##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the quarterly period ended: June 30, 2008
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from

to
 Commission file number: 0-9827
 PHI, Inc.
  Louisiana
(State or other jurisdiction of incorporation or organization)
    
    72-0395707
(I.R.S. Employer Identification No.)2001 SE Evangeline Thruway 
Lafayette, Louisiana
(Address of principal executive offices)
    
    70508
(Zip Code)
 (337) 235-2452
 þ o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ
   Class
    
    Outstanding at August 1, 2008Voting Common Stock
    
    2,852,616 sharesNon-Voting Common Stock
    
    12,438,992 shares




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##### 



PHI, INC.
 Index  Form 10-Q
 Part I  Financial InformationItem 1.
    
    Financial Statements  UnauditedCondensed Consolidated Balance Sheets  June 30, 2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations  Quarter and Six Months Ended June 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows  Six Months Ended June 30, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4.
    
    Controls and Procedures
    
    
    30Part II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    31Item 1.A.
    
    Risk Factors
    
    
    31Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3.
    
    Defaults Upon Senior Securities
    
    
    31Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    31Item 5.
    
    Other Information
    
    
    31Item 6.
    
    Exhibits
    
    
    32Signatures
    
    
    33Composite Articles of IncorporationCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
(Unaudited)
 June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,475
    
    
    $
    1,425Short-term investments
    
    
    35,479
    
    
    
    62,970Accounts receivable  net of allowance:Trade
    
    
    103,665
    
    
    
    95,111Other
    
    
    8,488
    
    
    
    2,973Inventories of spare parts and supplies  net of allowance
    
    
    59,327
    
    
    
    55,831Assets held for sale
    
    
    442
    
    
    
    Other current assets
    
    
    11,682
    
    
    
    11,194Refundable income taxes
    
    
    762
    
    
    
    525Total current assets
    
    
    221,320
    
    
    
    230,029Other
    
    
    35,034
    
    
    
    27,148Property and equipment, net
    
    
    506,924
    
    
    
    484,119Total assets
    
    $
    763,278
    
    
    $
    741,296LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    29,784
    
    
    $
    28,454Accrued liabilities
    
    
    24,905
    
    
    
    24,942Total current liabilities
    
    
    54,689
    
    
    
    53,396Long-term debt
    
    
    200,000
    
    
    
    200,000Deferred income taxes
    
    
    59,760
    
    
    
    51,644Other long-term liabilities
    
    
    7,336
    
    
    
    7,587Commitments and contingencies (Note 3)Shareholders Equity:Voting common stock
    
    
    285
    
    
    
    285Non-voting common stock
    
    
    1,242
    
    
    
    1,242Additional paid-in capital
    
    
    291,037
    
    
    
    291,037Accumulated other comprehensive income
    
    
    64
    
    
    
    61Retained earnings
    
    
    148,865
    
    
    
    136,044Total shareholders equity
    
    
    441,493
    
    
    
    428,669Total liabilities and shareholders equity
    
    $
    763,278
    
    
    $
    741,296
  3




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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating revenues
    
    $
    130,111
    
    
    $
    112,975
    
    
    $
    247,256
    
    
    $
    214,728Gain on disposition of
assets, net
    
    
    1,255
    
    
    
    6,074
    
    
    
    4,204
    
    
    
    8,608Other
    
    
    201
    
    
    
    1,490
    
    
    
    503
    
    
    
    3,144131,567
    
    
    
    120,539
    
    
    
    251,963
    
    
    
    226,480Expenses:Direct expenses
    
    
    109,757
    
    
    
    97,119
    
    
    
    207,983
    
    
    
    190,352Selling, general and
administrative expenses
    
    
    7,534
    
    
    
    7,395
    
    
    
    14,923
    
    
    
    14,932Interest expense
    
    
    3,854
    
    
    
    4,260
    
    
    
    7,688
    
    
    
    8,367121,145
    
    
    
    108,774
    
    
    
    230,594
    
    
    
    213,651Earnings before income taxes
    
    
    10,422
    
    
    
    11,765
    
    
    
    21,369
    
    
    
    12,829Income taxes
    
    
    4,169
    
    
    
    4,596
    
    
    
    8,548
    
    
    
    4,997Net earnings
    
    $
    6,253
    
    
    $
    7,169
    
    
    $
    12,821
    
    
    $
    7,832Weighted average shares
outstanding:Basic
    
    
    15,277
    
    
    
    15,288
    
    
    
    15,277
    
    
    
    15,288Diluted
    
    
    15,286
    
    
    
    15,307
    
    
    
    15,285
    
    
    
    15,307Net earnings per shareBasic
    
    $
    0.41
    
    
    $
    0.47
    
    
    $
    0.84
    
    
    $
    0.51Diluted
    
    $
    0.41
    
    
    $
    0.47
    
    
    $
    0.84
    
    
    $
    0.51
  4




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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
 Six Months EndedJune 30,2008
    
    
    2007Operating activities:Net earnings
    
    $
    12,821
    
    
    $
    7,832Adjustments to reconcile net earnings to net cash
provided
by operating activities:Depreciation
    
    
    13,186
    
    
    
    15,781Deferred income taxes
    
    
    8,117
    
    
    
    4,378Gain on asset dispositions
    
    
    (4,204
    )
    
    
    (8,608
    )Other
    
    
    456
    
    
    
    434Changes in operating assets and liabilities
    
    
    (17,148
    )
    
    
    (19,174
    )Net cash provided by operating activities
    
    
    13,228
    
    
    
    643Investing activities:Purchase of property and equipment
    
    
    (38,106
    )
    
    
    (61,843
    )Proceeds from asset dispositions
    
    
    8,983
    
    
    
    13,321Purchase of short-term investments
    
    
    (21,584
    )
    
    
    (18,337
    )Proceeds from sale of short-term investments
    
    
    49,075
    
    
    
    76,500Deposits on aircraft
    
    
    (11,546
    )
    
    
    (17,456
    )Net cash used in investing activities
    
    
    (13,178
    )
    
    
    (7,815
    )Financing activities:Proceeds from line of credit
    
    
    3,800
    
    
    
    33,800Payments on line of credit
    
    
    (3,800
    )
    
    
    (26,200
    )Net cash provided by financing activities
    
    
    
    
    
    
    7,600Increase in cash and cash equivalents
    
    
    50
    
    
    
    428Cash and cash equivalents, beginning of period
    
    
    1,425
    
    
    
    820Cash and cash equivalents, end of period
    
    $
    1,475
    
    
    $
    1,248Supplemental Disclosures Cash Flow InformationInterest paid
    
    $
    7,201
    
    
    $
    7,902Taxes paid
    
    $
    232
    
    
    $
    14Accrued payables related to purchase of property and
equipment
    
    $
    356
    
    
    $
    553
  5




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. General
   2. Segment Information
    Oil and Gas Segment.
  6




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Air Medical Segment.
   AccountsRevenue
    
    ReceivableQuarter Ended
    
    Six Months EndedJune 30,
    
    June 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007Gross billings
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Provision for contractual
discounts
    
    
    45
    %
    
    
    43
    %
    
    
    47
    %
    
    
    44
    %
    
    
    35
    %
    
    
    33
    %Provision for uncompensated care
    
    
    11
    %
    
    
    12
    %
    
    
    10
    %
    
    
    11
    %
    
    
    18
    %
    
    
    21
    %
  Quarter Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Medicaid
    
    
    10
    %
    
    
    8
    %
    
    
    12
    %
    
    
    9
    %Medicare
    
    
    17
    %
    
    
    14
    %
    
    
    17
    %
    
    
    14
    %Insurance
    
    
    69
    %
    
    
    76
    %
    
    
    67
    %
    
    
    75
    %Self Pay
    
    
    4
    %
    
    
    2
    %
    
    
    4
    %
    
    
    2
    %
  Technical Services Segment.
 7




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Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Thousands of dollars)
    
    
    (Thousands of dollars)Segment operating revenuesOil and Gas
    
    $
    82,063
    
    
    $
    71,690
    
    
    $
    156,663
    
    
    $
    136,990Air Medical
    
    
    46,311
    
    
    
    39,652
    
    
    
    85,571
    
    
    
    73,197Technical Services
    
    
    1,737
    
    
    
    1,633
    
    
    
    5,022
    
    
    
    4,541Total operating revenues
    
    
    130,111
    
    
    
    112,975
    
    
    
    247,256
    
    
    
    214,728Segment direct expenses (1)Oil and Gas
    
    
    64,824
    
    
    
    61,760
    
    
    
    124,083
    
    
    
    119,195Air Medical
    
    
    43,286
    
    
    
    33,813
    
    
    
    80,369
    
    
    
    67,641Technical Services
    
    
    1,647
    
    
    
    1,546
    
    
    
    3,531
    
    
    
    3,516Total direct expenses
    
    
    109,757
    
    
    
    97,119
    
    
    
    207,983
    
    
    
    190,352Segment selling, general and administrative expensesOil and Gas
    
    
    342
    
    
    
    399
    
    
    
    655
    
    
    
    790Air Medical
    
    
    2,075
    
    
    
    1,898
    
    
    
    4,192
    
    
    
    3,839Technical Services
    
    
    8
    
    
    
    17
    
    
    
    34
    
    
    
    25Total selling, general and administrative expenses
    
    
    2,425
    
    
    
    2,314
    
    
    
    4,881
    
    
    
    4,654Total direct and selling, general and administrative
expenses
    
    
    112,182
    
    
    
    99,433
    
    
    
    212,864
    
    
    
    195,006Net segment profitOil and Gas
    
    
    16,897
    
    
    
    9,531
    
    
    
    31,925
    
    
    
    17,005Air Medical
    
    
    950
    
    
    
    3,941
    
    
    
    1,010
    
    
    
    1,717Technical Services
    
    
    82
    
    
    
    70
    
    
    
    1,457
    
    
    
    1,000Total
    
    
    17,929
    
    
    
    13,542
    
    
    
    34,392
    
    
    
    19,722Other, net (2)
    
    
    1,456
    
    
    
    7,564
    
    
    
    4,707
    
    
    
    11,752Unallocated selling, general and administrative costs
    
    
    (5,109
    )
    
    
    (5,081
    )
    
    
    (10,042
    )
    
    
    (10,278
    )Interest expense
    
    
    (3,854
    )
    
    
    (4,260
    )
    
    
    (7,688
    )
    
    
    (8,367
    )Earnings before income taxes
    
    $
    10,422
    
    
    $
    11,765
    
    
    $
    21,369
    
    
    $
    12,829
 
 (1)
    
    Included in direct expense are the depreciation expense amounts below: Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Oil and Gas
    
    $
    3,780
    
    
    $
    4,312
    
    
    $
    7,479
    
    
    $
    8,704Air Medical
    
    
    2,055
    
    
    
    2,327
    
    
    
    4,043
    
    
    
    4,622Technical Services
    
    
    15
    
    
    
    151
    
    
    
    119
    
    
    
    385Total
    
    $
    5,850
    
    
    $
    6,790
    
    
    $
    11,641
    
    
    $
    13,711Unallocated SG&A
    
    $
    751
    
    
    $
    1,021
    
    
    $
    1,545
    
    
    $
    2,070
 
 (2)
    
    Including gains on disposition of property and equipment, and other income. 3. Commitments and Contingencies
 Environmental Matters 
 8




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Legal Matters
  Long-term Debt
  Operating Leases
  9




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##### Table of Contents



Purchase Commitments
 4. Property and Equipment
  5. Valuation Accounts
   6. Employees
 Union Related Matters 
  Employee Incentive Compensation 
 10




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7. Recent Accounting Pronouncements
      June 30, 2008Quoted market
    
    Significant Otherprices in active
    
    Observable InputsTotal
    
    markets (Level 1)
    
    (Level 2)(Thousands of dollars)Short-term investments
    
    $
    35,479
    
    
    
    
    
    
    $
    35,479Investments in other assets
    
    $
    3,820
    
    
    
    
    
    
    $
    3,820
   11




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8. Shareholders Equity
   12




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9. Comprehensive Income
  Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Thousands of dollars)
    
    
    (Thousands of dollars)Net earnings
    
    $
    6,253
    
    
    $
    7,169
    
    
    $
    12,821
    
    
    $
    7,832SFAS No. 158 adjustment
    
    
    4
    
    
    
    (8
    )
    
    
    3
    
    
    
    (26
    )Comprehensive income
    
    $
    6,257
    
    
    $
    7,161
    
    
    $
    12,824
    
    
    $
    7,806
 10. Condensed Consolidating Financial Information
   13




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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
 June 30, 2008ParentCompany
    
    
    GuarantorOnly
    
    

Subsidiaries (1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,025
    
    
    $
    450
    
    
    $
    
    
    
    $
    1,475Short-term investments
    
    
    35,479
    
    
    
    
    
    
    
    
    
    
    
    35,479Accounts receivable  net
    
    
    98,751
    
    
    
    13,402
    
    
    
    
    
    
    
    112,153Inventories of spare parts and supplies
    
    
    59,327
    
    
    
    
    
    
    
    
    
    
    
    59,327Assets held for sale
    
    
    442
    
    
    
    
    
    
    
    
    
    
    
    442Other current assets
    
    
    11,660
    
    
    
    22
    
    
    
    
    
    
    
    11,682Refundable income taxes
    
    
    762
    
    
    
    
    
    
    
    
    
    
    
    762Total current assets
    
    
    207,446
    
    
    
    13,874
    
    
    
    
    
    
    
    221,320Investment in subsidiaries and other
    
    
    67,096
    
    
    
    
    
    
    
    (67,096
    )
    
    
    Intercompany receivable
    
    
    
    
    
    
    63,125
    
    
    
    (63,125
    )
    
    
    Other assets
    
    
    34,784
    
    
    
    250
    
    
    
    
    
    
    
    35,034Property and equipment, net
    
    
    490,921
    
    
    
    16,003
    
    
    
    
    
    
    
    506,924Total assets
    
    $
    800,247
    
    
    $
    93,252
    
    
    $
    (130,221
    )
    
    $
    763,278LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    27,518
    
    
    $
    2,266
    
    
    $
    
    
    
    $
    29,784Accrued liabilities
    
    
    20,317
    
    
    
    4,588
    
    
    
    
    
    
    
    24,905Intercompany payable
    
    
    63,125
    
    
    
    
    
    
    
    (63,125
    )
    
    
    Total current liabilities
    
    
    110,960
    
    
    
    6,854
    
    
    
    (63,125
    )
    
    
    54,689Long-term debt
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000Deferred income taxes and other long-term
liabilities
    
    
    47,794
    
    
    
    19,302
    
    
    
    
    
    
    
    67,096Shareholders Equity:Paid-in capital
    
    
    292,564
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    292,564Accumulated other comprehensive
income
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    64Retained earnings
    
    
    148,865
    
    
    
    62,694
    
    
    
    (62,694
    )
    
    
    148,865Total shareholders equity
    
    
    441,493
    
    
    
    67,096
    
    
    
    (67,096
    )
    
    
    441,493Total liabilities and
shareholders equity
    
    $
    800,247
    
    
    $
    93,252
    
    
    $
    (130,221
    )
    
    $
    763,278
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 14




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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
 December 31, 2007ParentCompany
    
    
    GuarantorOnly
    
    

Subsidiaries (1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,004
    
    
    $
    421
    
    
    $
    
    
    
    $
    1,425Short-term investments
    
    
    62,970
    
    
    
    
    
    
    
    
    
    
    
    62,970Accounts receivable  net of allowance
    
    
    84,318
    
    
    
    13,766
    
    
    
    
    
    
    
    98,084Inventories of spare parts and supplies
    
    
    55,831
    
    
    
    
    
    
    
    
    
    
    
    55,831Other current assets
    
    
    11,184
    
    
    
    10
    
    
    
    
    
    
    
    11,194Refundable income taxes
    
    
    525
    
    
    
    
    
    
    
    
    
    
    
    525Total current assets
    
    
    215,832
    
    
    
    14,197
    
    
    
    
    
    
    
    230,029Investment in subsidiaries and others
    
    
    59,384
    
    
    
    
    
    
    
    (59,384
    )
    
    
    Intercompany receivable
    
    
    
    
    
    
    50,729
    
    
    
    (50,729
    )
    
    
    Other assets
    
    
    26,878
    
    
    
    270
    
    
    
    
    
    
    
    27,148Property and equipment, net
    
    
    468,070
    
    
    
    16,049
    
    
    
    
    
    
    
    484,119Total assets
    
    $
    770,164
    
    
    $
    81,245
    
    
    $
    (110,113
    )
    
    $
    741,296LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    24,696
    
    
    $
    3,758
    
    
    $
    
    
    
    $
    28,454Accrued liabilities
    
    
    24,942
    
    
    
    
    
    
    
    
    
    
    
    24,942Intercompany payable
    
    
    50,729
    
    
    
    
    
    
    
    (50,729
    )
    
    
    Total current liabilities
    
    
    100,367
    
    
    
    3,758
    
    
    
    (50,729
    )
    
    
    53,396Long-term debt
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000Deferred income taxes and other long-term
liabilities
    
    
    41,128
    
    
    
    18,103
    
    
    
    
    
    
    
    59,231Shareholders Equity:Paid-in capital
    
    
    292,564
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    292,564Accumulated other comprehensive
income
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    61Retained earnings
    
    
    136,044
    
    
    
    54,982
    
    
    
    (54,982
    )
    
    
    136,044Total shareholders equity
    
    
    428,669
    
    
    
    59,384
    
    
    
    (59,384
    )
    
    
    428,669Total liabilities and
shareholders equity
    
    $
    770,164
    
    
    $
    81,245
    
    
    $
    (110,113
    )
    
    $
    741,296
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 15




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
 For the quarter ended June 30, 2008ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries (1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    111,149
    
    
    $
    18,962
    
    
    $
    
    
    
    $
    130,111Management fees
    
    
    759
    
    
    
    
    
    
    
    (759
    )
    
    
    Gain on disposition of assets, net
    
    
    1,255
    
    
    
    
    
    
    
    
    
    
    
    1,255Other
    
    
    201
    
    
    
    
    
    
    
    
    
    
    
    201113,364
    
    
    
    18,962
    
    
    
    (759
    )
    
    
    131,567Expenses:Direct expenses
    
    
    96,181
    
    
    
    13,576
    
    
    
    
    
    
    
    109,757Management fees
    
    
    
    
    
    
    759
    
    
    
    (759
    )
    
    
    Selling, general, and administrative
expenses
    
    
    6,600
    
    
    
    934
    
    
    
    
    
    
    
    7,534Equity in net income of consolidated
subsidiaries
    
    
    (3,086
    )
    
    
    
    
    
    
    3,086
    
    
    
    Interest expense
    
    
    3,854
    
    
    
    
    
    
    
    
    
    
    
    3,854103,549
    
    
    
    15,269
    
    
    
    2,327
    
    
    
    121,145Earnings before income taxes
    
    
    9,815
    
    
    
    3,693
    
    
    
    (3,086
    )
    
    
    10,422Income taxes
    
    
    3,562
    
    
    
    607
    
    
    
    
    
    
    
    4,169Net earnings
    
    $
    6,253
    
    
    $
    3,086
    
    
    $
    (3,086
    )
    
    $
    6,253
 For the quarter ended June 30, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries (1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    95,874
    
    
    $
    17,101
    
    
    $
    
    
    
    $
    112,975Management fees
    
    
    684
    
    
    
    
    
    
    
    (684
    )
    
    
    Gain on disposition of assets, net
    
    
    6,074
    
    
    
    
    
    
    
    
    
    
    
    6,074Other
    
    
    1,486
    
    
    
    4
    
    
    
    
    
    
    
    1,490104,118
    
    
    
    17,105
    
    
    
    (684
    )
    
    
    120,539Expenses:Direct expenses
    
    
    85,973
    
    
    
    11,146
    
    
    
    
    
    
    
    97,119Management fees
    
    
    
    
    
    
    684
    
    
    
    (684
    )
    
    
    Selling, general, and administrative
expenses
    
    
    6,668
    
    
    
    727
    
    
    
    
    
    
    
    7,395Equity in net income of consolidated
subsidiaries
    
    
    (3,766
    )
    
    
    
    
    
    
    3,766
    
    
    
    Interest expense
    
    
    4,260
    
    
    
    
    
    
    
    
    
    
    
    4,26093,135
    
    
    
    12,557
    
    
    
    3,082
    
    
    
    108,774Earnings before income taxes
    
    
    10,983
    
    
    
    4,548
    
    
    
    (3,766
    )
    
    
    11,765Income taxes
    
    
    3,814
    
    
    
    782
    
    
    
    
    
    
    
    4,596Net earnings
    
    $
    7,169
    
    
    $
    3,766
    
    
    $
    (3,766
    )
    
    $
    7,169
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 16




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
 For the six months ended June 30, 2008ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries (1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    208,216
    
    
    $
    39,040
    
    
    $
    
    
    
    $
    247,256Management fees
    
    
    1,562
    
    
    
    
    
    
    
    (1,562
    )
    
    
    Gain on disposition of assets, net
    
    
    4,204
    
    
    
    
    
    
    
    
    
    
    
    4,204Other
    
    
    503
    
    
    
    
    
    
    
    
    
    
    
    503214,485
    
    
    
    39,040
    
    
    
    (1,562
    )
    
    
    251,963Expenses:Direct expenses
    
    
    181,206
    
    
    
    26,777
    
    
    
    
    
    
    
    207,983Management fees
    
    
    
    
    
    
    1,562
    
    
    
    (1,562
    )
    
    
    Selling, general, and administrative
expenses
    
    
    13,096
    
    
    
    1,827
    
    
    
    
    
    
    
    14,923Equity in net income of consolidated
subsidiaries
    
    
    (7,712
    )
    
    
    
    
    
    
    7,712
    
    
    
    Interest expense
    
    
    7,688
    
    
    
    
    
    
    
    
    
    
    
    7,688194,278
    
    
    
    30,166
    
    
    
    6,150
    
    
    
    230,594Earnings before income taxes
    
    
    20,207
    
    
    
    8,874
    
    
    
    (7,712
    )
    
    
    21,369Income taxes
    
    
    7,386
    
    
    
    1,162
    
    
    
    
    
    
    
    8,548Net earnings
    
    $
    12,821
    
    
    $
    7,712
    
    
    $
    (7,712
    )
    
    $
    12,821
 For the six months ended June 30, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries (1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    182,581
    
    
    $
    32,147
    
    
    $
    
    
    
    $
    214,728Management fees
    
    
    1,286
    
    
    
    
    
    
    
    (1,286
    )
    
    
    Gain on disposition of assets, net
    
    
    8,608
    
    
    
    
    
    
    
    
    
    
    
    8,608Other
    
    
    3,136
    
    
    
    8
    
    
    
    
    
    
    
    3,144195,611
    
    
    
    32,155
    
    
    
    (1,286
    )
    
    
    226,480Expenses:Direct expenses
    
    
    167,765
    
    
    
    22,587
    
    
    
    
    
    
    
    190,352Management fees
    
    
    
    
    
    
    1,286
    
    
    
    (1,286
    )
    
    
    Selling, general, and administrative
expenses
    
    
    13,453
    
    
    
    1,479
    
    
    
    
    
    
    
    14,932Equity in net income of consolidated
subsidiaries
    
    
    (5,543
    )
    
    
    
    
    
    
    5,543
    
    
    
    Interest expense
    
    
    8,367
    
    
    
    
    
    
    
    
    
    
    
    8,367184,042
    
    
    
    25,352
    
    
    
    4,257
    
    
    
    213,651Earnings before income taxes
    
    
    11,569
    
    
    
    6,803
    
    
    
    (5,543
    )
    
    
    12,829Income taxes
    
    
    3,737
    
    
    
    1,260
    
    
    
    
    
    
    
    4,997Net earnings
    
    $
    7,832
    
    
    $
    5,543
    
    
    $
    (5,543
    )
    
    $
    7,832
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 17




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
 For the six months ended June 30, 2008ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries (1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    13,199
    
    
    $
    29
    
    
    $
    
    
    
    $
    13,228Investing activities:Purchase of property and equipment
    
    
    (38,106
    )
    
    
    
    
    
    
    
    
    
    
    (38,106
    )Proceeds from asset dispositions
    
    
    8,983
    
    
    
    
    
    
    
    
    
    
    
    8,983Proceeds from sale of short-term
investments, net
    
    
    27,491
    
    
    
    
    
    
    
    
    
    
    
    27,491Deposits on aircraft
    
    
    (11,546
    )
    
    
    
    
    
    
    
    
    
    
    (11,546
    )Net cash used in investing activities
    
    
    (13,178
    )
    
    
    
    
    
    
    
    
    
    
    (13,178
    )Increase in cash and cash equivalents
    
    
    21
    
    
    
    29
    
    
    
    
    
    
    
    50Cash and cash equivalents, beginning of
period
    
    
    1,004
    
    
    
    421
    
    
    
    
    
    
    
    1,425Cash and cash equivalents, end of period
    
    $
    1,025
    
    
    $
    450
    
    
    $
    
    
    
    $
    1,475
 For the six months ended June 30, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries (1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    432
    
    
    $
    211
    
    
    $
    
    
    
    $
    643Investing activities:Purchase of property and equipment
    
    
    (61,843
    )
    
    
    
    
    
    
    
    
    
    
    (61,843
    )Proceeds from asset dispositions
    
    
    13,321
    
    
    
    
    
    
    
    
    
    
    
    13,321Proceeds from sale of short-term
investments, net
    
    
    58,163
    
    
    
    
    
    
    
    
    
    
    
    58,163Deposits on aircraft
    
    
    (17,456
    )
    
    
    
    
    
    
    
    
    
    
    (17,456
    )Net cash used in investing activities
    
    
    (7,815
    )
    
    
    
    
    
    
    
    
    
    
    (7,815
    )Financing activities:Proceeds from line of credit, net
    
    
    7,600
    
    
    
    
    
    
    
    
    
    
    
    7,600Net cash provided by financing activities
    
    
    7,600
    
    
    
    
    
    
    
    
    
    
    
    7,600Increase in cash and cash equivalents
    
    
    217
    
    
    
    211
    
    
    
    
    
    
    
    428Cash and cash equivalents, beginning of
period
    
    
    385
    
    
    
    435
    
    
    
    
    
    
    
    820Cash and cash equivalents, end of period
    
    $
    602
    
    
    $
    646
    
    
    $
    
    
    
    $
    1,248
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 18




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##### Table of Contents



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
  Overview
   19




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20




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21




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##### Table of Contents



Operating Statistics
  Quarter Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Flight hours:Oil and Gas
    
    
    29,748
    
    
    
    28,604
    
    
    
    54,579
    
    
    
    54,690Air Medical (1)
    
    
    9,820
    
    
    
    8,024
    
    
    
    18,495
    
    
    
    15,016Technical Services
    
    
    62
    
    
    
    
    
    
    
    703
    
    
    
    408Total
    
    
    39,630
    
    
    
    36,628
    
    
    
    73,777
    
    
    
    70,114Air Medical Transports(2)
    
    
    5,942
    
    
    
    5,650
    
    
    
    11,422
    
    
    
    10,572
 June 30,2008
    
    2007Aircraft operated at period end:Oil and Gas
    
    
    147
    
    
    
    163Air Medical
    
    
    85
    
    
    
    73Technical Services
    
    
    4
    
    
    
    4Total (3)
    
    
    236
    
    
    
    240
 
 (1)
    
    Flight hours include 1,882 flight hours associated with hospital-based contracts, compared to
1,097 flight hours in the prior year quarter.(2)
    
    Represents individual patient transports for the period.(3)
    
    Includes 15 aircraft as of June 30, 2008 and 12 aircraft as of June 30, 2007 that are
customer owned. Quarter Ended June 30, 2008 compared with Quarter Ended June 30, 2007
 Combined Operations
 Revenues
  22




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##### Table of Contents



Other Income and Gains
  Direct Expenses
 Selling, General, and Administrative Expenses
 Interest Expense
 Income Taxes
 Earnings
 Segment Discussion
 Oil and Gas
 23




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Air Medical
  24




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##### Table of Contents



Technical Services
  Six Months Ended June 30, 2008 compared with Six Months Ended June 30, 2007
 Combined Operations
 Revenues
 25




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##### Table of Contents



Other Income and Gains
  Direct Expenses
  Selling, General, and Administrative Expenses
 Interest Expense
 Income Taxes
 Earnings
 26




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##### Table of Contents



Segment Discussion
 Oil and Gas
    Air Medical
  27




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##### Table of Contents



Technical Services
  Liquidity and Capital Resources
 General
  28




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##### Table of Contents



Cash Flow
   Credit Facility
  Contractual Obligations
   29




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##### Table of Contents



Payment Due by YearBeyondTotal
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2012(Thousands of dollars)New aircraft purchase
commitments (1)
    
    $
    226,394
    
    
    $
    67,523
    
    
    $
    158,871
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Existing aircraft lease
obligations
    
    
    168,031
    
    
    
    9,540
    
    
    
    19,079
    
    
    
    19,681
    
    
    
    20,949
    
    
    
    21,616
    
    
    
    77,166Other lease
obligations
    
    
    20,284
    
    
    
    1,776
    
    
    
    2,868
    
    
    
    2,498
    
    
    
    2,080
    
    
    
    1,628
    
    
    
    9,434Long-term debt
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000$
    614,709
    
    
    $
    78,839
    
    
    $
    180,818
    
    
    $
    22,179
    
    
    $
    23,029
    
    
    $
    23,244
    
    
    $
    286,600
 
 (1)
    
    These commitments are for aircraft that we intend to fund from existing cash,
short-term investments, and operating leases. New Accounting Pronouncements
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
   30




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PART II  OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1. A. RISK FACTORS
  
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3. DEFAULTS UPON SENIOR SECURITIES
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    To approve an increase in the number of authorized shares of non-voting common
stock from 12.5 million to 25 million shares.
 For
    
    
    1,516,580Against
    
    
    0Abstain
    
    
    0
 2.
    
    To elect a Board of Directors to hold office until the next annual meeting of
stockholders and until their successors are elected and qualified.
 Name of Director
    
    Number of SharesFor
    
    
    WithheldAl A. Gonsoulin
    
    
    1,500,580
    
    
    
    0Lance F. Bospflug
    
    
    1,500,580
    
    
    
    0Arthur J. Breault, Jr.
    
    
    1,500,580
    
    
    
    0C. Russell Luigs
    
    
    1,500,580
    
    
    
    0Richard H. Matzke
    
    
    1,500,580
    
    
    
    0Thomas H. Murphy
    
    
    1,500,580
    
    
    
    0
 
 Item 5. OTHER INFORMATION
  31




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Item 6. EXHIBITS
  3.1
    
    (i)     Composite Articles of Incorporation of the Company (reflecting all
amendments through May 6, 2008).
 (ii)
    
    Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.1 to PHIs Report on Form 8-K filed December 18, 2007).
 4.1
    
    Amended and Restated Loan Agreement dated as of March 31, 2008 by and among
PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline
Airmotive, Inc.), and International Helicopter Transport, Inc. and Whitney National
Bank (incorporated by reference to Exhibit 4.1 to PHIs Report on Form 10-Q filed on
May 8, 2008).4.2
    
    Indenture dated April 12, 2006 among PHI, Inc., the Subsidiary Guarantors named
therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2
to PHIs Report on Form 8-K filed on April 13, 2006).4.3
    
    First Supplemental Indenture dated April 12, 2006, among PHI, Inc., the
Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 10.1 to PHIs Report on Form 8-K filed on April 13, 2006).31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chairman and Chief Executive Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chairman and Chief Executive Officer.32.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer.
 
 32




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##### Table of Contents



SIGNATURES
  PHI, Inc.August 7, 2008
    By:
    /s/ Al A. GonsoulinAl A. GonsoulinChairman and Chief Executive OfficerAugust 7, 2008
    By:
    /s/ Michael J. McCannMichael J. McCannChief Financial Officer 33




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Index
To Exhibits
 3.1
    
    (i)     Composite Articles of Incorporation of the Company (reflecting all amendments through May
6, 2008).
 (ii)
    
    Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.1 to PHIs Report on Form 8-K filed December 18, 2007).
 4.1
    
    Amended and Restated Loan Agreement dated as of March 31, 2008 by and among
PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline
Airmotive, Inc.), and International Helicopter Transport, Inc. and Whitney National
Bank (incorporated by reference to Exhibit 4.1 to PHIs Report on Form 10-Q filed on
May 8, 2008).4.2
    
    Indenture dated April 12, 2006 among PHI, Inc., the Subsidiary Guarantors named
therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2
to PHIs Report on Form 8-K filed on April 13, 2006).4.3
    
    First Supplemental Indenture dated April 12, 2006, among PHI, Inc., the
Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 10.1 to PHIs Report on Form 8-K filed on April 13, 2006).31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chairman and Chief Executive Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chairman and Chief Executive Officer.32.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer.
 34