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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2006
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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)
2001 SE Evangeline Thruway
Lafayette, Louisiana 70508
(337) 235-2452
(Address, including zip code and telephone number of principal executive office)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Voting Common Stock
Non-Voting Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes: o No: þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes: o No: þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act (Check One).
Large accelerated filer o Accelerated filer: þ Non-accelerated filer: o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes: o No: þ
The aggregate market value of the voting and non-voting common stock held by non-affiliates of
the registrant as of June 30, 2006 was $501,416,427 based upon the last sales price of the Common
Stock on June 30, 2006, as reported on the Nasdaq National Market System.
The number of shares outstanding of each of the registrants classes of common stock, as of
February 28, 2007 was:
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Voting Common Stock |
2,852,616 shares. |
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Non-Voting Common Stock |
12,423,992 shares. |
Documents Incorporated by Reference
Portions of the registrants definitive Information Statement for the 2007 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-K.
PHI, INC.
INDEX FORM 10-K
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PART I
Forward-Looking Statements
All statements other than statements of historical fact contained in this Form 10-K 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 1A below. 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 below. PHI undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future events, or otherwise.
ITEM 1. BUSINESS
General
Since our inception in 1949, our primary business has been the safe and reliable transportation of
personnel and, to a lesser extent, parts and equipment, to, from, and among offshore platforms for
customers engaged in the oil and gas exploration, development, and production industry, principally
in the Gulf of Mexico. We are a leading provider of helicopter transportation services in the Gulf
of Mexico. We also provide helicopter services to the oil and gas industry internationally, and to
non-oil and gas customers such as health care providers and U.S. governmental agencies such as the
National Science Foundation. We also provide helicopter maintenance and repair services to certain
customers. At December 31, 2006, we owned or operated approximately 236 aircraft domestically and
internationally.
Availability of SEC filings and other information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to any of these reports are available free of charge through our web site:
www.phihelico.com. These reports are available as soon as reasonably practicable after we file
them with the Securities and Exchange Commission (SEC). You may also read and copy any of the
materials that we file with the SEC at the SECs Public Reference Room at 100 F. Street, N.E.,
Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site that contains reports, proxy
and information statements, and other information regarding issuers that file electronically with
the SEC. The SECs website address is www.sec.gov.
Description of Operations
We operate in four business segments: Domestic Oil and Gas, Air Medical, International, and
Technical Services. For financial information regarding our operating segments and the geographic
areas in which they operate, see Note 9 of the Notes to Consolidated Financial Statements included
elsewhere in this Form 10-K.
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Domestic Oil and Gas. Our Domestic Oil and Gas segment operates approximately 152 owned, leased,
and customer-owned aircraft from several bases or heliports in the Gulf of Mexico region. Those
operations serve facilities located in the Gulf of Mexico. Operating revenues from the Domestic
Oil and Gas segment accounted for 60%, 60%, and 62% of consolidated operating revenues during the
years ended December 31, 2006, December 31, 2005, and December 31, 2004, respectively.
Oil and gas exploration and production companies and other offshore oil service companies use our
services primarily for routine transportation of personnel and equipment, to transport personnel
during medical and safety emergencies, and to evacuate personnel during the threat of hurricanes
and other adverse weather conditions. Most of our customers have entered into contracts for
transportation services for a term of one year or longer, although some hire us on an ad hoc or
spot basis.
Most of our Domestic Oil and Gas aircraft are available for hire by any customer, but some are
dedicated to individual customers. Our helicopters have flight ranges of up to 495 miles with a
30-minute fuel reserve and thus are capable of servicing many of the deepwater oil and gas
operations that are from 50 to 200 miles offshore. (See Item 2. Properties, for specific
information by aircraft model.)
Air
Medical. We provide air medical transportation services for hospitals and emergency service
agencies where we operate as an independent provider of medical services in 12 states using
approximately 68 aircraft at 55 separate locations, which includes locations prior to the
expansion. The aircraft dedicated to this segment are specially outfitted to accommodate emergency
patients and emergency medical equipment. Our helicopters transport patients between hospitals, as
well as to hospitals from accident sites or rural locations where ground transportation would be
prohibitively slow. We are paid by either commercial insurance companies, federal or state agencies
such as Medicare and Medicaid, or the patient. The Air Medical segments operating
revenues accounted for 32%, 31%, and 27% of consolidated operating revenues for the years ended
December 31, 2006, December 31, 2005, and December 31, 2004, respectively.
International. Our International segment uses approximately 16 aircraft to provide helicopter
services in Angola, Antarctica, and the Democratic Republic of Congo. Aircraft operating
internationally are typically dedicated to one customer, most of which are oil and gas customers.
Operating revenues from our International segment accounted for 6% of consolidated operating
revenues for the year ended December 31, 2006, and 8% for each of the years ended December 31, 2005
and 2004.
Technical Services. We perform maintenance and repair services at our Lafayette facility pursuant
to an FAA repair station license, primarily for our existing customers that own their aircraft.
The license includes authority to repair airframes, powerplants, accessories, radios, and
instruments and to perform specialized services.
Operating revenues from the Technical Services segment accounted for 2%, 1%, and 3% of consolidated
operating revenues for the years ended December 31, 2006, December 31, 2005, and December 31, 2004,
respectively.
Seasonal Aspects
Seasonality affects our operations, in three principal ways: weather conditions are generally
poorer in December, January, and February; tropical storms and hurricanes are prevalent in the Gulf
of Mexico in late summer and early fall; and reduced daylight hours restrict our operations in
winter, which result in reduced flight hours. When a tropical storm or hurricane is about to enter
or begins developing in the Gulf of Mexico, flight activity may temporarily increase because of
evacuations of offshore workers, but during the storms, we are unable to operate in the area of the
storm and can incur significant expense in moving our aircraft to safer locations. For a more
detailed discussion of these events, see the Adverse Weather Conditions paragraph in the Risk
Factors section of Item 1A. Our operating results vary from quarter to quarter, depending on
seasonal factors and other factors outside of our control. As a result, full year results are not
likely to be a direct multiple of any particular quarter or combination of quarters.
Inventories
We carry a significant inventory of aircraft parts to support the maintenance and repair of our
helicopters. Many of these inventory items are parts that have been removed from aircraft,
refurbished according to manufacturers and FAA specifications, and returned to inventory. The cost
to refurbish these parts is expensed as incurred. We use systematic procedures to estimate the
value of these used parts, which includes consideration of their condition and
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continuing utility. The carrying values of inventory reported in our financial statements are
affected by these estimates and may change from time to time if our estimated values change.
Customers
Our principal customers are major integrated energy companies and independent exploration and
production companies. We also serve oil and gas service companies, hospitals and medical programs
under the independent provider model, government agencies, and other aircraft owners and operators.
Our largest customer is in our Domestic Oil and Gas segment and accounted for 17%, 14%, and 13% of
operating revenues for the years ended December 31, 2006, 2005, and 2004, respectively. We have
entered into contracts with most of our customers for terms of at least one year, although most
contracts include provisions permitting earlier termination.
Competition
Our business is highly competitive in each of our markets, and many of our contracts are awarded
after competitive bidding. Factors that impact competition include safety, reliability, price,
availability of appropriate aircraft and quality of service. Some of our competitors recently have
undertaken expansion and/or upgrades of their fleets.
We are a leading operator of helicopters in the Gulf of Mexico. There are two major and several
small competitors operating in the Gulf of Mexico market. Although most oil companies
traditionally contract for most specialty services associated with offshore operations, including
helicopter services, certain of our customers and potential customers in the oil industry operate
their own helicopter fleets, or have the capability to do so if they so elect.
In the air medical market, we compete against national and regional firms, and there is usually
more than one competitor in each local market. In addition, we compete against hospitals that
operate their own helicopters and, in some cases, against ground ambulances as well.
Our international operations primarily serve customers in the oil and gas industry, although we do
service some U.S. governmental agencies, such as the National Science Foundation. Most of our
international contracts are subject to competitive bidding, and certain of our principal
competitors domestically also compete internationally. In addition, there is one additional major
competitor internationally that does not compete domestically. Typically, in each international
area there are firms that compete only in that region.
Employees
As of December 31, 2006, we employed approximately 2,126 full-time employees and 41 part-time
employees, including approximately 525 pilots and 1,373 aircraft maintenance and support personnel.
At December 31, 2005, we employed 2,110 full-time employees and 65 part-time employees.
As previously reported, the pilots represented by the OPEIU (the Office and Professional Employees
International Union) commenced a general strike on September 20, 2006, affecting both the Domestic
Oil and Gas and Air Medical segments. Approximately 236 pilots initially participated in this
strike, out of a total pilot work force of 597 as of the date the strike commenced. On November 10,
the OPEIU made a purported unconditional offer for the strikers to return to work and an end to
strike activities. To date, 196 of the 236 strikers (83%) have been rehired or have taken
themselves out of consideration for reemployment. On January 11, 2007, the Federal Court for the
Western District of Louisiana agreed to our return-to-work criteria and process for the remaining
striking pilots, and we are committed to processing those pilots back to work by April 29, 2007.
Pilots are currently working under the terms and conditions of employment set forth in the final
implementation proposals made by the Company at the end of collective bargaining negotiations on
August 28, 2006.
Other issues surrounding PHIs allegations that the OPEIU engaged in bad faith bargaining, as well
as the OPEIUs counterclaims and claims arising out of the OPEIUs offer to return to work, remain
outstanding and are expected to be addressed by the same Federal Court. A trial on these matters
is currently set to start on November 7, 2007. It is not possible to assess the outcome of the
remaining claims and counterclaims.
In addition to processing the remaining striking pilots back to work, we are also hiring additional
pilots. This process was interrupted November 10, 2006, when the union announced that the striking
pilots would return to work unconditionally. In early January 2007, we again commenced hiring
additional pilots based on the requirements due to new aircraft deliveries. As of February 28,
2007, the pilot work force was 648.
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Environmental Matters
We are subject to federal, state and local environmental laws and regulations that impose
limitations on the discharge of pollutants into the environment and establish standards for the
treatment, storage, recycling, and disposal of toxic and hazardous wastes. Operating and
maintaining helicopters requires that we use, store, and dispose of materials that are subject to
federal and state environmental regulation. We periodically conduct environmental site surveys at
our facilities, and determine whether there is a need for environmental remediation based on these
surveys.
ITEM 1.A. Risk Factors
All phases of our operations are subject to significant uncertainties, risks, and other
influences. Important factors that could cause our actual results to differ materially from
anticipated results or other expectations include the following:
RISKS INHERENT IN OUR BUSINESS
Our operations are affected by adverse weather conditions and seasonal factors.
We are subject to three types of weather-related or seasonal factors:
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the tropical storm and hurricane season in the Gulf of Mexico; |
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poor weather conditions that often prevail during winter and can develop in any season; and; |
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reduced daylight hours during the winter months. |
Poor visibility, high winds and heavy precipitation can affect the operation of helicopters and
significantly reduce our flight hours. A significant portion of our operating revenue is dependent
on actual flight hours and a substantial portion of our direct costs is fixed. Thus, prolonged
periods of adverse weather can materially and adversely affect our operating revenues and net
earnings.
In the Gulf of Mexico, the months of December, January and February have more days of adverse
weather conditions than the other months of the year. Also, June through November is tropical
storm and hurricane season in the Gulf of Mexico, with August and September typically being the
most active months. During tropical storms, we are unable to operate in the area of the storm and
can incur significant expense in moving our aircraft to safer locations. In addition, as most of
our facilities are located along the Gulf of Mexico coast, tropical storms and hurricanes may cause
substantial damage to our property, including helicopters that we are unable to relocate.
Because the fall and winter months have fewer hours of daylight, our flight hours are generally
lower at those times, which typically results in a reduction in operating revenues during those
months. Currently, only 44 of the 152 helicopters used in our oil and gas operations are equipped
to fly under instrument flight rules, or IFR, which enables these aircraft, when manned by
IFR-rated pilots and co-pilots, to operate when poor visibility or darkness prevents flight by
aircraft that can fly only under visual flight rules, or VFR. Not all of our pilots are IFR rated.
We may not be able to obtain acceptable customer contracts covering some of our new helicopters,
and there will be a delay between the time that a helicopter is delivered to us and the time that
it can begin generating revenues.
We are substantially expanding our fleet of helicopters. Many of our new oil and gas helicopters
may not be covered by customer contracts when they are placed into service, and we cannot assure
you as to when we will be able to utilize these new helicopters or on what terms. In addition,
with respect to those helicopters that will be covered by customer contracts when they are placed
into service, our contract terms generally are too short to recover our cost of purchasing the
helicopter at current rates. Thus, we are subject to the risk that we will be unable to recoup our
investment in the helicopters.
Once a new helicopter is delivered to us, we generally spend between two and five months installing
mission-specific and/or customer-specific equipment before we place it into service. As a result,
there can be a significant delay between the delivery date for a new helicopter and the time that
it is able to generate revenues for us.
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There is also a possibility that our customers may request new helicopters in lieu of our existing
helicopters, which could adversely affect the utilization of our existing fleet.
Our contracts generally can be terminated or downsized by our customers without penalty.
Most of our fixed-term contracts contain provisions permitting early termination by the customer,
sometimes with as little as 30 days notice for any reason and generally without penalty. In
addition, many of our contracts permit our customers to decrease the number of aircraft under
contract with a corresponding decrease in the fixed monthly payments without penalty. As a result,
you should not place undue reliance on our customer contracts or the terms of those contracts.
Increased governmental regulations could increase our costs or reduce our ability to operate
successfully.
Our operations are regulated by a number of federal and state agencies. All of our flight
operations are regulated by the Federal Aviation Administration, or FAA. Aircraft accidents are
subject to the jurisdiction of the National Transportation Safety Board. Standards relating to the
workplace health and safety are monitored by the federal Occupational Safety and Health
Administration, or OSHA. We are also subject to various federal and state environmental statutes.
The FAA has jurisdiction over many aspects of our business, including personnel, aircraft and
ground facilities. We are required to have an Air Taxi Certificate, granted by the FAA, to
transport personnel and property in our helicopters. This certificate contains operating
specifications that allow us to conduct our present operations, but it is potentially subject to
amendment, suspension or revocation in accordance with procedures set forth in the Federal Aviation
Act. The FAA is responsible for ensuring that we comply with all FAA regulations relating to the
operation of our aviation business, and conducts regular inspections regarding the safety, training
and general regulatory compliance of our U.S. aviation operations. Additionally, the FAA requires
us to file reports confirming our continued compliance.
FAA regulations require that at least 75% of our voting securities be owned or controlled by
citizens of the U.S. or one of its possessions, and that our president and at least two-thirds of
our directors be U.S. citizens. Our Chief Executive Officer and all of our directors are U.S.
citizens, and our organizational documents provide for the automatic reduction in voting power of
each share of voting common stock owned or controlled by a non-U.S. citizen if necessary to comply
with these regulations.
We are subject to significant regulatory oversight by OSHA and similar state agencies. We are also
subject to the Communications Act of 1934 because of our ownership and operation of a radio
communications flight-following network throughout the Gulf of Mexico.
Numerous other federal statutes and rules regulate our offshore operations and those of our
customers, pursuant to which the federal government has the ability to suspend, curtail or modify
certain or all offshore operations. A suspension or substantial curtailment of offshore oil and
gas operations for any prolonged period would have an immediate and material adverse effect on us.
A substantial modification of current offshore operations could adversely affect the economics of
such operations and result in reduced demand for our services.
The helicopter services business is highly competitive.
All segments of our business are highly competitive. Many of our contracts are awarded after
competitive bidding, and the competition for those contracts generally is intense. The principal
aspects of competition are safety, price, reliability, availability and service.
We have two major competitors and several small competitors operating in the Gulf of Mexico, and
most of our customers and potential customers could operate their own helicopter fleets if they
chose to do so. At least one of our primary competitors is in the process of significantly
expanding its fleet.
Our Air Medical segment competes for business primarily under the independent provider model and,
to a lesser extent, under the hospital-based model. Under the independent provider model, we have
no contracts and no fixed revenue stream, but must compete for transport referrals on a daily basis
with other independent operators in the area. Under the hospital-based model, we contract directly
with the hospital to provide their transportation services, with the contracts typically awarded on
a competitive bid basis. Under both models, we compete against national
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and regional companies, and there is usually more than one competitor in each local market. In
addition, we compete against hospitals that operate their own helicopters and, in some cases,
against ground ambulances as well.
The failure to maintain our safety record would seriously harm our ability to attract new customers
and maintain our existing customers.
A favorable safety record is one of the primary factors a customer reviews in selecting an aviation
provider. If we fail to maintain our safety and reliability record, our ability to attract new
customers and maintain our current customers will be materially adversely affected.
Helicopter operations involve risks that may not be covered by our insurance or may increase the
cost of our insurance.
The operation of helicopters inherently involves a high degree of risk. Hazards such as aircraft
accidents, collisions, fire and adverse weather are hazards that must be managed by providers of
helicopter services and may result in loss of life, serious injury to employees and third parties,
and losses of equipment and revenues.
We maintain hull and liability insurance on our aircraft, which insures us against physical loss
of, or damage to, our aircraft and against certain legal liabilities to others. In addition, we
carry war risk, expropriation, confiscation and nationalization insurance for our aircraft involved
in international operations. In some instances, we are covered by indemnity agreements from our
customers in lieu of, or in addition to, our insurance. Our aircraft are not insured for loss of
use.
While we believe that our insurance and indemnification arrangements provide reasonable protection
for most foreseeable losses, they do not cover all potential losses and are subject to deductibles,
retentions, coverage limits and coverage exceptions such that severe casualty losses, or the
expropriation or confiscation of significant assets could materially and adversely affect our
financial condition or results of operations. The occurrence of an event that is not fully covered
by insurance could have a material adverse impact on our financial condition and results of
operations.
Our air medical operations, which we are expanding, expose us to numerous special risks, including
collection risks, high start-up costs and potential medical malpractice claims.
We recently have expanded our air medical business. These operations are highly competitive and
expose us to a number of risks that we do not encounter in our oil and gas operations. For
instance, the fees for our air medical services generally are paid by individual patients,
insurance companies, or government agencies such as Medicare and Medicaid. As a result, our
profitability in this business depends not only on our ability to generate an acceptable volume of
patient transports, but also on our ability to collect our transport fees. We are not permitted to
refuse service to patients based on their inability to pay.
As a result of our recent expansion, even if we are able to generate an acceptable volume of
patient transports, we cannot assure you that our new markets will be profitable for us. We
generally incurred significant startup costs and lower utilization rates when we entered new air
medical markets, which impacted our profitability. Finally, we employ paramedics, nurses and other
medical professionals for these operations, which can give rise to medical malpractice claims
against us, which, if not fully covered by our medical malpractice insurance, could materially
adversely affect our financial condition and results of operations.
Our international operations are subject to political, economic and regulatory uncertainty.
Our international operations, which represented approximately 6% of our total operating revenues
for the year ended December 31, 2006, are subject to a number of risks inherent in operating in
lesser developed countries, including:
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political, social and economic instability; |
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terrorism, kidnapping and extortion; |
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potential seizure or nationalization of assets; |
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import-export quotas; and |
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currency fluctuations or devaluation. |
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Additionally, our competitiveness in international markets may be adversely affected by government
regulation, including regulations requiring:
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the awarding of contracts to local contractors; |
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the employment of local citizens; and |
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the establishment of foreign subsidiaries with significant
ownership positions reserved by the foreign government for local
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Our failure to attract and retain qualified personnel could adversely affect us.
Our ability to attract and retain qualified pilots, mechanics, nurses, paramedics and other highly
trained personnel will be an important factor in determining our future success. Many of our
customers require pilots of aircraft that service them to have inordinately high levels of flight
experience. The market for these experienced and highly trained personnel is extremely
competitive. Accordingly, we cannot assure you that we will be successful in our efforts to
attract and retain such persons. Some of our pilots and mechanics, and those of our competitors,
are members of the U.S. military reserves and could be called to active duty. If significant
numbers of such persons are called to active duty, it would reduce the supply of such workers,
possibly curtailing our operations and likely increasing our labor costs.
RISKS SPECIFIC TO OUR COMPANY
We are highly dependent on the offshore oil and gas industry.
Approximately 60% of our 2006 operating revenue was attributable to helicopter support for domestic
offshore oil and gas exploration and production companies. Our business is highly dependent on the
level of activity by the oil and gas companies, particularly in the Gulf of Mexico. The level of
activity by our customers operating in the Gulf of Mexico depends on factors that we cannot
control, such as:
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the supply of, and demand for, oil and natural gas and market expectations regarding supply and demand; |
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weather-related or other natural causes; |
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actions of OPEC, and Middle Eastern and other oil producing countries, to control prices or change production levels; |
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general economic conditions in the United States and worldwide; |
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war, civil unrest or terrorist activities; |
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governmental regulation; and |
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the price and availability of alternative fuels. |
Any substantial or extended decline in the prices of oil and natural gas could depress the level of
helicopter activity in support of exploration and production activity, and thus have a material
adverse effect on our business, results of operations and financial condition.
Additionally, the Gulf of Mexico is generally considered to be a mature area for oil and gas
exploration, which may result in a continuing decrease in activity over time. This could
materially adversely affect our business, results of operations and financial condition. In
addition, the concentrated nature of our operations subjects us to the risk that a regional event
could cause a significant interruption in our operations or otherwise have a material affect on our
profitability.
Moreover, companies in the oil and gas exploration and production industry continually seek to
implement cost-savings measures. As part of these measures, oil and gas companies have attempted
to improve operating efficiencies with respect to helicopter support services. For example,
certain oil and gas companies have pooled helicopter services among operators, reduced staffing
levels by using technology to permit unmanned production installations and decreased the frequency
of transportation of employees offshore by increasing the lengths of shifts offshore. The
continued implementation of such measures could reduce demand for helicopter services and have a
material adverse effect on our business, results of operations and our financial condition.
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Our pilot workforce represented by Office and Professional Employees International Union conducted
a general strike beginning on September 20, 2006.
On September 20, 2006, approximately 236 pilots commenced a strike. On November 10, the OPEIU made
a purported unconditional offer for the strikers to return to work and an end to strike
activities. To date, 196 of the 236 strikers have been rehired or have taken themselves out of
consideration for reemployment. On January 11, 2007, the Federal Court for the Western District of
Louisiana agreed to PHIs return to work criteria and process for the remaining strikers, and the
processing of those pilots should be completed by the end of April. Pilots are currently working
under the terms and conditions of employment set forth in the final implementation proposals made
by the Company at the end of collective bargaining negotiations on August 28, 2006.
Other issues surrounding PHIs allegations that the OPEIU engaged in bad faith bargaining, as well
as the OPEIUs counterclaims and claims arising out of the OPEIUs purported unconditional offer
to return to work remain outstanding and are expected to be addressed by the same Federal Court. A
trial on these matters is currently set to start November 7, 2007. It is not possible to predict
the outcome of the remaining claims and counterclaims
We depend on a small number of large oil and gas industry customers for a significant portion of
our revenues, and our credit exposure within this industry is significant.
We derive a significant amount of our revenue from a small number of major and independent oil and
gas companies. For the year ended December 31, 2006, 17% of our revenues were attributable to our
largest customer. The loss of one of our significant customers, if not offset by revenues from new
or other existing customers, would have a material adverse effect on our business and operations.
In addition, this concentration of customers may impact our overall credit risk in that these
entities may be similarly affected by changes in economic and other conditions.
Our Chairman of the Board and Chief Executive Officer is also our principal stockholder and has
voting control of the Company.
Al A. Gonsoulin, our Chairman of the Board and Chief Executive Officer, beneficially owns stock
representing approximately 52% of our total voting power. As a result, he exercises control over
the election of all of our directors and the outcome of most matters requiring a stockholder vote.
This ownership also may delay or prevent a change in our management or a change in control of us,
even if such changes would benefit our other stockholders and were supported by a majority of our
stockholders.
Our substantial indebtedness could adversely affect our financial condition and impair our ability
to operate our business.
We are a highly leveraged company and, as a result, have significant debt service obligations. As
of December 31, 2006, our total indebtedness was $205.5 million, including $200 million of our
7.125% Senior Notes due 2013. On April 12, 2006, we completed the sale of 4,287,920 non-voting
common shares, and then on May 1, 2006 we completed the sale of the over-allotment of shares of
578,680 non-voting common shares. These transactions resulted in an increase in shareholder equity
of $160.7 million, net of expenses. We also issued $200 million of 7.125% Senior Notes due April
15, 2013. Proceeds of the Notes were used to retire our existing $200 million 9 3/8% Senior Notes
due May 1, 2009. These transactions are discussed in more detail under Managements Discussion
And Analysis of Financial Condition and Results of Operations Overview on page 14. As a result
of these transactions, our debt to equity ratio at December 31, 2006 was 0.51 to 1.00, as compared
to 0.85 to 1.00 at December 31, 2005.
At December 31, 2006, we had $5.5 million in borrowings and $5.1 million in letters of credit
outstanding under our revolving line of credit. As of December 31, 2006, availability for
borrowings under our revolving credit facility was $24.3 million.
Our substantial indebtedness could have significant negative consequences to us that you should
consider. For example, it could:
Ø |
|
require us to dedicate a substantial portion of our cash flow from operations to pay principal of, and interest on, our
indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures or other
general corporate purposes, or to carry out other aspects of our business plan; |
8
Ø |
|
increase our vulnerability to general adverse economic and industry conditions and limit our ability to withstand
competitive pressures; |
|
Ø |
|
limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities; |
|
Ø |
|
place us at a competitive disadvantage compared to our competitors that have less debt; and limit our ability to obtain
additional financing to fund future working capital, capital expenditures and other aspects of our business plan. |
|
Ø |
|
limit our ability to obtain additional financing for working capital, capital expenditures and other aspects of our
business plan. |
Our ability to meet our debt obligations and other expenses will depend on our future performance,
which will be affected by financial, business, economic, regulatory and other factors, many of
which we are unable to control. When our 7.125% Senior Notes come due in 2013, we will
likely need to enter into new financing arrangements at that time to repay those notes. We may be
unable to obtain that financing on favorable terms, which could adversely affect our business,
financial condition and results of operations. For more information on our indebtedness, please
see the financial statements included elsewhere herein.
The DOJ investigation could result in criminal proceedings and the imposition of fines and
penalties.
On June 15, 2005, we received a subpoena from the United States Department of Justice relating to a
grand jury investigation of potential antitrust violations among providers of helicopter
transportation services in the Gulf of Mexico. We are cooperating fully with the investigation and
believe we have provided all documents and other information required by the subpoena. We will
respond to any DOJ request for further information, and will continue to cooperate with the
investigation.
We cannot predict the ultimate outcome of the DOJ investigation. The outcome of the DOJ
investigation and any related legal proceedings could include civil injunctive or criminal
proceedings, the imposition of fines and other penalties, remedies and/or sanctions, referral to
other governmental agencies and/or the payment of damages in civil litigation, any of which could
have a material adverse effect on our business, financial condition and results of operations.
Additionally, the cost of defending such an action or actions against us could be significant.
Our stock has a low trading volume.
Our common stock is listed for trading on The NASDAQ National Market System under the symbol
PHIIK for our non-voting common stock and PHII for our voting common stock. Both classes of
common stock have low trading volume. As a result, a stockholder may not be able to sell shares of
our common stock at the time, in the amounts, or at the price desired.
We do not pay dividends.
We have not paid any dividends on our common stock since 1999 and do not anticipate that we will
pay dividends on our common stock in the foreseeable future. In addition, our ability to pay
dividends is restricted by the indenture governing our 7.125% Senior Notes due 2013 and
our bank credit facility.
Provisions in our articles of incorporation and by-laws and Louisiana law make it more difficult to
effect a change in control of us, which could discourage a takeover of our company and adversely
affect the price of our common stock.
Although an attempted takeover of our company is unlikely by virtue of the ownership by our chief
executive officer of more than 50% of the total voting power of our capital stock, there are also
provisions in our articles of incorporation and by-laws that may make it more difficult for a third
party to acquire control of us, even if a change in control would result in the purchase of your
shares at a premium to the market price or would otherwise be beneficial to you. For example, our
articles of incorporation authorize our board of directors to issue preferred stock without
stockholder approval. If our board of directors elects to issue preferred stock, it could be more
difficult for, or discourage, a third party to acquire us.
9
In addition, provisions of our by-laws, such as giving the board the exclusive right to fill all
board vacancies, could make it more difficult for a third party to acquire control of us. In
addition to the provisions contained in our articles of incorporation and by-laws, the Louisiana
Business Corporation Law (LBCL), includes certain provisions applicable to Louisiana
corporations, such as us, which may be deemed to have an anti-takeover effect. Such provisions
give stockholders the right to receive the fair value of their shares of stock following a control
transaction from a controlling person or group and set forth requirements relating to certain
business combinations. Our descriptions of these provisions are only abbreviated summaries of
detailed and complex statutes. For a complete understanding of the statutes, you should read them
in their entirety.
The LBCLs control share acquisition statute provides that any person who acquires control
shares will be able to vote such shares only if the right to vote is approved by the affirmative
vote of at least a majority of both (i) all the votes entitled to be cast by stockholders and (ii)
all the votes entitled to be cast by stockholders excluding interested shares. The control
share acquisition statute permits the articles of incorporation or bylaws of a company to exclude
from the statutes application acquisitions occurring after the adoption of the exclusion. Our
by-laws do contain such an exclusion; however, our board of directors or stockholders, by an
amendment to our by-laws, could reverse this exclusion.
Future sales of our shares could depress the market price of our non-voting common stock.
The market price of our non-voting common stock could decline as a result of issuances and sales by
us of additional shares of non-voting or voting common stock pursuant to our existing shelf
registration statement or otherwise. The market price of our non-voting common stock could also
decline as the result of the perception that these sales could occur. These sales, or the
possibility that these sales may occur, also might make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem appropriate.
ITEM 1.B. UNRESOLVED STAFF COMMENTS
None.
10
ITEM 2. PROPERTIES
Aircraft
Information regarding our owned and leased aircraft fleet as of December 31, 2006 is set forth in
the following table:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cruise |
|
Appr. |
|
|
|
|
Number |
|
|
|
|
|
|
|
Speed |
|
Range |
Manufacturer |
|
Type |
|
in Fleet |
|
Engine |
|
Passengers |
|
(mph) |
|
(miles)(2) |
Light Aircraft |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell |
|
206 / 407 |
|
|
93 |
|
|
Turbine |
|
|
4 6 |
|
|
|
130 150 |
|
|
|
300 420 |
|
Eurocopter |
|
BK-117 / BO-105 |
|
|
15 |
|
|
Twin Turbine |
|
|
4 6 |
|
|
|
135 |
|
|
|
255 270 |
|
Eurocopter |
|
EC-135 (1) |
|
|
20 |
|
|
Twin Turbine |
|
|
7 |
|
|
|
143 |
|
|
|
382 |
|
Aerospatiale |
|
AS350 B2 / B3 |
|
|
24 |
|
|
Turbine |
|
|
5 |
|
|
|
140 |
|
|
|
337 385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium Aircraft |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell |
|
212 (1) / 222 (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230 (1) / 412 (1) |
|
|
25 |
|
|
Twin Turbine |
|
|
8 13 |
|
|
|
115 160 |
|
|
|
300 370 |
|
Sikorsky |
|
S-76 (1) A, A++, C+ |
|
|
28 |
|
|
Twin Turbine |
|
|
12 |
|
|
|
150 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transport Aircraft |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell |
|
214ST (1) |
|
|
4 |
|
|
Twin Turbine |
|
|
18 |
|
|
|
155 |
|
|
|
429 |
|
Sikorsky |
|
S-92A (1) |
|
|
8 |
|
|
Twin Turbine |
|
|
19 |
|
|
|
160 |
|
|
|
495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopters |
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Wing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockwell (3) |
|
Aero Commander |
|
|
2 |
|
|
Turboprop |
|
|
6 |
|
|
|
300-340 |
|
|
|
1,200-1,600 |
|
Lear Jet (3) |
|
31A(1) |
|
|
1 |
|
|
Turbojet |
|
|
8 |
|
|
|
527 |
|
|
|
1,437 |
|
Cessna (4) |
|
Conquest 441 (1) |
|
|
3 |
|
|
Turboprop |
|
|
6 |
|
|
|
330 |
|
|
|
1,200 |
|
Beech (4) |
|
King Air(1) |
|
|
1 |
|
|
Turboprop |
|
|
8 |
|
|
|
300 |
|
|
|
1,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Wing |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aircraft |
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Equipped to fly under instrument flight rules (IFR). All other types listed
can only fly under visual flight rules (VFR). See Item 1A. Business Risk Factors,
Risks Inherent In Our Business Our operations are affected by adverse weather
conditions and seasonal factors. |
|
(2) |
|
Based on maintaining a 30-minute fuel reserve. |
|
(3) |
|
Aircraft used for corporate purposes. |
|
(4) |
|
Aircraft used in the Air Medical segment. |
Of the 224 aircraft listed, we own 206 and lease 18. Additionally, we operate 12 aircraft owned by
customers that are not reflected in the above table. In total, we own or operate 236 aircraft.
We sell aircraft whenever they (i) become obsolete or (ii) do not fit into future fleet plans.
11
Facilities
Our principal facilities are located on property leased from the Lafayette Airport Commission at
Lafayette Regional Airport in Lafayette, Louisiana. The lease covers approximately 28 acres and
two buildings, with an aggregate of approximately 256,000 square feet, housing our main
operational, executive, and administrative offices and the main repair and maintenance facility.
The lease for this facility commenced in 2001, expires in 2021 and contains three five-year renewal
options following the expiration date.
We own our Boothville, Louisiana operating facility. The property has a 23,000 square foot
building, a 7,000 square foot hangar, and landing pads for 35 helicopters. This facility was
extensively damaged by Hurricane Katrina, but was repaired and returned to service in 2006.
We also lease property for an Executive and Marketing office in Houston, Texas and 12 additional
bases to service the oil and gas industry throughout the Gulf of Mexico. Those bases that
represent a significant investment in leasehold improvements and are particularly important to our
operations are:
|
|
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|
|
|
|
|
|
Facility |
|
Lease Expiration |
|
Area |
|
Facilities |
|
Comments |
Morgan City
(Louisiana)
|
|
June 30, 2008
|
|
53 acres
|
|
Operational and
maintenance
facilities, landing
pads for 46
helicopters
|
|
Options to extend
to June 30, 2018 |
|
|
|
|
|
|
|
|
|
Intracoastal City
(Louisiana)
|
|
December 31, 2008
|
|
18 acres
|
|
Operational and
maintenance
facilities, landing
pads for 45
helicopters
|
|
Options to extend
to December 31,
2010 |
|
|
|
|
|
|
|
|
|
Houma-Terrebonne
Airport (Louisiana)
|
|
August 31, 2008
|
|
14 acres
|
|
Operational and
maintenance
facilities, landing
pads for 30
helicopters
|
|
Three renewal
options to extend
for one year each |
|
|
|
|
|
|
|
|
|
Galveston (Texas)
|
|
May 31, 2021
|
|
4 acres
|
|
Operational and
maintenance
facilities, landing
pads for 30
helicopters
|
|
Lease period to May
31, 2021 with
certain
cancellation
provisions |
|
|
|
|
|
|
|
|
|
Fourchon
(Louisiana)
|
|
February 28, 2008
|
|
8 acres
|
|
Operational and
maintenance
facilities, landing
pads for 10
helicopters
|
|
Facility under
three separate
leases, of which
two contain options
to extend thru 2026
and 2028. |
Our other operations-related facilities in the United States are located at New Orleans and Lake
Charles, Louisiana; at Port OConnor and Sabine Pass, Texas; and at Theodore, Alabama.
We also operate from offshore platforms that are provided without charge by the owners of the
platforms, although in certain instances we are required to indemnify the owners against loss in
connection with our use of their facilities.
We also lease office and hangar space for our Air Medical operations in Phoenix, Arizona. The two
buildings are held under separate leases and collectively provide 5,000 square feet of hangar space
and 26,000 square feet of office space. The leases expire in 2009, subject to options to extend
for up to ten additional years. Other Air Medical bases are located in California, Indiana,
Kentucky, Maryland, New Jersey, New Mexico, Texas and Virginia. Other bases for our International
and other Air Medical operations are generally furnished by customers.
12
ITEM 3. LEGAL PROCEEDINGS
We have been named as a defendant in various legal actions that have arisen in the ordinary
course of our business and have not been finally adjudicated. In the opinion of management, the
amount of the ultimate liability with respect to these actions will not have a material adverse
effect on our consolidated financial condition, results of operations or liquidity.
As previously reported, on June 15, 2005, we received a subpoena from the United States Department
of Justice relating to a grand jury investigation of potential antitrust violations among providers
of helicopter transportation services in the Gulf of Mexico. We are cooperating fully with the
investigation and believe we have provided all documents and other information required by the
subpoena. We have not received any further communications from the Department of Justice since
shortly after providing the requested information. At this stage, it is not possible to predict
the outcome of this investigation, although based on the information available to us to date,
management does not expect the outcome of the investigation to have a material adverse effect on
our financial condition, results of operations, or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our voting and non-voting common stock trades on The Nasdaq National Market System, under the
symbols PHII and PHIIK, respectively. The following table sets forth the range of high and low
sales prices per share, as reported by Nasdaq, for our voting and non-voting common stock for the
fiscal quarters indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voting |
|
|
Non-Voting |
|
Period |
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
January 1, 2006 to March 31, 2006 |
|
$ |
41.00 |
|
|
$ |
29.00 |
|
|
$ |
39.48 |
|
|
$ |
30.00 |
|
April 1, 2006 to June 30, 2006 |
|
|
38.00 |
|
|
|
29.99 |
|
|
|
38.54 |
|
|
|
29.00 |
|
July 1, 2006 to September 30, 2006 |
|
|
34.24 |
|
|
|
29.01 |
|
|
|
34.39 |
|
|
|
26.69 |
|
October 1, 2006 to December 31, 2006 |
|
|
34.10 |
|
|
|
27.29 |
|
|
|
33.06 |
|
|
|
27.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2005 to March 31, 2005 |
|
$ |
30.25 |
|
|
$ |
23.42 |
|
|
$ |
30.11 |
|
|
$ |
20.75 |
|
April 1, 2005 to June 30, 2005 |
|
|
30.95 |
|
|
|
24.10 |
|
|
|
30.50 |
|
|
|
23.12 |
|
July 1, 2005 to September 30, 2005 |
|
|
35.48 |
|
|
|
23.90 |
|
|
|
32.48 |
|
|
|
23.02 |
|
October 1, 2005 to December 31, 2005 |
|
|
34.59 |
|
|
|
27.25 |
|
|
|
32.40 |
|
|
|
26.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have not paid dividends on either class of our common stock since 1999 and do not expect to pay
dividends in the foreseeable future.
In addition, the indenture governing our 7.125% Series B Senior Notes due 2013 and our
revolving credit facility with a commercial bank restrict the payment of dividends. See Item 8.
Financial Statements and Supplementary Data Notes to the Consolidated Financial Statements, Note
3.
Stock Performance Graph
The following performance graph compares PHIs cumulative total stockholder return on its Voting
Stock for the last five years with the cumulative total return on the Russell 2000 Index and the
Oil Service Index, assuming the investment of $100 on January 1, 2001, at closing prices on
December 31, 2000, and reinvestment of dividends.
13
The Russell 2000 Index consists of a broad range of publicly-traded companies with small market
capitalizations of $0.5 billion to $1.07 billion, and is published daily in the Wall Street
Journal. The peer group companies are Bristow Group, Inc.; Tidewater, Inc.; Gulfmark Offshore,
Inc.; CHC Helicopter Corp.; Seacor Holdings, Inc.; and Air Methods Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
PHI |
|
|
|
100.00 |
|
|
|
|
148.20 |
|
|
|
|
122.50 |
|
|
|
|
128.90 |
|
|
|
|
155.00 |
|
|
|
|
165.00 |
|
|
|
Peer Group |
|
|
|
100.00 |
|
|
|
|
94.64 |
|
|
|
|
100.71 |
|
|
|
|
135.61 |
|
|
|
|
147.59 |
|
|
|
|
187.73 |
|
|
|
OSX |
|
|
|
100.00 |
|
|
|
|
99.50 |
|
|
|
|
107.82 |
|
|
|
|
142.23 |
|
|
|
|
209.02 |
|
|
|
|
229.40 |
|
|
|
Russell 2000 |
|
|
|
100.00 |
|
|
|
|
79.30 |
|
|
|
|
115.60 |
|
|
|
|
135.25 |
|
|
|
|
139.75 |
|
|
|
|
163.50 |
|
|
|
As of February 28, 2007, there were approximately 932 holders of record of our voting common stock
and 62 holders of record of our non-voting common stock.
Information regarding our stock based compensation plan is included in Item 8, Notes to
Consolidated Financial Statements Note (5) EMPLOYEE BENEFIT PLANS Stock Based Compensation.
On April 12, 2006, we issued $200.0 million of 7.125% Senior Notes that mature in
2013. These Notes were offered and sold in a private placement under Rule 144A and Regulation S
under the Securities Act of 1933. Net proceeds of $196.0 million were used to repurchase $184.8
million of our outstanding 9 3/8% Senior Notes due 2009 pursuant to a tender offer that also closed
on April 12, 2006. Our total cost to repurchase those notes was $201.6 million, including the
tender offer premium and accrued interest. We called for redemption on May 1, 2006, the remaining
$15.2 million of 9 3/8% notes outstanding, at a redemption price of 104.688% of their face amount
plus accrued and unpaid interest. Interest on the 7.125% notes is payable semi-annually on April
15 and October 15, and those notes mature April 15, 2013. The estimated annual interest cost of
the new notes is $14.3 million, excluding amortization of issuance costs, which represents a
reduction in annual interest cost on the notes of $4.5 million. As a result of the early
redemption of the 9 3/8% notes, a pretax charge of $12.8 million ($7.7 million, net of tax) was
recorded as a charge for debt restructuring in the quarter ended June 30, 2006, which consisted of
$9.8 million for the early call premium, $2.6 million of unamortized issuance costs, and $0.4
million in related expenses for the tender of outstanding notes.
The new notes contain restrictive covenants, including limitations on indebtedness, liens,
dividends, repurchases of capital stock and other payments affecting restricted subsidiaries,
issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset sales, and
mergers and consolidations or sales of assets. We were in compliance with the covenants applicable
to these notes as of December 31, 2006.
14
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for each of the past five fiscal periods should be
read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes to Consolidated Financial Statements
included elsewhere in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|
(Thousands) |
Income Statement Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
413,118 |
|
|
$ |
363,610 |
|
|
$ |
291,308 |
|
|
$ |
269,392 |
|
|
$ |
283,751 |
|
Net earnings (loss) |
|
|
(667 |
) |
|
|
14,154 |
|
|
|
3,972 |
|
|
|
1,139 |
|
|
|
9,231 |
|
Net earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
(0.05 |
) |
|
|
1.76 |
|
|
|
0.74 |
|
|
|
0.21 |
|
|
|
1.73 |
|
Diluted |
|
|
(0.05 |
) |
|
|
1.76 |
|
|
|
0.72 |
|
|
|
0.21 |
|
|
|
1.70 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
13,911 |
|
|
|
8,040 |
|
|
|
5,383 |
|
|
|
5,383 |
|
|
|
5,334 |
|
Diluted |
|
|
13,911 |
|
|
|
8,063 |
|
|
|
5,486 |
|
|
|
5,486 |
|
|
|
5,438 |
|
Cash dividends declared per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
30,324 |
|
|
$ |
28,020 |
|
|
$ |
10,905 |
|
|
$ |
29,415 |
|
|
$ |
39,529 |
|
Net cash used in investing activities (1) |
|
|
(178,928 |
) |
|
|
(137,464 |
) |
|
|
(18,594 |
) |
|
|
(30,943 |
) |
|
|
(169,760 |
) |
Net cash provided by financing activities |
|
|
146,388 |
|
|
|
108,947 |
|
|
|
8,275 |
|
|
|
2,026 |
|
|
|
127,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
307,689 |
|
|
$ |
224,265 |
|
|
$ |
128,405 |
|
|
$ |
110,135 |
|
|
$ |
103,851 |
|
Working capital |
|
|
254,099 |
|
|
|
162,527 |
|
|
|
88,716 |
|
|
|
70,300 |
|
|
|
72,751 |
|
Property, plant and equipment, net |
|
|
369,465 |
|
|
|
311,678 |
|
|
|
253,241 |
|
|
|
258,526 |
|
|
|
252,577 |
|
Total assets |
|
|
700,970 |
|
|
|
549,209 |
|
|
|
394,173 |
|
|
|
377,454 |
|
|
|
366,707 |
|
Total debt |
|
|
205,500 |
|
|
|
204,300 |
|
|
|
210,275 |
|
|
|
202,000 |
|
|
|
200,000 |
|
Shareholders equity |
|
|
400,125 |
|
|
|
239,051 |
|
|
|
109,975 |
|
|
|
105,993 |
|
|
|
104,854 |
|
|
|
|
(1) |
|
See Restatement in Note 1 to the Consolidated Financial Statements. |
|
(2) |
|
As of the end of the period. |
15
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
should be read in conjunction with our Consolidated Financial Statements and the related Notes
included elsewhere in this report.
Overview
As previously reported, the pilots represented by the OPEIU (the Office and Professional Employees
International Union), commenced a general strike on September 20, 2006, affecting both the Domestic
Oil and Gas and Air Medical segments. Approximately 236 pilots initially participated in this
strike, out of a total pilot work force of 597.
Shortly after the strike began and until November 10, 2006, the Company began aggressively hiring
new pilots, while also processing an increasing number of pilots who voluntarily elected to return
to work from the strike. On November 10, 2006, the OPEIU notified the Company that it was ending
the strike, purportedly offering an unconditional return to work of the remaining striking
pilots. Thereafter, questions arose over whether the OPEIUs offer was indeed unconditional. As a
result, the parties were unable to agree on a return to work process, and the OPEIU subsequently
filed suit seeking injunctive relief in the United States District Court for the Western District
of Louisiana.
On January 11, 2007, Federal Court conducted a hearing relating to our handling of the return to
work of the approximately sixty remaining strikers. At the Judges request, an agreement was
reached on a return to work process for those strikers. The agreement provides for a phased-in
process (which returns striking pilots by groups, and then by aircraft type as determined by PHI,
and then by seniority) that is consistent with the methodology PHI has used with the greater number
of former strikers who had already individually offered to return to work. PHIs court-approved
methodology focuses on pilot qualifications and currency, safety, customer requirements, training
status and certain other criteria. The return-to-work process commenced January 29, 2007 and is
expected to conclude by April 29, 2007, although processing of a few pilots who require flight
simulator training at third party training facilities may extend the process. To date, 196 of 236
pilots (83%) have been rehired or have taken themselves out of consideration for employment. We
continue to operate without a collective bargaining agreement and under a pilot compensation
program and other terms and conditions of employment based on the final proposals that were made by
the Company at the end of collective bargaining negotiations on August 28, 2006.
Other issues surrounding PHIs allegations that the OPEIU engaged in bad faith bargaining, as well
as the OPEIUs counterclaims and claims arising from the OPEIUs offer to return to work remain
outstanding and are expected to be addressed by the same Federal Court. A trial on these matters
is currently set to start November 7, 2007. It is not possible to predict the outcome of the
remaining claims and counterclaims.
In addition to processing the remaining striking pilots back to work, we continue to hire
additional pilots. That process was interrupted November 10, 2006, when the union announced that
the striking pilots would return to work unconditionally, but in early January 2007, we again
commenced hiring pilots based on increasing needs due to new aircraft deliveries. As of February
28, 2007, the pilot work force was 648, compared to a total pilot work force on the date the strike
commenced of 597.
Total flight hours were 150,980 for 2006 compared to 154,643 for 2005. The decrease in flight
hours was due to the pilots strike. The number of aircraft in service at December 31, 2006, was
236 compared to 235 at December 31, 2005. Twenty-two new aircraft were delivered in 2006, twenty
for service in the Domestic Oil and Gas segment and two for service in Air Medical segment.
Twenty-one light aircraft were sold, eighteen from the Domestic Oil and Gas segment and three from
the Air Medical segment. These were older aircraft and had little flight time in 2006. In
addition, five aircraft were converted from Domestic Oil and Gas use to Air Medical use.
Operating revenues for 2006 were $413.1 million compared to $363.6 million for 2005, an increase of
$49.5 million. Domestic Oil and Gas operating revenues increased $28.4 million due primarily to
customer requirements for additional aircraft and contractual rate increases. Operating revenues
in the Air Medical segment increased $21.3 million, or 19%, due to the additional Air Medical
operations established during 2005 that were in operation for a full year in 2006. Although
Domestic Oil and Gas and Air Medical segments reflected increased revenues compared to 2005, both
segments were adversely affected by the pilots strike. International segment revenues
16
decreased $2.6 million due to the scheduled release of one aircraft from contract by the customer
and a decrease in flight hour activity. Technical Services operating revenues increased $2.4
million due to recategorization of certain contractual work for third parties to Technical Services
previously recorded in Domestic Oil and Gas.
In the fourth quarter 2006, operating revenues were $95.3 million compared to operating revenues in
the same quarter 2005 of $102.6 million. The net loss in the fourth quarter 2006 was $5.3 million
or $0.34 per share diluted share compared to net earnings of $6.4 million or $0.62 per diluted
share in the fourth quarter 2005. There were 4.9 million additional shares outstanding at December
31, 2006 than were outstanding at December 31, 2005. The loss in the fourth quarter was a result
of the pilots strike.
Although substantial progress has been made in rebuilding the pilot workforce, we expect to report
a loss from operations in the first quarter 2007. Although it is not possible to reliably estimate
the amount of loss, we expect it to be substantially less than the loss in the fourth quarter 2006.
The total pilot work force has continued to increase subsequent to December 31, 2006.
On April 12, 2006, we completed the sale of 4,287,920 non-voting common shares at $35.00 per share
and on May 1, 2006, we completed the sale of another 578,680 shares subject to the underwriters
over-allotment option, also at $35.00 per share. Proceeds from the sales were $160.7 million, net
of underwriting fees and expenses, and were used to fund the acquisition of aircraft delivered in
2006 and may be used to fund the acquisition of aircraft being delivered in 2007 and 2008. We also
issued $200 million of 7.125% Senior Notes due April 15, 2013 pursuant to Rule 144A and Regulation
S of the Securities Act of 1933. Proceeds were $196.0 million net of underwriting fees and
expenses, and were used to retire $184.8 million of our existing 9 3/8% Senior Notes pursuant to a
tender offer, at a total cost of $201.6 million including an early call premium and accrued
interest. We subsequently redeemed the remaining $15.2 million of Senior Notes outstanding on May
1, 2006, at a redemption price of 104.688% of the face amount plus accrued interest. As a result
of the early redemption of the 9 3/8% Senior Notes, we recorded a pretax charge of $12.8 million
($7.7 million, net of tax), which consisted of a $9.8 million early call premium, $2.6 million of
unamortized issuance costs, and $0.4 million in related expenses for the tender of outstanding
notes. On December 8, 2006, we filed a registration statement for an offer to exchange these Notes
for debt securities with identical terms.
In 2006, we took delivery of three transport category aircraft, eight medium aircraft and nine
light aircraft for service in the Domestic Oil and Gas segment. We also took delivery of two light
aircraft for service in the Air Medical segment.
At December 31, 2006, we had an order for two additional transport category aircraft, at an
approximate cost of $37.2 million. We intend to execute an operating lease for these two aircraft.
In addition, at December 31, 2006, we had orders for 34 other aircraft for service in the Domestic
Oil and Gas and Air Medical segments, with a total cost of $144.6 million and scheduled delivery
dates throughout 2007 and 2008. Of this total, five aircraft totaling $16.7 million have been
delivered in 2007.
As previously reported, on June 15, 2005, we received a subpoena from the United States Department
of Justice relating to a grand jury investigation of potential antitrust violations among providers
of helicopter transportation services in the Gulf of Mexico. We are cooperating fully with the
investigation and believe we have provided all documents and other information required by the
subpoena. We have not received any further communications from the Department of Justice since
shortly after providing the requested information. At this stage, it is not possible to predict
the outcome of this investigation, although based on the information available to us to date,
management does not expect the outcome of the investigation to have a material adverse effect on
our financial condition, results of operations, or liquidity.
17
Results of Operations
The following table presents segment operating revenues, expense and operating profit before
tax, along with certain non-financial operational statistics, for the years ended December 31,
2006, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(Thousands of dollars) |
|
Segment operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
$ |
248,035 |
|
|
$ |
219,644 |
|
|
$ |
180,102 |
|
Air Medical |
|
|
133,397 |
|
|
|
112,123 |
|
|
|
77,476 |
|
International |
|
|
25,588 |
|
|
|
28,192 |
|
|
|
24,342 |
|
Technical Services |
|
|
6,098 |
|
|
|
3,651 |
|
|
|
9,388 |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
413,118 |
|
|
|
363,610 |
|
|
|
291,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment direct expense |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
213,279 |
|
|
|
173,177 |
|
|
|
151,107 |
|
Air Medical |
|
|
130,412 |
|
|
|
104,465 |
|
|
|
67,664 |
|
International |
|
|
18,456 |
|
|
|
19,099 |
|
|
|
18,668 |
|
Technical Services |
|
|
4,125 |
|
|
|
2,522 |
|
|
|
7,935 |
|
|
|
|
|
|
|
|
|
|
|
Total direct expense |
|
|
366,272 |
|
|
|
299,263 |
|
|
|
245,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment selling, general and administrative expense |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
1,010 |
|
|
|
1,003 |
|
|
|
1,499 |
|
Air Medical |
|
|
7,384 |
|
|
|
6,503 |
|
|
|
6,525 |
|
International |
|
|
96 |
|
|
|
214 |
|
|
|
49 |
|
Technical Services |
|
|
82 |
|
|
|
7 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expense |
|
|
8,572 |
|
|
|
7,727 |
|
|
|
8,085 |
|
|
|
|
|
|
|
|
|
|
|
Total direct and selling, general and administrative
expense |
|
|
374,844 |
|
|
|
306,990 |
|
|
|
253,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net segment profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
33,746 |
|
|
|
45,464 |
|
|
|
27,496 |
|
Air Medical |
|
|
(4,399 |
) |
|
|
1,155 |
|
|
|
3,287 |
|
International |
|
|
7,036 |
|
|
|
8,879 |
|
|
|
5,625 |
|
Technical Services |
|
|
1,891 |
|
|
|
1,122 |
|
|
|
1,441 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
38,274 |
|
|
|
56,620 |
|
|
|
37,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net (1) |
|
|
9,946 |
|
|
|
3,230 |
|
|
|
2,961 |
|
Unallocated selling, general and administrative costs |
|
|
(19,267 |
) |
|
|
(17,169 |
) |
|
|
(12,949 |
) |
Interest expense |
|
|
(17,243 |
) |
|
|
(20,448 |
) |
|
|
(20,109 |
) |
Loss on debt restructuring |
|
|
(12,790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
$ |
(1,080 |
) |
|
$ |
22,233 |
|
|
$ |
7,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flight hours |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
107,735 |
|
|
|
111,236 |
|
|
|
100,814 |
|
Air Medical |
|
|
29,980 |
|
|
|
26,619 |
|
|
|
19,595 |
|
International |
|
|
13,265 |
|
|
|
16,788 |
|
|
|
15,871 |
|
Total |
|
|
150,980 |
|
|
|
154,643 |
|
|
|
136,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Medical Transports |
|
|
20,808 |
|
|
|
17,200 |
|
|
|
11,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft operated at period end |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
152 |
|
|
|
155 |
|
|
|
151 |
|
Air Medical |
|
|
68 |
|
|
|
64 |
|
|
|
51 |
|
International |
|
|
16 |
|
|
|
16 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
Total (2) |
|
|
236 |
|
|
|
235 |
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including gains on disposition of property and equipment, and other income. |
|
(2) |
|
Includes 12, 12, and 14 aircraft as of December 31, 2006, 2005 and 2004, respectively
that are customer owned or leased by customers but operated by us. |
18
Year Ended December 31, 2006 compared with Year Ended December 31, 2005
Combined Operations
Revenues Operating revenues for 2006 were $413.1 million compared to $363.6 million
for 2005, an increase of $49.5 million, or 14%. Operating revenues increased in the Domestic Oil
and Gas segment $28.4 million due to an increase in contracted aircraft and an increase due to
contractual rate increases. Although revenues increased in the Domestic Oil and Gas segment,
flight hours were negatively impacted in the fourth quarter by the pilots strike, resulting in an
estimated revenue decrease of $4.7 million. Operating revenues in the Air Medical segment also
increased $21.3 million in 2006, due to the additional operating locations established in 2005 that
were in service for all of 2006, although patient transport volume and operating revenues were also
negatively impacted in the fourth quarter by the pilots strike. We estimate a decrease in
operating revenues in the Air Medical segment of $4.2 million as a result of the strike. Operating
revenues in the International segment decreased $2.6 million due to the scheduled release of one
aircraft from contract and decreased flight hours. Revenues in the Technical Services segment
increased $2.4 million due to recategorization of certain contractual work for third parties to
Technical Services that was previously recorded in the Domestic Oil and Gas segment. These items
are discussed in the Segment Discussion below.
Other Income and Losses Gain on equipment dispositions was $1.9 million for 2006 compared
to $1.2 million for 2005. Gain or loss on equipment dispositions is related to dispositions of
aircraft. Other income increased approximately $6.0 million in 2006 due to interest income on
unspent proceeds from securities offerings.
Direct Expenses Direct expense was $366.3 million for 2006 compared to $299.3 million for
2005, an increase of $67.0 million, or 22%. Included in direct expense are costs incurred as a
result of the strike which includes overtime pay and a work completion bonus for working pilots
($5.7 million), other pilot associated costs ($1.9 million), and security costs ($0.6 million).
Direct expense in the Domestic Oil and Gas segment increased by $40.1 million due to increased
employee costs ($7.2 million) including the strike related amount mentioned above, aircraft parts
and repair costs ($3.9 million), aircraft warranty costs ($5.4 million), aircraft rent ($6.7
million), insurance expense ($3.0 million), aircraft fuel ($1.7 million), outside services ($5.1
million), also including ($1.9 million) pilot associated costs mentioned above, and training costs
($3.3 million). The remaining increase ($3.8 million) was due to travel expenses, security
services, temporary labor and property taxes. The effect of the strike on this segment, as well as
a further discussion of the above items, is described in the Segment Discussion.
Air Medical segment direct expense increased ($25.9 million) due to new locations opened in 2005
being in service for a full twelve months in 2006 as well as an increase related to the pilots
strike, which is discussed in the Segment Discussion below.
There was also an increase in the Technical Services segment ($1.6 million), and a decrease in the
International segment due to the release of one aircraft from contract as mentioned above ($0.6
million). These items are also discussed in the Segment Discussion below.
Selling, General, and Administrative Expenses Selling, general and administrative expense
was $27.8 million for 2006 compared to $24.9 million for 2005, an increase of $2.9 million, or 12%.
This increase resulted from legal costs and other expenses ($1.5 million) related to the pilots
strike and other union issues, increased employee costs ($0.5 million), and increased insurance
expense ($0.9 million).
Income Taxes Income tax benefit for 2006 was $0.4 million, compared to income tax expense
of $8.1 million for 2005. The effective tax-rate was 38% for 2006 compared to 36% for 2005. The
2005 rate benefited from a Hurricane Katrina tax credit of $0.8 million in 2005.
Earnings Our net loss for 2006 was $0.7 million, compared to net earnings of $14.2
million for 2005. Losses before tax for 2006 were $1.1 million compared to earnings before tax of
$22.2 million in 2005. Losses per diluted share were $0.05 for 2006 as compared to earnings per
diluted share of $1.76 for 2005. The loss for 2006 included $12.8 million related to the early
call premium and associated costs for redemption of our 9 3/8% Senior Notes, and also the impact of
the pilots strike.
19
Segment Discussion
Domestic Oil and Gas Domestic Oil and Gas segment revenues for 2006 were $248.0 million
compared to $219.6 million for 2005, an increase of $28.4 million or 13%. The increase was due to
increased use of medium and transport aircraft and an increase in contracted aircraft prior to the
pilots strike and contractual rate increases. Flight hours were 107,735 for 2006 compared to
111,236 for 2005, a decrease of 3,501 hours, which was also attributable to the strike, resulting
in an estimated revenue decrease of $4.7 million. The number of aircraft in the segment at
December 31, 2006 was 152 compared to 155 aircraft at December 31, 2005. In 2006, we sold 18 light
aircraft, which had little flight time in 2006, and had 20 new aircraft delivered. We also
converted five aircraft from the Domestic Oil and Gas segment for Air Medical use. We have
deliveries scheduled throughout 2007 and 2008 for two additional transport category aircraft and 30
additional medium and light aircraft for service in the Domestic Oil and Gas segment to meet
contracted and anticipated customer requirements. Of this amount, four aircraft totaling $12.8
million have been delivered in 2007.
Direct expenses in the Domestic Oil and Gas segment were $213.3 million for the year ended December
31, 2006, compared to $173.2 million for the prior year, an increase of $40.1 million, or 23%.
Included in this increase were increases in employee costs ($7.2 million). Of this amount, $2.5
million was related to increased pilot compensation expense, related to overtime and a work
completion bonus, due to the pilots strike. There was also an increase in outside services ($5.1
million). Of this amount, $1.9 million was other pilot associated costs related to the strike.
Other increases include aircraft parts usage ($2.1 million), aircraft rent ($6.7 million) due to
additional aircraft on lease, aircraft warranty costs ($5.4 million) due to additional aircraft
covered under the manufacturers warranty programs, fuel ($1.7 million) due to increased prices and
increased use of medium and transport aircraft, component repair costs ($1.9 million), and
insurance expense ($3.0 million) due to a contractual premium refund in 2005 due to favorable loss
experience. There were also increases in training costs ($3.3 million), travel expenses ($1.7
million), security services ($0.6 million), which were also partially strike related costs, and
other items ($1.4 million).
The Domestic Oil and Gas segments operating income was $33.7 million for 2006 compared to $45.5
million for 2005. The decrease was due to decreased flight hours and revenues, and increased
employee and other strike related costs in the fourth quarter due to the pilots strike.
Air Medical Air Medical segment revenues were $133.4 million for 2006 compared to $112.1 million
for 2005. The increase was due to the additional operations established in 2005 that were in
service for all of 2006. Operating revenues in 2006 from the locations opened in 2005 were $37.2
million. Flight hours were 29,980 for 2006 compared to 26,619 for 2005. Patient transports were
20,808 for 2006, compared to 17,200 for 2005. Patient transport volume was negatively impacted by
the pilots strike in the fourth quarter 2006. We estimate a decrease of approximately 700
transports related to the strike in the fourth quarter resulting in an estimated revenue decrease
of $4.2 million. The number of aircraft in the segment was 68 at December 31, 2006, compared to 64
at December 31, 2005. At December 31, 2006, we had four aircraft deliveries scheduled throughout
2007 and 2008. Subsequent to December 31, 2006, one of these aircraft totaling $3.9 million was
delivered for service in the Air Medical segment.
Direct expenses in the Air Medical segment increased to $130.4 million for 2006 compared to $104.5
million for 2005. During fiscal year 2005, we opened 15 locations, and the increase in direct
expense in 2006 reflects a full year of operations at those locations. The $25.9 million increase
includes increases in employee costs ($13.8 million) primarily due to new locations opened in the
prior year being in service for a full twelve months, but also pilot compensation expenses related
to the strike ($3.2 million). There were also increases in fuel costs ($2.3 million), aircraft
rent ($0.3 million) and aircraft warranty costs ($1.7 million) as additional aircraft were added to
the manufacturers warranty programs, insurance expense ($1.2 million), depreciation expense ($2.5
million), and other operating costs ($0.9 million).
Selling, general and administrative expense was $7.4 million for the year ended December 31, 2006,
compared to $6.5 million for the year ended December 31, 2005.
The Air Medical segment operating loss was $4.4 million for 2006 compared to operating income of
$1.2 million for 2005. Although the Air Medical segment revenues increased in 2006, the decrease
in transports in the fourth quarter related to the strike resulted in an estimated revenue decrease
of $4.2 million. Expenses related to the strike also increased an estimated $3.2 million.
International International segment revenues were $25.6 million for 2006, compared to $28.2
million for 2005, a decrease of $2.6 million, or 9%. The decrease was due to the scheduled release
of one aircraft from contract by the customer in the second quarter. Flight hours decreased in
2006 to 13,265 as compared to 16,788 for 2005.
20
Direct expenses were $18.5 million for the year ended December 31, 2006, compared to $19.1 million
for the year ended December 31, 2005, a decrease of $0.6 million. The decrease was due to
decreased flight hours in 2006.
Selling, general and administrative expense was $0.1 million for 2006 compared to $0.2 million for
2005.
International segment operating income for 2006 was $7.0 million compared to $8.9 million for 2005.
The decrease was due to the scheduled release of one aircraft from contract by the customer in the
second quarter and a decrease in flight hour activity.
Technical Services Technical Services segment revenues for 2006 were $6.1 million compared to
$3.7 million for 2005. The increase in Technical Services revenues was due to recategorization of
certain contractual work for third parties that was previously recorded in the Domestic Oil and Gas
segment.
Direct expenses were $4.1 million for 2006 compared to $2.5 million for 2005, which was also due to
the recategorization of contract revenue and expense.
The Technical Services segment had operating income of $1.9 million for December 31, 2006, compared
to $1.1 million for December 31, 2005. The increase was due to recategorization of the contractual
work.
Year Ended December 31, 2005 compared with Year Ended December 31, 2004
Combined Operations
Revenues Operating revenues for 2005 were $363.6 million compared to $291.3 million
for 2004, an increase of $72.3 million, or 25%. Operating revenues increased in the Domestic Oil
and Gas segment $39.5 million due to increased flight hours and an increase in contracted aircraft.
Operating revenues in the Air Medical segment also increased $34.6 million, due to the additional
operating locations. Operating revenues in the International segment increased $3.9 million due
primarily to increased flight hours. Revenues in the Technical Services segment decreased $5.7
million due to completion of a contract in 2004. These items are discussed in the Segment
Discussion below.
Other Income and Losses Gain on equipment dispositions was $1.2 million for 2005 compared
to $2.6 million for 2004. Gain or loss on equipment dispositions is related to dispositions of
aircraft. Other income increased approximately $1.7 million in 2005 due to interest earnings on
unspent proceeds from the stock offering.
Direct Expenses Direct expense was $299.3 million for 2005 compared to $245.4 million for
2004, an increase of $53.9 million, or 22%. The increase was due to increased Air Medical
operations ($36.8 million), an increase in the Domestic Oil and Gas segment ($22.1 million) due to
increased flight hour activity and increased aircraft, and an increase in the International segment
($0.4 million). There was a decrease in the Technical Services segment due to completion of a
contract in 2004 as mentioned above ($5.4 million). These items are also discussed in the Segment
Discussion below.
Selling, General, and Administrative Expenses Selling, general and administrative expense
was $24.9 million for 2005 compared to $21.0 million for 2004, an increase of $3.9 million, or 19%.
This increase is a result of legal costs incurred ($1.0 million) in responding to the Department
of Justice antitrust investigation subpoena, increased depreciation expense ($1.3 million),
increased employee costs ($0.4 million), a non-recurring reduction in the environmental provision
in the prior year ($0.3 million), and other items ($0.9 million).
Income Taxes Income tax expense for 2005 was $8.1 million, compared to $3.8 million for
2004. The effective tax-rate was 36% for 2005 compared to 49% for 2004. The provision for 2005
includes a tax credit of $0.8 million related to the Katrina Emergency Tax Relief Act of 2005.
This amount was recorded as a tax carryforward credit and will be available as a credit once the
net operating loss amount is utilized. Included in the 2004 provision was $0.7 million related to
foreign taxes paid for which we cannot take a credit for U.S. tax purposes due to the availability
of net operating losses for tax purposes. Such operating loss carryforwards arose from accelerated
tax depreciation expense deductions as a result of the aircraft purchased since 2002. We
anticipate the foreign taxes paid in 2005 will be utilized as a tax credit in future years based on
recent changes in the tax laws.
21
Earnings Our net earnings for 2005 were $14.2 million, compared to $4.0 million for 2004.
Earnings before tax for 2005 were $22.2 million compared to $7.8 million in 2004. Earnings per
diluted share were $1.76 for 2005 as compared to $0.72 per diluted share for 2004.
Segment Discussion
Domestic Oil and Gas Domestic Oil and Gas segment revenues for 2005 were $219.6 million
compared to $180.1 million for 2004, an increase of $39.5 million or 22%. The increase was due to
an increase in flight hours in the Gulf of Mexico and an increase in contracted aircraft. Flight
hours were 111,236 for 2005 compared to 100,814 for 2004, an increase of 10,422 hours, as a result
of our customers increased production and exploration activities in the Gulf of Mexico. The
number of aircraft in the segment at December 31, 2005 was 155 compared to 151 aircraft at December
31, 2004. In 2005, we sold 11 light aircraft, which had little flight time, and added 15 total
aircraft.
Direct expenses in the Domestic Oil and Gas segment were $173.2 million for the year ended December
31, 2005, compared to $151.1 million for the year ended December 31, 2004, an increase of $22.1
million, or 14.6%. The increase was due to increases in employee costs ($1.2 million), aircraft
parts usage due to increased flight hour activity ($3.1 million), aircraft rent ($3.7 million) due
to additional aircraft on lease, aircraft warranty costs ($5.0 million) due to additional aircraft
covered under the manufacturers warranty programs but also due to a warranty termination credit in
the prior year ($2.2 million), fuel ($6.7 million) due to increased prices and flight activity,
component repair costs ($0.8 million), outside services ($1.1 million) primarily related to outside
pilot training costs, and other items ($0.5 million). Fuel cost above a certain rate per gallon in
customers contracts is invoiced to the customer and is included in revenue. These increases were
due to increased aircraft and increased flight hours.
The Domestic Oil and Gas segments operating income was $45.5 million for 2005 compared to $27.5
million for 2004. The increase was due to increased flight hours and also due to additional
contracted aircraft as mentioned above.
Air Medical Air Medical segment revenues were $112.1 million for 2005 compared to $77.5 million
for 2004. The increase was due to the additional operations established in 2004 and 2005. Flight
hours were 26,619 for 2005 compared to 19,595 for 2004. The number of aircraft in the segment was
64 at December 31, 2005, compared to 51 at December 31, 2004. One additional aircraft was received
in early 2006. Patient transports were 17,200 for 2005, compared to 11,390 for 2004. Fifteen new
locations were opened in 2005, seven of which were opened in the fourth quarter 2005. Operating
revenues in 2005 from the new locations opened in 2005 were $20.4 million.
Direct expenses in the Air Medical segment increased to $104.5 million for 2005 compared to $67.7
million for 2004, due to growth in the segment mentioned above. At December 31, 2004, we had 22
operating locations that were opened in 2004, and the increase in direct expense in 2005 reflects a
full year of operations at those locations, as well as the direct expense of the 15 locations
opened during 2005. The $36.8 million increase was due to increases in employee costs ($21.1
million) due to additional employees at the new operations, operating costs ($9.2 million) related
to the additional bases, which includes rent, utilities, services purchased, and supplies.
Aircraft parts usage increased due to additional aircraft and additional flight hours ($1.3
million); fuel costs increased ($2.3 million); aircraft rent increased due to additional aircraft
on lease ($1.1 million); and aircraft warranty costs increased ($1.8 million) as additional
aircraft were added to the manufacturers warranty programs.
Selling, general and administrative expense was $6.5 million for the years ended December 31, 2005
and 2004 in the Air Medical segment.
The Air Medical segment operating income was $1.2 million for 2005 compared to $3.3 million for
2004. The decrease in operating income was due to increased direct expense related to the
expansion of operations, and also due to the impact of weather in the first quarter and fourth
quarter as compared to 2004. There was a loss of $2.5 million related to the additional operations
that commenced in 2005. New locations typically take several months to build sufficient volume to
absorb facility operating costs and achieve profitable aircraft utilization levels.
International International segment revenues were $28.2 million for 2005, compared to $24.3
million for 2004, an increase of $3.9 million, or 15.8%. The increase was due to increased flight
hours and rates in 2005. Flight hours increased in 2005 to 16,788 as compared to 15,871 for 2004.
The additional flight hours were achieved in spite of a reduction in the number of aircraft in the
segment from 19 at December 31, 2004, to 16 at December 31, 2005, as three aircraft in that segment
were sold during 2005.
22
Direct expenses were $19.1 million for the year ended December 31, 2005, compared to $18.7 million
for the year ended December 31, 2004, an increase of $0.4 million. The increase was due to
increased flight hours in 2005.
Selling, general and administrative expense was $0.2 million for 2005 compared to less than $0.1
million for 2004.
International segment operating income for 2005 was $8.9 million compared to $5.6 million for 2004.
The improvement was due to the increase in operating revenue due to increased flight hours and to
increased rates.
Technical Services Technical Services segment revenues for 2005 were $3.7 million compared to
$9.4 million for 2004. The decrease in Technical Services revenues was due to completion of its
principal contract in the third quarter of 2004.
Direct expenses were $2.5 million for 2005 compared to $7.9 million for 2004.
The Technical Services segment had operating income of $1.1 million for December 31, 2005, compared
to $1.4 million for December 31, 2004. The decrease was due to completion of the contract
mentioned above.
Liquidity and Capital Resources
General
Our ongoing liquidity requirements arise primarily from the funding of working capital needs,
such as the acquisition or leasing of aircraft, the maintenance and refurbishment of aircraft,
improvement of facilities, and acquisition of equipment and inventory. Our principal sources of
liquidity historically have been net cash provided by our operations and borrowings under our
revolving credit facility, as augmented in recent years by the issuance of our Senior Notes in
2002, which were refinanced in 2006, and the sale of non-voting common stock in 2005 and 2006.
As we grow our operations, we continually monitor the capital resources available to meet our
future financial obligations, planned capital expenditures and liquidity. We also review
acquisition opportunities on an ongoing basis. If we were to make a significant acquisition for
cash, we would need to obtain additional equity or debt financing.
Cash Flow
Our cash position at December 31, 2006 was $0.8 million, compared to $3.0 million at December
31, 2005. Short-term investments were $153.4 million at December 31, 2006, compared to $66.5
million at December 31, 2005. Working capital was $254.1 million at December 31, 2006, as compared
to $162.5 million at December 31, 2005, an increase of $91.6 million. The increase in working
capital was primarily a result of an increase in short-term investments of $86.9 million and an
increase in inventory of $7.5 million. The increase in short-term investments was due primarily to
completion of the equity offering in April 2006, with remaining short-term investments from the
offering being $91.9 million at December 31, 2006.
Net cash provided by operating activities was $30.3 million for 2006 compared to $28.0 million for
2005, an increase of $2.3 million. The increase was due primarily to changes in operating assets and liabilities of $10.6 million, a decrease in net earnings of $14.8 million, including the loss of $12.8
million recorded in the second quarter as a result of refinancing our 9 3/8% Senior Notes, an
increase in depreciation and amortization expense of $3.2 million, a decrease in the deferred tax
provision of $8.0 million, and other items, net, $1.3 million. The decrease in deferred
tax is due to the tax benefit associated with the loss before tax of $1.1 million in the current
year compared to a tax expense associated with earnings before tax of $22.2 million in the prior
year. Capital expenditures were $123.3 million for 2006 compared to $96.2 million for 2005.
Capital expenditures for 2006 were $94.7 million for aircraft purchases, $18.3 million for
refurbishments and equipment installations for new aircraft, $3.8 million for facility improvements
and $6.5 million for operating equipment, engine spares, and medical equipment. Capital
expenditures for 2005 were $73.0 million for aircraft purchases, $11.3 million for refurbishments
and equipment installations for new aircraft, $4.2 million for facility improvements and $7.7
million for operating equipment, engine spares, and medical equipments. Gross proceeds from
aircraft sales were $36.8 million for 2006 compared to $10.8 million for 2005.
23
Financing Activities
On April 12, 2006, we completed the sale of 4,287,920 non-voting common shares at $35.00 per
share and on May 1, 2006, we completed the sale of another 578,680 shares pursuant to the
underwriters over-allotment option, also at $35.00 per share. Proceeds from the offering were
$160.7 million, net of expenses, and were used to fund the acquisition of aircraft delivered in
2006 and may be used to fund the acquisition of aircraft delivered in 2007. Also on April 12,
2006, we issued $200 million of 7.125% Senior Notes due 2013. Net proceeds of $196.0 million were
used to repurchase $184.8 million of our existing 9 3/8% Senior Notes, which were tendered by April
12, 2006, at a total cost of $201.6 million including an early call premium and accrued interest.
We redeemed the remaining $15.2 million of 9 3/8% Senior Notes on May 1, 2006, at a redemption
price of 104.688% of the face amount plus accrued interest. As a result of the refinancing of the
9 3/8% Senior Notes, we recorded a pretax charge of $12.8 million ($7.7 million, net of tax) in the
quarter ended June 30, 2006, which consisted of a $9.8 million early call premium, $2.6 million of
unamortized issuance costs, and $0.4 million in related expenses of the tender for the outstanding
notes.
The 7.125% 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, consolidations and sales of assets. Estimated annual interest cost of the
7.125% Senior Notes is $14.3 million, excluding amortization of issuance costs.
Credit Facility
We have a $35 million revolving credit facility with a commercial bank that expires on
September 1, 2008. At December 31, 2006, there were $5.5 million in borrowings and $5.1 million in
letters of credit outstanding under the facility. The facility includes covenants related to
working capital, funded debt to net worth, and consolidated net worth. As of December 31, 2006, we
were in compliance with these covenants.
Contractual Obligations
The table below sets out our contractual obligations related to operating lease obligations,
purchase commitments, credit facility, and the 7.125% Senior Notes due 2013. The operating leases
are not recorded as liabilities on the balance sheet, but payments are treated as an expense as
incurred. Each contractual obligation included in the table contains various terms, conditions,
and covenants which, if violated, accelerate the payment of that obligation. We currently lease
eighteen aircraft included in the lease obligations below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beyond |
|
|
|
Total |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2011 |
|
|
|
(Thousands of dollars) |
|
Aircraft Purchase
commitments (1) |
|
$ |
144,593 |
|
|
$ |
127,364 |
|
|
$ |
17,229 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Purchase
commitments (2) |
|
|
37,181 |
|
|
|
37,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft lease
obligations |
|
|
157,090 |
|
|
|
15,663 |
|
|
|
15,663 |
|
|
|
15,663 |
|
|
|
16,265 |
|
|
|
17,533 |
|
|
|
76,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other lease
obligations |
|
|
21,199 |
|
|
|
3,237 |
|
|
|
2,652 |
|
|
|
1,945 |
|
|
|
1,664 |
|
|
|
1,348 |
|
|
|
10,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt |
|
|
205,500 |
|
|
|
|
|
|
|
5,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
565,563 |
|
|
$ |
183,445 |
|
|
$ |
41,044 |
|
|
$ |
17,608 |
|
|
$ |
17,929 |
|
|
$ |
18,881 |
|
|
$ |
286,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These commitments are for aircraft that we intend to finance with remaining cash from
the equity offering completed April 2006, and with cash from operations. |
|
(2) |
|
These commitments are for aircraft that we intend to finance with an operating lease. |
24
Estimated interest costs on the debt obligations set forth above, without considering any
additional debt that may be obtained relative to purchase commitments for aircraft, are $14.9
million for 2007 and each successive year through 2011, including amortization of debt issuance
costs.
In 2006, we took delivery of three transport category aircraft, eight medium aircraft and nine
light aircraft for service in the Domestic Oil and Gas segment. We also took delivery of two light
aircraft for service in the Air Medical segment.
At December 31, 2006, we had an order for two additional transport category aircraft, which we
intend to finance with an operating lease. The approximate cost for these two aircraft is $37.2
million
At December 31, 2006, we also had orders for 34 additional aircraft with a total cost of $144.6
million and scheduled delivery dates throughout 2007 and 2008. Of this total, five aircraft
totaling $16.7 million were delivered subsequent to December 31, 2006, as mentioned above.
We believe that cash flow from operations will be sufficient to fund operating requirements and
required interest payments on the 7.125% Senior Notes for the next twelve months. We have capital
requirements for aircraft on order totaling $144.6 million over 2007 and 2008, which we intend to
fund from existing cash, short-term investments, and operating leases, as required.
Critical Accounting Policies and Estimates
Managements discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
consolidated financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including
those related to allowances for doubtful accounts, inventory valuation, long-lived assets and
self-insurance liabilities. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates, and the
differences may be material. We believe the following critical accounting policies affect our more
significant judgments and estimates used in preparation of our consolidated financial statements.
The allowance for doubtful accounts receivable is estimated based on an evaluation of individual
customer financial strength, current market conditions, and other information. If our evaluation
of our significant customers and debtors creditworthiness should change or prove incorrect, then
we may have to recognize additional allowances in the period in which we identify the risk of loss.
In the Air Medical segment, the Company monitors its collection experience by payor category
within the Air Medical segment and updates its estimated collections to be realized based on its
most recent collection experience.
We maintain a significant parts inventory to service our own aircraft and the aircraft and
components of customers. Portions of that inventory are used parts that are often exchanged with
parts removed from aircraft or components and reworked to a useable condition. We use systematic
procedures to estimate the valuation of the used parts, which includes consideration of their
condition and continuing utility. If our valuation of these parts should be significantly
different from amounts ultimately realizable or if we discontinue using or servicing certain
aircraft models, then we may have to record a write-down of our inventory. We also record
provisions against inventory for obsolescent and slow-moving parts, relying principally on specific
identification of such inventory. If we fail to identify such parts, additional provisions may be
necessary.
Our principal long-lived assets are aircraft. We review our long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. We measure recoverability of assets to be held and used by comparing the carrying
amount of an asset to the future undiscounted net cash flows that we expect the asset to generate.
When an asset is determined to be impaired, we recognize the impairment amount, which is the amount
by which the carrying value of the asset exceeds its estimated fair value. Similarly, we report
assets that we expect to sell at the lower of the carrying amount or fair value less costs to sell.
Future adverse market conditions or poor operating results could result in an inability to recover
the current carrying
value of certain long-lived assets, thereby possibly requiring an impairment charge in the future.
25
We must make estimates for certain of our liabilities and expenses, losses, and gains related to
self-insured programs, insurance deductibles, and good-experience premium returns. Our group
medical insurance program is largely self-insured, and we use estimates to record our periodic
expenses related to that program. We also carry deductibles on our workers compensation program
and aircraft hull and liability insurance, and poor experience or higher accidents rates could
result in additional recorded losses.
New Accounting Pronouncements
For a discussion of new accounting pronouncements applicable to the Company, see Note 1 to the
Consolidated Financial Statements.
Environmental Matters
We have an aggregate estimated liability of $0.2 million as of December 31, 2006 and 2005 for
environmental remediation costs that are probable and estimable. We have conducted environmental
surveys of our former Lafayette Facility, which we vacated in 2001, and have determined that
limited soil and groundwater contamination exists at the facility. We have installed groundwater
monitoring wells at the facility and periodically monitor and report on the contamination. In May
2003, we submitted a Louisiana Risk Evaluation/Corrective Action Plan (RECAP) Standard Site
Assessment Report to the Louisiana Department of Environmental Quality (LDEQ) fully delineating
the extent and type of contamination. In April, 2006 the Site Assessment was updated to include
recent analytical data. LDEQ is reviewing the assessment report. Once LDEQ completes its review
and reports on whether all contamination has been fully defined, a risk evaluation in accordance
with RECAP will be submitted and evaluated by LDEQ. At that point, LDEQ will establish what
cleanup standards must be met at the site. When the process is complete, we will be in a position
to develop an appropriate remediation plan and determine the resulting cost of remediation. We
have not recorded any estimated liability for remediation and contamination and, based upon the May
2003 Site Assessment Report, the April 2006 update and ongoing monitoring, we believe the ultimate
remediation costs for the former Lafayette facility will not be material to our consolidated
financial position, results of operations, or liquidity.
During 2004, LDEQ advised us that groundwater contaminants impacting monitor wells at the PHI
Lafayette Heliport were originating from an off-site location and that we would no longer be
required to perform further monitoring at the site. Subsequently, based upon site investigation
work performed by the Lafayette Airport Commission, the source of the contamination was identified
as residing at another location, for which PHI is not responsible. The Lafayette Airport
Commission has begun remediation of the PHI Lafayette Heliport.
ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Prior to the issuance of our 9 3/8% Senior Notes on April 23, 2002, we were exposed to market
risks associated with interest rates, and made limited use of derivative financial instruments to
manage that risk. When used, all derivatives for risk management were closely monitored by our
senior management. We do not hold derivatives for trading purposes and we do not use derivatives
with leveraged or complex features. Derivative instruments were transacted either with
creditworthy major financial institutions or over national exchanges. Interest on the 7.125%
Senior Notes is payable semi-annually on April 15 and October 15.
The market value of the Senior Notes will vary as changes occur in market interest rates, the
remaining maturity of the Senior Notes, and our credit-worthiness. At December 31, 2006, the
market value of the Notes was $194.0 million. A hypothetical 100 basis-point increase in the
Senior Notes imputed rate at December 31, 2006 would have resulted in a market value decline of
approximately $9.3 million.
The Company has not engaged in activities involving financial derivatives during the years 2006,
2005, and 2004.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
PHI, Inc.
Lafayette, Louisiana
We have audited the accompanying consolidated balance sheets of PHI, Inc. and subsidiaries (the
Company) as of December 31, 2006 and 2005, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three years in the period ended December 31,
2006. Our audits also included the financial statement schedule, listed in the Index at Item 15.
These financial statements and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the financial statements and financial
statement schedule based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of PHI, Inc. and subsidiaries as of December 31, 2006 and 2005, and the
results of their operations and their cash flows for each of the three years in the period ended
December 31, 2006, in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2006, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 16, 2007 expressed an unqualified opinion on managements assessment of the effectiveness of
the Companys internal control over financial reporting and an unqualified opinion on the
effectiveness of the Companys internal control over financial reporting.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 16, 2007
27
PHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
820 |
|
|
$ |
3,036 |
|
Short-term investments |
|
|
153,414 |
|
|
|
66,525 |
|
Accounts receivable net of allowance: |
|
|
|
|
|
|
|
|
Trade |
|
|
87,366 |
|
|
|
89,351 |
|
Other |
|
|
1,928 |
|
|
|
6,766 |
|
Inventories of spare parts and supplies |
|
|
55,596 |
|
|
|
48,123 |
|
Other current assets |
|
|
7,930 |
|
|
|
10,042 |
|
Refundable income taxes |
|
|
635 |
|
|
|
422 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
307,689 |
|
|
|
224,265 |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
23,816 |
|
|
|
13,266 |
|
Property and equipment, net |
|
|
369,465 |
|
|
|
311,678 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
700,970 |
|
|
$ |
549,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
35,815 |
|
|
$ |
40,506 |
|
Accrued liabilities |
|
|
8,511 |
|
|
|
10,807 |
|
Accrued interest |
|
|
3,045 |
|
|
|
3,175 |
|
Accrued vacation payable |
|
|
2,583 |
|
|
|
3,811 |
|
Accrued salaries and wages |
|
|
3,636 |
|
|
|
2,439 |
|
Notes payable |
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
53,590 |
|
|
|
61,738 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
205,500 |
|
|
|
203,300 |
|
Deferred income taxes |
|
|
32,828 |
|
|
|
38,906 |
|
Other long-term liabilities |
|
|
8,927 |
|
|
|
6,214 |
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
Voting common stock par value of $0.10;
authorized shares of 12,500,000 |
|
|
285 |
|
|
|
285 |
|
Non-voting common stock par value of $0.10;
authorized shares of 12,500,000 |
|
|
1,242 |
|
|
|
742 |
|
Additional paid-in capital |
|
|
290,695 |
|
|
|
129,531 |
|
Accumulated other comprehensive income |
|
|
77 |
|
|
|
|
|
Retained earnings |
|
|
107,826 |
|
|
|
108,493 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
400,125 |
|
|
|
239,051 |
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
700,970 |
|
|
$ |
549,209 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
28
PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of dollars and shares, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Operating revenues |
|
$ |
413,118 |
|
|
$ |
363,610 |
|
|
$ |
291,308 |
|
Gain on disposition of property
and equipment, net |
|
|
1,910 |
|
|
|
1,173 |
|
|
|
2,569 |
|
Other |
|
|
8,036 |
|
|
|
2,057 |
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423,064 |
|
|
|
366,840 |
|
|
|
294,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
366,272 |
|
|
|
299,263 |
|
|
|
245,374 |
|
Selling, general and
administrative expenses |
|
|
27,839 |
|
|
|
24,896 |
|
|
|
21,034 |
|
Interest expense |
|
|
17,243 |
|
|
|
20,448 |
|
|
|
20,109 |
|
Loss on debt restructuring |
|
|
12,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424,144 |
|
|
|
344,607 |
|
|
|
286,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
|
(1,080 |
) |
|
|
22,233 |
|
|
|
7,752 |
|
Income taxes |
|
|
(413 |
) |
|
|
8,079 |
|
|
|
3,780 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(667 |
) |
|
$ |
14,154 |
|
|
$ |
3,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.05 |
) |
|
$ |
1.76 |
|
|
$ |
0.74 |
|
Diluted |
|
$ |
(0.05 |
) |
|
$ |
1.76 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
13,911 |
|
|
|
8,040 |
|
|
|
5,383 |
|
Diluted |
|
|
13,911 |
|
|
|
8,063 |
|
|
|
5,486 |
|
The accompanying notes are an integral part of these consolidated financial statements.
29
PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Thousands of dollars and shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Voting |
|
|
Non-Voting |
|
|
Additional |
|
|
Other Com- |
|
|
|
|
|
|
Common Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
prehensive |
|
|
Retained |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income |
|
|
Earnings |
|
Balance at Dec. 31, 2003 |
|
|
2,852 |
|
|
$ |
285 |
|
|
|
2,531 |
|
|
$ |
253 |
|
|
$ |
15,088 |
|
|
$ |
|
|
|
$ |
90,367 |
|
Stock options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Dec. 31, 2004 |
|
|
2,852 |
|
|
|
285 |
|
|
|
2,531 |
|
|
|
253 |
|
|
|
15,098 |
|
|
|
|
|
|
|
94,339 |
|
Stock issuance, net |
|
|
|
|
|
|
|
|
|
|
4,887 |
|
|
|
489 |
|
|
|
113,352 |
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,081 |
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Dec. 31, 2005 |
|
|
2,852 |
|
|
|
285 |
|
|
|
7,418 |
|
|
|
742 |
|
|
|
129,531 |
|
|
|
|
|
|
|
108,493 |
|
Stock issuance, net |
|
|
|
|
|
|
|
|
|
|
4,867 |
|
|
|
487 |
|
|
|
160,235 |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
139 |
|
|
|
13 |
|
|
|
929 |
|
|
|
|
|
|
|
|
|
SFAS No. 158
incremental effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77 |
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Dec. 31, 2006 |
|
|
2,852 |
|
|
$ |
285 |
|
|
|
12,424 |
|
|
$ |
1,242 |
|
|
$ |
290,695 |
|
|
$ |
77 |
|
|
$ |
107,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
30
PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(667 |
) |
|
$ |
14,154 |
|
|
$ |
3,972 |
|
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
30,297 |
|
|
|
27,133 |
|
|
|
27,843 |
|
Deferred income taxes |
|
|
(1,631 |
) |
|
|
6,415 |
|
|
|
3,845 |
|
Gain on asset dispositions |
|
|
(1,910 |
) |
|
|
(1,173 |
) |
|
|
(2,569 |
) |
Loss on debt restructuring |
|
|
12,790 |
|
|
|
|
|
|
|
|
|
Other |
|
|
806 |
|
|
|
1,411 |
|
|
|
1,332 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable trade |
|
|
1,985 |
|
|
|
(31,109 |
) |
|
|
(16,499 |
) |
Inventories |
|
|
(7,473 |
) |
|
|
(8,898 |
) |
|
|
1,180 |
|
Refundable income taxes |
|
|
(213 |
) |
|
|
|
|
|
|
(876 |
) |
Other assets |
|
|
177 |
|
|
|
(2,313 |
) |
|
|
(7,241 |
) |
Accounts payable, accrued liabilities and
vacation payable |
|
|
(6,679 |
) |
|
|
23,049 |
|
|
|
(146 |
) |
Other long-term liabilities |
|
|
2,842 |
|
|
|
(649 |
) |
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
30,324 |
|
|
|
28,020 |
|
|
|
10,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(123,253 |
) |
|
|
(96,165 |
) |
|
|
(33,921 |
) |
Acquisition of additional operating locations |
|
|
|
|
|
|
|
|
|
|
(1,518 |
) |
Proceeds from asset dispositions |
|
|
36,809 |
|
|
|
10,751 |
|
|
|
14,395 |
|
Purchase of short-term investments |
|
|
(186,339 |
) |
|
|
(97,950 |
) |
|
|
(16,975 |
) |
Proceeds from sale of short-term investments |
|
|
99,450 |
|
|
|
45,900 |
|
|
|
19,425 |
|
Other |
|
|
(5,595 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(178,928 |
) |
|
|
(137,464 |
) |
|
|
(18,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds of debt issuance Senior Notes |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
Premium and costs to retire debt early |
|
|
(10,208 |
) |
|
|
|
|
|
|
|
|
Repayment of Senior Notes |
|
|
(200,000 |
) |
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
(4,857 |
) |
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(1,000 |
) |
|
|
(1,000 |
) |
|
|
|
|
Proceeds from line of credit |
|
|
181,900 |
|
|
|
114,875 |
|
|
|
37,008 |
|
Payments on line of credit |
|
|
(179,700 |
) |
|
|
(119,850 |
) |
|
|
(28,733 |
) |
Proceeds from stock issuance |
|
|
161,155 |
|
|
|
115,162 |
|
|
|
|
|
Less related fees and expenses |
|
|
(433 |
) |
|
|
(1,265 |
) |
|
|
|
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
1,025 |
|
|
|
|
|
Other |
|
|
(469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
146,388 |
|
|
|
108,947 |
|
|
|
8,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in cash and cash equivalents |
|
|
(2,216 |
) |
|
|
(497 |
) |
|
|
586 |
|
Cash and cash equivalents, beginning of year |
|
|
3,036 |
|
|
|
3,533 |
|
|
|
2,947 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
820 |
|
|
$ |
3,036 |
|
|
$ |
3,533 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
31
PHI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
Nature of Operations, Basis of Consolidation, and Other General Principles |
|
|
|
Since its inception, PHI, Inc.s primary business has been to transport personnel and, to a
lesser extent, parts and equipment, to, from and among offshore facilities for customers
engaged in the oil and gas exploration, development, and production industry. The Company
also provides air medical transportation services for hospitals, medical programs, and
aircraft maintenance services to third parties. |
|
|
|
The consolidated financial statements include the accounts of PHI, Inc. and its subsidiaries
(PHI or the Company) after the elimination of all intercompany accounts and
transactions. |
|
|
|
A principal stockholder has substantial control. Al A. Gonsoulin, Chairman of the Board and
Chief Executive Officer, beneficially owns stock representing approximately 52% of the total
voting power. As a result, he exercises control over the election of PHIs directors and
the outcome of matters requiring a stockholder vote. |
|
|
|
Revenue Recognition |
|
|
|
The Company recognizes revenue related to aviation transportation services after the
services are performed or the contractual obligations are met. Aircraft maintenance
services revenues are recognized at the time the repair or services work is completed.
Revenues related to emergency flights generated by the Companys Air Medical segment are
recorded net of contractual allowances under agreements with third party payors when the
services are provided. |
|
|
|
Use of Estimates |
|
|
|
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as well as
reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. |
|
|
|
Cash Equivalents |
|
|
|
The Company considers cash equivalents to include demand deposits and investments with
original maturity dates of three months or less. |
|
|
|
Short-term Investments |
|
|
|
Short-term investments consist primarily of auction rate securities, which represent funds
available for current operations. In accordance with SFAS No. 115 Accounting for Certain
Investments in Debt and Equity Securities, these short-term investments are classified as
available for sale. The Companys auction rate securities generally have long-term stated
maturities, but have characteristics of short-term investments due to a rate-setting
mechanism and the ability to liquidate them through a Dutch auction process that occurs on
pre-determined intervals of less than 90 days. The Company has not recorded any unrealized
gains or losses associated with short-term investments as the carrying value approximates
fair value at December 31, 2006 and 2005. |
|
|
|
Inventories of Spare Parts and Supplies |
|
|
|
The Companys inventories are stated at the lower of average cost or market and consist
primarily of spare parts. Portions of the Companys inventories are used parts that are
often exchanged with parts removed from aircraft, reworked to a useable condition according
to manufacturers and FAA specifications, and returned to inventory. The Company uses
systematic procedures to estimate the valuation of the used parts, which includes
consideration of their condition and continuing utility. Reusable aircraft parts are
included |
32
|
|
in inventory at the average cost of comparable parts. The rework costs are expensed as
incurred. The Company also records an allowance for obsolescent and slow-moving parts,
relying principally on specific identification of such inventory. Valuation reserves
related to obsolescence and slow-moving inventory were $7.3 million and $6.3 million at
December 31, 2006 and 2005, respectively. |
|
|
|
Property and Equipment |
|
|
|
The Company records its property and equipment at cost less accumulated depreciation. For
financial reporting purposes, the Company uses the straight-line method to compute
depreciation based upon estimated useful lives of five to fifteen years for flight equipment
and three to ten years for other equipment. The salvage value used in calculating
depreciation of aircraft ranges from 30% to 40%. The Company uses accelerated depreciation
methods for tax purposes. The cost of scheduled inspections and modifications for flight
equipment are charged to maintenance expense as incurred. Modifications that enhance the
operating performance or extend the useful lives of the aircraft are capitalized and
depreciated over the remaining life of the asset. Upon selling or otherwise disposing of
property and equipment, the Company removes the cost and accumulated depreciation from the
accounts and reflects any resulting gain or loss in earnings at the time of sale or other
disposition. |
|
|
|
Effective January 1, 2005 and prospectively, the Company reassessed the salvage values
applicable to major modifications to aircraft based on updated estimates derived from recent
aircraft sales. The adjustment for the year 2005 resulted in a decrease in depreciation
expense ($1.6 million). In addition, the Company incurred approximately $1.1 million of
expense in 2005 for repairs to an aircraft that incurred substantial damage due to a weather
related incident. |
|
|
|
The Company reviews its long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company measures recoverability of assets to be held
and used by comparing the carrying amount of an asset to future undiscounted net cash flows
that it expects the asset to generate. When an asset is determined to be impaired, the
Company recognizes that impairment amount, which is measured by the amount that the carrying
value of the asset exceeds its fair value. Similarly, the Company reports assets that it
expects to sell at the lower of the carrying amount or fair value less costs to sell. |
|
|
|
Self-Insurance |
|
|
|
The Company maintains a self-insurance program for a portion of its health care costs.
Self-insurance costs are accrued based upon the aggregate of the liability for reported
claims and the estimated liability for claims incurred but not reported. As of December 31,
2006 and 2005, the Company had $1.3 million and $1.1 million, respectively, of accrued
liabilities related to health care claims. |
|
|
|
During 2005, the Company established an offshore insurance captive to realize savings in
reinsurance costs on its insurance premiums. Amounts paid to the captive in 2006 and 2005
totaled $3.2 million and $1.9 million, respectively. The financial position and operations
of the insurance captive were not significant in 2006 nor 2005. The captive is fully
consolidated in the accompanying financial statements. |
|
|
|
Concentration of Credit Risk |
|
|
|
Financial instruments that potentially expose the Company to concentrations of credit risk
consist primarily of short-term investments and trade accounts receivable. Short-term
investments include auction rate securities and money market securities. The Company does
not believe significant credit risk exists with respect to these securities at December 31,
2006. |
|
|
|
PHI conducts a majority of its business with major and independent oil and gas exploration
and production companies with operations in the Gulf of Mexico. The Company also provides
services to major medical centers and US governmental agencies. The Company continually
evaluates the financial strength of its customers but generally does not require collateral
to support the customer receivables. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers, current
market conditions, and other information. Collection efforts are typically exhausted at
approximately nine months, at which time unpaid amounts are charged off as uncollectible.
The allowance for doubtful accounts was $0.1 million and $0.2 million at December 31, 2006
and December 31, 2005, |
33
respectively. The Companys largest domestic oil and gas customer accounted for 17%, 14%,
and 13%, of consolidated operating revenues for years ended December 31, 2006, 2005, and
2004, respectively. The Company also carried accounts receivable from this same customer
totaling 14% of net trade receivable on December 31, 2006 and 2005, respectively.
Trade receivables representing amounts due pursuant to air medical services are carried net
of an allowance for estimated contractual adjustments on unsettled invoices. The Company
monitors its collection experience by payor category within the Air Medical segment and
updates its estimated collections to be realized based on its most recent collection
experience.
Stock Compensation
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 123 (R),Share Based Payment. SFAS No. 123 (R)
supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in
SFAS No. 123 (R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123
(R) requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. As permitted by SFAS No. 123, prior to January 1,
2006, we accounted for share-based payments to employees using the intrinsic value method of
and, as such, generally recognized no compensation expense for employee stock options. In September 2001, the Company underwent a change of
control and as a result, all awards issued prior to the change of control became fully vested.
The Company has not issued any shares, options or rights under its stock plan since 2001.
As a result, no pro forma information
for 2005 and 2004 is necessary under SFAS 123. We
have adopted SFAS No. 123(R) effective January 1, 2006 using the modified-prospective
method. Under the modified-prospective method, the prior periods financial statements are
not restated. As no employee stock options were granted in the current period, the adoption
of SFAS No. 123 (R) had no impact on our results of operations for the year ended December
31, 2006. The impact on future periods will be dependent on levels of share based payments
granted in the future.
Stock-based employee compensation expense relates to restricted stock grants and stock
options that were settled for cash. The employee compensation expense for stock grants and
options settled for cash was $0 for 2006, $122,498 for 2005, and $45,000 for 2004. There
have been no stock awards granted since 2001.
Income Taxes
The Company provides for income taxes using the asset and liability method under which
deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. The deferred tax assets and
liabilities measurement uses enacted tax rates that are expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled.
The Company recognizes the effect of any tax rate changes in income of the period that
included the enactment date.
Earnings per Share
The Company computes basic earnings per share by dividing income available to common
stockholders by the weighted average number of common shares outstanding during the period.
The diluted earnings per share computation uses the weighted average number of shares
outstanding adjusted for incremental shares attributed to dilutive outstanding options to
purchase common stock.
Deferred Financing Costs
Costs of obtaining long term debt financing are deferred and amortized ratably over the term
of the related debt agreement.
Derivative Financial Instruments
The Company has not engaged in activities involving financial derivatives during the years
2004, 2005, and 2006.
34
New Accounting Pronouncements
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the
accounting and disclosure for uncertain tax positions, as defined. FIN 48 seeks to reduce
the diversity in practice associated with certain aspects of the recognition and measurement
related to accounting for income taxes. This interpretation is effective for fiscal years
beginning after December 15, 2006. The Company estimates the cumulative effect of adopting
FIN 48 to be immaterial to the consolidated financial statements.
In September 2006, FASB issued SFAS No. 157, Fair Value Measurements which defines fair
value, establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. This Statement is
effective for financial statements issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. Earlier application is encouraged provided
that the reporting entity has not yet issued financial statements for that fiscal year
including financial statements for an interim period within that fiscal year. The Company
is assessing SFAS No. 157 and has not determined yet the impact that the adoption of SFAS
No. 157 will have on its results of operations, financial position, or liquidity.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans An Amendment of FASB Statements No. 87, 88, 106
and 132(R) (SFAS No. 158). SFAS No. 158 requires the Company, as the sponsor of a plan, to
(a) recognize on its Balance Sheets as an asset a plans over-funded status or as a
liability such plans under-funded status, (b) measure a plans assets and obligations as of
the end of the Companys fiscal year and (c) recognize changes in the funded status of its
plans in the year in which changes occur through adjustments to other comprehensive income.
The Company adopted SFAS No. 158 as of December 31, 2006. The following table summarizes
the effect of the adjustments to record the adoption of SFAS No. 158 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
Before Adoption |
|
due to |
|
After Adoption of |
|
|
of SFAS No. 158 |
|
SFAS No. 158 |
|
SFAS No. 158 |
Other Long-Term Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations |
|
$ |
1,192 |
|
|
$ |
(129 |
) |
|
$ |
1,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
52 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
|
|
|
|
|
77 |
|
|
|
77 |
|
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, including an amendment of FASB Statements No. 115 (SFAS No.
159). SFAS No. 159 permits the Company to choose, at specified election dates, to measure
eligible items at fair value (the fair value option). The Company would report unrealized
gains and losses on items for which the fair value option has been elected in earnings at
each subsequent reporting period. This accounting standard is effective as of the beginning
of the first fiscal year that begins after November 15, 2007. The Company is assessing SFAS
No. 159 and has not determined yet the impact that the adoption of SFAS No. 159 will have on
its results of operations, financial position, or liquidity.
Comprehensive Income
Comprehensive Income includes net earnings and other comprehensive income items such as
revenues, expenses, gains or losses that under generally accepted accounting principles are
included in comprehensive income, but excluded from net income. Since 2002, the Company has
no such items required to be excluded from net earnings. Accordingly, there is no
difference between net earnings and comprehensive income for the years ended December 31,
2006, 2005, or 2004.
35
Goodwill
Goodwill represents costs in excess of the fair value acquired in connection with purchase
business combinations. Goodwill arose in connection with the acquisition of a company
related to the planned expansion of the Air Medical segment. In accordance with the
provisions of SFAS No. 142, Goodwill and Other Intangibles, the Company tests its goodwill
for impairment annually on January 1st or if impairment indicators are present.
The impairment evaluation for goodwill is performed by using a two-step process. In the
first step, the fair value of each reporting unit is compared with the carrying amount of
the reporting unit, including goodwill. The estimated fair value of the reporting unit is
generally determined on the basis of discounted future cash flows. If the estimated fair
value of the reporting unit is less than the carrying amount of the reporting unit, then a
second step must be completed in order to determine the amount of the goodwill impairment
that should be recorded. In the second step, the implied fair value of the reporting units
goodwill is determined by allocating the reporting units fair value to all of its assets
and liabilities other than goodwill (including any unrecognized intangible assets) in a
manner similar to a purchase price allocation. The resulting implied fair value of the
goodwill that results from the application of this second step is then compared to the
carrying amount of the goodwill and an impairment charge is recorded for the difference.
The Company performed the test at January 1st and determined that no impairment
charge for goodwill was required.
Restatement
The Company has determined that its auction rate securities were not properly classified in
its 2005 balance sheet. As a result the accompanying 2005 balance sheet has been restated
to classify $66.5 million from cash and cash equivalents to short-term investments-available
for sale. The Company has also made corresponding adjustments to its consolidated statements
of cash flows for 2005 and 2004 to reflect the gross purchases and sales of these securities
as investing activities rather than as a component of cash and cash equivalents. The
condensed financial information in Note 13 also reflects these adjustments. The Company had
historically classified these securities as cash equivalents based on managements likely
ability to liquidate its holdings during the predetermined interest rate reset auctions,
however, the definition of a cash equivalent in Statement of Financial Accounting Standards
(SFAS) No. 95, Statement of Cash Flows, requires the classification of these securities
as short-term investments. There was no impact on previously reported net earnings, cash
flows from operating activities or shareholders equity as a result of this restatement.
(2) |
|
PROPERTY AND EQUIPMENT |
The following table summarizes the Companys property and equipment at December 31, 2006 and
December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Thousands of dollars) |
|
Flight equipment |
|
$ |
480,934 |
|
|
$ |
416,076 |
|
Other |
|
|
74,638 |
|
|
|
67,645 |
|
|
|
|
|
|
|
|
|
|
|
555,572 |
|
|
|
483,721 |
|
Less accumulated depreciation |
|
|
(186,107 |
) |
|
|
(172,043 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
369,465 |
|
|
$ |
311,678 |
|
|
|
|
|
|
|
|
Property and equipment at December 31, 2005 included aircraft with a net book value of $1.1
million that was held for sale.
On April 12, 2006, the Company issued $200.0 million of 7.125% Senior Notes
that mature in 2013. These Notes were offered and sold in a private placement under Rule
144A and Regulation S under the Securities Act of 1933. Net proceeds of $196.0 million were
used to repurchase $184.8 million of our outstanding 9 3/8% Senior Notes due 2009 pursuant
to a tender offer that also closed on April 12, 2006. The total cost to repurchase those
notes was $201.6 million, including the tender offer premium and accrued interest. The
Company called for redemption on May 1, 2006, the remaining $15.2
36
million of 9 3/8% notes outstanding, at a redemption price of 104.688% of their face amount
plus accrued and unpaid interest. Interest on the 7.125% notes is payable semi-annually on
April 15 and October 15, and those notes mature April 15, 2013. The estimated annual
interest cost of the new notes is $14.3 million, excluding amortization of issuance costs,
which represents a reduction in annual interest cost on the notes of $4.5 million. As a
result of the early redemption of the 9 3/8% notes, a pretax charge of $12.8 million ($7.7
million, net of tax) was recorded as a charge for debt restructuring in the quarter ended
June 30, 2006, which consisted of $9.8 million for the early call premium, $2.6 million of
unamortized issuance costs, and $0.4 million in related expenses for the tender of
outstanding notes.
The new notes contain restrictive covenants, including limitations on indebtedness, liens,
dividends, repurchases of capital stock and other payments affecting restricted
subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of
asset sales, and mergers and consolidations or sales of assets. The Senior Notes are fully
and unconditionally guaranteed on a joint and several senior basis by all of the Companys
Guarantor Subsidiaries. See Note 13 of the Notes to Consolidated Financial Statements. We
were in compliance with the covenants applicable to these notes as of December 31, 2006.
The Company has a $35 million revolving credit facility with a commercial bank, which is
scheduled to expire on September 1, 2008. At December 31, 2006, the Company had $5.5
million in borrowings under the revolving credit facility, and the Company had $3.3 million
under the credit facility at December 31, 2005. The Company had five letters of credit for
$5.1 million outstanding at December 31, 2006, and four letters of credit for $4.2 million
outstanding at December 31, 2005. The credit agreement permits both prime rate based
borrowings and LIBOR rate borrowings plus a spread. The spread for LIBOR borrowings is
from 1.25% to 3.0%. The Company will pay an annual 0.25% commitment fee on the unused
portion of the revolving credit facility. The credit agreement includes covenants related
to working capital, funded debt to net worth, and consolidated net worth. As of December
31, 2006 and 2005, the Company was in compliance with these covenants. The credit agreement
is collateralized by accounts receivable and inventory. Also included in notes payable at
December 31, 2005 was $1.0 million, representing finance agreements on purchase commitments
for transport category aircraft as further described at Note 8.
Cash paid for interest was $16.5 million, $19.5 million, and $19.1 million, for the years
ended December 31, 2006, 2005, and 2004, respectively.
Income tax expense (benefit) is composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(Thousands of dollars) |
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
343 |
|
|
$ |
|
|
State |
|
|
|
|
|
|
(50 |
) |
|
|
(1,142 |
) |
Foreign |
|
|
1,175 |
|
|
|
1,371 |
|
|
|
1,077 |
|
Deferred principally Federal |
|
|
(1,588 |
) |
|
|
6,415 |
|
|
|
3,845 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(413 |
) |
|
$ |
8,079 |
|
|
$ |
3,780 |
|
|
|
|
|
|
|
|
|
|
|
37
Income tax expense (benefit) as a percentage of pre-tax earnings varies from the effective
Federal statutory rate of 34% as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, 2006 |
|
|
December 31, 2005 |
|
|
December 31, 2004 |
|
|
|
(Thousands of dollars, except percentage amounts) |
|
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
Income taxes at statutory rate |
|
$ |
(367 |
) |
|
|
(34 |
) |
|
$ |
7,559 |
|
|
|
34 |
|
|
$ |
2,636 |
|
|
|
34 |
|
Increase (decrease) in taxes
resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign tax expense,
net of U.S. benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
679 |
|
|
|
9 |
|
Hurricane relief credit |
|
|
|
|
|
|
|
|
|
|
(537 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
Effect of state income taxes |
|
|
(35 |
) |
|
|
(3 |
) |
|
|
762 |
|
|
|
3 |
|
|
|
298 |
|
|
|
4 |
|
Other items net |
|
|
(11 |
) |
|
|
(1 |
) |
|
|
295 |
|
|
|
1 |
|
|
|
167 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(413 |
) |
|
|
(38 |
) |
|
$ |
8,079 |
|
|
|
36 |
|
|
$ |
3,780 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2006 and 2005 are presented
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Deferred compensation |
|
$ |
1,644 |
|
|
$ |
1,652 |
|
Foreign tax credits |
|
|
5,792 |
|
|
|
4,617 |
|
Vacation accrual |
|
|
962 |
|
|
|
1,419 |
|
Inventory valuation |
|
|
3,355 |
|
|
|
3,549 |
|
Workmans compensation reserve |
|
|
323 |
|
|
|
190 |
|
Allowance for uncollectible accounts |
|
|
19 |
|
|
|
2,297 |
|
Alternative minimum tax credit |
|
|
343 |
|
|
|
343 |
|
Hurricane relief credit |
|
|
814 |
|
|
|
814 |
|
Other |
|
|
720 |
|
|
|
1,321 |
|
Net operating loss |
|
|
34,192 |
|
|
|
23,282 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
48,164 |
|
|
|
39,484 |
|
Valuation allowance tax credit carryforwards |
|
|
(2,142 |
) |
|
|
(2,142 |
) |
|
|
|
|
|
|
|
Total deferred tax assets, net |
|
|
46,022 |
|
|
|
37,342 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Tax depreciation in excess of book depreciation |
|
|
(74,326 |
) |
|
|
(68,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(74,326 |
) |
|
|
(68,167 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(28,304 |
) |
|
$ |
(30,825 |
) |
|
|
|
|
|
|
|
A valuation allowance was recorded against certain foreign tax credits paid in 2004 and
prior as management believes it is more likely than not that the deferred tax asset related
to certain foreign tax credit carryforwards will not be realized during their carryforward
period. The estimated future U.S. taxable income, after utilization of the available net
operating loss carryforwards, will limit the ability of the Company to utilize the foreign
tax credit carryforwards during their carryforward period. Due to recent changes in the tax
laws extending the credit carryforward period, management believes that a valuation
allowance is not necessary for foreign tax credits generated in 2006 and 2005. A tax credit
of $0.8 million was realized in 2005 as a result of Hurricanes Katrina and Rita Legislation.
At December 31, 2006 and 2005, other current assets include $4.5 million and $8.1 million,
respectively, of deferred tax assets.
The Company has net operating loss carryforwards (NOLs), of approximately $90.0 million
that, if not used will expire beginning in 2022 through 2026. Additionally, for state income
tax purposes, the Company has NOLs of approximately $72.0 million available to reduce future
state taxable income. These NOLs expire in varying amounts beginning in 2012 through 2026,
the majority of which expires in 2017 and through 2020. Most of these NOLs arose from
accelerated tax depreciation deductions related to substantial aircraft additions since
2002.
38
Income taxes paid were approximately $0.1 million, $0.1 million, and $0.7 million, for the
years ended December 31, 2006, 2005, and 2004, respectively. The Company received net
income tax refunds of approximately $0.3 million, $0.8 million and $0.5 million during the
years ended December 31, 2006, 2005 and 2004, respectively.
(5) |
|
EMPLOYEE BENEFIT PLANS |
Savings and Retirement Plans
The Company maintains an Employee Savings Plan under Section 401(k) of the Internal Revenue
Code. The Company matches 2% for every 1% of an employees salary deferral contribution,
not to exceed 3% of the employees compensation. The Company contributions were $6.2
million for the year ended December 31, 2006, $5.4 million for the year ended December 31,
2005 and $4.8 million for the year ended December 31, 2004.
The Company maintains a Supplemental Executive Retirement Plan (SERP). During January
2006, active employees were given a substitute benefit in the Officer Deferred Compensation
Plan based on a calculated present value participants interest in the SERP except for the
four remaining retired participants. As a result, approximately $2.0 million of the SERP
liability was transferred to the Deferred Compensation Liability in 2006.
As of December 31, 2006, the Company adopted SFAS No. 158 for its SERP plan. For additional
information relating to this accounting pronouncement and its impacts, see Note 1.
The Company recorded the following plan costs for the years ended December 31, 2006, 2005,
and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(Thousands of dollars) |
|
Service cost |
|
$ |
|
|
|
$ |
259 |
|
|
$ |
302 |
|
Interest cost |
|
|
64 |
|
|
|
124 |
|
|
|
111 |
|
Recognized actuarial (gain) loss |
|
|
62 |
|
|
|
53 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
Net periodic plan cost |
|
|
126 |
|
|
|
436 |
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
The benefit obligation, funded status, and assumptions of the plan on December 31, 2006 and
2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Thousands of dollars) |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation at the beginning of the year |
|
$ |
3,413 |
|
|
$ |
3,148 |
|
Service cost |
|
|
|
|
|
|
259 |
|
Interest cost |
|
|
64 |
|
|
|
124 |
|
Actuarial loss |
|
|
(18 |
) |
|
|
13 |
|
Benefits paid |
|
|
(384 |
) |
|
|
(131 |
) |
Transferred to deferred compensation |
|
|
(2,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at the end of the year |
|
|
1,063 |
|
|
|
3,413 |
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Thousands of dollars) |
|
Reconciliation of funded status |
|
|
|
|
|
|
|
|
Unfunded status |
|
|
(1,063 |
) |
|
|
(3,413 |
) |
Unrecognized actuarial gains |
|
|
|
|
|
|
(123 |
) |
|
|
|
|
|
|
|
Total liability included in other long term
liabilities on the consolidated balance sheet |
|
$ |
(1,063 |
) |
|
$ |
(3,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions |
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.8 |
% |
|
|
4.0 |
% |
Employee turnover/early retirement rate |
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income consists of approximately
$129,000 pre-tax in unrecognized actuarial gain in 2006.
The SERP plan is an unfunded arrangement. However, the Company has purchased life insurance
contracts on the lives of the participants in anticipation of using the life insurances
cash values and death benefits to help fulfill the obligations of the plan. The Company, as
owner of such policies, may sell or redeem the contracts at any time without any obligation
to the plan participants. The Company recorded expenses of approximately less than $0.1
million for 2006 and $0.5 million for each of the years 2005 and 2004 related to the life
insurance contracts. Cash values of the life insurance contracts, recorded in other assets,
are $0.4 million at December 31, 2006 and $0.9 million at December 31, 2005.
The Company maintains an Officer Deferred Compensation Plan that permits key officers to
defer a portion of their compensation. The plan is nonqualified and funded. The Company
has established a separate account for each participant, which is invested and reinvested
from time to time in investments that the participant selects from a list of eligible
investment choices. Earnings and losses on the book reserve accounts accrue to the plan
participants. Liabilities for the plan are included in other long-term liabilities, and the
corresponding investment accounts are included in other assets. Aggregate amounts deferred
under the plans were $3.4 million and $0.9 million, respectively, for the years December 31,
2006 and 2005.
Stock Based Compensation
Under the PHI 1995 Incentive Plan (the 1995 Plan), the Company is authorized to issue up
to 175,000 shares of voting common stock and 575,000 shares of non-voting common stock. The
Compensation Committee of the Board of Directors is authorized under the 1995 Plan to grant
stock options, restricted stock, stock appreciation rights, performance shares, stock
awards, and cash awards. The exercise prices of the stock option grants are equal to the
fair market value of the underlying stock at the date of grant. The 1995 Plan also allows
awards under the plan to fully vest upon a change in control of the Company. In September
of 2001, the Company underwent a change of control as defined in the 1995 plan and as a
result, all awards issued prior to the change of control became fully vested.
During the year ended December 31, 2001, the Company granted 20,000 non-voting restricted shares and 150,000 non-voting stock options under the 1995 Plan. The non-voting restricted shares had a fair value of $11.06 on the date of issue and became unrestricted during 2001.
The non-voting stock options are 100% vested and expire on September 1, 2010. Such options
were exercised in 2005. The Company has not issued any shares, options or rights under the
1995 Plan since 2001.
At December 31, 2006, there were 116,520 voting shares and 183,802 non-voting shares
available for issuance under the 1995 Plan. The Company recorded compensation expense
related to the 1995 Plan of $0 million for December 31, 2006, $0.2 million for December 31,
2005 and $0.1 million for the year ended December 31, 2004. There was no unearned stock
compensation expense at December 31, 2006 and 2005.
40
The following table summarizes employee and director stock option activities for the years
ended December 31, 2006, 2005, and 2004. All of the options were issued with an exercise
price equal to or greater than the market price of the stock at the time of issue.
|
|
|
|
|
|
|
|
|
|
|
1995 |
|
|
|
|
Plan |
|
|
|
|
Options |
|
Weighted |
|
|
Non- |
|
Average |
|
|
Voting |
|
Exercise Price |
Balance outstanding at
December 31, 2003 |
|
|
217,703 |
|
|
|
11.63 |
|
Options settled for cash |
|
|
(10,750 |
) |
|
|
12.75 |
|
|
|
|
|
|
|
|
|
|
Balance outstanding at
December 31, 2004 |
|
|
206,953 |
|
|
|
11.57 |
|
Options exercised |
|
|
(150,000 |
) |
|
|
11.06 |
|
Options settled for cash |
|
|
(10,203 |
) |
|
|
8.50 |
|
|
|
|
|
|
|
|
|
|
Balance outstanding at
December 31, 2005 |
|
|
46,750 |
|
|
|
13.87 |
|
Options exercised |
|
|
(8,500 |
) |
|
|
12.75 |
|
Options cancelled |
|
|
(500 |
) |
|
|
12.75 |
|
Balance outstanding at
December 31, 2006 |
|
|
37,750 |
|
|
|
14.14 |
|
|
|
|
|
|
|
|
|
|
Shares exercisable at
December 31, 2006 |
|
|
37,750 |
|
|
|
14.14 |
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
46,750 |
|
|
|
13.87 |
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
|
206,953 |
|
|
|
11.57 |
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options outstanding as of December 31, 2006.
All of the outstanding stock options are exercisable.
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable |
|
|
|
|
Remaining |
|
|
Number |
|
Contractual |
|
Exercise |
Outstanding |
|
Life (Years) |
|
Price |
|
22,750 |
|
|
|
2.5 |
|
|
$ |
12.75 |
|
|
15,000 |
|
|
|
1.8 |
|
|
|
16.25 |
|
|
|
|
|
|
|
|
|
|
|
37,750 |
|
|
|
2.4 |
(1) |
|
|
14.14 |
|
|
|
|
|
|
|
|
|
|
Incentive Compensation
During 2002, the Company implemented an incentive plan for non-executive and non-represented
employees. The plan allows the Company to pay up to 7% of earnings before tax, net of
incentive compensation. During 2004, the Company implemented an Executive/Senior Management
plan for certain corporate and business unit management employees. The Company did not
record incentive compensation expense for the year ended December 31, 2006 and 2004, as
certain requirements under the incentive plans established were not met. For 2005, the
Company recorded $2.3 million of incentive compensation expense related to the above plans.
41
The following table summarizes the Companys other assets at December 31, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Thousands of dollars) |
|
Goodwill acquired |
|
$ |
2,747 |
|
|
$ |
2,747 |
|
Security deposits on aircraft |
|
|
10,170 |
|
|
|
4,576 |
|
Deferred financing cost |
|
|
5,231 |
|
|
|
3,520 |
|
Investments |
|
|
3,298 |
|
|
|
910 |
|
Other |
|
|
2,370 |
|
|
|
1,513 |
|
|
|
|
|
|
|
|
Total |
|
$ |
23,816 |
|
|
$ |
13,266 |
|
|
|
|
|
|
|
|
During 2006 and 2005, the Company placed security deposits on aircraft to be leased or
purchased. Upon delivery of the aircraft, the deposits will be applied to the lease or
purchase.
(7) |
|
FINANCIAL INSTRUMENTS |
Fair Value The following table presents the carrying amounts and estimated fair values of
financial instruments held by the Company at December 31, 2006 and December 2005. The table
excludes cash and cash equivalents, short-term investments, accounts receivable, accounts
payable and accrued liabilities and term notes payable, all of which had fair values
approximating carrying amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
December 31, 2005 |
|
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
|
|
Amounts |
|
Fair Value |
|
Amounts |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
200,000 |
|
|
$ |
194,000 |
|
|
$ |
200,000 |
|
|
$ |
210,500 |
|
At December 31, 2006 and 2005, the fair value of long-term debt is based on quoted market
indications.
(8) |
|
COMMITMENTS AND CONTINGENCIES |
Operating Leases The Company leases certain aircraft, facilities, and equipment used in
its operations. The related lease agreements, which include both non-cancelable and
month-to-month terms, generally provide for fixed monthly rentals and, for certain real
estate leases, renewal options. The Company generally pays all insurance, taxes, and
maintenance expenses associated with these aircraft and some of these leases contain renewal
and purchase options. Rental expense incurred under these leases consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(Thousands of dollars) |
|
Aircraft |
|
$ |
15,663 |
|
|
$ |
5,817 |
|
|
$ |
748 |
|
Other |
|
|
5,174 |
|
|
|
5,167 |
|
|
|
3,906 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
20,837 |
|
|
$ |
10,984 |
|
|
$ |
4,654 |
|
|
|
|
|
|
|
|
|
|
|
The Company began leasing a principal operating facility at Lafayette, Louisiana for twenty
years, effective September 2001. The lease expires in 2021 and has three five-year renewal
options.
The following table presents the remaining aggregate lease commitments under operating lease
having initial non-cancelable terms in excess of one year. The table includes renewal
periods on the principal operating facility lease.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft |
|
|
Other |
|
|
Total |
|
|
|
(Thousands of dollars) |
|
2007 |
|
$ |
15,663 |
|
|
$ |
3,237 |
|
|
$ |
18,900 |
|
2008 |
|
|
15,663 |
|
|
|
2,652 |
|
|
|
18,315 |
|
2009 |
|
|
15,663 |
|
|
|
1,945 |
|
|
|
17,608 |
|
2010 |
|
|
16,265 |
|
|
|
1,664 |
|
|
|
17,929 |
|
2011 |
|
|
17,533 |
|
|
|
1,348 |
|
|
|
18,881 |
|
Thereafter |
|
|
76,303 |
|
|
|
10,353 |
|
|
|
86,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
157,090 |
|
|
$ |
21,199 |
|
|
$ |
178,289 |
|
|
|
|
|
|
|
|
|
|
|
The Company expects to finance the acquisition of new aircraft, discussed below, with
existing cash and cash equivalents, short-term investments, operating leases, the issuance
of debt or equity securities or some combination thereof.
In 2006, the Company took delivery of three transport category aircraft, eight medium
aircraft and nine light aircraft for service in the Domestic Oil and Gas segment. The
Company also took delivery of two light aircraft for service in the Air Medical segment.
Subsequent to December 31, 2006, the Company took delivery of four light aircraft for
service in Domestic Oil and Gas and one light aircraft for service in the Air Medical
segment.
At December 31, 2006, the Company had an order for two additional transport category
aircraft, which it intend to finance with an operating lease. The approximate cost for
these two aircraft is $37.2 million
At December 31, 2006, the Company also had orders for 34 additional aircraft with a total
cost of $144.6 million and scheduled delivery dates throughout 2007 and 2008. Of this
total, five aircraft totaling $16.7 million was delivered subsequent to December 31, 2006,
as mentioned above.
Environmental Matters The Company has an aggregate estimated liability of $0.2 million as
of December 31, 2006 and 2005 for environmental remediation costs that are probable and
estimable. The Company has conducted environmental surveys of our 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 monitor and report on the contamination. In May
2003, the Company 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. In April, 2006, the Site
Assessment was updated to include recent analytical data. LDEQ is reviewing the assessment
report. Once LDEQ completes its review and reports on whether all contamination has been
fully defined, a risk evaluation in accordance with RECAP will be submitted and evaluated by
LDEQ. At that point, LDEQ will establish what cleanup standards must be met at the site.
When the process is complete, the Company will be in a position to develop an appropriate
remediation plan and determine 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 our
consolidated financial position, results of operations, or liquidity.
During 2004, LDEQ advised PHI that groundwater contaminants impacting monitor wells at the
PHI Lafayette Heliport were originating from an off-site location and that the Company would
no longer be required to perform further monitoring at the site. Subsequently, based upon
site investigation work performed by the Lafayette Airport Commission, the source of the
contamination was identified as residing at another location, for which PHI is not
responsible. The Lafayette Airport Commission has begun remediation of the PHI Lafayette
Heliport.
43
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 liquidity.
As previously reported, on June 15, 2005, the Company received a subpoena from the United
States Department of Justice relating to a grand jury investigation of potential antitrust
violations among providers of helicopter transportation services in the Gulf of Mexico. The
Company is cooperating fully with the investigation and believe it has provided all
documents and other information required by the subpoena. The Company has not received any
further communications from the Department of Justice since shortly providing the requested
information. At this stage, it is not possible to assess the outcome of this investigation,
although based on the information available to us to date, management does not expect the
outcome of the investigation to have a material adverse effect on our financial condition,
results of operations, or liquidity.
Purchase Commitments At December 31, 2006, there were no purchase commitments other than
those described above, with respect to aircraft which the Company expects to fund with
existing cash and cash equivalents, short-term investments, execute operating leases, or
some combination thereof.
Employee Matters - On September 20, 2006, the pilots represented by the OPEIU (the Office
and Professional Employees International Union) commenced a general strike affecting both
the Domestic Oil and Gas and Air Medical segments. On November 10, the OPEIU made a
purported unconditional offer for the strikers to return to work and an end to strike
activities. On January 11, 2007, the Federal Court for
the Western District of Louisiana agreed to the Companys return-to-work criteria and
process for the remaining striking pilots, and the Company is committed to processing those
pilots back to work by April 29, 2007. Pilots are currently working under the terms and
conditions of employment set forth in the final implementation proposals made by the Company
at the end of collective bargaining negotiations on August 28, 2006.
Other issues surrounding PHIs allegations that the OPEIU engaged in bad faith bargaining,
as well as the OPEIUs counterclaims and claims arising out of the OPEIUs purported
unconditional off to return to work, remain outstanding and are expected to be addressed
by the same Federal Court. A trial on these matters is currently set to start on November
7, 2007. It is not possible to assess the outcome of the remaining claims and
counterclaims.
(9) |
|
BUSINESS SEGMENTS AND GEOGRAPHIC AREAS |
PHI is primarily a provider of helicopter services, including helicopter maintenance and
repair services. The Company has used a combination of factors to identify its reportable
segments as required by Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information (SFAS 131). The overriding
determination of the Companys segments is based on how the chief operating decision-maker
of the Company evaluates the Companys 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 the Company performs. The Company
identifies four segments that meet the requirements of SFAS 131 for disclosure. The
reportable segments are Domestic Oil and Gas, Air Medical, International, and Technical
Services.
The Domestic Oil and Gas segment provides helicopter services to oil and gas customers
operating in the Gulf of Mexico. The International segment provides helicopters in various
foreign countries to oil and gas customers. The Air Medical segment provides helicopter
services to hospitals and medical programs in several U.S. states, and also to individuals
under which the Company is paid by either a commercial insurance company, federal or state
agency, or the patient. The Companys Air Evac subsidiary is included in the Air Medical
segment. The Technical Services segment provides helicopter repair and overhaul services
for existing flight operations customers.
44
The Companys largest customer, who is a customer in the Domestic Oil and Gas segment,
accounted for 17% ($72.2 million), 14% ($50.5 million), and 13% ($37.8 million) of operating
revenues for the years ended December 31, 2006, 2005, and 2004, respectively.
The following table shows information about the profit or loss and assets of each of the
Companys reportable segments for the years ended December 31, 2006, 2005, and 2004. The
information contains certain allocations, including allocations of depreciation, rents,
insurance, and overhead expenses that the Company deems reasonable and appropriate for the
evaluation of results of operations. The Company does not allocate gains on dispositions of
property and equipment, other income, interest expense, and corporate selling, general, and
administrative costs to the segments. Where applicable, the tables present the unallocated
amounts to reconcile the totals to the Companys consolidated financial statements. Segment
assets are determined by where they are situated at period-end. Corporate assets are
principally cash and cash equivalents, short-term investments, other assets, and certain
property, plant, and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(Thousands of dollars) |
|
Segment operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
$ |
248,035 |
|
|
$ |
219,644 |
|
|
$ |
180,102 |
|
Air Medical |
|
|
133,397 |
|
|
|
112,123 |
|
|
|
77,476 |
|
International |
|
|
25,588 |
|
|
|
28,192 |
|
|
|
24,342 |
|
Technical Services |
|
|
6,098 |
|
|
|
3,651 |
|
|
|
9,388 |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
413,118 |
|
|
|
363,610 |
|
|
|
291,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment direct expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
213,279 |
|
|
|
173,177 |
|
|
|
151,107 |
|
Air Medical |
|
|
130,412 |
|
|
|
104,465 |
|
|
|
67,664 |
|
International |
|
|
18,456 |
|
|
|
19,099 |
|
|
|
18,668 |
|
Technical Services |
|
|
4,125 |
|
|
|
2,522 |
|
|
|
7,935 |
|
|
|
|
|
|
|
|
|
|
|
Total direct expense |
|
|
366,272 |
|
|
|
299,263 |
|
|
|
245,374 |
|
|
|
|
|
|
|
|
|
|
|
Segment selling, general and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
1,010 |
|
|
|
1,003 |
|
|
|
1,499 |
|
Air Medical |
|
|
7,384 |
|
|
|
6,503 |
|
|
|
6,525 |
|
International |
|
|
96 |
|
|
|
214 |
|
|
|
49 |
|
Technical Services |
|
|
82 |
|
|
|
7 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expense |
|
|
8,572 |
|
|
|
7,727 |
|
|
|
8,085 |
|
|
|
|
|
|
|
|
|
|
|
Total direct and selling, general and administrative
expense |
|
|
374,844 |
|
|
|
306,990 |
|
|
|
253,459 |
|
|
|
|
|
|
|
|
|
|
|
Net segment profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
|
33,746 |
|
|
|
45,464 |
|
|
|
27,496 |
|
Air Medical |
|
|
(4,399 |
) |
|
|
1,155 |
|
|
|
3,287 |
|
International |
|
|
7,036 |
|
|
|
8,879 |
|
|
|
5,625 |
|
Technical Services |
|
|
1,891 |
|
|
|
1,122 |
|
|
|
1,441 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
38,274 |
|
|
|
56,620 |
|
|
|
37,849 |
|
|
|
|
|
|
|
|
|
|
|
Other, net (1) |
|
|
9,946 |
|
|
|
3,230 |
|
|
|
2,961 |
|
Unallocated selling, general and administrative costs |
|
|
(19,267 |
) |
|
|
(17,169 |
) |
|
|
(12,949 |
) |
Interest expense |
|
|
(17,243 |
) |
|
|
(20,448 |
) |
|
|
(20,109 |
) |
Loss on debt restructuring |
|
|
(12,790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
$ |
(1,080 |
) |
|
$ |
22,233 |
|
|
$ |
7,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including gains on disposition of property and equipment and other income. |
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(Thousands of dollars) |
|
Expenditures for long lived
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
$ |
107,896 |
|
|
$ |
55,876 |
|
|
$ |
7,614 |
|
Air Medical |
|
|
14,446 |
|
|
|
39,361 |
|
|
|
18,071 |
|
International |
|
|
136 |
|
|
|
284 |
|
|
|
198 |
|
Corporate |
|
|
775 |
|
|
|
644 |
|
|
|
8,038 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
123,253 |
|
|
$ |
96,165 |
|
|
$ |
33,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(Thousands of dollars) |
|
Depreciation and
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
$ |
15,939 |
|
|
$ |
15,829 |
|
|
$ |
18,342 |
|
Air Medical |
|
|
8,634 |
|
|
|
6,023 |
|
|
|
4,992 |
|
International |
|
|
1,443 |
|
|
|
1,236 |
|
|
|
1,587 |
|
Technical Services |
|
|
|
|
|
|
|
|
|
|
42 |
|
Corporate |
|
|
4,281 |
|
|
|
4,045 |
|
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
30,297 |
|
|
$ |
27,133 |
|
|
$ |
27,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas |
|
$ |
289,349 |
|
|
$ |
247,657 |
|
|
$ |
227,929 |
|
Air Medical |
|
|
166,367 |
|
|
|
137,911 |
|
|
|
89,722 |
|
International |
|
|
15,170 |
|
|
|
13,560 |
|
|
|
12,289 |
|
Corporate |
|
|
230,084 |
|
|
|
150,081 |
|
|
|
64,233 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
700,970 |
|
|
$ |
549,209 |
|
|
$ |
394,173 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys revenues from external customers attributed to
operations in the United States and foreign areas and long-lived assets in the United States and
foreign areas.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(Thousands of dollars) |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
387,530 |
|
|
$ |
335,418 |
|
|
$ |
266,966 |
|
International |
|
|
25,588 |
|
|
|
28,192 |
|
|
|
24,342 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
413,118 |
|
|
$ |
363,610 |
|
|
$ |
291,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
362,527 |
|
|
$ |
303,924 |
|
|
$ |
246,819 |
|
International |
|
|
6,938 |
|
|
|
7,754 |
|
|
|
6,422 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
369,465 |
|
|
$ |
311,678 |
|
|
$ |
253,241 |
|
|
|
|
|
|
|
|
|
|
|
(10) |
|
EFFECTS OF HURRICANES |
At December 31, 2005, the Company recognized a loss from Hurricane Katrina on August 29,
2005 and Hurricane Rita on September 24, 2005 of approximately $5.6 million consisting of
write-off of inventory and other tangible assets of $2.5 million, incremental repair costs
and costs to relocate operations from damaged or destroyed bases of $3.1 million. These
losses were offset by insurance recoveries of $5.6
46
million at December 31, 2005, of which $2.7 million was reflected as receivable from the
insurance carriers in accounts receivable, other at December 31, 2005. In 2006, the Company
incurred additional repair costs and costs related to relocation of operations from damaged
or destroyed bases, of $3.0 million. This loss was offset by insurance recoveries of $3.0
million in 2006. The Company received proceeds from insurance carriers totaling $8.6
million, of which $2.9 million and $5.7 million was received in 2005 and 2006, respectively.
(11) |
|
QUARTERLY FINANCIAL DATA (UNAUDITED) |
The summarized quarterly results of operations for the years ended December 31, 2006 and
December 31, 2005 (in thousands of dollars, except per share data) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2006 |
|
|
2006 |
|
|
2006 |
|
|
|
(Thousands of dollars, except per share data) |
|
Operating revenues |
|
$ |
101,372 |
|
|
$ |
107,157 |
|
|
$ |
109,315 |
|
|
$ |
95,274 |
|
Gross profit |
|
|
14,317 |
|
|
|
17,946 |
|
|
|
16,091 |
|
|
|
(1,508 |
) |
Net earnings (loss) |
|
|
2,225 |
|
|
|
(2,755 |
) |
|
|
5,122 |
|
|
|
(5,259 |
) |
Net earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.21 |
|
|
|
(0.19 |
) |
|
|
0.34 |
|
|
|
(0.34 |
) |
Diluted |
|
|
0.21 |
|
|
|
(0.19 |
) |
|
|
0.33 |
|
|
|
(0.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
|
2005 |
|
2005 |
|
2005 |
|
2005 |
|
|
(Thousands of dollars, except per share data) |
Operating revenues |
|
$ |
74,239 |
|
|
$ |
86,783 |
|
|
$ |
100,018 |
|
|
$ |
102,570 |
|
Gross profit |
|
|
10,203 |
|
|
|
13,887 |
|
|
|
19,834 |
|
|
|
20,422 |
|
Net earnings |
|
|
359 |
|
|
|
1,961 |
|
|
|
5,460 |
|
|
|
6,374 |
|
Net earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.07 |
|
|
|
0.32 |
|
|
|
0.53 |
|
|
|
0.62 |
|
Diluted |
|
|
0.07 |
|
|
|
0.31 |
|
|
|
0.53 |
|
|
|
0.62 |
|
(12) |
|
SHAREHOLDERS EQUITY |
On April 12, 2006, the Company completed the sale of 4,287,920 non-voting common shares at
$35.00 per share and on May 1, 2006, the Company completed the sale of the over-allotment of
578,680 shares also at $35.00 per share. Proceeds from the offering were $160.7 million,
net of expenses.
The Company had an average of 13.9 million common shares outstanding for the period ended
December 31, 2006, compared to an average of 8.0 million shares for the period ended
December 31, 2005. The increase was the result of the equity offerings in April 2006 and
June 2005.
(13) |
|
CONDENSED FINANCIAL INFORMATION GUARANTOR ENTITIES |
On April 12, 2006, the Company issued $200 million of 7.125% Senior Notes due 2013 and
retired $184.8 million of 9 3/8% Series B Senior Notes due 2009. On May 1, 2006, the
Company redeemed the remaining $15.2 million 9 3/8% Series B Senior Notes.
The 7.125% Senior Notes are fully and unconditionally guaranteed on a joint and several,
senior basis by all of the Companys Guarantor Subsidiaries.
47
The following condensed financial information sets forth, on a consolidating 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.
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
385 |
|
|
$ |
435 |
|
|
$ |
|
|
|
$ |
820 |
|
Short-term investments |
|
|
153,414 |
|
|
|
|
|
|
|
|
|
|
|
153,414 |
|
Accounts receivable net of allowance |
|
|
75,642 |
|
|
|
13,652 |
|
|
|
|
|
|
|
89,294 |
|
Inventories of spare parts and supplies |
|
|
55,596 |
|
|
|
|
|
|
|
|
|
|
|
55,596 |
|
Other current assets |
|
|
7,922 |
|
|
|
8 |
|
|
|
|
|
|
|
7,930 |
|
Refundable income taxes |
|
|
44 |
|
|
|
591 |
|
|
|
|
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
293,003 |
|
|
|
14,686 |
|
|
|
|
|
|
|
307,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries |
|
|
46,226 |
|
|
|
|
|
|
|
(46,226 |
) |
|
|
|
|
Intercompany receivable |
|
|
|
|
|
|
44,085 |
|
|
|
(44,085 |
) |
|
|
|
|
Other assets |
|
|
23,759 |
|
|
|
57 |
|
|
|
|
|
|
|
23,816 |
|
Property and equipment, net |
|
|
361,570 |
|
|
|
7,895 |
|
|
|
|
|
|
|
369,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
724,558 |
|
|
$ |
66,723 |
|
|
$ |
(90,311 |
) |
|
$ |
700,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
46,653 |
|
|
$ |
4,354 |
|
|
$ |
|
|
|
$ |
51,007 |
|
Intercompany payable |
|
|
44,085 |
|
|
|
|
|
|
|
(44,085 |
) |
|
|
|
|
Accrued vacation payable |
|
|
2,295 |
|
|
|
288 |
|
|
|
|
|
|
|
2,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
93,033 |
|
|
|
4,642 |
|
|
|
(44,085 |
) |
|
|
53,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
205,500 |
|
|
|
|
|
|
|
|
|
|
|
205,500 |
|
Deferred income taxes and other long-term
liabilities |
|
|
25,900 |
|
|
|
15,855 |
|
|
|
|
|
|
|
41,755 |
|
Shareholders Equity
Paid-in capital |
|
|
292,222 |
|
|
|
4,402 |
|
|
|
(4,402 |
) |
|
|
292,222 |
|
Accumulated other comprehensive
income |
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
77 |
|
Retained earnings |
|
|
107,826 |
|
|
|
41,824 |
|
|
|
(41,824 |
) |
|
|
107,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
400,125 |
|
|
|
46,226 |
|
|
|
(46,226 |
) |
|
|
400,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
724,558 |
|
|
$ |
66,723 |
|
|
$ |
(90,311 |
) |
|
$ |
700,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
48
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,577 |
|
|
$ |
459 |
|
|
$ |
|
|
|
$ |
3,036 |
|
Short-term investments |
|
|
66,525 |
|
|
|
|
|
|
|
|
|
|
|
66,525 |
|
Accounts receivable net of allowance |
|
|
81,881 |
|
|
|
14,236 |
|
|
|
|
|
|
|
96,117 |
|
Inventories of spare parts and supplies |
|
|
48,123 |
|
|
|
|
|
|
|
|
|
|
|
48,123 |
|
Other current assets |
|
|
9,978 |
|
|
|
64 |
|
|
|
|
|
|
|
10,042 |
|
Refundable income taxes |
|
|
(61 |
) |
|
|
483 |
|
|
|
|
|
|
|
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
209,023 |
|
|
|
15,242 |
|
|
|
|
|
|
|
224,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries |
|
|
38,700 |
|
|
|
|
|
|
|
(38,700 |
) |
|
|
|
|
Intercompany receivable |
|
|
|
|
|
|
39,867 |
|
|
|
(39,867 |
) |
|
|
|
|
Other assets |
|
|
13,253 |
|
|
|
13 |
|
|
|
|
|
|
|
13,266 |
|
Property and equipment, net |
|
|
303,421 |
|
|
|
8,257 |
|
|
|
|
|
|
|
311,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
564,397 |
|
|
$ |
63,379 |
|
|
$ |
(78,567 |
) |
|
$ |
549,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
46,322 |
|
|
$ |
10,605 |
|
|
$ |
|
|
|
$ |
56,927 |
|
Intercompany payable |
|
|
39,867 |
|
|
|
|
|
|
|
(39,867 |
) |
|
|
|
|
Accrued vacation payable |
|
|
3,522 |
|
|
|
289 |
|
|
|
|
|
|
|
3,811 |
|
Notes payable |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
90,711 |
|
|
|
10,894 |
|
|
|
(39,867 |
) |
|
|
61,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
203,300 |
|
|
|
|
|
|
|
|
|
|
|
203,300 |
|
Deferred income taxes and other long-term
liabilities |
|
|
31,335 |
|
|
|
13,785 |
|
|
|
|
|
|
|
45,120 |
|
Shareholders Equity
Paid-in capital |
|
|
130,558 |
|
|
|
4,402 |
|
|
|
(4,402 |
) |
|
|
130,558 |
|
Retained earnings |
|
|
108,493 |
|
|
|
34,298 |
|
|
|
(34,298 |
) |
|
|
108,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
239,051 |
|
|
|
38,700 |
|
|
|
(38,700 |
) |
|
|
239,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
564,397 |
|
|
$ |
63,379 |
|
|
$ |
(78,567 |
) |
|
$ |
549,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2006 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenues |
|
$ |
357,355 |
|
|
$ |
55,763 |
|
|
$ |
|
|
|
$ |
413,118 |
|
Management fees |
|
|
2,231 |
|
|
|
|
|
|
|
(2,231 |
) |
|
|
|
|
Gain on dispositions of property and
equipment, net |
|
|
1,910 |
|
|
|
|
|
|
|
|
|
|
|
1,910 |
|
Other |
|
|
8,016 |
|
|
|
20 |
|
|
|
|
|
|
|
8,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
369,512 |
|
|
|
55,783 |
|
|
|
(2,231 |
) |
|
|
423,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
325,115 |
|
|
|
41,157 |
|
|
|
|
|
|
|
366,272 |
|
Management fees |
|
|
|
|
|
|
2,231 |
|
|
|
(2,231 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
25,106 |
|
|
|
2,733 |
|
|
|
|
|
|
|
27,839 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(7,592 |
) |
|
|
|
|
|
|
7,592 |
|
|
|
|
|
Interest expense |
|
|
17,243 |
|
|
|
|
|
|
|
|
|
|
|
17,243 |
|
Loss on debt restructuring |
|
|
12,790 |
|
|
|
|
|
|
|
|
|
|
|
12,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
372,662 |
|
|
|
46,121 |
|
|
|
5,361 |
|
|
|
424,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
|
(3,150 |
) |
|
|
9,662 |
|
|
|
(7,592 |
) |
|
|
(1,080 |
) |
Income taxes |
|
|
(2,483 |
) |
|
|
2,070 |
|
|
|
|
|
|
|
(413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(667 |
) |
|
$ |
7,592 |
|
|
$ |
(7,592 |
) |
|
$ |
(667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenues |
|
$ |
310,868 |
|
|
$ |
52,742 |
|
|
$ |
|
|
|
$ |
363,610 |
|
Management fees |
|
|
1,485 |
|
|
|
|
|
|
|
(1,485 |
) |
|
|
|
|
Gain on dispositions of property and
equipment, net |
|
|
1,173 |
|
|
|
|
|
|
|
|
|
|
|
1,173 |
|
Other |
|
|
1,988 |
|
|
|
69 |
|
|
|
|
|
|
|
2,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315,514 |
|
|
|
52,811 |
|
|
|
(1,485 |
) |
|
|
366,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
263,861 |
|
|
|
35,402 |
|
|
|
|
|
|
|
299,263 |
|
Management fees |
|
|
|
|
|
|
1,485 |
|
|
|
(1,485 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
22,110 |
|
|
|
2,786 |
|
|
|
|
|
|
|
24,896 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(8,921 |
) |
|
|
|
|
|
|
8,921 |
|
|
|
|
|
Interest expense |
|
|
20,448 |
|
|
|
|
|
|
|
|
|
|
|
20,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297,498 |
|
|
|
39,673 |
|
|
|
7,436 |
|
|
|
344,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
18,016 |
|
|
|
13,138 |
|
|
|
(8,921 |
) |
|
|
22,233 |
|
Income taxes |
|
|
3,862 |
|
|
|
4,217 |
|
|
|
|
|
|
|
8,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
14,154 |
|
|
$ |
8,921 |
|
|
$ |
(8,921 |
) |
|
$ |
14,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
50
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2004 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenues |
|
$ |
244,230 |
|
|
$ |
47,078 |
|
|
$ |
|
|
|
$ |
291,308 |
|
Management fees |
|
|
4,943 |
|
|
|
|
|
|
|
(4,943 |
) |
|
|
|
|
Gain on dispositions of property and
equipment, net |
|
|
2,575 |
|
|
|
(6 |
) |
|
|
|
|
|
|
2,569 |
|
Other |
|
|
373 |
|
|
|
19 |
|
|
|
|
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252,121 |
|
|
|
47,091 |
|
|
|
(4,943 |
) |
|
|
294,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
217,072 |
|
|
|
28,302 |
|
|
|
|
|
|
|
245,374 |
|
Management fees |
|
|
|
|
|
|
4,943 |
|
|
|
(4,943 |
) |
|
|
|
|
Selling, general, and administrative |
|
|
17,354 |
|
|
|
3,680 |
|
|
|
|
|
|
|
21,034 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(7,398 |
) |
|
|
|
|
|
|
7,398 |
|
|
|
|
|
Interest expense |
|
|
20,109 |
|
|
|
|
|
|
|
|
|
|
|
20,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247,137 |
|
|
|
36,925 |
|
|
|
2,455 |
|
|
|
286,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
4,984 |
|
|
|
10,166 |
|
|
|
(7,398 |
) |
|
|
7,752 |
|
Income taxes |
|
|
1,012 |
|
|
|
2,768 |
|
|
|
|
|
|
|
3,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
3,972 |
|
|
$ |
7,398 |
|
|
$ |
(7,398 |
) |
|
$ |
3,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2006 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by operating activities |
|
$ |
30,142 |
|
|
$ |
182 |
|
|
$ |
|
|
|
$ |
30,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(123,047 |
) |
|
|
(206 |
) |
|
|
|
|
|
|
(123,253 |
) |
Proceeds from asset dispositions |
|
|
36,809 |
|
|
|
|
|
|
|
|
|
|
|
36,809 |
|
Purchase (sale) of short-term investments |
|
|
(86,889 |
) |
|
|
|
|
|
|
|
|
|
|
(86,889 |
) |
Other |
|
|
(5,595 |
) |
|
|
|
|
|
|
|
|
|
|
(5,595 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(178,722 |
) |
|
|
(206 |
) |
|
|
|
|
|
|
(178,928 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds of debt issuance Senior Notes |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
Premium and costs to retire debt early |
|
|
(10,208 |
) |
|
|
|
|
|
|
|
|
|
|
(10,208 |
) |
Repayment of Senior Notes |
|
|
(200,000 |
) |
|
|
|
|
|
|
|
|
|
|
(200,000 |
) |
Debt issuance costs |
|
|
(4,857 |
) |
|
|
|
|
|
|
|
|
|
|
(4,857 |
) |
Payments on long-term debt |
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
|
|
(1,000 |
) |
Proceeds (payments) line of credit, net |
|
|
2,200 |
|
|
|
|
|
|
|
|
|
|
|
2,200 |
|
Proceeds from stock issuance, net |
|
|
160,722 |
|
|
|
|
|
|
|
|
|
|
|
160,722 |
|
Other |
|
|
(469 |
) |
|
|
|
|
|
|
|
|
|
|
(469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
146,388 |
|
|
|
|
|
|
|
|
|
|
|
146,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
(2,192 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
(2,216 |
) |
Cash and cash equivalents, beginning of
period |
|
|
2,577 |
|
|
|
459 |
|
|
|
|
|
|
|
3,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
385 |
|
|
$ |
435 |
|
|
$ |
|
|
|
$ |
820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
52
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
27,864 |
|
|
$ |
156 |
|
|
$ |
|
|
|
$ |
28,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(96,161 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(96,165 |
) |
Proceeds from asset dispositions |
|
|
10,751 |
|
|
|
|
|
|
|
|
|
|
|
10,751 |
|
Purchase (sale) of short-term investments |
|
|
(52,050 |
) |
|
|
|
|
|
|
|
|
|
|
(52,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(137,460 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(137,464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from (payment of) long-term
debt, net |
|
|
(5,975 |
) |
|
|
|
|
|
|
|
|
|
|
(5,975 |
) |
Proceeds from exercise of stock options |
|
|
1,025 |
|
|
|
|
|
|
|
|
|
|
|
1,025 |
|
Proceeds from stock issuance, net |
|
|
113,897 |
|
|
|
|
|
|
|
|
|
|
|
113,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
108,947 |
|
|
|
|
|
|
|
|
|
|
|
108,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
(649 |
) |
|
|
152 |
|
|
|
|
|
|
|
(497 |
) |
Cash and cash equivalents, beginning of
period |
|
|
3,226 |
|
|
|
307 |
|
|
|
|
|
|
|
3,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
2,577 |
|
|
$ |
459 |
|
|
$ |
|
|
|
$ |
3,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2004 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
10,644 |
|
|
$ |
261 |
|
|
$ |
|
|
|
$ |
10,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of additional operating
locations |
|
|
(1,518 |
) |
|
|
|
|
|
|
|
|
|
|
(1,518 |
) |
Purchase of property and equipment |
|
|
(33,916 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(33,921 |
) |
Proceeds from asset dispositions |
|
|
14,395 |
|
|
|
|
|
|
|
|
|
|
|
14,395 |
|
Purchase (sale) of short-term investments |
|
|
2,450 |
|
|
|
|
|
|
|
|
|
|
|
2,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(18,589 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(18,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt, net |
|
|
8,275 |
|
|
|
|
|
|
|
|
|
|
|
8,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
8,275 |
|
|
|
|
|
|
|
|
|
|
|
8,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
|
330 |
|
|
|
256 |
|
|
|
|
|
|
|
586 |
|
Cash and cash equivalents, beginning of
period |
|
|
2,896 |
|
|
|
51 |
|
|
|
|
|
|
|
2,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
3,226 |
|
|
$ |
307 |
|
|
$ |
|
|
|
$ |
3,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES |
None.
|
|
|
ITEM 9.A. |
|
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of
the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange Act)) as of the end of the period
covered by this report (the Evaluation Date). Based on such evaluation, such officers have
concluded that, as of the Evaluation Date, our disclosure controls and procedures are
effective in ensuring that the information required to be included in reports we file or
submit to the SEC under the Exchange Act is recorded, processed, and summarized to timely
alert them to material information relating to us, including our consolidated subsidiaries.
During the last quarter, there have not been any changes in our internal controls that
materially affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.
Managements Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control
over financial reporting. Our internal control system was designed to provide reasonable
assurance to our management and board of directors regarding the reliability of financial
reporting and preparation of financial statements for external purposes in accordance with
generally accepted accounted principles.
Our management assessed the effectiveness of our internal control over financial reporting
as of December 31, 2006. In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment our management believes that, as of
December 31, 2006, our internal control over financial reporting is effective under those
criteria.
Deloitte & Touche LLP, our independent registered public accounting firm, has issued an
attestation report on our managements assessment of the Companys internal control over
financial reporting as of December 31, 2006. This report appears below.
54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
PHI, Inc.
Lafayette, Louisiana
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control over Financial Reporting (Item 9A), that PHI, Inc. and subsidiaries (the
Company) maintained effective internal control over financial reporting as of December 31,
2006, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Companys management
is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, evaluating managements
assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or
persons performing similar functions, and effected by the companys board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the companys assets
that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal
control over financial reporting as of December 31, 2006, is fairly stated, in all material
respects, based on the criteria established in Internal ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our
opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2006, based on the criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and financial
statement schedule as of and for the year ended December 31, 2006 of the Company and our
report dated March 16, 2007, expressed an unqualified opinion on those financial statements
and financial statement schedule.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 16, 2007
55
ITEM 9.B. OTHER INFORMATION
Not Applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information concerning directors and executive officers required by this item will be
included in our definitive information statement in connection with our 2007 Annual Meeting
of Shareholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will be included in our definitive information
statement in connection with our 2007 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item will be included in our definitive information
statement in connection with our 2007 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this item will be included in our definitive information
statement in connection with our 2007 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this item will be included in our definitive information
statement in connection with our 2007 Annual Meeting of Shareholders and is incorporated
herein by reference.
56
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page |
1. |
|
Financial Statements |
|
|
|
|
|
|
Included in Part II of this report: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
27 |
|
|
|
|
|
Consolidated Balance Sheets December 31, 2006 and December 31, 2005.
|
|
|
28 |
|
|
|
|
|
Consolidated Statements of Operations for the years ended December 31, 2006,
December 31, 2005, and December 31, 2004.
|
|
|
29 |
|
|
|
|
|
Consolidated Statements of Shareholders Equity for the years ended
December 31, 2006,
December 31, 2005, and December 31, 2004.
|
|
|
30 |
|
|
|
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2006,
December 31 2005, and December 31, 2004.
|
|
|
31 |
|
|
|
|
|
Notes to Consolidated Financial Statements.
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
2. |
|
Financial Statement Schedules |
|
|
|
|
|
|
|
|
Schedule II Valuation and Qualifying accounts for the years ended
December 31, 2006,
December 31, 2005 and December 31, 2004.
|
|
|
59 |
|
3. Exhibits
|
|
|
|
|
3 |
|
Articles of Incorporation and By-laws |
|
|
|
|
|
3.1
|
|
(i)
|
|
Amended and Restated Articles of
Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1(i) to PHIs
Report on Form 10-Q for the quarterly period
ended June 30, 2006). |
|
|
|
|
|
|
|
(ii)
|
|
Articles of Amendment to Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to PHIs Report on Form 8-K
filed January 3, 2006). |
|
|
|
|
|
|
|
(iii)
|
|
Amended and Restated By-laws of the Company (As amended
through May 1, 2002). |
|
|
|
4
|
|
Instruments defining the rights of security holders, including indentures. |
|
|
|
4.1
|
|
Loan Agreement dated as of April 23, 2002 by and among PHI, Inc., Acadian
Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International
Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to
Exhibit 10.3 to PHIs Report on Form 10-Q for the quarterly period ended June 30,
2002). |
|
|
|
4.2
|
|
1st Amendment to Loan Agreement dated as of April 23, 2002 by and
among PHI, Inc. Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive
Inc., and International Helicopter Transport, Inc. and Whitney National Bank
(incorporated by reference to Exhibit 10.4 to PHIs Report on Form 10-Q for the
quarterly period ended June 30, 2004). |
|
|
|
4.3
|
|
Form of Senior Debt Indenture (incorporated by reference to Exhibit 4.5 to
PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No. 333-123528) |
|
|
|
4.4
|
|
Form of Subordinated Debt Indenture (incorporated by reference to Exhibit 4.6
to PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No.
333-123528) |
|
|
|
4.5
|
|
First Supplemental Indenture dated April 12, 2006, among PHI, Inc., the
Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 10.1 to PHIs Report on Form 8-K filed on April 13, 2006). |
|
|
|
57
|
|
|
|
|
|
4.6
|
|
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). |
|
|
|
4.7
|
|
Third Amendment to Loan Agreement dated April 12, 2006 by and among PHI, Inc.,
Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.),
and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 8-K filed on April 13, 2006). |
|
|
|
10
|
|
Material Contracts |
|
|
|
10.2
|
|
The Amended and Restated PHI, Inc. 401 (k) Retirement Plan effective January 1,
2006. |
|
|
|
10.3
|
|
Amended and Restated PHI, Inc. 1995 Incentive Compensation Plan adopted by
PHIs Board effective July 11, 1995 and approved by the shareholders of PHI on
September 22, 1995. |
|
|
|
10.4
|
|
Form of Non-Qualified Stock Option Agreement under the PHI, Inc. 1995 Incentive
Compensation Plan between PHI and certain of its key employees. |
|
|
|
10.5
|
|
Officer Deferred Compensation Plan II adopted by PHIs Board effective January
1, 2005. |
|
|
|
10.6
|
|
Articles of Agreement Between PHI, Inc. & Office & Professional Employees
International Union and its Local 108 dated June 13, 2001. |
|
|
|
21
|
|
Subsidiaries of the Registrant |
|
|
|
23.1
|
|
Consent of Deloitte & Touche LLP |
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chief Executive Officer. |
|
|
|
31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer. |
|
|
|
32.1
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chief Executive Officer. |
|
|
|
32.2
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer. |
58
PHI, INC. AND SUBSIDIARIES
Schedule II Valuation and Qualifying Accounts
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
Balance at |
|
Charged to |
|
|
|
|
|
Balance at |
|
|
Beginning |
|
Costs and |
|
|
|
|
|
End |
Description |
|
of Year |
|
Expenses |
|
Deductions |
|
of Year |
|
Year ended December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
163 |
|
|
$ |
|
|
|
$ |
113 |
|
|
$ |
50 |
|
Allowance for obsolescent
inventory |
|
|
6,268 |
|
|
|
1,502 |
|
|
|
514 |
|
|
|
7,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
163 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
163 |
|
Allowance for obsolescent
inventory |
|
|
6,988 |
|
|
|
(70 |
) |
|
|
650 |
|
|
|
6,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
120 |
|
|
$ |
43 |
|
|
$ |
|
|
|
$ |
163 |
|
Allowance for obsolescent
inventory |
|
|
5,536 |
|
|
|
2,400 |
|
|
|
948 |
|
|
|
6,988 |
|
59
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PHI, INC.
By: /s/ Michael J. McCann
Michael J. McCann
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Al A. Gonsoulin |
|
Chairman of the Board
|
|
March 16, 2007 |
|
|
Chief Executive Officer |
|
|
|
|
and Director |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Lance F. Bospflug
|
|
Director
|
|
March 16, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Arthur J. Breault, Jr.
|
|
Director
|
|
March 16, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Thomas H. Murphy
|
|
Director
|
|
March 16, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Richard H. Matzke
|
|
Director
|
|
March 16, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ C. Russell Luigs
|
|
Director
|
|
March 16, 2007 |
|
|
|
|
|
|
|
|
|
|
/s/ Michael J. McCann
|
|
Chief Financial Officer |
|
March 16, 2007 |
|
|
(Principal Financial and |
|
|
|
|
Accounting Officer) |
|
|
|
|
|
|
|
60
EXHIBIT INDEX
|
|
|
|
|
3 |
|
Articles of Incorporation and By-laws |
|
|
|
|
|
3.1
|
|
(i)
|
|
Amended and Restated Articles of
Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1(i) to PHIs
Report on Form 10-Q for the quarterly period
ended June 30, 2006). |
|
|
|
|
|
|
|
(ii)
|
|
Articles of Amendment to Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to PHIs Report on Form 8-K
filed January 3, 2006). |
|
|
|
|
|
|
|
(iii)
|
|
Amended and Restated By-laws of the Company (As amended
through May 1, 2002). |
|
|
|
4
|
|
Instruments defining the rights of security holders, including indentures. |
|
|
|
4.1
|
|
Loan Agreement dated as of April 23, 2002 by and among PHI, Inc., Acadian
Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International
Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to
Exhibit 10.3 to PHIs Report on Form 10-Q for the quarterly period ended June 30,
2002). |
|
|
|
4.2
|
|
1st Amendment to Loan Agreement dated as of April 23, 2002 by and
among PHI, Inc. Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive
Inc., and International Helicopter Transport, Inc. and Whitney National Bank
(incorporated by reference to Exhibit 10.4 to PHIs Report on Form 10-Q for the
quarterly period ended June 30, 2004). |
|
|
|
4.3
|
|
Form of Senior Debt Indenture (incorporated by reference to Exhibit 4.5 to
PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No. 333-123528) |
|
|
|
4.4
|
|
Form of Subordinated Debt Indenture (incorporated by reference to Exhibit 4.6
to PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No.
333-123528) |
|
|
|
4.5
|
|
First Supplemental Indenture dated April 12, 2006, among PHI, Inc., the
Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 10.1 to PHIs Report on Form 8-K filed on April 13, 2006). |
|
|
|
4.6
|
|
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). |
|
|
|
4.7
|
|
Third Amendment to Loan Agreement dated April 12, 2006 by and among PHI, Inc.,
Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.),
and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 8-K filed on April 13, 2006). |
|
|
|
10
|
|
Material Contracts |
|
|
|
10.2
|
|
The Amended and Restated PHI, Inc. 401 (k) Retirement Plan effective January 1,
2006. |
|
|
|
|
|
|
10.3
|
|
Amended and Restated PHI, Inc. 1995 Incentive Compensation Plan adopted by
PHIs Board effective July 11, 1995 and approved by the shareholders of PHI on
September 22, 1995. |
|
|
|
10.4
|
|
Form of Non-Qualified Stock Option Agreement under the PHI, Inc. 1995 Incentive
Compensation Plan between PHI and certain of its key employees. |
|
|
|
10.5
|
|
Officer Deferred Compensation Plan II adopted by PHIs Board effective January
1, 2005. |
|
|
|
10.6
|
|
Articles of Agreement Between PHI, Inc. & Office & Professional Employees
International Union and its Local 108 dated June 13, 2001. |
|
|
|
21
|
|
Subsidiaries of the Registrant |
|
|
|
23.1
|
|
Consent of Deloitte & Touche LLP |
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chief Executive Officer. |
|
|
|
31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer. |
|
|
|
32.1
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chief Executive Officer. |
|
|
|
32.2
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer. |