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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, 2004 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 Petroleum Helicopters, 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)
 Registrants
telephone number, including area code (337) 235-2452 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15-(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes: þ No: o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes: þ No: o APPLICABLE ONLY TO
CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. Class
    
    Outstanding at
November 3, 2004Voting Common Stock
    
    2,852,616 sharesNon-Voting Common Stock
    
    2,531,392 shares




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PETROLEUM HELICOPTERS, INC.

Index  Form 10-Q

Part I  Financial InformationItem 1.
    
    Financial Statements  UnauditedCondensed Consolidated Balance Sheets  September 30, 2004
and December 31, 2003
    
    3Condensed Consolidated Statements of Operations  Three
Months and Nine Months Ended September 30, 2004 and 2003
    
    4Condensed Consolidated Statements of Cash Flows  Nine
Months Ended September 30, 2004 and 2003
    
    5Notes to Consolidated Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures about
Market Risk
    
    24Item 4.
    
    Controls and Procedures
    
    24Part II  Other InformationItem 1.
    
    Legal Proceedings
    
    25Item 6.
    
    Exhibits and Reports on Form 8-K
    
    25Signatures
    
    26Certification pursuant to Section 302 - CEOCertification pursuant to Section 302 - CFOCertification pursuant to Section 906 - CEOCertification pursuant to Section 906 - CFO




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PART I  FINANCIAL INFORMATION 
 Item 1.
    
    FINANCIAL STATEMENTS 
 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
(Unaudited) September 30,
    
    December 31,2004
    
    2003ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    24,464
    
    
    $
    19,872Accounts receivable  net of allowance:Trade
    
    
    56,569
    
    
    
    41,743Other
    
    
    982
    
    
    
    1,315Inventory, net
    
    
    38,504
    
    
    
    40,405Other current assets
    
    
    6,882
    
    
    
    6,575Refundable income taxes
    
    
    700
    
    
    
    225Total current assets
    
    
    128,101
    
    
    
    110,135Property and equipment, net
    
    
    256,125
    
    
    
    258,526Other
    
    
    10,618
    
    
    
    8,793Total Assets
    
    $
    394,844
    
    
    $
    377,454LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    24,330
    
    
    $
    18,837Accrued liabilities
    
    
    8,386
    
    
    
    12,424Accrued vacation payable
    
    
    3,482
    
    
    
    3,400Accrued interest payable
    
    
    7,852
    
    
    
    3,174Notes payable
    
    
    1,000
    
    
    
    2,000Total current liabilities
    
    
    45,050
    
    
    
    39,835Long-term note payable
    
    
    4,900
    
    
    
    Long-term debt
    
    
    200,000
    
    
    
    200,000Deferred income taxes
    
    
    27,983
    
    
    
    25,597Other long-term liabilities
    
    
    7,134
    
    
    
    6,029Commitments and contingencies (Note 3)Shareholders Equity:Voting common stock  par value of $0.10;
authorized shares of 12,500,000
    
    
    285
    
    
    
    285Non-voting common stock  par value of $0.10;
authorized shares of 12,500,000
    
    
    253
    
    
    
    253Additional paid-in capital
    
    
    15,098
    
    
    
    15,088Retained earnings
    
    
    94,141
    
    
    
    90,367Total shareholders equity
    
    
    109,777
    
    
    
    105,993Total liabilities and shareholders equity
    
    $
    394,844
    
    
    $
    377,454
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3




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PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited) Quarter Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Operating revenues
    
    $
    77,733
    
    
    $
    69,640
    
    
    $
    214,892
    
    
    $
    200,586Gain on disposition of property
and equipment, net
    
    
    1,091
    
    
    
    273
    
    
    
    2,271
    
    
    
    1,711Other
    
    
    76
    
    
    
    165
    
    
    
    221
    
    
    
    53378,900
    
    
    
    70,078
    
    
    
    217,384
    
    
    
    202,830Expenses:Direct expenses
    
    
    63,805
    
    
    
    59,952
    
    
    
    179,138
    
    
    
    170,758Selling, general and
administrative expenses
    
    
    5,403
    
    
    
    5,048
    
    
    
    16,157
    
    
    
    14,786Interest expense
    
    
    5,026
    
    
    
    4,984
    
    
    
    15,052
    
    
    
    14,97274,234
    
    
    
    69,984
    
    
    
    210,347
    
    
    
    200,516Earnings before income taxes
    
    
    4,666
    
    
    
    94
    
    
    
    7,037
    
    
    
    2,314Income taxes
    
    
    2,007
    
    
    
    38
    
    
    
    3,262
    
    
    
    925Net earnings
    
    $
    2,659
    
    
    $
    56
    
    
    $
    3,775
    
    
    $
    1,389Weighted average common shares
outstanding:Basic
    
    
    5,383
    
    
    
    5,383
    
    
    
    5,383
    
    
    
    5,383Diluted
    
    
    5,486
    
    
    
    5,486
    
    
    
    5,486
    
    
    
    5,476Net earnings per common shareBasic
    
    $
    0.49
    
    
    $
    0.01
    
    
    $
    0.70
    
    
    $
    0.26Diluted
    
    $
    0.48
    
    
    $
    0.01
    
    
    $
    0.69
    
    
    $
    0.25
 The accompanying notes are an integral part of these unaudited condensed consolidated financials statements. 4




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PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited) Nine Months EndedSeptember 30,2004
    
    2003Cash flows from operating activities:Net earnings
    
    $
    3,775
    
    
    $
    1,389Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation
    
    
    20,638
    
    
    
    19,815Deferred income taxes
    
    
    2,386
    
    
    
    276Gain on disposition of property & equipment, net
    
    
    (2,271
    )
    
    
    (1,711
    )Other
    
    
    997
    
    
    
    (15
    )Changes in operating assets and liabilities
    
    
    (9,937
    )
    
    
    (911
    )Net cash provided by operating activities
    
    
    15,588
    
    
    
    18,843Cash flows from investing activities:Purchase of property and equipment
    
    
    (27,189
    )
    
    
    (23,420
    )Proceeds from asset dispositions
    
    
    11,293
    
    
    
    3,998Net cash used in investing activities
    
    
    (15,896
    )
    
    
    (19,422
    )Cash flows from financing activities:Proceeds from line of credit, net
    
    
    4,900
    
    
    
    2,000Proceeds from exercise of stock options
    
    
    
    
    
    
    50Net cash provided by financing activities
    
    
    4,900
    
    
    
    2,050Increase in cash and cash equivalents
    
    
    4,592
    
    
    
    1,471Cash and cash equivalents, beginning of period
    
    
    19,872
    
    
    
    17,674Cash and cash equivalents, end of period
    
    $
    24,464
    
    
    $
    19,145Supplemental Disclosures Cash Flow InformationInterest paid
    
    $
    9,587
    
    
    $
    9,640Taxes paid, net
    
    $
    310
    
    
    $
    1,124
 The accompanying notes are an integral part of these unaudited condensed consolidated financials statements. 5




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 1. General The accompanying unaudited condensed consolidated financial statements include
the amounts of Petroleum Helicopters, Inc. and subsidiaries (PHI or the
Company). In the opinion of management, these financial statements reflect
all adjustments, consisting of only normal, recurring adjustments, necessary to
present fairly the financial results for the interim periods presented. These
condensed consolidated financial statements should be read in conjunction with
the financial statements contained in the Companys Annual Report on Form 10-K
for the year ended December 31, 2003 and the accompanying notes and
Managements Discussion and Analysis of Financial Condition and Results of
Operations. The Companys financial results, particularly as they relate to the Companys
Domestic Oil and Gas operations, are influenced by seasonal fluctuations as
discussed in the Companys Annual Report on Form 10-K for the year ended
December 31, 2003. Therefore, the results of operations for interim periods
are not necessarily indicative of the operating results that may be expected
for a full fiscal year. 2. Segment Information The Company has identified four principal segments: Domestic Oil and Gas, Air
Medical, International and Technical Services. The Domestic Oil and Gas
segment primarily provides helicopter services to oil and gas customers
operating in the Gulf of Mexico. The Company, both directly and through its
subsidiary, Air Evac Services, Inc. (Air Evac), provides air medical
transportation services for hospitals and medical programs under the
independent provider model in 11 states. The International segment, which
primarily consists of operations off the West Coast of Africa, provides
helicopter services in various foreign countries to oil and gas customers. The
Technical Services segment provides helicopter repair and overhaul services,
primarily to certain military aircraft, flight operations customers, and
original equipment manufacturers. Segment operating income is operating revenues less direct expenses and
selling, general, and administrative costs allocated to the operating segment.
Unallocated overhead consists primarily of corporate selling, general, and
administrative costs that the Company does not allocate to the operating
segments. 6




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Summarized financial information concerning the Companys reportable operating
segments for the quarter and nine months ended September 30, 2004 and 2003 is
as follows (in thousands): Quarter Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(Thousands of dollars)
    
    (Thousands of dollars)Segment operating revenuesDomestic Oil and Gas
    
    $
    48,081
    
    
    $
    49,346
    
    
    $
    133,660
    
    
    $
    138,121Air Medical
    
    
    21,441
    
    
    
    11,736
    
    
    
    55,919
    
    
    
    34,777International
    
    
    5,766
    
    
    
    4,658
    
    
    
    16,936
    
    
    
    14,667Technical Services
    
    
    2,445
    
    
    
    3,900
    
    
    
    8,377
    
    
    
    13,021Total operating revenues
    
    
    77,733
    
    
    
    69,640
    
    
    
    214,892
    
    
    
    200,586Segment direct expenseDomestic Oil and Gas
    
    
    38,762
    
    
    
    43,978
    
    
    
    111,407
    
    
    
    122,391Air Medical
    
    
    18,894
    
    
    
    8,290
    
    
    
    46,562
    
    
    
    23,302International
    
    
    4,094
    
    
    
    4,672
    
    
    
    13,847
    
    
    
    15,261Technical Services
    
    
    2,055
    
    
    
    3,012
    
    
    
    7,322
    
    
    
    9,804Total direct expense
    
    
    63,805
    
    
    
    59,952
    
    
    
    179,138
    
    
    
    170,758Segment selling, general and administrative expenseDomestic Oil and Gas
    
    
    113
    
    
    
    163
    
    
    
    1,379
    
    
    
    1,829Air Medical
    
    
    1,866
    
    
    
    982
    
    
    
    5,579
    
    
    
    2,772International
    
    
    12
    
    
    
    33
    
    
    
    36
    
    
    
    135Technical Services
    
    
    3
    
    
    
    (88
    )
    
    
    11
    
    
    
    (83
    )Total selling, general and administrative expense
    
    
    1,994
    
    
    
    1,090
    
    
    
    7,005
    
    
    
    4,653Total direct and selling, general and administrative
expense
    
    
    65,799
    
    
    
    61,042
    
    
    
    186,143
    
    
    
    175,411Net segment profitDomestic Oil and Gas
    
    
    9,206
    
    
    
    5,205
    
    
    
    20,874
    
    
    
    13,900Air Medical
    
    
    681
    
    
    
    2,464
    
    
    
    3,778
    
    
    
    8,703International
    
    
    1,660
    
    
    
    (47
    )
    
    
    3,053
    
    
    
    (729
    )Technical Services
    
    
    387
    
    
    
    976
    
    
    
    1,044
    
    
    
    3,301Total
    
    
    11,934
    
    
    
    8,598
    
    
    
    28,749
    
    
    
    25,175Other, net (1)
    
    
    1,167
    
    
    
    438
    
    
    
    2,492
    
    
    
    2,244Unallocated selling, general and administrative costs
    
    
    (3,409
    )
    
    
    (3,958
    )
    
    
    (9,152
    )
    
    
    (10,133
    )Interest expense
    
    
    (5,026
    )
    
    
    (4,984
    )
    
    
    (15,052
    )
    
    
    (14,972
    )Earnings before income taxes
    
    $
    4,666
    
    
    $
    94
    
    
    $
    7,037
    
    
    $
    2,314
  (1)
    
    Including gains on disposition of property and equipment, and other
income. 7




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3. Commitments and Contingencies Environmental Matters The Company has an aggregate estimated liability of
$0.3 million as of September 30, 2004 for environmental remediation costs that
are probable and estimable. During the quarter, the Company received either
closure notifications or No Further Action notices from regulatory agencies
with respect to three sites. The estimated environmental liability was reduced
by $0.3 million as a result of these notices. In addition, the Company has conducted environmental surveys of the Lafayette
facility that it vacated in 2001, and has determined that contamination exists
at that facility. Appropriate notices of the contamination have been provided
to state regulatory authorities. To date, borings have been installed to
determine the type and extent of contamination. Preliminary results indicate
limited soil and groundwater impacts. Once the extent and type of
contamination are fully defined, a risk evaluation in accordance with the
Louisiana Risk Evaluation/Corrective Action Plan (RECAP) standard will be
submitted and evaluated by the Louisiana Department of Environmental Quality
(LDEQ). At that point, LDEQ will establish what cleanup standards must be
met at the site. When the process is complete, the Company will be in a
position to develop the appropriate remediation plan and estimate the resulting
cost of remediation. The Company has not recorded any estimated liability for
remediation of contamination but, based on preliminary surveys and ongoing
monitoring, the Company believes the ultimate remediation costs will not be
material to the Companys consolidated financial position and results of
operations. Legal Matters The Company is named as a defendant in various legal actions
that have arisen in the ordinary course of its business and have not been
finally adjudicated. The amount, if any, of ultimate liability with respect to
such matters cannot be determined. In the opinion of management, the
Companys ultimate liability with respect to these actions will not have a
material adverse effect on the Companys consolidated financial position and
results of operations. Long-term Debt On April 23, 2002, the Company issued $200 million in
principal amount of 9 3/8% Series A Senior Notes due 2009 in a private offering
that was exempt from registration under Rule 144A under the Securities Act of
1933 (the Securities Act). All of the notes were subsequently exchanged for
the Companys 9 3/8% Series B Senior Notes due 2009 (the Series B Senior
Notes), pursuant to an exchange offer that was registered under the Securities
Act. The Series B Senior Notes bear annual interest at 9 3/8% payable
semi-annually on May 1 and November 1 of each year and mature in May 2009. The
Series B Senior Notes contain restrictive covenants, including limitations on
indebtedness, liens, dividends, repurchases of capital stock and other payments
affecting restricted subsidiaries, issuance and sales of restricted subsidiary
stock, dispositions of proceeds of asset sales, and mergers and consolidations
or sales of assets. As of September 30, 2004, the Company was in compliance
with these covenants. Also, on April 23, 2002, the Company executed a credit agreement with a
commercial bank for a $50 million revolving credit facility to be available
through July 31, 2004. An amendment to this credit agreement was executed June
18, 2004. The amendment reduced the revolving credit facility from $50 million
to $35 million, and extended the expiration date to July 31, 2006. As of
September 30, 2004, the Company had $4.9 million in borrowings at an interest
rate of 4.5% and a $1.4 million letter of credit outstanding under the
revolving credit facility. The credit agreement permits borrowings based on
both the prime rate and the London Interbank Offer Rate (LIBOR) plus a
spread. The spread for LIBOR borrowings ranges from 2.0% to 3.0%. Any amounts
outstanding under the revolving credit facility are due July 31, 2006. The
Company may also obtain letters of credit issued under the credit facility up
to $5.0 million with a 0.125% fee payable on the amount of letters of credit
issued. The Company is subject to financial covenants under the credit agreement.
These covenants include maintaining certain levels of working capital and
shareholders equity and contain other limitations including a restriction on
purchases of the Companys stock. The credit agreement also limits the
creation, incurrence, or assumption of Funded Debt (as defined, which includes
long-term debt) and the 8




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acquisition of investments in unconsolidated subsidiaries. As of September 30,
2004, the Company was in compliance with the covenants. Also included in notes payable is $1.0 million related to the interim financing
of a progress payment for the acquisition of one aircraft described below.
This aircraft was delivered subsequent to the end of the quarter. An operating
lease was executed and the associated note payable terminated. Operating Leases The Company leases certain aircraft, facilities, and
equipment used in its operations. The related lease agreements, which include
both non-cancelable and month-to-month terms, generally provide for fixed
monthly rentals and, for certain real estate leases, renewal options. The
Company generally pays all insurance, taxes, and maintenance expenses
associated with these aircraft and some leases contain renewal and purchase
options. At September 30, 2004, the Company had approximately $34.3 million in
aggregate commitments under operating leases of which approximately $3.8
million is payable during the next twelve months. Of this total, $13.8 million
represents lease commitments for aircraft and $20.5 million represents facility
lease commitments which is primarily the Companys facilities in Lafayette,
Louisiana. During the year ended December 31, 2003, the Company entered into a purchase
agreement for two transport category aircraft at a combined cost of $32.4
million to be delivered in the second half of 2004. The Company took delivery
of one of these aircraft in the current quarter and executed an operating lease
for this aircraft. The second aircraft is expected to be delivered in November
2004. The Company will also execute an operating lease for this aircraft. During the first quarter of 2004, the Company also exercised its option to
purchase two additional aircraft from the same manufacturer, and executed a
purchase agreement with the same terms and pricing as the first two aircraft
described above. The Company also intends to execute an operating lease with a
commercial lender for these aircraft upon delivery on terms similar
to the first two aircraft. Delivery is expected in
the first quarter 2005. Purchase Commitments At September 30, 2004 and December 31, 2003, the
Company had commitments of $2.2 million and $4.5 million, respectively, for the
upgrade and purchase of aircraft, and the purchase of other equipment. 4. Valuation of Accounts The Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, current market conditions,
and other information. The allowance for doubtful accounts was $0.2 million
and $0.1 million at September 30, 2004 and December 31, 2003, respectively. The Company also establishes valuation reserves related to obsolescent and
excess inventory. The inventory valuation reserves were $6.7 million and $5.5
million at September 30, 2004 and December 31, 2003, respectively. 5. Employee Incentive Compensation In 2002, the Company implemented an incentive compensation plan for
non-executive and non-represented employees. The plan allows the Company to
pay up to 7% of earnings before tax upon achieving a specified earnings
threshold. Pursuant to the incentive plan for non-executives and
non-represented employees, the Company did not record compensation expense for
the quarter and nine months ended September 30, 2004 and 2003. 6. Recent Accounting Pronouncements In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46 requires that companies that control
another entity through interest other than voting 9




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interests should consolidate the controlled entity. In December 2003, the FASB
issued modifications to FIN 46 (FIN 46R), resulting in multiple effective
dates based on the nature as well as creation date of a variable interest
entity. The Company does not believe that the Company has interests that would
be considered variable interest entities under FIN 46. 7. Condensed Consolidated Financial Information On April 23, 2002, the Company issued $200 million in principal amount of 9
3/8% Series A Senior Notes in a private offering. Shortly thereafter, the
Series A Notes were exchanged for Series B Senior Notes, which are fully and
unconditionally guaranteed on a senior basis, jointly and severally, by all of
the Companys existing 100% owned operating subsidiaries (Guarantor
Subsidiaries). The following supplemental condensed financial information sets forth, on a
consolidating basis, the balance sheet, statement of operations, and statement
of cash flows information for Petroleum Helicopters, Inc. (Parent Company
Only) and the Guarantor Subsidiaries. The principal eliminating entries
eliminate investments in subsidiaries, intercompany balances, and intercompany
revenues and expenses. 10




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PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars) September 30, 2004ParentCompany
    
    GuarantorOnly
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    24,432
    
    
    $
    32
    
    
    $
    
    
    
    $
    24,464Accounts receivable  net of allowance
    
    
    50,329
    
    
    
    7,222
    
    
    
    
    
    
    
    57,551Inventory
    
    
    38,504
    
    
    
    
    
    
    
    
    
    
    
    38,504Other current assets
    
    
    5,987
    
    
    
    895
    
    
    
    
    
    
    
    6,882Refundable income taxes
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    700Total current assets
    
    
    119,952
    
    
    
    8,149
    
    
    
    
    
    
    
    128,101Investment in subsidiaries and other
    
    
    22,686
    
    
    
    24,994
    
    
    
    (37,062
    )
    
    
    10,618Property and equipment, net
    
    
    250,408
    
    
    
    5,717
    
    
    
    
    
    
    
    256,125Total Assets
    
    $
    393,046
    
    
    $
    38,860
    
    
    $
    (37,062
    )
    
    $
    394,844LIABILITIES AND
SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    39,685
    
    
    $
    5,456
    
    
    $
    (12,425
    )
    
    $
    32,716Accrued vacation payable
    
    
    3,226
    
    
    
    256
    
    
    
    
    
    
    
    3,482Accrued interest payable
    
    
    7,852
    
    
    
    
    
    
    
    
    
    
    
    7,852Notes payable
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Total current liabilities
    
    
    51,763
    
    
    
    5,712
    
    
    
    (12,425
    )
    
    
    45,050Long-term note payable
    
    
    4,900
    
    
    
    
    
    
    
    
    
    
    
    4,900Long-term debt
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000Deferred income taxes and other long-term
liabilities
    
    
    26,606
    
    
    
    8,511
    
    
    
    
    
    
    
    35,117Shareholders Equity:Paid-in capital
    
    
    15,636
    
    
    
    4,403
    
    
    
    (4,403
    )
    
    
    15,636Retained earnings
    
    
    94,141
    
    
    
    20,234
    
    
    
    (20,234
    )
    
    
    94,141Total shareholders equity
    
    
    109,777
    
    
    
    24,637
    
    
    
    (24,637
    )
    
    
    109,777Total liabilities and
shareholders equity
    
    $
    393,046
    
    
    $
    38,860
    
    
    $
    (37,062
    )
    
    $
    394,844
 11




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##### Table of Contents



PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars) December 31, 2003ParentCompany
    
    GuarantorOnly
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    19,821
    
    
    $
    51
    
    
    $
    
    
    
    $
    19,872Accounts receivable  net of allowance
    
    
    36,831
    
    
    
    6,227
    
    
    
    
    
    
    
    43,058Inventory
    
    
    40,405
    
    
    
    
    
    
    
    
    
    
    
    40,405Other current assets
    
    
    6,526
    
    
    
    49
    
    
    
    
    
    
    
    6,575Refundable income taxes
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    225Total current assets
    
    
    103,808
    
    
    
    6,327
    
    
    
    
    
    
    
    110,135Investment in subsidiaries and other
    
    
    18,545
    
    
    
    22,739
    
    
    
    (32,491
    )
    
    
    8,793Property and equipment, net
    
    
    254,447
    
    
    
    4,079
    
    
    
    
    
    
    
    258,526Total Assets
    
    $
    376,800
    
    
    $
    33,145
    
    
    $
    (32,491
    )
    
    $
    377,454LIABILITIES AND
SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    37,867
    
    
    $
    3,504
    
    
    $
    (10,110
    )
    
    $
    31,261Accrued vacation payable
    
    
    3,144
    
    
    
    256
    
    
    
    
    
    
    
    3,400Accrued interest payable
    
    
    3,174
    
    
    
    
    
    
    
    
    
    
    
    3,174Notes payable
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Total current liabilities
    
    
    46,185
    
    
    
    3,760
    
    
    
    (10,110
    )
    
    
    39,835Long-term debt
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000Deferred income taxes and other long-term
liabilities
    
    
    24,622
    
    
    
    7,004
    
    
    
    
    
    
    
    31,626Shareholders EquityPaid-in capital
    
    
    15,626
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    15,626Retained earnings
    
    
    90,367
    
    
    
    17,979
    
    
    
    (17,979
    )
    
    
    90,367Total shareholders equity
    
    
    105,993
    
    
    
    22,381
    
    
    
    (22,381
    )
    
    
    105,993Total liabilities and
shareholders equity
    
    $
    376,800
    
    
    $
    33,145
    
    
    $
    (32,491
    )
    
    $
    377,454
 12




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##### Table of Contents



PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars) For the quarter ended September 30, 2004ParentCompany
    
    GuarantorOnly
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedOperating revenues
    
    $
    51,787
    
    
    $
    25,946
    
    
    $
    
    
    
    $
    77,733Management fees
    
    
    939
    
    
    
    
    
    
    
    (939
    )
    
    
    Equity in net income of consolidated
subsidiaries
    
    
    603
    
    
    
    
    
    
    
    (603
    )
    
    
    Gain on dispositions of property and
equipment, net
    
    
    1,091
    
    
    
    
    
    
    
    
    
    
    
    1,091Other
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    7654,496
    
    
    
    25,946
    
    
    
    (1,542
    )
    
    
    78,900Expenses:Direct expenses
    
    
    41,644
    
    
    
    22,161
    
    
    
    
    
    
    
    63,805Management fees
    
    
    
    
    
    
    939
    
    
    
    (939
    )
    
    
    Selling, general, and administrative
    
    
    3,562
    
    
    
    1,841
    
    
    
    
    
    
    
    5,403Interest expense
    
    
    5,026
    
    
    
    
    
    
    
    
    
    
    
    5,02650,232
    
    
    
    24,941
    
    
    
    (939
    )
    
    
    74,234Earnings before income taxes
    
    
    4,264
    
    
    
    1,005
    
    
    
    (603
    )
    
    
    4,666Income taxes
    
    
    1,605
    
    
    
    402
    
    
    
    
    
    
    
    2,007Net earnings
    
    $
    2,659
    
    
    $
    603
    
    
    $
    (603
    )
    
    $
    2,659
 For the quarter ended September 30, 2003ParentCompany
    
    GuarantorOnly
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedOperating revenues
    
    $
    56,036
    
    
    $
    13,604
    
    
    $
    
    
    
    $
    69,640Management fees
    
    
    1,167
    
    
    
    
    
    
    
    (1,167
    )
    
    
    Equity in net income of consolidated
subsidiaries
    
    
    1,283
    
    
    
    
    
    
    
    (1,283
    )
    
    
    Gain on dispositions of property and
equipment, net
    
    
    273
    
    
    
    
    
    
    
    
    
    
    
    273Other
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    16558,924
    
    
    
    13,604
    
    
    
    (2,450
    )
    
    
    70,078Expenses:Direct expenses
    
    
    50,474
    
    
    
    9,478
    
    
    
    
    
    
    
    59,952Management fees
    
    
    
    
    
    
    1,167
    
    
    
    (1,167
    )
    
    
    Selling, general, and administrative
    
    
    4,228
    
    
    
    820
    
    
    
    
    
    
    
    5,048Interest expense
    
    
    4,984
    
    
    
    
    
    
    
    
    
    
    
    4,98459,686
    
    
    
    11,465
    
    
    
    (1,167
    )
    
    
    69,984Earnings before income taxes
    
    
    (762
    )
    
    
    2,139
    
    
    
    (1,283
    )
    
    
    94Income taxes
    
    
    (818
    )
    
    
    856
    
    
    
    
    
    
    
    38Net earnings
    
    $
    56
    
    
    $
    1,283
    
    
    $
    (1,283
    )
    
    $
    56
 13




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##### Table of Contents



PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars) For the nine months ended September 30, 2004ParentCompany
    
    GuarantorOnly
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedOperating revenues
    
    $
    147,201
    
    
    $
    67,691
    
    
    $
    
    
    
    $
    214,892Management fees
    
    
    2,820
    
    
    
    
    
    
    
    (2,820
    )
    
    
    Equity in net income of consolidated
subsidiaries
    
    
    2,255
    
    
    
    
    
    
    
    (2,255
    )
    
    
    Gain on dispositions of property and
equipment, net
    
    
    2,271
    
    
    
    
    
    
    
    
    
    
    
    2,271Other
    
    
    221
    
    
    
    
    
    
    
    
    
    
    
    221154,768
    
    
    
    67,691
    
    
    
    (5,075
    )
    
    
    217,384Expenses:Direct expenses
    
    
    123,602
    
    
    
    55,536
    
    
    
    
    
    
    
    179,138Management fees
    
    
    
    
    
    
    2,820
    
    
    
    (2,820
    )
    
    
    Selling, general, and administrative
    
    
    10,580
    
    
    
    5,577
    
    
    
    
    
    
    
    16,157Interest expense
    
    
    15,052
    
    
    
    
    
    
    
    
    
    
    
    15,052149,234
    
    
    
    63,933
    
    
    
    (2,820
    )
    
    
    210,347Earnings before income taxes
    
    
    5,534
    
    
    
    3,758
    
    
    
    (2,255
    )
    
    
    7,037Income taxes
    
    
    1,759
    
    
    
    1,503
    
    
    
    
    
    
    
    3,262Net earnings
    
    $
    3,775
    
    
    $
    2,255
    
    
    $
    (2,255
    )
    
    $
    3,775
 For the nine months ended September 30, 2003ParentCompany
    
    GuarantorOnly
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedOperating revenues
    
    $
    160,444
    
    
    $
    40,142
    
    
    $
    
    
    
    $
    200,586Management fees
    
    
    2,822
    
    
    
    
    
    
    
    (2,822
    )
    
    
    Equity in net income of consolidated
subsidiaries
    
    
    5,163
    
    
    
    
    
    
    
    (5,163
    )
    
    
    Gain on dispositions of property and
equipment
    
    
    1,711
    
    
    
    
    
    
    
    
    
    
    
    1,711Other
    
    
    533
    
    
    
    
    
    
    
    
    
    
    
    533170,673
    
    
    
    40,142
    
    
    
    (7,985
    )
    
    
    202,830Expenses:Direct expenses
    
    
    144,563
    
    
    
    26,195
    
    
    
    
    
    
    
    170,758Management fees
    
    
    
    
    
    
    2,822
    
    
    
    (2,822
    )
    
    
    Selling, general, and administrative
    
    
    12,266
    
    
    
    2,520
    
    
    
    
    
    
    
    14,786Interest expense
    
    
    14,972
    
    
    
    
    
    
    
    
    
    
    
    14,972171,801
    
    
    
    31,537
    
    
    
    (2,822
    )
    
    
    200,516Earnings before income taxes
    
    
    (1,128
    )
    
    
    8,605
    
    
    
    (5,163
    )
    
    
    2,314Income taxes
    
    
    (2,517
    )
    
    
    3,442
    
    
    
    
    
    
    
    925Net earnings
    
    $
    1,389
    
    
    $
    5,163
    
    
    $
    (5,163
    )
    
    $
    1,389
 14




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##### Table of Contents



PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars) For the nine months ended September 30, 2004ParentCompany
    
    GuarantorOnly
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    15,607
    
    
    $
    (19
    )
    
    $
    
    
    
    $
    15,588Cash flows from investing activities:Purchase of property and equipment
    
    
    (27,189
    )
    
    
    
    
    
    
    
    
    
    
    (27,189
    )Proceeds from asset dispositions
    
    
    11,293
    
    
    
    
    
    
    
    
    
    
    
    11,293Net cash used in investing activities
    
    
    (15,896
    )
    
    
    
    
    
    
    
    
    
    
    (15,896
    )Cash flows from financing activities:Proceeds from line of credit, net
    
    
    4,900
    
    
    
    
    
    
    
    
    
    
    
    4,900Net cash provided by financing
activities
    
    
    4,900
    
    
    
    
    
    
    
    
    
    
    
    4,900Increase in cash and cash equivalents
    
    
    4,611
    
    
    
    (19
    )
    
    
    
    
    
    
    4,592Cash and cash equivalents, beginning of
period
    
    
    19,821
    
    
    
    51
    
    
    
    
    
    
    
    19,872Cash and cash equivalents, end of period
    
    $
    24,432
    
    
    $
    32
    
    
    $
    
    
    
    $
    24,464
 For the nine months ended September 30, 2003ParentCompany
    
    GuarantorOnly
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    18,847
    
    
    $
    (4
    )
    
    $
    
    
    
    $
    18,843Cash flows from investing activities:Purchase of property and equipment
    
    
    (23,420
    )
    
    
    
    
    
    
    
    
    
    
    (23,420
    )Proceeds from asset dispositions
    
    
    3,998
    
    
    
    
    
    
    
    
    
    
    
    3,998Net cash used in investing activities
    
    
    (19,422
    )
    
    
    
    
    
    
    
    
    
    
    (19,422
    )Cash flows from financing activities:Proceeds from notes payable
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Proceeds from exercise of stock options
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Net cash provided by financing
activities
    
    
    2,050
    
    
    
    
    
    
    
    
    
    
    
    2,050Increase in cash and cash equivalents
    
    
    1,475
    
    
    
    (4
    )
    
    
    
    
    
    
    1,471Cash and cash equivalents, beginning of
period
    
    
    17,653
    
    
    
    21
    
    
    
    
    
    
    
    17,674Cash and cash equivalents, end of period
    
    $
    19,128
    
    
    $
    17
    
    
    $
    
    
    
    $
    19,145
 15




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##### Table of Contents



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 
 This Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements and the notes thereto as
well as the Companys financial statements and notes thereto contained in the
Companys Annual Report on Form 10-K for the year ended December 31, 2003 and
the MD&A and other information contained therein. Forward-Looking Statements All statements other than statements of historical fact contained in this Form
10-Q, other periodic reports filed by the Company with the Securities and
Exchange Commission, and other written and oral statements made by it or on its
behalf, are forward-looking statements. When used herein, the words
anticipates, expects, believes, goals, intends, plans, or
projects and similar expressions are intended to identify forward-looking
statements. Forward-looking statements are based on a number of assumptions
about future events and are subject to significant risks, uncertainties, and
other factors that may cause the Companys actual results to differ materially
from the expectations, beliefs, and estimates expressed or implied in such
forward-looking statements. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, no assurance can be
given that such assumptions will prove correct or even approximately correct.
Factors that could cause the Companys results to differ materially from the
expectations expressed in such forward-looking statements include but are not
limited to the following: unexpected variances in flight hours, the effect on
demand for our services caused by volatility of oil and gas prices, the effect
on our operating costs of volatile fuel prices, adverse weather effects, the
availability and cost of capital required to acquire aircraft, environmental
risks, the activities of our competitors, changes in government regulation,
unionization, operating hazards, risks related to operating in foreign
countries, the ability to obtain adequate insurance at an acceptable cost, and
the ability of the Company to develop and implement successful business
strategies. All forward-looking statements in this document are expressly
qualified in their entirety by the cautionary statements in this paragraph and
in the Risk Factors section of the Companys Annual Report on Form 10-K for the
year ended December 31, 2003. PHI undertakes no obligation to update any
forward-looking statements, whether as a result of new information, future
events, or otherwise. Overview Operating revenues were $77.7 million for the quarter ended September 30, 2004
compared to $69.6 million for the quarter ended September 30, 2003, an increase
of $8.1 million. The Air Medical segments operating revenues increased $9.7
million in the quarter. Operating revenues were $214.9 million for the nine months ended September 30,
2004 compared to $200.6 million for the nine months ended September 30, 2003,
an increase of $14.3 million. The Air Medical segments operating revenues
increased $21.1 million for the current period, and there was also an increase
in International revenues of $2.3 million. Domestic Oil and Gas operating
revenues decreased $4.5 million and Technical Services segment operating
revenues decreased $4.6 million. As discussed in the Companys March 31, 2004 and June 30, 2004 Forms 10Q and
the December 31, 2003 Form 10K, the expansion of the Air Medical segment
continued in the current quarter. Since October 1, 2003, 21 Air Medical
locations have been opened. The effect on revenues of the additional Air
Medical operations for the quarter was an increase $9.6 million and an increase
of $20.0 million for the nine months. The Company intends to continue
expanding operations in this segment. Direct expense was $63.8 million for the three months ended September 30, 2004,
compared to $60.0 million for the three months ended September 30, 2003, an
increase of $3.8 million. The Air Medical segments direct expense increased
$10.6 million, and was offset in part by a decrease in direct expense in 16




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##### Table of Contents



the Domestic Oil and Gas segment of $5.2 million, a decrease in the
International segment of $0.6 million, and a decrease in the Technical Services
segment of $1.0 million. Direct expenses for the nine months ended September 30, 2004 were $179.1
million, compared to $170.8 million for the comparable period in 2003, an
increase of $8.3 million. This increase was due to the increase in the Air
Medical locations ($23.3 million), offset in part by a decrease in Domestic Oil
and Gas direct expense ($11.0 million). Additionally, there was a decrease in
direct expense in the International and Technical Services segments direct
expense. Earnings before tax were $4.7 million for the three months ended September 30,
2004, compared to earnings before tax of less than $0.1 million for the three
months ended September 30, 2003. For the nine months ended September 30, 2004,
earnings before tax were $7.0 million compared to $2.3 million for the nine
months ended September 30, 2003. The additional Air Medical locations
generated $0.1 million in earnings before tax for the quarter and a loss of
$1.1 million for the nine months ended September 30, 2004. The loss before tax
for the nine month period for the additional Air Medical locations was due to
the start up costs incurred for these additional locations. During the current quarter the Company took delivery of the first of four
transport category aircraft which will be dedicated to providing transportation
services to deep water projects in the Gulf of Mexico. The Company executed an
operating lease for the first aircraft. In early November 2004, the Company
will take delivery of the second transport category aircraft and intends to
execute an operating lease for that aircraft. The Company also intends to
finance the remaining two aircraft with an operating lease with a commercial
finance company on terms similar to the first two aircraft. Operating Statistics The following tables present certain non-financial operational statistics for
the quarter and nine months ended September 30, 2004 and 2003: Quarter Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Flight hours:Domestic Oil and Gas
    
    
    27,242
    
    
    
    30,696
    
    
    
    75,826
    
    
    
    88,357Air Medical
    
    
    5,473
    
    
    
    3,139
    
    
    
    14,505
    
    
    
    8,305International
    
    
    3,821
    
    
    
    3,364
    
    
    
    11,384
    
    
    
    10,567Total
    
    
    36,536
    
    
    
    37,199
    
    
    
    101,715
    
    
    
    107,229
 September 30,2004
    
    2003Aircraft operated at period end:Domestic Oil and Gas
    
    
    
    
    
    
    
    
    
    
    152
    
    
    
    177Air Medical
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    32International
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    17Domestic Miscellaneous
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Total(1)
    
    
    
    
    
    
    
    
    
    
    221
    
    
    
    228
  (1)
    
    Includes 13 and 16 aircraft as of September 30, 2004 and 2003, respectively
that are customer owned or leased. 17




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##### Table of Contents



Quarter Ended September 30, 2004 compared with Quarter Ended September 30, 2003 Combined Operations Revenues Operating revenues for the three months ended September 30, 2004,
were $77.7 million compared to $69.6 million for the three months ended
September 30, 2003, an increase of $8.1 million.
This increase was due to an increase in the Air Medical segment offset in part
by a decrease in Domestic Oil and Gas, as discussed below. Flight hours were 36,536 for three months ended September 30, 2004, compared to
37,199 flight hours for the three months ended September 30, 2003. Other Income and Losses Gain (loss) on equipment dispositions was $1.1
million for the quarter ended September 30, 2004, compared to $0.3 million for
the quarter ended September 30, 2003. Other income was $0.1 million for the quarter ended September 30, 2004,
compared to $0.2 million for the quarter ended September 30, 2003. Other
income in both periods consisted primarily of interest income. Direct Expenses Direct operating expense was $63.8 million for the three
months ended September 30, 2004, compared to $60.0 million for three months
ended September 30, 2003, an increase of $3.8 million.
This increase in direct expense was due to an increase in the Air Medical
segment ($10.6 million), offset primarily by a decrease in the Domestic Oil and
Gas segment as discussed below. Selling, General, and Administrative Expenses Selling, general, and
administrative expenses were $5.4 million for the three months ended September
30, 2004, compared to $5.0 million for the three months ended September 30,
2003. There were increased costs in the Air Medical segment which is discussed
below. Interest Expense Interest expense was $5.0 million for both periods in 2004
and 2003. Income Taxes Income tax expense for the three months ended September 30,
2004 was $2.0 million, an effective rate of 43%, compared to less than $0.1
million, with an effective rate of 40%, for the three months ended September
30, 2003. Included in the tax provision for the current quarter was $0.1
million in foreign taxes incurred for which the Company received no credit for
U.S. tax purposes due to the availability of net operating loss carryforwards
for U.S. tax purposes. The operating loss carryforwards arose from
depreciation expense deductions related to the aircraft purchased in 2002 and
2003. Earnings The Companys net income for the three months ended September 30,
2004 was $2.7 million compared to less than $0.1 million for the three months
ended September 30, 2003. 18




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Segment Discussion Domestic Oil and Gas Domestic Oil and Gas segment revenues were $48.1
million for the three months ended September 30, 2004, compared to $49.3
million for the three months ended September 30, 2003. There was a decrease in
flight hour activity in the Gulf of Mexico as the Companys customers continued
reduced drilling activity in the Gulf of Mexico. Notwithstanding the decrease
in flight hours for the quarter, activity was favorably impacted in September
by the need for additional aircraft to support customers efforts to repair
facilities in the Gulf of Mexico that were damaged by recent hurricanes.
Flight hours were 27,242 for the current quarter compared to 30,696 in the same
period in the prior year. The number of aircraft in the segment at September 30, 2004 was 152 compared to
177 at September 30, 2003. Of this decrease, 16 aircraft were transferred to
the Air Medical segment. Direct expense in the Domestic Oil and Gas segment was $38.8 million for the
three months ended September 30, 2004, compared to $44.0 million for the three
months ended September 30, 2003. The decrease of $5.2 million was due to a
reduction in employee compensation due to severance charges recorded in the
prior period related to a voluntary early retirement program and a special
termination plan ($2.1 million). Direct expense also decreased because of a
decline in employee headcount ($1.6 million), a decrease in aircraft parts
warranty costs due to the termination of certain manufacturer agreements ($1.0
million due to warranty agreement termination and $1.3 million in recurring
warranty costs), and a decrease in insurance costs due to additional insurance
premiums recorded in the third quarter of 2003 related to loss experience, net
of current year increased premium cost ($1.3 million). These amounts were
offset in part by increases in aircraft parts usage ($0.5 million), fuel costs
($0.3 million), and other operating expense ($1.3 million). Selling, general and administrative expense charged to the Domestic Oil and Gas
segment was $0.1 million for the three months ended September 30, 2004,
compared to $0.2 million for the three months ended September 30, 2003. The Domestic Oil and Gas segments operating income was $9.2 million for the
three months ended September 30, 2004, compared to $5.2 million for the three
months ended September 30, 2003. The increase in operating income is due
primarily to the decrease in direct expense. Air Medical Air Medical segment revenues were $21.4 million for the three
months ended September 30, 2004, compared to $11.7 million for the three months
ended September 30, 2003, an increase of $9.7 million. The increase in
revenues was due to the additional 21 operating locations established since
October 1, 2003. Flight hours were 5,473 for the three months ended September
30, 2004, compared to 3,139 for the three months ended September 30, 2003. The number of aircraft in the segment was 49 at September 30, 2004, compared to
32 at September 30, 2003. Direct expenses in the Air Medical segment were $18.9 million for the three
months ended September 30, 2004, compared to $8.3 million for the three months
ended September 30, 2003, an increase of $10.6 million. This increase was due
to the additional operating locations previously mentioned and was comprised of
an increase in employee costs ($6.1 million) due to increased staff related to
additional operations, increased depreciation expense due to increased aircraft
($1.1 million), increased aircraft parts usage ($0.7 million), increased
aircraft fuel ($0.5 million), and increased costs associated with an increase
in the number of operating bases ($2.2 million) which includes rent expense,
utilities, and supplies, and temporary labor. Selling, general and administrative expense was $1.9 million for the three
months ended September 30, 2004, compared to $1.0 million for the three months
ended September 30, 2003. Management and 19




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supervisory staff were added in the Air Medical segment, and costs were
incurred for software and third party services to manage Air Medical billing
processes. The Air Medical segments operating income was $0.7 million for the three
months ended September 30, 2004, compared to $2.5 million for the three months
ended September 30, 2003. The decrease was due to the costs associated with
the start-up of the additional locations, and additional management and
supervisory staff related to the new operations. International International segment revenues were $5.8 million for the three
months ended September 30, 2004, compared to $4.7 million for the three months
ended September 30, 2003. The increase was due to an increase in rates and
flight hour activity in 2004. Flight hours for the three months ended
September 30, 2004 increased to 3,821 compared to 3,364 for the three months
ended September 30, 2003. The number of aircraft in the segment was 18 at
September 30, 2004, compared to 17 at September 30, 2003. Direct expenses in the International segment were $4.1 million for the three
months ended September 30, 2004, compared to $4.7 million for the three months
ended September 30, 2003. The decrease in direct expenses was due to a
decrease in aircraft component repairs. Selling, general and administrative expense was less than $0.1 million for both
periods. The International segment had operating income of $1.7 million for the three
months ended September 30, 2004, compared to an operating loss of less than
$0.1 million for the three months ended September 30, 2003. The increase in
operating income was due to the increase in revenue related to the increase in
rates and flight hour activity, and also due to the decrease in direct expense. Technical Services Technical Services revenues were $2.4 million for the
three months ended September 30, 2004, compared to $3.9 million for the three
months ended September 30, 2003. The decrease was due to completion of the
primary contract for the segment. Operating revenues from this contract were
$2.0 million for the quarter. Direct expenses in the Technical Services segment were $2.0 million for the
three months ended September 30, 2004, compared to $3.0 million for the three
months ended September 30, 2003. The decrease was also due to completion of
the contract discussed above. Selling, general and administrative expense was less than $0.1 million for both
periods. The Technical Services segment had operating income of $0.4 million for the
three months ended September 30, 2004, compared to $1.0 million for the three
months ended September 30, 2003. Nine Months Ended September 30, 2004 compared with Nine Months Ended September
30, 2003 Combined Operations Revenues Operating revenues for the nine months ended September 30, 2004
were $214.9 million, compared to $200.6 million for the nine months ended
September 30, 2003, an increase of $14.3 million. The increase was due to an
increase in the Air Medical segment ($21.1 million), offset in part by a
decrease in the Domestic Oil and Gas segment ($4.5 million), discussed below. Other Income and Losses Gain on equipment dispositions was $2.3 million for
the nine months ended September 30, 2004, compared to $1.7 million for the nine
months ended September 30, 2003. 20




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Other income, which represents interest income and other gains and losses, was
$0.2 million for the nine months ended September 30, 2004 as compared to $0.5
million for the nine months ended September 30, 2003. Direct Expenses Direct expenses for the nine months ended September 30, 2004
were $179.1 million, compared to $170.8 million for the comparable period in
2003. This increase was due to the increase in the Air Medical locations,
offset in part by a decrease in Domestic Oil and Gas direct expense, discussed
below. Selling, General, and Administrative Expenses Selling, general, and
administrative expenses for the nine months ended September 30, 2004 were $16.2
million, compared to $14.8 million for the nine months ended September 30,
2003. The increase was due to an increase in the Air Medical segment discussed
below. Interest Expense Interest expense was $15.0 million for both the nine month
periods ended September 30, 2004 and 2003. Income Taxes Income tax expense for the nine months ended September 30, 2004
was $3.3 million, an effective rate of 46%, compared to $0.9 million, an
effective rate of 40%, for the nine months ended September 30, 2003. Included
in the tax provision for the nine months is $0.4 million related to foreign
taxes paid for which the Company cannot take a credit for U.S. tax purposes due
to the availability of net operating losses for tax purposes. Such operating
loss carryforwards arose from depreciation expense deductions as a result of
the aircraft purchased in 2002 and 2003. Earnings The Companys net earnings for the nine months ended September 30,
2004 was $3.8 million, compared to $1.4 million for the nine months ended
September 30, 2003. Earnings before tax for the nine months ended September
30, 2004 was $7.0 million, compared to $2.3 million for the nine months ended
September 30, 2003. Earnings per diluted share for the nine months ended
September 30, 2004 was $0.69 as compared to earnings per diluted share of $0.25
for the nine months ended September 30, 2003. Segment Discussion Domestic Oil and Gas Domestic Oil and Gas segment revenues were $133.7
million for the nine months ended September 30, 2004, compared to $138.1
million for the nine months ended September 30, 2003. The decrease in
operating revenues was due to a decrease in flight hour activity as mentioned
in the quarter discussion. Flight hours were 75,826 for the nine months ended
September 30, 2004, compared to 88,357 for the nine months ended September 30,
2003. Direct expense in the Domestic Oil and Gas segment was $111.4 million for the
nine months ended September 30, 2004, compared to $122.4 million for the nine
months ended September 30, 2003. The decrease of $11.0 million in direct
expense was a result of a decrease in employee cost ($2.8 million) due to a
decrease in headcount and also due to a severance charge ($2.1 million)
recorded in the in the prior period as previously discussed, a decrease in
aircraft parts usage due to fewer flight hours ($2.0 million), a decrease in
aircraft parts warranty costs due to the termination of certain manufacturer
parts support agreements ($2.1 million of recurring costs and $3.2 million
credit related to the termination of the agreement), a decrease in insurance
costs ($1.3 million) due to additional insurance premiums recorded in the third
quarter of 2003 related to loss experience offset in part by insurance premium
increases in the current year, an increase in occupancy and supplies cost ($1.2
million) due primarily to increases in general shop supplies ($0.5 million),
and sales and use tax ($0.6 million due primarily to a sales tax refund
recorded in 2003), and increases in fuel cost ($0.5 million) and in other
items, net ($0.8 million). Selling, general and administrative expense charged to the Domestic Oil and Gas
segment was $1.4 million for the nine months ended September 30, 2004, compared
to $1.8 million for the nine months 21




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ended September 30, 2003. This decrease was due to a reduction in supplies and
miscellaneous services incurred at the operating bases. Domestic Oil and Gas segment operating income was $20.9 million for the nine
months ended September 30, 2004, compared to $13.9 million for the nine months
ended September 30, 2003. The increase in operating income was due to the
decrease in direct expenses. Air Medical Air Medical segment revenues were $55.9 million for the nine
months ended September 30, 2004, compared to $34.8 million for the same period
in the prior year. The additional Air Medical operations added since October
2003, as previously discussed, accounted for this increase. Flight hours in
this segment were 14,505 for the nine months ended September 30, 2004 as
compared to 8,305 for the nine months ended September 30, 2003. Direct expense for the nine months ended September 30, 2004 was $46.6 million
compared to $23.3 million for the nine months ended September 30, 2003. The
increase was due to the increased operating locations and consisted of an
increase in employee cost ($14.4 million) as 367 employees were added,
additional depreciation expense ($2.5 million) as additional aircraft were
added, additional operating base rent and associated supplies ($2.8 million),
additional insurance expense due to additional aircraft ($0.7 million),
increased fuel cost ($1.0 million), increased aircraft parts usage ($0.7
million), and an increase in other expense, net, ($1.2 million). Selling, general and administrative expense was $5.6 million for the nine
months ended September 30, 2004, compared to $2.8 million for the nine months
ended September 30, 2003. This increase is described in the quarter
discussion. Air Medical segment operating income was $3.8 million for the nine months ended
September 30, 2004, compared to $8.7 million for the nine months ended
September 30, 2003. The decrease was due to the costs associated with the
start up of the additional Air Medical operations and additional management and
supervisory staff as mentioned above. International International segment revenues were $16.9 million for the nine
months ended September 30, 2004, compared to $14.7 million for the nine months
ended September 30, 2003. The increase was due to an increase in rates and
flight hour activity in 2004. Flight hours for the nine months ended September
30, 2004 were 11,384 as compared to 10,567 for the nine months ended September
30, 2003. Direct expense for the nine months ended September 30, 2004 was $13.8 million
compared to $15.3 million for the nine months ended September 30, 2003. The
decrease was due to a decrease in aircraft component repairs. Selling, general and administrative expense was approximately $0.1 million for
both nine month periods. The International segment had operating income of $3.1 million for the nine
months ended September 30, 2004, compared to an operating loss of $0.7 million
for the nine months ended September 30, 2003. The increase in operating
revenues combined with the decrease in direct expense account for this change. Technical Services The Technical Services segment operating revenues for the
nine months ended September 30, 2004 were $8.4 million, compared to $13.0
million in the comparable period in the prior year. The decrease was due to
completion of the contract mentioned in the quarter discussion. Operating
revenues from this contract were $7.4 million for the nine months. Direct expense was $7.3 million for the nine months ended September 30, 2004 as
compared to $9.8 million for the nine months ended September 30, 2003. The
decrease in direct expense was also due to the decrease in activity as
mentioned above. 22




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Selling, general and administrative expense was less than $0.1 million for both
nine month periods. The Technical Services segment had operating income of $1.0 million for the
nine months ended September 30, 2004, compared to $3.3 million for the nine
months ended September 30, 2003. This decrease in operating income was due to
the decreased operating revenues as a result of decreased activity. Liquidity and Capital Resources The Companys cash position at September 30, 2004 was $24.5 million, compared
to $19.9 million at December 31, 2003. Working capital was $83.1 million at
September 30, 2004, as compared to $70.3 million at December 31, 2003, an
increase of $12.8 million. The increase in working capital is due to the
increase in accounts receivable related to the increased Air Medical operating
locations. Net cash provided by operating activities was $15.6 million for the nine months
ended September 30, 2004, compared to $18.8 million for the nine months ended
September 30, 2003. The decrease in cash provided by operating activities was
due to the increased accounts receivable related to the additional Air Medical
locations. Capital expenditures were $27.2 million and gross proceeds of
aircraft and other sales were $11.3 million for the nine months ended September
30, 2004, compared to capital expenditures of $23.4 million and gross proceeds
of aircraft and other sales was $4.0 million for the nine months ended
September 30, 2003. Capital expenditures primarily involve purchases, renewals
and capability upgrades of aircraft. On April 23, 2002, the Company issued $200 million in principal amount of 9
3/8% Series A Senior Notes due 2009 in a private offering that was exempt from
registration under Rule 144A under the Securities Act of 1933 (the Securities
Act). All of the notes were subsequently exchanged for the Companys 9 3/8%
Series B Senior Notes due 2009 (the Series B Senior Notes), pursuant to an
exchange offer that was registered under the Securities Act. The Series B
Senior Notes bear annual interest at 9 3/8% payable semi-annually on May 1 and
November 1 of each year and mature in May 2009. The Series B Senior Notes
contain restrictive covenants, including limitations on indebtedness, liens,
dividends, repurchases of capital stock and other payments affecting restricted
subsidiaries, issuance and sales of restricted subsidiary stock, dispositions
of proceeds of asset sales, and mergers and consolidations or sales of assets.
As of September 30, 2004, the Company was in compliance with these covenants. On June 18, 2004, the Company amended its $50 million revolving credit facility
with a commercial bank, which was scheduled to expire July 31, 2004. The
amendment reduced the revolving credit facility from $50 million to $35
million, and extended the expiration date to July 31, 2006. As of September
30, 2004, the Company had borrowings of $4.9 million at an interest rate of
4.5% and $1.4 million in letters of credit outstanding under the revolving
credit facility. The credit agreement includes covenants related to working
capital, funded debt to net worth, and consolidated net worth. As of September
30, 2004, the Company was in compliance with these covenants. The Company believes that cash flow from operations will be sufficient to fund
required working capital needs, interest payments on the Series B Senior Notes
and capital expenditures for the next twelve months. On November 1, 2004, the Company paid $9.4 million in interest on the Series B
Senior Notes. Annual interest payments are approximately $19.0 million. In addition to the above obligations, the Company has entered into a 10-year
operating lease with annual lease payments of approximately $1.4 million for
one transport category aircraft, which was delivered in September 2004. A
second aircraft is expected to be delivered in November 2004 and the remaining
two 23




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aircraft will be delivered in 2005. The Company also intends to execute an
operating lease upon delivery of the remaining aircraft on terms
similar to the first two aircraft. Environmental Matters The Company has an aggregate estimated liability of $0.3 million as of
September 30, 2004 for environmental remediation costs that are probable and
estimable. During the quarter, the Company received closure notifications or
No Further Action notices from regulatory agencies with respect to three
sites. Those actions resulted in a reduction in the estimated environmental
liability of $0.3 million. The remaining environmental liability is related to
the previous Lafayette facility vacated in 2001. In addition, the Company has conducted environmental surveys of the Lafayette
facility that it vacated in 2001, and has determined that contamination exists
at that facility. Appropriate notices of the contamination have been provided
to state regulatory authorities. To date, borings have been installed to
determine the type and extent of contamination. Preliminary results indicate
limited soil and groundwater impacts. Once the extent and type of
contamination are fully defined, a risk evaluation in accordance with the
Louisiana Risk Evaluation/Corrective Action Plan (RECAP) standard will be
submitted and evaluated by Louisiana Department of Environmental Quality
(LDEQ). At that point, LDEQ will establish what cleanup standards must be
met at the site. When the process is complete, the Company will be in a
position to develop the appropriate remediation plan and estimate the resulting
cost of remediation. The Company has not recorded any estimated liability for
remediation of contamination but, based on preliminary surveys and ongoing
monitoring, the Company believes the ultimate remediation costs will not be
material to the Companys consolidated financial position and results of
operations. New Accounting Pronouncements For a discussion of new accounting pronouncements applicable to the Company,
see Note 6 to the Financial Statements. 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market value of the Companys Series B Senior Notes will vary as changes
occur to general market interest rates, the remaining maturity of the notes,
and the Companys credit worthiness. At September 30, 2004, the market value
of the notes was approximately $216.0 million. 
 Item 4. CONTROLS AND PROCEDURES The Companys Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Companys disclosure controls and procedures
(as is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 (the Exchange Act)) as of the end of the period covered by this
quarterly report (the Evaluation Date). Based on such evaluation, such
officers have concluded that, as of the Evaluation Date, the Companys
disclosure controls and procedures are effective. Since the Evaluation Date, there have not been any significant changes in the
Companys internal controls or in other factors that could significantly affect
such controls. 24




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PART II  OTHER INFORMATION 
 Item 1. LEGAL PROCEEDINGS The Company is named as a defendant in various legal actions that have arisen
in the ordinary course of its business and have not been finally adjudicated.
The amount, if any, of ultimate liability with respect to such matters cannot
be determined. In the opinion of management, the amount of the ultimate
liability with respect to these actions is for the most part covered by
insurance, and the uninsured claims will not have a material adverse effect on
the Companys consolidated financial statements. 
 Item 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    Exhibits 3.1 (i)
    
    Articles of Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1 (i) to PHIs Report on Form 10-Q for the quarterly
period ended October 31, 1994).(ii)
    
    By-laws of the Company as amended (incorporated by reference to Exhibit No. 3.1 (ii) to PHIs Report on Form 10-Q for the quarterly period
ended March 31, 2002).4.1
    
    Indenture dated April 23, 2002 among Petroleum Helicopters, Inc.,
the Subsidiary Guarantors named therein and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.1 to PHIs Registration
Statement on Form S-4, filed on April 30, 2002, File Nos. 333-87288
through 333-87288-08).4.2
    
    Form of 9 3/8% Senior Note (incorporated by reference to Exhibit A
of Exhibit 4.1 to PHIs Registration Statement on Form S-4, filed on
April 30, 2002, File Nos. 333-87288 through 333-87288-08).10.1
    
    Loan Agreement dated as of April 23, 2002 by and among Petroleum
Helicopters, Inc., Air Evac Services, Inc. Evangeline Airmotive, Inc.
and International Helicopter Transport, Inc. and Whitney National Bank
(incorporated by reference to Exhibit 10.3 to PHIs Report on Form 10-Q
for the quarterly period ended September 30, 2002).10.2
    
    First Amendment dated June 18, 2004, to Loan Agreement dated as of
April 23, 2002 by and among Petroleum Helicopters, Inc., Air Evac
Services, Inc. Evangeline Airmotive, Inc. and International Helicopter
Transport, Inc. and Whitney National Bank (incorporated by reference to
Exhibit 10.4 to PHIs Report on Form 10-Q for the quarterly period
ended June 30, 2004.31.1
    
    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.
 25




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(b)
    
    Reports on Form 8-K
On August 10, 2004, the Company filed a Form 8-K, reporting in Item 5 the
Companys earnings for the second quarter ended June 30, 2004.
 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Petroleum Helicopters, Inc.November 9, 2004
    
    By: /s/ Al A. GonsoulinAl A. GonsoulinChairman and Chief Executive OfficerNovember 9, 2004
    
    By: /s/ Michael J. McCannMichael J. McCannChief Financial Officer and Treasurer
 26