10-Q 1 0001.txt =========================================================================== Securities and Exchange Commission Washington, D. C. 20549 FORM 10-Q [X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: June 30, 2000 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 PETROLEUM HELICOPTERS, INC. (Exact name of registrant as specified in its charter) Louisiana 72-0395707 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2121 Airline Drive Suite 400 P.O. Box 578, Metairie, Louisiana 70001-5979 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (504) 828-3323 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 X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: 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 July 31, 2000 ----- ---------------------------- Voting Common Stock 2,793,386 shares Non-Voting Common Stock 2,384,765 shares =========================================================================== PETROLEUM HELICOPTERS, INC. Index - Form 10-Q Part I - Financial Information Item 1. Financial Statements - Unaudited Consolidated Balance Sheets -- June 30,2000 and December 31, 1999 3 Consolidated Statements of Operations - Three Months and Six Months Ended June 30, 2000 and 1999 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2000 and 1999 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 14 Part II - Other Information Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15 Signature 16 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Thousands of dollars, except share data) (Unaudited) June 30, December 31, 2000 1999 -------- ----------- ASSETS Current Assets: Cash and cash equivalents $ 1,139 $ 1,663 Accounts receivable -- net of allowance: Trade 35,472 36,917 Other 5,176 3,558 Inventory 38,881 37,277 Prepaid expenses 1,541 2,987 Refundable income taxes 3,036 3,922 ------ ------ Total current assets 85,245 86,324 Property and equipment, net 124,963 135,047 Other 3,518 1,685 ------- ------- Total Assets $ 213,726 $ 223,056 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 23,811 $ 20,013 Accrued vacation payable 6,243 6,020 Current maturities of long-term debt 4,500 5,592 ------ ------ Total current liabilities 34,554 31,625 ------ ------ Long-term debt, net of current maturities 60,946 72,048 Deferred income taxes 17,494 17,776 Other long-term liabilities 8,591 7,984 Commitments and Contingencies (Note 5) Shareholders' Equity Voting common stock -- par value of $0.10; authorized shares of 12,500,000 279 279 Non-voting common stock- par value of $0.10; authorized shares of 12,500,000 237 237 Additional paid-in capital 12,014 11,729 Retained earnings 79,611 81,378 ------- ------- Total shareholders' equity 92,141 93,623 ------- ------- Total Liabilities and Shareholders' Equity $ 213,726 $ 223,056 ======= ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Quarter Ended June 30, Six Months Ended June 30, --------------------- ------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- REVENUES AND OTHER INCOME: Operating revenues $55,105 $52,799 $107,764 $111,886 Other income, net 2,400 1,604 2,547 3,647 ------ ------ ------- ------- 57,505 54,403 110,311 115,533 ------ ------ ------- ------- EXPENSES: Direct expenses 52,505 49,596 102,019 103,452 Selling, general, and administrative 4,046 4,362 8,067 8,960 Special charges -- 4,846 -- 4,846 Interest expense 1,473 1,429 2,983 2,857 ------ ------ ------- ------- 58,024 60,233 113,069 120,115 ------ ------ ------- ------- Loss before income taxes (519) (5,830) (2,758) (4,582) Income taxes (193) (2,407) (1,004) (1,891) ------ ------ ------ ------ Net loss $(326) $(3,423) $ (1,754) $(2,691) ====== ====== ====== ====== Weighted average common shares outstanding: Basic 5,161 5,161 5,161 5,165 Diluted 5,161 5,161 5,161 5,165 Net loss per common share: Basic $ (0.06) $ (0.66) $ (0.34) $ (0.52) Diluted $ (0.06) $ (0.66) $ (0.34) $ (0.52) Dividends declared per common share $ -- $ -- $ -- $ 0.10 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of dollars) (Unaudited) Six Months Ended June 30, ------------------------ 2000 1999 ---- ---- Cash flows from operating activities: Net loss $(1,754) $(2,691) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 6,673 8,018 Deferred income taxes (282) 726 Gain on asset dispositions (2,592) (3,773) Equity in net losses of investee companies, net of distributions 14 126 Special charges -- 3,720 Other 323 469 Changes in operating assets and liabilities 5,674 2,152 ----- ----- Net cash provided by operating activities 8,056 8,747 ------ ------ Cash flows from investing activities: Investments in and advances to affiliates (1,266) (5) Purchase of property and equipment (9,422) (14,471) Proceeds from asset dispositions 14,302 8,219 ------ ------ Net cash provided by (used in) investing activities 3,614 (6,257) ------ ------ Cash flows from financing activities: Proceeds from long-term debt 6,000 9,000 Payments on long-term debt (18,194) (10,925) Dividends paid -- (519) Other -- (128) ------- ------- Net cash used in financing activities (12,194) (2,572) ------ ------ Decrease in cash and cash equivalents (524) (82) Cash and cash equivalents, beginning of period 1,663 205 ------ ------ Cash and cash equivalents, end of period $ 1,139 $ 123 ====== ====== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. General The accompanying unaudited condensed consolidated financial statements include the accounts of Petroleum Helicopters, Inc. and subsidiaries ("PHI" or the "Company"). Effective December 31, 1999, the Company changed its fiscal year end from April 30 of each year to December 31 of each year. In the opinion of management, these financial statements reflect all adjustments, consisting of only normal, recurring adjustments, necessary to present fairly the financial results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the financial statements contained in the Company's Transition Report on Form 10-K for the eight-month transition period ended December 31, 1999 and the accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company's financial results, particularly as they relate to the Company's domestic oil and gas operations, are influenced by seasonal fluctuations as discussed in the Company's Transition Report on Form 10-K for the eight-month transition period ended December 31, 1999. Therefore, the results of operations for interim periods are not necessarily indicative of the operating results that may be expected for a full fiscal year. 2. Special Charges In April 1999, in connection with expense reduction efforts and management's decision to recognize the impairment of assets as a result of decreased activity, the Company recorded Special Charges of $4.8 million. The Special Charges included impairment of certain foreign based joint ventures amounting to $2.5 million, severance costs of $1.3 million, impairment of property and equipment of $0.4 million, and other charges of $0.6 million. 3. Segment Information The Company has identified three principal segments: Oil and Gas Aviation Services, Aeromedical Services and Technical Services. The Oil and Gas Aviation Services segment includes domestic and international helicopter services provided to oil and gas customers and certain other customers. The Aeromedical Services segment includes all services provided to the Company's air medical customers, including hospitals and medical programs. The Technical Services segment provides aircraft maintenance and repair services to outside parties. As of January 1, 2000, the Company has changed its basis of segmentation to present Technical Services as a separate segment. Previously, the Technical Services segment was in the Oil and Gas Aviation Services segment. All periods presented below include Technical Services as a separate reporting segment. Segment operating income is operating revenues less direct expenses, selling, general, and administrative costs, and special charges, as well as interest expense applicable to the operating segment. Unallocated overhead consists primarily of corporate selling, general, and administrative costs that the Company does not allocate to the operating segments. Summarized financial information concerning the Company's reportable operating segments for the quarters and six months ended June 30, 2000 and 1999 is as follows (in thousands): Quarter Ended Six Months Ended June 30, June 30, --------------- ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Segment operating revenues, excluding other income: Oil and Gas Aviation Services $39,562 $37,721 $ 78,782 $ 78,767 Aeromedical Services 11,059 11,461 22,113 22,640 Technical Services 4,484 3,617 6,869 10,479 ------ ------ ------ ------ Total operating revenues, excluding other income $55,105 $52,799 $107,764 $111,886 ====== ====== ======= ======= Segment operating income (loss), excluding other income: Oil and Gas Aviation Services $ (870) $(5,282)(1)$ (144) $ (4,439)(1) Aeromedical Services 91 579 126 945 Technical Services 901 727 870 1,945 ----- ----- ----- ----- Total segment operating income (loss), excluding other income 122 (3,976) 852 (1,549) Other income, net 2,400 1,604 2,547 3,647 Unallocated overhead (3,041) (3,458) (6,157) (6,680) ----- ----- ----- ----- Loss before income taxes $ (519) $(5,830) $(2,758) $ (4,582) ===== ===== ===== ===== (1) Includes special charges of $4.8 million as discussed in Note 2 of the unaudited condensed consolidated financial statements. 4. Other Assets Other assets principally includes investments in and advances to an affiliate. The Company has a 50% ownership interest in Clintondale Aviation, Inc. ("Clintondale"), a New York corporation that operates helicopters and fixed-wing aircraft primarily in the Commonwealth of Independent States. PHI leases four aircraft to Clintondale. In May 2000, PHI obtained a $1.3 million note receivable from Clintondale in exchange for conversion of $0.8 million of amounts due from Clintondale and $0.5 million cash. The note is payable through June 2005 in equal monthly principal installments plus interest at 7.81% per annum and is secured by a pledge of the shares not owned by PHI. The Company also holds a note receivable from Clintondale with a $0.5 million principal balance at June 30, 2000. The note is payable through May 2001 in equal monthly principal and interest payments at 13.00% per annum. 5. Commitments and Contingencies Environmental Matters -- The Company continues to review selected domestic bases for possible fuel contamination resulting from routine flight operations. The aggregate estimated liability recorded for environmental related costs at June 30, 2000 was $3.0 million, which the Company believes is adequate for probable and estimable environmental costs. The Company will make additional provisions in future periods to the extent appropriate as further information regarding these costs becomes available. The Company recorded no provisions in the quarter or six months ended June 30, 2000. Legal Matters -- The Company is named as a defendant in various legal actions that have arisen in the ordinary course of its business and have not been finally adjudicated. The amount, if any, of ultimate liability with respect to such matters cannot be determined; however, after consulting with legal counsel, the Company has established accruals that it believes adequately provide for the resolution of such litigation. In the opinion of management, the amount of the ultimate liability with respect to these actions will not have a material adverse effect on results of operations, cash flow or financial position of the Company. Long-Term Debt -- The Company is subject to certain financial covenants under its loan agreement with its principal lending group, as amended on June 30, 2000, and was in compliance with those covenants on June 30, 2000. These covenants include maintaining certain levels of cash flow, working capital and shareholders' equity and contain other provisions some of which restrict purchases of the Company's stock, capital expenditures and payment of dividends. The declaration or payment of dividends is restricted to 20% of net earnings for the previous four fiscal quarters. Such agreement also limits the creation, incurrence or assumption of Funded Debt (as defined, which includes long-term debt) and the acquisition of investments in unconsolidated subsidiaries. New Principal Operating Facility -- The Company is leasing a new principal operating facility for 20 years effective September 2001. Under the terms of the lease, there is a potential commitment by the Company to fund $4.0 million of construction costs. Any such amounts funded by PHI will amortize over 10 years at 10% per annum and the resulting monthly amortization amounts will reduce PHI's monthly lease payments for the first 10 years of the lease. 6. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133 establishes new accounting and reporting standards for derivative financial instruments and for hedging activities. SFAS No. 133 requires the Company to measure all derivatives at fair value and to recognize them in the balance sheet as an asset or liability, depending on the Company's rights or obligations under the applicable derivative contract. In June 1999, the FASB issued SFAS No. 137, which deferred the effective date of adoption of SFAS No. 133 for one year. The Company will adopt SFAS No. 133 no later than the first quarter of fiscal year 2001. The Company has considered the implications of adopting the new method of accounting for derivatives and hedging activities and has concluded that its implementation will not have a material impact on the Company's consolidated financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". SAB No. 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB No. 101, as amended, is effective beginning in the fourth quarter of fiscal year 2000. The Company believes that this new accounting pronouncement will not have a material affect on its consolidated financial statements. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto as well as the Company's Transition Report on Form 10-K for the eight month transition period ended December 31, 1999. Forward-Looking Statements All statements other than statements of historical fact contained in this Form 10-Q, other periodic reports filed by the Company under the Securities Exchange Act of 1934 and other written or oral statements made by it or on its behalf, are forward-looking statements. When used herein, the words "anticipates", "expects", "believes", "intends", "plans", or "projects" and similar expressions are intended to identify forward-looking statements. It is important to note that forward-looking statements are based on a number of assumptions about future events and are subject to various risks, uncertainties and other factors that may cause the Company's actual results to differ materially from the views, beliefs and estimates expressed or implied in such forward-looking statements. Although the Company believes that the assumptions reflected in forward-looking statements are reasonable, no assurance can be given that such assumptions will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements include but are not limited to the following: flight variances from expectations, volatility of oil and gas prices, the substantial capital expenditures and commitments required to acquire aircraft, environmental risks, competition, government regulation, unionization, and the ability of the Company to implement its business strategy. All forward-looking statements in this document are expressly qualified in their entirety by the cautionary statements in this paragraph. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Overview Despite increased oil and gas prices during the first half of 2000 when compared to 1999, oil and gas exploration and production activities in the Gulf of Mexico, the Company's principal market, did not begin to increase significantly until the latter part of the period. As a result, PHI did not realize improvements in its Gulf of Mexico services activities until the second quarter of 2000. However, activity and revenues remain below the levels achieved in 1998. Overall international oil and gas service activities did not experience such increases. The closures of certain operations in South America and the restructure of the Company's Arizona aeromedical operations also contributed to lower activity levels when compared to 1999. The Company's technical services activity increased during the latter half of the six months ended June 30, 2000 as the result of the start of a new contract to provide maintenance to certain military aircraft. Results of Operations The following tables present certain non-financial operational statistics for the quarter and six months ended June 30, 2000 and 1999: Quarter Ended June 30, Six Months Ended June 30, ---------------------- ------------------------ 2000 1999 2000 1999 Flight hours: ---- ---- ---- ---- Oil and Gas Aviation Services: Domestic 39,619 37,775 74,901 75,080 International 4,842 5,556 11,029 11,676 ------ ------ ------ ------ Sub-total 44,461 43,331 85,930 86,756 Aeromedical Services 5,574 5,735 10,913 11,193 Other 283 98 368 291 ------ ------ ------ ------ Total 50,318 49,164 97,211 98,240 ====== ====== ====== ====== June 30, --------------- 2000 1999 Aircraft operated at period end: ---- ---- Oil and Gas Aviation Services: Domestic 201 204 International 29 32 --- --- Sub-total 230 236 Aeromedical Services 42 52 --- --- Total 272 288 === === Quarter Ended June 30, 2000 compared with Quarter Ended June 30, 1999 Oil and Gas Aviation Services Oil & Gas Aviation Services revenue increased 4.9% to $39.6 million for the quarter ended June 30, 2000 compared to $37.7 million during the same period in the prior year. Increased domestic activity and rate increases implemented in January 2000 contributed to the increase. Decreased activity in West Africa and the closure of certain operations in South America partially offset the increase. Oil and Gas Aviation Services had a $0.9 million operating loss for the quarter compared to a $5.3 million operating loss for the same period in 1999. The operating loss in 1999 included $4.8 million of special charges (see Special Charges within this discussion). Operating margin of (2.2)% for the second quarter compares to (14.0)% for the same quarter in the prior year. The increase in margin is primarily due to the special charges recorded in 1999 and rate increases in January 2000. Increased repairs and maintenance, insurance, and fuel costs, and the decreased international revenues partially offset the increase in margin. Aeromedical Services Aeromedical Services revenue decreased 3.5% to $11.1 million for the quarter ended June 30, 2000 compared to $11.5 million during the same period in the prior year. The decrease in revenues is primarily attributable to decreased revenue and activity in the Company's AirEvac operations in Arizona. In November 1999, the Company restructured its Arizona operations and reduced the number of its operating aircraft there. Aeromedical Services operating income decreased to $0.1 million for the quarter compared to $0.6 million for the same period in 1999. Operating margin was 0.8% for the quarter and compares to 5.1% for the same quarter in 1999. Increased repairs and maintenance, insurance, and fuel costs, and the decreased revenues contributed to the lower operating income. Lower labor costs, primarily attributable to AirEvac's restructuring, partially offset the decrease in operating income. Technical Services Technical Services operating revenues for the quarter ended June 30, 2000 were $4.5 million compared to $3.6 million in the prior year, an increase of 24.0%. Technical Services operating income improved marginally to $0.9 million for the quarter compared to $0.7 million for the same quarter in 1999. The operating margin was 20.1% in both the current quarter and the prior year quarter. The increases in operating revenues and operating income were primarily attributable to the start of an ongoing contract to provide maintenance to certain military aircraft. Other Income, net Other income, net, was $2.4 million for the quarter ended June 30, 2000 as compared to $1.6 million for the prior year quarter. The other income, net, for both periods mostly relates to gains on the sale of aircraft. Direct Expenses Direct expenses for the quarter ended June 30, 2000 increased by 5.9% to $52.5 million compared to $49.6 million in the same period in the prior year. Higher repairs and maintenance, fuel, insurance, and the cost of increased Technical Services revenue were the primary reasons for the increase. Selling, General, and Administrative Expenses Selling, general, and administrative expenses for the quarter ended June 30, 2000 decreased to $4.0 million compared to $4.4 million in the same period in 1999. Decreased Y2K compliance costs and certain other computer programming costs were the primary reasons for the decrease. Special Charges In April 1999, in connection with expense reduction efforts and management's decision to recognize the impairment of assets as a result of decreased activity, the Company recorded Special Charges of $4.8 million. The Special Charges included impairment of certain foreign based joint ventures amounting to $2.5 million, severance costs of $1.3 million, impairment of property and equipment of $0.4 million, and other charges of $0.6 million. Interest Expense Interest expense for the quarter ended June 30, 2000 increased $0.1 million to $1.5 million. The increase is due primarily to increases in interest rates for the period. Lower debt levels in the current quarter compared to the same quarter in the prior year mostly offset the increase. Income Taxes Income tax benefit for the quarter ended June 30, 2000 decreased $2.2 million to $0.2 million. The effective tax rates were 37.2 % and 41.3% for the June 30, 2000 and 1999 quarters, respectively. Six Months Ended June 30, 2000 compared with Six Months Ended June 30, 1999 Oil and Gas Aviation Services Oil & Gas Aviation Services revenues were $78.8 million for both the six months ended June 30, 2000 and June 30, 1999. Rate increases in January 2000 contributed to increased revenues that were offset by decreased activity in West Africa and decreased activity and revenues that resulted from the closure of certain operations in South America. Oil and Gas Aviation Services had a $0.1 million operating loss for the six months ended June 30, 2000 compared to a $4.4 million operating loss for the same period in 1999. The operating loss in 1999 included $4.8 million of special charges (see Special Charges within this discussion). Operating margin of (0.1)% for the six months compares to (5.6)% for the same period last year. The increase in margin is primarily due to the special charges recorded in 1999, lower aircraft depreciation, and rate increases in January 2000. Increased repairs and maintenance, fuel, and helicopter rental expense and the decreased international revenues partially offset the increase in margin. Aeromedical Services Aeromedical Services revenue decreased 2.3% to $22.1 million for the six months ended June 30, 2000 compared to $22.6 million during the same period in the prior year. The decrease in revenues is primarily attributable to decreased revenue and activity in the Company's AirEvac operations in Arizona. In November 1999, the Company restructured its Arizona operations and reduced the number of its operating aircraft there. Aeromedical Services operating income decreased to $0.1 million for the six months ended June 30, 2000 compared to $0.9 million for the same period in 1999. Operating margin was 0.6% for the six months ended June 30, 2000 and compares to 4.2% for the same period in 1999. Increased repairs and maintenance, fuel, and helicopter rental expense, and the decreased revenues contributed to the lower operating income. Lower labor costs that were primarily attributable to AirEvac's restructuring partially offset the decrease in operating income. Technical Services Technical Services operating revenues for the six months ended June 30, 2000 were $6.9 million compared to $10.5 million in the prior year, a decrease of 34.4%. Technical Services operating income decreased to $0.9 million for the six months compared to $1.9 million for the same six months in 1999. The operating margin was 12.7% in the six months ended June 30, 2000 and 18.6% in the six months ended June 30, 1999. The decrease in operating revenues and operating margin was primarily attributable to work performed on two large contracts for the refurbishment and overhaul of two helicopters and a large parts sale, all occurring during the six months ended June 30, 1999. An ongoing contract to provide maintenance to certain military aircraft started in the second quarter of 2000 and partially offset the decrease. Other Income, net Other income, net, was $2.5 million for the six months ended June 30, 2000 as compared to $3.6 million for the prior year six months. The other income, net, for both periods mostly relates to gains on the sale of aircraft. Direct Expenses Direct expenses for the six months ended June 30, 2000 decreased by 1.4% to $102.0 million compared to $103.5 million in same period in the prior year. The decrease was primarily due to the Technical Services segment's decrease in cost of sales, lower aircraft depreciation, and decreases in various other operating costs. Increases in repairs and maintenance, fuel, and helicopter rental expenses mostly offset the decrease in direct expenses. Selling, General, and Administrative Expenses Selling, general, and administrative expenses for the six months ended June 30, 2000 decreased by 10.0% to $8.1 million compared to $9.0 million in the same period in the prior year. The decrease was primarily due to a decrease in Y2K compliance and certain other computer programming costs. Special Charges In April 1999, in connection with expense reduction efforts and management's decision to recognize the impairment of assets as a result of decreased activity, the Company recorded Special Charges of $4.8 million. The Special Charges included impairment of certain foreign based joint ventures amounting to $2.5 million, severance costs of $1.3 million, impairment of property and equipment of $0.4 million, and other charges of $0.6 million. Interest Expense Interest expense for the six months ended June 30, 2000 increased $0.1 million to $3.0 million. The increase was due primarily to increases in interest rates for the period. However, lower debt levels in the current six-month period compared to the same six months in the prior year mostly offset the effect of the increased interest rates. Income Taxes Income tax benefit for the six months ended June 30, 2000 decreased $0.9 million to $1.0 million. The effective tax rates were 36.4% and 41.3% for the six months ended June 30, 2000 and 1999, respectively. Liquidity and Capital Resources The Company's cash position as of June 30, 2000 was $1.1 million compared to $1.7 million at December 31, 1999. Working capital decreased $4.0 million from $54.7 million at December 31, 1999 to $50.7 million. Net cash provided by operating activities during the six months ended June 30, 2000 was $8.1 million. Net cash provided by operating activities along with $14.3 million of aircraft sales funded payments of long-term debt, purchases of property and equipment, and advances to affiliates. Total long-term debt decreased $12.2 million to $65.4 million, of which the current portion is $4.5 million, which the Company intends to pay with cash flow from operations and aircraft sales. At August 1, 2000, the Company had $10 million of credit capacity available under its credit facilities. During 2001 the revolving credit facility portion of the credit agreement converts to a term loan, thereby increasing total annual principal debt payments to approximately $12 million. The Company intends to obtain an extension of the conversion requirement, or to refinance its debt. The amount expended for the purchase and completion of aircraft improvements and engines and other property and equipment was $9.4 million for the six months ended June 30, 2000, compared to $14.5 million in the first six months of 1999, reflecting the Company's reduced fleet and efforts to conserve cash. The Company believes its cash flow from operations in conjunction with its credit capacity and proceeds from asset sales is sufficient to meet its planned expenditure requirements for the next twelve months. Environmental Matters The Company continues to review selected domestic bases for possible fuel contamination resulting from routine flight operations. The aggregate liability recorded for environmental related costs at June 30, 2000 is $3.0 million, which the Company believes is adequate for probable and estimable environmental costs. The Company will make additional provisions in future periods to the extent appropriate as further information regarding these costs becomes available. Employees On March 10, 2000, the Company's pilots voted to become organized under the Office and Professional Employees International Union and the Company is currently negotiating a contract with the union. While the ultimate outcome of these negotiations cannot be predicted with certainty, the Company's position is that the terms of any pilots' contract should not place it at a disadvantage with its competitors. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133 establishes new accounting and reporting standards for derivative financial instruments and for hedging activities. SFAS No. 133 requires the Company to measure all derivatives at fair value and to recognize them in the balance sheet as an asset or liability, depending on the Company's rights or obligations under the applicable derivative contract. In June 1999, the FASB issued SFAS No. 137, which deferred the effective date of adoption of SFAS No. 133 for one year. The Company will adopt SFAS No. 133 no later than the first quarter of fiscal year 2001. The Company has considered the implications of adopting the new method of accounting for derivatives and hedging activities and has concluded that its implementation will not have a material impact on the Company's consolidated financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". SAB No. 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB No. 101, as amended, is effective beginning in the fourth quarter of fiscal year 2000. The Company believes that this new accounting pronouncement will not have a material affect on its consolidated financial statements. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes to the Company's disclosures regarding derivatives in its Form 10-K for the eight-month transition period ended December 31, 1999. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is involved in various legal proceedings primarily involving claims for personal injury. The Company believes that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on its consolidated financial statements. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its 2000 Annual Meeting of Stockholders on May 26, 2000. At the meeting, shareholders elected each of the following persons listed below to the PHI's Board of Directors for a term ending at the Company's 2001 Annual Meeting of Stockholders. The number of votes cast with respect to the election of each such person is opposite such person's name. The persons listed below constitute the entire Board of Directors of the Company. Number of Votes Cast -------------------------------------------- Broker Name of Director For Withhold Non-Vote Abstain ---------------- --------- -------- -------- ------- Carroll W. Suggs 2,065,196 251 0 0 Arthur J. Breault, Jr. 2,065,447 0 0 0 Leonard M. Horner 2,065,447 0 0 0 James W. McFarland 2,065,447 0 0 0 Thomas H. Murphy 2,065,447 0 0 0 Bruce N. Whitman 2,065,447 0 0 0 At the Annual Meeting, the shareholders also approved an amendment to the Company's 1995 Incentive Compensation Plan to increase the number of shares available for issue under the plan. The votes cast with respect to the amendment were as follows: Broker For Against Non-Vote Abstain --------- ------- -------- ------- 1,845,766 220,619 0 342 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 (i) Articles of Incorporation of the Company (incorporated by reference to Exhibit No. 3.1 (i) to PHI's Report on Form 10-Q for the quarterly period ended October 31, 1994). (ii) By-laws of the Company (incorporated by reference to Exhibit No. 3.1 (ii) to PHI's Report on Form 10-Q for the quarterly period ended July 31, 1996). (iii)Amendment dated March 17, 2000 to Section 2.2 of the By-laws of the Company (incorporated by reference to Exhibit No. 3.1 (iii) to PHI's Report on Form 10-Q for the quarterly period ended March 31, 2000). (iv) Amendment dated July 14, 2000 to Section 3.1 of the By-laws of the Company. 10.22 Fourth Amendment (dated June 30, 2000) to Amended and Restated Loan Agreement originally dated as of January 31, 1986, Amended and Restated in its entirety as of March 31, 1997, among Petroleum Helicopters, Inc., Whitney National Bank, Bank One, Louisiana, N.A. and Bank of America, N.A., as agent. 27 Financial Data Schedule (b) Reports on Form 8-K No reports were filed on Form 8-K during the quarter ended June 30, 2000. 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. Petroleum Helicopters, Inc. August 11, 2000 By: /s/ Carroll W. Suggs -------------------- Carroll W. Suggs Chairman of the Board, President and Chief Executive Officer August 11, 2000 By: /s/ Michael J. McCann ---------------------- Michael J. McCann Chief Financial Officer and Treasurer