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EX-21 - EX-21 - PHI INC | h69853exv21.htm |
EX-23.1 - EX-23.1 - PHI INC | h69853exv23w1.htm |
EX-31.2 - EX-31.2 - PHI INC | h69853exv31w2.htm |
EX-31.1 - EX-31.1 - PHI INC | h69853exv31w1.htm |
EX-32.2 - EX-32.2 - PHI INC | h69853exv32w2.htm |
EX-32.1 - EX-32.1 - PHI INC | h69853exv32w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-9827
PHI, INC.
(Exact name of registrant as specified in its charter)
Louisiana (State or other jurisdiction of incorporation or organization) |
72-0395707 (I.R.S. Employer Identification No.) |
2001 SE Evangeline Thruway Lafayette, Louisiana (Address of principal office) |
70508 (Zip Code) |
(Registrants telephone number including area code: (337) 235-2452
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
Voting Common Stock Non-Voting Common Stock |
The NASDAQ Global Market The NASDAQ Global Market |
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes: o No: þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes: o No: þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes: þ No: o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes: o No: o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§ 229.405 of this chapter) is not contained herein and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, non-accelerated filer, or smaller reporting company. See definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange
Act.
Large accelerated filer: o | Accelerated filer: þ | Non-accelerated filer: o (Do not check if a smaller reporting company) | Smaller reporting company: o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes: o No: þ
The aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant as of June 30, 2009 was
$230,583,471 based upon the last sales
prices of the voting and non-voting common stock on June 30, 2009, as reported on the NASDAQ Global
Market.
The number of shares outstanding of each of the registrants classes of common stock,
as of February 26, 2010 was:
Voting Common Stock 2,852,616 shares. Non-Voting Common Stock 12,458,992 shares.
Documents Incorporated by Reference
Portions
of the registrants definitive Information Statement for the 2010 Annual Meeting
of Shareholders are incorporated by reference into Part III of this Form 10-K.
PHI, INC.
INDEX FORM 10-K
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PART I
Forward-Looking Statements
All statements other than statements of historical fact contained in this Form 10-K and other
periodic reports filed by PHI, Inc. (the Company or PHI) under the Securities Exchange Act of
1934 and other written or oral statements made by it or on its behalf, are forward-looking
statements. When used herein, the words anticipates, expects, believes, goals, intends,
plans, projects and similar words and expressions are intended to identify forward-looking
statements. Forward-looking statements are based on a number of assumptions about future events
and are subject to significant risks, uncertainties, and other factors that may cause the Companys
actual results to differ materially from the expectations, beliefs, and estimates expressed or
implied in such forward-looking statements. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, no assurance can be given that such
assumptions will prove correct or even approximately correct. Factors that could cause the
Companys results to differ materially from the expectations expressed in such forward-looking
statements include but are not limited to the following: unexpected variances in flight hours, the
effect on demand for our services caused by volatility of oil and gas prices and the level of
exploration and production activity in the Gulf of Mexico, the effect on our operating costs of
volatile fuel prices, the availability of aircraft lease financing or capital required to acquire
aircraft, environmental risks, hurricanes and other adverse weather conditions, the activities of
our competitors, changes in government regulation, unionization, operating hazards, risks related
to operating in foreign countries, the ability to obtain adequate insurance at an acceptable cost
and the ability of the Company to develop and implement successful business strategies. For a more
detailed description of risks, see the Risk Factors section in Item 1A below. All
forward-looking statements in this document are expressly qualified in their entirety by the
cautionary statements in this paragraph and the Risk Factors section below. PHI undertakes no
obligation to update publicly any forward-looking statements, whether as a result of new
information, future events, or otherwise.
ITEM 1. BUSINESS
General
Since our incorporation in 1949, our primary business has been the safe and reliable transportation
of personnel and, to a lesser extent, parts and equipment, to, from, and among offshore platforms
for customers engaged in the oil and gas exploration, development, and production industry,
principally in the Gulf of Mexico. We are a leading provider of helicopter transportation services
in the Gulf of Mexico. We also provide helicopter services to the oil and gas industry
internationally, and to non-oil and gas customers such as health care providers and U.S.
governmental agencies such as the National Science Foundation. We also provide air medical
transportation for hospitals and emergency service agencies where we operate as an independent
provider of medical services. We also provide helicopter maintenance and repair services to
certain customers. At December 31, 2009, we owned or operated approximately 255 aircraft
domestically and internationally.
Description of Operations
We operate in three business segments: Oil and Gas, Air Medical, and Technical Services. For
financial information regarding our operating segments and the geographic areas in which they
operate, see Note 10 of the Notes to Consolidated Financial Statements included elsewhere in this
Form 10-K.
Oil and Gas. Our Oil and Gas segment, headquartered in Lafayette, Louisiana, provides helicopter
services primarily for the major oil and gas production companies transporting personnel and/or
equipment to offshore platforms in the Gulf of Mexico and the Democratic Republic of Congo. We
currently operate 164 aircraft in this segment.
Oil and gas exploration and production companies and other offshore oil service companies use our
services primarily for routine transportation of personnel and equipment, to transport personnel
during medical and safety emergencies, and to evacuate personnel during the threat of hurricanes
and other adverse weather conditions. Most of our customers have
entered into contracts with us, although some hire us on an ad hoc or
spot basis.
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Most of our Oil and Gas aircraft are available for hire by any customer, but some are dedicated to
individual customers. Our helicopters have flight ranges up to 495 miles with a 30-minute fuel
reserve and thus are capable of servicing many of the deepwater oil and gas operations from 50 to
200 miles offshore. (See Item 2 Properties, for specific information by aircraft model.)
Operating revenue from the Oil and Gas segment is derived mainly from contracts that
include a fixed monthly rate for a particular model of aircraft, plus a variable rate for flight
time. Operating costs for the Oil and Gas operations are primarily aircraft operation costs,
including costs for pilots and maintenance personnel.
Operating revenues from the Oil and Gas segment accounted for 65%, 64%, and 64% of consolidated
operating revenues during the years ended December 31, 2009, 2008, and 2007, respectively.
Air Medical. We provide air medical transportation services for hospitals and emergency service
agencies in 17 states using approximately 85 aircraft at 65 separate locations. Our Air Medical
segment operates primarily under the independent provider model and, to a lesser extent, under the
hospital-based model. Under the independent provider model, we have no contracts and no fixed
revenue stream, and compete for transport referrals on a daily basis with other independent
operators in the area. Under the hospital-based model, we contract directly with the hospital to
provide their transportation services, with the contracts typically awarded on a competitive bid
basis. Our Air Medical operations are headquartered in Phoenix, Arizona. The Air Medical
segments operating revenues accounted for 33%, 34%, and 34% of consolidated operating revenues for
the years ended December 31, 2009, 2008, and 2007, respectively.
As an independent provider, we bill for our services on the basis of a flat rate plus a variable
charge per loaded mile, regardless of aircraft model. Revenues are recorded net of contractual
allowances under agreements with third party payors and estimated uncompensated care when the
services are provided. Contractual allowances and uncompensated care are estimated based on
historical collection experience by payor category. The main payor categories are Medicaid,
Medicare, Insurance, and Self-Pay. Payor mix and changes in reimbursement rates are the factors
most subject to sensitivity and variability in calculating our allowances. We compute a historical
payment analysis of accounts, by category. The allowance percentages calculated are applied to the
payor categories, and the necessary adjustments are made to the revenue allowance. The allowance
for contractual discounts was $32.1 million, $36.1 million, and $31.9 million as of December 31,
2009, 2008, and 2007, respectively. The allowance for uncompensated care was $28.1 million, $20.8
million, and $19.1 million as of December 31, 2009, 2008, and 2007, respectively.
Provisions for contractual discounts and estimated uncompensated care are as follows:
Revenue | Accounts Receivable | |||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
Gross billings |
100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
Provision for contractual discounts (1) |
52 | % | 47 | % | 44 | % | 34 | % | 35 | % | 33 | % | ||||||||||||
Provision for uncompensated care |
11 | % | 11 | % | 12 | % | 30 | % | 20 | % | 20 | % |
1) | The increase in the provision for contractual discounts is related to rate increases in gross billings, as a higher percentage of the rate increase portion of the gross billing is not collected. |
Amounts attributable to Medicaid, Medicare, Insurance, and Self Pay as a percentage of net Air
Medical revenues are as follows:
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Medicaid |
12 | % | 11 | % | 10 | % | ||||||
Medicare |
18 | % | 18 | % | 16 | % | ||||||
Insurance |
68 | % | 67 | % | 71 | % | ||||||
Self Pay |
2 | % | 4 | % | 3 | % |
We also have a limited number of contracts with hospitals under which we receive a fixed
monthly rate for aircraft availability and an hourly rate for flight time. Those contracts
generated approximately 8%, 12%, and 8% of the segments revenues for 2009, 2008, and 2007,
respectively.
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Technical Services. The Technical Services segment provides helicopter repair and overhaul
services for flight operations customers that own their aircraft. Costs associated with these
services are primarily labor, and customers are generally billed at a percentage above cost. We
also operate six aircraft for the National Science Foundation in Antarctica under this segment.
Operating revenues from the Technical Services segment accounted for 2% of consolidated operating
revenues for the years ended December 31, 2009, 2008, and 2007.
Seasonal Aspects
Seasonality affects our operations in three principal ways: weather conditions are generally poorer
in December, January, and February; tropical storms and hurricanes are prevalent in the Gulf of
Mexico in late summer and early fall; and reduced daylight hours restrict our operations in winter,
which result in reduced flight hours. When a tropical storm or hurricane is about to enter or
begins developing in the Gulf of Mexico, flight activity may temporarily increase because of
evacuations of offshore workers, but during the storms, we are unable to operate in the area of the
storm and can incur significant expense in moving our aircraft to safer locations. For a more
detailed discussion of these events, see the Adverse Weather Conditions paragraph in the Risk
Factors section of Item 1A. Our operating results vary from quarter to quarter, depending on
seasonal factors and other factors outside of our control. As a result, full year results are not
likely to be a direct multiple of any particular quarter or combination of quarters.
Inventories
We carry a significant inventory of aircraft parts to support the maintenance and repair of our
helicopters. Many of these inventory items are parts that have been removed from aircraft,
refurbished according to manufacturers and Federal Aviation Administration (FAA) specifications,
and returned to inventory. The cost to refurbish these parts is expensed as incurred. We use
systematic procedures to estimate the value of these used parts, which include consideration of
their condition and continuing utility. The carrying values of inventory reported in our
consolidated financial statements are affected by these estimates and may change from time to time
if our estimated values change. See Notes to Consolidated Financial Statements, Summary of
Significant Accounting Policies, Inventories of Spare Parts.
Customers
Our principal customers are major integrated energy companies and independent exploration and
production companies. We also serve oil and gas service companies, hospitals and medical programs
under the independent provider model, government agencies, and other aircraft owners and operators.
Our largest customer is in our Oil and Gas segment and accounted for 15%, 13%, and 12% of
operating revenues for the years ended December 31, 2009, 2008, and 2007, respectively. Also,
another customer in our Oil and Gas segment accounted for 13%, 14%, and 15% of operating revenues
for the years ended December 31, 2009, 2008, and 2007, respectively. We have entered into
contracts with most of our customers for terms of at least one year, although most contracts
include provisions permitting earlier termination.
Competition
Our business is highly competitive in each of our markets, and many of our contracts are awarded
after competitive bidding. Factors that impact competition include safety, reliability, price,
availability of appropriate aircraft and quality of service. Some of our competitors recently have
undertaken expansion and/or upgrades of their fleets.
We are a leading operator of helicopters in the Gulf of Mexico. There are two major and several
small competitors operating in the Gulf of Mexico market. Although most oil companies
traditionally contract for most specialty services associated with offshore operations, including
helicopter services, certain of our customers and potential customers in the oil industry operate
their own helicopter fleets, or have the capability to do so if they so elect.
In the air medical market, we compete against national and regional firms, and there is usually
more than one competitor in each local market. In addition, we compete against hospitals that
operate their own helicopters and, in some cases, against ground ambulances as well.
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Employees
As of December 31, 2009, we employed approximately 2,251 full-time employees and 48 part-time
employees, including approximately 706 pilots, 715 aircraft maintenance personnel, and 404 medical
support staff.
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 left the Companys employment, 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 June 29, 2009 until July 6, 2010.
Management does not expect the outcome of this litigation to have a material adverse effect on our
consolidated financial position, results of operations, or cash flows.
Environmental Matters
We are subject to federal, state and local environmental laws and regulations that impose
limitations on the discharge of pollutants into the environment and establish standards for the
treatment, storage, recycling, and disposal of toxic and hazardous wastes. Operating and
maintaining helicopters requires that we use, store, and dispose of materials that are subject to
federal and state environmental regulation. We periodically conduct environmental site surveys at
our facilities, and determine whether there is a need for environmental remediation based on these
surveys. See Notes to Consolidated Financial Statements, Footnote 9, Commitments and
Contingencies, Environmental Matters.
Availability of SEC filings and other information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to any of these reports are available free of charge through our web site:
www.phihelico.com. These reports are available as soon as reasonably practicable after we file
them with the Securities and Exchange Commission (SEC). You may also read and copy any of the
materials that we file with the SEC at the SECs Public Reference Room at 100 F. Street, N.E.,
Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site that contains reports, proxy
and information statements, and other information regarding issuers that file electronically with
the SEC. The SECs website address is www.sec.gov.
ITEM 1A. Risk Factors
All phases of our operations are subject to significant uncertainties, risks, and other
influences. Known material risks and other important factors that could cause our actual results
to differ materially from anticipated results or other expectations are discussed below:
RISKS INHERENT IN OUR BUSINESS
The failure to maintain our safety record would seriously harm our ability to attract new customers
and maintain our existing customers.
A favorable safety record is one of the primary factors a customer reviews in selecting an aviation
provider. If we fail to maintain our safety and reliability record, our ability to attract new
customers and maintain our current customers will be materially adversely affected.
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Helicopter operations involve risks that may not be covered by our insurance or may increase the
cost of our insurance.
The operation of helicopters inherently involves a high degree of risk. Hazards such as aircraft
accidents, collisions, fire and adverse weather are hazards that must be managed by providers of
helicopter services and may result in loss of life, serious injury to employees and third parties,
and losses of equipment and revenues.
We maintain hull and liability insurance on our aircraft, which insures us against physical loss
of, or damage to, our aircraft and against certain legal liabilities to others. In addition, we
carry war risk, expropriation, confiscation and nationalization insurance for our aircraft involved
in international operations. In some instances, we are covered by indemnity agreements from our
customers in lieu of, or in addition to, our insurance. Our aircraft are not insured for loss of
use.
While we believe that our insurance and indemnification arrangements provide reasonable protection
for most foreseeable losses, they do not cover all potential losses and are subject to deductibles,
retentions, coverage limits and coverage exceptions such that severe casualty losses, or the
expropriation or confiscation of significant assets could materially and adversely affect our
financial condition or results of operations. The occurrence of an event that is not fully covered
by insurance could have a material adverse impact on our financial condition, results of
operations, and cash flows.
Our operations are affected by adverse weather conditions and seasonal factors.
We are subject to three types of weather-related or seasonal factors:
Ø | poor weather conditions that often prevail during winter but can develop in any season; | |
Ø | the tropical storm and hurricane season in the Gulf of Mexico; and | |
Ø | reduced daylight hours during the winter months. |
Poor visibility, high winds and heavy precipitation can affect the operation of helicopters and
significantly reduce our flight hours. A significant portion of our operating revenue is dependent
on actual flight hours and a substantial portion of our direct costs is fixed. Thus, prolonged
periods of adverse weather can materially and adversely affect our operating revenues and net
earnings.
In the Gulf of Mexico, the months of December, January and February generally have more days of
adverse weather conditions than the other months of the year. Also, June through November is
tropical storm and hurricane season in the Gulf of Mexico, with August and September typically
being the most active months. During tropical storms, we are unable to operate in the area of the
storm and can incur significant expense in moving our aircraft to safer locations. In addition, as
most of our facilities are located along the Gulf of Mexico coast, tropical storms and hurricanes
may cause substantial damage to our property, including helicopters that we are unable to relocate.
Because the fall and winter months have fewer hours of daylight, our flight hours are generally
lower at those times, which typically results in a reduction in operating revenues during those
months. Currently, only 79 of the 164 helicopters used in our oil and gas operations are equipped
to fly under instrument flight rules (IFR), which enables these aircraft, when manned by
IFR-rated pilots and co-pilots, to operate when poor visibility or darkness prevents flight by
aircraft that can fly only under visual flight rules (VFR). Not all of our pilots are IFR rated.
We may not be able to obtain acceptable customer contracts covering some of our new helicopters,
and there will be a delay between the time that a helicopter is delivered to us and the time that
it can begin generating revenues.
Many of our new helicopters used in oil and gas operations may not be covered by customer contracts
when they are placed into service, and we cannot assure as to when we will be able to utilize these
new helicopters or on what terms. In addition, with respect to those helicopters that will be
covered by customer contracts when they are placed into service, our contract terms generally are
too short to recover our cost of purchasing the helicopter at current rates. Thus, we are subject
to the risk that we will be unable to recoup our investment in the helicopters.
Once a new helicopter is delivered to us, we generally spend between two and three months
installing mission-specific and/or customer-specific equipment before we place it into service. As
a result, there can be a significant delay between the delivery date for a new helicopter and the
time that it is able to generate revenues for us.
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There is also a possibility that our customers may request helicopters in lieu of our existing
helicopters, which could adversely affect the utilization of our existing fleet.
Our contracts generally can be terminated or downsized by our customers without penalty.
Most of our fixed-term contracts contain provisions permitting early termination by the customer,
sometimes with as little as 30 days notice for any reason and generally without penalty. In
addition, many of our contracts permit our customers to decrease the number of aircraft under
contract with a corresponding decrease in the fixed monthly payments without penalty. As a result,
undue reliance should not be placed on our customer contracts or the terms of those contracts.
Increased governmental regulations could increase our costs or reduce our ability to operate
successfully.
Our operations are regulated by a number of federal and state agencies. All of our flight
operations are regulated by the FAA. Aircraft accidents are subject to the jurisdiction of the
National Transportation Safety Board. Standards relating to workplace health and safety are
monitored by the federal Occupational Safety and Health Administration (OSHA). We are also
subject to various federal and state environmental statutes.
The FAA has jurisdiction over many aspects of our business, including personnel, aircraft and
ground facilities. We are required to have an Air Taxi Certificate, granted by the FAA, to
transport personnel and property in our helicopters. This certificate contains operating
specifications that allow us to conduct our present operations, but it is potentially subject to
amendment, suspension or revocation in accordance with procedures set forth in the Federal Aviation
Act. The FAA conducts regular inspections regarding the safety, training and general regulatory
compliance of our U.S. aviation operations. Additionally, the FAA requires us to file reports
confirming our continued compliance.
FAA regulations require that at least 75% of our voting securities be owned or controlled by
citizens of the U.S. or one of its possessions, and that our president and at least two-thirds of
our directors be U.S. citizens. Our Chief Executive Officer and all of our directors are U.S.
citizens, and our organizational documents provide for the automatic reduction in voting power of
each share of voting common stock owned or controlled by a non-U.S. citizen if necessary to comply
with these regulations.
We are subject to significant regulatory oversight by OSHA and similar state agencies. We are also
subject to the Communications Act of 1934 because of our ownership and operation of a radio
communications flight-following network throughout the Gulf of Mexico.
Numerous other federal statutes and rules regulate our offshore operations and those of our
customers, pursuant to which the federal government has the ability to suspend, curtail or modify
certain or all offshore operations. A suspension or substantial curtailment of offshore oil and
gas operations for any prolonged period would have an immediate and materially adverse effect on
us. A substantial modification of current offshore operations could adversely affect the economics
of such operations and result in reduced demand for our services.
The helicopter services business is highly competitive.
All segments of our business are highly competitive. Many of our contracts are awarded after
competitive bidding, and the competition for those contracts generally is intense. The principal
aspects of competition are safety, price, reliability, availability and service.
We have two major competitors and several small competitors operating in the Gulf of Mexico, and
most of our customers and potential customers could operate their own helicopter fleets if they
chose to do so.
Our Air Medical segment competes for business primarily under the independent provider model and,
to a lesser extent, under the hospital-based model. Under the independent provider model, we have
no contracts and no fixed revenue stream, but must compete for transport referrals on a daily basis
with other independent operators in the area. Under the hospital-based model, we contract directly
with the hospital to provide their transportation services, with the contracts typically awarded on
a competitive bid basis. Under both models, we compete against national and regional companies,
and there is usually more than one competitor in each local market. In addition, we compete
against hospitals that operate their own helicopters and, in some cases, against ground ambulances
as well.
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Our air medical operations expose us to numerous special risks, including collection risks and
potential medical malpractice claims.
These operations are highly competitive and expose us to a number of risks that we do not encounter
in our oil and gas operations. For instance, the fees for our air medical services generally are
paid by individual patients, insurance companies, or government agencies such as Medicare and
Medicaid. As a result, our profitability in this business depends not only on our ability to
generate an acceptable volume of patient transports, but also on our ability to collect our
transport fees. We are not permitted to refuse service to patients based on their inability to
pay.
We employ paramedics, nurses, and other medical professionals for these operations, which can give
rise to medical malpractice claims against us, which, if not fully covered by our medical
malpractice insurance, could materially adversely affect our financial condition and results of
operations.
Potential health care legislation and regulations could have a material impact on our business.
The federal and state governments continue to seriously consider many broad-based legislative and
regulatory proposals that could materially impact various aspects of the health care system. The
proposals vary, and include a public health plan that would compete with public and private health
plans for individual and small business customers, individual insurance requirements, the expansion
of eligibility under existing Medicaid and/or Federal Employees Health Benefit Plan programs,
minimum medical benefit ratios for health plans, mandatory issuance of insurance coverage, and
requirements that would limit the ability of health plans and insurers to vary premiums based on
assessments of underlying risk. While certain of these measures would adversely affect collection
rates in our Air Medical operations, at this time we cannot predict the extent of the impact of
these proposals on our business or results of operations.
Our international operations are subject to political, economic and regulatory uncertainty.
Our international operations represented approximately 1% of our total operating revenues for the
year ended December 31, 2009; however, we often consider international opportunities, particularly
in our Oil and Gas segment, and often in lesser developed countries. These operations are subject
to a number of risks inherent in operating in lesser developed countries, including:
Ø | political, social and economic instability; | |
Ø | terrorism, kidnapping and extortion; | |
Ø | potential seizure or nationalization of assets; | |
Ø | import-export quotas; and | |
Ø | currency fluctuations or devaluation. |
Additionally, our competitiveness in international markets may be adversely affected by government
regulation, including regulations requiring:
Ø | the awarding of contracts to local contractors; | |
Ø | the employment of local citizens; and | |
Ø | the establishment of foreign subsidiaries with significant ownership positions reserved by the foreign government for local ownership. |
Our failure to attract and retain qualified personnel could adversely affect us.
Our ability to attract and retain qualified pilots, mechanics, nurses, paramedics and other highly
trained personnel will be an important factor in determining our future success. Many of our
customers require pilots of aircraft that service them to have inordinately high levels of flight
experience. The market for these experienced and highly trained personnel is extremely
competitive. Accordingly, we cannot assure that we will be successful in our efforts to attract
and retain such persons. Some of our pilots and mechanics, and those of our competitors, are
members of the U.S. military reserves and could be called to active duty. If significant numbers
of such persons are called to
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active duty, it would reduce the supply of such workers, possibly curtailing our operations and
likely increasing our labor costs.
RISKS SPECIFIC TO OUR COMPANY
We are highly dependent on the offshore oil and gas industry.
Approximately 65% of our 2009 operating revenue was attributable to helicopter support for offshore
oil and gas exploration and production companies. Our business is highly dependent on the level of
activity by oil and gas companies, particularly in the Gulf of Mexico. The level of activity by
our customers operating in the Gulf of Mexico depends on factors that we cannot control, such as:
Ø | the supply of, and demand for, oil and natural gas and market expectations regarding supply and demand; | |
Ø | weather-related or other natural causes; | |
Ø | actions of OPEC, and Middle Eastern and other oil producing countries, to control prices or change production levels; | |
Ø | general economic conditions in the United States and worldwide; | |
Ø | war, civil unrest or terrorist activities; | |
Ø | governmental regulation; and | |
Ø | the price and availability of alternative fuels. |
Any substantial or extended decline in the prices of oil and natural gas could depress the level of
helicopter activity in support of exploration and production activity, and thus have a material
adverse effect on our business, results of operations and financial condition.
Additionally, the Gulf of Mexico is generally considered to be a mature area for oil and gas
exploration, which may result in a continuing decrease in activity over time. This could
materially adversely affect our business, results of operations and financial condition. In
addition, the concentrated nature of our operations subjects us to the risk that a regional event
could cause a significant interruption in our operations or otherwise have a material affect on our
profitability.
Moreover, companies in the oil and gas exploration and production industry continually seek to
implement cost-savings measures. As part of these measures, oil and gas companies have attempted
to improve operating efficiencies with respect to helicopter support services. For example,
certain oil and gas companies have pooled helicopter services among operators, reduced staffing
levels by using technology to permit unmanned production installations and decreased the frequency
of transportation of employees offshore by increasing the lengths of shifts offshore. The
continued implementation of such measures could reduce demand for helicopter services and have a
material adverse effect on our business, results of operations and our financial condition.
Our pilot workforce is represented by the Office and Professional Employees International Union,
with which the Company is engaged in strike-related litigation.
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 left the Companys employment, 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 June 29, 2009 until July 6, 2010.
We depend on a small number of large oil and gas industry customers for a significant portion of
our revenues, and our credit exposure within this industry is significant.
We derive a significant amount of our revenue from a small number of major and independent oil and
gas companies. For the year ended December 31, 2009, 15% of our revenues were attributable to our
largest customer. We also had a second customer that accounted for 13% of revenues for the year
ended December 31, 2009. The loss
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of one of our significant customers, if not offset by revenues from new or other existing
customers, would have a material adverse effect on our business and operations. In addition, this
concentration of customers may impact our overall credit risk in that these entities may be
similarly affected by changes in economic and other conditions.
Although credit markets have improved following the credit crisis in late 2008 and 2009, there
remains a risk that these markets may have an adverse impact on our business and financial
condition in ways that we currently cannot predict.
The credit markets and related turmoil in the global financial system may have an adverse impact on
our business and our financial condition. We cannot predict our ability to obtain lease financing
due to credit availability, and this could limit our ability to fund our future growth and
operations. While we have been able to obtain proposals and lease financing, we cannot predict
future availability nor the effects on pricing for lease financing.
General economic conditions and recent market events may expose our Company to new risks.
Recent events in the financial markets have contributed to severe volatility in the securities
markets, a severe liquidity crisis in the global credit markets, and unprecedented government
intervention. In such an environment, significant additional risks may exist for the Company. The
recent instability in the financial markets has led the U.S. government to take a number of
unprecedented actions designed to support certain financial and other institutions and segments of
the financial market that have experienced extreme volatility, and in some cases, a lack of
liquidity. There can be no assurance that this intervention will improve market conditions, that
such conditions will not continue to deteriorate, or that further government intervention will or
will not occur.
Our Chairman of the Board and Chief Executive Officer is also our principal stockholder and has
voting control of the Company.
Al A. Gonsoulin, our Chairman of the Board and Chief Executive Officer, beneficially owns stock
representing approximately 52% of our total voting power. As a result, he exercises control over
the election of all of our directors and the outcome of 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.
Our substantial indebtedness could adversely affect our financial condition and impair our ability
to operate our business.
We are a highly leveraged company and, as a result, have significant debt service obligations. As
of December 31, 2009, our total long-term indebtedness was $218.3 million, consisting of $200
million of our 7.125% Senior Notes due 2013 and $18.3 million borrowed under our revolving credit
facility due 2011. Our debt to equity ratio at December 31, 2009 was 0.47 to 1.00, as compared to
0.45 to 1.00 at December 31, 2008. We also have significant operating lease commitments, detailed
in Note 9 to our consolidated financial statements and in Managements Discussion and Analysis of
Financial Condition and Results of Operations.
At December 31, 2009, we had $18.3 million in borrowings and $5.1 million in letters of credit
outstanding under our revolving line of credit. As of December 31, 2009, availability for
borrowings under our revolving credit facility was $51.6 million.
Our substantial indebtedness and operating lease commitments could have significant negative
consequences to us that you should consider. For example, they could:
Ø | require us to dedicate a substantial portion of our cash flow from operations to pay principal of, and interest on, our indebtedness, and make lease payments on our operating leases, 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; | |
Ø | increase our vulnerability to general adverse economic and industry conditions and limit our ability to withstand competitive pressures; | |
Ø | limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities; |
9
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Ø | place us at a competitive disadvantage compared to our competitors that have less debt; and | |
Ø | limit our ability to obtain additional financing for working capital, capital expenditures and other aspects of our business plan. |
Our ability to meet our debt obligations and other expenses will depend on our future performance,
which will be affected by financial, business, economic, regulatory and other factors, many of
which we are unable to control. When our 7.125% Senior Notes come due in 2013, we will likely need
to enter into new financing arrangements at that time to repay those notes. We may be unable to
obtain that financing on favorable terms, which could adversely affect our business, financial
condition and results of operations. For more information on our indebtedness, please see the
consolidated financial statements included elsewhere herein.
Our stock has a low trading volume.
Our common stock is listed for trading on The NASDAQ Global Market under the symbol PHIIK for
our non-voting common stock and PHII for our voting common stock. Both classes of common stock
have low trading volume. As a result, a stockholder may not be able to sell shares of our common
stock at the time, in the amounts, or at the price desired.
We do not pay dividends.
We have not paid any dividends on our common stock since 1999 and do not anticipate that we will
pay dividends on our common stock in the foreseeable future. In addition, our ability to pay
dividends is restricted by the indenture governing our 7.125% Senior Notes due 2013. See Note 4 to
the Consolidated Financial Statements.
Provisions in our articles of incorporation and by-laws and Louisiana law make it more difficult to
effect a change in control of us, which could discourage a takeover of our company and adversely
affect the price of our common stock.
Although an attempted takeover of our company is unlikely by virtue of the ownership by our Chief
Executive Officer of more than 50% of the total voting power of our capital stock, there are also
provisions in our articles of incorporation and by-laws that may make it more difficult for a third
party to acquire control of us, even if a change in control would result in the purchase of your
shares at a premium to the market price or would otherwise be beneficial to you. For example, our
articles of incorporation authorize our board of directors to issue preferred stock without
stockholder approval. If our board of directors elects to issue preferred stock, it could be more
difficult for a third party to acquire us.
In addition, provisions of our by-laws, such as giving the board the exclusive right to fill all
board vacancies, could make it more difficult for a third party to acquire control of us. In
addition to the provisions contained in our articles of incorporation and by-laws, the Louisiana
Business Corporation Law (LBCL), includes certain provisions applicable to Louisiana
corporations, such as us, which may be deemed to have an anti-takeover effect. Such provisions
give stockholders the right to receive the fair value of their shares of stock following a control
transaction from a controlling person or group and set forth requirements relating to certain
business combinations. Our descriptions of these provisions are only abbreviated summaries of
detailed and complex statutes. For a complete understanding of the statutes, you should read them
in their entirety.
The LBCLs control share acquisition statute provides that any person who acquires control
shares will be able to vote such shares only if the right to vote is approved by the affirmative
vote of at least a majority of both (i) all the votes entitled to be cast by stockholders and (ii)
all the votes entitled to be cast by stockholders excluding interested shares. The control
share acquisition statute permits the articles of incorporation or by-laws of a company to exclude
from the statutes application acquisitions occurring after the adoption of the exclusion. Our
by-laws do contain such an exclusion; however, our board of directors or stockholders, by an
amendment to our by-laws, could reverse this exclusion.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
Aircraft
Information regarding our owned and leased aircraft fleet and 16 customer-owned aircraft as of
December 31, 2009 is set forth in the following table:
Cruise | Appr. | |||||||||||||||||||
Number | Speed | Range | ||||||||||||||||||
Manufacturer | Type | in Fleet | Engine | Passengers | (mph) | (miles)(2) | ||||||||||||||
Light Aircraft |
||||||||||||||||||||
Bell
|
206 / 407 | 99 | Turbine | 46 | 130150 | 300420 | ||||||||||||||
Eurocopter
|
BK-117 / BO-105 | 8 | Twin Turbine | 46 | 135 | 255270 | ||||||||||||||
Eurocopter
|
EC-135 (1) | 36 | Twin Turbine | 7 | 143 | 382 | ||||||||||||||
Eurocopter
|
AS350 B2 / B3 | 23 | Turbine | 5 | 140 | 337385 | ||||||||||||||
Medium Aircraft |
||||||||||||||||||||
Bell
|
212 (1) / 222 (1) | |||||||||||||||||||
230 (1) / 412 (1) / 430 (1) | 16 | Twin Turbine | 813 | 115160 | 300370 | |||||||||||||||
Sikorsky
|
S-76 (1) A++, C+, C++ | 46 | Twin Turbine | 12 | 150 | 400 | ||||||||||||||
Agusta
Westland
|
AW-139 | 2 | Twin Turbine | 15 | 160 | 573 | ||||||||||||||
Transport Aircraft |
||||||||||||||||||||
Sikorsky
|
S-92A(1) | 16 | Twin Turbine | 19 | 160 | 495 | ||||||||||||||
Total Helicopters | 246 | |||||||||||||||||||
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) | 2 | Turboprop | 6 | 330 | 1,200 | ||||||||||||||
Cessna(3)
|
U206(1) | 1 | Single/Piston | 6 | 174 | 900 | ||||||||||||||
Beech(4)
|
King Air(1) | 3 | Turboprop | 8 | 300 | 1,380 | ||||||||||||||
Total Fixed Wing | 9 | |||||||||||||||||||
Total Aircraft | 255 | |||||||||||||||||||
(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, along with 79 of the rotary wing aircraft listed above. |
Of the 255
aircraft listed, we own 214 and lease 25. The leased aircraft are
medium and transport category aircraft currently used in the Oil and
Gas segment. Additionally, we operate 16 aircraft owned by
customers also included in the table above (eight light aircraft, seven medium and one fixed-wing).
We sell aircraft whenever they become obsolete or do not fit into future fleet plans.
Facilities
Our principal facilities are located on property leased from the Lafayette Airport Commission at
Lafayette Regional Airport in Lafayette, Louisiana. The lease covers approximately 28 acres and
two buildings, with an aggregate of approximately 256,000 square feet, housing our main
operational, executive, and administrative offices and the main
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repair and maintenance facility. The lease for this facility commenced in 2001, expires in 2021
and contains three five-year renewal options following the expiration date.
We own our Boothville, Louisiana operating facility. The property has a 23,000 square foot
building, a 7,000 square foot hangar, and landing pads for 35 helicopters.
We also lease property for an Executive and Marketing office in Houston, Texas and 12 additional
bases to service the oil and gas industry throughout the Gulf of Mexico. Those bases that
represent a significant investment in leasehold improvements and are particularly important to our
operations are:
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, 2016 | ||||
Houma-Terrebonne Airport (Louisiana)
|
July 31, 2017 | 95 acres | Operational and maintenance facilities, landing pads for 30 helicopters | Facility under five 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. |
Our other operations-related facilities in the United States are located at New Orleans and Lake
Charles, Louisiana; at Port OConnor and Sabine Pass, Texas; and at Theodore, Alabama.
We also operate from offshore platforms that are provided without charge by the owners of the
platforms, although in certain instances we are required to indemnify the owners against loss in
connection with our use of their facilities.
We also lease office and hangar space for our Air Medical operations in Phoenix, Arizona. The two
buildings are held under separate leases and collectively provide 5,000 square feet of hangar space
and 26,000 square feet of office space. These leases have a term to May 31, 2012 and contain
options to extend for an additional five years. Other Air Medical bases are located in California,
Indiana, Kentucky, Maryland, New Jersey, New Mexico, Texas and Virginia. Other bases for our
International and other Air Medical operations are generally furnished by customers.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, the Company has been involved in Federal Court litigation in the Western
District of Louisiana with the Office and Professional Employees International Union (OPEIU), the
union representing domestic pilots, over claims of bad faith bargaining and
issues relating to the return to work of striking pilots. The pilots commenced a strike in
September 2006, and a court-approved return to work process began in January 2007
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for those pilots who had not already returned to work or left the Companys employment, and
this was essentially completed in April 2007. Pilots continue to work 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 June 29, 2009 until July 6, 2010. Management does not expect the outcome
of this litigation to have a material adverse effect on our consolidated financial position,
results of operations, or cash flows.
As previously reported, we are a defendant along with Bristow Group Inc., ERA Helicopters, LLC,
Seacor Holdings Inc., ERA Group Inc., and ERA Aviation, Inc., in a suit brought by Superior
Offshore International Inc. in the United States District Court for the District of Delaware. This
purported class action was filed on June 12, 2009, on behalf of a class defined to include all
direct purchasers of offshore helicopter services in the Gulf of Mexico from the defendants at any
time from January 1, 2001 through December 31, 2005. The suit alleges that the defendants acted
jointly to fix, maintain, or stabilize prices for offshore helicopter services during the above
time frame in violation of the federal antitrust laws. The plaintiff seeks unspecified treble
damages, injunctive relief, costs, and attorneys fees. Defendants motion to dismiss filed on
September 4, 2009 is pending. The outcome of this matter cannot be reasonably assessed at this
time. The Company intends to aggressively defend itself in this matter.
We have been named as a defendant in various other legal actions that have arisen in the ordinary
course of our business and have not been finally adjudicated. In the opinion of management, the
amount of the ultimate liability with respect to these actions will not have a material adverse
effect on our consolidated statement of financial condition, results of operations or cash flows.
ITEM 4. | RESERVED |
PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our voting and non-voting common stock trades on The NASDAQ Global Market, under the symbols
PHII and PHIIK, respectively. The following table sets forth the range of high and low sales
prices per share, as reported by NASDAQ, for our voting and non-voting common stock for the fiscal
quarters indicated.
Voting | Non-Voting | |||||||||||||||
Period | High | Low | High | Low | ||||||||||||
January 1, 2009 to March 31, 2009 |
$ | 18.88 | $ | 10.90 | $ | 16.28 | $ | 7.10 | ||||||||
April 1, 2009 to June 30, 2009 |
21.43 | 10.99 | 19.95 | 9.12 | ||||||||||||
July 1, 2009 to September 30, 2009 |
22.48 | 16.80 | 22.98 | 16.01 | ||||||||||||
October 1, 2009 to December 31, 2009 |
21.57 | 17.17 | 22.63 | 16.31 | ||||||||||||
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 | ||||||||||||
We have not paid dividends on either class of our common stock since 1999 and do not expect to pay
dividends in the foreseeable future.
In addition, the indenture governing our 7.125% Senior Notes due 2013 restricts the payment of
dividends. See Note 4 to the Consolidated Financial Statements.
As of
February 26, 2010, there were approximately 837 holders of record of our voting common stock
and 53 holders of record of our non-voting common stock.
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Stock Performance Graph
The information included under the caption Stock Performance Graph in this Item 5 of this Annual
Report on Form 10-K is not deemed to be soliciting material or to be filed with the SEC or
subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of
Section 18 of the Securities Act of 1934, and will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to
the extent we specially incorporate it by reference into such a filing.
The following performance graph compares PHIs cumulative total stockholder return on its voting
common stock for the last five years with the cumulative total return on the Russell 2000 Index,
the Oil Service Index, and a peer group, assuming the investment of $100 on January 1, 2005, at
closing prices on December 31, 2004, and reinvestment of dividends. The Russell 2000 Index
consists of a broad range of publicly-traded companies with small market capitalizations of $0.5
billion to $1.07 billion, and is published daily in the Wall Street Journal. The Oil Service
Sector Index is a price-weighted index composed of the common stocks of 15 companies that provide
oil drilling and production services, oil field equipment, support services, and
geophysical/reservoir services. The peer group companies are Bristow Group, Inc.; Tidewater, Inc.;
Gulfmark Offshore, Inc.; Seacor Holdings, Inc.; and Air Methods Corp.
Cumulative Total Returns as of December 31,
Index | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||||
PHI |
100.00 | 120.25 | 128.01 | 120.33 | 54.34 | 80.29 | ||||||||||||||||||
Peer Group |
100.00 | 123.85 | 163.30 | 197.38 | 113.88 | 141.17 | ||||||||||||||||||
OSX |
100.00 | 146.96 | 161.29 | 243.35 | 97.94 | 157.27 | ||||||||||||||||||
Russell 2000 |
100.00 | 103.32 | 120.89 | 117.57 | 76.65 | 95.98 |
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ITEM 6. | SELECTED FINANCIAL DATA |
The selected financial data presented below for each of the past five fiscal periods should be
read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes to Consolidated Financial Statements
included elsewhere in this Annual Report.
Year Ended | ||||||||||||||||||||
December 31, | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
(Thousands, except per share amounts) | ||||||||||||||||||||
Income Statement Data |
||||||||||||||||||||
Operating revenues |
$ | 487,175 | $ | 509,514 | $ | 446,406 | $ | 413,118 | $ | 363,610 | ||||||||||
Gain on disposition of assets, net |
111 | 4,468 | 34,953 | 1,910 | 1,173 | |||||||||||||||
Net earnings (loss) (1) (2) (3) |
12,968 | 23,515 | 28,218 | (667 | ) | 14,154 | ||||||||||||||
Net earnings (loss) per share |
||||||||||||||||||||
Basic |
0.85 | 1.54 | 1.85 | (0.05 | ) | 1.76 | ||||||||||||||
Diluted |
0.85 | 1.54 | 1.85 | (0.05 | ) | 1.76 | ||||||||||||||
Weighted average shares outstanding |
||||||||||||||||||||
Basic |
15,307 | 15,295 | 15,279 | 13,911 | 8,040 | |||||||||||||||
Diluted |
15,307 | 15,301 | 15,288 | 13,911 | 8,063 | |||||||||||||||
Cash Flow Data |
||||||||||||||||||||
Net cash provided by operating activities |
$ | 55,272 | $ | 43,798 | $ | 25,226 | $ | 30,324 | $ | 28,020 | ||||||||||
Net cash used in investing activities |
(69,235 | ) | (47,292 | ) | (19,464 | ) | (178,928 | ) | (137,464 | ) | ||||||||||
Net cash provided by (used in) financing activities |
15,305 | 3,228 | (5,157 | ) | 146,388 | 108,947 | ||||||||||||||
Balance Sheet Data (4) |
||||||||||||||||||||
Current assets |
$ | 245,301 | $ | 224,620 | $ | 230,029 | $ | 307,689 | $ | 224,265 | ||||||||||
Working capital |
207,024 | 173,978 | 176,633 | 254,099 | 162,527 | |||||||||||||||
Property and equipment, net |
548,536 | 528,574 | 484,119 | 369,465 | 311,678 | |||||||||||||||
Total assets |
805,506 | 777,182 | 741,296 | 700,970 | 549,209 | |||||||||||||||
Total debt |
218,305 | 203,000 | 200,000 | 205,500 | 204,300 | |||||||||||||||
Shareholders equity |
465,448 | 452,396 | 428,669 | 400,125 | 239,051 |
(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 the refinancing of our 9 3/8% Senior Notes. | |
(4) | As of the year ended December 31. |
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
should be read in conjunction with our Consolidated Financial Statements and the related Notes
included elsewhere in this report.
Overview
Operating revenues for 2009 were $487.2 million compared to $509.5 million for 2008, a decrease of
$22.3 million. Oil and Gas operating revenues decreased $7.9 million for 2009 due to a decrease in
medium aircraft revenue related primarily to a decrease in flight hour activity on the continental
shelf and also due to a voluntary grounding of certain medium aircraft in the first quarter 2009,
related to an accident on January 4, 2009. There were also decreases in revenue as a result of the
completion of a foreign contract in 2008, and decreases in revenue related to fuel charges. Total
fuel cost is included in direct expense and reimbursement of a portion of these costs above a
contracted per-gallon amount is included in revenue. These amounts were offset in part by an
increase in revenue for light and heavy aircraft in the Gulf of Mexico. The heavy aircraft revenue
increase was due to increased deepwater activity in the Gulf of Mexico, and the light aircraft
increase was due to increased activity by a certain customer.
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Operating revenues in the Air Medical segment decreased $14.6 million due to decreased patient
transports in the independent provider programs. We believe this decrease is primarily
attributable to the current economic environment. Also contributing to the decrease was the
closure of six bases, two in late 2008 and four in 2009, which were generating less than acceptable
transport volumes. We did not incur any significant costs as a result of these closures.
All segments experienced a decrease in flight hours in 2009, with total flight hours of 146,314 for
2009 compared to 150,686 in 2008, a 3% decrease. The number of aircraft in service at December 31,
2009 was 255 compared to 249 at December 31, 2008. Ten new aircraft were delivered and four
aircraft were sold or disposed of in 2009.
Oil and Gas segments operating profit was $51.3 million for the year ended December 31, 2009,
compared to $64.7 million for the year ended December 31, 2008. The decrease of $13.4 million was
primarily due to decreased operating revenues as a result of the completion of a foreign contract
in 2008, and decreased medium aircraft revenue related primarily to decreased flight hour activity
on the continental shelf. There was also an increase in direct expense contributing to the
segments operating profit decrease. Air Medical segments operating income was $6.0 million for
the year ended December 31, 2009, compared to operating income of $5.1 million for the year ended
December 31, 2008. The $0.9 million increase is due to a decrease in direct expense related to
termination of the warranty program for certain aircraft and cost savings related to the closing of
six bases, discussed further in the Segment Discussion below.
Net earnings for 2009 were $13.1 million, or $0.86 per diluted share, compared to earnings of $23.5
million, or $1.54 per diluted share for 2008. Pre-tax earnings were $21.8 million for 2009
compared to pre-tax earnings of $38.6 million in 2008. Earnings for the year ended December 31,
2009 included a $4.9 million pre-tax credit related to termination of the warranty program for
certain aircraft and a $2.1 million pre-tax insurance provision, both included in direct expenses.
Earnings for the year ended December 31, 2008 included a pre-tax gain on disposition of assets,
net, of $4.5 million, an aggregate pre-tax insurance charge of $2.1 million, and a $1.6 million
pre-tax credit due to termination of the warranty program for certain aircraft included in direct
expenses.
On January 4, 2009, there was a fatal accident involving a medium transport helicopter in the Oil
and Gas segment. The NTSB issued its comprehensive Factual Reports on January 10, 2010. The
NTSB Probable Cause has not been issued at this time. The financial impact was primarily a
reduction in revenue related to the voluntary grounding of certain medium aircraft following that
accident. Notwithstanding this accident, we maintain one of the best safety records in our
industry, based on NTSB and the FAA data.
In 2009, we took delivery of nine aircraft for service in the Oil and Gas segment, including one
light, two medium, five transport, and one fixed wing aircraft. We also took delivery of one light
aircraft for service in the Air Medical segment. In 2008, we took delivery of one transport
category aircraft, four medium aircraft and four light aircraft for service in the Oil and Gas
segment. We also took delivery of eight light aircraft for service in the Air Medical segment.
The year 2009 was a challenging time for PHI, as there
was a decrease in flight hour activity in our Oil
and Gas segment particularly on the continental shelf and a decrease in patient transport activity
in our Air Medical segment as a result of the unfavorable economic conditions this year.
Weather has also had a negative impact on all our operations particularly in the fourth quarter.
We encountered much more unfavorable weather conditions in the fourth quarter 2009 as
compared to prior years.
There were a number of contract awards since December 31, 2009, in our Oil and Gas segment. One award was a five year contract from an existing customer commencing June 2011 upon the expiration of the current contract. There were also seven other contract awards from existing customers each with terms that are from three to five years. These contract awards commence in the first quarter 2010. The above awards are for a minimum of 20 light, 17 medium, and three heavy aircraft.
Our Air Medical segment was awarded two new traditional hospital contracts with terms on one being ten years and the second contract term being three years. Additionally, we were awarded a new three year contract on an independent provider model format but which includes certain revenue guarantees. These contracts represent incremental revenues.
There were a number of contract awards since December 31, 2009, in our Oil and Gas segment. One award was a five year contract from an existing customer commencing June 2011 upon the expiration of the current contract. There were also seven other contract awards from existing customers each with terms that are from three to five years. These contract awards commence in the first quarter 2010. The above awards are for a minimum of 20 light, 17 medium, and three heavy aircraft.
Our Air Medical segment was awarded two new traditional hospital contracts with terms on one being ten years and the second contract term being three years. Additionally, we were awarded a new three year contract on an independent provider model format but which includes certain revenue guarantees. These contracts represent incremental revenues.
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Results of Operations
The following table presents segment operating revenues, expenses and earnings (loss) before
income taxes, along with certain non-financial operational statistics, for the years ended December
31, 2009, 2008 and 2007:
Year Ended | ||||||||||||
December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(Thousands of dollars) | ||||||||||||
Segment operating revenues |
||||||||||||
Oil and Gas |
$ | 316,198 | $ | 324,147 | $ | 286,118 | ||||||
Air Medical |
160,113 | 174,739 | 149,590 | |||||||||
Technical Services |
10,864 | 10,628 | 10,698 | |||||||||
Total operating revenues |
487,175 | 509,514 | 446,406 | |||||||||
Segment direct expenses (1) |
||||||||||||
Oil and Gas |
263,818 | 258,160 | 250,110 | |||||||||
Air Medical |
147,630 | 160,910 | 137,703 | |||||||||
Technical Services |
7,179 | 6,883 | 6,608 | |||||||||
Total direct expenses |
418,627 | 425,953 | 394,421 | |||||||||
Segment selling, general and administrative expenses |
||||||||||||
Oil and Gas |
1,075 | 1,335 | 1,531 | |||||||||
Air Medical |
6,484 | 8,716 | 7,883 | |||||||||
Technical Services |
51 | 76 | 59 | |||||||||
Total selling, general and administrative expenses |
7,610 | 10,127 | 9,473 | |||||||||
Total segment direct and selling, general and administrative expenses |
426,237 | 436,080 | 403,894 | |||||||||
Net segment operating profit |
||||||||||||
Oil and Gas |
51,305 | 64,652 | 34,477 | |||||||||
Air Medical |
5,999 | 5,113 | 4,004 | |||||||||
Technical Services |
3,634 | 3,669 | 4,031 | |||||||||
Total |
60,938 | 73,434 | 42,512 | |||||||||
Other, net (2) |
336 | 4,990 | 40,051 | |||||||||
Unallocated selling, general and administrative expenses (1) |
(23,396 | ) | (21,530 | ) | (20,753 | ) | ||||||
Interest expense |
(16,037 | ) | (15,515 | ) | (16,121 | ) | ||||||
Goodwill impairment charge |
| (2,747 | ) | | ||||||||
Earnings before income taxes |
$ | 21,841 | $ | 38,632 | $ | 45,689 | ||||||
Flight hours |
||||||||||||
Oil and Gas |
111,527 | 112,341 | 107,812 | |||||||||
Air Medical |
33,483 | 36,732 | 31,341 | |||||||||
Technical Services |
1,304 | 1,613 | 1,216 | |||||||||
Total |
146,314 | 150,686 | 140,369 | |||||||||
Air Medical Transports |
19,798 | 22,647 | 21,710 | |||||||||
Aircraft operated at period end |
||||||||||||
Oil and Gas |
164 | 153 | 156 | |||||||||
Air Medical |
85 | 90 | 77 | |||||||||
Technical Services |
6 | 6 | 4 | |||||||||
Total (3) |
255 | 249 | 237 | |||||||||
(1) | Included in segment direct expense and unallocated selling, general, and administrative costs are the depreciation expense amounts below: |
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
O&G |
$ | 16,853 | $ | 15,408 | $ | 16,860 | ||||||
Air Medical |
7,926 | 8,283 | 8,651 | |||||||||
Tech Services |
285 | 276 | 642 | |||||||||
Total |
25,064 | 23,967 | 26,153 | |||||||||
Unallocated SG&A |
$ | 2,700 | $ | 2,977 | $ | 3,861 | ||||||
(2) | Includes gains on disposition of property and equipment, and other income. | |
(3) | Includes 16 aircraft as of December 31, 2009 and 2008, and 12 aircraft as of December 31, 2007 that are customer owned or leased by customers but operated by us. |
17
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Year Ended December 31, 2009 compared with Year Ended December 31, 2008
Combined Operations
Operating Revenues Operating revenues for 2009 were $487.2 million compared to $509.5
million for 2008, a decrease of $22.3 million, or 4%. Operating revenues decreased in the Oil and
Gas segment by $7.9 million primarily due to a decrease in medium aircraft revenues related
primarily to a decrease in flight hour activity on the continental shelf, completion of a foreign
contract in 2008, and decreases in revenue related to fuel charges. In addition, there was a
decrease in medium aircraft revenue due to a voluntary grounding of medium aircraft in the first
quarter of 2009. These amounts were offset in part by an increase in heavy aircraft revenue due to
deepwater activity in the Gulf of Mexico and an increase in light aircraft revenue primarily
related to one customer. Operating revenues in the Air Medical segment decreased $14.6 million in
2009 due to decreased patient transports in the independent provider programs. These items are
discussed in more detail in the Segment Discussion below.
Other Income and Losses Gains on equipment dispositions were $0.1 million for 2009
compared to $4.5 million for 2008. These amounts represent gains and losses on sales of aircraft
and related parts inventory that no longer meet our strategic needs. Other income, which primarily
represents interest income was $0.2 million for 2009, compared to $0.5 million for 2008.
Direct Expenses Direct expense was $418.6 million for 2009 compared to $425.9 million
for 2008, a decrease of $7.3 million, or 2%. Direct expense in the Air Medical segment decreased
$13.3 million primarily due to the termination of the warranty program for certain aircraft and
cost savings related to the closing of six bases, two in late 2008 and four in 2009. Oil and Gas
segment direct expense increased $5.6 million primarily due to costs related to the aircraft
additions in 2009 and late 2008. There was also a $0.3 million increase in the Technical Services
segment direct expenses. These items are discussed in more detail in the Segment Discussion below.
Selling, General and Administrative Expenses Selling, general and administrative
expenses were $31.0 million for 2009 compared to $31.7 million for 2008, a decrease of $0.7
million, or 2%. This decrease resulted primarily from decreases in franchise taxes ($0.2 million),
marketing and promotional expenses in the Air Medical segment ($0.3 million), outside services
($0.5 million), rent expense ($0.6 million) and other items, net ($0.2 million). These decreases
were offset by increased legal expenses ($0.8 million) and employee costs ($0.3 million).
Interest Expense Interest expense was $16.0 million for 2009, compared to $15.5 million
for 2008 due to an increase in borrowings under our line of credit. The increase in borrowings
under the line of credit was related to aircraft purchases.
Income Taxes Income tax expense for 2009 was $8.9 million, compared to income tax
expense of $15.1 million for 2008. The effective tax rate was 41% for 2009, compared to 39% for
2008.
Net Earnings Our net earnings for 2009 were $13.0 million, compared to earnings of $23.5
million for 2008. Earnings before tax for 2009 were $21.8 million compared to earnings before tax
of $38.6 million in 2008. Earnings per diluted share were $0.85 for 2009 as compared to earnings
per diluted share of $1.54 for 2008. Included in earnings before tax for 2009 is a $4.9 million
pre-tax credit related to termination of the warranty program for certain aircraft, and a $2.1
million pre-tax insurance provision related to the retention portion
of our coverage, both
included in direct expenses. Earnings for the year ended December 31, 2008 included a pre-tax gain
on dispositions of assets, net, of $4.5 million, an aggregate pre-tax insurance charge of $2.1
million, a non-cash pre-tax charge for impairment of goodwill of $2.7 million, and a $1.6 million
pre-tax credit due to termination of the warranty program for certain aircraft. The remaining
decrease in earnings before tax is due to the decrease in Oil and Gas segment operating income
caused by a decrease in medium aircraft revenues and earnings related to decreased activity on the
continental shelf, a decrease due to the voluntary grounding of certain medium aircraft due to an
accident January 4, 2009, and completion of a foreign contract in 2008.
18
Table of Contents
Segment Discussion
Oil and Gas Oil and Gas segment revenues for 2009 were $316.2 million compared to $324.1 million
for 2008, a decrease of $7.9 million or 2%. The decrease was due to a decrease in medium aircraft
flight hours and revenue due to decreased flight hour activity on the continental shelf. In
addition, there was also a decrease in medium aircraft revenues and flight hours due to a voluntary
grounding of certain medium aircraft in the first quarter of 2009 related to an accident on January
4, 2009. There were also decreases in revenue as a result of completion of a foreign contract in
2008, and decreases in revenue related to fuel charges. Total fuel cost is included in direct
expense and reimbursement of a portion of these costs above a contracted per-gallon amount is
included in revenue. The above amounts were offset in part by an increase in heavy aircraft
revenue due to deepwater activity, and an increase in light aircraft activity related primarily to
one customer. Segment flight hours were 111,527 for 2009 compared to 112,341 for 2008, a decrease
of 814 hours.
The number of aircraft in the segment at December 31, 2009 was 164 compared to 153 aircraft at
December 31, 2008. In 2009, we sold or disposed of three aircraft in the Oil and Gas segment,
consisting of two light and one medium aircraft. We have added nine new aircraft to the Oil and
Gas segment during 2009, consisting of one light, two medium, five heavy aircraft and one
fixed-wing. Transfers between segments account for the remainder. For further information on our
aircraft, see Item 2 Properties contained in this Form 10-K.
Direct expense in our Oil and Gas segment was $263.8 million for the year ended December 31, 2009,
compared to $258.2 million for the year ended December 31, 2008, an increase of $5.6 million.
Employee compensation expense increased ($4.4 million) primarily due to compensation rate
increases. We also experienced increases in aircraft depreciation ($1.5 million), aircraft rent
($7.0 million), aircraft insurance ($2.9 million), and aircraft parts usage ($2.2 million)
primarily due to additional aircraft added to the fleet. Fuel expense decreased ($11.6 million) as
the cost of fuel has declined compared to the prior year. Total fuel cost is included in direct
expense and reimbursement of a portion of fuel costs above a contracted per-gallon amount is
included in revenue. Other items decreased ($0.8 million), net.
Selling, general and administrative expenses were $1.1 million for the year ended December 31,
2009, compared to $1.3 million for the prior year.
Our Oil and Gas segments operating profit was $51.3 million for the year ended December 31, 2009,
compared to $64.7 million for the year ended December 31, 2008. The decrease of $13.4 million was
due to the decrease in operating revenues of $7.9 million, and the increase in operating expenses
of $5.6 million, for the reasons described above. Operating margins were 16% for the year ended
December 31, 2009, compared to 20% for the year ended December 31, 2008. The decrease in operating
margins was primarily due to the decrease in medium aircraft revenue primarily related to decreased
flight hour activity on the continental shelf, a decrease related to the voluntary grounding of
certain medium aircraft in the first quarter 2009, due to an accident on January 4, 2009, and
decreased revenues due to completion of a foreign contract in 2008.
Air Medical Air Medical segment revenues were $160.1 million for 2009 compared to $174.7 million
for 2008, a decrease of $14.6 million. The decrease was primarily related to the decrease in
patient transports, which totaled 19,798 for 2009 compared to 22,647 transports for 2008. Of the
total decrease in transports of 2,849, approximately 977 transports were related to the closure of
six bases. We believe the remaining decrease is primarily due to the current economic environment.
Flight hours were 33,483 for the year ended December 31, 2009, compared to 36,732 for the year
ended December 31, 2008.
The number of aircraft in the segment was 85 at December 31, 2009, compared to 90 at December 31,
2008. We added one new light aircraft, and we sold or disposed of one fixed-wing aircraft.
Transfers between segments account for the remainder.
Direct expense in our Air Medical segment was $147.6 million for the year ended December 31, 2009,
compared to $160.9 million for the year ended December 31, 2008. The $13.3 million decrease was
due to decreases in employee compensation costs ($4.5 million) primarily due to a decrease in
personnel related to independent provider programs that were closed in 2009 and late 2008, and also
due to a reduction in support personnel. Fuel expense decreased ($3.4 million) due to a decrease
in fuel costs, aircraft warranty costs decreased ($4.3 million) due to the credit in 2008 related
to the termination of the warranty program for certain aircraft, and aircraft depreciation
decreased ($0.4 million) due to the reduction of aircraft in the segment. Other items decreased
($0.7 million), net.
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Selling, general and administrative expenses were $6.5 million for the year ended December 31,
2009, compared to $8.7 million for the year ended December 31, 2008. The decrease is due to
decreases in rent expense ($0.9 million), promotional expenses ($0.3 million), employee
compensation costs ($0.2 million), and other items, net ($0.8 million). Air Medical operations are
headquartered in Phoenix, Arizona, where we maintain significant separate facilities and
administrative staff dedicated to this segment. Those costs are charged directly to the Air
Medical segment, resulting in higher selling, general and administrative expenses as compared to
our other reportable segments.
Our Air Medical segments operating profit was $6.0 million for the year ended December 31, 2009,
compared to operating income of $5.1 million for the year ended December 31, 2008. Operating
margins were 4% in the year ended December 31, 2009, compared to 3% in the year ended December 31,
2008. The margin increase is primarily due to decreases in expenses discussed above. Relative to
our Air Medical segment in 2008 and 2009, we have seen some adverse impact in certain regions due
to the current economic conditions.
Technical Services Technical Services revenues were $10.9 million for the year ended December
31, 2009, compared to $10.6 million for the year ended December 31, 2008. Direct expense was $7.2
million for the year ended December 31, 2009, compared to $6.9 million for the year ended December
31, 2008.
The Technical Services segment had operating profit of $3.6 million for the year ended December 31,
2009, compared to $3.7 for the year ended December 31, 2008. Operating margins in the Technical
Services segment were 33% for the year ended December 31, 2009, compared to 35% for the same period
in 2008. Technical Services includes maintenance and repairs performed primarily for our existing
customers that own their aircraft. These services are generally labor intensive with higher
operating margins as compared to other segments.
Year Ended December 31, 2008 compared with Year Ended December 31, 2007
Combined Operations
Operating Revenues Operating revenues for 2008 were $509.5 million compared to $446.4
million for 2007, an increase of $63.1 million, or 14%. Operating revenues increased in the Oil
and Gas segment by $38.0 million primarily due to an increase in contracted medium and heavy
aircraft, which primarily serve the Gulf of Mexico deepwater market and attract higher rates,
increased flight hours, and also due to the adverse affect of the pilots strike on 2007 operating
revenues. Operating revenues in the Air Medical segment also increased $25.1 million in 2008 due
to increased patient transports in the independent provider programs and additional contract awards
in hospital-based programs. These items are discussed in more detail in the Segment Discussion
below.
Other Income and Losses Gain on equipment dispositions were $4.5 million for 2008
compared to $35.0 million for 2007. These amounts represent gains and losses on sales of aircraft
and related parts inventory that no longer meet our strategic needs. Other income, which primarily
represents interest income on unspent proceeds from our April 2006 stock offering, was $0.5 million
for 2008, compared to $5.1 million for 2007. This decrease resulted from a decrease in short-term
investments as a substantial portion of these proceeds had been spent by year-end 2008 acquiring
new aircraft.
Direct Expenses Direct expense was $425.9 million for 2008 compared to $394.4 million
for 2007, an increase of $31.5 million, or 8%. Direct expense in the Air Medical segment increased
$23.2 million primarily due to additional hospital-based programs commenced in 2008. We also
recorded a $2.7 million pre-tax goodwill impairment charge related to the acquisition of a company
related to the Air Medical segment expansion in 2004. Oil and Gas segment direct expense increased
$8.0 million due to increased flight hours. There was also a $0.3 million increase in the
Technical Services segment direct expenses. These items are discussed in more detail in the
Segment Discussion below.
Selling, General and Administrative Expenses Selling, general and administrative
expenses were $31.7 million for 2008 compared to $30.2 million for 2007, an increase of $1.5
million, or 5%. This increase resulted from increased employee costs ($1.8 million), offset by a
decrease in other items, net ($0.3 million).
Interest Expense Interest expense was $15.5 million for 2008, compared to $16.1 million
for 2007 due to a decrease in borrowings under our line of credit.
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Goodwill Impairment 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 impairment charge was driven by adverse
equity market conditions that caused a decrease in current market multiples as of December 31,
2008, compared with the annual impairment test performed as of December 31, 2007. The charge for
goodwill impairment did not impact the Companys normal business operations or cash flow. The
Company did not have any goodwill recorded at December 31, 2008, after this charge described above.
Income Taxes Income tax expense for 2008 was $15.1 million, compared to income tax
expense of $17.5 million for 2007. The effective tax rate was 39% for 2008, compared to 38% for
2007. The effective tax rate increased 1% in 2008 from 2007. This increase was the result of
reduced Federal Hurricane disaster tax credits available in 2008 (0.3%) and increased state income
taxes due to legislation providing for a new Texas income tax (0.5%).
Net Earnings Our net earnings for 2008 were $23.5 million, compared to earnings of $28.2
million for 2007. Earnings before tax for 2008 were $38.6 million compared to earnings before tax
of $45.7 million in 2007. Earnings per diluted share were $1.54 for 2008 as compared to earnings
per diluted share of $1.85 for 2007. Included in earnings before tax for 2008 are gains on
disposition of assets of $4.5 million, compared to $35.0 million for 2007. The increase in net
earnings for 2008 is due to increased revenues and earnings of the medium and heavy aircraft in the
Oil and Gas segment, as mentioned previously.
Segment Discussion
Oil and Gas Oil and Gas segment revenues for 2008 were $324.1 million compared to $286.1 million
for 2007, an increase of $38.0 million or 13%. The increase was due to an increase in contracted
medium and heavy aircraft, increased flight hours, and also due to the adverse affect of the
pilots strike on 2007 operating revenues. Segment flight hours were 112,341 for 2008 compared to
107,812 for 2007, an increase of 4,529 hours.
The number of aircraft in the segment at December 31, 2008 was 153 compared to 156 aircraft at
December 31, 2007. In 2008, we sold or disposed of seven aircraft in the Oil and Gas segment,
consisting of five light and two medium aircraft. We also transferred three light aircraft to the
Air Medical segment and two light aircraft to the Technical Services segment. We added nine new
aircraft to the Oil and Gas segment during 2008, consisting of four light, four medium, and one
heavy aircraft.
Direct expense in the Oil and Gas segment increased $8.1 million in 2008 compared to 2007 due to
increased fuel expenses ($9.5 million) as a result of additional flight hours and rising fuel
costs. Total fuel cost is included in direct expense and reimbursement of a portion of fuel costs
above a contracted per gallon amount is included in revenue. Aircraft warranty costs also
increased ($4.5 million) due to additional aircraft added to the fleet. All new aircraft come with
a manufacturers warranty that covers defective parts. The increase in our warranty cost was
related to an additional warranty that we purchased from the manufacturer on certain aircraft to
cover replacement or refurbishment of aircraft parts in accordance with manufacturer
specifications. We paid a monthly fee to the manufacturer based on flight hours for the aircraft
that were covered under this warranty. In return, the manufacturer provided replacement parts
required for maintaining the aircraft. Aircraft parts usage decreased ($3.7 million) due to
additional aircraft being on the manufacturers warranty program and also due to the decreased
average age of the aircraft fleet that resulted from the acquisitions of new aircraft. There was
also a decrease in aircraft depreciation expense ($1.5 million) due to the change in residual
values of the aircraft as previously discussed, and other items, net, decreased ($0.7 million).
Selling, general and administrative expenses were $1.3 million for the year ended December 31,
2008, compared to $1.5 million for the prior year.
Our Oil and Gas segments operating income was $64.7 million for the year ended December 31, 2008,
compared to $34.5 million for the year ended December 31, 2007. The increase of $30.2 million was
due to the increase in operating revenues of $38.0 million, offset by the increase in operating
expenses of $8.1 million, for the reasons described above. Operating margins were 20% for the year
ended December 31, 2008, compared to 12% for the year ended December 31, 2007. The increase in
operating margins was due to the increase in heavy and medium contracted aircraft, and flight hours
which primarily serve the Gulf of Mexico deepwater market and attract higher rates. In addition,
2007 was adversely affected by the pilots strike.
Air Medical Air Medical segment revenues were $174.7 million for 2008 compared to $149.6 million
for 2007, an increase of $25.1 million. The increase was primarily related to the increase in
patient transports, which totaled
21
Table of Contents
22,647 for 2008 compared to 21,710 transports for 2007, and increased hospital-based contracts.
Flight hours were 36,732 for the year ended December 31, 2008, compared to 31,341 for the year
ended December 31, 2007.
The number of aircraft in the segment was 90 at December 31, 2008, compared to 77 at December 31,
2007. In 2008, we transferred three light aircraft to the Air Medical segment from the Oil and Gas
segment, and added eight new light aircraft. We also added four customer-owned light aircraft. We
sold or disposed of two light aircraft.
Direct expense in our Air Medical segment was $160.9 million for 2008 compared to $137.7 million
for 2007. The $23.2 million increase was primarily due to increases in employee compensation costs
($12.2 million) primarily due to an increase in personnel related to additional hospital-based
contracts and also due in part to employee costs associated with independent provider programs
opened or commenced during 2007 and operational for all of 2008. There were also compensation
rate increases in the Air Medical segment. Fuel expenses increased ($1.9 million) due primarily to
increased fuel costs per gallon, aircraft parts usage increased ($1.2 million), and component
repair costs increased ($1.4 million). There was also an increase in insurance expense ($0.7
million) as a result of a charge for the retention portion of the aviation insurance and a workers
compensation amount related to accidents in the Air Medical segment in the second quarter of 2008.
Aircraft warranty costs increased ($1.4 million) net of a $1.5 million credit for termination of a
manufacturers warranty program. Base costs, which include fees for outside medical personnel and
billing and collection services, increased ($4.2 million) due to increased revenues and additional
locations. We also recorded a $2.7 million pre-tax goodwill impairment charge related to the
acquisition of a company related to the Air Medical segment expansion in 2004.
Selling, general and administrative expenses were $8.7 million for the year ended December 31,
2008, compared to $7.9 million for the year ended December 31, 2007. Air Medical operations are
headquartered in Phoenix, Arizona, where we maintain significant separate facilities and
administrative staff dedicated to this segment. Those costs are charged directly to the Air
Medical segment, resulting in higher selling, general and administrative expenses as compared to
our other reportable segments.
Our Air Medical segments operating income was $5.1 million for the year ended December 31, 2008,
compared to operating income of $4.0 million for the year ended December 31, 2007. Operating
margins were 3% in the year ended December 31, 2008 and December 31, 2007. Relative to our Air
Medical segment in 2008, we saw some adverse impact in certain regions due to the current economic
conditions.
Technical Services Technical Services revenues were $10.6 million for the year ended December
31, 2008, compared to $10.7 million for the year ended December 31, 2007. Direct expense was $6.9
million for the year ended December 31, 2008, compared to $6.6 million for the year ended December
31, 2007.
The Technical Services segment had operating income of $3.7 million for the year ended December 31,
2008, compared to $4.0 million for the year ended December 31, 2007. Operating margins in the
Technical Services segment were 35% for the year ended December 31, 2008, compared to 38% for the
same period in 2007. Technical Services includes maintenance and repairs performed primarily for
our existing customers that own their aircraft. These services are generally labor intensive with
higher operating margins as compared to other segments.
Liquidity and Capital Resources
General
Our ongoing liquidity requirements arise primarily from the funding of working capital needs, the
acquisition or leasing of aircraft, the maintenance and refurbishment of aircraft, improvement of
facilities, and acquisition of equipment and inventory. Our principal sources of liquidity
historically have been net cash provided by our operations and borrowings under our revolving
credit facility, as augmented in recent years by the issuance of our Senior Notes in 2002, which
were refinanced in 2006, and the sale of non-voting common stock in 2005 and 2006. To the extent
we do not use cash, short-term investments or borrowings to finance our aircraft acquisitions, we
can typically enter into operating leases to fund these acquisitions. The credit markets and
related turmoil in the global financial system may have an adverse impact on our business and our
financial conditions. We cannot predict our ability to obtain lease financing due to credit
availability, and this could limit our ability to fund our future growth and operations. While we
have been able to obtain proposals and lease financing, we cannot predict future availability nor
the effects on pricing for lease financing.
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Table of Contents
Cash Flow
Our cash position was $2.5 million at December 31, 2009 compared to $1.2 million at December 31,
2008. Short-term investments were $75.1 million at December 31, 2009 compared to $42.1 million at
December 31, 2008. Working capital was $207.0 million at December 31, 2009, as compared to $174.0
million at December 31, 2008, an increase of $30.2 million. The increase in working capital was
primarily attributable to an increase in cash and cash equivalents of $1.3 million, an increase in
short-term investments of $33.0 million due in part to receipt of proceeds from the disposition of
an aircraft and from refunds of deposits on aircraft, and a decrease in accounts receivable of
$17.0 million due to decreased revenues and a decrease in days outstanding.
Net cash provided by operating activities in 2009 was $55.3 million, compared to 43.8 million in
2008. The effects of the 2009 positive cash flow from operating activities was due in part to net
earnings of $13.0 million, adjusted for gains on sales of assets and other non cash items of $36.8
million. The remaining $5.5 million in cash from 2009 operating activities was generated from
changes in working capital balances. The effects of the 2008 positive cash flow from operating
activities was due in part to net earnings of $23.5 million, adjusted for gains on sales of assets
and other non cash items of $36.9 million. There was a reduction in cash from 2008 operating
activities of $16.6 million generated from changes in working capital balances.
Net cash used in investing activities was $69.2 million for 2009, compared to $47.3 million for
2008. Capital expenditures were $57.0 million for 2009 compared to $77.6 million for 2008.
Capital expenditures for 2009 included $50.6 million for aircraft purchases, upgrades, and
refurbishments. Capital expenditures for 2008 included $69.0 million for aircraft purchases,
upgrades, and refurbishments. Gross proceeds from aircraft sales and dispositions were $9.2
million for 2009 compared to $18.4 million 2008.
Financing activities provided $15.3 million in cash for 2009 compared to $3.2 million provided in
2008. This increase is primarily a result of borrowing from our line of credit discussed below. The increased
borrowing was due to aircraft purchases.
We have a net operating loss of $122.6 million for tax purposes at December 31, 2009. This tax
carryforward was generated by tax depreciation on aircraft purchases.
Credit Facility
At December 31, 2008, we had a $50 million revolving credit facility with a commercial bank that
was due to expire on September 1, 2010. Effective August 5, 2009, we executed a new credit
agreement with a syndicate of three commercial banks providing a $75 million revolving credit
facility maturing in September 2011. The interest rate is the prime rate plus 100 basis points.
Other terms are substantially similar to the prior facility. The new facility includes financial
covenants related to working capital and funded debt to net worth, identical to the previous credit
agreement, and the consolidated net worth covenant was increased from $400 million to $425 million.
As of December 31, 2009 and 2008, we were in compliance with the covenants under our credit
agreements.
For additional information, see Note 4 to our consolidated financial statements.
At December 31, 2009, we had $18.3 million in borrowings under the facility, and $5.1 million in
letters of credit, and our availability under the facility was $51.6 million. During 2009, the
weighted average effective interest rate on amounts borrowed under the facility was 3.58%, compared
to 4.26% in 2008.
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Table of Contents
Contractual Obligations
The table below sets out our contractual obligations as of December 31, 2009 related to
operating lease obligations, credit facility, and the 7.125% Senior Notes due 2013. The operating
leases are not recorded as liabilities on the balance sheet, and payments are treated as an expense
as incurred. Each contractual obligation included in the table contains various terms, conditions,
or covenants which, if violated, accelerate the payment of that obligation. We currently lease 25
aircraft included in the lease obligations below.
Payment Due by Year | ||||||||||||||||||||||||||||
Beyond | ||||||||||||||||||||||||||||
Total | 2010 | 2011 | 2012 | 2013 | 2014 | 2014 | ||||||||||||||||||||||
(Thousands of dollars) | ||||||||||||||||||||||||||||
Aircraft lease obligations |
231,396 | 32,604 | 33,872 | 34,539 | 34,904 | 34,904 | 60,573 | |||||||||||||||||||||
Other lease obligations |
18,392 | 3,409 | 2,908 | 1,976 | 1,465 | 1,292 | 7,342 | |||||||||||||||||||||
Long term debt |
218,305 | | 18,305 | | 200,000 | | | |||||||||||||||||||||
$ | 468,093 | $ | 36,013 | $ | 55,085 | $ | 36,515 | $ | 236,369 | $ | 36,196 | $ | 67,915 | |||||||||||||||
Interest costs on the long-term debt obligations set forth above, assuming the amounts outstanding
at December 31, 2009 remain outstanding until maturity, and without considering any additional debt
that may be obtained relative to our future purchase commitments for aircraft, are $14.2 million
for our Senior Notes for 2010 and each successive year through 2013, including amortization of debt
issuance costs, and $0.5 million for borrowing under our credit facility for 2010, and $0.5 million
for 2011.
There were no significant purchase commitments at December 31, 2009. We have purchase options on
three leased heavy aircraft which will be exercisable in 2010. The amounts are approximately $12.6 million
each. A decision as to whether we will exercise these options will be made as we get nearer the
option dates.
Critical Accounting Policies and Estimates
Managements discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
consolidated financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including
those related to inventories of spare parts, long-lived assets, income taxes, and self-insurance
liabilities. We base our estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates, and the differences may be
material. We believe the following critical accounting policies affect our more significant
judgments and estimates used in preparation of our consolidated financial statements.
Revenues related to Air Medical services are recorded net of contractual allowances under
agreements with third party payors and estimated uncompensated care when services are provided. We
estimate contractual allowances and uncompensated care based on historical collection experience by
payor category. The main payor categories are Medicaid, Medicare, Insurance, and Self-Pay. Payor
mix and changes in reimbursement rates are the factors most subject to sensitivity and variability
in calculating our allowances. We compute a historical payment analysis of accounts paid in full,
by category. The allowance percentages calculated are applied to the payor categories, and the
necessary adjustments are made to the revenue allowance.
We maintain a significant parts inventory to service our own aircraft along with the aircraft and
components of customers. Portions of that inventory are used parts that are often exchanged with
parts removed from aircraft or components and reworked to a useable condition. We use systematic
procedures to estimate the valuation of the used parts, which includes consideration of their
condition and continuing utility. If our valuation of these parts should be significantly
different from amounts ultimately realizable or if we discontinue using or servicing certain
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aircraft models, then we may have to record a write-down of our inventory. We also record
provisions against inventory for obsolete and slow-moving parts, relying principally on specific identification of
such inventory. If we fail to identify such parts, additional provisions may be necessary.
Our principal long-lived assets are aircraft. We review our long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. We measure recoverability of assets to be held and used by comparing the carrying
amount of an asset to the future undiscounted net cash flows that we expect the asset to generate.
When an asset is determined to be impaired, we recognize the impairment amount, which is the amount
by which the carrying value of the asset exceeds its estimated fair value. Similarly, we report
assets that we expect to sell at the lower of the carrying amount or fair value less costs to sell.
Future adverse market conditions or poor operating results could result in an inability to recover
the current carrying value of certain long-lived assets, thereby possibly requiring an impairment
charge in the future.
Effective July 1, 2007, we changed the estimated residual value of certain aircraft from 40% to
54%. We believe the revised amounts reflect our historical experience and more appropriately match
costs over the estimated useful lives and salvage values of these assets. The change in residual
values of certain aircraft was based on our experience in sales of such aircraft and industry data
which indicated that these aircraft were retaining on average a salvage value of at least 54% by
model type. The effect of this change for 2007 was a reduction in depreciation expense of $1.6
million ($1.0 million after tax or $0.07 per diluted share).
We must make estimates for certain of our liabilities and expenses, losses, and gains related to
self-insured programs, insurance deductibles, and good-experience premium returns. Our group
medical insurance program is largely self-insured, and we use estimates to record our periodic
expenses related to that program. We also carry deductibles on our workers compensation program
and aircraft hull and liability insurance, and poor experience or higher accidents rates could
result in additional recorded losses.
We estimate what our effective tax rate will be for the full year and record a quarterly income tax
expense in accordance with the anticipated effective annual tax rate. As the year progresses, we
continually refine our estimate based upon actual events and income before income taxes by
jurisdiction during the year. This process may result in a change to our expected effective tax
rate for the year. When this occurs, we adjust the income tax expense during the quarter in which
the change in estimate occurs so that the year-to-date expense equals the annual rate.
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 Accounting Standards Codification
(ASC) 350, Intangibles-Goodwill and Other, previously 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.
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 was primarily driven by adverse equity market conditions that
caused a decrease in market multiples as of December 31, 2008, compared with the test performed as
of December 31, 2007. The Company did not have any goodwill recorded at December 31, 2009 or
2008, after this charge described above.
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New Accounting Pronouncements
For a discussion of new accounting pronouncements applicable to the Company, see Note 1 to the
Consolidated Financial Statements.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our earnings are subject to change in short-term interest rates due to the variable interest
rate in our revolving credit facility. Based on the $18.3 million in borrowings outstanding as of
December 31, 2009, a ten percent increase in the interest rate to 4.675% would reduce our annual
pre-tax earnings by $0.8 million.
Our Senior Notes bear interest at a fixed rate of 7.125% and therefore changes in market interest
rates do not affect our interest payment obligations on the notes. The market value of the Senior
Notes will vary as changes occur in market interest rates, the remaining maturity of the Senior
Notes, and our credit-worthiness. At December 31, 2009, the market value of the $200.0 million
principal amounts of the Notes was $194.0 million.
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
PHI, Inc.
Lafayette, Louisiana
PHI, Inc.
Lafayette, Louisiana
We have audited the accompanying consolidated balance sheets of PHI, Inc. and subsidiaries (the
Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three years in the period ended December 31,
2009. Our audits also included the consolidated financial statement schedule listed in the Index at
Item 15. These consolidated financial statements and the consolidated financial statement schedule
are the responsibility of the Companys management. Our responsibility is to express an opinion on
the consolidated financial statements and the consolidated financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of PHI, Inc. and subsidiaries as of December 31, 2009 and 2008, and the
results of their operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of December 31,
2009, based on the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and
our report dated March 8, 2010
expressed an unqualified opinion on the Companys internal control over financial reporting.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 8, 2010
March 8, 2010
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PHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
(Thousands of dollars, except share data)
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 2,501 | $ | 1,159 | ||||
Short-term investments |
75,138 | 42,121 | ||||||
Accounts receivable net |
||||||||
Trade |
90,518 | 104,912 | ||||||
Other |
3,885 | 6,510 | ||||||
Inventories of spare parts net |
61,501 | 58,249 | ||||||
Other current assets |
11,018 | 10,687 | ||||||
Income taxes receivable |
740 | 982 | ||||||
Total current assets |
245,301 | 224,620 | ||||||
Other |
11,669 | 23,988 | ||||||
Property and equipment net |
548,536 | 528,574 | ||||||
Total assets |
$ | 805,506 | $ | 777,182 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 14,935 | $ | 25,449 | ||||
Accrued liabilities |
23,342 | 25,193 | ||||||
Total current liabilities |
38,277 | 50,642 | ||||||
Long-term debt |
218,305 | 203,000 | ||||||
Deferred income taxes |
73,409 | 65,175 | ||||||
Other long-term liabilities |
10,067 | 5,969 | ||||||
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; |
||||||||
25,000,000 shares authorized |
||||||||
Issued and outstanding: |
||||||||
2009
12,458,992; 2008 12,448,992 |
1,246 | 1,245 | ||||||
Additional paid-in capital |
291,403 | 291,262 | ||||||
Accumulated other comprehensive (loss) income |
(13 | ) | 45 | |||||
Retained earnings |
172,527 | 159,559 | ||||||
Total shareholders equity |
465,448 | 452,396 | ||||||
Total liabilities and shareholders equity |
$ | 805,506 | $ | 777,182 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
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PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of dollars and shares, except per share data)
(Thousands of dollars and shares, except per share data)
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2009 | 2008 | 2007 | ||||||||||
Operating revenues, net |
$ | 487,175 | $ | 509,514 | $ | 446,406 | ||||||
Gain on disposition of assets, net |
111 | 4,468 | 34,953 | |||||||||
Other, principally interest income |
225 | 522 | 5,098 | |||||||||
487,511 | 514,504 | 486,457 | ||||||||||
Expenses: |
||||||||||||
Direct expenses |
418,627 | 425,953 | 394,421 | |||||||||
Selling, general and
administrative expenses |
31,006 | 31,657 | 30,226 | |||||||||
Interest expense |
16,037 | 15,515 | 16,121 | |||||||||
Goodwill impairment charges |
| 2,747 | | |||||||||
465,670 | 475,872 | 440,768 | ||||||||||
Earnings before income taxes |
21,841 | 38,632 | 45,689 | |||||||||
Income tax expense |
8,873 | 15,117 | 17,471 | |||||||||
Net earnings |
$ | 12,968 | $ | 23,515 | $ | 28,218 | ||||||
Earnings per share: |
||||||||||||
Basic |
$ | 0.85 | $ | 1.54 | $ | 1.85 | ||||||
Diluted |
$ | 0.85 | $ | 1.54 | $ | 1.85 | ||||||
Weighted average shares outstanding: |
||||||||||||
Basic |
15,307 | 15,295 | 15,279 | |||||||||
Diluted |
15,307 | 15,301 | 15,288 |
The accompanying notes are an integral part of these consolidated financial statements.
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PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Thousands of dollars and shares)
(Thousands of dollars and shares)
Accumulated | Total | |||||||||||||||||||||||||||||||
Voting | Non-Voting | Additional | Other Com- | Share- | ||||||||||||||||||||||||||||
Common Stock | Common Stock | Paid-in | prehensive | Retained | Holders | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | Earnings | Equity | |||||||||||||||||||||||||
Balance at December 31, 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 | ||||||||||||||||||||||||
Net earnings |
| | | | | | 12,968 | 12,968 | ||||||||||||||||||||||||
Changes in pension plan assets and
benefit obligations |
| | | | | (58 | ) | | (58 | ) | ||||||||||||||||||||||
Total comprehensive income |
12,910 | |||||||||||||||||||||||||||||||
Stock options exercised |
| | 10 | 1 | 141 | | | 142 | ||||||||||||||||||||||||
Balance at December 31, 2009 |
2,853 | $ | 285 | 12,459 | $ | 1,246 | $ | 291,403 | $ | (13 | ) | $ | 172,527 | $ | 465,448 | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Thousands of dollars)
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2009 | 2008 | 2007 | ||||||||||
Operating activities: |
||||||||||||
Net earnings |
$ | 12,968 | $ | 23,515 | $ | 28,218 | ||||||
Adjustments to reconcile net earnings to net
cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
27,764 | 26,944 | 30,047 | |||||||||
Goodwill impairment |
| 2,747 | | |||||||||
Deferred income taxes |
8,603 | 13,531 | 16,498 | |||||||||
Gain on asset dispositions |
(111 | ) | (4,468 | ) | (34,953 | ) | ||||||
Other |
930 | 922 | 868 | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
17,019 | (13,338 | ) | (8,790 | ) | |||||||
Inventories of spare parts |
(3,252 | ) | (2,418 | ) | (1,492 | ) | ||||||
Income taxes receivable |
242 | (457 | ) | 110 | ||||||||
Other current assets |
(1,714 | ) | 1,208 | (1,824 | ) | |||||||
Accounts payable and accrued liabilities |
(11,360 | ) | (2,754 | ) | (2,100 | ) | ||||||
Other long-term liabilities |
4,183 | (1,634 | ) | (1,356 | ) | |||||||
Net cash provided by operating activities |
55,272 | 43,798 | 25,226 | |||||||||
Investing activities: |
||||||||||||
Purchase of property and equipment |
(57,035 | ) | (77,590 | ) | (159,715 | ) | ||||||
Proceeds from asset dispositions |
9,217 | 18,394 | 58,105 | |||||||||
Purchase of short-term investments |
(47,704 | ) | (43,976 | ) | (134,241 | ) | ||||||
Proceeds from sale of short-term investments |
14,687 | 64,826 | 224,685 | |||||||||
Refund (payment) of deposits on aircraft |
11,600 | (8,946 | ) | (8,298 | ) | |||||||
Net cash used in investing activities |
(69,235 | ) | (47,292 | ) | (19,464 | ) | ||||||
Financing activities: |
||||||||||||
Proceeds from line of credit |
37,750 | 15,800 | 37,200 | |||||||||
Payments on line of credit |
(22,445 | ) | (12,800 | ) | (42,700 | ) | ||||||
Proceeds from exercise of stock options |
| 228 | 343 | |||||||||
Net cash provided by (used in) financing activities |
15,305 | 3,228 | (5,157 | ) | ||||||||
Increase (decrease) in cash and cash equivalents |
1,342 | (266 | ) | 605 | ||||||||
Cash and cash equivalents, beginning of year |
1,159 | 1,425 | 820 | |||||||||
Cash and cash equivalents, end of year |
$ | 2,501 | $ | 1,159 | $ | 1,425 | ||||||
Supplemental Disclosures Cash Flow Information |
||||||||||||
Accrued payables related to purchases of property
and equipment |
$ | 312 | $ | 1,510 | $ | 1,906 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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PHI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of Operations, Basis of Consolidation, and Other General Principles
Since its inception, PHI, Inc.s primary business has been to transport personnel and, to a
lesser extent, parts and equipment, to, from and among offshore facilities for customers
engaged in the oil and gas exploration, development, and production industry. The Company
also provides air medical transportation services for hospitals 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
independent provider model services 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:
Estimates of contractual allowances applicable to billings in the Air Medical segment,
Valuation reserve related to obsolete and excess inventory,
Depreciable lives and salvage values of property and equipment,
Valuation allowance for deferred tax assets,
Health care insurance claims and workers compensation liability
Impairment of long-lived assets.
Valuation reserve related to obsolete and excess inventory,
Depreciable lives and salvage values of property and equipment,
Valuation allowance for deferred tax assets,
Health care insurance claims and workers compensation liability
Impairment of long-lived assets.
Cash Equivalents
The Company considers cash equivalents to include demand deposits with original maturities
of three months or less. 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.
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Short-term Investments
Short-term investments consist primarily of investment funds, which represent funds
available for current operations. In accordance with ASC 320 Investments-Debt and Equity
Securities, formerly 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 recorded any unrealized gains or losses associated with short-term investments as
the carrying value approximates fair value at December 31, 2009 and 2008.
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 $9.2 million and $7.9 million at
December 31, 2009 and 2008, 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 was $250,000 per claim through
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December 31, 2009. As of December 31, 2009 and 2008, the Company had $2.1 million and $1.7
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 2009 and 2008 totaled $5.2 million and
$3.1 million, respectively. The financial position and operations of the insurance captive
were not significant in 2009, 2008 or 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, 2009 were invested in a U.S. government money market fund, which
invests primarily in high quality money market instruments of governmental and private
issuers. The Company does not believe significant credit risk exists with respect to these
securities at December 31, 2009.
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, 2009 and 2008. The
Companys two largest oil and gas customers accounted for 28% of consolidated operating
revenues for the year ended December 31, 2009 and 27% for the years ended December 31, 2008,
and 2007, respectively. The Company also carried accounts receivable from these same
customers totaling 25% and 20% of net trade receivables on December 31, 2009 and 2008,
respectively.
Trade receivables representing amounts due pursuant to air medical independent provider
model 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. The allowance for contractual discounts was $32.1 million,
$37.6 million, and $31.9 million as of December 31, 2009, 2008, and 2007, respectively. The
allowance for uncompensated care was $28.1 million, $20.8 million, and $19.1 million as of
December 31, 2009, 2008, and 2007, respectively.
Stock Compensation
The Company has not issued any shares, options, or rights under its stock plan since 2001.
No employee stock options were granted in 2009, 2008, and 2007. For the years ended December
31, 2009, 2008, and 2007, stock-based employee compensation expense was $0 in each of those
years.
Income Taxes
The Company provides for income taxes using the asset and liability method under which
deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. The deferred tax assets and
liabilities measurement uses enacted tax rates that are expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled.
The Company recognizes the effect of any tax rate changes in income of the period that
includes the enactment date. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion of the deferred
tax assets will not be realized.
In July 2006, the Financial Accounting Standards Board (FASB) issued ASC 740, Income
Taxes, formerly 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. ASC 740 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
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Company adopted the provisions of ASC 740. 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.
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
2009, 2008, and 2007.
New Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Codification 105, Generally Accepted Accounting Principles, previously SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles. This statement, which replaces SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles, identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally accepted accounting
principles in the United States. This statement is effective for financial statements issued
for interim and annual periods ending after September 15, 2009.
As a result of implementation of the Codification during the quarter ended September 30,
2009, previous references to new accounting standards and literature are no longer
applicable. In the current financial statements, management provided reference to both new
and old guidance to assist in understanding the impacts of recently adopted accounting
literature, particularly for guidance adopted since the beginning of the current fiscal year
but prior to the Codification.
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, and therefore impact total shareholders equity, but are
excluded from net income.
The following table summarizes the components of total comprehensive income (net of taxes):
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(Thousands of dollars) | ||||||||||||
Net earnings |
$ | 12,968 | $ | 23,515 | $ | 28,218 | ||||||
Changes in pension plan assets
and benefit obligations |
(58 | ) | (16 | ) | (16 | ) | ||||||
Comprehensive income |
$ | 12,910 | $ | 23,499 | $ | 28,202 | ||||||
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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
Accounting Standards Codification (ASC) 350, Intangibles-Goodwill and Other, previously
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.
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 was primarily
driven by adverse equity market conditions that caused a decrease in market multiples as of
December 31, 2008, compared with the test performed as of December 31, 2007. The Company
did not have any goodwill recorded at December 31, 2009 or 2008, after this charge described
above.
(2) | PROPERTY AND EQUIPMENT |
The following table summarizes the Companys property and equipment at
December 31, 2009 and 2008.
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Thousands of dollars) | ||||||||
Flight equipment |
$ | 674,920 | $ | 635,733 | ||||
Facility & improvements |
36,788 | 30,406 | ||||||
Operating equipment |
19,436 | 18,477 | ||||||
Data processing equipment |
22,312 | 24,153 | ||||||
Vehicles |
7,005 | 5,957 | ||||||
Medical equipment |
3,933 | 3,993 | ||||||
Other |
3,810 | 7,256 | ||||||
768,204 | 725,975 | |||||||
Less accumulated depreciation and
amortization |
(219,668 | ) | (197,401 | ) | ||||
Property and equipment, net |
$ | 548,536 | $ | 528,574 | ||||
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(3) | ACCRUED LIABILITIES |
Accrued liabilities consisted of the following:
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Thousands of dollars) | ||||||||
Salaries & wages |
$ | 6,501 | $ | 7,076 | ||||
Vacation payable |
3,621 | 3,619 | ||||||
Interest |
3,173 | 3,009 | ||||||
Operating lease |
2,326 | 4,271 | ||||||
Group medical |
2,059 | 1,689 | ||||||
Transportations tax |
1,173 | 1,039 | ||||||
Workers compensation |
1,510 | 1,501 | ||||||
Other |
2,979 | 2,989 | ||||||
Total accrued liabilities |
$ | 23,342 | $ | 25,193 | ||||
(4) | LONG-TERM DEBT |
As of December 31, 2009, our total long-term indebtedness was $218.3 million, consisting of
$200 million of our 7.125% Senior Notes due 2013 and $18.3 million borrowed under our
revolving credit facility due 2011.
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 were used to repurchase the
Companys outstanding $200.0 million, 9 3/8% Senior Notes due 2009 pursuant to a tender
offer that also closed on April 12, 2006. Interest on the 7.125% notes is payable
semi-annually on April 15 and October 15, and the notes mature April 15, 2013. The annual
interest cost of the 7.125% notes is $14.3 million, excluding amortization of issuance
costs.
The 7.125% 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
wholly owned 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, 2009 and 2008.
Effective August 5, 2009, the Company executed a new credit agreement with a syndicate of
three commercial banks, which replaced the prior facility, providing a $75 million revolving
credit facility maturing in September 2011. The interest rate is the prime rate plus 100
basis points. At December 31, 2009, the Company had $18.3 million in borrowings under the
revolving credit facility, and the Company had $3.0 million in borrowings under the credit
facility at December 31, 2008. The Company had five letters of credit for $5.1 million
outstanding at December 31, 2009 and December 31, 2008. The credit agreement includes
financial covenants related to working capital, funded debt to net worth, and consolidated
net worth and other covenants including restrictions on additional debt, encumbrances and a
change of control. As of December 31, 2009 and 2008, the Company was in compliance with the
covenants in the facility. The credit agreement is collateralized by accounts receivable
and inventory and guaranteed by the Companys domestic subsidiaries. The
agreement contains a borrowing base of 80% of eligible receivables and 50% of the value of
parts. We reviewed interest expense in 2009 that could be capitalized for certain
projects and any such amounts were immaterial.
Cash paid for interest was $14.8 million, $14.5 million, and $15.4 million, for the years
ended December 31, 2009, 2008, and 2007, respectively.
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(5) | INCOME TAXES |
Income tax expense (benefit) is composed of the following:
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2009 | 2008 | 2007 | ||||||||||
(Thousands of dollars) | ||||||||||||
Current |
||||||||||||
Federal |
$ | | $ | | $ | | ||||||
State |
193 | 178 | | |||||||||
Foreign |
77 | 808 | 973 | |||||||||
Deferred principally
Federal |
8,603 | 14,131 | 16,498 | |||||||||
Total |
$ | 8,873 | $ | 15,117 | $ | 17,471 | ||||||
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, 2009 | December 31, 2008 | December 31, 2007 | ||||||||||||||||||||||
(Thousands of dollars, except percentage amounts) | ||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||||||||
Income taxes at statutory rate |
$ | 7,644 | 35 | $ | 13,519 | 35 | $ | 15,991 | 35 | |||||||||||||||
Increase (decrease) in taxes
resulting from: |
||||||||||||||||||||||||
Hurricane relief credit |
| | (172 | ) | | (134 | ) | | ||||||||||||||||
Effect of state income taxes |
844 | 4 | 1371 | 3 | 1,479 | 3 | ||||||||||||||||||
Other items net |
385 | 2 | 399 | 1 | 135 | | ||||||||||||||||||
Total |
$ | 8,873 | 41 | $ | 15,117 | 39 | $ | 17,471 | 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, 2009 and 2008 are presented
below:
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Thousands of dollars) | ||||||||
Deferred tax assets: |
||||||||
Deferred compensation |
$ | 1,990 | $ | 1,654 | ||||
Foreign tax credits |
5,413 | 6,359 | ||||||
Vacation accrual |
1,543 | 2,010 | ||||||
Inventory valuation |
4,262 | 4,164 | ||||||
Rental accrual |
2,230 | 1,634 | ||||||
Allowance for uncollectible accounts |
19 | 19 | ||||||
Hurricane relief credit |
1,255 | 1,255 | ||||||
Goodwill impairment |
674 | 1,051 | ||||||
Other |
671 | 347 | ||||||
Net operating loss |
47,513 | 34,201 | ||||||
Total deferred tax assets |
65,570 | 52,694 | ||||||
Valuation allowance state NOL |
(138 | ) | | |||||
Valuation allowance tax credit carryforwards |
(700 | ) | (1,320 | ) | ||||
Total deferred tax assets, net |
64,732 | 51,374 | ||||||
Deferred tax liabilities: |
||||||||
Tax depreciation in excess of book depreciation |
(132,325 | ) | (110,242 | ) | ||||
Other |
| (84 | ) | |||||
Total deferred tax liabilities |
(132,325 | ) | (110,326 | ) | ||||
Net deferred tax liabilities |
$ | (67,593 | ) | $ | (58,952 | ) | ||
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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 $620,000 of net foreign tax
credits that were previously reserved for expired during 2009. A tax credit of $0.2 million
was realized in 2008 as a result of Hurricanes Katrina and Rita legislation. There were no
similar credits generated in 2009. At December 31, 2009 and 2008, other current assets
include $5.8 million and $6.2 million, respectively, of deferred tax assets.
The Company has net operating loss carryforwards (NOLs), of approximately $123.0 million
that, if not used will expire beginning in 2022 through 2029. Additionally, for state income
tax purposes, the Company has NOLs of approximately $120.0 million available to reduce
future state taxable income. These NOLs expire in varying amounts beginning in 2011 through
2029, the majority of which expires in 2017 through 2024. A valuation allowance was
recorded in the amount of $137,000 for certain state NOLs that are set to expire in 2011 and
2013. Most of these NOLs arose from accelerated tax depreciation deductions related to
substantial aircraft additions since 2002.
The Company also has foreign tax credits of approximately $4.3 million which expire
beginning in 2015 through 2018.
Income taxes paid were approximately $0.2 million, $0.02 million, and $0.2 million for the
years ended December 31, 2009, 2008, and 2007, respectively. The Company received net
income tax refunds of approximately $0.03 million, $0.03 million, and $0.9 million during
the years ended December 31, 2009, 2008, and 2007, 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 $8.0 million
for the year ended December 31, 2009, $7.9 million for the year ended
December 31, 2008 and $7.0 million for the year ended December 31,
2007.
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 ASC 715,
Compensation-Retirement Benefits, formerly 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, 2009, 2008, and 2007.
Years Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(Thousands of dollars) | ||||||||||||
Interest cost |
$ | 62 | $ | 80 | $ | 56 | ||||||
Recognized actuarial (gain) loss |
(7 | ) | (24 | ) | (4 | ) | ||||||
Net periodic plan cost |
$ | 55 | $ | 56 | $ | 52 | ||||||
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The benefit obligation, funded status, and assumptions of the plan on December 31, 2009 and
2008 were as follows:
December 31, | ||||||||
2009 | 2008 | |||||||
(Thousands of dollars) | ||||||||
Change in benefit obligation: |
||||||||
Benefit obligation at the beginning of the year |
$ | 953 | $ | 1,012 | ||||
Interest cost |
62 | 80 | ||||||
Actuarial loss (gain) |
100 | (8 | ) | |||||
Benefits paid |
(131 | ) | (131 | ) | ||||
Benefit obligation at the end of the year |
$ | 984 | $ | 953 | ||||
Weighted average assumptions |
||||||||
Discount rate |
3.93 | % | 5.7 | % |
The benefit obligation amounts recognized in the consolidated balance sheets as of December
31, 2009 and 2008 were as follows:
December 31, | ||||||||
2009 | 2008 | |||||||
(Thousands of dollars) | ||||||||
Accrued liabilities |
$ | 131 | $ | 131 | ||||
Other long-term liabilities |
853 | 822 | ||||||
Total |
$ | 984 | $ | 953 | ||||
The other changes in plan assets and benefit obligations recognized in other comprehensive
income for the years ended December 31, 2009 and 2008 were as follows:
December 31, | ||||||||
2009 | 2008 | |||||||
(Thousands of dollars) | ||||||||
Net loss (gain) |
$ | 100 | $ | (8 | ) | |||
Amortization of net loss (gain) |
7 | 24 | ||||||
Total recognized in other comprehensive income |
$ | 107 | $ | 16 | ||||
Total recognized in net periodic benefit cost and
other comprehensive income |
$ | 105 | $ | 72 | ||||
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, 2009 are
as follows (thousands of dollars):
Years Ending December 31, | ||||
2010 |
$ | 131 | ||
2011 |
131 | |||
2012 |
131 | |||
2013 |
131 | |||
2014 |
131 | |||
Years 2015 2019 |
462 | |||
$ | 1,117 | |||
Amounts recognized in accumulated other comprehensive income consists of approximately
$100,000 unrecognized actuarial loss in 2009 and $84,000 pre-tax in unrecognized actuarial
gain in 2008.
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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
2009, 2008, and 2007 related to the life insurance contracts. Cash values of the life
insurance contracts, recorded in other assets, are $0.5 million at December 31, 2009 and
$0.3 million at December 31, 2008.
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 $4.2 million and $3.3 million for the years December 31, 2009 and 2008
respectively.
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. No new awards
have been made since that time.
At December 31, 2009, 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, 2009, 2008, and 2007.
There was no unearned stock compensation expense at December 31, 2009 and 2008.
There were no stock options outstanding as of December 31, 2009.
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 did not accrue incentive compensation expense for 2009 as certain established
requirements under the plan were not met. We also have a Safety Incentive Plan related to
Occupational Safety and Health Administration recordable incidents, for which we expensed
and paid $0.6 million for 2009 and $0.5 million for 2008. For the year ended December 31,
2008, the Company accrued $1.0 million of incentive compensation expense related to the
plans. For 2007, the Company accrued $4.0 million incentive compensation expense.
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(7) | OTHER ASSETS |
The following table summarizes the Companys other assets at December 31, 2009 and 2008.
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Thousands of dollars) | ||||||||
Nonrefundable
deposits on operating leases for aircraft |
$ | 3,000 | $ | 15,183 | ||||
Deferred financing cost |
2,903 | 3,701 | ||||||
Investments (Officers Deferred Compensation Plan) |
4,242 | 3,519 | ||||||
Other |
1,524 | 1,585 | ||||||
Total |
$ | 11,669 | $ | 23,988 | ||||
(8) | FAIR VALUE |
The Company adopted ASC 820, Fair Value Measurements and Disclosures, formerly SFAS No. 157, Fair Value Measurements,
beginning in its 2008 fiscal year and there was no material impact to its consolidated financial statements. ASC 820
applies to all assets and liabilities that are being measured and reported on a fair value basis. ASC 820 requires new
disclosure that establishes a framework for measuring fair value in GAAP, and expands disclosure about fair value
measurements. This statement enables the reader of the financial statements to assess the inputs used to develop those
measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair
values. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of
the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following table summarizes the valuation of our short-term investments and financial instruments by the above ASC 820
pricing levels as of the valuation dates listed:
December 31, 2009 | December 31, 2008 | |||||||
Quoted prices in | Quoted prices in | |||||||
active markets for | active markets for | |||||||
Identical Assets | Identical Assets | |||||||
(Level 1) | (Level 1) | |||||||
(Thousands of dollars) | ||||||||
Short-term investments |
$ | 75,138 | $ | 42,121 | ||||
Investments in other assets |
4,239 | 3,297 | ||||||
Total |
$ | 79,377 | $ | 45,418 | ||||
The Company holds its short-term investments in an investment fund consisting of high
quality money market instruments of governmental and private issuers, which is classified as
a short-term investment. Investments included in other assets, which relate to the
liability for the Officers Deferred Compensation Plan, consist mainly of multiple
investment funds that are highly liquid and diversified.
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The following table presents the carrying amounts and estimated fair values of financial
instruments held by the Company at December 31, 2009 and 2008. 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, 2009 | December 31, 2008 | |||||||||||||||
(Thousands of dollars) | ||||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
Amounts | Fair Value | Amounts | Fair Value | |||||||||||||
Long-term debt |
$ | 218,305 | $ | 194,000 | $ | 203,000 | $ | 118,000 |
(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:
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2009 | 2008 | 2007 | ||||||||||
(Thousands of dollars) | ||||||||||||
Aircraft |
$ | 26,028 | $ | 20,424 | $ | 19,110 | ||||||
Other |
7,201 | 6,652 | 6,715 | |||||||||
Total |
$ | 33,229 | $ | 27,076 | $ | 25,825 | ||||||
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) | ||||||||||||
2010 |
$ | 32,604 | $ | 3,409 | $ | 36,013 | ||||||
2011 |
33,872 | 2,908 | 36,780 | |||||||||
2012 |
34,539 | 1,976 | 36,515 | |||||||||
2013 |
34,904 | 1,465 | 36,369 | |||||||||
2014 |
34,904 | 1,292 | 36,196 | |||||||||
Thereafter |
60,573 | 7,342 | 67,915 | |||||||||
$ | 231,396 | $ | 18,392 | $ | 249,788 | |||||||
Purchase Commitments - In 2009, the Company took delivery of nine aircraft for services in
the Oil & Gas segment, including one light, two medium, five transport and one fixed-wing
aircraft. The Company also took delivery of one light aircraft for service in the Air
Medical segment. There are no purchase commitments as of December 31, 2009.
Environmental Matters The Company has an aggregate estimated liability of $0.2 million as
of December 31, 2009 and 2008 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
43
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(RECAP) Standard Site Assessment Report to the Louisiana Department of Environmental Quality
(LDEQ) fully delineating the extent and type of contamination and updated the report to
include recent analytical data. LDEQ has reviewed the assessment
report and has requested an action plan from the Company. When the action plan is
complete, the Company will be in a position to estimate
the resulting cost of remediation. The Company has not recorded any estimated
liability for remediation and contamination and, based upon the May 2003 Site Assessment
Report, the April 2006 update and ongoing monitoring, it believes the ultimate remediation
costs for the former Lafayette facility will not be material to its consolidated financial
position, results of operations, or cash flows.
Legal Matters The Company is named as a defendant in various legal actions that have
arisen in the ordinary course of business and have not been finally adjudicated. In the
opinion of management, the amount of the ultimate liability with respect to these actions
will not have a material adverse effect on the Companys consolidated financial position,
results of operations, or cash flows.
Superior Offshore International Inc. v. Bristow Group Inc., ERA Helicopters, LLC, Seacor
Holdings Inc., ERA Group Inc., ERA Aviation, Inc., and PHI, Inc., Civil Action No.
1:09-cv-00438 on the docket of the United States District Court for the District of
Delaware. This purported class action was filed on June 12, 2009, on behalf of a class
defined to include all direct purchasers of offshore helicopter services in the Gulf of
Mexico from the defendants at any time from January 1, 2001 through December 31, 2005. The
suit alleges that the defendants acted jointly to fix, maintain, or stabilize prices for
offshore helicopter services during the above time frame in violation of the federal
antitrust laws. The plaintiff seeks unspecified treble damages, injunctive relief, costs,
and attorneys fees. Defendants motion to dismiss filed on September 4, 2009 is pending.
The outcome of this matter cannot be reasonably assessed at this time. The Company intends
to aggressively defend itself in this matter.
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 left the Companys
employment, 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 June 29, 2009 until July 6, 2010.
Management does not expect the outcome of this litigation to have a material adverse effect
on our consolidated financial position, results of operations, or cash flows.
(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 ASC 280, Segment Reporting. The overriding
determination of the Companys segments is based on how the chief
operating decision-maker of the Company, the Chairman of the Board
and Chief Executive Officer, 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 ASC
280 for disclosure. The reportable segments were Oil and Gas, Air
Medical, International, and Technical Services.
The Oil and Gas segment provides helicopter services to oil and gas
customers operating in the Gulf of Mexico 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
44
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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, Arizona, 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.
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, | |||||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2007 | ||||||||||||||||
Customer A |
14 | % | 10 | % | 15 | % | 13 | % | 12 | % | ||||||||||
Customer B |
11 | % | 10 | % | 13 | % | 14 | % | 15 | % |
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, 2009, 2008, and 2007. 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, income taxes, 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. Corporate assets are principally cash and cash equivalents, short-term
investments, other assets, and certain property, and equipment.
45
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Year Ended | ||||||||||||
December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(Thousands of dollars) | ||||||||||||
Segment operating revenues |
||||||||||||
Oil and Gas |
$ | 316,198 | $ | 324,147 | $ | 286,118 | ||||||
Air Medical |
160,113 | 174,739 | 149,590 | |||||||||
Technical Services |
10,864 | 10,628 | 10,698 | |||||||||
Total operating revenues |
487,175 | 509,514 | 446,406 | |||||||||
Segment direct expenses |
||||||||||||
Oil and Gas |
263,818 | 258,160 | 250,110 | |||||||||
Air Medical |
147,630 | 160,910 | 137,703 | |||||||||
Technical Services |
7,179 | 6,883 | 6,608 | |||||||||
Total direct expenses |
418,627 | 425,953 | 394,421 | |||||||||
Segment selling, general and administrative expenses |
||||||||||||
Oil and Gas |
1,075 | 1,335 | 1,531 | |||||||||
Air Medical |
6,484 | 8,716 | 7,883 | |||||||||
Technical Services |
51 | 76 | 59 | |||||||||
Total selling, general and administrative expenses |
7,610 | 10,127 | 9,473 | |||||||||
Total direct and selling, general and administrative
expenses |
426,237 | 436,080 | 403,894 | |||||||||
Net segment profit |
||||||||||||
Oil and Gas |
51,305 | 64,652 | 34,477 | |||||||||
Air Medical |
5,999 | 5,113 | 4,004 | |||||||||
Technical Services |
3,634 | 3,669 | 4,031 | |||||||||
Total |
60,938 | 73,434 | 42,512 | |||||||||
Other, net (1) |
336 | 4,990 | 40,051 | |||||||||
Unallocated selling, general and administrative expenses |
(23,396 | ) | (21,530 | ) | (20,753 | ) | ||||||
Interest expense |
(16,037 | ) | (15,515 | ) | (16,121 | ) | ||||||
Goodwill impairment charge |
| (2,747 | ) | | ||||||||
Earnings before income taxes |
$ | 21,841 | $ | 38,632 | $ | 45,689 | ||||||
(1) | Including gains on disposition of property and equipment and other income. |
Year Ended | ||||||||||||
December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(Thousands of dollars) | ||||||||||||
Expenditures for long lived
assets |
||||||||||||
Oil and Gas |
$ | 36,674 | $ | 45,530 | $ | 130,574 | ||||||
Air Medical |
20,205 | 40,034 | 35,053 | |||||||||
Corporate |
1,301 | 793 | 971 | |||||||||
Total |
$ | 58,180 | $ | 86,357 | $ | 166,598 | ||||||
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Year Ended | ||||||||||||
December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(Thousands of dollars) | ||||||||||||
Depreciation and Amortization |
||||||||||||
Oil and Gas |
$ | 15,926 | $ | 15,669 | $ | 17,211 | ||||||
Air Medical |
7,934 | 7,910 | 8,303 | |||||||||
Technical Services |
234 | 235 | 252 | |||||||||
Corporate |
3,670 | 3,130 | 4,281 | |||||||||
Total |
$ | 27,764 | $ | 26,944 | $ | 30,047 | ||||||
Assets |
||||||||||||
Oil and Gas |
$ | 408,802 | $ | 397,903 | $ | 392,154 | ||||||
Air Medical |
227,766 | 226,642 | 184,435 | |||||||||
Technical Services |
8,382 | 6,597 | 7,481 | |||||||||
Corporate |
160,556 | 146,040 | 157,226 | |||||||||
Total |
$ | 805,506 | $ | 777,182 | $ | 741,296 | ||||||
The following table presents the Companys revenues from external customers attributed to
operations in the United States and foreign areas and long-lived assets in the United States and
foreign areas.
Year Ended | ||||||||||||
December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(Thousands of dollars) | ||||||||||||
Operating revenues: |
||||||||||||
United States |
$ | 480,128 | $ | 489,611 | $ | 424,268 | ||||||
International |
7,047 | 19,903 | 22,138 | |||||||||
Total |
$ | 487,175 | $ | 509,514 | $ | 446,406 | ||||||
Long-Lived Assets: |
||||||||||||
United States |
$ | 546,077 | $ | 523,626 | $ | 478,795 | ||||||
International |
2,459 | 4,948 | 5,324 | |||||||||
Total |
$ | 548,536 | $ | 528,574 | $ | 484,119 | ||||||
(11) | QUARTERLY FINANCIAL DATA (UNAUDITED) |
The condensed quarterly results of operations for the years ended
December 31, 2009 and December 31, 2008 (in thousands of dollars,
except per share data) are as follows:
Quarter Ended | |||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | ||||||||||||||||
2009 | 2009 | 2009 | 2009 | ||||||||||||||||
(Thousands of dollars, except per share data) | |||||||||||||||||||
Operating revenues |
$ | 116,952 | $ | 123,321 | $ | 124,183 | $ | 122,719 | |||||||||||
Gain (loss) on disposition
of assets, net |
272 | (107 | ) | 7 | (61 | ) | |||||||||||||
Earnings before income taxes |
3,457 | 6,110 | 11,589 | 685 | |||||||||||||||
Net earnings |
2,075 | 3,666 | 6,953 | 274 | |||||||||||||||
Net earnings per share |
|||||||||||||||||||
Basic |
0.14 | 0.24 | 0.45 | 0.02 | |||||||||||||||
Diluted |
0.14 | 0.24 | 0.45 | 0.02 |
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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 on disposition of assets, net |
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 |
(1) | Includes a $2.7 million goodwill impairment charge related to our Air Medical segment. |
(12) | SHAREHOLDERS EQUITY |
The Company had a weighted average of 15.3 million common shares
outstanding for the periods ended December 31, 2009 and December
31, 2008.
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.
(13) | 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
wholly owned Guarantor Subsidiaries.
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.
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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
December 31, 2009 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
ASSETS |
||||||||||||||||
Current Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 1,678 | $ | 823 | $ | | $ | 2,501 | ||||||||
Short-term investments |
75,138 | | | 75,138 | ||||||||||||
Accounts receivable net |
83,247 | 11,156 | | 94,403 | ||||||||||||
Intercompany receivable |
| 71,484 | (71,484 | ) | | |||||||||||
Inventories of spare parts net |
61,501 | | | 61,501 | ||||||||||||
Other current assets |
11,001 | 17 | | 11,018 | ||||||||||||
Income taxes receivable |
740 | | | 740 | ||||||||||||
Total current assets |
233,305 | 83,480 | (71,484 | ) | 245,301 | |||||||||||
Investment in subsidiaries and others |
71,291 | | (71,291 | ) | | |||||||||||
Other assets |
11,549 | 120 | | 11,669 | ||||||||||||
Property and equipment, net |
535,539 | 12,997 | | 548,536 | ||||||||||||
Total assets |
$ | 851,684 | $ | 96,597 | $ | (142,775 | ) | $ | 805,506 | |||||||
LIABILITIES AND
SHAREHOLDERS EQUITY |
||||||||||||||||
Current Liabilities: |
||||||||||||||||
Accounts payable |
$ | 13,746 | $ | 1,189 | $ | | $ | 14,935 | ||||||||
Accrued liabilities |
19,028 | 4,314 | | 23,342 | ||||||||||||
Intercompany payable |
71,484 | | (71,484 | ) | | |||||||||||
Total current liabilities |
104,258 | 5,503 | (71,484 | ) | 38,277 | |||||||||||
Long-term debt |
218,305 | | | 218,305 | ||||||||||||
Deferred income taxes and other long-term
liabilities |
63,673 | 19,803 | | 83,476 | ||||||||||||
Shareholders Equity: |
||||||||||||||||
Common stock and paid-in capital |
292,934 | 2,674 | (2,674 | ) | 292,934 | |||||||||||
Accumulated other comprehensive
loss |
(13 | ) | | | (13 | ) | ||||||||||
Retained earnings |
172,527 | 68,617 | (68,617 | ) | 172,527 | |||||||||||
Total shareholders equity |
465,448 | 71,291 | (71,291 | ) | 465,448 | |||||||||||
Total liabilities and
shareholders equity |
$ | 851,684 | $ | 96,597 | $ | (142,775 | ) | $ | 805,506 | |||||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. |
49
Table of Contents
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
December 31, 2008 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only(1) | Subsidiaries(1) (2) | Eliminations | Consolidated | |||||||||||||
ASSETS |
||||||||||||||||
Current Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 559 | $ | 600 | $ | | $ | 1,159 | ||||||||
Short-term investments |
42,121 | | | 42,121 | ||||||||||||
Accounts receivable net |
97,618 | 13,804 | | 111,422 | ||||||||||||
Intercompany receivable |
| 57,722 | (57,722 | ) | | |||||||||||
Inventories of spare parts net |
58,249 | | | 58,249 | ||||||||||||
Other current assets |
10,671 | 16 | | 10,687 | ||||||||||||
Income taxes receivable |
982 | | | 982 | ||||||||||||
Total current assets |
210,200 | 72,142 | (57,722 | ) | 224,620 | |||||||||||
Investment in subsidiaries and others |
65,227 | | (65,227 | ) | | |||||||||||
Other assets |
23,761 | 227 | | 23,988 | ||||||||||||
Property and equipment, net |
511,986 | 16,588 | | 528,574 | ||||||||||||
Total assets |
$ | 811,174 | $ | 88,957 | $ | (122,949 | ) | $ | 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 |
57,722 | | (57,722 | ) | | |||||||||||
Total current liabilities |
103,782 | 4,582 | (57,722 | ) | 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: |
||||||||||||||||
Common stock and paid-in capital |
292,792 | 2,674 | (2,674 | ) | 292,792 | |||||||||||
Accumulated other comprehensive
income |
45 | | | 45 | ||||||||||||
Retained earnings |
159,559 | 62,553 | (62,553 | ) | 159,559 | |||||||||||
Total shareholders equity |
452,396 | 65,227 | (65,227 | ) | 452,396 | |||||||||||
Total liabilities and
shareholders equity |
$ | 811,174 | $ | 88,957 | $ | (122,949 | ) | $ | 777,182 | |||||||
(1) | Certain revisions were made to conform to the current years presentation. | |
(2) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. |
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Table of Contents
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
For the year ended December 31, 2009 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Operating revenues, net |
$ | 419,075 | $ | 68,100 | $ | | $ | 487,175 | ||||||||
Management fees |
2,724 | | (2,724 | ) | | |||||||||||
Gain on disposition of assets, net |
111 | | | 111 | ||||||||||||
Other, principally interest income |
225 | | | 225 | ||||||||||||
422,135 | 68,100 | (2,724 | ) | 487,511 | ||||||||||||
Expenses: |
||||||||||||||||
Direct expenses |
365,385 | 53,242 | | 418,627 | ||||||||||||
Management fees |
| 2,724 | (2,724 | ) | | |||||||||||
Selling, general, and administrative |
28,979 | 2,027 | | 31,006 | ||||||||||||
Equity in net income of consolidated
subsidiaries |
(6,064 | ) | | 6,064 | | |||||||||||
Interest expense |
16,037 | | | 16,037 | ||||||||||||
404,337 | 57,993 | 3,340 | 465,670 | |||||||||||||
Earnings before income taxes |
17,798 | 10,107 | (6,064 | ) | 21,841 | |||||||||||
Income tax expense |
4,830 | 4,043 | | 8,873 | ||||||||||||
Net earnings |
$ | 12,968 | $ | 6,064 | $ | (6,064 | ) | $ | 12,968 | |||||||
For the year ended December 31, 2008 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only(2) | Subsidiaries(1) (2) | Eliminations | Consolidated | |||||||||||||
Operating revenues, net |
$ | 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 |
369,600 | 56,353 | | 425,953 | ||||||||||||
Management fees |
| 2,865 | (2,865 | ) | | |||||||||||
Selling, general, and administrative |
27,842 | 3,815 | | 31,657 | ||||||||||||
Equity in
net income of consolidated subsidiaries |
(7,571 | ) | | 7,571 | | |||||||||||
Interest expense |
15,515 | | | 15,515 | ||||||||||||
Goodwill impairment charge |
2,747 | | | 2,747 | ||||||||||||
408,133 | 63,033 | 4,706 | 475,872 | |||||||||||||
Earnings before income taxes |
37,603 | 8,600 | (7,571 | ) | 38,632 | |||||||||||
Income tax expense |
14,088 | 1,029 | | 15,117 | ||||||||||||
Net earnings |
$ | 23,515 | $ | 7,571 | $ | (7,571 | ) | $ | 23,515 | |||||||
(1) | Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. | |
(2) | Certain revisions were made to conform to the current years presentation. |
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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
For the year ended December 31, 2007 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Operating revenues, net |
$ | 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. |
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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
For the year ended December 31, 2009 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only | Subsidiaries(1) | Eliminations | Consolidated | |||||||||||||
Net cash provided by operating activities |
$ | 53,442 | $ | 1,830 | $ | | $ | 55,272 | ||||||||
Investing activities: |
||||||||||||||||
Purchase of property and equipment |
(55,428 | ) | (1,607 | ) | | (57,035 | ) | |||||||||
Proceeds from asset dispositions |
9,217 | | | 9,217 | ||||||||||||
Purchase of short-term investments, net |
(33,017 | ) | | | (33,017 | ) | ||||||||||
Other |
11,600 | | | 11,600 | ||||||||||||
Net cash used in investing activities |
(67,628 | ) | (1,607 | ) | | (69,235 | ) | |||||||||
Financing activities: |
||||||||||||||||
Proceeds on line of credit, net |
15,305 | | | 15,305 | ||||||||||||
Net cash provided by financing activities |
15,305 | | | 15,305 | ||||||||||||
Increase in cash and cash
equivalents |
1,119 | 223 | | 1,342 | ||||||||||||
Cash and cash equivalents, beginning of
year |
559 | 600 | | 1,159 | ||||||||||||
Cash and cash equivalents, end of year |
$ | 1,678 | $ | 823 | $ | | $ | 2,501 | ||||||||
For the year ended December 31, 2008 | ||||||||||||||||
Parent | ||||||||||||||||
Company | Guarantor | |||||||||||||||
Only(1) | 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 | ||||||||
(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. |
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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
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: |
||||||||||||||||
Payments on 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
Table of Contents
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
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 accounting
principles.
Our management assessed the effectiveness of our internal control over financial reporting
as of December 31, 2009. 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, 2009, 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, 2009.
This report is included herein.
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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2009, 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, 2009, 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 the consolidated
financial statement schedule as of and for the year ended December 31, 2009 of the Company
and our report dated March 8, 2010, expressed an unqualified opinion on those consolidated
financial statements and the consolidated financial statement schedule.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 8, 2010
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Table of Contents
ITEM 9B. | OTHER INFORMATION |
Not Applicable.
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information concerning directors and executive officers required by this item will be
included in our definitive information statement in connection with our 2010 Annual Meeting of
Shareholders and is incorporated herein by reference.
ITEM 11. | EXECUTIVE COMPENSATION |
Information required by this item will be included in our definitive information
statement in connection with our 2010 Annual Meeting of Shareholders and is incorporated herein by
reference.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information required by this item will be included in our definitive information
statement in connection with our 2010 Annual Meeting of Shareholders and is incorporated herein by
reference.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information required by this item will be included in our definitive information
statement in connection with our 2010 Annual Meeting of Shareholders and is incorporated herein by
reference.
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Information required by this item will be included in our definitive information
statement in connection with our 2010 Annual Meeting of Shareholders and is incorporated herein by
reference.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. | Financial Statements | Page | ||||||
Included in Part II of this report: |
||||||||
27 | ||||||||
28 | ||||||||
29 | ||||||||
30 | ||||||||
31 | ||||||||
32 | ||||||||
2. | Financial Statement Schedules |
|||||||
60 |
3. | Exhibits |
3 | Articles of Incorporation and By-laws | ||
3.1 | (i) Composite 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, filed August 7, 2008). |
(ii) | Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.1 to PHIs Report on Form 8-K filed December 18, 2007). |
4 | Instruments defining the rights of security holders, including indentures. | ||
4.1 | Amended and Restated Loan Agreement dated as of March 31, 2008 by and among PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.) and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.1 to PHIs Report on Form 10-Q for the quarterly period ended March 31, 2008, filed May 8, 2008). | ||
4.2 | First Amendment dated as of August 5, 2009 to Amended and Restated Loan Agreement dated as of March 31, 2008 by and among PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.2 to PHIs Report on Form 10-Q filed on August 10, 2009). | ||
4.3 | 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). | ||
10 | Material Contracts | ||
10.1 | Senior Management Bonus Plan (incorporated by reference to Exhibit 10.1 to PHIs Report on Form 10-K filed March 16, 2009). |
58
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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. |
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PHI, INC. AND SUBSIDIARIES
Schedule II Valuation and Qualifying Accounts
(Thousands of dollars)
(Thousands of dollars)
Additions | ||||||||||||||||
Balance at | Charged to | Balance at | ||||||||||||||
Beginning | Costs and | End | ||||||||||||||
Description | of Year | Expenses | Deductions | of Year | ||||||||||||
Year ended December 31, 2009: |
||||||||||||||||
Allowance for doubtful accounts |
$ | 50 | $ | | $ | | $ | 50 | ||||||||
Allowance for inventory |
7,857 | 1,325 | | 9,182 | ||||||||||||
Allowance for contractual discounts |
37,590 | 183,294 | 188,760 | 32,124 | ||||||||||||
Allowance for uncompensated care |
20,805 | 43,626 | 36,317 | 28,114 | ||||||||||||
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 |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on March 8, 2010.
PHI, INC. |
||||
By: | /s/ Michael J. McCann | |||
Michael J. McCann | ||||
Chief Financial Officer (Principal Financial and Accounting Officer) |
||||
Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature | Title | Date | ||
/s/ Al A. Gonsoulin
|
Chairman of the Board Chief Executive Officer and Director (Principal Executive Officer) |
March 8, 2010 | ||
/s/ Lance F. Bospflug
|
Director | March 8, 2010 | ||
/s/ Arthur J. Breault, Jr.
|
Director | March 8, 2010 | ||
/s/ Thomas H. Murphy
|
Director | March 8, 2010 | ||
/s/ Richard H. Matzke
|
Director | March 8, 2010 | ||
/s/ C. Russell Luigs
|
Director | March 8, 2010 | ||
/s/ Michael J. McCann
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
March 8, 2010 |
61