##### 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: September 30, 2010
 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
    
    72-0395707(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 2001 SE Evangeline ThruwayLafayette, Louisiana
    
    70508(Address of principal executive offices)
    
    (Zip Code)
 (337) 235-2452
 þ o
 o 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 October 29, 2010Voting Common Stock
    
    2,852,616 sharesNon-Voting Common Stock
    
    12,458,992 shares




---



##### 



PHI, INC.
 Index  Form 10-Q
 Part I  Financial InformationItem 1.
    
    Financial Statements  UnauditedCondensed Consolidated Balance Sheets  September 30, 2010 and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations  Quarter and Nine months ended September 30, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Shareholders' Equity  Nine months ended September 30, 2010 and 2009
    
    
    5Condensed Consolidated Statements of Cash Flows  Nine months ended September 30, 2010 and 2009
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 4.
    
    Controls and Procedures
    
    
    36Part II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    37Item 1.A.
    
    Risk Factors
    
    
    37Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3.
    
    Defaults Upon Senior Securities
    
    
    38Item 4.
    
    (Removed and Reserved)
    
    
    38Item 5.
    
    Other Information
    
    
    38Item 6.
    
    Exhibits
    
    
    39Signatures
    
    
    40EX-4.3EX-10.2EX-10.3EX-10.4EX-10.5EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    FINANCIAL STATEMENTS
 
 PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
 September 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    31,543
    
    
    $
    2,501Short-term investments
    
    
    153,588
    
    
    
    75,138Accounts receivable  netTrade
    
    
    95,702
    
    
    
    90,518Other
    
    
    6,352
    
    
    
    3,885Inventories of spare parts  net
    
    
    59,356
    
    
    
    61,501Other current assets
    
    
    14,451
    
    
    
    11,018Income taxes receivable
    
    
    473
    
    
    
    740Total current assets
    
    
    361,465
    
    
    
    245,301Other
    
    
    37,643
    
    
    
    11,669Property and equipment  net
    
    
    546,183
    
    
    
    548,536Total assets
    
    $
    945,291
    
    
    $
    805,506LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Current portion of Senior Notes due 2013
    
    $
    10,510
    
    
    $
    Accounts payable
    
    
    19,022
    
    
    
    14,935Accrued liabilities
    
    
    32,508
    
    
    
    23,342Total current liabilities
    
    
    62,040
    
    
    
    38,277Long-term debt
    
    
    318,287
    
    
    
    218,305Deferred income taxes
    
    
    81,467
    
    
    
    73,409Other long-term liabilities
    
    
    9,414
    
    
    
    10,067Total liabilities
    
    
    409,168
    
    
    
    340,058Commitments and contingencies (Note 3)Shareholders Equity:Voting common stock
    
    
    285
    
    
    
    285Non-voting common stock
    
    
    1,246
    
    
    
    1,246Additional paid-in capital
    
    
    291,403
    
    
    
    291,403Accumulated other comprehensive loss
    
    
    (20
    )
    
    
    (13
    )Retained earnings
    
    
    181,169
    
    
    
    172,527Total shareholders equity
    
    
    474,083
    
    
    
    465,448Total liabilities and shareholders equity
    
    $
    945,291
    
    
    $
    805,506
  3




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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of dollars and shares, except per share data)
(Unaudited)
 Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Operating revenues, net
    
    $
    135,669
    
    
    $
    124,183
    
    
    $
    396,875
    
    
    $
    364,456Gain on dispositions of assets, net
    
    
    98
    
    
    
    7
    
    
    
    221
    
    
    
    172Other, principally interest income
    
    
    22
    
    
    
    53
    
    
    
    58
    
    
    
    181135,789
    
    
    
    124,243
    
    
    
    397,154
    
    
    
    364,809Expenses:Direct expenses
    
    
    115,812
    
    
    
    100,972
    
    
    
    336,120
    
    
    
    308,011Selling, general and
administrative expenses
    
    
    7,688
    
    
    
    7,706
    
    
    
    22,091
    
    
    
    23,748Interest expense
    
    
    4,208
    
    
    
    3,976
    
    
    
    12,387
    
    
    
    11,894Loss on debt restructuring
    
    
    9,521
    
    
    
    
    
    
    
    9,521
    
    
    
    137,229
    
    
    
    112,654
    
    
    
    380,119
    
    
    
    343,653(Loss) earnings before income taxes
    
    
    (1,440
    )
    
    
    11,589
    
    
    
    17,035
    
    
    
    21,156Income tax expense
    
    
    1,003
    
    
    
    4,636
    
    
    
    8,393
    
    
    
    8,462Net (loss) earnings
    
    $
    (2,443
    )
    
    $
    6,953
    
    
    $
    8,642
    
    
    $
    12,694Weighted average shares outstanding:Basic
    
    
    15,312
    
    
    
    15,312
    
    
    
    15,312
    
    
    
    15,306Diluted
    
    
    15,312
    
    
    
    15,312
    
    
    
    15,312
    
    
    
    15,306Net (loss) earnings per share:Basic
    
    $
    (0.16
    )
    
    $
    0.45
    
    
    $
    0.56
    
    
    $
    0.83Diluted
    
    $
    (0.16
    )
    
    $
    0.45
    
    
    $
    0.56
    
    
    $
    0.83
  4




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Thousands of dollars and shares)
(Unaudited)
 Accumulated
    
    
    
    
    
    
    TotalVoting
    
    
    Non-Voting
    
    
    Additional
    
    
    Other Com-
    
    
    
    
    
    
    Share-Common Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    prehensive
    
    
    Retained
    
    
    HoldersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    EquityBalance at December 31, 2009
    
    
    2,853
    
    
    $
    285
    
    
    
    12,459
    
    
    $
    1,246
    
    
    $
    291,403
    
    
    $
    (13
    )
    
    $
    172,527
    
    
    $
    465,448Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,642
    
    
    
    8,642Changes in pension plan assets and
benefit obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Total comprehensive income,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,635Balance at September 30, 2010
    
    
    2,853
    
    
    $
    285
    
    
    
    12,459
    
    
    $
    1,246
    
    
    $
    291,403
    
    
    $
    (20
    )
    
    $
    181,169
    
    
    $
    474,083
 Accumulated
    
    
    
    
    
    
    TotalVoting
    
    
    Non-Voting
    
    
    Additional
    
    
    Other Com-
    
    
    
    
    
    
    Share-Common Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    prehensive
    
    
    Retained
    
    
    HoldersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    EquityBalance at December 31, 2008
    
    
    2,853
    
    
    $
    285
    
    
    
    12,449
    
    
    $
    1,245
    
    
    $
    291,262
    
    
    $
    45
    
    
    $
    159,559
    
    
    $
    452,396Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,694
    
    
    
    12,694Changes in pension plan assets and
benefit obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (60
    )
    
    
    
    
    
    
    (60
    )Total comprehensive income,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,634Stock options exercised
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    1
    
    
    
    141
    
    
    
    
    
    
    
    
    
    
    
    142Balance at September 30, 2009
    
    
    2,853
    
    
    $
    285
    
    
    
    12,459
    
    
    $
    1,246
    
    
    $
    291,403
    
    
    $
    (15
    )
    
    $
    172,253
    
    
    $
    465,172
  5




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
 Nine Months EndedSeptember 30,2010
    
    
    2009Operating activities:Net earnings
    
    $
    8,642
    
    
    $
    12,694Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation
    
    
    20,587
    
    
    
    20,778Deferred income taxes
    
    
    8,058
    
    
    
    8,040Gain on asset dispositions, net
    
    
    (221
    )
    
    
    (172
    )Other
    
    
    747
    
    
    
    697Loss on debt restructuring
    
    
    9,521
    
    
    
    Changes in operating assets and liabilities
    
    
    4,169
    
    
    
    (1,581
    )Net cash provided by operating activities
    
    
    51,503
    
    
    
    40,456Investing activities:Purchase of property and equipment
    
    
    (39,739
    )
    
    
    (31,777
    )Proceeds from asset dispositions
    
    
    1,171
    
    
    
    8,897Purchase of short-term investments
    
    
    (102,710
    )
    
    
    (46,490
    )Proceeds from sale of short-term investments
    
    
    24,260
    
    
    
    14,687(Payment) refund on deposits on aircraft
    
    
    (3,660
    )
    
    
    9,600Net cash used in investing activities
    
    
    (120,678
    )
    
    
    (45,083
    )Financing activities:Proceeds from issuance of Senior Notes due 2018
    
    
    300,000
    
    
    
    Premium and costs to retire debt early
    
    
    (7,293
    )
    
    
    Repayment of Senior Notes due 2013
    
    
    (189,490
    )
    
    
    Debt issuance costs
    
    
    (4,982
    )
    
    
    Payments on line of credit
    
    
    (37,518
    )
    
    
    (3,000
    )Proceeds from line of credit
    
    
    37,500
    
    
    
    10,350Net cash provided by financing activities
    
    
    98,217
    
    
    
    7,350Increase in cash and cash equivalents
    
    
    29,042
    
    
    
    2,723Cash and cash equivalents, beginning of period
    
    
    2,501
    
    
    
    1,159Cash and cash equivalents, end of period
    
    $
    31,543
    
    
    $
    3,882Supplemental Disclosures of Cash Flow InformationInterest paid
    
    $
    13,863
    
    
    $
    7,600Income taxes paid
    
    $
    614
    
    
    $
    770Accrued payables related to purchase of property and
equipment
    
    $
    1,065
    
    
    $
    273
  6




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. General






2. Segment Information






Oil and Gas Segment.




Air Medical Segment.




7



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##### Table of Contents



RevenueTwelve MonthsQuarter Ended
    
    
    Nine months Ended
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2009Gross billings
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Provision for contractual discounts
    
    
    50
    %
    
    
    51
    %
    
    
    52
    %
    
    
    53
    %
    
    
    52
    %Provision for uncompensated care
    
    
    13
    %
    
    
    12
    %
    
    
    11
    %
    
    
    10
    %
    
    
    11
    %
   Quarter Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Medicaid
    
    
    15
    %
    
    
    10
    %
    
    
    16
    %
    
    
    12
    %Medicare
    
    
    22
    %
    
    
    18
    %
    
    
    21
    %
    
    
    18
    %Insurance
    
    
    62
    %
    
    
    70
    %
    
    
    62
    %
    
    
    67
    %Self-Pay
    
    
    1
    %
    
    
    2
    %
    
    
    1
    %
    
    
    3
    %
 8




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Technical Services Segment.
  9




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##### Table of Contents



Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Thousands of dollars)
    
    
    (Thousands of dollars)Segment operating revenuesOil and Gas
    
    $
    89,797
    
    
    $
    79,216
    
    
    $
    269,471
    
    
    $
    233,011Air Medical
    
    
    44,254
    
    
    
    43,321
    
    
    
    120,924
    
    
    
    125,042Technical Services
    
    
    1,618
    
    
    
    1,646
    
    
    
    6,480
    
    
    
    6,403Total operating revenues
    
    
    135,669
    
    
    
    124,183
    
    
    
    396,875
    
    
    
    364,456Segment direct expenses (1)Oil and Gas
    
    
    75,679
    
    
    
    65,690
    
    
    
    221,777
    
    
    
    191,937Air Medical
    
    
    38,689
    
    
    
    34,023
    
    
    
    108,700
    
    
    
    111,521Technical Services
    
    
    1,444
    
    
    
    1,259
    
    
    
    5,643
    
    
    
    4,553Total direct expenses
    
    
    115,812
    
    
    
    100,972
    
    
    
    336,120
    
    
    
    308,011Segment selling, general and administrative expensesOil and Gas
    
    
    139
    
    
    
    285
    
    
    
    563
    
    
    
    991Air Medical
    
    
    954
    
    
    
    1,795
    
    
    
    3,253
    
    
    
    4,903Technical Services
    
    
    5
    
    
    
    24
    
    
    
    19
    
    
    
    41Total selling, general and administrative expenses
    
    
    1,098
    
    
    
    2,104
    
    
    
    3,835
    
    
    
    5,935Total direct and selling, general and administrative expenses
    
    
    116,910
    
    
    
    103,076
    
    
    
    339,955
    
    
    
    313,946Net segment profitOil and Gas
    
    
    13,979
    
    
    
    13,241
    
    
    
    47,131
    
    
    
    40,083Air Medical
    
    
    4,611
    
    
    
    7,503
    
    
    
    8,971
    
    
    
    8,618Technical Services
    
    
    169
    
    
    
    363
    
    
    
    818
    
    
    
    1,809Total
    
    
    18,759
    
    
    
    21,107
    
    
    
    56,920
    
    
    
    50,510Other, net (2)
    
    
    120
    
    
    
    60
    
    
    
    279
    
    
    
    353Unallocated selling, general and administrative costs (1)
    
    
    (6,590
    )
    
    
    (5,602
    )
    
    
    (18,256
    )
    
    
    (17,813
    )Interest expense
    
    
    (4,208
    )
    
    
    (3,976
    )
    
    
    (12,387
    )
    
    
    (11,894
    )Loss on debt restructuring
    
    
    (9,521
    )
    
    
    
    
    
    
    (9,521
    )
    
    
    (Loss) earnings before income taxes
    
    $
    (1,440
    )
    
    $
    11,589
    
    
    $
    17,035
    
    
    $
    21,156
 
 (1)
    
    Included in direct expenses and unallocated selling, general, and administrative costs are
the depreciation expense amounts below: Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Oil and Gas
    
    $
    4,712
    
    
    $
    4,142
    
    
    $
    13,278
    
    
    $
    12,492Air Medical
    
    
    1,990
    
    
    
    1,985
    
    
    
    5,901
    
    
    
    5,939Technical Services
    
    
    8
    
    
    
    14
    
    
    
    144
    
    
    
    125Total
    
    $
    6,710
    
    
    $
    6,141
    
    
    $
    19,323
    
    
    $
    18,556Unallocated SG&A
    
    $
    435
    
    
    $
    736
    
    
    $
    1,264
    
    
    $
    2,222
 
 (2)
    
    Consists of gains (losses) on dispositions of property and equipment, and other income. 10




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3. Commitments and Contingencies
 Environmental Matters 
 Legal Matters
  11




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Superior Offshore International Inc. v. Bristow Group Inc., ERA Helicopters, LLC, Seacor Holdings
Inc., ERA Group Inc., ERA Aviation, Inc., and PHI, Inc.,
 Operating Leases
    4. Long-term Debt
  12




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13




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5. Valuation Accounts
     September 30,
    
    December 31,2010
    
    2009Gross Accounts Receivable
    
    
    100
    %
    
    
    100
    %Allowance for Contractual Discounts
    
    
    38
    %
    
    
    34
    %Allowance for Uncompensated Care
    
    
    32
    %
    
    
    30
    %
  6. Employees
 Employee Incentive Compensation 
   14




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7. Fair Value Measurements
      September 30, 2010
    
    
    December 31, 2009Quoted prices in
    
    
    Quoted prices inactive markets for
    
    
    active markets forIdentical Assets
    
    
    Identical Assets(Level 1)
    
    
    (Level 1)(Thousands of dollars)Short-term investments
    
    $
    153,588
    
    
    $
    75,138Investments included in other assets
    
    
    3,419
    
    
    
    4,239Total
    
    $
    157,007
    
    
    $
    79,377
  8. Recent Accounting Pronouncements
  9. Shareholders Equity
  15




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10. Condensed Consolidating Financial Information
   16




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
 September 30, 2010ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    30,856
    
    
    $
    687
    
    
    $
    
    
    
    $
    31,543Short-term investments
    
    
    153,588
    
    
    
    
    
    
    
    
    
    
    
    153,588Accounts receivable  net
    
    
    89,220
    
    
    
    12,834
    
    
    
    
    
    
    
    102,054Intercompany receivable
    
    
    
    
    
    
    89,872
    
    
    
    (89,872
    )
    
    
    Inventories of spare parts  net
    
    
    59,356
    
    
    
    
    
    
    
    
    
    
    
    59,356Other current assets
    
    
    14,441
    
    
    
    10
    
    
    
    
    
    
    
    14,451Income taxes receivable
    
    
    473
    
    
    
    
    
    
    
    
    
    
    
    473Total current assets
    
    
    347,934
    
    
    
    103,403
    
    
    
    (89,872
    )
    
    
    361,465Investment in subsidiaries
    
    
    75,075
    
    
    
    
    
    
    
    (75,075
    )
    
    
    Other assets
    
    
    37,286
    
    
    
    357
    
    
    
    
    
    
    
    37,643Property and equipment  net
    
    
    534,921
    
    
    
    11,262
    
    
    
    
    
    
    
    546,183Total assets
    
    $
    995,216
    
    
    $
    115,022
    
    
    $
    (164,947
    )
    
    $
    945,291LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Current portion of Senior Notes due 2013
    
    $
    10,510
    
    
    $
    
    
    
    $
    
    
    
    $
    10,510Accounts payable
    
    
    15,687
    
    
    
    3,335
    
    
    
    
    
    
    
    19,022Accrued liabilities
    
    
    15,564
    
    
    
    16,944
    
    
    
    
    
    
    
    32,508Intercompany payable
    
    
    89,872
    
    
    
    
    
    
    
    (89,872
    )
    
    
    Total current liabilities
    
    
    131,633
    
    
    
    20,279
    
    
    
    (89,872
    )
    
    
    62,040Long-term debt
    
    
    318,287
    
    
    
    
    
    
    
    
    
    
    
    318,287Deferred income taxes and other long-term
liabilities
    
    
    71,213
    
    
    
    19,668
    
    
    
    
    
    
    
    90,881Shareholders Equity:Common stock and paid-in capital
    
    
    292,934
    
    
    
    2,674
    
    
    
    (2,674
    )
    
    
    292,934Accumulated other comprehensive loss
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    (20
    )Retained earnings
    
    
    181,169
    
    
    
    72,401
    
    
    
    (72,401
    )
    
    
    181,169Total shareholders equity
    
    
    474,083
    
    
    
    75,075
    
    
    
    (75,075
    )
    
    
    474,083Total liabilities and
shareholders equity
    
    $
    995,216
    
    
    $
    115,022
    
    
    $
    (164,947
    )
    
    $
    945,291
 
 (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 BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
 December 31, 2009ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,678
    
    
    $
    823
    
    
    $
    
    
    
    $
    2,501Short-term investments
    
    
    75,138
    
    
    
    
    
    
    
    
    
    
    
    75,138Accounts receivable  net
    
    
    83,247
    
    
    
    11,156
    
    
    
    
    
    
    
    94,403Intercompany receivable
    
    
    
    
    
    
    71,484
    
    
    
    (71,484
    )
    
    
    Inventories of spare parts  net
    
    
    61,501
    
    
    
    
    
    
    
    
    
    
    
    61,501Other current assets
    
    
    11,001
    
    
    
    17
    
    
    
    
    
    
    
    11,018Income taxes receivable
    
    
    740
    
    
    
    
    
    
    
    
    
    
    
    740Total current assets
    
    
    233,305
    
    
    
    83,480
    
    
    
    (71,484
    )
    
    
    245,301Investment in subsidiaries
    
    
    71,291
    
    
    
    
    
    
    
    (71,291
    )
    
    
    Other assets
    
    
    11,549
    
    
    
    120
    
    
    
    
    
    
    
    11,669Property and equipment, net
    
    
    535,539
    
    
    
    12,997
    
    
    
    
    
    
    
    548,536Total assets
    
    $
    851,684
    
    
    $
    96,597
    
    
    $
    (142,775
    )
    
    $
    805,506LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    13,746
    
    
    $
    1,189
    
    
    $
    
    
    
    $
    14,935Accrued liabilities
    
    
    19,028
    
    
    
    4,314
    
    
    
    
    
    
    
    23,342Intercompany payable
    
    
    71,484
    
    
    
    
    
    
    
    (71,484
    )
    
    
    Total current liabilities
    
    
    104,258
    
    
    
    5,503
    
    
    
    (71,484
    )
    
    
    38,277Long-term debt
    
    
    218,305
    
    
    
    
    
    
    
    
    
    
    
    218,305Deferred income taxes and other long-term
liabilities
    
    
    63,673
    
    
    
    19,803
    
    
    
    
    
    
    
    83,476Shareholders Equity:Common stock and paid-in capital
    
    
    292,934
    
    
    
    2,674
    
    
    
    (2,674
    )
    
    
    292,934Accumulated other comprehensive
loss
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    (13
    )Retained earnings
    
    
    172,527
    
    
    
    68,617
    
    
    
    (68,617
    )
    
    
    172,527Total shareholders equity
    
    
    465,448
    
    
    
    71,291
    
    
    
    (71,291
    )
    
    
    465,448Total liabilities and
shareholders equity
    
    $
    851,684
    
    
    $
    96,597
    
    
    $
    (142,775
    )
    
    $
    805,506
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 18




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
 For the quarter ended September 30, 2010ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues, net
    
    $
    120,381
    
    
    $
    15,288
    
    
    $
    
    
    
    $
    135,669Management fees
    
    
    611
    
    
    
    
    
    
    
    (611
    )
    
    
    Gain on dispositions of assets, net
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    98Other, principally interest income
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22121,112
    
    
    
    15,288
    
    
    
    (611
    )
    
    
    135,789Expenses:Direct expenses
    
    
    102,934
    
    
    
    12,878
    
    
    
    
    
    
    
    115,812Management fees
    
    
    
    
    
    
    611
    
    
    
    (611
    )
    
    
    Selling, general and administrative
expenses
    
    
    7,371
    
    
    
    317
    
    
    
    
    
    
    
    7,688Equity in net income of consolidated
subsidiaries
    
    
    (889
    )
    
    
    
    
    
    
    889
    
    
    
    Interest expense
    
    
    4,208
    
    
    
    
    
    
    
    
    
    
    
    4,208Loss on debt restructuring
    
    
    9,521
    
    
    
    
    
    
    
    
    
    
    
    9,521123,145
    
    
    
    13,806
    
    
    
    278
    
    
    
    137,229(Loss)
earnings before income taxes
    
    
    (2,033
    )
    
    
    1,482
    
    
    
    (889
    )
    
    
    (1,440
    )Income tax expense
    
    
    410
    
    
    
    593
    
    
    
    
    
    
    
    1,003Net (loss) earnings
    
    $
    (2,443
    )
    
    $
    889
    
    
    $
    (889
    )
    
    $
    (2,443
    )
 For the quarter ended September 30, 2009ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues, net
    
    $
    109,088
    
    
    $
    15,095
    
    
    $
    
    
    
    $
    124,183Management fees
    
    
    603
    
    
    
    
    
    
    
    (603
    )
    
    
    Gain on dispositions of assets, net
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Other, principally interest income
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    53109,751
    
    
    
    15,095
    
    
    
    (603
    )
    
    
    124,243Expenses:Direct expenses
    
    
    88,393
    
    
    
    12,579
    
    
    
    
    
    
    
    100,972Management fees
    
    
    
    
    
    
    603
    
    
    
    (603
    )
    
    
    Selling, general and administrative
expenses
    
    
    7,193
    
    
    
    513
    
    
    
    
    
    
    
    7,706Equity in net income of consolidated
subsidiaries
    
    
    (840
    )
    
    
    
    
    
    
    840
    
    
    
    Interest expense
    
    
    3,976
    
    
    
    
    
    
    
    
    
    
    
    3,97698,722
    
    
    
    13,695
    
    
    
    237
    
    
    
    112,654Earnings before income taxes
    
    
    11,029
    
    
    
    1,400
    
    
    
    (840
    )
    
    
    11,589Income tax expense
    
    
    4,076
    
    
    
    560
    
    
    
    
    
    
    
    4,636Net earnings
    
    $
    6,953
    
    
    $
    840
    
    
    $
    (840
    )
    
    $
    6,953
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 19




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
 For the nine months ended September 30, 2010ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues, net
    
    $
    347,873
    
    
    $
    49,002
    
    
    $
    
    
    
    $
    396,875Management fees
    
    
    1,960
    
    
    
    
    
    
    
    (1,960
    )
    
    
    Gain on dispositions of assets, net
    
    
    221
    
    
    
    
    
    
    
    
    
    
    
    221Other, principally interest income
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    58350,112
    
    
    
    49,002
    
    
    
    (1,960
    )
    
    
    397,154Expenses:Direct expenses
    
    
    296,468
    
    
    
    39,652
    
    
    
    
    
    
    
    336,120Management fees
    
    
    
    
    
    
    1,960
    
    
    
    (1,960
    )
    
    
    Selling, general and administrative
expenses
    
    
    21,008
    
    
    
    1,083
    
    
    
    
    
    
    
    22,091Equity in net income of consolidated
subsidiaries
    
    
    (3,784
    )
    
    
    
    
    
    
    3,784
    
    
    
    Interest expense
    
    
    12,387
    
    
    
    
    
    
    
    
    
    
    
    12,387Loss on debt restructuring
    
    
    9,521
    
    
    
    
    
    
    
    
    
    
    
    9,521335,600
    
    
    
    42,695
    
    
    
    1,824
    
    
    
    380,119Earnings before income taxes
    
    
    14,512
    
    
    
    6,307
    
    
    
    (3,784
    )
    
    
    17,035Income tax expense
    
    
    5,870
    
    
    
    2,523
    
    
    
    
    
    
    
    8,393Net earnings
    
    $
    8,642
    
    
    $
    3,784
    
    
    $
    (3,784
    )
    
    $
    8,642
 For the nine months ended September 30, 2009ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues, net
    
    $
    314,821
    
    
    $
    49,635
    
    
    $
    
    
    
    $
    364,456Management fees
    
    
    1,985
    
    
    
    
    
    
    
    (1,985
    )
    
    
    Gain on dispositions of assets, net
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    172Other, principally interest income
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    181317,159
    
    
    
    49,635
    
    
    
    (1,985
    )
    
    
    364,809Expenses:Direct expenses
    
    
    268,149
    
    
    
    39,862
    
    
    
    
    
    
    
    308,011Management fees
    
    
    
    
    
    
    1,985
    
    
    
    (1,985
    )
    
    
    Selling, general and administrative
expenses
    
    
    22,190
    
    
    
    1,558
    
    
    
    
    
    
    
    23,748Equity in net income of consolidated
subsidiaries
    
    
    (3,738
    )
    
    
    
    
    
    
    3,738
    
    
    
    Interest expense
    
    
    11,894
    
    
    
    
    
    
    
    
    
    
    
    11,894298,495
    
    
    
    43,405
    
    
    
    1,753
    
    
    
    343,653Earnings before income taxes
    
    
    18,664
    
    
    
    6,230
    
    
    
    (3,738
    )
    
    
    21,156Income tax expense
    
    
    5,970
    
    
    
    2,492
    
    
    
    
    
    
    
    8,462Net earnings
    
    $
    12,694
    
    
    $
    3,738
    
    
    $
    (3,738
    )
    
    $
    12,694
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 20




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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
 For the nine months ended September 30, 2010ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    49,451
    
    
    $
    2,052
    
    
    $
    
    
    
    $
    51,503Investing activities:Purchase of property and equipment
    
    
    (37,551
    )
    
    
    (2,188
    )
    
    
    
    
    
    
    (39,739
    )Proceeds from asset dispositions
    
    
    1,171
    
    
    
    
    
    
    
    
    
    
    
    1,171Purchase of short-term investments
    
    
    (102,710
    )
    
    
    
    
    
    
    
    
    
    
    (102,710
    )Proceeds from sale of short-term
investments
    
    
    24,260
    
    
    
    
    
    
    
    
    
    
    
    24,260Payments for deposits on aircraft
    
    
    (3,660
    )
    
    
    
    
    
    
    
    
    
    
    (3,660
    )Net cash used in investing activities
    
    
    (118,490
    )
    
    
    (2,188
    )
    
    
    
    
    
    
    (120,678
    )Financing activities:Proceeds from issuance of Senior Notes
due 2018
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000Premium and costs to retire debt early
    
    
    (7,293
    )
    
    
    
    
    
    
    
    
    
    
    (7,293
    )Repayment of Senior Notes due 2013
    
    
    (189,490
    )
    
    
    
    
    
    
    
    
    
    
    (189,490
    )Debt issuance costs
    
    
    (4,982
    )
    
    
    
    
    
    
    
    
    
    
    (4,982
    )Proceeds (payment) line of credit, net
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (18
    )Net cash provided by financing activities
    
    
    98,217
    
    
    
    
    
    
    
    
    
    
    
    98,217Increase in cash and cash equivalents
    
    
    29,178
    
    
    
    (136
    )
    
    
    
    
    
    
    29,042Cash and cash equivalents, beginning of
period
    
    
    1,678
    
    
    
    823
    
    
    
    
    
    
    
    2,501Cash and cash equivalents, end of period
    
    $
    30,856
    
    
    $
    687
    
    
    $
    
    
    
    $
    31,543
 For the nine months ended September 30, 2009ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    38,740
    
    
    $
    1,716
    
    
    $
    
    
    
    $
    40,456Investing activities:Purchase of property and equipment
    
    
    (30,170
    )
    
    
    (1,607
    )
    
    
    
    
    
    
    (31,777
    )Proceeds from asset dispositions
    
    
    8,897
    
    
    
    
    
    
    
    
    
    
    
    8,897Purchase of short-term investments, net
    
    
    (31,803
    )
    
    
    
    
    
    
    
    
    
    
    (31,803
    )Refund of deposits on aircraft
    
    
    9,600
    
    
    
    
    
    
    
    
    
    
    
    9,600Net cash used in investing activities
    
    
    (43,476
    )
    
    
    (1,607
    )
    
    
    
    
    
    
    (45,083
    )Financing activities:Proceeds from line of credit
    
    
    10,350
    
    
    
    
    
    
    
    
    
    
    
    10,350Payments on line of credit
    
    
    (3,000
    )
    
    
    
    
    
    
    
    
    
    
    (3,000
    )Net cash provided by financing activities
    
    
    7,350
    
    
    
    
    
    
    
    
    
    
    
    7,350Increase in cash
    
    
    2,614
    
    
    
    109
    
    
    
    
    
    
    
    2,723Cash and cash equivalents, beginning of
period
    
    
    559
    
    
    
    600
    
    
    
    
    
    
    
    1,159Cash and cash equivalents, end of period
    
    $
    3,173
    
    
    $
    709
    
    
    $
    
    
    
    $
    3,882
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. 21




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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
  22




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23




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24




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25




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##### Table of Contents



Operating Statistics
  Quarter Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2010
    
    2009
    
    2010
    
    2009Flight hours:Oil and Gas
    
    
    30,119
    
    
    
    28,749
    
    
    
    88,297
    
    
    
    85,470Air Medical (1)
    
    
    9,044
    
    
    
    8,898
    
    
    
    25,250
    
    
    
    26,108Technical Services
    
    
    29
    
    
    
    
    
    
    
    514
    
    
    
    378Total
    
    
    39,192
    
    
    
    37,647
    
    
    
    114,061
    
    
    
    111,956Air Medical Transports(2)
    
    
    5,149
    
    
    
    5,226
    
    
    
    14,124
    
    
    
    15,529
 September 30,2010
    
    2009Aircraft operated at period end:Oil and Gas (3)
    
    
    159
    
    
    
    163Air Medical (4)
    
    
    87
    
    
    
    87Technical Services
    
    
    5
    
    
    
    4Total (3) (4)
    
    
    251
    
    
    
    254
 
 (1)
    
    Flight hours include 2,127 flight hours associated with hospital-based contracts, compared
to 2,342 flight hours in the prior year quarter, and 6,200 flight hours year-to-date, compared
to 6,575 in the prior year-to-date.(2)
    
    Represents individual patient transports for the period.(3)
    
    Includes nine aircraft as of September 30, 2010 and 2009 that are customer owned.(4)
    
    Includes eight and six aircraft as of September 30, 2010 and 2009 that are customer owned,
respectively. Results of Operations
 Quarter Ended September 30, 2010 compared with Quarter Ended September 30, 2009
 Combined Operations
 Revenues
  26




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Other Income and Gains
 Direct Expenses
 Selling, General, and Administrative Expenses
 Interest Expense
 Loss on Debt Restructuring
 Income Taxes
 Net Earnings
 27




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Segment Discussion
 Oil and Gas
    Air Medical
 28




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##### Table of Contents



Technical Services
 Nine Months Ended September 30, 2010 compared with Nine Months Ended September 30, 2009
 Combined Operations
 Revenues
 29




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##### Table of Contents



Other Income and Gains
 Direct Expenses
 Selling, General, and Administrative Expenses
 Interest Expense
 Loss on Debt Restructuring
 30




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Income Taxes
 Net Earnings
 Segment Discussion
 Oil and Gas
  31




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Air Medical
   32




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Technical Services
  Liquidity and Capital Resources
 General
    Cash Flow
  33




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##### Table of Contents



Long Term Debt
    34




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##### Table of Contents



Contractual Obligations
  Payment Due by YearBeyondTotal
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2014(Thousands of dollars)Aircraft purchase commitments (1)
    
    $
    123,466
    
    
    $
    23,756
    
    
    $
    36,703
    
    
    $
    63,007
    
    
    $
    
    
    
    $
    
    
    
    $
    Aircraft lease
obligations (2)
    
    
    190,722
    
    
    
    7,329
    
    
    
    30,290
    
    
    
    30,957
    
    
    
    31,322
    
    
    
    31,322
    
    
    
    59,502Other lease
obligations
    
    
    16,259
    
    
    
    876
    
    
    
    3,019
    
    
    
    2,062
    
    
    
    1,518
    
    
    
    1,331
    
    
    
    7,453Long-term debt (3)
    
    
    318,287
    
    
    
    
    
    
    
    
    
    
    
    18,287
    
    
    
    
    
    
    
    
    
    
    
    300,000$
    648,734
    
    
    $
    31,961
    
    
    $
    70,012
    
    
    $
    114,313
    
    
    $
    32,840
    
    
    $
    32,653
    
    
    $
    366,955
 
 (1)
    
    We have executed a contract to acquire 10 new AW139 medium aircraft related to our new
contract with Shell Offshore, Inc., a subsidiary of Shell, which are scheduled for delivery
commencing in late 2010 and continuing through late 2012, and have an aggregate acquisition
cost of approximately $127.0 million. We have traded in two aircraft in exchange for a
credit of approximately $20.3 million towards these acquisition costs. We may finance some
of these acquisition costs with net proceeds from our 8.625% Senior Notes, and expect to
finance the balance through some combination of cash on hand or generated from operations,
operating leases and borrowings under our revolving credit facility.(2)
    
    On October 1, 2010, we purchased two heavy aircraft pursuant to a purchase option in
the lease contract. The total purchase price was $25.3 million for both aircraft and was
funded with proceeds from the 8.625% Senior Notes offering. The future lease obligation
amount included in the table above related to these two aircraft was $15.8 million.(3)
    
    Long-term debt consists of borrowings under our revolving credit facility and the
principal amount of our 8.625% Senior Notes. Estimated interest costs on the long-term
debt obligations set forth above, assuming the amounts outstanding at September 30, 2010
stayed constant, are $25.9 million annually for the 8.625% Senior Notes and $0.8 million
annually for our revolving credit facility, based on an effective rate of 4.25%. 35




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##### Table of Contents



New Accounting Pronouncements
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 Item 4. CONTROLS AND PROCEDURES
   36




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PART II  OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1. A. RISK FACTORS
 The Macondo incident could have a material adverse effect on our business.
     New and proposed health care legislation and regulation could have a material impact on our
business.
  37




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##### Table of Contents



New and proposed health care legislation and regulation could increase the cost of providing
medical benefits to employees, which could have an adverse impact on our results of operations.
   
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3. DEFAULTS UPON SENIOR SECURITIES
  
 Item 4. (REMOVED AND RESERVED)
  
 Item 5. OTHER INFORMATION
 Item 5(a)
 Number ofRestrictedName of Executive Officer
    
    Title
    
    Stock UnitsLance F. Bospflug
    
    President and Chief Operating Officer
    
    70,046Michael J. McCann
    
    Chief Financial Officer and Secretary
    
    14,216Richard A. Rovinelli
    
    Chief Administrative Officer andDirector of Human Resources
    
    13,251
    38




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##### Table of Contents



Item 6. EXHIBITS
  3.1
    
    (i)     Composite Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to PHIs Report on Form 10-Q filed on August 7, 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
    
    First Amendment dated as of August 5, 2009 to 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 4.2 to PHIs Report on Form 10-Q filed on August 10, 2009).4.3
    
    Second Amendment dated September 13, 2010 to Amended and Restated Loan
Agreement dated March 31, 2008 by and among PHI, Inc., Air Evac Services, Inc., PHI
Tech Services, Inc. and International Helicopter Transport, Inc., and Whitney National
Bank.4.4
    
    Indenture dated as of September 23, 2010 by and among PHI, Inc., the subsidiary
guarantors and The Bank of New York Mellon Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to PHIs Report on Form 8-K filed on
September 23, 2010).4.5
    
    Form of 8.625% Senior Note due 2018 (incorporated by reference to Exhibit 4.2
to PHIs Report on Form 8-K filed on September 23, 2010).10.1
    
    Registration Rights Agreement dated as of September 23, 2010 by and among PHI,
Inc., the subsidiary guarantors and UBS Securities LLC (incorporated by reference to
Exhibit 10.1 to PHIs Report on Form 8-K filed on September 23, 2010).10.2
    
    Form of PHI, Inc. Restricted Stock Unit Agreement under the Amended and
Restated Petroleum Helicopters, Inc. 1995 Incentive Compensation Plan.10.3
    
    Form of PHI, Inc. Restricted Stock Unit Agreement under the Amended and
Restated Petroleum Helicopters, Inc. 1995 Incentive Compensation Plan.10.4
    
    Amendment No. 1 to the Amended and Restated Petroleum Helicopters, Inc. 1995
Incentive Compensation Plan.10.5
    
    Amendment No. 2 to the Amended and Restated Petroleum Helicopters, Inc. 1995
Incentive Compensation Plan.
 
 39




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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.
 
 SIGNATURES
  PHI, Inc.November 8, 2010
    By:
    /s/ Al A. GonsoulinAl A. GonsoulinChairman and Chief Executive OfficerNovember 8, 2010
    By:
    /s/ Michael J. McCannMichael J. McCannChief Financial Officer 40