-----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, QqFKSvrHY25Cz/Ed88MHxA/w2C6kFd/xG8dJ1Gfx5N9rVQH3XukWIh6GmkHkrlVl /ElCbwAYmSyZDNK4bIZ3zA== 0000350403-99-000008.txt : 19990729 0000350403-99-000008.hdr.sgml : 19990729 ACCESSION NUMBER: 0000350403-99-000008 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990728 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-K405 SEC ACT: SEC FILE NUMBER: 001-11581 FILM NUMBER: 99671580 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-K405 1 ========================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /x/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended April 30, 1999 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 No. 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 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Voting Common Stock Non-Voting Common Stock (Title of Each Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/ The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 1999 was $17,548,762. The number of shares outstanding of each of the registrant's classes of common stock, as of June 30, 1999 was: Voting Common Stock 2,793,386 shares. Non-Voting Common Stock 2,366,175 shares. Documents Incorporated by Reference Portions of the registrant's definitive proxy statement to be used in connection with its 1999 Annual Meeting of Shareholders will be, upon filing with the Commission, incorporated by reference into Part III of this Form 10-K. =========================================================================== PETROLEUM HELICOPTERS, INC. INDEX - FORM 10-K PART I Item 1. Business 1 General 1 Risks and Uncertainties of Foreign Operations 1 Weather and Seasonal Aspects 2 Safety and Insurance 2 Government Regulation 2 Competition 3 Employees 3 Customers 3 Environmental Matters 4 Item 2. Properties 4 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 Item 4.A. Executive Officers of the Registrant 7 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 8 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 7.A. Quantitative and Qualitative Disclosures about Market Risk 14 Item 8. Financial Statements and Supplementary Data 15 Petroleum Helicopters,Inc. and Consolidated Subsidiaries: Independent Auditors' Report 15 Consolidated Balance Sheets -April 30, 1999 and 1998 16 Consolidated Statements of Earnings -Three years ended April 30,1999 17 Consolidated Statements of Shareholders' Equity -Three years ended April 30, 1999 18 Consolidated Statements of Cash Flows -Three years ended April 30, 1999 19 Notes to Consolidated Financial Statements 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 33 i PART III Item 10. Directors and Executive Officers of the Registrant 33 Item 11. Executive Compensation 33 Item 12. Security Ownership of Certain Beneficial Owners and Management 33 Item 13. Certain Relationships and Related Transactions 33 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 34 Signatures 38 ii PART I ITEM 1. BUSINESS ________________ General Petroleum Helicopters, Inc. (the "Company" or "PHI") was incorporated as a Delaware corporation in 1949 and was reincorporated as a Louisiana corporation in 1994. Since its inception, the Company's primary business has been to transport personnel and, to a lesser extent, parts and equipment, to, from and among offshore platforms for customers engaged in the oil and gas exploration, development and production industry. Today, the Company maintains its position as the largest provider of helicopter transportation services in the Gulf of Mexico ("the Gulf"), providing approximately 48% of all the contracted aircraft in the Gulf. The Company has 207 aircraft dedicated to this market. The Company also operates in other areas of the world as described under Item 2 and has eighty-three aircraft outside of the Gulf. The Company currently operates 290 aircraft worldwide and has over 2,000 employees. See Item 8. "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements, Note 9" for information on the Company's operating revenue, operating profit and assets by industry segment and geographical distribution for the years ended April 30, 1999, 1998 and 1997. During fiscal 1999, 1998 and 1997, approximately 81%, 84% and 85%, respectively, of the Company's operating revenues were generated by Oil and Gas Aviation Services, domestically and internationally and by aircraft maintenance services provided to outside parties. Domestically, these revenues are earned in federal and state waters offshore of the States of Louisiana, Texas, Alabama, Mississippi, and California. The Company also provides air medical transportation services for hospitals and medical programs which accounted for 19%, 15% and 14% of operating revenues in fiscal 1999, 1998 and 1997, respectively. On December 31, 1997, PHI purchased the assets of Samaritan AirEvac for approximately $ 8.8 million. The purchase included all of the operating net assets and business of Samaritan AirEvac, an air medical services division of Samaritan Health System based in Arizona and a customer of PHI's since June 1993. The net assets were acquired by a new wholly-owned subsidiary of PHI, Air Evac Services, Inc. ("Air Evac"), and included one Lear Jet and five Cessna 441's equipped for medical transportation. Demand for the Company's oil and gas aviation services is strongly influenced by oil and gas exploration, development and production activities. These activities are greatly affected by federal leasing policies and regulations and by oil and gas prices. The Company's air medical services are influenced by certain U. S. Government medical reimbursement policies which are subject to some degree of change. The Company's helicopters provide a safe, reliable, efficient and fast method of transportation under a broad range of operational and environmental conditions, especially offshore and in remote areas. All of the Company's seventeen principal types of aircraft are available under a variety of contractual arrangements. The Company maintains master operating agreements with each of its major domestic and international oil and gas industry customers, which set forth general rights and duties of the Company and the customer. Although the Company is a party to a number of oil and gas industry contracts with a term of one year or more, services are generally provided pursuant to monthly extensions of these operating agreements, and prices are fixed for each contract extension. Aeromedical contracts are generally entered into for longer terms. Charges under operating agreements are generally based on fixed monthly fees and additional hourly charges for actual flight time. Because the Company is compensated in part by flight hours, prolonged adverse weather conditions that result in reduced flight hours can adversely affect results of operations. See "Weather and Seasonal Aspects." Risks and Uncertainties of Foreign Operations Operations in foreign countries generally are subject to various risks attendant to doing business outside the United States. This may include risks of war, general strikes, civil disturbances, currency fluctuations and devaluations and governmental activities that may limit or disrupt markets, restrict payments or the movement of funds or result in the deprivation of contract rights or the taking of property without fair compensation. No prediction can be made as to what foreign governmental regulations may be enacted in the future that could be applicable to helicopter operations. 1 Weather and Seasonal Aspects Poor visibility, high winds and heavy precipitation can affect the safe use of helicopters and result in a reduced number of flight hours. A significant portion of the Company's operating revenues are dependent on actual flight hours (47%, 46% and 44%, respectively, in fiscal 1999, 1998 and 1997) and a substantial portion of the Company's direct costs are fixed (62%, 60% and 60% respectively in fiscal 1999, 1998 and 1997). Thus, prolonged periods of adverse weather can materially and adversely affect the Company's operating revenues and net earnings. In the Gulf, the months of December through February have more days of adverse weather conditions and fewer hours of daylight than the other months of the year. Consequently, flight hours are generally lower at these times, which typically result in a reduction in operating revenues during those months. The Company currently operates eighty-six aircraft equipped to fly pursuant to instrument flight rules ("IFR") in the Gulf, which enables these aircraft, when manned by IFR rated pilots and co-pilots, to operate at times when poor visibility prevents flights by aircraft that can fly only by visual flight rules ("VFR"). Poor visibility is the most common of the adverse weather conditions that affects the Company's operations. Safety and Insurance The operation of helicopters inherently involves a degree of risk. Hazards, such as aircraft accidents, collisions, fire and adverse weather, are inherent in the business of providing helicopter services and may result in losses of equipment and revenues. The Company's safety record is very favorable in comparison to the record for all United States operators as reflected in industry publications. The Company is subject to the federal Occupational Safety and Health Act ("OSHA") and similar state statutes. The Company has an extensive safety and health program and employs a safety staff, including a certified safety professional in the field of comprehensive practice, who is also a registered environmental manager, a certified environmental auditor and a certified environmental systems manager. The primary functions of the safety staff are to develop Company policies that meet or exceed the safety standards set by OSHA, train Company personnel and make daily inspections of safety procedures to insure their compliance with Company policies on safety. All personnel are required to attend safety training meetings at which the importance of full compliance with safety procedures is emphasized. The Company believes that it meets or exceeds all OSHA requirements and that its operations do not expose its employees to unusual health hazards. The Company maintains hull and liability insurance on its aircraft, which generally insures the Company against physical loss of, or damage to, its helicopters and against certain legal liabilities to others. In addition, the Company carries war risk, expropriation, confiscation and nationalization insurance for its aircraft involved in international operations. In some instances, the Company is covered by indemnity agreements from oil companies, hospitals and medical programs in lieu of, or in addition to, its insurance. The Company's helicopters are not insured for loss of use. While the Company believes it is adequately covered by insurance and indemnification arrangements, the loss, expropriation or confiscation of, or severe damage to, a material number of its helicopters could adversely affect revenues and profits. Government Regulation As a commercial operator of helicopters, the Company's flight and maintenance operations are subject to regulation by the Federal Aviation Administration (the "FAA") pursuant to the Federal Aviation Act of 1958 (the "Federal Aviation Act", as amended). The FAA has authority to exercise jurisdiction over personnel, aircraft, ground facilities and other aspects of the Company's business. The Company transports personnel and property in its helicopters pursuant to an Air Taxi Certificate granted by the FAA under Part 135 of the Federal Aviation Regulations. This certificate contains operating specifications that allows the Company to conduct its present operations but are subject to amendment, suspension and revocation in accordance with procedures set forth in the Federal Aviation Act. The Company is not required to file tariffs showing rates, fares and other charges with the FAA. The FAA's regulations, as currently in effect, also require that at least 75% of the Company's voting securities be owned or controlled by citizens of the United States or one of its possessions, and that the president and at least two-thirds of the directors of the Company are United States citizens. The Company's president and all of its directors are United States citizens and its organizational documents provide for the automatic reduction in voting power of each share of voting common stock owned or controlled by a non-United States citizen if necessary to comply with these regulations. 2 The National Transportation Safety Board is authorized to investigate aircraft accidents and to recommend improved safety standards. The Company is also subject to the Communications Act of 1934 because of its ownership and operation of a radio communications flight following network throughout the Gulf of Mexico and off the coast of California. Numerous federal statutes and rules regulate the offshore operations of the Company and the Company's customers, pursuant to which the federal government has the ability to suspend, curtail or modify certain or all offshore operations. A suspension or substantial curtailment of offshore oil and gas operations for any prolonged period would have an immediate and materially adverse effect on the Company. A substantial modification of current offshore operations could adversely affect the economics of such operations and result in reduced demand for helicopter services. Competition The Company's business is highly competitive. Many of the Company's contracts are awarded after competitive bidding. The principal aspects of competition are price, reliability, availability, safety and service. The Company operates one of the largest commercial helicopter fleets in the world. At April 30, 1999, the Company operated 290 aircraft. The Company operates 256 aircraft in the United States; 207 in the Company's Oil and Gas Aviation Services Unit, and forty-nine in the Company's Aeromedical Services Unit. Thirty-four aircraft are operated internationally in the Company's Oil and Gas Aviation Services Unit. The Company is the largest operator of helicopters in the Gulf of Mexico and believes there are approximately two major and several small competitors operating in the Gulf market. Certain of the Company's customers and potential customers in the oil industry operate their own helicopter fleets; however, oil companies traditionally contract for most specialty services associated with offshore operations, including helicopter services. The air medical market is becoming increasingly competitive and is experiencing some hospital program consolidations. Employees As of April 30, 1999, the Company employed a total of 2,051 people. The Company believes its employee relations to be satisfactory, and it has never experienced a work stoppage. Currently, none of the Company's employees are covered by union contracts. On 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. Customers The Company's principal customers are major oil companies. The Company also serves independent exploration and production concerns, oil and gas service companies, hospitals and medical programs and government agencies. The Company's largest customer (Oil and Gas Aviation Services unit) accounted for 14%, 16% and 15% of the Company's operating revenues in fiscal 1999, 1998 and 1997, respectively. The Company's five largest customers accounted for 30%, 32% and 32% of operating revenues in fiscal 1999, 1998 and 1997, respectively. 3 Environmental Matters The Company is subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the environment and establish standards for the treatment, storage and disposal of toxic and hazardous wastes. The Company believes that compliance with federal, state and local environmental laws and regulations will not have a material effect upon the results of operations of the Company. The Company's environmental staff includes a registered environmental manager who is also a certified environmental auditor and a certified environmental systems manager. The Company has established reserves for environmental costs, which are discussed under Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters". ITEM 2. PROPERTIES Fleet Utilization As of April 30, 1999, 78% of the Company's aircraft were actively assigned as compared with 83% and 84% as of April 30, 1998 and 1997, respectively. Demand for the Company's domestic oil and gas aircraft has slowed due to the activity decline in the Gulf of Mexico. Equipment Certain information regarding the Company's owned and leased fleet as of April 30, 1999 is set forth in the following table:
Cruise Appr. Number in Speed Range Manufacturer Type Fleet Engine Passengers (mph) (miles) - ------------ ---------------- --------- ------------- ---------- ------ ------- Bell 206B-III 14 Turbine 4 120 300 206L-I, III, IV 105 Turbine 6 130 310 407 25 Turbine 6 144 420 212(1) 11 Twin Turbine 13 115 300 214ST(1) 6 Twin Turbine 18 155 450 222 1 Twin Turbine 8 160 370 412(1) 26 Twin Turbine 13 135 335 Boelkow BK-117 11 Twin Turbine 6 135 255 BO-105 36 Twin Turbine 4 135 270 Aerospatiale AS350 B2 9 Turbine 5 140 385 Sikorsky S-76(1) 15 Twin Turbine 12 150 400 MIL Design MIL-8 MTV (1) 2 Twin Turbine 28 140 310 --- Total Helicopters 261 --- Beechcraft King Air 200 (1) 4 Turboprop 8 300 1,380 Hawker Sidley HS125-700 (1) 1 Twin Turbo Jet 8 483 2,185 LET L410(1) 2 Turboprop 15 215 620 Conquest Cessna 441 (1) 5 Turboprop 3 330 1,000 Lear Jet 35A(1) 1 Twin Turbo Jet 4 505 2,100 --- Total Fixed Wing 13 --- Total Aircraft 274 ===
(1) Equipped to fly under instrument flight rules ("IFR"). All other types listed can only fly under visual flight rules ("VFR"). See Item 1. "Business - Weather and Seasonal Aspects." 4 The following tables set forth additional information regarding the aircraft owned and leased by the Company (in thousands, except the number of helicopters): Company Owned Aircraft Cost Net Book Value ---------------------- ---------- -------------- 180 $231,300(2) $123,751(1) Total Rents Over Company Leased Aircraft Life of Lease Remaining Rents ----------------------- ---------------- --------------- 94 $112,196 $82,763 (1) Information regarding the Company's depreciation policy is set forth under Item 8. "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements, Note 1". (2) Includes cost of leased aircraft improvements. The Company operates sixteen aircraft that are owned or leased by customers which are not reflected in the foregoing tables. As of April 30, 1999, the Company's commitment for principal payments and lease payments for its present helicopter fleet averages $ 17.2 million each year for the next five years and an aggregate of $ 77.3 million thereafter. Under most leases the Company is responsible for all insurance, taxes and maintenance expenses associated with the helicopters, and within certain limitations, the Company can either substitute equipment or terminate the leases in the event the leased equipment becomes obsolete or is no longer suited for the Company's needs. All of the Company's leases are considered operating leases for accounting and tax purposes. The Company also maintains an inventory of fuel and an inventory of spare parts and components for use in the repair and maintenance of the Company's fleet. This inventory had a book value of approximately $ 34.9 million on April 30, 1999. The Company is a distributor or dealer for many of these parts and components, thereby allowing it to realize significant cost savings on its purchases. Equipment Sales The Company sells aircraft whenever they (i) become obsolete, (ii) do not fit into future fleet plans, or (iii) are surplus to the Company's needs. The Company typically sells its aircraft for more than their book value. The Company cannot predict, however, whether these results will continue or whether such prices would be realized if the Company were to sell a large number of helicopters in a short period of time. Facilities The Company currently leases its executive office space in Metairie, Louisiana (Metropolitan New Orleans). The lease covers approximately 8,107 square feet and expires on July 31, 2000. The Company's principal operating facility is located on property leased from The Lafayette Airport Commission at the Lafayette Regional Airport in Lafayette, Louisiana. The lease covers approximately twenty-eight acres and seventeen buildings, with an aggregate of approximately 135,000 square feet, housing the Company's main operational and administrative offices and the main repair and maintenance facility. The Company has extended this lease until completion of the new facility. The Company is planning to move into a new 246,000 square foot facility on the airport grounds in fiscal 2001. This move will not have a material effect on operating costs. The Company also leases property for fourteen additional bases to service the oil and gas industry throughout the Gulf and one base in California. Those bases that represent a significant investment by the Company in leasehold improvements or which are particularly important to the Company's operations are: 5 A. Morgan City Base (Louisiana) - containing approximately fifty- three acres, is under a lease that expires June 30, 2003, with options to extend through June 30, 2013. The Company has built a variety of operational and maintenance facilities on this property, including landing pads for forty-six helicopters. The Company believes that this facility is the largest commercial heliport in the world. B. Intracoastal City Base (Louisiana) - containing approximately twenty-three acres under several leases in Vermilion Parish, all with options to extend through July 31, 2001. The Company has built a variety of operational and maintenance facilities on this property, including landing pads for forty-five helicopters. C. Houma-Terrebonne Airport (Louisiana) - containing approximately fourteen acres and certain buildings leased under four leases from the Houma-Terrebonne Airport Commission, which expire on July 31, 1999. The Company is in the process of renegotiating these leases. The Company has landing pads for thirty helicopters on this property. D. Sabine Pass (Texas) - containing approximately thirty-six acres under two leases, one of which, for two acres, renews monthly, and the other of which, for thirty-four acres, will expire October 31, 2001, with options to extend through October 31, 2011. The Company has built a variety of operational and maintenance facilities on this property, including landing pads for twenty-four helicopters. E New Orleans (Louisiana) - containing approximately two acres, is under a lease through April 30, 2004. The Company has made significant leasehold improvements on this property, including landing pads for fourteen helicopters. F. Venice (Louisiana) - containing approximately eight acres, was under a lease that expired March 30, 1998. The lease is currently on a month to month basis pending the completion of a new facility in Boothville, Louisiana. The Company-owned new facility will have landing pads for thirty-seven helicopters as well as a variety of operational and maintenance facilities on approximately thirty-two acres. G. Fourchon (Louisiana) - containing approximately eight acres, is under original lease expiring April 30, 2006. The Company has landing pads for ten helicopters on this property. The Company's other operations related bases in the United States are located along the Gulf in Louisiana at Cameron and Lake Charles; in Texas at Galveston, Port O'Connor and Rockport; in Mississippi at Pascagoula; in Alabama at Theodore; in New Jersey at Edison; and in California at Santa Barbara. The Company operates from offshore platforms which are provided without charge by the owners of the platforms, although in certain instances the Company is required to indemnify the owners against loss in connection with the Company's use thereof. Bases for the Company's foreign and aeromedical operations are generally furnished by the customer. The Company's international operations are currently conducted in Angola, Antarctica, China, Colombia, Kazakhstan, Philippines, Thailand, and Zaire. Aeromedical operations are currently conducted in Arizona, Arkansas, California, Florida, Illinois, Kentucky, Louisiana, Michigan, Mississippi, North Dakota, Ohio, South Carolina, and Wisconsin. ITEM 3. LEGAL PROCEEDINGS _________________________ The Company is not a party to, and its property is not the subject of, any material pending legal proceedings, other than ordinary routine litigation incidental to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ___________________________________________________________ No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended April 30, 1999. 6 ITEM 4.A. EXECUTIVE OFFICERS OF THE REGISTRANT ______________________________________________ Certain information about the executive officers of PHI is set forth in the following table and accompanying text:
Name Age Position ------------------------- --- ------------------------------------------------------------------------- Carroll W. Suggs (1) 60 Chairman of the Board of Directors, President and Chief Executive Officer Ben Schrick(2) 58 Chief Operating Officer Robert D. Cummiskey (3) 57 Director of Risk Management and Corporate Secretary Michael J. McCann (4) 51 Chief Financial Officer and Treasurer Richard A. Rovinelli (5) 51 Director of Human Resources William P. Sorenson (6) 50 Director of Corporate Marketing / New Business R. J. Wallace (7) 48 Director Maintenance / FAR145 Kenneth Alan Townsend (8) 60 General Manager - Domestic Oil and Gas Aviation Services Geoffrey C. Stanford (9) 32 Corporate Controller, Assistant Treasurer, and Assistant Secretary
(1) Mrs. Suggs became Chairman of the Board in March 1990, Chief Executive Officer in July 1992, and President in October 1994. (2) Mr. Schrick has served as Chief Operating Officer since September 1994, as the Company's General Manager since January 1993 and as Vice President of Maintenance since 1989. Mr. Schrick joined the Company in 1964. (3) Mr. Cummiskey has served as Secretary since June 1992 and Director of Risk Management since October 1991. (4) Mr. McCann has served as Chief Financial Officer ("CFO") and Treasurer since November 1998. Prior to this time, he was the CFO for Global Industries Ltd. and prior to that the CFO for Sub Sea International, Inc. Mr. McCann is a Certified Public Accountant and holds a Masters of Business Administration from Loyola University. (5) Mr. Rovinelli joined the Company in February 1999 as Director of Human Resources. Prior to this time, he was Manager, Human Resources for ARCO Alaska, Inc., Headquarters Staff Manager, Human Resource Services, Arco Oil and Gas Company, as well as numerous other positions within ARCO. Mr. Rovinelli holds a Bachelor of Science Degree in Industrial Psychology from the University of Houston. (6) Mr. Sorenson became Director of Corporate Marketing/New Business in March 1999 after serving as General Manager of Aeromedical Services since November 1995. Mr. Sorenson joined the Company in 1976. (7) Mr. Wallace joined the Company in August 1997 and was appointed Director of Maintenance and FAR145. Prior to this time, Mr. Wallace was a Colonel in the U. S. Marine Corps for twenty-five years serving as an aircraft maintenance officer for several squadrons, a program officer and an engineering officer. Mr. Wallace also served on The Joint Chiefs of Staff, The Pentagon. (8) Mr. Townsend has served as General Manager - Domestic Oil and Gas Aviation Services since February 1998 and Director of the Oil and Gas Division since August 1997. During his thirty-two year career with PHI, he has served as area manager, offshore supervisor and sector manager. (9) Mr. Stanford joined the Company in August 1993 and has served as Corporate Controller since June 1997. Mr. Stanford previously worked for Coopers and Lybrand, LLC. Mr. Stanford is a Certified Public Accountant. 7 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED __________________________________________________________ SHAREHOLDER MATTERS ___________________ The Company's voting and non-voting common stock trades on The NASDAQ Stock Market, Small Cap Issuers ("NASDAQ") under the symbols PHEL and PHELK, respectively. The following table sets forth the range of high and low per share bid prices, as reported by NASDAQ, and dividend information for the Company's voting and non-voting common stock for the fiscal quarters indicated. Voting Non-Voting Common Stock Common Stock Dividends Fiscal Quarter High Low High Low Per Share --------------------- ---------------- ---------------- --------- 1998-99 1st Quarter 23 16 1/2 21 1/2 17 7/8 .05 2nd Quarter 18 7/8 14 19 14 1/2 .05 3rd Quarter 18 15 1/2 18 7/8 15 1/2 .05 4th Quarter 16 12 16 12 .05 1997-98 1st Quarter 18 3/4 14 1/2 17 1/2 14 .05 2nd Quarter 30 1/2 14 29 13 7/8 .05 3rd Quarter 25 1/2 20 24 1/4 19 1/2 .05 4th Quarter 24 1/16 19 24 1/2 19 1/4 .05 The declaration and payment of dividends is at the discretion of the Board of Directors, which evaluates the Company's dividend policy quarterly. Future dividends are dependent upon, among other things, the Company's results of operations, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board. A credit agreement to which the Company is a party generally restricts the declaration or payment of dividends to 20% of net earnings for the previous four fiscal quarters. See Item 8. "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements, Note 3." As of May 6, 1999, there were approximately 1,075 holders of record of the Company's voting common stock and 116 holders of record of the Company's non-voting common stock. ITEM 6. SELECTED FINANCIAL DATA _______________________________
1999 1998 1997 1996 1995 --------- -------- -------- -------- -------- (Thousands of Dollars, except per share data) Year Ended April 30: Operating revenues $247,339 $236,582 $211,663 $185,865 $174,397 Net earnings (1) 2,988 7,417 6,470 6,466 5,182 Net earnings per share (basic) 0.58 1.45 1.27 1.28 0.96 Net earnings per share (diluted) 0.57 1.43 1.25 1.27 0.96 Cash dividends declared per share 0.20 0.20 0.20 0.17 0.06 At April 30: Total assets $231,575 $227,021 $196,631 $161,315 $147,108 Total debt 80,296 72,619 62,460 37,332 35,815 Working capital 51,030 47,971 41,247 26,543 29,809 Shareholders' equity 96,581 94,705 87,416 81,401 75,707
(1) See Item 8. "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements, Note 2 - Special Charges." 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL _________________________________________________________ CONDITION AND RESULTS OF OPERATIONS ___________________________________ Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the Company's Consolidated Financial Statements for the years ended April 30, 1999, 1998, and 1997 and the related Notes to Consolidated Financial Statements. Forward-Looking Statements All statements other than statements of historical fact contained in this Form 10-K and 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", "goals", "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 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. PHI undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Results of Operations Revenues The following table reflects the distribution of the Company's operating revenues by business unit: Years Ended April 30 (in 000's, except %'s) 1999 1998 1997 ------------- ------------- ------------ $ % $ % $ % ------- --- ------- --- ------- --- Oil and Gas Aviation Unit 199,846 81 198,875 84 180,121 85 Aeromedical Services Unit 46,838 19 35,879 15 30,302 14 Other 655 * 1,828 1 1,240 1 ------- --- ------- --- ------- --- 247,339 100 236,582 100 211,663 100 ___________________ * less than 1% Oil and Gas Aviation Unit United States Aviation Operations. Demand for the Company's domestic Oil and Gas Aviation Services is directly influenced by offshore oil and gas exploration, development and production activities in the areas in which it operates, which in turn is affected primarily by oil and gas prices. The decline in oil and gas prices has resulted in a reduction in exploration and production activities. These conditions have adversely impacted helicopter transportation operations. The Company expects these trends to continue for the first half of fiscal 2000. During fiscal 1998 and 1997, improved economic conditions in the Gulf of Mexico resulted in substantial increases in oil and gas activity. However, in January 1998, oil prices began to decline, causing a decrease in oil and gas activity. This decline did not materially impact the results of fiscal 1998. However, fiscal 1999 was adversely affected as flight hours declined substantially during the third and fourth quarters. 9 Fiscal 1999 compared to fiscal 1998. Fiscal 1999 operating revenues were $ 158.5 million compared to $ 162.3 million for fiscal 1998, a decrease of $ 3.8 million. In fiscal 1999, flight hours declined 15% to 160,102 compared to 187,930 for fiscal 1998. The decrease in flight hours accounted for approximately $ 11.1 million of the revenue decrease. A rate increase which went into effect in the third quarter of fiscal 1998 offset the decline in flight hour revenue by approximately $ 7.3 million. Fiscal 1998 compared to fiscal 1997. Operating revenues increased 12% from fiscal 1997 to fiscal 1998. In fiscal 1998, flight hours increased 5% to 187,930 from the fiscal 1997 amount of 178,262. International Operations. In fiscal 1999, international operating revenues increased 6% to $ 24.1 million from $ 22.8 million in fiscal 1998. This increase was due to activity in West Africa. Revenues remained relatively constant from fiscal 1997 to fiscal 1998. Technical Services Operations. Technical Services Operations is an airframe and component maintenance and repair facility whose experienced staff performs a range of maintenance tasks under an FAA-approved repair station. The repair station ratings include airframe, powerplant, accessories, radio, instrument and specialized service. PHI Technical Services Operations is also an authorized service center for Bell Helicopter Textron, Inc., American Eurocopter Corporation and Turbomeca Engine Corporation, and has extensive experience and capabilities in Sikorsky Aircraft Corporation S-76 maintenance and repair. Fiscal 1999 compared to fiscal 1998. Technical Services operating revenues were $ 17.2 million in fiscal 1999 compared to $ 13.8 million in fiscal 1998, an increase of $ 3.4 million. This increase was related to one contract for the refurbishment and upgrade of two helicopters. Fiscal 1998 compared to fiscal 1997. Technical Services operating revenues increased 6%, or $0.8 million, from $13.0 million in fiscal 1997. Aeromedical Services Unit Fiscal 1999 compared to fiscal 1998. Aeromedical revenues increased $ 10.9 million to $ 46.8 million, compared to 1998 revenues of $ 35.9 million. Flight hours increased 21% from 16,063 in 1998 to 19,496 in 1999. The increase in aeromedical revenue is due to an increase in activity and the effect of the acquisition of Air Evac. The increase in Air Evac revenue is due primarily to twelve months of operation in fiscal 1999 versus four months of operation in fiscal 1998. Fiscal 1998 compared to fiscal 1997. Aeromedical revenues increased $ 5.6 million, or 18%, to $ 35.9 million in fiscal 1998 as compared to fiscal 1997. Flight hours increased 8% to 16,063 in 1998. The fiscal 1998 increases resulted primarily from the acquisition of Air Evac which generated revenues of approximately $ 5.7 million and flight hours of 1,450 for the four months ended April 30, 1998. (See Item 8. "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements, Note 11" for a more detailed discussion of this transaction.) Direct Expenses The following table highlights certain critical operating factors which are helpful in analyzing direct expense relationships: 1999 1998 1997 ----- ------ ----- Number of aircraft owned/leased/ operated at year end 290 307 314 Fleet utilization 78% 83% 84% Number of employees at year end 2,051 2,135(1) 1,851 (1) Air Evac acquisition added 196 employees effective December 31, 1997. 10 Fiscal 1999 compared to fiscal 1998. Direct expenses were $ 214.5 million in fiscal 1999 compared to $ 203.4 million in fiscal 1998, an increase of $ 11.1 million. Included in fiscal 1999 direct expense is a charge of $ 1.7 million related to inventory as discussed in Notes to the Consolidated Financial Statements, Note 2 - "Special Charges." Air Evac was purchased on December 31, 1997; four months of operating results are included in fiscal 1998 compared to twelve months of operating results in fiscal 1999, which resulted in an increase in direct expenses (including increases in depreciation expense, human resource costs and other aircraft costs) of $ 6.8 million. Aircraft depreciation increased by $ 2.8 million due to the acquisition of additional aircraft during fiscal 1998. Aircraft rental expense decreased $ 0.4 million primarily as a result of the restructure of thirteen aircraft leases in the first quarter of fiscal 1999. Fiscal 1998 compared to fiscal 1997. Direct expenses increased $ 19.0 million, or 10%, to $ 203.4 million primarily as a result of increased flight activity levels. Included in the above increase is the direct expense (including depreciation expense, human resource costs and other aircraft costs) of Air Evac of $ 3.8 million for the four months of fiscal 1998. Excluding the Air Evac acquisition activity, the increase in direct expense is related to increased flight activity. Aircraft depreciation increased by $ 1.7 million to $ 10.7 million as PHI's owned fleet size expanded in 1998. The Company incurred $ 25.5 million in capital expenditures in fiscal 1998, which included seven additional aircraft. Aircraft rental expense increased by $ 2.4 million to $ 14.8 million due to the addition of newly leased aircraft. There were ninety-one leased aircraft as of April 30, 1998, as compared to seventy-four at April 30, 1997. Selling, General and Administrative Expenses Fiscal 1999 compared to fiscal 1998. Selling, general and administrative expenses for fiscal 1999 increased $ 0.2 million to $ 18.0 million. The increase in selling, general and administrative expenses in fiscal 1999 was due to Air Evac selling, general and administrative expenses for twelve months compared to four months in fiscal 1998, an increase of $ 1.8 million. This was offset by a decline in computer software costs. During fiscal 1999, the Company implemented SOP 98-1 resulting in approximately $ 1.2 million of costs being capitalized during fiscal 1999 that would have been expensed under the Company's previous accounting method for such costs. There was a reduction in bad debt expense of $ 0.3 million in fiscal 1999 compared to fiscal 1998. Fiscal 1998 compared to fiscal 1997. Selling, general and administrative expenses for fiscal 1998 increased $ 5.0 million to $ 17.8 million. This increase was primarily due to legal and professional fees increasing and the associated selling, general and administrative costs of Air Evac. Interest Expense Interest expense increased $ 0.9 million from fiscal 1998 to fiscal 1999 and $ 0.8 million from fiscal 1997 to fiscal 1998. This is a result of increased debt levels due to the Company's acquisition of the assets of Samaritan AirEvac and the purchase of aircraft during fiscal 1999 and fiscal 1998. Taxes PHI's effective tax rate was 41%, 41% and 40%, respectively, in 1999, 1998 and 1997. See Item 8. "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements, Note 4." Earnings Fiscal 1999 compared to fiscal 1998. Diluted earnings per share for the fiscal year ended April 30, 1999 was $ 0.57 compared to $ 1.43 in fiscal 1998. The decrease was primarily due to Special Charges of $ 7.3 million and an inventory charge of $ 1.7 million. (See Item 8. "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements, Note 2 - Special Charges" for a more detailed discussion of these transactions.) There was a decrease in earnings related to the decrease in flight activity offset in part by the rate increase discussed previously. 11 Fiscal 1998 compared to fiscal 1997. Diluted earnings per share for the fiscal year ended April 30, 1998 increased 14% compared to the prior year. The increase was primarily due to increased activity. Liquidity and Capital Resources The Company's 1999 year end cash position was $ 3.0 million compared to $ 2.8 million at fiscal year end 1998. Working capital in fiscal 1999 was $ 51.0 million compared to $ 48.0 million in 1998, an increase of $ 3.0 million. Long-term debt increased $ 7.6 million in fiscal 1999 to $ 74.4 million at year end. The Company's current debt obligations for fiscal 2000 total $ 5.9 million, due in equal quarterly installments, which the Company intends to pay with cash flow from operations. The Company's primary credit facility consists of a $ 45.0 million revolving credit facility available through October 31, 2005 (the "revolving loan") and a capital loan facility of up to $ 46.25 million (subject to compliance with certain collateral coverage ratios) (the "term loan"). The term loan is payable in fixed quarterly principal payments of $ 1.2 million until maturity on November 10, 2005. The term and revolving loan agreements permit both prime rate based borrowings and London InterBank Offered Rate ("LIBOR") borrowings plus a floating spread. The spread for LIBOR borrowings will float up or down based on the Company's performance as determined by a leverage ratio. The spread can range from 1.0% to 1.5% above LIBOR. At June 30, 1999, the Company had $ 12.5 million of credit capacity available under its credit facilities. There are no plans to purchase additional aircraft in fiscal 2000. At April 30, 1999, the Company was in compliance with the provisions of its loan agreements. 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. Cash generated from operating activities in fiscal 1999 was $ 16.5 million compared to $ 10.5 million and $ 8.5 million in fiscal 1998 and 1997, respectively. The $ 6.0 million increase in fiscal 1999 is primarily attributable to the decrease in accounts receivable as compared to the significant increase in fiscal 1998, offset by a decrease in accounts payable and accrued liabilities. Cash used in investing activities increased to $ 22.8 million in fiscal 1999, as compared to $ 20.2 million in fiscal 1998 and $ 32.3 million in fiscal 1997. In fiscal 1999, investing activities totaling $ 42.3 million primarily included the purchase and completion of ten aircraft, aircraft refurbishments, and other related items. The Company sold aircraft that no longer met the Company's requirements; the net proceeds were $19.9 million. Investing activities in fiscal 1998 were $ 20.2 million. Cash used was primarily attributed to the purchase of seven aircraft and expenditures related to the Company's aircraft refurbishment program. Proceeds from the sale and disposition of aircraft were $ 14.0 million. In addition, the Company purchased the assets of Samaritan AirEvac in fiscal 1998 for $ 8.8 million. Year 2000 Matters General. To consider the impact of Year 2000 ("Y2K") issues on PHI, a committee consisting of members of senior management from various disciplines within the Company meets regularly to discuss, outline and implement appropriate courses of action. In addition, the Company retained a consulting firm to review Y2K readiness of the Company and make recommendations for action. Its review was completed on June 30, 1999, and PHI is in the process of implementing its recommendations. Information Technology. The Company recently completed a major upgrade of its information technology systems begun in fiscal 1996, an incidental benefit of which is that most of its systems are Y2K compliant. Management does not expect that remaining remediation activities will result in any significant delay or cost. Remediation and testing are expected to be completed by September 30, 1999. 12 Non-Information Technology. PHI's non-information technology systems include embedded chip technology in various equipment, aircraft systems, communications (ground and air) and utilities. The Company has completed an inventory of those systems and expects to remediate items that need to be upgraded or replaced by September 30, 1999. To date, no aircraft safety of flight or other significant issues have been identified. The Company has been in contact with the manufacturers of its aircraft and related equipment to determine the impact of embedded chip technology on flight systems. A review of these communications indicates that embedded chip technology will not cause PHI's fleet to be grounded as a result of Y2K issues. Third Parties. PHI is evaluating its position with significant suppliers, lenders, customers and others to ensure that those parties have appropriate plans to address Y2K issues where they may impact the operations of the Company. While the Company does not have any significant suppliers, lenders, or customers that directly interface with its information technology systems, the failure of these third parties to address their Y2K problems could negatively impact PHI. Based on contacts to date with third parties identified as important, PHI does not expect the impact of any third party problems to be material. However, there is no assurance that the systems of any third parties will be Y2K compliant in time or that any non-compliance will not have a material adverse effect on the Company. PHI operates internationally in various countries in South America, Europe, Asia and Africa. Published reports indicate that the governments of some of the countries in which it operates may not be Y2K compliant in activities administered or operated by them, such as communications, utilities and aircraft landing facilities, and PHI has received no assurances from any of such governments of its Y2K readiness. To the extent that the failure of those governments, or of private parties organized under the laws of such countries and doing business with PHI, are not Y2K compliant, resulting disruptions could have a material adverse effect on PHI's international operations. Consequences. If all significant Y2K issues are not properly identified, or if assessment, remediation and testing of systems of the Company and of third parties with which it has a significant relationship are not effected timely, the Y2K issue could potentially have an adverse impact on the Company's operations and financial condition. The Company believes that the most reasonably likely worst-case scenario would be that the Company would find it necessary to revert to the use of manual accounting records for billings, payments and collections. In addition, the inability of principal suppliers and major customers to be Y2K compliant could result in delays in deliveries from those suppliers and collections of accounts receivable. A more remote possibility is that delays and disruptions caused by Y2K problems of governments and customers could ground a significant portion of its aircraft, a situation for which there is no apparent remedy. Contingency Plan. Concurrent with the Company's efforts to address Y2K issues, it is in the process of developing appropriate contingency plans, which it expects to have completed by November 1999, to help prevent the Company's operations from being materially impacted by or to reduce the impact that results from a failure to correct a Y2K problem. The contingency plans will entail finding alternative vendors and suppliers which are Y2K compliant, purchasing additional products and inventories and supplies in advance of December 31, 1999, and reverting to manual systems or workarounds. Costs. While the Company incurred significant costs to upgrade its information technology systems, it does not associate these costs with Y2K readiness. Its direct costs associated with its Y2K compliance efforts to date have not exceeded $0.4 million, and the Company does not expect to incur significant Y2K compliance costs for the remainder of calendar 1999. Direct costs do not include management and other employee time spent on Y2K issues, which the Company does not quantify. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities." FAS 133, as amended, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 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 FAS 133 is encouraged and is permitted as of the beginning of any fiscal quarter that begins after the issuance of FAS 133. The Company believes that, due to its current limited use of derivative instruments, adoption of FAS 133 will not have a material effect on the Company's results of operations, financial position, or liquidity. 13 Environmental Matters The Company is subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the environment and establish standards for the treatment, storage and disposal of toxic and hazardous wastes. The Company has policies and procedures in effect to strictly monitor its compliance with environmental regulations at its operating locations. In the first quarter of fiscal 1996, the Company began an environmental review at selected domestic bases, and known or suspected fuel contamination has been identified at all the bases reviewed. The Company expensed, including provisions for environmental costs, $ 0.4 million, $ 0.7 million and $ 1.3 million in 1999, 1998 and 1997, respectively, related to remediation efforts. The Company is currently conducting assessments at additional bases to determine the extent of remediation required at these locations. The reasonably possible upper range of exposure for environmental remediation matters is $ 2.1 million. The aggregate recorded provision for environmental related costs at April 30, 1999 was $ 1.8 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. ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ____________________________________________________________________ The Company is exposed to market risks associated with interest rates. The Company makes limited use of derivative financial instruments to manage risks associated with existing or anticipated transactions. All derivatives used for risk management are closely monitored by the Company's senior management. The Company does not hold derivatives for trading purposes and it does not use derivatives with leveraged or complex features. Derivative instruments are traded either with creditworthy major financial institutions or over national exchanges. At April 30, 1999, the Company was a party to interest rate swaps with notional amounts totaling $ 40.0 million that were designed to convert a similar amount of variable-rate debt to fixed rates. The swaps mature in 2003. The swaps require the Company to pay an average interest rate of 5.78% plus a maximum spread of 1.5% which was the percentage at April 30, 1999 over their composite lives, and at April 30, 1999, the interest rate to be received by the Company averaged 5.0% plus a spread of 1.5%. The variable interest rate received by the Company under each swap contract is repriced quarterly. The Company considers these swaps to be a hedge against potentially higher future interest rates. As described in Note 7 to the consolidated financial statements, the estimated fair value of these interest rate swaps was $ (0.2) million at April 30, 1999. At April 30, 1999, $ 75.6 million of the Company's long-term debt had variable interest rates. Based on debt outstanding at April 30, 1999, a 10% increase in variable interest rates would increase the Company's interest expense in fiscal 2000 by $ 0.6 million. 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ___________________________________________________ Independent Auditors' Report ---------------------------- The Board of Directors and Shareholders Petroleum Helicopters, Inc.: We have audited the accompanying consolidated balance sheets of Petroleum Helicopters, Inc. and subsidiaries as of April 30, 1999 and 1998, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended April 30, 1999. In connection with our audits of the consolidated financial statements, we also have audited the accompanying financial statement schedule, "Valuation and Qualifying Accounts," for the three-year period ended April 30, 1999. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Petroleum Helicopters, Inc. and subsidiaries as of April 30, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 1 to the consolidated financial statements, in 1999 the Company adopted the method of accounting for computer software costs prescribed by Statement of Position 98-1. /s/ KPMG LLP KPMG LLP New Orleans, Louisiana June 11, 1999 15 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 30, 1999 and 1998 (Thousands of dollars) 1999 1998 -------- -------- ASSETS Current Assets: Cash and cash equivalents $ 3,025 $ 2,753 Accounts receivable - net of allowance: Trade 39,724 41,447 Other 2,511 8,823 Inventory 34,902 34,016 Prepaid expenses 1,658 1,478 Refundable income taxes 3,368 - --------- --------- Total current assets 85,188 88,517 --------- --------- Investments in affiliates and other 1,827 3,385 Property and equipment, at cost: Flight equipment 231,300 221,263 Other 41,030 34,779 --------- --------- 272,330 256,042 --------- --------- Less accumulated depreciation (127,770) (120,923) --------- --------- 144,560 135,119 --------- --------- Total Assets $231,575 $227,021 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 22,210 $ 28,004 Accrued vacation payable 6,057 5,672 Current maturities of long-term debt 5,891 5,824 Income taxes payable - 1,046 --------- ---------- Total current liabilities 34,158 40,546 --------- ---------- Long-term debt, net of current maturities 74,405 66,795 Deferred income taxes 19,411 19,172 Other long-term liabilities 7,020 5,803 Shareholders' Equity Voting common stock - par value of $ 0.10; authorized 12,500,000; issued shares of 2,800,886 in 1999 and 1998 279 280 Non-voting common stock - par value of $ 0.10; authorized 12,500,000; issued shares of 2,368,175 and 2,358,935 in 1999 and 1998 237 236 Additional paid-in capital 11,717 11,706 Retained earnings 84,348 82,483 --------- ---------- Total shareholders' equity 96,581 94,705 --------- ---------- Total Liabilities and Shareholders' Equity $231,575 $227,021 ========= ========== The accompanying notes are an integral part of these consolidated financial statements. 16 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Years ended April 30, 1999, 1998 and 1997 (Thousands of dollars and shares, except per share data)
1999 1998 1997 -------- -------- -------- Revenues: Operating revenues $247,339 $236,582 $211,663 Other income, net 3,543 2,264 725 -------- -------- -------- 250,882 238,846 212,388 Expenses: Direct expenses 214,516 203,421 184,456 Selling, general and administrative 18,017 17,798 12,778 Special charges 7,298 - - Interest expense 6,017 5,118 4,297 -------- -------- -------- 245,848 226,337 201,531 -------- -------- -------- Earnings before income taxes 5,034 12,509 10,857 Income taxes 2,046 5,092 4,387 -------- -------- -------- Net earnings $ 2,988 $ 7,417 $ 6,470 ======== ======== ======== Basic earnings per common share $ 0.58 $ 1.45 $ 1.27 ======== ======== ======== Diluted earnings per common share $ 0.57 $ 1.43 $ 1.25 ======== ======== ======== Weighted average common shares outstanding 5,167 5,115 5,080 Incremental common shares 60 81 92 -------- -------- -------- Weighted average common shares and equivalents 5,227 5,196 5,172 ======== ======== ======== Dividends declared per common share $ 0.20 $ 0.20 $ 0.20 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 17 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended April 30, 1999, 1998 and 1997 (Thousands of dollars and shares)
Voting Non-Voting Additional Common Stock Common Stock Paid-in Retained --------------- ---------------- Shares Amount Shares Amount Capital Earnings ------ ------ ------ ------ -------- -------- BALANCE April 30, 1996 2,800 $ 280 2,276 $ 227 $ 10,220 $ 70,674 ======= ====== ====== ===== ======== ========= Stock Options Exercised 5 - 16 2 405 - Other (4) - 2 - 185 (31) Net Earnings - - - - - 6,470 Dividends - - - - - (1,016) ------- ------ ------ ----- ------- --------- BALANCE April 30, 1997 2,801 $ 280 2,294 $ 229 $ 10,810 $ 76,097 ======= ====== ====== ===== ======== ========= Stock Options Exercised - - 65 7 888 - Other - - - - 8 - Net Earnings - - - - - 7,417 Dividends - - - - - (1,031) ------- ------ ------ ----- -------- --------- BALANCE April 30, 1998 2,801 $ 280 2,359 $ 236 $ 11,706 $ 82,483 ======= ====== ====== ===== ======== ========= Stock Options Exercised - - 9 1 78 - Other (8) (1) (2) - (67) (67) Net Earnings - - - - - 2,988 Dividends - - - - - (1,056) ------- ------ ------ ----- -------- --------- BALANCE April 30, 1999 2,793 $ 279 2,366 $ 237 $ 11,717 $ 84,348 ======= ====== ====== ===== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 18 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended April 30, 1999, 1998 and 1997 (Thousands of dollars)
1999 1998 1997 --------- -------- -------- Cash flows from operating activities: Net earnings $ 2,988 $ 7,417 $ 6,470 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 16,193 12,534 9,977 Deferred income taxes 239 933 3,273 Gain on asset dispositions (3,583) (3,313) (1,285) Special charges 6,172 - - Equity in net (earnings) losses of investee companies 40 (242) 560 Changes in operating assets and liabilities: Decrease (increase)in accounts receivable 3,633 (12,042) (6,822) Increase in inventory (859) (3,682) (4,088) Decrease (increase)in refundable income taxes (3,368) 1,344 (607) Decrease (increase)in prepaid and other (505) (127) 395 Increase (decrease)in accounts payable, accrued liabilities and vacation payable (4,326) 5,800 1,616 Increase (decrease)in income taxes payable (1,046) 1,046 - Increase (decrease) in other long-term liabilities 917 840 (1,000) -------- -------- -------- Net cash provided by operating activities 16,495 10,508 8,489 -------- -------- -------- Cash flows from investing activities: Investments (424) (8,730) (957) Purchase of property and equipment (42,271) (25,475) (40,835) Proceeds from asset dispositions 19,881 13,982 6,583 Proceeds from sale of investment - - 2,935 -------- -------- -------- Net cash used in investing activities (22,814) (20,223) (32,274) -------- -------- -------- Cash flows from financing activities: Proceeds from long-term debt 30,000 31,150 42,425 Payments on long-term debt (22,324) (20,991) (17,295) Proceeds from exercise of stock options and other (50) 895 209 Dividends paid (1,035) (1,023) (1,016) -------- -------- -------- Net cash provided by financing activities 6,591 10,031 24,323 -------- -------- -------- Increase in cash and cash equivalents 272 316 538 Cash and cash equivalents, beginning of year 2,753 2,437 1,899 -------- -------- -------- Cash and cash equivalents, end of year $ 3,025 $ 2,753 $ 2,437 ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 19 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1999, 1998 and 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation and Other General Principles The consolidated financial statements include the accounts of Petroleum Helicopters, Inc. and its wholly-owned subsidiaries ("PHI" or the "Company") after the elimination of all significant intercompany accounts and transactions. Investments in twenty to fifty percent owned affiliates are accounted for by the equity method and consist primarily of investments in foreign affiliates. The Company recognizes revenue on the accrual basis, generally during the month in which the services are rendered. Revenues related to emergency flights generated by the Company's subsidiary, Air Evac are recorded net of contractual allowances under agreements with third party payors. Foreign currency transactions are not material. Use of Estimates In preparing the Company's financial statements management makes informed estimates and assumptions that affect the amounts reported in the financial statements and related disclosures. Actual results may differ from these estimates. Cash Equivalents The Company considers cash equivalents to include demand deposits and investments with original maturity dates of three months or less. Inventories Inventories are stated at the lower of average cost or market and consist primarily of spare parts and aviation fuel. The valuation reserve related to obsolete and excess inventory was $ 2.2 million and $ 1.9 million at April 30, 1999 and 1998, respectively. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. For financial reporting purposes, depreciation is computed using the straight-line method based upon estimated useful lives of ten years for flight equipment and three to ten years for other equipment. Accelerated methods are used for tax purposes. A residual value of 25% of cost is used in the calculation of depreciation of flight equipment and other equipment. When property and equipment is sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in earnings at the time of sale or other disposition. Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. 20 Self-Insurance The Company maintains a self-insurance program for a portion of its health care costs. Self-insurance costs are accrued based upon the aggregate of the liability for reported claims and the estimated liability for claims incurred but not reported. The Company does not presently have any significant obligations for post employment benefits. Concentration of Credit Risk The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company does not believe significant credit risk exists with respect to these securities at April 30, 1999. A majority of the Company's business is conducted with major oil and gas exploration companies with operations in the Gulf of Mexico. The Company continually evaluates the financial strength of its customers but does not require collateral to support the customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, current market conditions and other information. The Company's largest customer (Oil and Gas Aviation Services business unit) accounted for 14%, 16% and 15% of the Company's operating revenues in fiscal 1999, 1998 and 1997, respectively. The Company's five largest customers accounted for 30%, 32% and 32% of operating revenues in fiscal 1999, 1998 and 1997, respectively. Reclassifications Certain reclassifications have been made to the prior period financial statements in order to conform with the classifications adopted for reporting in fiscal year 1999. Stock Compensation The Company uses the intrinsic value method of accounting for stock- based compensation prescribed by Accounting Principles Board (APB) Opinion No. 25 and, accordingly, follows the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." 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. The Company has implemented SOP 98-1 on a prospective basis as of May 1, 1998 resulting in approximately $ 1.2 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 $ 0.7 million or $ 0.13 per diluted share in fiscal 1999. Post-implementation costs will be expensed in accordance with the SOP and capitalized costs are being amortized over their estimated useful life. Income Taxes Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. 21 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. Derivative Financial Instruments The Company uses interest rate swap agreements to manage its interest rate exposure. The Company specifically designates these agreements as hedges of debt instruments and recognizes interest differentials as adjustments to interest expense in the period the differentials occur. Under interest rate swap agreements, the Company agrees with other parties to exchange, at specific intervals, the difference between fixed-rate and variable-rate interest amounts calculated by reference to an agreed-upon notional principal amount. The fair value of the interest rate swap agreements is estimated using quotes from counterparties and represents the cash requirement if the existing agreements had been settled at year end. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities." FAS 133, as amended, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 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 FAS 133 is encouraged and is permitted as of the beginning of any fiscal quarter that begins after the issuance of FAS 133. The Company believes that, due to its current limited use of derivative instruments, adoption of FAS 133 will not have a material effect on the Company's results of operations, financial position, or liquidity. (2) SPECIAL CHARGES In fiscal 1999, in connection with management's plan to reduce costs and to recognize the impairment of assets as a result of decreased activity, the Company recorded Special Charges of $ 7.3 million ($ 4.4 million on an after tax basis or $ 0.84 per diluted share). Additionally, a charge of $ 1.7 million was recognized in fiscal 1999 for the disposition of slow moving inventories and is included in direct expenses. The combined effect of these two amounts is $ 9.0 million before tax. The Special Charges are as follows: Description (Millions of dollars) -------------------------------------------------- -------------------- Severance and related costs $ 1.3 Impairment of property and equipment 1.6 Impairment of certain foreign based joint ventures 3.8 Other 0.6 ------- Special Charges $ 7.3 At April 30, 1999, $ 0.8 million of the restructuring charges remained in accrued liabilities, which was comprised of $ 0.3 million for employee severance / benefits and $ 0.5 million for other charges. 22 (3) LONG-TERM DEBT
April 30, 1999 April 30, 1998 -------------- -------------- (Thousands of dollars) Secured term loan notes due November 10, 2005 due in quarterly installments of $ 1,223,214, bearing interest (at rates varying between 6.4% and 7.7% on April 30, 1999) $ 44,134 $ 42,027 Secured note due October 31, 2005, under a revolving credit facility totaling $ 45,000,000 bearing interest (at rates varying between 6.5% and 7.1% on April 30, 1999) 31,500 25,000 Secured 10 year promissory notes due in monthly installments of $ 107,747 commencing July 9, 1993 with a fixed interest rate of 7.0% 4,662 5,592 -------- -------- Total debt 80,296 72,619 Less current maturities 5,891 5,824 -------- -------- Long-term debt $ 74,405 $ 66,795 ======== ========
Maturities of long-term debt for the next five years are as follows: (in 000's) 2000 2001 2002 2003 2004 ----- ----- ----- ----- ----- $ 5,891 $ 5,963 $ 6,041 $ 6,124 $ 5,777 At April 30, 1999, the following assets and their related book values are pledged as collateral on notes aggregating $ 80.3 million: (Thousands of dollars) Equipment, net of depreciation $ 86,435 Inventory 34,590 Accounts receivable, net 35,487 -------- $156,512 ======== Term Loans and Revolving Credit Facilities On March 31, 1997, the Company modified its credit agreement which among other things: i) reduced the Company's effective interest rate, ii) increased the total credit capacity to $ 80.0 million from $ 65.0 million, iii) reduced the mandatory quarterly principal payments to $ 1.0 million from $ 2.0 million, and iv) provided a fixed rate option for up to $ 40.0 million of the total outstanding debt under the facility. The primary purpose for renegotiating this agreement was to reduce the Company's effective interest rate and to increase the Company's credit capacity. The interest rate reduction was effective January 1, 1997. 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. The secured term and revolving loan agreement permits both prime rate based borrowings and London InterBank Offered Rate ("LIBOR") borrowings plus a floating spread. The spread for LIBOR borrowings will float up or down based on the Company's performance as determined by a leverage ratio. The spread can range from 1.0% to 1.5% above LIBOR. 23 Both the term loans and the revolving credit facilities are subject to certain financial covenants with which the Company was in compliance at April 30, 1999. These covenants include maintaining certain levels of 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. At April 30, 1999, the Company received a waiver allowing the $ 9.0 million in special charges and inventory write downs (See Notes to Consolidated Financial Statements, Note 2) to be excluded from the dividend restriction calculation, thus allowing the payment of dividends in May 1999. Such agreements also limit the creation, incurrence or assumption of Funded Debt (as defined, which includes long-term debt) and the acquisition of investments in unconsolidated subsidiaries. Cash paid for interest on the secured and promissory notes was $ 5.7 million, $ 4.6 million and $ 4.5 million for the years ended April 30, 1999, 1998 and 1997, respectively. (4) INCOME TAXES Income tax expense for each of the three years ended April 30 is composed of the following: 1999 1998 1997 ------ ------- ------- (Thousands of dollars) Current: Federal $ 544 $ 3,264 $ 765 State 271 644 296 Foreign 992 251 53 Deferred - principally Federal 239 933 3,273 ----- ------- ------- $2,046 $ 5,092 $ 4,387 ====== ======= ======= Deferred income tax expense (benefit) results from the following: 1999 1998 1997 -------- -------- -------- (Thousands of dollars) Accelerated depreciation $ 2,797 $ 2,023 $ 2,911 Accrued expenses and other liabilities (1,352) (1,090) 407 Effect of tax credits (1,206) - (45) -------- -------- -------- $ 239 $ 933 $ 3,273 ======== ======== ======== Income tax expense as a percentage of pre-tax earnings varies from the effective Federal statutory rate of 34% as a result of the following:
Years ended April 30 ------------------------------------------ 1999 1998 1997 ------------ ------------ ----------- (Thousands of dollars, except percentages) Amount % Amount % Amount % ------- -- ------- -- ------- -- Income taxes at statutory rate $ 1,712 34 $ 4,253 34 $ 3,691 34 Increase (decrease) in taxes resulting from: Effect of state income taxes 179 4 514 4 195 2 Other items - net 155 3 325 3 501 4 ------- -- ------- -- ------- -- $ 2,046 41 $ 5,092 41 $ 4,387 40 ======= == ======= == ======= ==
24 The tax effects of temporary differences which give rise to significant portions of the deferred tax assets and deferred tax liabilities at April 30, 1999 and 1998 are presented below: 1999 1998 -------- --------- (Thousands of dollars) Deferred tax assets: Tax credits $ 1,896 $ 690 Vacation accrual 2,134 1,919 Inventory valuation 880 696 Workman's compensation reserve 448 396 Allowance for uncollectible accounts 620 723 Deferred gains 1,253 - Other 3,458 3,521 -------- -------- Total deferred tax assets 10,689 7,945 -------- --------- Deferred tax liabilities: Tax depreciation in excess of book depreciation 28,571 25,774 Other 1,529 1,343 -------- -------- Total deferred tax liabilities 30,100 27,117 -------- -------- Net deferred tax liabilities $ 19,411 $ 19,172 ======== ======== No valuation allowance was recorded against the deferred tax assets because management believes that the deferred tax assets will more than likely be realized in full through future operating results and the reversal of taxable temporary differences. Income taxes paid were approximately $ 4.9 million, $ 3.5 million and $ 2.4 million for the years ended April 30, 1999, 1998 and 1997, respectively. Of the $ 4.9 million paid in 1999, $ 3.4 million is recorded as a tax refund based on the tax liability for fiscal 1999. (5) EMPLOYEE BENEFIT PLANS Savings and Retirement Plans The Company established, effective July 1, 1989, an Employee Savings Plan under Section 401(k) of the Internal Revenue Code. This plan provides that the Company match up to 3% of employee contributions. The Company's contribution was $ 2.1 million, $1.7 million and $1.6 million for the years ended April 30, 1999, 1998 and 1997, respectively. Effective September 1, 1994, the Company adopted a Supplemental Executive Retirement Plan ("SERP"). The nonqualified and unfunded plan provides senior management with supplemental retirement and death benefits at age 65. Life insurance policies, of which the Company is the sole owner and beneficiary, were purchased on the lives of each of the participants. Supplemental retirement benefits were based on one- third (1/3) of the participants' monthly income at the time of adoption. Currently, there are no SERP provisions for an increase in benefits, partial vesting or early retirement. The assumed discount rate was 7.5%. Expenses related to the plan were $ 284,000, $ 326,000 and $ 275,000 for 1999, 1998 and 1997, respectively. During fiscal 1996, the Board of Directors approved an Officer Deferred Compensation Plan and a Director Deferred Compensation Plan. Both plans were effective May 31, 1995. The plans permit key officers and all directors to defer a portion of their compensation. The plans are nonqualified and unfunded. 25 Stock Option Plans Effective May 1995, the Company's Board of Directors adopted the PHI 1995 Incentive Plan (the "1995 Plan"). The Company is authorized to issue a total of 175,000 shares of voting common stock and 325,000 shares of non-voting common stock under the 1995 Plan. The Compensation Committee of the Board of Directors is authorized under the 1995 Plan to grant stock options, restricted stock, stock appreciation rights, performance shares, stock awards and cash awards. The exercise price of the stock option grants is equal to the fair market value of the underlying stock at the date of grant. During fiscal 1999, 13,084 non-voting restricted shares and 19,000 non-voting stock options were granted under the 1995 Plan. The restricted shares will become unrestricted on July 31, 2000. The non-voting options, in the event they become vested, are exercisable over the next five years, expiring in 2007 and 2008. During fiscal 1997, 24,000 non-voting restricted shares and 23,200 non-voting stock options were granted under the 1995 Plan. The restricted shares and the options granted during fiscal 1997 vested on July 31, 1997 and the restricted shares will become unrestricted on July 31, 2000. One half of the non-voting options, which vested on July 31, 1997, became exercisable on July 31, 1997 and one-half became exercisable on July 31, 1998. These options expire on July 30, 2006. The Company recorded no compensation expense related to the 1995 Plan during fiscal 1999 and fiscal 1998 and $ 0.4 million during fiscal 1997. On October 30, 1998, the shareholders of PHI adopted the Directors Stock Compensation Plan (the "Plan") to (i) substitute for the annual cash retainer to non-employee directors ("Directors") an annual award of PHI's non-voting common stock ("Common Stock"), and (ii) provide for the automatic annual grant to Directors of options to purchase 2,000 shares of Common Stock. The Plan also provides for the voluntary deferral of all or a portion of the stock awards or fees otherwise payable annually to each Director. All non-employee members of the Board of Directors of PHI participate in the Plan. Up to 150,000 shares of Common Stock may be issued under the Plan, subject to adjustment in the event of any recapitalization, stock dividend, stock split, combination of shares or other change in the Common Stock. 26 A summary of the Plans' activities for the years ended April 30, 1999, 1998 and 1997 is as follows:
1992 Plan Options Other Options 1995 Plan Options Non-Voting Voting Non-Voting Voting Non-Voting Total ---------- ------ ---------- ------ ---------- --------- Balance outstanding at April 30, 1996 75,000 5,000 - 23,200 116,000 219,200 Options granted at $14.88 (non-voting) - - - - 23,200 23,200 Options lapsed/cancelled - - - (2,720) (21,304) (24,024) Options exercised (16,500) (5,000) - - (2,527) (24,027) --------- ------- ------- ------- -------- -------- Balance outstanding at April 30, 1997 58,500 - - 20,480 115,369 194,349 ========= ======= ======= ======= ======== ======== Options granted - - - - - - Options lapsed/cancelled (9,000) - - - (23,550) (32,550) Options exercised (49,500) - - - (12,369) (61,869) --------- ------- ------- ------- --------- -------- Balance outstanding at April 30, 1998 - - - 20,480 79,450 99,930 ========= ======= ======= ======= ========= ======== Options granted at a price range of $16.25 to $16.75 - - 6,000 - 19,000 25,000 Options lapsed/cancelled - - - - (5,493) (5,493) Options exercised - - - - (9,240) (9,240) ========= ======= ======= ======= ======== ======== Balance outstanding at April 30, 1999 - - 6,000 20,480 83,717 110,197 ========= ======= ======= ======= ======== ======== Shares exercisable at April 30, 1997 at a price range of $8.50 to $15.50 58,500 - - 10,240 44,821 113,561 ========= ======= ======= ======= ======== ======== Shares exercisable at April 30, 1998 at a price range of $8.50 to $15.50 - - - 20,480 77,130 97,610 ========= ======= ======= ======= ======== ======== Shares exercisable at April 30, 1999 at a price range of $8.50 to $16.31 - - - 20,480 66,717 87,197 ========= ======= ======= ======= ======== ======== Shares available for future grant at April 30, 1999 13,000 - 144,000 151,800 129,716 438,516 ========= ======= ======= ======= ======== ========
27 The following table summarizes information about stock options outstanding as of April 30, 1999: Options Outstanding Options Exercisable ----------------------------------------------------------- Weighted-Avg. Remaining Weighted-Avg. Weighted-Avg. Range of As of Contractual Exercise As of Exercise Exercise Prices 04/30/99 Life-Yrs. Price 04/30/99 Price ----------------------------------------------------------------------------- $8.50 - $9.75 81,197 6.00 $ 8.77 81,197 $ 8.77 $14.88 4,000 7.00 14.88 4,000 14.88 $16.25 - $16.75 25,000 8.84 16.38 2,000 16.31 ------- ------ 110,197 6.68 $10.72 87,197 $ 9.15 ======= ====== The Company's 1995 Incentive Plan also authorizes the granting of restricted stock awards. Under this plan during 1999 and 1997, 12,138 shares and 5,809 shares, respectively of restricted stock were awarded to Company executive officers and other key employees that will vest over two years based upon the completion of specified periods of future service with the Company. Compensation is charged to income over the vesting period for these awards which resulted in expense recognition of $ 97,000, $ 21,000 and $ 89,000 in 1999, 1998 and 1997, respectively. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123), encourages the use of a fair value based method of accounting for compensation expense associated with stock option and similar plans. However, SFAS No. 123 permits the continued use of the intrinsic value based method prescribed by Opinion No. 25 but requires additional disclosures, including pro forma calculations of net earnings and earning per share as if the fair value method of accounting prescribed by SFAS No. 123 had been applied. 1999 1998 1997 ------- ------- ------- Net income - as reported $ 2,988 $ 7,417 $ 6,470 Net income - pro forma 2,967 7,516 6,366 Diluted earnings per share - as reported 0.57 1.43 1.25 Diluted earnings per share - pro forma 0.57 1.45 1.25 Average fair value of grants during the year 5.87 N/A 7.45 1999 1998 1997 ------- ------- ------- Black-Sholes option pricing model assumptions: Risk-free interest rate 6.5% N/A 6.5% Expected life (years) 4 N/A 4 Volatility 27% N/A 12% Dividend yield 1.39% N/A 1.11% (6) SUPPLEMENTAL CASH FLOW INFORMATION AND FINANCING ACTIVITIES In 1999, the Company recorded proceeds from equipment sales of $ 19.9 million. The original cost and accumulated depreciation associated with these transactions were $ 27.0 million and $ 10.2 million, respectively. Gains of $ 0.6 million recognized on sale-leaseback transactions were deferred and are being credited to income over the lease terms. The book values of the equipment totaling $ 2.2 million were removed from the balance sheet. In 1998, the Company reported proceeds from equipment sales of $ 14.0 million. The original cost and accumulated depreciation associated with these transactions were $ 19.9 million and $ 10.9 million, respectively. Gains of $ 1.7 million recognized on sale-leaseback transactions were deferred. In 1997, the Company reported proceeds from equipment sales of $ 6.6 million. The original cost and accumulated depreciation associated with these transactions were $ 9.6 million and $ 4.3 million, respectively. 28 (7) FINANCIAL INSTRUMENTS DERIVATIVE INSTRUMENTS - As discussed in Note 1, the Company utilizes derivative instruments on a limited basis to manage risks related to interest rates. At April 30, 1999 and 1998, the Company had interest rate swap agreements with notional amounts totaling $ 40.0 million and $ 20.0 million, respectively, that serve to convert an equal amount of variable rate long-term debt to fixed rates. The swaps mature in 2003. The swaps require the Company to pay a weighted-average interest rate of 5.78% (plus the maximum spread of 1.5% at April 30, 1999) over their composite lives and to receive a variable rate, which averaged 5% (plus the maximum spread of 1.5% at April 30, 1999) at April 30, 1999. Based upon the current spread, the effect of these agreements is to limit interest rate exposure to 7.08% on $ 20.0 million of the Company's revolving credit facility, 7.69% on $10.0 million and 7.27% on $ 10.0 million of the Company's term loan. Using the accrual/settlement method of accounting, the Company records the net amount to be received or paid under the swap agreements as part of "Interest Expense" in the Consolidated Statements of Earnings. As a result of these swap agreements, interest expense was increased by $ 0.2 million in 1999 and $ 28,000 in 1998. FAIR VALUE - The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at April 30, 1999 and 1998. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The table excludes cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, all of which had fair values approximating carrying amounts. 1999 1999 1998 1998 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- Financial Liabilities Current and long-term debt $ 80.3 $ 80.3 $ 72.6 $ 72.6 Off-Balance-Sheet Exposures Interest rate swaps - $ (0.2) - $ (0.1) The following methods and assumptions were used to estimate the fair value of each class of financial instruments shown in the table. Current and long-term debt: the fair value is estimated based on current rates offered the Company for debt of the same maturities. Interest rate swaps: the fair value is an estimate of the amounts, based on quotes from counterparties, that the Company would pay at the reporting date to cancel the contracts. (8) COMMITMENTS AND CONTINGENCIES The Company leases certain aircraft used in its operations. The Company generally pays all insurance, taxes and maintenance expenses associated with these aircraft and some of these leases contain renewal and purchase options. 29 Aggregate rental commitments to lease aircraft under noncancellable operating leases are due in years subsequent to April 30, 1999, as follows: (Thousands of dollars) 2000 $ 12,670 2001 12,220 2002 11,508 2003 10,404 2004 9,203 Thereafter 26,758 -------- $ 82,763 ======== Rental expense incurred under these leases consisted of the following: (Thousands of dollars) (Years ended April 30) ---------------------- 1999 1998 1997 -------- -------- -------- Aircraft $ 14,522 $ 15,080 $ 12,328 Other 2,064 1,836 1,730 -------- -------- -------- $ 16,586 $ 16,916 $ 14,058 ======== ======== ======== The Company has policies and procedures in effect to strictly monitor its compliance with environmental regulations at its operating locations. In the first quarter of fiscal 1996, the Company began an environmental review at selected domestic bases, and known or suspected fuel contamination has been identified at all the bases reviewed. The Company expensed, including provisions for environmental costs, $ 0.4 million, $ 0.7 million and $ 1.3 million in 1999, 1998 and 1997, respectively, related to remediation efforts. The Company is currently conducting assessments at additional bases to determine the extent of remediation required at these locations. The reasonably possible upper range of exposure for environmental matters is $ 2.1 million. The aggregate recorded provision for environmental related costs at April 30, 1999 is $ 1.8 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 is named as a defendant in various legal actions which 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 which it believes adequately provide for the settlement 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. (9) BUSINESS SEGMENTS AND GEOGRAPHIC AREAS In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and measuring their performance. The Company operates principally in two segments: Oil and Gas Aviation Services and Aeromedical Services. The Oil and Gas Aviation Services segment includes domestic and international helicopter services provided to oil and gas customers including technical services and maintenance work. The Aeromedical Services segment includes all services provided to the Company's air medical customers including hospitals and medical programs. The accounting policies of the operating segments are the same as those described in Note 1 to the Consolidated Financial Statements. Segment operating profit is based on operating revenues less direct expenses, selling, general and administrative costs and special charges applicable to the operating segment. Segment assets are those assets used exclusively in the operations of each operating segment or which are allocated when used jointly. Corporate assets are principally cash and cash equivalents, short term investments, other current assets, and certain property, plant and equipment. Corporate overhead, consisting primarily of non-allocable selling, general and administrative costs are not allocated to the operating segments. 30 Summarized financial information concerning the Company's operating segment as of April 30 is shown in the following tables (in thousands): 1999 1998 1997 --------- --------- --------- Operating revenues: Oil and Gas $ 199,846 $ 198,875 $ 180,121 Aeromedical 46,838 35,879 30,302 Other 655 1,828 1,240 ---------- ---------- ---------- Total $ 247,339 $ 236,582 $ 211,663 ========== ========== ========== Operating profit(loss): Oil and Gas 11,081(1) 17,573 15,021 Aeromedical 2,688 2,931 2,879 ---------- ---------- ---------- Total Segment operating profit $ 13,769 $ 20,504 $ 17,900 Other income, net 3,856 3,264 725 Corporate overhead (6,574) (6,141) (3,471) Interest Expense (6,017) (5,118) (4,297) ---------- --------- ---------- Earnings before taxes $ 5,034 $ 12,509 $ 10,857 ========== ========== ========== (1) includes special charges of $ 7.3 million as discussed in Item 8. "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements, Note 2 - Special Charges" Capital Expenditures 1999 1998 1997 --------- --------- --------- Oil and Gas $ 40,521 $ 22,469 $ 35,299 Aeromedical 203 1,937 2,762 Corporate 1,547 1,069 2,774 --------- --------- --------- Total $ 42,271 $ 25,475 $ 40,835 ========= ========= ========= Depreciation and Amortization 1999 1998 1997 --------- -------- --------- Oil and Gas $ 11,993 $ 9,228 $ 7,354 Aeromedical 3,486 2,773 2,497 Corporate 714 533 126 --------- --------- --------- Total $ 16,193 $ 12,534 $ 9,977 ========= ========= ========= Assets 1999 1998 1997 --------- --------- --------- Oil and Gas $ 194,461 $ 189,300 $ 164,080 Aeromedical 30,113 31,918 27,367 Corporate 7,001 5,803 5,184 --------- --------- --------- Total $ 231,575 $ 227,021 $ 196,631 ========= ========= ========= 31 GEOGRAPHIC INFORMATION Operating Revenues 1999 1998 1997 --------- --------- --------- United States $ 223,227 $ 213,781 $ 189,221 Angola 14,541 12,891 11,469 Other Foreign 9,571 9,910 10,973 --------- --------- --------- Total $ 247,339 $ 236,582 $ 211,663 ========= ========= ========= Long-lived Assets 1999 1998 1997 --------- --------- --------- United States $ 128,541 $ 121,161 $ 109,543 Angola 5,240 2,120 2,258 Other Foreign 10,779 11,838 10,026 --------- --------- --------- Total $ 144,560 $ 135,119 $ 121,827 ========= ========= ========= (10) QUARTERLY FINANCIAL DATA (UNAUDITED) The summarized quarterly results of operations for the years ended April 30, 1999 and 1998 (in thousands of dollars, except per share data) are as follows:
Quarter Ended -------------------------------------------------------------------- July 31,1998 October 31, 1998 January 31, 1999 April 30, 1999 -------------------------------------------------------------------- Revenues $ 62,377 $ 65,478 $ 62,276 $ 60,751 Gross profit 8,929 11,201 7,685 5,008 Net earnings 2,002 1,954 1,202 (2,170)(1) Net earnings per share-basic 0.39 0.38 0.23 (0.42)(1) Net earnings per share-diluted 0.38 0.37 0.23 (0.42)(1) Quarter Ended -------------------------------------------------------------------- July 31,1997 October 31, 1997 January 31, 1998 April 30, 1998 -------------------------------------------------------------------- Revenues $ 56,360 $ 57,591 $ 59,482 $ 65,413 Gross profit 7,661 7,871 8,103 9,526 Net earnings 1,775 1,554 1,820 2,268 Net earnings per share-basic 0.35 0.30 0.36 0.44 Net earnings per share-diluted 0.34 0.30 0.35 0.44
(1) Includes the effect of special charges recognized in the fourth quarter of $ 4.9 million ($ 2.9 million after tax or $ 0.56 per diluted share). Also includes a charge of $ 1.7 million ($ 1.0 million after tax or $ 0.19 per diluted share) for slow moving inventory. (11) AIR EVAC ACQUISITION On December 31, 1997, PHI purchased the net assets of Samaritan AirEvac for approximately $ 8.8 million. The purchase involved all of the operating assets and business of Samaritan AirEvac, an air medical services division of Samaritan Health System based in Arizona and a customer of PHI's since June 12, 1993. The cost of the acquisition was recorded under the purchase method of accounting. The results of Air Evac's operations have been consolidated with the Company's results effective January 1, 1998. 32 The following unaudited pro forma information presents a summary of consolidated results of operations as if the acquisition had occurred on May 1, 1996 with pro forma adjustments to give effects to depreciation, interest expense and certain other adjustments together with related income tax effects (in thousands, except per share amounts): 1998 1997 --------- --------- Revenues $ 248,886 $ 227,448 Net earnings 7,849 7,118 Basic earnings per share 1.53 1.40 Diluted earnings per share 1.51 1.38 The above pro forma financial information is not necessarily indicative of the results of operations as they would have been had the acquisition been effected on the assumed date. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON _________________________________________________________ ACCOUNTING AND FINANCIAL DISCLOSURES ____________________________________ There have been no changes in and there are no disagreements between the Company and its independent certified public accountants on accounting and financial disclosure matters. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ___________________________________________________________ Information concerning Directors required by this item will be included in the Company's definitive proxy statement in connection with its 1999 Annual Meeting of Shareholders and is incorporated herein by reference. Information concerning Executive Officers is included as Item 4.(a) "Executive officers of the registrant." ITEM 11. EXECUTIVE COMPENSATION _______________________________ Information required by this item will be included in the Company's definitive proxy statement in connection with its 1999 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT _______________________________________________________________________ Information required by this item will be included in the Company's definitive proxy statement in connection with its 1999 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS _______________________________________________________ Information required by this item will be included in the Company's definitive proxy statement in connection with its 1999 Annual Meeting of Shareholders and is incorporated herein by reference. 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ________________________________________________________________________ (a) 1. Financial Statements Included in Part II of this report: Independent Auditors' Report Consolidated Balance Sheets - April 30, 1999 and 1998 Consolidated Statements of Earnings for the three years ended April 30, 1999 Consolidated Statements of Shareholders' Equity for the three years ended April 30, 1999 Consolidated Statements of Cash Flows for the three years ended April 30, 1999 Notes to Consolidated Financial Statements 2. Financial Statement Schedules Schedule II - Valuation and Qualifying accounts for the years ended April 30, 1999, 1998 and 1997. 3. Exhibits 3 Articles of Incorporation and By-laws 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 as amended on August 18, 1996 (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). 10 Material Contracts 10.1 Master Helicopter Lease Agreement dated May 29, 1991 between AT&T Systems Leasing Corporation and PHI (incorporated by reference to Exhibit No. 10.1 (2) to PHI's Report on Form 10-K dated April 30, 1992). 10.2 Master Helicopter Lease Agreement dated February 14, 1991 between General Electric Capital Corporation and PHI (incorporated by reference to Exhibit No. 10.1 (1) to PHI's Report on Form 10-K dated April 30, 1991). 10.3 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, First National Bank of Commerce and NationsBank of Texas, N.A., as agent (incorporated by reference to Exhibit No. 10.3 to PHI's Report on Form 10-K dated April 30, 1997). 34 10.4 Installment promissory note dated June 4, 1993 by PHI payable to debis Financial Services, Inc. in the original principal amount of $ 3,122,441.56, secured by Aircraft Security Agreement dated June 4, 1993 between PHI and debis Financial Services, Inc. (incorporated by reference to Exhibit No. 10.4 to PHI's Report on Form 10-K dated April 30, 1993). 10.5 Installment Promissory Note dated June 4, 1993 by PHI payable to debis Financial Services, Inc. in the original principal amount of $ 3,078,695.58, secured by Aircraft Security Agreement dated June 4, 1993 between PHI and debis Financial Services, Inc. (incorporated by reference to Exhibit No. 10.5 to PHI's Report on Form 10-K dated April 30, 1993). 10.6 Installment Promissory Note dated June 4, 1993 by PHI payable to debis Financial Services, Inc. in the original principal amount of $ 3,078,695.58, secured by Aircraft Security Agreement dated June 4, 1993 between PHI and debis Financial Services, Inc. (incorporated by reference to Exhibit No. 10.6 to PHI's Report on Form 10-K dated April 30, 1993). 10.7 The Petroleum Helicopters, Inc. 401(k) Retirement Plan effective July 1, 1989 (incorporated by reference to Exhibit No. 10.4 to PHI's Report on Form 10-K dated April 30, 1990). 10.8 Petroleum Helicopters, Inc. 1992 Non-Qualified Stock Option and Stock Appreciation Rights Plan adopted by PHI's Board effective May 1, 1992 and approved by the shareholders of PHI on September 30, 1992 (incorporated by reference to Exhibit No. 10.8 to PHI's Report on Form 10-K dated April 30, 1993). 10.9 Form of Stock Option Agreement for the Grant of Non-Qualified Stock Options Under the Petroleum Helicopters, Inc. 1992 Non-Qualified Stock Option and Stock Appreciation Rights Plan dated June 2, 1993 between PHI and certain of its key employees (incorporated by reference to Exhibit No. 10.9 to PHI's Report on Form 10-K dated April 30, 1993). 10.10 Amended and Restated Petroleum Helicopters, Inc. 1995 Incentive Compensation Plan adopted by PHI's Board effective July 11, 1995 and approved by the shareholders of PHI on September 22, 1995 (incorporated by reference to Exhibit No 10.12 to PHI's Report on Form 10-K dated April 30,1996). 10.11 Form of Non-Qualified Stock Option Agreement under the Petroleum Helicopters, Inc. 1995 Incentive Compensation Plan between PHI and certain of its key employees (incorporated by reference to Exhibit No. 10.13 to PHI's Report on Form 10-K dated April 30, 1996). 10.12 Form of Restricted Stock Agreement under the Amended and Restated Petroleum Helicopters, Inc. 1995 Incentive Compensation Plan, as amended (incorporated by reference to Exhibit No. 10.2 to PHI's Report on Form 10-Q dated October 31, 1996). 10.13 Non-qualified Stock Option Agreement under the Amended and Restated Petroleum Helicopters, Inc. 1995 Incentive Compensation Plan, as amended between PHI and Carroll W. Suggs (incorporated by reference to Exhibit 10.3 to PHI's Report on Form 10-Q dated October 31, 1996). 10.14 Loan Agreement dated as of December 31, 1997 among Air Evac Services Inc, Whitney National Bank, First National Bank of Commerce and NationsBank of Texas, N.A. (incorporated by reference to Exhibit No. 10.1 to PHI's Report on Form 10-Q dated January 31, 1998). 10.15 Asset Purchase Agreement between Samaritan Health System and Air Evac Services, Inc. (incorporated by reference to Exhibit No. 10.2 to PHI's Report on Form 10-Q dated January 31, 1998). 10.16 Second Amendment (dated November 30, 1998) 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 NationsBank of Texas, N.A., as agent (incorporated by reference to Exhibit No. 10.1 to PHI's Report on Form 10-Q dated January 31, 1999). 35 10.17 Directors Stock and Deferred Compensation Plan (incorporated by reference to Exhibit A to PHI's Proxy originally filed on August 28, 1998, and amended on September 18, 1998). 10.18 Director Deferred Compensation Plan adopted by PHI's Board effective May 31, 1995. 10.19 Officer Deferred Compensation Plan adopted by PHI's Board effective May 31, 1995. 10.20 Supplemental Executive Retirement Plan adopted by PHI's Board effective September 1, 1994. 21 Subsidiaries of the Registrant 23.1 Consent of KPMG LLP 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the fourth quarter of fiscal 1999. 36 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts For the Years Ended April 30, 1999, 1998 and 1997 (Thousands of dollars)
Additions ------------------------ Balance at Charged to Charged to Balance at Beginning Costs and Other End Description of Year Expenses Accounts Deductions of Year - ----------------------------------------------------------------------------------------------------------- Year ended April 30, 1999: Allowance for doubtful accounts $ 1,962 $ 182 $ - $ 460 $ 1,684 Allowance for obsolete inventory 1,889 280 - - 2,169 Year ended April 30, 1998: Allowance for doubtful accounts $ 1,160 $ 1,038 $ - $ 236 $ 1,962 Allowance for obsolete inventory 2,389 - - 500 1,889 Year Ended April 30, 1997 Allowance for doubtful accounts $ 923 $ 415 $ - $ 178 $ 1,160 Allowance for obsolete inventory 2,389 - - - 2,389
37 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PETROLEUM HELICOPTERS, INC. By: /s/ Carroll W. Suggs ------------------------------------ Carroll W. Suggs Chairman of the Board, President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Carroll W. Suggs Chairman of the Board, President July 16, 1999 - ----------------------- Chief Executive Officer and Carroll W. Suggs Director (Principal Executive Officer) /s/ Michael J. McCann Chief Financial Officer July 16, 1999 - ----------------------- (Principal Financial and Michael J. McCann Accounting Officer) /s/ Leonard M. Horner Director July 16, 1999 - ----------------------- Leonard M. Horner /s/ James W. McFarland Director July 16, 1999 - ----------------------- James W. McFarland /s/ Bruce N. Whitman Director July 16, 1999 - ----------------------- Bruce N. Whitman /s/ Thomas H. Murphy Director July 16, 1999 - ----------------------- Thomas H. Murphy 38 EX-10 2 Exhibit 10.18 PETROLEUM HELICOPTERS, INC. DIRECTOR DEFERRED COMPENSATION PLAN 1. Purpose. The purpose of the Director Deferred Compensation Plan (the "Plan") of Petroleum Helicopters, Inc., a Louisiana corporation ("PHI"), is to provide the directors of PHI (the "Directors") with an opportunity to defer their director compensation in order to assist in their individual financial planning. 2. Effective Date and Term of Plan. The Plan shall be effective as of May 31, 1995 and shall remain in effect until terminated by the Board of Directors or the Compensation Committee (the "Committee") of the Board of Directors of PHI. 3. Plan Administration. The Plan shall be administered by the Committee. The Committee shall have full and final authority to interpret the Plan, adopt, amend and rescind rules and regulations relating to the Plan, and make all other determinations and take all other actions necessary and advisable for the administration of the Plan. 4. Deferral of Compensation. 4.1 Deferral Elections. Each Director may elect to defer 100% of the compensation that the Director receives for serving as a Director ("Compensation") in twenty-five percent increments to his or her deferred compensation account. An election to defer Compensation hereunder shall be made by means of a Deferral Election Form in the form attached and shall be effective only with respect to Compensation earned on or after the date of the first annual meeting of shareholders of PHI following the receipt of the Deferral Election form by the Committee. "Compensation" includes the annual retainer and meeting fees paid to Directors, but does not include any expense reimbursement. 4.2 Revocation of Elections. A Director may revoke an election made pursuant to Plan Section 4.1 with respect to deferrals of Compensation to be earned in the future following receipt of the written revocation by the Committee and subject to such other rules as may be established by the Committee. If a Director revokes an election to defer, the Director may not again participate in the Plan in the year for which the deferral election was revoked. A Director may modify a deferral election for future years of service by providing the Committee with a new Deferral Election Form to take effect on the date of the next annual meeting of shareholders. 5. Deferred Compensation Accounts 5.1 Establishment of Accounts. A deferred compensation account shall be established on PHI's books for each Director who executes a Deferral Election Form. PHI has no obligation to fund a participant's deferred compensation account. 5.2 Crediting of Deferrals. A Director's deferred compensation account shall be credited with that portion of the Director's Compensation that the Director has elected to defer to his or her deferred compensation account pursuant to Plan Section 4.1 as of the date such Compensation would otherwise have been paid to the Director. 5.3 Crediting Income. Each deferred compensation account shall be credited with an amount of interest as of the last day of each month determined by applying to the weighted average balance of such account during such month an annual rate of interest equal to the sum of (i) the representative prime rate published in the Wall Street Journal for the nation's largest banks on the last business day of such month plus (ii) two (2%) percent (the "Adjusted Prime Rate"). In the event a distribution is made from a deferred compensation account other than on the last day of a month, interest shall be credited for such partial month through the date of distribution by applying the Adjusted Prime Rate on the last business day prior to the distribution to the weighted average balance of such account during such partial month. 5.4 Distribution of Accounts. Amounts credited to a Director's deferred compensation account shall be distributed in either a single lump sum or annual installments (not to exceed twenty), as designated by the Director in his or her applicable Deferral Election Form. Distribution of a deferred compensation account shall be made (in the case of a lump sum payment) or commence (in the case of installment payments) thirty days following the date chosen by the Director, which must be at least one year following the date of the Deferral Election Form or, if earlier, thirty days following the date the Director ceases to be a member of the Board of Directors, other than as a result of death. If a Director elects to have his or her deferred compensation account distributed in installments, the amount of the first installment shall be a fraction of the value of the Director's deferred compensation account, the numerator of which is one and denominator of which is the total number of installments elected, and the amount of each subsequent installment shall be a fraction of the value on the date preceding each subsequent payment, the numerator of which is one and the denominator of which is the total number of installments elected minus the number of installments previously paid. 5.5 Distribution Upon Death. In the event of the death of a Director prior to the distribution of his or her deferred compensation account in full, the value of such deferred compensation account shall be determined as of the day immediately following the Director's death and such amount shall be distributed in a single lump sum payment to the Director's estate as soon as administratively feasible thereafter. 5.6 Statement of Account. At least once per year, each Director who has executed a Deferral Election Form shall be provided with a statement of his or her deferred compensation account. 5.7 Director's Rights Unsecured. The right of any Director to receive future distributions under the provisions of this Section 5 shall constitute an unsecured claim against the general assets of the Company. 6. No Right to Continue as a Director. Neither the Plan nor any action taken pursuant to the Plan, shall constitute evidence of any agreement or understanding, express or implied, that PHI will retain a participant as a Director for any period of time, or at any particular rate of compensation. 7. Amendment, Modification, and Termination. The Committee or the Board may at any time terminate, amend or modify the Plan. No amendment, modification or termination of the Plan shall in any manner adversely affect the rights of any participant with respect to amounts that have been credited to a deferred compensation account. 8. Non-alienation of Benefits. Other than with regard to the death of a Director, no benefit shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. No such benefit shall, prior to receipt by the Director, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Director. 9. Choice of Law. The laws of the State of Louisiana shall govern the Plan, to the extent not preempted by federal law. PETROLEUM HELICOPTERS, INC. By: /s/ Carroll W. Suggs __________________________ Carroll W. Suggs Chairman of the Board, President and Chief Executive Officer ATTEST: Secretary [CORPORATE SEAL] EX-10 3 Exhibit 10.19 PETROLEUM HELICOPTERS, INC. OFFICER DEFERRED COMPENSATION PLAN 1. Purpose. The purpose of the Officer Deferred Compensation Plan (the "Plan") of Petroleum Helicopters, Inc., a Louisiana corporation ("PHI"), is to provide certain officers of PHI (the "Officers") designated by the Compensation Committee of the Board of Directors of PHI (the "Committee") with an opportunity to defer their compensation in order to assist in their individual financial planning. 2. Effective Date and Term of Plan. The Plan shall be effective as of May 31, 1995 and shall remain in effect until terminated by the Board of Directors or the Committee. 3. Plan Administration. The Plan shall be administered by the Committee. The Committee shall have full and final authority to interpret the Plan, adopt, amend and rescind rules and regulations relating to the Plan, and make all other determinations and take all other actions necessary and advisable for the administration of the Plan. 4. Deferral of Compensation. 4.1 Deferral Elections. Each Officer may elect to defer to his or her deferred compensation account up to 25% of salary in one percent increments and 100% of any bonus received for services provided to the Company ("Compensation") in one percent increments up to twenty-five percent and five percent increments thereafter. An election to defer Compensation hereunder shall be made by means of a Deferral Election Form in the form attached. For calendar year 1995, an Officer may defer Compensation to be paid to the Officer following receipt of the Deferral Election Form by the Committee, if the Deferral Election Form is received by the Committee on or before June 30, 1995. Deferrals of Compensation for subsequent years will only be effective with respect to salary if the Deferral Election Form is received by the Committee prior to the beginning of the calendar year for which the salary will be paid and with respect to bonus if the Deferral Election Form is received by the Committee prior to the beginning of the fiscal year of the Company for which the bonus will be paid. 4.2 Revocation of Elections. An Officer may revoke an election made pursuant to Section 4.1 with respect to deferrals of Compensation to be earned in the future following receipt of the written revocation by the Committee and subject to such other rules as may be established by the Committee. If an Officer revokes an election to defer, the Officer may not again participate in the Plan in the year for which the deferral election was revoked. 5. Deferred Compensation Accounts 5.1 Establishment of Accounts. A deferred compensation account shall be established on PHI's books for each Officer who executes a Deferral Election Form. PHI has no obligation to fund a participant's deferred compensation account. 5.2 Crediting of Deferrals. An Officer's deferred compensation account shall be credited with that portion of the Officer's Compensation that the Officer has elected to defer to his or her deferred compensation account pursuant to Section 4.1 as of the date such Compensation would otherwise have been paid to the Officer. 5.3 Crediting Income. Each deferred compensation account shall be credited with an amount of interest as of the last day of each month determined by applying to the weighted average balance of such account during such month an annual rate of interest equal to the sum of (i) the representative prime rate published in the Wall Street Journal for the nation's largest banks on the last business day of such month plus (ii) two (2%) percent (the "Adjusted Prime Rate"). In the event a distribution is made from a deferred compensation account other than on the last day of a month, interest shall be credited for such partial month through the date of distribution by applying the Adjusted Prime Rate on the last business day prior to the distribution to the weighted average balance of such account during such partial month. 5.4 Distribution of Accounts. Amounts credited to an Officer's deferred compensation account shall be distributed in either a single lump sum or annual installments (not to exceed twenty), as designated by the Officer in his or her applicable Deferral Election Form. Distribution of a deferred compensation account shall be made (in the case of a lump sum payment) or commence (in the case of installment payments) thirty days following the date chosen by the Officer, which must be at least one year following the date of the Deferral Election Form or, if earlier, thirty days following the date the Officer ceases to be employed by the Company, other than as a result of death. If an Officer elects to have his or her deferred compensation account distributed in installments, the amount of the first installment shall be a fraction of the value of the Officer's deferred compensation account, the numerator of which is one and denominator of which is the total number of installments elected, and the amount of each subsequent installment shall be a fraction of the value on the date preceding each subsequent payment, the numerator of which is one and the denominator of which is the total number of installments elected minus the number of installments previously paid. 5.5 Distribution Upon Death. In the event of the death of an Officer prior to the distribution of his or her deferred compensation account in full, the value of such deferred compensation account shall be determined as of the day immediately following the Officer's death and such amount shall be distributed in a single lump sum payment to the Officer's estate as soon as administratively feasible thereafter. 5.6 Statement of Account. At least once per year, each Officer who has executed a Deferral Election Form shall be provided with a statement of his or her deferred compensation account. 5.7 Officer's Rights Unsecured. The right of any Officer to receive future distributions under the provisions of this Section 5 shall constitute an unsecured claim against the general assets of the Company. 6. No Right to Continue as an Officer. Neither the Plan nor any action taken pursuant to the Plan, shall constitute evidence of any agreement or understanding, express or implied, that PHI will retain a participant as an employee for any period of time, or at any particular rate of compensation. 7. Amendment, Modification, and Termination. The Committee or the Board may at any time terminate, amend or modify the Plan. No amendment, modification or termination of the Plan shall in any manner adversely affect the rights of any participant with respect to amounts that have been credited to a deferred compensation account. 8. Non-alienation of Benefits. Other than with regard to the death of an Officer, no benefit shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. No such benefit shall, prior to receipt by the Officer, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Officer. 9. Choice of Law. The laws of the State of Louisiana shall govern the Plan, to the extent not preempted by federal law. PETROLEUM HELICOPTERS, INC. By: /s/ Carroll W. Suggs _________________________ Carroll W. Suggs Chairman of the Board, President and Chief Executive Officer ATTEST: Secretary [CORPORATE SEAL] EX-10 4 Exhibit 10.20 PETROLEUM HELICOPTERS, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1. Purpose. The purpose of the Supplemental Executive Retirement Plan (the "Plan") of Petroleum Helicopters Inc., (PHI), is to provide certain employees of PHI (the "Participants") designated by the Compensation Committee (the "Committee") of the Board of Directors of PHI (the "Board") with retirement, disability and death benefits to supplement existing retirement benefits which may or may not have been reduced by Internal Revenue Service (the "IRS") regulations and other applicable rules and regulations. 2. Effective Date and Term of Plan. The plan shall be effective as of September 1, 1994 and shall remain in effect until terminated by the Board. 3. Plan Administration. The Plan shall be administered by the Committee. The Committee shall have full and final authority to interpret the Plan, adopt, amend and rescind rules and regulations relating to the Plan, and make all other determinations and take all other actions necessary and advisable for the administration of the Plan. 4. Participation. The Board will determine which employees of PHI and its subsidiaries will be Participants in the Plan. Participants will be required to sign a non- competition agreement with PHI in consideration for benefits under this Plan. 5. Gender. Whenever used in this Plan document the masculine gender includes the feminine. Also whenever used in this plan document the feminine gender includes the masculine. 6. Plan Benefits. The Plan provides for Participants to receive benefits based on one-third (1/3) of the Participants annual salary at the time of adoption, payable as provided below 7. Plan Funding. PHI reserves the right to either fund the obligations undertaken by this Plan or refrain from funding the same and to determine the extent, nature and method of funding. Should PHI elect to fund the plan through the purchases of life insurance, mutual funds, disability policies, or annuities, PHI reserves the right in its sole discretion to terminate such funding at any time, in whole or in part. 8. Distribution of Benefits 8.1 Distribution Upon Retirement At Age 65. a. A Participant will receive annual Benefits upon retirement from active service from PHI at age 65 or later and those Benefits will continue for 15 years from and after his or her retirement. Benefits will be paid in equal quarterly installments commencing with the first day of the first calendar quarter following his or her retirement. b. If a Participant dies after Benefits becomes payable under paragraph a. above, PHI shall continue to pay Benefits during the remainder of the fifteen (15) year period (the "Remaining Benefits") to the Participant's designated beneficiary, in accordance with the last such designation received by PHI from the Participant before his or her death. If no such designation has been received by PHI from the Participant before his or her death, Remaining Benefits shall be paid to (i) the Participant's then living spouse, for so long as the spouse shall live, or (ii) if the Participant is not survived by a spouse or if the spouse shall die before all Remaining Benefits have been paid, the then living children of the Participant, if any, in equal shares, or (iii) if the Participant is not survived by a spouse for the full period Remaining Benefits are payable, or by any children, to the estate of the Participant. 8.2 Distribution Upon Death. a. If a Participant dies while employed by PHI, PHI shall provide the benefit for a period of fifteen (15) years, payable in quarterly installments, commencing with the first day of the first calendar quarter following the date of his death, to the Participant's designated beneficiary in accordance with the last such designation received by PHI from the Participant prior to his death. b.If no such designation has been received by PHI from the Participant before his or her death, Remaining Benefits shall be paid to (i) the Participant's then living spouse for so long as the spouse shall live, or (ii) if the Participant is not survived by a spouse or if the spouse shall die before all Remaining Benefits have been paid, the then living children of the Participant, if any, in equal shares, or (iii) if the Participant is not survived by a spouse for the full period Remaining Benefits are payable, or by any children, to the estate of the Participant. 8.3 Distribution Upon Disability. a. The terms "Disability" and "Disabled" shall have the meaning set forth under the disability policy that is made available to the Participant by PHI at the time of commencement of the Disability. If no such policy is available, Disability shall mean the total and permanent incapacity of the Participant to engage in any substantial gainful employment and which qualifies him for commencement of benefits for permanent and total disability under the Federal Old Age and Survivor Insurance. b. If while actively employed, Participant becomes disabled, he will receive annual benefits from PHI beginning on his 65th birthday and those benefits will continue for 15 years from that date. Benefits will be paid in equal quarterly installments commencing on the above date. c. If a Participant dies after Benefits become payable under paragraph b. above, PHI shall continue to pay Benefits during the remainder of the fifteen (15) year period (the "Remaining Benefits") to the Participant's designated beneficiary, in accordance with the last such designation received by PHI from the Participant before his or her death. If no such designation has been received by PHI from the Participant before his or her death, Remaining Benefits shall be paid to (i) the Participant's then living spouse for so long as the spouse shall live, or (ii) if the Participant is not survived by a spouse or if the spouse shall die before all Remaining Benefits have been paid, the then living children of the Participant, if any, in equal shares, or (iii) if the Participant is not survived by a spouse for the full period Remaining Benefits are payable, or by any children, to the estate of the Participant. 8.4 Termination of Employment Prior to Age 65. The Participant forfeits all rights and privileges under this plan if he terminates employment with PHI prior to attaining age 65 for any reason other than death or disability, including retirement, discharge, resignation, reduction in force, or any other cause for termination. 8.5 Participant's Rights Unsecured. The right of any Participant to receive future distributions under the provisions of this Plan shall constitute an unsecured claim against the general assets of PHI. 9. No Right to Continue as an Employee. Neither the Plan nor any action taken pursuant to the Plan shall constitute evidence of any agreement or understanding, express or implied, that PHI will retain a Participant as an employee for any period of time, or at any particular rate of compensation. 10. ERISA Provisions 10.1 Name Fiduciary and Plan Administrator The "Named Fiduciary and Plan Administrator" of this plan shall be Richard Rovinelli until his resignation or removal by the Board of Directors. As Named Fiduciary and Plan Administrator, Richard Rovinelli shall be responsible for the management, control, and administration of this Plan as established herein. He may delegate to others certain aspects of the management and operation responsibilities of the Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. 10.2 Claim Procedure and Arbitration In the event that benefits under this Plan are not paid to the Employee (or to his beneficiary) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above within sixty (60) days for the date payments are refused. The Named Fiduciary and Plan Administrator and PHI shall review the written claim and, if the claim is denied in whole or in part, they shall provide, in writing and within ninety (90) days of receipts of such claim, their specific reasons for such denial and references to the provisions of this Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by the claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Plan Fiduciary and Administrator fails to take any action within the aforementioned ninety (90) day period. If claimant desires a second review, they shall notify the Plan Fiduciary and Administrator in writing within sixty (60) days of the first claim denial. Claimants may review the Plan or any documents relating thereto and submit written issues and comments they may feel appropriate. In its sole discretion, the Plan Fiduciary and Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. If claimants continue to dispute the benefit denial and/the meaning and effect of the terms and conditions of this Plan, then claimant may submit the dispute to a Board of Arbitration for final arbitration. Said Board shall consist of one member selected by the claimant, one member selected by PHI, and a third member selected by the first two members. The Board shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors, and assigns shall be bound by the decision of such Board with respect to any controversy properly submitted to it for determination. 11. Amendment, Modification, and Termination. The Board may at any time terminate, amend, or modify the Plan. 12. Non Alienation of Benefits. Other than with regard to the death of a Participant, no Benefit shall be subject in any manner to alienation, sale, transfer, assignment, pledge, lien encumbrance or charge, and any attempt to do so will be void. No Benefit shall, prior to receipt by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Participants. 13. Choice of Law. The laws of the State of Louisiana shall govern the Plan, to the extent not preempted by federal law. PETROLEUM HELICOPTERS, INC. By: /s/ Carroll W. Suggs __________________________ Carroll W. Suggs Chairman of the Board, President and Chief Executive Officer ATTEST: ________________________________ Secretary [CORPORATE SEAL] EX-21 5 Exhibit 21 Petroleum Helicopters Inc. Subsidiaries of the Registrant at April 30, 1999
PLACE OF % OF VOTING COMPANY INCORPORATION STOCK OWNED - ------- ------------- ------------- International Helicopter Transport, Inc. Louisiana 100% Evangeline Airmotive, Inc. Louisiana 100% Petroleum Helicopters De Bolivia, Inc. Delaware 100% Heli-Tours, Inc. Louisiana 100% Acadian Composites, Inc. Louisiana 100% Transnational Transit LTD Trinidad 20% Asia Aircraft Overseas Philippines Philippines 30% Siam Aerospace Technology Thailand 48% Clintondale Aviation New York 50% Air Evac Services, Inc. Louisiana 100% PHI Aeromedical Services, Inc. Louisiana 100% Petroleum Helicopters International,Inc Louisiana 100%
EX-23 6 Exhibit 23.1 Consent of Independent Auditors The Board of Directors Petroleum Helicopters, Inc.: We consent to incorporation by reference in registration statements No. 33-51617 on Form S-8 and No. 333-02025 on Form S-8 of Petroleum Helicopters, Inc. of our report dated June 11, 1999, relating to the consolidated balance sheets of Petroleum Helicopters, Inc. and subsidiaries as of April 30, 1999 and 1998, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended April 30, 1999, and the related schedule, which report appears in the April 30, 1999 annual report on Form 10-K of Petroleum Helicopters, Inc. /s/ KPMG LLP ------------ KPMG LLP New Orleans, Louisiana July 23, 1999 EX-27 7
5 This schedule contains summary financial information from condensed financial statements for the period ending April 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000350403 GEOFF STANFORD 1,000 YEAR APR-30-1999 MAY-01-1998 APR-30-1999 3,025 0 43,919 1,684 34,902 85,188 272,330 127,770 231,575 34,158 0 0 0 516 96,065 231,575 247,339 250,882 214,516 214,516 0 0 6,017 5,034 2,046 2,988 0 0 0 2,988 0.58 0.57
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