e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended: June 30, 2008
or
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from
to
Commission file number: 0-9827
PHI, Inc.
(Exact name of registrant as specified in its charter)
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Louisiana
(State or other jurisdiction of incorporation or organization)
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72-0395707
(I.R.S. Employer Identification No.) |
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2001 SE Evangeline Thruway
Lafayette, Louisiana
(Address of principal executive offices)
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70508
(Zip Code) |
Registrants telephone number, including area code: (337) 235-2452
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes: þ No: o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
Accelerated filer þ |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes: o No: þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
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Class |
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Outstanding at August 1, 2008 |
Voting Common Stock
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2,852,616 shares |
Non-Voting Common Stock
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12,438,992 shares |
PHI, INC.
Index Form 10-Q
2
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
(Unaudited)
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June 30, |
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December 31, |
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2008 |
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2007 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
1,475 |
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$ |
1,425 |
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Short-term investments |
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35,479 |
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62,970 |
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Accounts receivable net of allowance: |
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Trade |
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103,665 |
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95,111 |
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Other |
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8,488 |
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2,973 |
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Inventories of spare parts and supplies net of allowance |
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59,327 |
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55,831 |
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Assets held for sale |
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442 |
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Other current assets |
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11,682 |
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11,194 |
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Refundable income taxes |
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762 |
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525 |
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Total current assets |
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221,320 |
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230,029 |
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Other |
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35,034 |
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27,148 |
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Property and equipment, net |
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506,924 |
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484,119 |
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Total assets |
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$ |
763,278 |
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$ |
741,296 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
29,784 |
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$ |
28,454 |
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Accrued liabilities |
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24,905 |
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24,942 |
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Total current liabilities |
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54,689 |
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53,396 |
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Long-term debt |
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200,000 |
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200,000 |
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Deferred income taxes |
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59,760 |
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51,644 |
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Other long-term liabilities |
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7,336 |
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7,587 |
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Commitments and contingencies (Note 3) |
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Shareholders Equity: |
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Voting common stock |
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285 |
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285 |
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Non-voting common stock |
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1,242 |
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1,242 |
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Additional paid-in capital |
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291,037 |
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291,037 |
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Accumulated other comprehensive income |
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64 |
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61 |
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Retained earnings |
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148,865 |
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136,044 |
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Total shareholders equity |
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441,493 |
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428,669 |
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Total liabilities and shareholders equity |
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$ |
763,278 |
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$ |
741,296 |
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The accompanying notes are an integral part of these unaudited condensed consolidated
financial statements.
3
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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Quarter Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Operating revenues |
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$ |
130,111 |
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$ |
112,975 |
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$ |
247,256 |
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$ |
214,728 |
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Gain on disposition of
assets, net |
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1,255 |
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6,074 |
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4,204 |
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8,608 |
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Other |
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201 |
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1,490 |
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503 |
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3,144 |
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131,567 |
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120,539 |
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251,963 |
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226,480 |
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Expenses: |
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Direct expenses |
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109,757 |
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97,119 |
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207,983 |
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190,352 |
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Selling, general and
administrative expenses |
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7,534 |
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7,395 |
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14,923 |
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14,932 |
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Interest expense |
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3,854 |
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4,260 |
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7,688 |
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8,367 |
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121,145 |
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108,774 |
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230,594 |
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213,651 |
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Earnings before income taxes |
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10,422 |
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11,765 |
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21,369 |
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12,829 |
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Income taxes |
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4,169 |
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|
4,596 |
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8,548 |
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4,997 |
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Net earnings |
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$ |
6,253 |
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$ |
7,169 |
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$ |
12,821 |
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$ |
7,832 |
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Weighted average shares
outstanding: |
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Basic |
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15,277 |
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|
15,288 |
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15,277 |
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|
15,288 |
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Diluted |
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15,286 |
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15,307 |
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15,285 |
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|
15,307 |
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Net earnings per share |
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Basic |
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$ |
0.41 |
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$ |
0.47 |
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$ |
0.84 |
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$ |
0.51 |
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Diluted |
|
$ |
0.41 |
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$ |
0.47 |
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|
$ |
0.84 |
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|
$ |
0.51 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated
financial statements.
4
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
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Six Months Ended |
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June 30, |
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2008 |
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2007 |
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Operating activities: |
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Net earnings |
|
$ |
12,821 |
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$ |
7,832 |
|
Adjustments to reconcile net earnings to net cash
provided
by operating activities: |
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Depreciation |
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|
13,186 |
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|
|
15,781 |
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Deferred income taxes |
|
|
8,117 |
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|
|
4,378 |
|
Gain on asset dispositions |
|
|
(4,204 |
) |
|
|
(8,608 |
) |
Other |
|
|
456 |
|
|
|
434 |
|
Changes in operating assets and liabilities |
|
|
(17,148 |
) |
|
|
(19,174 |
) |
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|
|
|
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|
Net cash provided by operating activities |
|
|
13,228 |
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|
|
643 |
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Investing activities: |
|
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|
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Purchase of property and equipment |
|
|
(38,106 |
) |
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|
(61,843 |
) |
Proceeds from asset dispositions |
|
|
8,983 |
|
|
|
13,321 |
|
Purchase of short-term investments |
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|
(21,584 |
) |
|
|
(18,337 |
) |
Proceeds from sale of short-term investments |
|
|
49,075 |
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|
|
76,500 |
|
Deposits on aircraft |
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|
(11,546 |
) |
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|
(17,456 |
) |
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Net cash used in investing activities |
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|
(13,178 |
) |
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|
(7,815 |
) |
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Financing activities: |
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Proceeds from line of credit |
|
|
3,800 |
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|
33,800 |
|
Payments on line of credit |
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|
(3,800 |
) |
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(26,200 |
) |
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Net cash provided by financing activities |
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|
7,600 |
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Increase in cash and cash equivalents |
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|
50 |
|
|
|
428 |
|
Cash and cash equivalents, beginning of period |
|
|
1,425 |
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|
|
820 |
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|
Cash and cash equivalents, end of period |
|
$ |
1,475 |
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$ |
1,248 |
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Supplemental Disclosures Cash Flow Information |
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Interest paid |
|
$ |
7,201 |
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$ |
7,902 |
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|
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Taxes paid |
|
$ |
232 |
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|
$ |
14 |
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Accrued payables related to purchase of property and
equipment |
|
$ |
356 |
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|
$ |
553 |
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|
|
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|
The accompanying notes are an integral part of these unaudited condensed consolidated
financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The accompanying unaudited condensed consolidated financial statements include the accounts of PHI,
Inc. and subsidiaries (PHI or the Company). In the opinion of management, these financial
statements reflect all adjustments, consisting of only normal, recurring adjustments, necessary to
present fairly the financial results for the interim periods presented. These condensed
consolidated financial statements should be read in conjunction with the consolidated financial
statements contained in the Companys Annual Report on Form 10-K for the year ended December 31,
2007 and the accompanying notes and Managements Discussion and Analysis of Financial Condition and
Results of Operations.
The Companys financial results, particularly as they relate to the Companys Oil and Gas
operations, are influenced by seasonal fluctuations as discussed in the Companys Annual Report on
Form 10-K for the year ended December 31, 2007. Therefore, the results of operations for interim
periods are not necessarily indicative of the operating results that may be expected for a full
fiscal year.
2. Segment Information
PHI is primarily a provider of helicopter services, including helicopter maintenance and repair
services. We used a combination of factors to identify reportable segments as required by
Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise
and Related Information (SFAS 131). The overriding determination of our segments is based on
how the chief operating decision-maker of our Company evaluates our results of operations. The
underlying factors include customer bases, types of service, operational management, physical
locations, and underlying economic characteristics of the types of work we perform.
A segments operating income is its operating revenues less its direct expenses and selling,
general and administrative expenses. Each segment has a portion of selling, general and
administrative expense that is charged directly to the segment and a portion that is allocated.
Direct charges represent the vast majority of segment selling, general and administrative expenses.
Allocated selling, general and administrative expense is based primarily on total segment costs as
a percentage of total operating costs. Unallocated overhead consists primarily of corporate
selling, general, and administrative expenses that we do not allocate to the reportable segments.
Air Medical operations are headquartered in Phoenix, Arizona, where we maintain significant
separate facilities and administrative staff dedicated to this segment. Those costs are charged
directly to the Air Medical segment, resulting in a disproportionate share of selling, general and
administrative expenses compared to the Companys other reportable segments.
Oil and Gas Segment. Our Oil and Gas segment provides helicopter services primarily for the major
oil and gas production companies transporting personnel and/or equipment to offshore platforms in
the Gulf of Mexico, Angola and the Democratic Republic of Congo. We currently operate 147 aircraft
in this segment.
Operating revenue from the Oil and Gas segment is derived mainly from long-term contracts that
include a fixed monthly rate for a particular model of aircraft, plus a variable rate for flight
time. Most of our long-term contracts permit early termination by the customer generally without
penalty. Operating costs for the Oil and Gas operations are primarily aircraft operations costs,
including costs for pilots and maintenance personnel. Approximately 63% and 64% of our total
operating revenue was generated by our Oil and Gas operations for the six months ended June 30,
2008 and 2007, respectively.
6
Air Medical Segment. Our Air Medical segment provides transport services as an independent
provider of emergency medical services and, to a lesser extent, under contract with certain
hospitals. We operate in 17 states with 85 aircraft that are specially outfitted to accommodate
emergency patients, medical personnel and emergency medical equipment. For the six months ended
June 30, 2008 and 2007, approximately 35% and 34% of our total operating revenues were generated by
our Air Medical operations, respectively.
As an independent provider, we bill for our services on the basis of a flat rate plus a variable
charge per loaded mile, regardless of aircraft model. Revenues are recorded net of contractual
allowances under agreements with the third party payors and estimated uncompensated care when the
services are provided. Contractual allowances and uncompensated care are estimated based on
historical collection experience by payor category. The main payor categories are Medicaid,
Medicare, Insurance, and Self-Pay. Payor mix and changes in reimbursement rates are the factors
most subject to sensitivity and variability in calculating our allowances. We compute an 18 month
historical payment analysis of accounts paid in full, by category. The allowance percentages
calculated are applied to the payor categories, and the necessary adjustments are made to the
revenue allowance. The allowance for contractual discounts was $36.0 million and $31.9 million as
of June 30, 2008 and December 31, 2007, respectively. The allowance for uncompensated care was
$18.3 million and $19.1 million as of June 30, 2008 and December 31, 2007, respectively.
Provisions for contractual discounts and estimated uncompensated care are as follows:
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Accounts |
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Revenue |
|
Receivable |
|
|
Quarter Ended |
|
Six Months Ended |
|
|
|
|
June 30, |
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
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|
Gross billings |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Provision for contractual
discounts |
|
|
45 |
% |
|
|
43 |
% |
|
|
47 |
% |
|
|
44 |
% |
|
|
35 |
% |
|
|
33 |
% |
Provision for uncompensated care |
|
|
11 |
% |
|
|
12 |
% |
|
|
10 |
% |
|
|
11 |
% |
|
|
18 |
% |
|
|
21 |
% |
Amounts attributable to Medicaid, Medicare, Insurance and Self Pay as a percentage of net Air
Medical revenues are as follows:
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|
Quarter Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
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|
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|
Medicaid |
|
|
10 |
% |
|
|
8 |
% |
|
|
12 |
% |
|
|
9 |
% |
Medicare |
|
|
17 |
% |
|
|
14 |
% |
|
|
17 |
% |
|
|
14 |
% |
Insurance |
|
|
69 |
% |
|
|
76 |
% |
|
|
67 |
% |
|
|
75 |
% |
Self Pay |
|
|
4 |
% |
|
|
2 |
% |
|
|
4 |
% |
|
|
2 |
% |
We also have a limited number of contracts with hospitals under which we receive a fixed monthly
rate for aircraft availability and an hourly rate for flight time. Those contracts generate
approximately 10% of the segments revenues.
Technical Services Segment. The Technical Services segment provides helicopter repair and overhaul
services for flight operations customers that own their aircraft. Costs associated with these
services are primarily labor, and customers are generally billed at a percentage above cost. This
segment also conducts flight operations unrelated to the other segments, and we currently operate
four aircraft for the National Science Foundation in Antarctica under this segment.
7
Approximately 2% of our total operating revenues for the six months ended June 30, 2008 and 2007
were generated by our Technical Services operations.
Summarized financial information concerning our reportable operating segments for the quarter and
six months ended June 30, 2008 and 2007 is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(Thousands of dollars) |
|
|
(Thousands of dollars) |
|
Segment operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas |
|
$ |
82,063 |
|
|
$ |
71,690 |
|
|
$ |
156,663 |
|
|
$ |
136,990 |
|
Air Medical |
|
|
46,311 |
|
|
|
39,652 |
|
|
|
85,571 |
|
|
|
73,197 |
|
Technical Services |
|
|
1,737 |
|
|
|
1,633 |
|
|
|
5,022 |
|
|
|
4,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
130,111 |
|
|
|
112,975 |
|
|
|
247,256 |
|
|
|
214,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment direct expenses (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
64,824 |
|
|
|
61,760 |
|
|
|
124,083 |
|
|
|
119,195 |
|
Air Medical |
|
|
43,286 |
|
|
|
33,813 |
|
|
|
80,369 |
|
|
|
67,641 |
|
Technical Services |
|
|
1,647 |
|
|
|
1,546 |
|
|
|
3,531 |
|
|
|
3,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct expenses |
|
|
109,757 |
|
|
|
97,119 |
|
|
|
207,983 |
|
|
|
190,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
342 |
|
|
|
399 |
|
|
|
655 |
|
|
|
790 |
|
Air Medical |
|
|
2,075 |
|
|
|
1,898 |
|
|
|
4,192 |
|
|
|
3,839 |
|
Technical Services |
|
|
8 |
|
|
|
17 |
|
|
|
34 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
2,425 |
|
|
|
2,314 |
|
|
|
4,881 |
|
|
|
4,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct and selling, general and administrative
expenses |
|
|
112,182 |
|
|
|
99,433 |
|
|
|
212,864 |
|
|
|
195,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net segment profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
16,897 |
|
|
|
9,531 |
|
|
|
31,925 |
|
|
|
17,005 |
|
Air Medical |
|
|
950 |
|
|
|
3,941 |
|
|
|
1,010 |
|
|
|
1,717 |
|
Technical Services |
|
|
82 |
|
|
|
70 |
|
|
|
1,457 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17,929 |
|
|
|
13,542 |
|
|
|
34,392 |
|
|
|
19,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net (2) |
|
|
1,456 |
|
|
|
7,564 |
|
|
|
4,707 |
|
|
|
11,752 |
|
Unallocated selling, general and administrative costs |
|
|
(5,109 |
) |
|
|
(5,081 |
) |
|
|
(10,042 |
) |
|
|
(10,278 |
) |
Interest expense |
|
|
(3,854 |
) |
|
|
(4,260 |
) |
|
|
(7,688 |
) |
|
|
(8,367 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
$ |
10,422 |
|
|
$ |
11,765 |
|
|
$ |
21,369 |
|
|
$ |
12,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in direct expense are the depreciation expense amounts below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Oil and Gas |
|
$ |
3,780 |
|
|
$ |
4,312 |
|
|
$ |
7,479 |
|
|
$ |
8,704 |
|
Air Medical |
|
|
2,055 |
|
|
|
2,327 |
|
|
|
4,043 |
|
|
|
4,622 |
|
Technical Services |
|
|
15 |
|
|
|
151 |
|
|
|
119 |
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,850 |
|
|
$ |
6,790 |
|
|
$ |
11,641 |
|
|
$ |
13,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated SG&A |
|
$ |
751 |
|
|
$ |
1,021 |
|
|
$ |
1,545 |
|
|
$ |
2,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Including gains on disposition of property and equipment, and other income. |
3. Commitments and Contingencies
Environmental Matters We have an aggregate estimated liability of $0.2 million as of June 30,
2008 and December 31, 2007 for environmental remediation costs that are probable and estimable. We
have
8
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 cash flows.
Legal Matters We have been 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 our consolidated financial condition, results of operations, or liquidity.
As previously reported, the Company is involved in Federal Court litigation in the Western District
of Louisiana with the Office and Professional Employees International Union (OPEIU), the union
representing domestic pilots, over claims of bad faith bargaining and issues relating to the return
to work of striking pilots. Pilots continue to work 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 in August 2006. A trial on strike-related matters is currently set to
start on November 3, 2008. It is not possible to assess the outcome of that litigation, as these
matters are still in the discovery stage. However, management is of the opinion that the Companys
claims and defenses have substantial merit.
Long-term Debt The $200 million 7.125% Senior Notes mature April 15, 2013, and interest is
payable semi-annually on April 15 and October 15. The notes contain restrictive covenants,
including limitations on indebtedness, liens, dividends, repurchases of capital stock and other
payments affecting restricted subsidiaries, issuance and sales of restricted subsidiary stock,
dispositions of proceeds of asset sales, and mergers and consolidations and sales of assets. At
June 30, 2008, the market value of the notes was approximately $188.5 million, based on quoted
market indications. We were in compliance with the covenants applicable to these notes as of June
30, 2008.
We have a $50 million revolving credit facility with a commercial bank, which is scheduled to
expire on September 1, 2010. As of June 30, 2008, we had no borrowings and $5.2 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 June 30, 2008, we were in
compliance with these covenants.
Operating Leases We lease certain aircraft, facilities, and equipment used in our operations.
The related lease agreements, which include both non-cancelable and month-to-month terms, generally
provide for fixed monthly rentals, and certain real estate leases also include renewal options. We
generally pay all insurance, taxes, and maintenance expenses associated with these aircraft, and
some leases contain fair value purchase options.
At June 30, 2008, we had approximately $188.3 million in aggregate commitments under operating
leases of which approximately $11.3 million is payable through December 31, 2008, and a total of
$22.2 million is payable over the twelve months ending June 30, 2009. Of the total lease
commitments, $168.0 million
9
represents commitments for aircraft, and $20.3 million represents facility lease commitments,
primarily for our facilities in Lafayette, Louisiana.
Purchase Commitments At June 30, 2008, we had an order for six additional transport category
aircraft at an approximate cost of $127.4 million with delivery dates throughout 2008 and 2009. We
also had orders for 19 medium and light aircraft, six of these aircraft are planned for service in
the Air Medical segment, with the remaining 13 aircraft planned for service in the Oil and Gas
Segment, although certain of these may be assigned to the Air Medical segment as growth
opportunities are identified. The total cost of these aircraft is $98.9 million and delivery dates
are scheduled throughout 2008 and 2009. Included in other assets at June 30, 2008 is approximately
$22.2 million of security deposits on aircraft.
4. Property and Equipment
Effective July 1, 2007, we changed the estimated residual value of certain aircraft from 40% to
54%. We believe the revised amounts reflect our historical experience and more appropriately match
costs over the estimated useful lives and salvage values of these assets. The change in residual
values of certain aircraft was based on our experience in sales of such aircraft and industry data
which indicated that these aircraft were retaining on average a salvage value of at least 54% by
model type. The effect of this change for the three months ended June 30, 2008 was a reduction in
depreciation expense of $0.8 million ($0.5 million after tax or $0.03 per diluted share), and $1.6
million ($0.9 million after tax or $0.06 per diluted share) for the six months ended June 30, 2008.
5. Valuation Accounts
We have established an allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, current market conditions, and other information. The allowance for
doubtful accounts was approximately $0.1 million at June 30, 2008 and December 31, 2007. 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.
See Note 2 for additional information.
We have also established valuation reserves related to obsolete and excess inventory. The
inventory valuation reserves were $7.8 million and $7.5 million at June 30, 2008 and December 31,
2007, respectively.
6. Employees
Union Related Matters As previously reported, the Company is involved in Federal Court litigation
in the Western District of Louisiana with the OPEIU, the union representing domestic pilots, over
claims of bad faith bargaining and issues relating to the return to work of striking pilots. The
pilots commenced a strike in September 2006, and a return to work process commenced January 2007
for those pilots who had not terminated their employment, and this was completed in April 2007.
The pilots strike, however, affected operations through all of 2007. Pilots continue to work
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 in August 2006.
A trial on strike-related matters is currently set to start on November 3, 2008. It is not
possible to assess the outcome of that litigation, as these matters are still in the discovery
stage. However, management is of the opinion that the Companys claims and defenses have
substantial merit.
Employee Incentive Compensation In 2002, we implemented an incentive compensation plan for
non-executive and non-represented employees. For calendar year 2007, the represented pilots were
added to this plan as part of the final implementation proposals made by the Company at the end of
the collective
10
bargaining negotiations in August 2006. The plan allows us to pay up to 7% of earnings before tax
upon achieving a specified earnings threshold. During 2004, we implemented an executive/senior
management plan for certain corporate and business unit management employees. Pursuant to these
plans, we have accrued an estimated incentive compensation expense of $0.2 million and $0.8 million
for the quarter and six months ended June 30, 2008, respectively. The Company also has a Safety
Incentive Bonus. We have accrued $0.2 million and $0.4 million for the Safety Incentive Bonus for
the quarter and six months ended June 30, 2008.
The management incentive compensation plan was amended August 5, 2008, to include safety
components, in addition to certain earnings targets as provided in the prior plan. For 2008, the
amended plan provides a potential bonus of 33% of what the prior incentive compensation plan would
provide, due to the inclusion of safety factors.
7. Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 157 beginning in its
2008 fiscal year and there was no material impact to its financial statements. SFAS No. 157
applies to all assets and liabilities that are being measured and reported on a fair value basis.
SFAS No. 157 requires new disclosure that establishes a framework for measuring fair value in GAAP,
and expands disclosure about fair value measurements. This statement enables the reader of the
financial statements to assess the inputs used to develop those measurements by establishing a
hierarchy for ranking the quality and reliability of the information used to determine fair values.
The statement requires that assets and liabilities carried at fair value will be classified and
disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market
data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following table summarizes the valuation of our short-term investments and financial
instruments by the above SFAS No. 157 pricing levels as of the valuation dates listed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
|
|
|
|
Quoted market |
|
Significant Other |
|
|
|
|
|
|
prices in active |
|
Observable Inputs |
|
|
Total |
|
markets (Level 1) |
|
(Level 2) |
|
|
(Thousands of dollars) |
Short-term investments |
|
$ |
35,479 |
|
|
|
|
|
|
$ |
35,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in other assets |
|
$ |
3,820 |
|
|
|
|
|
|
$ |
3,820 |
|
The Company holds it short-term investments in a money market fund consisting mainly of government
backed securities, which is classified as a short-term investment. Investments included in other
assets consist mainly of multiple mutual funds that are highly liquid and diversified.
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115. SFAS No. 159 permits entities to elect to measure at fair value eligible
financial instruments that are not currently measured at fair value. This election, which may be
applied on an instrument by instrument basis, is typically irrevocable once made. SFAS 159 is
effective for us as of January 1, 2008; however, we did not elect to measure any additional
financial instruments at fair value as a result of this statement. Therefore, the adoption of SFAS
No. 159 did not have an effect on our consolidated financial statements.
11
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51, which establishes new accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, SFAS No. 160 requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and separate from the parents equity.
The amount of net income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. SFAS No. 160 also includes expanded
disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS
No. 160 is effective for fiscal years, beginning on or after December 15, 2008 and interim periods
within those fiscal years and will be applied retrospectively to all noncontrolling interests
including any that arose before the effective date. Early adoption is prohibited. Management does
not currently expect that implementation of SFAS No. 160 will have a significant impact on the
Companys financial statements.
In March 2008 the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133, which requires enhanced disclosures about an
entitys derivative and hedging activities. SFAS No. 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about fair value amounts
of and gains and losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. SFAS 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008. Management does not
anticipate that implementation of SFAS No. 161 will have a significant impact on the Companys
financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles, which identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of nongovernmental entities
that are presented in conformity with accounting principles generally accepted in the United States
of America. Management does not anticipate that implementation of SFAS No. 162 will have a
significant impact on the Companys financial statements.
In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts. SFAS No. 163 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. SFAS No. 163 requires that
disclosures about the risk-management activities of the insurance enterprise be effective for the
first period (including interim periods) beginning after issuance of this statement. Except for
those disclosures, earlier application is not permitted. Management does not currently expect that
implementation of SFAS No. 163 will have a significant impact on the Companys financial
statements.
8. Shareholders Equity
We had an average of 15.3 million common shares outstanding for the quarters ended June 30, 2008
and June 30, 2007.
At an annual meeting of stockholders on May 6, 2008, the number of authorized shares of non-voting
common stock was increased from 12.5 million shares to 25 million shares. See Part II Other
Information for further discussions within Item 4. Submission of Matters to a Vote of Security
Holders.
12
9. Comprehensive Income
The following table summarizes the components of total comprehensive income (net of taxes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(Thousands of dollars) |
|
|
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
6,253 |
|
|
$ |
7,169 |
|
|
$ |
12,821 |
|
|
$ |
7,832 |
|
SFAS No. 158 adjustment |
|
|
4 |
|
|
|
(8 |
) |
|
|
3 |
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
6,257 |
|
|
$ |
7,161 |
|
|
$ |
12,824 |
|
|
$ |
7,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Condensed Consolidating Financial Information
Our 7.125% Senior Notes are fully and unconditionally guaranteed on a joint and several, senior
basis by all of our Guarantor Subsidiaries.
The following supplemental condensed financial information sets forth, on a consolidated basis, the
balance sheet, statement of operations, and statement of cash flows information for PHI, Inc.
(Parent Company Only) and the Guarantor Subsidiaries. The principal eliminating entries
eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and
expenses.
13
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,025 |
|
|
$ |
450 |
|
|
$ |
|
|
|
$ |
1,475 |
|
Short-term investments |
|
|
35,479 |
|
|
|
|
|
|
|
|
|
|
|
35,479 |
|
Accounts receivable net |
|
|
98,751 |
|
|
|
13,402 |
|
|
|
|
|
|
|
112,153 |
|
Inventories of spare parts and supplies |
|
|
59,327 |
|
|
|
|
|
|
|
|
|
|
|
59,327 |
|
Assets held for sale |
|
|
442 |
|
|
|
|
|
|
|
|
|
|
|
442 |
|
Other current assets |
|
|
11,660 |
|
|
|
22 |
|
|
|
|
|
|
|
11,682 |
|
Refundable income taxes |
|
|
762 |
|
|
|
|
|
|
|
|
|
|
|
762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
207,446 |
|
|
|
13,874 |
|
|
|
|
|
|
|
221,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries and other |
|
|
67,096 |
|
|
|
|
|
|
|
(67,096 |
) |
|
|
|
|
Intercompany receivable |
|
|
|
|
|
|
63,125 |
|
|
|
(63,125 |
) |
|
|
|
|
Other assets |
|
|
34,784 |
|
|
|
250 |
|
|
|
|
|
|
|
35,034 |
|
Property and equipment, net |
|
|
490,921 |
|
|
|
16,003 |
|
|
|
|
|
|
|
506,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
800,247 |
|
|
$ |
93,252 |
|
|
$ |
(130,221 |
) |
|
$ |
763,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
27,518 |
|
|
$ |
2,266 |
|
|
$ |
|
|
|
$ |
29,784 |
|
Accrued liabilities |
|
|
20,317 |
|
|
|
4,588 |
|
|
|
|
|
|
|
24,905 |
|
Intercompany payable |
|
|
63,125 |
|
|
|
|
|
|
|
(63,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
110,960 |
|
|
|
6,854 |
|
|
|
(63,125 |
) |
|
|
54,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
Deferred income taxes and other long-term
liabilities |
|
|
47,794 |
|
|
|
19,302 |
|
|
|
|
|
|
|
67,096 |
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital |
|
|
292,564 |
|
|
|
4,402 |
|
|
|
(4,402 |
) |
|
|
292,564 |
|
Accumulated other comprehensive
income |
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
64 |
|
Retained earnings |
|
|
148,865 |
|
|
|
62,694 |
|
|
|
(62,694 |
) |
|
|
148,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
441,493 |
|
|
|
67,096 |
|
|
|
(67,096 |
) |
|
|
441,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
800,247 |
|
|
$ |
93,252 |
|
|
$ |
(130,221 |
) |
|
$ |
763,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
14
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,004 |
|
|
$ |
421 |
|
|
$ |
|
|
|
$ |
1,425 |
|
Short-term investments |
|
|
62,970 |
|
|
|
|
|
|
|
|
|
|
|
62,970 |
|
Accounts receivable net of allowance |
|
|
84,318 |
|
|
|
13,766 |
|
|
|
|
|
|
|
98,084 |
|
Inventories of spare parts and supplies |
|
|
55,831 |
|
|
|
|
|
|
|
|
|
|
|
55,831 |
|
Other current assets |
|
|
11,184 |
|
|
|
10 |
|
|
|
|
|
|
|
11,194 |
|
Refundable income taxes |
|
|
525 |
|
|
|
|
|
|
|
|
|
|
|
525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
215,832 |
|
|
|
14,197 |
|
|
|
|
|
|
|
230,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries and others |
|
|
59,384 |
|
|
|
|
|
|
|
(59,384 |
) |
|
|
|
|
Intercompany receivable |
|
|
|
|
|
|
50,729 |
|
|
|
(50,729 |
) |
|
|
|
|
Other assets |
|
|
26,878 |
|
|
|
270 |
|
|
|
|
|
|
|
27,148 |
|
Property and equipment, net |
|
|
468,070 |
|
|
|
16,049 |
|
|
|
|
|
|
|
484,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
770,164 |
|
|
$ |
81,245 |
|
|
$ |
(110,113 |
) |
|
$ |
741,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
24,696 |
|
|
$ |
3,758 |
|
|
$ |
|
|
|
$ |
28,454 |
|
Accrued liabilities |
|
|
24,942 |
|
|
|
|
|
|
|
|
|
|
|
24,942 |
|
Intercompany payable |
|
|
50,729 |
|
|
|
|
|
|
|
(50,729 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
100,367 |
|
|
|
3,758 |
|
|
|
(50,729 |
) |
|
|
53,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
Deferred income taxes and other long-term
liabilities |
|
|
41,128 |
|
|
|
18,103 |
|
|
|
|
|
|
|
59,231 |
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital |
|
|
292,564 |
|
|
|
4,402 |
|
|
|
(4,402 |
) |
|
|
292,564 |
|
Accumulated other comprehensive
income |
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
61 |
|
Retained earnings |
|
|
136,044 |
|
|
|
54,982 |
|
|
|
(54,982 |
) |
|
|
136,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
428,669 |
|
|
|
59,384 |
|
|
|
(59,384 |
) |
|
|
428,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
770,164 |
|
|
$ |
81,245 |
|
|
$ |
(110,113 |
) |
|
$ |
741,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
15
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2008 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
111,149 |
|
|
$ |
18,962 |
|
|
$ |
|
|
|
$ |
130,111 |
|
Management fees |
|
|
759 |
|
|
|
|
|
|
|
(759 |
) |
|
|
|
|
Gain on disposition of assets, net |
|
|
1,255 |
|
|
|
|
|
|
|
|
|
|
|
1,255 |
|
Other |
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,364 |
|
|
|
18,962 |
|
|
|
(759 |
) |
|
|
131,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
96,181 |
|
|
|
13,576 |
|
|
|
|
|
|
|
109,757 |
|
Management fees |
|
|
|
|
|
|
759 |
|
|
|
(759 |
) |
|
|
|
|
Selling, general, and administrative
expenses |
|
|
6,600 |
|
|
|
934 |
|
|
|
|
|
|
|
7,534 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(3,086 |
) |
|
|
|
|
|
|
3,086 |
|
|
|
|
|
Interest expense |
|
|
3,854 |
|
|
|
|
|
|
|
|
|
|
|
3,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,549 |
|
|
|
15,269 |
|
|
|
2,327 |
|
|
|
121,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
9,815 |
|
|
|
3,693 |
|
|
|
(3,086 |
) |
|
|
10,422 |
|
Income taxes |
|
|
3,562 |
|
|
|
607 |
|
|
|
|
|
|
|
4,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
6,253 |
|
|
$ |
3,086 |
|
|
$ |
(3,086 |
) |
|
$ |
6,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2007 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
95,874 |
|
|
$ |
17,101 |
|
|
$ |
|
|
|
$ |
112,975 |
|
Management fees |
|
|
684 |
|
|
|
|
|
|
|
(684 |
) |
|
|
|
|
Gain on disposition of assets, net |
|
|
6,074 |
|
|
|
|
|
|
|
|
|
|
|
6,074 |
|
Other |
|
|
1,486 |
|
|
|
4 |
|
|
|
|
|
|
|
1,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,118 |
|
|
|
17,105 |
|
|
|
(684 |
) |
|
|
120,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
85,973 |
|
|
|
11,146 |
|
|
|
|
|
|
|
97,119 |
|
Management fees |
|
|
|
|
|
|
684 |
|
|
|
(684 |
) |
|
|
|
|
Selling, general, and administrative
expenses |
|
|
6,668 |
|
|
|
727 |
|
|
|
|
|
|
|
7,395 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(3,766 |
) |
|
|
|
|
|
|
3,766 |
|
|
|
|
|
Interest expense |
|
|
4,260 |
|
|
|
|
|
|
|
|
|
|
|
4,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,135 |
|
|
|
12,557 |
|
|
|
3,082 |
|
|
|
108,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
10,983 |
|
|
|
4,548 |
|
|
|
(3,766 |
) |
|
|
11,765 |
|
Income taxes |
|
|
3,814 |
|
|
|
782 |
|
|
|
|
|
|
|
4,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
7,169 |
|
|
$ |
3,766 |
|
|
$ |
(3,766 |
) |
|
$ |
7,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
16
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2008 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
208,216 |
|
|
$ |
39,040 |
|
|
$ |
|
|
|
$ |
247,256 |
|
Management fees |
|
|
1,562 |
|
|
|
|
|
|
|
(1,562 |
) |
|
|
|
|
Gain on disposition of assets, net |
|
|
4,204 |
|
|
|
|
|
|
|
|
|
|
|
4,204 |
|
Other |
|
|
503 |
|
|
|
|
|
|
|
|
|
|
|
503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214,485 |
|
|
|
39,040 |
|
|
|
(1,562 |
) |
|
|
251,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
181,206 |
|
|
|
26,777 |
|
|
|
|
|
|
|
207,983 |
|
Management fees |
|
|
|
|
|
|
1,562 |
|
|
|
(1,562 |
) |
|
|
|
|
Selling, general, and administrative
expenses |
|
|
13,096 |
|
|
|
1,827 |
|
|
|
|
|
|
|
14,923 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(7,712 |
) |
|
|
|
|
|
|
7,712 |
|
|
|
|
|
Interest expense |
|
|
7,688 |
|
|
|
|
|
|
|
|
|
|
|
7,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,278 |
|
|
|
30,166 |
|
|
|
6,150 |
|
|
|
230,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
20,207 |
|
|
|
8,874 |
|
|
|
(7,712 |
) |
|
|
21,369 |
|
Income taxes |
|
|
7,386 |
|
|
|
1,162 |
|
|
|
|
|
|
|
8,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
12,821 |
|
|
$ |
7,712 |
|
|
$ |
(7,712 |
) |
|
$ |
12,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2007 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
182,581 |
|
|
$ |
32,147 |
|
|
$ |
|
|
|
$ |
214,728 |
|
Management fees |
|
|
1,286 |
|
|
|
|
|
|
|
(1,286 |
) |
|
|
|
|
Gain on disposition of assets, net |
|
|
8,608 |
|
|
|
|
|
|
|
|
|
|
|
8,608 |
|
Other |
|
|
3,136 |
|
|
|
8 |
|
|
|
|
|
|
|
3,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,611 |
|
|
|
32,155 |
|
|
|
(1,286 |
) |
|
|
226,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
167,765 |
|
|
|
22,587 |
|
|
|
|
|
|
|
190,352 |
|
Management fees |
|
|
|
|
|
|
1,286 |
|
|
|
(1,286 |
) |
|
|
|
|
Selling, general, and administrative
expenses |
|
|
13,453 |
|
|
|
1,479 |
|
|
|
|
|
|
|
14,932 |
|
Equity in net income of consolidated
subsidiaries |
|
|
(5,543 |
) |
|
|
|
|
|
|
5,543 |
|
|
|
|
|
Interest expense |
|
|
8,367 |
|
|
|
|
|
|
|
|
|
|
|
8,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,042 |
|
|
|
25,352 |
|
|
|
4,257 |
|
|
|
213,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
11,569 |
|
|
|
6,803 |
|
|
|
(5,543 |
) |
|
|
12,829 |
|
Income taxes |
|
|
3,737 |
|
|
|
1,260 |
|
|
|
|
|
|
|
4,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
7,832 |
|
|
$ |
5,543 |
|
|
$ |
(5,543 |
) |
|
$ |
7,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
17
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2008 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
Net cash provided by operating activities |
|
$ |
13,199 |
|
|
$ |
29 |
|
|
$ |
|
|
|
$ |
13,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(38,106 |
) |
|
|
|
|
|
|
|
|
|
|
(38,106 |
) |
Proceeds from asset dispositions |
|
|
8,983 |
|
|
|
|
|
|
|
|
|
|
|
8,983 |
|
Proceeds from sale of short-term
investments, net |
|
|
27,491 |
|
|
|
|
|
|
|
|
|
|
|
27,491 |
|
Deposits on aircraft |
|
|
(11,546 |
) |
|
|
|
|
|
|
|
|
|
|
(11,546 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(13,178 |
) |
|
|
|
|
|
|
|
|
|
|
(13,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
21 |
|
|
|
29 |
|
|
|
|
|
|
|
50 |
|
Cash and cash equivalents, beginning of
period |
|
|
1,004 |
|
|
|
421 |
|
|
|
|
|
|
|
1,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
1,025 |
|
|
$ |
450 |
|
|
$ |
|
|
|
$ |
1,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2007 |
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries (1) |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
432 |
|
|
$ |
211 |
|
|
$ |
|
|
|
$ |
643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(61,843 |
) |
|
|
|
|
|
|
|
|
|
|
(61,843 |
) |
Proceeds from asset dispositions |
|
|
13,321 |
|
|
|
|
|
|
|
|
|
|
|
13,321 |
|
Proceeds from sale of short-term
investments, net |
|
|
58,163 |
|
|
|
|
|
|
|
|
|
|
|
58,163 |
|
Deposits on aircraft |
|
|
(17,456 |
) |
|
|
|
|
|
|
|
|
|
|
(17,456 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(7,815 |
) |
|
|
|
|
|
|
|
|
|
|
(7,815 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from line of credit, net |
|
|
7,600 |
|
|
|
|
|
|
|
|
|
|
|
7,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
7,600 |
|
|
|
|
|
|
|
|
|
|
|
7,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
217 |
|
|
|
211 |
|
|
|
|
|
|
|
428 |
|
Cash and cash equivalents, beginning of
period |
|
|
385 |
|
|
|
435 |
|
|
|
|
|
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
602 |
|
|
$ |
646 |
|
|
$ |
|
|
|
$ |
1,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. |
18
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and the notes thereto as well as our audited
consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for
the year ended December 31, 2007, managements discussion and analysis, risk factors and other
information contained therein.
Forward-Looking Statements
All statements other than statements of historical fact contained in this Form 10-Q and other
periodic reports filed by PHI, Inc. (the Company or PHI) under the Securities Exchange Act of
1934 and other written or oral statements made by it or on its behalf, are forward-looking
statements. When used herein, the words anticipates, expects, believes, goals, intends,
plans, projects and similar words and expressions are intended to identify forward-looking
statements. Forward-looking statements are based on a number of assumptions about future events
and are subject to significant risks, uncertainties, and other factors that may cause the Companys
actual results to differ materially from the expectations, beliefs, and estimates expressed or
implied in such forward-looking statements. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, no assurance can be given that such
assumptions will prove correct or even approximately correct. Factors that could cause the
Companys results to differ materially from the expectations expressed in such forward-looking
statements include but are not limited to the following: unexpected variances in flight hours, the
effect on demand for our services caused by volatility of oil and gas prices and the level of
exploration and production activity in the Gulf of Mexico, the effect on our operating costs of
volatile fuel prices, the availability of capital required to acquire aircraft, environmental
risks, hurricanes and other adverse weather conditions, the activities of our competitors, changes
in government regulation, unionization, operating hazards, risks related to operating in foreign
countries, the ability to obtain adequate insurance at an acceptable cost and the ability of the
Company to develop and implement successful business strategies. For a more detailed description
of risks, see the Risk Factors section in Item 1.A. of our Form 10-K for the year ended December
31, 2007 (the 2007 Form 10-K). All forward-looking statements in this document are expressly
qualified in their entirety by the cautionary statements in this paragraph and the Risk Factors
section of our 2007 Form 10-K. PHI undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events, or otherwise.
Overview
There was one accident in our Oil and Gas segment and two accidents in the Air Medical segment
during the quarter ended June 30, 2008. We believe losses and potential losses from these
accidents, including losses from death or injury to persons and damage to or loss of our aircraft,
are fully covered by our aviation hull and liability and workers compensation insurance policies,
subject to retentions. For the quarter ended June 30, 2008, we recorded charges totaling $2.1
million ($1.6 million in our Air Medical segment and $0.5 million in our Oil and Gas segment)
related to retentions under our insurance policies relating to these accidents, which were the
maximum retentions under the applicable policies. Accordingly, we do not expect to incur any
material additional costs directly relating to these accidents. The causes of these accidents are
being investigated by the National Transportation Safety Board (NTSB). The impact of these
accidents on our business or insurance premium costs over the longer term cannot be predicted with
any certainty.
Notwithstanding these accidents, we have one of the best safety records in our industry, based on
NTSB and the Federal Aviation Administration (FAA) data.
19
Operating revenues for the three months ended June 30, 2008 were $130.1 million, compared to $113.0
million for the three months ended June 30, 2007, an increase of $17.1 million. Oil and Gas
operating revenues increased $10.4 million for the quarter ended June 30, 2008, due to an increase
in medium and heavy contracted aircraft and increased flight hours. Operating revenues in the Air
Medical segment increased $6.6 million due to increased patient transports and rates in the
independent provider programs and increased hospital-based activity due to additional contract
awards, partially offset by the accidents in the Air Medical segment mentioned above which
adversely affected both revenue and cost. Patient transport volume was also adversely affected
during June due to the accidents. The volume did resume subsequent to the end of the quarter, to
levels just prior to the accidents. We cannot predict the long-term effect on our business, if
any. The cost effect is discussed below.
Flight hours for the quarter ended June 30, 2008 were 39,630, compared to 36,628 for the quarter
ended June 30, 2007. There were 1,796 increased flight hours in the Air Medical segment due to
increased patient transports in the independent provider programs and also due to additional
contract awards in the hospitalbased programs. The Oil and Gas segment flight hours increased
1,144 hours due to an increase in medium and heavy aircraft flight hours.
Our operating revenues for the three months ended June 30, 2008, in both our Oil and Gas and Air
Medical segments, were positively impacted by the previously announced contract awards received
near the end of the first quarter. These were discussed in our first quarter Form 10-Q. In
addition, during the quarter ended June 30, 2008, we received additional awards which we believe
will favorably impact our Oil and Gas segment by approximately 1,500 flight hours per quarter and
our Air Medical segment by 150 flight hours per quarter.
Oil and Gas segments operating income was $16.9 million for the quarter ended June 30, 2008,
compared to $9.5 million for the quarter ended June 30, 2007. The increase of $7.4 million was
primarily due to the increase in operating revenues associated with medium and heavy aircraft.
Operating income for the Air Medical segment was $1.0 million for the quarter ended June 30, 2008,
compared to $3.9 million for the quarter ended June 30, 2007. The $2.9 million decrease was
primarily due to a charge related to our insurance of $1.6 million due to the accidents in the
segment during the quarter. The insurance charge is a retention amount in our aviation and
workers compensation coverages. The aviation insurance cost for this year will approximate the
same cost as in the prior year including the current year retention amount. Patient transport
volume was also adversely affected during the second quarter due to the accidents discussed above.
In addition, there were increases in direct costs due to additional hospital-based contracts and
independent provider based programs opened since June 30, 2007.
Net earnings for the quarter ended June 30, 2008 were $6.3 million, or $0.41 per diluted share,
compared to $7.2 million for the quarter ended June 30, 2007, or $0.47 per diluted share. Pre-tax
earnings were $10.4 million for the quarter ended June 30, 2008, compared to $11.8 million for the
same period in 2007. Earnings for the quarter ended June 30, 2008 included a $1.3 million pre-tax
gain on dispositions of assets, offset by a charge of $2.1 million related to our aviation
insurance and workers compensation coverages, of which $1.6 million was from our Air Medical
segment and $0.5 million from our Oil and Gas segment. Earnings for the quarter ended June 30,
2007 included a pre-tax gain on disposition of assets, net, of $6.1 million.
Operating revenues for the six months ended June 30, 2008 were $247.3 million, compared to $214.7
million for the same period in 2007, an increase of $32.6 million. Oil and Gas operating revenues
increased $19.7 million, due to an increase in medium and heavy contracted aircraft and increased
flight hours. Operating revenues in the Air Medical segment increased $12.4 million due increased
patient
20
transports and rates in the independent provider programs, and increased hospital-based activity
due to additional contract awards.
Flight hours for the six months ended June 30, 2008 were 73,777, compared to 70,114 for the six
months ended June 30, 2007. The increase was primarily due to increased flight hours associated
with increased patient transports in the independent provider programs and increased hospital-based
activity in the Air Medical segment. Oil and Gas segment flight hours increased in the second
quarter but decreased in the first quarter, resulting in similar total flight hours year to date.
However, there was a shift in flight hours from light aircraft to heavy and medium aircraft
resulting in increased revenues in that segment.
Oil and Gas segments operating income was $31.9 million for the six months ended June 30, 2008,
compared to $17.0 million for the six months ended June 30, 2007. The increase of $14.9 million
was primarily due to the increase in operating revenues as described above. Operating income for
the Air Medical segment was $1.0 million for the six months ended June 30, 2008, compared to $1.7
million for the six months ended June 30, 2007. The decrease in 2008 compared to 2007 occurred in
the second quarter and primarily was due to a charge related to our aviation insurance and workers
compensation of $1.6 million due to the accidents mentioned above. Patient transport volume was
also adversely affected during the second quarter in the Air Medical segment due to the accidents
discussed above. In addition, there were increases in direct costs due to additional
hospital-based contracts and independent provider programs opened since June 30, 2007.
Net earnings for the six months ended June 30, 2008 were $12.8 million, or $0.84 per diluted share,
compared to $7.8 million for the six months ended June 30, 2007, or $0.51 per diluted share.
Pre-tax earnings were $21.4 million for the six months ended June 30, 2008, compared to $12.8
million for the same period in 2007. Earnings for the six months ended June 30, 2008 included a
pre-tax gain on disposition of assets, net, of $4.2 million and an aggregate insurance charge of
$2.1 million as previously mentioned. Earnings for the six months ended June 30, 2007 included a
pre-tax gain on disposition of assets, net, of $8.6 million.
Effective July 1, 2007, we changed the estimated residual value of certain aircraft from 40% to
54%. We believe the revised amounts reflect our historical experience and more appropriately match
costs over the estimated useful lives and salvage values of these assets. The change in residual
values of certain aircraft was based on our experience in sales of such aircraft and industry data
which indicated that these aircraft were retaining on average a salvage value of at least 54% by
model type. The effect of this change for the quarter ended June 30, 2008 was a reduction in
depreciation expense of $0.8 million ($0.5 million after tax, or $0.03 per diluted share), and $1.6
million ($0.9 million after tax, or $0.06 per diluted share) for the six months ended June 30,
2008.
We sold or disposed of eight light aircraft that were not in our long term growth plan during the
quarter ended June 30, 2008. We plan to sell approximately five additional aircraft in 2008, which
will primarily be light aircraft. Following the sale of these light aircraft, we do not believe
further sales are needed for the foreseeable future. We have also taken delivery of one light and
three medium aircraft during the quarter ended June 30, 2008.
At June 30, 2008, we had an order for six additional transport category aircraft at an approximate
cost of $127.4 million with delivery dates beginning late 2008 and continuing throughout 2009. We
also had orders for 19 medium and light aircraft. Six of these aircraft are planned for service in
the Air Medical segment, with the remaining 13 aircraft planned for service in the Oil and Gas
segment, although we may assign certain of these to the Air Medical segment when growth
opportunities are identified. The total cost of these aircraft is $98.9 million with delivery
dates throughout 2008 and 2009. We intend to fund these aircraft from existing cash, short-term
investments, and operating leases.
21
Operating Statistics
The following tables present certain non-financial operational statistics for the quarter and six
months ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Flight hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
29,748 |
|
|
|
28,604 |
|
|
|
54,579 |
|
|
|
54,690 |
|
Air Medical (1) |
|
|
9,820 |
|
|
|
8,024 |
|
|
|
18,495 |
|
|
|
15,016 |
|
Technical Services |
|
|
62 |
|
|
|
|
|
|
|
703 |
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
39,630 |
|
|
|
36,628 |
|
|
|
73,777 |
|
|
|
70,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Medical Transports (2) |
|
|
5,942 |
|
|
|
5,650 |
|
|
|
11,422 |
|
|
|
10,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
2008 |
|
2007 |
Aircraft operated at period end: |
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
147 |
|
|
|
163 |
|
Air Medical |
|
|
85 |
|
|
|
73 |
|
Technical Services |
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Total (3) |
|
|
236 |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Flight hours include 1,882 flight hours associated with hospital-based contracts, compared to
1,097 flight hours in the prior year quarter. |
|
(2) |
|
Represents individual patient transports for the period. |
|
(3) |
|
Includes 15 aircraft as of June 30, 2008 and 12 aircraft as of June 30, 2007 that are
customer owned. |
Quarter Ended June 30, 2008 compared with Quarter Ended June 30, 2007
Combined Operations
Revenues Operating revenues for the three months ended June 30, 2008 were $130.1
million, compared to $113.0 million for the three months ended June 30, 2007, an increase of $17.1
million, or 15%. Oil and Gas operating revenues increased $10.4 million for the quarter ended June
30, 2008, due to an increase in medium and heavy contracted aircraft and flight hours. Operating
revenues in the Air Medical segment increased $6.6 million due to increased patient transports and
rate increases in the independent provider programs, and increased hospital-based activity due to
additional contract awards.
Total flight hours were 39,630 for the three months ended June 30, 2008, compared to 36,628 for the
three months ended June 30, 2007. Flight hours in the Oil and Gas segment were 29,748 for the
three months ended June 30, 2008, compared to 28,604 for three months ended June 30, 2007, an
increase of 1,144 flight hours. The increase resulted from an increase in medium and heavy
aircraft flight hours, offset in part by decreases in light aircraft flight hours. Air Medical
segment flight hours for the three months ended June 30, 2008 were 9,820 compared to 8,024 for the
three months ended June 30, 2007, an increase of 1,796 flight hours. This increase was related to
higher patient transport volume and increased hospital-based activity mentioned above.
22
Other Income and Gains Gain on disposition of assets was $1.3 million for the three
months ended June 30, 2008, compared to a gain of $6.1 million for the three months ended June 30,
2007. These amounts represent gains on sales of aircraft that no longer meet our strategic needs.
Other income was $0.2 million for the three months ended June 30, 2008, compared to $1.5 million
for the three months ended June 30, 2007, and primarily represented interest income on unspent
proceeds from our April 2006 stock offering. A substantial portion of those proceeds has now been
spent on acquiring new aircraft, resulting in the decrease in interest income. In addition recent
decreases in interest rates have also affected interest income.
Direct Expenses Direct operating expense was $109.8 million for the three months ended
June 30, 2008, compared to $97.1 million for the three months ended June 30, 2007, an increase of
$12.7 million. This increase was due to increases in employee compensation expense ($6.1 million)
due primarily to increases in personnel related to additional independent provider programs and
hospital-based programs opened or commenced since the second quarter 2007. Employee compensation
expense includes a ($0.8 million) charge for workers compensation expense related to the accidents
previously mentioned. Fuel expense increased ($4.2 million) as a result of rising fuel costs;
aircraft warranty costs increased ($2.3 million) due to additional aircraft added to the fleet; and
aircraft insurance expense increased (net, $1.0 million). Insurance expense for the quarter
included a ($1.3 million) charge related to accidents in the quarter for a retention portion that
is fixed for the policy year. Our total aviation insurance cost for 2008 is expected to
approximate the same amount as last year. Other items decreased net $0.9 million. These items
are discussed in more detail in the Segment Discussion below.
Selling, General, and Administrative Expenses Selling, general and administrative
expenses were $7.5 million for the three months ended June 30, 2008, compared to $7.4 million for
the three months ended June 30, 2007, an increase of $0.1 million.
Interest Expense Interest expense was $3.9 million for the three months ended June 30,
2008, compared to $4.3 million for the three months ended June 30, 2007. The decrease was due to a
decrease in borrowings under our revolving line of credit.
Income Taxes Income tax expense for the three months ended June 30, 2008 was $4.2
million compared to $4.6 million for the three months ended June 30, 2007. The effective tax rate
was 40% for the three months ended June 30, 2008, compared to 39% for the three months ended June
30, 2007.
Earnings Our net income for the three months ended June 30, 2008 was $6.3 million
compared to $7.2 million for the three months ended June 30, 2007. Earnings before income taxes
for the three months ended June 30, 2008 were $10.4 million compared to $11.8 million for the same
period in 2007. Earnings per diluted share were $0.41 for the current quarter compared to earnings
per diluted share of $0.47 for the prior year quarter. We had 15.3 million common shares
outstanding during the three months ended June 30, 2008 and June 30, 2007. Included in earnings
before tax for the quarter ended June 30, 2008 are gains on disposition of assets of $1.3 million
and an insurance charge of $2.1 million representing an aviation insurance retention amount and
workers compensation cost, as previously discussed. There were $6.1 million of gains on
disposition of assets in the second quarter of 2007.
Segment Discussion
Oil and Gas Oil and Gas segment revenues were $82.1 million for the three months ended June 30,
2008, compared to $71.7 million for the three months ended June 30, 2007, an increase of $10.4
million or 15%. Flight hours were 29,748 for the current quarter compared to 28,604 for the same
quarter in the prior year. The increase in revenue is due to an increase in contracted medium and
heavy aircraft and flight hours. There was also an increase in segment revenues due to certain
contractual rate increases.
23
The number of aircraft in the segment was 147 at June 30, 2008, compared to 163 aircraft at June
30, 2007. We have sold or disposed of 19 aircraft in the Oil and Gas segment since June 30, 2007,
consisting of ten light and nine medium aircraft. We also transferred nine light aircraft since
June 30, 2007 to the Air Medical segment. We have added 12 new aircraft to the Oil and Gas segment
since June 30, 2007, consisting of one light, nine medium, and two heavy aircraft. We have a total
of 19 aircraft on order for delivery in 2008 and 2009 for the Oil and Gas segment, although certain
light aircraft on order may be assigned to the Air Medical segment as growth opportunities are
identified.
Direct expense in our Oil and Gas segment was $64.8 million for the three months ended June 30,
2008, compared to $61.8 million for the three months ended June 30, 2007, an increase of $3.0
million. Fuel expenses increased ($3.5 million) as a result of rising fuel costs. Total fuel cost
is included in direct expense and reimbursement of a portion of fuel costs above a contracted per
gallon amount is included in revenue. Aircraft warranty costs increased ($1.2 million) due to
additional aircraft added to the fleet. All new aircraft come with a manufacturers warranty that
covers defective parts. The increase in our warranty cost is related to an additional warranty
that we purchase from the manufacturer on certain aircraft to cover replacement or refurbishment of
aircraft parts in accordance with manufacturer specifications. We pay a monthly fee to the
manufacturer based on flight hours for the aircraft under warranty, and the manufacturer provides
replacement parts required for maintaining the aircraft. There was also an additional charge for
workers compensation related to the accident in the Oil and Gas segment ($0.5 million). Aircraft
parts usage decreased ($1.2 million). Other operating expenses decreased, net ($1.0 million).
Selling, general and administrative expenses were $0.3 million for the three months ended June 30,
2008, compared to $0.4 million for the three months ended June 30, 2007.
Our Oil and Gas segments operating income was $16.9 million for the three months ended June 30,
2008, compared to $9.5 million for the three months ended June 30, 2007. The $7.4 million increase
was due to the increase in revenues of $10.4 million, offset by the increase in direct expenses of
$3.0 million. Operating margins were 21% for the three months ended June 30, 2008, compared to 13%
for the three months ended June 30, 2007. The improvement in operating income and margin is
primarily due to increased revenues as a result of increased medium and heavy contracted aircraft
and flight hours, and also due to contractual rate increases. The Oil and Gas segment revenues are
primarily driven by contracted aircraft and flight hours. Costs are primarily fixed and are driven
by the number of aircraft, and a portion is variable which is driven by flight hours.
Air Medical Air Medical segment revenues were $46.3 million for the three months ended June 30,
2008, compared to $39.7 million for the three months ended June 30, 2007, an increase of $6.6
million. The increase was due to the addition of nine independent provider locations since June
30, 2007 that generated $3.2 million for the quarter ended June 30, 2008, the addition of two
hospital-based contracts that generated $1.6 million for the quarter, and an increase in patient
transports in the remaining independent provider programs that generated an increase of $1.8
million. However, patient transport volume was also adversely affected during June due to the
accidents. Subsequent to the end of the quarter, transport volume resumed levels experienced just
prior to the accidents. We cannot predict the long-term effect on our business, if any. Total
patient transports were 5,942 for the three months ended June 30, 2008, compared to 5,650 for the
three months ended June 30, 2007.
Flight hours were 9,820 for the three months ended June 30, 2008, compared to 8,024 for the three
months ended June 30, 2007. The number of aircraft in the segment was 85 at June 30, 2008,
compared to 73 at June 30, 2007. Since June 30, 2007, we have sold or disposed of four light and
four medium aircraft. We added 18 light and two medium aircraft in the Air Medical segment. At
June 30, 2008, we had a total of six aircraft on order for delivery in 2008 and 2009 for the Air
Medical segment.
24
Direct expense in our Air Medical segment was $43.3 million for the three months ended June 30,
2008, compared to $33.8 million for the three months ended June 30, 2007. The $9.5 million
increase was due to increases in employee compensation costs ($4.4 million) primarily due to an
increase in personnel related to additional hospital-based contracts and additional independent
provider programs opened since June 30, 2007. Other increases included aircraft warranty costs
($1.1 million) as additional aircraft were added to manufacturers warranty programs, fuel expenses
($0.7 million) due to increased fuel costs, aircraft parts usage ($0.6 million), component repair
costs ($0.4 million), and other items, net ($0.7 million). There was also an increase in insurance
expense ($1.6 million) as a result of a charge for the retention portion of the aviation insurance
and a workers compensation amount related to accidents in the Air Medical segment in the quarter.
Selling, general and administrative expenses were $2.1 million for the three months ended June 30,
2008, compared to $1.9 million for the three months ended June 30, 2007. Air Medical operations
are headquartered in Phoenix, Arizona, where we maintain significant separate facilities and
administrative staff dedicated to this segment. Those costs are charged directly to the Air
Medical segment, resulting in higher selling, general and administrative expenses as compared to
our other reportable segments.
Our Air Medical segments operating income was $1.0 million for the three months ended June 30,
2008, compared to $3.9 million for the three months ended June 30, 2007. The operating margin was
2% for the three months ended June 30, 2008, compared to 10% for the three months ended June 30,
2007. This decrease was primarily due to the insurance charge as discussed, the decrease in
revenue as a result of the accidents, and the addition of nine independent provider locations.
Operating margins in our Air Medical segment have been lower compared to our other segments. From
early 2004 to mid 2006, we substantially increased the number of aircraft and locations in this
segment. It takes some time for new locations to grow revenues to a level that will cover their
costs and produce operating income. The accidents in this quarter affected direct expense due to
the increased insurance costs for the quarter. In addition, flight volume was unfavorably affected
following the accidents. Margins in this segment can also be affected by adverse weather
conditions, which reduces volume, and by the payor mix.
Technical Services Technical Services revenues were $1.7 million for the three months ended June
30, 2008, compared to $1.6 million for the three months ended June 30, 2007. Direct expenses in
our Technical Services segment were $1.6 million for the three months ended June 30, 2008, compared
to $1.5 million for the three months ended June 30, 2007. Our Technical Services segments
operating income was $0.1 million for the three months ended June 30, 2008 and June 30, 2007.
Technical Services provides maintenance and repairs performed for our existing customers that own
their aircraft. These services are generally labor intensive with higher operating margins as
compared to other segments. In addition, the Technical Services segment also conducts flight
operations which are unrelated to the other segments. Those flight operations are typically
conducted in the first and fourth quarters each year.
Six Months Ended June 30, 2008 compared with Six Months Ended June 30, 2007
Combined Operations
Revenues Operating revenues for the six months ended June 30, 2008 were $247.3 million,
compared to $214.7 million for the six months ended June 30, 2007, an increase of $32.6 million, or
15%. Oil and Gas operating revenues increased $19.7 million for the six months ended June 30,
2008, due to an increase in medium and heavy contracted aircraft and flight hours offset in part by decreases in light aircraft flight hours. Operating revenues in the Air Medical
segment increased $12.4 million due to
25
increased patient transports and rate
increases in the independent provider programs, and additional hospital-based contracts. There was an increase in Technical Services operating revenues of $0.5 million.
Total flight hours were 73,777 for the
six months ended June 30, 2008, compared to 70,114 for the six months ended June 30, 2007. Flight hours in the Oil and Gas segment were 54,579 for the six months ended June 30, 2008, compared to 54,690 for the six months ended June 30, 2007. Although flight hours remained constant
in the Oil and Gas segment for the six months June 30, 2008, flight hours were below 2007 amounts in the
first quarter 2008 and above 2007 amounts in the second quarter 2008. Air Medical segment flight hours for the six months
ended June 30, 2008 were 18,495 compared to 15,016 for the six months ended June 30, 2007,
an increase of 3,479 flight hours. This increase was related to higher patient transport volume in the independent provider programs
and an increase due to additional hospital-based contracts in the current year.
Other Income and Gains Gain on disposition of assets was
$4.2 million for the six months ended June 30, 2008, compared to a gain of $8.6 million for the
six months ended June 30, 2007. These amounts represent gains on sales of aircraft that no longer meet our strategic needs.
Other income was $0.5 million for the six months ended June 30,
2008, compared to $3.1 million for the six months ended June 30, 2007, and primarily represented interest income on unspent proceeds
from our April 2006 stock offering. A substantial portion of those proceeds have now been spent on acquiring new aircraft, resulting
in the decrease in interest income. In addition, recent decreases in interest rates have also affected interest income.
Direct Expenses Direct operating expense was
$208.0 million for the six months ended June 30, 2008, compared to $190.4 million for the
six months ended June 30, 2007, an increase of $17.6 million. Direct expense increased $12.7 million
in the Air Medical segment and $4.9 million in the Oil and Gas segment.
The increase in total direct expense was due to increases in employee compensation expense
($8.7 million), due to increases in personnel related to additional independent provider programs and additional hospital-based contracts
opened or commenced since the second quarter 2007, and also due to a compensation rate increase in all segments. There were
also increases in aircraft lease expense ($2.0 million), and
increased fuel costs ($6.1 million) as a result of rising fuel costs. Fuel costs in the Oil and Gas segment
are invoiced to the customer based on costs above a certain contracted amount and are included in revenue. Insurance expense
increased ($0.7 million) as a result of the charge ($1.3 million) related to accidents in the second quarter
for a retention portion that is fixed for the policy year. Our total aviation insurance cost for 2008 is expected to approximate the same
amount as last year. Other items increased, net ($0.1 million). These items are discussed in more detail in the Segment Discussion below.
Selling, General, and Administrative Expenses Selling, general and administrative expenses
were $14.9 million for the six months ended June 30, 2008 and June 30, 2007.
Interest Expense Interest expense was $7.7 million
for the six months ended June 30, 2008, compared to $8.4 million for the six months ended
June 30, 2007. The decrease was due to a decrease in borrowings under our revolving line of credit.
Income Taxes Income tax expense for the six months ended June 30, 2008 was
$8.5 million compared to $5.0 million for the six months ended June 30, 2007. The effective tax rate was
40% for the six months ended June 30, 2008, compared to 39% for the six months ended June 30, 2007.
Earnings Our net income for the six months ended June 30, 2008 was $12.8 million compared to $7.8 million for the six months ended June 30, 2007. Earnings before income taxes for the six months ended June 30, 2008 were $21.4 million compared to $12.8 million for
the same period in 2007. Earnings per diluted share were $0.84 for the six months ended June 30, 2008, compared to
earnings per diluted share
26
of $0.51 for the prior year period. We had 15.3 million common shares outstanding during the six months ended June 30,
2008 and June 30, 2007. Included in earnings before tax for the six months ended June 30, 2008 are gains on disposition of assets of $4.2 million and a
$2.1 million charge for our aviation insurance and workers compensation as mentioned previously. There were $8.6 million of gains on disposition of
assets in the same period of 2007.
Segment Discussion
Oil and Gas Oil and Gas segment revenues were $156.7 million for the six months ended June 30, 2008,
compared to $137.0 million for the six months ended June 30, 2007, an increase of $19.7 million or 14%. Flight hours were 54,579 for the current year
compared to 54,690 for the same period in 2007. Although flight hours for the segment remained constant for the six month period, flight hours increased in the second
quarter 2008 compared to the same quarter in the prior year. Additionally, there was a shift in flight hours from light aircraft to heavy and medium aircraft
resulting in increased segment revenues.
Direct expense in our Oil and Gas segment was $124.1 million for the six months ended June 30, 2008,
compared to $119.2 million for the six months ended June 30, 2007, an increase of $4.9 million. Fuel expenses increased ($5.1 million) as a result of
rising fuel costs. Reimbursement of a portion of fuel costs above a contracted per gallon amount is included in revenue and total fuel cost is included in direct expense.
Aircraft warranty costs increased ($2.8 million) due to additional aircraft added to the fleet. All new aircraft come with a manufacturers warranty that covers
defective parts. The increase in our warranty cost is related to an additional warranty that we purchase from the manufacturer on certain aircraft to cover replacement or
refurbishment of aircraft parts in accordance with manufacturer specifications. We pay a monthly fee to the manufacturer based on flight hours for the aircraft that are
covered under this warranty. In return, the manufacturer provides replacement parts required for maintaining the aircraft. Aircraft parts usage decreased
($3.0 million) due to additional aircraft being on the manufacturers warranty program and also due the age of the aircraft fleet that is a result of the
recent acquisition of new aircraft. There was also an additional workers compensation expense ($0.5 million) related to the accident in Oil and Gas as
previously mentioned.
Selling, general and administrative expenses were $0.7 million for the six months ended
June 30, 2008, compared to $0.8 million for the six months ended June 30, 2007.
Our Oil and Gas segments operating income was $31.9 million for the six months ended June 30, 2008,
compared to $17.0 million for the six months ended June 30, 2007. The $14.9 million increase was due to the increase in revenues of $19.7 million,
offset by the increase in direct expenses of $4.9 million.
Operating margins were 20% for the six months ended June 30, 2008, compared to 12% for the six months
ended June 30, 2007. The improvement in operating income and margin is primarily due to increased medium and heavy contracted aircraft and increased flight hours, and
also due to contractual rate increases. The Oil and Gas segment revenues are primarily driven by contracted aircraft and flight hours. Costs are primarily fixed and are
driven by the number of aircraft, and a portion is variable which is driven by flight hours.
Air Medical Air Medical segment revenues were $85.6 million for the six months ended
June 30, 2008, compared to $73.2 million for the six months ended June 30, 2007, an increase of $12.4 million or 17%. The increase was primarily
related to an increase in patient transports and rate increases in the independent provider programs. Patient transports were 11,422 for the six months ended
June 30, 2008, compared to 10,572 for the six months ended June 30, 2007. There was also an increase in hospital-based contracts for the period
ended June 30, 2008, due to additional contract awards. Flight hours were 18,495 for the six months ended June 30, 2008, compared to 15,016 for the six
months ended June 30, 2007.
Direct expense in our Air Medical segment was $80.4 million for the six months ended June 30, 2008, compared to $67.6 million for the six months ended June 30, 2007. The $12.8 million increase was due
27
to increases in employee compensation costs ($6.8 million) primarily due to an increase in
personnel related to additional hospital-based contracts and additional independent provider
programs opened or commenced since June 30, 2007. Other increases included aircraft warranty costs
($1.6 million) as additional aircraft were added to manufacturers warranty programs, fuel expenses
($1.0 million) due to increased fuel costs, aircraft parts usage ($0.6 million), component repair
costs ($0.7 million), and other items, net ($0.5 million). There was also an increase in insurance
expense ($1.6 million) as a result of a charge for the retention portion of the aviation insurance
and a workers compensation amount related to accidents in the Air Medical segment in the quarter
as previously discussed.
Selling, general and administrative expenses were $4.2 million for the six months ended June 30,
2008, compared to $3.8 million for the six months ended June 30, 2007. Air Medical operations are
headquartered in Phoenix, Arizona, where we maintain significant separate facilities and
administrative staff dedicated to this segment. Those costs are charged directly to the Air
Medical segment, resulting in higher selling, general and administrative expenses as compared to
our other reportable segments.
Our Air Medical segments operating income was $1.0 million for the six months ended June 30, 2008,
compared to $1.7 million for the six months ended June 30, 2007. The operating margin was 1% for
the six months ended June 30, 2008, compared to 2% for the six months ended June 30, 2007. This
decrease was primarily due to the addition of nine independent provider locations, the insurance
charge as discussed, and the decrease in revenue as a result of the accidents.
Operating margins in our Air Medical segment have been lower compared to our other segments. From
early 2004 to mid 2006, we substantially increased the number of aircraft and locations in this
segment. It takes some time for new locations to grow revenues to a level that will cover their
costs and produce operating income. The accidents in this quarter affected direct expense due to
the increased insurance expense. In addition, flight volume was unfavorably affected following the
accidents. The pilots strike also adversely affected progress in achieving better margins in this
segment. Margins in this segment can also be affected by adverse weather conditions, which
reduces volume, and by the payor mix.
Technical Services Technical Services revenues were $5.0 million for the six months ended June
30, 2008, compared to $4.5 million for the six months ended June 30, 2007. Direct expenses in our
Technical Services segment were $3.5 million for the six months ended June 30, 2008 and June 30,
2007. Our Technical Services segments operating income was $1.5 million for the six months ended
June 30, 2008, compared to operating income of $1.0 million for the six months ended June 30, 2007.
Technical Services provides maintenance and repairs performed for our existing customers that own
their aircraft. These services are generally labor intensive with higher operating margins as
compared to other segments. In addition, the Technical Services segment also conducts flight
operations which are unrelated to the other segments. Those flight operations are typically
conducted in the first and fourth quarters each year.
Liquidity and Capital Resources
General
Our ongoing liquidity requirements arise primarily from the funding of working capital needs, 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. To
the extent we do not use cash, short-term investments or
28
borrowings to finance our aircraft acquisitions, we can typically enter into operating leases to fund
these acquisitions.
Cash Flow
Our cash position was $1.5 million at June 30, 2008, compared to $1.4 million at December 31, 2007.
Short-term investments were $35.5 million at June 30, 2008, compared to $63.0 million at December
31, 2007. Working capital was $166.6 million at June 30, 2008, as compared to $176.6 million at
December 31, 2007, a decrease of $10.0 million. The decrease in working capital was primarily a
result of a decrease in short-term investments of $27.5 million, an increase in accounts receivable
of $14.1 million, an increase in inventory of $3.5 million, an increase in prepaid expenses of $0.7
million, and an increase in accounts payable of $1.3 million. The decrease in short-term
investments was due to the acquisition of aircraft. The increase in accounts receivable was due to
the increased revenues. Days outstanding for accounts receivable decreased slightly from 77 as of
December 31, 2007 to 72 as of June 30, 2008.
Net cash provided by operating activities was $13.2 million for the six months ended June 30, 2008,
compared to net cash provided of $0.6 million for the quarter ended June 30, 2007, an increase of
$12.6 million. The increase was due in part to an increase in net earnings of $4.9 million, and an
increase in deferred taxes of $3.7 million due to the increased earnings. There was also a decrease
on gain on asset dispositions of $4.4 million. Capital expenditures were $38.1 million for the six
months ended June 30, 2008, compared to $61.8 million for the six months ended June 30, 2007.
Capital expenditures for 2008 included $37.1 million for aircraft purchases, upgrades, and
refurbishments. Capital expenditures for 2007 included $57.6 million for aircraft purchases,
upgrades, and refurbishments. Gross proceeds from aircraft asset dispositions were $9.0 million
for the six months ended June 30, 2008 compared to $13.3 million for the comparable period in 2007.
Credit Facility
We have a $50 million revolving credit facility with a commercial bank that expires on September 1,
2010. At June 30, 2008, we had no borrowings and $5.2 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 June 30, 2008, we were in compliance with these
covenants.
Contractual Obligations
At June 30, 2008, we had an order for six additional transport category aircraft at an approximate
cost of $127.4 million with delivery dates beginning late 2008 and continuing throughout 2009. We
also had orders for 19 medium and light aircraft. Six of these aircraft are planned for service in
the Air Medical segment, with the remaining 13 aircraft planned for service in the Oil and Gas
segment, although we may assign certain of these to the Air Medical segment as growth opportunities
are identified. The total cost of these aircraft is $98.9 million with delivery dates scheduled
throughout 2008 and 2009. We intend to fund these aircraft from existing cash, short-term
investments, and operating leases.
The table below sets out our contractual obligations as of June 30, 2008 related to our revolving
credit facility, operating lease obligations, the 7.125% Senior Notes due 2013, as well as our
aircraft purchase commitments. The operating leases are not recorded as liabilities on our balance
sheet. Each contractual obligation included in the table contains various terms, conditions, and
covenants that, if violated, accelerate the payment of that obligation. We currently lease 18
aircraft included in the lease obligations below.
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beyond |
|
|
|
Total |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New aircraft purchase
commitments (1) |
|
$ |
226,394 |
|
|
$ |
67,523 |
|
|
$ |
158,871 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Existing aircraft lease
obligations |
|
|
168,031 |
|
|
|
9,540 |
|
|
|
19,079 |
|
|
|
19,681 |
|
|
|
20,949 |
|
|
|
21,616 |
|
|
|
77,166 |
|
Other lease
obligations |
|
|
20,284 |
|
|
|
1,776 |
|
|
|
2,868 |
|
|
|
2,498 |
|
|
|
2,080 |
|
|
|
1,628 |
|
|
|
9,434 |
|
Long-term debt |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
614,709 |
|
|
$ |
78,839 |
|
|
$ |
180,818 |
|
|
$ |
22,179 |
|
|
$ |
23,029 |
|
|
$ |
23,244 |
|
|
$ |
286,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These commitments are for aircraft that we intend to fund from existing cash,
short-term investments, and operating leases. |
New Accounting Pronouncements
For a discussion of applicable new accounting pronouncements, see Note 7 to the Condensed
Consolidated Financial Statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The fair market value of our 7.125% Senior Notes will vary as changes occur to general market
interest rates, the remaining maturity of the notes, and our credit worthiness. At June 30, 2008,
the market value of the notes was approximately $188.5 million, based on quoted market indications.
Item 4. CONTROLS AND PROCEDURES
The Companys management, with the participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by
this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that the design and operation of our disclosure controls and procedures were
effective as of such date to provide assurance that information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission, including assurance that such information is
accumulated and communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting that occurred during
our most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
30
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
For information regarding Legal Proceedings, see Item 3 of our 2007 Form 10-K. There have been no
material developments regarding those proceedings and no new material legal proceedings.
Item 1. A. RISK FACTORS
There have been no material changes from the Risk Factors in Item 1.A. of our 2007 Form 10-K.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At an annual meeting of stockholders on May 6, 2008, the following proposals were adopted by the
margins indicated:
|
1. |
|
To approve an increase in the number of authorized shares of non-voting common
stock from 12.5 million to 25 million shares. |
|
|
|
|
|
For |
|
|
1,516,580 |
|
Against |
|
|
0 |
|
Abstain |
|
|
0 |
|
|
2. |
|
To elect a Board of Directors to hold office until the next annual meeting of
stockholders and until their successors are elected and qualified. |
|
|
|
|
|
|
|
|
|
Name of Director |
|
Number of Shares |
|
|
|
For |
|
|
Withheld |
|
|
Al A. Gonsoulin |
|
|
1,500,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Lance F. Bospflug |
|
|
1,500,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Arthur J. Breault, Jr. |
|
|
1,500,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
C. Russell Luigs |
|
|
1,500,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Richard H. Matzke |
|
|
1,500,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Thomas H. Murphy |
|
|
1,500,580 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Item 5. OTHER INFORMATION
None.
31
Item 6. EXHIBITS
(a) Exhibits
|
3.1 |
|
(i) Composite Articles of Incorporation of the Company (reflecting all
amendments through May 6, 2008). |
|
(ii) |
|
Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.1 to PHIs Report on Form 8-K filed December 18, 2007). |
|
4.1 |
|
Amended and Restated Loan Agreement dated as of March 31, 2008 by and among
PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline
Airmotive, Inc.), and International Helicopter Transport, Inc. and Whitney National
Bank (incorporated by reference to Exhibit 4.1 to PHIs Report on Form 10-Q filed on
May 8, 2008). |
|
|
4.2 |
|
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). |
|
|
4.3 |
|
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). |
|
|
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chairman and Chief Executive Officer. |
|
|
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer. |
|
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chairman and Chief Executive Officer. |
|
|
32.2 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer. |
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
PHI, Inc.
|
|
August 7, 2008 |
By: |
/s/ Al A. Gonsoulin
|
|
|
|
Al A. Gonsoulin |
|
|
|
Chairman and Chief Executive Officer |
|
|
|
|
|
August 7, 2008 |
By: |
/s/ Michael J. McCann
|
|
|
|
Michael J. McCann |
|
|
|
Chief Financial Officer |
|
33
Index
To Exhibits
|
3.1 |
|
(i) Composite Articles of Incorporation of the Company (reflecting all amendments through May
6, 2008). |
|
(ii) |
|
Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.1 to PHIs Report on Form 8-K filed December 18, 2007). |
|
4.1 |
|
Amended and Restated Loan Agreement dated as of March 31, 2008 by and among
PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline
Airmotive, Inc.), and International Helicopter Transport, Inc. and Whitney National
Bank (incorporated by reference to Exhibit 4.1 to PHIs Report on Form 10-Q filed on
May 8, 2008). |
|
|
4.2 |
|
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). |
|
|
4.3 |
|
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). |
|
|
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chairman and Chief Executive Officer. |
|
|
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer. |
|
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chairman and Chief Executive Officer. |
|
|
32.2 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer. |
34