-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QsLtQDSlyT1WxEMvZQOUMjz82VkJ5qjZehkq2hNMamuOPQFnTHrZzSNGbcawE/bc 7yM5lGF19wOFuGaLQS3VMg== 0000350403-98-000018.txt : 19981216 0000350403-98-000018.hdr.sgml : 19981216 ACCESSION NUMBER: 0000350403-98-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PETROLEUM HELICOPTERS INC CENTRAL INDEX KEY: 0000350403 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, NONSCHEDULED [4522] IRS NUMBER: 720395707 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11581 FILM NUMBER: 98769525 BUSINESS ADDRESS: STREET 1: 113 BORMAN DRIVE STREET 2: P O BOX 23502 CITY: LAFAYETTE STATE: LA ZIP: 70508 BUSINESS PHONE: 5047336790 MAIL ADDRESS: STREET 1: 113 BORMAN DRIVE CITY: LAFAYETTE STATE: LA ZIP: 70508 10-Q 1 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: October 31, 1998 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 incorporation or organization) Identification No.) 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 ___ 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 December 1, 1998 _____ _______________________________ Voting Common Stock 2,800,886 shares Non-Voting Common Stock 2,368,175 shares PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) October 31, April 30, 1998 1998(1) ASSETS _________ ________ Current assets: Cash and cash equivalents $ 1,569 $ 2,753 Accounts receivable - net of allowance 54,441 49,119 Inventory 35,237 34,016 Prepaid expenses 1,853 1,478 Notes receivable - investee companies 1,724 1,151 _________ ________ Total current assets 94,824 88,517 _________ ________ Investments 2,689 2,705 Property and equipment: Cost 272,269 256,042 Less accumulated depreciation (127,777) (120,923) _________ ________ 144,492 135,119 _________ ________ Other 741 680 _________ ________ $ 242,746 $ 227,021 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 26,064 $ 28,004 Accrued vacation pay 5,875 5,672 Income taxes payable 602 1,046 Current maturities of long-term debt 5,857 5,824 _________ ________ Total current liabilities 38,398 40,546 _________ ________ Long-term debt, net of current maturities 81,358 66,795 Deferred income taxes 18,685 19,172 Other long-term liabilities 6,099 5,803 Shareholders' equity: Voting common stock-par value of $ 0.10; authorized 12,500,000; issued shares of 2,800,866 at October 31 and April 30 280 280 Non-voting common stock-par value of $ 0.10; authorized 12,500,000; issued shares of 2,368,175 and 2,358,935 at October 31 and April 30, respectively 237 236 Additional paid-in capital 11,777 11,706 Retained earnings 85,912 82,483 _________ ________ 98,206 94,705 _________ ________ $ 242,746 $ 227,021 ========= ======== (1)The balance sheet at April 30, 1998 is condensed from the audited financial statements at that date. The accompanying notes are an integral part of these condensed consolidated financial statements. PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended October 31, October 31, __________________ ___________________ 1998 1997 1998 1997 REVENUES: _______ _______ ________ ________ Operating revenues $67,009 $57,521 $129,229 $113,435 Other income (deductions) (1,531) 70 (1,374) 516 _______ _______ ________ ________ 65,478 57,591 127,855 113,951 _______ _______ ________ ________ EXPENSES: Direct expenses 55,704 49,687 109,099 97,984 Selling, general & administrative 4,948 3,985 9,109 7,885 Interest expense 1,536 1,244 2,985 2,426 _______ _______ ________ ________ 62,188 54,916 121,193 108,295 _______ _______ ________ ________ Earnings before income taxes 3,290 2,675 6,662 5,656 Income taxes 1,336 1,121 2,706 2,327 _______ _______ ________ ________ Net earnings $ 1,954 $ 1,554 $ 3,956 $ 3,329 ======= ======= ======== ======== BASIC: Earnings per common share $ 0.38 $ 0.30 $ 0.77 $ 0.65 ======= ======= ======== ======== DILUTED: Earnings per common share $ 0.37 $ 0.30 $ 0.76 $ 0.64 ======= ======= ======== ======== Weighted average common shares outstanding 5,169 5,104 5,165 5,099 Incremental common shares from stock options 59 97 66 98 _______ _______ ________ ________ Weighted average common shares and equivalents 5,228 5,201 5,231 5,197 ======= ======= ======== ======== Dividends declared per common share $ 0.05 $ 0.05 $ 0.10 $ 0.10 ======= ======= ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited) Six Months Ended October 31, ______________________ 1998 1997 ________ ________ Cash flows from operating activities: Net earnings $ 3,956 $ 3,329 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 7,680 5,931 Deferred income taxes (487) - (Gain)loss on equipment disposals 113 (417) Equity in net earnings of investee companies (83) (99) Loss from operations disposals 1,344 - Changes in operating assets and liabilities (10,617) (6,047) ________ ________ Net cash provided by operating activities 1,906 2,697 ________ ________ Cash flows from investing activities: Investments (270) - Purchases of property and equipment (26,654) (13,223) Proceeds from asset dispositions 9,676 2,895 ________ ________ Net cash used in investing activities (17,248) (10,328) ________ ________ Cash flows from financing activities: Proceeds from long-term debt 24,000 16,000 Payments on long-term debt (9,404) (9,426) Proceeds from exercise of stock options 78 - Dividends paid (516) (511) Other, net - 273 ________ ________ Net cash provided by financing activities 14,158 6,336 ________ ________ Decrease in cash and cash equivalents (1,184) (1,295) Cash and cash equivalents at beginning of period 2,753 2,437 ________ ________ Cash and cash equivalents at end of period $ 1,569 $ 1,142 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED OCTOBER 31, 1998 AND 1997 (Unaudited) (1) General The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Form 10-Q instructions of the Securities and Exchange Commission ("SEC") from the books and records of Petroleum Helicopters, Inc. and Subsidiaries ("PHI" or the "Company"). In the opinion of management, these financial statements reflect all adjustments, consisting of only normal, recurring adjustments, necessary to present fairly the financial results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations of the SEC; however, the Company believes that this information is fairly presented. These condensed consolidated financial statements should be read in conjunction with the financial statements contained in the Company's Annual Report on Form 10-K for the year ended April 30, 1998 and the accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations. Certain reclassifications have been made to the prior year's financial statements in order to conform to the classifications adopted for reporting in fiscal 1999. These reclassifications had no impact on net income or shareholders' equity. The Company's financial results, particularly as it relates to its domestic oil and gas aviation services, are influenced by seasonal fluctuations. During the winter, there are more days of adverse weather conditions and fewer hours of daylight than the other months of the year. Consequently, flight hours are generally lower during the Company's third fiscal quarter than at other times of the year. This produces a seasonal aspect to the Company's business and typically results in reduced revenues from operations during those months. Therefore, the results of operations for interim periods are not necessarily indicative of the operating results that may be expected for the full fiscal year. (2) Commitments and Contingencies On Monday, June 2, 1997, the Company was notified by the National Mediation Board ("NMB") that the Office and Professional Employees International Union ("OPEIU") filed an application to represent flight deck crew members (helicopter pilots) of PHI. On September 4, 1997, the NMB reported that the Company's helicopter pilots voted to reject union representation. The OPEIU filed objections with the NMB seeking a new election. This reelection request was granted on January 30, 1998. On March 31, 1998, the NMB reported that the Company's helicopter pilots voted to again reject union representation. On April 2, 1998, the OPEIU filed objections with the NMB to set aside the results of the rerun election. On October 28, 1998, the NMB dismissed the OPEIU's objections and certified the March 31, 1998 election. (3) Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 ("FAS 130"), "Reporting Comprehensive Income." FAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Company adopted this standard in the quarter ended July 31, 1998. Such adoption had no effect on the Company's financial statement presentation as the Company has no items of other comprehensive income. (4) Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings Per Share," effective for the periods ending after December 15, 1997. FAS 128 changes the computation and presentation requirements for earnings per share for entities with publicly held common stock or potential common stock. Under such requirements, the Company is required to present both basic and diluted earnings per share. Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional common shares that could have been outstanding assuming the exercise of stock options and the potential shares that would have a dilutive effect on earnings per share. The Company adopted FAS 128 effective with the quarter ended January 31, 1998 on a retroactive basis, accordingly, earnings per share amounts have been restated to conform to the requirements of FAS 128. (5) Accounting for Computer Software In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 98- 1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which establishes criteria for when these types of costs should be expensed as incurred or capitalized. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998, earlier adoption is permitted in fiscal years for which annual financial statements have not been issued. The Company has implemented SOP 98-1 on a prospective basis as of May 1, 1998 resulting in approximately $ 0.9 million of costs being capitalized during fiscal 1999 that would have been expensed under the Company's previous accounting method for such costs. This increased net income by $0.5 million or $0.10 per diluted share in fiscal 1999. This capitalization of costs will decline in future periods as the Company has completed the Application Development Stage of its new Workorder and Billing System during the third quarter. Post-implementation costs will be expensed in accordance with the SOP and Development Stage costs will be amortized over the estimated useful life. (6) New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("FAS 131"), "Disclosures about Segments of an Enterprise and Related Information." FAS 131 establishes standards for the way that a public enterprise reports information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. FAS 131 is effective for fiscal years beginning after December 15, 1997 and requires restatement of earlier periods presented. Management is currently evaluating the requirements of FAS 131. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). The Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999 and establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are to be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Earlier application of the provisions of the Statement is encouraged and is permitted as of the beginning of any fiscal quarter that begins after the issuance of the Statement. The Company believes that, due to its current limited use of derivative instruments, adoption of the Statement will not have a material effect on the Company's results of operations, financial position, or liquidity. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is engaged in providing helicopter transportation and related services. The predominant portion of its revenue is derived from transporting offshore oil and gas production and drilling workers on a worldwide basis. The Company also performs helicopter transportation services for a variety of hospital and medical programs and aircraft maintenance to outside parties. This discussion should be read in conjunction with the accompanying financial statements and with the financial statements for the year ended April 30, 1998 together with the related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS Second Quarter Fiscal 1999 to Second Quarter Fiscal 1998 Revenues The Company generates flight revenues from both ongoing service contracts with established customers and non- contract flights referred to as Specials. Oil and Gas Aviation Services Unit's transportation service contracts, both domestic and international, are generally on a month to month basis and consist of a fixed fee plus an hourly charge for actual flight time. Specials are customer flights, primarily domestic oil and gas, provided on an as needed basis that are not provided pursuant to ongoing contracts and which generally carry higher rates. The Company's technical service contracts are generally provided on an actual cost plus negotiated mark-up basis. Aeromedical contracts also provide for fixed and hourly charges, but are generally for longer terms and impose early cancellation fees to encourage customers to fulfill the contract term and cover the Company's additional up-front costs in the event of early termination. On December 31, 1997, PHI acquired the assets of Samaritan AirEvac ("Air Evac"), which it operates as a division within its Aeromedical Services Unit. Air Evac which operates in Arizona, primarily derives its revenues from third party payors based on per hour or per seat charges. These contracts are predominantly short-term in nature. The following table summarizes and compares the Company's operating revenues by unit for the quarters ended October 31, 1998 and 1997: Operating Revenues for the Quarter Ended October 31, _________________________________________ (Thousands of dollars, except percentages and flight hours) _________________________________________ Increase(Decrease) __________________ 1998 1997 $ % _______ _______ ______ ____ Oil and Gas Aviation Services Unit $54,867 $49,247 $5,620 11 Aeromedical Services Unit 11,987 7,752 4,235 55 Other 155 522 (367) (70) _______ _______ ______ Total Operating Revenues $67,009 $57,521 $9,488 16 ======= ======= ====== ==== Total Flight Hours 62,511 67,435 (4,924) (7) ======= ======= ====== ==== Overall flight activity for the second quarter of fiscal 1999 declined by 7% as demand for domestic oil and gas aviation services has slowed due to an "economic softening" in the Gulf of Mexico. The Company anticipates flight activity to continue to decline for the remainder of the fiscal year. Despite these declines, oil and gas revenues were higher due to rate increases, which went into effect during the third quarter of fiscal 1998, and an increase in Specials due to several tropical storm and hurricane evacuations. Fiscal year 1998 second quarter earnings were adversely impacted by flood damage caused by Hurricane Danny to twenty- six aircraft located at one of the Company's field bases. The approximate effect of this damage was $ 0.21 per share for the quarter and primarily relates to the incremental effect of lost revenue. All of these aircraft are back in service. In addition, results for the second quarter of fiscal 1999 were adversely impacted ($ 0.15 per diluted share) by the discontinuance of a joint venture in South America. Oil and Gas Aviation Services Unit Revenues for the quarter ended October 31, 1998 increased 11% to $ 54.9 million from $ 49.2 million. The increase in revenues is primarily attributable to rate increases which occurred in the third quarter of fiscal 1998 and an increase in hurricane evacuation Specials. The effect of these rate increases for the quarter ended October 31, 1998 was approximately a $ 3.0 million increase in revenues. Flight hours declined 9% to 55,762 hours from 61,589 hours for the quarter ended October 31, 1998, due primarily to decreased activity in the Gulf of Mexico. Aeromedical Services Unit Aeromedical revenues increased 55% to $ 12.0 million from $ 7.8 million. Total Aeromedical programs and aircraft as of October 31, 1998 were seventeen and forty- four, respectively, including the aircraft acquired with the Air Evac acquisition versus fifteen Aeromedical programs and thirty-eight aircraft at October 31, 1997. Of the forty-four Aeromedical aircraft at October 31, 1998, thirty-eight are helicopters and six are fixed wing aircraft. Aeromedical flight hours for the quarter increased 1,076 hours to 5,834 hours. Of the increase in flight hours and revenues, Air Evac accounted for 826 hours and $ 3.6 million, respectively. Direct Expenses Direct expenses increased $ 6.0 million, or 12%, to $ 55.7 million primarily as a result of the addition of Air Evac which accounted for $ 2.8 million of the increase. However, direct expenses as a percentage of operating revenues decreased, improving the Company's operating margin to 16.9% from 13.6% in the prior year comparable quarter. The Company completed a significant number of aircraft refurbishments during the quarter thereby increasing the amount of capitalized labor. This reduced direct expenses during the quarter, thus improving the operating margin. Human Resource costs, including employee benefit costs, increased $ 3.7 million, or 20%, to $ 22.6 million. Salary expense increased by $ 3.0 million due to wage increases effective January 1, 1998, the addition of approximately 200 employees with the purchase of Air Evac and a new pay plan implemented in February 1998. The Company's gain sharing program expense was $ 0.4 million higher than the previous year period due to increased earnings. In addition, other employee benefit costs, including medical insurance, increased $ 0.3 million primarily due to an increase in premiums and claim costs. Spare parts usage and repairs and maintenance costs remained constant at $ 12.8 million. Aircraft depreciation increased $ 0.9 million, or 31%, to $ 3.8 million due to the purchase of additional aircraft and equipment. The Company acquired six aircraft ascribable to the Air Evac acquisition in the third quarter of fiscal year 1998. The Company made net purchases of two aircraft during fiscal year 1999. This included nine aircraft purchases; four of which were converted to leases during the quarter and one of which was sold during the quarter. Additionally, two aircraft were sold which were purchased prior to fiscal year 1999. Helicopter rental expense remained constant at $ 3.6 million. There were ninety-one leased aircraft as of October 31, 1998 as compared to eighty-six at October 31, 1997. During June 1998, thirteen leased aircraft were refinanced resulting in monthly lease expense reductions of $ 75,000. All other aircraft costs increased $ 0.9 million, or 10%, to $ 10.0 million. Selling, General, and Administrative Expenses Selling, general and administrative expenses increased $ 1.0 million, or 26% to $ 4.9 million. Of this increase, $ 0.5 million was related to an increase in human resource costs and $ 0.6 million was related to legal and other business consulting fees. Offsetting this increase was a decline in computer software costs which were capitalized in the second quarter of fiscal 1999 versus expensed in the prior year's comparable quarter. The Company implemented SOP 98-1 during this quarter resulting in approximately $ 0.5 million of costs being capitalized. Interest Expense Interest expense increased $ 0.3 million, or 25%, to $ 1.5 million. This was primarily related to the increase in the Company's long-term debt. Average long-term debt increased $ 16.8 million, or 25%, over the prior year's second quarter. First Six Months Fiscal 1999 to First Six Months Fiscal 1998 The following table summarizes and compares the Company's operating revenues by unit for the six months ended October 31, 1998 and 1997: Operating Revenues for the Six Months Ended October 31, _________________________________________ (Thousands of dollars, except percentages and flight hours) _________________________________________ Increase(Decrease) __________________ 1998 1997 $ % ________ _______ ______ ____ Oil and Gas Aviation Services Unit $105,184 $96,876 $8,308 9 Aeromedical Services Unit 23,728 15,649 8,079 52 Other 317 910 (593) (65) ________ ________ _______ Total Operating Revenues $129,229 $113,435 $15,794 14 ======== ======== ======= ==== Total Flight Hours 125,831 134,549 (8,718) (6) ======== ======== ======= ==== Overall flight activity for the first six months of fiscal 1999 declined by 6% as demand for domestic oil and gas aviation services has slowed due to an "economic softening" in the Gulf of Mexico. The Company anticipates flight activity to continue to decline for the remainder of the fiscal year. Despite these declines, oil and gas revenues were higher due primarily to rate increases, which went into effect during the third quarter of fiscal 1998, and an increase in Specials due to several tropical storm and hurricane evacuations. Fiscal year 1998 earnings were adversely impacted by flood damage caused by Hurricane Danny to twenty- six aircraft located at one of the Company's field bases. The approximate effect of this damage was $ 0.21 per share for the six months ended October 31, 1997 and primarily relates to the incremental effect of lost revenue. All of these aircraft are back in service. In addition, results for the second quarter of fiscal 1999 were adversely impacted ($ 0.15 per diluted share) by the discontinuance of a joint venture in South America. Oil and Gas Aviation Services Unit Revenues for the six months ended October 31, 1998 increased 9% to $ 105.2 million from $ 96.9 million. The increase in revenues is primarily attributable to rate increases discussed above. The effect of these rate increases for the six months ended October 31, 1998 was approximately a $ 6.0 million increase in revenues. Flight hours declined 8% to 112,181 hours from 122,406 hours for the six months ended October 31, 1998 due primarily to decreased activity in the Gulf of Mexico. Aeromedical Services Unit Aeromedical revenues increased $ 8.1 million, or 52%, to $ 23.7 million. Total Aeromedical programs and aircraft as of October 31, 1998 were seventeen and forty-four, respectively, including the aircraft acquired with the Air Evac acquistion, versus fifteen Aeromedical programs and thirty-eight aircraft at October 31, 1997. Of the forty-four Aeromedical aircraft at October 31, 1998, thirty-eight are helicopters and six are fixed wing aircraft. Aeromedical flight hours for the six months increased 2,304 hours to 11,769 hours. Of the increase in flight hours and revenues, Air Evac accounted for 1,617 additional hours and $ 7.4 million in additional revenues, respectively. Direct Expenses Direct expenses increased $ 11.1 million, or 11%, to $ 109.1 million primarily as a result of the addition of Air Evac which accounted for $ 5.7 million of the increase. However, direct expenses as a percentage of operating revenues declined, improving the Company's operating margin to 15.6% from 13.6% in the prior year period. The Company completed a significant number of aircraft refurbishments during the second quarter thereby increasing the amount of capitalized labor. This reduced direct expenses for the six months, thereby improving the operating margin. Human Resource costs, including employee benefit costs, increased $ 7.9 million, or 21%, to $ 45.9 million. Salary expense increased by $ 6.4 million due to wage increases effective January 1, 1998, the addition of approximately 200 employees with the purchase of Air Evac and a new pay plan implemented in February. The Company's gain sharing program expense was $0.6 million higher than the previous year period due to increased earnings. In addition, other employee benefit costs, including medical insurance, increased $ 0.9 million primarily due to an increase in premiums and claim costs. Spare parts usage and repairs and maintenance costs declined $ 0.6 million, or 2%, to $ 24.0 million. Aircraft depreciation increased $ 1.6 million, or 28%, to $ 7.3 million due to the purchase of additional aircraft and equipment. The Company acquired six aircraft ascribable to the Air Evac acquisition in the third quarter of fiscal year 1998. The Company made net purchases of two aircraft during fiscal year 1999. This included nine aircraft purchases, four of which were converted to leases during the second quarter and one of which was sold during the second quarter. Additionally, two aircraft were sold which were purchased prior to fiscal year 1999. Helicopter rental expense increased $ 0.4 million, or 6%, to $ 7.5 million. There were ninety-one leased aircraft as of October 31, 1998 as compared to eighty-six at October 31, 1997. All other aircraft costs increased $ 1.1 million, or 6%, to $ 19.5 million. Selling, General, and Administrative Expenses Selling, general and administrative expenses increased $ 1.2 million, or 15%, to $ 9.1 million. Of this increase, $ 0.7 million related to an increase in human resource costs and $ 1.0 million related to legal and other business consulting fees. Offsetting this increase was a decline in computer software costs which were capitalized in fiscal 1999 versus expensed in the prior year's comparable period. The Company implemented SOP 98-1 during the first six months of fiscal 1999 resulting in approximately $ 0.9 million of costs being capitalized. Interest Expense Interest expense increased $ 0.6 million, or 25%, to $ 3.0 million. This was primarily related to the increase in the Company's long-term debt. Average long-term debt increased $ 14.8 million, or 22%, over the prior year's six month period. LIQUIDITY AND CAPITAL RESOURCES The following is a comparison of the first six months of the fiscal year ending April 30, 1999 with the year ended April 30, 1998. The Company's cash position as of October 31, 1998 was $ 1.6 million compared to $ 2.8 million at April 30, 1998, the Company's fiscal year end. Working capital increased $ 8.4 million from $ 48.0 million at fiscal year end to $ 56.4 million at October 31, 1998. Total long-term debt, net of current maturities, increased $ 14.6 million to $ 81.4 million as a result of the investing activities described below. The Company's current debt obligation totals $ 5.9 million, payable in equal quarterly installments, which the Company intends to pay with cash flow from operations. On November 30, 1998, the Company and its principal lending group entered into a loan agreement that amended and restated its original loan agreement dated January 1, 1986. The new agreement increased the Company's credit capacity by $ 7.0 million. At December 10, 1998, the Company had $ 13.5 million of credit capacity available under its credit facilities. The Company believes its cash flow from operations in conjunction with its credit capacity is sufficient to meet its planned requirements for the foreseeable future. The Company is in compliance with the provisions of its loan agreements. Cash provided by operating activities was $ 1.9 million. Investing activities included the purchase and completion of nine aircraft, aircraft improvements, and engines for $ 26.7 million. The Company also converted the purchases of four of these aircraft into leases receiving proceeds of approximately $ 5.7 million. Additional proceeds of $ 1.8 million were received on an aircraft which was purchased and sold during the quarter. Investing activities were primarily funded through proceeds from asset dispositions and increased borrowings under the Company's credit facilities. The Company paid dividends of $ 0.05 per share during the first and second quarters of fiscal 1999. The Company continues to review selected domestic bases for possible fuel contamination resulting from routine flight operations. The Company has expensed, including provisions for environmental costs, $ 0.2 million for the six months ended October 31, 1998 as compared to $ 0.7 million for the comparable period in fiscal year 1998. The aggregate liability recorded for environmental related costs at October 31, 1998 is $ 1.7 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 has considered the impact of Year 2000 ("Y2K") issues on its computer systems and applications. A committee consisting of members of senior management from various disciplines within the Company has been formed and is meeting regularly to discuss and outline the appropriate course of action that must be taken to deal with any potential Year 2000 issues. A compliance plan has been developed and conversion activities are in process in conjunction with the current information systems upgrades and is expected to be completed and tested in 1998. The Company has committed to purchase software and upgrade its hardware to address the Year 2000 issues. Management does not expect that this project will have a significant effect on the Company's operations primarily due to the significant expenditures for new information technology systems during fiscal 1998, 1997 and 1996. The Company is currently undertaking an inventory of all equipment used in the transmission and reception of all signals to identify items that need to be upgraded or replaced. The Company has retained the consulting firm of BrightStar Information Technology Group, Inc. for an estimated cost of $ 0.3 million to assist with a wide range of Year 2000 services, including a complete hardware and software inventory and Year 2000 compliance analysis. This review is expected to be completed by March 31, 1999. This assessment includes evaluating our position with significant suppliers, lenders, large customers and others to ensure that those parties have appropriate plans to address Year 2000 issues where they may otherwise impact the operations of the Company. The Company does not have any significant suppliers, lenders and/or large customers that directly interface with the Company's information technology systems. There is no guarantee that the systems of the Company's suppliers and customers will be Year 2000 compliant in time or that any such non-compliance will not have an adverse effect on the Company's financial condition or results of operations. Concurrent with the Company's efforts to correct Year 2000 issues, the Company is in the process of developing appropriate contingency plans, which the Company expects to have completed by March 31, 1999, to help prevent the Company's operations from being materially impacted by a failure to correct a Year 2000 problem. 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 required to fund its operations, environmental risks, competition, government regulation, unionization, Year 2000 issues 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. RESULTS AT A GLANCE (Unaudited) The following table provides a summary of critical operating and financial statistics (thousands of dollars, except per share amounts, financial ratios, flight hours and general statistics): Six Months Ended October 31, _______________________________ Operations 1998 1997 _______________________________ Operating revenues $ 129,229 $ 113,435 Net earnings 3,956 3,329 Net earnings per basic share 0.77 0.65 Net earnings per diluted share 0.76 0.64 Book value per diluted share 18.77 17.42 Annualized return on shareholders' equity 8.2% 7.5% Total flight hours - operated 125,831 134,549 Financial Summary October 31, 1998 April 30, 1998 ________________ ______________ Net working capital $ 56,426 $ 47,971 Net book value of property and equipment 144,492 135,119 Long-term debt, net of current maturities 81,358 66,795 General Statistics Aircraft operated 309 307 Employees 2,186 2,135 PART II - OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders of the Company was held on October 30, 1998, at which time the stockholders elected the following directors: Nominees For Withheld ________ ___ ________ Carroll W. Suggs 2,692,502 516 Leonard M. Horner 2,693,018 0 James W. McFarland 2,692,990 28 Bruce N. Whitman 2,692,988 30 The proposal for the Directors Stock Compensation Plan (the "Plan") was approved. The following number of shares of voting common stock were cast on the proposal to approve the Plan, as shown below: For Against Abstain ___ _______ _______ 2,591,329 118,300 1,790 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). 27 Financial Data Schedule (b) Reports on Form 8-K No reports were filed on Form 8-K for the quarter ending October 31, 1998. 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. December 15, 1998 By: /s/ Carroll W. Suggs ________________________________ Carroll W. Suggs Chairman of the Board, President and Chief Executive Officer (duly authorized officer) December 15, 1998 By: /s/ Michael J. McCann ________________________________ Michael J. McCann Chief Financial Officer and Treasurer (principal financial and accounting officer) EX-27 2
5 This schedule contains summary financial information from condensed financial statements for the period ending October 31, 1998 and is qualified in its entirety by reference to such financial statements. 0000350403 GEOFF STANFORD 1000 6-MOS APR-30-1999 MAY-01-1998 OCT-31-1998 1,569 0 54,441 0 35,237 94,824 272,269 127,777 242,746 38,398 0 0 0 517 97,689 242,746 129,229 127,855 109,099 109,099 0 0 2,985 6,662 2,706 3,956 0 0 0 3,956 0.77 0.76
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