þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Louisiana | 72-0395707 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of Each Class | Name of Each Exchange on Which Registered | |
Voting Common Stock | The NASDAQ Global Market | |
Non-Voting Common Stock | The NASDAQ Global Market |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Voting Common Stock
|
2,852,616 shares. | |
Non-Voting Common Stock | 12,448,992 shares. |
PART I |
||||||||
Item 1. | 1 | |||||||
Item 1A. | 4 | |||||||
Item 1B. | 10 | |||||||
Item 2. | 11 | |||||||
Item 3. | 12 | |||||||
Item 4. | 13 | |||||||
PART II |
||||||||
Item 5. | 13 | |||||||
Item 6. | 15 | |||||||
Item 7. | 15 | |||||||
Item 7A. | 26 | |||||||
Item 8. | 27 | |||||||
PHI, Inc. and Consolidated Subsidiaries: |
||||||||
27 | ||||||||
28 | ||||||||
29 | ||||||||
30 | ||||||||
31 | ||||||||
32 | ||||||||
Item 9. | 56 | |||||||
Item 9A. | 56 | |||||||
57 | ||||||||
Item 9B. | 58 | |||||||
PART III |
||||||||
Item 10. | 58 | |||||||
Item 11. | 58 | |||||||
Item 12. | 58 | |||||||
Item 13. | 58 | |||||||
Item 14. | 58 | |||||||
PART IV |
||||||||
Item 15. | 59 | |||||||
Signatures |
62 | |||||||
EX-10.1 | ||||||||
EX-21.1 | ||||||||
EX-23.1 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
i
ITEM 1. | BUSINESS |
1
Revenue | Accounts Receivable | |||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
Gross billings |
100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
Provision for contractual discounts |
47 | % | 44 | % | 42 | % | 35 | % | 33 | % | 32 | % | ||||||||||||
Provision for uncompensated care |
11 | % | 12 | % | 12 | % | 20 | % | 20 | % | 22 | % |
Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Medicaid |
11 | % | 10 | % | 11 | % | ||||||
Medicare |
18 | % | 16 | % | 14 | % | ||||||
Insurance |
67 | % | 71 | % | 70 | % | ||||||
Self Pay |
4 | % | 3 | % | 5 | % |
2
3
ITEM 1A. | Risk Factors |
4
| the tropical storm and hurricane season in the Gulf of Mexico; | |
| poor weather conditions that often prevail during winter and can develop in any season; and | |
| reduced daylight hours during the winter months. |
5
6
| political, social and economic instability; | |
| terrorism, kidnapping and extortion; | |
| potential seizure or nationalization of assets; | |
| import-export quotas; and | |
| currency fluctuations or devaluation. |
| the awarding of contracts to local contractors; | |
| the employment of local citizens; and | |
| the establishment of foreign subsidiaries with significant ownership positions reserved by the foreign government for local ownership. |
| the supply of, and demand for, oil and natural gas and market expectations regarding supply and demand; | |
| weather-related or other natural causes; | |
| actions of OPEC, and Middle Eastern and other oil producing countries, to control prices or change production levels; | |
| general economic conditions in the United States and worldwide; | |
| war, civil unrest or terrorist activities; | |
| governmental regulation; and | |
| the price and availability of alternative fuels. |
7
8
| require us to dedicate a substantial portion of our cash flow from operations to pay principal of, and interest on, our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures or other general corporate purposes, or to carry out other aspects of our business plan; | |
| increase our vulnerability to general adverse economic and industry conditions and limit our ability to withstand competitive pressures; | |
| limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities; | |
| place us at a competitive disadvantage compared to our competitors that have less debt; and | |
| limit our ability to obtain additional financing for working capital, capital expenditures and other aspects of our business plan. |
9
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
10
ITEM 2. | PROPERTIES |
Appr. Range | ||||||||||||||||||
Manufacturer | Type | Number in Fleet | Engine | Passengers | Cruise Speed (mph) | (miles)(2) | ||||||||||||
Light Aircraft |
||||||||||||||||||
Bell |
206 / 407 | 100 | Turbine | 4 6 | 130 150 | 300 420 | ||||||||||||
Eurocopter |
BK-117 / BO-105 | 8 | Twin Turbine | 4 6 | 135 | 255 270 | ||||||||||||
Eurocopter |
EC-135 (1) | 35 | Twin Turbine | 7 | 143 | 382 | ||||||||||||
Aerospatiale |
AS350 B2 / B3 | 23 | Turbine | 5 | 140 | 337 385 | ||||||||||||
Medium Aircraft |
||||||||||||||||||
Bell |
212 (1) / 222 (1) | |||||||||||||||||
230 (1) / 412 (1) / 430 (1) | 16 | Twin Turbine | 8 13 | 115 160 | 300 370 | |||||||||||||
Sikorsky |
S-76 (1) A++, C+, C++ | 47 | Twin Turbine | 12 | 150 | 400 | ||||||||||||
Transport Aircraft |
||||||||||||||||||
Sikorsky |
S-92A(1) | 11 | Twin Turbine | 19 | 160 | 495 | ||||||||||||
Total Helicopters | 240 | |||||||||||||||||
Fixed Wing |
||||||||||||||||||
Rockwell(3) |
Aero Commander | 2 | Turboprop | 6 | 300 340 | 1,200 1,600 | ||||||||||||
Lear Jet(4) |
31A(1) | 1 | Turbojet | 8 | 527 | 1,437 | ||||||||||||
Cessna(4) |
Conquest 441 (1) | 3 | Turboprop | 6 | 330 | 1,200 | ||||||||||||
Beech(4) |
King Air(1) | 3 | Turboprop | 8 | 300 | 1,380 | ||||||||||||
Total Fixed Wing | 9 | |||||||||||||||||
Total Aircraft | 249 | |||||||||||||||||
(1) | Equipped to fly under instrument flight rules (IFR). All other types listed can only fly under visual flight rules (VFR). See Item 1A. Business Risk Factors, Risks Inherent In Our Business Our operations are affected by adverse weather conditions and seasonal factors. | |
(2) | Based on maintaining a 30-minute fuel reserve. | |
(3) | Aircraft used for corporate purposes. | |
(4) | Aircraft used in the Air Medical segment. |
11
Facility | Lease Expiration | Area | Facilities | Comments | ||||
Morgan City (Louisiana) |
June 30, 2013 | 53 acres | Operational and maintenance facilities, landing pads for 46 helicopters | Options to extend to June 30, 2018 | ||||
Intracoastal City (Louisiana) |
December 31, 2010 | 18 acres | Operational and maintenance facilities, landing pads for 45 helicopters | Options to extend to December 31, 2010 | ||||
Houma-Terrebonne Airport (Louisiana) |
July 31, 2017 | 91 acres | Operational and maintenance facilities, landing pads for 30 helicopters | Facility under four separate leases, of which two contain options to extend thru 2027 | ||||
Galveston (Texas)
|
May 31, 2021 | 4 acres | Operational and maintenance facilities, landing pads for 30 helicopters | Lease period to May 31, 2021 with certain cancellation provisions | ||||
Fourchon (Louisiana) |
February 28, 2013 | 8 acres | Operational and maintenance facilities, landing pads for 10 helicopters | Facility under three separate leases, of which two contain options to extend thru 2026 and 2028. |
ITEM 3. | LEGAL PROCEEDINGS |
12
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Voting | Non-Voting | |||||||||||||||
Period | High | Low | High | Low | ||||||||||||
January 1, 2008 to March 31, 2008 |
$ | 33.38 | $ | 26.08 | $ | 33.18 | $ | 28.06 | ||||||||
April 1, 2008 to June 30, 2008 |
42.00 | 30.50 | 40.69 | 32.14 | ||||||||||||
July 1, 2008 to September 30, 2008 |
42.78 | 33.65 | 41.74 | 35.17 | ||||||||||||
October 1, 2008 to December 31, 2008 |
39.74 | 12.20 | 36.99 | 8.82 | ||||||||||||
January 1, 2007 to March 31, 2007 |
$ | 34.10 | $ | 23.45 | $ | 33.30 | $ | 25.03 | ||||||||
April 1, 2007 to June 30, 2007 |
32.16 | 26.04 | 30.72 | 25.02 | ||||||||||||
July 1, 2007 to September 30, 2007 |
34.00 | 19.94 | 34.69 | 27.02 | ||||||||||||
October 1, 2007 to December 31, 2007 |
34.49 | 28.85 | 35.38 | 28.39 |
13
Index | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||||
PHI |
100.00 | 105.22 | 126.53 | 134.69 | 126.61 | 57.18 | ||||||||||||||||||
Peer Group |
100.00 | 127.59 | 158.01 | 208.34 | 251.83 | 145.29 | ||||||||||||||||||
OSX |
100.00 | 131.92 | 193.87 | 212.77 | 321.03 | 129.21 | ||||||||||||||||||
Russell 2000 |
100.00 | 135.25 | 139.75 | 163.50 | 159.01 | 89.68 |
14
ITEM 6. | SELECTED FINANCIAL DATA |
Year Ended | ||||||||||||||||||||
December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(Thousands) | ||||||||||||||||||||
Income Statement Data |
||||||||||||||||||||
Operating revenues |
$ | 509,514 | $ | 446,406 | $ | 413,118 | $ | 363,610 | $ | 291,308 | ||||||||||
Gain on disposition of assets, net |
4,468 | 34,953 | 1,910 | 1,173 | 2,569 | |||||||||||||||
Net earnings (loss) (1) (2) (3) |
23,515 | 28,218 | (667 | ) | 14,154 | 3,972 | ||||||||||||||
Net earnings (loss) per share |
||||||||||||||||||||
Basic |
1.54 | 1.85 | (0.05 | ) | 1.76 | 0.74 | ||||||||||||||
Diluted |
1.54 | 1.85 | (0.05 | ) | 1.76 | 0.72 | ||||||||||||||
Weighted average shares outstanding |
||||||||||||||||||||
Basic |
15,295 | 15,279 | 13,911 | 8,040 | 5,383 | |||||||||||||||
Diluted |
15,301 | 15,288 | 13,911 | 8,063 | 5,486 | |||||||||||||||
Cash Flow Data |
||||||||||||||||||||
Net cash provided by operating activities |
$ | 43,798 | $ | 25,226 | $ | 30,324 | $ | 28,020 | $ | 10,905 | ||||||||||
Net cash used in investing activities |
(47,292 | ) | (19,464 | ) | (178,928 | ) | (137,464 | ) | (18,594 | ) | ||||||||||
Net cash provided by (used in) financing activities |
3,228 | (5,157 | ) | 146,388 | 108,947 | 8,275 | ||||||||||||||
Balance Sheet Data (4) |
||||||||||||||||||||
Current assets |
$ | 224,620 | $ | 230,029 | $ | 307,689 | $ | 224,265 | $ | 128,405 | ||||||||||
Working capital |
173,978 | 176,633 | 254,099 | 162,527 | 88,716 | |||||||||||||||
Property and equipment, net |
528,574 | 484,119 | 369,465 | 311,678 | 253,241 | |||||||||||||||
Total assets |
777,182 | 741,296 | 700,970 | 549,209 | 394,173 | |||||||||||||||
Total debt |
203,000 | 200,000 | 205,500 | 204,300 | 210,275 | |||||||||||||||
Shareholders equity |
452,396 | 428,669 | 400,125 | 239,051 | 109,975 |
(1) | Net earnings in 2008 includes an after tax goodwill impairment charge of $1.6 million related to our Air Medical segment. | |
(2) | Net earnings in 2007 was impacted due to the pilots strike that commenced September 20, 2006. | |
(3) | Net loss in 2006 includes an after tax charge of $7.7 million related to refinancing of our 9 3/8% Senior Notes. | |
(4) | As of the end of the period. |
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
15
16
Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Thousands of dollars) | ||||||||||||
Segment operating revenues |
||||||||||||
Oil and Gas |
$ | 324,147 | $ | 286,118 | $ | 270,707 | ||||||
Air Medical |
174,739 | 149,590 | 133,397 | |||||||||
Technical Services |
10,628 | 10,698 | 9,014 | |||||||||
Total operating revenues |
509,514 | 446,406 | 413,118 | |||||||||
Segment
direct expenses(1) |
||||||||||||
Oil and Gas |
258,160 | 250,110 | 228,797 | |||||||||
Air Medical |
160,910 | 137,703 | 130,412 | |||||||||
Technical Services |
6,883 | 6,608 | 7,063 | |||||||||
Total direct expenses |
425,953 | 394,421 | 366,272 | |||||||||
Segment selling, general and administrative expenses |
||||||||||||
Oil and Gas |
1,335 | 1,531 | 1,150 | |||||||||
Air Medical |
8,716 | 7,883 | 7,384 | |||||||||
Technical Services |
76 | 59 | 38 | |||||||||
Total selling, general and administrative expenses |
10,127 | 9,473 | 8,572 | |||||||||
Total segment direct and selling, general and administrative expenses |
436,080 | 403,894 | 374,844 | |||||||||
Net segment profit (loss) |
||||||||||||
Oil and Gas |
64,652 | 34,477 | 40,760 | |||||||||
Air Medical |
5,113 | 4,004 | (4,399 | ) | ||||||||
Technical Services |
3,669 | 4,031 | 1,913 | |||||||||
Total |
73,434 | 42,512 | 38,274 | |||||||||
Other, net (2) |
4,990 | 40,051 | 9,946 | |||||||||
Unallocated selling, general and administrative expenses |
(21,530 | ) | (20,753 | ) | (19,267 | ) | ||||||
Interest expense |
(15,515 | ) | (16,121 | ) | (17,243 | ) | ||||||
Goodwill impairment charge (3) |
(2,747 | ) | | | ||||||||
Loss on debt restructuring |
| | (12,790 | ) | ||||||||
Earnings (loss) before income taxes |
$ | 38,632 | $ | 45,689 | $ | (1,080 | ) | |||||
Flight hours |
||||||||||||
Oil and Gas |
112,341 | 107,812 | 119,503 | |||||||||
Air Medical |
36,732 | 31,341 | 29,980 | |||||||||
Technical Services |
1,613 | 1,216 | 1,497 | |||||||||
Total |
150,686 | 140,369 | 150,980 | |||||||||
Air Medical Transports |
22,647 | 21,710 | 20,808 | |||||||||
Aircraft operated at period end |
||||||||||||
Oil and Gas |
153 | 156 | 164 | |||||||||
Air Medical |
90 | 77 | 68 | |||||||||
Technical Services |
6 | 4 | 4 | |||||||||
Total (4) |
249 | 237 | 236 | |||||||||
(1) | Included in segment direct expense and unallocated selling, general, and administrative costs are the depreciation expense amounts below: |
Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
O&G |
$ | 15,408 | $ | 16,860 | $ | 17,332 | ||||||
Air Medical |
8,283 | 8,651 | 8,937 | |||||||||
Tech Services |
276 | 642 | 162 | |||||||||
Total |
23,967 | 26,153 | 26,431 | |||||||||
Unallocated SG&A |
$ | 2,977 | $ | 3,861 | $ | 3,800 | ||||||
(2) | Includes gains on disposition of property and equipment, and other income. | |
(3) | The $2.7 million goodwill impairment charge is discussed in Managements Discussion and Analysis. | |
(4) | Includes 16 aircraft as of December 31, 2008, and 12 aircraft as of December 31, 2007 and 2006 that are customer owned or leased by customers but operated by us. |
17
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21
22
Payment Due by Year | ||||||||||||||||||||||||||||
Beyond | ||||||||||||||||||||||||||||
Total | 2009 | 2010 | 2011 | 2012 | 2013 | 2013 | ||||||||||||||||||||||
(Thousands of dollars) | ||||||||||||||||||||||||||||
Aircraft lease
obligations |
191,410 | 22,823 | 23,424 | 24,692 | 25,360 | 25,725 | 69,386 | |||||||||||||||||||||
Other lease
obligations |
20,186 | 3,257 | 2,891 | 2,364 | 1,761 | 1,374 | 8,539 | |||||||||||||||||||||
Long term debt |
203,000 | | 3,000 | | | 200,000 | | |||||||||||||||||||||
$ | 414,596 | $ | 26,080 | $ | 29,315 | $ | 27,056 | $ | 27,121 | $ | 227,099 | $ | 77,925 | |||||||||||||||
23
24
25
26
27
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 1,159 | $ | 1,425 | ||||
Short-term investments |
42,121 | 62,970 | ||||||
Accounts receivable net |
||||||||
Trade |
104,912 | 95,111 | ||||||
Other |
6,510 | 2,973 | ||||||
Inventories of spare parts net |
58,249 | 55,831 | ||||||
Other current assets |
10,687 | 11,194 | ||||||
Income taxes receivable |
982 | 525 | ||||||
Total current assets |
224,620 | 230,029 | ||||||
Other |
23,988 | 27,148 | ||||||
Property and equipment net |
528,574 | 484,119 | ||||||
Total Assets |
$ | 777,182 | $ | 741,296 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 25,449 | $ | 28,454 | ||||
Accrued liabilities |
25,193 | 24,942 | ||||||
Total current liabilities |
50,642 | 53,396 | ||||||
Long-term debt |
203,000 | 200,000 | ||||||
Deferred income taxes |
65,175 | 51,644 | ||||||
Other long-term liabilities |
5,969 | 7,587 | ||||||
Commitments and contingencies (Note 9) |
||||||||
Shareholders Equity: |
||||||||
Voting common stock par value of $0.10; |
||||||||
12,500,000 shares authorized, 2,852,616 issued and
outstanding |
285 | 285 | ||||||
Non-voting common stock par value of $0.10; |
||||||||
Shares authorized: |
||||||||
2008 25,000,000; 2007 12,500,000; |
||||||||
Issued and outstanding: |
||||||||
2008 12,448,992; 2007 12,438,992 |
1,245 | 1,244 | ||||||
Additional paid-in capital |
291,262 | 291,035 | ||||||
Accumulated other comprehensive income |
45 | 61 | ||||||
Retained earnings |
159,559 | 136,044 | ||||||
Total shareholders equity |
452,396 | 428,669 | ||||||
Total Liabilities and Shareholders Equity |
$ | 777,182 | $ | 741,296 | ||||
28
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2007 | 2006 | ||||||||||
Operating revenues |
$ | 509,514 | $ | 446,406 | $ | 413,118 | ||||||
Gain on disposition of assets, net |
4,468 | 34,953 | 1,910 | |||||||||
Other, principally interest income |
522 | 5,098 | 8,036 | |||||||||
514,504 | 486,457 | 423,064 | ||||||||||
Expenses: |
||||||||||||
Direct expenses |
425,953 | 394,421 | 366,272 | |||||||||
Selling, general and
administrative expenses |
31,657 | 30,226 | 27,839 | |||||||||
Interest expense |
15,515 | 16,121 | 17,243 | |||||||||
Goodwill impairment charges |
2,747 | | | |||||||||
Loss on debt restructuring |
| | 12,790 | |||||||||
475,872 | 440,768 | 424,144 | ||||||||||
Earnings (loss) before income taxes |
38,632 | 45,689 | (1,080 | ) | ||||||||
Income tax expense (benefit) |
15,117 | 17,471 | (413 | ) | ||||||||
Net earnings (loss) |
$ | 23,515 | $ | 28,218 | $ | (667 | ) | |||||
Earnings (loss) per share: |
||||||||||||
Basic |
$ | 1.54 | $ | 1.85 | $ | (0.05 | ) | |||||
Diluted |
$ | 1.54 | $ | 1.85 | $ | (0.05 | ) | |||||
Weighted average shares outstanding: |
||||||||||||
Basic |
15,295 | 15,279 | 13,911 | |||||||||
Diluted |
15,301 | 15,288 | 13,911 |
29
Accumulated | Total | |||||||||||||||||||||||||||||||
Voting | Non-Voting | Additional | Other Com- | Share- | ||||||||||||||||||||||||||||
Common Stock | Common Stock | Paid-in | prehensive | Retained | Holders | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income | Earnings | Equity | |||||||||||||||||||||||||
Balance at December 31, 2005 |
2,853 | $ | 285 | 7,418 | $ | 742 | $ | 129,531 | $ | | $ | 108,493 | $ | 239,051 | ||||||||||||||||||
Net loss |
| | | | | | (667 | ) | (667 | ) | ||||||||||||||||||||||
Changes in pension plan assets and
benefit obligations |
| | | | | 77 | | 77 | ||||||||||||||||||||||||
Total comprehensive loss |
(590 | ) | ||||||||||||||||||||||||||||||
Stock issuance, net |
| | 4,867 | 487 | 160,235 | | | 160,722 | ||||||||||||||||||||||||
Stock options exercised |
| | 139 | 13 | 929 | | | 942 | ||||||||||||||||||||||||
Balance at December 31, 2006 |
2,853 | 285 | 12,424 | 1,242 | 290,695 | 77 | 107,826 | 400,125 | ||||||||||||||||||||||||
Net earnings |
| | | | | | 28,218 | 28,218 | ||||||||||||||||||||||||
Changes in pension plan assets and
benefit obligations |
| | | | | (16 | ) | | (16 | ) | ||||||||||||||||||||||
Total comprehensive income |
28,202 | |||||||||||||||||||||||||||||||
Stock options exercised |
| | 15 | 2 | 340 | | | 342 | ||||||||||||||||||||||||
Balance at December 31, 2007 |
2,853 | 285 | 12,439 | 1,244 | $ | 291,035 | 61 | 136,044 | 428,669 | |||||||||||||||||||||||
Net earnings |
| | | | | | 23,515 | 23,515 | ||||||||||||||||||||||||
Changes in pension plan assets and
benefit obligations |
| | | | | (16 | ) | | (16 | ) | ||||||||||||||||||||||
Total comprehensive income |
23,499 | |||||||||||||||||||||||||||||||
Stock options exercised |
| | 10 | 1 | 227 | | | 228 | ||||||||||||||||||||||||
Balance at December 31, 2008 |
2,853 | $ | 285 | 12,449 | $ | 1,245 | $ | 291,262 | $ | 45 | $ | 159,559 | $ | 452,396 | ||||||||||||||||||
30
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2007 | 2006 | ||||||||||
Operating activities: |
||||||||||||
Net earnings (loss) |
$ | 23,515 | $ | 28,218 | $ | (667 | ) | |||||
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
26,944 | 30,047 | 30,297 | |||||||||
Goodwill impairment |
2,747 | | | |||||||||
Deferred income taxes |
13,531 | 16,498 | (1,631 | ) | ||||||||
Gain on asset dispositions |
(4,468 | ) | (34,953 | ) | (1,910 | ) | ||||||
Loss on debt restructuring |
| | 12,790 | |||||||||
Other |
922 | 868 | 806 | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
(13,338 | ) | (8,790 | ) | 1,985 | |||||||
Inventories |
(2,418 | ) | (1,492 | ) | (7,473 | ) | ||||||
Income taxes receivable |
(457 | ) | 110 | (213 | ) | |||||||
Other assets |
1,208 | (1,824 | ) | 177 | ||||||||
Accounts payable and accrued liabilities |
(2,754 | ) | (2,100 | ) | (6,679 | ) | ||||||
Other long-term liabilities |
(1,634 | ) | (1,356 | ) | 2,842 | |||||||
Net cash provided by operating activities |
43,798 | 25,226 | 30,324 | |||||||||
Investing activities: |
||||||||||||
Purchase of property and equipment |
(77,590 | ) | (159,715 | ) | (123,253 | ) | ||||||
Proceeds from asset dispositions |
18,394 | 58,105 | 36,809 | |||||||||
Purchase of short-term investments |
(43,976 | ) | (134,241 | ) | (186,339 | ) | ||||||
Proceeds from sale of short-term investments |
64,826 | 224,685 | 99,450 | |||||||||
Other |
(8,946 | ) | (8,298 | ) | (5,595 | ) | ||||||
Net cash used in investing activities |
(47,292 | ) | (19,464 | ) | (178,928 | ) | ||||||
Financing activities: |
||||||||||||
Proceeds of debt issuance Senior Notes |
| | 200,000 | |||||||||
Premium and costs to retire debt early |
| | (10,208 | ) | ||||||||
Repayment of Senior Notes |
| | (200,000 | ) | ||||||||
Debt issuance costs |
| | (4,857 | ) | ||||||||
Payments on long-term debt |
| | (1,000 | ) | ||||||||
Proceeds from line of credit |
15,800 | 37,200 | 181,900 | |||||||||
Payments on line of credit |
(12,800 | ) | (42,700 | ) | (179,700 | ) | ||||||
Proceeds from stock issuance |
| | 161,155 | |||||||||
Less related fees and expenses |
| | (433 | ) | ||||||||
Proceeds from exercise of stock options |
228 | 343 | | |||||||||
Other |
| | (469 | ) | ||||||||
Net cash provided by (used in) financing activities |
3,228 | (5,157 | ) | 146,388 | ||||||||
(Decrease) increase in cash and cash equivalents |
(266 | ) | 605 | (2,216 | ) | |||||||
Cash and cash equivalents, beginning of year |
1,425 | 820 | 3,036 | |||||||||
Cash and cash equivalents, end of year |
$ | 1,159 | $ | 1,425 | $ | 820 | ||||||
Supplemental Disclosures Cash Flow Information |
||||||||||||
Accrued payables related to purchases of property and equipment |
$ | 1,510 | $ | 1,906 | $ | | ||||||
31
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Nature of Operations, Basis of Consolidation, and Other General Principles | ||
Since its inception, PHI, Inc.s primary business has been to transport personnel and, to a lesser extent, parts and equipment, to, from and among offshore facilities for customers engaged in the oil and gas exploration, development, and production industry. The Company also provides air medical transportation services for hospitals and medical programs, and aircraft maintenance services to third parties. | ||
The consolidated financial statements include the accounts of PHI, Inc. and its subsidiaries (PHI or the Company) after the elimination of all intercompany accounts and transactions. | ||
A principal stockholder has substantial control. Al A. Gonsoulin, Chairman of the Board and Chief Executive Officer, beneficially owns stock representing approximately 52% of the total voting power. As a result, he exercises control over the election of PHIs directors and the outcome of matters requiring a stockholder vote. | ||
Revenue Recognition | ||
The Company recognizes revenue related to aviation transportation services after the services are performed or the contractual obligations are met. Aircraft maintenance services revenues are recognized at the time the repair or services work is completed. Revenues related to emergency flights generated by the Companys Air Medical segment are recorded net of contractual allowances under agreements with third party payors when the services are provided. | ||
Use of Estimates | ||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | ||
Significant Estimates Include: |
Cash Equivalents | ||
The Company considers cash equivalents to include demand deposits. Substantially all of the Companys cash and cash equivalents are maintained in one financial institution in amounts that typically exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk. | ||
Short-term Investments | ||
Short-term investments consist primarily of investment funds, which represent funds available for current operations. In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, these short-term investments are classified as available for sale. The Company has not |
32
recorded any unrealized gains or losses associated with short-term investments as the carrying value approximates fair value at December 31, 2008 and 2007. |
Investments included in Other Assets as detailed in Note 7 are comprised of mutual funds. These investments are amounts related to the liability for the Officers Deferred Compensation Plan. | ||
Inventories of Spare Parts | ||
The Companys inventories are stated at the lower of average cost or market and consist primarily of spare parts. Portions of the Companys inventories are used parts that are often exchanged with parts removed from aircraft, reworked to a useable condition according to manufacturers and FAA specifications, and returned to inventory. The Company uses systematic procedures to estimate the valuation of the used parts, which includes consideration of their condition and continuing utility. Reusable aircraft parts are included in inventory at the average cost of comparable parts. The rework costs are expensed as incurred. The Company also records an allowance for obsolete and slow-moving parts, relying principally on specific identification of such inventory. Valuation reserves related to obsolescence and slow-moving inventory were $7.9 million and $7.5 million at December 31, 2008 and 2007, respectively. | ||
Property and Equipment | ||
The Company records its property and equipment at cost less accumulated depreciation. For financial reporting purposes, the Company uses the straight-line method to compute depreciation based upon estimated useful lives of five to fifteen years for flight equipment and three to ten years for other equipment. Leasehold improvements are amortized over the shorter of the life of the respective lease, or the asset, and range from six to ten years. The salvage value used in calculating depreciation of aircraft ranges from 25% to 54%. The Company uses accelerated depreciation methods for tax purposes. The cost of scheduled inspections and modifications for flight equipment are charged to maintenance expense as incurred. Modifications that enhance the operating performance or extend the useful lives of the aircraft are capitalized and depreciated over the remaining life of the asset. Upon selling or otherwise disposing of property and equipment, the Company removes the cost and accumulated depreciation from the accounts and reflects any resulting gain or loss in earnings at the time of sale or other disposition. | ||
Effective July 1, 2007, the Company changed the estimated residual value of certain aircraft from 40% to 54%. The Company believes the revised amounts reflect its 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 the Companys 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 year ended December 31, 2007 was a reduction in depreciation expense of $1.6 million ($1.0 million after tax or $0.07 per diluted share). | ||
The Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to future undiscounted net cash flows that it expects the asset to generate. When an asset is determined to be impaired, the Company recognizes that impairment amount, which is measured by the amount that the carrying value of the asset exceeds its fair value. Similarly, the Company reports assets that it expects to sell at the lower of the carrying amount or fair value less costs to sell. | ||
Self-Insurance | ||
The Company maintains a self-insurance program for a portion of its health care costs. Self-insurance costs are accrued based upon the aggregate of the liability for reported claims and the estimated liability for claims incurred but not reported. The Companys insurance retention is $250,000 per claim through December 31, 2008. As of December 31, 2008 and 2007, the Company had $1.7 million and $1.5 million, respectively, of accrued liabilities related to health care claims. | ||
The Company has an offshore insurance captive to realize savings in reinsurance costs on its insurance premiums. Amounts paid to the captive in 2008 and 2007 totaled $3.1 million and $1.5 million, |
33
respectively. The financial position and operations of the insurance captive were not significant in 2008 nor 2007. The captive is fully consolidated in the accompanying financial statements. |
Concentration of Credit Risk | ||
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of short-term investments and trade accounts receivable. Short-term investments at December 31, 2008 were invested in a U.S. government money market fund, which invests primarily in treasury bills. The Company does not believe significant credit risk exists with respect to these securities at December 31, 2008. | ||
PHI conducts a majority of its business with major and independent oil and gas exploration and production companies with operations in the Gulf of Mexico. The Company also provides services to major medical centers and US governmental agencies. The Company continually evaluates the financial strength of its customers but generally does not require collateral to support the customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, current market conditions, and other information. Amounts are charged off as uncollectible when collection efforts have been exhausted. The allowance for doubtful accounts in the Oil and Gas and Technical Services segments was $0.1 million at December 31, 2008 and 2007. The Companys two largest oil and gas customers accounted for 27% of consolidated operating revenues for years ended December 31, 2008, 2007, and 2006, respectively. The Company also carried accounts receivable from these same customers totaling 20% and 22% of net trade receivables on December 31, 2008 and 2007, respectively. | ||
Trade receivables representing amounts due pursuant to air medical services are carried net of an allowance for estimated contractual adjustments and uncompensated care on unsettled invoices. The Company monitors its collection experience by payor category within the Air Medical segment and updates its estimated collections to be realized as deemed necessary. | ||
Stock Compensation | ||
Effective January 1, 2006, the Company adopted the accounting policies described in SFAS No. 123 (R), Share Based Payment. The Company chose to use the modified prospective method of transition, and accordingly, no adjustments to prior period financial statements were made. SFAS No. 123 (R) superseded Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and amended SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123 (R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Prior to January 1, 2006, the Company accounted for share-based payments to employees using the intrinsic value method and, as such, generally recognized no compensation expense for employee stock options. In September 2001, the Company underwent a change of control and as a result, all awards issued prior to the change of control became fully vested. The Company has not issued any shares, options, or rights under its stock plan since 2001. As no employee stock options were granted in 2008 and 2007, the adoption of SFAS No. 123 (R) had no impact on the Companys results of operations for the years ended December 31, 2008 and 2007. | ||
Stock-based employee compensation expense relates to restricted stock grants and stock options that were settled for cash. The employee compensation expense for stock grants and options settled for cash was $0 for 2008, 2007, and 2006. There have been no stock awards granted since 2001. | ||
Income Taxes | ||
The Company provides for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The deferred tax assets and liabilities measurement uses enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The |
34
Company recognizes the effect of any tax rate changes in income of the period that included the enactment date. |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN No. 48), which clarifies the accounting and disclosure for uncertain tax positions, as defined. FIN No. 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. On January 1, 2007, the Company adopted the provisions of FIN No. 48. Based on the Companys evaluation, the Company concluded that there are no material uncertain tax positions, either individually or in the aggregate, requiring recognition in their financial statements. The Companys evaluation was performed for the tax years ended December 31, 2001 to 2006, the tax years which remained subject to examination by major tax jurisdictions. | ||
Based on a review and evaluation at December 31, 2008, it was determined that there are no material tax positions requiring recognition for the current tax year. The Companys evaluation was performed for the tax years ended December 31, 2004 to 2008, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2008. | ||
Earnings per Share | ||
The Company computes basic earnings per share by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. The diluted earnings per share computation uses the weighted average number of shares outstanding adjusted for incremental shares attributed to dilutive outstanding options to purchase common stock. | ||
Deferred Financing Costs | ||
Costs of obtaining long term debt financing are deferred and amortized ratably over the term of the related debt agreement. | ||
Derivative Financial Instruments | ||
The Company has not engaged in activities involving financial derivatives during the years 2008, 2007, and 2006. | ||
New Accounting Pronouncements | ||
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. The objective of this statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management does not anticipate that implementation of SFAS No. 141(R) will have a material impact on the Companys consolidated financial statements. | ||
The Company adopted SFAS No. 157, Fair Value Measurements, beginning in its 2008 fiscal year and there was no material impact to its consolidated 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. |
35
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: |
December 31, 2008 | ||||||||||||
Quoted market | Significant Other | |||||||||||
prices in active | Observable Inputs | |||||||||||
Total | markets (Level 1) | (Level 2) | ||||||||||
(Thousands of dollars) | ||||||||||||
Short-term investments |
$ | 42,121 | | $ | 42,121 | |||||||
Investments included in other assets |
3,297 | | 3,297 | |||||||||
Total |
$ | 45,418 | | $ | 45,418 | |||||||
The Company holds its short-term investments in an investment fund consisting mainly of government backed securities, which is classified as a short-term investment. Investments included in other assets consist mainly of multiple investment funds that are highly liquid and diversified. | ||
In February 2007, the 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. | ||
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 any impact on the Companys consolidated financial statements. | ||
In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, which delays the effective date of SFAS No. 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The delay is intended to allow the FASB and constituents additional time to consider the effect of various implementation issues that have arisen, or that may arise, from the application of SFAS No. 157. Management does not anticipate that implementation of FSP No. 157-2 will have any impact on the Companys consolidated 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 any impact on the Companys consolidated 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 |
36
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 material impact on the Companys consolidated 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 material impact on the Companys consolidated financial statements. | ||
In December 2008, the FASB issued FSP No. 132(R)-1, which amends SFAS No. 132(R), Employers Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employers disclosures about plan assets of a defined benefit pension or other postretirement plan. The disclosures about plan assets required by this FSP No. 132(R)-1 shall be provided for fiscal years ending after December 15, 2009. Upon initial application, the provisions of this FSP No. 132(R)-1 are not required for earlier periods that are presented for comparative purposes. Management does not currently expect that implementation of FSP No. 132(R)-1 will have a material impact on the Companys consolidated financial statements. | ||
Comprehensive Income | ||
Comprehensive income includes net earnings and other comprehensive income items such as revenues, expenses, gains or losses that under generally accepted accounting principles are included in comprehensive income, but excluded from net income. | ||
The following table summarizes the components of total comprehensive income (net of taxes): |
Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Thousands of dollars) | ||||||||||||
Net earnings (loss) |
$ | 23,515 | $ | 28,218 | $ | (667 | ) | |||||
Changes in
pension plan assets and benefit obligations |
(16 | ) | (16 | ) | 77 | |||||||
Comprehensive income (loss) |
$ | 23,499 | $ | 28,202 | $ | (590 | ) | |||||
Goodwill | ||
Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. In accordance with the provisions of SFAS No. 142, goodwill is reviewed for impairment annually, as of December 31 for the most recent completed fiscal year, or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill is tested for impairment at the reporting unit level using a two-step process. The first step of the impairment test identifies potential impairment by comparing the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step of the impairment test is not required. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. |
37
In the fourth quarter of 2008, the Company recorded a non-cash charge for the impairment of goodwill totaling $2.7 million related to a 2004 acquisition as part of planned expansion in the Air Medical segment. The Company performed its required annual impairment test for goodwill using a discounted cash flow analysis supported by comparative market multiples to determine the fair values of the Air Medical segment compared to their book values. The test, as of December 31, 2008, indicated that the book values for the Air Medical segment exceeded the fair values of the segment on that basis. The impairment charge is primarily driven by adverse equity market conditions, which caused a decrease in current market multiples as of December 31, 2008, compared with the test performed as of December 31, 2007. As a result of this charge, the Company does not have any goodwill recorded at December 31, 2008. | ||
(2) | PROPERTY AND EQUIPMENT | |
The following table summarizes the Companys property and equipment at December 31, 2008 and 2007. |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
(Thousands of dollars) | ||||||||
Flight equipment |
$ | 635,733 | $ | 583,076 | ||||
Facility & improvements |
30,406 | 27,610 | ||||||
Operating equipment |
18,477 | 16,843 | ||||||
Data processing equipment |
24,153 | 23,709 | ||||||
Vehicles |
5,957 | 5,253 | ||||||
Medical equipment |
3,993 | 3,556 | ||||||
Other |
7,256 | 4,858 | ||||||
725,975 | 664,905 | |||||||
Less accumulated depreciation and
amortization |
(197,401 | ) | (180,786 | ) | ||||
Property and equipment, net |
$ | 528,574 | $ | 484,119 | ||||
Gain on equipment dispositions was $4.5 million for 2008 compared to $35.0 million for 2007. These amounts represent gains on sales of aircraft and related parts inventory that no longer meet the Companys strategic needs. | ||
(3) | ACCRUED LIABILITIES | |
Accrued liabilities consisted of the following: |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
(Thousands of dollars) | ||||||||
Salaries & wages |
$ | 7,076 | $ | 9,654 | ||||
Vacation payable |
3,619 | 3,103 | ||||||
Interest |
3,009 | 2,974 | ||||||
Operating lease |
4,271 | 2,821 | ||||||
Group medical |
1,689 | 1,480 | ||||||
Transportations tax |
1,039 | 1,195 | ||||||
Workers compensation |
1,501 | 1,332 | ||||||
Other |
2,989 | 2,383 | ||||||
Total accrued liabilities |
$ | 25,193 | $ | 24,942 | ||||
(4) | LONG-TERM DEBT | |
On April 12, 2006, the Company issued $200.0 million of 7.125% Senior Notes that mature in 2013. These Notes were offered and sold in a private placement under Rule 144A and Regulation S under the Securities Act of 1933. Net proceeds of $196.0 million were used to repurchase $184.8 million of the Companys outstanding 9 3/8% Senior Notes due 2009 pursuant to a tender offer that also closed on April 12, 2006. The total cost to repurchase those notes was $201.6 million, including the tender offer premium and accrued interest. The Company called for redemption on May 1, 2006, the remaining $15.2 million of 9 |
38
3/8% notes outstanding, at a redemption price of 104.688% of their face amount plus accrued and unpaid interest. Interest on the 7.125% notes is payable semi-annually on April 15 and October 15, and those notes mature April 15, 2013. The estimated annual interest cost of the new notes is $14.3 million, excluding amortization of issuance costs, which represents a reduction in annual interest cost on the notes of $4.5 million. As a result of the early redemption of the 9 3/8% notes, a pretax charge of $12.8 million ($7.7 million, net of tax) was recorded as a charge for debt restructuring in the quarter ended June 30, 2006, which consisted of $9.8 million for the early call premium, $2.6 million of unamortized issuance costs, and $0.4 million in related expenses for the tender of outstanding notes. | ||
The new notes contain restrictive covenants, including limitations on indebtedness, liens, dividends, repurchases of capital stock and other payments affecting restricted subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset sales, and mergers and consolidations or sales of assets. The Senior Notes are fully and unconditionally guaranteed on a joint and several senior basis by all of the Companys Guarantor Subsidiaries, which are all of the domestic subsidiaries. See Note 14 of the Notes to Consolidated Financial Statements. The Company was in compliance with the financial covenants applicable to these notes as of December 31, 2008 and 2007. | ||
The Company has a $50 million revolving credit facility with a commercial bank, which is scheduled to expire on September 1, 2010. At December 31, 2008, the Company had $3.0 million in borrowings under the revolving credit facility, and the Company had no borrowings under the credit facility at December 31, 2007. The Company had five letters of credit for $5.1 million outstanding at December 31, 2008, and four letters of credit for $4.6 million outstanding at December 31, 2007. The credit agreement permits both prime rate based borrowings and LIBOR rate borrowings plus a spread. The spread for LIBOR borrowings is from 1.25% to 3.0%. The Company will pay an annual 0.25% commitment fee on the unused portion of the revolving credit facility. The credit agreement includes covenants related to working capital, funded debt to net worth, and consolidated net worth. As of December 31, 2008 and 2007, the Company was in compliance with these covenants. The credit agreement is collateralized by accounts receivable and inventory. We reviewed interest expense in 2008 that could be capitalized for certain projects and any such amounts were immaterial. | ||
Cash paid for interest was $14.5 million, $15.4 million, and $16.5 million, for the years ended December 31, 2008, 2007, and 2006, respectively. | ||
(5) | INCOME TAXES | |
Income tax expense (benefit) is composed of the following: |
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2007 | 2006 | ||||||||||
(Thousands of dollars) | ||||||||||||
Current |
||||||||||||
Federal |
$ | | $ | | $ | | ||||||
State |
178 | | | |||||||||
Foreign |
808 | 973 | 1,175 | |||||||||
Deferred principally
Federal |
14,131 | 16,498 | (1,588 | ) | ||||||||
Total |
$ | 15,117 | $ | 17,471 | $ | (413 | ) | |||||
39
Income tax expense (benefit) as a percentage of pre-tax earnings varies from the effective Federal statutory rate of 35% as a result of the following: |
Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||
December 31, 2008 | December 31, 2007 | December 31, 2006 | ||||||||||||||||||||||
(Thousands of dollars, except percentage amounts) | ||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||||||||
Income taxes at statutory rate |
$ | 13,519 | 35 | $ | 15,991 | 35 | $ | (367 | ) | (34 | ) | |||||||||||||
Increase (decrease) in taxes
resulting from: |
||||||||||||||||||||||||
Hurricane relief credit |
(172 | ) | | (134 | ) | | | | ||||||||||||||||
Effect of state income taxes |
1371 | 3 | 1,479 | 3 | (35 | ) | (3 | ) | ||||||||||||||||
Other items net |
399 | 1 | 135 | | (11 | ) | (1 | ) | ||||||||||||||||
Total |
$ | 15,117 | 39 | $ | 17,471 | 38 | $ | (413 | ) | (38 | ) | |||||||||||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 are presented below: |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
(Thousands of dollars) | ||||||||
Deferred tax assets: |
||||||||
Deferred compensation |
$ | 1,654 | $ | 1,889 | ||||
Foreign tax credits |
6,359 | 6,466 | ||||||
Vacation accrual |
2,010 | 2,563 | ||||||
Inventory valuation |
4,164 | 4,065 | ||||||
Rental accrual |
1,634 | | ||||||
Allowance for uncollectible accounts |
19 | 19 | ||||||
Hurricane relief credit |
1,255 | 1,083 | ||||||
Goodwill impairment |
1,051 | | ||||||
Other |
347 | 770 | ||||||
Net operating loss |
34,201 | 28,464 | ||||||
Total deferred tax assets |
52,694 | 45,319 | ||||||
Valuation allowance tax credit carryforwards |
(1,320 | ) | (1,945 | ) | ||||
Total deferred tax assets, net |
51,374 | 43,374 | ||||||
Deferred tax liabilities: |
||||||||
Tax depreciation in excess of book depreciation |
(110,242 | ) | (88,331 | ) | ||||
Other |
(84 | ) | | |||||
Total deferred tax liabilities |
(110,326 | ) | (88,331 | ) | ||||
Net deferred tax liabilities |
$ | (58,952 | ) | $ | (44,957 | ) | ||
A valuation allowance was recorded against certain foreign tax credits as management believes it is more likely than not that the deferred tax asset related to certain foreign tax credit carryforwards will not be realized during their carryforward period. The estimated future U.S. taxable income, after utilization of the available net operating loss carryforwards, will limit the ability of the Company to utilize the foreign tax credit carryforwards during their carryforward period. Approximately $625,000 of net foreign tax credits, that were previously reserved for, expired during the current year. A tax credit of $0.2 million and $0.1 million was realized in 2008 and 2007 as a result of Hurricanes Katrina and Rita Legislation. At December 31, 2008 and 2007, other current assets include $6.2 million and $6.6 million, respectively, of deferred tax assets. | ||
The Company has net operating loss carryforwards (NOLs), of approximately $87.0 million that, if not used will expire beginning in 2022 through 2028. Additionally, for state income tax purposes, the Company has NOLs of approximately $98.0 million available to reduce future state taxable income. These NOLs expire in varying amounts beginning in 2012 through 2028, the majority of which expires in 2017 through |
40
2020. Most of these NOLs arose from accelerated tax depreciation deductions related to substantial aircraft additions since 2002. | ||
Income taxes paid were approximately $0.2 million, $0.02 million, and $0.1 million for the years ended December 31, 2008, 2007, and 2006, respectively. The Company received net income tax refunds of approximately $0.03 million, $0.9 million, and $0.3 million during the years ended December 31, 2008, 2007 and 2006, respectively. | ||
(6) | EMPLOYEE BENEFIT PLANS | |
Savings and Retirement Plans | ||
The Company maintains an Employee Savings Plan under Section 401(k) of the Internal Revenue Code. The Company matches 2% for every 1% of an employees salary deferral contribution, not to exceed 3% of the employees compensation. The Company contributions were $7.9 million for the year ended December 31, 2008, $7.0 million for the year ended December 31, 2007 and $6.2 million for the year ended December 31, 2006. | ||
The Company maintains a Supplemental Executive Retirement Plan (SERP). During January 2006, selected active employees were given a substitute benefit in the Officer Deferred Compensation Plan based on a calculated present value of the participants interest in the SERP, except for the four remaining retired participants. As a result, approximately $2.0 million of the SERP liability was transferred to the Deferred Compensation Liability in 2006. | ||
As of December 31, 2006, the Company adopted SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans An Amendment of FASB Statements No. 87, 88, 106 and 132(R), for its SERP plan. | ||
The Company recorded the following plan costs for the years ended December 31, 2008, 2007, and 2006. |
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Thousands of dollars) | ||||||||||||
Service cost |
$ | | $ | | $ | | ||||||
Interest cost |
80 | 56 | 64 | |||||||||
Recognized actuarial (gain) loss |
(24 | ) | (4 | ) | 62 | |||||||
Net periodic plan cost |
$ | 56 | $ | 52 | $ | 126 | ||||||
The benefit obligation, funded status, and assumptions of the plan on December 31, 2008 and 2007 were as follows: |
December 31, | ||||||||
2008 | 2007 | |||||||
(Thousands of dollars) | ||||||||
Change in benefit obligation: |
||||||||
Benefit obligation at the beginning of the year |
$ | 1,012 | $ | 1,063 | ||||
Service cost |
| | ||||||
Interest cost |
80 | 56 | ||||||
Actuarial loss (gain) |
(8 | ) | 24 | |||||
Benefits paid |
(131 | ) | (131 | ) | ||||
Transferred to deferred compensation |
| | ||||||
Benefit obligation at the end of the year |
$ | 953 | $ | 1,012 | ||||
Weighted average assumptions
Discount rate |
5.7 | % | 5.4 | % |
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The benefit obligation amounts recognized in the consolidated balance sheets as of December 31, 2008 and 2007 were as follows: |
December 31, | ||||||||
2008 | 2007 | |||||||
(Thousands of dollars) | ||||||||
Accrued liabilities |
$ | 131 | $ | 131 | ||||
Other long-term liabilities |
822 | 881 | ||||||
Total |
$ | 953 | $ | 1,012 | ||||
The other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31, 2008 and 2007 were as follows: |
December 31, | ||||||||
2008 | 2007 | |||||||
(Thousands of dollars) | ||||||||
Net loss (gain) |
$ | (8 | ) | $ | 24 | |||
Amortization of net loss (gain) |
24 | 4 | ||||||
Total recognized in other comprehensive income |
$ | 16 | $ | 28 | ||||
Total recognized in net periodic benefit cost and
other comprehensive income |
$ | 72 | $ | 80 | ||||
The estimated future benefit payments expected to be paid in each of the next five fiscal years and in the aggregate for the following five fiscal years as of December 31, 2008 are as follows (thousands of dollars): |
Years Ending December 31, | ||||
2009 |
$ | 131 | ||
2010 |
131 | |||
2011 |
131 | |||
2012 |
131 | |||
2013 |
131 | |||
Years 2014-2018 |
554 | |||
$ | 1,209 | |||
Amounts recognized in accumulated other comprehensive income consists of approximately $84,000 and $101,000 pre-tax in unrecognized actuarial gain in 2008 and 2007, respectively. | ||
The SERP plan is an unfunded arrangement. However, the Company has purchased life insurance contracts on the lives of the participants in anticipation of using the life insurances cash values and death benefits to help fulfill the obligations of the plan. The Company, as owner of such policies, may sell or redeem the contracts at any time without any obligation to the plan participants. The Company recorded expenses of approximately $0.1 million for 2008, $0.1 million for 2007, and $0.2 million for 2006 related to the life insurance contracts. Cash values of the life insurance contracts, recorded in other assets, are $0.3 million at December 31, 2008 and $0.5 million at December 31, 2007. | ||
The Company maintains an Officer Deferred Compensation Plan that permits key officers to defer a portion of their compensation. The plan is nonqualified and funded. The Company has established a separate account for each participant, which is invested and reinvested from time to time in investments that the participant selects from a list of eligible investment choices. Earnings and losses on the book reserve accounts accrue to the plan participants. Liabilities for the plan are included in other long-term liabilities, and the corresponding investment accounts are included in other assets. Aggregate amounts deferred under the plans were $3.3 million and $3.8 million, respectively, for the years December 31, 2008 and 2007. |
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Stock Based Compensation | ||
Under the PHI 1995 Incentive Plan (the 1995 Plan), the Company is authorized to issue up to 175,000 shares of voting common stock and 575,000 shares of non-voting common stock. The Compensation Committee of the Board of Directors is authorized under the 1995 Plan to grant stock options, restricted stock, stock appreciation rights, performance shares, stock awards, and cash awards. The exercise prices of the stock option grants are equal to the fair market value of the underlying stock at the date of grant. The 1995 Plan also allows awards under the plan to fully vest upon a change in control of the Company. In September of 2001, the Company underwent a change of control as defined in the 1995 plan and as a result, all awards issued prior to the change of control became fully vested. | ||
At December 31, 2008, there were 116,520 voting shares and 183,802 non-voting shares available for issuance under the 1995 Plan. The Company did not record any compensation expense related to the 1995 Plan for the years ended December 31, 2008, 2007, and 2006. There was no unearned stock compensation expense at December 31, 2008 and 2007. | ||
The following table summarizes employee and director stock option activities for the years ended December 31, 2008, 2007, and 2006. All of the options were issued with an exercise price equal to or greater than the market price of the stock at the time of issue. |
1995 | ||||||||
Plan | ||||||||
Options | Weighted | |||||||
Non- | Average | |||||||
Voting | Exercise Price | |||||||
Balance outstanding at
December 31, 2005 |
46,750 | $ | 13.87 | |||||
Options exercised |
(8,500 | ) | 12.75 | |||||
Options cancelled |
(500 | ) | 12.75 | |||||
Balance outstanding at
December 31, 2006 |
37,750 | 14.14 | ||||||
Options exercised |
(15,000 | ) | 16.25 | |||||
Balance outstanding at
December 31, 2007 |
22,750 | 12.75 | ||||||
Options exercised |
(10,000 | ) | 12.75 | |||||
Balance outstanding at
December 31, 2008 |
12,750 | 12.75 | ||||||
Shares exercisable at
December 31, 2008 |
12,750 | 12.75 | ||||||
December 31, 2007 |
22,750 | 12.75 | ||||||
December 31, 2006 |
37,750 | 14.14 | ||||||
The following table summarizes information about stock options outstanding as of December 31, 2008. All of the outstanding stock options are exercisable. |
Options Outstanding and Exercisable | ||||
Remaining | ||||
Number | Contractual | Exercise | ||
Outstanding | Life (Years) | Price | ||
12,750
|
0.5 | $12.75 |
43
Incentive Compensation | ||
In 2002, the Company 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 Companys implemented contract proposals. The plan allows the Company to pay up to 8.25% of earnings before tax upon achieving a specified earnings threshold. During 2004, the Company implemented an executive/senior management plan for certain corporate and business unit management employees. Pursuant to these plans, the Company accrued an estimated incentive compensation expense of $1.0 million for 2008. The Company also accrued $0.5 million for the Safety Incentive Bonus for 2008. For the year ended December 31, 2007, the Company accrued $4.0 million of incentive compensation expense related to the plans. For 2006, the Company did not record incentive compensation expense as certain established requirements under the plans were not met. | ||
(7) | OTHER ASSETS | |
The following table summarizes the Companys other assets at December 31, 2008 and 2007. |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
(Thousands of dollars) | ||||||||
Goodwill |
$ | | $ | 2,747 | ||||
Nonrefundable deposits on aircraft |
15,183 | 13,493 | ||||||
Deferred financing cost |
3,701 | 4,468 | ||||||
Investments (Officers Deferred Compensation Plan) |
3,519 | 4,089 | ||||||
Other |
1,585 | 2,351 | ||||||
Total |
$ | 23,988 | $ | 27,148 | ||||
During 2008 and 2007, the Company placed security deposits on aircraft to be leased or purchased. Upon delivery of the aircraft, the deposits will be applied to the lease or purchase. | ||
(8) | FINANCIAL INSTRUMENTS | |
Fair Value The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at December 31, 2008 and 2007. The table excludes cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities, all of which had fair values approximating carrying amounts. |
December 31, 2008 | December 31, 2007 | |||||||||||||||
(Thousands of dollars) | ||||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
Amounts | Fair Value | Amounts | Fair Value | |||||||||||||
Long-term debt |
$ | 203,000 | $ | 118,000 | $ | 200,000 | $ | 191,000 |
At December 31, 2008 and 2007, the fair value of long-term debt is based on Level 2 quoted market indications. | ||
(9) | COMMITMENTS AND CONTINGENCIES | |
Operating Leases The Company leases certain aircraft, facilities, and equipment used in its operations. The related lease agreements, which include both non-cancelable and month-to-month terms, generally provide for fixed monthly rentals and, for certain real estate leases, renewal options. The Company generally pays all insurance, taxes, and maintenance expenses associated with these aircraft leases and some of these leases contain renewal and purchase options at fair market values. Rental expense incurred under these leases consisted of the following: |
44
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2007 | 2006 | ||||||||||
(Thousands of dollars) | ||||||||||||
Aircraft |
$ | 20,424 | $ | 19,110 | $ | 15,663 | ||||||
Other |
6,652 | 6,715 | 5,174 | |||||||||
Total |
$ | 27,076 | $ | 25,825 | $ | 20,837 | ||||||
In September 2001, the Company began leasing a principal operating facility at Lafayette, Louisiana for twenty years. The lease expires in 2021 and has three five-year renewal options. | ||
The following table presents the remaining aggregate lease commitments under operating leases having initial non-cancelable terms in excess of one year. The table includes renewal periods on the principal operating facility lease. |
Aircraft | Other | Total | ||||||||||
(Thousands of dollars) | ||||||||||||
2009 |
$ | 22,823 | $ | 3,257 | $ | 26,080 | ||||||
2010 |
23,424 | 2,891 | 26,315 | |||||||||
2011 |
24,692 | 2,364 | 27,056 | |||||||||
2012 |
25,360 | 1,761 | 27,121 | |||||||||
2013 |
25,725 | 1,374 | 27,099 | |||||||||
Thereafter |
69,386 | 8,539 | 77,925 | |||||||||
$ | 191,410 | $ | 20,186 | $ | 211,596 | |||||||
Purchase Commitments The Company expects to finance the acquisition of new aircraft, discussed below, with existing cash and cash equivalents, short-term investments, operating leases, or some combination thereof. There are no purchase commitments other than those listed below. | ||
In 2008, the Company took delivery of one transport category aircraft, four medium aircraft and four light aircraft for service in the Oil and Gas segment. The Company also took delivery of eight light aircraft for service in the Air Medical segment. | ||
At December 31, 2008, the Company had an order for five additional transport category aircraft, with scheduled delivery dates throughout 2009. The approximate cost for these aircraft is $107.2 million. | ||
At December 31, 2008, the Company also had orders for two light aircraft with a total cost of $7.8 million. These aircraft were delivered in January 2009. | ||
Environmental Matters The Company has an aggregate estimated liability of $0.2 million as of December 31, 2008 and 2007 for environmental remediation costs that are probable and estimable. The Company has conducted environmental surveys of its former Lafayette facility, which it vacated in 2001, and has determined that limited soil and groundwater contamination exists at the facility. The Company has installed groundwater monitoring wells at the facility and periodically monitors and reports on the contamination. The Company previously submitted a Louisiana Risk Evaluation/Corrective Action Plan (RECAP) Standard Site Assessment Report to the Louisiana Department of Environmental Quality (LDEQ) fully delineating the extent and type of contamination and updated the report to include recent analytical data. LDEQ is reviewing the assessment report. Once LDEQ completes its review and reports on whether all contamination has been fully defined, a risk evaluation in accordance with RECAP will be submitted and evaluated by LDEQ. At that point, LDEQ will establish what cleanup standards must be met at the site. When the process is complete, the Company will be in a position to develop an appropriate remediation plan and determine the resulting cost of remediation. The Company has not recorded any estimated liability for remediation and contamination and, based upon the May 2003 Site Assessment Report, the April 2006 update and ongoing monitoring, it believes the ultimate remediation costs for the |
45
former Lafayette facility will not be material to its consolidated financial position, results of operations, or cash flows. | ||
Legal Matters The Company is named as a defendant in various legal actions that have arisen in the ordinary course of business and have not been finally adjudicated. In the opinion of management, the amount of the ultimate liability with respect to these actions will not have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows. | ||
Employee Matters 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. The pilots commenced a strike in September 2006, and a court approved return to work process began in January 2007 for those pilots who had not already returned to work or terminated, and this was essentially completed in April 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 date on strike-related matters has been postponed from November 3, 2008 until June 29, 2009. It is not possible to assess the outcome of that litigation, as these matters are still in the discovery stage. However, management does not expect the outcome of this litigation to have a material adverse effect on our financial conditions, results of operations, or cash flows. | ||
(10) | BUSINESS SEGMENTS AND GEOGRAPHIC AREAS | |
PHI is primarily a provider of helicopter services, including helicopter maintenance and repair services. The Company has used a combination of factors to identify its reportable segments as required by Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131). The overriding determination of the Companys segments is based on how the chief operating decision-maker of the Company evaluates the Companys results of operations. The underlying factors include customer bases, types of service, operational management, physical locations, and underlying economic characteristics of the types of work the Company performs. Prior to the change in the Companys reportable segments described below, the Company had four segments that met the requirements of SFAS 131 for disclosure. The reportable segments were Oil and Gas, Air Medical, International, and Technical Services. | ||
During the quarter ended March 31, 2007, the Company combined the oil and gas customers that were previously included in its International segment into the Companys Domestic Oil and Gas segment, and eliminated the term Domestic from that segment. Additionally, the contract work previously included in the International segment for the National Science Foundation is now included in the Technical Services segment. Therefore, there are now three reportable segments: Oil and Gas, Air Medical, and Technical Services. All prior periods have been recast to conform to the 2007 presentation. | ||
The Oil and Gas segment provides helicopter services to oil and gas customers operating in the Gulf of Mexico, Angola, and the Democratic Republic of Congo. The Air Medical segment provides helicopter services to hospitals and medical programs in several U.S. states, and also to individuals under which the Company is paid by either a commercial insurance company, federal or state agency, or the patient. The Companys Air Evac subsidiary is included in the Air Medical segment. The Technical Services segment provides helicopter repair and overhaul services for existing flight operations customers. The Company also operates six aircraft for the National Science Foundation in Antarctica under the Technical Services segment. | ||
Each segment has a portion of selling, general and administrative expenses 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 expenses is based primarily on total segment costs as a percentage of total operating costs. | ||
Air Medical operations are headquartered in Phoenix, AZ, where the Company maintains 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. |
46
Customers of the Company consist principally of major integrated energy companies and independent exploration and production companies. The customers, individually or considered as a group under common ownership, which accounted for greater than 10% of accounts receivable or 10% of operating revenues during the periods reflected were as follows: |
Accounts Receivable | Operating Revenues | |||||||||
December 31, | Years Ended December 31, | |||||||||
2008 | 2007 | 2008 | 2007 | 2006 | ||||||
Customer A Customer B |
10% 10% |
11% 11% |
14% 13% |
15% 12% |
17% 10% |
The following table shows information about the profit or loss and assets of each of the Companys reportable segments for the years ended December 31, 2008, 2007, and 2006. The information contains certain allocations, including allocations of depreciation, rents, insurance, and overhead expenses that the Company deems reasonable and appropriate for the evaluation of results of operations. The Company does not allocate gains on dispositions of property and equipment, other income, interest expense, and corporate selling, general, and administrative expenses to the segments. Where applicable, the tables present the unallocated amounts to reconcile the totals to the Companys consolidated financial statements. Segment assets are determined by where they are situated at period-end. Corporate assets are principally cash and cash equivalents, short-term investments, other assets, and certain property, and equipment. |
Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Thousands of dollars) | ||||||||||||
Segment operating revenues |
||||||||||||
Oil and Gas |
$ | 324,147 | $ | 286,118 | $ | 270,707 | ||||||
Air Medical |
174,739 | 149,590 | 133,397 | |||||||||
Technical Services |
10,628 | 10,698 | 9,014 | |||||||||
Total operating revenues |
509,514 | 446,406 | 413,118 | |||||||||
Segment direct expenses |
||||||||||||
Oil and Gas |
258,160 | 250,110 | 228,797 | |||||||||
Air Medical |
160,910 | 137,703 | 130,412 | |||||||||
Technical Services |
6,883 | 6,608 | 7,063 | |||||||||
Total direct expenses |
425,953 | 394,421 | 366,272 | |||||||||
Segment selling, general and administrative expenses |
||||||||||||
Oil and Gas |
1,335 | 1,531 | 1,150 | |||||||||
Air Medical |
8,716 | 7,883 | 7,384 | |||||||||
Technical Services |
76 | 59 | 38 | |||||||||
Total selling, general and administrative expenses |
10,127 | 9,473 | 8,572 | |||||||||
Total direct and selling, general and administrative
expenses |
436,080 | 403,894 | 374,844 | |||||||||
Net segment profit (loss) |
||||||||||||
Oil and Gas |
64,652 | 34,477 | 40,760 | |||||||||
Air Medical |
5,113 | 4,004 | (4,399 | ) | ||||||||
Technical Services |
3,669 | 4,031 | 1,913 | |||||||||
Total |
73,434 | 42,512 | 38,274 | |||||||||
Other, net (1) |
4,990 | 40,051 | 9,946 | |||||||||
Unallocated selling, general and administrative expenses |
(21,530 | ) | (20,753 | ) | (19,267 | ) | ||||||
Interest expense |
(15,515 | ) | (16,121 | ) | (17,243 | ) | ||||||
Goodwill impairment charge |
(2,747 | ) | | | ||||||||
Loss on debt restructuring |
| | (12,790 | ) | ||||||||
Earnings (loss) before income taxes |
$ | 38,632 | $ | 45,689 | $ | (1,080 | ) | |||||
(1) | Including gains on disposition of property and equipment and other income. |
47
Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Thousands of dollars) | ||||||||||||
Expenditures for long
lived assets |
||||||||||||
Oil and Gas |
$ | 45,530 | $ | 130,574 | $ | 107,514 | ||||||
Air Medical |
40,034 | 35,053 | 14,446 | |||||||||
Technical Services |
| | 518 | |||||||||
Corporate |
793 | 971 | 775 | |||||||||
Total |
$ | 86,357 | $ | 166,598 | $ | 123,253 | ||||||
Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Thousands of dollars) | ||||||||||||
Depreciation and Amortization |
||||||||||||
Oil and Gas |
$ | 15,669 | $ | 17,211 | $ | 17,147 | ||||||
Air Medical |
7,910 | 8,303 | 8,634 | |||||||||
Technical Services |
235 | 252 | 235 | |||||||||
Corporate |
3,130 | 4,281 | 4,281 | |||||||||
Total |
$ | 26,944 | $ | 30,047 | $ | 30,297 | ||||||
Assets |
||||||||||||
Oil and Gas |
$ | 397,903 | $ | 392,154 | $ | 284,981 | ||||||
Air Medical |
226,642 | 184,435 | 164,234 | |||||||||
Technical Services |
6,597 | 7,481 | 9,984 | |||||||||
Corporate |
146,040 | 157,226 | 241,771 | |||||||||
Total |
$ | 777,182 | $ | 741,296 | $ | 700,970 | ||||||
Year Ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(Thousands of dollars) | ||||||||||||
Operating revenues: |
||||||||||||
United States |
$ | 489,611 | $ | 424,268 | $ | 387,530 | ||||||
International |
19,903 | 22,138 | 25,588 | |||||||||
Total |
$ | 509,514 | $ | 446,406 | $ | 413,118 | ||||||
Long-Lived Assets: |
||||||||||||
United States |
$ | 523,626 | $ | 478,795 | $ | 362,527 | ||||||
International |
4,948 | 5,324 | 6,938 | |||||||||
Total |
$ | 528,574 | $ | 484,119 | $ | 369,465 | ||||||
(11) | EFFECTS OF HURRICANES | |
At December 31, 2008, the Company incurred expense of $3.3 million related to repair costs and costs to relocate operations from damaged or destroyed bases resulting from Hurricane Gustav on September 1, 2008 and Hurricane Ike on September 13, 2008. In addition, there was net book value of property and equipment written off totaling $0.7 million. These amounts were affected by expected insurance recoveries |
48
of $3.9 million, which are reflected as a receivable from the insurance carriers in other accounts receivable at December 31, 2008. |
(12) | QUARTERLY FINANCIAL DATA (UNAUDITED) | |
The condensed quarterly results of operations for the years ended December 31, 2008 and December 31, 2007 (in thousands of dollars, except per share data) are as follows: |
Quarter Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2008 | 2008 | 2008 | 2008 | |||||||||||||
(Thousands of dollars, except per share data) | ||||||||||||||||
Operating revenues |
$ | 117,145 | $ | 130,111 | $ | 135,460 | $ | 126,798 | ||||||||
Gain (loss) on sale of aircraft |
2,949 | 1,255 | 249 | 15 | ||||||||||||
Earnings before income taxes |
10,947 | 10,422 | 13,160 | 4,103 | (1) | |||||||||||
Net earnings |
6,568 | 6,253 | 7,897 | 2,797 | ||||||||||||
Net earnings per share |
||||||||||||||||
Basic |
0.43 | 0.41 | 0.52 | 0.18 | ||||||||||||
Diluted |
0.43 | 0.41 | 0.52 | 0.18 |
Quarter Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2007(2) | 2007 | 2007 | 2007 | |||||||||||||
(Thousands of dollars, except per share data) | ||||||||||||||||
Operating revenues |
$ | 101,753 | $ | 112,975 | $ | 118,401 | $ | 113,277 | ||||||||
Gain (loss) on sale of aircraft |
2,534 | 6,074 | 6,988 | 19,357 | ||||||||||||
Earnings before income taxes |
1,064 | 11,765 | 13,812 | 19,048 | ||||||||||||
Net earnings |
663 | 7,169 | 8,629 | 11,757 | ||||||||||||
Net earnings per share |
||||||||||||||||
Basic |
0.04 | 0.47 | 0.56 | 0.77 | ||||||||||||
Diluted |
0.04 | 0.47 | 0.56 | 0.77 |
(1) | Includes a $2.7 million goodwill impairment charge related to our Air Medical segment. | |
(2) | Earnings in the quarter ended March 31, 2007 was impacted due to the pilots strike that commenced September 20, 2006. |
(13) | SHAREHOLDERS EQUITY | |
On April 12, 2006, the Company completed the sale of 4,287,920 non-voting common shares at $35.00 per share and on May 1, 2006, the Company completed the sale of the over-allotment of 578,680 shares also at $35.00 per share. Proceeds from the offering were $160.7 million, net of expenses. | ||
The Company had a weighted average of 15.3 million common shares outstanding for the periods ended December 31, 2008 and December 31, 2007. | ||
Al A. Gonsoulin, our Chairman of the Board and Chief Executive Officer, beneficially owns stock representing approximately 52% of our total voting power. As a result, he exercises control over the election of all of our directors and the outcome of all matters requiring a stockholder vote. This ownership also may delay or prevent a change in our management or a change in control of us, even if such changes would benefit our other stockholders and were supported by a majority of our stockholders. | ||
(14) | CONDENSED FINANCIAL INFORMATION GUARANTOR SUBSIDIARIES | |
On April 12, 2006, the Company issued $200 million of 7.125% Senior Notes due 2013 and retired $184.8 million of 9 3/8% Series B Senior Notes due 2009. On May 1, 2006, the Company redeemed the remaining $15.2 million 9 3/8% Series B Senior Notes. | ||
The 7.125% Senior Notes are fully and unconditionally guaranteed on a joint and several, senior basis by all of the Companys Guarantor Subsidiaries. |
49
The following condensed financial information sets forth, on a consolidating basis, the balance sheet, statement of operations, and statement of cash flows information for PHI, Inc. (Parent Company Only) and the Guarantor Subsidiaries. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and expenses. |
December 31, 2008 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
ASSETS |
||||||||||||||||
Current Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 559 | $ | 600 | $ | | $ | 1,159 | ||||||||
Short-term investments |
42,121 | | | 42,121 | ||||||||||||
Accounts receivable net |
98,797 | 12,625 | | 111,422 | ||||||||||||
Inventories of spare parts and supplies |
58,249 | | | 58,249 | ||||||||||||
Other current assets |
10,671 | 16 | | 10,687 | ||||||||||||
Income taxes receivable |
982 | | | 982 | ||||||||||||
Total current assets |
211,379 | 13,241 | | 224,620 | ||||||||||||
Investment in subsidiaries and others |
69,820 | | (69,820 | ) | | |||||||||||
Intercompany receivable |
| 63,494 | (63,494 | ) | | |||||||||||
Other assets |
23,761 | 227 | | 23,988 | ||||||||||||
Property and equipment, net |
511,986 | 16,588 | | 528,574 | ||||||||||||
Total assets |
$ | 816,946 | $ | 93,550 | $ | (133,314 | ) | $ | 777,182 | |||||||
LIABILITIES AND
SHAREHOLDERS EQUITY |
||||||||||||||||
Current Liabilities: |
||||||||||||||||
Accounts payable |
$ | 25,174 | $ | 275 | $ | | $ | 25,449 | ||||||||
Accrued liabilities |
20,886 | 4,307 | | 25,193 | ||||||||||||
Intercompany payable |
63,494 | | (63,494 | ) | | |||||||||||
Total current liabilities |
109,554 | 4,582 | (63,494 | ) | 50,642 | |||||||||||
Long-term debt |
203,000 | | | 203,000 | ||||||||||||
Deferred income taxes and other long-term
liabilities |
51,996 | 19,148 | | 71,144 | ||||||||||||
Shareholders Equity: |
||||||||||||||||
Paid-in capital |
292,792 | 4,402 | (4,402 | ) | 292,792 | |||||||||||
Accumulated other comprehensive
income |
45 | | | 45 | ||||||||||||
Retained earnings |
159,559 | 65,418 | (65,418 | ) | 159,559 | |||||||||||
Total shareholders equity |
452,396 | 69,820 | (69,820 | ) | 452,396 | |||||||||||
Total liabilities and
shareholders equity |
$ | 816,946 | $ | 93,550 | $ | (133,314 | ) | $ | 777,182 | |||||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. |
50
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 |
84,318 | 13,766 | | 98,084 | ||||||||||||
Inventories of spare parts and supplies |
55,831 | | | 55,831 | ||||||||||||
Other current assets |
11,184 | 10 | | 11,194 | ||||||||||||
Income taxes receivable |
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. |
51
For the year ended December 31, 2008 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Operating revenues |
$ | 437,881 | $ | 71,633 | $ | | $ | 509,514 | ||||||||
Management fees |
2,865 | | (2,865 | ) | | |||||||||||
Gain on disposition of assets, net |
4,468 | | | 4,468 | ||||||||||||
Other, principally interest income |
522 | | | 522 | ||||||||||||
445,736 | 71,633 | (2,865 | ) | 514,504 | ||||||||||||
Expenses: |
||||||||||||||||
Direct expenses |
372,465 | 53,488 | | 425,983 | ||||||||||||
Management fees |
| 2,865 | (2,865 | ) | | |||||||||||
Selling, general, and administrative |
27,842 | 3,815 | | 31,657 | ||||||||||||
Equity in net income of consolidated
subsidiaries |
(10,436 | ) | | 10,436 | | |||||||||||
Interest expense |
15,515 | | | 15,515 | ||||||||||||
Goodwill impairment charge |
2,747 | | | 2,747 | ||||||||||||
408,133 | 60,168 | 7,571 | 475,872 | |||||||||||||
Earnings before income taxes |
37,603 | 11,465 | (10,436 | ) | 38,632 | |||||||||||
Income tax expense |
14,088 | 1,029 | | 15,117 | ||||||||||||
Net earnings |
$ | 23,515 | $ | 10,436 | $ | (10,436 | ) | $ | 23,515 | |||||||
For the year ended December 31, 2007 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Operating revenues |
$ | 378,092 | $ | 68,314 | $ | | $ | 446,406 | ||||||||
Management fees |
2,733 | | (2,733 | ) | | |||||||||||
Gain on disposition of assets, net |
34,953 | | | 34,953 | ||||||||||||
Other, principally interest income |
5,090 | 8 | | 5,098 | ||||||||||||
420,868 | 68,322 | (2,733 | ) | 486,457 | ||||||||||||
Expenses: |
||||||||||||||||
Direct expenses |
347,397 | 47,024 | | 394,421 | ||||||||||||
Management fees |
| 2,733 | (2,733 | ) | | |||||||||||
Selling, general, and administrative |
27,140 | 3,086 | | 30,226 | ||||||||||||
Equity in net income of consolidated
subsidiaries |
(13,158 | ) | | 13,158 | | |||||||||||
Interest expense |
16,121 | | | 16,121 | ||||||||||||
377,500 | 52,843 | 10,425 | 440,768 | |||||||||||||
Earnings before income taxes |
43,368 | 15,479 | (13,158 | ) | 45,689 | |||||||||||
Income tax expense |
15,150 | 2,321 | | 17,471 | ||||||||||||
Net earnings |
$ | 28,218 | $ | 13,158 | $ | (13,158 | ) | $ | 28,218 | |||||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. |
52
For the year ended December 31, 2006 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Operating revenues |
$ | 357,355 | $ | 55,763 | $ | | $ | 413,118 | ||||||||
Management fees |
2,231 | | (2,231 | ) | | |||||||||||
Gain on disposition of assets, net |
1,910 | | | 1,910 | ||||||||||||
Other, principally interest income |
8,016 | 20 | | 8,036 | ||||||||||||
369,512 | 55,783 | (2,231 | ) | 423,064 | ||||||||||||
Expenses: |
||||||||||||||||
Direct expenses |
325,115 | 41,157 | | 366,272 | ||||||||||||
Management fees |
| 2,231 | (2,231 | ) | | |||||||||||
Selling, general, and administrative |
25,106 | 2,733 | | 27,839 | ||||||||||||
Equity in net income of consolidated
subsidiaries |
(7,592 | ) | | 7,592 | | |||||||||||
Interest expense |
17,243 | | | 17,243 | ||||||||||||
Loss on debt restructuring |
12,790 | | | 12,790 | ||||||||||||
372,662 | 46,121 | 5,361 | 424,144 | |||||||||||||
(Loss) earnings before income taxes |
(3,150 | ) | 9,662 | (7,592 | ) | (1,080 | ) | |||||||||
Income tax (benefit) expense |
(2,483 | ) | 2,070 | | (413 | ) | ||||||||||
Net (loss) earnings |
$ | (667 | ) | $ | 7,592 | $ | (7,592 | ) | $ | (667 | ) | |||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. |
53
For the year ended December 31, 2008 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1)(2) | Eliminations | Consolidated | |||||||||||||
Net cash provided by operating activities |
$ | 41,171 | $ | 2,627 | $ | | $ | 43,798 | ||||||||
Investing activities: |
||||||||||||||||
Purchase of property and equipment |
(75,142 | ) | (2,448) | | (77,590 | ) | ||||||||||
Proceeds from asset dispositions |
18,394 | | | 18,394 | ||||||||||||
Proceeds from sale of short-term
investments, net |
20,850 | | | 20,850 | ||||||||||||
Other |
(8,946 | ) | | | (8,946 | ) | ||||||||||
Net cash used in investing activities |
(44,844 | ) | (2,448) | | (47,292 | ) | ||||||||||
Financing activities: |
||||||||||||||||
Proceeds on line of credit, net |
3,000 | | | 3,000 | ||||||||||||
Proceeds from exercise of stock options |
228 | | | 228 | ||||||||||||
Net cash provided by financing activities |
3,228 | | | 3,228 | ||||||||||||
Increase (decrease) in cash and cash
equivalents |
(445 | ) | 179 | | (266 | ) | ||||||||||
Cash and cash equivalents, beginning of
year |
1,004 | 421 | | 1,425 | ||||||||||||
Cash and cash equivalents, end of year |
$ | 559 | $ | 600 | $ | | $ | 1,159 | ||||||||
For the year ended December 31, 2007 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1)(2) | Eliminations | Consolidated | |||||||||||||
Net cash provided by operating activities |
$ | 14,975 | $ | 10,251 | $ | | $ | 25,226 | ||||||||
Investing activities: |
||||||||||||||||
Purchase of property and equipment |
(149,450 | ) | (10,265 | ) | (159,715 | ) | ||||||||||
Proceeds from asset dispositions |
58,105 | | | 58,105 | ||||||||||||
Proceeds from sale of short-term
investments, net |
90,444 | | | 90,444 | ||||||||||||
Other |
(8,298 | ) | | | (8,298 | ) | ||||||||||
Net cash used in investing activities |
(9,199 | ) | (10,265 | ) | | (19,464 | ) | |||||||||
Financing activities: |
||||||||||||||||
Proceeds (payments) line of credit, net |
(5,500 | ) | | | (5,500 | ) | ||||||||||
Proceeds from exercise of stock options |
343 | | | 343 | ||||||||||||
Net cash used in financing activities |
(5,157 | ) | | | (5,157 | ) | ||||||||||
Increase (decrease) in cash and cash
equivalents |
619 | (14 | ) | | 605 | |||||||||||
Cash and cash equivalents, beginning of
year |
385 | 435 | | 820 | ||||||||||||
Cash and cash equivalents, end of year |
$ | 1,004 | $ | 421 | $ | | $ | 1,425 | ||||||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. | |
(2) | Certain revisions were made to cash flows provided by (used in) operating and investing activities to conform to the current years presentation. |
54
For the year ended December 31, 2006 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1)(2) | Eliminations | Consolidated | |||||||||||||
Net cash provided by operating activities |
$ | 28,443 | $ | 1,881 | $ | | $ | 30,324 | ||||||||
Investing activities: |
||||||||||||||||
Purchase of property and equipment |
(121,348 | ) | (1,905 | ) | | (123,253 | ) | |||||||||
Proceeds from asset dispositions |
36,809 | | | 36,809 | ||||||||||||
Proceeds from sale of short-term
investments, net |
(86,889 | ) | | | (86,889 | ) | ||||||||||
Other |
(5,595 | ) | | | (5,595 | ) | ||||||||||
Net cash used in investing activities |
(177,023 | ) | (1,905 | ) | | (178,928 | ) | |||||||||
Financing activities: |
||||||||||||||||
Proceeds of debt issuance Senior Notes |
200,000 | | | 200,000 | ||||||||||||
Premium and costs to retire debt early |
(10,208 | ) | | | (10,208 | ) | ||||||||||
Repayment of Senior Notes |
(200,000 | ) | | | (200,000 | ) | ||||||||||
Debt issuance costs |
(4,857 | ) | | | (4,857 | ) | ||||||||||
Payments on long-term debt |
(1,000 | ) | | | (1,000 | ) | ||||||||||
Proceeds from line of credit, net |
2,200 | | | 2,200 | ||||||||||||
Proceeds from stock issuance, net |
160,722 | | | 160,722 | ||||||||||||
Other |
(469 | ) | | | (469 | ) | ||||||||||
Net cash provided by financing activities |
146,388 | | | 146,388 | ||||||||||||
Increase in cash and cash equivalents |
(2,192 | ) | (24 | ) | | (2,216 | ) | |||||||||
Cash and cash equivalents, beginning of
year |
2,577 | 459 | | 3,036 | ||||||||||||
Cash and cash equivalents, end of year |
$ | 385 | $ | 435 | $ | | $ | 820 | ||||||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. | |
(2) | Certain revisions were made to cash flows provided by (used in) operating and investing activities to conform to the current years presentation. |
55
None. |
Disclosure 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 Rules 13a-15(e) and 15d-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, and 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 disclosure. | ||
Changes in Internal Control over Financial Reporting | ||
During the last quarter, there have not been any changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting. | ||
Managements Report on Internal Control over Financial Reporting | ||
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounted principles. | ||
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment our management concluded that, as of December 31, 2008, our internal control over financial reporting was effective under those criteria. | ||
Deloitte & Touche LLP, our independent registered public accounting firm, has issued a report on the Companys internal control over financial reporting as of December 31, 2008. This report is included herein. |
56
To the Board of Directors and Shareholders of PHI, Inc. Lafayette, Louisiana |
We have audited the Internal Control over Financial Reporting of PHI, Inc. and subsidiaries (the Company) maintained as of December 31, 2008, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included, in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit. | ||
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. | ||
A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements. | ||
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. | ||
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. | ||
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2008 of the Company and our report dated March 16, 2009, expressed an unqualified opinion on those financial statements and financial statement schedule. | ||
DELOITTE & TOUCHE LLP | ||
New Orleans, Louisiana March 16, 2009 |
57
58
1. | Financial Statements |
Page | ||||
Included in Part II of this report: |
||||||
Report of Independent Registered Public Accounting Firm |
27 | |||||
Consolidated Balance Sheets December 31, 2008 and December 31, 2007. |
28 | |||||
Consolidated Statements of Operations for the years ended December 31, 2008,
December 31, 2007, and December 31, 2006. |
29 | |||||
Consolidated Statements of Shareholders Equity for the years ended
December 31, 2008, December 31, 2007, and December 31, 2006. |
30 | |||||
Consolidated Statements of Cash Flows for the years ended December 31, 2008,
December 31 2007, and December 31, 2006. |
31 | |||||
Notes to Consolidated Financial Statements. |
32 | |||||
2. | Financial Statement Schedules |
|||||
Schedule II Valuation and Qualifying accounts for the years ended
December 31, 2008, December 31, 2007 and December 31, 2006. |
61 |
3. | Exhibits |
3 | Articles of Incorporation and By-laws |
3.1 | (i) | Amended and Restated Articles of
Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1(i) to PHIs
Report on Form 10-Q for the quarterly period
ended June 30, 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 | Instruments defining the rights of security holders, including indentures. | ||
4.1 | Loan Agreement dated as of April 23, 2002 by and among PHI, Inc., Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 10.3 to PHIs Report on Form 10-Q for the quarterly period ended June 30, 2002, Commission File No. 0-9827). | ||
4.2 | First Amendment to Loan Agreement dated June 18, 2004 by and among PHI, Inc. Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 10.4 to PHIs Report on Form 10-Q for the quarterly period ended June 30, 2004). | ||
4.3 | Second Amendment to Loan Agreement dated September 30, 2005 by and among Petroleum Helicopters, Inc., Air Evac Services, Inc., Evangeline Airmotive, Inc., and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.7 to PHIs Report on Form 10-Q for the quarterly period ended September 30, 2007). | ||
4.4 | Third Amendment to Loan Agreement dated April 12, 2006 by and among PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 10.4 to PHIs Report on Form 8-K filed on April 13, 2006). | ||
4.5 | Fourth Amendment to Loan Agreement dated September 30, 2006 by and among PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), and International Helicopter Transport, Inc. and Whitney National Bank Bank (incorporated by |
59
reference to Exhibit 4.8 to PHIs Report on Form 10-Q for the quarterly period ended September 30, 2007). | |||
4.6 | Fifth Amendment to Loan Agreement dated August 1, 2007 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 Bank (incorporated by reference to Exhibit 4.9 to PHIs Report on Form 10-Q for the quarterly period ended September 30, 2007). | ||
Amended and Restated Loan Agreement dated as of March 31, 2008 by and among PHI, Inc., Air Evac Services, Inc., International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.1 to PHIs Report on Form 10-Q for the quarterly period ended March 31, 2008). | |||
4.7 | 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). | ||
4.8 | 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). | ||
10 | Material Contracts | ||
10.1 | Senior Management Bonus Plan. | ||
10.2 | Amended and Restated PHI, Inc. 1995 Incentive Compensation Plan adopted by PHIs Board effective July 11, 1995 and approved by the shareholders of PHI on September 22, 1995 (incorporated by reference to Exhibit 10.3 to PHIs Report on Form 10-K for the year ended December 31, 2006). | ||
10.3 | Form of Non-Qualified Stock Option Agreement under the PHI, Inc. 1995 Incentive Compensation Plan between PHI and certain of its key employees (incorporated by reference to Exhibit 10.4 to PHIs Report on Form 10-K for the year ended December 31, 2006). | ||
10.4 | Officer Deferred Compensation Plan II adopted by PHIs Board effective January 1, 2005 (incorporated by reference to Exhibit 10.5 to PHIs Report on Form 10-K for the year ended December 31, 2006). | ||
10.5 | Articles of Agreement Between PHI, Inc. & Office & Professional Employees International Union and its Local 108 dated June 13, 2001 (incorporated by reference to Exhibit 10.6 to PHIs Report on Form 10-K for the year ended December 31, 2006). | ||
10.5 | Terms of employment of Lance Bospflug, August 6, 2008 (incorporated by reference to Exhibit 10.1 to PHIs Report on Form 10-Q for the quarterly period ended September 30, 2008). | ||
21 | Subsidiaries of the Registrant | ||
23.1 | Consent of Deloitte & Touche LLP | ||
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al A. Gonsoulin, Chief Executive Officer. | ||
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Michael J. McCann, Chief Financial Officer. | ||
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al A. Gonsoulin, Chief Executive Officer. | ||
32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Michael J. McCann, Chief Financial Officer. |
60
Additions | ||||||||||||||||
Balance at | Charged to | Balance at | ||||||||||||||
Beginning | Costs and | End | ||||||||||||||
Description | of Year | Expenses | Deductions | of Year | ||||||||||||
Year ended December 31, 2008: |
||||||||||||||||
Allowance for doubtful accounts |
$ | 50 | $ | | $ | | $ | 50 | ||||||||
Allowance for inventory |
7,460 | 397 | | 7,857 | ||||||||||||
Allowance for contractual discounts |
31,858 | 173,964 | 168,232 | 37,590 | ||||||||||||
Allowance for uncompensated care |
19,130 | 38,224 | 36,549 | 20,805 | ||||||||||||
Year ended December 31, 2007: |
||||||||||||||||
Allowance for doubtful accounts |
$ | 50 | $ | | $ | | $ | 50 | ||||||||
Allowance for inventory |
7,256 | 843 | 639 | 7,460 | ||||||||||||
Allowance for contractual discounts |
29,930 | 130,753 | 128,825 | 31,858 | ||||||||||||
Allowance for uncompensated care |
20,099 | 42,190 | 43,159 | 19,130 | ||||||||||||
Year ended December 31, 2006: |
||||||||||||||||
Allowance for doubtful accounts |
$ | 163 | $ | | $ | 113 | $ | 50 | ||||||||
Allowance for inventory |
6,268 | 1,502 | 514 | 7,256 | ||||||||||||
Allowance for contractual discounts |
24,091 | 97,226 | 91,387 | 29,930 | ||||||||||||
Allowance for uncompensated care |
11,597 | 40,073 | 31,571 | 20,099 |
61
PHI, INC. |
||||
By: | /s/ Michael J. McCann | |||
Michael J. McCann | ||||
Chief Financial Officer (Principal Financial and Accounting Officer) |
||||
Signature | Title | Date | ||
/s/ Al A. Gonsoulin
|
Chairman of the Board Chief Executive Officer and Director (Principal Executive Officer) |
March 16, 2009 | ||
/s/ Lance F. Bospflug
|
Director | March 16, 2009 | ||
/s/ Arthur J. Breault, Jr.
|
Director | March 16, 2009 | ||
/s/ Thomas H. Murphy
|
Director | March 16, 2009 | ||
/s/ Richard H. Matzke
|
Director | March 16, 2009 | ||
/s/ C. Russell Luigs
|
Director | March 16, 2009 | ||
/s/ Michael J. McCann
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
March 16, 2009 |
62
Exhibits Number |
Description |
3 | Articles of Incorporation and By-laws |
3.1 | (i) | Amended and Restated Articles of
Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1(i) to PHIs
Report on Form 10-Q for the quarterly period
ended June 30, 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 | Instruments defining the rights of security holders, including indentures. | ||
4.1 | Loan Agreement dated as of April 23, 2002 by and among PHI, Inc., Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 10.3 to PHIs Report on Form 10-Q for the quarterly period ended June 30, 2002, Commission File No. 0-9827). | ||
4.2 | First Amendment to Loan Agreement dated June 18, 2004 by and among PHI, Inc. Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 10.4 to PHIs Report on Form 10-Q for the quarterly period ended June 30, 2004). | ||
4.3 | Second Amendment to Loan Agreement dated September 30, 2005 by and among Petroleum Helicopters, Inc., Air Evac Services, Inc., Evangeline Airmotive, Inc., and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.7 to PHIs Report on Form 10-Q for the quarterly period ended September 30, 2007). | ||
4.4 | Third Amendment to Loan Agreement dated April 12, 2006 by and among PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 10.4 to PHIs Report on Form 8-K filed on April 13, 2006). | ||
4.5 | Fourth Amendment to Loan Agreement dated September 30, 2006 by and among PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), and International Helicopter Transport, Inc. and Whitney National Bank Bank (incorporated by reference to Exhibit 4.8 to PHIs Report on Form 10-Q for the quarterly period ended September 30, 2007). | ||
4.6 | Fifth Amendment to Loan Agreement dated August 1, 2007 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 Bank (incorporated by reference to Exhibit 4.9 to PHIs Report on Form 10-Q for the quarterly period ended September 30, 2007). | ||
Amended and Restated Loan Agreement dated as of March 31, 2008 by and among PHI, Inc., Air Evac Services, Inc., International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.1 to PHIs Report on Form 10-Q for the quarterly period ended March 31, 2008). | |||
4.7 | 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). | ||
4.8 | 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). | ||
10 | Material Contracts | ||
10.1 | Senior Management Bonus Plan. | ||
10.2 | Amended and Restated PHI, Inc. 1995 Incentive Compensation Plan adopted by PHIs Board effective July 11, 1995 and approved by the shareholders of PHI on September 22, 1995 (incorporated by reference to Exhibit 10.3 to PHIs Report on Form 10-K for the year ended December 31, 2006). | ||
10.3 | Form of Non-Qualified Stock Option Agreement under the PHI, Inc. 1995 Incentive Compensation Plan between PHI and certain of its key employees (incorporated by reference to Exhibit 10.4 to PHIs Report on Form 10-K for the year ended December 31, 2006). | ||
10.4 | Officer Deferred Compensation Plan II adopted by PHIs Board effective January 1, 2005 (incorporated by reference to Exhibit 10.5 to PHIs Report on Form 10-K for the year ended December 31, 2006). | ||
10.5 | Articles of Agreement Between PHI, Inc. & Office & Professional Employees International Union and its Local 108 dated June 13, 2001 (incorporated by reference to Exhibit 10.6 to PHIs Report on Form 10-K for the year ended December 31, 2006). | ||
10.5 | Terms of employment of Lance Bospflug, August 6, 2008 (incorporated by reference to Exhibit 10.1 to PHIs Report on Form 10-Q for the quarterly period ended September 30, 2008). | ||
21 | Subsidiaries of the Registrant | ||
23.1 | Consent of Deloitte & Touche LLP | ||
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al A. Gonsoulin, Chief Executive Officer. | ||
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Michael J. McCann, Chief Financial Officer. | ||
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al A. Gonsoulin, Chief Executive Officer. | ||
32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Michael J. McCann, Chief Financial Officer. |