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: September 30, 2000
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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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 October 31, 2000
----- -------------------------------
Voting Common Stock 2,793,386 shares
Non-Voting Common Stock 2,384,715 shares
PETROLEUM HELICOPTERS, INC.
Index - Form 10-Q
Part I - Financial Information
Item 1. Financial Statements - Unaudited
Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999 3
Consolidated Statements of Operations - Three Months
and Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 15
Part II - Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
(Unaudited)
September 30, December 31,
2000 1999
------------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 122 $ 1,663
Accounts receivable -- net of allowance:
Trade 40,772 36,917
Other 1,619 3,558
Inventory 41,250 37,277
Prepaid expenses 1,570 2,987
Refundable income taxes 2,850 3,922
-------- --------
Total current assets 88,183 86,324
Property and equipment, net 124,864 135,047
Other 2,942 1,685
-------- --------
Total Assets $215,989 $223,056
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 28,284 $ 20,013
Accrued vacation payable 6,163 6,020
Current maturities of long-term debt 7,323 5,592
-------- --------
Total current liabilities 41,770 31,625
-------- --------
Long-term debt, net of current maturities 57,123 72,048
Deferred income taxes 17,391 17,776
Other long-term liabilities 8,571 7,984
Commitments and contingencies (Note 5)
Shareholders' Equity
Voting common stock -- par value of $0.10;
authorized shares of 12,500,000 279 279
Non-voting common stock -- par value of $0.10; 237 237
authorized shares of 12,500,000
Additional paid-in capital 12,024 11,729
Retained earnings 78,594 81,378
-------- --------
Total shareholders' equity 91,134 93,623
-------- --------
Total Liabilities and Shareholders' Equity $215,989 $223,056
======== ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
2000 1999 2000 1999
--------- --------- ---------- ----------
REVENUES AND OTHER
INCOME:
Operating revenues $ 60,894 $ 54,944 $ 168,658 $ 166,830
Other income (loss), net (358) 2,193 2,189 5,840
--------- --------- ---------- ----------
60,536 57,137 170,847 172,670
--------- --------- ---------- ----------
EXPENSES:
Direct expenses 55,724 52,792 157,743 156,244
Selling, general, and
administrative expenses 4,412 4,604 12,479 13,564
Special charges -- -- -- 4,846
Interest expense 1,329 1,449 4,312 4,306
--------- --------- ---------- ----------
61,465 58,845 174,534 178,960
--------- --------- ---------- ----------
Loss before income taxes (929) (1,708) (3,687) (6,290)
Income taxes 82 (631) (922) (2,520)
--------- --------- ---------- ----------
Net loss $ (1,011) $ (1,077) $ (2,765) $ (3,770)
========= ========= ========== ==========
Weighted average common
shares outstanding:
Basic 5,165 5,160 5,163 5,163
Diluted 5,165 5,160 5,163 5,163
Net loss per common share:
Basic $ (0.20) $ (0.21) $ (0.54) $ (0.73)
Diluted $ (0.20) $ (0.21) $ (0.54) $ (0.73)
Dividends declared per
common share $ -- $ 0.05 $ -- $ 0.15
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Nine Months Ended
September 30,
-------------------------
2000 1999
---------- ----------
Cash flows from operating activities:
Net loss $ (2,765) $ (3,770)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 10,088 11,627
Deferred income taxes (385) 726
Gain on asset dispositions (2,855) (5,903)
Equity in net losses of investee companies,
net of distributions 439 182
Special charges -- 3,720
Other 575 638
Changes in operating assets and liabilities 4,414 2,005
--------- ---------
Net cash provided by operating activities 9,511 9,225
--------- ---------
Cash flows from investing activities:
Investments in and advances to affiliates (1,266) (160)
Proceeds from notes receivable 198 --
Purchase of property and equipment (12,745) (19,221)
Proceeds from asset dispositions 15,955 14,447
--------- ---------
Net cash provided by (used in)
investing activities 2,142 (4,934)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 9,000 12,000
Payments on long-term debt (22,194) (15,395)
Dividends paid -- (778)
Other -- (128)
--------- ---------
Net cash used in financing activities (13,194) (4,301)
--------- ---------
Decrease in cash and cash equivalents (1,541) (10)
--------- ---------
Cash and cash equivalents, beginning of period 1,663 205
--------- ---------
Cash and cash equivalents, end of period $ 122 $ 195
========= =========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
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"). Effective December 31, 1999, the Company changed its
fiscal year end from April 30 of each year to December 31 of each year. 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
Transition Report on Form 10-K for the eight-month transition period ended
December 31, 1999 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 and gas operations, are influenced by seasonal
fluctuations as discussed in the Company's Transition Report on Form 10-K
for the eight-month transition period ended December 31, 1999. 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. Special Charges
In April 1999, in connection with expense reduction efforts and
management's decision to recognize the impairment of assets as a result of
decreased activity, the Company recorded Special Charges of $4.8 million.
The Special Charges included impairment of certain foreign based joint
ventures amounting to $2.5 million, severance costs of $1.3 million,
impairment of property and equipment of $0.4 million, and other charges of
$0.6 million.
3. Segment Information
The Company has identified three principal segments: Oil and Gas Aviation
Services, Aeromedical Services and Technical Services. The Oil and Gas
Aviation Services segment includes domestic and international helicopter
services provided to oil and gas customers. The Oil and Gas Aviation
Services segment also includes certain other helicopter services related to
non-oil and gas activities including forest fire-fighting and scientific
research. The Aeromedical Services segment includes all services provided
to the Company's air medical customers, including hospitals and medical
programs. The Technical Services segment provides aircraft maintenance and
repair services to outside parties. As of January 1, 2000, the Company has
changed its basis of segmentation to present Technical Services as a
separate segment. Previously, the Technical Services segment was in the
Oil and Gas Aviation Services segment. All periods presented below include
Technical Services as a separate reporting segment.
Segment operating income is operating revenues less direct expenses,
selling, general, and administrative costs, and special charges, as well as
interest expense applicable 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 quarters and nine months ended September 30,
2000 and 1999 is as follows (in thousands):
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Segment operating revenues,
excluding other income:
Oil and Gas Aviation
Services $ 45,199 $ 40,163 $ 123,981 $ 118,930
Aeromedical Services 10,928 11,274 33,041 33,914
Technical Services 4,767 3,507 11,636 13,986
--------- --------- ---------- ----------
Total operating revenues,
excluding other income $ 60,894 $ 54,944 $ 168,658 $ 166,830
========= ========= ========== ==========
Segment operating income
(loss), excluding other
income:
Oil and Gas Aviation
Services $ 1,990 $ 34 $ 1,846 $ (4,405)(1)
Aeromedical Services (98) (714) 28 231
Technical Services 968 486 1,838 2,431
--------- --------- ---------- ----------
Total segment operating
income (loss) excluding
other income 2,860 (194) 3,712 (1,743)
Other income, net (358) 2,193 2,189 5,840
Unallocated overhead (3,431) (3,707) (9,588) (10,387)
--------- --------- ---------- ----------
Loss before income taxes $ (929) $ (1,708) $ (3,687) $ (6,290)
========= ========= ========== ==========
(1) Includes special charges of $4.8 million as discussed in Note 2 of
the unaudited condensed consolidated financial statements.
4. Other Assets
Other assets principally includes investments in and advances to an
affiliate. The Company has a 50% ownership interest in Clintondale
Aviation, Inc. ("Clintondale"), a New York corporation that operates
helicopters and fixed-wing aircraft primarily in the Commonwealth of
Independent States. PHI leases four aircraft to Clintondale. In May 2000,
PHI obtained a $1.3 million note receivable from Clintondale in exchange
for conversion of $0.8 million of amounts due from Clintondale and $0.5
million cash. The note is payable through June 2005 in equal monthly
principal installments plus interest at 7.81% per annum and is secured by a
pledge of the shares not owned by PHI. At September 30, 2000, the note's
principal balance was $1.2 million. The Company also holds a note
receivable from Clintondale with a $0.4 million principal balance at
September 30, 2000. The note is payable through May 2001 in equal monthly
principal and interest payments at 13.00% per annum.
5. Commitments and Contingencies
Environmental Matters -- The Company continues to review selected domestic
bases for possible fuel contamination resulting from routine flight
operations. The aggregate estimated liability recorded for environmental
related costs at September 30, 2000 was $3.0 million, which the Company
believes is adequate for probable and estimable environmental costs. The
Company recorded no provisions in the quarter or nine months ended
September 30, 2000. The Company will make additional provisions in future
periods to the extent appropriate as further information regarding these
costs becomes available. In this connection, the Company will conduct
environmental site surveys in the fourth quarter at its Lafayette facility,
which will be vacated in 2001 when the Company moves to its new facility.
The Company will also conduct environmental site surveys at certain other
facilities during the fourth quarter of 2000 and the first quarter of 2001.
The results of these surveys could require additional provisions.
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; however, after consulting
with legal counsel, the Company has established accruals that it believes
adequately provide for the resolution of such litigation. In the opinion
of management, the amount of the ultimate liability with respect to these
actions will not have a material adverse effect on results of operations,
cash flow or financial position of the Company.
Long-Term Debt -- The Company is subject to certain financial covenants
under its loan agreement with its principal lending group, as amended on
June 30, 2000, and was in compliance with those covenants on September 30,
2000. These covenants include maintaining certain levels of cash flow,
working capital and shareholders' equity and contain other provisions some
of which restrict purchases of the Company's stock, capital expenditures
and payment of dividends. The declaration or payment of dividends is
restricted to 20% of net earnings for the previous four fiscal quarters.
The loan 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.
On November 30, 2000, the revolving credit facility portion of the loan
agreement converts to a term loan, thereby increasing total annual
principal debt payments to approximately $12 million. The Company intends
to obtain an extension of the conversion requirement, which may involve
certain other changes to the credit agreement, or to refinance its debt.
New Principal Operating Facility -- The Company is leasing a new principal
operating facility for 20 years effective September 2001. Under the terms
of the lease, there is a commitment by the Company to fund, under certain
circumstances, $4.0 million of construction costs. Any such amounts funded
by PHI will amortize over 10 years at 7% per annum and the resulting
monthly amortization amounts will reduce PHI's monthly lease payments for
the first 10 years of the lease.
6. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133
establishes new accounting and reporting standards for derivative financial
instruments and for hedging activities. SFAS No. 133 requires the Company
to measure all derivatives at fair value and to recognize them in the
balance sheet as an asset or liability, depending on the Company's rights
or obligations under the applicable derivative contract. In June 1999, the
FASB issued SFAS No. 137, which deferred the effective date of adoption of
SFAS No. 133 for one year. In June 2000, the FASB issued SFAS No. 138 to
address a limited number of issues causing implementation difficulties,
including a provision to provide an exception for "Normal" purchases and
sales. The Company will adopt SFAS No. 133, as amended, no later than the
first quarter of fiscal year 2001. The Company has considered the
implications of adopting the new method of accounting for derivatives and
hedging activities and has concluded that its implementation will not have
a material impact on the Company's consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements". SAB No. 101 summarizes certain of the SEC's views
in applying generally accepted accounting principles to revenue recognition
in financial statements. SAB No. 101, as amended, is effective beginning
in the fourth quarter of fiscal year 2000. The Company believes that this
new accounting pronouncement will not have a material affect on its
consolidated financial statements.
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 Transition Report on Form 10-K for
the eight month transition period ended December 31, 1999.
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 and commitments required to acquire aircraft, environmental
risks, competition, government regulation, unionization, 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.
Overview
Despite increased oil and gas prices during the first nine months of 2000
when compared to 1999, oil and gas exploration and production activities in
the Gulf of Mexico, the Company's principal market, did not begin to
increase significantly until the latter part of the second quarter of 2000.
It was then that PHI began to realize improvements in its Gulf of Mexico
services activities. However, activity and revenues remain below the
levels achieved in 1998. The Company also realized a significant increase
in activity and revenues related to forest fire-fighting. Overall
international oil and gas service activities have experienced decreased
activity due to closure of certain operations in South America.
Aeromedical Services activities have decreased due to restructure of
operations in Arizona in late 1999. The Company's technical services
activity increased in the second and third quarters of 2000 as the result
of the start of new contracts to provide maintenance to certain military
aircraft. The new contracts are one year contracts that are renewable
annually.
As part of the preparation of its 2001 business plan, management has
initiated a comprehensive review of operations, including joint ventures
and other investments, inventories, environmental and other matters. It is
anticipated that this review will be completed by year end.
Results of Operations
The following tables present certain non-financial operational statistics
for the quarter and nine months ended September 30, 2000 and 1999:
Quarter Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
2000 1999 2000 1999
------- ------- ------- -------
Flight hours:
Oil and Gas Aviation Services:
Domestic 43,762 39,581 118,663 114,661
International 5,078 5,353 16,107 17,029
------- ------- ------- -------
Sub-total 48,840 44,934 134,770 131,690
Aeromedical Services 5,639 6,344 16,552 17,537
Other 91 153 459 444
------- ------- ------- -------
Total 54,570 51,431 151,781 149,671
======= ======= ======= =======
September 30,
-----------------
2000 1999
------ ------
Aircraft operated at period end:
Oil and Gas Aviation Services:
Domestic 200 199
International 31 26
---- ----
Sub-total 231 225
Aeromedical Services 46 49
---- ----
Total 277 274
==== ====
Quarter Ended September 30, 2000 compared with Quarter Ended September 30, 1999
Oil and Gas Aviation Services
Oil & Gas Aviation Services revenue increased 12.5% to $45.2 million for
the quarter ended September 30, 2000 compared to $40.2 million during the
same period in the prior year. Increased domestic activity, including
increased forest fire-fighting activity, and rate increases implemented in
January 2000 contributed to the increase. Decreased revenues and activity
that resulted from the closure of certain operations in South America
partially offset the increase.
Oil and Gas Aviation Services had $2.0 million operating income for the
quarter compared to less than $0.1 million operating income for the same
period in 1999. Operating margin of 4.4% for the third quarter compares to
less than 0.1% for the same quarter in the prior year. Increased flight
activity and rate increases implemented in January 2000 helped increase the
margins. Increased repairs and maintenance, insurance, employee benefits,
and fuel costs, and the decreased international revenues partially offset
the margin increase.
Aeromedical Services
Aeromedical Services revenues decreased 3.1% to $10.9 million for the
quarter ended September 30, 2000 compared to $11.3 million during the same
period in the prior year. The decrease in revenues is primarily
attributable to decreased revenue and activity in the Company's AirEvac
operations in Arizona. In November 1999, the Company restructured its
Arizona operations and reduced the number of its operating aircraft there.
Aeromedical Services operating income was a $0.1 million loss for the
quarter compared to a $0.7 million loss for the same period in 1999.
Operating margin was (0.1)% for the quarter and compares to (6.3)% for the
same quarter in 1999. Lower labor and other costs that were attributable
to AirEvac's restructuring were partially offset by increased repairs and
maintenance and employee benefit costs.
Technical Services
Technical Services operating revenues for the quarter ended September 30,
2000 were $4.8 million compared to $3.5 million in the prior year, an
increase of 35.9%. Technical Services operating income improved to $1.0
million for the quarter compared to $0.5 million for the same quarter in
1999. The operating margin was 20.3% in the current year quarter and 13.9%
in the prior year quarter. The increases in operating revenues and
operating income were primarily attributable to the start of ongoing
contracts in 2000 to provide maintenance to certain military aircraft.
Other Income (Loss), net
Other losses, net, were $0.4 million for the quarter ended September 30,
2000 as compared to other income, net, of $2.2 million for the prior year
quarter. The other income, net, for the third quarter of 1999 included
$2.1 million of net gains on aircraft sales and other asset dispositions.
There were no aircraft sales in the third quarter of 2000 and net gains on
asset dispositions were $0.1 million. Also, the third quarter of 2000
includes $0.5 million equity in net losses of investee companies, which
compares to $0.1 million equity in net losses of investee companies
recorded in the third quarter of 1999.
Direct Expenses
Direct expenses for the quarter ended September 30, 2000 increased by 5.6%
to $55.7 million compared to $52.8 million in the same period in the prior
year. Higher repairs and maintenance, fuel, aircraft rent, and insurance
costs, and the cost related to increased Technical Services revenue were
the primary reasons for the increase. Lower labor costs attributable to
AirEvac's restructuring, partially offset the increase in direct expenses.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses for the quarter ended
September 30, 2000 were $4.4 million and compare to $4.6 million in the
same period in 1999. During the quarter ended September 30, 1999, the
Company reduced its number of employees and recorded related severance
costs totaling $0.8 million in selling, general, and administrative
expenses. Higher bad debt provisions, general salary increases for
administrative employees, and the reassignment of certain employees to
administrative positions partially offset the decrease.
Interest Expense
Interest expense for the quarter ended September 30, 2000 decreased $0.1
million to $1.3 million. The decrease is due primarily to lower debt
levels in the current quarter compared to the same quarter in the prior
year. Increases in interest rates for the period mostly offset the
decrease.
Income Taxes
Income tax expense for the quarter ended September 30, 2000 was $0.1
million compared to a $0.6 million benefit for the quarter ended September
30, 1999. The effective tax rates were (8.8)% and 36.9% for the September
30, 2000 and 1999 quarters, respectively. The lower effective rate in the
current quarter is the result of higher equity in net losses of investee
companies and other permanent differences between book income and tax
income.
Nine Months Ended September 30, 2000 compared with Nine Months Ended
September 30, 1999
Oil and Gas Aviation Services
Oil & Gas Aviation Services revenues increased 4.2% to $124.0 million for
the nine months ended September 30, 2000 compared to $118.9 million during
the same period in the prior year. Increased domestic activity, including
increased forest fire-fighting activity, and rate increases implemented in
January 2000 contributed to the increase. Decreased revenues that resulted
from the closure of certain operations in South America partially offset
the increase.
Oil and Gas Aviation Services had $1.8 million operating income for the
nine months ended September 30, 2000 compared to a $4.4 million operating
loss for the same period in 1999. The operating loss in 1999 included $4.8
million of special charges (see Special Charges within this discussion).
Operating margin of 1.5% for the nine months compares to (3.7)% for the
same period last year. The increase in margin is primarily due to the
special charges recorded in 1999, increased revenues, lower aircraft
depreciation, and rate increases in January 2000. Increased repairs and
maintenance, fuel, helicopter rental, and employee benefit expenses and the
decreased international revenues partially offset the increase in margin.
Aeromedical Services
Aeromedical Services revenue decreased 2.6% to $33.0 million for the nine
months ended September 30, 2000 compared to $33.9 million during the same
period in the prior year. The decrease in revenues is primarily
attributable to decreased revenue and activity in the Company's AirEvac
operations in Arizona. In November 1999, the Company restructured its
Arizona operations and reduced the number of its operating aircraft there.
Aeromedical Services operating income decreased to less than $0.1 million
for the nine months ended September 30, 2000 compared to $0.2 million for
the same period in 1999. Operating margin was less than 0.1% for the nine
months ended September 30, 2000 and compares to 0.7% for the same period in
1999. Increased repairs and maintenance, fuel, helicopter rental, and
employee benefit expenses and the decreased revenues contributed to the
lower operating income. Lower labor costs that were primarily attributable
to AirEvac's restructuring partially offset the decrease in operating
income.
Technical Services
Technical Services operating revenues for the nine months ended September
30, 2000 were $11.6 million compared to $14.0 million in the prior year, a
decrease of 16.8%. Technical Services operating income decreased to $1.8
million for the nine months compared to $2.4 million for the same nine
months in 1999. The operating margin was 15.8% in the nine months ended
September 30, 2000 and 17.4% in the nine months ended September 30, 1999.
The decrease in operating revenues and operating margin was primarily
attributable to work performed on two large contracts for the refurbishment
and overhaul of two helicopters and a large parts sale, all occurring
during the nine months ended September 30, 1999. An ongoing contract to
provide maintenance to certain military aircraft started in the second
quarter of 2000 and partially offset the decrease.
Other Income, net
Other income, net, was $2.2 million for the nine months ended September 30,
2000 as compared to $5.8 million for the prior year nine months. The other
income, net, for the nine months ended September 30, 2000 included $2.7
million of net gains on aircraft sales and other asset dispositions. The
net gains on aircraft sales and other asset dispositions during the nine
months ended September 30, 1999 were $5.9 million. Also, the nine months
ended September 30, 2000 includes $0.6 million equity in net losses of
investee companies, which compares to $0.1 million equity in net losses of
investee companies recorded in the nine months ended September 30, 1999.
Direct Expenses
Direct expenses for the nine months ended September 30, 2000 increased by
1.0% to $157.7 million compared to $156.2 million in same period in the
prior year. The increase was due to higher repairs and maintenance, fuel,
helicopter rental, and employee benefit expenses. The Technical Services
segment's decrease in cost of sales, lower aircraft depreciation, and lower
labor costs that were attributable to AirEvac's restructuring mostly offset
the increase in direct expenses.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses for the nine months ended
September 30, 2000 decreased by 8.0% to $12.5 million compared to $13.6
million in the same period in the prior year. The decrease was primarily
due to a decrease in Y2K compliance and certain other computer programming
costs. During the nine months ended September 30, 1999, the Company also
recorded severance costs totaling $0.8 million in selling, general, and
administrative expenses related to a reduction in its number of employees.
Higher bad debt provisions, general salary increases for administrative
employees, and the reassignment of certain employees to administrative
positions partially offset the decrease.
Special Charges
In April 1999, in connection with expense reduction efforts and
management's decision to recognize the impairment of assets as a result of
decreased activity, the Company recorded Special Charges of $4.8 million.
The Special Charges included impairment of certain foreign based joint
ventures amounting to $2.5 million, severance costs of $1.3 million,
impairment of property and equipment of $0.4 million, and other charges of
$0.6 million.
Interest Expense
Interest expense for the nine months ended September 30, 2000 and September
30, 1999 was $4.3 million. Lower debt levels in the current nine-month
period, compared to the debt levels in the same nine months in the prior
year, offset the effect of increased interest rates for the period.
Income Taxes
Income tax benefit for the nine months ended September 30, 2000 decreased
$1.6 million to $0.9 million. The effective tax rates were 25.0% and 40.1%
for the nine months ended September 30, 2000 and 1999, respectively. The
lower effective rate for the nine months ended September 30, 2000 is the
result of higher equity in net losses of investee companies and other
permanent differences between book income and tax income.
Liquidity and Capital Resources
The Company's cash position as of September 30, 2000 was $0.1 million
compared to $1.7 million at December 31, 1999. Working capital decreased
$8.3 million from $54.7 million at December 31, 1999 to $46.4 million. Net
cash provided by operating activities during the nine months ended
September 30, 2000 was $9.5 million. Net cash provided by operating
activities along with $16.0 million of aircraft sales funded payments of
long-term debt, purchases of property and equipment, and advances to
affiliates.
Total long-term debt decreased $13.2 million since December 31, 1999 to
$64.4 million at September 30, 2000. The current portion of the long-term
debt was $7.3 million at September 30, 2000, which the Company intends to
pay with cash flow from operations and planned aircraft sales. At
October 31, 2000, the Company had $11.5 million of credit capacity
available under its credit facilities. On November 30, 2000, the revolving
credit facility portion of the credit agreement converts to a term loan,
thereby increasing total annual principal debt payments to approximately
$12 million. The Company intends to obtain an extension of the conversion
requirement, which may involve certain other changes to the credit
agreement, or to refinance its debt.
The amount expended for the purchase and completion of aircraft
improvements and engines and other property and equipment was $12.7 million
for the nine months ended September 30, 2000, compared to $19.2 million in
the first nine months of 1999. The decrease in capital expenditures when
compared to 1999 reflects the Company's reduced fleet and efforts to
conserve cash.
The Company believes its cash flow from operations in conjunction with its
credit capacity and proceeds from planned asset sales is sufficient to meet
its planned expenditure requirements for the next twelve months.
Environmental Matters
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 September 30, 2000 is
$3.0 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. In this connection, the Company
will conduct environmental site surveys in the fourth quarter at its
Lafayette facility, which will be vacated in 2001 when the Company moves to
its new facility. The Company will also conduct environmental site surveys
at certain other facilities during the fourth quarter of 2000 and the first
quarter of 2001. The results of these surveys could require additional
provisions.
Employees
On March 10, 2000, the Company's pilots voted to become organized under the
Office and Professional Employees International Union and the Company is
currently negotiating a contract with the union. While the ultimate
outcome of these negotiations cannot be predicted with certainty, the
Company's position is that the terms of any pilots' contract should not
place it at a disadvantage with its competitors.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133
establishes new accounting and reporting standards for derivative financial
instruments and for hedging activities. SFAS No. 133 requires the Company
to measure all derivatives at fair value and to recognize them in the
balance sheet as an asset or liability, depending on the Company's rights
or obligations under the applicable derivative contract. In June 1999, the
FASB issued SFAS No. 137, which deferred the effective date of adoption of
SFAS No. 133 for one year. In June 2000, the FASB issued SFAS No. 138 to
address a limited number of issues causing implementation difficulties,
including a provision to provide an exception for "Normal" purchases and
sales. The Company will adopt SFAS No. 133, as amended, no later than the
first quarter of fiscal year 2001. The Company has considered the
implications of adopting the new method of accounting for derivatives and
hedging activities and has concluded that its implementation will not have
a material impact on the Company's consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes certain of the SEC's views
in applying generally accepted accounting principles to revenue recognition
in financial statements. SAB No. 101, as amended, is effective beginning
in the fourth quarter of fiscal year 2000. The Company believes that this
new accounting pronouncement will not have a material affect on its
consolidated financial statements.
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 for the eight-month transition period ended
December 31, 1999.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings primarily involving
claims for personal injury. The Company believes that the outcome of all
such proceedings, even if determined adversely, would not have a material
adverse effect on its consolidated financial statements.
Item 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).
(iii) Amendment dated March 17, 2000 to Section 2.2 of the By-laws of
the Company (incorporated by reference to Exhibit No. 3.1 (iii) to
PHI's Report on Form 10-Q for the quarterly period ended March 31,
2000).
(iv) Amendment dated September 15, 2000 to Section 3.1 of the By-laws
of the Company.
(v) Amendment dated September 15, 2000 to Section 5 of the By-laws of
the Company.
10.23 Supplemental Executive Retirement Plan adopted by PHI's Board
effective September 14, 2000.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
September 30, 2000.
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.
November 14, 2000 By: /s/ Carroll W. Suggs
---------------------------------
Carroll W. Suggs
Chairman of the Board, President and
Chief Executive Officer
November 14, 2000 By: /s/ Michael J. McCann
---------------------------------
Michael J. McCann
Chief Financial Officer and Treasurer
