e424b3
The
information in this preliminary prospectus supplement and
accompanying prospectus is not complete and may be changed. This
preliminary prospectus supplement and accompanying prospectus
are not an offer to sell these securities, and we are not
soliciting offers to buy these securities, in any state where
the offer or sale is not
permitted.
|
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-123528
|
|
PRELIMINARY PROSPECTUS SUPPLEMENT |
March 30, 2006 |
Subject to completion
(To Prospectus dated March 31, 2005)
4,287,920 Shares
PHI, Inc.
Non-Voting Common Stock
We are offering 4,287,920 shares of non-voting common
stock, par value $0.10 per share, which includes
100,000 shares that Al A. Gonsoulin, our Chairman
of the Board and Chief Executive Officer, intends to purchase.
We will receive all of the net proceeds from the sale of these
shares of our non-voting common stock.
Our non-voting common stock is listed on The NASDAQ National
Market under the symbol PHIIK. The last reported
sales price of our non-voting common stock on March 29,
2006 was $36.48 per share.
Investing in our non-voting common stock involves a high
degree of risk. Before buying any of these shares of our
non-voting common stock, you should carefully consider the risk
factors described in Risk factors beginning on
page S-15.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Per share | |
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Total | |
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Public offering price
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$ |
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$ |
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Underwriting discounts and
commissions(1)
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$ |
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$ |
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Proceeds, before expenses, to PHI, Inc.
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$ |
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$ |
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(1) |
The underwriters will not receive any underwriting discount
or commission on the 100,000 shares that Mr. Gonsoulin
intends to purchase. Accordingly, proceeds to us (before
expenses) include the full public offering price per share for
these shares. See Underwriting. |
We have granted the underwriters a
30-day option to
purchase up to an additional 643,188 shares of our
non-voting common stock to cover over-allotments at the public
offering price per share, less the underwriting discounts and
commissions. If the underwriters exercise the option in full,
the total underwriting discounts and commissions will be
$ and the total proceeds, before expenses, to us will be
$ .
The underwriters are offering the shares of our non-voting
common stock as described in Underwriting. Delivery
of the shares will be made on or about
April , 2006.
UBS Investment Bank
Howard Weil Incorporated
________________________________________________________________________________
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering.
The second part is the accompanying prospectus, which gives more
general information and includes disclosures that would pertain
if at some time in the future we were to sell debt securities,
preferred stock, voting or non-voting common stock, depositary
shares or warrants. Accordingly, the accompanying prospectus
contains data that do not apply to this offering.
If the description of the offering varies between this
prospectus supplement and the accompanying prospectus, you
should rely on the information in this prospectus supplement.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not authorized anyone to
provide you with additional or different information. If anyone
provides you with additional, different or inconsistent
information, you should not rely on it. We are offering to sell
the shares and seeking offers to buy the shares, only in the
jurisdictions where offers and sales are permitted. You should
not assume that the information we have included in this
prospectus supplement or the accompanying prospectus is accurate
as of any other date other than the dates of this prospectus
supplement or the accompanying prospectus or that any
information we have incorporated by reference is accurate as of
any date other than the date of the document incorporated by
reference. Our business, financial condition, results of
operations and prospects may have changed since that date.
In this prospectus supplement, we rely on and refer to
information regarding market research reports and other publicly
available information. Although we have no reason to believe
this information is not reliable, we cannot guarantee the
accuracy and completeness of the information and have not
independently verified it.
TABLE OF CONTENTS
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Prospectus supplement |
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S-ii |
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S-iii |
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S-1 |
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S-15 |
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S-23 |
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S-24 |
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S-24 |
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S-25 |
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S-26 |
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S-41 |
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S-63 |
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S-67 |
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S-70 |
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S-70 |
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F-1 |
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Prospectus |
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About this prospectus
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i |
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Where you can find more information
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ii |
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Cautionary note regarding forward-looking statements
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iii |
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The Company
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1 |
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Risk factors
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2 |
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Use of proceeds
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9 |
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Ratio of earnings to fixed charges
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9 |
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Description of capital stock
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10 |
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Description of warrants
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17 |
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Description of debt securities
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19 |
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Plan of distribution
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25 |
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Legal matters
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26 |
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Experts
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27 |
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S- i
________________________________________________________________________________
Where you can find more information
We file annual, quarterly and current reports and other
information with the Securities and Exchange Commission
(SEC). Our SEC filings are available to the public
over the Internet at the SECs website at
http://www.sec.gov. You may also read and copy any
document we file at the SECs public reference room in
Washington, D.C. Please call the SEC at
1-800-SEC-0330 for
further information on the operation of its public reference
room. Both classes of our common stock are listed on The NASDAQ
National Market. You may also inspect the information we file
with the SEC at the offices of The NASDAQ Stock Market, Reports
Section, 1735 K Street, Washington, D.C. 20006.
The information we file with the SEC and other information about
us also is available on our website at
http://www.phihelico.com. However, the information on our
website is not a part of this prospectus supplement or the
accompanying prospectus.
The SEC allows us to incorporate by reference the
information we file with it, which means that we can disclose
important information to you by referring you to those
documents. The information incorporated by reference is
considered to be part of this prospectus supplement and the
accompanying prospectus, and information that we file later with
the SEC will automatically update and may supersede information
in this prospectus supplement and the accompanying prospectus
and information previously filed with the SEC. We incorporate by
reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until we sell all of the
securities that may be offered by this prospectus supplement:
|
|
Ø |
our Annual Report on
Form 10-K for the
year ended December 31, 2005; |
|
Ø |
our Current Reports on
Form 8-K filed
with the SEC on January 3, 2006 and March 27, 2006; |
|
Ø |
our definitive information statement on Schedule 14C
relating to our 2005 Annual Meeting of Stockholders; and |
|
Ø |
the description of our common stock contained in our
registration statement on
Form 8-A filed
with the SEC on July 13, 1981, as amended by
Form 8-A/ A filed
with the SEC on December 1, 1995. |
You may review these filings, at no cost, over the Internet at
our website at http://www.phihelico.com, or request a
copy of these filings by writing or calling us at the following:
Michael J. McCann
Chief Financial Officer
P.O. Box 90808
Lafayette, Louisiana 70509
(337) 235-2452
S- ii
________________________________________________________________________________
Cautionary note regarding forward-looking statements
All statements other than statements of historical fact
contained in this prospectus supplement and the periodic reports
filed by us under the Securities Exchange Act of 1934 and other
written or oral statements made by us or on our 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.
Forward-looking statements are based on a number of assumptions
about future events and are subject to significant risks,
uncertainties and other factors that may cause our actual
results to differ materially from the expectations, beliefs and
estimates expressed or implied in those forward-looking
statements. Although we believe that the assumptions underlying
the forward-looking statements are reasonable, no assurance can
be given that these assumptions will prove correct or even
approximately correct. Factors that could cause our results to
differ materially from the expectations, beliefs and estimates
expressed or implied in the forward-looking statements include,
but are not limited to, the following:
|
|
Ø |
the ability to consummate this offering and our related offering
of new senior notes on satisfactory terms; |
|
Ø |
unexpected variances in flight hours; |
|
Ø |
the effect on demand for our services caused by volatility of
oil and gas prices and the level of exploration and production
activity in the Gulf of Mexico generally; |
|
Ø |
the effect on our operating costs of volatile fuel prices; |
|
Ø |
the availability of capital required to acquire aircraft; |
|
Ø |
the availability and timely delivery of new aircraft from our
suppliers; |
|
Ø |
our ability to secure favorable customer contracts or otherwise
utilize our new aircraft; |
|
Ø |
environmental risks; |
|
Ø |
hurricanes and other adverse weather conditions; |
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Ø |
the activities of our competitors; |
|
Ø |
changes in government regulation; |
|
Ø |
unionization; |
|
Ø |
operating hazards; |
|
Ø |
risks related to operating in foreign countries; |
|
Ø |
our ability to obtain adequate insurance; and |
|
Ø |
our ability to develop and implement successful business
strategies. |
For a more detailed description of risks, see Risk
factors beginning on page S-15. All forward-looking
statements in this document are expressly qualified in their
entirety by the cautionary statements in this paragraph and the
Risk factors section. We undertake no obligation to
update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
S- iii
Summary
This summary highlights selected information from this
prospectus supplement and the accompanying prospectus, but may
not contain all information that may be important to you. This
prospectus supplement and the accompanying prospectus include
specific terms of this offering, information about our business
and financial data. We encourage you to read this prospectus
supplement, the accompanying prospectus and the documents
incorporated by reference herein and therein in their entirety
before making an investment decision. Unless otherwise
indicated, this prospectus supplement assumes no exercise of the
underwriters option to purchase additional shares. In this
prospectus supplement, the terms PHI,
Company, we, us,
our and similar terms mean PHI, Inc. and, unless the
context otherwise requires, its subsidiaries, taken as a
whole.
PHI, INC.
PHI, Inc., founded in 1949, is one of the worlds largest
and most experienced providers of commercial helicopter
services. We provide transportation services with our fleet of
helicopters primarily to the oil and gas industry and the health
care industry. As of March 29, 2006, we own or operate 237
aircraft, 167 of which are dedicated to our oil and gas
operations, 64 of which are dedicated to our air medical
operations and six of which are dedicated to our other
operations. In addition, we perform maintenance and repair
services for existing customers, primarily to those that have
their own aircraft.
In September 2001, Al A. Gonsoulin, our Chairman of the Board
and Chief Executive Officer, acquired approximately 52% of our
voting common stock from our founders family. Since that
time, we have made significant operational enhancements in our
business, including substantial investments in our facilities,
the refurbishment of our fleet, the implementation of a
significant cost reduction program, upgrades of our computer
systems and software and, most recently, the raising of
approximately $115 million in our June 2005 equity offering
to partially finance a significant expansion of our fleet. We
also have sold helicopters that were not profitable or that did
not complement our existing fleet, terminated or declined to
renew lower margin contracts and significantly increased our
rates. We believe that, with these operational enhancements, we
are well positioned to capitalize on opportunities in our
industry through the fleet expansion we commenced in late 2003
and have increased as described in this prospectus supplement.
Domestic oil and gas operations
We are a leading provider of safe and reliable helicopter
transportation services to the oil and gas industry in the Gulf
of Mexico. We transport personnel and, to a lesser extent, parts
and equipment to, from and among offshore platforms, drilling
rigs and other offshore facilities for our customers. We have
one of the largest fleets of helicopters servicing the Gulf of
Mexico, and in 2005 flew more than 110,000 hours in the
Gulf of Mexico. In 2005, our domestic oil and gas operations
generated approximately 60% of our total operating revenues.
Our customers include major integrated oil companies and
independent exploration and production companies. We believe we
are the sole provider of helicopter transportation services to
three of the five largest producers of oil and gas in the Gulf
of Mexico, including Shell Oil Company and BP America Production
Company, the two largest producers in the Gulf of Mexico in 2005.
In 2003, we targeted the deepwater Gulf of Mexico as a new core
area for our services, based on the profitable nature of these
operations, our relationships with many of the primary producers
in this region and the increasing demand for helicopter
transportation services in this market. Since that time, the
number of fixed and floating production facilities installed in
the deepwater Gulf of Mexico has increased significantly. This
has led to a substantial increase in the demand for long
distance transportation of personnel and equipment by
helicopter. According to Infield Systems Limited, an
international energy research firm, 31 deepwater (greater than
1,500 feet of water) fixed production
S- 1
platforms and floating production facilities are currently in
service or under development in the Gulf of Mexico and an
additional 13 deepwater platforms and facilities have been
identified for development in the Gulf of Mexico between 2006
and 2011. As the number of offshore facilities increases, we
believe the demand for helicopter transportation to and from
these facilities will continue to increase.
In late 2003, in connection with our new strategy of targeting
the deepwater market, we initiated a plan to significantly
increase the size of our domestic oil and gas fleet by ordering
31 new helicopters, 15 of which are capable of servicing the
deepwater Gulf of Mexico. Based on the success of this
expansion, current contract negotiations and detailed
discussions with a number of our customers regarding their
planned activity levels in the Gulf of Mexico, particularly in
the deepwater, we increased the size of our domestic oil and gas
fleet expansion by reallocating two new helicopters initially
scheduled for our air medical operations and ordering an
additional 21 helicopters, 11 of which are capable of servicing
the deepwater Gulf of Mexico. As a result of this increase, 26
of the 54 new helicopters related to our domestic oil and
gas fleet expansion consist of medium and heavy transport
helicopters which are capable of servicing the deepwater market.
With the addition of these helicopters, we believe we will have
one of the largest, newest and most technologically advanced
fleets of medium and heavy transport helicopters servicing the
deepwater Gulf of Mexico.
Air medical operations
We provide air medical transportation services for hospitals and
emergency service agencies. We currently operate in
12 states with 64 aircraft that are specially outfitted to
accommodate emergency patients, medical personnel and emergency
medical equipment. Our helicopters transport patients between
hospitals as well as to hospitals from accident sites or rural
locations where ground transportation would be prohibitively
slow. We are paid by either commercial insurance companies,
federal or state agencies such as Medicare and Medicaid, or the
patient. In 2005, approximately 31% of our total operating
revenues was generated by our air medical operations.
As part of our initial expansion, we increased our air medical
fleet by 15 aircraft to meet the growing demand for air medical
services in our existing markets, as well as new markets where
we identified demographics that we believe will support a
profitable patient transport volume and payor mix for our
services. Since 2003, we have commenced air medical operations
in 37 new locations to capitalize on business opportunities in
areas we identified as under-serviced or created by hospitals
that elected to outsource their helicopter operations to third
parties. During 2004 and 2005, we incurred significant
start-up and operating
costs in these new locations. New locations typically take
several months to build sufficient volume to achieve profitable
aircraft utilization levels to absorb the facility
start-up and operating
costs. Our focus in 2006 will be on improving our utilization
rates and profit margins in these new locations.
Other operations
We currently provide helicopter services to a major oil company
operating in Angola and the Democratic Republic of Congo and are
in the process of renegotiating our contract to provide
helicopter services for the National Science Foundation in
Antarctica. Aircraft operating internationally are typically
dedicated to a single customer. We generally do not enter
international markets without having customer contracts in place
for the region, and are selective in choosing our international
customers. We have a total of 16 helicopters currently operating
internationally, with 12 of those dedicated to oil and gas
operations. In 2005, our international operations contributed
approximately 8% of our total operating revenues.
In addition to helicopter transportation services, we perform
maintenance and repair services at our Lafayette, Louisiana
facility pursuant to a Federal Aviation Administration repair
station license, primarily for our own fleet, but also for
existing customers that have their own aircraft. The license
includes authority to repair airframes, engines, avionics,
accessories, radios and instruments and to
S- 2
perform specialized services. Approximately 1% of our total
operating revenues in 2005 was generated by our technical
services operations.
TENDER OFFER AND CONCURRENT NOTES OFFERING
On March 24, 2006, we announced a fixed price tender offer
for any and all of the $200 million outstanding principal
amount of our
93/8
% senior notes due 2009. We have offered to purchase
the senior notes for consideration of 104.688% of the principal
amount, together with accrued and unpaid interest up to but not
including the purchase date and a consent fee, if applicable, of
0.200% of the principal amount of senior notes tendered before
April 6, 2006, unless extended by us. Our offer to purchase
the senior notes is being made on the terms and subject to the
conditions set forth in the Offer to Purchase and Consent
Solicitation Statement dated March 24, 2006. The tender
offer and consent solicitation are conditioned upon our having
obtained financing with terms and conditions satisfactory to us
and in amounts not less than the amount required to purchase the
senior notes tendered in the tender offer. In addition, the
tender offer and consent solicitation is conditioned upon the
receipt of consents from holders of a majority of the
outstanding principal amount of the senior notes to eliminate,
among other things, substantially all of the restrictive
covenants and events of default respecting the senior notes. If
fully subscribed, we expect that the tender offer and consent
solicitation will result in a pre-tax charge to our net income
of approximately $12.3 million, and that it will cost
approximately $219 million (including accrued and unpaid
interest of approximately $9 million), which would be
funded with a portion of the net proceeds from this offering and
our concurrent offering of new senior notes, as described below.
There is no assurance that the tender offer, which is expected
to be completed on April 24, 2006, will be subscribed for
in any amount. In the event that all of our senior notes are not
tendered in the tender offer or our tender offer is not
consummated, we will use a portion of the net proceeds from this
offering and our concurrent senior notes offering for general
corporate purposes, which may include the redemption of debt and
the purchase of aircraft.
Concurrently with this offering of our non-voting common stock,
we are offering an aggregate of $150 million of new senior
notes due 2013 to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended, or
to certain persons in offshore transactions in reliance on
Regulation S under the Securities Act. The completion of
this offering of our non-voting common stock is not conditioned
on the completion of the concurrent senior notes offering and
vice versa. However, we have the right and may choose to
terminate our pending tender offer and consent solicitation for
our outstanding
93/8
% senior notes due 2009 if we are unable to complete
this offering or our concurrent new senior notes offering on
terms acceptable to us.
S- 3
FLEET EXPANSION INITIATIVE
In late 2003, we initiated a plan to expand our aircraft fleet
in response to anticipated increases in demand for our domestic
oil and gas transportation services and the opportunities we
observed in the air medical business. The initial plan was to
increase our fleet size by 48 aircraft, 33 of which are for our
domestic oil and gas operations and 15 of which are for our air
medical operations. Late in 2005, we decided to further increase
our fleet expansion by ordering an additional 21 helicopters for
our oil and gas operations based on the success of our initial
expansion and continued discussions with a number of our
customers regarding their planned activities in the Gulf of
Mexico, particularly in the deepwater. To date, we have taken
delivery of 21 of the 54 new helicopters associated with our
domestic oil and gas fleet expansion and all 15 aircraft
associated with our air medical fleet expansion. We expect to
take delivery of the remaining 33 aircraft at various times in
2006 and 2007. Once an aircraft is delivered, we generally spend
two to three months installing mission-specific and/or
customer-specific equipment prior to placing the aircraft into
service.
A significant portion of our fleet expansion is focused on
servicing the deepwater Gulf of Mexico market. Specifically, 26
of the 54 new helicopters associated with our domestic oil and
gas operations are capable of servicing the deepwater Gulf of
Mexico. As part of our initial expansion initiative, we ordered
four Sikorsky S-92A helicopters, all of which are now operating
under contracts with customers. We believe this is the premier
aircraft for servicing the deepwater Gulf of Mexico. Our
increased expansion plan includes an additional four Sikorsky
S-92A helicopters, three of which are already covered by
customer contracts. Two of these helicopters have been delivered
and were placed into service late in the first quarter of 2006.
We are currently in negotiations with one of our significant
customers with respect to the remaining Sikorsky S-92A
helicopter not currently covered by a contract. In addition, as
part of our total expansion, we are adding 18 Sikorsky S-76C+
helicopters to service the deepwater Gulf of Mexico, most of
which currently are covered by customer contracts for when they
are placed into service.
S- 4
The following table shows the aircraft we have in our fleet as
of March 29, 2006, the aircraft that were part of our
initial expansion plan that have not yet been delivered (all of
which are scheduled for delivery in 2006), the scheduled
deliveries for aircraft that are part of our increased expansion
plan during the rest of 2006 and 2007 and our post-expansion
fleet:
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Increased | |
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expansion | |
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Initial | |
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remaining | |
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expansion | |
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deliveries(2) | |
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Post- | |
Industry segment and |
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Current | |
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remaining | |
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expansion | |
aircraft type |
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fleet | |
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deliveries(1) | |
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2006 | |
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2007 | |
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fleet | |
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Domestic Oil & Gas
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Light Aircraft.
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106 |
(3) |
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8 |
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4 |
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6 |
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124 |
(3) |
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Medium Aircraft.
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39 |
(4) |
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6 |
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1 |
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6 |
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52 |
(4) |
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Heavy Aircraft.
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10 |
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2 |
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12 |
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Total Domestic Oil & Gas
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155 |
(3)(4) |
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14 |
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7 |
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12 |
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188 |
(3)(4) |
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International Oil & Gas
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Light Aircraft.
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8 |
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8 |
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Medium Aircraft.
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4 |
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4 |
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Total International Oil & Gas
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12 |
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12 |
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|
Air Medical
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|
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|
Light Aircraft.
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|
48 |
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|
|
|
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|
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48 |
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Medium Aircraft.
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|
10 |
(5) |
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|
|
|
|
|
10 |
(5) |
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Fixed-Wing
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|
6 |
(6) |
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|
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|
|
6 |
(6) |
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|
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|
|
|
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Total Air Medical
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|
64 |
(5)(6) |
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|
|
|
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|
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64 |
(5)(6) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Aircraft.
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
Medium Aircraft.
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
Fixed-Wing
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
AIRCRAFT(1)(2)(3)(4)
|
|
|
237 |
|
|
|
14 |
|
|
|
7 |
|
|
|
12 |
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Our initial expansion plan included 48 aircraft, with 31
planned for our domestic oil and gas operations and 17 for our
air medical operations. Because of increased demand in our oil
and gas operations, two of the aircraft originally scheduled for
our air medical operations were subsequently reassigned to our
oil and gas operations at the time those aircraft were
delivered. From time to time, we may also reassign certain light
helicopters that are less desirable to our oil and gas customers
to our air medical operations. |
|
(2) |
Our increased expansion plan includes 21 additional aircraft
for our oil and gas operations, of which two heavy aircraft have
already been delivered and placed into service. |
|
(3) |
Includes three light aircraft that are customer owned, but
operated by PHI. |
|
(4) |
Includes six medium aircraft that are customer owned, but
operated by PHI. |
|
(5) |
Includes two medium aircraft that are hospital owned, but
operated by PHI. |
|
(6) |
Includes one fixed-wing aircraft that is hospital owned, but
operated by PHI. |
The total cost to acquire all the aircraft that are part of our
expansion plans but have not yet been delivered would be
approximately $195 million if purchased. We intend to lease
the two heavy category aircraft remaining to be delivered, which
are valued in the aggregate at approximately $35 million.
We intend to use substantially all of the proceeds of this
offering and the concurrent senior notes offering described
above under Tender Offer and Concurrent
Notes Offering to
S- 5
repurchase our outstanding
93/8
% senior notes pursuant to our pending tender offer,
to fund payment of the related consent solicitation fee and to
fund the expansion of our aircraft fleet.
BUSINESS STRATEGY
Our strategy is to grow our business while maximizing the
profitability and cash flow of our existing operations. To
achieve this objective, we intend to:
|
|
Ø |
leverage our long-term customer relationships with major
integrated energy companies and independent oil and gas
producers to facilitate our expansion in the deepwater Gulf of
Mexico, to enter into long- term contracts where possible; |
|
Ø |
protect our leading position in the Gulf of Mexico by
maintaining our reputation as one of the safest and most
reliable providers of helicopter transportation services; |
|
Ø |
pursue opportunities to grow our air medical operations in
existing and new geographic market segments where we believe
demographics indicate a profitable patient transport volume; and |
|
Ø |
pursue attractive strategic acquisition opportunities in the
domestic and international oil and gas air transportation
business and the air medical business. |
COMPETITIVE STRENGTHS
We attribute our strong competitive position to a number of
factors, including the following:
|
|
Ø |
Leading market position in deepwater Gulf of Mexico. We
believe we are currently the sole provider of helicopter
services in the Gulf of Mexico to three of the top five oil and
gas producers, including Shell Oil Company and BP America
Production Company, the two largest producers in the Gulf of
Mexico in 2005. In addition, we believe we are the sole provider
to the operators of 17 of the 31 existing deepwater
installations and six of the 13 forecasted deepwater
installations to be placed into service by 2011. Our role as the
primary provider to many of the largest producers in the
deepwater Gulf of Mexico as well as our recent investment in
helicopters capable of servicing this market has given us a
leading position. |
|
Ø |
Long-term customer relationships. We are the oldest
provider of commercial helicopter services in the oil and gas
industry in the Gulf of Mexico, and we have worked successfully
for years with our customers, many for in excess of
30 years. Our fleet expansion is a product of these long
term relationships. As the primary provider to many of the
largest producers in the Gulf of Mexico, we have a close working
relationship with these producers that has enabled us to
anticipate increased activity levels in the Gulf of Mexico and
expand our aircraft fleet accordingly. Our close relationships
with these companies also may present us with additional
international opportunities where our customers operate. |
|
Ø |
Recent operational enhancements. Since 2001, we have made
operational enhancements to our business, including substantial
investments in our facilities, upgrades of our computer systems
and software, the refurbishment of our fleet, the implementation
of a significant cost reduction program and, most recently, the
raising of approximately $115 million in our June 2005
equity offering to partially finance a significant expansion of
our fleet. In addition, we have sold helicopters that were not
profitable or that did not complement our existing fleet,
terminated or declined to renew lower margin contracts and
significantly increased our rates. As a result of these changes,
we have improved our profitability and are well positioned to
expand our business to capitalize on opportunities in our
industry. |
|
Ø |
Modern, well-maintained fleet. We believe that our
existing fleet, together with the aircraft we are adding, are
among the most modern and best maintained aircraft operating in
the Gulf of Mexico. We target a complete, full-scale
refurbishment in our repair and maintenance facility every five
years for each of our oil and gas aircraft to maintain this
level of quality. The majority of our |
S- 6
|
|
|
air medical aircraft have either been purchased new or have
undergone an extensive refurbishment since November 2003. In
addition, each is routinely inspected in accordance with
manufacturer specifications. |
|
Ø |
Integrated operation and maintenance functions. We
believe that we are an industry leader in helicopter
maintenance, repair and refurbishment operations. We believe
that our repair and refurbishment facility in Lafayette,
Louisiana, which became operational in 2001, is the premier
facility of its kind in the world due to its size, scope of
operations, extensive inventory of parts and experienced
technical and maintenance personnel. We believe this facility
allows us to more efficiently and effectively service our fleet
of aircraft, resulting in less downtime and safer operations. |
|
Ø |
Strong safety record; experienced and extensively trained
pilots. Safety is critical to us and to our customers. Our
pilots average over 9,000 hours of flight time and
15 years of experience, and must have at least 1,000 flight
hours and an instrument rating before we hire them. Once hired,
our pilots undergo rigorous additional training covering all
aspects of helicopter operation. As a result of this training
and experience, coupled with our detailed safety programs and
comprehensive maintenance, we have one of the best safety
records in the industry. According to the National
Transportation Safety Board (NTSB), for the ten-year
period through 2005, our Gulf of Mexico operations averaged
1.33 accidents for each 100,000 flight hours, approximately
42% less than the average rate for our Gulf of Mexico
competitors (2.29 accidents per 100,000 flight hours). On a
company-wide basis, our accident rate for this period was 1.53
accidents per 100,000 flight hours, compared to a national
average rate of 8.70 accidents per 100,000 flight hours. |
|
Ø |
Significant barriers to entry to serve our customers. We
believe that there are significant barriers to entry in our
industry, particularly with respect to operating aircraft for
the major oil companies and the larger independent oil
companies. Our largest customers have employees dedicated to
setting extensive selection criteria for their helicopter
transport provider. These criteria are based on safety and
performance records, and very few companies have the substantial
infrastructure and track record to meet these stringent
requirements. Operators who are unable to meet these rigorous
quality standards on a long-term basis generally are excluded
from the bidding process. We work closely with our customers to
meet their specific requirements. In addition, our primary
targets for growth in the air medical industry are currently
served by a limited number of major competitors. |
|
Ø |
Experienced management and operations team. Members of
our senior management and operations team have significant
experience in the oil and gas service industry and in the
commercial helicopter service industry. Al A. Gonsoulin, our
Chairman of the Board and Chief Executive Officer, has over
35 years of experience in the oil and gas service industry.
The ten members of our senior management team have an average of
approximately 18 years of service with us. Howard L.
Ragsdale, the director of our air medical operations, has
significant experience in establishing air medical operations
throughout the continental U.S. He and his two regional
directors have an aggregate of over 65 years in the
emergency medical services industry. |
INDUSTRY OVERVIEW
Gulf of Mexico helicopter operations
Offshore oil and gas activities in the Gulf of Mexico require
daily movement of several thousand people plus parts and
equipment between onshore bases and remote offshore working
areas. According to the NTSB, more than two million passengers
are transported in the Gulf of Mexico each year. These
transports must occur in a safe, timely manner to ensure smooth
operations and avoid costly delays. Helicopters are the primary
means of offshore transportation and typically are the only
economical transportation option for distances greater than
60 miles from shore. The outermost
S- 7
portions of the continental Shelf region of the Gulf of Mexico
are located approximately 85 miles from our 11 active
onshore bases in Louisiana, Texas and Alabama, and the deepwater
areas generally are located from 170 to 230 miles from
these bases, which allow us to efficiently service the primary
exploration and production areas of the Gulf of Mexico.
Crews working offshore typically work on either a seven days on,
seven days off or a 14 days on, 14 days off basis,
with crew changes generally occurring midweek at regularly
scheduled times. The size of a crew working at any given time is
approximately 60 to 90 people for a jackup rig in the Shelf
region and 100 to 200 or more people for the larger drilling
rigs and production facilities involved in deepwater drilling
and production. Typically, there are two crews working onsite at
any given time, with one crew being changed out each week.
Because a helicopter does not have the passenger capacity to
effect an entire crew change in one trip, multiple round trips
or multiple helicopters are required for each crew change
operation.
We have targeted the deepwater region of the U.S. Gulf of
Mexico as a growth area for our services because deepwater
exploration and production activities generally require more
personnel, which results in more crew changes over a greater
distance than Shelf exploration and production. The deepwater
region is better served by medium and heavy helicopters, which
can carry more personnel and equipment and cover the longer
distances and which generally are more profitable for us to
operate. Additionally, oil and natural gas exploration,
development and production costs in the deepwater generally are
higher and involve relatively larger capital commitments and
longer lead times and investment horizons than those in the
shallow water continental Shelf market. As a result, deepwater
drilling activities are typically less sensitive to fluctuations
in commodity prices, particularly the price of natural gas.
Accordingly, actual or anticipated short-term decreases in oil
and natural gas prices are less likely to cause an operator to
abandon deepwater or ultra-deepwater projects, and demand for
medium and heavy helicopters that serve the deepwater market
tends to be more stable than demand for light helicopters that
serve the shallow water continental Shelf market.
Demand for helicopter services in the Gulf of Mexico is driven
by the number of production facilities (both manned and
unmanned) and drilling rigs. Currently, there are approximately
3,895 active oil and gas platforms and 82 active offshore
drilling rigs in the Gulf of Mexico. Although the rig count in
the Gulf of Mexico has not increased in recent years,
utilization and dayrates for both shallow water
S- 8
jackup rigs and deepwater semisubmersible rigs recently have
increased. Each of these facilities has dedicated crews that
must be rotated on a regular basis.
|
|
|
Deepwater Gulf of Mexico Fixed Production
Platform and Floating Production Facilities |
|
Active Production Platforms
in the Gulf of Mexico |
|
Source: Infield Systems. Deepwater consists of fixed and
floating platforms located in water depths greater than
1,500 feet. Data as of March 2006.
|
|
Source: ODS-Petrodata |
|
|
|
Gulf of Mexico Jackup Utilization
|
|
Gulf of Mexico Semisubmersible Utilization |
|
Source: ODS-Petrodata
|
|
Source: ODS-Petrodata |
The majority of the 3,895 active oil and gas platforms are
located on the continental Shelf of the Gulf of Mexico and must
be inspected and maintained on a regular basis by both operators
and regulatory officials to satisfy operator and regulatory
safety requirements. These ongoing inspection and maintenance
services provide a stable level of helicopter demand that
generally is less sensitive to short-term changes in commodity
prices. Light helicopters are the most efficient way to service
these smaller crew changes and maintenance and inspection visits.
In recent years, there has been greater growth in platforms and
facilities in the deepwater region of the Gulf of Mexico
compared to the more mature continental Shelf as the deepwater
region becomes an increasingly important source of oil and
natural gas production with many unexplored areas of potential
oil and natural gas reserves. Factors contributing to the
increased activity in the deepwater Gulf of Mexico include
improved 3-D and
4-D seismic data
coverage, several key deepwater discoveries, decreased
exploration and development costs due to improved technology and
experience in the area, and the recognition of high deepwater
production rates. Currently, according to the Minerals
Management Service, or MMS, there are approximately 3,850 active
leases in water depths less than 1,300 feet, and
approximately 4,260 active leases beyond that water depth.
S- 9
According to Infield Systems Limited, an international energy
research firm, there are 31 deepwater (greater than
1,500 feet of water) fixed production platforms and
floating production facilities currently in service or under
development in the Gulf of Mexico, and an additional 13
deepwater platforms and facilities have been identified for
development in the Gulf of Mexico between 2006 and 2011, as
shown in the table below:
|
|
|
|
|
|
|
Operator |
|
Deepwater block |
|
Field name |
|
Year |
|
ConocoPhillips
|
|
Green Canyon 184 |
|
Jolliet |
|
1989 |
Shell
|
|
Garden Banks 426 |
|
Auger |
|
1993 |
Kerr-McGee
|
|
Viosca Knoll 826 |
|
Neptune |
|
1996 |
Shell
|
|
Mississippi Canyon 807 |
|
Mars |
|
1996 |
Shell
|
|
Viosca Knoll 956 |
|
Ram-Powell |
|
1997 |
Amerada Hess
|
|
Garden Banks 260 |
|
Baldpate |
|
1998 |
ENI
|
|
Ewing Bank 921 |
|
Morpeth |
|
1998 |
Chevron
|
|
Viosca Knoll 786 |
|
Petronius |
|
1998 |
Chevron
|
|
Green Canyon 205 |
|
Genesis |
|
1998 |
ENI
|
|
Green Canyon 254 |
|
Allegheny |
|
1999 |
BP
|
|
Viosca Knoll 915 |
|
Marlin |
|
1999 |
Shell
|
|
Mississippi Canyon 809 |
|
Ursa |
|
1999 |
ExxonMobil
|
|
Alaminos Canyon 25 |
|
Hoover |
|
1999 |
Chevron
|
|
Green Canyon 237 |
|
Typhoon |
|
2001 |
Shell
|
|
Green Canyon 158 |
|
Brutus |
|
2001 |
Kerr-McGee
|
|
East Breaks 643 |
|
Boomvang |
|
2001 |
Kerr-McGee
|
|
East Breaks 602 |
|
Nansen |
|
2001 |
BP
|
|
Mississippi Canyon 127 |
|
Horn Mountain |
|
2002 |
Murphy
|
|
Mississippi Canyon 582 |
|
Medusa |
|
2003 |
Total
|
|
Mississippi Canyon 243 |
|
Matterhorn |
|
2003 |
Kerr-McGee
|
|
Garden Banks 668 |
|
Gunnison |
|
2003 |
Dominion
|
|
Mississippi Canyon 773 |
|
Devils Tower |
|
2003 |
BP
|
|
Mississippi Canyon 474 |
|
Na Kika |
|
2003 |
Murphy
|
|
Green Canyon 338 |
|
Front Runner |
|
2004 |
Anadarko
|
|
Green Canyon 608 |
|
Marco Polo |
|
2004 |
BP
|
|
Green Canyon 645 |
|
Holstein |
|
2004 |
BP
|
|
Green Canyon 782 |
|
Mad Dog |
|
2004 |
ConocoPhillips
|
|
Garden Banks 783 |
|
Magnolia |
|
2004 |
Kerr-McGee
|
|
Garden Banks 876 |
|
Red Hawk |
|
2004 |
BP
|
|
Mississippi Canyon 778 |
|
Thunder Horse |
|
2005 |
Kerr-McGee
|
|
Green Canyon 680 |
|
Constitution |
|
2005 |
ATP
|
|
Mississippi Canyon 711 |
|
Gomez |
|
2006 |
Anadarko
|
|
Mississippi Canyon 920 |
|
Independence Hub |
|
2006 |
BP
|
|
Green Canyon 743 |
|
Atlantis |
|
2006 |
BHP
|
|
Green Canyon 613 |
|
Neptune |
|
2007 |
Norsk Hydro
|
|
Atwater Valley 63 |
|
Telemark |
|
2007 |
Chevron
|
|
Green Canyon 640 |
|
Tahiti |
|
2008 |
BHP
|
|
Green Canyon 654 |
|
Shenzi |
|
2008 |
Chevron
|
|
Mississippi Canyon 695 |
|
Blind Faith |
|
2008 |
Dominion
|
|
Mississippi Canyon 734 |
|
Thunder Hawk |
|
2008 |
Shell
|
|
Mississippi Canyon 809 |
|
GUMBO |
|
2009 |
ExxonMobil
|
|
Mississippi Canyon 508 |
|
Hawkes |
|
2010 |
Chevron
|
|
Atwater Valley 182 |
|
Sturgis |
|
2010 |
Total
|
|
Mississippi Canyon 941 |
|
Mirage |
|
2011 |
S- 10
Infield Systems Limited projects that the number of deepwater
Gulf of Mexico production facilities will increase by over 42%
from 2005 to 2011 as production from the large number of recent
discoveries commences. These new facilities often result in
increased drilling activity as this additional infrastructure
can be used to develop satellite fields that would not be
economically feasible to develop on a standalone basis.
Air medical operations
The civilian air medical industry began in the 1970s and has
grown steadily since that time. According to a 2005 publication,
the civilian air medical fleet has nearly doubled since 1997,
and patient transports are increasing by an estimated
5% per year. Patient transports can be from one medical
facility to another or from an accident scene to a medical
facility.
According to a 2005 report by C.E. Unterberg, Towbin, an
independent investment banking and brokerage firm, the entire
U.S. air medical transportation market is approximately
$2.0 billion, of which approximately 80%, or
$1.6 billion, is controlled by hospitals operating their
own fleet and approximately 20%, or $400 million, is shared
by independently owned emergency medical service operators. In
recent years, hospitals operating their own fleet gradually have
begun to exit this market, which is expected to increase the
portion of the market available to independent operators over
the next several years. While we have a small number of
contracts directly with hospitals, we primarily provide air
medical transport services as an independent operator. Under
this model, which we refer to as the independent provider
model, we provide not only the transportation, but also
the medical care, communications and dispatch, and billing and
collections. Our revenues under this model are variable and
consist of flight fees billed directly to patients, their
insurers or to governmental agencies such as Medicare and
Medicaid.
SAFETY RECORD
Customers consistently cite safety and reliability as a critical
factor in selecting a provider of air transportation services.
Since our inception in 1949, safety has been a top priority and
one of the cornerstones of our culture. In over 50 years of
operations we have logged more than nine million flight hours,
and during that time we have developed and refined rigorous
safety programs and practices that have given us one of the
strongest safety records in the commercial helicopter industry.
The key elements of our superior safety record are awareness,
extensive training, employee incentives and comprehensive
maintenance of our fleet. We strive to incorporate best safety
practices in every area of our operations. Our company-wide
safety program rewards employees who contribute to our safety
goals by working accident free, and we believe our pilots and
mechanics are among the most experienced and well trained in the
industry.
From 1995 through 2005, we averaged an NTSB accident rate per
100,000 flight hours of 1.33 for our Gulf of Mexico operations,
compared to our Gulf of Mexico competitors average
accident rate of 2.29. For the same period, our company-wide
NTSB accident rate per 100,000 flight hours was 1.53 compared to
the national average rate of 8.70.
IMPACT OF HURRICANES
During the third quarter of 2005, Hurricane Katrina made
landfall in southeastern Louisiana and Hurricane Rita made
landfall in southwestern Louisiana. Although both hurricanes
have affected our operations, we were able to successfully
evacuate all of our aircraft prior to both storms and all of our
employees were accounted for with no injuries reported. While
none of our aircraft suffered damage from the hurricanes, we did
incur some flooding and wind damage at our bases in Louisiana.
Most of the damage has been repaired, and all but two of our
bases are operational again. We currently estimate the costs
related to the damage caused by the hurricanes to be
approximately $8.5 million, most of which we expect to be
covered by insurance.
S- 11
Following the evacuation of customer personnel from the Gulf of
Mexico, flight hours were adversely affected by the hurricanes
as aircraft were evacuated and grounded until the storm passed.
When flights resumed, we experienced an increase in flight hours
as customers began assessing damage and making repairs to
facilities in the Gulf of Mexico. Additionally, our Air Medical
segment experienced higher than normal flight activity in the
third quarter while assisting with the evacuations of New
Orleans and areas in southeastern Texas.
CORPORATE INFORMATION
On December 30, 2005, we announced a corporate name change
from Petroleum Helicopters, Inc. to PHI,
Inc. In addition, the trading symbol for our voting common
stock changed to PHII, and the symbol for our
non-voting common stock changed to PHIIK.
In September 2001, Mr. Gonsoulin, our Chairman of the Board
and Chief Executive Officer, acquired approximately 52% of our
outstanding voting common stock from our founders family,
which represents approximately 14.2% of our total outstanding
equity. Additionally, Mr. Gonsoulin intends to purchase
100,000 shares of non-voting common stock offered in this
offering for his own account. Mr. Gonsoulin has over
35 years of experience in the oil and gas service industry.
In 1977, he founded Sea Mar, Inc., a provider of marine
transportation and support services to the oil and gas industry
in the Gulf of Mexico, and sold it to Pool Energy Services Co.
in 1998. Pool Energy Services was acquired by Nabors Industries,
Inc. in 1999, and Mr. Gonsoulin continued to serve as
President of Sea Mar until December 31, 2001.
Our principal executive offices are located at 2001 SE
Evangeline Thruway, Lafayette, Louisiana 70508, and our
telephone number at that address is (337) 235-2452.
S- 12
The offering
|
|
|
Non-voting common stock we are offering |
|
4,287,920 shares (which includes 100,000 shares that
Mr. Gonsoulin intends to purchase in this offering). We
also have granted the underwriters an option to purchase up to
643,188 additional shares to cover over-allotments. |
|
Non-voting common stock to be outstanding after this offering |
|
11,856,812 shares(1) |
|
Voting common stock outstanding |
|
2,852,616 shares |
|
Total voting and non-voting common stock to be outstanding after
this offering |
|
14,709,428 shares(1) |
|
Use of proceeds |
|
We estimate that our net proceeds from this offering, assuming
no exercise by the underwriters of their over- allotment option,
will be approximately $147 million. We expect to use the
net proceeds from this offering, together with the net proceeds
from our concurrent private placement of $150 million in
principal amount of our new senior notes, to fund our pending
tender offer and consent solicitation for our existing
93/8
% senior notes and to expand our aircraft fleet. We
expect to use approximately $219 million of the combined
net proceeds from these offerings to fund our pending tender and
consent solicitation (including accrued and unpaid interest of
approximately $9 million and assuming the tender offer is
fully subscribed), and to apply the remaining approximately
$74 million toward the purchase of new aircraft that are
part of our fleet expansion initiative as they are delivered. In
the event that all of our senior notes are not tendered in the
tender offer or our tender offer is not consummated, we will use
a portion of the net proceeds from this offering for general
corporate purposes, which may include the redemption of debt and
the purchase of aircraft. |
|
NASDAQ National Market symbol |
|
PHIIK(2) |
|
|
(1) |
The number of shares of our non-voting common stock
outstanding after this offering assumes that the
underwriters over-allotment option is not exercised, and
excludes: |
|
|
|
|
|
46,250 shares of non-voting common stock issuable upon
the exercise of outstanding stock options with a weighted
average exercise price of $13.87 per share; and |
|
|
|
190,126 shares of non-voting common stock that remain
available for additional grants under our 1995 Incentive
Compensation Plan. |
|
|
(2) |
Our voting common stock is listed for trading on The NASDAQ
National Market under the symbol PHII. |
RISK FACTORS
You should carefully consider all information in this
prospectus supplement, the accompanying prospectus and the
documents incorporated by reference herein. In particular, you
should evaluate the specific risk factors set forth in the
section entitled Risk factors beginning on
page S-15 for a discussion of risks relating to an
investment in our non-voting common stock.
S- 13
Summary consolidated financial data
The following summary consolidated financial data for the years
ended December 31, 2003, 2004 and 2005 is derived from our
audited consolidated financial statements included elsewhere
herein. The financial data below is only a summary and should be
read together with, and is qualified in its entirety by
reference to, our historical consolidated financial statements
and the accompanying notes and Managements
discussion and analysis of financial condition and results of
operations, which are included elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, | |
|
|
| |
Statement of operations data |
|
2003 | |
|
2004 | |
|
2005 | |
| |
|
|
(in thousands, except per share data) | |
Operating revenues
|
|
$ |
269,392 |
|
|
$ |
291,308 |
|
|
$ |
363,610 |
|
Gain on disposition of property and equipment
|
|
|
1,988 |
|
|
|
2,569 |
|
|
|
1,173 |
|
Other
|
|
|
686 |
|
|
|
392 |
|
|
|
2,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
272,066 |
|
|
|
294,269 |
|
|
|
366,840 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
expenses(1)
|
|
|
205,020 |
|
|
|
217,531 |
|
|
|
272,130 |
|
|
Selling, general and administrative
|
|
|
19,983 |
|
|
|
21,034 |
|
|
|
24,896 |
|
|
Depreciation and
amortization(1)
|
|
|
25,209 |
|
|
|
27,843 |
|
|
|
27,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
250,212 |
|
|
|
266,408 |
|
|
|
324,159 |
|
Operating income
|
|
|
21,854 |
|
|
|
27,861 |
|
|
|
42,681 |
|
Interest expense
|
|
|
19,952 |
|
|
|
20,109 |
|
|
|
20,448 |
|
Income taxes
|
|
|
763 |
|
|
|
3,780 |
|
|
|
8,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,139 |
|
|
$ |
3,972 |
|
|
$ |
14,154 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.21 |
|
|
$ |
0.73 |
|
|
$ |
1.76 |
|
|
Fully diluted
|
|
$ |
0.21 |
|
|
$ |
0.72 |
|
|
$ |
1.76 |
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,383 |
|
|
|
5,383 |
|
|
|
8,040 |
|
|
Fully diluted
|
|
|
5,486 |
|
|
|
5,486 |
|
|
|
8,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow data |
|
|
|
|
|
|
| |
Net cash provided by operating activities
|
|
$ |
29,415 |
|
|
$ |
10,905 |
|
|
$ |
28,020 |
|
Net cash used in investing activities
|
|
|
(29,243 |
) |
|
|
(21,044 |
) |
|
|
(85,414 |
) |
Net cash provided by financing activities
|
|
|
2,026 |
|
|
|
8,275 |
|
|
|
108,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
Balance sheet data |
|
2003 | |
|
2004 | |
|
2005 | |
| |
Current assets
|
|
$ |
110,135 |
|
|
$ |
128,405 |
|
|
$ |
224,265 |
|
Working
capital(2)
|
|
|
70,300 |
|
|
|
88,716 |
|
|
|
162,527 |
|
Property, plant and equipment, net
|
|
|
258,526 |
|
|
|
253,241 |
|
|
|
311,678 |
|
Total assets
|
|
|
377,454 |
|
|
|
394,173 |
|
|
|
549,209 |
|
Total debt, including current portion
|
|
|
202,000 |
|
|
|
210,275 |
|
|
|
204,300 |
|
Shareholders equity
|
|
|
105,993 |
|
|
|
109,975 |
|
|
|
239,051 |
|
|
|
(1) |
Direct expenses exclude depreciation and amortization, which
is shown as a separate line item under operating expenses. |
|
(2) |
Working capital is defined as current assets minus current
liabilities. |
S- 14
Risk factors
You should consider carefully the following risk factors as
well as other information contained in this prospectus
supplement, the accompanying prospectus and the documents we
have incorporated herein by reference before deciding to invest
in our non-voting common stock, which involves a high degree of
risk. All aspects of our operations are subject to significant
uncertainties, risks and other influences. The risks described
below are not the only ones facing our company. Additional risks
not presently known to us or which we currently consider
immaterial may also adversely affect our company. If any of the
following risks actually occur, our business, financial
condition and operating results could be materially adversely
affected. In such case, the price of our securities could
decline, and you could lose part or all of your investment.
RISKS INHERENT IN OUR BUSINESS
Our operations are affected by adverse weather conditions and
seasonal factors.
We are subject to three types of weather-related or seasonal
factors:
|
|
Ø |
the tropical storm and hurricane season in the Gulf of Mexico; |
|
Ø |
poor weather conditions that often prevail during winter and can
generally develop in any season; and |
|
Ø |
reduced daylight hours during the winter months. |
Poor visibility, high winds and heavy precipitation can affect
the operation of helicopters and significantly reduce our flight
hours. A significant portion of our operating revenue is
dependent on actual flight hours and a substantial portion of
our direct costs is fixed. Thus, prolonged periods of adverse
weather can materially and adversely affect our operating
revenues and net earnings.
In the Gulf of Mexico, the months of December, January and
February have more days of adverse weather conditions than the
other months of the year. Also, June through November is
tropical storm and hurricane season in the Gulf of Mexico, with
August and September typically being the most active months.
During tropical storms, we are unable to operate in the area of
the storm and can incur significant expense in moving our
aircraft to safer locations. In addition, as most of our
facilities are located along the Gulf of Mexico coast, tropical
storms and hurricanes may cause substantial damage to our
property, including helicopters that we are unable to relocate.
Because the fall and winter months have fewer hours of daylight,
our flight hours are generally lower at those times, which
typically results in a reduction in operating revenues during
those months. Currently, only 44 of the 155 helicopters used in
our domestic oil and gas operations are equipped to fly under
instrument flight rules (IFR), which enables these
aircraft, when manned by IFR-rated pilots and co-pilots, to
operate when poor visibility or darkness prevents flight by
aircraft that can fly only under visual flight rules
(VFR). Not all of our pilots are IFR rated.
Additionally, most of our air medical fleet currently is not
equipped with night vision capability.
We may not be able to obtain acceptable customer contracts
covering some of our new helicopters and some of our new
helicopters may replace existing helicopters already under
contract, which could adversely affect the utilization of our
existing fleet.
We are substantially expanding our fleet of helicopters. Many of
our new oil and gas helicopters may not be covered by customer
contracts when they are placed into service, and we cannot
assure you as to when we will be able to utilize these new
helicopters or on what terms. To the extent our
S- 15
Risk factors
helicopters are covered by a customer contract when they are
placed into service, many of these contracts are for a short
term, requiring us to seek renewals more frequently.
Once a new helicopter is delivered to us, we generally spend
between two and three months installing mission-specific and/or
customer-specific equipment before we place it into service. As
a result, there can be a significant delay between the delivery
date for a new helicopter and the time that it is able to
generate revenues for us.
We expect that some of our customers may request new helicopters
in lieu of our existing helicopters, which could adversely
affect the utilization of our existing fleet.
Our contracts generally can be terminated or downsized by our
customers without penalty.
Most of our fixed-term contracts contain provisions permitting
early termination by the customer, sometimes with as little as
30 days notice for any reason and generally without
penalty. In addition, many of our contracts permit our customers
to decrease the number of aircraft under contract with a
corresponding decrease in the fixed monthly payments without
penalty. As a result, you should not place undue reliance on our
customer contracts or the terms of those contracts.
Increased governmental regulations could increase our costs
or reduce our ability to operate successfully.
Our operations are regulated by a number of federal and state
agencies. All of our flight operations are regulated by the
Federal Aviation Administration (FAA). Aircraft
accidents are subject to the jurisdiction of the NTSB. Standards
relating to the workplace health and safety are monitored by the
federal Occupational Safety and Health Administration
(OSHA). Also, we are subject to various federal and
state environmental statutes that are discussed in more detail
under Managements discussion and analysis of
financial condition and results of operations
Environmental matters beginning on
page S-39 and
Business Environmental matters beginning on
page S-60.
The FAA has jurisdiction over many aspects of our business,
including personnel, aircraft and ground facilities. We are
required to have an Air Taxi Certificate, granted by the FAA, to
transport personnel and property in our helicopters. This
certificate contains operating specifications that allow us to
conduct our present operations, but it is potentially subject to
amendment, suspension or revocation in accordance with
procedures set forth in the Federal Aviation Act. The FAA is
responsible for ensuring that we comply with all FAA regulations
relating to the operation of our aviation business, and conducts
regular inspections regarding the safety, training and general
regulatory compliance of our U.S. aviation operations.
Additionally, the FAA requires us to file reports confirming our
continued compliance.
FAA regulations require that at least 75% of our voting
securities be owned or controlled by citizens of the
U.S. or one of its possessions, and that our president and
at least two-thirds of our directors be U.S. citizens. Our
Chief Executive Officer and all of our directors are
U.S. citizens, and our organizational documents provide for
the automatic reduction in voting power of each share of voting
common stock owned or controlled by a
non-U.S. citizen
if necessary to comply with these regulations.
We are subject to significant regulatory oversight by OSHA and
similar state agencies. We are also subject to the
Communications Act of 1934 because of our ownership and
operation of a radio communications flight-following network
throughout the Gulf of Mexico.
Numerous other federal statutes and rules regulate our offshore
operations and those of our customers, pursuant to which the
federal government has the ability to suspend, curtail or modify
certain or all offshore operations. A suspension or substantial
curtailment of offshore oil and gas operations for any
S- 16
Risk factors
prolonged period would have an immediate and materially adverse
effect on us. A substantial modification of current offshore
operations could adversely affect the economics of such
operations and result in reduced demand for our services.
The helicopter services business is highly competitive, which
could adversely impact our pricing and demand for our
services.
All segments of our business are highly competitive, which could
adversely impact our pricing and demand for our services. Many
of our contracts are awarded after competitive bidding, and the
competition for those contracts generally is intense. The
principal aspects of competition are safety, price, reliability,
availability and service.
We have two major competitors and several small competitors
operating in the Gulf of Mexico, and most of our customers and
potential customers could operate their own helicopter fleets if
they chose to do so. At least one of our primary competitors is
in the process of significantly expanding its fleet.
Our Air Medical segment competes for business primarily under
the independent provider model and, to a lesser extent, under
the hospital-based model. Under the independent provider model,
we have no contracts and no fixed revenue stream, but must
compete for transport referrals on a daily basis with other
independent operators in the area. Under the hospital-based
model, we contract directly with the hospital to provide their
transportation services, with the contracts typically awarded on
a competitive bid basis. Under both models, we compete against
national and regional companies, and there is usually more than
one competitor in each local market. In addition, we compete
against hospitals that operate their own helicopters and, in
some cases, against ground ambulances as well.
The failure to maintain our safety record would seriously
harm our ability to attract new customers and maintain our
existing customers.
A favorable safety record is one of the primary factors a
customer reviews in selecting an aviation provider. If we fail
to maintain our safety and reliability record, our ability to
attract new customers and maintain our current customers will be
materially adversely affected.
Helicopter operations involve risks that may not be covered
by our insurance or may increase the cost of our insurance.
The operation of helicopters inherently involves a high degree
of risk. Hazards such as aircraft accidents, collisions, fire
and adverse weather are hazards that must be managed by
providers of helicopter services and may result in loss of life,
serious injury to employees and third parties, and losses of
equipment and revenues.
We maintain hull and liability insurance on our aircraft, which
insures us against physical loss of, or damage to, our aircraft
and against certain legal liabilities to others. In addition, we
carry war risk, expropriation, confiscation and nationalization
insurance for our aircraft involved in international operations.
In some instances, we are covered by indemnity agreements from
our customers in lieu of, or in addition to, our insurance. Our
aircraft are not insured for loss of use.
While we believe that our insurance and indemnification
arrangements provide reasonable protection for most foreseeable
losses, they do not cover all potential losses and are subject
to deductibles, retentions, coverage limits and coverage
exceptions such that severe casualty losses, or the
expropriation or confiscation of significant assets could
materially and adversely affect our financial condition or
results of operations. The occurrence of an event that is not
fully covered by insurance could have a material adverse impact
on our financial condition and results of operations.
S- 17
Risk factors
Our air medical operations expose us to numerous special
risks, including collection risks, high
start-up costs and
potential medical malpractice claims.
We recently have expanded our air medical business. These
operations are highly competitive and expose us to a number of
risks that we do not encounter in our oil and gas operations.
For instance, the fees for our air medical services generally
are paid by individual patients, insurance companies, or
government agencies such as Medicare and Medicaid. As a result,
our profitability in this business depends not only on our
ability to generate an acceptable volume of patient transports,
but also on our ability to collect our transport fees. We are
not permitted to refuse service to patients based on their
inability to pay.
As we continue to enter into new markets, we may not be able to
identify markets with a favorable payor mix. As a result, even
if we are able to generate an acceptable volume of patient
transports, we cannot assure you that our new markets will be
profitable for us. In addition, we generally incur significant
start-up costs and
lower utilization rates as we enter new air medical markets,
which could further impact our profitability. Finally, we employ
paramedics, nurses and other medical professionals for these
operations, which can give rise to medical malpractice claims
against us, which, if not fully covered by our medical
malpractice insurance, could materially adversely affect our
financial condition and results of operations.
Our dependence on a small number of helicopter manufacturers
poses a significant risk to our business and prospects.
We contract with a small number of manufacturers for most of our
aircraft expansion and replacement needs. If any of these
manufacturers faced production delays due to, for example,
natural disasters or labor strikes, we may experience a
significant delay in the delivery of previously ordered
aircraft, which would adversely affect our revenues and
profitability and could jeopardize our ability to meet the
demands of our customers. We have limited alternatives to find
alternate sources of new aircraft.
Our international operations are subject to political,
economic and regulatory uncertainty.
Our international operations, which represented approximately 8%
of our total operating revenues for the year ended
December 31, 2005, are subject to a number of risks
inherent in operating in lesser developed countries, including:
|
|
Ø |
political, social and economic instability; |
|
Ø |
terrorism, kidnapping and extortion; |
|
Ø |
potential seizure or nationalization of assets; |
|
Ø |
import-export quotas; and |
|
Ø |
currency fluctuations or devaluation. |
Additionally, our competitiveness in international markets may
be adversely affected by government regulation, including
regulations requiring:
|
|
Ø |
the awarding of contracts to local contractors; |
|
Ø |
the employment of local citizens; and |
|
Ø |
the establishment of foreign subsidiaries with significant
ownership positions reserved by the foreign government for local
ownership. |
S- 18
Risk factors
Our failure to attract and retain qualified personnel could
adversely affect us.
Our ability to attract and retain qualified pilots, mechanics,
nurses, paramedics and other highly trained personnel will be an
important factor in determining our future success. Many of our
customers require pilots of aircraft that service them to have
inordinately high levels of flight experience. The market for
these experienced and highly trained personnel is extremely
competitive. Accordingly, we cannot assure you that we will be
successful in our efforts to attract and retain such persons.
Some of our pilots and mechanics and those of our competitors
are members of the U.S. military reserves and could be
called to active duty. If significant numbers of such persons
are called to active duty, it would reduce the supply of such
workers, possibly curtailing our operations and likely
increasing our labor costs.
RISKS SPECIFIC TO OUR COMPANY
We are highly dependent on the offshore oil and gas
industry.
Approximately 60% of our 2005 operating revenue was attributable
to helicopter support for domestic offshore oil and gas
exploration and production companies. Our business is highly
dependent on the level of activity by the oil and gas companies,
particularly in the Gulf of Mexico.
The level of activity by our customers operating in the Gulf of
Mexico depends on factors that we cannot control, such as:
|
|
Ø |
the supply of, and demand for, oil and natural gas and market
expectations regarding supply and demand; |
|
Ø |
actions of OPEC, and Middle Eastern and other oil producing
countries, to control prices or change production levels; |
|
Ø |
general economic conditions in the United States and worldwide; |
|
Ø |
war, civil unrest or terrorist activities; |
|
Ø |
governmental regulation; and |
|
Ø |
the price and availability of alternative fuels. |
Any substantial or extended decline in the prices of oil and
natural gas could depress the level of helicopter activity in
support of exploration and production activity and thus have a
material adverse effect on our business, results of operations
and financial condition.
Additionally, the shallow water Gulf of Mexico is generally
considered to be a mature area for oil and gas exploration,
which may result in a continuing decrease in activity over time.
This could materially adversely affect our business, results of
operations and financial condition. In addition, the
concentrated nature of our operations subjects us to the risk
that a regional event could cause a significant interruption in
our operations or otherwise have a material affect on our
profitability.
Moreover, companies in the oil and gas exploration and
production industry continually seek to implement cost-savings
measures. As part of these measures, oil and gas companies have
attempted to improve operating efficiencies with respect to
helicopter support services. For example, certain oil and gas
companies have reduced staffing levels by using technology to
permit unmanned production installations and decreased the
frequency of transportation of employees offshore by increasing
the lengths of shifts offshore. The continued implementation of
such measures could reduce demand for helicopter services and
have a material adverse effect on our business, results of
operations and our financial condition.
S- 19
Risk factors
We currently are negotiating a new collective bargaining
agreement covering our pilots.
We are currently in negotiations with the Office &
Professional Employees International Union regarding a new
collective bargaining agreement covering our pilots. We cannot
predict the outcome of these negotiations nor when they might be
concluded and such negotiations may result in an agreement that
will materially increase our operating costs. Failure to reach a
satisfactory agreement could result in work stoppages, strikes
or other labor disruptions that could materially adversely
affect our revenues, operations or financial condition.
We depend on a small number of large oil and gas industry
customers for a significant portion of our revenues, and our
credit exposure within this industry is significant.
We derive a significant amount of our revenue from a small
number of major and independent oil and gas companies. For the
year ended December 31, 2005, approximately 28% of our
revenues were attributable to our two largest customers, Shell
Oil Company and BP America Production Company, with each
accounting for approximately 14%. We are currently negotiating a
new contract with Shell Oil Company to replace an existing
contract, which is set to expire on May 31, 2006. The loss
of one of our significant customers, if not offset by revenues
from new or other existing customers, would have a material
adverse effect on our business and operations. In addition, this
concentration of customers may impact our overall credit risk in
that these entities may be similarly affected by changes in
economic and other conditions.
Our Chairman of the Board and Chief Executive Officer is also
our principal stockholder and has voting control of the
Company.
Al A. Gonsoulin, our Chairman of the Board and Chief Executive
Officer, beneficially owns stock representing approximately 52%
of our total voting power. As a result, he exercises control
over the election of all of our directors and the outcome of
most matters requiring a stockholder vote. This ownership also
may delay or prevent a change in our management or a change in
control of us, even if such changes would benefit our other
stockholders and were supported by a majority of our
stockholders.
Our substantial indebtedness could adversely affect our
financial condition and impair our ability to operate our
business.
We are a highly leveraged company and, as a result, have
significant debt service obligations. As of December 31,
2005, our total indebtedness was $204.3 million, including
$200 million of our
93/8
% senior notes due 2009, and our ratio of total
indebtedness to shareholders equity was 0.85 to 1.00.
Additionally, we are offering $150 million of new senior
notes concurrently with this offering of our non-voting common
stock. We intend to use a portion of the proceeds from these
offerings to purchase our existing senior notes pursuant to our
pending tender offer and fund our related consent solicitation.
If we complete these offerings and all of our existing senior
notes are tendered, our total indebtedness will be
$154.3 million on an as adjusted basis as of
December 31, 2005 and our ratio of total indebtedness to
shareholders equity will be 0.41 to 1.00. As of
March 29, 2006, we had $0.5 million of senior secured
debt outstanding under our revolving credit facility, excluding
$4.2 million in letters of credit. As of such date,
availability for borrowings under the revolving credit facility
was $30.3 million. In addition, we intend to borrow an
additional $3.0 million under the revolving credit facility
on March 31, 2006 for working capital. Our level of
indebtedness could have significant negative consequences to us
that you should consider. For example, it could:
|
|
Ø |
require us to dedicate a substantial portion of our cash flow
from operations to pay principal of, and interest on, our
indebtedness, thereby reducing the availability of our cash flow
to fund |
S- 20
Risk factors
|
|
|
working capital, capital expenditures or other general corporate
purposes, or to carry out other aspects of our business plan; |
|
Ø |
increase our vulnerability to general adverse economic and
industry conditions and limit our ability to withstand
competitive pressures; |
|
Ø |
limit our flexibility in planning for, or reacting to, changes
in our business and future business opportunities; |
|
Ø |
place us at a competitive disadvantage compared to our
competitors that have less debt; and |
|
Ø |
limit our ability to obtain additional financing to fund future
working capital, capital expenditures and other aspects of our
business plan. |
Our ability to meet our debt obligations and other expenses will
depend on our future performance, which will be affected by
financial, business, economic, regulatory and other factors,
many of which we are unable to control. Our existing
93/8
% senior notes will come due in 2009 if we do not
purchase all of them in our pending tender offer or any
subsequent redemption. If we complete our new senior notes
offering, those new senior notes will come due in 2013. When
these notes come due, we will likely need to enter into new
financing arrangements to repay those notes. We may be unable to
obtain that financing on favorable terms, which could adversely
affect our business, financial condition and results of
operations. For more information on our indebtedness, please see
the financial statements included elsewhere herein.
Our stock has a low trading volume.
Our common stock is listed for trading on The NASDAQ National
Market under the symbol PHIIK for our non-voting
common stock and PHII for our voting common stock.
Both classes of common stock have low trading volume. As a
result, a stockholder may not be able to sell shares of our
common stock at the time, in the amounts, or at the price
desired.
We do not pay dividends.
We have not paid any dividends on our common stock since 1999
and do not anticipate that we will pay dividends on our common
stock in the foreseeable future. In addition, our ability to pay
dividends is restricted by the indenture governing our
93/8
% senior notes due 2009, the indenture that will
govern our new senior notes due 2013 and our bank credit
facility.
Provisions in our articles of incorporation and bylaws and
Louisiana law make it more difficult to effect a change in
control of us, which could discourage a takeover of our company
and adversely affect the price of our common stock.
Although an attempted takeover of our company is unlikely by
virtue of the ownership by our chief executive officer of more
than 50% of the total voting power of our capital stock, there
are also provisions in our articles of incorporation and bylaws
that may make it more difficult for a third party to acquire
control of us, even if a change in control would result in the
purchase of your shares at a premium to the market price or
would otherwise be beneficial to you. For example, our articles
of incorporation authorize our board of directors to issue
preferred stock without stockholder approval. If our board of
directors elects to issue preferred stock, it could be more
difficult for, or discourage, a third party to acquire us. In
addition, provisions of our bylaws, such as giving the board the
exclusive right to fill all board vacancies, could make it more
difficult for a third party to acquire control of us.
In addition to the provisions contained in our articles of
incorporation and bylaws, the Louisiana Business Corporation Law
(LBCL), includes certain provisions applicable to
Louisiana corporations, such as us, which may be deemed to have
an anti-takeover effect. Those provisions give stockholders the
right to receive the fair value of their shares of stock
following a control transaction from a
S- 21
Risk factors
controlling person or group and set forth requirements relating
to certain business combinations. Our descriptions of these
provisions are only abbreviated summaries of detailed and
complex statutes. For a complete understanding of the statutes,
you should read them in their entirety.
The LBCLs control share acquisition statute provides that
any person who acquires control shares will be able
to vote such shares only if the right to vote is approved by the
affirmative vote of at least a majority of (i) all the
votes entitled to be cast by stockholders and (ii) all the
votes entitled to be cast by stockholders excluding
interested shares. The control share acquisition
statute permits the articles of incorporation or bylaws of a
company to exclude from the statutes application
acquisitions occurring after the adoption of the exclusion. Our
bylaws do contain such an exclusion; however, our board of
directors or stockholders, by an amendment to our bylaws, could
reverse this exclusion.
Future sales of our shares could depress the market price of
our non-voting common stock.
The market price of our non-voting common stock could decline as
a result of issuances and sales by us of additional shares of
non-voting or voting common stock pursuant to our existing shelf
registration statement or otherwise. The market price of our
non-voting common stock could also decline as the result of the
perception that these sales could occur. These sales, or the
possibility that these sales may occur, also might make it more
difficult for us to sell equity securities in the future at a
time and at a price that we deem appropriate.
The DOJ investigation could result in criminal proceedings
and the imposition of fines and penalties.
In June 2005, we received a document subpoena from the Antitrust
Division of the Department of Justice (DOJ). The
subpoena relates to a grand jury investigation of potential
antitrust violations among providers of helicopter
transportation services in the U.S. Gulf of Mexico. We are
in the process of providing the DOJ with all information that
has been requested to date and intend to comply with any
requests for additional information from the DOJ in connection
with this investigation.
We cannot predict the ultimate outcome of the DOJ investigation.
The outcome of the DOJ investigation and any related legal
proceedings could include civil injunctive or criminal
proceedings, the imposition of fines and other penalties,
remedies and/or sanctions, referral to other governmental
agencies and/or the payment of damages in civil litigation, any
of which could have a material adverse effect on our business,
financial condition and results of operations. Additionally, the
cost of defending such an action or actions against us could be
significant.
You should not place undue reliance on forward-looking
statements, as our actual results may differ materially from
those anticipated in our forward-looking statements.
This prospectus supplement contains and incorporates by
reference forward-looking statements about our operations,
expansion plans, economic performance and financial condition.
These statements are based on a number of assumptions and
estimates which are inherently subject to significant
uncertainties and contingencies, many of which are beyond our
control, and reflect future business decisions which are subject
to change. Some of these assumptions inevitably will not
materialize, and unanticipated events will occur which will
affect our results of operations. For a more detailed
description of these uncertainties and assumptions, see
Cautionary note regarding forward-looking statements.
S- 22
Use of proceeds
We estimate that the net proceeds to us from the sale of the
4,287,920 shares of non-voting common stock we are offering
will be approximately $147 million. If the underwriters
exercise their over-allotment option in full, the net proceeds
to us will be approximately $170 million. For the purpose
of estimating net proceeds, we are assuming that the offering
price will be $36.48 per share (the last sales price of our
non-voting common stock as reported on The NASDAQ National
Market on March 29, 2006). Net proceeds is what
we expect to receive after we pay the underwriting discount and
other estimated expenses of this offering. The underwriters will
not receive any discount or commission on the
100,000 shares that Mr. Gonsoulin intends to purchase
in this offering.
Concurrently with this offering, we are offering
$150 million of our new senior notes to qualified
institutional buyers under Rule 144A of the Securities Act,
or to certain persons in offshore transactions in reliance on
Regulation S under the Securities Act. We expect the net
proceeds to us from the offering of these new senior notes to be
approximately $146 million. Neither this offering nor our
concurrent offering of new senior notes is conditioned upon the
other, and if either fails to close we may choose not to
complete our pending tender offer and consent solicitation for
all of the $200 million outstanding principal amount of our
93/8
% senior notes due 2009.
We expect to use substantially all of the combined net proceeds
from this offering and the offering of our new senior notes to
fund our pending tender offer and consent solicitation and to
partially finance the remainder of our fleet expansion. Assuming
that all of our existing
93/8
% senior notes are tendered for repurchase, we will
use approximately $219 million for such purpose (including
accrued and unpaid interest of approximately $9 million and
the related consent solicitation fee), with the remaining
$74 million used toward the purchase of helicopters that
are part of our fleet expansion initiative as they are
delivered. We have 31 previously ordered light and medium
aircraft remaining for delivery in 2006 and 2007 at an
approximate cost of $159 million in total if purchased,
excluding the two heavy transport category aircraft we intend to
lease. We expect to finance the balance of the cost of our fleet
expansion through some combination of existing cash, operating
leases, cash from operations and borrowings under our revolving
credit facility. In the event that all of our senior notes are
not tendered in the tender offer or our tender offer is not
consummated, we will use a portion of the net proceeds from this
offering for general corporate purposes, which may include the
redemption of debt and the purchase of aircraft.
Pending the use of proceeds to repurchase our existing senior
notes and to purchase aircraft as they are delivered, we may
invest the proceeds in short-term, investment grade,
interest-bearing securities or guaranteed obligations of the
U.S. government.
S- 23
Price range of common stock
Our common stock is listed for trading on The NASDAQ National
Market under the symbol PHIIK for our non-voting
common stock and PHII for our voting common stock.
Until May 17, 2005, our non-voting common stock and our
voting common stock were listed on The NASDAQ SmallCap Market
under the trading symbols PHELK and
PHEL, respectively. The following table sets forth,
for the periods indicated, the range of high and low sales
prices per share of our common stock as reported on The NASDAQ
SmallCap and National Markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-voting | |
|
Voting | |
|
|
| |
|
| |
|
|
High | |
|
Low | |
|
High | |
|
Low | |
| |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$ |
27.00 |
|
|
$ |
22.50 |
|
|
$ |
30.46 |
|
|
$ |
23.00 |
|
Second quarter
|
|
|
26.50 |
|
|
|
18.61 |
|
|
|
27.60 |
|
|
|
18.55 |
|
Third quarter
|
|
|
23.15 |
|
|
|
19.30 |
|
|
|
24.69 |
|
|
|
19.08 |
|
Fourth quarter
|
|
|
25.99 |
|
|
|
20.77 |
|
|
|
26.49 |
|
|
|
22.25 |
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$ |
30.11 |
|
|
$ |
20.75 |
|
|
$ |
30.25 |
|
|
$ |
23.42 |
|
Second quarter
|
|
|
30.50 |
|
|
|
23.12 |
|
|
|
30.95 |
|
|
|
24.10 |
|
Third quarter
|
|
|
32.48 |
|
|
|
23.02 |
|
|
|
35.48 |
|
|
|
23.90 |
|
Fourth quarter
|
|
|
32.40 |
|
|
|
26.35 |
|
|
|
34.59 |
|
|
|
27.25 |
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter (through March 29, 2006)
|
|
$ |
39.48 |
|
|
$ |
31.02 |
|
|
$ |
41.00 |
|
|
$ |
29.00 |
|
On March 29, 2006, the last sales price of our non-voting
common stock, as reported on The NASDAQ National Market, was
$36.48 per share, and the last sales price of our voting common
stock, as reported on The NASDAQ National Market, was $37.31 per
share. We encourage you to obtain current market price
quotations for our common stock.
Dividend policy
We have not declared or paid any cash dividends since 1999 and
do not anticipate declaring any dividends in the foreseeable
future. We plan to retain our cash for the operation and
expansion of our business. In addition, our bank credit
facility, our current indenture governing our
93/8
% senior notes due 2009 and the indenture that will
govern our new senior notes due 2013 contain restrictions on the
payment of dividends to holders of our common stock.
S- 24
Capitalization
The following table sets forth our unaudited capitalization as
of December 31, 2005:
|
|
Ø |
on an actual basis; and |
|
Ø |
on an as adjusted basis to reflect the issuance of the
non-voting common stock in this offering (without giving effect
to the underwriters over-allotment option) assuming a
public offering price of $36.48 per share (the last sales
price of our non-voting common stock as reported on The NASDAQ
National Market on March 29, 2006), after deducting
underwriting discounts and commissions and estimated offering
expenses to be paid by us, the offering of $150 million
aggregate principal amount of our new senior notes, and the
application of the combined net proceeds from those offerings in
the manner described under Use of proceeds based on
the assumption that we will repurchase all of our existing
93/8
% senior notes due 2009 pursuant to our pending
tender offer and fund our related consent solicitation. |
This table should be read in conjunction with, and is qualified
in its entirety by reference to, our historical financial
statements and the accompanying notes included elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 | |
|
|
(unaudited) | |
|
|
| |
|
|
Actual | |
|
As adjusted | |
| |
|
|
(in thousands) | |
Cash and cash
equivalents(1)
|
|
$ |
69,561 |
|
|
$ |
143,806 |
|
Total debt:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
1,000 |
|
|
|
1,000 |
|
Revolving Credit
Facility(2)
|
|
|
3,300 |
|
|
|
3,300 |
|
93/8
% senior notes due 2009
|
|
|
200,000 |
|
|
|
|
|
New senior notes due 2013
|
|
|
|
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
204,300 |
|
|
|
154,300 |
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Non-Voting Common Stock, $.10 par value;
12,500,000 shares authorized; 7,568,892 shares issued
and outstanding; 11,856,812 shares issued and outstanding
(as adjusted)
|
|
|
742 |
|
|
|
1,171 |
|
Voting Common Stock, $.10 par value; 12,500,000 shares
authorized; 2,852,616 shares issued and outstanding
|
|
|
285 |
|
|
|
285 |
|
Additional paid-in capital
|
|
|
129,531 |
|
|
|
276,123 |
|
Retained earnings
|
|
|
108,493 |
|
|
|
95,939 |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
239,051 |
|
|
|
373,518 |
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
443,351 |
|
|
$ |
527,818 |
|
|
|
|
|
|
|
|
|
|
(1) |
As of March 29, 2006, we had approximately
$96.3 million in cash and cash equivalents. |
(2) |
As of March 29, 2006, we had $0.5 million
outstanding under our revolving credit facility, excluding
$4.2 million in letters of credit. As of such date,
availability for borrowings under the revolving credit facility
was $30.3 million. We expect to borrow an additional
$3 million on March 31, 2006 for additional working
capital. |
S- 25
Managements discussion and analysis of financial condition
and results of operations
Managements discussion and analysis of financial
condition and results of operations should be read in
conjunction with our Consolidated Financial Statements for the
years ended December 31, 2005, December 31, 2004, and
December 31, 2003 and the related Notes to Consolidated
Financial Statements included elsewhere herein. In addition,
please see Risk factors beginning on page S-15
and Cautionary note regarding forward-looking
statements on page S-iii.
OVERVIEW
Founded in 1949, we are one of the worlds largest and most
experienced providers of commercial helicopter services. With
our fleet of helicopters, we provide transportation services
primarily to the oil and gas industry in the Gulf of Mexico and
the health care industry. As of March 29, 2006, our fleet
is comprised of 237 aircraft, 12 of which are owned by our
customers. Of these aircraft, 167 are dedicated to our oil and
gas operations, 64 are dedicated to our air medical operations
and six are dedicated to other operations. In addition, we
perform maintenance and repair services for existing customers,
primarily to those that own their own aircraft. For financial
reporting purposes, we have divided our operations into four
segments: Domestic Oil and Gas, Air Medical, International and
Technical Services.
In our oil and gas operations, we transport personnel and, to a
lesser extent, parts and equipment, to, from and among offshore
platforms, drilling rigs and other offshore facilities for our
customers. We have one of the largest fleets of helicopters
servicing the Gulf of Mexico, and in 2005 we flew over
110,000 hours in the Gulf of Mexico. Our customers include
major integrated oil companies and independent exploration and
production companies. In 2005, our domestic oil and gas
operations generated approximately 60% of our total operating
revenues.
Our air medical operations provide air medical transportation
services for hospitals and emergency service agencies. Our
aircraft transport patients between hospitals as well as to
hospitals from accident sites or rural locations. We currently
operate in 12 states with 64 aircraft that are
specially outfitted to accommodate emergency patients, medical
personnel, and emergency medical equipment. Since December 2003,
we have commenced air medical operations in 37 new
locations to capitalize on business opportunities in areas we
identified as under-serviced or created by hospitals that
elected to outsource their air medical transportation operations
to third parties, all under an independent provider model.
When we enter new markets for air medical transportation
services, we generally incur significant
start-up and operating
costs as we work to establish a consistent volume of transports
in those areas. As a result, operations in a new market are
often unprofitable for a period of time following their
commencement. New locations typically take several months to
build sufficient volume to achieve profitable aircraft
utilization levels to absorb the facility
start-up and operating
costs. We also face competition in our air medical operations
from ground ambulance transportation, which is generally
significantly less expensive than air medical transportation and
may actually be faster in some situations. Approximately 31% of
our total operating revenues in 2005 was generated by our air
medical operations. Our focus in 2006 will be on improving our
utilization rates and profit margins in our new locations in
this segment.
We have 16 helicopters currently operating internationally,
with 12 of those helicopters providing transportation services
to energy companies operating in Angola and the Democratic
Republic of Congo and the remaining four helicopters providing
transportation services to a U.S. government
S- 26
Managements discussion and analysis of financial
condition and results of operations
agency in Antarctica. In 2005, our international operations
contributed approximately 8% of our total operating revenues.
In late 2003, we implemented a plan to increase our aircraft
fleet by 47 helicopters and one fixed wing aircraft. In
June 2005, we completed an offering of our non-voting common
stock for approximately $115 million to help fund this
expansion plan. Since June 2005, we have increased the number of
aircraft in our expansion plan by 21, including
17 medium and light helicopters and four heavy transport
helicopters. Two of the four additional heavy transport
helicopters have already been delivered and were placed under
operating leases. Since the inception of our overall expansion
plan, we have had 30 light and medium aircraft delivered, which
we funded with proceeds from our June 2005 offering and the
execution of operating leases. We also have had six heavy
transport helicopters delivered since the inception of our
overall expansion plan with each of the six being placed under
an operating lease. We have 31 light and medium aircraft
remaining to be delivered in 2006 and 2007 at an approximate
cost of $159 million. In addition, we intend to enter into
operating leases for the two remaining heavy transport aircraft
to be delivered in 2006, which, if purchased, would otherwise
cost approximately $35 million in the aggregate. Once
delivered, it takes up to three months to install
mission-specific and/or customer-specific equipment on each
aircraft prior to placing it into service.
Concurrently with this offering, we are offering
$150 million of new senior notes in a private placement
under Rule 144A of the Securities Act. We intend to use the
net proceeds from these offerings to purchase all of our
existing $200 million
93/8
% senior notes pursuant to our pending tender offer
and consent solicitation. We intend to use the remaining
proceeds toward the purchase of some of the undelivered
helicopters as they are delivered. We expect to enter into
leases with commercial lenders or use existing cash, cash from
operations or borrowings under our revolving credit facility to
finance the expansion aircraft not covered by the proceeds of
these offerings.
Operating revenues increased in our Domestic Oil and Gas segment
in 2005 due to increased flight hours resulting from increased
customer demand for aircraft. The increased activity was due
primarily to increased exploration and production activity by
our customers in the Gulf of Mexico. Additional demand was also
caused by the effects of recent hurricanes, as customers
experienced logistical challenges as they repaired facilities in
the Gulf of Mexico. As discussed below, we have more new
aircraft scheduled for delivery in 2006 and 2007 for use in our
Domestic Oil and Gas segment. Our Air Medical segment
experienced significant revenue growth as a result of the
expansion to additional locations; however, patient transport
volume was negatively affected by weather in the fourth quarter.
In 2005, we opened 15 additional locations, seven of which
opened in the fourth quarter. In total, we have opened
37 locations since December 2003 in the Air Medical
expansion.
All segments experienced an increase in flight hours in 2005,
with total flight hours of 154,643 for 2005 compared to 136,280
for 2004, an increase of 13%. The number of aircraft in service
at December 31, 2005, was 235 compared to 221 at
December 31, 2004. Fifteen new aircraft were delivered in
2005 for service in the Domestic Oil and Gas segment, and eleven
light aircraft were sold, for a net increase of four aircraft.
Aircraft in the Air Medical segment increased by 13, and
aircraft in the International segment decreased by three, which
were sold.
Based on our current contract or bid rates and depending on the
actual number of flight hours (which may vary significantly), we
would expect to generate annual revenues for our domestic oil
and gas aircraft as follows:
$6.5$8.2 million
for a Sikorsky S-92A; $3.6$4.4 million for a
Sikorsky S-76C+ and
C++; $2.2$2.7 million for a Eurocopter EC135;
$1.2$1.5 million for a Bell 407; and
$0.9$1.2 million for a Bell 206 L3.
S- 27
Managements discussion and analysis of financial
condition and results of operations
Impact of hurricanes
Two significant hurricanes affected our operations during the
third and fourth quarters of 2005. Hurricane Katrina made
landfall in southeastern Louisiana on August 29, 2005 and
caused substantial flooding at our base at Boothville,
Louisiana, which we expect to be out of service until late 2006.
Other bases incurred some damage, most of which has been
repaired as of December 31, 2005, and those bases are now
operational again. On September 24, 2005, Hurricane Rita
made landfall in southwestern Louisiana severely damaging our
base in Cameron, and causing flooding and wind damage at other
bases. Most of this damage has been repaired and bases are back
in service except for Cameron. All employees were accounted for
and there were no injuries were reported. We evacuated all
aircraft prior to both storms and suffered no damage to aircraft.
We currently estimate that our insurance claim related to all
damage will be approximately $8.5 million, and we expect
that substantially all costs incurred will be covered by
insurance. At December 31, 2005, we recorded the write off
of assets consisting of $2.5 million of inventory and other
tangible assets and $3.1 million of incremental repair and
relocation costs, a total of $5.6 million. These amounts
were completely offset by estimated insurance recoveries of
which $2.7 million remains in accounts receivable, other.
We anticipate incurring additional repair costs of approximately
$2.9 million in 2006 to restore damaged facilities and we
also expect that substantially all of such costs will be covered
by insurance. If the estimates of our damages and insurance
recoveries prove to be reasonably accurate, we do not believe
that we will record any loss related to these claims for
financial reporting purposes. We would expect to have an
unreimbursed cash outlay of approximately $1.0 million, due
to the difference in insurance reimbursement compared to
replacement cost for certain assets that had been in service for
a number of years.
Following the evacuation of customer personnel from the Gulf of
Mexico, flight hours were adversely affected by the hurricanes
as aircraft were evacuated and grounded until the storm passed.
When flights resumed, we experienced an increase in flight hours
as customers began assessing damage and making repairs to
facilities in the Gulf of Mexico. Additionally, our Air Medical
segment experienced higher than normal flight activity in the
third quarter while assisting with the evacuations of New
Orleans and areas in southeastern Texas.
S- 28
Managements discussion and analysis of financial
condition and results of operations
RESULTS OF OPERATIONS
The following table presents segment operating revenues, expense
and operating profit before tax, along with certain
non-financial operational statistics, for the years ended
December 31, 2003, 2004 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
| |
|
|
(dollars in thousands | |
Segment operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
$ |
183,849 |
|
|
$ |
180,102 |
|
|
$ |
219,644 |
|
|
Air Medical
|
|
|
46,674 |
|
|
|
77,476 |
|
|
|
112,123 |
|
|
International
|
|
|
21,247 |
|
|
|
24,342 |
|
|
|
28,192 |
|
|
Technical Services
|
|
|
17,622 |
|
|
|
9,388 |
|
|
|
3,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
269,392 |
|
|
|
291,308 |
|
|
|
363,610 |
|
|
|
|
|
|
|
|
|
|
|
Segment direct expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
|
163,328 |
|
|
|
151,107 |
|
|
|
173,177 |
|
|
Air Medical
|
|
|
32,782 |
|
|
|
67,664 |
|
|
|
104,465 |
|
|
International
|
|
|
21,093 |
|
|
|
18,668 |
|
|
|
19,099 |
|
|
Technical Services
|
|
|
13,026 |
|
|
|
7,935 |
|
|
|
2,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct expense
|
|
|
230,229 |
|
|
|
245,374 |
|
|
|
299,263 |
|
|
|
|
|
|
|
|
|
|
|
Segment selling, general and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
|
1,494 |
|
|
|
1,499 |
|
|
|
1,003 |
|
|
Air Medical
|
|
|
4,480 |
|
|
|
6,525 |
|
|
|
6,503 |
|
|
International
|
|
|
214 |
|
|
|
49 |
|
|
|
214 |
|
|
Technical Services
|
|
|
12 |
|
|
|
12 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expense
|
|
|
6,200 |
|
|
|
8,085 |
|
|
|
7,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct and selling, general and administrative expense
|
|
|
236,429 |
|
|
|
253,459 |
|
|
|
306,990 |
|
|
|
|
|
|
|
|
|
|
|
Net segment profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
|
19,027 |
|
|
|
27,496 |
|
|
|
45,464 |
|
|
Air Medical
|
|
|
9,412 |
|
|
|
3,287 |
|
|
|
1,155 |
|
|
International
|
|
|
(60 |
) |
|
|
5,625 |
|
|
|
8,879 |
|
|
Technical Services
|
|
|
4,584 |
|
|
|
1,441 |
|
|
|
1,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
32,963 |
|
|
|
37,849 |
|
|
|
56,620 |
|
|
|
|
|
|
|
|
|
|
|
Other,
net(1)
|
|
|
2,674 |
|
|
|
2,961 |
|
|
|
3,230 |
|
Unallocated selling, general and administrative costs
|
|
|
(13,783 |
) |
|
|
(12,949 |
) |
|
|
(17,169 |
) |
Interest expense
|
|
|
(19,952 |
) |
|
|
(20,109 |
) |
|
|
(20,448 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
$ |
1,902 |
|
|
$ |
7,752 |
|
|
$ |
22,233 |
|
|
|
|
|
|
|
|
|
|
|
Operating statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
Flight hours
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
|
114,769 |
|
|
|
100,814 |
|
|
|
111,236 |
|
|
Air Medical
|
|
|
11,542 |
|
|
|
19,595 |
|
|
|
26,619 |
|
|
International
|
|
|
14,816 |
|
|
|
15,871 |
|
|
|
16,788 |
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
141,127 |
|
|
|
136,280 |
|
|
|
154,643 |
|
|
|
|
|
|
|
|
|
|
|
S- 29
Managements discussion and analysis of financial
condition and results of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
| |
Air Medical Transports
|
|
|
5,739 |
|
|
|
11,390 |
|
|
|
17,200 |
|
Aircraft operated at period end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
|
164 |
|
|
|
151 |
|
|
|
155 |
|
|
Air Medical
|
|
|
42 |
|
|
|
51 |
|
|
|
64 |
|
|
International
|
|
|
19 |
|
|
|
19 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(2)
|
|
|
225 |
|
|
|
221 |
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Including gains on disposition of property and equipment, and
other income. |
|
(2) |
Includes 14, 14 and 12 aircraft as of December 31,
2003, 2004 and 2005, respectively, that are customer owned. |
YEAR ENDED DECEMBER 31, 2005 COMPARED WITH YEAR ENDED
DECEMBER 31, 2004
Combined operations
Revenues. Operating revenues for 2005 were
$363.6 million compared to $291.3 million for 2004, an
increase of $72.3 million, or 25%. Operating revenues
increased in the Domestic Oil and Gas segment $39.5 million
due to increased flight hours and an increase in contracted
aircraft. Operating revenues in the Air Medical segment also
increased $34.6 million, due to the additional operating
locations. Operating revenues in the International segment
increased $3.9 million due primarily to increased flight
hours, but we expect some reduction in the number of aircraft
and related revenues in this segment in 2006. Revenues in the
Technical Services segment decreased $5.7 million due to
completion of a contract in 2004. These items are discussed in
the Segment Discussion below.
Other Income and Losses. Gain on equipment dispositions
was $1.2 million for 2005 compared to $2.6 million for
2004. Gain or loss on equipment dispositions is related to
dispositions of aircraft. Other income increased approximately
$1.6 million in 2005 due to interest earnings on unspent
proceeds from the stock offering.
Direct Expenses. Direct expense was $299.3 million
for 2005 compared to $245.4 million for 2004, an increase
of $53.9 million, or 22%. The increase was due to increased
Air Medical operations ($36.8 million), an increase in the
Domestic Oil and Gas segment ($22.1 million) due to
increased flight hour activity and increased aircraft, and an
increase in the International segment ($0.4 million). There
was a decrease in the Technical Services segment due to
completion of a contract in 2004 as mentioned above
($5.4 million). These items are also discussed in the
Segment Discussion below.
Selling, General, and Administrative Expenses. Selling,
general and administrative expense was $24.9 million for
2005 compared to $21.0 million for 2004, an increase of
$3.9 million, or 19%. This increase is a result of legal
costs incurred ($1.0 million) in responding to the
Department of Justice antitrust investigation subpoena,
increased depreciation expense ($1.3 million), increased
employee costs ($0.4 million), a non-recurring reduction in
the environmental provision in the prior year
($0.3 million), and other items ($0.9 million).
Income Taxes. Income tax expense for 2005 was
$8.0 million, compared to $3.8 million for 2004. The
effective tax-rate was 36% for 2005 compared to 49% for 2004.
The provision for 2005 includes a tax credit of
$0.8 million related to the Katrina Emergency Tax Relief
Act of 2005. This amount was recorded as a tax carryforward
credit and will be available as a credit once the net operating
loss amount is utilized. Included in the 2004 provision was
$0.7 million related to foreign taxes paid for which we
cannot take a credit for U.S. tax purposes due to the
availability of net operating losses for tax purposes. Such
operating loss carryforwards arose from accelerated tax
depreciation expense deductions as a result of the aircraft
purchased since 2002. We anticipate the foreign taxes paid in
2005 will be utilized as a tax credit in future years based on
recent changes in the tax laws.
S- 30
Managements discussion and analysis of financial
condition and results of operations
Earnings. Our net earnings for 2005 were
$14.2 million, compared to $4.0 million for 2004.
Earnings before tax for 2005 were $22.2 million compared to
$7.8 million in 2004. Earnings per diluted share were $1.76
for 2005 as compared to $0.72 per diluted share for 2004.
Segment discussion
Domestic Oil and Gas. Domestic Oil and Gas segment
revenues for 2005 were $219.6 million compared to
$180.1 million for 2004, an increase of $39.5 million
or 22%. The increase was due to an increase in flight hours in
the Gulf of Mexico and an increase in contracted aircraft.
Flight hours were 111,236 for 2005 compared to 100,814 for 2004,
an increase of 10,422 hours, as a result of our
customers increased production and exploration activities
in the Gulf of Mexico. The number of aircraft in the segment at
December 31, 2005 was 155 compared to 151 aircraft at
December 31, 2004. In 2005, we sold 11 light aircraft,
which had little flight time, and added 15 total aircraft. We
also have deliveries scheduled throughout 2006 and 2007 for
three additional transport category aircraft and 34 additional
medium and light aircraft for service in the Domestic Oil and
Gas segment to meet customer requirements.
Direct expenses in the Domestic Oil and Gas segment were
$173.2 million for the year ended December 31, 2005,
compared to $151.1 million for the year ended
December 31, 2004, an increase of $22.1 million, or
14.6%. The increase was due to increases in employee costs
($1.2 million), aircraft parts usage due to increased
flight hour activity ($3.1 million), aircraft rent
($3.7 million) due to additional aircraft on lease,
aircraft warranty costs ($5.0 million) due to additional
aircraft covered under the manufacturers warranty programs
but also due to a warranty termination credit in the prior year
($2.2 million), fuel ($6.7 million) due to increased
prices and flight activity, component repair costs
($0.8 million), outside services ($1.1 million)
primarily related to outside pilot training costs, and other
items ($0.5 million).
Fuel cost above a certain rate per gallon in customers
contracts is invoiced to the customer and is included in
revenue. These increases were due to increased aircraft and
increased flight hours.
The Domestic Oil and Gas segments operating income was
$45.5 million for 2005 compared to $27.5 million for
2004. The increase was due to increased flight hours and also
due to additional contracted aircraft as mentioned above.
Air Medical. Air Medical segment revenues were
$112.1 million for 2005 compared to $77.5 million for
2004. The increase was due to the additional operations
established in 2004 and 2005. Flight hours were 26,619 for 2005
compared to 19,595 for 2004. The number of aircraft in the
segment was 64 at December 31, 2005, compared to 51 at
December 31, 2004. One additional aircraft was received in
early 2006. Patient transports were 17,200 for 2005, compared to
11,390 for 2004. Since inception of the expansion, late 2003, we
have opened 37 additional operating locations, 15 of which were
opened in 2005. Seven of those were opened in the fourth quarter
2005. Operating revenues in 2005 from the new locations opened
in 2005 were $20.4 million.
Direct expenses in the Air Medical segment increased to
$104.5 million for 2005 compared to $67.7 million for
2004, due to growth in the segment mentioned above. At
December 31, 2004, we had 22 operating locations that were
opened in 2004, and the increase in direct expense in 2005
reflects a full year of operations at those locations, as well
as the direct expense of the 15 locations opened during 2005.
The $36.8 million increase was due to increases in employee
costs ($21.1 million) due to additional employees at the
new operations, operating costs ($9.2 million) related to
the additional bases, which includes rent, utilities, services
purchased, and supplies. Aircraft parts usage increased due to
additional aircraft and additional flight hours
($1.3 million); fuel costs increased ($2.3 million);
aircraft rent increased due to additional aircraft on lease
($1.1 million); and aircraft
S- 31
Managements discussion and analysis of financial
condition and results of operations
warranty costs increased ($1.8 million) as additional
aircraft were added to the manufacturers warranty programs.
Selling, general and administrative expense was
$6.5 million for the years ended December 31, 2005 and
2004 in the Air Medical segment.
The Air Medical segment operating income was $1.2 million
for 2005 compared to $3.3 million for 2004. The decrease in
operating income was due to increased direct expense related to
the expansion of operations, and also due to the impact of
weather in the first quarter and fourth quarter of 2005 as
compared to 2004. There was a loss of $2.5 million related
to the additional operations that commenced in 2005. New
locations typically take several months to build sufficient
volume to absorb facility operating costs and achieve profitable
aircraft utilization levels. Our focus in 2006 will be to
improve the margins in this segment.
International. International segment revenues were
$28.2 million for 2005, compared to $24.3 million for
2004, an increase of $3.9 million, or 15.8%. The increase
was due to increased flight hours and rates in 2005. Flight
hours increased in 2005 to 16,788 as compared to 15,871 for
2004. The additional flight hours were achieved in spite of a
reduction in the number of aircraft in the segment from 19 at
December 31, 2004, to 16 at December 31, 2005, as
three aircraft in that segment were sold during 2005. We also
expect some reduction in the number of aircraft and related
revenues in 2006.
Direct expenses were $19.1 million for the year ended
December 31, 2005, compared to $18.7 million for the
year ended December 31, 2004, an increase of
$0.4 million. The increase was due to increased flight
hours in 2005.
Selling, general and administrative expense was
$0.2 million for 2005 compared to less than
$0.1 million for 2004.
International segment operating income for 2005 was
$8.9 million compared to $5.6 million for 2004. The
improvement was due to the increase in operating revenue due to
increased flight hours and to increased rates.
Technical Services. Technical Services segment revenues
for 2005 were $3.7 million compared to $9.4 million
for 2004. The decrease in Technical Services revenues was due to
completion of its principal contract in the third quarter of
2004.
Direct expenses were $2.5 million for 2005 compared to
$7.9 million for 2004.
The Technical Services segment had operating income of
$1.1 million for December 31, 2005, compared to
$1.4 million for December 31, 2004. The decrease was
due to completion of the contract mentioned above.
YEAR ENDED DECEMBER 31, 2004 COMPARED WITH YEAR ENDED
DECEMBER 31, 2003
Combined operations
Revenues. Operating revenues for 2004 were
$291.3 million compared to $269.4 million for 2003, an
increase of $21.9 million. Operating revenues in the Air
Medical segment increased $30.8 million, due to the
additional operating locations, and there was also an increase
of $3.1 million in operating revenues in the International
segment. These amounts were offset in part by a decrease in the
Technical Services segment and in the Domestic Oil and Gas
segment. These items are discussed below in the Segment
Discussion.
S- 32
Managements discussion and analysis of financial
condition and results of operations
Other Income and Losses. Gain (loss) on equipment
dispositions was $2.6 million for 2004 compared to
$2.0 million for 2003. Gain (loss) on equipment
dispositions is related to dispositions of aircraft.
Direct Expenses. Direct expense was $245.4 million
for 2004 compared to $230.2 million for 2003, an increase
of $15.2 million. The increase was due to the increased Air
Medical operations ($34.9 million), offset by decreases in
all other business segments particularly Domestic Oil and Gas
($12.2 million). These items are further discussed in the
Segment Discussion.
Selling, General, and Administrative Expenses. Selling,
general and administrative expense was $21.0 million for
2004 compared to $20.0 million for 2003, an increase of
$1.0 million. The increase is due to an increase in the Air
Medical segment ($2.0 million) due to the expansion
mentioned above. This amount was offset in part by a decrease in
corporate administration costs of $0.8 million due
primarily to decreases in consulting expense.
Income Taxes. Income tax expense for 2004 was
$3.8 million, compared to $0.8 million for 2003. The
effective tax-rate was 49% for 2004 compared to 40% for 2003.
Included in the 2004 provision was $0.7 million related to
foreign taxes paid for which we cannot take a credit for
U.S. tax purposes due to the availability of net operating
losses for tax purposes. Such operating loss carryforwards arose
from accelerated tax depreciation expense deductions as a result
of the aircraft purchased in 2002 and 2003.
Earnings. Our net earnings for 2004 were
$4.0 million, compared to $1.1 million for 2003.
Earnings before tax for 2004 were $7.8 million compared to
$1.9 million in 2003. Earnings per diluted share were $0.72
for 2004 as compared to $0.21 per diluted share for 2003.
Segment discussion
Domestic Oil and Gas. Domestic Oil and Gas segment
revenues were $180.1 million for 2004 compared to
$183.8 million for 2003, a decrease of $3.7 million or
2%. The decrease was due to a decrease in flight hours in the
Gulf of Mexico. Flight hours were 100,814 for 2004 compared to
114,769 for 2003, a decrease of 13,955 hours which resulted
from a decrease in activities in the Gulf of Mexico by our
customers. The number of aircraft in the segment at
December 31, 2004 was 151 compared to 164 aircraft at
December 31, 2003.
Direct expenses in the Domestic Oil and Gas segment were
$151.1 million for the year ended December 31, 2004
compared to $163.3 million for the year ended
December 31, 2003, a decrease of $12.2 million.
Employee compensation decreased $1.5 million due primarily
to pilots and mechanics being transferred to the Air Medical
segment and also due to severance pay recorded in the prior year
($0.7 million). Manufacturer warranty expense decreased
$6.2 million due to a nonrecurring credit related to the
termination of certain manufacturer warranty agreements
($3.2 million), and a reduction in recurring warranty
expense ($3.0 million) as a result of the termination.
There was also a net decrease due to additional insurance
premium costs incurred in 2003 ($3.1 million). Aircraft
parts usage decreased $2.8 million due to the decrease in
flight hour activity. There was an increase in fuel cost
($1.6 million) and a decrease in other items, net, of
$0.2 million.
The Domestic Oil and Gas segment operating income was
$27.5 million for 2004 compared to $19.0 million for
2003. The increase was due to the decrease in direct expense as
discussed above.
Air Medical. Air Medical segment revenues were
$77.5 million for 2004 compared to $46.7 million for
2003. The increase was due to the additional operations
established in 2004. Flight hours were 19,595 for 2004 compared
to 11,542 for 2003. The number of aircraft in the segment was 51
at December 31, 2004, compared to 42 at December 31,
2003. Expansion in the Air Medical segment
S- 33
Managements discussion and analysis of financial
condition and results of operations
continued into late 2004, adding 22 new Air Medical operating
locations since December 2003. Operating revenues in 2004 from
the new locations were $29.9 million.
The additional Air Medical operations are established under the
independent provider model, whereby we respond to individual
patient demands for air transport services and are paid by
either a commercial insurance company, federal or state agency,
or the patient.
Direct expenses in the Air Medical segment more than doubled to
$67.7 million for December 31, 2004 compared to
$32.8 million for December 31, 2003, due to the
increased operations mentioned above. Employee cost increased
($21.4 million) due to increased personnel, aircraft
depreciation increased ($3.4 million) due to an increase in
the number of aircraft, aircraft parts usage increased
($0.6 million) and manufacturer warranty expense increased
due to additional aircraft ($0.6 million), operating base
expense increased ($3.4 million) due to additional bases
established, fuel cost increased ($1.4 million) due to
increased flight hours, insurance cost increased
($0.9 million), costs related to billing and collection
services increased ($2.2 million), and other items, net,
increased ($1.0 million).
Selling, general and administrative expense increased to
$6.5 million for 2004 compared to $4.5 million for
2003, because of the increased operations as additional
supervisory and management personnel were added.
The Air Medical segment operating income was $3.3 million
for December 31, 2004 compared to $9.4 million for
December 31, 2003. The decrease was due to increased direct
expense and increased selling, general and administrative
expense related to the expansion of operations. There was a loss
of $2.7 million related to the additional operations that
commenced in 2004. The decrease in operating income was also due
to the increased selling, general, and administrative expense.
International. International segment revenues were
$24.3 million for 2004, compared to $21.2 million for
2003, an increase of $3.1 million. The increase was due to
increased flight hours and rates in 2004. Flight hours increased
to 15,871 for 2004 as compared to 14,816 for 2003, but the
number of aircraft in the segment was unchanged at 19 for both
periods.
Direct expenses were $18.7 million for the year ended
December 31, 2004 compared to $21.1 million for the
year ended December 31, 2003, a decrease of
$2.4 million. There was a decrease in aircraft component
repairs ($1.8 million), and a decrease in employee
compensation ($0.6 million).
Selling, general and administrative expense was less than
$0.1 million for 2004 compared to $0.2 million for
2003.
International segment operating income for 2004 was
$5.6 million compared to a loss of less than
$0.1 million for 2003. The improvement was due to the
increase in operating revenue and the decrease in direct
expense, as discussed above.
Technical Services. Technical Services segment revenues
for 2004 were $9.4 million compared to $17.6 million
for 2003. The decrease in Technical Services revenues was due to
completion of its principal contract in the third quarter 2004.
Direct expenses declined to $7.9 million for
December 31, 2004 compared to $13.0 million for
December 31, 2003 due to completion of the contract.
The Technical Services segment had operating income of
$1.4 million for December 31, 2004, compared to
$4.6 million for December 31 2003. The decrease was
due to completion of the contract mentioned above.
S- 34
Managements discussion and analysis of financial
condition and results of operations
LIQUIDITY AND CAPITAL RESOURCES
General
Our ongoing liquidity requirements arise primarily from the
funding of working capital needs, the acquisition or leasing of
aircraft, the maintenance and refurbishment of aircraft,
improvement of facilities, and equipment and inventory. Our
principal sources of liquidity historically have been net cash
provided by our operations, borrowings under our revolving
credit facility, as augmented in recent years by the issuance of
our senior unsecured notes in 2002 and the sale of non-voting
common stock in June 2005.
Our overall fleet expansion initiative contemplates the
acquisition of 69 aircraft valued at approximately
$400.8 million. Thirty-six of those aircraft, valued at
approximately $204.8 million, have already been delivered,
with 20 of those aircraft having been purchased using
approximately $51.5 million in proceeds from our June 2005
offering of non-voting common stock and the remaining 16 of
those aircraft financed through operating leases. Approximately
$74 million of the net proceeds from this offering and our
concurrent senior notes offering will be used toward the funding
of the expansion. We intend to use some combination of operating
leases with commercial lenders, existing cash, cash from
operations and borrowings under our revolving credit facility to
fund the balance of this fleet expansion.
As we grow our operations, we continually monitor the capital
resources available to meet our future financial obligations,
planned capital expenditures and liquidity. We also review
acquisition opportunities on an ongoing basis. If we were to
make a significant acquisition for cash, we would need to obtain
additional equity or debt financing. Additionally, we may sell
additional equity or debt securities or restructure our current
debt to optimize our capital structure.
Cash flow
Our cash position at December 31, 2005 was
$69.6 million, compared to $18.0 million at
December 31, 2004. Working capital was $162.5 million
at December 31, 2005, as compared to $88.7 million at
December 31, 2004, an increase of $73.8 million. The
increase in working capital was a result of an increase in cash
of $51.6 million and an increase in accounts receivable of
$31.2 million. The increase in cash was due primarily to
completion of the equity offering in June 2005, with remaining
cash from the offering being $41.9 million at
December 31, 2005. The remaining increase was due to
increased cash flow from operations. The increase in accounts
receivable of $31.2 million was due primarily to the
increase in revenue in the Air Medical segment. Our cash
position at March 29, 2006 was approximately
$96.3 million.
Net cash provided by operating activities was $28.0 million
for 2005 compared to $10.9 million for 2004, an increase of
$17.1 million. The increase in net cash provided by
operating activities was due primarily to an increase in net
earnings of $10.2 million, an increase in the deferred tax
provision of $2.6 million, changes in working capital of
$3.6 million, and other items, net, $0.7 million.
Capital expenditures were $96.2 million for 2005 compared
to $33.9 million for 2004. Capital expenditures for 2005
were $73.0 million for aircraft purchases,
$11.3 million for refurbishments and equipment
installations for new aircraft, $4.2 million for facility
improvements and $7.7 million for operating equipment,
engine spares, and medical equipment. Gross proceeds from
aircraft sales were $10.8 million for 2005 compared to
$14.4 million for 2004.
Financing activities
Issuance of debt securities. On April 23, 2002, we
issued $200 million in principal amount of
93/8
% senior notes due 2009 in a private offering that was
exempt from registration under Rule 144A under the
Securities Act of 1933, as amended. All of the notes
subsequently were exchanged for our
S- 35
Managements discussion and analysis of financial
condition and results of operations
93/8% senior
notes due 2009, pursuant to an exchange offer that was
registered under the Securities Act. The registered notes bear
annual interest at
93/8
% payable semi-annually on May 1 and November 1
of each year and mature in May 2009. The notes contain
restrictive 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 March 29, 2006, we were in compliance with these
covenants. Estimated future interest costs on our senior notes
due 2009 are $18.8 million per year for the years 2006
through 2008, and $6.5 million for 2009 when the Notes are
due. This excludes amortization of issuance costs of
approximately $0.9 million per year. On March 24,
2006, we commenced a tender offer and related consent
solicitation for any and all of these notes. There can be no
assurance that this tender offer, which is expected to be
completed on April 24, 2006, will be subscribed for in any
amount.
Credit facility. On June 18, 2004, we amended our
$50 million revolving credit facility with a commercial
bank, which was scheduled to expire July 31, 2004. The
amendment reduced the revolving credit facility from
$50 million to $35 million, and extended the
expiration date to July 31, 2007. As of December 31,
2005, there were $3.3 million in borrowings and
$4.2 million in letters of credit outstanding under the
facility. As of March 29, 2006, there were
$0.5 million in borrowings and $4.2 million in letters
of credit outstanding under the facility. We intend to borrow an
additional $3.0 million under the facility on
March 31, 2006 for working capital. The letters of credit
are related to our workers compensation insurance. The credit
agreement includes covenants related to working capital, funded
debt to net worth, and consolidated net worth. As of
March 29, 2006, we were in compliance with these covenants.
Also included in notes payable at December 31, 2005 is
$1.0 million related to the interim financing of a progress
payment for the acquisition of a heavy transport aircraft
delivered in January 2006, which subsequently has been paid.
Shelf registration statement. On March 23, 2005, we
filed a shelf registration statement on
Form S-3 with the
SEC to register the offer and sale, from time to time, of our
voting common stock, non-voting common stock, preferred stock,
depositary shares, warrants and debt securities, or a
combination of any of those securities, with an aggregate
initial offering price of up to $400 million. The SEC
declared the registration statement effective on March 31,
2005. Following the completion of this offering, assuming an
offering price of $36.48 per share (based on the closing price
on March 29, 2006) and no exercise by the underwriters of
their over-allotment option, we will have approximately
$121 million remaining capacity under the registration
statement for future offerings.
In June 2005, we completed the sale of 4,887,500 shares of
non-voting common stock under our shelf registration statement
at $25.00 per share, which included the exercise by our
underwriters of an over-allotment option covering
637,500 shares. Proceeds from the offering were
approximately $114 million, net of expenses of
approximately $1 million. Remaining proceeds at
December 31, 2005 from the offering were
$41.9 million. All amounts have been used for the
acquisition of aircraft, and the remaining balance also will be
used for that purpose.
Contractual obligations. The table below sets forth as of
March 29, 2006 our contractual obligations related to
purchase commitments, operating lease obligations, notes payable
and our
93/8% senior
notes issued in 2002 and due in 2009. The table does not give
effect to the expected use of proceeds from this offering,
including the purchase of the $200 million principal amount
of our existing
93/8
% senior notes pursuant to our pending tender offer
and consent solicitation, or to our offering of
$150 million principal amount of our new senior notes due
2013. The table does include our expected contractual
obligations related to the purchase commitments for the
remaining 33 helicopters in our fleet expansion initiative,
which have been ordered, but have not been delivered. We intend
to finance the
S- 36
Managements discussion and analysis of financial
condition and results of operations
purchase of our existing
93/8
% senior notes and the acquisition of these
helicopters with the proceeds of this offering and the
concurrent offering of our new senior notes, operating leases,
existing cash, cash from operations and borrowings under our
revolving credit facility. Our operating leases are not recorded
as liabilities on the balance sheet, but payments are treated as
an expense as incurred. Each contractual obligation included in
the table contains various terms, conditions and covenants
which, if violated, accelerate the payment of that obligation.
We currently lease 16 aircraft included in the lease obligations
below.
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Total | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
2010 | |
| |
|
|
(in thousands | |
Aircraft purchase commitments
(1)
|
|
$ |
159,303 |
|
|
$ |
92,008 |
|
|
$ |
67,295 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Aircraft purchase commitments
(2)
|
|
|
35,358 |
|
|
|
35,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft lease obligations
|
|
|
129,347 |
|
|
|
9,445 |
|
|
|
12,363 |
|
|
|
12,363 |
|
|
|
12,363 |
|
|
|
12,965 |
|
|
|
69,848 |
|
Facility lease obligations
|
|
|
19,171 |
|
|
|
2,196 |
|
|
|
2,350 |
|
|
|
1,912 |
|
|
|
1,430 |
|
|
|
1,177 |
|
|
|
10,106 |
|
Long-term
debt(3)
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
543,179 |
|
|
$ |
139,007 |
|
|
$ |
82,008 |
|
|
$ |
14,275 |
|
|
$ |
213,793 |
|
|
$ |
14,142 |
|
|
$ |
79,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
These commitments are for aircraft that we intend to finance
through a combination of operating leases, remaining cash from
the equity offering completed June 2005 and from the net
proceeds of this offering and our new senior notes offering
remaining after the completion of our tender offer and consent
solicitation for our existing
93/8% senior
notes. |
|
(2) |
These commitments are for aircraft that we intend to finance
with an operating lease. |
|
(3) |
Long-term debt consists of borrowings under our revolving
credit facility and the principal outstanding amount of our
existing
93/8% senior
notes due 2009. |
Estimated interest costs on the debt obligations set forth
above, without considering our new senior notes or any
additional debt that may be incurred with respect to purchase
commitments for aircraft, are as follows (in thousands):
2006$20,293; 2007$20,293; 2008$20,293;
2009$6,646; and 2010$116.
In 2005, as part of our fleet expansion initiative, we took
delivery of three transport category aircraft, four medium
aircraft and eight light aircraft for service in the Domestic
Oil and Gas segment. We also took delivery of eleven light
aircraft for service in the Air Medical segment. Subsequent to
December 31, 2005, we took delivery of one transport
category, one medium and two light aircraft, all for service in
Domestic Oil and Gas, and one light aircraft for service in the
Air Medical segment. We executed an operating lease for the
transport category aircraft, which, if purchased, would
otherwise have cost approximately $17.5 million. The other
four aircraft were purchased for approximately
$14.5 million. Additionally, in February 2006, we entered
into sale and leaseback transactions involving three of our
medium aircraft.
Following the purchase of our existing
93/8
% senior notes pursuant to our pending tender offer
and consent solicitation (assuming that all of the senior notes
are tendered), substantially all of the remaining net proceeds
from this offering and the offering of our new $150 million
senior notes will be used toward the purchase of the 33 aircraft
we have ordered but have not yet been delivered as part of our
overall fleet expansion initiative. Those aircraft have
scheduled delivery dates throughout 2006 and 2007. If purchased,
they would have a total cost of approximately $195 million,
as reflected under purchase commitments in the table above. We
expect to use some combination of operating leases with
commercial lenders, existing cash, cash from operations and
borrowings under our revolving credit facility to finance the
aircraft not covered by the net proceeds of this offering and
our new senior notes offering. Any aircraft acquired through
operating leases will reduce our purchase commitments and
increase our aircraft lease obligations set forth in the table
above. We intend to
S- 37
Managements discussion and analysis of financial
condition and results of operations
execute operating leases for the two remaining transport
category aircraft scheduled for delivery in 2006, which, if
purchased, would otherwise cost $35 million in the
aggregate.
We believe that this existing cash and cash flow from operations
will be sufficient to fund operating requirements and required
interest payments on our existing
93/8% senior
notes or, if our offering of new senior notes is completed and
our tender offer for the existing
93/8
% senior notes is subscribed in full, our new senior
notes, for the next twelve months.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Managements discussion and analysis of our financial
condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated
financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent
assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to allowances for doubtful
accounts, inventory valuation, long-lived assets and
self-insurance liabilities. We base our estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates, and the
differences may be material. We believe the following critical
accounting policies affect our more significant judgments and
estimates used in preparation of our consolidated financial
statements.
The allowance for doubtful accounts receivable is estimated
based on an evaluation of individual customer financial
strength, current market conditions, and other information. If
our evaluation of our significant customers and
debtors creditworthiness should change or prove incorrect,
then we may have to recognize additional allowances in the
period in which we identify the risk of loss. In the Air Medical
segment, estimates are made of contractual allowances based on
historical collection rates by payor group. This is adjusted
periodically based on actual collection experience.
We maintain a significant parts inventory to service our own
aircraft and the aircraft and components of customers. Portions
of that inventory are used parts that are often exchanged with
parts removed from aircraft or components and reworked to a
useable condition. We use systematic procedures to estimate the
valuation of the used parts, which includes consideration of
their condition and continuing utility. If our valuation of
these parts should be significantly different from amounts
ultimately realizable or if we discontinue using or servicing
certain aircraft models, then we may have to record a write-down
of our inventory. We also record provisions against inventory
for obsolescent and slow-moving parts, relying principally on
specific identification of such inventory. If we fail to
identify such parts, additional provisions may be necessary.
Our principal long-lived assets are aircraft. We review our
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. We measure recoverability of assets to be
held and used by comparing the carrying amount of an asset to
the future undiscounted net cash flows that we expect the asset
to generate. When an asset is determined to be impaired, we
recognize the impairment amount, which is the amount by which
the carrying value of the asset exceeds its estimated fair
value. Similarly, we report assets that we expect to sell at the
lower of the carrying amount or fair value less costs to sell.
Future adverse market conditions or poor operating results could
result in an inability to recover the current carrying value of
certain long-lived assets, thereby possibly requiring an
impairment charge in the future.
S- 38
Managements discussion and analysis of financial
condition and results of operations
We must make estimates for certain of our liabilities and
expenses, losses, and gains related to self-insured programs,
insurance deductibles, and good-experience premium returns. Our
group medical insurance program is largely self-insured, and we
use estimates to record our periodic expenses related to that
program. We also carry deductibles on our workers
compensation program and aircraft hull and liability insurance,
and poor experience or higher accidents rates could result in
additional recorded losses.
Trade receivables representing amounts due pursuant to air
medical services are carried net of an allowance for estimated
contractual adjustments on unsettled invoices. We monitor the
collection experience by payor category within the Air Medical
segment and updates its estimated collections to be realized
based on its most recent collection experience.
NEW ACCOUNTING PRONOUNCEMENTS
For a discussion of new accounting pronouncements applicable to
us, see Note 1 to our financial statements included
elsewhere herein.
ENVIRONMENTAL MATTERS
We have an aggregate estimated liability of $0.2 million as
of December 31, 2005 for environmental remediation costs
that are probable and estimable. We have conducted environmental
surveys of our former Lafayette Facility, which we vacated in
2001, and have determined that limited soil and groundwater
contamination exists at the facility. We have installed
groundwater monitoring wells at the facility and periodically
monitor and report on the contamination. In May 2003, we
submitted a Louisiana Risk Evaluation/ Corrective Action Plan
(RECAP) Standard Site Assessment Report to the
Louisiana Department of Environmental Quality (LDEQ)
fully delineating the extent and type of contamination. LDEQ is
reviewing the assessment report and has requested that the Site
Assessment Report be updated to include recent analytical data
and be resubmitted for further LDEQ review. Once LDEQ completes
its review and reports on whether all contamination has been
fully defined, a risk evaluation in accordance with RECAP will
be submitted and evaluated by LDEQ. At that point, LDEQ will
establish what cleanup standards must be met at the site. When
the process is complete, we will be in a position to develop an
appropriate remediation plan and determine the resulting cost of
remediation. We have not recorded any estimated liability for
remediation and contamination and, based upon the May 2003 Site
Assessment Report and ongoing monitoring, we believe the
ultimate remediation costs for the former Lafayette facility
will not be material to our consolidated financial position,
results of operations, or liquidity.
During 2004, LDEQ advised us that groundwater contaminants
impacting monitor wells at the PHI Lafayette Heliport were
originating from an off-site location and that we would no
longer be required to perform further monitoring at the site.
Subsequently, based upon site investigation work performed by
the Lafayette Airport Commission, the source of the
contamination was identified as residing at another location,
for which PHI is not responsible. The Lafayette Airport
Commission has begun remediation of the PHI Lafayette Heliport.
In February 2005, the Texas Commission on Environmental Quality
(TCEQ) advised that no further action was required
with respect to remediation of the Rockport, Texas facility and
granted site closure through issuance of a final certificate of
closure.
S- 39
Managements discussion and analysis of financial
condition and results of operations
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks associated with interest rates
and prior to April 23, 2002, we made limited use of
derivative financial instruments to manage that risk. When used,
all derivatives for risk management are closely monitored by our
senior management. We do not hold derivatives for trading
purposes and we do not use derivatives with leveraged or complex
features. Derivative instruments are transacted either with
creditworthy major financial institutions or over national
exchanges.
Also on April 23, 2002, we issued $200 million of
senior notes that have an interest rate of
93/8
% 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 our creditworthiness. At December 31, 2005, the
market value of the notes was $210.5 million. A
hypothetical 100 basis-point increase to the imputed interest
rate on the notes at December 31, 2005 would have resulted
in a market value decline to approximately $204.6 million.
We used the proceeds of the notes offering to expand our fleet,
to retire our bank debt, which had variable interest rates, and
to settle our related interest rate swap agreements by paying
$1.6 million to the counterparties.
S- 40
Business
PHI, Inc., founded in 1949, is one of the worlds largest
and most experienced providers of commercial helicopter
services. We provide transportation services with our fleet of
helicopters to the oil and gas industry, the health care
industry and certain U.S. governmental agencies. As of
March 29, 2006, we have a fleet of 237 aircraft, 167 of
which are helicopters dedicated to our oil and gas operations
(including nine that are customer owned, but operated by us), 64
of which are dedicated to our air medical operations (including
three that are hospital owned, but operated by us, and six
fixed-wing aircraft) and six of which are dedicated to other
operations. In addition, we perform maintenance and repair
services for existing customers, primarily to those that have
their own aircraft.
In September 2001, Al A. Gonsoulin, our Chairman of the Board
and Chief Executive Officer, acquired approximately 52% of our
voting common stock from our founders family. Since that
time, we have made significant operational enhancements in our
business, including substantial investments in our facilities,
the refurbishment of our fleet, the implementation of a
significant cost reduction program, upgrades of our computer
systems and software and, most recently, the raising of
$115 million in our June 2005 equity offering to partially
finance a significant expansion of our fleet. We also have sold
helicopters that were not profitable or that did not complement
our existing fleet, terminated or declined to renew lower margin
contracts and significantly increased our rates. We believe
that, with these operational enhancements, we are well
positioned to capitalize on opportunities in our industry
through the fleet expansion we commenced in late 2003 and have
increased as described in this prospectus supplement.
Domestic oil and gas operations
We are a leading provider of safe and reliable helicopter
transportation services to the oil and gas industry in the Gulf
of Mexico. We transport personnel and, to a lesser extent, parts
and equipment to, from and among offshore platforms, drilling
rigs and other offshore facilities for our customers. We have
one of the largest fleets of helicopters servicing the Gulf of
Mexico, and in 2005 flew more than 110,000 hours in the
Gulf of Mexico. In 2005, our domestic oil and gas operations
generated approximately 60% of our total operating revenues.
Our customers include major integrated oil companies and
independent exploration and production companies. We believe we
are the sole provider of helicopter transportation services to
three of the five largest producers of oil and gas in the Gulf
of Mexico, including Shell Oil Company and BP America Production
Company, the two largest producers in the Gulf of Mexico in
2005. One of the remaining top-five producers manages its own
helicopter operations.
Our transportation services in the Gulf of Mexico support
exploration, construction, production and inspection activities.
The offshore facilities are located various distances from shore
and are staffed by personnel that are transported by helicopter
as part of regularly scheduled crew changes to work there for a
fixed period, typically seven or 14 days, and then
transported back onshore for an equal period of time. Typically,
there are two crews working at these facilities, with one crew
being transported to and from the facility each week. Because of
the number of personnel on these facilities, particularly
deepwater facilities, it typically takes multiple trips per week
or multiple helicopters to conduct a complete shift change.
Our fleet is comprised of both smaller, light helicopters that
have a passenger capacity of four to six people and service most
of the producing areas in the Shelf as well as medium and heavy,
higher capacity helicopters that have a passenger capacity of
eight to 19 people and enable us to service drilling rigs and
production facilities in the deepwater areas of the Gulf of
Mexico. Of the
S- 41
Business
167 helicopters dedicated to our oil and gas operations,
155 provide transportation services for offshore oil and gas
properties in the Gulf of Mexico.
In 2003, we targeted the deepwater Gulf of Mexico as a new core
area for our services, based on the profitable nature of these
operations, our relationships with many of the primary producers
in this region and the increasing demand for helicopter
transportation services in this market. Since that time, the
number of fixed and floating production facilities installed in
the deepwater Gulf of Mexico has increased significantly. This
has led to a substantial increase in the demand for long
distance transportation of personnel and equipment by
helicopter. According to Infield Systems Limited, an
international energy research firm, 31 deepwater (greater than
1,500 feet of water) fixed production platforms and
floating production facilities are currently in service or under
development in the Gulf of Mexico and an additional 13 deepwater
platforms and facilities have been identified for development in
the Gulf of Mexico between 2006 and 2011. As the number of
offshore facilities increases, we believe the demand for
helicopter transportation to and from these facilities will
continue to increase.
In late 2003, in connection with our new strategy of targeting
the deepwater market, we initiated a plan to significantly
increase the size of our domestic oil and gas fleet by ordering
31 new helicopters, 15 of which are capable of servicing the
deepwater Gulf of Mexico. Based on the success of this
expansion, current contract negotiations and detailed
discussions with a number of our customers regarding their
planned activity levels in the Gulf of Mexico, particularly in
the deepwater, we increased the size of our domestic oil and gas
fleet expansion by reallocating two new helicopters initially
scheduled for our air medical operations and ordering an
additional 21 helicopters, 11 of which are capable of servicing
the deepwater Gulf of Mexico. As a result of this increase, 26
of the 54 new helicopters related to our domestic oil and
gas fleet expansion consist of medium and heavy transport
helicopters which are capable of servicing the deepwater market.
With the addition of these helicopters, we believe we will have
one of the largest, newest and most technologically advanced
fleets of medium and heavy transport helicopters servicing the
deepwater Gulf of Mexico.
Air medical operations
We provide air medical transportation services for hospitals and
emergency service agencies. We currently operate in
12 states with 64 aircraft that are specially outfitted to
accommodate emergency patients, medical personnel and emergency
medical equipment. Our helicopters transport patients between
hospitals as well as to hospitals from accident sites or rural
locations where ground transportation would be prohibitively
slow. In 2005, approximately 31% of our total operating revenues
was generated by our air medical operations.
In our air medical operations, we primarily operate as an
independent provider of air medical services. Under this model,
which we refer to as the independent provider model,
we provide not only the transportation, but also the medical
care, communications and dispatch, and billing and collections.
Under this model, we also obtain the necessary local and other
regulatory approvals to position aircraft and personnel in a
community and respond on demand to individuals requiring
transport for medical reasons. We are paid by either commercial
insurance companies, federal or state agencies such as Medicare
and Medicaid, or the patient.
As part of our initial expansion, we increased our air medical
fleet by 15 aircraft to meet the growing demand for air medical
services in our existing markets, as well as new markets where
we identified demographics that we believe will support a
profitable patient transport volume and payor mix for our
services. Since 2003, we have commenced air medical operations
in 37 new locations to capitalize on business opportunities in
areas we identified as under-serviced or created by hospitals
that elected to outsource their helicopter operations to third
parties. During 2004 and 2005, we incurred significant
start-up and operating
costs in these new locations. New locations typically take
several months to
S- 42
Business
build sufficient volume to achieve profitable aircraft
utilization levels to absorb the facility
start-up and operating
costs. Our focus in 2006 will be on improving our utilization
rates and profit margins in these new locations.
Other operations
We currently provide helicopter services to a major oil company
operating in Angola and the Democratic Republic of Congo and are
in the process of renegotiating our contract to provide
helicopter services for the National Science Foundation in
Antarctica. Aircraft operating internationally are typically
dedicated to a single customer. We generally do not enter
international markets without having customer contracts in place
for the region, and are selective in choosing our international
customers. We have a total of 16 helicopters currently operating
internationally, with 12 of those dedicated to oil and gas
operations. In 2005, our international operations contributed
approximately 8% of our total operating revenues.
In addition to helicopter transportation services, we perform
maintenance and repair services at our Lafayette, Louisiana
facility pursuant to an FAA repair station license, primarily
for our own fleet, but also for existing customers that have
their own aircraft. The license includes authority to repair
airframes, engines, avionics, accessories, radios and
instruments and to perform specialized services. Approximately
1% of our total operating revenues in 2005 was generated by our
technical services operations.
FLEET EXPANSION INITIATIVE
In late 2003, we initiated a plan to expand our aircraft fleet
in response to anticipated increases in demand for our domestic
oil and gas transportation services and the opportunities we
observed in the air medical business. The initial plan was to
increase our fleet size by 47 helicopters and one fixed-wing
aircraft, 34 of which have been delivered as of March 29,
2006. Of these aircraft, 15 are medium or heavy aircraft capable
of servicing the deepwater regions of the Gulf of Mexico, 18 are
light aircraft for servicing facilities located on the Shelf and
15 have been dedicated to our air medical operations. Late in
2005, we decided to further increase our fleet expansion by
ordering an additional 21 helicopters based on the success
of our initial expansion and continued discussions with a number
of our customers regarding their planned activities in the Gulf
of Mexico, particularly in the deepwater. To date, we have taken
delivery of 21 of the 54 new helicopters associated with our
domestic oil and gas fleet expansion and all 15 aircraft
associated with our air medical fleet expansion. We expect to
take delivery of the remaining 33 aircraft at various times in
2006 and 2007. Once an aircraft is delivered, we generally spend
two to three months installing mission-specific and/or
customer-specific equipment prior to placing the aircraft into
service.
A significant portion of our fleet expansion is focused on
servicing the deepwater Gulf of Mexico market. Specifically, 26
of the 54 new helicopters associated with our domestic oil and
gas operations are capable of servicing the deepwater Gulf of
Mexico. As part of our initial expansion initiative, we ordered
four Sikorsky S-92A helicopters, all of which are now operating
under contracts with customers. We believe this is the premier
aircraft for servicing the deepwater Gulf of Mexico. Our
increased expansion plan includes an additional four Sikorsky
S-92A helicopters, three of which are already covered by
customer contracts. Two of these helicopters have been delivered
and were placed into service late in the first quarter of 2006.
We are currently in negotiations with one of our significant
customers with respect to the remaining Sikorsky S-92A
helicopter not currently covered by a contract. In addition, as
part of our total expansion, we are adding 18 Sikorsky S-76C+
helicopters to service the deepwater Gulf of Mexico, most of
which currently are covered by customer contracts for when they
are placed into service.
S- 43
Business
The following table shows the aircraft we have in our fleet as
of March 29, 2006, the aircraft that were part of our
initial expansion plan that have not yet been delivered (all of
which are scheduled for delivery in 2006), the scheduled
deliveries for aircraft that are part of our increased expansion
plan during the rest of 2006 and 2007 and our post-expansion
fleet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increased |
|
|
|
|
|
|
|
|
expansion |
|
|
|
|
|
|
Initial | |
|
remaining |
|
|
|
|
|
|
expansion | |
|
deliveries(2) |
|
Post- | |
Industry segment and |
|
Current | |
|
remaining | |
|
|
|
expansion | |
aircraft type |
|
fleet |
|
deliveries(1) | |
|
2006 | |
|
2007 | |
|
fleet | |
|
Domestic Oil & Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Aircraft.
|
|
|
106 |
(3) |
|
|
8 |
|
|
|
4 |
|
|
|
6 |
|
|
|
124 |
(3) |
|
Medium Aircraft.
|
|
|
39 |
(4) |
|
|
6 |
|
|
|
1 |
|
|
|
6 |
|
|
|
52 |
(4) |
|
Heavy Aircraft.
|
|
|
10 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Domestic Oil & Gas
|
|
|
155 |
(3)(4) |
|
|
14 |
|
|
|
7 |
|
|
|
12 |
|
|
|
188 |
(3)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Oil & Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Aircraft.
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
Medium Aircraft.
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International Oil & Gas
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Aircraft.
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
Medium Aircraft.
|
|
|
10 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
(5) |
|
Fixed-Wing
|
|
|
6 |
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Air Medical
|
|
|
64 |
(5)(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64 |
(5)(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Aircraft.
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
Medium Aircraft.
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
Fixed-Wing
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
AIRCRAFT(1)(2)(3)(4)
|
|
|
237 |
|
|
|
14 |
|
|
|
7 |
|
|
|
12 |
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Our initial expansion plan included 48 aircraft with 31
planned for our domestic oil and gas operations and 17 for our
air medical operations. Because of increased demand in our oil
and gas operations, two of the aircraft originally scheduled for
our air medical operations were subsequently reassigned to our
oil and gas operations at the time those aircraft were
delivered. From time to time, we may also reassign certain light
helicopters that are less desirable to our oil and gas customers
to our air medical operations. |
|
(2) |
Our increased expansion plan includes 21 additional aircraft
for our oil and gas operations, of which two heavy aircraft have
already been delivered and placed into service. |
|
(3) |
Includes three light aircraft that are customer owned, but
operated by PHI. |
|
(4) |
Includes six medium aircraft that are customer owned, but
operated by PHI. |
|
(5) |
Includes two medium aircraft that are hospital owned, but
operated by PHI. |
|
(6) |
Includes one fixed-wing aircraft that is hospital owned, but
operated by PHI. |
The total cost to acquire all the aircraft that are part of our
expansion plans but have not yet been delivered would be
approximately $195 million if purchased. We intend to lease
the two heavy category aircraft remaining to be delivered, which
are valued in the aggregate at approximately $35 million.
We intend to use substantially all of the proceeds of this
offering and the concurrent senior notes offering described
below under Tender Offer and Concurrent
Notes Offering to repurchase our outstanding
93/8
% senior notes pursuant to our pending tender offer,
to fund payment of the related consent solicitation fee and to
fund the expansion of our aircraft fleet.
S- 44
Business
The following table highlights the model, quantity and
specifications of the aircraft comprising our total expansion
plan, including the 36 aircraft that already have been
delivered as of March 29, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appr. range | |
Manufacturer & type |
|
Quantity | |
|
Engine |
|
Passengers | |
|
(miles)(1) | |
|
Oil & Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell 407
|
|
|
14 |
|
|
Turbine |
|
|
6 |
|
|
|
420 |
|
|
Eurocopter
EC135(2)
|
|
|
12 |
|
|
Twin Turbine |
|
|
6 |
|
|
|
330 |
|
|
Aerospatiale AS350 B2
|
|
|
2 |
|
|
Turbine |
|
|
5 |
|
|
|
385 |
|
|
Medium Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sikorsky S-76C+ and
C++(2)
|
|
|
18 |
|
|
Twin Turbine |
|
|
12 |
|
|
|
400 |
|
|
Heavy Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sikorsky
S-92A(2)
|
|
|
8 |
|
|
Twin Turbine |
|
|
19 |
|
|
|
495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total New Oil & Gas Helicopters
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell 407
|
|
|
2 |
|
|
Turbine |
|
|
n/a |
(3) |
|
|
420 |
|
|
Eurocopter
EC135(2)
|
|
|
12 |
|
|
Twin Turbine |
|
|
n/a |
(3) |
|
|
330 |
|
|
Fixed-Wing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beechcraft King Air
200(2)
|
|
|
1 |
|
|
Turboprop |
|
|
n/a |
(3) |
|
|
1,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total New Air Medical Aircraft
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NEW AIRCRAFT
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Based on maintaining a 30-minute fuel reserve. |
|
(2) |
Equipped to fly under instrument flight rules (IFR). All
other types listed can only fly under visual flight rules
(VFR). |
|
(3) |
Number of passengers in the air medical segment is not
applicable, as each aircraft typically has a pilot, two medical
personnel and a patient. |
S- 45
Business
PRE-EXPANSION FLEET
The following table highlights the model, quantity and
specifications of the aircraft in our fleet prior to the
initiation of our expansion plan, including the 12 aircraft
operated by us that are owned by our customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number in | |
|
|
|
|
|
Appr. range | |
Manufacturer & type |
|
fleet(1)(2)(3)(4)(5) | |
|
Engine |
|
Passengers |
|
(miles)(6) |
|
Domestic Oil & Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell 206/407
|
|
|
87 |
(1) |
|
Turbine |
|
|
6 |
|
|
|
420 |
|
|
Aerospatiale AS350 B2/ B3
|
|
|
2 |
|
|
Turbine |
|
|
5 |
|
|
|
385 |
|
|
Eurocopter BK-117/ BO-105
|
|
|
15 |
|
|
Twin Turbine |
|
|
6 |
|
|
|
270 |
|
|
Medium Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell
212(7)/222(7)/230(7)/412(7)
|
|
|
15 |
|
|
Twin Turbine |
|
|
13 |
|
|
|
370 |
|
|
Sikorsky
S-76(7)
A, A++, C+
|
|
|
23 |
(2) |
|
Twin Turbine |
|
|
12 |
|
|
|
400 |
|
|
Heavy Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell
214ST(7)
|
|
|
4 |
|
|
Twin Turbine |
|
|
18 |
|
|
|
450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Domestic Oil & Gas
|
|
|
146 |
(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Oil & Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell 206/407
|
|
|
8 |
|
|
Turbine |
|
|
6 |
|
|
|
420 |
|
|
Medium Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell
212(7)/222(7)/230(7)/412(7)
|
|
|
4 |
|
|
Twin Turbine |
|
|
13 |
|
|
|
370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International Oil & Gas
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell 206/407
|
|
|
12 |
|
|
Turbine |
|
|
n/a |
(8) |
|
|
420 |
|
|
Aerospatiale AS350 B2/ B3
|
|
|
18 |
|
|
Turbine |
|
|
n/a |
(8) |
|
|
385 |
|
|
Eurocopter BK-117/ BO-105
|
|
|
6 |
|
|
Twin Turbine |
|
|
n/a |
(8) |
|
|
270 |
|
|
Medium Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell
212(7)/222(7)/230(7)/412(7)
|
|
|
7 |
(3) |
|
Twin Turbine |
|
|
n/a |
(8) |
|
|
370 |
|
|
Sikorsky
S-76(7)
A, A++, C+
|
|
|
2 |
|
|
Twin Turbine |
|
|
n/a |
(8) |
|
|
400 |
|
|
Fixed-Wing Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cessna Conquest
441(7)
|
|
|
4 |
(4) |
|
Turboprop |
|
|
n/a |
(8) |
|
|
1,200 |
|
|
Lear Jet
31A(7)
|
|
|
1 |
(5) |
|
Turbojet |
|
|
n/a |
(3) |
|
|
1,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Air
Medical(7)
|
|
|
50 |
(3)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospatiale AS350 B2/ B3
|
|
|
2 |
|
|
Turbine |
|
|
5 |
|
|
|
385 |
|
|
Medium Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell
212(7)/222(7)/230(7)/412(7)
|
|
|
2 |
|
|
Twin Turbine |
|
|
13 |
|
|
|
370 |
|
|
Fixed-Wing Aircraft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockwell Aero Commander
|
|
|
2 |
|
|
Turboprop |
|
|
n/a |
|
|
|
1,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
AIRCRAFT(1)(2)(3)(4)
|
|
|
214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes three aircraft that are customer owned, but operated
by PHI. |
|
(2) |
Includes six aircraft that are customer owned, but operated
by PHI. |
|
(3) |
Includes two aircraft that are hospital owned, but operated
by PHI. |
|
(4) |
Includes one aircraft that is hospital owned, but operated by
PHI. |
|
(5) |
Acquired in July 2005 apart from our expansion plans. |
|
(6) |
Based on maintaining a 30-minute fuel reserve. |
|
(7) |
Equipped to fly under instrument flight rules (IFR). All
other types listed can only fly under visual flight rules
(VFR). |
|
(8) |
Number of passengers in the air medical segment is not
applicable, as each aircraft typically has a pilot, two medical
personnel and a patient. |
S- 46
Business
BUSINESS STRATEGY
Our strategy is to grow our business while maximizing the
profitability and cash flow of our existing operations. To
achieve this objective, we intend to:
|
|
Ø |
leverage our long-term customer relationships with major
integrated energy companies and independent oil and gas
producers to facilitate our expansion in the deepwater Gulf of
Mexico, to enter into long- term contracts where possible; |
|
Ø |
protect our leading position in the Gulf of Mexico by
maintaining our reputation as one of the safest and most
reliable providers of helicopter transportation services; |
|
Ø |
pursue opportunities to grow our air medical operations in
existing and new geographic market segments where we believe
demographics indicate a profitable patient transport volume; and |
|
Ø |
pursue attractive strategic acquisition opportunities in the
domestic and international oil and gas air transportation
business and the air medical business. |
COMPETITIVE STRENGTHS
We attribute our strong competitive position to a number of
factors, including the following:
|
|
Ø |
Leading market position in deepwater Gulf of Mexico. We
believe we are currently the sole provider of helicopter
services in the Gulf of Mexico to three of the top five oil and
gas producers, including Shell Oil Company and BP America
Production Company, the two largest producers in the Gulf of
Mexico in 2005. In addition, we believe we are the sole provider
to the operators of 17 of the 31 existing deepwater
installations and six of the 13 forecasted deepwater
installations to be put in to service by 2011. Our large
operating scale and fleet size allow flexibility in scheduling
helicopter services on a timely basis and over an extensive
geographic area. Our role as the primary provider to many of the
largest producers in the deepwater Gulf of Mexico as well as our
recent investment in helicopters capable of servicing this
market has given us a leading position. |
|
Ø |
Long-term customer relationships. We are the oldest
provider of commercial helicopter services in the oil and gas
industry in the Gulf of Mexico, and we have worked successfully
for years with out customers, many for in excess of
30 years. Our fleet expansion is a product of these long
term relationships. As the primary provider to many of the
largest producers in the Gulf of Mexico, we have a close working
relationship with these producers which has enabled us to
anticipate increased activity levels in the Gulf of Mexico and
expand our aircraft fleet accordingly. Our close relationships
with these companies also may present us with additional
international opportunities where our customers operate. |
|
Ø |
Recent operational enhancements. Since 2001, we have made
operational enhancements to our business, including substantial
investments in our facilities, upgrades of our computer systems
and software, the refurbishment of our fleet, the implementation
of a significant cost reduction program and, most recently, the
raising of approximately $115 million in our June 2005
equity offering to partially finance a significant expansion of
our fleet. In addition, we have sold helicopters that were not
profitable or that did not complement our existing fleet,
terminated or declined to renew lower margin contracts and
significantly increased our rates. As a result of these changes,
we have improved our profitability and are well positioned to
expand our business to capitalize on opportunities in our
industry. |
|
Ø |
Modern, well-maintained fleet. We believe that our
existing fleet, together with the aircraft we are adding, are
among the most modern and best maintained aircraft operating in
the Gulf of Mexico. We target a complete, full-scale
refurbishment in our repair and maintenance facility every five
years for each of our oil and gas aircraft to maintain this
level of quality. The majority of our |
S- 47
Business
|
|
|
air medical aircraft have either been purchased new or have
undergone an extensive refurbishment since November 2003. In
addition, each is routinely inspected in accordance with
manufacturer specifications. |
|
Ø |
Integrated operation and maintenance functions. We
believe that we are an industry leader in helicopter
maintenance, repair and refurbishment operations. We believe
that our repair and refurbishment facility in Lafayette,
Louisiana, which became operational in 2001, is the premier
facility of its kind in the world due to its size, scope of
operations, extensive inventory of parts and experienced
technical and maintenance personnel. We believe this facility
allows us to more efficiently and effectively service our fleet
of aircraft, resulting in less downtime and safer operations. |
|
Ø |
Strong safety record; experienced and extensively trained
pilots. Safety is critical to us and to our customers. Our
pilots average over 9,000 hours of flight time and
15 years of experience, and must have at least 1,000 flight
hours and an instrument rating before we hire them. Once hired,
our pilots undergo rigorous additional training covering all
aspects of helicopter operation. As a result of this training
and experience, coupled with our detailed safety programs and
comprehensive maintenance, we have one of the best safety
records in the industry. According to the NTSB, for the ten-year
period through 2005, our Gulf of Mexico operations averaged
1.33 accidents for each 100,000 flight hours, approximately
42% less than the average rate for our Gulf of Mexico
competitors (2.29 accidents per 100,000 flight hours). On a
company-wide basis, our accident rate for this period was 1.53
accidents per 100,000 flight hours, compared to a national
average rate of 8.70 accidents per 100,000 flight hours. |
|
Ø |
Significant barriers to entry to serve our customers. We
believe that there are significant barriers to entry in our
industry, particularly with respect to operating aircraft for
the major oil companies and the larger independent oil
companies. Our largest customers have employees dedicated to
setting extensive selection criteria for their helicopter
transport provider. These criteria are based on safety and
performance records, and very few companies have the substantial
infrastructure and track record to meet these stringent
requirements. Operators who are unable to meet these rigorous
quality standards on a long-term basis generally are excluded
from the bidding process. We work closely with our customers to
meet their specific requirements. In addition, our primary
targets for growth in the air medical industry are currently
served by a limited number of major competitors. |
|
Ø |
Experienced management and operations team. Members of
our senior management and operations team have significant
experience in the oil and gas service industry and in the
commercial helicopter service industry. Al A. Gonsoulin, our
Chairman of the Board and Chief Executive Officer, has over
35 years of experience in the oil and gas service industry.
The ten members of our senior management team have an average of
approximately 18 years of service with us. Howard L.
Ragsdale, the director of our air medical operations, has
significant experience in establishing air medical operations
throughout the continental U.S. He and his two regional
directors have an aggregate of over 65 years in the
emergency medical services industry. |
INDUSTRY OVERVIEW
Gulf of Mexico helicopter operations
Offshore oil and gas activities in the Gulf of Mexico require
daily movement of several thousand people plus parts and
equipment between onshore bases and remote offshore working
areas. According to the NTSB, more than two million passengers
are transported in the Gulf of Mexico each year. These
transports must occur in a safe, timely manner to ensure smooth
operations and avoid costly delays. Helicopters are the primary
means of offshore transportation and typically are the only
S- 48
Business
economical transportation option for distances greater than
60 miles from shore. The outermost portions of the
continental Shelf region of the Gulf of Mexico are located
approximately 85 miles from our 11 active onshore bases in
Louisiana, Texas and Alabama, and the deepwater areas generally
are located from 170 to 230 miles from these bases, which
allow us to efficiently service the primary exploration and
production areas of the Gulf of Mexico.
Crews working offshore typically work on either a seven days on,
seven days off or a 14 days on, 14 days off basis,
with crew changes generally occurring midweek at regularly
scheduled times. The size of a crew working at any given time is
approximately 60 to 90 people for a jackup rig in the Shelf
region and 100 to 200 or more people for the larger drilling
rigs and production facilities involved in deepwater drilling
and production. Typically, there are two crews working onsite at
any given time, with one crew being changed out each week.
Because a helicopter does not have the passenger capacity to
effect an entire crew change in one trip, multiple round trips
or multiple helicopters are required for each crew change
operation.
Demand for helicopter services in the Gulf of Mexico is driven
by the number of production facilities (both manned and
unmanned) and drilling rigs. Currently, there are approximately
3,895 active oil and gas platforms and 82 active offshore
drilling rigs in the Gulf of Mexico. Although the rig count in
the Gulf of Mexico has not increased in recent years,
utilization and dayrates for both shallow water jackup rigs and
deepwater semisubmersible rigs recently have increased. Each of
these facilities has dedicated crews that must be rotated on a
regular basis.
|
|
|
Deepwater Gulf of Mexico Fixed Production
Platform and Floating Production Facilities |
|
Active Production Platforms
in the Gulf of Mexico |
|
Source: Infield Systems. Deepwater consists of fixed and
floating platforms located in water depths greater than
1,500 feet. Data as of March 2006
|
|
Source: ODS-Petrodata |
S- 49
Business
|
|
|
Gulf of Mexico Jackup Utilization
|
|
Gulf of Mexico Semisubmersible Utilization |
|
Source: ODS-Petrodata
|
|
Source: ODS-Petrodata |
The majority of the 3,895 active oil and gas platforms are
located on the continental Shelf of the Gulf of Mexico and must
be inspected and maintained on a regular basis by both operators
and regulatory officials to satisfy operator and regulatory
safety requirements. These ongoing inspection and maintenance
services provide a stable level of helicopter demand that
generally is less sensitive to short-term changes in commodity
prices. Light helicopters are the most efficient way to service
these smaller crew changes and maintenance and inspection visits.
Gulf of Mexico market
The U.S. is the worlds largest global consumer of oil
and natural gas, with U.S. demand for oil and natural gas
in 2006 estimated by the Department of Energys Energy
Information Administration (EIA) to be
21 million barrels (MMBbls) per day and 61 billion
cubic feet (Bcf) per day, respectively. U.S. supply in 2006
is estimated by the EIA to be only 5.5 MMBbls per day of
oil and 50 Bcf per day of gas. The Gulf of Mexico is the
primary source of supply of North American oil and natural gas.
In its Annual Energy Outlook for 2006, the EIA estimates that:
|
|
Ø |
the Gulf of Mexico will remain the primary producing region in
North America through 2010; |
|
Ø |
in 2010, over 23.3% of U.S. lower 48 natural gas production
and 46.9% of U.S. crude oil production will come from the
Gulf of Mexico; |
|
Ø |
U.S. demand for natural gas will increase from 61 Bcf
per day in 2003 to 64 Bcf per day by 2010; and |
|
Ø |
U.S. demand for crude oil will grow from 20 MMBbls per
day in 2003 to 22 MMBbls per day by 2010. |
Deepwater Gulf of Mexico
We have targeted the deepwater region of the U.S. Gulf of
Mexico as a growth area for our services because deepwater
exploration and production activities generally require more
personnel, which results in more crew changes over a greater
distance than Shelf exploration and production. The deepwater
region is better served by medium and heavy helicopters, which
can carry more personnel and equipment and cover the longer
distances and which generally are more profitable for us to
operate. Additionally, oil and natural gas exploration,
development and production costs in the deepwater generally are
higher and involve relatively larger capital commitments and
longer lead times and investment horizons than those in the
shallow water continental Shelf market. As a result, deepwater
drilling activities are typically less sensitive to fluctuations
in commodity prices, particularly the price of natural gas.
Accordingly, actual or anticipated short-term decreases in oil
and natural gas prices are less likely to cause an operator to
abandon deepwater or ultra-deepwater projects, and
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Business
demand for medium and heavy helicopters that serve the deepwater
market tends to be more stable than demand for light helicopters
that serve the shallow water continental Shelf market.
In recent years, there has been greater growth in platforms and
facilities in the deepwater region of the Gulf of Mexico
compared to the more mature continental Shelf as the deepwater
region becomes an increasingly important source of oil and
natural gas production with many unexplored areas of potential
oil and natural gas reserves. Until the mid-1990s, leasing
activity in the Gulf of Mexico was focused on shallow water
blocks located on the Shelf. In 1992, there were 176 leases
issued in water depths less than 650 feet, compared with 28
leases issued in water greater than that depth. After the OCS
Deep Water Royalty Relief Act was passed in 1995, deepwater
leasing activity significantly increased. Factors contributing
to this increased activity include improved
3-D and
4-D seismic data
coverage, several key deepwater discoveries, decreased
exploration and development costs due to improved technology and
experience in the area, and the recognition of high deepwater
production rates. Currently, according to the MMS, there are
approximately 3,850 active leases in water depths less than
1,300 feet, and approximately 4,260 active leases beyond
that water depth.
According to Infield Systems Limited, an international energy
research firm, there are 31 deepwater (greater than
1,500 feet of water) fixed production platforms and
floating production facilities currently in service or under
development in the Gulf of Mexico, and an additional 13 deepwater
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Business
platforms and facilities have been identified for development in
the Gulf of Mexico between 2006 and 2011, as shown in the table
below:
|
|
|
|
|
|
|
Operator |
|
Deepwater block |
|
Field name |
|
Year |
|
ConocoPhillips
|
|
Green Canyon 184 |
|
Jolliet |
|
1989 |
Shell
|
|
Garden Banks 426 |
|
Auger |
|
1993 |
Kerr-McGee
|
|
Viosca Knoll 826 |
|
Neptune |
|
1996 |
Shell
|
|
Mississippi Canyon 807 |
|
Mars |
|
1996 |
Shell
|
|
Viosca Knoll 956 |
|
Ram-Powell |
|
1997 |
Amerada Hess
|
|
Garden Banks 260 |
|
Baldpate |
|
1998 |
ENI
|
|
Ewing Bank 921 |
|
Morpeth |
|
1998 |
Chevron
|
|
Viosca Knoll 786 |
|
Petronius |
|
1998 |
Chevron
|
|
Green Canyon 205 |
|
Genesis |
|
1998 |
ENI
|
|
Green Canyon 254 |
|
Allegheny |
|
1999 |
BP
|
|
Viosca Knoll 915 |
|
Marlin |
|
1999 |
Shell
|
|
Mississippi Canyon 809 |
|
Ursa |
|
1999 |
ExxonMobil
|
|
Alaminos Canyon 25 |
|
Hoover |
|
1999 |
Chevron
|
|
Green Canyon 237 |
|
Typhoon |
|
2001 |
Shell
|
|
Green Canyon 158 |
|
Brutus |
|
2001 |
Kerr-McGee
|
|
East Breaks 643 |
|
Boomvang |
|
2001 |
Kerr-McGee
|
|
East Breaks 602 |
|
Nansen |
|
2001 |
BP
|
|
Mississippi Canyon 127 |
|
Horn Mountain |
|
2002 |
Murphy
|
|
Mississippi Canyon 582 |
|
Medusa |
|
2003 |
Total
|
|
Mississippi Canyon 243 |
|
Matterhorn |
|
2003 |
Kerr-McGee
|
|
Garden Banks 668 |
|
Gunnison |
|
2003 |
Dominion
|
|
Mississippi Canyon 773 |
|
Devils Tower |
|
2003 |
BP
|
|
Mississippi Canyon 474 |
|
Na Kika |
|
2003 |
Murphy
|
|
Green Canyon 338 |
|
Front Runner |
|
2004 |
Anadarko
|
|
Green Canyon 608 |
|
Marco Polo |
|
2004 |
BP
|
|
Green Canyon 645 |
|
Holstein |
|
2004 |
BP
|
|
Green Canyon 782 |
|
Mad Dog |
|
2004 |
ConocoPhillips
|
|
Garden Banks 783 |
|
Magnolia |
|
2004 |
Kerr-McGee
|
|
Garden Banks 876 |
|
Red Hawk |
|
2004 |
BP
|
|
Mississippi Canyon 778 |
|
Thunder Horse |
|
2005 |
Kerr-McGee
|
|
Green Canyon 680 |
|
Constitution |
|
2005 |
ATP
|
|
Mississippi Canyon 711 |
|
Gomez |
|
2006 |
Anadarko
|
|
Mississippi Canyon 920 |
|
Independence Hub |
|
2006 |
BP
|
|
Green Canyon 743 |
|
Atlantis |
|
2006 |
BHP
|
|
Green Canyon 613 |
|
Neptune |
|
2007 |
Norsk Hydro
|
|
Atwater Valley 63 |
|
Telemark |
|
2007 |
Chevron
|
|
Green Canyon 640 |
|
Tahiti |
|
2008 |
BHP
|
|
Green Canyon 654 |
|
Shenzi |
|
2008 |
Chevron
|
|
Mississippi Canyon 695 |
|
Blind Faith |
|
2008 |
Dominion
|
|
Mississippi Canyon 734 |
|
Thunder Hawk |
|
2008 |
Shell
|
|
Mississippi Canyon 809 |
|
GUMBO |
|
2009 |
ExxonMobil
|
|
Mississippi Canyon 508 |
|
Hawkes |
|
2010 |
Chevron
|
|
Atwater Valley 182 |
|
Sturgis |
|
2010 |
Total
|
|
Mississippi Canyon 941 |
|
Mirage |
|
2011 |
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Business
Infield Systems Limited projects that the number of deepwater
Gulf of Mexico production facilities will increase by over 42%
from 2005 to 2011 as production from the large number of recent
discoveries commences. These new facilities often result in
increased drilling activity as this additional infrastructure
can be used to develop satellite fields that would not be
economically feasible to develop on a standalone basis.
Gulf of Mexico Shelf
Offshore oil and natural gas drilling and production in the
U.S. Gulf of Mexico occurs on the continental Shelf as well
as in the deepwater. Drilling activity on the continental Shelf
historically has been limited to shallow wells, or wells with
true vertical depths of less than 15,000 feet. However,
with the advent of improved technology and higher oil and gas
prices, operators increasingly have begun to focus exploratory
efforts on deep wells and natural gas reserves located below
15,000 feet. These deeper prospects are largely
undeveloped, but are believed to contain significant reserves.
While the shallow waters of the continental Shelf have been
actively explored for decades, relatively few deep wells have
been drilled historically due to the high cost associated with
these wells. Despite the higher costs operators, particularly
those in search of natural gas, have grown increasingly
interested in deep well shelf drilling due to, among other
things:
|
|
Ø |
the potential for the discovery of significant natural gas
reserves; |
|
Ø |
the abundance of existing platforms, production facilities and
pipelines on the continental Shelf which allow new deep gas to
flow quickly to market; |
|
Ø |
data indicating that higher natural gas production rates can be
expected from wells drilled on the continental Shelf below
16,000 feet; and |
|
Ø |
MMS royalty relief programs enacted in 2001, and expanded in
August 2003 and again in January 2004, which have reduced the
development costs of these deep wells. |
While drilling on the continental Shelf has declined in recent
years, gas production from deep wells as a percentage of total
wells on the continental Shelf increased from 20% in 2000 to 35%
in 2004 according to IHS Energy, an energy research company.
Air medical operations
The civilian air medical industry began in the 1970s and has
grown steadily since that time. According to a 2005 publication,
the civilian air medical fleet has nearly doubled since 1997,
and patient transports are increasing by an estimated
5% per year. Patient air transports can be from one medical
facility to another or from an accident scene or rural location
to a medical facility.
According to a 2005 report by C.E. Unterberg, Towbin, an
independent investment banking and brokerage firm, the entire
U.S. air medical transportation market is approximately
$2.0 billion, of which approximately 80%, or
$1.6 billion, is controlled by hospitals operating their
own fleet and approximately 20%, or $400 million, is shared
by independently owned emergency medical service operators. In
recent years, hospitals operating their own fleet gradually have
begun to exit this market, which is expected to increase the
portion of the market available to independent operators over
the next several years. While we have a small number of
contracts directly with hospitals, we primarily provide air
medical transport services as an independent operator. Under
this model, which we refer to as the independent provider
model, we provide not only the transportation, but also
the medical care, communications and dispatch, and billing and
collections. Our revenues under this model are variable and
consist of flight fees billed directly to patients, their
insurers or to governmental agencies such as Medicare and
Medicaid.
S- 53
Business
SAFETY RECORD
Customers consistently cite safety and reliability as a critical
factor in selecting a provider of air transportation services.
Since our inception in 1949, safety has been a top priority and
one of the cornerstones of our culture. In over 50 years of
operations we have logged more than nine million flight hours,
and during that time we have developed and refined rigorous
safety programs and practices that have given us one of the
strongest safety records in the commercial helicopter industry.
The key elements of our superior safety record are awareness,
extensive training, employee incentives and comprehensive
maintenance of our fleet. We strive to incorporate best safety
practices in every area of our operations. Our company-wide
safety program rewards employees who contribute to our safety
goals by working accident free, and we believe our pilots and
mechanics are among the most experienced and well trained in the
industry.
From 1995 through 2005, we averaged an NTSB accident rate per
100,000 flight hours of 1.33 for our Gulf of Mexico operations,
compared to our Gulf of Mexico competitors average
accident rate of 2.29. For the same period, our company-wide
NTSB accident rate per 100,000 flight hours was 1.53 compared to
the national average rate of 8.70.
IMPACT OF HURRICANES
During the third quarter of 2005, Hurricane Katrina made
landfall in southeastern Louisiana and Hurricane Rita made
landfall in southwestern Louisiana. Although both hurricanes
have affected our operations, we were able to successfully
evacuate all of our aircraft prior to both storms and all of our
employees were accounted for with no injuries reported. While
none of our aircraft suffered damage from the hurricanes, we did
incur some flooding and wind damage at our bases in Louisiana,
including significant damage to our bases in Boothville and
Cameron. Most of the damage has been repaired and our bases are
operational again, other than the Boothville and Cameron bases.
We expect our Boothville base to return to service in late 2006,
and we intend to permanently shift operations from our Cameron
facility to other bases. We currently estimate the costs related
to the damage caused by the hurricanes to be approximately
$8.5 million, most of which we expect to be covered by
insurance.
Following the evacuation of customer personnel from the Gulf of
Mexico, flight hours were adversely affected as aircraft were
evacuated and grounded until the storm passed. When flights
resumed, we experienced an increase in flight hours as customers
began assessing damage and making repairs to facilities in the
Gulf of Mexico. Additionally, the Air Medical segment
experienced higher than normal flight activity in the third
quarter while assisting with the evacuations of New Orleans and
areas in southeastern Texas.
TRAINING
We believe our pilots are among the most experienced and
well-trained in the industry, with an average of over
9,000 hours of flight time and 15 years of experience.
Most of our pilots have military or commercial flight
experience, and all of our pilots must have at least 1,000
flight hours and an instrument rating before we hire them. Once
hired, our pilots undergo rigorous additional training covering
all aspects of helicopter operation, including flying in severe
weather conditions, emergency landings and malfunctions in our
advanced 32,000 square foot
on-site training
facility, which includes three flight simulators. Our pilots
also receive additional flight training annually in excess of
FAA regulations from our 14 fulltime flight instructors. We
believe we are the only U.S. helicopter operator with a
Level D flight training device for medium IFR training
purposes. Most of our 570 pilots are trained and certified to
fly under instrument flight rules, which enables them to fly at
night and in other situations where visibility is impaired.
S- 54
Business
Our aircraft maintenance personnel also undergo extensive
training from our four fulltime maintenance instructors as to
the specific aircraft components they maintain, and have an
average of approximately 16 years of service with us.
MAINTENANCE
We employ over 1,100 experienced aircraft mechanics and perform
comprehensive maintenance, repair and refurbishment services in
our advanced repair and maintenance facility in Lafayette,
Louisiana, which we believe provide us the best maintenance
capabilities in our industry. Our FAA repair station license
allows us to repair air frames, engines, avionics, accessories,
radios and instruments, and to perform specialized services on
all of our fleet, as well as certain aircraft owned by our
customers. We target a complete, full scale refurbishment of
each of our oil and gas aircraft every five years. We believe
our maintenance standards exceed those set by the FAA and meet
or exceed those established by the manufacturers. As a result,
we believe our fleet is among the best maintained in the
industry.
FACILITIES
Our principal facilities are located on property leased from The
Lafayette Airport Commission at the Lafayette Regional Airport
in Lafayette, Louisiana. The lease covers approximately
28 acres and two buildings, with an aggregate of
approximately 256,000 square feet, housing our main
operational, executive and administrative offices and our
primary repair and maintenance facility. The lease for this
facility expires in 2021, with three five-year renewal options
following the expiration date.
We own our Boothville, Louisiana operating facility. The
property has a 23,000 square foot building, a
7,000 square foot hangar and landing pads for 35
helicopters. Hurricane Katrina caused substantial flooding at
our Boothville base putting it temporarily out of service. We
expect complete repairs to this base and have it back in service
in late 2006
S- 55
Business
We also lease property for an executive and marketing office in
Houston, Texas and 12 additional bases to service the oil and
gas industry throughout the Gulf of Mexico. Those bases that
represent a significant investment in leasehold improvements and
are particularly important to our operations are:
|
|
|
|
|
|
|
|
|
Location |
|
Facilities |
|
Area |
|
Lease expiration |
|
Extension options |
|
Morgan City
(Louisiana)
|
|
Operational and maintenance facilities, landing pads for
46 helicopters |
|
53 acres |
|
June 30, 2008 |
|
Options to extend to June 30, 2018 |
Intracoastal City
(Louisiana)
|
|
Operational and maintenance facilities, landing pads for
45 helicopters |
|
18 acres |
|
December 31, 2006 |
|
Options to extend to December 31, 2010 |
Houma-Terrebonne Airport
(Louisiana)
|
|
Operational and maintenance facilities, landing pads for
30 helicopters |
|
14 acres |
|
August 31, 2006 |
|
Three options to extend for one year each |
Galveston
(Texas)
|
|
Operational and maintenance facilities, landing pads for
30 helicopters |
|
4 acres |
|
May 31, 2021 |
|
Lease period to May 31, 2021 with certain cancellation
provisions |
Fourchon
(Louisiana)
|
|
Operational and maintenance facilities, landing pads for
10 helicopters |
|
8 acres |
|
May 31, 2006 |
|
Three separate leases, of which two contain options to extend
through 2026 and 2028 |
Our other operations-related facilities in the U.S. are
located at New Orleans and Lake Charles, Louisiana; at Port
OConnor, Sabine Pass and Rockport, Texas; and at Theodore,
Alabama. Our facility in Cameron, Louisiana was severely damaged
by Hurricane Rita. We intend to permanently shift our operations
at the Cameron facility to other bases.
We also operate from offshore platforms that are provided
without charge by the owners of the platforms, although in
certain instances we are required to indemnify the owners
against loss in connection with our use of their facilities.
We also lease office and hangar space for our air medical
operations in Phoenix, Arizona. The two buildings are held under
separate leases and collectively provide 5,000 square feet
of hangar space and 26,000 square feet of office space. The
leases extend through 2007 and 2009 with options to extend for
two to ten years. Other air medical bases are located in
California, Colorado, Indiana, Kentucky,
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Business
Maryland, Michigan, New Jersey, New Mexico, North Dakota, Texas
and Virginia. Other bases for our international and other air
medical operations are generally furnished by customers.
DOMESTIC OIL AND GAS OPERATIONS CONTRACTS
We typically operate under fixed-term contracts with our
customers, with terms generally of one to five years. These
contracts provide for payment in U.S. dollars and for a
fixed monthly payment per aircraft and additional variable
payments based on the number of flight hours. In 2005,
approximately 89% of our domestic oil and gas-related revenues
was from customer contracts. Revenues from these contracts were
approximately 50% from the fixed fee component and 50% from the
variable fee component.
The following table shows our historical contracted revenues on
a fixed fee and variable fee basis, our historical spot revenues
and our historical total revenues for the years ended 2003, 2004
and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, | |
|
|
| |
Domestic oil and gas revenues |
|
2003 | |
|
2004 | |
|
2005 | |
| |
|
|
(in thousands, except contracted | |
|
|
variable fee components data) | |
Contracted Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Fees
|
|
$ |
79,605 |
|
|
$ |
76,431 |
|
|
$ |
90,255 |
|
|
Total Variable Fees
|
|
|
75,960 |
|
|
|
69,235 |
|
|
|
91,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contracted Revenues
|
|
|
155,565 |
|
|
|
145,666 |
|
|
|
181,950 |
|
|
Spot Revenues
|
|
|
13,824 |
|
|
|
20,669 |
|
|
|
23,418 |
|
|
Other
Revenues(1)
|
|
|
14,460 |
|
|
|
13,767 |
|
|
|
14,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$ |
183,849 |
|
|
$ |
180,102 |
|
|
$ |
219,644 |
|
|
|
|
|
|
|
|
|
|
|
Contracted Variable Fee Components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Under
Contract(2)
|
|
|
76 |
|
|
|
72 |
|
|
|
92 |
|
|
|
Total Contract Hours Flown
|
|
|
95,720 |
|
|
|
82,630 |
|
|
|
97,377 |
|
|
|
Average Contracted Flight Hours per Aircraft
|
|
|
1,259 |
|
|
|
1,148 |
|
|
|
1,058 |
|
|
|
Average Contracted Revenue per Flight Hour
|
|
$ |
1,625 |
|
|
$ |
1,763 |
|
|
$ |
1,869 |
|
|
|
(1) |
Contracted revenues from a major customer that owns its own
aircraft. |
|
(2) |
As of the end of the period presented. |
Our contracts generally limit our exposure to increases in fuel
costs by passing through to our customers fuel costs in
excess of pre-agreed levels. Most of our fixed-term contracts
contain provisions permitting early termination by the customer,
sometimes with as little as 30 days notice for any reason
and generally without penalty, although customers have rarely
exercised that right historically. In addition, many of our
contracts, including our new contract with BP America Production
Company, permit our customers to increase or decrease the number
of aircraft under contract with a corresponding increase or
decrease in the fixed monthly payments, and without penalty for
a decrease. When our contracts expire, we believe that we have
an advantage in renewing the contract based on the existing
relationship with the customer, detailed knowledge of the
specific operating environment and an established base of
equipment and personnel on site.
S- 57
Business
GOVERNMENT REGULATION
We are subject to government regulation by a number of different
federal and state agencies. Our flight operations are regulated
by the FAA. Aircraft accidents are subject to the jurisdiction
of the NTSB. Standards relating to the workplace health and
safety of our employees are created and monitored through the
OSHA. There are a number of statutes and regulations that govern
offshore operations. We are also subject to various federal and
state environmental laws and regulations.
FAA
As a commercial operator of helicopters, our flight and
maintenance operations are subject to regulation by the FAA
pursuant to the Federal Aviation Act of 1958. The FAA has
authority to exercise jurisdiction over many aspects of our
business, including personnel, aircraft and ground facilities.
Because the FAA allocates its inspection resources based on the
number of transport category aircraft, we believe that we are
subject to more FAA inspections and oversight than any other
U.S. helicopter operator.
We are required to have an Air Taxi Certificate, granted by the
FAA, to transport personnel and property in our aircraft. This
certificate contains operating specifications that allow us to
conduct our operations, but is subject to amendment, suspension
or revocation in accordance with procedures set forth in the
Federal Aviation Act. We are not required to file tariffs
showing rates, fares or other charges with the FAA.
The FAAs regulations, as currently in effect, require that
at least 75% of our outstanding voting securities be owned or
controlled by citizens of the United States or one of its
possessions, and that the president and at least two-thirds of
the members of our board of directors be U.S. citizens. Our
Chief Executive Officer and all of our directors are
U.S. citizens, and our organizational documents provide for
the automatic reduction in voting power of each share of voting
common stock owned or controlled by a
non-U.S. citizen
if necessary to comply with these regulations.
OSHA
We are subject to OSHA and similar state statutes and
regulations. We maintain extensive safety and health policies
and procedures and staff that monitor and implement these
policies and procedures. The primary functions of our safety
staff are to develop policies that meet or exceed the safety
standards set by OSHA, train our personnel and make daily
inspections to ensure compliance with our safety policies and
procedures. Personnel are required to attend safety-training
meetings at which the importance of full compliance with safety
procedures is emphasized. We believe that we meet or exceed all
OSHA requirements and that our operations do not expose our
employees to unusual health hazards.
Other regulations
We are also subject to the Communications Act of 1934 because of
our ownership and operation of a radio communications
flight-following network in the Gulf of Mexico and offshore
California.
Numerous other federal statutes and rules regulate our offshore
operations and those of our customers pursuant to which the
federal government has the ability to suspend, curtail or modify
our offshore operations.
SEASONAL ASPECTS
Seasonality affects our operations in three principal ways:
weather conditions are generally poorer in December, January and
February, tropical storms and hurricanes are prevalent in the
Gulf of Mexico
S- 58
Business
in late summer and early fall, and reduced daylight hours
restrict our operations in winter, which result in reduced
flight hours. When a tropical storm or hurricane is about to
enter or begins developing in the Gulf of Mexico, flight
activity may temporarily increase because of evacuations of
offshore workers, but during the storms, we are unable to
operate in the area of the storm and can incur significant
expense in moving our aircraft to safer locations. See
Risk factorsOur operations are affected by adverse
weather conditions and seasonal factors beginning on
page S-15. Our
operating results vary from quarter to quarter, depending on
seasonal factors and other factors outside of our control. As a
result, full year results are not likely to be a direct multiple
of any particular quarter or combination of quarters.
INVENTORY
We carry a significant inventory of aircraft parts to support
the maintenance and repair of our helicopters. Many of these
inventory items are parts that have been removed from aircraft,
refurbished according to manufacturers and FAA
specifications, and returned to inventory. The cost to refurbish
these parts is expensed as incurred. We use systematic
procedures to estimate the value of these used parts, which
includes consideration of their condition and continuing
utility. The carrying values of inventory reported in our
financial statements are affected by these estimates and may
change from time to time if our estimated values change.
CUSTOMERS
Our principal customers are major integrated energy companies
and independent exploration and production companies. We also
serve oil and gas service companies, hospitals and medical
programs under the independent provider model, government
agencies, and other aircraft owners and operators. Our largest
customer, Shell Oil Company, is in our Domestic Oil and Gas
segment and accounted for approximately 14%, 13% and 15% of our
operating revenues for the years ended December 31, 2005,
2004 and 2003, respectively. We are currently negotiating a new
contract with Shell Oil Company to replace an existing contract,
which is set to expire on May 31, 2006. For the year ended
December 31, 2005, BP America Production Company, also in
our Domestic Oil and Gas segment, accounted for approximately
14% of our operating revenues. We have entered into contracts
with most of our customers for terms of at least one year,
although most contracts include provisions permitting earlier
termination.
COMPETITION
Our business is highly competitive in each of our markets, and
many of our contracts are awarded after competitive bidding.
Factors that impact competition include safety, reliability,
price, availability of appropriate aircraft and quality of
service. Some of our competitors recently have undertaken
expansion and/or upgrades of their fleets.
We are a leading operator of helicopters in the Gulf of Mexico.
There are two major and several small competitors operating in
the Gulf of Mexico market. Although most oil companies
traditionally contract for most specialty services associated
with offshore operations, including helicopter services, certain
of our customers and potential customers in the oil industry
operate their own helicopter fleets, or have the capability to
do so if they so elect.
In the air medical market, we compete against national and
regional firms, and there is usually more than one competitor in
each local market. In addition, we compete against hospitals
that operate their own helicopters and, in some cases, against
ground ambulances as well.
Our international operations primarily service customers in the
oil and gas industry, although we do service some
U.S. governmental agencies, such as the National Science
Foundation. Most of our
S- 59
Business
international contracts are subject to competitive bidding, and
our primary competitors are largely the same as those in the
domestic oil and gas market.
INDUSTRY HAZARDS AND INSURANCE
The operation of helicopters inherently involves a degree of
risk. Hazards such as aircraft accidents, collisions, fire, and
adverse weather are part of the business of providing helicopter
services and may result in losses of life, equipment and
revenues. Although our safety record compares favorably to the
safety of our competitors in the Gulf of Mexico and in
comparison to the record for all U.S. operators as
reflected in industry publications, from time to time we do have
accidents that result in loss of life and equipment.
We maintain hull and liability insurance on our aircraft that
insures us against physical loss of, or damage to, our aircraft
and against certain legal liabilities to others. In addition, we
carry war risk, expropriation, confiscation, and nationalization
insurance for our aircraft involved in international operations.
In some instances, we are covered by indemnity agreements from
our customers in lieu of, or in addition to, our insurance. Our
aircraft are not insured for loss of use. While we believe we
are adequately covered by insurance and indemnification
arrangements, the loss, expropriation or confiscation of, or
severe damage to, a material number of our helicopters could
adversely affect our revenues and profits.
EMPLOYEES
As of December 31, 2005, we employed approximately
2,110 full-time employees and 65 part-time employees,
including approximately 570 pilots and 1,130 aircraft
maintenance and support personnel.
On June 13, 2001, our domestic pilots ratified a three-year
collective bargaining agreement between us and the
Office & Professional Employees International Union
(OPEIU). The agreement automatically renews for
additional one-year terms unless either party provides notice of
its intent to terminate at least 60 days prior to
June 1st of each year. The agreement provided for
automatic base pay increases for pilots and strike protection
for us. Union membership under the agreement, which falls under
the Railway Labor Act, is voluntary. We are currently in
negotiations with the OPEIU regarding a new collective
bargaining agreement, and to date, we have not increased the
base pay of our pilots for 2006. We can give no assurance as to
the outcome of these negotiations.
ENVIRONMENTAL MATTERS
We are subject to stringent federal, state and local
environmental laws and regulations governing the discharge of
materials into the environment or otherwise relating to
environmental protection. Operating and maintaining helicopters
requires that we use and manage materials that are subject to
laws and regulations controlling the treatment, storage,
recycling and disposal of wastes. These laws and regulations may
also require the acquisition of permits for regulated
activities, result in capital expenditures to limit or prevent
emissions or discharges, and impose strict liability for
contamination, rendering an owner or lessee liable for
environmental and natural resource damages and cleanup costs
without regard to negligence or fault on the part of the owner
or lessee. Failure to comply with these laws and regulations may
result in the assessment of administrative, civil, and criminal
penalties, the imposition of remedial obligations, and the
issuance of injunctions. While we believe that we are in
substantial compliance with current environmental laws and
regulations and that continued compliance with existing
requirements would not materially affect us, there is no
assurance that such compliance will continue in the future.
Changes in environmental laws and regulations occur frequently,
and any changes that result in more stringent and costly waste
handling, disposal or cleanup requirements has the potential to
have a material adverse effect on our operations.
S- 60
Business
We currently own or lease, and have in the past owned or leased,
properties that have been used for many years by persons,
including us, for various aviation operational support and
maintenance activities and other industrial purposes. Although
we have utilized operating and disposal practices that were
standard in the industry at the time, hydrocarbons and other
wastes may have been disposed or released on or under properties
owned or leased by us or on or under other locations where such
wastes have been taken for disposal. Because operating and
maintaining helicopters has caused us and will continue to cause
us to generate, handle and dispose of materials that may be
classified as hazardous substances, hazardous
wastes, or other types of wastes, we potentially may incur
joint and several, strict liability under the federal
Comprehensive Environmental Response, Compensation, and
Liability Act, also referred to as the Superfund law, the
federal Resource Conservation and Recovery Act, and analogous
state laws for wastes. Under such laws, we could be required to
remove or remediate previously disposed wastes or property
contamination, restore affected properties, or undertake
measures to prevent future contamination. We periodically
conduct environmental site surveys at our facilities to ensure
compliance with existing environmental laws and to determine
whether there is a need for environmental remediation.
LEGAL PROCEEDINGS
We have been named as a defendant in various legal actions that
have arisen in the ordinary course of our business and have not
been finally adjudicated. In the opinion of management, the
amount of the ultimate liability with respect to these actions
will not have a material adverse effect on our consolidated
financial condition, results of operations or liquidity.
On June 15, 2005, we received a subpoena from the United
States Department of Justice relating to a grand jury
investigation of potential antitrust violations among providers
of helicopter transportation services in the Gulf of Mexico. We
are cooperating fully with the investigation and are nearing
completion of providing documents and other information as
required by the subpoena. We will respond to any DOJ request for
further information, and will continue to cooperate with the
investigation. At this early stage, it is not possible to assess
the outcome of this investigation.
TENDER OFFER AND CONCURRENT NOTES OFFERING
On March 24, 2006, we announced a fixed price tender offer
for any and all of the $200 million outstanding principal
amount of our
93/8
% senior notes due 2009. We have offered to purchase
the senior notes for consideration of 104.688% of the principal
amount, together with accrued and unpaid interest up to but not
including the purchase date and a consent fee, if applicable, of
0.200% of the principal amount of senior notes tendered before
April 6, 2006, unless extended by us. Our offer to purchase
the senior notes is being made on the terms and subject to the
conditions set forth in the Offer to Purchase and Consent
Solicitation Statement dated March 24, 2006. The tender
offer and consent solicitation are conditioned upon our having
obtained financing with terms and conditions satisfactory to us
and in amounts not less than the amount required to purchase the
senior notes tendered in the tender offer. In addition, the
tender offer and consent solicitation is conditioned upon the
receipt of consents from holders of a majority of the
outstanding principal amount of the senior notes to eliminate,
among other things, substantially all of the restrictive
covenants and events of default respecting the senior notes. If
fully subscribed, we expect that the tender offer and consent
solicitation will result in a pre-tax charge to our net income
of approximately $12.3 million, and that it will cost
approximately $219 million (including accrued and unpaid
interest of approximately $9 million), which would be
funded with a portion of the net proceeds from this offering and
our concurrent offering of new senior notes, as described below.
There is no assurance that the tender offer, which is expected
to be completed on April 24, 2006, will be subscribed for
in any amount. In the event that all of our senior notes are not
tendered in the tender offer or our tender offer is not
S- 61
Business
consummated, we will use a portion of the net proceeds from this
offering and our concurrent senior notes offering for general
corporate purposes, which may include the redemption of debt and
the purchase of aircraft.
Concurrently with this offering of our non-voting common stock,
we are offering an aggregate of $150 million of new senior
notes due 2013 to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended, or
to certain persons in offshore transactions in reliance on
Regulation S under the Securities Act. The completion of
this offering of our non-voting common stock is not conditioned
on the completion of the concurrent senior notes offering and
vice versa. However, we have the right and may choose to
terminate our pending tender offer and consent solicitation for
our outstanding
93/8
% senior notes due 2009 if we are unable to complete
this offering or our concurrent new senior notes offering on
terms acceptable to us.
S- 62
Management and certain securityholders
DIRECTORS AND EXECUTIVE OFFICERS
Our bylaws provide that directors are elected annually to serve
until the next Annual Meeting of Stockholders or until their
earlier resignation or removal, and our officers serve at the
pleasure of the Board of Directors. The following table provides
the name, age and positions held by each of our executive
officers and directors at March 29, 2006:
|
|
|
|
|
|
|
Name and age |
|
Age | |
|
Position(s) |
|
Al A. Gonsoulin
|
|
|
63 |
|
|
Chairman of the Board and Chief Executive Officer |
Michael J. McCann
|
|
|
58 |
|
|
Chief Financial Officer |
Richard A. Rovinelli
|
|
|
57 |
|
|
Chief Administrative Officer and Director of Human Resources |
William P. Sorenson
|
|
|
56 |
|
|
Director of Marketing and Planning |
Lance F. Bospflug
|
|
|
51 |
|
|
Director |
Arthur J. Breault, Jr.
|
|
|
66 |
|
|
Director |
C. Russell Luigs
|
|
|
72 |
|
|
Director |
Richard H. Matzke
|
|
|
69 |
|
|
Director |
Thomas H. Murphy
|
|
|
50 |
|
|
Director |
Al A. Gonsoulin has served as our Chairman of the Board
since 2001 and our Chief Executive Officer since May 2004.
Mr. Gonsoulin founded Sea Mar, Inc., a provider of marine
transportation and support services to the oil and gas industry
in the Gulf of Mexico, in 1977 and sold it to Pool Energy
Services Co. in 1998. Mr. Gonsoulin served as President of
Sea Mar from its founding until December 31, 2001, when it
was a division of Nabors Industries.
Michael J. McCann has served as our Chief Financial
Officer and Treasurer since November 1998 and our Secretary
since March 2002. From January 1998 to October 1998, he was the
Chief Financial Officer for Global Industries Ltd. and Chief
Administrative Officer from July 1996 to January 1998. Prior to
that, he was Chief Financial Officer of for Sub Sea
International, Inc. Mr. McCann is a Certified Public
Accountant.
Richard A. Rovinelli joined us in February 1999 as
Director of Human Services and became our Chief Administrative
Officer in December 1999. Mr. Rovinelli previously has
served as Manager, Human Resources for Arco Alaska, Inc.
Headquarters Staff Manager, Human Resources, Arco Oil and Gas
Company, as well as numerous other positions with Arco.
William P. Sorenson became our Director of Marketing and
Planning in February 2002. He previously served as Director of
International, Aeromedical and Technical Services from January
2001 to February 2002. He served as our Director of Corporate
Marketing/ New Business from February 1999 to January 2001 after
serving as General Manager of Aeromedical Services from November
1995 to February 1999.
Lance F. Bospflug has served as a Director since 2001.
Mr. Bospflug joined us in September 2000 as our President
and was appointed Chief Executive Officer in August 2001. He
served as our President and Chief Executive Officer until his
resignation in May 2004. Before joining us, he was Chief
Financial Officer from March 1992 to May 1999 and then President
and Chief Executive Officer from May 1999 to May 2000 of T.L.
James & Company, Inc., a diversified construction,
marine dredging and timber company.
Arthur J. Breault, Jr. has served as a Director
since 1999. Mr. Breault retired from Deloitte &
Touche LLP in 1997, where he was a partner and concentrated on
tax matters for more than 16 years.
S- 63
Management and certain securityholders
C. Russell Luigs has served as a Director since
2002. Mr. Luigs was President and Chief Executive Officer
of Global Marine, Inc. from 1977 until 1988, and Chairman of the
Board from 1982 to 1999. He then served as Chairman of the
Executive Committee of the Board from 1999 until 2001 when
Global Marine, Inc. merged with GlobalSantaFe Corporation. After
the merger, Mr. Luigs served as a Director of GlobalSantaFe
until his retirement in June 2005.
Richard H. Matzke has served as a Director since 2002.
Mr. Matzke retired from ChevronTexaco, Inc. in February
2002, where he had served as Vice Chairman of the Board since
January 2000 and as a member of the Board of Directors since
1997. From November 1989 through December 1999, Mr. Matzke
served as President of Chevron Overseas Petroleum Inc., where he
was responsible for directing Chevrons oil exploration and
production activities outside of North America. Mr. Matzke
was employed by Chevron Corporation and its predecessors and
affiliates from 1961 to November 1989.
Thomas H. Murphy has served as a Director since 1999.
Since 1997, Mr. Murphy has been a member and co-owner of
Murco Oil and Gas, LLC, a U.S. onshore oil and gas drilling
contractor.
Board of directors and committees
The Board has determined, using criteria established by The
NASDAQ Stock Market and the SEC, that each of our directors
other than Messrs. Bospflug and Gonsoulin are independent.
Our Board currently has an audit committee and a compensation
committee.
Our Audit Committee currently consists of Messrs. Arthur J.
Breault, C. Russell Luigs, Richard H. Matzke and Thomas H.
Murphy (Chairman). This committee is responsible for performing
the responsibilities described in the Audit Committee Charter.
Our Compensation Committee currently consists of
Messrs. Arthur J. Breault (Chairman), C. Russell Luigs,
Richard H. Matzke and Thomas H. Murphy. This committee is
responsible for determining the compensation of officers and key
employees and administering our incentive compensation plans.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning
the beneficial ownership of each class of our outstanding common
stock as of March 29, 2006, and as adjusted to give effect
to this offering, by:
|
|
Ø |
each person known to us to own beneficially more than 5% of
either class of our outstanding common stock; |
|
Ø |
each of our current directors; |
|
Ø |
each of our five most highly compensated executive officers as
named in the summary compensation table; and |
|
Ø |
all of our directors and executive officers as a group. |
The beneficial ownership of our common stock set forth in the
table is determined in accordance with the rules of the
Securities and Exchange Commission. Prior to the closing of this
offering, we had 7,568,892 shares of non-voting common
stock and 2,852,616 shares of voting common stock
outstanding. After the closing of this offering, we will have
11,856,812 shares of non-voting common stock and
2,852,616 shares of voting common stock outstanding. In
computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of common
stock subject to options or warrants held by that person that
are currently exercisable or will become exercisable within
60 days after the date of this prospectus supplement are
considered outstanding,
S- 64
Management and certain securityholders
while these shares are not considered outstanding for purposes
of computing the percentage ownership of any other person.
Additionally, Al A. Gonsoulin intends to purchase
100,000 shares of non-voting common stock offered in this
offering. Unless otherwise indicated in the footnotes below, the
persons and entities named in the table have sole voting power
as to all voting shares and sole investment power as to all
shares beneficially owned. Unless otherwise indicated below, the
address of each person listed in the table is PHI, Inc., 2001 SE
Evangeline Thruway, Lafayette, Louisiana 70508.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class of PHI | |
|
Number of | |
|
Pre-offering | |
|
Post-offering | |
Beneficial owner |
|
common stock | |
|
shares | |
|
percentage | |
|
percentage | |
| |
St. Denis J. Villere & Company, L.L.C.
|
|
|
Voting |
|
|
|
287,147 |
(1) |
|
|
10.1 |
% |
|
|
10.1 |
% |
|
210 Baronne St., Suite 808 |
|
|
Non-Voting |
|
|
1,133,405 (1) |
|
|
15.0 |
% |
|
|
9.6 |
% |
|
New Orleans, Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo & Company
|
|
|
Voting |
|
|
|
206,130 |
(2) |
|
|
7.2 |
% |
|
|
7.2 |
% |
|
100 Heritage Reserve |
|
|
Non-Voting |
|
|
|
980,143 |
(2) |
|
|
13.0 |
% |
|
|
8.3 |
% |
|
Menomonee Falls, Wisconsin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wells Capital Management Incorporated
|
|
|
Voting |
|
|
|
182,980 |
(3) |
|
|
6.4 |
% |
|
|
6.4 |
% |
|
420 Montgomery Street |
|
|
Non-Voting |
|
|
|
950,895 |
(3) |
|
|
12.6 |
% |
|
|
8.0 |
% |
|
San Francisco, California |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strong Capital Management, Inc.
|
|
|
Voting |
|
|
|
193,162 |
(4) |
|
|
6.8 |
% |
|
|
6.8 |
% |
|
100 Heritage Reserve |
|
|
Non-Voting |
|
|
|
280,242 |
(4) |
|
|
3.7 |
% |
|
|
2.4 |
% |
|
Menomonee Falls, Wisconsin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo Funds Management, LLC
|
|
|
Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
525 Market Street |
|
|
Non-Voting |
|
|
|
765,326 |
(5) |
|
|
10.1 |
% |
|
|
6.5 |
% |
|
San Francisco, California |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FMR Corp.
|
|
|
Voting |
|
|
|
283,600 |
(6) |
|
|
9.9 |
% |
|
|
9.9 |
% |
|
82 Devonshire Street |
|
|
Non-Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boston, Massachusetts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Woodbourne Partners, L.P.
|
|
|
Voting |
|
|
|
222,598 |
(7) |
|
|
7.8 |
% |
|
|
7.8 |
% |
|
200 N. Broadway, Suite 825 |
|
|
Non-Voting |
|
|
|
500,000 |
(7) |
|
|
6.6 |
% |
|
|
4.2 |
% |
|
St. Louis, Missouri |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Al A. Gonsoulin
|
|
|
Voting |
|
|
|
1,482,266 |
|
|
|
52.0 |
% |
|
|
52.0 |
% |
|
|
|
|
Non-Voting |
|
|
|
|
(8) |
|
|
|
|
|
|
* |
(8) |
Lance F. Bospflug
|
|
|
Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthur J. Breault, Jr.
|
|
|
Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Voting |
|
|
|
4,657 |
|
|
|
* |
|
|
|
* |
|
C. Russell Luigs
|
|
|
Voting |
|
|
|
10,000 |
|
|
|
* |
|
|
|
* |
|
|
|
|
|
Non-Voting |
|
|
|
10,000 |
|
|
|
* |
|
|
|
* |
|
Richard H. Matzke
|
|
|
Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas H. Murphy
|
|
|
Voting |
|
|
|
5,000 |
|
|
|
* |
|
|
|
* |
|
|
|
|
|
Non-Voting |
|
|
|
6,000 |
|
|
|
* |
|
|
|
* |
|
Michael J. McCann
|
|
|
Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Voting |
|
|
|
25,000 |
(9) |
|
|
* |
|
|
|
* |
|
Richard A. Rovinelli
|
|
|
Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
William P. Sorenson
|
|
|
Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Voting |
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group (9 Persons)
|
|
|
Voting |
|
|
|
1,497,266 |
|
|
|
52.5 |
% |
|
|
52.5 |
% |
|
|
|
|
Non-Voting |
|
|
|
45,657 |
(9) |
|
|
* |
|
|
|
* |
|
S- 65
Management and certain securityholders
* Less than one percent.
|
|
(1) |
As reported by St. Denis J. Villere & Company,
L.L.C. in its Schedule 13G dated February 27, 2006.
St. Denis J. Villere & Company, L.L.C. has shared
voting and investment power with respect to all of its voting
shares and 1,132,605 of its non-voting shares with its clients
as an investment advisor. |
|
(2) |
As reported by Wells Fargo & Company in its
Schedule 13G dated February 15, 2006 and its Amendment
No. 1 to its Schedule 13G dated February 10,
2006. In these documents, Wells Fargo & Company
reported that it possessed sole voting power with respect to
203,280 of its voting shares and 969,738 of its non-voting
shares and sole investment power with respect to 191,530 of its
voting shares and 980,143 of its non-voting shares. |
|
(3) |
Wells Capital Management Incorporated reported in its
Schedule 13G dated February 15, 2006 and its Amendment
No. 1 to its Schedule 13G dated February 10, 2006
that it possessed sole voting power with respect to 57,426 of
its voting shares and 204,412 of its non-voting shares. |
|
(4) |
As reported by Strong Capital Management, Inc. in Amendments
No. 1 and No. 4 to its Schedules 13G dated
February 11, 2005. |
|
(5) |
As reported by Wells Fargo Funds Management, LLC in its
Amendment No. 1 to Schedule 13G dated
February 10, 2006. |
|
(6) |
As reported by FMR Corp. in Amendment No. 6 to its
Schedule 13G dated February 14, 2006. FMR Corp. does
not have the power to direct the voting of any of these
shares. |
|
(7) |
As reported by Woodbourne Partners, L.P. in Amendments
No. 7 and No. 9 to its Schedule 13Gs dated
February 10, 2006. Woodbourne Partners, L.P.s general
partner, Clayton Management Company, has sole voting and
investment power with respect to these shares. |
|
(8) |
Mr. Gonsoulin intends to purchase 100,000 shares of
non-voting common stock offered in this offering for his own
account. As a result of this intended purchase, his
post-offering percentage of non-voting common stock would be
less than one percent. |
|
(9) |
Includes 25,000 shares of non-voting common stock issuable
upon exercise of stock options held by Mr. McCann. |
S- 66
Underwriting
We are offering the shares of our non-voting common stock
described in this prospectus supplement through the underwriters
named below. UBS Securities LLC and Howard Weil Incorporated are
the representatives of the underwriters. UBS Securities LLC is
the sole book-running manager of this offering.
We have entered into an underwriting agreement with the
representatives. Subject to the terms and conditions of the
underwriting agreement, each of the underwriters has severally
agreed to purchase the number of shares of non-voting common
stock listed next to its name in the following table:
|
|
|
|
|
|
Underwriters |
|
Number of shares | |
| |
UBS Securities LLC
|
|
|
|
|
Howard Weil Incorporated
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,287,920 |
|
|
|
|
|
In addition, Al A. Gonsoulin, our Chairman of the Board and
Chief Executive Officer, intends to purchase 100,000 shares
of the non-voting common stock offered hereby for his own
account. The underwriters will not receive any discount or
commission on these shares.
The underwriting agreement provides that the underwriters must
buy all of the shares if they buy any of them. However, the
underwriters are not required to take or pay for the shares
covered by the underwriters over-allotment option
described below until such time as the option is exercised by
them.
Our non-voting common stock is offered subject to a number of
conditions, including receipt and acceptance of our non-voting
common stock by the underwriters.
OVER-ALLOTMENT OPTION
We have granted the underwriters an option to buy up to an
aggregate of 643,188 additional shares of our non-voting common
stock. The underwriters may exercise this option solely for the
purpose of covering over-allotments, if any, made in connection
with this offering. The underwriters have 30 days from the
date of this prospectus supplement to exercise this option. If
the underwriters exercise this option, they will each purchase
additional shares approximately in proportion to the amounts
specified in the table above.
COMMISSIONS AND DISCOUNTS
Shares sold by the underwriters to the public will initially be
offered at the public offering price set forth on the cover of
this prospectus supplement. Any shares sold by the underwriters
to securities dealers may be sold at a discount of up to
$ per
share from the public offering price. Any of these securities
dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to
$ per
share from the public offering price. If all the shares are not
sold at the public offering price, the representatives may
change the offering price and the other selling terms after the
offering. Upon execution of the underwriting agreement, the
underwriters will be obligated to purchase shares at the prices
and upon the terms stated therein and, as a result, thereafter
will bear any risk associated with changing the offering price
to the public or other selling terms.
The following table shows the per share and total underwriting
discounts and commissions we will pay to the underwriters (other
than with respect to the 100,000 shares that Mr. Gonsoulin
intends to
S- 67
Underwriting
purchase) assuming both no exercise and full exercise of the
underwriters option to purchase up to an additional
643,188 shares.
|
|
|
|
|
|
|
|
|
|
|
Paid by PHI | |
|
|
| |
|
|
No exercise | |
|
Full exercise | |
| |
Per share
|
|
$ |
|
|
|
$ |
|
|
Total
|
|
$ |
|
|
|
$ |
|
|
We estimate that the total expenses of this offering payable by
us, not including underwriting discounts and commissions, will
be approximately $1 million. Discounts and commissions to
each underwriter do not in the aggregate exceed 8% of the gross
proceeds of this offering.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors have entered into
lock-up agreements with
the underwriters. Under these agreements, we and each of these
persons may not, without the prior written approval of UBS
Securities LLC, subject to certain permitted exceptions, offer,
sell, contract to sell or otherwise dispose of or hedge our
non-voting common stock or securities convertible into or
exercisable or exchangeable for our non-voting common stock.
These restrictions will be in effect for a period of
90 days after the date of this prospectus supplement. The
lock-up periods may be
extended for up to 18 additional days under certain
circumstances where we announce or pre-announce earnings or
material news or a material event within approximately
18 days prior to, or approximately 16 days after, the
termination of the applicable
lock-up period. At any
time and without public notice UBS Securities LLC may in
its sole discretion release all or some of the securities from
these lock-up
agreements.
INDEMNIFICATION AND CONTRIBUTION
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act. If
we are unable to provide this indemnification, we have agreed to
contribute to payments the underwriters may be required to make
in respect of those liabilities.
NASDAQ NATIONAL MARKET LISTING
Our common stock is listed on The NASDAQ National Market under
the symbol PHIIK for our non-voting common stock and
PHII for our voting common stock.
PRICE STABILIZATION, SHORT POSITIONS, PASSIVE MARKET
MAKING
In connection with this offering, the underwriters may engage in
activities that stabilize, maintain or otherwise affect the
price of our non-voting common stock, including:
|
|
Ø |
stabilizing transactions; |
|
Ø |
short sales; |
|
Ø |
purchases to cover positions created by short sales; |
|
Ø |
imposition of penalty bids; |
|
Ø |
syndicate covering transactions; and |
|
Ø |
passive market making. |
Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of our common stock while this offering is in progress.
These transactions
S- 68
Underwriting
may also include making short sales of our non-voting common
stock, which involve the sale by the underwriters of a greater
number of shares of non-voting common stock than they are
required to purchase in this offering, and purchasing shares of
non-voting common stock on the open market to cover positions
created by short sales. Short sales may be covered short
sales, which are short positions in an amount not greater
than the underwriters over-allotment option referred to
above, or may be naked short sales, which are short
positions in excess of that amount.
The underwriters may close out any covered short position by
either exercising their over-allotment option, in whole or in
part, or by purchasing shares in the open market. In making this
determination, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase
shares through the over-allotment option. Naked short sales are
in excess of the over-allotment option. The underwriters must
close out any naked short position by purchasing shares in the
open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after
pricing that could adversely affect investors who purchased in
this offering.
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of that underwriter in stabilizing or short covering
transactions.
As a result of these activities, the price of our non-voting
common stock may be higher than the price that otherwise might
exist in the open market. If the activities are commenced, they
may be discontinued by the underwriters at any time. The
underwriters may carry out these transactions on The NASDAQ
National Market, in the
over-the-counter market
or otherwise.
In addition, in connection with this offering, certain of the
underwriters (and selling group members) may engage in passive
market making transactions in our non-voting common stock on The
NASDAQ National Market prior to the pricing and completion of
this offering. Passive market making consists of displaying bids
on The NASDAQ National Market no higher than the bid prices of
independent market makers and making purchases at prices no
higher than these independent bids and effected in response to
order flow. Net purchases by a passive market maker on each day
are limited to a specified percentage of the passive market
makers average daily trading volume in the non-voting
common stock during a specified period and must be discontinued
when such limit is reached. Passive market making may cause the
price of our non-voting common stock to be higher than the price
that otherwise would exist in the open market in the absence of
these transactions. If passive market making is commenced, it
may be discontinued at any time.
AFFILIATIONS
UBS Securities LLC and Howard Weil Incorporated have in the past
provided, and may in the future provide, investment banking and
financial advisory services to us. UBS Securities LLC acted as
an underwriter in connection with our 2005 equity offering, as
an initial purchaser in connection with our 2002 notes offering
and is currently acting as the dealer manager and the
solicitation agent in connection with our pending tender offer
and consent solicitation for our
93/8
% senior notes due 2009, and it is also an initial
purchaser of our concurrent offering of new senior notes. For
these services, we have paid, or will pay, them customary
compensation. The underwriters and their affiliates may from
time to time in the future engage in transactions with us and
perform services for us in the ordinary course of their business.
S- 69
Underwriting
ELECTRONIC DISTRIBUTION
A prospectus in electronic format may be made available on the
internet sites or through other online services maintained by
one or more of the underwriters and/or selling group members
participating in this offering, or by their affiliates. In those
cases, prospective investors may view offering terms online and,
depending upon the particular underwriter or selling group
member, prospective investors may be allowed to place orders
online. The underwriters may agree with us to allocate a
specific number of shares for sale to online brokerage account
holders. Any such allocation for online distributions will be
made by the representatives on the same basis as other
allocations.
Other than the prospectus in electronic format, the information
on any underwriters or selling group members website
and any information contained in any other website maintained by
an underwriter or selling group member is not part of the
prospectus or the registration statement of which this
prospectus supplement forms a part, has not been approved and/or
endorsed by us or any underwriter or selling group member in its
capacity as underwriter or selling group member and should not
be relied upon by investors.
Legal matters
The validity of the issuance of the non-voting common stock
offered by this prospectus supplement has been passed upon for
us by Akin Gump Strauss Hauer & Feld LLP, Houston,
Texas, as to U.S. federal law, and by Jones, Walker,
Waechter, Poitevent, Carrère & Denègre,
L.L.P., New Orleans, Louisiana, as to Louisiana corporate law.
Certain legal matters have been passed upon for the underwriters
by Vinson & Elkins L.L.P.
Experts
The financial statements as of December 31, 2005 and 2004,
and for each of the three years in the period ended
December 31, 2005, and Managements Report on the
Effectiveness of Internal Control over Financial Reporting as of
December 31, 2005 included and incorporated by reference in
this prospectus supplement have been audited by
Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their reports, which are included
and incorporated by reference herein, and have been so included
and incorporated in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
S- 70
Index to historical consolidated financial statements
|
|
|
Consolidated Financial Statements of PHI, Inc.
|
|
|
|
|
F-2 |
|
|
F-3 |
|
|
F-4 |
|
|
F-5 |
|
|
F-6 |
|
|
F-7 |
|
|
F-8 |
|
|
F-9 |
F- 1
Managements Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal
control system was designed to provide reasonable assurance to
our management and board of directors regarding the reliability
of financial reporting and preparation of financial statements
for external purposes in accordance with generally accepted
accounted principles.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2005.
In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal ControlIntegrated
Framework. Based on this assessment our management believes
that, as of December 31, 2005, our internal control over
financial reporting is effective under those criteria.
Deloitte & Touche LLP, our independent registered public
accounting firm, has issued an attestation report on our
assessment of the Companys internal control over financial
reporting. This report appears below.
F- 2
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of
PHI, Inc.
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control over
Financial Reporting (Item 9A), that PHI, Inc. (the
Company) maintained effective internal control over
financial reporting as of December 31, 2005, based on
criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, managements assessment that the Company
maintained effective internal control over financial reporting
as of December 31, 2005, is fairly stated, in all material
respects, based on the criteria established in Internal
ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2005, based on the criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2005 of
the Company and our report dated March 9, 2006, expressed
an unqualified opinion on those financial statements and
financial statement schedule.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
F- 3
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of
PHI, Inc.
We have audited the accompanying consolidated balance sheets of
PHI, Inc. and subsidiaries (the Company) as of
December 31, 2005 and 2004, and the related consolidated
statements of operations, shareholders equity, and cash
flows for each of the three years in the period ended
December 31, 2005. Our audits also included the financial
statement schedule for each of the three years in the period
ended December 31, 2005, listed in the Index at
Item 15. These financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audits.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of PHI,
Inc. and subsidiaries as of December 31, 2005 and 2004, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2005, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related
financial schedule for each of the three years in the period
ended December 31, 2005, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2005, based on the
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
March 9, 2006 expressed an unqualified opinion on
managements assessment of the effectiveness of the
Companys internal control over financial reporting and an
unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
F- 4
PHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
| |
|
|
(thousands of dollars) | |
ASSETS |
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
69,561 |
|
|
$ |
18,008 |
|
|
Accounts receivable net of allowance:
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
|
89,351 |
|
|
|
58,242 |
|
|
|
Other
|
|
|
6,766 |
|
|
|
1,134 |
|
|
Inventory
|
|
|
48,123 |
|
|
|
39,225 |
|
|
Other current assets
|
|
|
10,042 |
|
|
|
10,695 |
|
|
Refundable income taxes
|
|
|
422 |
|
|
|
1,101 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
224,265 |
|
|
|
128,405 |
|
Other
|
|
|
13,266 |
|
|
|
12,527 |
|
Property and equipment, net
|
|
|
311,678 |
|
|
|
253,241 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
549,209 |
|
|
$ |
394,173 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
40,506 |
|
|
$ |
22,735 |
|
|
Accrued liabilities
|
|
|
10,807 |
|
|
|
4,836 |
|
|
Accrued interest
|
|
|
3,175 |
|
|
|
3,181 |
|
|
Accrued insurance
|
|
|
|
|
|
|
1,526 |
|
|
Accrued vacation payable
|
|
|
3,811 |
|
|
|
3,775 |
|
|
Accrued salaries and wages
|
|
|
2,439 |
|
|
|
1,636 |
|
|
Notes payable
|
|
|
1,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
61,738 |
|
|
|
39,689 |
|
Long-term debt
|
|
|
203,300 |
|
|
|
208,275 |
|
Deferred income taxes
|
|
|
38,906 |
|
|
|
29,805 |
|
Other long-term liabilities
|
|
|
6,214 |
|
|
|
6,429 |
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
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
|
|
|
742 |
|
|
|
253 |
|
|
Additional paid-in capital
|
|
|
129,531 |
|
|
|
15,098 |
|
|
Retained earnings
|
|
|
108,493 |
|
|
|
94,339 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
239,051 |
|
|
|
109,975 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$ |
549,209 |
|
|
$ |
394,173 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F- 5
PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
Year ended | |
|
Year ended | |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
|
(thousands of dollars and shares, | |
|
|
except per share data) | |
Operating revenues
|
|
$ |
363,610 |
|
|
$ |
291,308 |
|
|
$ |
269,392 |
|
Gain on disposition of property and equipment, net
|
|
|
1,173 |
|
|
|
2,569 |
|
|
|
1,988 |
|
Other
|
|
|
2,057 |
|
|
|
392 |
|
|
|
686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
366,840 |
|
|
|
294,269 |
|
|
|
272,066 |
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses
|
|
|
299,263 |
|
|
|
245,374 |
|
|
|
230,229 |
|
|
Selling, general and administrative expenses
|
|
|
24,896 |
|
|
|
21,034 |
|
|
|
19,983 |
|
|
Interest expense
|
|
|
20,448 |
|
|
|
20,109 |
|
|
|
19,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344,607 |
|
|
|
286,517 |
|
|
|
270,164 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
22,233 |
|
|
|
7,752 |
|
|
|
1,902 |
|
Income taxes
|
|
|
8,079 |
|
|
|
3,780 |
|
|
|
763 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
14,154 |
|
|
$ |
3,972 |
|
|
$ |
1,139 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.76 |
|
|
$ |
0.73 |
|
|
$ |
0.21 |
|
|
Diluted
|
|
$ |
1.76 |
|
|
$ |
0.72 |
|
|
$ |
0.21 |
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,040 |
|
|
|
5,383 |
|
|
|
5,383 |
|
|
Diluted
|
|
|
8,063 |
|
|
|
5,486 |
|
|
|
5,486 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
F- 6
PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voting | |
|
Non-voting | |
|
|
|
|
|
|
common stock | |
|
common stock | |
|
Additional | |
|
|
|
|
| |
|
| |
|
paid-in | |
|
Retained | |
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
capital | |
|
earnings | |
| |
|
|
(thousands of dollars and shares) | |
Balance at Dec. 31, 2002
|
|
|
2,852 |
|
|
$ |
285 |
|
|
|
2,526 |
|
|
$ |
253 |
|
|
$ |
15,062 |
|
|
$ |
89,254 |
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26 |
) |
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Dec. 31, 2003
|
|
|
2,852 |
|
|
|
285 |
|
|
|
2,531 |
|
|
|
253 |
|
|
|
15,088 |
|
|
|
90,367 |
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Dec. 31, 2004
|
|
|
2,852 |
|
|
|
285 |
|
|
|
2,531 |
|
|
|
253 |
|
|
|
15,098 |
|
|
|
94,339 |
|
|
Stock issuance, net
|
|
|
|
|
|
|
|
|
|
|
4,887 |
|
|
|
489 |
|
|
|
113,352 |
|
|
|
|
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,081 |
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Dec. 31, 2005
|
|
|
2,852 |
|
|
$ |
285 |
|
|
|
7,418 |
|
|
$ |
742 |
|
|
$ |
129,531 |
|
|
$ |
108,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F- 7
PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
Year ended | |
|
Year ended | |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
|
(thousands of dollars) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
14,154 |
|
|
$ |
3,972 |
|
|
$ |
1,139 |
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
27,133 |
|
|
|
27,843 |
|
|
|
25,209 |
|
|
|
Deferred income taxes
|
|
|
6,415 |
|
|
|
3,845 |
|
|
|
(293 |
) |
|
|
Gain on asset dispositions
|
|
|
(1,173 |
) |
|
|
(2,569 |
) |
|
|
(1,988 |
) |
|
|
Other
|
|
|
1,411 |
|
|
|
1,332 |
|
|
|
(323 |
) |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable trade
|
|
|
(31,109 |
) |
|
|
(16,499 |
) |
|
|
(2,245 |
) |
|
|
Inventory
|
|
|
(8,898 |
) |
|
|
1,180 |
|
|
|
(3,030 |
) |
|
|
Refundable income taxes
|
|
|
|
|
|
|
(876 |
) |
|
|
2,011 |
|
|
|
Other assets
|
|
|
(2,313 |
) |
|
|
(7,241 |
) |
|
|
3,021 |
|
|
|
Accounts payable, accrued liabilities and vacation payable
|
|
|
23,049 |
|
|
|
(146 |
) |
|
|
7,239 |
|
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
(504 |
) |
|
|
Other long-term liabilities
|
|
|
(649 |
) |
|
|
64 |
|
|
|
(821 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
28,020 |
|
|
|
10,905 |
|
|
|
29,415 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(96,165 |
) |
|
|
(33,921 |
) |
|
|
(36,863 |
) |
|
Acquisition of additional operating locations
|
|
|
|
|
|
|
(1,518 |
) |
|
|
|
|
|
Proceeds from asset dispositions
|
|
|
10,751 |
|
|
|
14,395 |
|
|
|
7,620 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(85,414 |
) |
|
|
(21,044 |
) |
|
|
(29,243 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from (payments on) Notes and long-term debt
|
|
|
(1,000 |
) |
|
|
|
|
|
|
2,000 |
|
|
Proceeds from stock issuance
|
|
|
115,162 |
|
|
|
|
|
|
|
|
|
|
Less related fees & expenses
|
|
|
(1,265 |
) |
|
|
|
|
|
|
|
|
|
Proceeds from line of credit
|
|
|
114,875 |
|
|
|
37,008 |
|
|
|
|
|
|
Payments on line of credit
|
|
|
(119,850 |
) |
|
|
(28,733 |
) |
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
1,025 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
108,947 |
|
|
|
8,275 |
|
|
|
2,026 |
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in cash and cash equivalents
|
|
|
51,553 |
|
|
|
(1,864 |
) |
|
|
2,198 |
|
Cash and cash equivalents, beginning of year
|
|
|
18,008 |
|
|
|
19,872 |
|
|
|
17,674 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$ |
69,561 |
|
|
$ |
18,008 |
|
|
$ |
19,872 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F- 8
PHI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1) |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of operations, basis of consolidation, and other
general principles
Since its inception, PHI, Inc.s primary business has been
to transport personnel and, to a lesser extent, parts and
equipment, to, from and among offshore facilities for customers
engaged in the oil and gas exploration, development, and
production industry. The Company also provides air medical
transportation services for hospitals, medical programs, and
aircraft maintenance services to third parties.
The consolidated financial statements include the accounts of
PHI, Inc. and its subsidiaries (PHI or the
Company) after the elimination of all significant
intercompany accounts and transactions.
A principal stockholder has substantial control. Al A.
Gonsoulin, Chairman of the Board and Chief Executive Officer,
beneficially owns stock representing approximately 52% of the
total voting power. As a result, he exercises control over the
election of PHIs directors and the outcome of matters
requiring a stockholder vote.
Revenue recognition
The Company recognizes revenue related to aviation
transportation services after the services are performed or the
contractual obligations are met. Aircraft maintenance services
revenues are recognized at the time the repair or services work
is completed. Revenues related to emergency flights generated by
the Companys Air Medical segment are recorded net of
contractual allowances under agreements with third party payors
when the services are provided.
Use of estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash equivalents
The Company considers cash equivalents to include demand
deposits and investments with original maturity dates of three
months or less.
Inventories
The Companys inventories are stated at the lower of
average cost or market and consist primarily of spare parts.
Portions of the Companys inventories are used parts that
are often exchanged with parts removed from aircraft, reworked
to a useable condition according to manufacturers and FAA
specifications, and returned to inventory. The Company uses
systematic procedures to estimate the valuation of the used
parts, which includes consideration of their condition and
continuing utility. Reusable aircraft parts are included in
inventory at the average cost of comparable parts. The rework
costs are expensed as incurred. The Company also records an
allowance for obsolescent and slow-moving parts, relying
principally on specific identification of such inventory.
Valuation reserves related to obsolescence and slow-moving
inventory were $6.3 million and $7.0 million at
December 31, 2005 and 2004, respectively.
F- 9
Notes to consolidated financial statements
Property and equipment
The Company records its property and equipment at cost less
accumulated depreciation. For financial reporting purposes, the
Company uses the straight-line method to compute depreciation
based upon estimated useful lives of five to fifteen years for
flight equipment and three to ten years for other equipment. The
Company uses accelerated depreciation methods for tax purposes.
Upon selling or otherwise disposing of property and equipment,
the Company removes the cost and accumulated depreciation from
the accounts and reflects any resulting gain or loss in earnings
at the time of sale or other disposition.
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 change in residual values of
certain aircraft was based on the Companys experience in
sales of such aircraft which indicated that these aircraft were
retaining on average a salvage value of at least 40% by model
type. The effect of this change for the year ended
December 31, 2003 was a reduction in depreciation expense
of $0.8 million ($0.05 million after tax or
$0.09 per diluted share).
Effective January 1, 2005 and prospectively, the Company
reassessed the salvage values applicable to major modifications
to aircraft based on updated estimates derived from recent
aircraft sales. The adjustment for the year 2005 resulted in a
decrease in depreciation expense ($1.6 million). In
addition, we incurred approximately ($1.1 million) of
expense in 2005 for repairs to an aircraft that incurred
substantial damage due to a weather related incident.
The Company reviews its long-lived assets and certain
identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company measures
recoverability of assets to be held and used by comparing the
carrying amount of an asset to future undiscounted net cash
flows that it expects the asset to generate. When an asset is
determined to be impaired, the Company recognizes that
impairment amount, which is measured by the amount that the
carrying value of the asset exceeds its fair value. Similarly,
the Company reports assets that it expects to sell at the lower
of the carrying amount or fair value less costs to sell.
Self-insurance
The Company maintains a self-insurance program for a portion of
its health care costs. Self-insurance costs are accrued based
upon the aggregate of the liability for reported claims and the
estimated liability for claims incurred but not reported. As of
December 31, 2005 and 2004, the Company had
$1.1 million and $1.0 million, respectively, of
accrued liabilities related to health care claims.
During 2005, the Company established an offshore insurance
captive to realize savings in reinsurance costs on its insurance
premiums. Amounts paid to the captive in 2005 totaled
$1.9 million. The financial position and operations of the
insurance captive were not significant in 2005. The captive is
fully consolidated in the accompanying financial statements.
Concentration of credit risk
Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of cash
equivalents and trade accounts receivable. The Company places
its short-term invested cash and cash equivalents on deposit
with a major financial institution. Cash equivalents include
Commercial paper of companies with high credit ratings and money
market securities. The
F- 10
Notes to consolidated financial statements
Company does not believe significant credit risk exists with
respect to these securities at December 31, 2005.
PHI conducts a majority of its business with major and
independent oil and gas exploration and production companies
with operations in the Gulf of Mexico. The Company also provides
services to major medical centers and US governmental agencies.
The Company continually evaluates the financial strength of its
customers but generally does not require collateral to support
the customer receivables. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit
risk of specific customers, current market conditions, and other
information. Collection efforts are typically exhausted at
approximately nine months, at which time unpaid amounts are
charged off as uncollectible. The allowance for doubtful
accounts was $0.2 million at December 31, 2005 and
December 31, 2004. The Companys largest domestic oil
and gas customer accounted for 14%, 13%, and 15%, of
consolidated operating revenues for years ended
December 31, 2005, 2004, and 2003, respectively. The
Company also carried accounts receivable from this same customer
totaling 14% and 11%, of net trade receivable on
December 31, 2005 and 2004, respectively.
Trade receivables representing amounts due pursuant to air
medical services are carried net of an allowance for estimated
contractual adjustments on unsettled invoices. The Company
monitors its collection experience by payor category within the
Air Medical segment and updates its estimated collections to be
realized based on its most recent collection experience.
Stock compensation
The Company uses the intrinsic value method of accounting for
employee stock-based compensation prescribed by Accounting
Principles Board (APB) Opinion No. 25 and, accordingly,
follows the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for
Stock-Based Compensation
(SFAS No. 123). SFAS No. 123
encourages the use of a fair value based method of accounting
for compensation expense associated with stock option and
similar plans. However, SFAS No. 123 permits the
continued use of the intrinsic value based method prescribed by
Opinion No. 25 but requires additional disclosures,
including pro forma calculations of net earnings and earnings
per share as if the fair value method of accounting prescribed
by SFAS No. 123 had applied.
Stock-based employee compensation expense relates to restricted
stock grants and stock options that were settled for cash. The
employee compensation expense for stock grants and options
settled for
F- 11
Notes to consolidated financial statements
cash was $122,498 for 2005, $45,000 for 2004, and $300,000 for
2003. There have been no stock awards granted since 2001.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
Year ended | |
|
Year ended | |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
|
(thousands of dollars, except per share data) | |
Net earnings as reported
|
|
$ |
14,154 |
|
|
$ |
3,972 |
|
|
$ |
1,139 |
|
Add stock-based employee compensation expense included in
reported net income net of related tax effects
|
|
|
122 |
|
|
|
45 |
|
|
|
300 |
|
Deduct total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings pro forma
|
|
$ |
14,276 |
|
|
$ |
4,017 |
|
|
$ |
1,439 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
|
1.76 |
|
|
|
0.74 |
|
|
|
0.21 |
|
|
Basic pro forma
|
|
|
1.78 |
|
|
|
0.75 |
|
|
|
0.27 |
|
|
Diluted as reported
|
|
|
1.76 |
|
|
|
0.72 |
|
|
|
0.21 |
|
|
Diluted pro forma
|
|
|
1.77 |
|
|
|
0.73 |
|
|
|
0.26 |
|
Average fair value of grants during the year
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Black-Sholes option pricing model assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
Expected life (years)
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
Volatility
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
Dividend yield
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Income taxes
The Company provides for income taxes using the asset and
liability method under which deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
The deferred tax assets and liabilities measurement uses enacted
tax rates that are expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The Company recognizes the effect of any
tax rate changes in income of the period that included the
enactment date.
Earnings per share
The Company computes basic earnings per share by dividing income
available to common stockholders by the weighted average number
of common shares outstanding during the period. The diluted
earnings per share computation uses the weighed average number
of shares outstanding adjusted for incremental shares attributed
to dilutive outstanding options to purchase common stock.
Deferred financing costs
Costs of obtaining long term debt financing are deferred and
amortized ratably over the term of the related debt agreement.
F- 12
Notes to consolidated financial statements
Derivative financial instruments
The Company has not engaged in activities involving financial
derivatives during the years 2003, 2004, and 2005.
New accounting pronouncements
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 123(R), Share Based
Payment. SFAS No. 123(R) supersedes Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and amends
SFAS No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123. However,
SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative. As permitted
by SFAS No. 123, the Company currently accounts for
share-based payments to employees using the intrinsic value
method and, as such, generally recognizes no compensation
expense for employee stock options. Accordingly, the adoption of
SFAS No. 123(R) will have an impact on our results of
operations. The impact of the adoption of this Statement cannot
be predicted at this time because it will depend on levels of
share-based payments granted in the future. However had we
adopted SFAS No. 123(R) in prior periods, the impact
of that standard would have approximated the impact of
SFAS No. 123 as described in the disclosure of pro
forma net income and earnings per share in Note 1 to our
consolidated financial statements. SFAS No. 123(R)
must be adopted by the first quarter of 2006. The Company has
adopted SFAS No. 123(R) using the modified-prospective
method.
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 operations of those assets.
These liabilities are required to be recorded at fair value in
the period in which they are incurred with the associated asset
retirement costs capitalized as part of the carrying amount of
the long-lived asset. The Statement was effective for the
Company on January 1, 2003. In 2005, FASB issued
Interpretation No. 47, Accounting for Conditional
Asset Retirement Obligations, (FIN 47) to further
clarify that such asset retirement obligations should be
recognized for conditional obligations in which the timing
and/or method of settlement are conditional on a future event
that may or may not be within the control of the entity.
FIN 47 was effective at December 31, 2005. The Company
evaluated its leased and owned properties for potential asset
retirement obligations under SFAS No. 143, as amended
and interpreted by FIN 47. Based on this review, the
Company identified obligations primarily related to the removal
of fuel storage tanks upon the abandonment or disposal of
facilities. The operation of fuel storage tanks is monitored on
an ongoing basis to prevent ground contamination and the cost of
removing such tanks is not significant. Based on the
Companys evaluation of such obligations, such liabilities
were deemed to be immaterial to the financial position, results
of operations or cash flows of the Company.
In December 2004 FASB issued SFAS No. 153,
Exchange of Nonmonetary Assets, an amendment of APB
Opinion No. 29. SFAS No. 153 is based on
the principle that exchanges of nonmonetary assets should be
measured based on the fair value of the assets exchanged. ABP
Opinion No. 29, Accounting for Nonmonetary
Transactions provided an exception to its basic
measurement principle (fair value) for exchanges of similar
productive assets. Under APB Opinion No. 29, an exchange of
a productive asset for a similar productive asset was based on
the recorded amount of the asset relinquished.
SFAS No. 153 eliminates this exception and replaces it
with an exception for exchanges of nonmonetary assets that do
not have commercial substance. SFAS No. 153 was
effective as of July 1, 2005, and did not have an impact on
the financial reporting of the Company.
F- 13
Notes to consolidated financial statements
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections. This Statement
is a replacement APB Opinion No. 20, Accounting Changes,
and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements, and changes the requirements
for the accounting for and reporting of a change in accounting
principle. This Statement applies to all voluntary changes in
accounting principle and to changes required by an accounting
pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions. This statement
requires retrospective application to prior periods
financial statements of changes in accounting principle, unless
it is impracticable to determine period-specific effects of an
accounting change on one or more individual prior periods
presented. Then the new accounting principle is applied to the
balances of assets and liabilities as of the beginning of the
earliest period for which retrospective application is
practicable and that a corresponding adjustment be made to the
opening balance of retained earnings for that period rather that
being reported in an income statement. Further, the accounting
principle is to be applied prospectively from the earliest date
when it is impracticable to determine the effect to all prior
periods. This Statement is effective for the Company as of
January 1, 2006. Adoption of this statement could have an
impact if there are future voluntary accounting changes and
correction of errors.
Comprehensive income
Comprehensive Income includes net earnings and other
comprehensive income items such as revenues, expenses, gains or
losses that under Generally Accepted Accounting Principles are
included in comprehensive income, but excluded from net income.
Since 2002, the Company has no such items required to be
excluded from net earnings. Accordingly, there is no difference
between net earnings and comprehensive income for the years
ended December 31, 2005, 2004, or 2003.
Goodwill
Goodwill represents costs in excess of the fair value acquired
in connection with purchase business combinations. Goodwill
arose in connection with the 2004 acquisition of a company
related to the planned expansion of the Air Medical Segment. In
accordance with the provisions of SFAS No. 142,
Goodwill and Other Intangibles, the Company tests its goodwill
for impairment annually or if impairment indicators are present.
If indicators of impairment were present in goodwill and
undiscounted cash flows were not expected to be sufficient to
recover the assets carrying amount, an impairment loss
would be charged to expense in the period identified.
|
|
(2) |
PROPERTY AND EQUIPMENT |
The following table summarizes the Companys property and
equipment at December 31, 2005 and December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
| |
|
|
(thousands of dollars) | |
Flight equipment
|
|
$ |
416,076 |
|
|
$ |
350,022 |
|
Other
|
|
|
67,645 |
|
|
|
61,710 |
|
|
|
|
|
|
|
|
|
|
|
483,721 |
|
|
|
411,732 |
|
Less accumulated depreciation
|
|
|
(172,043 |
) |
|
|
(158,491 |
) |
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
311,678 |
|
|
$ |
253,241 |
|
|
|
|
|
|
|
|
Property and equipment at December 31, 2005 and 2004
included aircraft with a net book value of $1.1 million and
$1.0 million, respectively that was held for sale.
F- 14
Notes to consolidated financial statements
On April 23, 2002, the Company issued $200 million in
principal amount of
93/8%
Series A Senior Unsecured Notes due 2009 in a private
offering that was exempt from registration under Rule 144A
under the Securities Act of 1933 (the Securities
Act). All of the notes were subsequently exchanged for the
Companys
93/8%
Series B Senior Unsecured Notes due 2009 (the
Series B Senior Unsecured Notes), pursuant to
an exchange offer that was registered under the Securities Act.
The Series B Senior Unsecured Notes bear annual interest at
93/8
% payable semi-annually on May 1 and November 1
of each year and mature in May 2009. The Series B Senior
Unsecured Notes contain restrictive 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 December 31, 2005
and 2004, the Company was in compliance with these covenants.
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. On June 18,
2004, the Company amended its credit agreement which reduced the
revolving credit facility from $50 million to
$35 million. On September 30, 2005, the Company
amended its credit agreement, which was scheduled to expire
July 31, 2006, and extended the expiration date to
July 31, 2007. The credit agreement permits both prime rate
based borrowings and LIBOR rate borrowings plus a
spread. The spread for LIBOR borrowings is from 2.0% to 3.0%.
Any amounts outstanding under the revolving credit facility are
due July 31, 2007. The Company will pay an annual 0.375%
commitment fee on the unused portion of the revolving credit
facility. The Company may also obtain letters of credit issued
under the credit facility up to $5.0 million with a 0.125%
fee payable on the amount of letters of credit issued. The
Company is not subject to any restrictions in obtaining funds
from any of its subsidiaries. At December 31, 2005, the
Company had $3.3 million borrowings under the revolving
credit facility, and the Company had $8.3 million under the
credit facility at December 31, 2004. The Company had four
letters of credit for $4.2 million outstanding at
December 31, 2005, and three letters of credit for
$2.6 million outstanding at December 31, 2004. The
credit agreement includes covenants related to working capital,
funded debt to net worth, and consolidated net worth. As of
December 31, 2005 and 2004, the Company was in compliance
with these covenants. The credit agreement is collateralized by
accounts receivable and inventory. Also included in notes
payable at December 31, 2005 and 2004 are $1.0 million
and $2.0 million, respectively, representing finance
agreements on purchase commitments for transport category
aircraft as further described at Note 8.
Cash paid for interest was $19.5 million,
$19.1 million, and $19.0 million, for the years ended
December 31, 2005, 2004, and 2003, respectively.
F- 15
Notes to consolidated financial statements
Income tax expense (benefit) is composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
Year ended | |
|
Year ended | |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
|
(thousands of dollars) | |
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
343 |
|
|
$ |
|
|
|
$ |
|
|
|
State
|
|
|
(50 |
) |
|
|
(1,142 |
) |
|
|
102 |
|
|
Foreign
|
|
|
1,371 |
|
|
|
1,077 |
|
|
|
954 |
|
Deferred principally
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
6,415 |
|
|
|
3,845 |
|
|
|
(293 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
8,079 |
|
|
$ |
3,780 |
|
|
$ |
763 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) as a percentage of pre-tax earnings
varies from the effective Federal statutory rate of 34% as a
result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
Year ended | |
|
Year ended | |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Amount | |
|
% | |
|
Amount | |
|
% | |
|
Amount | |
|
% | |
| |
|
|
(Thousands of dollars, except percentage amounts) | |
Income taxes at statutory rate
|
|
$ |
7,559 |
|
|
|
34 |
|
|
$ |
2,636 |
|
|
|
34 |
|
|
$ |
647 |
|
|
|
34 |
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign tax expense, net of U.S. benefits
|
|
|
|
|
|
|
|
|
|
|
679 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
Hurricane relief credit
|
|
|
(537 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of state income taxes
|
|
|
762 |
|
|
|
3 |
|
|
|
298 |
|
|
|
4 |
|
|
|
195 |
|
|
|
10 |
|
Other items net
|
|
|
295 |
|
|
|
1 |
|
|
|
167 |
|
|
|
2 |
|
|
|
(79 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
8,079 |
|
|
|
36 |
|
|
$ |
3,780 |
|
|
|
49 |
|
|
$ |
763 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 16
Notes to consolidated financial statements
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2005 and 2004 are presented
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
| |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
$ |
1,652 |
|
|
$ |
1,527 |
|
|
Foreign tax credits
|
|
|
4,617 |
|
|
|
3,246 |
|
|
Valuation allowance tax credit carryforwards
|
|
|
(2,142 |
) |
|
|
(2,142 |
) |
|
Vacation accrual
|
|
|
1,419 |
|
|
|
1,397 |
|
|
Inventory valuation
|
|
|
3,549 |
|
|
|
3,733 |
|
|
Workmans compensation reserve
|
|
|
190 |
|
|
|
367 |
|
|
Allowance for uncollectible accounts
|
|
|
2,297 |
|
|
|
282 |
|
|
Alternative minimum tax credit
|
|
|
343 |
|
|
|
|
|
|
Hurricane relief credit
|
|
|
814 |
|
|
|
|
|
|
Other
|
|
|
1,321 |
|
|
|
157 |
|
|
Net operating loss
|
|
|
23,282 |
|
|
|
28,913 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
37,342 |
|
|
|
37,480 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Tax depreciation in excess of book depreciation
|
|
|
(68,167 |
) |
|
|
(61,890 |
) |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(68,167 |
) |
|
|
(61,890 |
) |
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$ |
(30,825 |
) |
|
$ |
(24,410 |
) |
|
|
|
|
|
|
|
A valuation allowance was recorded against certain foreign tax
credits paid in 2004 and prior as management believes it is more
likely than not that the deferred tax asset related to certain
foreign tax credit carryforwards will not be realized during
their carryforward period. The estimated future
U.S. taxable income, after utilization of the available net
operating loss carryforwards, will limit the ability of the
Company to utilize the foreign tax credit carryforwards during
their carryforward period. Due to recent changes in the tax laws
extending the credit carryforward period, management believes
that a valuation allowance is not necessary for foreign tax
credits generated in 2005. A tax credit of $0.8 million was
realized in 2005 as a result of Hurricanes Katrina and Rita
Legislation. At December 31, 2005 and 2004, other current
assets include $8.1 million and $5.4 million,
respectively, of deferred tax assets.
The Company has net operating loss carryforwards
(NOLs), of approximately $61.0 million that, if
not used will expire beginning in 2022 through 2024.
Additionally, for state income tax purposes, the Company has
NOLs of approximately $51.0 million available to reduce
future state taxable income. These NOLs expire in varying
amounts beginning in 2012 through 2024, the majority of which
expires in 2017 and through 2019. Most of these NOLs arose from
accelerated tax depreciation deductions related to substantial
aircraft additions since 2002.
Income taxes paid were approximately $0.1 million,
$0.7 million, and $1.4 million, for the years ended
December 31, 2005, 2004, and 2003, respectively. The
Company received net income tax refunds of approximately
$0.8 million, $0.5 million and $2.0 million
during the years ended December 31, 2005, 2004 and 2003,
respectively.
F- 17
Notes to consolidated financial statements
|
|
(5) |
EMPLOYEE BENEFIT PLANS |
Savings and retirement plans
The Company maintains an Employee Savings Plan under
Section 401(k) of the Internal Revenue Code. The Company
matches 2% for every 1% of an employees salary deferral
contribution, not to exceed 3% of the employees
compensation. The Company contributions were $5.4 million
for the year ended December 31, 2005, $4.8 million for
the year ended December 31, 2004 and $4.3 million for
the year ended December 31, 2003.
The Company maintains a Supplemental Executive Retirement Plan
(SERP). The nonqualified and unfunded plan provides
certain senior management with supplemental retirement and death
benefits at age 65. The SERP plan provides supplemental
retirement benefits that are based on each participants
salary at the time of entrance into the plan. The benefit is
one-third of each participants annual salary of $200,000
or less, plus one-half of each participants annual salary
that is in excess of $200,000, if applicable. The plan does not
provide for automatic benefit increases. During 2000, the
Companys board of directors amended the plan to provide
for partial vesting. The Company recorded the following plan
costs for the years ended December 31, 2005, 2004, and 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
|
(thousands of dollars) | |
Service cost
|
|
$ |
259 |
|
|
$ |
302 |
|
|
$ |
369 |
|
Interest cost
|
|
|
124 |
|
|
|
111 |
|
|
|
95 |
|
Recognized actuarial (gain) loss
|
|
|
53 |
|
|
|
(30 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net periodic plan cost
|
|
$ |
436 |
|
|
$ |
383 |
|
|
$ |
428 |
|
|
|
|
|
|
|
|
|
|
|
The benefit obligation, funded status, and assumptions of the
plan on December 31, 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
| |
|
|
(thousands of dollars) | |
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
Benefit obligation at the beginning of the year
|
|
$ |
3,148 |
|
|
$ |
2,609 |
|
|
Service cost
|
|
|
259 |
|
|
|
302 |
|
|
Interest cost
|
|
|
124 |
|
|
|
111 |
|
|
Actuarial loss
|
|
|
13 |
|
|
|
247 |
|
|
Benefits paid
|
|
|
(131 |
) |
|
|
(121 |
) |
|
|
|
|
|
|
|
|
|
Benefit obligation at the end of the year
|
|
$ |
3,413 |
|
|
$ |
3,148 |
|
|
|
|
|
|
|
|
F- 18
Notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
| |
|
|
(thousands of dollars) | |
Reconciliation of funded status
|
|
|
|
|
|
|
|
|
|
Unfunded status
|
|
$ |
(3,413 |
) |
|
$ |
(3,148 |
) |
|
Unrecognized actuarial gains
|
|
|
(123 |
) |
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
Total liability included in other long term liabilities on the
consolidated balance sheet
|
|
$ |
(3,536 |
) |
|
$ |
(3,230 |
) |
|
|
|
|
|
|
|
Weighted average assumptions
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.0 |
% |
|
|
3.8 |
% |
|
Employee turnover/early retirement rate
|
|
|
|
|
|
|
|
|
The SERP plan is an unfunded arrangement. However, the Company
has purchased life insurance contracts on the lives of certain
participants in anticipation of using the life insurances
cash values and death benefits to help fulfill the obligations
of the plan. The Company, as owner of such policies, may sell or
redeem the contracts at any time without any obligation to the
plan participants. The Company recorded expenses of
approximately $0.5 million for each of the years 2005 and
2004 related to the life insurance contracts. Cash values of the
life insurance contracts, recorded in other assets, are
$0.9 million at December 31, 2005 and
$0.7 million at December 31, 2004.
The Board of Directors has resolved to terminate the SERP,
subject to any vested participant rights, and has offered
participants a substitute benefit in the Officer Deferred
Compensation Plan based on a calculated present value
participants interest in the SERP. In January 2006, the
participants agreed to such substitute benefits and as a result
approximately $2.2 million of the SERP liability will be
transferred to the Deferred Compensation Liability in 2006.
The Company maintains an Officer Deferred Compensation Plan that
permits key officers to defer a portion of their compensation.
The plan is nonqualified and funded. The Company has established
a separate account for each participant, which is invested and
reinvested from time to time in investments that the participant
selects from a list of eligible investment choices. Earnings and
losses on the book reserve accounts accrue to the plan
participants. Liabilities for the plan are included in other
long-term liabilities, and the corresponding investment accounts
are included in other assets. Aggregate amounts deferred under
the plans were $0.9 million and $0.1 million,
respectively, for the years December 31, 2005 and 2004.
Stock based compensation
Under the PHI 1995 Incentive Plan (the 1995 Plan),
the Company is authorized to issue up to 175,000 shares of
voting common stock and 575,000 shares of non-voting common
stock. The Compensation Committee of the Board of Directors is
authorized under the 1995 Plan to grant stock options,
restricted stock, stock appreciation rights, performance shares,
stock awards, and cash awards. The exercise prices of the stock
option grants are equal to the fair market value of the
underlying stock at the date of grant. The 1995 Plan also allows
awards under the plan to fully vest upon a change in control of
the Company. In September of 2001, the Company underwent a
change of control as defined in the 1995 plan and as a result,
all awards issued prior to the change of control became fully
vested.
During the year ended December 31, 2001, the Company
granted 20,000 non-voting restricted shares and 150,000
non-voting stock options under the 1995 Plan. The non-voting
restricted shares had a fair value of $11.06 on the date of
issue and became unrestricted during 2001. The non-voting stock
F- 19
Notes to consolidated financial statements
options are 100% vested and expire on September 1, 2010.
Such options were exercised in 2005. The Company has not issued
any shares, options or rights under the 1995 Plan since 2001.
At December 31, 2005, there were 116,250 voting shares and
190,126 non-voting shares available for issuance under the 1995
Plan. The Company recorded compensation expense related to the
1995 Plan of $0.2 million for December 31, 2005,
$0.1 million for December 31, 2004 and
$0.4 million for the year ended December 31, 2003.
There was no unearned stock compensation expense at
December 31, 2005 and 2004.
The following table summarizes employee and director stock
option activities for the years ended December 31, 2005,
2004, and 2003. All of the options were issued with an exercise
price equal to or greater than the market price of the stock at
the time of issue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1995 Plan | |
|
|
|
|
|
|
options | |
|
|
|
Weighted | |
|
|
| |
|
|
|
average | |
|
|
Non-voting | |
|
Totals | |
|
exercise price | |
| |
Balance outstanding at December 31, 2002
|
|
|
244,623 |
|
|
|
244,623 |
|
|
|
11.58 |
|
Options settled for cash
|
|
|
(21,250 |
) |
|
|
(21,250 |
) |
|
|
11.75 |
|
Options exercised
|
|
|
(5,670 |
) |
|
|
(5,670 |
) |
|
|
9.06 |
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at December 31, 2003
|
|
|
217,703 |
|
|
|
217,703 |
|
|
|
11.63 |
|
Options settled for cash
|
|
|
(10,750 |
) |
|
|
(10,750 |
) |
|
|
12.75 |
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at December 31, 2004
|
|
|
206,953 |
|
|
|
206,953 |
|
|
|
11.57 |
|
Options exercised
|
|
|
(150,000 |
) |
|
|
(150,000 |
) |
|
|
11.06 |
|
Options settled for cash
|
|
|
(10,203 |
) |
|
|
(10,203 |
) |
|
|
8.50 |
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at December 31, 2005
|
|
|
46,750 |
|
|
|
46,750 |
|
|
|
13.87 |
|
|
|
|
|
|
|
|
|
|
|
Shares exercisable at December 31, 2005
|
|
|
46,750 |
|
|
|
46,750 |
|
|
|
13.87 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
206,953 |
|
|
|
206,953 |
|
|
|
11.57 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
217,703 |
|
|
|
217,703 |
|
|
|
11.63 |
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding as of December 31, 2005. All of the outstanding
stock options are exercisable.
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable | |
| |
|
|
Remaining | |
|
|
Number |
|
contractual | |
|
Exercise | |
outstanding |
|
life (years) | |
|
price | |
| |
31,750
|
|
|
3.5 |
|
|
$ |
12.75 |
|
15,000
|
|
|
2.8 |
|
|
|
16.25 |
|
|
|
|
|
|
|
|
46,750
|
|
|
3.3 |
(1) |
|
|
13.87 |
|
|
|
|
|
|
|
|
Incentive compensation
During 2002, the Company implemented an incentive plan for
non-executive and non-represented employees. The plan allows the
Company to pay up to 7% of earnings before tax, net of incentive
compensation. During 2004, the Company implemented an Executive/
Senior Management plan for certain corporate and business unit
management employees. For 2005, the Company recorded
$2.3 million of incentive compensation expense related to
the above plans. The Company did not
F- 20
Notes to consolidated financial statements
record incentive compensation expense for the years ended
December 31, 2004 and 2003, as certain requirements under
the incentive plans established were not met.
The following table summarizes the Companys other assets
at December 31, 2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
| |
|
|
(thousands of dollars) | |
Goodwill acquired
|
|
$ |
2,747 |
|
|
$ |
1,878 |
|
Security deposits on aircraft
|
|
|
4,576 |
|
|
|
4,250 |
|
Deferred financing cost
|
|
|
3,520 |
|
|
|
3,892 |
|
Other
|
|
|
2,513 |
|
|
|
2,507 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
13,266 |
|
|
$ |
12,527 |
|
|
|
|
|
|
|
|
During 2005 and 2004, the Company placed security deposits on
aircraft to be leased or purchased. Upon delivery of the
aircraft, the deposits will be applied to the lease or purchase.
|
|
(7) |
FINANCIAL INSTRUMENTS |
Fair ValueThe following table presents the carrying
amounts and estimated fair values of financial instruments held
by the Company at December 31, 2005 and December 2004. The
table excludes cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities and term notes payable,
all of which had fair values approximating carrying
amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Carrying | |
|
Estimated | |
|
Carrying | |
|
Estimated | |
|
|
amounts | |
|
fair value | |
|
amounts | |
|
fair value | |
| |
Long-term debt
|
|
|
$200,000 |
|
|
|
$210,500 |
|
|
|
$200,000 |
|
|
|
$216,000 |
|
At December 31, 2005 and 2004, the fair value of long-term
debt is based on quoted market indications.
|
|
(8) |
COMMITMENTS AND CONTINGENCIES |
Operating LeasesThe Company leases certain
aircraft, 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. The Company generally pays
all insurance, taxes, and maintenance expenses associated with
these aircraft and some of these leases contain renewal and
purchase options. Rental expense incurred under these leases
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
Year ended | |
|
Year ended | |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
|
(thousands of dollars) | |
Aircraft
|
|
$ |
5,817 |
|
|
$ |
748 |
|
|
$ |
1,094 |
|
Other
|
|
|
5,167 |
|
|
|
3,906 |
|
|
|
3,033 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,984 |
|
|
$ |
4,654 |
|
|
$ |
4,127 |
|
|
|
|
|
|
|
|
|
|
|
The Company began leasing a principal operating facility at
Lafayette, Louisiana for twenty years, effective September 2001.
The lease expires in 2021 and has three five-year renewal
options.
F- 21
Notes to consolidated financial statements
The following table presents the remaining aggregate lease
commitments under operating lease having initial non-cancelable
terms in excess of one year. The table includes renewal periods
on the principal operating facility lease.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft | |
|
Other | |
|
Total | |
| |
|
|
(thousands of dollars) | |
2006
|
|
$ |
10,300 |
|
|
$ |
2,839 |
|
|
$ |
13,139 |
|
2007
|
|
|
10,300 |
|
|
|
2,249 |
|
|
|
12,549 |
|
2008
|
|
|
10,300 |
|
|
|
1,858 |
|
|
|
12,158 |
|
2009
|
|
|
10,300 |
|
|
|
1,386 |
|
|
|
11,686 |
|
2010
|
|
|
10,902 |
|
|
|
1,132 |
|
|
|
12,034 |
|
Thereafter
|
|
|
57,008 |
|
|
|
10,102 |
|
|
|
67,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
109,110 |
|
|
$ |
19,566 |
|
|
$ |
128,676 |
|
|
|
|
|
|
|
|
|
|
|
The Company expects to finance the acquisition of new aircraft,
discussed below, with existing cash, operating leases, the
issuance of debt or equity securities or some combination
thereof.
In 2005, we took delivery of three transport category aircraft,
four medium and eight light aircraft for service in the Domestic
Oil and Gas segment. We also took delivery of eleven light
aircraft for service in the Air Medical segment. Subsequent to
December 31, 2005, we took delivery of one transport
category, one medium, and two light aircraft, all for service in
Domestic Oil and Gas, and one light aircraft for service in the
Air Medical segment. We executed operating leases for the
transport category aircraft.
At December 31, 2005, we had an order for three additional
transport category aircraft, one of which was delivered early
January and an operating lease was executed for that aircraft.
There are two aircraft remaining for delivery in 2006 at an
approximate cost of $35.0 million, for which we intend to
execute an operating lease for these aircraft also.
Additionally, at December 31, 2005, we had orders for 35
additional aircraft with a total cost of $176.8 million
with scheduled delivery dates throughout 2006 and 2007. Of this
total, four aircraft totaling $14.5 million were delivered
subsequent to December 31, 2005, as mentioned above.
Environmental MattersWe have an aggregate estimated
liability of $0.2 million as of December 31, 2005 for
environmental remediation costs that are probable and estimable.
We have conducted environmental surveys of our former Lafayette
Facility, which we vacated in 2001, and have determined that
limited soil and groundwater contamination exists at the
facility. We have installed groundwater monitoring wells at the
facility and periodically monitor and report on the
contamination. In May 2003, we submitted a Louisiana Risk
Evaluation/ Corrective Action Plan (RECAP) Standard
Site Assessment Report to the Louisiana Department of
Environmental Quality (LDEQ) fully delineating the
extent and type of contamination. LDEQ is reviewing the
assessment report and has requested that the Site Assessment
Report be updated to include recent analytical data and be
resubmitted for further LDEQ review. Once LDEQ completes its
review and reports on whether all contamination has been fully
defined, a risk evaluation in accordance with RECAP will be
submitted and evaluated by LDEQ. At that point, LDEQ will
establish what cleanup standards must be met at the site. When
the process is complete, we will be in a position to develop an
appropriate remediation plan and determine the resulting cost of
remediation. We have not recorded any estimated liability for
remediation and contamination and, based upon the May 2003 Site
Assessment Report and ongoing monitoring, we believe the
ultimate remediation costs for the former Lafayette facility
will not be material to our consolidated financial position,
results of operations, or liquidity.
F- 22
Notes to consolidated financial statements
During 2004, LDEQ advised the us that groundwater contaminants
impacting monitor wells at the PHI Lafayette Heliport were
originating from an off-site location and that we would no
longer be required to perform further monitoring at the site.
Subsequently, based upon site investigation work performed by
the Lafayette Airport Commission, the source of the
contamination was identified as residing at another location,
for which PHI is not responsible. The Lafayette Airport
Commission has begun remediation of the PHI Lafayette Heliport.
Legal MattersThe 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. 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 Companys consolidated financial position, results
of operations or liquidity.
As previously reported, on June 15, 2005, we received a
subpoena from the United States Department of Justice relating
to a grand jury investigation of potential antitrust violations
among providers of helicopter transportation services in the
Gulf of Mexico. We are cooperating fully with the investigation
and are in the process of providing documents and other
information as required by the subpoena. We will respond to any
DOJ request for further information, and will continue to
cooperate with the investigation. At this early stage, it is not
possible to assess the outcome of this investigation, although
based on the information available to us to date, management
does not expect the outcome of the investigation to have a
material adverse effect on our financial condition or results of
operations.
Purchase CommitmentsAt December 31, 2005,
there were no purchase commitments other than those described
above with respect to aircraft which the Company expects to fund
with existing cash, issue debt and/or equity securities, execute
an operating lease, or some combination thereof.
|
|
(9) |
BUSINESS SEGMENTS AND GEOGRAPHIC AREAS |
PHI is primarily a provider of helicopter services, including
helicopter maintenance and repair services. The Company has used
a combination of factors to identify its reportable segments as
required by Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise
and Related Information (SFAS 131). The
overriding determination of the Companys segments is based
on how the chief operating decision-maker of the Company
evaluates the Companys results of operations. The
underlying factors include customer bases, types of service,
operational management, physical locations, and underlying
economic characteristics of the types of work the Company
performs. The Company identifies four segments that meet the
requirements of SFAS 131 for disclosure. The reportable
segments are Domestic Oil and Gas, Air Medical, International,
and Technical Services.
The Domestic Oil and Gas segment provides helicopter services to
oil and gas customers operating in the Gulf of Mexico. The
International segment provides helicopters in various foreign
countries to oil and gas customers. The Air Medical segment
provides helicopter services to hospitals and medical programs
in several U.S. states, and also to individuals under which
the Company is paid by either a commercial insurance company,
federal or state agency, or the patient. The Companys Air
Evac subsidiary is included in the Air Medical segment. The
Technical Services segment provides helicopter repair and
overhaul services for existing flight operations customers and,
through September 30, 2004, for a now expired contract with
one customer.
The Companys largest customer, who is a customer in the
Domestic Oil and Gas segment, accounted for 14%
($50.5 million), 13% ($37.8 million), and 15%
($40.4 million) of operating revenues for the years ended
December 31, 2005, 2004, and 2003, respectively.
F- 23
Notes to consolidated financial statements
The following table shows information about the profit or loss
and assets of each of the Companys reportable segments for
the years ended December 31, 2005, 2004, and 2003. The
information contains certain allocations, including allocations
of depreciation, rents, insurance, and overhead expenses that
the Company deems reasonable and appropriate for the evaluation
of results of operations. The Company does not allocate gains on
dispositions of property and equipment, other income, interest
expense, and corporate selling, general, and administrative
costs to the segments. Where applicable, the tables present the
unallocated amounts to reconcile the totals to the
Companys consolidated financial statements. Segment assets
are determined by where they are situated at period-end.
Corporate assets are principally cash and cash equivalents,
short-term investments, other assets, and certain property,
plant, and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
|
(thousands of dollars) | |
Segment operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
$ |
219,644 |
|
|
$ |
180,102 |
|
|
$ |
183,849 |
|
|
Air Medical
|
|
|
112,123 |
|
|
|
77,476 |
|
|
|
46,674 |
|
|
International
|
|
|
28,192 |
|
|
|
24,342 |
|
|
|
21,247 |
|
|
Technical Services
|
|
|
3,651 |
|
|
|
9,388 |
|
|
|
17,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
363,610 |
|
|
|
291,308 |
|
|
|
269,392 |
|
|
|
|
|
|
|
|
|
|
|
Segment direct expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
|
173,177 |
|
|
|
151,107 |
|
|
|
163,328 |
|
|
Air Medical
|
|
|
104,465 |
|
|
|
67,664 |
|
|
|
32,782 |
|
|
International
|
|
|
19,099 |
|
|
|
18,668 |
|
|
|
21,093 |
|
|
Technical Services
|
|
|
2,522 |
|
|
|
7,935 |
|
|
|
13,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct expense
|
|
|
299,263 |
|
|
|
245,374 |
|
|
|
230,229 |
|
Segment selling, general and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
|
1,003 |
|
|
|
1,499 |
|
|
|
1,494 |
|
|
Air Medical
|
|
|
6,503 |
|
|
|
6,525 |
|
|
|
4,480 |
|
|
International
|
|
|
214 |
|
|
|
49 |
|
|
|
214 |
|
|
Technical Services
|
|
|
7 |
|
|
|
12 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expense
|
|
|
7,727 |
|
|
|
8,085 |
|
|
|
6,200 |
|
|
|
|
|
|
|
|
|
|
|
Total direct and selling, general and administrative expense
|
|
|
306,990 |
|
|
|
253,459 |
|
|
|
236,429 |
|
|
|
|
|
|
|
|
|
|
|
Net segment profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
|
45,464 |
|
|
|
27,496 |
|
|
|
19,027 |
|
|
Air Medical
|
|
|
1,155 |
|
|
|
3,287 |
|
|
|
9,412 |
|
|
International
|
|
|
8,879 |
|
|
|
5,625 |
|
|
|
(60 |
) |
|
Technical Services
|
|
|
1,122 |
|
|
|
1,441 |
|
|
|
4,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
56,620 |
|
|
|
37,849 |
|
|
|
32,963 |
|
Other,
net(1)
|
|
|
3,230 |
|
|
|
2,961 |
|
|
|
2,674 |
|
Unallocated selling, general and administrative costs
|
|
|
(17,169 |
) |
|
|
(12,949 |
) |
|
|
(13,783 |
) |
Interest expense
|
|
|
(20,448 |
) |
|
|
(20,109 |
) |
|
|
(19,952 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
$ |
22,233 |
|
|
$ |
7,752 |
|
|
$ |
1,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Including gains on disposition of property and equipment and
other income. |
F- 24
Notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
|
(thousands of dollars) | |
Expenditures for long lived Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
$ |
55,876 |
|
|
$ |
7,614 |
|
|
$ |
20,086 |
|
|
Air Medical
|
|
|
39,361 |
|
|
|
18,071 |
|
|
|
12,881 |
|
|
International
|
|
|
284 |
|
|
|
198 |
|
|
|
276 |
|
|
Corporate
|
|
|
644 |
|
|
|
8,038 |
|
|
|
3,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
96,165 |
|
|
$ |
33,921 |
|
|
$ |
36,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
|
(thousands of dollars) | |
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
$ |
15,829 |
|
|
$ |
18,342 |
|
|
$ |
19,042 |
|
|
Air Medical
|
|
|
6,023 |
|
|
|
4,992 |
|
|
|
2,031 |
|
|
International
|
|
|
1,236 |
|
|
|
1,587 |
|
|
|
1,928 |
|
|
Technical Services
|
|
|
|
|
|
|
42 |
|
|
|
127 |
|
|
Corporate
|
|
|
4,045 |
|
|
|
2,880 |
|
|
|
2,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
27,133 |
|
|
$ |
27,843 |
|
|
$ |
25,209 |
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Oil and Gas
|
|
$ |
247,657 |
|
|
$ |
227,929 |
|
|
$ |
253,064 |
|
|
Air Medical
|
|
|
137,911 |
|
|
|
89,722 |
|
|
|
49,672 |
|
|
International
|
|
|
13,560 |
|
|
|
12,289 |
|
|
|
14,733 |
|
|
Technical Services
|
|
|
|
|
|
|
|
|
|
|
12,176 |
|
|
Corporate
|
|
|
150,081 |
|
|
|
64,233 |
|
|
|
47,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
549,209 |
|
|
$ |
394,173 |
|
|
$ |
377,454 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys revenues from
external customers attributed to operations in the United States
and foreign areas and long-lived assets in the United States and
foreign areas.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
|
|
|
Year ended | |
|
|
|
Year ended | |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
|
(thousands of dollars) | |
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
335,418 |
|
|
$ |
266,966 |
|
|
$ |
248,145 |
|
|
International
|
|
|
28,192 |
|
|
|
24,342 |
|
|
|
21,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
363,610 |
|
|
$ |
291,308 |
|
|
$ |
269,392 |
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
303,924 |
|
|
$ |
246,819 |
|
|
$ |
248,211 |
|
|
International
|
|
|
7,754 |
|
|
|
6,422 |
|
|
|
10,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
311,678 |
|
|
$ |
253,241 |
|
|
$ |
258,526 |
|
|
|
|
|
|
|
|
|
|
|
F- 25
Notes to consolidated financial statements
|
|
(10) |
EFFECTS OF HURRICANES |
During 2005 two significant hurricanes affected our operations.
Hurricane Katrina made landfall in southeastern Louisiana on
August 29, 2005 and caused substantial flooding at our base
at Boothville, Louisiana which we expect to be returned to
service in late 2006. Other bases incurred some damage, most of
which has been repaired. Flight hours were adversely affected
initially as aircraft were evacuated and parked until the storm
passed. When flights resumed, we experienced an increase in
flight hours as customers began assessing damage and making
repairs to facilities in the Gulf of Mexico. Additionally, the
Air Medical segment experienced higher than normal flight
activity while assisting with the evacuation of New Orleans
following the hurricane.
On September 24, 2005, Hurricane Rita made landfall in
southwestern Louisiana destroying our base in Cameron, and
causing flooding and wind damage at other bases. Initially,
flight hours were also adversely affected by this storm, but
once flights resumed, they returned to pre-Katrina activity
levels. The Air Medical segment also experienced additional
flight activity both before and after Hurricane Rita related to
the evacuation of certain areas of Texas.
Operations at bases that are currently out of service have been
relocated to other bases that were unaffected or did not sustain
significant damage. All employees were accounted for and there
were no injuries reported. All aircraft were evacuated prior to
both storms, and as a result there was no damage to aircraft.
Through December 31, 2005 we recognized a loss from the
hurricanes of approximately $5.6 million consisting of the
write-off of inventory and other tangible assets of
$2.5 million and incremental repair and relocation costs of
$3.1 million. Such losses were offset completely by
estimated insurance recoveries of which $2.7 million
remains in accounts receivable, other at December 31, 2005.
We anticipate incurring additional repair costs of approximately
$2.9 million in 2006 to restore damaged facilities and we
expect that substantially all of such costs will be covered by
insurance.
If the estimates of our damages and insurance recoveries prove
to be reasonably accurate, we do not believe that we will record
any net loss related to hurricane damages for financial
reporting purposes. Such estimates could, of course, change as
better repair estimates become available. We would expect to
have an unreimbursed cash outlay of approximately
$1.0 million due to the difference in the insurance
reimbursement for certain assets that had been in service for a
number of years and were a total loss, compared to the
replacement cost we will incur for those assets.
During the year ended December 31, 2003, the Company
recorded costs of approximately $1.9 million related to a
plan of termination and early retirement covering approximately
60 employees. At December 31, 2003, the Company had an
outstanding severance liability of $1.3 million for certain
of these employees who had already terminated employment, or
were scheduled to terminate employment and who had elected
payment of the severance benefits at a later date. This amount
was substantially all paid in 2004.
F- 26
Notes to consolidated financial statements
|
|
(12) |
QUARTERLY FINANCIAL DATA (UNAUDITED) |
The summarized quarterly results of operations for the years
ended December 31, 2005 and December 31, 2004 (in
thousands of dollars, except per share data) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended | |
|
|
| |
|
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
|
|
2005 | |
|
2005 | |
|
2005 | |
|
2005 | |
| |
|
|
(thousands of dollars, except per share data) | |
Operating revenues
|
|
$ |
74,239 |
|
|
$ |
86,783 |
|
|
$ |
100,018 |
|
|
$ |
102,570 |
|
Gross profit
|
|
|
10,203 |
|
|
|
13,887 |
|
|
|
19,834 |
|
|
|
20,422 |
|
Net earnings
|
|
|
359 |
|
|
|
1,961 |
|
|
|
5,460 |
|
|
|
6,374 |
|
Net earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.07 |
|
|
|
0.32 |
|
|
|
0.53 |
|
|
|
0.62 |
|
|
Diluted
|
|
|
0.07 |
|
|
|
0.31 |
|
|
|
0.53 |
|
|
|
0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended | |
|
|
| |
|
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
|
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
| |
|
|
(thousands of dollars, except per share data) | |
Operating revenues
|
|
$ |
66,973 |
|
|
$ |
70,186 |
|
|
$ |
77,733 |
|
|
$ |
76,416 |
|
Gross profit
|
|
|
9,688 |
|
|
|
12,138 |
|
|
|
13,928 |
|
|
|
10,180 |
|
Net earnings (loss)
|
|
|
3 |
|
|
|
1,113 |
|
|
|
2,659 |
|
|
|
197 |
|
Net earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
0.21 |
|
|
|
0.49 |
|
|
|
0.04 |
|
|
Diluted
|
|
|
|
|
|
|
0.20 |
|
|
|
0.48 |
|
|
|
0.04 |
|
|
|
(13) |
CONDENSED FINANCIAL INFORMATION GUARANTOR ENTITIES |
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
Companys existing 100% owned operating subsidiaries
(Guarantor Subsidiaries).
The following condensed financial information sets forth, on a
consolidating basis, the balance sheet, statement of operations,
and statement of cash flows information for PHI, Inc.
(Parent Company Only) and the Guarantor
Subsidiaries. The principal eliminating entries eliminate
investments in subsidiaries, intercompany balances, and
intercompany revenues and expenses.
F- 27
Notes to consolidated financial statements
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
|
|
Parent | |
|
|
|
|
company | |
|
Guarantor | |
|
|
|
|
only | |
|
subsidiaries | |
|
Eliminations | |
|
Consolidated | |
| |
|
|
(thousands of dollars) | |
ASSETS |
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
69,102 |
|
|
$ |
459 |
|
|
$ |
|
|
|
$ |
69,561 |
|
|
Accounts receivable net of allowance
|
|
|
81,881 |
|
|
|
14,236 |
|
|
|
|
|
|
|
96,117 |
|
|
Inventory
|
|
|
48,123 |
|
|
|
|
|
|
|
|
|
|
|
48,123 |
|
|
Other current assets
|
|
|
9,978 |
|
|
|
64 |
|
|
|
|
|
|
|
10,042 |
|
|
Refundable income taxes
|
|
|
(61 |
) |
|
|
483 |
|
|
|
|
|
|
|
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
209,023 |
|
|
|
15,242 |
|
|
|
|
|
|
|
224,265 |
|
Investment in subsidiaries
|
|
|
38,700 |
|
|
|
|
|
|
|
(38,700 |
) |
|
|
|
|
Intercompany receivable
|
|
|
|
|
|
|
39,867 |
|
|
|
(39,867 |
) |
|
|
|
|
Other assets
|
|
|
13,253 |
|
|
|
13 |
|
|
|
|
|
|
|
13,266 |
|
Property and equipment, net
|
|
|
303,421 |
|
|
|
8,257 |
|
|
|
|
|
|
|
311,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
564,397 |
|
|
$ |
63,379 |
|
|
$ |
(78,567 |
) |
|
$ |
549,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$ |
46,322 |
|
|
$ |
10,605 |
|
|
$ |
|
|
|
$ |
56,927 |
|
|
Intercompany payable
|
|
|
39,867 |
|
|
|
|
|
|
|
(39,867 |
) |
|
|
|
|
|
Accrued vacation payable
|
|
|
3,522 |
|
|
|
289 |
|
|
|
|
|
|
|
3,811 |
|
|
Notes payable
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
90,711 |
|
|
|
10,894 |
|
|
|
(39,867 |
|
|
|
61,738 |
|
Long-term debt
|
|
|
203,300 |
|
|
|
|
|
|
|
|
|
|
|
203,300 |
|
Deferred income taxes and other long-term liabilities
|
|
|
31,335 |
|
|
|
13,785 |
|
|
|
|
|
|
|
45,120 |
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital
|
|
|
130,558 |
|
|
|
4,402 |
|
|
|
(4,402 |
) |
|
|
130,558 |
|
|
Retained earnings
|
|
|
108,493 |
|
|
|
34,298 |
|
|
|
(34,298 |
) |
|
|
108,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
239,051 |
|
|
|
38,700 |
|
|
|
(38,700 |
) |
|
|
239,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
564,397 |
|
|
$ |
63,379 |
|
|
$ |
(78,567 |
) |
|
$ |
549,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 28
Notes to consolidated financial statements
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
Parent | |
|
|
|
|
company | |
|
Guarantor | |
|
|
|
|
only | |
|
subsidiaries | |
|
Eliminations | |
|
Consolidated | |
| |
|
|
(thousands of dollars) | |
ASSETS |
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
17,701 |
|
|
$ |
307 |
|
|
$ |
|
|
|
$ |
18,008 |
|
|
Accounts receivable net of allowance
|
|
|
51,868 |
|
|
|
7,508 |
|
|
|
|
|
|
|
59,376 |
|
|
Inventory
|
|
|
39,225 |
|
|
|
|
|
|
|
|
|
|
|
39,225 |
|
|
Other current assets
|
|
|
10,632 |
|
|
|
63 |
|
|
|
|
|
|
|
10,695 |
|
|
Refundable income taxes
|
|
|
916 |
|
|
|
185 |
|
|
|
|
|
|
|
1,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
120,342 |
|
|
|
8,063 |
|
|
|
|
|
|
|
128,405 |
|
Investment in subsidiaries
|
|
|
29,779 |
|
|
|
|
|
|
|
(29,779 |
) |
|
|
|
|
Intercompany receivable
|
|
|
|
|
|
|
30,376 |
|
|
|
(30,376 |
) |
|
|
|
|
Other assets
|
|
|
12,505 |
|
|
|
22 |
|
|
|
|
|
|
|
12,527 |
|
Property and equipment, net
|
|
|
247,797 |
|
|
|
5,444 |
|
|
|
|
|
|
|
253,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
410,423 |
|
|
$ |
43,905 |
|
|
$ |
(60,155 |
) |
|
$ |
394,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$ |
29,796 |
|
|
$ |
4,118 |
|
|
$ |
|
|
|
$ |
33,914 |
|
|
Intercompany payable
|
|
|
30,376 |
|
|
|
|
|
|
|
(30,376 |
) |
|
|
|
|
|
Accrued vacation payable
|
|
|
3,519 |
|
|
|
256 |
|
|
|
|
|
|
|
3,775 |
|
|
Notes payable
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
65,691 |
|
|
|
4,374 |
|
|
|
(30,376 |
) |
|
|
39,689 |
|
Long-term debt
|
|
|
208,275 |
|
|
|
|
|
|
|
|
|
|
|
208,275 |
|
Deferred income taxes and other long-term liabilities
|
|
|
26,482 |
|
|
|
9,752 |
|
|
|
|
|
|
|
36,234 |
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital
|
|
|
15,636 |
|
|
|
4,402 |
|
|
|
(4,402 |
) |
|
|
15,636 |
|
|
Retained earnings
|
|
|
94,339 |
|
|
|
25,377 |
|
|
|
(25,377 |
) |
|
|
94,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
109,975 |
|
|
|
29,779 |
|
|
|
(29,779 |
) |
|
|
109,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
410,423 |
|
|
$ |
43,905 |
|
|
$ |
(60,155 |
) |
|
$ |
394,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 29
Notes to consolidated financial statements
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005 | |
|
|
| |
|
|
Parent | |
|
|
|
|
company | |
|
Guarantor | |
|
|
|
|
only | |
|
subsidiaries | |
|
Eliminations | |
|
Consolidated | |
| |
|
|
(thousands of dollars) | |
Operating revenues
|
|
$ |
310,868 |
|
|
$ |
52,742 |
|
|
$ |
|
|
|
$ |
363,610 |
|
Management fees
|
|
|
1,485 |
|
|
|
|
|
|
|
(1,485 |
) |
|
|
|
|
Gain on dispositions of property and equipment, net
|
|
|
1,173 |
|
|
|
|
|
|
|
|
|
|
|
1,173 |
|
Other
|
|
|
1,988 |
|
|
|
69 |
|
|
|
|
|
|
|
2,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315,514 |
|
|
|
52,811 |
|
|
|
(1,485 |
) |
|
|
366,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses
|
|
|
263,861 |
|
|
|
35,402 |
|
|
|
|
|
|
|
299,263 |
|
|
Management fees
|
|
|
|
|
|
|
1,485 |
|
|
|
(1,485 |
) |
|
|
|
|
|
Selling, general, and administrative
|
|
|
22,110 |
|
|
|
2,786 |
|
|
|
|
|
|
|
24,896 |
|
|
Equity in net income of consolidated subsidiaries
|
|
|
(8,921 |
) |
|
|
|
|
|
|
8,921 |
|
|
|
|
|
|
Interest expense
|
|
|
20,448 |
|
|
|
|
|
|
|
|
|
|
|
20,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297,498 |
|
|
|
39,673 |
|
|
|
7,436 |
|
|
|
344,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
18,016 |
|
|
|
13,138 |
|
|
|
(8,921 |
) |
|
|
22,233 |
|
|
Income taxes
|
|
|
3,862 |
|
|
|
4,217 |
|
|
|
|
|
|
|
8,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
14,154 |
|
|
$ |
8,921 |
|
|
$ |
(8,921 |
) |
|
$ |
14,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 30
Notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2004 | |
|
|
| |
|
|
Parent | |
|
|
|
|
company | |
|
Guarantor | |
|
|
|
|
only | |
|
subsidiaries | |
|
Eliminations | |
|
Consolidated | |
| |
|
|
(thousands of dollars) | |
Operating revenues
|
|
$ |
244,230 |
|
|
$ |
47,078 |
|
|
$ |
|
|
|
$ |
291,308 |
|
Management fees
|
|
|
4,943 |
|
|
|
|
|
|
|
(4,943 |
) |
|
|
|
|
Gain on dispositions of property and equipment, net
|
|
|
2,575 |
|
|
|
(6 |
) |
|
|
|
|
|
|
2,569 |
|
Other
|
|
|
373 |
|
|
|
19 |
|
|
|
|
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252,121 |
|
|
|
47,091 |
|
|
|
(4,943 |
) |
|
|
294,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses
|
|
|
217,072 |
|
|
|
28,302 |
|
|
|
|
|
|
|
245,374 |
|
|
Management fees
|
|
|
|
|
|
|
4,943 |
|
|
|
(4,943 |
) |
|
|
|
|
|
Selling, general, and administrative
|
|
|
17,354 |
|
|
|
3,680 |
|
|
|
|
|
|
|
21,034 |
|
|
Equity in net income of consolidated subsidiaries
|
|
|
(7,398 |
) |
|
|
|
|
|
|
7,398 |
|
|
|
|
|
|
Interest expense
|
|
|
20,109 |
|
|
|
|
|
|
|
|
|
|
|
20,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247,137 |
|
|
|
36,925 |
|
|
|
2,455 |
|
|
|
286,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
4,984 |
|
|
|
10,166 |
|
|
|
(7,398 |
) |
|
|
7,752 |
|
|
Income taxes
|
|
|
1,012 |
|
|
|
2,768 |
|
|
|
|
|
|
|
3,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
3,972 |
|
|
$ |
7,398 |
|
|
$ |
(7,398 |
) |
|
$ |
3,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 31
Notes to consolidated financial statements
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2003 | |
|
|
| |
|
|
Parent | |
|
|
|
|
company | |
|
Guarantor | |
|
|
|
|
only | |
|
subsidiaries | |
|
Eliminations | |
|
Consolidated | |
| |
|
|
(thousands of dollars) | |
Operating revenues
|
|
$ |
218,273 |
|
|
$ |
51,119 |
|
|
$ |
|
|
|
$ |
269,392 |
|
Management fees
|
|
|
3,763 |
|
|
|
|
|
|
|
(3,763 |
) |
|
|
|
|
Gain on dispositions of property and equipment, net
|
|
|
1,988 |
|
|
|
|
|
|
|
|
|
|
|
1,988 |
|
Other
|
|
|
686 |
|
|
|
|
|
|
|
|
|
|
|
686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,710 |
|
|
|
51,119 |
|
|
|
(3,763 |
) |
|
|
272,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses
|
|
|
198,159 |
|
|
|
32,070 |
|
|
|
|
|
|
|
230,229 |
|
|
Management fees
|
|
|
|
|
|
|
3,763 |
|
|
|
(3,763 |
) |
|
|
|
|
|
Selling, general, and administrative
|
|
|
16,600 |
|
|
|
3,383 |
|
|
|
|
|
|
|
19,983 |
|
|
Equity in net income of consolidated subsidiaries
|
|
|
(7,141 |
) |
|
|
|
|
|
|
7,141 |
|
|
|
|
|
|
Interest expense
|
|
|
19,952 |
|
|
|
|
|
|
|
|
|
|
|
19,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227,570 |
|
|
|
39,216 |
|
|
|
3,378 |
|
|
|
270,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
(2,860 |
) |
|
|
11,903 |
|
|
|
(7,141 |
) |
|
|
1,902 |
|
|
Income taxes
|
|
|
(3,999 |
) |
|
|
4,762 |
|
|
|
|
|
|
|
763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
1,139 |
|
|
$ |
7,141 |
|
|
$ |
(7,141 |
) |
|
$ |
1,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 32
Notes to consolidated financial statements
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005 | |
|
|
| |
|
|
Parent | |
|
|
|
|
company | |
|
Guarantor | |
|
|
|
|
only | |
|
subsidiaries | |
|
Eliminations | |
|
Consolidated | |
| |
|
|
(thousands of dollars) | |
Net cash provided by operating activities
|
|
$ |
27,864 |
|
|
$ |
156 |
|
|
$ |
|
|
|
$ |
28,020 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(96,161 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(96,165 |
) |
|
Proceeds from asset dispositions
|
|
|
10,751 |
|
|
|
|
|
|
|
|
|
|
|
10,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(85,410 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(85,414 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from (payment of) long-term debt, net
|
|
|
(5,975 |
) |
|
|
|
|
|
|
|
|
|
|
(5,975 |
) |
|
Proceeds from exercise of stock options
|
|
|
1,025 |
|
|
|
|
|
|
|
|
|
|
|
1,025 |
|
|
Proceeds from stock issuance, net
|
|
|
113,897 |
|
|
|
|
|
|
|
|
|
|
|
113,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
108,947 |
|
|
|
|
|
|
|
|
|
|
|
108,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
51,401 |
|
|
|
152 |
|
|
|
|
|
|
|
51,553 |
|
Cash and cash equivalents, beginning of period
|
|
|
17,701 |
|
|
|
307 |
|
|
|
|
|
|
|
18,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
69,102 |
|
|
$ |
459 |
|
|
$ |
|
|
|
$ |
69,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2004 | |
|
|
| |
|
|
Parent | |
|
|
|
|
company | |
|
Guarantor | |
|
|
|
|
only | |
|
subsidiaries | |
|
Eliminations | |
|
Consolidated | |
| |
|
|
(thousands of dollars) | |
Net cash provided by operating activities
|
|
$ |
10,644 |
|
|
$ |
261 |
|
|
$ |
|
|
|
$ |
10,905 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of additional operating locations
|
|
|
(1,518 |
) |
|
|
|
|
|
|
|
|
|
|
(1,518 |
) |
|
Purchase of property and equipment
|
|
|
(33,916 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(33,921 |
) |
|
Proceeds from asset dispositions
|
|
|
14,395 |
|
|
|
|
|
|
|
|
|
|
|
14,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(21,039 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(21,044 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt, net
|
|
|
8,275 |
|
|
|
|
|
|
|
|
|
|
|
8,275 |
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
8,275 |
|
|
|
|
|
|
|
|
|
|
|
8,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(2,120 |
) |
|
|
256 |
|
|
|
|
|
|
|
(1,864 |
) |
Cash and cash equivalents, beginning of period
|
|
|
19,821 |
|
|
|
51 |
|
|
|
|
|
|
|
19,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
17,701 |
|
|
$ |
307 |
|
|
$ |
|
|
|
$ |
18,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 33
Notes to consolidated financial statements
PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2003 | |
|
|
| |
|
|
Parent | |
|
|
|
|
company | |
|
Guarantor | |
|
|
|
|
only | |
|
subsidiaries | |
|
Eliminations | |
|
Consolidated | |
| |
|
|
(thousands of dollars) | |
Net cash provided by operating activities
|
|
$ |
29,386 |
|
|
$ |
29 |
|
|
$ |
|
|
|
$ |
29,415 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(36,863 |
) |
|
|
|
|
|
|
|
|
|
|
(36,863 |
) |
|
Proceeds from asset dispositions
|
|
|
7,620 |
|
|
|
|
|
|
|
|
|
|
|
7,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(29,243 |
) |
|
|
|
|
|
|
|
|
|
|
(29,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt, net
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
Proceeds from exercise of stock options
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
Other
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,026 |
|
|
|
|
|
|
|
|
|
|
|
2,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
2,169 |
|
|
|
29 |
|
|
|
|
|
|
|
2,198 |
|
Cash and cash equivalents, beginning of period
|
|
|
17,652 |
|
|
|
22 |
|
|
|
|
|
|
|
17,674 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Cash and cash equivalents, end of period
|
|
$ |
19,821 |
|
|
$ |
51 |
|
|
$ |
|
|
|
$ |
19,872 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
F- 34
PROSPECTUS
PETROLEUM HELICOPTERS, INC.
$400,000,000
NON-VOTING COMMON STOCK
VOTING COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
WARRANTS
DEBT SECURITIES
We may offer and sell from time to time in one or more offerings:
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shares of non-voting or voting common stock; |
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shares of preferred stock, in one or more series, which may be
convertible into or exchangeable for our non-voting or voting
common stock or debt securities and which may be issued in the
form of depositary shares evidenced by depositary receipts; |
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warrants to purchase shares of non-voting common stock, voting
common stock or preferred stock or debt securities; and |
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senior or subordinated unsecured debt securities in one or more
series. |
The aggregate initial offering price of the securities will not
exceed $400,000,000. We will offer the securities in amounts, at
prices and on terms to be determined by market conditions at the
time of the offerings. The securities may be offered separately
or together in any combination or as separate series.
We will provide the specific terms of the securities offered in
one or more supplements to this prospectus. You should read this
prospectus and the prospectus supplements carefully before you
invest in any of our securities. This prospectus may not be used
to consummate sales of our securities unless it is accompanied
by a prospectus supplement. The prospectus supplement may add,
update or change information contained in this prospectus.
An investment in our securities involves risks. Please read
carefully the Risk Factors section beginning on
page 4 herein, together with any additional risk factors
that may be included in the applicable prospectus supplement.
We may sell these securities directly or through agents,
underwriters or dealers, or through a combination of these
methods. See Plan of Distribution.
The prospectus supplement will list any agents, underwriters or
dealers that may be involved and the compensation they will
receive. The prospectus supplement also will show you the total
amount of money that we will receive from selling the securities
being offered, after the expenses of the offering.
Our voting common stock is quoted on the Nasdaq SmallCap System
under the symbol PHEL, and our non-voting common
stock is quoted on the Nasdaq SmallCap System under the symbol
PHELK.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined whether this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
This prospectus may not be used to consummate sales of the
securities unless accompanied by the applicable prospectus
supplement.
March 31, 2005
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY
REFERENCE OR PROVIDED IN THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU
WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE
SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION INCORPORATED BY REFERENCE
OR PROVIDED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF
THOSE DOCUMENTS.
TABLE OF CONTENTS
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iii |
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have
filed with the Securities and Exchange Commission using a
shelf registration process. Under this shelf
registration process, we may sell from time to time any
combination of the different types of securities described in
this prospectus in one or more offerings up to a total offering
amount of $400 million. This prospectus only provides you
with a general description of the securities we may offer. Each
time securities are offered under this prospectus, we will
provide a prospectus supplement that will contain specific
information about the terms of that offering and the securities
offered in that offering. The prospectus supplement may also
add, update or change information in this prospectus. You should
read both this prospectus and any prospectus supplement,
together with the additional information described below under
the heading Where You Can Find More Information.
In this prospectus, references to Petroleum
Helicopters, PHI, we,
us and our mean Petroleum Helicopters,
Inc. and its subsidiaries, taken as a whole, unless the context
otherwise requires.
i
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other
information with the SEC. The SEC maintains a website that
contains reports, proxy and information statements and other
information regarding registrants, like us, that file reports
with the SEC electronically. The SECs website address is
http://www.sec.gov. You may also read and copy any
document we file at the SECs public reference rooms in
Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at
1-800-SEC-0330 for
further information on the operation of its public reference
rooms. Both classes of our common stock are quoted on the Nasdaq
SmallCap System. You may also inspect the information we file
with the SEC at the offices of the Nasdaq Stock Market, Reports
Section, 1735 K Street, Washington, D.C. 20006.
The information we file with the SEC and other information about
us also is available on our website at
http://www.phihelico.com. However, the information on our
website is not a part of this prospectus.
The SEC allows us to incorporate by reference the
information we file with it, which means that we can disclose
important information to you by referring you to those
documents. The information incorporated by reference is
considered to be part of this prospectus, and information that
we file later with the SEC will automatically update and may
supersede information in this prospectus and information
previously filed with the SEC. We incorporate by reference the
documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until we sell all of the securities that
may be offered by this prospectus:
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our Annual Report on
Form 10-K for the
year ended December 31, 2004; |
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our Current Report on
Form 8-K filed on
March 17, 2005; and |
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the description of our common stock contained in our
registration statement on Form 8-A filed on
December 1, 1995 under Section 12 of the Securities
Exchange Act of 1934. |
You may review these filings, at no cost, over the Internet at
our website at http://www.phihelico.com, or request a
copy of these filings by writing or calling us at the following
address:
Michael J. McCann
Chief Financial Officer
P.O. Box 90808
Lafayette, Louisiana 70509
(337) 235-2452
ii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact
contained in this prospectus and the periodic reports filed by
us under the Securities Exchange Act of 1934 and other written
or oral statements made by us or on our 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.
Forward-looking statements are based on a number of assumptions
about future events and are subject to significant risks,
uncertainties and other factors that may cause our actual
results to differ materially from the expectations, beliefs and
estimates expressed or implied in such forward-looking
statements. Although we believe that the assumptions underlying
the forward-looking statements are reasonable, no assurance can
be given that these assumptions will prove correct or even
approximately correct. Factors that could cause our results to
differ materially from the expectations expressed in such
forward-looking statements include but are not limited to the
following:
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unexpected variances in flight hours; |
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the effect on demand for our services caused by volatility of
oil and gas prices; |
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the effect of volatile fuel prices on our operating costs; |
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the availability of capital required to acquire aircraft; |
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environmental risks; |
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adverse weather conditions; |
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the activities of our competitors; |
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changes in government regulations; |
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unionization and other labor activities; |
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operating hazards; |
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risks related to operating in foreign countries; |
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our ability to obtain adequate insurance at an acceptable
cost; and |
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our ability to develop and implement successful business
strategies. |
For a more detailed description of risks, see the Risk
Factors section set forth herein, and any additional risk
factors that may be included in the applicable prospectus
supplement. We will not update these forward-looking statements
unless the securities laws require us to do so.
iii
THE COMPANY
We operate in four business segments: Domestic Oil and Gas, Air
Medical, International and Technical Services. As of
March 15, 2005, we owned or operated 221 aircraft
domestically and internationally.
Domestic Oil and Gas. Since our inception in 1949, our
primary business has been the safe and reliable transportation
of personnel and, to a lesser extent, parts and equipment, to,
from and among offshore production platforms, drilling rigs and
pipeline and other facilities for customers engaged in the oil
and gas exploration, development, and production industry,
principally in the Gulf of Mexico. Our Domestic Oil and Gas
segment operates 151 owned, leased and customer-owned aircraft
from several bases or heliports in the Gulf of Mexico region.
Those operations serve facilities located offshore Louisiana,
Texas, Alabama and Mississippi. We also provide helicopter
services to energy companies operating offshore California,
West Africa and Taiwan. In addition, we provide helicopter
and support services to the healthcare industry and helicopter
repair and refurbishment services to customers. For the year
ended December 31, 2004, approximately 62% of our operating
revenues came from the domestic oil and gas industry.
Oil and gas exploration and production companies and other
offshore oil service companies use our services primarily for
routine transportation of personnel and equipment, to transport
personnel during medical and safety emergencies, and to evacuate
personnel during the threat of hurricanes and other adverse
weather conditions. Most of our customers have entered into
contracts for transportation services for a term of one year or
longer, although some hire us on an ad hoc or
spot basis.
Most of our Domestic Oil and Gas aircraft are available for hire
by any customer, but some are dedicated to individual customers.
Our helicopters have flight ranges of up to 450 miles with
a 30-minute fuel reserve and thus are capable of servicing many
of the deepwater oil and gas operations that are from 50 to
200 miles offshore.
Air Medical. We provide air medical transportation
services for hospitals and medical programs under the
independent provider model in 12 states using approximately
51 aircraft. The aircraft dedicated to this segment are
specially outfitted to accommodate emergency patients and
emergency medical equipment. The Air Medical segments
operating revenues accounted for 27% of our operating revenues
for the year ended December 31, 2004.
International. Our International segment uses 19 aircraft
to provide helicopter services in Angola, Antarctica and the
Democratic Republic of Congo. Aircraft operating internationally
typically are dedicated to one customer, most of which are oil
and gas customers. Operating revenues from our International
segment accounted for 8% of our consolidated operating revenues
during the year ended December 31, 2004.
Technical Services. We perform maintenance and repair
services at our Lafayette facility pursuant to an FAA repair
station license for our own fleet and for existing customers
that own their aircraft. The license includes authority to
repair airframes, power plants, accessories, radios, and
instruments and to perform specialized services.
Our principal executive offices are located at 2001 SE
Evangeline Thruway, Lafayette, Louisiana 70508, and our
telephone number at that address is (337) 235-2452.
1
RISK FACTORS
You should consider carefully the following risk factors as
well as other information contained in this prospectus, the
accompanying prospectus supplement and the documents we have
incorporated herein by reference before deciding to invest in
our securities, which involves a high degree of risk. The risks
described below are not the only ones facing our company.
Additional risks not presently known to us or which we currently
consider immaterial may also adversely affect our company. If
any of the following risks actually occur, our business,
financial condition and operating results could be materially
adversely affected. In such case, the price of our securities
could decline, and you could lose part or all of your
investment.
All phases of our operations are subject to significant
uncertainties, risks, and other influences. Important factors
that could cause our actual results to differ materially from
anticipated results or other expectations include the following:
Risks Inherent in our Business
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Our operations are affected by adverse weather conditions
and seasonal factors. |
We are subject to three types of weather-related or seasonal
factors:
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poor weather conditions generally, |
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the tropical storm and hurricane season in the Gulf of
Mexico and |
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reduced daylight hours during the winter months. |
Poor visibility, high winds and heavy precipitation can affect
the operation of helicopters and result in a reduced number of
flight hours. A significant portion of our operating revenue is
dependent on actual flight hours and a substantial portion of
our direct costs is fixed. Thus, prolonged periods of adverse
weather can materially and adversely affect our operating
revenues and net earnings.
In the Gulf of Mexico, the months of December, January and
February have more days of adverse weather conditions than the
other months of the year. Also, June through November is
tropical storm and hurricane season in the Gulf of Mexico, with
August and September typically being the most active months.
During tropical storms, we are unable to operate in the area of
the storm and can incur significant expense in moving our
aircraft to safer locations. In addition, as most of our
facilities are located along the Gulf of Mexico coast, tropical
storms and hurricanes may cause substantial damage to our
property, including helicopters that we are unable to relocate.
Because the fall and winter months have fewer hours of daylight,
our flight hours are generally lower at those times, which
typically results in a reduction in operating revenues during
those months. Currently, only 44 of the 166 helicopters used in
our oil and gas operations are equipped to fly pursuant to
instrument flight rules (IFR), which enables these
aircraft, when manned by IFR rated pilots and co-pilots, to
operate when poor visibility or darkness prevents flight by
aircraft that can fly only under visual flight rules
(VFR). Not all of our pilots are IFR rated.
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Increased governmental regulations could increase our
costs or reduce our ability to operate successfully. |
Our operations are regulated by a number of federal and state
agencies. All of our flight operations are regulated by the FAA.
Aircraft accidents are subject to the jurisdiction of the
National Transportation Safety Board. Standards relating to the
workplace health and safety are monitored by the federal
Occupational Safety and Health Administration
(OSHA). Also, we are subject to various federal and
state environmental statutes that are discussed in more detail
in our Annual Report on
Form 10-K for the
year ended December 31, 2004 under Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations Environmental
Matters.
The FAA has jurisdiction over many aspects our business,
including personnel, aircraft and ground facilities. We are
required to have an Air Taxi Certificate, granted by the FAA, to
transport personnel and property in our helicopters. This
certificate contains operating specifications that allow us to
conduct our
2
present operations, but it is potentially subject to amendment,
suspension or revocation in accordance with procedures set forth
in the Federal Aviation Act. The FAA is responsible for ensuring
that we comply with all FAA regulations relating to the
operation of our aviation business, and conducts regular
inspections regarding the safety, training and general
regulatory compliance of our U.S. aviation operations.
Additionally, the FAA requires us to file reports confirming our
continued compliance.
FAA regulations require that at least 75% of our voting
securities be owned or controlled by citizens of the
U.S. or one of its possessions, and that our president and
at least two-thirds of our directors be U.S. citizens.
Currently, our president and all of our directors are
U.S. citizens, and our organizational documents provide for
the automatic reduction in voting power of each share of voting
common stock owned or controlled by a
non-U.S. citizen
if necessary to comply with these regulations.
We are subject to significant regulatory oversight by OSHA and
similar state agencies. We are also subject to the
Communications Act of 1934 because of our ownership and
operation of a radio communications flight following network
throughout the Gulf of Mexico.
Numerous other federal statutes and rules regulate our offshore
operations and those of our customers, pursuant to which the
federal government has the ability to suspend, curtail or modify
certain or all offshore operations. A suspension or substantial
curtailment of offshore oil and gas operations for any prolonged
period would have an immediate and materially adverse effect on
us. A substantial modification of current offshore operations
could adversely affect the economics of such operations and
result in reduced demand for our services.
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The helicopter services business is highly
competitive. |
Our business is highly competitive in each of our markets. Many
of our contracts are awarded after competitive bidding, and the
competition for those contracts generally is intense. The
principal aspects of competition are safety, price, reliability,
availability and service.
We have two major competitors and several small competitors
operating in the Gulf of Mexico, and certain of our customers
and potential customers operate their own helicopter fleets.
Our Air Medical segment competes for business under both the
independent provider model and the hospital-based model. Under
the hospital-based model, we contract directly with the
hospital, work only for it and are paid only by the hospital
based on contracted service rates. These contracts typically are
awarded on a competitive bid basis. We compete against national
firms, and there is usually more than one competitor in each
local market.
Our International segment primarily serves customers in the oil
and gas industry. Most of our international contracts are
subject to competitive bidding, and certain of our principal
competitors domestically also compete internationally. In
addition, there is one additional major competitor
internationally that does not compete domestically. Typically,
in each international area there are firms that compete only in
that region.
Our Technical Services segment competes regionally and
nationally against various small and large repair centers in the
United States and Canada. Competition has increased with
aggressive pricing and acquisition moves by several service
providers and original equipment manufacturers and their
subsidiaries.
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Our international operations are subject to political,
economic and regulatory uncertainty. |
Our International operations, which represented approximately 8%
of our revenues for the year ended December 31, 2004, are
subject to a number of risks inherent in any international
operations including:
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political, social and economic instability; |
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potential seizure or nationalization of assets; |
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import-export quotas; |
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currency fluctuations or devaluation; and |
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other forms of governmental regulation. |
Although our contracts to provide services internationally
generally provide for payment in U.S. dollars, to the
extent that we make investments in foreign assets or receive
revenues in currencies other than U.S. dollars, the value
of our assets and income could be adversely affected by
fluctuations in the value of local currencies.
Additionally, our competitiveness in international markets may
be adversely affected by regulations, including regulations
requiring:
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the awarding of contracts to local contractors; |
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the employment of local citizens; and |
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the establishment of foreign subsidiaries with significant
ownership positions reserved by the foreign government for local
ownership. |
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Helicopter operations involve risks that may not be
covered by our insurance or may increase the cost of our
insurance. |
The operation of helicopters inherently involves a high degree
of risk. Hazards such as aircraft accidents, collisions, fire
and adverse weather are hazards that must be managed by
providers of helicopter services and may result in loss of life,
serious injury to employees and third parties, and losses of
equipment and revenues.
We maintain hull and liability insurance on our aircraft, which
insures us against physical loss of, or damage to, our aircraft
and against certain legal liabilities to others. In addition, we
carry war risk, expropriation, confiscation and nationalization
insurance for our aircraft involved in international operations.
In some instances, we are covered by indemnity agreements from
our customers in lieu of, or in addition to, our insurance. Our
aircraft are not insured for loss of use.
While we believe that our insurance and indemnification
arrangements provide reasonable protection for most foreseeable
losses, they do not cover all potential losses and are subject
to deductibles, retentions, coverage limits and coverage
exceptions such that severe casualty losses, or the
expropriation or confiscation of significant assets could
materially and adversely affect our financial condition or
results of operations. The occurrence of an event that is not
fully covered by insurance could have a material adverse impact
on our financial condition and results of operations.
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The failure to maintain our safety record would seriously
harm our ability to attract new customers and maintain our
existing customers. |
A favorable safety record is one of the primary factors a
customer reviews in selecting an aviation provider. If we fail
to maintain our safety and reliability record, our ability to
attract new customers and maintain our current customers will be
materially adversely affected.
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Our air medical operations, which we are expanding, expose
us to numerous special risks, including collection risks and
potential medical malpractice claims. |
We recently have expanded, and expect to continue to expand, our
air medical operations. These operations are highly competitive
and expose us to an number of risks that we generally do not
encounter in our oil and gas operations. For instance, our fees
in this segment generally are paid by individual patients,
insurance companies or government agencies, which subjects us to
collection issues, credit risk and, in many cases, rate caps. In
addition, we employ paramedics, nurses and other medical
professionals for this segment of our business, which can give
rise to medical malpractice claims against us.
4
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Our failure to attract and retain qualified personnel
could have an adverse effect on us. |
Our ability to attract and retain qualified pilots, mechanics
and other highly trained personnel will be an important factor
in determining our future success. Many of our customers require
pilots of aircraft that service them to have inordinately high
levels of flight experience. The market for these experienced
and highly trained personnel is extremely competitive.
Accordingly, we cannot assure you that we will be successful in
our efforts to attract and retain such persons. Some of our
pilots and mechanics and those of our competitors are members of
the U.S. military reserves and could be called to active
duty. If significant numbers of such persons are called to
active duty, it would reduce the supply of such workers and
likely increase our labor costs.
Risks Specific to our Company
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We are highly dependent on the offshore oil and gas
industry. |
Approximately 62% of our 2004 operating revenue was attributable
to helicopter support for offshore oil and gas exploration and
production companies. Our business is highly dependent on the
level of activity by the oil and gas companies, particularly in
the Gulf of Mexico.
The level of activity by our customers operating in the Gulf of
Mexico depend on factors that we cannot control, such as:
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the supply of, and demand for, oil and natural gas and market
expectations regarding supply and demand; |
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actions of OPEC, Middle Eastern and other oil producing
countries to control prices or change production levels; |
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general economic conditions in the United States and worldwide; |
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war, civil unrest or terrorist activities; |
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governmental regulation; and |
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the price and availability of alternative fuels. |
Any substantial or extended decline in the prices of oil and
natural gas could depress the level of helicopter activity in
support of exploration and production activity and thus have a
material adverse effect on our business, results of operations
and financial condition.
Additionally, the Gulf of Mexico is generally considered to be a
mature area for oil and gas exploration, which may result in a
continuing decrease in activity over time. This could materially
adversely affect our business, results of operations and
financial condition. In addition, the concentrated nature of our
operations subjects us to the risk that a regional event could
cause a significant interruption in our operations or otherwise
have a material affect on our profitability.
Moreover, companies in the oil and gas exploration and
production industry continually seek to implement cost-savings
measures. As part of these measures, oil and gas companies have
attempted to improve operating efficiencies with respect to
helicopter support services. For example, certain oil and gas
companies have pooled helicopter services among operators,
reduced staffing levels by using technology to permit unmanned
production installations and decreased the frequency of
transportation of employees offshore by increasing the lengths
of shifts offshore. The continued implementation of such
measures could reduce demand for helicopter services and have a
material adverse impact on our business, results of operations
and our financial condition.
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We currently are negotiating a new collective bargaining
agreement covering our pilots. |
We are currently in negotiations with the Office of Professional
Employees International Union (OPEIU) regarding a
new collective bargaining agreement covering our pilots. We
cannot predict the outcome of these negotiations nor when they
might be concluded and such negotiations may result in an
agreement that will materially increase our operating costs.
Failure to reach a satisfactory agreement could
5
result in work stoppages, strikes or other labor disruptions
that could materially adversely affect our revenues, operations
or financial condition.
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We depend on a small number of large oil and gas industry
customers for a significant portion of our revenues, and our
credit exposure within this industry is significant. |
We derive a significant amount of our revenue from a small
number of major and independent oil and gas companies. For the
year ended December 31, 2004, 13% of our revenues were
attributable to our largest customer. The loss of one of our
significant customers, if not offset by revenues from new or
other existing customers, would have a material adverse effect
on our business and operations. In addition, this concentration
of customers may impact our overall credit risk in that these
entities may be similarly affected by changes in economic and
other conditions.
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Our Chairman and Chief Executive Officer is also our
principal stockholder and has voting control of the
Company. |
Al A. Gonsoulin, our chairman and chief executive officer,
beneficially owns stock representing approximately 52% of our
total voting power. As a result, he exercises control over the
election of all of our directors and the outcome of most matters
requiring a stockholder vote. This ownership also may delay or
prevent a change in our management or a change in control of us,
even if such changes would benefit our other stockholders.
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Our substantial indebtedness could adversely affect our
financial condition and impair our ability to operate our
business. |
We are a highly leveraged company and, as a result, have
significant debt service obligations. As of December 31,
2004, our total indebtedness was $210.3 million, including
$200.0 million of our
93/8
% senior notes due 2009. As of December 31,
2004, our ratio of total indebtedness to stockholders
equity was 1.9 to 1.0. For the year ended December 31,
2004, our ratio of earnings to fixed charges was 1.4 to 1. This
level of indebtedness could have significant negative
consequences to us that you should consider. For example, it
could:
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require us to dedicate a substantial portion of our cash flow
from operations to pay principal of, and interest on, our
indebtedness, thereby reducing the availability of our cash flow
to fund working capital, capital expenditures or other general
corporate purposes, or to carry out other aspects of our
business plan; |
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increase our vulnerability to general adverse economic and
industry conditions and limit our ability to withstand
competitive pressures; |
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limit our flexibility in planning for, or reacting to, changes
in our business and future business opportunities; |
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place us at a competitive disadvantage compared to our
competitors that have less debt; and |
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limit our ability to obtain additional financing to fund future
working capital, capital expenditures and other aspects of our
business plan. |
Our ability to meet our debt obligations and other expenses will
depend on our future performance, which will be affected by
financial, business, economic, regulatory and other factors,
many of which we are unable to control. When our
93/8
% senior notes come due in 2009, we will likely need
to enter into new financing arrangements at that time to repay
those notes. We may be unable to obtain that financing on
favorable terms, which could adversely affect our business,
financial condition and results of operations. For more
information on our indebtedness, please see the financial
information contained in our periodic reports which are
incorporated herein by reference.
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We have not paid any dividends on our common stock since 1999
and do not anticipate that we will pay any dividends on our
common stock in the foreseeable future. In addition, our ability
to pay dividends is restricted by the indenture governing our
93/8
% senior notes due 2009 and our credit facility.
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Our stock has a low trading volume. |
Our voting (PHEL) and non-voting (PHELK) common stock
are listed on the Nasdaq SmallCap Market. However, neither class
of shares has substantial trading volume. As a result, a
stockholder may not be able to sell shares of our common stock
at the time, in the amounts, or at the price desired.
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Provisions in our articles of incorporation and by-laws
and Louisiana law make it more difficult to effect a change in
control of us, which could discourage a takeover of our company
and adversely affect the price of our common stock. |
Although an attempted takeover of our company is made unlikely
by virtue of the ownership by our chief executive officer of
more than 50% of the total voting power of our capital stock,
there are also provisions in our articles of incorporation and
by-laws that may make it more difficult for a third party to
acquire control of us, even if a change in control would result
in the purchase of your shares at a premium to the market price
or would otherwise be beneficial to you. For example, our
articles of incorporation authorizes our board of directors to
issue preferred stock without stockholder approval. If our board
of directors elects to issue preferred stock, it could be more
difficult for, or discourage, a third party to acquire us. In
addition, provisions of our by-laws, such as giving the board
the exclusive right to fill all board vacancies, could
make it more difficult for a third party to acquire control of
us.
In addition to the provisions contained in our articles of
incorporation and by-laws, the Louisiana Business Corporation
Law, or LBCL, includes certain provisions applicable
to Louisiana corporations, such as us, which may be deemed to
have an anti-takeover effect. Such provisions give stockholders
the right to receive the fair value of their shares of stock
following a control transaction from a controlling person or
group and set forth requirements relating to certain business
combinations. Our descriptions of these provisions are only
abbreviated summaries of detailed and complex statutes. For a
complete understanding of the statutes, you should read them in
their entirety.
The LBCLs control share acquisition statute provides that
any person who acquires control shares will be able
to vote such shares only if the right to vote is approved by the
affirmative vote of at least a majority of both (i) all the
votes entitled to be cast by stockholders and (ii) all the
votes entitled to be cast by stockholders excluding
interested shares. The control share acquisition
statute permits the articles of incorporation or bylaws of a
company to exclude from the statutes application
acquisitions occurring after the adoption of the exclusion. Our
by-laws do contain such an exclusion; however, our board of
directors or stockholders, by an amendment to our by-laws, could
reverse this exclusion.
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Future sales of our shares could depress the market price
of our non-voting common stock. |
The market price of our non-voting common stock could decline as
a result of issuances and sales by us of additional shares of
non-voting or voting common stock pursuant to our existing shelf
registration statement or otherwise. The market price of our
non-voting common stock could also decline as the result of the
perception that these sales could occur. These sales, or the
possibility that these sales may occur, also might make it more
difficult for us to sell equity securities in the future at a
time and at a price that we deem appropriate.
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You should not place undue reliance on forward-looking
statements, as our actual results may differ materially from
those anticipated in our forward-looking statements. |
This prospectus contains and incorporates by reference
forward-looking statements about our operations, economic
performance and financial condition. These statements are based
on a number of assumptions and estimates which are inherently
subject to significant uncertainties and contingencies, many of
which are
7
beyond our control, and reflect future business decisions which
are subject to change. Some of these assumptions inevitably will
not materialize, and unanticipated events will occur which will
affect our results of operations. For a more detailed
description of these uncertainties and assumptions, see
Cautionary Note Regarding Forward-Looking
Statements.
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USE OF PROCEEDS
Unless we specify otherwise in the accompanying prospectus
supplement, we intend to use the net proceeds we receive from
the sale of the securities offered by this prospectus and the
accompanying prospectus supplement for the expansion or
refurbishment of our aircraft fleet, the repayment of
indebtedness and for general corporate purposes. General
corporate purposes may include additions to working capital,
repurchases of our stock, capital expenditures or the financing
of possible acquisitions. If we do not use the net proceeds
immediately, we may temporarily invest them in short-term,
interest-bearing obligations.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the years
ended December 31, 2000, 2001, 2002, 2003 and 2004 is set
forth below. For purposes of computing these ratios, earnings
represent income from continuing operations before income taxes
plus fixed charges. Fixed charges represent interest expense,
including amortization of debt issuance costs, and that portion
of rental expense we believe to be representative of interest.
Since no preferred stock was outstanding during the periods
presented, the ratio of earnings to fixed charges and preferred
stock dividends would be the same as the ratios presented below.
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Years Ended December 31, | |
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Ratio (deficit) of earnings to fixed charges
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(0.3)x(1) |
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2.3x |
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(1) |
For the year ended December 31, 2000, our earnings were
inadequate to cover fixed charges by $17.1 million. |
9
DESCRIPTION OF CAPITAL STOCK
General
As of the date of this prospectus, we are authorized to issue up
to 35,000,000 shares of stock, including up to
12,500,000 shares of our voting common stock, up to
12,500,000 shares of our non-voting common stock and up to
10,000,000 shares of preferred stock. As of March 15,
2005, we had 2,852,616 shares of our voting common stock,
2,531,392 shares of our non-voting common stock and no
shares of preferred stock outstanding. As of that date, we also
had options outstanding and exercisable for approximately
206,953 shares of our non-voting common stock.
The following is a summary of the key terms and provisions of
our equity securities. This description is qualified in its
entirety by reference to our articles of incorporation, by-laws,
the Louisiana Business Corporation Law (LBCL) and
the documents we have incorporated by reference, and you should
refer to the applicable provisions of these documents for a
complete statement of the rights and terms of our capital stock.
Common Stock
We have two types of common stock: our voting common stock and
our non-voting common stock. With respect to all matters
submitted to a vote of our shareholders, the record holders of
the voting common stock are entitled to one vote per share.
Except as may otherwise be required by the LBCL, holders of our
non-voting common stock have no voting rights. In all respects
other than voting rights, our voting and non-voting shares are
identical.
The affirmative vote of the holders of a majority of our total
voting power decides any matter properly brought before a
shareholders meeting duly organized for the transaction of
business unless by express provision of law or our articles of
incorporation a different percentage is required, in which case
such express provision shall govern. Our directors are elected
by plurality vote. Accordingly, the holders of more than 50% of
our total voting power can, if they choose to do so, elect all
of our directors. There is no cumulative voting with respect to
the election of our directors.
Because we hold an operating certificate issued by the Federal
Aviation Administration, we are required to have a certain
percentage of our voting interest owned or controlled by United
States citizens. Accordingly, our articles of incorporation
automatically reduce the voting power of shares owned by
non-U.S. citizens
if the total voting power held by such persons would exceed one
percent less than the percentage permitted by the FAA
regulations, which is currently 25%. Our articles of
incorporation also establish certain presumptions and authorize
us to take certain procedural actions designed to enhance our
ability to monitor and ensure compliance with these requirements.
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Dividend and Liquidation Rights |
The record holders of shares of our common stock are entitled to
receive such dividends and distributions as may be declared
thereon by our board of directors out of our funds legally
available therefor. Upon liquidation or dissolution of us,
whether voluntary or involuntary, all of the holders of our
common stock are entitled to share ratably in the assets
available for distribution after payment of all of our prior
obligations, including liquidation preferences granted to any
future holders of preferred stock.
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Transferability and Convertibility |
Our common stock and, unless restricted by its terms, any
preferred stock that we may issue are freely transferable,
subject to applicable securities laws.
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Preemptive or Similar Rights |
The holders of our common stock do not have any preemptive,
subscription, conversion or redemption rights, and are not
subject to calls, assessments or rights of redemption by us.
The outstanding shares of our common stock are duly authorized
and issued, fully paid and non-assessable. American Stock
Transfer & Trust Company is the transfer agent and
registrar for our common stock.
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Effect of Subsequent Issuances and of Dual Classes;
Limitations on Changes in Control |
Our board of directors has the power, without further action by
our shareholders, to issue shares of our non-voting common
stock, voting common stock and preferred stock and to fix the
preferences, limitations and relative rights as among those
shares and to establish and fix variations in the preferences,
limitations and relative rights as between different series of
preferred stock. Our authorized and unissued shares of common
stock and preferred stock may be used for various purposes,
including possible future acquisitions. One of the effects of
the existence of authorized but unissued common and preferred
stock may be to enable our board of directors to make more
difficult or to discourage an attempt to obtain control of us by
means of a merger, tender offer, proxy contest or otherwise, and
thereby to protect the continuity of our management. This could
be the case even if a majority of our shareholders might benefit
from such a change in control or offer. If, in the due exercise
of its fiduciary obligations, our board of directors were to
determine that a takeover proposal was not in our best interest,
such shares could be issued by the board without shareholder
approval in one or more transactions. This could prevent or
render more difficult or costly the completion of the takeover
transaction of our company by diluting the voting or other
rights of the proposed acquirer or insurgent shareholder group,
by putting a substantial voting block in the hands of a holder
who might undertake to support the position of the incumbent
board of directors, by affecting an acquisition that might
complicate or preclude the takeover, or otherwise. In addition,
under certain circumstances, the issuance of preferred stock
could adversely affect the voting power of the holders of our
voting common stock.
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Certain Provisions of the Louisiana Business Corporation
Law |
We are a Louisiana corporation and are subject to
Section 133 of the LBCL. Generally, Section 133
prohibits a business combination with an
interested shareholder unless it is recommended by
the board of directors and approved by the affirmative vote of
at least (1) 80% of the voting power of the company, voting
together as a single class, and (2) two-thirds of voting
stock held by holders other than the interested shareholder,
voting together as a single class. Section 133 generally
does not apply if certain specified conditions are met,
including a condition that shareholders receive, as a result of
the business combination, consideration for their shares that is
no less than the highest of several different standards provided
in Section 134(B), one of which is that the price must be
no less than the highest price that the interested shareholder
paid for shares of stock in the corporation within the two years
prior to such business combination. A business
combination is defined in Section 132(4) of the LBCL
and generally includes mergers, consolidations, share exchanges,
asset sales and leases, issuances of securities,
reclassifications of stock and similar transactions. An
interested shareholder is defined in
Section 132(9) of the LBCL as a person who, together with
affiliates and associates, beneficially owns, or within the last
two years did beneficially own, 10% or more of the
corporations outstanding voting stock.
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Preferred Stock and Depositary Shares |
We currently have no shares of preferred stock outstanding. Our
board of directors is authorized to amend our articles of
incorporation, without further action by our shareholders, to
issue preferred stock from time to time in one or more series
and to fix, as to any such series, the voting rights, if any,
applicable to such series and such other designations,
preferences and special rights as our board may determine,
including dividend, conversion, redemption and liquidation
rights and preferences, as well as the terms and conditions
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relating to its offering and sale at the time of the offer and
sale. We also may issue fractional shares of preferred stock
that will be represented by depositary shares and depositary
receipts.
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Description of Preferred Stock |
Our articles of incorporation authorize our board of directors
to cause preferred stock to be issued in one or more series
without action by our shareholders. Our board of directors is
authorized to issue up to 10,000,000 shares of preferred
stock and can determine the number of shares of each series, and
the preferences, limitations and relative rights of each series.
We may amend our articles of incorporation to increase the
number of authorized shares of preferred stock in a manner
permitted by our articles of incorporation and the LBCL. As of
the date of this prospectus, we have no shares of preferred
stock outstanding.
The particular terms of any series of preferred stock being
offered by us under this prospectus will be described in the
prospectus supplement relating to that series of preferred
stock. Those terms may include:
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the number of shares of the series of preferred stock being
offered; |
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the title and liquidation preference per share of that series of
the preferred stock; |
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the purchase price of the preferred stock; |
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the dividend rate or method for determining the dividend rate,
if any; |
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the dates on which dividends will be paid; |
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whether dividends on that series of preferred stock will be
cumulative or non-cumulative and, if cumulative, the dates from
which dividends will accumulate; |
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any redemption or sinking fund provisions applicable to that
series of preferred stock; |
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any conversion or exchange provisions applicable to that series
of preferred stock; |
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whether we have elected to offer depositary shares with respect
to that series of preferred stock; or |
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any additional dividend, liquidation, redemption, sinking fund
or other preferences, rights or restrictions applicable to that
series of preferred stock. |
If the terms of any series of preferred stock being offered
differ from the terms set forth below, those terms will also be
disclosed in the prospectus supplement relating to that series
of preferred stock. You should refer to the certificate of
designations relating to the series of the preferred stock for
the complete terms of that preferred stock. The certificate of
designations for any series of preferred stock will be filed
with the SEC promptly after the offering of that series of
preferred stock.
The preferred stock, when issued, will be fully paid and
nonassessable. Unless otherwise specified in the prospectus
supplement, in the event we liquidate, dissolve or wind-up our
business, each series of preferred stock will have the same rank
as to dividends and distributions as each other series of the
preferred stock we may issue in the future. Holders of preferred
stock will have no preemptive rights to subscribe for or
purchase shares of our capital stock.
Dividend Rights. Holders of preferred stock of each
series will be entitled to receive, when, as and if declared by
our board of directors, cash dividends, if any, at the rates and
on the dates set forth in the applicable prospectus supplement.
Dividend rates may be fixed or variable or both. Different
series of preferred stock may be entitled to dividends at
different dividend rates or based on different methods of
determination. Each dividend will be payable to the holders of
record as they appear on our stock books or, if applicable, the
records of the depositary referred to below under
Description of Depositary Shares on record dates
determined by our board of directors. Dividends on any series of
preferred stock may be cumulative or non-cumulative, as
specified in the applicable prospectus supplement. If our board
of directors fails to declare a dividend on any series of
preferred stock for which dividends are non-cumulative, then the
right to receive
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that dividend will be lost, and we will have no obligation to
pay the dividend for that dividend period, whether or not
dividends are declared for any future dividend period.
We will not pay or declare full dividends on any series of
preferred stock, unless we have or are contemporaneously
declaring and paying full dividends for the dividend period
commencing after the immediately preceding dividend payment date
(and cumulative dividends still owing, if any) on all other
series of preferred stock which have the same rank as, or rank
senior to, that series of preferred stock. When those dividends
are not paid in full, dividends will be declared pro rata, so
that the amount of dividends declared per share on that series
of preferred stock and on each other series of preferred stock
having the same rank as, or ranking senior to, that series of
preferred stock will in all cases bear to each other the same
ratio that accrued dividends per share on that series of
preferred stock and the other preferred stock bear to each
other. In addition, generally, unless full dividends, including
cumulative dividends still owing, if any, on all outstanding
shares of any series of preferred stock have been paid, no
dividends will be declared or paid on our common stock and
generally we may not redeem or purchase any common stock. No
interest, or sum of money in lieu of interest, will be paid in
connection with any dividend payment or payments which may be in
arrears.
The amount of dividends payable for each dividend period will be
computed by annualizing the applicable dividend rate and
dividing by the number of dividend periods in a year, except
that the amount of dividends payable for the initial dividend
period or any period shorter than a full dividend period shall
be computed on the basis of a
360-day year consisting
of twelve 30-day months
and, for any period less than a full month, the actual number of
days elapsed in the period.
Rights Upon Liquidation. In the event we liquidate,
dissolve or wind-up our affairs, either voluntarily or
involuntarily, the holders of each series of preferred stock
will be entitled to receive liquidating distributions in the
amount set forth in the applicable prospectus supplement
relating to each series of preferred stock, plus an amount equal
to accrued and unpaid dividends, if any, before any distribution
of assets is made to the holders of common stock. If the amounts
payable with respect to preferred stock of any series and any
stock having the same rank as that series of preferred stock are
not paid in full, the holders of preferred stock and of such
other stock will share ratably in any such distribution of
assets in proportion to the full respective preferential amounts
to which they are entitled. After the holders of each series of
preferred stock and any stock having the same rank as the
preferred stock are paid in full, they will have no right or
claim to any of our remaining assets. Neither the sale of all or
substantially all our property or business nor a merger or
consolidation by us with any other corporation will be
considered a dissolution, liquidation or winding up by us of our
business or affairs.
Redemption. Any series of preferred stock may be
redeemable, in whole or in part, at our option. In addition, any
series of preferred stock may be subject to mandatory redemption
pursuant to a sinking fund. The redemption provisions that may
apply to a series of preferred stock, including the redemption
dates and the redemption prices for that series, will be set
forth in the applicable prospectus supplement.
If a series of preferred stock is subject to mandatory
redemption, the applicable prospectus supplement will specify
the year we can begin to redeem shares of the preferred stock,
the number of shares of the preferred stock we can redeem each
year, and the redemption price per share. We may pay the
redemption price in cash, stock or in cash that we have received
specifically from the sale of our capital stock, as specified in
the prospectus supplement. If the redemption price is to be paid
only from the proceeds of the sale of our capital stock, the
terms of the series of preferred stock may also provide that, if
no such capital stock is sold or if the amount of cash received
is insufficient to pay in full the redemption price then due,
the series of preferred stock will automatically be converted
into shares of the applicable capital stock pursuant to any
conversion provisions that may be specified in the prospectus
supplement.
If fewer than all the outstanding shares of any series of
preferred stock are to be redeemed, whether by mandatory or
optional redemption, the board of directors will determine the
method for selecting the shares to be redeemed, which may be by
lot or pro rata or by any other method determined to be
equitable. From and after the redemption date, dividends will
cease to accrue on the shares of preferred stock called for
redemption and all rights of the holders of those shares (except
the right to receive the redemption price) will cease.
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In the event that full dividends, including accrued but unpaid
dividends, if any, have not been paid on any series of preferred
stock, we may not redeem that series in part and we may not
purchase or acquire any shares of that series of preferred
stock, except by an offer made on the same terms to all holders
of that series of preferred stock.
Conversion or Exchange Rights. The applicable prospectus
supplement will state the terms, if any, on which shares of a
series of preferred stock are convertible into or exchangeable
for shares of our voting or non-voting common stock or another
series of our preferred stock. As described under
Redemption above, under certain
circumstances, preferred stock may be mandatorily converted into
common stock or another series of our preferred stock.
Voting Rights. Except as indicated below or in the
applicable prospectus supplement, or except as expressly
required by applicable law, the holders of preferred stock will
not be entitled to vote. Except as indicated in the applicable
prospectus supplement, in the event we issue full shares of any
series of preferred stock, each share will be entitled to one
vote on matters on which holders of that series of preferred
stock are entitled to vote. However, as more fully described
below under Description of Depositary
Shares, if we issue depositary shares representing a
fraction of a share of a series of preferred stock, each
depositary share will, in effect, be entitled to that fraction
of a vote, rather than a full vote. Because each full share of
any series of preferred stock will be entitled to one vote, the
voting power of that series will depend on the number of shares
in that series, and not on the aggregate liquidation preference
or initial offering price of the shares of that series of
preferred stock.
Transfer Agent and Registrar. Unless otherwise indicated
in the applicable prospectus supplement, American Stock
Transfer & Trust Company will be the transfer agent,
registrar and dividend disbursement agent for the preferred
stock and any depositary shares (see the description of
depositary shares below). The registrar for the preferred stock
will send notices to the holders of the preferred stock of any
meetings at which such holders will have the right to elect
directors or to vote on any other matter.
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Description of Depositary Shares |
General. We may, at our option, elect to offer fractional
shares of preferred stock, rather than full shares of preferred
stock. If we do, we will issue to the public receipts for
depositary shares, and each of these depositary shares will
represent a fraction (to be set forth in the applicable
prospectus supplement) of a share of a particular series of
preferred stock.
The shares of any series of preferred stock underlying the
depositary shares will be deposited under a deposit agreement
between us and a bank or trust company selected by us (the
depositary). Subject to the terms of the deposit agreement, each
owner of a depositary share will be entitled, in proportion to
the applicable fractional interest in shares of preferred stock
underlying that depositary share, to all the rights and
preferences of the preferred stock underlying that depositary
share. Those rights include dividend, voting, redemption,
conversion and liquidation rights.
The depositary shares will be evidenced by depositary receipts
issued pursuant to the deposit agreement. Depositary receipts
will be issued to those persons who purchase the fractional
interests in the preferred stock underlying the depositary
shares, in accordance with the terms of the offering. Copies of
the forms of deposit agreement and depositary receipt will be
filed as exhibits to the registration statement of which this
prospectus is a part. Except as otherwise describe in a
prospectus supplement, the following description is a summary of
the material provisions of any deposit agreement, the depositary
shares and the depositary receipts. You should refer to the
forms of deposit agreement and depositary receipts that we will
file with the SEC in connection with any specific offering of
depositary shares.
Dividends and Other Distributions. The depositary will
distribute all cash dividends or other cash distributions
received in respect of the preferred stock to the record holders
of depositary shares relating to that preferred stock in
proportion to the number of depositary shares owned by those
holders.
If there is a distribution other than in cash, the depositary
will distribute property received by it to the record holders of
depositary shares that are entitled to receive the distribution,
unless the depositary
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determines that it is not feasible to make the distribution. If
this occurs, the depositary may, with our approval, sell the
property and distribute the net proceeds from the sale to the
applicable holders.
Redemption of Depositary Shares. If a series of preferred
stock underlying the depositary shares is subject to redemption,
the depositary shares will be redeemed from the proceeds
received by the depositary resulting from the redemption, in
whole or in part, of that series of preferred stock held by the
depositary. The redemption price per depositary share will be
equal to the applicable fraction of the redemption price per
share payable with respect to that series of the preferred
stock. Whenever we redeem shares of preferred stock that are
held by the depositary, the depositary will redeem, as of the
same redemption date, the number of depositary shares
representing the shares of preferred stock so redeemed. If fewer
than all the depositary shares are to be redeemed, the
depositary shares to be redeemed will be selected by lot or pro
rata as determined by the depositary.
After the date fixed for redemption, the depositary shares
called for redemption will no longer be outstanding, and all
rights of the holders of those depositary shares will cease,
except the right to receive any money, securities, or other
property upon surrender to the depositary of the depositary
receipts evidencing those depositary shares.
Voting the Preferred Stock. Upon receipt of notice of any
meeting at which the holders of preferred stock are entitled to
vote, the depositary will mail the information contained in the
notice of meeting to the record holders of the depositary shares
underlying that preferred stock. Each record holder of those
depositary shares on the record date (which will be the same
date as the record date for the preferred stock) will be
entitled to instruct the depositary as to the exercise of the
voting rights pertaining to the amount of the preferred stock
underlying that holders depositary shares. The depositary
will try, as far as practicable, to vote the number of shares of
preferred stock underlying those depositary shares in accordance
with such instructions, and we will agree to take all action
that may be deemed necessary by the depositary in order to
enable the depositary to do so. The depositary will not vote the
shares of preferred stock to the extent it does not receive
specific instructions from the holders of depositary shares.
Amendment and Termination of the Depositary Agreement.
The form of depositary receipt evidencing the depositary shares
and any provision of the deposit agreement may be amended at any
time by agreement between us and the depositary. However, any
amendment that materially and adversely alters the rights of the
holders of depositary shares will not be effective unless the
amendment has been approved by the holders of at least a
majority of the depositary shares then outstanding. The deposit
agreement may be terminated by us or by the depositary only if
(1) all outstanding depositary shares have been redeemed or
(2) there has been a final distribution of the underlying
preferred stock in connection with our liquidation, dissolution
or winding up, and the preferred stock has been distributed to
the holders of depositary receipts.
Resignation and Removal of Depositary. The depositary may
resign at any time by delivering a notice to us of its election
to do so. We may remove the depositary at any time. Any such
resignation or removal will take effect upon the appointment of
a successor depositary and its acceptance of its appointment.
The successor depositary must be appointed within 60 days
after delivery of the notice of resignation or removal.
Miscellaneous. The depositary will forward to holders of
depositary receipts all reports and communications from us that
we deliver to the depositary and that we are required to furnish
to the holders of the preferred stock.
Neither we nor the depositary will be liable if either of us is
prevented or delayed by law or any circumstance beyond our
control in performing our respective obligations under the
deposit agreement. Our obligations and those of the depositary
will be limited to the performance in good faith of our
respective duties under the deposit agreement. Neither we nor
the depositary will be obligated to prosecute or defend any
legal proceeding in respect of any depositary shares or
preferred stock unless satisfactory indemnity is furnished. We
and the depositary may rely upon written advice of counsel or
accountants, or upon information provided by persons presenting
preferred stock for deposit, holders of depositary receipts or
other persons believed to be competent and on documents believed
to be genuine.
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Description of Permanent Global Preferred
Securities |
Certain series of the preferred stock or depositary shares may
be issued as permanent global securities to be deposited with a
depositary with respect to that series. Unless otherwise
indicated in the prospectus supplement, the following is a
summary of the depositary arrangements applicable to preferred
stock or depositary receipts issued in permanent global form and
for which the Depositary Trust Company (DTC) will
act as the depositary (global preferred securities).
Each global preferred security will be deposited with, or on
behalf of, DTC or its nominee, and registered in the name of a
nominee of DTC. Except under the limited circumstances described
below, global preferred securities are not exchangeable for
definitive certificated preferred stock or depositary receipts.
Ownership of beneficial interests in a global preferred security
is limited to institutions that have accounts with DTC or its
nominee (participants) or persons that may hold interests
through participants. In addition, ownership of beneficial
interests by participants in a global preferred security will be
evidenced only by, and the transfer of that ownership interest
will be effected only through, records maintained by DTC or its
nominee for a global preferred security. Ownership of beneficial
interests in a global preferred security by persons that hold
through participants will be evidenced only by, and the transfer
of that ownership interest within that participant will be
effected only through, records maintained by that participant.
DTC has no knowledge of the actual beneficial owners of the
preferred stock or depositary shares, as the case may be,
represented by a global preferred security. Beneficial owners
will not receive written confirmation from DTC of their
purchase, but beneficial owners are expected to receive written
confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the participants
through which the beneficial owners entered the transaction. The
laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in
definitive form. Such laws may impair your ability to transfer
beneficial interests in a global preferred security.
Payments on preferred stock and depositary shares represented by
a global preferred security registered in the name of or held by
DTC or its nominee will be made to DTC or its nominee, as the
case may be, as the registered owner and holder of the global
preferred security representing the preferred stock or
depositary shares. DTC has advised us that upon receipt of any
payment on a global preferred security, DTC will immediately
credit accounts of participants on its book-entry registration
and transfer system with payments in amounts proportionate to
their respective beneficial interests in that global preferred
security as shown in the records of DTC. Payments by
participants to owners of beneficial interests in a global
preferred security held through those participants will be
governed by standing instructions and customary practices, as is
now the case with securities held for the accounts of customers
in bearer form or registered in street name, and
will be the sole responsibility of those participants, subject
to any statutory or regulatory requirements as may be in effect
from time to time.
Neither we nor any of our agents will be responsible for any
aspect of the records of DTC, any nominee or any participant
relating to, or payments made on account of beneficial interests
in a global preferred security or for maintaining, supervising
or reviewing any of the records of DTC, any nominee or any
participant relating to such beneficial interests.
A global preferred security is exchangeable for definitive
certificated preferred stock or depositary receipts, as the case
may be, registered in the name of, and a transfer of a global
preferred security may be registered to, a person other than DTC
or its nominee, only if:
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DTC notifies us that it is unwilling or unable to continue as
depositary for the global preferred security or at any time DTC
ceases to be registered under the Securities Exchange Act of
1934; or |
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we determine in our discretion that the global preferred
security shall be exchangeable for definitive preferred stock or
depositary receipts, as the case may be, in registered form. |
Any global preferred security that is exchangeable pursuant to
the preceding sentence will be exchangeable in whole for
definitive certificated preferred stock or depositary receipts,
as the case may be, registered by the registrar in the name or
names instructed by DTC. We expect that those instructions may
be based upon
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directions received by DTC from its participants with respect to
ownership of beneficial interests in that global preferred
security.
Except as provided above, owners of the beneficial interests in
a global preferred security will not be entitled to receive
physical delivery of certificates representing shares of
preferred stock or depositary shares, as the case may be, and
will not be considered the holders of preferred stock or
depositary shares, as the case may be. No global preferred
security shall be exchangeable except for another global
preferred security to be registered in the name of DTC or its
nominee. Accordingly, each person owning a beneficial interest
in a global preferred security must rely on the procedures of
DTC and, if that person is not a participant, on the procedures
of the participant through which that person owns its interest,
to exercise any rights of a holder of preferred stock or
depositary shares, as the case may be.
We understand that, under existing industry practices, in the
event that we request any action of holders, or an owner of a
beneficial interest in a global preferred security desires to
give or take any action that a holder of preferred stock or
depositary shares, as the case may be, is entitled to give or
take, DTC would authorize the participants holding the relevant
beneficial interests to give or take that action and those
participants would authorize beneficial owners owning through
those participants to give or take that action or would
otherwise act upon the instructions of beneficial owners owning
through them.
A brief description of DTC is set below under Description
of Debt Securities Global Securities.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of our voting common
stock, non-voting common stock, preferred stock or debt
securities or any combination thereof. Warrants may be issued
independently or together with our voting or non-voting common
stock, preferred stock or debt securities and may be attached to
or separate from any offered securities. Each series of warrants
will be issued under a separate warrant agreement to be entered
into between us and a bank or trust company, as warrant agent.
The warrant agent will act solely as our agent in connection
with the warrants. The warrant agent will not have any
obligation or relationship of agency or trust for or with any
holders or beneficial owners of warrants. This summary of
certain provisions of the warrants is not complete. For the
terms of a particular series of warrants, you should refer to
the prospectus supplement for that series of warrants and the
warrant agreement for that particular series.
Stock Warrants
The prospectus supplement relating to a particular series of
warrants to purchase our voting or non-voting common stock or
our preferred stock will describe the terms of the warrants,
including the following:
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the title of the warrants; |
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the offering price for the warrants, if any; |
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the aggregate number of the warrants; |
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the designation and terms of the common stock or preferred stock
that may be purchased upon exercise of the warrants; |
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if applicable, the designation and terms of the securities with
which the warrants are issued and the number of warrants issued
with each security; |
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if applicable, the date from and after which the warrants and
any securities issued with the warrants will be separately
transferable; |
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the number of shares of common stock or preferred stock that may
be purchased upon exercise of a warrant and the exercise price
for the warrants; |
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the dates on which the right to exercise the warrants shall
commence and expire; |
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if applicable, the minimum or maximum amount of the warrants
that may be exercised at any one time; |
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the currency or currency units in which the offering price, if
any, and the exercise price are payable; |
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if applicable, a discussion of material U.S. federal income
tax considerations; |
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the antidilution provisions of the warrants, if any; |
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the redemption or call provisions, if any, applicable to the
warrants; |
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any provisions with respect to holders right to require us
to repurchase the warrants upon a change in control; and |
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any additional terms of the warrants, including terms,
procedures and limitations relating to the exchange, exercise
and settlement of the warrants. |
Holders of equity warrants will not be entitled:
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to vote, consent or receive dividends; |
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receive notice as shareholders with respect to any meeting of
shareholders for the election of our directors or any other
matter; or |
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exercise any rights as shareholders of Petroleum Helicopters. |
Debt Warrants
The prospectus supplement relating to a particular issue of
warrants to purchase debt securities will describe the terms of
the debt warrants, including the following:
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the title of the debt warrants; |
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the offering price for the debt warrants, if any; |
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the aggregate number of the debt warrants; |
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the designation and terms of the debt securities, including any
conversion rights, purchasable upon exercise of the debt
warrants; |
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if applicable, the date from and after which the debt warrants
and any debt securities issued with them will be separately
transferable; |
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the principal amount of debt securities that may be purchased
upon exercise of a debt warrant and the exercise price for the
warrants, which may be payable in cash, securities or other
property; |
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the dates on which the right to exercise the debt warrants will
commence and expire; |
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if applicable, the minimum or maximum amount of the debt
warrants that may be exercised at any one time; |
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whether the debt warrants represented by the debt warrant
certificates or debt securities that may be issued upon exercise
of the debt warrants will be issued in registered or bearer form; |
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information with respect to book-entry procedures, if any; the
currency or currency units in which the offering price, if any,
and the exercise price are payable; |
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if applicable, a discussion of material U.S. federal income
tax considerations; |
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the antidilution provisions of the debt warrants, if any; |
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the redemption or call provisions, if any, applicable to the
debt warrants; |
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any provisions with respect to the holders right to
require us to repurchase the warrants upon a change in
control; and |
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any additional terms of the debt warrants, including terms,
procedures and limitations relating to the exchange, exercise
and settlement of the debt warrants. |
Debt warrant certificates will be exchangeable for new debt
warrant certificates of different denominations. Debt warrants
may be exercised at the corporate trust office of the warrant
agent or any other office indicated in the prospectus
supplement. Prior to the exercise of their debt warrants,
holders of debt warrants will not have any of the rights of
holders of the debt securities purchasable upon exercise and
will not be entitled to payment of principal or any premium, if
any, or interest on the debt securities purchasable upon
exercise.
DESCRIPTION OF DEBT SECURITIES
Any debt securities we offer will be our direct, unsecured
general obligations. The debt securities will be either senior
debt securities or subordinated debt securities. The debt
securities will be issued under one or more separate indentures
between us and a trustee that is qualified to act under the
Trust Indenture Act of 1939. The trustee for each series of debt
securities will be identified in the applicable prospectus
supplement. Any senior debt securities will be issued under a
senior indenture and any subordinated debt
securities will be issued under a subordinated
indenture. Together, the senior indenture and the
subordinated indenture are called indentures.
The following description is a summary of the material
provisions of the indentures. It does not describe those
agreements in their entirety. The forms of indentures are filed
with the registration statement of which this prospectus is a
part. Any supplemental indentures will be filed by us from time
to time by means of an exhibit to a Current Report on
Form 8-K and will
be available for inspection at the corporate trust office of the
trustee, or as described above under Where You Can Find
More Information. The indentures will be subject to, and
governed by, the Trust Indenture Act. We will execute an
indenture and supplemental indenture if and when we issue any
debt securities. We urge you to read the indentures and any
supplemental indenture because they, and not this description,
define your rights as a holder of the debt securities.
Unless we state otherwise in the applicable prospectus
supplement, the following is a description of the general terms
of the debt securities that we may offer. If the terms of any
series of debt securities differ from the terms described below,
those terms will be described in the prospectus supplement
relating to that series of debt securities.
General
The debt securities will be our direct, unsecured obligations.
The senior debt securities will rank equally with all of our
other senior and unsubordinated debt. The subordinated debt
securities will have a junior position to all of our senior debt.
A prospectus supplement and an indenture or supplemental
indenture relating to any series of debt securities being
offered will include specific terms relating to the offering.
These terms will include some or all of the following:
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the title and type of the debt securities; |
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the currency or currency unit in which the debt securities will
be payable; |
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the total principal amount of the debt securities; |
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the percentage of the principal amount at which the debt
securities will be issued and any payments due if the maturity
of the debt securities is accelerated; |
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the dates on which the principal of the debt securities will be
payable; |
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the interest rate that the debt securities will bear (or, if
they are floating rate securities, the basis for the interest
rate) and the interest payment dates for the debt securities; |
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any conversion or exchange provisions; |
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any optional redemption provisions; |
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any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem some or all of the debt
securities; |
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any provisions granting special rights to holders when a
specified event occurs; |
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any changes to or additional events of default or covenants; |
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any special tax implications of the debt securities, including
provisions for original issue discount securities, if offered; |
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any restriction on the declaration of dividends or restrictions
requiring the maintenance of any asset ratio or the creation or
maintenance of reserves; |
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the names and duties of any co-trustees, calculation agents,
paying agents or registrars for the debt securities; and |
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any other terms of the debt securities. |
None of the indentures will limit the amount of debt securities
that may be issued by us. Each indenture will allow debt
securities to be issued up to the principal amount that may be
authorized by us and may be in any currency or currency unit
designated by us.
Debt securities of a series may be issued in registered, bearer,
coupon or global form.
Denominations
Unless the prospectus supplement for each issuance of debt
securities states otherwise, the securities will be issued in
registered form of $1,000 each or multiples thereof.
Subordination
Under the subordinated indenture, payment of the principal,
interest and any premium on the subordinated debt securities
will generally be subordinated and junior in right of payment to
the prior payment in full of all of our senior debt, whether
existing at the date of the subordinated indenture or
subsequently incurred. The subordinated indenture will provide
that no payment of principal, interest or any premium on the
subordinated debt securities may be made in the event:
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of any insolvency, bankruptcy or similar proceeding involving us
or our property, or |
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we fail to pay the principal, interest, any premium or any other
amounts on any senior debt when due. |
The subordinated indenture will not limit the amount of senior
debt that we may incur.
Unless we state otherwise in a prospectus supplement,
Senior Debt will be defined in the subordinated
indenture to include all notes or other unsecured evidences of
indebtedness, including guarantees given by us, for money
borrowed by us, including principal of and any interest or
premium on such amounts, whether incurred on, before or after
the date of the subordinated indenture, that is not expressed to
be subordinate or junior in right of payment to any of our other
indebtedness.
Consolidation, Merger or Sale
Each indenture generally will permit a consolidation or merger
between us and another corporation. They also will permit the
sale by us of all or substantially all of our property and
assets. If this happens, the remaining or acquiring corporation
will assume all of our responsibilities and liabilities under
the indentures, including the payment of all amounts due on the
debt securities and performance of the covenants in the
indentures. However, we will consolidate or merge with or into
any other corporation or sell all or substantially all of our
assets only according to the terms and conditions of the
indentures. The remaining or acquiring corporation will be
substituted for us in the indentures with the same effect as if
it had been an original party to the indentures. Thereafter, the
successor corporation may exercise our rights and powers under
any
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indenture, in our name or in its own name. Any act or proceeding
required or permitted to be done by our board of directors or
any of our officers may be done by the board or officers of the
successor corporation. If we sell all or substantially all of
our assets, we will be released from all our liabilities and
obligations under any indenture and under the debt securities.
Modification of Indentures
Under each indenture our rights and obligations and the rights
of the holders may be modified with the consent of the holders
of a majority in aggregate principal amount of the outstanding
debt securities of each series affected by the modification. No
modification of the principal or interest payment terms, and no
modification reducing the percentage required for modifications,
will be effective against any holder without its consent.
Events of Default
Event of Default when used in an indenture, could
mean any of the following:
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failure to pay the principal of or any premium on prescribed
debt securities when due; |
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failure to deposit any sinking fund payment when due; |
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failure to pay interest when due on prescribed debt securities
for 30 days; |
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failure to perform any other covenant in the indenture that
continues for 90 days after being given written notice; |
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certain events in bankruptcy, insolvency or reorganization of
Petroleum Helicopters; or |
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any other event of default included in any indenture or
supplemental indenture. |
An event of default for a particular series of debt securities
will not necessarily constitute an event of default for any
other series of debt securities issued under an indenture. The
trustee may withhold notice to the holders of debt securities of
any default, except a default in the payment of principal or
interest, if it considers the withholding of notice to be in the
best interests of the holders.
If an event of default for any series of debt securities occurs
and continues, the trustee or the holders of at least 25% in
aggregate principal amount of the debt securities of the series
may declare the entire principal of all the debt securities of
that series to be due and payable immediately. If this happens,
subject to certain conditions, the holders of a majority of the
aggregate principal amount of the debt securities of that series
can void the declaration.
Other than its duties in case of a default, a trustee is not
obligated to exercise any of its rights or powers under any
indenture at the request, order or direction of any holders,
unless the holders offer the trustee reasonable indemnity. If
they provide this reasonable indemnification, the holders of a
majority in principal amount of any series of debt securities
may direct the time, method and place of conducting any
proceeding or any remedy available to the trustee, or exercising
any power conferred upon the trustee, for any series of debt
securities.
Covenants
Under the indentures, we will:
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pay the principal of, and interest and any premium on, the debt
securities when due; |
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maintain a place of payment; |
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deliver a report to the trustee at the end of each fiscal year
reviewing our obligations under the indentures; and |
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deposit sufficient funds with any paying agent on or before the
due date for any principal, interest or premium. |
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If there are any restrictive covenants applicable to a series of
debt securities, we will describe them in the prospectus
supplement for that series.
Payment and Transfer
We will pay principal, interest and any premium on fully
registered debt securities at designated places. We will make
payment by check mailed to the persons in whose names the debt
securities are registered on days specified in the indentures or
any prospectus supplement. If we make debt securities payments
in other forms, we will pay those payments at a place designated
by us and specified in a prospectus supplement.
You may transfer or exchange fully registered debt securities at
the corporate trust office of the trustee or at any other office
or agency maintained by us for such purposes, without the
payment of any service charge except for any tax or governmental
charge.
Global Securities
We may issue one or more series of debt securities as permanent
global debt securities deposited with a depositary. Unless
otherwise indicated in the prospectus supplement, the following
is a summary of the depository arrangements applicable to debt
securities issued in permanent global form and for which DTC
acts as depository.
Each global debt security will be deposited with, or on behalf
of, DTC, as depository, or its nominee, and registered in the
name of a nominee of DTC. Except under the limited circumstances
described below, global debt securities are not exchangeable for
definitive certificated debt securities.
Ownership of beneficial interests in a global debt security is
limited to institutions that have accounts with DTC or its
nominee, or persons that may hold interests through those
participants. In addition, ownership of beneficial interests by
participants in a global debt security will be evidenced only
by, and the transfer of that ownership interest will be effected
only through, records maintained by DTC or its nominee for a
global debt security. Ownership of beneficial interests in a
global debt security by persons that hold those interests
through participants will be evidenced only by, and the transfer
of that ownership interest within that participant will be
effected only through, records maintained by that participant.
DTC has no knowledge of the actual beneficial owners of the debt
securities. Beneficial owners will not receive written
confirmation from DTC of their purchase, but beneficial owners
are expected to receive written confirmations providing details
of the transaction, as well as periodic statements of their
holdings, from the participants through which the beneficial
owners entered the transaction. The laws of some jurisdictions
require that certain purchasers of securities take physical
delivery of securities they purchase in definitive form. These
laws may impair your ability to transfer beneficial interests in
a global debt security.
We will make payment of principal of, and interest on, debt
securities represented by a global debt security registered in
the name of or held by DTC or its nominee to DTC or its nominee,
as the case may be, as the registered owner and holder of the
global debt security representing those debt securities. DTC has
advised us that upon receipt of any payment of principal of, or
interest on, a global debt security, DTC immediately will credit
accounts of participants on its book-entry registration and
transfer system with payments in amounts proportionate to their
respective interests in the principal amount of that global debt
security, as shown in the records of DTC. Payments by
participants to owners of beneficial interests in a global debt
security held through those participants will be governed by
standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in
bearer form or registered in street name, and will
be the sole responsibility of those participants, subject to any
statutory or regulatory requirements that may be in effect from
time to time.
Neither we, any trustee nor any of our respective agents will be
responsible for any aspect of the records of DTC, any nominee or
any participant relating to, or payments made on account of,
beneficial interests in a permanent global debt security or for
maintaining, supervising or reviewing any of the records of DTC,
any nominee or any participant relating to such beneficial
interests.
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A global debt security is exchangeable for definitive debt
securities registered in the name of, and a transfer of a global
debt security may be registered to, a person other than DTC or
its nominee, only if:
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DTC notifies us that it is unwilling or unable to continue as
depository for that global debt security or at any time DTC
ceases to be registered under the Securities Exchange Act of
1934; |
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we determine in our discretion that the global debt security
shall be exchangeable for definitive debt securities in
registered form; or |
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there shall have occurred and be continuing an event of default
or an event which, with notice or the lapse of time or both,
would constitute an event of default under the debt securities. |
Any global debt security that is exchangeable pursuant to the
preceding sentence will be exchangeable in whole for definitive
debt securities in registered form, of like tenor and of an
equal aggregate principal amount as the global debt security, in
denominations specified in the applicable prospectus supplement,
if other than $1,000 and integral multiples of $1,000. The
definitive debt securities will be registered by the registrar
in the name or names instructed by DTC. We expect that these
instructions may be based upon directions received by DTC from
its participants with respect to ownership of beneficial
interests in the global debt security.
Except as provided above, owners of the beneficial interests in
a global debt security will not be entitled to receive physical
delivery of debt securities in definitive form and will not be
considered the holders of debt securities for any purpose under
the indentures. No global debt security shall be exchangeable
except for another global debt security of like denomination and
tenor to be registered in the name of DTC or its nominee.
Accordingly, each person owning a beneficial interest in a
global debt security must rely on the procedures of DTC and, if
that person is not a participant, on the procedures of the
participant through which that person owns its interest, to
exercise any rights of a holder under the global debt security
or the indentures.
We understand that, under existing industry practices, in the
event that we request any action of holders, or an owner of a
beneficial interest in a global debt security desires to give or
take any action that a holder is entitled to give or take under
the debt securities or the indentures, DTC would authorize the
participants holding the relevant beneficial interests to give
or take that action and those participants would authorize
beneficial owners owning through those participants to give or
take that action or would otherwise act upon the instructions of
beneficial owners owning through them.
DTC has advised us as follows:
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is a limited-purpose trust company organized under the New York
Banking Law, |
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a banking organization within the meaning of the New
York Banking Law, |
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a member of the Federal Reserve System, |
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a clearing corporation within the meaning of the New
York Uniform Commercial Code and |
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a clearing agency registered under Section 17A
of the Securities Exchange Act of 1934. |
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DTC was created to hold securities of its participants and to
facilitate the clearance and settlement of securities
transactions among its participants in those securities through
electronic book-entry changes in accounts of the participants,
thereby eliminating the need for physical movement of securities
certificates. |
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DTCs participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other
organizations. |
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DTC is owned by a number of its participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. |
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Access to DTCs book-entry system is also available to
others, such as banks, brokers, dealers, trust companies and
clearing corporations, that clear through or maintain a
custodial relationship with a participant, either directly or
indirectly. |
The rules applicable to DTC and its participants are on file
with the SEC.
Discharging our Obligations
We will be discharged from our obligations on the debt
securities of any series at any time if we deposit with the
trustee sufficient cash or government securities to pay the
principal, interest, any premium and any other sums due to the
stated maturity date or a redemption date of the debt securities
of the series. If this happens, the holders of the debt
securities of the series will not be entitled to the benefits of
the indenture except for registration of transfer and exchange
of debt securities and replacement of lost, stolen or mutilated
debt securities.
Under U.S. Federal income tax law as of the date of this
prospectus, such a discharge should be treated as an exchange of
the related debt securities. Each holder generally will be
required to recognize gain or loss equal to the difference
between the holders cost or other tax basis for the debt
securities and the value of the holders interest in the
trust. Holders might be required to include as income a
different amount than would be includable without the discharge.
Prospective investors are urged to consult their own tax
advisers as to the consequences of such a discharge, including
the applicability and effect of tax laws other than the
U.S. Federal income tax laws.
Meetings
Each indenture will contain provisions describing how meetings
of the holders of debt securities of a series may be convened. A
meeting may be called at any time by the trustee, and also, upon
request, by us or the holders of at least 10% in principal
amount of the outstanding debt securities of a series. A notice
of the meeting must always be given in the manner described
under Notices below. Generally speaking,
except for any consent that must be given by all holders of a
series as described under Modification of
Indentures above, any resolution presented at a meeting of
the holders of a series of debt securities may be adopted by the
affirmative vote of the holders of a majority in principal
amount of the outstanding debt securities of that series, unless
the indenture allows the action to be voted upon to be taken
with the approval of the holders of a different specific
percentage of principal amount of outstanding debt securities of
a series. In that case, the holders of outstanding debt
securities of at least the specified percentage must vote in
favor of the action. Any resolution passed or decision taken at
any meeting of holders of debt securities of any series in
accordance with the applicable indenture will be binding on all
holders of debt securities of that series, unless, as discussed
in Modification of Indentures above, the
action is only effective against holders that have approved it.
The quorum at any meeting called to adopt a resolution, and at
any reconvened meeting, will be holders holding or representing
a majority in principal amount of the outstanding debt
securities of a series.
Governing Law
Each indenture and the debt securities will be governed by and
construed in accordance with the laws of the State of New York,
except to the extent the Trust Indenture Act applies.
Notices
Notices to holders of debt securities will be given by mail to
the addresses of such holders as they appear in the security
register.
The Trustee
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Resignation or Removal of Trustee |
If the trustee serves as trustee under both the senior indenture
and the subordinated indenture, the provisions of the indentures
and the Trust Indenture Act governing trustee conflicts of
interest will require the
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trustee to resign as trustee under either the subordinated
indenture or the senior indenture upon the occurrence of any
uncured event of default with respect to any series of senior
debt securities. Also, any uncured event of default with respect
to any series of subordinated debt securities will force the
trustee to resign as trustee under either the senior indenture
or the subordinated indenture. Any resignation will require the
appointment of a successor trustee under the applicable
indenture in accordance with the terms and conditions of such
indenture.
The trustee may resign or be removed by us with respect to one
or more series of debt securities and a successor trustee may be
appointed to act with respect to any such series. The holders of
a majority in aggregate principal amount of the debt securities
of any series also may remove the trustee with respect to the
debt securities of that series.
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Limitations on Trustee if it Is One of our
Creditors |
Each indenture will contain certain limitations on the right of
the trustee thereunder, in the event that it becomes one of our
creditors, to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such
claim as security or otherwise.
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Annual Trustee Report to Holders of Debt Securities |
The trustee will be required to submit an annual report to the
holders of the debt securities regarding, among other things,
the trustees eligibility to serve as such, the priority of
the trustees claims regarding certain advances made by it,
and any action taken by the trustee materially affecting the
debt securities.
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Certificates and Opinions to Be Furnished to
Trustee |
Each indenture will provide that, in addition to other
certificates or opinions that may be specifically required by
other provisions of an indenture, every application by us for
action by the trustee will be accompanied by a certificate of
certain of our officers and an opinion of counsel (who may be
our counsel) stating that, in the opinion of the signers, all
conditions precedent to that action have been complied with by
us.
PLAN OF DISTRIBUTION
We may sell our securities through agents, underwriters or
dealers or directly to purchasers, or through any combination of
these methods of sale.
We may distribute the securities from time to time in one or
more transactions:
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at a fixed price or prices, which may be changed from time to
time; |
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at market prices prevailing at the time of sale; |
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at prices related to prevailing market prices; and |
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at negotiated prices. |
We will describe the method of distribution of each series of
securities in the applicable prospectus supplement.
We may designate agents to solicit offers to purchase our
securities.
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We will name any agent involved in offering or selling our
securities and any commissions that we will pay to the agent in
the prospectus supplement. |
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Unless we indicate otherwise in the prospectus supplement, our
agents will act on a best efforts basis for the period of their
appointment. |
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Our agents may be deemed to be underwriters under the Securities
Act of 1933 of any of our securities that they offer or sell. |
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We may use an underwriter or underwriters in the offer or sale
of our securities.
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If we use an underwriter or underwriters, we will execute an
underwriting agreement with the underwriter or underwriters at
the time that we reach an agreement for the sale of our
securities. |
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We will include the names of the specific managing underwriter
or underwriters, as well as any other underwriters, and the
terms of the transactions, including the compensation the
underwriters and dealers will receive, in the prospectus
supplement. |
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The underwriters will use the prospectus supplement to sell our
securities. |
During and after an offering through underwriters, the
underwriters may purchase and sell the securities in the open
market. These transactions may include overallotment and
stabilizing transactions and purchases to cover syndicate short
positions created in connection with the offering. The
underwriters may also impose a penalty bid, which means that
selling concessions allowed to syndicate members or other
broker-dealers for the offered securities sold for their account
may be reclaimed by the syndicate if the offered securities are
repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or
otherwise affect the market price of the offered securities,
which may be higher than the price that might otherwise prevail
in the open market. If commenced, the underwriters may
discontinue these activities at any time.
We may use a dealer to sell our securities.
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If we use a dealer, we, as principal, will sell our securities
to the dealer. |
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The dealer will then sell our securities to the public at
varying prices that the dealer will determine at the time it
sells our securities. |
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We will include the name of the dealer and the terms of our
transactions with the dealer in the prospectus supplement. |
We may directly solicit offers to purchase our securities, and
we may directly sell our securities to institutional or other
investors. We will describe the terms of our direct sales in the
prospectus supplement.
We may indemnify agents, underwriters and dealers against
certain liabilities, including liabilities under the Securities
Act of 1933. Our agents, underwriters, and dealers, or their
affiliates, may be customers of, engage in transactions with us
or perform services for us in the ordinary course of business.
We may authorize our agents and underwriters to solicit offers
by certain institutions to purchase our securities at the public
offering price under delayed delivery contracts.
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If we use delayed delivery contracts, we will disclose that we
are using them in the prospectus supplement and will tell you
when we will demand payment and delivery of the securities under
the delayed delivery contracts. |
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These delayed delivery contracts will be subject only to the
conditions that we set forth in the prospectus supplement. |
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We will indicate in the prospectus supplement the commission
that underwriters and agents soliciting purchases of our
securities under delayed delivery contracts will be entitled to
receive. |
As of the date of this prospectus, we have engaged no
underwriter, broker, dealer or agent in connection with any
distribution of securities pursuant to this prospectus.
LEGAL MATTERS
The legality of the securities have been passed upon for us by
Akin Gump Strauss Hauer & Feld LLP, Houston, Texas, as
to U.S. federal law, and by Jones, Walker, Waechter,
Poitevent, Carrère & Denègre, L.L.P., New
Orleans, Louisiana, as to Louisiana corporate law. If the
securities are being distributed in an
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underwritten offering, certain legal matters will be passed upon
for the underwriters by counsel identified in the related
prospectus supplement.
EXPERTS
The financial statements, the related financial statement
schedule and managements report on the effectiveness of
internal control over financial reporting incorporated in this
prospectus by reference from our Annual Report on
Form 10-K have
been audited by Deloitte & Touche llp, an independent
registered public firm, as stated in their reports, which are
incorporated herein by reference, and have been incorporated in
reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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