10-Q 1 d08352e10vq.txt FORM 10-Q ================================================================================ 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, 2003 OR | | Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______to______ Commission file number 0-9827 PETROLEUM HELICOPTERS, INC. (Exact name of registrant as specified in its charter) LOUISIANA 72-0395707 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 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 | | Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). 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, 2003 ----- ---------------------------- Voting Common Stock 2,851,866 shares Non-Voting Common Stock 2,531,392 shares
================================================================================ PETROLEUM HELICOPTERS, INC. INDEX - FORM 10-Q Part I - Financial Information Item 1. Financial Statements - Unaudited Condensed Consolidated Balance Sheets - June 30, 2003 and December 31, 2002 ......................................... 3 Condensed Consolidated Statements of Operations - Three Months and Six Months Ended June 30, 2003 and 2002........ 4 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2003 and 2002 ....................... 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 .................................................. 23 Item 4. Controls and Procedures........................................... 23 Part II - Other Information Item 1. Legal Proceedings ................................................ 23 Item 4. Submission of Matters to a Vote of Security Holders .............. 24 Item 6. Exhibits and Reports on Form 8-K ................................. 24 Signatures ....................................................... 25
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, 2003 2002 ------------- ------------- ASSETS Current Assets: Cash and cash equivalents $ 16,241 $ 17,674 Accounts receivable -- net of allowance: Trade 40,827 40,234 Other 1,045 579 Inventory 38,821 37,375 Other current assets 7,383 5,753 Refundable income taxes 715 2,236 ------------- ------------- Total current assets 105,032 103,851 Property and equipment, net 252,709 252,577 Other 9,836 10,279 ------------- ------------- Total Assets $ 367,577 $ 366,707 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 14,397 $ 14,772 Accrued liabilities 9,796 11,893 Accrued vacation payable 6,077 3,931 Income taxes payable -- 504 ------------- ------------- Total current liabilities 30,270 31,100 Long-term debt 200,000 200,000 Deferred income taxes 24,679 24,249 Other long-term liabilities 6,404 6,504 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 12,500,000 253 253 Additional paid-in capital 15,113 15,062 Retained earnings 90,573 89,254 ------------- ------------- Total shareholders' equity 106,224 104,854 ------------- ------------- Total Liabilities and Shareholders' Equity $ 367,577 $ 366,707 ============= =============
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, --------------------------- --------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Operating revenues $ 66,339 $ 71,136 $ 130,946 $ 139,315 Gain on disposition of property and equipment 520 285 1,438 848 Other 235 1,026 368 1,092 ------------ ------------ ------------ ------------ 67,094 72,447 132,752 141,255 ------------ ------------ ------------ ------------ Expenses: Direct expenses 56,230 58,507 110,805 117,921 Selling, general, and administrative expenses 4,836 5,319 9,738 10,032 Interest expense 5,025 5,983 9,988 7,291 ------------ ------------ ------------ ------------ 66,091 69,809 130,531 135,244 ------------ ------------ ------------ ------------ Earnings before income taxes 1,003 2,638 2,221 6,011 Income taxes 401 1,058 888 2,403 ------------ ------------ ------------ ------------ Net earnings $ 602 $ 1,580 $ 1,333 $ 3,608 ============ ============ ============ ============ Weighted average common shares outstanding: Basic 5,383 5,319 5,383 5,299 Diluted 5,486 5,434 5,476 5,410 Net earnings per common share: Basic $ 0.11 $ 0.30 $ 0.25 $ 0.68 Diluted $ 0.11 $ 0.29 $ 0.24 $ 0.67
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, ---------------------------- 2003 2002 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 1,333 $ 3,608 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 13,230 9,568 Deferred income taxes 430 1,165 Gain on asset dispositions (1,438) (848) Bad debt recovery related to notes receivable -- (731) Other (15) (20) Changes in operating assets and liabilities (3,686) 4,022 ------------ ------------ Net cash provided by operating activities 9,854 16,764 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from notes receivable -- 429 Purchase of property and equipment (14,617) (14,883) Purchase of aircraft previously leased -- (118,076) Proceeds from asset dispositions 3,280 2,418 ------------ ------------ Net cash used in investing activities (11,337) (130,112) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt -- 200,000 Less fees and expenses -- (5,627) Payments on long-term debt and capital lease obligations -- (5,845) Payment of long term debt from bond proceeds -- (60,771) Payment of interest rate swap settlement -- (1,575) Proceeds from exercise of stock options 50 898 ------------ ------------ Net cash provided by financing activities 50 127,080 ------------ ------------ (Decrease) increase in cash and cash equivalents (1,433) 13,732 Cash and cash equivalents, beginning of period 17,674 5,435 ------------ ------------ Cash and cash equivalents, end of period $ 16,241 $ 19,167 ============ ============ SUPPLEMENTAL DISCLOSURES CASH FLOW INFORMATION: Interest paid (excluding interest rate swap settlement) $ 9,574 $ 2,134 ============ ============ Taxes paid, net $ 969 $ 4,124 ============ ============
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, 2002 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, 2002. 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. Reclassifications Certain reclassifications have been made in the prior period financial statements in order to conform to the classifications adopted for reporting in 2003. Such reclassifications include an adjustment to increase operating revenues and direct expenses by $1.5 million for the three months ended June 30, 2002 and $2.9 million for the six months ended June 30, 2002. This reclassification did not affect earnings before income taxes, net earnings or earnings per share. 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. Effective July 1, 2002, the Company no longer allocates interest expense to its segments when evaluating operating performance. All results prior to July 1, 2002 have been restated to remove interest expense from the segment operating results. Segment operating income is operating revenues less direct expenses and selling, general, and administrative costs 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. Summarized financial information concerning the Company's reportable operating segments for the quarter and six months ended June 30, 2003 and 2002 is as follows (in thousands): 6
QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ---------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Segment operating revenues Domestic Oil and Gas $ 45,566 $ 45,717 $ 88,774 $ 88,971 International 4,257 5,253 10,009 11,442 Aeromedical 12,235 12,550 23,041 24,256 Technical Services 4,281 7,616 9,122 14,646 ------------ ------------ ------------ ------------ Total operating revenues $ 66,339 $ 71,136 $ 130,946 $ 139,315 ============ ============ ============ ============ Segment operating profit (loss): Domestic Oil and Gas $ 3,816 $ 7,501 $ 8,695 $ 12,216 International (752) 618 (682) 1,348 Aeromedical 3,641 2,574 6,239 4,005 Technical Services 1,026 1,203 2,325 2,060 ------------ ------------ ------------ ------------ Total segment operating profit 7,731 11,896 16,577 19,629 Other, net (1) 755 1,311 1,806 1,940 Interest (5,025) (5,983) (9,988) (7,291) Unallocated overhead (2,458) (4,586) (6,174) (8,267) ------------ ------------ ------------ ------------ Earnings before income taxes $ 1,003 $ 2,638 $ 2,221 $ 6,011 ============ ============ ============ ============
(1) Includes gains on dispositions of property and equipment and other income. 3. COMMITMENTS AND CONTINGENCIES Environmental Matters - The Company has an aggregate estimated liability of $1.5 million as of June 30, 2003 for environmental remediation costs that are probable and estimable. The Company has conducted environmental surveys of the 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 the Louisiana Risk Evaluation/Corrective Action Plan ("RECAP") standard will be submitted and evaluated by Louisiana Department of Environmental Quality ("LDEQ"). At that point, LDEQ 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. However, the Company has not recorded any estimated liability for remediation of contamination and, based on preliminary surveys and ongoing monitoring, the Company believes the ultimate remediation costs for the Lafayette facility will not be material to the Company's consolidated financial statements. 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 the Company's consolidated financial statements. 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 subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset sales, and mergers and consolidations or sales of assets. As of June 30, 2003, the Company was in compliance with covenants. 7 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 London Interbank offer rate ("LIBOR") rate borrowings plus a spread. The spread for LIBOR borrowings ranges from 2.0% to 3.0%. Any amounts outstanding under the revolving credit facility are due July 31, 2004. 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 June 30, 2003 and December 31, 2002, the Company had no borrowings and $1.4 million in letters 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. As of June 30, 2003, the Company was in compliance with the covenants. 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. At June 30, 2003, the Company had approximately $19.3 million in aggregate lease commitments under operating leases of which approximately $1.7 million is payable during the next twelve months. Purchase Commitments - Currently, the Company has entered into agreements to acquire and upgrade certain aircraft and equipment valued at approximately $40 million, for the future delivery at various dates through 2004. The Company intends to finance these additions through leasing arrangements, cash from operations, and sales of certain non-strategic aircraft. 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, 2003 and 2002 (in thousands):
QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Net earnings $ 602 $ 1,580 $ 1,333 $ 3,608 Other comprehensive income (loss): Unrecognized gain on interest rate swaps during the period -- -- -- 455 Add reclassification adjustments for losses included in net earnings -- 1,575 -- 1,575 ------------ ------------ ------------ ------------ Comprehensive income $ 602 $ 3,155 $ 1,333 $ 5,638 ============ ============ ============ ============
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 at June 30, 2003 and December 31, 2002 was $0.2 million. 8 The Company also establishes valuation reserves related to obsolescent and excess inventory. The inventory valuation reserves were $5.5 million and $4.8 million at June 30, 2003 and December 31, 2002, respectively. 6. PROPERTY AND EQUIPMENT Effective January 1, 2003, the Company changed the estimated residual value of certain aircraft (77 aircraft of the total fleet) from 30% to 40%. The Company believes the revised amounts reflect their historical experience and more appropriately matches costs over the estimated useful lives and salvage values of these assets. The effect of this change for the quarter ended June 30, 2003, was a reduction in depreciation expense of $0.2 million ($0.1 million after tax or $0.02 per diluted share). 7. NEW ACCOUNTING PRONOUNCEMENTS 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 implemented SFAS No. 143 on January 1, 2003, and determined that this statement did not have a material impact on its consolidated 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 implemented SFAS No. 145 on January 1, 2003, and determined that this statement did not have a material impact on its consolidated financial statements. 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 will implement the provisions of this statement on a prospective basis for exit or disposal activities that are initiated after December 31, 2002. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. As required, the Company adopted the disclosure requirements of FIN 45 as of December 31, 2002. The Company has adopted the initial recognition and measurement provisions for guarantees issued or modified after December 31, 2002. On January 1, 2003, the Company adopted the initial recognition and measurement provisions on a 9 prospective basis for guarantees issued or modified after December 31, 2002 and it did not have a material impact on the Company's consolidated financial position or results of operations. In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46"). FIN 46 requires that companies that control another entity through interest other than voting interests should consolidate the controlled entity. FIN 46 applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest in after that date. The Company implemented FIN 46 and it did not have a material impact on its consolidated financial position or results of operations. 8. 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, 2003 -------------------------------------------------------------- PARENT COMPANY GUARANTOR ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ASSETS Current Assets: Cash and cash equivalents $ 16,229 $ 12 $ -- $ 16,241 Accounts receivable - net of allowance 36,113 5,759 -- 41,872 Inventory 38,686 135 -- 38,821 Other current assets 7,089 294 -- 7,383 Refundable income taxes 715 -- -- 715 ------------- ------------- ------------- ------------- Total current assets 98,832 6,200 -- 105,032 Property and equipment, net 249,408 3,301 -- 252,709 Investment in subsidiaries and other 17,315 17,658 (25,137) 9,836 ------------- ------------- ------------- ------------- Total Assets $ 365,555 $ 27,159 $ (25,137) $ 367,577 ============= ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 27,905 $ 2,839 $ (6,551) $ 24,193 Accrued vacation payable 5,901 176 -- 6,077 ------------- ------------- ------------- ------------- Total current liabilities 33,806 3,015 (6,551) 30,270 Long-term debt net of current maturities 200,000 -- -- 200,000 Deferred income taxes and other long-term liabilities 25,525 5,023 535 31,083 Shareholders' Equity: Paid-in capital 15,651 4,403 (4,403) 15,651 Retained earnings 90,573 14,718 (14,718) 90,573 ------------- ------------- ------------- ------------- Total shareholders' equity 106,224 19,121 (19,121) 106,224 ------------- ------------- ------------- ------------- Total Liabilities and Shareholders' Equity $ 365,555 $ 27,159 $ (25,137) $ 367,577 ============= ============= ============= =============
11 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS (THOUSANDS OF DOLLARS)
DECEMBER 31, 2002 -------------------------------------------------------------- PARENT COMPANY GUARANTOR ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ASSETS Current Assets: Cash and cash equivalents $ 17,652 $ 22 $ -- $ 17,674 Accounts receivable - net of allowance 36,488 4,325 -- 40,813 Inventory 37,232 143 -- 37,375 Other current assets 5,743 10 -- 5,753 Refundable income taxes 2,236 -- -- 2,236 ------------- ------------- ------------- ------------- Total current assets 99,351 4,500 -- 103,851 Investment in subsidiaries and other 20,958 14,036 (24,715) 10,279 Property and equipment, net 248,982 3,595 -- 252,577 ------------- ------------- ------------- ------------- Total Assets $ 369,291 $ 22,131 $ (24,715) $ 366,707 ============= ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 33,114 $ 3,314 $ (9,763) $ 26,665 Accrued vacation payable 3,675 256 -- 3,931 Income taxes payable -- 504 -- 504 ------------- ------------- ------------- ------------- Total current liabilities 36,789 4,074 (9,763) 31,100 Long-term debt 200,000 -- -- 200,000 Deferred income taxes and other long-term liabilities 27,648 2,817 288 30,753 Shareholders' Equity: Paid-in capital 15,600 4,402 (4,402) 15,600 Retained earnings 89,254 10,838 (10,838) 89,254 ------------- ------------- ------------- ------------- Total shareholders' equity 104,854 15,240 (15,240) 104,854 ------------- ------------- ------------- ------------- Total Liabilities and Shareholders' Equity $ 369,291 $ 22,131 $ (24,715) $ 366,707 ============= ============= ============= =============
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, 2003 ---------------------------------------------------------------- Operating revenues $ 52,558 $ 13,781 $ -- $ 66,339 Management fees 981 -- (981) -- Equity in net income of consolidated subsidiaries 2,132 -- (2,132) -- Gain on dispositions of property and equipment 520 -- -- 520 Other 235 -- -- 235 ------------- ------------- ------------- ------------- 56,426 13,781 (3,113) 67,094 ------------- ------------- ------------- ------------- Expenses: Direct expenses 47,769 8,461 -- 56,230 Management fees -- 981 (981) -- Selling, general, and administrative 4,050 786 -- 4,836 Interest expense 5,025 -- -- 5,025 ------------- ------------- ------------- ------------- 56,844 10,228 (981) 66,091 ------------- ------------- ------------- ------------- Earnings before income taxes (418) 3,553 (2,132) 1,003 Income taxes (1,020) 1,421 -- 401 ------------- ------------- ------------- ------------- Net earnings $ 602 $ 2,132 $ (2,132) $ 602 ============= ============= ============= =============
FOR THE QUARTER ENDED JUNE 30, 2002 ---------------------------------------------------------------- Operating revenues $ 58,570 $ 12,566 $ -- $ 71,136 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 ------------- ------------- ------------- ------------- 63,017 12,566 (3,136) 72,447 ------------- ------------- ------------- ------------- Expenses: Direct expenses 50,525 7,982 -- 58,507 Management fees -- 1,760 (1,760) -- Selling, general, and administrative 4,794 525 -- 5,319 Interest expense 5,976 7 -- 5,983 ------------- ------------- ------------- ------------- 61,295 10,274 (1,760) 69,809 ------------- ------------- ------------- ------------- 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 ============= ============= ============= =============
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, 2003 ---------------------------------------------------------------- Operating revenues $ 104,408 $ 26,538 $ -- $ 130,946 Management fees 1,655 -- (1,655) -- Equity in net income of consolidated subsidiaries 3,880 -- (3,880) -- Gain on dispositions of property and equipment 1,438 -- -- 1,438 Other 368 -- -- 368 ------------- ------------- ------------- ------------- 111,749 26,538 (5,535) 132,752 ------------- ------------- ------------- ------------- Expenses: Direct expenses 93,955 16,850 -- 110,805 Management fees -- 1,655 (1,655) -- Selling, general, and administrative 8,172 1,566 -- 9,738 Interest expense 9,988 -- -- 9,988 ------------- ------------- ------------- ------------- 112,115 20,071 (1,655) 130,531 ------------- ------------- ------------- ------------- Earnings before income taxes (366) 6,467 (3,880) 2,221 Income taxes (1,699) 2,587 -- 888 ------------- ------------- ------------- ------------- Net earnings $ 1,333 $ 3,880 $ (3,880) $ 1,333 ============= ============= ============= =============
FOR THE SIX MONTHS ENDED JUNE 30, 2002 ---------------------------------------------------------------- Operating revenues $ 115,772 $ 23,543 $ -- $ 139,315 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 ------------- ------------- ------------- ------------- 122,542 23,541 (4,828) 141,255 ------------- ------------- ------------- ------------- Expenses: Direct expenses 101,522 16,399 -- 117,921 Management fees -- 2,831 (2,831) -- Selling, general, and administrative 9,063 969 -- 10,032 Interest expense 7,276 15 -- 7,291 ------------- ------------- ------------- ------------- 117,861 20,214 (2,831) 135,244 ------------- ------------- ------------- ------------- 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 ============= ============= ============= =============
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, 2003 --------------------------------------------------------------- Net cash provided by (used in) operating activities $ 9,864 $ (10) $ -- $ 9,854 Cash flows from investing activities: Purchase of property and equipment (14,617) -- -- (14,617) Proceeds from asset dispositions 3,280 -- -- 3,280 ------------- ------------- ------------- ------------- Net cash used in investing activities (11,337) -- -- (11,337) ------------- ------------- ------------- ------------- Cash flows from financing activities: Proceeds from exercise of stock options 50 -- -- 50 ------------- ------------- ------------- ------------- Net cash provided by financing activities 50 -- -- 50 ------------- ------------- ------------- ------------- Decrease in cash and cash equivalents (1,423) (10) -- (1,433) Cash and cash equivalents, beginning of year 17,652 22 -- 17,674 ------------- ------------- ------------- ------------- Cash and cash equivalents, end of year $ 16,229 $ 12 $ -- $ 16,241 ============= ============= ============= =============
FOR THE SIX MONTHS ENDED JUNE 30, 2002 --------------------------------------------------------------- Net cash provided by 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 ============= ============= ============= =============
15 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, 2002 and MD&A contained therein. 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 decreased $4.8 million for the quarter ended June 30, 2003 compared to the quarter ended June 30, 2002, primarily as a result of decreases in revenues from the Technical Services segment ($3.3 million) due to completion of a project for the upgrade and refurbishment of a customer's aircraft, in second quarter 2002, a decrease in operating revenues in the Aeromedical segment ($0.3 million) due to the termination of certain contracts substantially offset by rate increases on remaining Aeromedical contracts, and a decrease in operating revenues in the International segment ($1.0 million) due to a decrease in flight hour activity. There was also a slight decrease in Domestic Oil and Gas revenues ($0.2 million) due to a decrease in flight hours substantially offset by an increase in rates. Operating revenues for the six months ended June 30, 2003, compared to the six months ended June 30, 2002, decreased $8.4 million due to a decrease in revenues from the Technical Services segment ($5.5 million) due to completion of a project for the upgrade and refurbishment of a customer's aircraft, in second quarter 2002, a decrease in operating revenues in the Aeromedical segment ($1.2 million) due to the termination of certain contracts offset in part by rate increases on remaining Aeromedical contracts, and a decrease in operating revenues in the International segment ($1.4 million) due to a decrease in flight hour activity. For the six months ended June 30, 2003, there was also a slight decrease in Domestic Oil and Gas revenues ($0.2 million) due to a decrease in flight hours substantially offset by an increase in rates. 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 16 segment as a result of proposed rate increases on those contracts. The effect of the decline of flight activity on revenues was offset to a large extent by rate increases, except in the International segment. Total Expenses decreased $3.7 million for the quarter ended June 30, 2003 as compared to the quarter ended June 30, 2002. The decrease was due primarily to a decrease in Technical Services costs ($3.2 million) due to completion in second quarter 2002 of a project for the upgrade and refurbishment of a customer's aircraft, a decrease in helicopter rent ($1.5 million) due to the purchase of leased aircraft in second quarter 2002, and a decrease in interest cost ($1.0 million) as a result of liquidation of SWAP agreements in 2002. There were increases in depreciation expenses due to the purchase of leased aircraft ($1.6 million), and in other items ($0.4 million). Although there was little change in employee compensation costs, there were compensation increases, a reduction in headcount, and the effect of severance and a management bonus recorded in the prior year. Total Expenses decreased $4.7 million for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The decrease was due primarily to a decrease in Technical Services costs ($5.8 million) due to completion in second quarter of a project for the upgrade and refurbishment of a customer's aircraft, a decrease in helicopter rent ($5.1 million) due to the purchase of leased aircraft, and a decrease in employee compensation costs ($1.6 million) due to severance costs incurred in the first quarter of 2002 offset in part by increases in compensation rates. There were increases in maintenance costs ($1.7 million) due to parts usage and component overhaul and repair, depreciation ($3.4 million) and interest costs ($2.7 million). The following tables present certain non-financial operational statistics for the quarter and six months ended June 30, 2003 and 2002:
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ----------------------- -------------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- FLIGHT HOURS: Domestic Oil and Gas 30,131 34,259 57,661 65,760 International 2,963 4,207 7,203 9,133 Aeromedical 2,806 4,638 5,166 9,362 ---------- ---------- ---------- ---------- Total 35,900 43,104 70,030 84,255 ========== ========== ========== ==========
JUNE 30, ----------------------- 2003 2002 ---------- ---------- AIRCRAFT OPERATED AT PERIOD END: Domestic Oil and Gas 180 179 International 17 21 Aeromedical 29 33 ---------- ---------- Total 226 233 ========== ==========
QUARTER ENDED JUNE 30, 2003 COMPARED WITH QUARTER ENDED JUNE 30, 2002 COMBINED OPERATIONS REVENUES - Operating revenues were $66.3 million for the quarter ended June 30, 2003, as compared to $71.1 million for the quarter ended June 30, 2002, a decrease of $4.8 million. There was a decrease in operating revenues from the Technical Services segment ($3.3 million) due to completion of a project for the upgrade and refurbishment of a customer's aircraft completed in the second quarter of 2002, a 17 decrease in operating revenues in the Aeromedical segment ($0.3 million) due to the termination of certain contracts substantially offset by rate increases on remaining Aeromedical contracts, and a decrease in operating revenues in the International segment ($1.0 million) due to a decrease in flight hour activity. There was also a slight decrease in Domestic Oil and Gas revenues ($0.2 million) due to a decrease in flight hours substantially offset by an increase in rates. OTHER INCOME AND LOSSES - Gain (loss) on property and equipment dispositions was $0.5 million for the quarter ended June 30, 2003, compared to $0.3 million for the quarter ended June 30, 2002. Other income was $0.2 million for the quarter ended June 30, 2003, compared to $1.0 million for the quarter ended June 30, 2002. The prior year other income amount includes $0.7 million related to the favorable settlement of a note receivable. DIRECT EXPENSES - Direct expenses decreased $2.3 million for the quarter ended June 30, 2003 as compared to the quarter ended June 30, 2002. This decrease was due primarily to a decrease in Technical Services costs ($3.2 million) due to completion of a project for the upgrade and refurbishment of a customer's aircraft completed in the second quarter of 2002, and a decrease in helicopter rent ($1.5 million) due to the purchase of leased aircraft in the second quarter of 2002. These amounts were offset by an increase in depreciation expense ($1.6 million) as a result of the purchase of leased aircraft, a net increase in employee compensation costs ($0.4 million), and a net increase in other items ($0.4 million). The net increase in employee compensation costs is a result of an increase in compensation rates, offset by a reduction in headcount compared to the prior year. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - Selling, general and administrative expenses decreased $0.5 million for the quarter ended June 30, 2003, compared to the quarter ended June 30, 2002, due to a net decrease in employee compensation costs. The Company recorded in selling, general and administrative expenses ($0.1 million) of severance costs and ($0.8 million) in management bonuses in the prior year. INTEREST EXPENSE - Interest expense was $5.0 million for the quarter ended June 30, 2003 compared to $6.0 million for the quarter ended June 30, 2002, a decrease of $1.0 million. In the second quarter of 2002, the Company issued $200 million of Senior Notes, as previously described, and retired its exiting bank debt and related SWAP agreements. Included, therefore, in the second quarter of 2002 was a charge of $1.9 million related to retirement of the bank debt and liquidation of the SWAP agreements. Interest costs in the second quarter of 2002 also reflected only two months interest on the new Notes. INCOME TAXES - Income tax expense for the quarter ended June 30, 2003 was $0.4 million, compared to $1.1 million for the quarter ended June 30, 2002. The effective tax-rate was 40% for both quarters. EARNINGS - The Company's net earnings for the quarter ended June 30, 2003 were $0.6 million, compared to $1.6 million in the same period in the prior year. Earnings before tax for the quarter were $1.0 million compared to $2.6 million in the same period of the prior year. Earnings per diluted share for the quarter were $0.11 as compared to $0.29 per diluted share for the same quarter prior year. The decrease in earnings is primarily due to the decrease in flight hour activity. SEGMENT DISCUSSION Domestic Oil and Gas - Domestic Oil & Gas segment revenues were $45.6 million for the quarter ended June 30, 2003, compared to $45.7 million for the quarter ended June 30, 2002, a decrease of $0.2 million. There was a decrease in flight activity substantially offset by an increase in rates to customers implemented in part in January 2003. Flight hours were 30,131 for the quarter compared to 34,259 for the prior year quarter, a decrease of 12%. The decrease in flight activity was primarily due to a decrease 18 in oil and gas activity in the Gulf of Mexico. The number of aircraft in the segment was 180 at June 30, 2003, compared to 179 in the same quarter prior year. Direct expenses in the Domestic Oil and Gas segment increased ($2.5 million) for the quarter ended June 30, 2003 as compared to the same quarter prior year. There was an increase in depreciation expense due to the purchase of leased aircraft ($1.4 million), an increase in maintenance and fuel cost ($1.3 million), and a net increase in human resource cost ($1.2 million) due to compensation increases and due to Aeromedical segment's pilots and mechanics being reassigned to Domestic Oil and Gas. These amounts were offset in part by a decrease in aircraft rent due to the purchase of the leased aircraft ($1.2 million), and a net decrease in other items ($0.2 million). As a result of the increase in expenses, the Domestic Oil & Gas segment operating income was $3.8 million for the quarter ended June 30, 2003, compared to $7.5 million for the quarter ended June 30, 2002. International - International segment revenues were $4.3 million for the quarter ended June 30, 2003, compared to $5.3 million for the quarter ended June 30, 2002, a decrease of $1.0 million due to a decrease in flight activity. Flight hours were 2,963 for the current quarter compared to 4,207 for the same quarter prior year. The number of aircraft in the segment was 17 at June 30, 2003, compared to 21 in the same quarter prior year. Direct expenses increased ($0.3 million) for the quarter ended June 30, 2003 as compared to the quarter ended June 30, 2002 due to an increase in outside repairs on certain components ($0.8 million), partially offset by a decrease in human resources cost ($0.4 million). There was also a net increase in other items ($0.2 million). The International segment had a $0.8 million operating loss for the quarter, compared to operating income of $0.6 million for the same period in 2002. The operating loss is due to both the decrease in activity in the segment and the increase in direct expense. Aeromedical - Aeromedical segment revenues were $12.2 million for the quarter ended June 30, 2003, compared to $12.5 million for the quarter ended June 30, 2002, a decrease of $0.3 million. The decrease was due to the termination of certain Aeromedical contracts, substantially offset by an increase in rates on retained Aeromedical contracts. Flight hours for the quarter were 2,806 compared to 4,638 for the same period in the prior year. The number of aircraft in the segment was 29 at June 30, 2003 as compared to 33 for June 30, 2002. Direct expenses decreased ($1.9 million) in the Aeromedical segment for the quarter ended June 30, 2003 as compared to the same quarter prior year. There was a decrease in human resource cost ($0.8 million) due to the termination of certain Aeromedical contracts, a decrease in aircraft rent due to the purchase of leased aircraft ($0.3 million), and a decrease in maintenance cost ($1.4 million) due to a reduction in both aircraft and flight hours. There was also a net increase in other items ($0.5 million). The Aeromedical segment operating income was $3.6 million for the quarter, compared to $2.6 million for the same period in 2002. The increase in operating income is attributable to the decrease in direct expense as discussed above. 19 Technical Services - Technical Services segment revenues for the quarter ended June 30, 2003 were $4.3 million compared to $7.6 million for the same period prior year, a decrease of $3.3 million. The decrease is due to completion of a project for the upgrade and refurbishment of a customer's aircraft completed in the second quarter of 2002, which was not replaced with new work. There was a decrease in direct expense of $3.2 million in the Technical Services segment due to completion of the project mentioned above. The Technical Services segment had operating income of $1.0 million for the quarter ended June 30, 2003, compared to $1.2 million for the quarter ended June 30, 2002. SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2002 COMBINED OPERATIONS REVENUES - Operating revenues for the six months ended June 30, 2003 were $130.9 million, compared to $139.3 million for the six months ended June 30, 2002, a decrease of $8.4 million. The decrease was due to a decrease in Technical Services revenues ($5.5 million), and decreases in operating revenues in the Aeromedical ($1.2 million) and International ($1.4 million) segments due to a decrease in flight hour activity. The decrease in operating revenues in the Aeromedical segment was due to the termination of certain contracts substantially offset by rate increases on remaining Aeromedical contracts. Although flight hours decreased 12% in the Domestic Oil and Gas segment, this decrease in activity was offset by increases in rates. The decrease in flight activity in the Domestic Oil and Gas segment was primarily due to a decrease in activity in the Gulf of Mexico, and to unfavorable weather conditions as compared to the same period prior year. Flight hours for the six months ended June 30, 2003 were 70,030 as compared to 84,255 for the six months ended June 30, 2002, a decrease of 14,225 flight hours, or approximately 17%. The number of aircraft at June 30, 2003 was 226 as compared to 233 at June 30, 2002. OTHER INCOME AND LOSSES - Gain (loss) on property and equipment dispositions was $1.4 million for the six months ended June 30, 2003, compared to $0.8 million for the six months ended June 30, 2002, an increase of $0.6 million. The increase was due primarily to insurance proceeds on an aircraft. Other income for the six months ended June 30, 2003 was $0.4 million compared to $1.1 million in the prior year. The Company recorded a $0.7 million favorable settlement on a note receivable in the prior year. DIRECT EXPENSES - Direct expenses for the six months ended June 30, 2003 were $110.8 million, compared to $117.9 million for the comparable period in 2002, a decrease of $7.1 million. The decrease was the result of decreases in Technical Services costs due to completion of a contract in the prior year as described previously ($5.8 million), a decrease in helicopter rent ($5.1 million) as result of the purchase of leased aircraft, and a net decrease in employee compensation costs ($1.3 million) due to a reduction in headcount as well as a severance charge and management bonus recorded in the prior year, offset in part by an increase in compensation rates. These amounts were offset by an increase in maintenance costs ($1.7 million) related to aircraft parts usage and component repairs, and an increase in depreciation expense ($3.4 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, 2003 were $9.7 million, compared to $10.0 million for the six months ended June 30, 2002, a decrease of $0.3 million. There were severance charges ($0.3 million) and a management bonus ($0.8 million) recorded in the prior year. Excluding those amounts, selling, general and administrative employee costs increased $0.8 million, which also includes $0.3 million of costs related to severance and relocation costs in the Aeromedical segment. 20 INTEREST EXPENSE - Interest expense for the six months ended June 30, 2003 was $10.0 million, as compared to $7.3 million for the six months ended June 30, 2002. The increase in interest expense is related to the Notes issued on April 23, 2002. INCOME TAXES - Income tax expense for the six months ended June 30, 2003 was $0.9 million, compared to $2.4 million for the six months ended June 30, 2002. The effective tax rate was 40% for both periods. EARNINGS - The Company's net income for the six months ended June 30, 2003 was $1.3 million, compared to net income of $3.6 million for the six months ended June 30, 2002. Earnings before tax for the six months ended June 30, 2003 was $2.2 million, compared to earnings before tax of $6.0 million for the same period in the prior year. Earnings per diluted share for the six months ended June 30, 2003 was $0.24 as compared to earnings per diluted share of $0.67 for the six months ended June 30, 2002. Earnings for the six months were impacted primarily by the decline in revenues resulting from a 14,225 hour decrease in flight hours for the period, and to the increase in interest expense related to the Notes issuance. SEGMENT DISCUSSION Domestic Oil and Gas-- Domestic Oil & Gas segment revenues were $88.8 million for the six months ended June 30, 2003, compared to $89.0 million for the six months ended June 30, 2002. There was a decrease in flight activity, substantially offset by an increase in rates to customers implemented in part in January 2003. Flight hours were 57,661 for the six months ended June 30, 2003 compared to 65,760 for the same period in the prior year, a decrease of 12%. The decrease in flight activity was primarily due to decreased activity in the Gulf of Mexico and to unfavorable weather conditions in the current year compared to the same period prior year. The number of aircraft in the segment was 180 at June 30, 2003 as compared to 179 at June 30, 2002. Direct expenses increased ($2.2 million) for the six months ended June 30, 2003 as compared to the same period prior year. There were increases in depreciation expense due to the purchase of leased aircraft ($3.4 million), maintenance costs, primarily for aircraft parts and components ($2.4 million), in human resource costs ($0.4 million) and in other items ($0.4 million). These amounts were offset in part by a decrease in aircraft rent due to the purchase of leased aircraft ($4.4 million). Domestic Oil & Gas segment operating income was $8.7 million for the six months ended June 30, 2003, compared to $12.2 million for the six months ended June 30, 2002. The increase in direct expenses accounts primarily for the change in operating income. International - International segment revenues were $10.0 million for the six months ended June 30, 2003, compared to $11.4 million for the six months ended June 30, 2002, a decrease of $1.4 million. The decrease was due to recognition in 2002 of amounts recovered for a receivable previously reserved as uncollectible ($0.7 million), and to a decrease in flight hour activity offset in part by an increase in rates. Direct expenses increased $0.6 million for the six months ended June 30, 2003, as a result primarily of repairs to aircraft components and aircraft usage ($1.1 million), partially offset by a net decrease in human resource cost ($0.5 million). International segment had a $0.7 million operating loss for the six months ended June 30, 2003, compared to operating income of $1.3 million for the six months ended June 30, 2002. The recovery of a receivable, mentioned above, in the prior year, the decrease in flight activity, and the outside repair costs incurred in the current year account for the change in operating income. 21 Aeromedical - Aeromedical segment revenues were $23.0 million for the six months ended June 30, 2003, compared to $24.3 million for the same period in the prior year, a decrease of $1.2 million. The decrease was due to the termination of certain Aeromedical contracts, offset to a significant extent by an increase in rates on retained Aeromedical contracts. The number of aircraft in the segment was 29 at June 30, 2003, as compared to 33 for June 30, 2002. Direct expenses decreased ($4.2 million) in the Aeromedical segment for the six months ended June 30, 2003 as compared to the same period prior year. There was a net decrease in human resource cost ($2.1 million) due to the reduction in headcount resulting from termination of certain Aeromedical contracts, a decrease in aircraft rent due to the purchase of the leased aircraft ($0.7 million), and a decrease in maintenance costs ($1.9 million) as few aircraft were operated in its segment. There was a net increase in other items ($0.5 million). Aeromedical segment operating income was $6.2 million for the six months ended June 30, 2003, compared to $4.0 million for the six months ended June 30, 2002. The increase in operating income is attributable to the reduction in direct expense and increases in rates as discussed above. Technical Services - The Technical Services segment operating revenues for the six months ended June 30, 2003 were $9.1 million, compared to $14.6 million in the comparable period in the prior year, a decrease of $5.5 million. The decrease in Technical Services revenues is due to completion of a project for the upgrade and refurbishment of a customer's aircraft completed in the second quarter of 2002, which was not replaced with new work. There was a decrease in direct expense of $5.8 million in the Technical Services segment due to completion of the project mentioned above in the second quarter of 2002. The Technical Services segment had operating income of $2.3 million for the six months ended June 30, 2003, compared to $2.1 million for the six months ended June 30, 2002. LIQUIDITY AND CAPITAL RESOURCES The Company's cash position on June 30, 2003 was $16.2 million, compared to $17.7 million at December 31, 2002. Working capital was $74.8 million at June 30, 2003, as compared to $72.8 million at December 31, 2002, an increase of $2.0 million. Net cash provided by operating activities during 2003 funded debt service requirements and capital expenditures. 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. Also, on April 23, 2002, the Company executed a new credit agreement with a commercial bank for a $50 million revolving credit facility. At June 30, 2003, the Company had no borrowings and a $1.4 million letter of credit outstanding under the revolving credit facility. Capital expenditures totaled $14.6 million for the six months ended June 30, 2003, which primarily represents the upgrade of certain aircraft and the capitalized refurbishment of other aircraft. On May 1, 2003, the Company paid interest due on the Notes of $9.4 million. 22 ENVIRONMENTAL MATTERS As of June 30, 2003, the Company has an aggregate estimated liability of $1.5 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 to the Company's consolidated financial statements. NEW ACCOUNTING PRONOUNCEMENTS For a discussion of new accounting pronouncements applicable to the Company, see Note 7 to the Financial Statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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. At June 30, 2003, the market value of the Notes was $220 million. ITEM 4. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of a date within 90 days before the filing date of this quarterly report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic filings under the Exchange Act. Since the Evaluation Date, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect such controls. 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. 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its 2003 Annual Meeting of Stockholders on April 30, 2003. 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 2004 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 C. Russell Luigs 1,482,266 0 0 Richard H. Matzke 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 (incorporated by reference to Exhibit 10.3 to PHI's Report on Form 10-Q for the quarterly period ended June 30, 2002). 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Lance F. Bospflug, Chief Executive Officer. 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Michael J. McCann, Chief Financial Officer. 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Lance F. Bospflug, Chief Executive Officer. 32.2 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 Press release dated May 13, 2003 announcing earnings for first quarter ended March 31, 2003. 24 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, 2003 By: /s/ Lance F. Bospflug ------------------------------------- Lance F. Bospflug President and Chief Executive Officer August 14, 2003 By: /s/ Michael J. McCann ------------------------------------- Michael J. McCann Chief Financial Officer and Treasurer 25 EXHIBIT INDEX 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 (incorporated by reference to Exhibit 10.3 to PHI's Report on Form 10-Q for the quarterly period ended June 30, 2002). 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Lance F. Bospflug, Chief Executive Officer. 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Michael J. McCann, Chief Financial Officer. 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Lance F. Bospflug, Chief Executive Officer. 32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Michael J. McCann, Chief Financial Officer.