Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: October 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____ to ____
Commission file number 0-9827
PETROLEUM HELICOPTERS, INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-0395707
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2121 Airline Drive Suite 400
P.O. Box 578, Metairie, Louisiana 70001-5979
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (504) 828-3323
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at December 1, 1999
_____ _______________________________
Voting Common Stock 2,793,386 shares
Non-Voting Common Stock 2,366,175 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
October 31, April 30,
1999 1999 (1)
----------- -----------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 1,053 $ 3,025
Accounts receivable - net of allowance 44,124 42,235
Inventory 38,077 34,902
Prepaid expenses 1,317 1,658
Refundable income taxes 4,900 3,368
------------ -----------
Total current assets 89,471 85,188
------------ -----------
Investments in affiliates and other 1,979 1,827
Property and equipment:
Cost 264,518 272,330
Less accumulated depreciation (123,247) (127,770)
------------ -----------
141,271 144,560
------------ -----------
Total Assets $ 232,721 $ 231,575
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 22,025 $ 22,210
Accrued vacation payable 5,937 6,057
Current maturities of long-term debt 5,927 5,891
------------ -----------
Total current liabilities 33,889 34,158
------------ -----------
Long-term debt, net of current maturities 77,431 74,405
Deferred income taxes 19,411 19,411
Other long-term liabilities 7,213 7,020
Shareholders' Equity:
Voting common stock - par value of $ 0.10;
authorized 12,500,000; issued shares of
2,800,866 at October 31 and April 30 279 279
Non-voting common stock - par value of $ 0.10;
authorized 12,500,000; issued shares of
2,368,175 at October 31 and April 30 237 237
Additional paid-in capital 11,717 11,717
Retained earnings 82,544 84,348
------------ ------------
Total Shareholders' Equity 94,777 96,581
------------ ------------
Total Liabilities and
Shareholders' Equity $ 232,721 $ 231,575
============ ============
(1) The balance sheet at April 30, 1999 is condensed from the audited
financial statements at that date. The accompanying notes are an
integral part of these condensed consolidated financial statements.
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
October 31, October 31,
------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
REVENUES:
Operating revenues $ 55,358 $ 67,009 $ 109,172 $ 129,229
Other income, net 907 (1,531) 4,768 (1,374)
--------- --------- ---------- ----------
56,265 65,478 113,940 127,855
--------- --------- ---------- ----------
EXPENSES:
Direct expenses 52,982 55,808 104,517 109,099
Selling, general
and administrative 5,160 4,844 9,002 9,109
Interest expense 1,472 1,536 2,907 2,985
--------- --------- ---------- ----------
59,614 62,188 116,426 121,193
--------- --------- ---------- ----------
Earnings (loss) before
income taxes (3,349) 3,290 (2,486) 6,662
Provision (benefit) for
income taxes (1,278) 1,336 (950) 2,706
--------- --------- ---------- ----------
Net earnings (loss) $ (2,071) $ 1,954 $ (1,536) $ 3,956
========= ========= ========== ==========
BASIC:
Earnings (loss) per
common share $ (0.40) $ 0.38 $ (0.30) $ 0.77
========= ========= ========== ==========
DILUTED:
Earnings (loss) per
common share $ (0.40) $ 0.37 $ (0.30) $ 0.76
========= ========= ========== ==========
Weighted average common
shares outstanding 5,160 5,169 5,160 5,165
Incremental common shares 33 59 39 66
--------- --------- ---------- ----------
Weighted average common
shares and equivalents 5,193 5,228 5,199 5,231
========= ========= ========== ==========
Dividends declared per
common share $ 0.00 $ 0.05 $ 0.05 $ 0.10
========= ========= ========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Six Months Ended October 31,
----------------------------
1999 1998
------------ -----------
Cash flows from operating activities:
Net earnings (loss) $ (1,536) $ 3,956
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation 7,325 7,680
Deferred income taxes - (487)
(Gain) loss on asset dispositions (4,704) 113
Equity in net (earnings) losses of
investee companies, net of distributions 64 (83)
Loss from operations disposal - 1,344
Changes in operating assets and liabilities (3,405) (10,617)
---------- ----------
Net cash provided by (used in)
operating activities (2,256) 1,906
---------- ----------
Cash flows from investing activities:
Investments (100) (270)
Purchase of property and equipment (8,394) (26,654)
Proceeds from asset dispositions 6,233 9,676
---------- ----------
Net cash used in investing activities (2,261) (17,248)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 11,000 24,000
Payments on long-term debt (7,937) (9,404)
Proceeds from exercise of stock options
and other - 78
Dividends paid (518) (516)
---------- ----------
Net cash provided by financing activities 2,545 14,158
---------- ----------
Decrease in cash and cash equivalents (1,972) (1,184)
Cash and cash equivalents, beginning of period 3,025 2,753
---------- ----------
Cash and cash equivalents, end of period $ 1,053 $ 1,569
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED OCTOBER 31, 1999 AND 1998
(Unaudited)
(1) General
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with Form 10-Q instructions of the Securities
and Exchange Commission ("SEC") from the books and records of Petroleum
Helicopters, Inc. and Subsidiaries ("PHI" or the "Company"). In the
opinion of management, these financial statements reflect all adjustments,
consisting of only normal, recurring adjustments, necessary to present
fairly the financial results for the interim periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations
of the SEC; however, the Company believes that this information is fairly
presented. These condensed consolidated financial statements should be
read in conjunction with the financial statements contained in the
Company's Annual Report on Form 10-K for the year ended April 30, 1999 and
the accompanying notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations. Certain reclassifications
have been made to the prior period's financial statements in order to
conform to the classifications adopted for reporting in the transition
period ending December 31, 1999. These reclassifications had no impact on
net income or shareholders' equity.
The Company's financial results, particularly as they relate to the
Company's domestic oil and gas operations, are influenced by seasonal
fluctuations. During the winter, there are more days of adverse weather
conditions and fewer hours of daylight than the other months of the year.
Consequently, flight hours are generally lower during the winter months
than at other times of the year. This produces a seasonal aspect to the
Company's business and typically results in reduced revenues from
operations during those months. Therefore, the results of operations for
interim periods are not necessarily indicative of the operating results
that may be expected for a full fiscal year.
(2) Change in Accounting Estimate
Property and Equipment
Effective May 1, 1999 the Company changed the estimated useful lives on its
aircraft from ten years to fifteen years. The residual value was increased
from 25% to 30%. The Company believes the revised estimated useful lives
and residual values will more appropriately reflect its financial results
by better matching costs over the estimated useful lives of these assets.
The effect of this change on net income for the quarter and six months
ended October 31, 1999 was a reduction in depreciation expense of
approximately $ 0.6 million ($ 0.4 million after tax or $ 0.08 per diluted
share) and $ 1.2 million ( $ 0.7 million after tax or $ 0.14 per diluted
share), respectively.
(3) Change in Fiscal Year
The Company has elected to change its fiscal year from April 30 to a fiscal
year ending December 31. The Company will file a transition report on Form
10-K for the eight-month period ending December 31, 1999. The Company will
commence reporting on a calendar year basis with the filing of its Form 10-
Q for the quarter ending March 31, 2000.
(4) Segment Information
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which requires that
companies disclose segment data based on how management makes decisions
about allocating resources to segments and measuring their performance.
The Company operates principally in two units: Oil and Gas
Aviation and Aeromedical Services. The Oil and Gas Aviation
unit includes domestic and international helicopter
services provided to oil and gas customers, including technical services
and maintenance work. The Aeromedical Services unit includes all
services provided to the Company's air medical customers, including
hospitals and medical programs.
Segment operating profit is based on operating revenues less direct
expenses, selling, general and administrative costs and special charges, if
any, applicable to the operating segment. Segment assets are those assets
used exclusively in the operation of each operating segment or which are
allocated when used jointly. Corporate assets are principally cash and cash
equivalents, short term investments, other current assets, and certain
property, plant and equipment. Corporate overhead, consisting primarily of
non-allocable selling, general and administrative costs is not allocated to
the operating segments.
Summarized financial information concerning the Company's operating
segments for the three and six months ended October 31 is shown in the
following table (in thousands):
Three Months Ended Six Months Ended
October 31, October 31,
-------------------- ----------------------
1999 1998 1999 1998
------- ------- -------- --------
Operating revenues:
Oil and Gas $ 44,245 $ 54,867 $ 86,220 $ 105,138
Aeromedical 11,074 11,987 22,748 23,728
Other 39 155 204 363
--------- --------- ---------- ----------
$ 55,358 $ 67,009 $ 109,172 $ 129,229
========= ========= ========== ==========
Operating profit:
Oil and Gas 332 (1) 7,171 370 (1) 13,681
Aeromedical 8 653 272 1,321
--------- --------- ---------- ----------
Total Segment
operating profit $ 340 $ 7,824 $ 642 $ 15,002
Other income, net 907 6 4,768 163
Corporate overhead (3,124) (3,004) (4,989) (5,518)
Interest expense (1,472) (1,536) (2,907) (2,985)
--------- --------- ---------- ----------
Earnings before
income taxes $ (3,349) $ 3,290 $ (2,486) $ 6,662
========= ========= ========== ==========
(1) Includes severance costs of $ 1.0 million recorded during the second
quarter ended October 31, 1999
(5) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." FAS 133, as amended, is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000 and establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are to be recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if
it is, the type of hedge transaction. Earlier application of the
provisions of FAS 133 is encouraged and is permitted as of the beginning of
any fiscal quarter that begins after the issuance of FAS 133. The Company
believes that, due to its current limited use of derivative instruments,
adoption of FAS 133 will not have a material effect on the Company's
results of operations, financial position, or liquidity.
(6) Environmental Liability
The Company continues to review selected domestic bases for possible fuel
contamination resulting from routine flight operations. The aggregate
liability recorded for environmental related costs at October 31, 1999 is
$ 1.7 million, which the Company believes is adequate for probable and
estimable environmental costs. The Company will make additional provisions
in future periods, to the extent appropriate, as further information
regarding these costs becomes available. No additional provisions were
recognized during the six months ended October 31, 1999.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with the accompanying
financial statements and with the Company's Consolidated Financial
Statements for the year ended April 30, 1999 together with the related
Notes to Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact contained in this
Form 10-Q, other periodic reports filed by the Company under the Securities
Exchange Act of 1934 and other written or oral statements made by it or on
its behalf, are forward-looking statements. When used herein, the words
"anticipates", "expects", "believes", "intends", "plans", or "projects" and
similar expressions are intended to identify forward-looking statements.
It is important to note that forward-looking statements are based on a
number of assumptions about future events and are subject to various risks,
uncertainties and other factors that may cause the Company's actual results
to differ materially from the views, beliefs and estimates expressed or
implied in such forward-looking statements. Although the Company believes
that the assumptions reflected in forward-looking statements are
reasonable, no assurance can be given that such assumptions will prove
correct. Factors that could cause the Company's results to differ
materially from the results discussed in such forward-looking statements
include but are not limited to the following: flight variances from
expectations, volatility of oil and gas prices, the substantial capital
expenditures required to fund its operations, environmental risks,
competition, government regulation, unionization, Year 2000 issues and the
ability of the Company to implement its business strategy. All forward-
looking statements in this document are expressly qualified in their
entirety by the cautionary statements in this paragraph. The Company
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
RESULTS OF OPERATIONS
The Company is engaged primarily in providing helicopter transportation and
related services. The predominant portion of its revenue is derived from
transporting offshore oil and gas production and drilling workers on a
worldwide basis. The Company also performs helicopter transportation
services for a variety of hospital and medical programs and aircraft
maintenance ("technical services") to outside parties.
Second Quarter ended October 31, 1999 to Second Quarter ended October 31, 1998
- ------------------------------------------------------------------------------
Operating Revenues
General
The Company generates flight revenues from both ongoing service contracts
with established customers and non-contract flights referred to as
Specials. Oil and Gas Aviation contracts, both domestic and
international, are generally on a month to month basis and consist of a
fixed fee plus an hourly charge for actual flight time. Specials are
customer flights, primarily domestic oil and gas, provided on an as
needed basis that are not provided pursuant to ongoing contracts and
which generally carry higher rates. The Company's technical service
contracts are generally provided on an actual cost plus negotiated mark-
up basis.
Aeromedical Services contracts also provide for fixed and hourly charges,
but are generally for longer terms and impose early cancellation fees to
encourage customers to fulfill the contract term and cover the Company's
additional up-front costs in the event of early termination. Air Evac
Services, Inc. ("Air Evac"), a separately incorporated company within
PHI's Aeromedical Services Unit, operates in Arizona and primarily
derives its revenues from third party payors based on per hour or per seat
charges. These contracts are predominantly short-term in nature.
The following table summarizes and compares the Company's operating
revenues by unit for the quarters ended October 31, 1999 and 1998:
Operating Revenues for the Quarter Ended October 31,
-----------------------------------------------------------
(Thousands of dollars, except percentages and flight hours)
-----------------------------------------------------------
Increase (Decrease)
-------- -------- -------------------
1999 1998 $ %
-------- -------- ---------- ------
Oil and Gas Aviation Unit $ 44,245 $ 54,867 $ (10,622) (19)
Aeromedical Services Unit 11,074 11,987 (913) (8)
Other 39 155 (116) (75)
-------- -------- ----------
Total Operating Revenues $ 55,358 $ 67,009 $ (11,651) (17)
======== ======== ========== =====
Total Flight Hours 49,777 62,511 (12,734) (20)
======== ======== ========== =====
Oil and Gas Aviation Unit
Total Oil and Gas Aviation Unit revenues for the quarter ended
October 31, 1999 decreased 19% to $ 44.2 million from $ 54.9 million for
the quarter ended October 31, 1998. Flight hours for the quarter ended
October 31, 1999 declined 21% to 43,858 hours from 55,762 hours. These
decreases were due primarily to decreased activity in the Gulf of Mexico
and by reductions in flight hours from two customers not related to decreased
drilling or production activity. In addition, the prior year second quarter
included an increase in "Specials" due to several tropical storm and
hurricane evacuations which did not occur in the second quarter ended October
31,1999.
United States Aviation Operations. Demand for the Company's domestic
oil and gas aviation services is directly influenced by offshore oil
and gas exploration, development and production activities in the
areas in which PHI operates, which in turn is affected primarily by
oil and gas prices. Despite the recent improvements in oil and gas
prices, activity in the Gulf of Mexico continues to be depressed as
oil and gas companies continue to focus on their costs. The Company
does not expect any significant improvement in demand for its services
for the remainder of this calendar year.
Second quarter operating revenues attributable to domestic flight
operations were $ 34.6 million compared to $ 44.5 million for the prior
year second quarter, a decrease of $ 9.9 million, or 22%. Flight hours
declined 23% over the prior year second quarter. The decrease in flight
hours accounted for substantially all of the revenue decrease.
International Aviation Operations. International operating revenues
decreased $ 1.0 million this quarter to $ 5.6 million as compared to
$ 6.6 million for the prior year second quarter. This decrease resulted
primarily from the expiration of a contract in Venezuela.
Technical Services Operations. Technical Services operating revenues
were $ 4.0 million for the current quarter compared to $ 3.8 million
in the prior year second quarter, an increase of $ 0.2 million.
This increase was primarily attributable to additional third-party
maintenance work.
Aeromedical Services Unit
Aeromedical revenues decreased $ 0.9 million, or 8%, to $ 11.1 million,
as compared to $ 12.0 million in the prior year second quarter. Rate
increases on several contracts were offset by a $ 1.2 million decline in
revenues of Air Evac, primarily as a result of increased competition in
Arizona, where Air Evac operates. In November 1999, PHI announced that
it was reducing the personnel and aircraft complement at Air Evac, as
well as closing several unprofitable locations. The net loss for Air
Evac for the quarter ended October 31, 1999 was approximately $ 0.3
million before tax and $ 0.2 million after tax. Excluding the
unprofitable locations, which were closed in November, Air Evac would
have recorded earnings before taxes of $ 0.4 million ($ 0.3 million after
tax).
Total Aeromedical programs and aircraft as of October 31, 1999 remained
the same as October of last year, at seventeen and forty-four,
respectively. When the reduction in the Air Evac fleet is completed,
the number of aircraft will be reduced to thirty-nine.
Total Aeromedical flight hours decreased 354 hours, or 6%, to 5,480
hours. The Air Evac operation accounted for approximately 52% of this
decrease.
Other Income, net
Other income, net includes gains recorded relating to the sale of aircraft
of $ 0.9 million as compared to a loss of $ 0.2 million on aircraft
sales for the prior year second quarter. Additionally, prior year
second quarter results were negatively impacted by a charge of $ 1.3
million related to the discontinuance of a joint venture in South America.
Expenses
Direct Expenses
Direct expenses decreased $ 2.8 million, or 5%, to $ 53.0 million,
primarily as a result of decreased activity levels and a change in
aircraft depreciable lives (See Note 2 to the Condensed Consolidated
Financial Statements). Due to the recent slow down in activity, the
Company is evaluating cost reductions in all areas. On September 1,
1999, the Company reduced its personnel complement which is expected
to result in an annual salary expense reduction of approximately $ 3.5
million. Severance costs totaling $ 1.0 million related to this action
were recorded in the second quarter and are included in "Selling, General
and Administrative expenses". The Company also reduced it fleet size to
275 aircraft as of October 31, 1999, and as noted above, determined to
close certain of Air Evac's unprofitable locations, reduce personnel and
dispose of certain aircraft operated by Air Evac. As these
actions were only recently implemented, the financial impact will not be
reflected until subsequent quarters.
Human Resource costs, including employee benefit costs, remained
relatively constant at $ 22.8 million. The Company began reducing its
cost structure in January 1999, and by June 30, 1999 had reduced its
personnel complement by 166 and made reductions in other cash expenditures.
In July, due to competitive industry pressures, the Company implemented a
compensation increase primarily for its pilots and mechanics. The increase
in July 1999 more than offset what cost reductions were previously
implemented. Although the Company recently made further reductions in its
labor force, the expected human resource cost reduction will not be reflected
until subsequent quarters.
Spare parts usage and repair and maintenance costs declined $ 0.7
million, or 6%, to $ 12.1 million due to a reduction in the number of
aircraft and flight hours. Although the number of aircraft has declined,
spare parts usage and repair and maintenance costs declined at a lesser
rate as the Company continues to refurbish and maintain its fleet of
aircraft under a prescribed refurbishment schedule. Aircraft are
refurbished based on specific time tables and, thus, costs are to a certain
extent incurred on a basis unrelated to flight activity.
Insurance costs and helicopter rent declined $ 0.7 million primarily due
to the disposition of aircraft that no longer met the Company's needs and
also due to lower rental rates on newly leased aircraft. Environmental
costs declined $ 0.1 million.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses increased $ 0.3 million, or
7%, to $ 5.2 million. Excluding severance charges of $ 1.0 million
recorded in the current quarter, selling, general and administrative
expenses decreased $ 0.6 million compared to the prior year. This
decrease is primarily due to a reduction in legal and other business
consulting expenses.
Six Months ended October 31, 1999 to Six Months ended October 31, 1998
- ----------------------------------------------------------------------
The following table summarizes and compares the Company's operating
revenues by segment for the six months ended October 31, 1999 and 1998:
Operating Revenues for the Six Months Ended October 31,
-----------------------------------------------------------
(Thousands of dollars, except percentages and flight hours)
-----------------------------------------------------------
Increase (Decrease)
-------- -------- --------------------
1999 1998 $ %
-------- -------- ---------- ------
Oil and Gas Aviation Unit $ 86,220 $105,138 $ (18,918) (18)
Aeromedical Services Unit 22,748 23,728 (980) (4)
Other 204 363 (159) (44)
-------- -------- ----------
Total Operating Revenues $109,172 $129,229 $ (20,057) (16)
======== ======== ========== =====
Total Flight Hours 99,870 125,831 (25,961) (21)
======== ======== ========== =====
Oil and Gas Aviation Unit
Total Oil and Gas Aviation Unit revenues for the six months
ended October 31, 1999 decreased 18% to $ 86.2 million from $ 105.1
million for the six months ended October 31, 1998. Flight hours declined
22% to 87,682 hours from 112,181 hours for the six months ended October
31, 1999. These decreases were due primarily to decreased activity in
the Gulf of Mexico and by reductions in flight hours from two
customers not related to decreased drilling or production activity. In
addition, the prior year period included an increase in "Specials"
due to several tropical storm and hurricane evacuations which did not occur
in the current period.
United States Aviation Operations. Demand for the Company's domestic
oil and gas aviation services is directly influenced by offshore oil
and gas exploration, development and production activities in the
areas in which PHI operates, which in turn is affected primarily by
oil and gas prices. Despite the recent improvements in oil and gas
prices, activity in the Gulf of Mexico continues to be lackluster as
oil and gas companies continue to focus on their costs. The Company
does not expect any significant improvement in demand for its services
for the remainder of this calendar year. PHI was also affected by
reductions in flight hours from two of its customers not related to
decreased drilling or production activity.
Operating revenues for the six months ended October 31, 1999 attributable
to domestic flight operations were $ 68.1 million compared to $ 87.2
million for the prior year period, a decrease of $ 19.1 million, or 22%.
Flight hours declined 23% over the prior year six months. The decrease in
flight hours accounted for substantially all of the revenue decrease.
International Aviation Operations. International operating revenues
were $ 10.4 million as compared to $ 11.2 million for the prior year
period, a decrease of $ 0.8 million, or 7%. This decrease
resulted primarily from the expiration of a contract in Venezuela.
Technical Services Operations. Technical Services operating revenues
were $ 7.7 million for the current six months compared to $ 6.8
million in the prior year period, an increase of $ 0.9 million. This
increase was primarily attributable to additional third-party maintenance
work.
Aeromedical Services Unit
Aeromedical revenues decreased $ 1.0 million, or 4%, to $ 22.7 million,
as compared to $ 23.7 million in the prior year six months. Rate
increases on several contracts were offset by a $ 2.1 million decline in
revenues of Air Evac, primarily as a result of increased competition in
Arizona, where Air Evac operates. In November 1999, PHI announced that
it was reducing the personnel and aircraft complement at Air Evac, as
well as closing several unprofitable locations. The net loss for Air
Evac for the six months ended October 31, 1999 was approximately $ 0.5
million before tax and $ 0.3 million after tax. Excluding the
unprofitable locations, which were closed in November, Air Evac would
have recorded earnings before taxes of $ 0.9 million ($ 0.5 million
after tax).
Total Aeromedical programs and aircraft as of October 31, 1999 remained
the same as October of last year, at seventeen and forty-four,
respectively. When the reduction in the Air Evac fleet is completed,
the number of aircraft will be reduced to thirty-nine.
Total Aeromedical flight hours decreased 406 hours, or 3%, to 11,363
hours. The Air Evac operation accounted for approximately 59% of this
decrease.
Other Income, net
Other income, net includes gains recorded relating to the sale of assets of
$ 4.7 million as compared to a loss of $ 0.1 million on aircraft sales in
the prior year period. The Company sold eleven aircraft during the quarter
ended July 31, 1999 and six aircraft during the quarter ended October 31,
1999. Adversely impacting prior year results was a $ 1.3 million charge
related to the discontinuance of a joint venture in South America.
Expenses
Direct Expenses
Direct expenses decreased $ 4.6 million, or 4%, to $ 104.5 million,
primarily as a result of decreased activity levels and a change in
aircraft depreciable lives (See Note 2 to the Condensed Consolidated
Financial Statements). Due to the recent slow down in activity, the
Company is looking at cost reductions in all areas. On September 1,
1999, the Company reduced its personnel complement which is expected
to result in an annual salary expense reduction of approximately $ 3.5
million. Severance costs recorded in the second quarter related to this
action were approximately $ 1.0 million. (see discussion below regarding
"Selling, General and Administrative" expenses). The Company also reduced
its fleet size to 275 aircraft as of October 31, 1999 and decided to close
certain of Air Evac's unprofitable locations, reduce its personnel and
dispose of certain aircraft operated by Air Evac.
Human Resource costs, including employee benefit costs, decreased $ 0.7
million, or 2%, to $ 45.1 million this six months compared to the prior
year six months. Although the Company's work force was reduced from the
prior year by approximately 175 employees, salary expense only decreased
by $ 0.3 million due to wage and benefit increases effective July 1999.
These increases were required to respond to competitive market pressure
and the Company's need to retain highly qualified personnel. Employee
benefit costs declined by $ 0.4 million related to the reduction in the
work force.
Spare parts usage and repair and maintenance costs decreased $ 0.5
million, or 2%, to $ 23.4 million due to a reduction in aircraft fleet and
flight activity. Although the number of aircraft has declined, spare
parts usage and repair and maintenance costs declined at a lesser rate
as the Company continues to refurbish and maintain its fleet of
aircraft under a prescribed refurbishment schedule. Aircraft are
refurbished based on specific time tables and, thus, costs are to a certain
extent incurred on a basis unrelated to flight activity.
Insurance costs and helicopter rent declined $ 1.1 million primarily due
to the disposition of aircraft that no longer met the Company's needs.
Environmental costs declined $ 0.2 million.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses decreased $ 0.1 million, or
1%, to $ 9.0 million. Excluding severance charges of $ 1.0 million
recorded in the second quarter, selling, general and administrative
expenses decreased $ 1.1 million compared to the prior year. This
decrease is primarily due to a reduction in legal and other business
consulting expenses. Additional severance charges of approximately $ 0.2
million will be recorded in November related to the Air Evac downsizing
as previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
The following is a comparison of the quarter ended October 31, 1999 with
the year ended April 30, 1999.
The Company's cash position as of October 31, 1999 was $ 1.1 million
compared to $ 3.0 million at April 30, 1999, the Company's fiscal year end.
Working capital increased $ 4.6 million from $ 51.0 million at April 30,
1999 to $ 55.6 million.
Total long-term debt increased $ 3.1 million to $ 83.4 million, of which
the current portion is $ 5.9 million, payable in equal quarterly
installments, which the Company intends to pay with cash flow from
operations. At December 10, 1999, the Company had $ 8.5 million of credit
capacity available under its credit facilities. The Company believes its
cash flow from operations in conjunction with its credit capacity and
proceeds from asset sales is sufficient to meet its planned requirements
for the foreseeable future. The Company is in compliance with the
provisions of its loan agreements.
Cash used in operating activities was $ 2.3 million. Severance payments of
$ 1.0 million were made during the quarter ended October 31, 1999.
Additional payments of approximately $ 0.2 million were made during the
third quarter for Air Evac personnel.
Cash used in investing activities was $ 2.3 million. Investing activities
included the purchase and completion of aircraft improvements and engines
and other property, plant and equipment for $ 8.4 million which were
primarily funded through proceeds from asset dispositions. Additional
proceeds of $ 1.9 million were received in November 1999 from the second
quarter aircraft sales. The Company also paid dividends of $ 0.05 per share
during the quarters ended July 31, 1999 and October 31, 1999. On October 29,
1999, the Board of Directors voted to suspend PHI's quarterly cash dividend
payments. The dividend suspension is part of the overall program to
reposition PHI in view of the recent declines in oil and gas activity in
its principal market, and the consolidations that have taken place and are
continuing in the oil and gas industry.
The Company continues to review selected domestic bases for possible fuel
contamination resulting from routine flight operations. The aggregate
liability recorded for environmental related costs at October 31, 1999 is
$ 1.7 million which the Company believes is adequate for probable and
estimable environmental costs. The Company will make additional provisions
in future periods to the extent appropriate as further information
regarding these costs becomes available. No additional provisions were
recognized during the six months ended October 31, 1999.
YEAR 2000 MATTERS
General
To consider the impact of Year 2000 ("Y2K") issues on PHI, a committee
consisting of members of senior management from various disciplines within
the Company has met regularly to discuss, outline and implement appropriate
courses of action. In addition, the Company retained a consulting firm to
review Y2K readiness of the Company and make recommendations for action.
Its review was completed on June 30, 1999, and PHI has implemented its
recommendations.
Information Technology.
The Company recently completed a major upgrade of its information
technology systems begun in fiscal 1996, an incidental benefit of which is
that most of its systems are Y2K compliant. Remaining remediation
activities are essentially complete and have not resulted in any
significant delays or costs.
Non-Information Technology.
PHI's non-information technology systems include embedded chip technology
in various equipment, aircraft systems, communications (ground and air) and
utilities. The Company has completed remediation of those systems that
it determined needed to be upgraded or replaced. To date, no aircraft
safety of flight or other significant issues have been identified.
The Company has been in contact with the manufacturers of its aircraft and
related equipment to determine the impact of embedded chip technology on
flight systems. A review of these communications indicates that embedded
chip technology will not cause PHI's fleet to be grounded as a result of
Y2K issues.
Third Parties.
PHI continues to evaluate its position with significant suppliers, lenders,
customers and others to ensure that those parties have appropriate plans to
address Y2K issues where they may impact the operations of the Company.
While the Company does not have any significant suppliers, lenders, or
customers that directly interface with its information technology systems,
the failure of third parties to address their Y2K problems could negatively
impact PHI. Based on contacts to date with third parties identified as
important, PHI does not expect the impact of any third party problems to be
material. However, there is no assurance that the systems of any third
parties will be Y2K compliant in time or that any non-compliance will not
have a material adverse effect on the Company.
PHI operates internationally in various countries in South America, Europe,
Asia and Africa. Published reports indicate that the governments of some
of the countries in which it operates may not be Y2K compliant in
activities administered or operated by them, such as communications,
utilities and aircraft landing facilities, and PHI has received no
assurances from any of such governments of its Y2K readiness. To the
extent that the failure of those governments or of private parties
organized under the laws of such countries and doing business with PHI are
not Y2K compliant, resulting disruptions could have a material adverse
effect on PHI's international operations.
Consequences.
If all significant Y2K issues are not properly identified, or if
assessment, remediation and testing of systems of the Company and of third
parties with which it has a significant relationship are not effected
timely, the Y2K issue could potentially have an adverse impact on the
Company's operations and financial condition. The Company believes that
the most reasonably likely worst-case scenario would be that the Company
would find it necessary to revert to the use of manual accounting records
for billings, payments and collections. In addition, the inability of
principal suppliers and major customers to be Y2K compliant could result in
delays in deliveries from those suppliers and collections of accounts
receivable. A more remote possibility is that delays and disruptions
caused by Y2K problems of governments and customers could ground a
significant portion of its aircraft, a situation for which there is no
apparent remedy.
Contingency Plan.
Concurrent with the Company's efforts to address Y2K issues, it has
developed appropriate contingency plans, which were finalized
during December 1999, to help prevent the Company's operations from being
materially impacted by or to reduce the impact that results from a failure
to correct a Y2K problem. The contingency plans include using
alternative vendors and suppliers which are Y2K compliant, purchasing
additional products and inventories and supplies in advance of December 31,
1999, and reverting to manual systems or workarounds.
Costs.
While the Company incurred significant costs to upgrade its information
technology systems, it does not associate these costs with Y2K readiness.
Its direct costs associated with its Y2K compliance efforts to date have
not exceeded $ 0.4 million, and the Company does not expect to incur
significant Y2K compliance costs for the remainder of calendar year 1999.
Direct costs do not include management and other employee time spent on Y2K
issues, which the Company does not quantify.
RESULTS AT A GLANCE (Unaudited)
The following table provides a summary of critical operating and financial
statistics (thousands of dollars, except per share amounts, financial
ratios, flight hours and general statistics):
Six Months Ended October 31,
----------------------------------
Operations 1999 1998
----------------------------------
Operating revenues $ 109,172 $ 129,229
Net earnings (1,536) 3,956
Net earnings per basic share (0.30) 0.77
Net earnings per diluted share (0.30) 0.76
Book value per diluted share 18.23 18.77
Total flight hours 99,870 125,831
Financial Summary October 31, 1999 April 30, 199
---------------- -------------
Net working capital $ 55,582 $ 51,030
Net book value of property
and equipment 141,271 144,560
Long-term debt, net of
current maturities 77,431 74,405
General Statistics
Aircraft operated 275 290
Employees 1,920 2,051
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes to the Company's disclosures regarding
derivatives in its Form 10-K dated April 30, 1999.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on October 29,
1999 at which time the stockholders elected the following directors:
Nominees For Withheld
- ----------------- --------- --------
Carroll W. Suggs 2,608,708 4,606
Leonard M. Horner 2,613,298 16
James W. McFarland 2,613,298 16
Bruce N. Whitman 2,608,898 4,416
Thomas H. Murphy 2,613,314 0
Arthur J. Breault, Jr. 2,612,314 1,000
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 (i) Articles of Incorporation of the Company (incorporated by reference
to Exhibit No. 3.1 (i) to PHI's Report on Form 10-Q for the
quarterly period ended October 31, 1994).
(ii) By-laws of the Company (incorporated by reference to Exhibit
No. 3.1 (ii) to PHI's Report on Form 10-Q for the quarterly
period ended July 31, 1996).
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended October 31,
1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Petroleum Helicopters, Inc.
December 15, 1999 By: /s/ Carroll W. Suggs
____________________________________
Carroll W. Suggs
Chairman of the Board, President and
Chief Executive Officer
December 15, 1999 By: /s/ Michael J. McCann
____________________________________
Michael J. McCann
Chief Financial Officer and Treasurer
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This schedule contains summary financial information from condensed financial
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<NAME> MARGIE LEBLANC
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