Attached files

file filename
EX-32.2 - EX-32.2 - PHI INCd360227dex322.htm
EX-32.1 - EX-32.1 - PHI INCd360227dex321.htm
EX-31.2 - EX-31.2 - PHI INCd360227dex312.htm
EX-31.1 - EX-31.1 - PHI INCd360227dex311.htm
EX-3.1(I) - EX-3.1(I) - PHI INCd360227dex31i.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

FORM 10-Q

 

 

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2017

or

 

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   72-0395707

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2001 SE Evangeline Thruway

Lafayette, Louisiana

  70508
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (337) 235-2452

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes:  ☒    No:  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes:  ☒    No:  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer:       Accelerated filer:  ☒   Smaller reporting company:  
Non-accelerated filer:   ☐  (Do not check if a smaller reporting company)   Emerging Growth Company:   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes:  ☐    No:  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at April 28, 2017

Voting Common Stock   2,905,757 shares
Non-Voting Common Stock   12,797,442 shares

 

 

 


Table of Contents

PHI, INC.

Index – Form 10-Q

 

Part I – Financial Information  

Item 1.

 

Financial Statements – Unaudited

  
 

Condensed Consolidated Balance Sheets – March  31, 2017 and December 31, 2016

     3  
 

Condensed Consolidated Statements of Operations – Quarter ended March 31, 2017 and 2016

     4  
 

Condensed Consolidated Statements of Comprehensive Income – Quarter ended March 31, 2017 and 2016

     5  
 

Condensed Consolidated Statements of Shareholders’ Equity – Quarter ended March 31, 2017 and 2016

     6  
 

Condensed Consolidated Statements of Cash Flows – Quarter ended March 31, 2017 and 2016

     7  
 

Notes to Condensed Consolidated Financial Statements

     8  

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     25  

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

     34  

Item 4.

 

Controls and Procedures

     35  
Part II – Other Information  

Item 1.

 

Legal Proceedings

     36  

Item 1A.

 

Risk Factors

     36  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     36  

Item 3.

 

Defaults Upon Senior Securities

     36  

Item 4.

 

Mine Safety Disclosures

     36  

Item 5.

 

Other Information

     36  

Item 6.

 

Exhibits

     37  
 

Signatures

     39  

 

2


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of dollars, except share data)

(Unaudited)

 

     March 31,     December 31,  
     2017     2016  
ASSETS     

Current Assets:

    

Cash

   $ 3,680     $ 2,596  

Short-term investments

     276,818       289,806  

Accounts receivable – net

    

Trade

     117,386       128,662  

Other

     8,884       9,603  

Inventories of spare parts – net

     73,033       70,402  

Prepaid expenses

     10,330       9,259  

Deferred income taxes

     10,798       10,798  

Income taxes receivable

     323       540  
  

 

 

   

 

 

 

Total current assets

     501,252       521,666  

Property and equipment – net

     896,565       903,977  

Restricted cash and investments

     13,038       13,038  

Other assets

     8,873       9,759  
  

 

 

   

 

 

 

Total assets

   $ 1,419,728     $ 1,448,440  
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Current Liabilities:

    

Accounts payable

   $ 22,054     $ 28,704  

Accrued and other current liabilities

     27,500       28,346  
  

 

 

   

 

 

 

Total current liabilities

     49,554       57,050  

Long-term debt:

    

Revolving credit facility

     135,500       134,000  

Senior Notes issued March 17, 2014, net of debt issuance costs of $2,441 and $2,753, respectively

     497,559       497,247  

Deferred income taxes

     142,870       151,713  

Other long-term liabilities

     8,131       8,652  

Commitments and contingencies (Note 9)

    

Shareholders’ Equity:

    

Voting common stock – par value of $0.10; 12,500,000 shares authorized, 2,905,757 shares issued and outstanding

     291       291  

Non-voting common stock – par value of $0.10; 25,000,000 shares authorized, 12,797,442 and 12,779,646 issued and outstanding at March 31, 2017 and December 31, 2016, respectively

     1,279       1,278  

Additional paid-in capital

     304,698       304,246  

Accumulated other comprehensive loss

     (375     (478

Retained earnings

     280,221       294,441  
  

 

 

   

 

 

 

Total shareholders’ equity

     586,114       599,778  
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,419,728     $ 1,448,440  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


Table of Contents

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Thousands of dollars and shares, except per share data)

(Unaudited)

 

     Quarter Ended
March 31,
 
     2017     2016  

Operating revenues, net

   $ 134,618     $ 164,016  

Expenses:

    

Direct expenses

     136,513       152,554  

Selling, general and administrative expenses

     13,044       11,673  
  

 

 

   

 

 

 

Total operating expenses

     149,557       164,227  

Loss on disposal of assets

     —         359  

Equity in loss (income) of unconsolidated affiliate

     1,003       —    
  

 

 

   

 

 

 

Operating loss

     (15,942     (570

Interest expense

     8,195       7,533  

Other income – net

     (1,064     (615
  

 

 

   

 

 

 
     7,131       6,918  
  

 

 

   

 

 

 

Loss before income taxes

     (23,073     (7,488

Income tax (benefit) expense

     (7,825     1,444  
  

 

 

   

 

 

 

Net loss

   $ (15,248   $ (8,932
  

 

 

   

 

 

 

Weighted average shares outstanding:

    

Basic

     15,689       15,600  

Diluted

     15,689       15,600  

Net loss per share:

    

Basic

   $ (0.97   $ (0.57

Diluted

   $ (0.97   $ (0.57

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


Table of Contents

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)

(Unaudited)

 

     Quarter Ended
March 31,
 
     2017     2016  

Net loss

   $ (15,248   $ (8,932

Unrealized gain on short-term investments

     162       807  

Changes in pension plan assets and benefit obligations

     (1     1  

Tax effect of the above-listed adjustments

     (58     (332
  

 

 

   

 

 

 

Total comprehensive loss

   $ (15,145   $ (8,456
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5


Table of Contents

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Thousands of dollars and shares)

(Unaudited)

 

    Voting     Non-Voting     Additional     Accumulated           Total  
    Common Stock     Common Stock     Paid-in     Other Comprehensive     Retained     ShareHolders’  
    Shares     Amount     Shares     Amount     Capital     (Loss)Income     Earnings     Equity  

Balance at December 31, 2015

    2,906     $ 291       12,685     $ 1,269     $ 304,884     $ (567   $ 321,121     $ 626,998  

Net loss

    —         —         —         —         —         —         (8,932     (8,932

Unrealized gain on short-term investments

    —         —         —         —         —         476       —         476  

Changes in pension plan assets and benefit obligations

    —         —         —         —         —         1       —         1  

Amortization of unearned stock-based compensation

    —         —         —         —         1,485       —         —         1,485  

Issuance of non-voting common stock (upon vesting of restricted stock units)

    —         —         121       12       —         —         —         12  

Cancellation of restricted non-voting stock units for tax withholdings on vested shares

    —         —         (27     (3     (500     —         —         (503

Retirement of treasury stock

    —         —         (8     —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2016

    2,906     $ 291       12,771     $ 1,278     $ 305,869     $ (90   $ 312,189     $ 619,537  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Voting     Non-Voting     Additional     Accumulated           Total  
    Common Stock     Common Stock     Paid-in     Other Comprehensive     Retained     ShareHolders’  
    Shares     Amount     Shares     Amount     Capital     (Loss)Income     Earnings     Equity  

Balance at December 31, 2016

    2,906     $ 291       12,779     $ 1,278     $ 304,246     $ (478   $ 294,441     $ 599,778  

Net loss

    —         —         —         —         —         —         (15,248     (15,248

Unrealized gain on short-term investments

    —         —         —         —         —         104       —         104  

Changes in pension plan assets and benefit obligations

    —         —         —         —         —         (1     —         (1

Amortization of unearned stock-based compensation

    —         —         —         —         552       —         —         552  

Issuance of non-voting common stock (upon vesting of restricted stock units)

    —         —         27       2       —         —         —         2  

Cancellation of restricted non-voting stock units for tax withholdings on vested shares

    —         —         (9     (1     (100     —         —         (101

Cumulative effect adjustment of unrecognized tax benefits

    —         —         —         —         —         —         1,028       1,028  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2017

    2,906     $ 291       12,797     $ 1,279     $ 304,698     $ (375   $ 280,221     $ 586,114  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6


Table of Contents

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)

 

     Quarter Ended  
     March 31,  
     2017     2016  

Operating activities:

    

Net loss

   $ (15,248   $ (8,932

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation and amortization

     16,845       16,973  

Deferred income taxes

     (7,883     955  

Loss on asset dispositions

     —         359  

Equity in loss of unconsolidated affiliate

     1,003       —    

Inventory valuation reserves

     (1,293     2,435  

Changes in operating assets and liabilities

     (1,677     (28,133
  

 

 

   

 

 

 

Net cash used in operating activities

     (8,253     (16,343
  

 

 

   

 

 

 

Investing activities:

    

Purchase of property and equipment

     (4,789     (8,519

Proceeds from asset dispositions

     —         850  

Purchase of short-term investments

     (54,867     (77,677

Proceeds from sale of short-term investments

     67,659       76,184  

Payment of deposits on aircraft

     (66     (66
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     7,937       (9,228
  

 

 

   

 

 

 

Financing activities:

    

Proceeds from line of credit

     37,300       83,500  

Payments on line of credit

     (35,800     (53,300

Repurchase of common stock

     (100     (500
  

 

 

   

 

 

 

Net cash provided by financing activities

     1,400       29,700  
  

 

 

   

 

 

 

Increase in cash

     1,084       4,129  

Cash, beginning of period

     2,596       2,407  
  

 

 

   

 

 

 

Cash, end of period

   $ 3,680     $ 6,536  
  

 

 

   

 

 

 

Supplemental Disclosures Cash Flow Information

    

Cash paid during the period for:

    

Interest

   $ 14,114     $ 13,691  
  

 

 

   

 

 

 

Income taxes

   $ —       $ —    
  

 

 

   

 

 

 

Noncash investing activities:

    

Other current liabilities and accrued payables related to purchase of property and equipment

   $ 348     $ 29,302  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7


Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of PHI, Inc. and its subsidiaries (“PHI” or the “Company” or “we” or “our”). In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting of only normal, recurring adjustments, necessary to present fairly the financial results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and the accompanying notes.

Our financial results, particularly as they relate to our Oil and Gas segment, are influenced by seasonal fluctuations as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. For this and other reasons, the results of operations for interim periods are not necessarily indicative of the operating results that may be expected for a full fiscal year.

Recently Adopted Accounting Pronouncements - Effective January 1, 2017, we adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard requires that excess tax benefits and deficiencies resulting from stock-based compensation awards vesting and exercises be recognized in the income statement. Previously, these amounts were recognized in additional paid-in capital. As a result, during the first quarter of 2017 we recorded a cumulative-effect adjustment of $1.0 million increasing retained earnings and decreasing deferred tax liability on our balance sheet dated March 31, 2017. Accordingly, we recorded income tax expense of $0.5 million in our consolidated statement of income for the three months ended March 31, 2017, in recognition of excess tax deficiencies related to equity compensation. Under this new standard, the corresponding cash flows are now reflected in cash provided by operating activities instead of financing activities, as was previously required.

ASU 2016-09 also allows an employer with a statutory income tax withholding obligation to withhold shares with a fair value up to the amount of tax owed using the maximum statutory tax rate in the employee’s applicable jurisdiction. We have elected to continue to withhold the minimum statutory withholding obligation for outstanding awards. We have also elected to continue to estimate equity award forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period

New Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Entities can transition to the standard either retrospectively or as a cumulative effect adjustment as of the date of adoption. The standard is effective for us beginning January 1, 2018, with early adoption permitted as of January 1, 2017. Revenues from our Oil and Gas segment and Air Medical segment hospital contracts are primarily comprised of a fixed monthly fee for a particular model of aircraft, plus a variable component based on flight time. Under the independent provider programs of our Air Medical segment, our revenues are based on a flat rate plus a variable charge per patient-loaded mile, and are recorded net of contractual allowances. We also generate revenue on a cost-plus basis in our Technical Services segment. We are continuing to assess the effects of this standard on each revenue stream of our business and the overall effect on our financial position, results of operations and cash flows and have not yet selected a method of adoption. We intend to adopt the standard beginning January 1, 2018.

In February 2016, the FASB issued ASU 2016-02, Leases, which replaces the existing guidance on leasing transactions in ASC 840 to require recognition of the assets and liabilities for the rights and obligations created by those leases on the balance sheet. We plan to adopt this standard no later than January 1, 2019. We are currently evaluating the effects of this standard, and expect the adoption of this standard will result in a material change to our consolidated assets and liabilities based on our lease portfolio as of December 31, 2016.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory, which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The effects of this standard on our financial position, results of operations, and cash flows are not yet known.

 

8


Table of Contents

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business and requires that an entity apply certain criteria in order to determine when a set of assets and activities qualifies as a business. The adoption of this standard is expected to result in fewer acquisitions of properties qualifying as acquisitions of businesses and, accordingly, acquisition costs for those acquisitions that do not qualify as businesses will be capitalized rather than expensed. This standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted. The effects of this standard on our financial position, results of operations, and cash flows are not yet known.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. The new standard requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect this ASU to have a material impact on our consolidated financial statements.

2. INVESTMENTS

We classify all of our short-term investments as available-for-sale. We carry these at fair value and report unrealized gains and losses, net of taxes, in Accumulated other comprehensive gain (loss), which is a separate component of shareholders’ equity in our Condensed Consolidated Balance Sheets. These unrealized gains and losses are also reflected in our Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Shareholders’ Equity. We determine cost, gains, and losses using the specific identification method.

Investments consisted of the following as of March 31, 2017:

 

          Unrealized     Unrealized     Fair  
    Cost Basis     Gains     Losses     Value  
    (Thousands of dollars)  

Investments:

       

Money market mutual funds

  $ 10,597     $ —       $ —       $ 10,597  

Commercial paper

    27,935       —         (26     27,909  

U.S. Government agencies

    15,305       —         (20     15,285  

Corporate bonds and notes

    236,525       4       (479     236,050  
 

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

    290,362       4       (525     289,841  

Deferred compensation plan assets included in other assets

    2,500       —         —         2,500  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 292,862     $ 4     $ (525   $ 292,341  
 

 

 

   

 

 

   

 

 

   

 

 

 

Investments consisted of the following as of December 31, 2016:

 

          Unrealized     Unrealized     Fair  
    Cost Basis     Gains     Losses     Value  
    (Thousands of dollars)  

Investments:

       

Money market mutual funds

  $ 18,118     $ —       $ —       $ 18,118  

Commercial paper

    27,906       —         (39     27,867  

U.S. government agencies

    13,295       —         (32     13,263  

Corporate bonds and notes

    244,202       2       (622     243,582  
 

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

    303,521       2       (693     302,830  

Deferred compensation plan assets included in other assets

    2,394       —         —         2,394  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 305,915     $ 2     $ (693   $ 305,224  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

9


Table of Contents

At March 31, 2017 and December 31, 2016, we classified $13.0 million of our aggregate investments as long-term investments and recorded them in our Condensed Consolidated Balance Sheets as Restricted investments, as they are securing outstanding letters of credit with maturities beyond one year and a bond relating to foreign operations.

The following table presents the cost and fair value of our debt investments based on maturities as of:

 

     March 31, 2017      December 31, 2016  
     Amortized      Fair      Amortized      Fair  
     Costs      Value      Costs      Value  
     (Thousands of dollars)  

Due in one year or less

   $ 200,195      $ 199,906      $ 184,587      $ 184,334  

Due within two years

     79,570        79,338        100,816        100,378  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 279,765      $ 279,244      $ 285,403      $ 284,712  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the average coupon rate percentage and the average days to maturity of our debt investments as of:

 

     March 31, 2017      December 31, 2016  
     Average      Average      Average      Average  
     Coupon      Days To      Coupon      Days To  
     Rate (%)      Maturity      Rate (%)      Maturity  

Commercial paper

     1.035        140        1.001        184  

U.S. Government agencies

     1.056        355        0.970        400  

Corporate bonds and notes

     1.731        287        1.745        318  

The following table presents the fair value and unrealized losses related to our investments that have been in a continuous unrealized loss position for less than twelve months as of:

 

     March 31, 2017      December 31, 2016  
            Unrealized             Unrealized  
     Fair Value      Losses      Fair Value      Losses  
     (Thousands of dollars)  

Commercial paper

   $ 27,909      $ (26    $ 27,867      $ (39

U.S. Government agencies

     14,285        (20      13,263        (32

Corporate bonds and notes

     207,512        (460      210,836        (602
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 249,706      $ (506    $ 251,966      $ (673
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the fair value and unrealized losses related to our investments that have been in a continuous unrealized loss position for more than twelve months as of:

 

     March 31, 2017      December 31, 2016  
            Unrealized             Unrealized  
     Fair Value      Losses      Fair Value      Losses  
     (Thousands of dollars)  

Corporate bonds and notes

   $ 20,116      $ (19    $ 24,196      $ (20
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 20,116      $ (19    $ 24,196      $ (20
  

 

 

    

 

 

    

 

 

    

 

 

 

From time to time over the periods covered in our financial statements included herein (and as illustrated in the foregoing tables), our investments have experienced net unrealized losses. We consider these declines in market value to be due to customary market fluctuations, and we do not plan to sell these investments prior to maturity. For these reasons, we do not consider any of our investments to be other than temporarily impaired at March 31, 2017 or December 31, 2016. We have also determined that we did not have any other than temporary impairments relating to credit losses on debt securities for the quarter ended March 31, 2017. For additional information regarding our criteria for making these assessments, see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

10


Table of Contents

3. REVENUE RECOGNITION AND VALUATION ACCOUNTS

We establish the amount of our allowance for doubtful accounts based upon factors relating to the credit risk of specific customers, current market conditions, and other information. Our allowance for doubtful accounts was approximately $6.1 million at March 31, 2017, and $6.0 million at December 31, 2016.

Revenues related to flights generated by our Air Medical segment are recorded net of contractual allowances under agreements with third party payors and estimated uncompensated care when the services are provided. The allowance for contractual discounts was $107.6 million and $111.9 million as of March 31, 2017 and December 31, 2016, respectively. The allowance for uncompensated care was $48.0 million and $46.3 million as of March 31, 2017 and December 31, 2016, respectively.

Included in the allowance for uncompensated care listed above is the value of services to patients who are unable to pay when it is determined that they qualify for charity care. The value of these services was $2.5 million for the quarters ended March 31, 2017 and 2016. The estimated cost of providing charity services was $0.6 million for the quarters ended March 31, 2017 and 2016. The estimated costs of providing charity services are based on a calculation that applies a ratio of costs to the charges for uncompensated charity care. The ratio of costs to charges is based on our Air Medical segment’s total expenses divided by gross patient service revenue.

The allowance for contractual discounts and estimated uncompensated care (expressed as a percentage of gross segment accounts receivable) was as follows:

 

     As of  
     March 31,
2017
    December 31,
2016
 

Allowance for Contractual Discounts

     56     56

Allowance for Uncompensated Care

     25     23

Under a three-year contract that commenced on September 29, 2012, our Air Medical affiliate provided multiple services to a customer in the Middle East, including helicopter leasing, emergency medical helicopter flight services, aircraft maintenance, provision of spare parts, insurance coverage for the customer-owned aircraft, training services, and base construction. Each of the major services mentioned above qualified as separate units of accounting under the accounting guidance for such arrangements. The selling price for each specific service was determined based upon third-party evidence and estimates. As discussed in greater detail in our Form 10-K for year ended December 2016, this contract, after being extended one year, lapsed on September 30, 2016.

We have also established valuation reserves related to obsolete and slow-moving spare parts inventory. The inventory valuation reserves were $17.7 million and $17.3 million at March 31, 2017 and December 31, 2016, respectively.

4. FAIR VALUE MEASUREMENTS

Accounting standards require 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.

 

11


Table of Contents

The following table summarizes the valuation of our investments and financial instruments by the above pricing levels as of the valuation dates listed:

 

            March 31, 2017  
     Total      (Level 1)      (Level 2)  
            (Thousands of dollars)  

Investments:

        

Money market mutual funds

   $ 10,597      $ 10,597      $ —    

Commercial paper

     27,909        —          27,909  

U.S. Government agencies

     15,285        —          15,285  

Corporate bonds and notes

     236,050        —          236,050  
  

 

 

    

 

 

    

 

 

 
     289,841        10,597        279,244  

Deferred compensation plan assets

     2,500        2,500        —    
  

 

 

    

 

 

    

 

 

 

Total

   $ 292,341      $ 13,097      $ 279,244  
  

 

 

    

 

 

    

 

 

 
    

 

     December 31, 2016  
     Total      (Level 1)      (Level 2)  
            (Thousands of dollars)  

Investments:

     

Money market mutual funds

   $ 18,118      $ 18,118      $ —    

Commercial paper

     27,867        —          27,867  

U.S. government agencies

     13,263        —          13,263  

Corporate bonds and notes

     243,582        —          243,582  
  

 

 

    

 

 

    

 

 

 
     302,830        18,118        284,712  

Deferred compensation plan assets

     2,394        2,394        —    
  

 

 

    

 

 

    

 

 

 

Total

   $ 305,224      $ 20,512      $ 284,712  
  

 

 

    

 

 

    

 

 

 

We hold our 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. Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets. These items are traded with sufficient frequency and volume to provide pricing on an ongoing basis. The fair values of the shares of these funds are based on observable market prices, and therefore, have been categorized in Level 1 in the fair value hierarchy. Level 2 inputs reflect quoted prices for identical assets or liabilities that are not actively traded. These items may not be traded daily; examples include commercial paper, corporate bonds and U.S. government agencies debt. There have been no reclassifications of assets between Level 1 and Level 2 investments during the periods covered by the financial statements included in this report. We hold no Level 3 investments. Investments reflected on our balance sheets as Other assets, which we hold to fund liabilities under our Officers’ Deferred Compensation Plan, consist mainly of multiple investment funds that are highly liquid and diversified.

Cash, accounts receivable, accounts payable and accrued liabilities, and our revolving credit facility debt all had fair values approximating their carrying amounts at March 31, 2017 and December 31, 2016. Our determination of the estimated fair value of our Senior Notes and our revolving credit facility debt is derived using Level 2 inputs, including quoted market indications of similar publicly-traded debt. The fair value of our Senior Notes, based on quoted market prices, was $473.8 million and $474.4 million at March 31, 2017 and December 31, 2016, respectively.

 

12


Table of Contents

5. LONG-TERM DEBT

The components of long-term debt as of the dates indicated below were as follows:

 

     March 31, 2017      December 31, 2016  
            Unamortized             Unamortized  
            Debt             Debt  
            Issuance             Issuance  
     Principal      Debt Cost      Principal      Debt Cost  
     (Thousands of dollars)  

Senior Notes issued March 17, 2014, interest only payable semi-annually at 5.25%, maturing March 15, 2019

   $ 500,000      $ 2,441      $ 500,000      $ 2,753  

Revolving Credit Facility due October 1, 2018 with a group of commercial banks, interest payable at variable rates

     135,500        —          134,000        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

   $ 635,500      $ 2,441      $ 634,000      $ 2,753  
  

 

 

    

 

 

    

 

 

    

 

 

 

Our 5.25% Senior Notes (the “2019 Notes”) will mature on March 15, 2019, are unconditionally guaranteed on a senior basis by each of PHI’s wholly-owned domestic subsidiaries, and are the general, unsecured obligations of PHI and the guarantors. Interest is payable semi-annually on March 15 and September 15 of each year. PHI has the option to redeem some or all of the 2019 Notes at any time on or after March 15, 2016 at specified redemption prices. The indenture governing the 2019 Notes (the “2019 Indenture”) contains, among other things, certain restrictive covenants, including limitations on incurring indebtedness, creating liens, selling assets and entering into certain transactions with affiliates. The covenants also limit PHI’s ability to, among other things, pay cash dividends on common stock, repurchase or redeem common or preferred equity, prepay subordinated debt and make certain investments. Upon the occurrence of a “Change in Control Repurchase Event” (as defined in the 2019 Indenture), PHI will be required, unless it has previously elected to redeem the 2019 Notes as described above, to make an offer to purchase the 2019 Notes for a cash price equal to 101% of their principal amount.

Revolving Credit Facility – We have an amended and restated revolving credit facility (our “credit facility”) that matures on October 1, 2018. Under this facility, we can borrow up to $150.0 million at floating interest rates based on either the London Interbank Offered Rate plus 225 basis points or the prime rate (each as defined in our credit facility), at our option. Our credit facility includes usual and customary covenants and events of default for credit facilities of its type. Our ability to borrow under the credit facility is conditioned upon our continued compliance with such covenants, including, among others, (i) covenants that restrict our ability to engage in certain asset sales, mergers or other fundamental changes, to incur liens or to engage in certain other transactions or activities and (ii) financial covenants that stipulate that PHI will maintain a consolidated working capital ratio of at least 2 to 1, a net funded debt to consolidated net worth ratio not greater than 1.5 to 1, a fixed charge coverage ratio of at least 1.1 to 1 if our short term investments fall below $150.0 million, and consolidated net worth of at least $450.0 million (with all such terms or amounts as defined in or determined under our credit facility). As of March 31, 2017, we believe we were in compliance with these covenants.

Cash paid to fund interest expense was $14.1 million for the quarter ended March 31, 2017 and $13.7 million for the quarter ended March 31, 2016.

Letter of Credit Facility - We maintain a separate letter of credit facility that had $13.0 million in letters of credit outstanding at March 31, 2017 and December 31, 2016. We have letters of credit securing our workers compensation policies, a traditional provider contract, and a bond relating to foreign operations.

We also have outstanding a letter of credit for $7.6 million issued under our $150.0 million credit facility that reduces the amount we can borrow under that facility. The letter of credit was issued to guaranty our performance under an international contract that was awarded in late 2016.

Other - PHI, Inc. has cash management arrangements with certain of its principal subsidiaries, in which substantial portions of the subsidiaries’ cash is regularly advanced to PHI, Inc. Although PHI, Inc. periodically repays these advances to fund the subsidiaries’ cash requirements throughout the year, at any given point in time PHI, Inc. may owe a substantial sum to its subsidiaries under these advances, which, in accordance with generally accepted accounting principles, are eliminated in consolidation and therefore not recognized on our consolidated balance sheets. For additional information, see Note 13.

 

13


Table of Contents

6. EARNINGS PER SHARE

The components of basic and diluted earnings per share for the quarter ended March 31, 2017 and 2016 are as follows:

 

     Quarter Ended  
     March 31,  
     2017      2016  
     (Thousands of dollars)  

Weighted average outstanding shares of common stock, basic

     15,689        15,600  

Dilutive effect of unvested restricted stock units

     —          —    
  

 

 

    

 

 

 

Weighted average outstanding shares of common stock, diluted

     15,689        15,600  
  

 

 

    

 

 

 

 

(1) For the three months ended March 31, 2017, 58,119 unvested restricted stock units were excluded from the weighted average outstanding shares of common stock, diluted, as they were anti-dilutive to earnings per share.

7. STOCK-BASED COMPENSATION

We recognize the cost of employee compensation received in the form of equity instruments based on the grant date fair value of those awards. The table below sets forth the total amount of stock-based compensation expense for quarters ended March 31, 2017 and 2016.

 

     Quarter Ended  
     March 31,  
     2017      2016  
     (Thousands of dollars)  

Stock-based compensation expense:

  

Time-based restricted stock units

   $ 553      $ 619  

Performance-based restricted stock units

     —          871  
  

 

 

    

 

 

 

Total stock-based compensation expense

   $ 553      $ 1,490  
  

 

 

    

 

 

 

During the quarter ended March 31, 2017, we awarded 366,399 performance-based restricted stock units and 29,351 time-based restricted stock units, respectively, to managerial employees. During the quarter ended March 31, 2016, we awarded 303,061 performance-based restricted stock units to managerial employees.

8. ASSET DISPOSALS

There were no sales or disposals of aircraft during the first quarter of 2017. During the first quarter of 2016, we sold one light aircraft previously utilized in the Oil and Gas segment. Cash proceeds totaled $0.9 million, resulting in a loss on the sale of this asset of $0.4 million. This aircraft no longer met our strategic needs.

9. COMMITMENTS AND CONTINGENCIES

Commitments – In the fourth quarter of 2016, we entered into a contract to purchase two medium aircraft for use in our Oil and Gas segment. We expect to take delivery of the aircraft in the second quarter of 2017. The total remaining purchase commitment is $17.9 million.

Total aircraft deposits of $4.9 million were included in Other Assets as of March 31, 2017. This amount represents deposits for aircraft purchase contracts and deposits on future lease buyout options. In the event the buyout options are not exercised, the deposits will be applied as lease payments.

As of March 31, 2017, we had options to purchase aircraft under leases becoming exercisable in 2017 through 2021. The aggregate option purchase prices are $37.1 million in 2017, $127.0 million in 2018, $129.0 million in 2019, and $22.7 million in 2020. Subsequent to March 31, 2017, we purchased one heavy aircraft from a lessor for $17.0 million. Under current conditions, we believe it is unlikely that we will exercise the remaining 2017 purchase options, unless opportunistic conditions arise.

Environmental Matters – PHI has recorded an estimated liability of $0.15 million as of March 31, 2017 for environmental response costs. Previously, PHI conducted environmental surveys of its former Lafayette Facility located at the Lafayette Regional Airport, which former facility PHI vacated in 2001, and has determined that limited soil and groundwater contamination exist at two parcels of land at the former facility. An Assessment

 

14


Table of Contents

Report for both parcels was submitted in 2003 (and updated in 2006) to the Louisiana Department of Environmental Quality (LDEQ) and the Louisiana Department of Natural Resources (LDNR). Approvals for the Assessment Report were received from the LDEQ and LDNR in 2010 and 2011, respectively. Since that time, PHI has performed groundwater sampling of the required groundwater monitor well installations at both former PHI facility parcels and submitted these sampling reports to the LDEQ. Pursuant to an agreement with the LDEQ, PHI provided groundwater sample results semi-annually to the LDEQ for both former PHI facility parcels from 2005 to 2015. LDEQ approved a reduction in the sampling program from semi-annual to annual groundwater monitoring in 2015. Based on PHI’s working relationship and agreements with the LDEQ, and the results of ongoing former facility parcel monitoring, PHI believes that ultimate remediation costs for the subject parcels will not be material to PHI’s consolidated financial position, operations or cash flows.

Legal Matters – From time to time, we are involved in various legal actions incidental to our business, including actions relating to employee claims, medical malpractice claims, various tax issues, grievance hearings before labor regulatory agencies, and miscellaneous third party tort actions. The outcome of these proceedings is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of our presently pending proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on our financial position, results of operations or cash flows.

Operating Leases – We lease certain aircraft, facilities, and equipment used in our operations. The related lease agreements, which include both non-cancelable and month-to-month terms, generally provide for fixed monthly rentals, and certain real estate leases also include renewal options. We generally pay all insurance, taxes, and maintenance expenses associated with these leases. All aircraft leases contain purchase options exercisable by us at certain dates in the lease agreements.

At March 31, 2017, we had approximately $219.6 million in aggregate commitments under operating leases of which approximately $34.7 million is payable through December 31, 2017. The total lease commitments include $205.0 million for aircraft and $14.6 million for facility lease commitments.

10. SEGMENT INFORMATION

PHI is primarily a provider of helicopter transport services, including helicopter maintenance and repair services. We report our financial results through the three reportable segments further described below.

A segment’s operating profit or loss is its operating revenues less its direct expenses and selling, general and administrative expenses. Each segment has a portion of our total selling, general and administrative expenses that is charged directly to the segment and a small portion that is allocated to that segment. Direct charges represent the vast majority of segment selling, general and administrative expenses. Allocated selling, general and administrative expenses are based primarily on total segment costs as a percentage of total operating costs.

Oil and Gas Segment. Our Oil and Gas segment, headquartered in Lafayette, Louisiana, provides helicopter services primarily for the major integrated and independent oil and gas production companies transporting personnel or equipment to offshore platforms in the Gulf of Mexico. Our customers include Shell Oil Company, BP America Production Company, ExxonMobil Production Company, and ConocoPhillips Company, with whom we have worked for 30 or more years, and ENI Petroleum, with whom we have worked for more than 15 years. At March 31, 2017, we had available for use 131 aircraft in this segment.

Operating revenue from our Oil and Gas segment is derived mainly from contracts that include a fixed monthly rate for a particular model of aircraft, plus a variable payments based on the amount of flight time. Operating costs for the Oil and Gas segment are primarily aircraft operation costs, including costs for pilots and maintenance personnel. We typically operate under fixed-term contracts with our customers, a substantial portion of which are competitively bid. Our fixed-term contracts have terms of one to seven years (subject to provisions permitting early termination by the customers), with payment in U.S. dollars. For the quarters ended March 31, 2017 and 2016, respectively, approximately 53% and 54% of our total operating revenues were generated by our Oil and Gas segment, with approximately 90% and 93% of these revenues from fixed-term customer contracts. The remaining 10% and 7% of these revenues were attributable to work in the spot market and ad hoc flights for contracted customers.

Air Medical Segment. The operations of our Air Medical segment are headquartered in Phoenix, Arizona, where we maintain significant separate facilities and administrative staff dedicated to this segment.

 

15


Table of Contents

We provide Air Medical transportation services for hospitals and emergency service agencies throughout the U.S. As of March 31, 2017, we operated approximately 104 aircraft in 18 states at 72 separate locations.

Our Air Medical segment operates primarily under the independent provider model and, to a lesser extent, under the traditional provider model. Under the independent provider model, we have no fixed revenue stream and compete for transport referrals on a daily basis with other independent operators in the area. Under the traditional provider model, we contract directly with the customer to provide their transportation services, with the contracts typically awarded through competitive bidding. For the quarters ended March 31, 2017 and 2016, approximately 41% and 43% of our total operating revenues were generated by our Air Medical segment, respectively.

As an independent provider, we bill for our services on the basis of a flat rate plus a variable charge per patient-loaded mile, regardless of aircraft model, and are typically compensated by private insurance, Medicaid or Medicare, or directly by transported patients who self-pay. As further described in Note 3, revenues are recorded net of contractual allowances under agreements with third party payors and estimated uncompensated care at the time the services are provided. Contractual allowances and uncompensated care are estimated based on historical collection experience by payor category (consisting mainly of insurance, Medicaid, Medicare, and self-pay). Estimates regarding the 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 fully closed, by category.

Provisions for contractual discounts and estimated uncompensated care for our Air Medical segment (expressed as a percentage of gross segment billings) were as follows:

 

     Revenue  
     Quarter Ended  
     March 31,  
     2017     2016  

Gross Air Medical segment billings

     100     100

Provision for contractual discounts

     70     71

Provision for uncompensated care

     4     3

These percentages are affected by various factors, including rate increases and changes in the number of transports by payor mix.

Net reimbursement per transport from commercial payors generally increases when a rate increase is implemented. Net reimbursement from certain commercial payors, as well as Medicare and Medicaid, generally does not increase proportionately with rate increases.

Net revenue attributable to Insurance, Medicare, Medicaid, and Self-Pay (expressed as a percentage of net Air Medical revenues) were as follows:

 

     Quarter Ended  
     March 31,  
     2017     2016  

Insurance

     70     66

Medicare

     20     19

Medicaid

     10     15

Self-Pay

     0     0

We also have a limited number of contracts with hospitals under which we receive a fixed fee component for aircraft availability and a variable fee component for flight time. Most of our contracts with hospitals contain provisions permitting early termination by the hospital, typically with 180 days’ notice for any reason and generally with penalty. Several of these contracts are issued or renewed based on competitive bidding. These contracts generated approximately 19% and 31% of the segment’s revenues for the quarters ended March 31, 2017 and 2016, respectively.

 

16


Table of Contents

Technical Services Segment. Our 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 our service costs. We also periodically provide flight services to governmental customers under this segment, including our agreement to operate six aircraft for the National Science Foundation in Antarctica, typically in the first and fourth quarters each year. Also included in this segment is our proprietary Helipass operations, which provides software as a service to certain of our Oil and Gas customers for the purpose of passenger check-in and compliance verification.

For the three month periods ended March 31, 2017 and 2016, approximately 6% and 3%, respectively, of our total operating revenues were generated by our Technical Services segment.

 

17


Table of Contents

Summarized financial information concerning our reportable operating segments for the quarters ended March 31, 2017 and 2016 is as follows:

 

     Quarter Ended  
     March 31,  
     2017      2016  
     (Thousands of dollars)  

Segment operating revenues

     

Oil and Gas

   $ 71,731      $ 88,437  

Air Medical

     55,338        70,060  

Technical Services

     7,549        5,519  
  

 

 

    

 

 

 

Total operating revenues

     134,618        164,016  
  

 

 

    

 

 

 

Segment direct expenses (1)

     

Oil and Gas (2)

     81,728        91,916  

Air Medical

     50,842        57,044  

Technical Services

     4,946        3,594  
  

 

 

    

 

 

 

Total segment direct expenses

     137,516        152,554  

Segment selling, general and administrative expenses

     

Oil and Gas

     1,720        1,528  

Air Medical

     2,881        2,595  

Technical Services

     338        224  
  

 

 

    

 

 

 

Total selling, general and administrative expenses

     4,939        4,347  
  

 

 

    

 

 

 

Total direct and selling, general and administrative expenses

     142,455        156,901  
  

 

 

    

 

 

 

Net segment (loss) profit

     

Oil and Gas

     (11,717      (5,007

Air Medical

     1,615        10,421  

Technical Services

     2,265        1,701  
  

 

 

    

 

 

 

Total net segment (loss) profit

     (7,837      7,115  

Other, net (3)

     1,064        256  

Unallocated selling, general and administrative costs (1)

     (8,105      (7,326

Interest expense

     (8,195      (7,533
  

 

 

    

 

 

 

Loss before income taxes

   $ (23,073    $ (7,488
  

 

 

    

 

 

 

 

(1) Included in segment direct expenses and unallocated selling, general, and administrative costs are the depreciation and amortization expense amounts below:

 

     Depreciation and
Amortization Expense
 
     Quarter Ended  
     March 31,  
     2017      2016  
     (Thousands of dollars)  

Segment Direct Expense:

     

Oil and Gas

   $ 9,862      $ 9,918  

Air Medical

     5,477        4,256  

Technical Services

     146        128  
  

 

 

    

 

 

 

Total

   $ 15,485      $ 14,302  
  

 

 

    

 

 

 

Unallocated SG&A

   $ 1,360      $ 2,671  
  

 

 

    

 

 

 

 

(2) Includes Equity in loss of unconsolidated affiliate.
(3) Consists of gains on disposition of property and equipment and other income – net.

 

18


Table of Contents

11. INVESTMENT IN VARIABLE INTEREST ENTITY

We account for our investment in our West African operations as a variable interest entity, which is defined as an entity that either (a) has insufficient equity to permit the entity to finance its operations without additional subordinated financial support or (b) has equity investors who lack the characteristics of a controlling financial interest. As of March 31, 2017, we had a 49% investment in the common stock of PHI Century Limited (“PHIC”), a Ghanaian entity. We acquired our 49% interest on May 26, 2011, PHIC’s date of incorporation. The purpose of PHIC is to provide oil and gas flight services in Ghana and the West African region. For the quarter ended March 31, 2017, we recorded a loss in equity of unconsolidated affiliate of $1.0 million relative to our 49% equity ownership. We had $3.3 million of trade receivables as of March 31, 2017 from PHIC. Our investment in the common stock of PHIC is included in Other assets on our Condensed Consolidated Balance Sheets and was $0.3 million and $0.2 million at March 31, 2017 and December 31, 2016, respectively.

12. OTHER COMPREHENSIVE INCOME

Amounts reclassified from Accumulated other comprehensive income are not material and, therefore, not presented separately in the Condensed Consolidated Statements of Comprehensive Income.

13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

As discussed further in Note 5, on March 17, 2014, PHI, Inc. issued $500.0 million aggregate principal amount of 5.25% Senior Notes due 2019 that are fully and unconditionally guaranteed on a joint and several, senior basis by all of our domestic subsidiaries. PHI, Inc. directly or indirectly owns 100% of all of its domestic subsidiaries.

The supplemental condensed financial information on the following pages sets forth, on a consolidated basis, the balance sheet, statement of operations, statement of comprehensive income, and statement of cash flows information for PHI, Inc. (“Parent Company”) and the guarantor subsidiaries under separate headings. The eliminating entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and expenses. The condensed consolidating financial statements have been prepared on the same basis as the consolidated financial statements of PHI, Inc. The equity method is followed by the parent company within the financial information presented below.

The transactions reflected in “Due to/from affiliates, net” in the following condensed consolidated statements of cash flows primarily consist of centralized cash management activities between PHI, Inc. and its subsidiaries, pursuant to which cash earned by the guarantor subsidiaries is regularly transferred to PHI, Inc. to be centrally managed. Because these balances are treated as short-term borrowings of the Parent Company, serve as a financing and cash management tool to meet our short-term operating needs, turn over quickly and are payable to the guarantor subsidiaries on demand, we present borrowings and repayments with our affiliates on a net basis within the condensed consolidating statement of cash flows. Net receivables from our affiliates are considered advances and net payables to our affiliates are considered borrowings, and both changes are presented as financing activities in the following condensed consolidating statements of cash flows.

 

19


Table of Contents

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)

(Unaudited)

 

     March 31, 2017  
     Parent
Company
Only (issuer)
    Guarantor
Subsidiaries (1)
    Eliminations     Consolidated  
ASSETS         

Current Assets:

        

Cash

   $ 51     $ 3,629     $ —       $ 3,680  

Short-term investments

     276,818       —         —         276,818  

Accounts receivable – net

     65,044       61,226       —         126,270  

Intercompany receivable

     —         69,862       (69,862     —    

Inventories of spare parts – net

     64,698       8,335       —         73,033  

Prepaid expenses

     8,144       2,186       —         10,330  

Deferred income taxes

     10,798       —         —         10,798  

Income taxes receivable

     341       (18     —         323  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     425,894       145,220       (69,862     501,252  

Investment in subsidiaries

     361,420       —         (361,420     —    

Property and equipment – net

     581,990       314,575       —         896,565  

Restricted cash and investments

     13,023       15       —         13,038  

Other assets

     7,819       1,054       —         8,873  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,390,146     $ 460,864     $ (431,282   $ 1,419,728  
  

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY         

Current Liabilities:

        

Accounts payable

   $ 18,007     $ 4,047     $ —       $ 22,054  

Accrued and other current liabilities

     18,034       9,466       —         27,500  

Intercompany payable

     69,862       —         (69,862     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     105,903       13,513       (69,862     49,554  

Long-term debt

     633,059       —         —         633,059  

Deferred income taxes and other long-term liabilities

     65,070       85,931       —         151,001  

Shareholders’ Equity:

        

Common stock and paid-in capital

     306,268       79,326       (79,326     306,268  

Accumulated other comprehensive loss

     (375     —         —         (375

Retained earnings

     280,221       282,094       (282,094     280,221  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     586,114       361,420       (361,062     586,114  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,390,146     $ 460,864     $ (431,282   $ 1,419,728  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Foreign subsidiaries represent minor subsidiaries and are included in the guarantor subsidiaries’ amounts.

 

20


Table of Contents

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)

 

     December 31, 2016  
     Parent
Company
Only (issuer)
    Guarantor
Subsidiaries (1)
    Eliminations     Consolidated  
ASSETS         

Current Assets:

        

Cash

   $ 36     $ 2,560     $ —       $ 2,596  

Short-term investments

     289,806       —         —         289,806  

Accounts receivable – net

     71,458       66,807       —         138,265  

Intercompany receivable

     —         57,904       (57,904     —    

Inventories of spare parts – net

     61,834       8,568       —         70,402  

Prepaid expenses

     6,990       2,269       —         9,259  

Deferred income taxes

     10,798       —         —         10,798  

Income taxes receivable

     558       (18     —         540  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     441,480       138,090       (57,904     521,666  

Investment in subsidiaries and others

     353,160       —         (353,160     —    

Property and equipment – net

     589,104       314,873       —         903,977  

Restricted investments

     13,023       15       —         13,038  

Other assets

     8,660       1,099       —         9,759  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,405,427     $ 454,077     $ (411,064   $ 1,448,440  
  

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY         

Current Liabilities:

        

Accounts payable

   $ 22,744     $ 5,960     $ —       $ 28,704  

Accrued and other current liabilities

     18,725       9,621       —         28,346  

Intercompany payable

     57,904       —         (57,904     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     99,373       15,581       (57,904     57,050  

Long-term debt

     631,247       —         —         631,247  

Deferred income taxes and other long-term liabilities

     75,029       85,336       —         160,365  

Shareholders’ Equity:

        

Common stock and paid-in capital

     305,815       79,191       (79,191     305,815  

Accumulated other comprehensive loss

     (478     —         —         (478

Retained earnings

     294,441       273,969       (273,969     294,441  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     599,778       353,160       (353,160     599,778  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,405,427     $ 454,077     $ (411,064   $ 1,448,440  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Foreign subsidiaries represent minor subsidiaries and are included in the guarantor subsidiaries’ amounts.

 

21


Table of Contents

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)

(Unaudited)

 

     For the quarter ended March 31, 2017  
     Parent
Company
Only (issuer)
    Guarantor
Subsidiaries (1)
    Eliminations     Consolidated  

Operating revenues, net

   $ 74,284     $ 60,334     $ —       $ 134,618  

Expenses:

        

Direct expenses

     82,344       54,169       —         136,513  

Selling, general and administrative expenses

     10,108       2,940       (4     13,044  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     92,452       57,109       (4     149,557  

Equity in loss of unconsolidated affiliate

     1,003       —         —         1,003  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (19,171     3,225       4       (15,942

Equity in net income of consolidated subsidiaries

     (2,631     —         2,631       —    

Interest expense

     8,174       21       —         8,195  

Other income, net

     (1,067     (1     4       (1,064
  

 

 

   

 

 

   

 

 

   

 

 

 
     4,476       20       2,635       7,131  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) earnings before income taxes

     (23,647     3,205       (2,631     (23,073

Income tax (benefit) expense

     (8,399     574       —         (7,825
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) earnings

   $ (15,248   $ 2,631     $ (2,631   $ (15,248
  

 

 

   

 

 

   

 

 

   

 

 

 
     For the quarter ended March 31, 2016  
     Parent
Company
Only (issuer)
    Guarantor
Subsidiaries (1)
    Eliminations     Consolidated  

Operating revenues, net

   $ 91,869     $ 72,147     $ —       $ 164,016  

Expenses:

        

Direct expenses

     92,037       60,517       —         152,554  

Selling, general and administrative expenses

     9,044       2,802       (173     11,673  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     101,081       63,319       (173     164,227  

Loss on disposal of assets, net

     359       —         —         359  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (9,571     8,828       173       (570

Equity in net income of consolidated subsidiaries

     (5,054     —         5,054       —    

Interest expense

     7,513       20       —         7,533  

Other income, net

     (786     (2     173       (615
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,673       18       5,227       6,918  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) earnings before income taxes

     (11,244     8,810       (5,054     (7,488

Income tax (benefit) expense

     (2,312     3,756       —         1,444  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) earnings

   $ (8,932   $ 5,054     $ (5,054   $ (8,932
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries’ amounts.

 

22


Table of Contents

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)

(Unaudited)

 

     For the quarter ended March 31, 2017  
     Parent
Company
Only (issuer)
    Guarantor
Subsidiaries (1)
     Eliminations     Consolidated  

Net (loss) earnings

   $ (15,248   $ 2,631      $ (2,631   $ (15,248

Unrealized gain on short-term investments

     162       —          —         162  

Changes in pension plan asset and benefit obligation

     (1     —          —         (1

Tax effect of preceding gains, losses or changes

     (58     —          —         (58
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Comprehensive (loss) income

   $ (15,145   $ 2,631      $ (2,631   $ (15,145
  

 

 

   

 

 

    

 

 

   

 

 

 
     For the quarter ended March 31, 2016  
     Parent
Company
Only (issuer)
    Guarantor
Subsidiaries (1)
     Eliminations     Consolidated  

Net (loss) earnings

   $ (8,932   $ 5,054      $ (5,054   $ (8,932

Unrealized gain on short-term investments

     807       —          —         807  

Changes in pension plan asset and benefit obligations

     1       —          —         1  

Tax effect of preceding gains, losses or changes

     (332     —          —         (332
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Comprehensive (loss) income

   $ (8,456   $ 5,054      $ (5,054   $ (8,456
  

 

 

   

 

 

    

 

 

   

 

 

 

 

23


Table of Contents

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)

 

     For the three months ended March 31, 2017  
     Parent
Company
Only (issuer)
    Guarantor
Subsidiaries (1)
    Eliminations      Consolidated  

Net cash (used in) provided by operating activities

   $ (19,332   $ 11,079     $ —        $ (8,253

Investing activities:

         

Purchase of property and equipment

     (4,738     (51     —          (4,789

Purchase of short-term investments

     (54,867     —         —          (54,867

Proceeds from sale of short-term investments

     67,659       —         —          67,659  

Payments of deposits on aircraft

     (66     —         —          (66
  

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) investing activities

     7,988       (51     —          7,937  
  

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities:

         

Proceeds from line of credit

     37,300       —         —          37,300  

Payments on line of credit

     (35,800     —         —          (35,800

Repurchase of common stock

     (100          (100

Due to/from affiliate, net

     9,959       (9,959     —          —    
  

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     11,359       (9,959     —          1,400  
  

 

 

   

 

 

   

 

 

    

 

 

 

Increase in cash

     15       1,069       —          1,084  

Cash, beginning of period

     36       2,560       —          2,596  
  

 

 

   

 

 

   

 

 

    

 

 

 

Cash, end of period

   $ 51     $ 3,629     $ —        $ 3,680  
  

 

 

   

 

 

   

 

 

    

 

 

 
     For the three months ended March 31, 2016  
     Parent
Company
Only (issuer)
    Guarantor
Subsidiaries (1)
    Eliminations      Consolidated  

Net cash used in operating activities

   $ (13,795   $ (2,548   $ —        $ (16,343

Investing activities:

         

Purchase of property and equipment

     (8,519     —         —          (8,519

Proceeds from asset dispositions

     850       —         —          850  

Purchase of short-term investments

     (77,677     —         —          (77,677

Proceeds from sale of short-term investments

     76,184       —         —          76,184  

Payments of deposits on aircraft

     (66     —         —          (66
  

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

     (9,228     —         —          (9,228
  

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities:

         

Proceeds from line of credit

     83,500       —         —          83,500  

Payments on line of credit

     (53,300     —         —          (53,300

Repurchase of common stock

     (500     —         —          (500

Due to/from affiliate, net

     (6,600     6,600       —          —    
  

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by financing activities

     23,100       6,600       —          29,700  
  

 

 

   

 

 

   

 

 

    

 

 

 

Increase in cash

     77       4,052       —          4,129  

Cash, beginning of period

     46       2,361       —          2,407  
  

 

 

   

 

 

   

 

 

    

 

 

 

Cash, end of period

   $ 123     $ 6,413     $ —        $ 6,536  
  

 

 

   

 

 

   

 

 

    

 

 

 

 

(1) Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries’ amounts.

 

24


Table of Contents
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis should be read in conjunction with (i) the accompanying unaudited condensed consolidated financial statements and the notes thereto (the “Notes”) and (ii) our Annual Report on Form 10-K for the year ended December 31, 2016, including the audited consolidated financial statements and notes thereto, management’s discussion and analysis, and the risk factor disclosures contained therein.

Special Note Regarding Forward-Looking Statements

All statements other than statements of historical fact contained in this Form 10-Q and other periodic reports filed by PHI, Inc. (“PHI” or the “Company” or “we,” “us” or “our”) under the Securities Exchange Act of 1934, and other written or oral statements made by it or on its behalf, are “forward-looking statements,” as defined by (and subject to the “safe harbor” protections under) the federal securities laws. 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 judgments and assumptions about future developments and events, many of which are beyond our control. These forward-looking statements, and the assumptions on which they are based, (i) are not guarantees of future events, (ii) are inherently speculative and (iii) are subject to significant risks, uncertainties, and other factors that may cause our actual results to differ materially from the expectations, beliefs, and estimates expressed or implied in such forward-looking statements. Factors that could cause our results to differ materially from the expectations expressed or implied in such forward-looking statements include but are not limited to the following: reduction in demand for our services due to volatility of oil and gas prices and the level of domestic and overseas exploration and production activity, which depends on several factors outside of our control; our dependence on a small number of customers for a significant amount of our revenue and our significant credit exposure within the oil and gas industry; any failure to maintain our strong safety record; our ability to secure favorable customer contracts or otherwise remain able to profitably deploy our existing fleet of aircraft; our ability to receive timely delivery of ordered aircraft and parts from a limited number of suppliers, and the availability of working capital, loans or lease financing to acquire such assets; the availability of adequate insurance; adverse changes in the value of our aircraft or our ability to sell them in the secondary markets; weather conditions and seasonal factors, including tropical storms and hurricanes; the effects of competition and changes in technology; the adverse impact of customers electing to terminate or reduce our services; the impact of current or future governmental regulations, including but not limited to the impact of new and pending regulation of healthcare, aviation safety and export controls; the special risks of our air medical operations, including collections risks and potential medical malpractice claims; political, economic, payment, regulatory and other risks and uncertainties associated with our international operations; our substantial indebtedness and operating lease commitments; the hazards associated with operating in an inherently risky business, including the possibility that regulators could ground our aircraft for extended periods of time or indefinitely; our ability to develop and implement successful business strategies; changes in fuel prices; the risk of work stoppages and other labor problems; changes in our future cash requirements; environmental and litigation risks; the effects of more general factors, such as changes in interest rates, operating costs, tax rates, or general economic or geopolitical conditions; and other risks referenced in this and other annual, quarterly or current reports filed by us with the SEC. All of our above-described forward-looking statements are expressly qualified in their entirety by the cautionary statements in this paragraph and the Risk Factors disclosures in our SEC filings. Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned not to unduly rely upon our forward-looking statements. PHI undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Further, we may make changes to our business strategies and plans (including our capital spending plans) at any time and without notice, based on any changes in the above-listed factors, our assumptions or otherwise, any of which could or will affect our results.

 

25


Table of Contents

Overview

As described further in Note 10, we are primarily a provider of helicopter services and derive most of our revenue from providing helicopter transport services to the energy and medical industries. Our consolidated results of operations are principally driven by the following factors:

 

    The level of offshore oil and gas exploration and production activities in the areas in which we operate, primarily in the Gulf of Mexico. Operating revenues from our Oil and Gas segment relate substantially to operations in the Gulf of Mexico. Many of the helicopters we have purchased recently are larger aircraft intended to service deepwater activities and the margins we earn on these aircraft are generally higher than on smaller aircraft. During periods when the level of offshore activity increases, demand for our offshore flight services typically increases, directly affecting our revenue and profitability. Also, during periods when deepwater offshore activity increases, the demand for our medium and heavy aircraft usually increases, creating a positive impact on revenue and earnings. Conversely, a reduction in offshore oil and gas activities generally, or deepwater offshore activity particularly, typically negatively impacts our aircraft utilization, flight volumes, and overall demand for our aircraft, thereby creating a negative impact on our revenue and earnings.

 

    Patient transports and flight volume in our Air Medical segment. In the independent provider programs under our Air Medical segment, our revenue is directly dependent upon the number and length of patient transports provided in a given period, which is impacted primarily by the number of bases operated by us, competitive factors and weather. The volume of flight utilization of our aircraft by our customers under our traditional provider Air Medical programs also has a direct impact on the amount of revenue earned in a given period, although to a lesser degree than under our independent provider programs. Independent provider programs generated approximately 79%, 74%, 65% and 61% of our Air Medical segment revenues for the three months ended March 31, 2017, and the years ended December 31, 2016, 2015 and 2014, respectively, with the balance of our Air Medical segment revenue attributable to our traditional provider programs.

 

    Payor mix and reimbursement rates in our Air Medical segment. Under our independent provider programs, our revenue recognition, net of allowances, during any particular period is dependent upon the rate at which our various types of customers reimburse us for our Air Medical services, which we refer to as our “payor mix.” Reimbursement rates vary among payor types and typically the reimbursement rate of commercial insurers is higher than Medicare, Medicaid, and self-pay reimbursement rates. Moreover, Medicare and Medicaid reimbursement rates have decreased in recent years and our receipt of payments from these programs is subject to various regulatory and appropriations risks discussed in this and other of our periodic reports filed with the SEC. Changes during any particular period in our payor mix, reimbursement rates, or uncompensated care rates will have a direct impact on our revenues.

 

    Direct expenses. Our business is capital-intensive and highly competitive. Salaries and aircraft maintenance comprise a large portion of our operating expenses. Our aircraft must be maintained to a high standard of quality and undergo periodic and routine maintenance procedures. Higher utilization of our aircraft will result in more frequent maintenance, resulting in higher maintenance costs. In periods of low flight activity, we continue to maintain our aircraft, consequently reducing our margins. In addition, we are also dependent upon pilots, mechanics, and medical crew to operate our business. To attract and retain qualified personnel, we must maintain competitive wages, which places downward pressure on our margins.

As noted above, the performance of our oil and gas operations is largely dependent upon the level of offshore oil and gas activities, which in turn is based largely on volatile commodity prices. See “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016. Since mid-2014, prevailing oil prices have been substantially lower than prices for several years before then. Consequently, several of our oil and gas customers have curtailed their exploration or production levels, lowered their capital expenditures, reduced their staffs or requested arrangements with vendors designed to reduce their operating costs, including flight sharing arrangements and alternative platform staffing rotations. As explained further below, these changes have negatively impacted our oil and gas operations since the first quarter of 2015. Over the course of the downturn, several of our offshore customers have requested reductions in the volume or pricing of our flight services or have re-bid existing contracts, all of which has further reduced our aircraft utilization rates and intensified pricing pressures. We believe that we may receive additional such requests in the future, notwithstanding a recent stabilization in commodity

 

26


Table of Contents

prices. Although we can neither control nor predict with any reasonable degree of certainty the length or impact of current weak market conditions, we currently expect further reductions in the operating revenues and net profit of our Oil and Gas segment in 2017. These reductions could be quite substantial. For information on the impact of the market downturn on our liquidity, see “- Liquidity and Capital Resources – Cash Flow – Liquidity” below.

For several years our Air Medical affiliate received substantive benefits under its three-year service contract with a Middle East customer dated September 29, 2012. Pursuant to contact extensions, our Air Medical affiliate continued providing services at reduced levels for another year through September 30, 2016, when the contract expired. Consequently, since September 30, 2016, our overseas air medical revenues and operating costs have declined significantly as compared to prior periods. For additional information, see Note 3.

 

27


Table of Contents

Results of Operations

The following tables present operating revenue, expenses, and earnings, along with certain non-financial operational statistics, for the quarter ended March 31, 2017 and 2016.

 

     Quarter Ended      Favorable  
     March 31,      (Unfavorable)  
     2017      2016         
    

(Thousands of dollars, except flight hours,

patient transports, and aircraft)

 

Segment operating revenues

        

Oil and Gas

   $ 71,731      $ 88,437      $ (16,706

Air Medical

     55,338        70,060        (14,722

Technical Services

     7,549        5,519        2,030  
  

 

 

    

 

 

    

 

 

 

Total operating revenues

     134,618        164,016        (29,398

Segment direct expenses

        

Oil and Gas (1)

     81,728        91,916        10,188  

Air Medical

     50,842        57,044        6,202  

Technical Services

     4,946        3,594        (1,352
  

 

 

    

 

 

    

 

 

 

Total segment direct expenses

     137,516        152,554        15,038  

Segment selling, general and administrative expenses

        

Oil and Gas

     1,720        1,528        (192

Air Medical

     2,881        2,595        (286

Technical Services

     338        224        (114
  

 

 

    

 

 

    

 

 

 

Total segment selling, general and administrative expenses

     4,939        4,347        (592
  

 

 

    

 

 

    

 

 

 

Total segment expenses

     142,455        156,901        14,446  

Net segment (loss) profit

        

Oil and Gas

     (11,717      (5,007      (6,710

Air Medical

     1,615        10,421        (8,806

Technical Services

     2,265        1,701        564  
  

 

 

    

 

 

    

 

 

 

Total net segment (loss) profit (2)

     (7,837      7,115        (14,952

Other, net (3)

     1,064        256        808  

Unallocated selling, general and administrative costs

     (8,105      (7,326      (779

Interest expense

     (8,195      (7,533      (662
  

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (23,073      (7,488      (15,585

Income tax (benefit) expense

     (7,825      1,444        9,269  
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (15,248    $ (8,932    $ (6,316
  

 

 

    

 

 

    

 

 

 

Flight hours:

        

Oil and Gas

     17,474        20,737        (3,263

Air Medical (4)

     8,392        8,688        (296

Technical Services

     511        523        (12
  

 

 

    

 

 

    

 

 

 

Total

     26,377        29,948        (3,571
  

 

 

    

 

 

    

 

 

 

Air Medical Transports (5)

     4,297        4,503        (206
  

 

 

    

 

 

    

 

 

 

Aircraft operated at period end: (6)

        

Oil and Gas

     131        154     

Air Medical (7)

     104        105     

Technical Services

     6        6     
  

 

 

    

 

 

    

Total

     241        265     
  

 

 

    

 

 

    

 

(1) Includes Equity in loss of unconsolidated affiliate.

 

28


Table of Contents
(2) Total net segment (loss) profit has not been prepared in accordance with generally accepted accounting principles (“GAAP”). Management believes this non-GAAP financial measure provides meaningful supplemental information regarding our results of operations. A description of the adjustments to and reconciliations of total net segment profit to the most comparable GAAP financial measure is as follows:

 

     Quarter Ended  
     March 31,  
     2017      2016  

Total net segment (loss) profit

   $ (7,837    $ 7,115  

Other, net

     1,064        256  

Unallocated selling, general and administrative costs

     (8,105      (7,326

Interest expense

     (8,195      (7,533
  

 

 

    

 

 

 

Loss before income taxes

   $ (23,073    $ (7,488
  

 

 

    

 

 

 

 

(3) Consists of gains on disposition of property and equipment and other income – net.
(4) Flight hours include 2,297 flight hours associated with traditional provider contracts during the first quarter of 2017, compared to 2,277 flight hours during the first quarter of 2016.
(5) Represents individual patient transports for the period.
(6) Represents the total number of aircraft available for use, not all of which were deployed in service as of the dates indicated.
(7) Includes six and ten aircraft as of March 31, 2017 and March 31, 2016, respectively that were owned or leased by customers but operated by us.

 

29


Table of Contents

Quarter Ended March 31, 2017 compared with Quarter Ended March 31, 2016

Combined Operations

Operating Revenues - Operating revenues for the three months ended March 31, 2017 were $134.6 million, compared to $164.0 million for the three months ended March 31, 2016, a decrease of $29.4 million. Oil and Gas segment operating revenues decreased $16.7 million for the three months ended March 31, 2017, related primarily to decreased aircraft flight revenues for all model types resulting predominately from fewer aircraft on contract and decreased flight hours. Air Medical segment operating revenues decreased $14.7 million due principally to decreased traditional provider program revenues resulting from the termination of our overseas operations in late 2016 and decreased independent provider program revenues. Technical Services segment operating revenues increased $2.0 million due primarily to an increase in technical services provided to a third party customer.

Total flight hours for the three months ended March 31, 2017 were 26,377 compared to 29,948 for the three months ended March 31, 2016. Oil and Gas segment flight hours decreased 3,263 hours, due to decreases in flight hours for all model types. Air Medical segment flight hours decreased 296 hours from the three months ended March 31, 2017, due to decreased flight hours in our traditional provider and independent provider operations. As discussed further below, individual patient transports in the Air Medical segment were 4,297 for the three months ended March 31, 2017, compared to transports of 4,503 for the three months ended March 31, 2016.

Direct Expenses – Direct operating expense was $136.5 million for the three months ended March 31, 2017, compared to $152.6 million for the three months ended March 31, 2016, a decrease of $16.1 million, or 11%. Employee compensation expense decreased $9.0 million primarily due to a reduction in employees in our Oil and Gas segment resulting from implementation of voluntary early retirement programs (“VERPs”) in the second half of 2015 and the first quarter of 2016, and a reduction in the number of employees in our Air Medical segment’s Middle East operations. Employee compensation expense represented approximately 46% and 48% of total direct expense for the quarters ended March 31, 2017 and 2016, respectively. We also experienced decreases in aircraft warranty costs of $1.2 million and aircraft insurance of $0.3 million (which expenses represent 7%, and 1% of total direct expense, respectively) as a result of the reduction in flight hours. Aircraft parts expense decreased $1.7 million, aircraft maintenance decreased $1.5 million, and component repair expense decreased $1.4 million. Other decreases included aircraft rent expense of $1.2 million and cost of goods sold of $2.1 million. Training costs increased $1.0 million. Other direct costs increased $0.7 million on a net basis.

Selling, General and Administrative Expenses – Selling, general and administrative expenses were $13.0 million for the three months ended March 31, 2017, compared to $11.7 million for the three months ended March 31, 2016. The $1.3 million increase was primarily attributable to severance costs related to a reduction in force at our Lafayette headquarters facility in March, 2017 and $0.6 million of legal and consulting fees related to a special project. Partially offsetting this increase are decreases in equity-based compensation of $0.8 million.

Loss/Gain on Disposal of Assets, net – There were no gains or losses on asset dispositions for the three months ended March 31, 2017. For the three months ended March 31, 2016, we recorded a loss of $0.4 million resulting from the sale of one light aircraft. See Note 8.

Equity in Loss of Unconsolidated Affiliate – Equity in the loss of our unconsolidated affiliate attributable to our mid-2011 investment in a Ghanaian entity was $1.0 million for the three months ended March 31, 2017, compared to $0 million for the three months ended March 31, 2016, resulting from increased expenses.

Interest Expense – Interest expense was $8.2 million for the three months ended March 31, 2017 and $7.5 million for the three months ended March 31, 2016, principally due to higher average outstanding debt balances.

Other Income, net – Other income was $1.1 million for the three months ended March 31, 2017 compared to $0.6 million for the same period in 2016, and represents primarily interest income. The $0.4 million increase is primarily attributable to an increase in the amount and rate of return of our short-term investments.

Income Taxes – Income tax benefit for the three months ended March 31, 2017 was $7.8 million compared to income tax expense of $1.4 million for the three months ended March 31, 2016. Our $7.8 million income tax benefit for the three months ended March 31, 2017 is attributable to our net loss from operations of $23.1 million.    The $1.4 million income tax expense recorded in the three months ended March 31, 2016 is attributable to the negative impact of a valuation allowance on certain state tax benefits related to net operation loss carryforwards of $4.1 million, which was partially offset by a $2.7 million tax benefit on our loss before income taxes. Our effective tax rate was 34.0% and 36.2% for the three months ended March 31, 2017 and March 31, 2016, respectively.

 

30


Table of Contents

Net Loss – Net loss for the three months ended March 31, 2017 was $15.2 million compared to net loss of $8.9 million for the three months ended March 31, 2016. Loss before income taxes for the three months ended March 31, 2017 was $23.1 million compared to loss before income taxes of $7.5 million for the same period in 2016. Losses per diluted share were $0.97 for the current quarter compared to losses per diluted share of $0.57 for the prior year quarter. The increase in loss before taxes for the quarter ended March 31, 2017 is attributable to the decreased profits in the Oil and Gas and Air Medical segments, each of which are discussed further below. We had 15.7 million and 15.6 million weighted average diluted common shares outstanding during the quarter ended March 31, 2017 and 2016, respectively.

Segment Discussion

Oil and Gas – Oil and Gas segment revenues were $71.7 million for the three months ended March 31, 2017, compared to $88.4 million for the three months ended March 31, 2016, a decrease of $16.7 million. Our Oil and Gas segment revenues are primarily driven by the amount of contracted aircraft and flight hours. Costs are primarily fixed based on the number of aircraft operated, with a variable portion that is driven by flight hours.

Oil and Gas segment flight hours were 17,474 for the most recent quarter compared to 20,737 for the same quarter in the prior year, a decrease of 3,263 flight hours. The decline in revenues and flight hours is attributable to fewer aircraft on contract and lower utilization rates for all model types due to reduced oil and gas exploration and production activities in response to lower prevailing commodity prices.

The number of aircraft available for use in the segment was 131 at March 31, 2017, compared to 154 at March 31, 2016. We have sold or disposed of eleven light and seven medium aircraft in the Oil and Gas segment since March 31, 2016. Transfers between segments account for the remainder.

Direct expense in our Oil and Gas segment was $81.7 million for the three months ended March 31, 2017, compared to $91.9 million for the three months ended March 31, 2016, a decrease of $10.2 million. Employee compensation expense decreased $6.3 million due to a reduction in employees resulting from implementation of our VERPs. See Note 10. There were also decreases in aircraft warranty costs of $1.2 million, and aircraft insurance of $0.2 million, each due to the reduction in flight hours. Other decreases included aircraft rent expense of $0.9 million, aircraft parts expense of $2.0 million, and property taxes of $0.4 million. Other items increased, net $0.8 million.

Selling, general and administrative segment expenses were $1.7 million for the three months ended March 31, 2017 and $1.5 million for the three months ended March 31, 2016. The $0.2 million increase is primarily attributable to increased legal fees.

Oil and Gas segment loss was $11.7 million for the three months ended March 31, 2017, compared to a loss of $5.0 million for the three months ended March 31, 2016. The increase in segment loss was due to decreased revenues, which were only partially offset by decreased expenses attributable to the above-described factors.

Air Medical – Air Medical segment revenues were $55.3 million for the three months ended March 31, 2017, compared to $70.1 million for the three months ended March 31, 2016. This decrease of $14.7 million is primarily attributable to decreased traditional provider program revenues resulting from the termination of our overseas operations (as discussed further below). We also experienced decreased revenues from our independent provider programs primarily resulting from decreased patient transports due principally to adverse weather conditions in our operating markets. Patient transports were 4,297 for the three months ended March 31, 2017, compared to 4,503 for the same period in the prior year.

The number of aircraft available for use in the segment at March 31, 2017 was 104 compared to 105 at March 31, 2016. Since March 31, 2016, we added two light aircraft to our Air Medical segment, which were offset by our sale or disposition of four medium aircraft in the Air Medical segment since such date. Changes in customer-owned aircraft and transfers between segments account for the remainder.

Direct expense in our Air Medical segment was $50.8 million for the three months ended March 31, 2017, compared to $57.0 million for the three months ended March 31, 2016, a decrease of $6.2 million. Employee compensation costs decreased $2.4 million due to a reduction in personnel primarily relating to the termination of our Middle East operations. Component repair costs also decreased $1.0 million as a result of a reduction in scheduled maintenance for certain aircraft. Cost of goods sold decreased $3.3 million related to certain items that were previously billed on a cost plus basis under our former Middle East contract. Other items increased, net $0.5 million.

 

31


Table of Contents

Selling, general and administrative segment expenses were $2.9 million for the three months ended March 31, 2017, compared to $2.6 million for the three months ended March 31, 2016. The $0.3 million increase is primarily due to increased promotional and rent expense, as well as employee compensation costs.

Air Medical segment profit was $1.6 million for the three months ended March 31, 2017, compared to a segment profit of $10.4 million for the three months ended March 31, 2016. The $8.8 million decrease in profit is attributable to the decreased operating revenues described above, partially offset by decreased expenses.

For several years our Air Medical affiliate received substantial benefits under its three-year service contract with a Middle East customer dated September 29, 2012. Pursuant to contract extensions, our Air Medical affiliate continued providing services at reduced levels for another year through September 30, 2016, when the contract expired. Consequently, since September 30, 2016, the overseas revenues and operating results of our Air Medical segment have declined significantly as compared to prior periods. For additional information, see Note 3.

Technical Services – Technical Services segment revenues were $7.5 million for the three months ended March 31, 2017, compared to $5.5 million for the three months ended March 31, 2016.    The increase in revenue is due primarily to an increase of technical services provided to a third party customer whose service requirements typically vary from period to period. Direct expenses increased $1.4 million compared to the prior year three months, principally due to the increased operations. Technical Services segment earnings was $2.3 million for the three months ended March 31, 2017, compared to segment profit of $1.7 million for the three months ended March 31, 2016.

For additional information on our segments, see Note 10.

Liquidity and Capital Resources

General

Our ongoing liquidity requirements arise primarily from the purchase or leasing of aircraft, the maintenance and refurbishment of aircraft, the opening of new aircraft bases, the expansion or improvement of facilities, the acquisition of equipment and inventory, and other working capital needs. Our principal sources of liquidity historically have been net cash provided by our operations, borrowings under our revolving credit facility, and proceeds from periodic senior note offerings. To the extent we do not use cash, short-term investments or borrowings to finance our aircraft acquisitions, we frequently enter into sale-leaseback transactions to fund these acquisitions.

Historical Cash and Cash Flow Information

Liquidity - Our cash position was $3.7 million at March 31, 2017, compared to $2.6 million at December 31, 2016. Short-term investments were $276.8 million at March 31, 2017, compared to $289.8 million at December 31, 2016. We also had $13.0 million in restricted investments at March 31, 2017 and December 31, 2016, securing outstanding letters of credit and a bond for foreign operations.

As noted in greater detail above, current weakness in the oil and gas industry has negatively impacted our offshore operations since the first quarter of 2015, and we expect further reductions in the operating revenues and net profit of our Oil and Gas segment in future periods. Through March 31, 2017, these negative variances did not materially impact our financial position reported in our consolidated balance sheets, as described in further detail below. Nonetheless, if the current weakness of the energy industry persists, we expect that it will ultimately have a negative impact on our consolidated operating cash flow and liquidity.

Despite our year over year cumulative losses and negative operating cash flows, we expect to be able to fund operations beyond next year due to having significant short-term investments, and we have no debt coming due within one year.

 

32


Table of Contents

Operating activities - Net cash used in operating activities was $8.3 million for the three months ended March 31, 2017, compared to net cash used of $16.3 million for the same period in 2016, a decrease of $8.0 million. Cash receipts from customers were down $16.7 million when compared to same quarter of the prior year, primarily due to a $16.7 million decrease in our Oil and Gas segment revenues, related to the downturn in the industry. Although our Air Medical segment revenue decreased $14.7 million compared to prior year, cash receipts decreased by only $3.7 million due to timing of payments. The decrease in revenue is primarily related to the termination of the Middle East contract in late 2016. The decrease in cash receipts was offset by a $21.0 million decrease in cash required for payroll. This decrease is due to having one less payroll period in 2017 due to the timing of our bi-weekly payroll system, a reduction in bonuses paid, a reduction in payments for retirement packages, and reduction in staff levels. The remaining offset was due to a decrease in payments to vendors due to the decreased scope of our operations.

Investing activities - Net cash provided by investing activities was $7.9 million for the three months ended March 31, 2017, compared to cash used of $9.2 million for the same period in 2016. Net sales of short-term investments provided $12.8 million of cash during the three months ended March 31, 2017, compared to $1.5 million used in the comparable prior year period. There were no gross proceeds from asset dispositions during the three months of 2017, compared to $0.9 million for the same period in 2016. Capital expenditures were $4.8 million for the three months ended March 31, 2017, compared to $8.5 million for the same period in 2016. Capital expenditures for aircraft and aircraft improvements accounted for $3.4 million and $8.0 million of these totals for the three months ended 2017 and 2016, respectively. During the first quarter of 2017, we did not add any aircraft to the fleet. During the same period of 2016, we took delivery of one heavy aircraft for which payment was funded in the second quarter of 2016.

Financing activities – Financing activities during the three months of 2017 included net borrowings of $1.5 million on our revolving credit facility and $0.1 million used to repurchase shares of our non-voting common stock to satisfy withholding tax obligations of employees. Financing activities during the first quarter of 2016 included net borrowings of $30.2 million on our revolving credit facility and $0.5 million used to repurchase shares of our non-voting common stock to satisfy withholding tax obligations of employees.

For additional information on our cash flows, see our condensed consolidated statements of cash flows included in Item 1 of Part I of this report.

Long-Term Debt

As of March 31, 2017, we owed $635.5 million under our total long-term debt, consisting of $500.0 million principal amount of 5.25% Senior Notes due 2019 (excluding debt issuance costs) and $135.5 million borrowed under our revolving credit facility.

Revolving Credit Facility – We have an amended and restated revolving credit facility (our “credit facility”) that matures on October 1, 2018. Under our credit facility, we can borrow up to $150.0 million at floating interest rates based on either the London Interbank Offered Rate plus 225 basis points or the prime rate (each as defined in our credit facility), at our option. Our credit facility includes usual and customary covenants and events of default for credit facilities of its type. Our ability to borrow under the credit facility is conditioned upon our continued compliance with such covenants, including, among others, (i) covenants that restrict our ability to engage in certain asset sales, mergers or other fundamental changes, to incur liens or to engage in certain other transactions or activities and (ii) financial covenants that stipulate that PHI will maintain a consolidated working capital ratio of at least 2 to 1, a net funded debt to consolidated net worth ratio not greater than 1.5 to 1, a fixed charge coverage ratio of at least 1.1 to 1 if our short-term investments fall below $150.0 million, and consolidated net worth of at least $450.0 million (with all such terms or amounts as defined in or determined under our credit facility).

At March 31, 2017, we had $135.5 million in borrowings under our credit facility. At the same date in 2016, we had $87.7 million in borrowings under our credit facility. We also have outstanding a letter of credit for $7.6 million issued under our $150.0 million credit facility that reduces the amount we can borrow under that facility. This letter of credit was issued to guaranty the performance under an international contract awarded in late 2016.

Other – We maintain a separate letter of credit facility described in Note 5 that had $13.0 million letters of credit outstanding at March 31, 2017.

For additional information on our long-term debt, see Note 5.

 

33


Table of Contents

Contractual Obligations

The table below sets out our contractual obligations as of March 31, 2017, related to our aircraft purchase commitments, aircraft and other operating lease obligations, revolving credit facility, and 5.25% Senior Notes due 2019. Our obligations under the operating leases are not recorded as liabilities on our balance sheets included in this report. Each contractual obligation included in the table contains various terms, conditions, and covenants that, if violated, accelerate the payment of that obligation under certain specified circumstances. We believe we were in compliance with the covenants applicable to these contractual obligations as of March 31, 2017. As of March 31, 2017, we leased 20 aircraft included in the lease obligations below.

 

            Payment Due by Year  
                                               Beyond  
     Total      2017(1)      2018      2019      2020      2021      2021  
            (Thousands of dollars)  

Aircraft purchase obligations

   $ 17,876      $ 17,876      $ —        $ —        $ —        $ —        $ —    

Aircraft lease obligations

     205,028        29,952        36,879        30,226        26,387        26,253        55,331  

Other lease obligations

     14,649        4,769        3,850        2,897        2,045        1,063        25  

Long-term debt(2)

     635,500        —          135,500        500,000        —          —          —    

Senior notes interest(2)

     52,500        13,125        26,250        13,125        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 925,553      $ 65,722      $ 202,479      $ 546,248      $ 28,432      $ 27,316      $ 55,356  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Payments due during the last nine months of 2017 only.
(2) “Long-term debt” reflects the principal amount of debt due under our outstanding senior notes and our revolving credit facility, whereas “senior notes interest” reflects interest accrued under our senior notes only. The actual amount of principal and interest paid in all years may differ from the amounts presented above due to the possible future payment or refinancing of outstanding debt or the issuance of new debt.

The table above reflects only contractual obligations as of March 31, 2017 and excludes, among other things, (i) commitments made thereafter, (ii) options to purchase assets, including those described in the next paragraph, (iii) contingent liabilities, (iv) capital expenditures that we plan, but are not committed, to make, (v) open purchase orders and (vi) other long-term liabilities, such as accruals for litigation or taxes, that are not contractual in nature.

As of March 31, 2017, we had options to purchase aircraft under leases becoming exercisable in 2017 through 2021. The aggregate option purchase prices are $37.1 million in 2017, $127.0 million in 2018, $129.0 million in 2019, and $22.7 million in 2020. Subsequent to March 31, 2017, we purchased one heavy aircraft from a lessor for $17.0 million. Under current conditions, we believe it is unlikely that we will exercise the remaining 2017 purchase options, unless opportunistic conditions arise.

We intend to fund the above-described contractual obligations and any exercised purchase options through a combination of cash on hand, cash flow from operations, borrowings under our credit facility, refinancing transactions or sale-leaseback transactions.

For additional information on our contemplated capital expenditures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Capital Expenditures” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016.

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.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of changes in the value of financial instruments, or in future net income or cash flows, in response to changing market conditions.

Our earnings are subject to changes in short-term interest rates due to the variable interest rate payable under our credit facility debt. Based on the $135.3 million weighted average loan balance during the three months ended March 31, 2017, a 10% increase (0.3061%) in interest rates would have reduced our annual pre-tax earnings approximately $0.4 million, but would not have changed the fair market value of this debt.

 

34


Table of Contents

Our $500.0 million principal amount of outstanding 5.25% Senior Notes due 2019 bear interest at a fixed rate of 5.25% and therefore changes in market interest rates do not affect our interest payment obligations on the notes. The fair market value of our 5.25% Senior Notes will vary as changes occur to general market interest rates, the remaining maturity of the notes, and our creditworthiness. At March 31, 2017, the market value of the notes was approximately $473.8 million, based on quoted market prices.

The interest and other payments we earn and recognize on our investments in money market funds, U.S. Government agencies debt, commercial paper, and corporate bonds and notes are subject to the risk of declines in general market interest rates.

See Note 4 for additional information.

 

Item 4. CONTROLS AND PROCEDURES

The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed by us in the reports that we file or furnish under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, including to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events and the inability to eliminate misconduct completely. As a result, we cannot assure you that our disclosure controls and procedures will detect all errors or fraud.

 

35


Table of Contents

PART II – OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

For information regarding legal proceedings, see “Legal Matters” in Note 9 to our financial statements included in this report, incorporated herein by reference.

 

Item 1A. RISK FACTORS

For information regarding certain risks relating to our operations, any of which could negatively affect our business, financial condition, operating results or prospects, see Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the first quarter of 2017, we withheld from employees and canceled 7,016 shares of our non-voting common stock in connection with the vesting of their stock-based awards to satisfy the related minimum tax withholding obligation. The following table provides additional information about these transactions.

 

Period

   Total Number of
Shares Purchased
     Average Price
Paid per Share
 

March 1, 2017 – March 31, 2017

     7,016      $ 14.27  

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

 

Item 4. MINE SAFETY DISCLOSURES

None.

 

Item 5. OTHER INFORMATION

Results of Annual Meeting

At PHI’s annual meeting of shareholders on May 4, 2017, for which proxies were not solicited, the board of directors that was nominated, as described in the Company’s Information Statement filed April 12, 2017 (the “Information Statement”), was elected in its entirety, with 2,060,905 votes in favor of each director, and zero votes withheld or abstaining. The ratification of the appointment of Deloitte & Touche as PHI’s independent registered public accounting firm for the fiscal year ending December 31, 2017 was approved with 2,060,905 votes in favor, and zero votes against or abstaining. The amendment of our articles of incorporation described in our Information Statement was approved with 2,060,905 votes in favor, and zero votes against or abstaining. The amendment and restatement of the PHI, Inc. Long-Term Incentive Plan described in our Information Statement was approved with 2,060,905 votes in favor, and zero votes against or abstaining.

 

36


Table of Contents
Item 6. EXHIBITS

 

(a)     Exhibits

 

    3.1    (i)*    Amended and Restated Articles of Incorporation of the Company.
   (ii)    Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3(ii) to PHI’s Report on Form 10-Q for the quarterly period ended September 30, 2015, filed November 6, 2015).
    4.1    Second Amended and Restated Loan Agreement dated as of September 18, 2013, by and among PHI, Inc., PHI Air Medical, L.L.C, successor to Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.1 to PHI’s Report on Form 10-Q for the quarterly period ended September 30, 2013, filed on November 8, 2013).
    4.2    First Amendment to Second Amended and Restated Loan Agreement, dated as of March 5, 2014, by and among PHI, Inc., PHI Air Medical, L.L.C., PHI Tech Services, Inc., International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.1 to PHI’s Report on Form 8-K filed March 6, 2014).
    4.3    Second Amendment to Second Amended and Restated Loan Agreement, dated as of September 26, 2014, by and among PHI, Inc., PHI Air Medical, L.L.C., PHI Tech Services, Inc., International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.3 to PHI’s Report on Form 10-Q for the quarterly period ended September 30, 2014, filed November 7, 2014).
    4.4    Third Amendment to Second Amended and Restated Loan Agreement, dated as of September 25, 2015, by and among PHI, Inc., PHI Air Medical, L.L.C., PHI Tech Services, Inc., International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.4 to PHI’s Report on Form 10-Q for the quarterly period ended September 30, 2015, filed November 6, 2015).
    4.5    Fourth Amendment to Second Amended and Restated Loan Agreement, dated as of September 30, 2016, by and among PHI, Inc., PHI Air Medical, L.L.C., PHI Tech Services, Inc., International Helicopter Transport, Inc. and Whitney National Bank. (incorporated by reference to Exhibit 4.5 to PHI’s Report on Form 10-Q for the quarterly period ended September 30, 2016, filed November 7, 2016).
    4.6    Indenture, dated as of March 17, 2014, by and among PHI, Inc., the subsidiary guarantors and U.S. Bank National Association, relating to the issuance by PHI, Inc. of its 5.25% Senior Notes due 2019 (incorporated by reference to Exhibit 4.2 to PHI’s Report on Form 8-K filed March 17, 2014).
    4.7    Form of 5.25% Senior Note due 2019 (incorporated by reference to Exhibit 4.2 to PHI’s Report on Form 8-K filed on March 6, 2014).
  10.1†    Second Amended and Restated PHI Inc. Long-Term Incentive Plan (incorporated by reference to Appendix A to PHI’s Information Statement on Schedule 14C filed April 12, 2017).

 

37


Table of Contents
  31.1*    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al A. Gonsoulin, Chairman and Chief Executive Officer.
  31.2*    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Trudy P. McConnaughhay, Chief Financial Officer.
  32.1*    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al A. Gonsoulin, Chairman and Chief Executive Officer.
  32.2*    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Trudy P. McConnaughhay, Chief Financial Officer.
101.INS*    XBRL Instance Document
101.SCH*    XBRL Taxonomy Extension Schema
101.CAL*    XBRL Taxonomy Extension Calculation Linkbase
101.DEF*    XBRL Taxonomy Extension Definition Linkbase
101.LAB*    XBRL Taxonomy Extension Label Linkbase
101.PRE*    XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith
Indicates management contract or compensatory plan or arrangement

 

38


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    PHI, Inc.
May 9, 2017     By:  

/s/ Al A. Gonsoulin

      Al A. Gonsoulin
      Chairman and Chief Executive Officer
May 9, 2017     By:  

/s/ Trudy P. McConnaughhay

      Trudy P. McConnaughhay
      Chief Financial Officer

 

39