-----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, IXrdywlHVVGbKiUIfYPMvjZgV7aSKHY1yNkEb1I1ZLfLsKVrOKM94XK3CNfMTito 3tdAAB7P1sgdEwjIa+mtoA== 0000950134-02-010133.txt : 20020814 0000950134-02-010133.hdr.sgml : 20020814 20020814175933 ACCESSION NUMBER: 0000950134-02-010133 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09827 FILM NUMBER: 02737681 BUSINESS ADDRESS: STREET 1: 2001 SE EVANGELINE THRUWAY STREET 2: - CITY: LAFAYETTE STATE: LA ZIP: 70508 BUSINESS PHONE: - MAIL ADDRESS: STREET 1: PO BOX 90808 CITY: LAFAYETTE STATE: LA ZIP: 70509 10-Q 1 d98913e10vq.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2002 ================================================================================ Securities and Exchange Commission Washington, D. C. 20549 FORM 10-Q [X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: June 30, 2002 OR [ ] Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period __________ from to __________ Commission file number 0-9827 PETROLEUM HELICOPTERS, INC. (Exact name of registrant as specified in its charter) LOUISIANA 72-0395707 (STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.) ORGANIZATION) 2001 SE EVANGELINE THRUWAY LAFAYETTE, LOUISIANA 70508 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (337) 235-2452 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at July 31, 2002 ----- ---------------------------- Voting Common Stock 2,851,866 shares Non-Voting Common Stock 2,503,702 shares
================================================================================ PETROLEUM HELICOPTERS, INC. INDEX - FORM 10-Q Part I - Financial Information Item 1. Financial Statements - Unaudited Condensed Consolidated Balance Sheets - June 30, 2002 and December 31, 2001 ................................................ 3 Condensed Consolidated Statements of Operations - Three Months and Six Months Ended June 30, 2002 and 2001................ 4 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001 .............................. 5 Notes to Consolidated Financial Statements .......................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................. 16 Item 3. Quantitative and Qualitative Disclosures about Market Risk ......................................................... 25 Part II - Other Information Item 1. Legal Proceedings ....................................................... 26 Item 4. Submission of Matters to a Vote of Security Holders ..................... 26 Item 6. Exhibits and Reports on Form 8-K ........................................ 26 Signature ............................................................... 27
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS, EXCEPT SHARE DATA) (UNAUDITED)
JUNE 30, DECEMBER 31, 2002 2001 ---------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 19,167 $ 5,435 Accounts receivable -- net of allowance: Trade 42,654 45,361 Other 2,515 1,649 Inventory 35,339 34,382 Other current assets 8,076 5,799 Refundable income taxes 780 -- ---------- ---------- Total current assets 108,531 92,626 Property and equipment, net 239,383 122,168 Other 11,586 10,851 ---------- ---------- Total Assets $ 359,500 $ 225,645 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 28,685 $ 28,247 Accrued vacation payable 5,789 7,020 Income taxes payable -- 2,428 Current maturities of long-term debt and capital lease obligations -- 7,944 ---------- ---------- Total current liabilities 34,474 45,639 Long-term debt and capital lease obligations, net of current maturities 200,000 58,672 Deferred income taxes 18,777 17,612 Other long-term liabilities 7,554 11,850 Commitments and contingencies (Note 3) Shareholders' Equity Voting common stock -- par value of $0.10; authorized shares of 12,500,000 285 285 Non-voting common stock -- par value of $0.10; authorized shares of 12,500,000 249 241 Additional paid-in capital 14,517 13,327 Accumulated other comprehensive loss -- (2,030) Retained earnings 83,644 80,049 ---------- ---------- Total shareholders' equity 98,695 91,872 ---------- ---------- Total Liabilities and Shareholders' Equity $ 359,500 $ 225,645 ========== ==========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------- ------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Operating revenues $ 69,596 $ 68,534 $ 136,454 $ 131,793 Gain on disposition of property and equipment 285 273 848 2,304 Other 1,026 430 1,092 430 ---------- ---------- ---------- ---------- 70,907 69,237 138,394 134,527 ---------- ---------- ---------- ---------- Expenses: Direct expenses 56,967 58,790 115,060 117,606 Selling, general, and administrative expenses 5,319 4,414 10,032 9,094 Interest expense 5,983 1,651 7,291 3,372 ---------- ---------- ---------- ---------- 68,269 64,855 132,383 130,072 ---------- ---------- ---------- ---------- Earnings before income taxes 2,638 4,382 6,011 4,455 Income taxes 1,058 1,622 2,403 1,649 ---------- ---------- ---------- ---------- Net earnings $ 1,580 $ 2,760 $ 3,608 $ 2,806 ========== ========== ========== ========== Weighted average common shares outstanding: Basic 5,319 5,170 5,299 5,169 Diluted 5,434 5,305 5,410 5,226 Net earnings per common share: Basic $ 0.30 $ 0.53 $ 0.68 $ 0.54 Diluted $ 0.29 $ 0.52 $ 0.67 $ 0.54
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (THOUSANDS OF DOLLARS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 3,608 $ 2,806 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 9,568 7,861 Deferred income taxes 1,165 1,810 Gain on asset dispositions (848) (2,272) Bad debt recovery related to notes receivable (731) -- Other (20) 400 Changes in operating assets and liabilities 4,022 (7,639) ---------- ---------- Net cash provided by operating activities 16,764 2,966 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from notes receivable 429 71 Purchase of property and equipment (14,883) (12,311) Purchase of aircraft previously leased (118,076) -- Proceeds from asset dispositions 2,418 12,441 ---------- ---------- Net cash provided by (used in) investing activities (130,112) 201 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 200,000 2,500 Less fees and expenses (5,627) -- Payments on long-term debt and capital lease obligations (5,845) (5,049) Payment of long term debt from bond proceeds (60,771) -- Payment of interest rate swap settlement (1,575) -- Proceeds from exercise of stock options 898 10 ---------- ---------- Net cash provided by (used in) financing activities 127,080 (2,539) ---------- ---------- Increase in cash and cash equivalents 13,732 628 Cash and cash equivalents, beginning of period 5,435 863 ---------- ---------- Cash and cash equivalents, end of period $ 19,167 $ 1,491 ========== ========== SUPPLEMENTAL DISCLOSURES CASH FLOW INFORMATION: Interest paid (excluding interest rate swap settlement) $ 2,134 $ 3,195 ========== ========== Taxes paid (refunded), net $ 4,124 $ (2,682) ========== ==========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. GENERAL The accompanying unaudited condensed consolidated financial statements include the accounts of Petroleum Helicopters, Inc. and subsidiaries ("PHI" or the "Company"). In the opinion of management, these financial statements reflect all adjustments, consisting of only normal, recurring adjustments, necessary to present fairly the financial results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and the accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company's financial results, particularly as they relate to the Company's Domestic Oil & Gas operations, are influenced by seasonal fluctuations as discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Therefore, the results of operations for interim periods are not necessarily indicative of the operating results that may be expected for a full fiscal year. On April 23, 2002, the Company issued $200 million of 9 3/8% Senior Unsecured Notes ("Notes") that are due in 2009. The Company used the proceeds to acquire substantially all of the aircraft that it leased and to pay all amounts outstanding under its then existing bank loan agreement ("Terminated Loan Agreement"). As a result, the Company will incur significantly increased depreciation and interest expense and decreased aircraft lease expense. In the first quarter of 2002, lease expenses related to the acquired aircraft were $3.8 million. 2. SEGMENT INFORMATION The Company has identified four principal segments: Domestic Oil and Gas, International, Aeromedical, and Technical Services. The Domestic Oil and Gas segment primarily provides helicopter services to oil and gas customers operating in the Gulf of Mexico. The International segment provides helicopter services in various foreign countries to oil and gas customers, which primarily consists of operations in the west coast of Africa. The Aeromedical segment provides helicopter services to hospitals and medical programs in several U.S. states. The Company's Air Evac subsidiary is included in the Aeromedical segment. The Technical Services segment provides helicopter repair and overhaul services for a variety of helicopter owners and operators. Beginning late 2001, the Company changed the strategic focus of Technical Services from providing maintenance and overhaul services to all customers, to providing such services only to customers that are currently serviced by the Company's helicopter operations. The Company also plans to fulfill a contractual obligation to provide maintenance to certain military aircraft. Segment operating income is operating revenues less direct expenses, selling, general, and administrative costs, and interest expense allocated to the operating segment. Unallocated overhead consists primarily of corporate selling, general, and administrative costs that the Company does not allocate to the operating segments. 6
QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Segment operating revenues Domestic Oil and Gas $ 44,177 $ 46,302 $ 86,110 $ 86,268 International 5,253 5,230 11,442 11,069 Aeromedical 12,550 11,710 24,256 23,649 Technical Services 7,616 5,292 14,646 10,807 ---------- ---------- ---------- ---------- Total operating revenues $ 69,596 $ 68,534 $ 136,454 $ 131,793 ========== ========== ========== ========== Segment operating profit (loss): Domestic Oil and Gas $ 4,015 $ 6,517 $ 7,764 $ 7,208 International 310 (75) 936 (535) Aeromedical 1,968 (40) 3,221 880 Technical Services 1,203 1,109 2,060 1,741 ---------- ---------- ---------- ---------- Total segment operating profit 7,496 7,511 13,981 9,294 Other, net (1) 1,311 703 1,940 2,734 Unallocated overhead (6,169) (3,832) (9,910) (7,573) ---------- ---------- ---------- ---------- Earnings before income taxes $ 2,638 $ 4,382 $ 6,011 $ 4,455 ========== ========== ========== ==========
- ---------- (1) Includes gains on dispositions of property and equipment and other income. During the quarter ended June 30, 2002, the Company acquired substantially all of the aircraft that it leased. As a result, Domestic Oil & Gas segment assets increased by approximately $103.8 million and Aeromedical segment assets increased by approximately $11.6 million. 3. COMMITMENTS AND CONTINGENCIES Environmental Matters -- The Company has an aggregate estimated liability of $1.8 million as of June 30, 2002 for environmental remediation costs at various operation facilities that are probable and estimable. The Company has conducted environmental surveys of the Lafayette facility that it vacated in 2001, and has determined that contamination exists at that facility. To date, borings have been installed to determine the type and extent of contamination. Preliminary results indicate limited soil and groundwater impacts. Once the extent and type of contamination are fully defined, a risk evaluation in accordance with regulatory standards will be submitted and evaluated by the appropriate agency. At that point, the regulatory agency will establish what cleanup standards must be met at the site. When the process is complete, the Company will be in a position to develop the appropriate remediation plan and the resulting cost of remediation. The Company has not recorded any estimated liability for remediation at the facility, but based on preliminary surveys and ongoing monitoring, the Company believes the ultimate remediation costs for the Lafayette facility will not be material. Legal Matters -- The Company is named as a defendant in various legal actions that have arisen in the ordinary course of its business and have not been finally adjudicated. The amount, if any, of ultimate liability with respect to such matters cannot be determined. In the opinion of management, the amount of the ultimate liability with respect to these actions will not have a material adverse effect on results of operations, cash flow or financial position of the Company. Long-Term Debt -- On April 23, 2002, the Company issued Notes of $200 million that have an interest rate of 9 3/8% payable semi-annually on May 1 and November 1 of each year, beginning November 1, 2002, and mature in May 2009. The Notes contain certain covenants, including limitations on indebtedness, liens, dividends, repurchases of capital stock and other payments affecting restricted 7 subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset sales, and mergers and consolidations or sales of assets. The proceeds of the Notes were used to retire existing bank debt, interest rate swap agreements ("Swaps"), and to purchase 101 aircraft previously under leases. As of June 30, 2002, the Company used $186.0 million of the proceeds as follows (in thousands): Pay amounts outstanding under the Terminated Loan Agreement: Revolving credit facility $ 44,500 Term debt facility 16,271 Acquisition of 101 aircraft from leasing companies and financial institutions: Capital leases 2,679 Operating leases 115,397 Settlement of interest rate swap agreements 1,575 Fees and expenses related to the issue of the Notes 5,627 -------- Total $186,049 ========
Also on April 23, 2002, the Company entered into a new credit agreement with a commercial bank for a $50 million revolving credit and letter of credit facility. The credit agreement permits both prime rate based borrowings and "LIBOR" rate borrowings plus a spread. The spread for LIBOR borrowings is from 2.0% to 3.0%. Any amounts outstanding under the revolving credit facility are due July 31, 2004. The Company will pay an annual 0.375% commitment fee on the unused portion of the revolving credit facility. The Company may also obtain letters of credit issued under the credit facility up to $5.0 million with a 0.125% fee payable on the amount of letters of credit issued. As of July 31, 2002, the Company had no borrowings and a $0.6 million letter of credit outstanding under the revolving credit facility. The Company is subject to certain financial covenants under the credit agreement. These covenants include maintaining certain levels of working capital and shareholders' equity and contain other provisions including a restriction on purchases of the Company's stock. The credit agreement also limits the creation, incurrence, or assumption of Funded Debt (as defined, which includes long-term debt) and the acquisition of investments in unconsolidated subsidiaries. Operating Leases -- The Company leases three aircraft and certain facilities and equipment used in its operations. The related lease agreements, which include both non-cancelable and month-to-month terms, generally provide for fixed monthly rentals and, for certain real estate leases, renewal options. During the second quarter ended June 30, 2002, the Company acquired 99 aircraft that it had previously leased under operating leases. At June 30, 2002, the Company had approximately $21.4 million in aggregate lease commitments under operating leases of which approximately $2.2 million is payable during the next twelve months. Purchase Commitments -- At June 30, 2002, the Company had a commitment of $9 million for the upgrade of certain aircraft. The upgrade is to be performed in 2002 and 2003. 8 4. ACCUMULATED OTHER COMPREHENSIVE INCOME Following is a summary of the Company's comprehensive income (loss) for the quarter and six months ended June 30, 2002 and 2001 (in thousands):
QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net earnings $ 1,580 $ 2,760 $ 3,608 $ 2,806 Other comprehensive income (loss): Cumulative effect of adopting SFAS No. 133 -- -- -- 38 Unrecognized gain (loss) on interest rate swaps during the period -- 32 455 (903) Add reclassification adjustments for losses included in net income 1,575 -- 1,575 -- -------- -------- -------- -------- Comprehensive income $ 3,155 $ 2,792 $ 5,638 $ 1,941 ======== ======== ======== ========
During the second quarter ended June 30, 2002, the Company settled its interest rate swaps with the counterparties in conjunction with the payment of outstanding bank debt on April 23, 2002. 5. VALUATION ACCOUNTS 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 allowance for doubtful accounts was $0.6 million and $0.4 million at June 30, 2002 and December 31, 2001, respectively. The Company also establishes valuation reserves related to obsolescent and excess inventory. The inventory valuation reserves were $4.7 million and $4.3 million at June 30, 2002 and December 31, 2001, respectively. 6. SEVERANCE LIABILITY At December 31, 2001, the Company carried a severance liability of $0.3 covering two employees. During the six months ended June 30, 2002, the Company recorded costs of approximately $1.7 million related to a plan of termination and early retirement covering approximately 50 employees. At June 30, 2002, the Company carried severance liabilities of $0.8 million. The Company expects to pay the remaining severance liability, covering 15 employees, over the next 12 months. 7. EMPLOYEE INCENTIVE COMPENSATION For the year ended December 31, 2001, the Company recorded $1.3 million of compensation expense for a discretionary incentive bonus payable in 2002 to non-executive employees. As of June 30, 2002, the Company paid $0.8 million of the discretionary bonus and expects to pay the remaining amount in the third quarter of 2002. During the second quarter of 2002, the Company recorded $1.1 million of compensation expense for a discretionary incentive bonus paid to certain executive employees. Also during the second quarter of 2002, the Company implemented an incentive compensation plan for non-executive employees. Under the plan, the Company expects that it will pay incentive compensation of up to 7% of earnings before tax, net of the incentive compensation. In the second quarter of 2002, the 9 Company recorded $0.6 million of incentive compensation expense related to the first six months of 2002 that is payable in 2003. 8. PROPERTY AND EQUIPMENT The Company used $118.1 million of proceeds from the issuance of the Notes to acquire aircraft that it had previously leased. The Company will depreciate the acquired aircraft over five to 15 years using a 30% residual value. 9. NOTES FEES AND EXPENSES As a result of the issuance of the Notes, the Company incurred $5.6 million of fees and expenses. The Company has recorded these costs in other assets and will amortize the costs over the term of the Notes as an addition to interest expense. 10. RECEIVABLE FROM CLINTONDALE AVIATION, INC. As a result of the Company's previous divestiture of its 50% equity interest and related assets of Clintondale Aviation, Inc. ("Clintondale"), the Company had a promissory note receivable of $0.5 million recorded at its estimated net realizable value. During May 2002, the Company entered into a final agreement and received a $1.2 million payment from Clintondale in August 2002, resulting in a settlement that was $0.7 million better than previously estimated, which has been included in the accompanying results of operations (in "Other") during the quarter ended June 30, 2002. 11. CONDENSED CONSOLIDATED FINANCIAL INFORMATION On April 23, 2002, the Company issued Notes of $200 million that are fully and unconditionally guaranteed on a senior basis, jointly and severally, by all of the Company's existing operating subsidiaries ("Guarantor Subsidiaries"). The following supplemental condensed financial information sets forth, on a consolidating basis, the balance sheet, statement of operations, and statement of cash flows information for Petroleum Helicopters, Inc. ("Parent Company Only") and the Guarantor Subsidiaries. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and expenses. 10 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS (THOUSANDS OF DOLLARS)
JUNE 30, 2002 ------------------------------------------------------- PARENT COMPANY GUARANTOR ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ASSETS Current Assets: Cash and cash equivalents $ 19,150 $ 17 $ -- $ 19,167 Accounts receivable - net of allowance 41,230 3,939 -- 45,169 Inventory 35,339 -- -- 35,339 Other current assets 7,928 148 -- 8,076 Refundable income taxes 663 117 -- 780 -------- -------- -------- -------- Total current assets 104,310 4,221 -- 108,531 Property and equipment, net 235,735 3,648 -- 239,383 Investment in subsidiaries and other 19,809 6,268 (14,491) 11,586 -------- -------- -------- -------- Total Assets $359,854 $ 14,137 $(14,491) $359,500 ======== ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 29,473 $ 3,838 $ (4,626) $ 28,685 Accrued vacation payable 5,533 256 -- 5,789 -------- -------- -------- -------- Total current liabilities 35,006 4,094 (4,626) 34,474 Long-term debt net of current maturities 200,000 -- -- 200,000 Deferred income taxes and other long-term liabilities 26,153 -- 178 26,331 Shareholders' Equity: Paid-in capital 15,051 4,403 (4,403) 15,051 Retained earnings 83,644 5,640 (5,640) 83,644 -------- -------- -------- -------- Total shareholders' equity 98,695 10,043 (10,043) 98,695 -------- -------- -------- -------- Total Liabilities and Shareholders' Equity $359,854 $ 14,137 $(14,491) $359,500 ======== ======== ======== ========
11 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS (THOUSANDS OF DOLLARS)
DECEMBER 31, 2001 ----------------------------------------------------------- PARENT COMPANY GUARANTOR ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------ ASSETS Current Assets: Cash and cash equivalents $ 5,422 $ 13 $ -- $ 5,435 Accounts receivable - net of allowance 42,844 4,166 -- 47,010 Inventory 34,382 -- -- 34,382 Other current assets 5,764 35 -- 5,799 ---------- ---------- ---------- ---------- Total current assets 88,412 4,214 -- 92,626 Property and equipment, net 118,401 3,767 -- 122,168 Investment in subsidiaries and other 16,138 4,635 (9,922) 10,851 ---------- ---------- ---------- ---------- Total Assets $ 222,951 $ 12,616 $ (9,922) $ 225,645 ========== ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 25,986 $ 4,193 $ (1,932) $ 28,247 Accrued vacation payable 6,777 243 -- 7,020 Income taxes payable 2,428 -- -- 2,428 Current maturities of long-term debt and capital lease obligations 7,944 -- -- 7,944 ---------- ---------- ---------- ---------- Total current liabilities 43,135 4,436 (1,932) 45,639 Long-term debt and capital lease obligations, net of current maturities 58,672 -- -- 58,672 Deferred income taxes and other long-term liabilities 29,272 -- 190 29,462 Shareholders' Equity: Paid-in capital 13,853 4,403 (4,403) 13,853 Accumulated other comprehensive income (loss) (2,030) -- -- (2,030) Retained earnings 80,049 3,777 (3,777) 80,049 ---------- ---------- ---------- ---------- Total shareholders' equity 91,872 8,180 (8,180) 91,872 ---------- ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $ 222,951 $ 12,616 $ (9,922) $ 225,645 ========== ========== ========== ==========
12 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (THOUSANDS OF DOLLARS)
PARENT COMPANY GUARANTOR ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------ FOR THE QUARTER ENDED JUNE 30, 2002 ---------------------------------------------------------- Operating revenues $ 57,030 $ 12,566 $ -- $ 69,596 Management fees 1,760 -- (1,760) -- Equity in net income of consolidated subsidiaries 1,376 -- (1,376) -- Gain on dispositions of property and equipment 285 -- -- 285 Other 1,026 -- -- 1,026 ---------- ---------- ---------- ---------- 61,477 12,566 (3,136) 70,907 ---------- ---------- ---------- ---------- Expenses: Direct expenses 48,985 7,982 -- 56,967 Management fees -- 1,760 (1,760) -- Selling, general, and administrative 4,794 525 -- 5,319 Interest expense 5,976 7 -- 5,983 ---------- ---------- ---------- ---------- 59,755 10,274 (1,760) 68,269 ---------- ---------- ---------- ---------- Earnings before income taxes 1,722 2,292 (1,376) 2,638 Income taxes 142 916 -- 1,058 ---------- ---------- ---------- ---------- Net earnings $ 1,580 $ 1,376 $ (1,376) $ 1,580 ========== ========== ========== ==========
FOR THE QUARTER ENDED JUNE 30, 2001 --------------------------------------------------------- Operating revenues $ 57,672 $ 10,862 $ -- $ 68,534 Management fees 1,907 -- (1,907) -- Equity in net income of consolidated subsidiaries 47 -- (47) -- Gain on dispositions of property and equipment 273 -- -- 273 Other 403 27 -- 430 ---------- ---------- ---------- ---------- 60,302 10,889 (1,954) 69,237 ---------- ---------- ---------- ---------- Expenses: Direct expenses 50,624 8,166 -- 58,790 Management fees -- 1,907 (1,907) -- Selling, general, and administrative 4,022 392 -- 4,414 Interest expense 1,552 99 -- 1,651 ---------- ---------- ---------- ---------- 56,198 10,564 (1,907) 64,855 ---------- ---------- ---------- ---------- Earnings before income taxes 4,104 325 (47) 4,382 Income taxes 1,344 278 -- 1,622 ---------- ---------- ---------- ---------- Net earnings $ 2,760 $ 47 $ (47) $ 2,760 ========== ========== ========== ==========
13 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (THOUSANDS OF DOLLARS)
PARENT COMPANY GUARANTOR ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------ FOR THE SIX MONTHS ENDED JUNE 30, 2002 ---------------------------------------------------------- Operating revenues $ 112,911 $ 23,543 $ -- $ 136,454 Management fees 2,831 -- (2,831) -- Equity in net income of consolidated subsidiaries 1,997 -- (1,997) -- Gain on dispositions of property and equipment 848 -- -- 848 Other 1,094 (2) -- 1,092 ---------- ---------- ---------- ---------- 119,681 23,541 (4,828) 138,394 ---------- ---------- ---------- ---------- Expenses: Direct expenses 98,661 16,399 -- 115,060 Management fees -- 2,831 (2,831) -- Selling, general, and administrative 9,063 969 -- 10,032 Interest expense 7,276 15 -- 7,291 ---------- ---------- ---------- ---------- 115,000 20,214 (2,831) 132,383 ---------- ---------- ---------- ---------- Earnings before income taxes 4,681 3,327 (1,997) 6,011 Income taxes 1,073 1,330 -- 2,403 ---------- ---------- ---------- ---------- Net earnings $ 3,608 $ 1,997 $ (1,997) $ 3,608 ========== ========== ========== ==========
FOR THE SIX MONTHS ENDED JUNE 30, 2001 --------------------------------------------------------- Operating revenues $ 109,488 $ 22,305 $ -- $ 131,793 Management fees 3,873 -- (3,873) -- Equity in net income of consolidated subsidiaries 1,021 -- (1,021) -- Gain on dispositions of property and equipment 2,304 -- -- 2,304 Other 403 27 -- 430 ---------- ---------- ---------- ---------- 117,089 22,332 (4,894) 134,527 ---------- ---------- ---------- ---------- Expenses: Direct expenses 101,928 15,678 -- 117,606 Management fees -- 3,873 (3,873) -- Selling, general, and administrative 8,317 777 -- 9,094 Interest expense 3,152 220 -- 3,372 ---------- ---------- ---------- ---------- 113,397 20,548 (3,873) 130,072 ---------- ---------- ---------- ---------- Earnings before income taxes 3,692 1,784 (1,021) 4,455 Income taxes 886 763 -- 1,649 ---------- ---------- ---------- ---------- Net earnings $ 2,806 $ 1,021 $ (1,021) $ 2,806 ========== ========== ========== ==========
14 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (THOUSANDS OF DOLLARS)
PARENT COMPANY GUARANTOR ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------ FOR THE SIX MONTHS ENDED JUNE 30, 2002 ---------------------------------------------------------- Net cash provided by (used in) operating activities $ 16,684 $ 80 $ -- $ 16,764 Cash flows from investing activities: Proceeds from notes receivable 429 -- -- 429 Purchase of property and equipment (14,807) (76) -- (14,883) Purchase of aircraft previously leased (118,076) -- -- (118,076) Proceeds from asset dispositions 2,418 -- -- 2,418 ---------- ---------- ---------- ---------- Net cash used in investing activities (130,036) (76) -- (130,112) ---------- ---------- ---------- ---------- Cash flows from financing activities: Proceeds from long-term debt, net 194,373 -- -- 194,373 Payments on long-term debt (5,845) -- -- (5,845) Payment of long-term debt with bond proceeds (60,771) -- -- (60,771) Payment of interest rate swap settlement (1,575) -- -- (1,575) Proceeds from exercise of stock options 898 -- -- 898 ---------- ---------- ---------- ---------- Net cash provided by financing activities 127,080 -- -- 127,080 ---------- ---------- ---------- ---------- Increase in cash and cash equivalents 13,728 4 -- 13,732 Cash and cash equivalents, beginning of year 5,422 13 -- 5,435 ---------- ---------- ---------- ---------- Cash and cash equivalents, end of year $ 19,150 $ 17 $ -- $ 19,167 ========== ========== ========== ==========
FOR THE SIX MONTHS ENDED JUNE 30, 2001 --------------------------------------------------------- Net cash provided by operating activities $ 2,462 $ 504 $ -- $ 2,966 Cash flows from investing activities: Proceeds from notes receivable 71 -- -- 71 Purchase of property and equipment (12,300) (11) -- (12,311) Proceeds from asset dispositions 12,441 -- -- 12,441 ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities 212 (11) -- 201 ---------- ---------- ---------- ---------- Cash flows from financing activities: Proceeds from long-term debt 2,500 -- -- 2,500 Payments on long-term debt (4,549) (500) -- (5,049) Proceeds from exercise of stock options 10 -- -- 10 ---------- ---------- ---------- ---------- Net cash used in financing activities (2,039) (500) -- (2,539) ---------- ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents 635 (7) -- 628 Cash and cash equivalents, beginning of year 844 19 -- 863 ---------- ---------- ---------- ---------- Cash and cash equivalents, end of year $ 1,479 $ 12 $ -- $ 1,491 ========== ========== ========== ==========
15 12. NEW ACCOUNTING PRONOUNCEMENTS On June 29, 2001, Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" was approved by the Financial Accounting Standards Board ("FASB"). SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of this statement. The Company had implemented SFAS No. 142 on January 1, 2002. The implementation had no material impact on the Company's consolidated financial position or results of operation. SFAS No. 143, Accounting for Asset Retirement Obligations, requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. These liabilities are required to be recorded at their fair values (which are likely to be the present values of the estimated future cash flows) in the period in which they are incurred. SFAS No. 143 requires the associated asset retirement costs to be capitalized as part of the carrying amount of the long-lived asset. The asset retirement obligation will be accreted each year through a charge to expense. The amounts added to the carrying amounts of the assets will be depreciated over the useful lives of the assets. The Company is required to implement SFAS No. 143 on January 1, 2003, and does not expect that this statement will have a material impact on its consolidated financial position or results of operations. SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, promulgates standards for measuring and recording impairments of long-lived assets. Additionally, this standard establishes requirements for classifying an asset as held for sale, and changes existing accounting and reporting standards for discontinued operations and exchanges for long-lived assets. The Company implemented SFAS No. 144 on January 1, 2002. The implementation of this standard did not have a material effect on the Company's financial position or results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 eliminates SFAS No. 4 and as a result, gains and losses from extinguishments of debt should be classified as extraordinary items only if they meet the criteria in APB Opinion No. 30. SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also updates and amends existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company has not determined the impact that this statement will have on its consolidated financial position or results of operations. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which is effective for fiscal periods after December 31, 2002. SFAS No. 146 requires companies to recognize costs associated with restructurings, discontinued operations, plant closings, or other exit or disposal activities, when incurred rather than at the date a plan is committed to. The Company plans to adopt the standard as of the effective date and will implement its provisions on a prospective basis. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto, as well as the Company's Annual Report on Form 10-K for the year ended December 31, 2001. 16 FORWARD-LOOKING STATEMENTS All statements other than statements of historical fact contained in this Form 10-Q, other periodic reports filed by the Company under the Securities Exchange Act of 1934, and other written or oral statements made by it or on its behalf, are forward-looking statements. When used herein, the words "anticipates", "expects", "believes", "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 and commitments required to acquire aircraft, environmental risks, competition, government regulation, unionization, operating hazards, risks related to international operations, the ability to obtain insurance, 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. OVERVIEW Operating revenues increased $1.1 million for the quarter ended June 30, 2002, compared to the June 30, 2001 quarter, primarily as a result of a $2.3 million increase in Technical Services revenues due to a project for the upgrade and refurbishment of a customer's aircraft, and a $0.9 million increase in Aeromedical segment revenues. These increases were offset in part by a $2.1 million decrease in Domestic Oil and Gas segment revenues due to a decline in oil and gas activity in the Gulf of Mexico. Operating revenues for the six months ended June 30, 2002, compared to the six months ended June 30, 2001, increased $4.7 million due to the increase in revenues from the above-mentioned Technical Services contract and from International and Aeromedical operations. There was a slight decline in revenues in the Domestic Oil and Gas segment due to a decrease in activity essentially offset by customer rate increases implemented in 2001. Flight hours declined in all flight segments during both the quarter and six-month periods, primarily as a result of decreased activity in the Gulf of Mexico and termination of certain contracts in the Aeromedical segment as a result of proposed rate increases on those contracts. The effect of the decline on revenues was offset to a large extent by rate increases. Direct expenses plus selling, general, and administrative expense decreased in total for the quarter and six months. There were increases in Technical Services costs ($2.2 million for the quarter and $3.5 million for the six months), severance costs ($0.4 million in the quarter and $1.7 million for the six months), management bonuses ($1.1 million in the second quarter), and depreciation expense ($1.2 million in the second quarter and $1.0 million for the six months). These increases were substantially offset by decreases in maintenance costs ($0.6 million for the quarter and $3.1 million for the six months), fuel costs ($0.5 million for the quarter and $1.5 million for the six months), helicopter rent ($2.6 million for the quarter and $2.9 million for the six months) insurance costs ($0.6 million for the quarter and the six months) and other human resource costs decreased ($1.1 million for the quarter and $0.7 million for the six months). 17 Interest expense increased $4.3 million for the quarter and $3.9 million for the six months because of interest on the Note issuance described below, and $1.9 million of costs related to the retirement of the Company's bank debt and liquidation of the Company's interest rate swap agreements in the second quarter, which were charged to interest expense. On April 23, 2002, the Company issued $200 million in 9 3/8% Notes due May 1, 2009. The proceeds from the offering were used to retire $62.3 million of existing bank debt and the Swaps, and to acquire 101 aircraft for $118.1 million, that the Company previously leased. Also on April 23, 2002, the Company entered into a new $50 million revolving credit facility with a commercial bank. There have been no borrowings under the new revolving credit facility. As a result of the Notes issuance and the purchases of the leased aircraft, the Company has incurred and will incur increased interest and depreciation expense, and decreased aircraft rent expense. Although the Company expects that these changes will reduce earnings before income taxes by approximately $1.2 million per quarter, management believes that the changes will improve overall liquidity over the next several years, which will allow the Company to pursue earnings growth opportunities, by increasing cash from operations by approximately $5.7 million in 2002 and $10.5 million in 2003, including incremental tax effects. In later years, this amount reduces due to the effects of lower tax depreciation. Additionally, until 2009 when the Notes become due, the Company will be able to retain cash that would have otherwise been needed for bank debt principal payments. OPERATIONS STATISTICS The following tables present certain non-financial operational statistics for the quarter and six months ended June 30, 2002 and 2001:
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------- -------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- FLIGHT HOURS: Domestic Oil and Gas 34,184 40,063 65,644 76,271 International 4,207 5,286 9,133 10,979 Aeromedical 4,638 5,817 9,362 11,098 Other 75 34 116 175 ---------- ---------- ---------- ---------- Total 43,104 51,200 84,255 98,523 ========== ========== ========== ==========
JUNE 30, --------------------- 2002 2001 -------- -------- AIRCRAFT OPERATED AT PERIOD END: Domestic Oil and Gas 179 192 International 21 25 Aeromedical 33 42 -------- -------- Total 233 259 ======== ========
QUARTER ENDED JUNE 30, 2002 COMPARED WITH QUARTER ENDED JUNE 30, 2001 COMBINED OPERATIONS REVENUES -- Operating revenues were $69.6 million for the quarter ended June 30, 2002, as compared to $68.5 million for the quarter ended June 30, 2001, an increase of $1.1 million. The increase was due to 18 revenues from a Technical Services contract for the upgrade and refurbishment of an aircraft for a customer and to increases in International and Aeromedical flight related operating revenues. The increases in International and Aeromedical operating revenues were due to rate increases implemented in 2001 and 2002, offset in part by decreases in flight activity. Operating revenues in the Domestic Oil and Gas segment decreased $2.1 million for the quarter as a result of decreased flight activity in the Gulf of Mexico. This decrease in activity in the Domestic Oil and Gas segment was offset in part by increases in rates implemented in 2001 in that segment. OTHER INCOME AND LOSSES -- Gains on property and equipment dispositions for each of the quarters ended June 30, 2002 and June 30, 2001 were $0.3 million. The Company also had interest income of $0.3 million in the second quarter of 2002, related to cash deposits, as compared to $0.4 million for the second quarter of 2001, which was related to federal and state tax refunds. The Company also recorded $0.7 million for a favorable settlement of a note receivable from Clintondale. DIRECT EXPENSES -- Direct expenses for the quarter ended June 30, 2002 were $57.0 million, compared to $58.8 million for the same period in the prior year. The decrease in direct expenses was the result of a decrease in maintenance costs due to the decline in activity ($0.6 million), decreased helicopter rent as a result of the purchase of leased aircraft ($2.6 million), decreased fuel cost due to the decline in activity ($0.5 million), and insurance costs due to a competitive bidding process ($0.6 million), offset by increases in depreciation expense of $1.2 million as a result of the purchase of leased aircraft, $2.2 million increase in Technical Services costs due to the contract previously mentioned, $0.3 million for severance charges, and $0.3 million for management bonuses. Excluding the severance charges and management bonus mentioned above, other human resource costs decreased for the quarter and six months due to the decrease in head count. At June 30, 2002 there were 1,700 employees as compared to 1,752 at June 30, 2001. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES -- Selling, general, and administrative expenses for the quarter ended June 30, 2002 were $5.3 million, as compared to $4.4 million for the quarter ended June 30, 2001. The $0.9 million increase is the result of severance costs of $0.1 million and a charge of $0.8 million for management bonuses. INTEREST EXPENSE -- Interest expense for the quarter ended June 30, 2002 increased to $6.0 million from $1.7 million in the prior year. Included in interest expense was the $1.9 million related to liquidating the Swaps and retirement of bank debt. The remaining increase in interest expense is related to the Notes sold on April 23, 2002. As a result of the issuance of Notes and related debt repayment, the Company expects interest expense to increase by approximately $3.4 million per quarter. INCOME TAXES -- Income tax expense for the quarter ended June 30, 2002 was $1.1 million, compared to $1.6 million for the quarter ended June 30, 2001. The effective tax-rate was 40% for the quarter ended June 30, 2002, and 37% for the quarter ended June 30, 2001. The increase in the effective tax rate is primarily due to increased permanent book and tax differences, and higher state taxes for the Company's Arizona operations. EARNINGS -- The Company's net earnings for the quarter were $1.6 million, compared to $2.8 million in the same period in the prior year. Earnings before tax for the quarter were $2.6 million compared to $4.4 million in the same period of the prior year. Earnings per diluted share for the quarter were $0.29 as compared to $0.52 per diluted share for the same quarter prior year. Although there was a decline in flight hour activity, the principal reason for the earnings decline was the increase in interest expense, described below. 19 SEGMENT DISCUSSION Domestic Oil and Gas -- Domestic Oil & Gas segment revenues were $44.2 million for the quarter ended June 30, 2002, compared to $46.3 million for the quarter ended June 30, 2001, a decrease of $2.1 million. There was a decrease in flight activity offset in part by an increase in rates implemented in 2001. The decrease in flight activity was the result of reduced oil and gas activity in the Gulf of Mexico, as indicated by a 14.7% decrease in flight hours for the quarter. The number of aircraft in the segment was 179 at June 30, 2002 as compared to 192 at June 30, 2001. The Domestic Oil & Gas segment operating income decreased $2.5 million. Operating margin of 9.1% for the second quarter compares to 14.1% for the same quarter in the prior year. The decrease in operating income and operating margin is due to the decrease in activity, and to a $1.1 million increase in depreciation expense, a $2.3 million increase in interest expense, partially offset by a $1.9 million decrease in helicopter rent expense as a result of the purchase of leased aircraft. Also included in direct expense is $0.3 million of severance costs and $0.3 million related to management bonuses. International -- International segment revenues were $5.3 million for the quarter ended June 30, 2002, compared to $5.2 million for the quarter ended June 30, 2001. The increase was due to rate increases recently implemented by the Company, offset in part by reduced demand and flight activity in West Africa. Flight hours declined 20.4% in the International segment in the period. The number of aircraft in the segment was 21 at June 30, 2002, as compared to 25 at June 30, 2001. The International segment had $0.3 million operating income for the quarter, compared to a $0.1 million operating loss for the same period in 2001. Operating margin of 5.9% for the second quarter 2002 compares to (1.4)% for the same quarter in the prior year. The improvement in operating income and operating margin was due and a net decrease in direct expenses. The decrease in direct expenses was primarily due to fewer aircraft in the segment in the quarter, which was partially offset by a slight increase in depreciation expense and a $0.2 million increase in interest expense. Aeromedical -- Aeromedical segment revenues were $12.6 million for the quarter ended June 30, 2002, compared to $11.7 million during the quarter ended June 30, 2001, an increase of $0.9 million. The increase was due to customer rate increases implemented by the Company offset in part by a 20.3% decrease in flight hours due to the termination of certain Aeromedical contracts as a result of proposed rate increases on those contracts. The number of aircraft in the segment was 33 at June 30, 2002 as compared to 42 for June 30, 2001. The Aeromedical segment operating income was $2.0 million for the quarter, compared to an operating loss of less than $0.1 million for the same period in 2001. Operating margin was 15.7% for the quarter and compares to (0.3)% for the same quarter in 2001. The increase in operating income and operating margin is attributable to increased customer rates and a $1.1 million decrease in costs. Costs in the Aeromedical segment decreased due to the decrease in the number of aircraft in the segment resulting in decreases in maintenance costs and fuel costs, which was partially offset by a $1.0 million increase in depreciation expense and a $0.3 million increase in interest expense. Technical Services -- Technical Services segment revenues for the quarter ended June 30, 2002 were $7.6 million, compared to $5.3 million in the prior year, an increase of $2.3 million. The increase in Technical Services revenues is related to a contract for the refurbishment and upgrade of a customer's aircraft. The Technical Services segment had operating income of $1.2 million for the quarter ended June 30, 2002, compared to $1.1 million for the quarter ended June 30, 2001. The operating margin was 15.8% in the quarter, compared to 21.0% in the same quarter of the prior year. The increase in operating revenues 20 was largely offset by an increase in costs in the Technical Services segment of $2.2 million related to the previously mentioned contract. During 2001, the Company changed the strategic focus of Technical Services from providing maintenance and overhaul services to all customers to only those customers that are currently serviced by the Company's helicopter operations. The Company implemented this change to allow the Technical Services segment to focus on the Company's aircraft and components. The Company believes that the change in the focus of Technical Services will contribute to increased availability of the Company's aircraft, with a consequent favorable impact on flight operations revenue. However, this change in strategic focus may result in lower revenues from this segment. SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001 COMBINED OPERATIONS REVENUES -- Operating revenues for the six months ended June 30, 2002 were $136.5 million, compared to $131.8 million for the six months ended June 30, 2001, an increase of $4.7 million. The increase in operating revenues was due primarily to revenues from a Technical Services segment maintenance contract for the upgrade and refurbishment of two aircraft for a customer. Flight related revenues also increased 1% for the six months ended June 30, 2002 as compared to the six months ended June 30, 2001. The increase in flight revenue was due to customer rate increases implemented in 2001, offset by a decrease in flight activity. Flight hours for the six months ended June 30, 2002 were 84,255, as compared to 98,523 for the six months ended June 30, 2001, a decrease of 14,268 flight hours, or approximately 14.5%. This decrease was primarily due to reduced oil and gas activity in the Gulf of Mexico. The number of aircraft at June 30, 2002 was 233 as compared to 259 at June 30, 2001. OTHER INCOME -- Gains on property and equipment dispositions was $0.8 million for the six months ended June 30, 2002, compared to $2.3 million for the six months ended June 20, 2001, as fewer aircraft were available for sale in 2002. There was interest income of $0.4 million for the six months ended June 20, 2002, compared to $0.4 million for the six months June 30, 2001. Interest income in the prior period was related to interest income on federal and state tax refunds. The Company also recorded $0.7 million for a favorable settlement of a note receivable from Clintondale. DIRECT EXPENSES -- Direct expenses for the six months ended June 30, 2002 were $115.1 million, compared to $117.6 million for the comparable period in 2001. The decrease in direct expenses was the result of decreases in helicopter rent ($2.9 million) as a result of the purchase of leased aircraft, insurance costs ($0.6 million) as a result of a competitive bidding process, maintenance costs ($3.1 million) due to the decline in activity, and fuel costs ($1.5 million) also due to decreased activity. In addition, there was a decrease in recurring compensation cost ($0.6 million) due to the decrease in head count. The above amounts were offset in part by a $3.5 million increase in Technical Services costs due to the contract described above, severance charges ($1.4 million), management bonuses ($0.3 million) and depreciation expense included in direct expenses ($1.0 million) due to the purchase of leased aircraft. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES -- Selling, general, and administrative expenses for the six months ended June 30, 2002 were $10.0 million, compared to $9.1 million for the six months June 30, 2001, an increase of $0.9 million. The increase is due to $0.3 million of severance charges and $0.8 million related to management bonuses, offset in part by a $0.2 million decrease in legal costs. 21 INTEREST EXPENSE -- Interest expense for the six months ended June 30, 2002 was $7.3 million, as compared to $3.4 million for the six months ended June 30, 2001. Included in interest expense is $1.9 million related to liquidating the Swaps and retirement of bank debt. The remaining increase in interest expense is related to the Notes issued on April 23, 2002. As a result of the $200 million issuance of Notes and related debt repayment, the Company expects interest expense to increase by approximately $13.6 million per year. INCOME TAXES -- Income tax expense for the six months ended June 30, 2002 was $2.4 million, compared to $1.6 million for the six months ended June 30, 2001. The effective tax rate for the six months ended June 30, 2002 was 40%, as compared to 37% for the six months ended June 30, 2001. The increase in the effective tax rate is primarily due to increased permanent book and tax differences, and higher state taxes for the Company's Arizona operations. EARNINGS -- The Company's net income for the six months ended June 30, 2002 was $3.6 million, compared to net income of $2.8 million for the six months ended June 30, 2001. Earnings before tax for the six months ended June 30, 2002 was $6.0 million, compared to earnings before tax of $4.5 million for the same period in the prior year. Earnings per diluted share for the six months ended June 30, 2002 was $0.67 as compared to earnings per diluted share of $0.54 for the six months ended June 30, 2001. Earnings for the six months were impacted by $2.4 million of interest on the issuance of the Notes, $1.9 million for the retirement of the bank debt and the Swaps, which was recorded as interest costs, and $1.7 million of severance costs. Flight hours were down 14,268 for the six months due largely to a decrease in oil and gas activity in the Gulf of Mexico. The impact on revenues of this decline was offset by the effect of rate increases. SEGMENT DISCUSSION Domestic Oil and Gas -- Domestic Oil & Gas segment revenues were $86.1 million for the quarter ended June 30, 2002, compared to $86.3 million for the quarter ended June 30, 2001. A decrease of 10,627 flight hours was offset by customer rate increases implemented in 2001. The decrease in flight activity was due to a decline in oil and gas activity in the Gulf of Mexico. The number of aircraft in the segment was 179 at June 30, 2002 as compared to 192 at June 30, 2001. Domestic Oil & Gas segment operating income was $7.8 million for the six months ended June 30, 2002, compared to $7.2 million for the six months ended June 30, 2001. The operating margin for the six months ended June 30, 2002 was 9.0%, compared to 8.4% for the six months ended June 30, 2001. The improvement in operating income and operating margin was due to rate increases implemented by the Company, offset in part by a decrease in flight hour activity. There was also a decrease in costs primarily as a result of decreased maintenance and fuel costs due to the decline in activity ($3.1 million) and a decrease in helicopter rent ($2.0 million), partially offset by increases in severance costs ($1.0 million), management bonuses ($0.3 million), depreciation expense ($1.2 million) and interest expense ($2.1 million) as a result of the purchase of leased aircraft. International -- International segment revenues were $11.4 million for the six months ended June 30, 2002, compared to $11.1 million for the six months June 30, 2001, an increase of $0.3 million. The increase in revenues was due to rate increases recently implemented by the Company. This was partially offset by a 1,846 decline in flight hour activity caused by reduced demand in West Africa. The number of aircraft at June 30, 2002 in the International segment was 21, as compared to 25 at June 30, 2001. International segment operating income was $0.9 million for the six months ended June 30, 2002, compared to a $0.5 million loss for the six months ended June 30, 2001. Operating margin of 8.2% for the six months ended June 30, 2002, compares to (4.8)% for the six months ended June 30, 2001. The 22 improvement in operating income and operating margin was due to rate increases implemented by the Company, decreased maintenance and fuel costs resulting from the decline in flight activity, and a decrease in depreciation expense ($0.1 million), offset in part by an increase in interest expense ($0.1 million). Aeromedical -- Aeromedical segment revenues were $24.3 million for the six months ended June 30, 2002, compared to $23.6 million for the same period in the prior year, an increase of $0.7 million. The increase in operating revenues for the Aeromedical segment is attributable to customer rate increases offset in part by a decrease of 1,736 flight hours due to the termination of certain Aeromedical contracts as a reaction to proposed rate increases. The number of aircraft in the segment was 33 at June 30, 2002, as compared to 42 for June 30, 2001. Aeromedical segment operating income was $3.2 million for the six months ended June 30, 2002, compared to $0.9 million for the six months ended June 30, 2001. The operating margin for the six months ended June 30, 2002 was 13.3%, compared to 3.7% for the six months ended June 30, 2001. The improvement in operating income and operating margin was due to rate increases and also due to decreased costs, which primarily is the result of decreased maintenance and fuel costs resulting from the decline in flight activity, slightly offset by increases in depreciation expense ($0.1 million) and interest expense ($0.1 million). Technical Services -- The Technical Services segment operating revenues for the six months ended June 30, 2002 were $14.6 million, compared to $10.8 million in the comparable period in the prior year, an increase of $3.8 million. The increase in Technical Services revenues was related to revenue from a contract for the refurbishment and upgrade of two aircraft. The Technical Services segment had operating income of $2.1 million for the six months ended June 30, 2002, compared to $1.7 million for the six months ended June 30, 2001. The operating margin was 14.1% in the six months ended June 30, 2002, compared to 16.1% for the six months ended June 30, 2001. The increase in operating income is due to the increase in activity. Costs in the Technical Services segment increased $3.5 million due to the contract previously mentioned. LIQUIDITY AND CAPITAL RESOURCES The Company's cash position on June 30, 2002 was $19.2 million, compared to $5.4 million at December 31, 2001. Working capital was $74.1 million at June 30, 2002, as compared to $47.0 million at June 30, 2001, an increase of $27.1 million. An increase in cash of $13.7 million, primarily the remaining proceeds of the Note issuance, and a decrease in current maturities of long-term debt of $14.8 million as bank debt was repaid with the proceeds of long-term Notes account for the increase in working capital. Net cash provided by operating activities funded capital expenditure requirements of $14.9 million in 2002. Note issuance costs of $5.6 million were funded with proceeds from the sale of the Notes. On April 23, 2002, the Company issued Notes of $200 million that carry an interest rate of 9 3/8% payable semi-annually on May 1 and November 1 of each year, beginning November 1, 2002, and mature in May 2009. The Notes contain certain covenants, including limitations on indebtedness, liens, dividends, repurchases of capital stock and other payments affecting restricted subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset sales, and mergers and consolidations or sales of assets. Proceeds from the Notes, net of $5.6 million of fees and expenses, were used to retire the Company's $16.3 million term credit facility and $44.5 million revolving credit facility, and to terminate the related Swaps for $1.6 million. The Company also purchased 101 aircraft, which were previously leased, for $118.1 million. 23 Also, on April 23, 2002, the Company executed a new credit agreement with a commercial bank for a $50 million revolving credit facility. The Company has not borrowed under this new credit facility. Capital expenditures totaled $14.9 million for the six months ended June 30, 2002. Capital expenditures primarily include amounts for the refurbishment of aircraft and the upgrade of capability of certain aircraft. As discussed above, the Company also purchased $118.1 million of aircraft it previously leased. At June 30, 2002, the Company had a commitment of $9 million for the upgrade of certain aircraft. The upgrade is to be performed in 2002 and 2003. The effect of the purchases of the aircraft will be to improve cash flow by the reduced lease payments, less the increased interest expense from the issuance of the Notes. The Company believes that cash flow from operations will be sufficient to fund required interest payments on the Notes and capital expenditures during 2002. ENVIRONMENTAL MATTERS As of June 30, 2002, the Company has an aggregate estimated liability of $1.8 million for environmental remediation costs that are probable and estimable. The Company has conducted environmental surveys of its Lafayette facility, which it vacated in 2001, and has determined that contamination exists at that facility. To date, borings have been installed to determine the type and extent of contamination. Preliminary results indicate limited soil and groundwater impacts. Once the extent and type of contamination are fully defined, a risk evaluation in accordance with regulatory standards will be submitted and evaluated by the appropriate agency. At that point, the regulatory agency will establish what cleanup standards must be met at the site. When the process is complete, the Company will be in a position to develop the appropriate remediation plan and the resulting cost of remediation. The Company has not recorded any estimated liability for remediation at the site, but based on preliminary surveys and ongoing monitoring, the Company believes the ultimate remediation costs for the Lafayette facility will not be material. NEW ACCOUNTING PRONOUNCEMENTS On June 29, 2001, Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" was approved by the Financial Accounting Standards Board ("FASB"). SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of this statement. The Company had implemented SFAS No. 142 on January 1, 2002. The implementation had no material impact on the Company's consolidated financial position or results of operation. SFAS No. 143, Accounting for Asset Retirement Obligations, requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. These liabilities are required to be recorded at their fair values (which are likely to be the present values of the estimated future cash flows) in the period in which they are incurred. SFAS No.143 requires the associated asset retirement costs to be capitalized as part of the carrying amount of the long-lived asset. The asset retirement obligation will be accreted each year through a charge to expense. The amounts added to the carrying amounts of the assets will be depreciated over the useful lives of the assets. The Company is required to implement SFAS No. 143 on January 1, 2003, and does not expect that this statement will have a material impact on its consolidated financial position or results of operations. 24 SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, promulgates standards for measuring and recording impairments of long-lived assets. Additionally, this standard establishes requirements for classifying an asset as held for sale, and changes existing accounting and reporting standards for discontinued operations and exchanges for long-lived assets. The Company implemented SFAS No. 144 on January 1, 2002. The implementation of this standard did not have a material effect on the Company's financial position or results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 eliminates SFAS No. 4 and as a result, gains and losses from extinguishments of debt should be classified as extraordinary items only if they meet the criteria in APB Opinion No. 30. SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also updates and amends existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company has not determined the impact that this statement will have on its consolidated financial position or results of operations. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which is effective for fiscal periods after December 31, 2002. SFAS No. 146 requires companies to recognize costs associated with restructurings, discontinued operations, plant closings, or other exit or disposal activities, when incurred rather than at the date a plan is committed to. The Company plans to adopt the standard as of the effective date and will implement its provisions on a prospective basis. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK On April 23, 2002, the Company paid its Terminated Loan Agreement. The Terminated Loan Agreement had variable interest rates. In conjunction with the payment of the Terminated Loan Agreement, the Company settled its interest rate swaps by paying $1.6 to the counterparties. Also on April 23, 2002, the Company issued Notes of $200 million that have an interest rate of 9 3/8% payable semi-annually on May 1 and November 1 of each year, beginning November 1, 2002, and mature in May 2009. The market value of the Notes will vary as changes occur to general market interest rates, the remaining maturity of the Notes, and the Company's credit worthiness. A hypothetical 100 basis-point increase to the Notes' imputed interest rate immediately after issue would have resulted in a market value decline to approximately $190.2 million. There were no other material changes to the Company's disclosures regarding derivatives in its Form 10-K for the year ended December 31, 2001. 25 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in various legal proceedings primarily involving claims for personal injury. The Company believes that the outcome of all such proceedings, even if determined adversely, would not have a material adverse effect on its consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its 2002 Annual Meeting of Stockholders on April 30, 2002. At the meeting, shareholders elected each of the following persons listed below to PHI's Board of Directors for a term ending at the Company's 2003 Annual Meeting of Stockholders. The number of votes cast with respect to the election of each such person is opposite such person's name. The persons listed below constituted the entire Board of Directors of the Company at that time.
NUMBER OF VOTES CAST --------------------------------------- BROKER NAME OF DIRECTOR FOR WITHHOLD NON-VOTE --------- ---------- ---------- Al A. Gonsoulin 1,482,266 0 0 Lance F. Bospflug 1,482,266 0 0 Arthur J. Breault, Jr 1,482,266 0 0 Thomas H. Murphy 1,482,266 0 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 (i) Articles of Incorporation of the Company (incorporated by reference to Exhibit No. 3.1 (i) to PHI's Report on Form 10-Q for the quarterly period ended October 31, 1994). (ii) By-laws of the Company as amended (incorporated by reference to Exhibit No. 3.1 (ii) to PHI's Report on Form 10-Q for the quarterly period ended March 31, 2002). 10.1 Indenture dated April 23, 2002 among Petroleum Helicopters, Inc., the Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to PHI's Registration Statement on Form S-4, filed on April 30, 2002, File Nos. 333-87288 through 333-87288-08). 10.2 Form of 9 3/8% Senior Note (incorporated by reference to Exhibit 4.1 to PHI's Registration Statement on Form S-4, filed on April 30, 2002, File Nos. 333-87288 through 333-87288-08). 10.3 Loan Agreement dated as of April 23, 2002 by and among Petroleum Helicopters, Inc., Air Evac Services, Inc., Evangeline Airmotive, Inc., and International Helicopter Transport, Inc. and Whitney National Bank 26 99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Lance F. Bospflug, Chief Executive Officer. 99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Michael J. McCann, Chief Financial Officer. (b) Reports on Form 8-K No reports were filed on Form 8-K during the quarter ended June 30, 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Petroleum Helicopters, Inc. August 14, 2002 By: /s/ Michael J. McCann -------------------------------------- Michael J. McCann Chief Financial Officer and Treasurer 27 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------- ----------- 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 (incorporated by reference to Exhibit No. 3.1 (ii) to PHI's Report on Form 10-Q for the quarterly period ended March 31, 2002). 10.1 Indenture dated April 23, 2002 among Petroleum Helicopters, Inc., the Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to PHI's Registration Statement on Form S-4, filed on April 30, 2002, File Nos. 333-87288 through 333-87288-08). 10.2 Form of 9 3/8% Senior Note (incorporated by reference to Exhibit 4.1 to PHI's Registration Statement on Form S-4, filed on April 30, 2002, File Nos. 333-87288 through 333-87288-08). 10.3 Loan Agreement dated as of April 23, 2002 by and among Petroleum Helicopters, Inc., Air Evac Services, Inc., Evangeline Airmotive, Inc., and International Helicopter Transport, Inc. and Whitney National Bank 99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Lance F. Bospflug, Chief Executive Officer. 99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Michael J. McCann, Chief Financial Officer.
EX-10.3 3 d98913exv10w3.txt LOAN AGREEMENT EXHIBIT 10.3 LOAN AGREEMENT DATED AS OF APRIL 23, 2002 BY AND AMONG PETROLEUM HELICOPTERS, INC., ACADIAN COMPOSITES, LLC, AIR EVAC SERVICES, INC., EVANGELINE AIRMOTIVE, INC., AND INTERNATIONAL HELICOPTER TRANSPORT, INC. AND WHITNEY NATIONAL BANK This Agreement is dated as of April 23, 2002, and is entered into by and among PETROLEUM HELICOPTERS, INC. ("PHI"), ACADIAN COMPOSITES, LLC ("ACADIAN"), AIR EVAC SERVICES, INC. ("AIR EVAC"), EVANGELINE AIRMOTIVE, INC. ("EVANGELINE"), AND INTERNATIONAL HELICOPTER TRANSPORT, INC,. ("INTERNATIONAL HELICOPTER") (FOR CONVENIENCE OF REFERENCE, ACADIAN, AIR EVAC, EVANGELINE AND INTERNATIONAL HELICOPTER MAY SOMETIMES HEREINAFTER BE REFERRED INDIVIDUALLY, COLLECTIVELY, AND INTERCHANGEABLY AS "SUBSIDIARY GUARANTORS"), AND WHITNEY NATIONAL BANK ("Whitney"). For convenience of reference, Whitney may hereinafter sometimes be referred to as "BANK". This Agreement refers to all present and future loans collectively as the "LOANS", with each separate advance of funds being a "LOAN". A. THE LOAN OR LOANS. Provided PHI performs all obligations in favor of Bank contained in this Agreement and in any other agreement, whether now existing or hereafter arising: Bank shall make available to PHI a secured revolving line of credit (the "REVOLVING LINE OF CREDIT") in the principal amount of FIFTY MILLION AND NO/100 ($50,000,000.00) DOLLARS, that may be drawn upon by PHI on any business day of Bank during the period hereof until and including July 31, 2004, on at least one day's telephonic notice to Bank. The Revolving Line of Credit shall be evidenced by a commercial note, payable to Bank (the "NOTE") and shall contain additional terms and conditions and be identified with this Agreement. A sublimit of FIVE MILLION AND NO/100 ($5,000,000.00) DOLLARS is hereby established for the issuance of letters of credit with a maturity not exceeding that of the Note, which may be issued by Bank upon application by PHI. B. USE OF PROCEEDS. The proceeds from the Revolving Line of Credit are to refinance existing debt and/or for capital expenditures, and for general corporate purposes. PHI is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U). No proceeds of any advance will be used to purchase or carry any margin stock. C. REPRESENTATIONS, WARRANTIES AND COVENANTS. PHI represents, warrants and covenants to Bank that as of the date hereof and so long as the Loans shall be outstanding, except for matters that could not reasonably be expected to have a material adverse effect on PHI: (1) ORGANIZATION AND AUTHORIZATION. PHI is a Louisiana corporation which is duly organized, validly existing and in good standing under Louisiana law. PHI's execution, delivery and performance of this Agreement and all other documents delivered to Bank has been duly authorized and does not violate its articles of incorporation (or other governing documents), material contracts or any applicable law or regulations. (2) COMPLIANCE WITH TAX AND OTHER LAWS. (a) PHI shall comply with all laws that are applicable to its business activities, including, without limitation, all laws regarding (i) the collection, payment and deposit of employees' income, unemployment, Social Security, sales and excise taxes; (ii) the filing of returns and payment of taxes; (iii) pension liabilities including ERISA requirements, (iv) environmental protection, and (iv) occupational safety and health. (b) PHI shall not permit or suffer any violation of any Environmental Law (as defined below) affecting the property it owns or leases, (collectively, the "PROPERTY"), and agrees that upon discovery, or in the event, of any discharge, spill, injection, escape, emission, disposal, leak or any other release of hazardous substances on, in, under, onto or from the Property, which is not authorized by a currently valid permit or other approval issued by the appropriate governmental agencies, promptly notify Bank, and the appropriate governmental agencies, and shall take all steps necessary to promptly clean-up such discharge, spill, injection, escape, emission, disposal, leak or any other release in accordance with the provisions of all applicable Environmental Laws, and shall receive a certification from the Louisiana Department of Environmental Quality or federal Environmental Protection Agency, that the Property and any other property affected has been cleaned-up to the satisfaction of those agencies. The terms "Environmental Law" or "Environmental Laws" as used in this Agreement include any and all current and future federal, state and local environmental laws, statutes, rules, regulations and ordinances, as the same shall be amended and modified from time to time, including but not limited to the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended from time to time, the Federal Resource Conservation and Recovery Act, as amended from time to time, and the federal Toxic Substances Control Act, as amended from time to time. (3) OFFERING MEMORANDUM, NOTES, AND INDENTURE. The Loans to be made to PHI under, and the terms and conditions of, this Agreement do not violate the offering memorandum (the "Offering Memorandum") dated April 17, 2002, respecting promissory notes in the aggregate principal amount of TWO HUNDRED MILLION AND NO/100 ($200,000,000.00) DOLLARS, and additional promissory notes in an aggregate principal amount of TWO HUNDRED SEVENTY-FIVE MILLION AND NO/100 ($275,000,000.00) DOLLARS, under an Indenture dated as of April 23, 2002, among PHI, the Guarantors (as defined in the Offering Memorandum), and The Bank of New York, as Trustee, or any other document executed or to be executed in connection therewith, as all of the foregoing may be amended from time to time (individually, collectively, and interchangeably, the "Indenture Notes and Documents"). (4) LITIGATION. To the best of PHI's knowledge, after due inquiry, no litigation or governmental proceedings are pending or threatened against PHI or any of its subsidiaries, the results of which might materially affect PHI or such subsidiaries' financial condition or operations. Other than any liability incident to such litigation or proceedings or provided for or disclosed in the financial statements submitted to Bank, PHI does not have any material contingent liabilities. No subsidiaries have any material contingent liability other than those imposed by the security documents granted by PHI in favor of Whitney and the Indenture Notes and Documents. (5) PENSION PLANS. Each of PHI and its subsidiaries are in compliance with all statutes and governmental rules and regulations applicable to it, including, without limitation, the Employee Reimbursement Income Security Act of 1974, as amended ("ERISA"). No Termination Event (as defined herein) has occurred with respect to any Plan (as defined herein), and, except for any failure that could not reasonably be expected to cause a material adverse change, each Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Internal Revenue Code of 1986, as amended (the "CODE"), and no condition exists or event or transaction has occurred in connection with any Plan, maintained by PHI or its subsidiaries, which could result in PHI or its subsidiaries incurring any material liabilities, fine, or penalty. No "accumulated funding deficiency" (as defined in Section 302 of ERISA) has occurred with respect to any Plan and there has been no excise tax imposed with respect to any Plan under Section 4971 of the Code. The present value of all benefits vested under each Plan (based on the assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed the value of the assets of such Plan allocable to such vested benefits in any amount that would reasonably be expected to cause a material adverse change. Based upon GAAP existing as of the effective date of this agreement and current factual circumstances, PHI has no reason to believe that the annual cost during the term of this Agreement to PHI for post-retirement benefits to be provided to the current and former employees of PHI under welfare benefit plans (as defined in Section 3(1) of ERISA) could, in the aggregate, reasonably be expected to cause a material adverse change. For purposes of this section, the term "Plan" means an employee benefit plan covered by Title IV of ERISA or subject to minimum funding standards under Section 412 of the Code and the term "Termination Event" means (a) the occurrence of a reportable event with respect to a Plan, as described in Section 4043 of ERISA and the regulations issued thereunder (other than a reportable event not subject to the provision for 30-day notice to the PBGC under such regulations); (b) the giving of a notice of intent to terminate a Plan under Section 4041(c) of ERISA; (c) the institution of proceedings to terminate a Plan by the PBGC; or (d) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. (6) FINANCIAL INFORMATION. From the date of this Agreement and so long as the Loans shall be outstanding, unless compliance shall have been waived in writing by Bank, PHI shall furnish to Bank: (a) promptly after the sending or filing thereof, copies of all reports which PHI sends to any of its public security holders, and copies of all Forms 10-K, 10-Q and 8-K, Schedules 13E-4 2 (including all exhibits filed therewith) and registration statements, and any other filings or statements that PHI files with the Securities and Exchange Commission or any national securities exchange; (b) together with all Forms 10-K, 10-Q and 8-K, a certificate of the president or chief financial officer of PHI to the effect that no Default with respect to PHI, or event which might mature into a Default with respect to PHI, has occurred; (c) upon the occurrence of a Default, a certificate of the president or chief financial officer of PHI specifying the nature and the period of existence thereof and what action PHI proposes to take with respect thereto; (d) written notice of any and all litigation affecting PHI, directly or indirectly; provided, however, this requirement shall not apply to litigation involving PHI and any other party if such litigation involves, in the aggregate, less than $500,000; and (e) from time to time, such other information as Bank may reasonably request. (7) INSURANCE. Each of PHI and its subsidiaries shall maintain, with financially sound and reputable insurance companies workmen's compensation insurance, liability insurance and insurance on PHI's and its subsidiaries' property, assets and business at least to such extent and against such hazards and liabilities as is commonly maintained by similar companies and, in addition to the foregoing insurance, such insurance as may be reasonably required by Bank. In the case of property (whether owned by PHI or its subsidiaries) on which Bank has a lien, PHI shall provide Bank with duplicate originals or certified copies of such policies of insurance naming Bank as additional mortgages-loss payee and as additional insured as its interests may appear, and providing that such policies will not be canceled without thirty (30) days' prior written notice to Bank. (8) FINANCIAL COVENANTS AND RATIOS. (a) CURRENT ASSETS/CURRENT RATIO. PHI will not at any time permit the ratio of consolidated current assets to consolidated current liabilities to be less than 2.00 to 1.00; (b) FUNDED DEBT/NET WORTH. PHI will not at any time after June 30, 2002, permit the ratio of Funded Debt (defined as all indebtedness under this Agreement plus the amount of any capital or operating leases and any other monetary obligation payable over time) to PHI's consolidated net worth to be more than 2.50 to 1.00. (c) CONSOLIDATED NET WORTH. From and after the date of this Agreement through December 31, 2002, PHI, shall not at any time, permit its consolidated net worth, to be less than NINETY MILLION ($90,000,000.00) DOLLARS. From and after December 31, 2002, PHI shall not, at any time permit consolidated net worth to be less than ONE HUNDRED MILLION ($100,000,000.00) DOLLARS. (9) MERGERS, ETC. Without the prior written consent of Bank, PHI shall not consolidate with, or merge into, any other corporation, or permit any other corporation to merge into it, or sell or lease all, or substantially all, of its assets, or acquire all or a substantial part of the assets or capital stock of any other partnership, firm or corporation, or enter into any other transaction that would substantially alter the balance sheet of PHI. PHI will not permit any material changes to be made in the character of its business as carried on at the date of this Agreement. (10) STOCK REDEMPTION. PHI will not purchase, retire or redeem any shares of its capital stock (other than pursuant to executive or employee compensation plans) without the prior written consent of Bank. (11) INDEBTEDNESS AND LIENS. Except as contemplated in this Agreement and as permitted in the Indenture Notes and Documents, neither PHI nor any of its subsidiaries (i) shall create any additional obligations for borrowed money, or (ii) mortgage or encumber any of their assets or suffer any liens or indebtedness to exist on any of their assets. (12) OTHER LIABILITIES. PHI shall not lend to or guarantee, endorse or otherwise become contingently liable in connection with the obligations, stock or dividends of any person, firm or corporation. 3 (13) CHANGE OF CONTROL. Without the prior written consent of Whitney, there shall not be a Change of Control (as defined in the Offering Memorandum). (14) ADDITIONAL DOCUMENTATION. Upon the written request of Bank, PHI shall promptly and duly execute and deliver all such further instruments and documents and take such further action as Bank, may deem reasonably necessary to obtain the full benefits of this Agreement and of the rights and powers granted in this Agreement. (15) NOTICE OF DEFAULT. PHI shall notify Bank immediately upon becoming aware of the occurrence of any event constituting, or which with the passage of time or the giving of notice, could constitute, a Default. (16) INDEMNITY. PHI shall indemnify, defend and hold Bank and its respective directors, officers, agents, attorneys and employees harmless from and against all claims, demands, causes of action, liabilities, losses, costs and expenses (including, without limitation, costs of suit, reasonable legal fees and fees of expert witnesses) arising from or in connection with (a) the presence in, on or under any property of PHI (including, without limitation, the Property) of any hazardous substance or solid waste, or any releases or discharges (as the terms "release" and "discharge" are defined under any applicable environmental law) of any hazardous substance or solid waste on, under or from such property, (b) any activity carried on or undertaken on or off such property of PHI, whether prior to or during the term of this Agreement, and whether PHI or any predecessor in title to PHI's property or any officers, employees, agents, contractors or subcontractors of PHI or any predecessor in title to the property of PHI, or any third persons at any time occupying or present on such property, in connection with the handling, use, generation, manufacture, treatment, removal, storage, decontamination, clean-up, transportation or disposal of any hazardous substance or solid waste at any time located or present on or under any of the aforedescribed property, or (c) any breach of any representation, warranty or covenant under the terms of this Agreement or applicable security agreements. The foregoing indemnity shall further apply to any residual contamination on or under any or all of the aforedescribed property, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the use, handling, storage, transportation or disposal of any hazardous substance or solid waste, and irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances. The indemnity described in this Section shall survive the termination of this Agreement for any reason whatsoever. D. COLLATERAL. As security for payment and performance of the Loans, PHI will provide to Bank security for all of its obligations due to Bank, whether now existing or hereafter arising, through valid recorded security documents creating a first lien and security interest in all of PHI and its subsidiaries' inventory, including Parts (as herein defined), and Eligible Receivables (as defined herein) supported by a Borrowing Base Certificate (as herein defined) delivered monthly to Bank in form satisfactory to Bank. "Borrowing Base Certificate" means a report to Bank by the President or Chief Financial Officer certifying the level of borrowing authorized under this Agreement which is and shall be an amount (not exceeding $50,000,000) equal to the sum of (a) 80% of the amount of Eligible Receivables (defined as trade receivables less than 90 days of age) of PHI and its subsidiaries in which Bank shall have a valid perfected first priority security interest, plus (b) 50% of the value of Parts of PHI and its subsidiaries (valued at the lower of average cost or market), in which Bank shall have a valid perfected first priority security interest. For the purpose of this section, the term "Parts" means, until installed in any aviation unit, all aircraft engines, propellers, rotors, appliances, tires, airframes, spare parts, radios and other communication equipment together with all other aircraft appliances, instruments, mechanisms, appurtenances, accessories and parts or components thereof, of such person wherever maintained, now or hereafter existing, whether acquired by purchase or otherwise and whether held by such person for use in its business or held by such person for sale or lease or to be furnished by such person under contracts of service, and all proceeds thereof and accessories thereto. E. EACH EXTENSION OF CREDIT. Each request by PHI for a Loan shall constitute a warranty and representation by PHI to Bank that there exists no Default or any condition, event or act which constitutes, or with notice or lapse of time (or both) would constitute a Default as defined by this Agreement. F. GUARANTIES. The Revolving Line of Credit shall be guaranteed by each of the Subsidiary Guarantors. G. RATE OF INTEREST AND APPLICABLE FEES. Borrowing made pursuant to the Note shall accrue interest at Whitney Prime rate and may be advanced or repaid at any time upon one day's notice, interest shall be payable quarterly; or in the alternative, LIBOR borrowings may be arranged for fixed periods of 30, 4 60, 90 or 180 days with interest payable at the respective maturity at the LIBOR rate as quoted on the business day prior to borrowing plus an applicable margin as follows: o 300 points when Funded Debt to Net Worth equals or exceeds 150% o 250 points when Funded Debt to Net Worth is between 125% and 150% o 200 points when Funded Debt to Net Worth equals or is less than 125% as calculated by referring to the last 10-K or 10-Q filing. As used in this Agreement the term "Whitney Prime" shall mean the rate of interest as recorded by Whitney from time to time as its prime lending rate with the rate of interest to change when and as such prime lending rate changes. As used in this Agreement the term "LIBOR" shall mean the London Interbank Offered Rate ("LIBOR") for the referenced rate period as set and published as of the first day of each month by the British Banker's Association ("BBA") and obtained by Bank from a wire that is sent through Bloomberg, L.P. which rate is based by BBA on an average of the Interbank offered rates for dollar deposits in the London market based on quotes from designated banks in the London market, provided, however, that Bank reserves the right to adjust the LIBOR rate by the percentage, if any, that may be specified by the Board Of Governors of the Federal Reserve system (or an successor), from time to time, for determining the maximum reserve requirement (including, but not limited to, any marginal reserve requirement) with respect to liabilities consisting of or including "Eurocurrency Liabilities" (as defined in Regulation D of the Board of Governors of the Federal Reserve system). In determining the percentage for the LIBOR reserve requirement, Bank may use any reasonable averaging and attribution methods. Unused fees on the daily amount undrawn under the Revolving Line of Credit shall accrue at the rate of 3/8 of 1% per annum payable quarterly. Any letters of credit issued pursuant to this Agreement shall bear interest at 1/8 of 1% per month on any part thereof, plus standard issuing fees. Upon PHI's execution of this Agreement, PHI shall pay to Bank a fee for its commitment of 1/4 of 1% of $50,000,000.00. H. PREPAYMENT AND REDUCTION. Any advance may be prepaid in any amount at any time, and PHI may incrementally reduce or cancel the Revolving Line of Credit at any time without penalty upon giving Bank one day's notice. I. CONDITIONS PRECEDENT TO LOAN. Bank shall have no obligation to advance funds under this Agreement until and unless the following conditions have been satisfied: (1) Bank shall have received this agreement and all collateral documents contemplated by this Agreement in form and substance satisfactory to Bank, including a certificate from the Chief Financial Officer containing a description of assets owned by each of the Subsidiary Guarantors, and certifying that each of the Subsidiary Guarantors is free of liabilities except as disclosed in the Certificate; (2) Bank shall have received satisfactory opinions of counsel relating, among other things, to due authorization and enforceability of this Agreement, the Loans and all collateral; (3) All representations and warranties made by PHI to Bank shall be true and correct as of the date of the Loans' funding; (4) Except as otherwise provided herein, PHI's business must be in a condition satisfactory to Bank, the management and ownership of PHI must not have changed and no material adverse change (from that reflected in the last financial statements delivered to, and accepted by, Bank prior to execution of this Agreement) has occurred in the financial condition of PHI; and (5) There exists no Default (or event which with notice or lapse of time or both could constitute a Default) under this Agreement or any other agreement between PHI and Bank. J. DEFAULT. The occurrence of any one or more of the following events shall constitute a default (a "DEFAULT") under this Agreement: 5 (1) A default under a note evidencing a Loan; (2) The failure of PHI to observe or perform promptly when due any covenant, agreement or obligation due to Bank under this Agreement or otherwise; (3) The inaccuracy at any time, in any material respect, of any warranty, representation or statement made to Bank by PHI under this Agreement or otherwise; (4) the filing by or against PHI of a proceeding for bankruptcy, reorganization, arrangement, or any other relief afforded debtors or affecting the rights of creditors generally under the law of any state or country or under the United States Bankruptcy Code; (5) should any default occur in any other material credit agreement or evidence of indebtedness, including, without limitation, the Indenture Notes and Documents; Upon the occurrence of a Default, except for payment of principal at maturity, and such Default continues for a period of fifteen (15) days, after Bank has mailed written notice of such Default to PHI specifying the nature of the Default and the steps necessary to cure the Default (but with no notice or delay required in the event of a Default under paragraphs (1) and (5) of Section (J), Bank, at its option, may declare all of the Loans and all other obligations of PHI to Bank to be immediately due and payable without further notice. K. CONSENT TO PARTICIPATION. Bank may sell all or a portion of its interest in the Loans and the security therefor. Bank shall give PHI notice of any sale of all or a portion of its interests in the Loans, upon which PHI shall perform all of its obligations hereunder in favor of each participant or assignee as though such participant or assignee were a party or parties to this Agreement. L. MISCELLANEOUS PROVISIONS. PHI agrees to pay all of the costs, expenses and fees incurred in connection with the Loans, including attorneys fees, appraisal fees, and environmental assessment fees. This Agreement is not assignable by PHI and no party other than PHI is entitled to rely on this Agreement. In no event shall PHI or Bank be liable to the other for indirect, special or consequential damages, including the loss of anticipated profits that may arise out of or are in any way connected with the issuance of this Agreement. This Agreement, all promissory notes evidencing Loans under this Agreement and all documents creating security interests shall be governed by Louisiana law. PETROLEUM HELICOPTERS, INC. WHITNEY NATIONAL BANK BY: BY: ----------------------------- -------------------------------- NAME: MICHAEL J. MCCANN NAME: HARRY C. STAHEL TITLE: CHIEF FINANCIAL OFFICER TITLE: SENIOR VICE PRESIDENT SUBSIDIARY GUARANTORS: ACADIAN COMPOSITES, LLC EVANGELINE AIRMOTIVE, INC. BY: BY: ----------------------------- -------------------------------- NAME: MICHAEL J. MCCANN NAME: MICHAEL J. MCCANN TITLE: CHIEF FINANCIAL OFFICER TITLE: CHIEF FINANCIAL OFFICER AIR EVAC SERVICES, INC. INTERNATIONAL HELICOPTER TRANSPORT, INC. BY: BY: ----------------------------- -------------------------------- NAME: MICHAEL J. MCCANN NAME: MICHAEL J. MCCANN TITLE: CHIEF FINANCIAL OFFICER TITLE: CHIEF FINANCIAL OFFICER 6 EX-99.1 4 d98913exv99w1.txt SECTION 906 - BOSPFLUG EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Petroleum Helicopters, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2002 (the "Report"), I, Lance F. Bospflug, Chief Executive Officer of the Company, certify that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Petroleum Helicopters, Inc. By: /s/ Lance F. Bospflug --------------------------------- Lance F. Bospflug Chief Executive Officer August 14, 2002 EX-99.2 5 d98913exv99w2.txt SECTION 906 - MCCANN EXHIBIT 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Petroleum Helicopters, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2002 (the "Report"), I, Michael J. McCann, Chief Financial Officer of the Company, certify that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Petroleum Helicopters, Inc. By: /s/ Michael J. McCann ------------------------------- Michael J. McCann Chief Financial Officer August 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----