26 per diluted share,
compared to $2.1 million for the quarter ended March 31, 2009, or $0.14 per diluted share. Pre-tax
earnings were $6.7 million for the quarter ended March 31, 2010, compared to $3.5 million in the
same period in 2009. Earnings for the quarter ended March 31, 2010 included a $4.3 million pre-tax
credit included in direct expenses related to the termination of a manufacturers warranty program
for a certain model aircraft. In addition, there was an increase in medium and heavy aircraft
revenue related to increased deepwater activity in the Gulf of Mexico, offset in part by a decrease
in revenue for light aircraft related to activity on the continental shelf. Earnings for the
quarter ended March 31, 2009 included a pre-tax gain on disposition of assets of $0.3 million, and
an estimated adverse effect on revenues of $3.1 million due to the grounding of certain aircraft as
a result of an accident in the quarter, which approximated $2.0 million in earnings before tax.
As reported in our Form 10-K for 2009, there were a number of contract awards since December 31,
2009, in our Oil and Gas segment. One award was a five year contract from an existing customer
commencing June 2011 upon the expiration of the current contract. There were also seven other
contract awards from existing customers each with terms that are from three to five years. These
contract awards commenced in the first quarter of 2010. The above awards are for a minimum of 20
light, 17 medium, and three heavy aircraft.
Our Air Medical segment was awarded two new traditional hospital contracts with terms of ten years
and the second contract term being three years. Additionally, we were awarded a new three year
contract on an independent provider model format but which includes certain revenue guarantees.
These contracts represent incremental revenues.
On April 1, 2010, we purchased two heavy aircraft off lease pursuant to purchase options in the
lease contract. This purchase was funded with our revolving line of credit and we drew $24.7
million for the acquisition. In addition, on April 15, 2010 we funded the payment of interest on
the Senior Notes with $7.0 million from the revolving credit facility. Currently, the principal
amount outstanding under the revolving credit facility is $35.5 million.
20
Operating Statistics
The following tables present certain non-financial operational statistics for the quarter ended
March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Flight hours: |
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
27,036 |
|
|
|
26,480 |
|
Air Medical (1) |
|
|
7,091 |
|
|
|
8,205 |
|
Technical Services |
|
|
485 |
|
|
|
378 |
|
|
|
|
|
|
|
|
Total |
|
|
34,612 |
|
|
|
35,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Medical Transports (2) |
|
|
3,973 |
|
|
|
4,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft operated at period end: |
|
|
|
|
|
|
|
|
Oil and Gas (3) |
|
|
163 |
|
|
|
155 |
|
Air Medical (4) |
|
|
86 |
|
|
|
89 |
|
Technical Services |
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
Total (3) (4) |
|
|
255 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Flight hours include 1,801 flight hours associated with hospital-based contracts, compared
to 1,871 flight hours in the prior year quarter. |
|
(2) |
|
Represents individual patient transports for the period. |
|
(3) |
|
Includes nine aircraft as of March 31, 2010 and 2009 that are customer owned. |
|
(4) |
|
Includes seven aircraft as of March 31, 2010 and March 31, 2009 that are customer owned. |
Results of Operations
Quarter Ended March 31, 2010 compared with Quarter Ended March 31, 2009
Combined Operations
Revenues Operating revenues for the three months ended March 31, 2010 were $121.6
million, compared to $116.9 million for the three months ended March 31, 2009, an increase of $4.7
million. Oil and Gas operating revenues increased $10.1 million for the quarter ended March 31,
2010, due to an increase in medium and heavy aircraft revenue related primarily to increased
deepwater activity in the Gulf of Mexico. There was also an increase in revenue related to fuel
charges due to an increase in fuel prices. 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. These amounts were offset in part by a decrease in revenue for light aircraft related to
decreased activity on the continental shelf. Although Oil and Gas revenues increased for the
quarter, there were unfavorable weather conditions this year as compared to last year resulting in
decreased flight hours and revenue. Oil and Gas revenues for the quarter ended March 31, 2009,
were adversely affected approximately $3.1 million due to the grounding of certain aircraft due to
an accident in that quarter. Operating revenues in the Air Medical segment decreased $5.5 million
due to a 976 decrease in patient transports in the independent provider programs, of which
approximately 200 related to base closures, and 250 related to unfavorable weather conditions in
the current year as compared to the prior year. We believe the remaining decrease is primarily
attributable to the current economic environment.
Total flight hours were 34,612 for the three months ended March 31, 2010, compared to 35,063 for
the three months ended March 31, 2009. Oil and Gas segments flight hours increased 556 hours due
to an
21
increase in deepwater activity in the Gulf of Mexico. Air Medical segments flight hours decreased
1,114 due to the decrease in patient transports as described above.
Other Income and Gains There were no gains on asset dispositions for the three months
ended March 31, 2010, and $0.3 million for the three months ended March 31, 2009. These amounts
represent gains and losses on sales of assets that no longer meet our strategic needs.
Other income was less than $0.1 million for the three months ended March 31, 2010 and the three
months ended March 31, 2009.
Direct Expenses Direct operating expense was $104.2 million for the three months ended
March 31, 2010, compared to $102.1 million for the three months ended March 31, 2009, an increase
of $2.1 million. This increase was primarily due to increased fuel expense ($1.9 million) due to
increased per-gallon fuel costs compared to the prior year quarter, and increased employee
compensation expense ($1.7 million) due primarily to compensation rate increases. There were also
increases in aircraft rent ($2.7 million) and insurance expense ($1.1 million) due to additional
aircraft added to the fleet. Aircraft warranty costs decreased ($4.9 million) primarily due to a
$4.3 million credit related to termination of the warranty program for certain aircraft. 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.
We paid a monthly fee 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 decreases in other items, net ($0.4 million).
Selling, General, and Administrative Expenses Selling, general and administrative
expenses were $6.7 million for the three months ended March 31, 2010, compared to $7.8 million for
the three months ended March 31, 2009. This decrease is primarily due to decreased legal fees
($0.7 million), and decreased depreciation expense ($0.4 million).
Interest Expense Interest expense was $4.0 million for the three months ended March 31,
2010, compared to $3.9 million for the three months ended March 31, 2009.
Income Taxes Income tax expense for the three months ended March 31, 2010 was $2.7
million compared to $1.4 million for the three months ended March 31, 2009. The effective tax rate
was 40% for the three months ended March 31, 2010 and 2009.
Net Earnings Our net earnings for the three months ended March 31, 2010 were $4.0
million compared to $2.1 million for the three months ended March 31, 2009. Earnings before income
taxes for the three months ended March 31, 2010 were $6.7 million compared to $3.5 million for the
same period in 2009. Earnings per diluted share were $0.26 for the current quarter compared to
earnings per diluted share of $0.14 for the prior year quarter. Earnings for the quarter ended
March 31, 2010 included a $4.3 million pre-tax credit included in direct expenses related to the
termination of a manufacturers warranty program for a certain model aircraft. The increase was
primarily due to an increase in medium and heavy aircraft revenue related to increased deepwater
activity in the Gulf of Mexico, offset in part by a decrease in revenue for light aircraft related
to activity on the continental shelf. Earnings for the quarter ended March 31, 2009 included a
pre-tax gain on disposition of assets of $0.3 million, and an estimated adverse effect on revenues
of $3.1 million related to the grounding of certain aircraft due to an accident in the quarter,
which approximated $2.0 million in earnings before tax. We had 15.3 million common shares
outstanding during the three months ended March 31, 2010 and 2009.
Segment Discussion
Oil and Gas Oil and Gas segment revenues were $84.9 million for the three months ended March 31,
2010, compared to $74.8 million for the three months ended March 31, 2009, an increase of $10.1
22
million. Flight hours were 27,036 for the current quarter compared to 26,480 for the same quarter
in the prior year. The increase in revenue and flight hours for the quarter is primarily due to an
increase in medium and heavy aircraft revenue related to increased deepwater activity in the Gulf
of Mexico. There was also an increase in revenue related to fuel charges due to an increase in
fuel prices. 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. These amounts were offset in
part by a decrease in revenue and flight hours for light aircraft related to decreased activity on
the continental shelf. Although Oil and Gas revenues increased for the quarter, there were
unfavorable weather conditions this year as compared to last year resulting in decreased flight
hours and revenue. Oil and Gas revenues for the quarter ended March 31, 2009, were adversely
affected approximately $3.1 million due to the grounding of certain aircraft due to an accident in
that quarter.
The number of aircraft in the segment was 163 at March 31, 2010, compared to 155 aircraft at March
31, 2009. We have sold or disposed of one light aircraft in the Oil and Gas segment since March
31, 2009. We have added seven new aircraft to the Oil and Gas segment since March 31, 2009,
consisting of two medium, four heavy, and one fixed-wing aircraft. Other changes are due to
intersegment transfers of two aircraft.
Direct expense in our Oil and Gas segment was $70.3 million for the three months ended March 31,
2010, compared to $61.3 million for the three months ended March 31, 2009, an increase of $9.0
million. There were increases in employee compensation expense ($2.1 million) primarily due to
compensation rate increases, increases in aircraft rent ($2.9 million), aircraft insurance ($0.9
million), parts usage ($0.7 million) and component repair costs ($1.1 million). Fuel expense also
increased ($1.8 million) as the cost of fuel increased compared to the prior year quarter. Total
fuel cost is included in direct expense and reimbursement of a portion of fuel costs above a
contracted per-gallon amount is included in revenue. Aircraft warranty costs decreased ($0.3
million) due to the credit related to the termination of the warranty programs for certain
aircraft. Of the $4.3 million credit, $1.2 million was attributed to the Oil and Gas segment.
These items were offset by a decrease in other items, net ($0.2 million).
Our Oil and Gas segments operating income was $14.4 million for the three months ended March 31,
2010, compared to $13.2 million for the three months ended March 31, 2009. Operating margins were
17% for the three months ended March 31, 2010 and three months ended March 31, 2009. 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 $33.6 million for the three months ended March 31,
2010, compared to $39.1 million for the three months ended March 31, 2009, a decrease of $5.5
million. The decrease was due to reduced patient transports in the independent provider programs
($6.1 million), offset by an increase in revenue from hospital-based contracts ($0.6 million),
primarily due to an increase in the number of contracts. Total patient transports were 3,973 for
the three months ended March 31, 2010, compared to 4,958 for the three months ended March 31, 2009,
a decrease of 976 transports. There was a decrease of approximately 200 transports due to the base
closures, and 250 transports due to unfavorable weather conditions in the current year as compared
to the prior year. We believe the remaining decrease in transports was primarily attributable to
the current economic environment.
Flight hours were 7,091 for the three months ended March 31, 2010, compared to 8,205 for the three
months ended March 31, 2009. The number of aircraft in the segment was 86 at March 31, 2010,
compared to 89 at March 31, 2009. We disposed of one fixed wing aircraft in the segment. The
remaining difference is due to intersegment transfers of two aircraft.
Direct expense in our Air Medical segment was $31.6 million for the three months ended March 31,
2010, compared to $38.9 million for the three months ended March 31, 2009. The $7.3 million
decrease was due to decreases in employee compensation costs ($0.7 million) due to the base
closures and reductions in support personnel. Aircraft warranty costs decreased ($4.6 million)
primarily due to the credit related to
23
termination of the warranty program for certain aircraft. Of the $4.3 million credit, $3.1 million
was attributed to the Air Medical segment. Base costs, which include fees for outside medical
personnel and billing and collection services, decreased ($1.7 million) primarily due to reduced
transports and the base closures previously mentioned. Other items decreased, net ($0.3 million).
Selling, general and administrative expenses were $1.3 million for the three months ended March 31,
2010, compared to $1.5 million for the three months ended March 31, 2009. The $0.2 million
decrease is due to decreased costs for outside medical personnel 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. Those costs are charged directly to
the Air Medical segment, resulting in higher selling, general and administrative expenses as
compared to our other reportable segments.
Our Air Medical segments operating income was $0.6 million for the three months ended March 31,
2010, compared to a loss of $1.3 million for the three months ended March 31, 2009. Operating
income in the three months ended March 31, 2010 includes a credit of $3.1 million related to the
termination of a manufacturers warranty program.
Technical Services Technical Services revenues were $3.1 million for the three months ended March
31, 2010, compared to $3.0 million for the three months ended March 31, 2009. Direct expenses in
our Technical Services segment were $2.3 million for the three months ended March 31, 2010,
compared to $2.0 million for the three months ended March 31, 2009. Our Technical Services
segments operating income was $0.8 million for the three months ended March 31, 2010, compared to
$1.0 million for the three months ended March 31, 2009. The increase in direct expense and
resulting decrease in operating income was primarily due to increased employee compensation costs
($0.2 million) related to compensation rate increases.
Liquidity and Capital Resources
General
Our ongoing liquidity requirements arise primarily from the funding of working capital needs, the
acquisition or leasing of aircraft, the maintenance and refurbishment of aircraft, improvement of
facilities, and acquisition of equipment and inventory. Our principal sources of liquidity
historically have been net cash provided by our operations and borrowings under our revolving
credit facility, as augmented by the issuance of our Senior Notes in 2002, which were refinanced in
2006, 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.
We expect cash flow from operations will fund our requirements for the next twelve months. In the
next twelve months we have two aircraft on lease which we intend to exercise the purchase option
which is $25.3 million, which will be funded partially by cash flow from operations and our credit
facility. Other capital expenditures for 2010 will be funded by cash flow from operations.
Cash Flow
Our cash position was $7.4 million at March 31, 2010 compared to $2.5 million at December 31, 2009.
Short-term investments were $76.1 million at March 31, 2010, compared to $75.1 million at December
31, 2009. Working capital was $204.5 million at March 31, 2010, as compared to $207.0 million at
December 31, 2009, a decrease of $2.5 million. The decrease in working capital was primarily due
to an increase in accounts payable and accrued liabilities of $5.1 million and a decrease in
accounts receivable of $4.3 million, partially offset by a net increase in cash and investments,
$5.9 million, and an increase in inventory of $0.7 million.
24
Net cash provided by operating activities was $22.0 million for the three months ended March
31, 2010, compared to $11.1 million for the three months ended March 31, 2009, an increase of $10.9
million. The increase in earnings before tax of $3.3 million and the decrease in working capital
of $7.7 million compared to the prior year period account for most of the improvement in cash from
operations.
Net cash used in investing activities was $7.0 million for the three months ended March 31, 2010
compared to $9.2 million for the same period in 2009. Capital expenditures were $6.0 million for
the three months ended March 31, 2010 compared to $11.3 million for the three months ended March
31, 2009. Capital expenditures for 2010 included $3.4 million for aircraft purchases, upgrades,
and refurbishments. Capital expenditures for 2009 included $9.7 million for aircraft purchases,
upgrades, and refurbishments. There were no gross proceeds from aircraft sales and dispositions
for the three months ended March 31, 2010 compared to $9.0 million for the three months ended March
31, 2009.
Financing activities were $10.2 million for the three months ended March 31, 2010, for payments on
the line of credit. The line of credit was used in December 2009 to purchase aircraft. There were
no financing activities for the same period in 2009.
Long Term Debt
Effective August 5, 2009, we executed a new credit agreement with a syndicate of three commercial
banks, which replaced the prior facility, providing a $75 million revolving credit facility
maturing in September 2011. The interest rate is the prime rate plus 100 basis points. As of
March 31, 2010, we had $8.1 million in borrowings and $5.1 million in letters of credit outstanding
under the facility. During the first quarters of 2010 and 2009, the weighted average effective
interest rate on amounts borrowed under the facility was 4.25% and 3.25%, respectively. We were in
compliance with the covenants of our revolving credit facility at March 31, 2010 and expect to
remain in compliance with these covenants through December 31, 2010.
The $200 million 7.125% Senior Notes mature April 15, 2013, and interest is payable semi-annually
on April 15 and October 15. The notes contain restrictive covenants, including limitations on
indebtedness, liens, dividends, repurchases of capital stock and other payments affecting
restricted subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of
proceeds of asset sales, and mergers and consolidations and sales of assets. At March 31, 2010,
the market value of the notes was approximately $194.0 million, based on quoted market indicators.
We were in compliance with the covenants applicable to these notes as of March 31, 2010 and expect
to remain in compliance with these covenants through December 31, 2010.
On April 1, 2010, we purchased two heavy aircraft off lease pursuant to purchase options in the
lease contract. This purchase was funded with our revolving line of credit and we drew $24.7
million for the acquisition. In addition, on April 15, 2010 we funded the payment of interest on
the Senior Notes with $7.0 million from the revolving credit facility. Currently, the principal
amount outstanding under the revolving credit facility is $35.5 million.
Contractual Obligations
The table below sets out our contractual obligations as of March 31, 2010 related to our revolving
credit facility, operating lease obligations, and the 7.125% Senior Notes due 2013. 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 March 31, 2010, and expect to
remain in compliance through the year ending December 31, 2010. At March 31, 2010, we leased 25
aircraft included in the lease obligations below. On April 1, 2010, we purchased two aircraft off
lease.
25
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Payment Due by Year |
|
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|
Beyond |
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Total |
|
|
2010 (1) |
|
|
2011 |
|
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2012 |
|
|
2013 |
|
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2014 |
|
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2014 |
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|
(Thousands of dollars) |
|
|
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|
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|
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|
Aircraft
lease obligations |
|
$ |
221,549 |
|
|
$ |
24,245 |
|
|
$ |
33,500 |
|
|
$ |
34,167 |
|
|
$ |
34,532 |
|
|
$ |
34,532 |
|
|
$ |
60,573 |
|
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|
|
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|
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|
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|
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|
Other lease obligations (2) |
|
|
17,540 |
|
|
|
2,557 |
|
|
|
2,908 |
|
|
|
1,976 |
|
|
|
1,465 |
|
|
|
1,292 |
|
|
|
7,342 |
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Long-term debt |
|
|
208,105 |
|
|
|
|
|
|
|
8,105 |
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
$ |
447,194 |
|
|
$ |
26,802 |
|
|
$ |
44,513 |
|
|
$ |
36,143 |
|
|
$ |
235,997 |
|
|
$ |
35,824 |
|
|
$ |
67,915 |
|
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(1) |
|
These amounts are subsequent to March 31, 2010. Aircraft rent expense for the three
months ended March 31, 2010 was $8.3 million. |
|
(2) |
|
There are two additional lease option purchases that we intend to exercise this year.
The total for the two aircraft is $25.3 million. We will fund this purchase with cash flow
from operations and our credit facility. |
New Accounting Pronouncements
For a discussion of applicable new accounting pronouncements, see Note 8 to the Condensed
Consolidated Financial Statements.
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 $8.1 million in borrowings outstanding at March 31,
2010, a ten percent increase in the interest rate to 4.675% would reduce our annual pre-tax earnings
by an amount less than $0.1 million.
Our Senior Notes bear interest at a fixed rate of 7.125% and therefore changes in market interest
rates do not affect our interest payment obligations on the notes. The fair market value of our
7.125% Senior Notes will vary as changes occur to general market interest rates, the remaining
maturity of the notes, and our credit worthiness. At March 31, 2010, the market value of the notes
was approximately $194.0 million, based on quoted market indications.
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.
26
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
With respect to the previously reported litigation involving the union representing our domestic
pilots, the trial date on strike-related matters has been postponed from June 29, 2009 to July 6,
2010. In addition, on December 31, 2009, the OPEIU filed another case against the Company in the
Western District of Louisiana, currently set for trial on July 5, 2011, asserting that its
acceptance in 2009 of PHIs implementation proposals created a binding collective bargaining
agreement, which the Company denies. Management does not expect the outcome of these cases to have
a material adverse effect on our consolidated financial position, results of operations, or cash
flows. For further discussion of these matters, refer to Item 3. Commitments and Contingencies,
Legal Matters, of this Form 10-Q.
For additional information regarding Legal Proceedings, see Item 3 of our Annual Report on Form
10-K for the year ended December 31, 2009.
Item 1. A. RISK FACTORS
The April 20, 2010 oil rig explosion in the Gulf of Mexico and subsequent flow of oil into the
waters of the Gulf of Mexico could have a material adverse effect on our business.
On April 20, 2010 a fire and explosion occurred onboard an oil drilling rig approximately 41 miles
off the coast of southeast Louisiana, resulting in the deaths of 11 members of the rigs crew and
causing oil to leak into the waters of the Gulf of Mexico in what could become one of the most
significant oil spills in U.S history. While it is too early to predict the potential effect of
this incident on our business, any resulting increased costs of or restrictions on drilling in the
Gulf of Mexico could have an adverse effect on our business, which could be material.
New and proposed health care legislation and regulation could have a material impact on our
business.
On March 23, 2010, the Patient Protection and Affordable Care Act became law, enacting
comprehensive health care reform in the United States. Many provisions of the law that could
impact our business will not become effective until 2014 or later, and require implementation
through regulations that have not yet been promulgated. Accordingly, we are currently evaluating
the new legislation and cannot predict with any certainty what the potential impact of the new law
will be on our business. The legislation aims to expand health insurance coverage to uninsured
Americans, and, among other things, expands Medicaid, requires U.S. citizens and legal residents to
have health insurance coverage or pay a tax penalty, and assesses fees on employers who do not
offer qualifying coverage to employees. The legislation also has provisions aimed at controlling
health care costs. With respect to our Air Medical division, we may see a decrease in
reimbursement amounts from Medicaid, Medicare and commercial insurance payors, but may also see an
increase in payments from individuals who were previously uninsured. Federal and state governments
may propose and adopt other health care initiatives or changes to current laws and regulations, the
impact of which cannot be predicted.
New and proposed health care legislation and regulation could increase the cost of providing
medical benefits to employees, which could have an adverse impact on our results of operations.
Recently passed legislation, described above, and future proposed legislation and regulation, could
increase the cost of providing medical insurance to our employees. The cost and other effects,
which may include the cost of compliance and cost of insurance, cannot be determined with
certainty. If our costs increase and we are unable to pass the costs to our customers, there may
be a material adverse impact on our results of operations.
27
Item 1.A. Risk Factors of our 2009 Form 10-K includes a discussion of our other risk factors.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders on May 4, 2010, the following proposals were adopted by the
margins indicated:
|
1. |
|
To elect a Board of Directors to hold office until the next annual meeting of
stockholders and until their successors are elected and qualified. |
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
Name of Director |
|
For |
|
Withheld |
Al A. Gonsoulin |
|
|
1,501,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Lance F. Bospflug |
|
|
1,501,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Arthur J. Breault, Jr. |
|
|
1,501,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
C. Russell Luigs |
|
|
1,501,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Richard H. Matzke |
|
|
1,501,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Thomas H. Murphy |
|
|
1,501,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
To ratify the appointment of Deloitte & Touche as PHIs independent registered public accounting
firm for the fiscal year ending December 31, 2010 For: 1,501,580; Against: 0; Abstain: 0.
Item 5. OTHER INFORMATION
None.
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). |
28
|
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 |
|
Indenture dated April 12, 2006 among PHI, Inc., the Subsidiary Guarantors named
therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2 to
PHIs Report on Form 8-K filed on April 13, 2006). |
|
|
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. |
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.
|
|
May 5, 2010 |
By: |
/s/ Al A. Gonsoulin
|
|
|
|
Al A. Gonsoulin |
|
|
|
Chairman and Chief Executive Officer |
|
|
|
|
|
May 5, 2010 |
By: |
/s/ Michael J. McCann
|
|
|
|
Michael J. McCann |
|
|
|
Chief Financial Officer |
|
|
29