##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended: June 30, 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 Thruway 
Lafayette, 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 July 30, 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  June 30, 2010
and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations  Quarter
and Six Months ended June 30, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Shareholders Equity 
Six months ended June 30, 2010 and 2009
    
    
    5Condensed Consolidated Statements of Cash Flows  Six Months
ended June 30, 2010 and 2009
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    32Part II  Other InformationItem 1. Legal Proceedings
    
    
    33Item 1.A. Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. (Removed and Reserved)
    
    
    34Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    34Signatures
    
    
    35EX-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)
 June 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    2,684
    
    
    $
    2,501Short-term investments
    
    
    76,141
    
    
    
    75,138Accounts receivable  netTrade
    
    
    100,069
    
    
    
    90,518Other
    
    
    4,087
    
    
    
    3,885Inventories of spare parts  net
    
    
    59,548
    
    
    
    61,501Other current assets
    
    
    12,892
    
    
    
    11,018Income taxes receivable
    
    
    610
    
    
    
    740Total current assets
    
    
    256,031
    
    
    
    245,301Other
    
    
    9,378
    
    
    
    11,669Property and equipment  net
    
    
    567,998
    
    
    
    548,536Total assets
    
    $
    833,407
    
    
    $
    805,506LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    15,947
    
    
    $
    14,935Accrued liabilities
    
    
    26,574
    
    
    
    23,342Total current liabilities
    
    
    42,521
    
    
    
    38,277Long-term debt
    
    
    224,787
    
    
    
    218,305Deferred income taxes
    
    
    80,508
    
    
    
    73,409Other long-term liabilities
    
    
    9,071
    
    
    
    10,067Total liabilities
    
    
    356,887
    
    
    
    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
    
    
    (26
    )
    
    
    (13
    )Retained earnings
    
    
    183,612
    
    
    
    172,527Total shareholders equity
    
    
    476,520
    
    
    
    465,448Total liabilities and shareholders equity
    
    $
    833,407
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Operating revenues, net
    
    $
    139,597
    
    
    $
    123,321
    
    
    $
    261,206
    
    
    $
    240,273Gain (loss) on dispositions of
assets, net
    
    
    117
    
    
    
    (107
    )
    
    
    123
    
    
    
    165Other, principally interest income
    
    
    5
    
    
    
    65
    
    
    
    36
    
    
    
    128139,719
    
    
    
    123,279
    
    
    
    261,365
    
    
    
    240,566Expenses:Direct expenses
    
    
    116,101
    
    
    
    104,912
    
    
    
    220,308
    
    
    
    207,039Selling, general and
administrative expenses
    
    
    7,678
    
    
    
    8,218
    
    
    
    14,403
    
    
    
    16,042Interest expense
    
    
    4,183
    
    
    
    4,039
    
    
    
    8,179
    
    
    
    7,918127,962
    
    
    
    117,169
    
    
    
    242,890
    
    
    
    230,999Earnings before income taxes
    
    
    11,757
    
    
    
    6,110
    
    
    
    18,475
    
    
    
    9,567Income tax expense
    
    
    4,703
    
    
    
    2,444
    
    
    
    7,390
    
    
    
    3,826Net earnings
    
    $
    7,054
    
    
    $
    3,666
    
    
    $
    11,085
    
    
    $
    5,741Weighted average shares
outstanding:Basic
    
    
    15,312
    
    
    
    15,303
    
    
    
    15,312
    
    
    
    15,302Diluted
    
    
    15,312
    
    
    
    15,307
    
    
    
    15,312
    
    
    
    15,305Net earnings per share:Basic
    
    $
    0.46
    
    
    $
    0.24
    
    
    $
    0.72
    
    
    $
    0.38Diluted
    
    $
    0.46
    
    
    $
    0.24
    
    
    $
    0.72
    
    
    $
    0.38
  4




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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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,085
    
    
    
    11,085Changes in pension plan assets and
benefit obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Total comprehensive income,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,072Balance at June 30, 2010
    
    
    2,853
    
    
    $
    285
    
    
    
    12,459
    
    
    $
    1,246
    
    
    $
    291,403
    
    
    $
    (26
    )
    
    $
    183,612
    
    
    $
    476,520
 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,741
    
    
    
    5,741Changes in pension plan assets and
benefit obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    
    
    
    
    (59
    )Total comprehensive income,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,682Stock options exercised
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    1
    
    
    
    141
    
    
    
    
    
    
    
    
    
    
    
    142Balance at June 30, 2009
    
    
    2,853
    
    
    $
    285
    
    
    
    12,459
    
    
    $
    1,246
    
    
    $
    291,403
    
    
    $
    (14
    )
    
    $
    165,300
    
    
    $
    458,220
  5




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
 Six Months EndedJune 30,2010
    
    
    2009Operating activities:Net earnings
    
    $
    11,085
    
    
    $
    5,741Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation
    
    
    13,442
    
    
    
    13,901Deferred income taxes
    
    
    7,099
    
    
    
    3,463Gain on asset dispositions, net
    
    
    (123
    )
    
    
    (165
    )Other
    
    
    577
    
    
    
    464Changes in operating assets and liabilities
    
    
    (4,607
    )
    
    
    (3,336
    )Net cash provided by operating activities
    
    
    27,473
    
    
    
    20,068Investing activities:Purchase of property and equipment
    
    
    (33,932
    )
    
    
    (27,693
    )Proceeds from asset dispositions
    
    
    1,164
    
    
    
    8,897Purchase of short-term investments
    
    
    (1,004
    )
    
    
    (31,639
    )Proceeds from sale of short-term investments
    
    
    
    
    
    
    14,687Deposits on aircraft
    
    
    
    
    
    
    7,600Net cash used in investing activities
    
    
    (33,772
    )
    
    
    (28,148
    )Financing activities:Proceeds from line of credit
    
    
    32,000
    
    
    
    10,350Payment on line of credit
    
    
    (25,518
    )
    
    
    Net cash provided by financing activities
    
    
    6,482
    
    
    
    10,350Increase in cash and cash equivalents
    
    
    183
    
    
    
    2,270Cash and cash equivalents, beginning of period
    
    
    2,501
    
    
    
    1,159Cash and cash equivalents, end of period
    
    $
    2,684
    
    
    $
    3,429Supplemental Disclosures Cash Flow InformationInterest paid
    
    $
    7,422
    
    
    $
    7,424Income taxes paid
    
    $
    607
    
    
    $
    763Accrued payables related to purchase of property and
equipment
    
    $
    21
    
    
    $
    237
  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
    
    
    Six Months Ended
    
    
    EndedJune 30,
    
    
    June 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2009Gross billings
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Provision for contractual discounts
    
    
    53
    %
    
    
    53
    %
    
    
    54
    %
    
    
    53
    %
    
    
    52
    %Provision for uncompensated care
    
    
    10
    %
    
    
    10
    %
    
    
    9
    %
    
    
    9
    %
    
    
    11
    %
   Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Medicaid
    
    
    15
    %
    
    
    13
    %
    
    
    16
    %
    
    
    13
    %Medicare
    
    
    21
    %
    
    
    16
    %
    
    
    21
    %
    
    
    18
    %Insurance
    
    
    63
    %
    
    
    67
    %
    
    
    62
    %
    
    
    66
    %Self-Pay
    
    
    1
    %
    
    
    4
    %
    
    
    1
    %
    
    
    3
    %
  8




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##### Table of Contents



Technical Services Segment.
  9




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##### Table of Contents



Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Thousands of dollars)
    
    
    (Thousands of dollars)Segment operating revenuesOil and Gas
    
    $
    94,734
    
    
    $
    78,970
    
    
    $
    179,674
    
    
    $
    153,795Air Medical
    
    
    43,101
    
    
    
    42,628
    
    
    
    76,670
    
    
    
    81,721Technical Services
    
    
    1,762
    
    
    
    1,723
    
    
    
    4,862
    
    
    
    4,757Total operating revenues
    
    
    139,597
    
    
    
    123,321
    
    
    
    261,206
    
    
    
    240,273Segment direct expenses (1)Oil and Gas
    
    
    75,845
    
    
    
    64,963
    
    
    
    146,098
    
    
    
    126,247Air Medical
    
    
    38,385
    
    
    
    38,620
    
    
    
    70,011
    
    
    
    77,498Technical Services
    
    
    1,871
    
    
    
    1,329
    
    
    
    4,199
    
    
    
    3,294Total direct expenses
    
    
    116,101
    
    
    
    104,912
    
    
    
    220,308
    
    
    
    207,039Segment selling, general and administrative expensesOil and Gas
    
    
    157
    
    
    
    319
    
    
    
    424
    
    
    
    706Air Medical
    
    
    1,004
    
    
    
    1,619
    
    
    
    2,299
    
    
    
    3,108Technical Services
    
    
    7
    
    
    
    3
    
    
    
    14
    
    
    
    17Total selling, general and administrative expenses
    
    
    1,168
    
    
    
    1,941
    
    
    
    2,737
    
    
    
    3,831Total direct and selling, general and administrative expenses
    
    
    117,269
    
    
    
    106,853
    
    
    
    223,045
    
    
    
    210,870Net segment profitOil and Gas
    
    
    18,732
    
    
    
    13,688
    
    
    
    33,152
    
    
    
    26,842Air Medical
    
    
    3,712
    
    
    
    2,389
    
    
    
    4,360
    
    
    
    1,115Technical Services
    
    
    (116
    )
    
    
    391
    
    
    
    649
    
    
    
    1,446Total
    
    
    22,328
    
    
    
    16,468
    
    
    
    38,161
    
    
    
    29,403Other, net (2)
    
    
    122
    
    
    
    (42
    )
    
    
    159
    
    
    
    293Unallocated selling, general and administrative costs (1)
    
    
    (6,510
    )
    
    
    (6,277
    )
    
    
    (11,666
    )
    
    
    (12,211
    )Interest expense
    
    
    (4,183
    )
    
    
    (4,039
    )
    
    
    (8,179
    )
    
    
    (7,918
    )Earnings before income taxes
    
    $
    11,757
    
    
    $
    6,110
    
    
    $
    18,475
    
    
    $
    9,567
 
 (1)
    
    Included in direct expenses and unallocated selling, general, and administrative costs are
the depreciation expense amounts below: Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Oil and Gas
    
    $
    4,452
    
    
    $
    4,107
    
    
    $
    8,692
    
    
    $
    8,350Air Medical
    
    
    1,962
    
    
    
    1,969
    
    
    
    3,951
    
    
    
    3,954Technical Services
    
    
    18
    
    
    
    11
    
    
    
    145
    
    
    
    111Total
    
    $
    6,432
    
    
    $
    6,087
    
    
    $
    12,788
    
    
    $
    12,415Unallocated SG&A
    
    $
    321
    
    
    $
    735
    
    
    $
    654
    
    
    $
    1,486
 
 (2)
    
    Consists of gains (losses) on disposition of property and equipment, and other income. 10




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3. Commitments and Contingencies
 Environmental Matters 
 Legal Matters
  Superior Offshore International Inc. v. Bristow Group Inc., ERA Helicopters, LLC, Seacor Holdings
Inc., ERA Group Inc., ERA Aviation, Inc., and PHI, Inc.,
 11




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##### Table of Contents



Operating Leases
   4. Long-term Debt
  - - -
  12




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##### Table of Contents



5. Valuation Accounts
    June 30,
    
    
    December 31,2010
    
    
    2009Gross Accounts Receivable
    
    
    100
    %
    
    
    100
    %Allowance for Contractual Discounts
    
    
    39
    %
    
    
    34
    %Allowance for Uncompensated Care
    
    
    29
    %
    
    
    30
    %
  6. Employees
 Employee Incentive Compensation 
  7. Fair Value Measurements
  13




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##### Table of Contents



June 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
    
    $
    76,141
    
    
    $
    75,138Investments included in other assets
    
    
    3,197
    
    
    
    4,239Total
    
    $
    79,338
    
    
    $
    79,377
  8. Recent Accounting Pronouncements
  9. Shareholders Equity
  10. Condensed Consolidating Financial Information
   14




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
 June 30, 2010ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,718
    
    
    $
    966
    
    
    $
    
    
    
    $
    2,684Short-term investments
    
    
    76,141
    
    
    
    
    
    
    
    
    
    
    
    76,141Accounts receivable  net
    
    
    94,295
    
    
    
    9,861
    
    
    
    
    
    
    
    104,156Intercompany receivable
    
    
    
    
    
    
    76,990
    
    
    
    (76,990
    )
    
    
    Inventories of spare parts  net
    
    
    59,548
    
    
    
    
    
    
    
    
    
    
    
    59,548Other current assets
    
    
    12,875
    
    
    
    17
    
    
    
    
    
    
    
    12,892Income taxes receivable
    
    
    610
    
    
    
    
    
    
    
    
    
    
    
    610Total current assets
    
    
    245,187
    
    
    
    87,834
    
    
    
    (76,990
    )
    
    
    256,031Investment in subsidiaries
    
    
    74,186
    
    
    
    
    
    
    
    (74,186
    )
    
    
    Other assets
    
    
    9,352
    
    
    
    26
    
    
    
    
    
    
    
    9,378Property and equipment  net
    
    
    556,286
    
    
    
    11,712
    
    
    
    
    
    
    
    567,998Total assets
    
    $
    885,011
    
    
    $
    99,572
    
    
    $
    (151,176
    )
    
    $
    833,407LIABILITIES AND
SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    15,195
    
    
    $
    752
    
    
    $
    
    
    
    $
    15,947Accrued liabilities
    
    
    21,615
    
    
    
    4,959
    
    
    
    
    
    
    
    26,574Intercompany payable
    
    
    76,990
    
    
    
    
    
    
    
    (76,990
    )
    
    
    Total current liabilities
    
    
    113,800
    
    
    
    5,711
    
    
    
    (76,990
    )
    
    
    42,521Long-term debt
    
    
    224,787
    
    
    
    
    
    
    
    
    
    
    
    224,787Deferred income taxes and other long-term
liabilities
    
    
    69,904
    
    
    
    19,675
    
    
    
    
    
    
    
    89,579Shareholders Equity:Common stock and paid-in capital
    
    
    292,934
    
    
    
    2,674
    
    
    
    (2,674
    )
    
    
    292,934Accumulated other comprehensive loss
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    (26
    )Retained earnings
    
    
    183,612
    
    
    
    71,512
    
    
    
    (71,512
    )
    
    
    183,612Total shareholders equity
    
    
    476,520
    
    
    
    74,186
    
    
    
    (74,186
    )
    
    
    476,520Total liabilities and
shareholders equity
    
    $
    885,011
    
    
    $
    99,572
    
    
    $
    (151,176
    )
    
    $
    833,407
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 15




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING 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. 16




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)
(Unaudited)
 For the quarter ended June 30, 2010ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues, net
    
    $
    123,442
    
    
    $
    16,155
    
    
    $
    
    
    
    $
    139,597Management fees
    
    
    647
    
    
    
    
    
    
    
    (647
    )
    
    
    Gain on dispositions of assets, net
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    117Other, principally interest income
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5124,211
    
    
    
    16,155
    
    
    
    (647
    )
    
    
    139,719Expenses:Direct expenses
    
    
    102,422
    
    
    
    13,679
    
    
    
    
    
    
    
    116,101Management fees
    
    
    
    
    
    
    647
    
    
    
    (647
    )
    
    
    Selling, general and administrative
expenses
    
    
    7,357
    
    
    
    321
    
    
    
    
    
    
    
    7,678Equity in net income of consolidated
subsidiaries
    
    
    (905
    )
    
    
    
    
    
    
    905
    
    
    
    Interest expense
    
    
    4,183
    
    
    
    
    
    
    
    
    
    
    
    4,183113,057
    
    
    
    14,647
    
    
    
    258
    
    
    
    127,962Earnings before income taxes
    
    
    11,154
    
    
    
    1,508
    
    
    
    (905
    )
    
    
    11,757Income tax expense
    
    
    4,100
    
    
    
    603
    
    
    
    
    
    
    
    4,703Net earnings
    
    $
    7,054
    
    
    $
    905
    
    
    $
    (905
    )
    
    $
    7,054
 For the quarter ended June 30, 2009ParentCompany
    
    
    Guarantor
    
    
    Non-GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues, net
    
    $
    105,519
    
    
    $
    17,796
    
    
    $
    6
    
    
    $
    
    
    
    $
    123,321Management fees
    
    
    712
    
    
    
    
    
    
    
    
    
    
    
    (712
    )
    
    
    Loss on dispositions of assets, net
    
    
    (107
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107
    )Other, principally interest income
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65106,189
    
    
    
    17,796
    
    
    
    6
    
    
    
    (712
    )
    
    
    123,279Expenses:
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    Direct expenses
    
    
    92,177
    
    
    
    12,735
    
    
    
    
    
    
    
    
    
    
    
    104,912Management fees
    
    
    
    
    
    
    712
    
    
    
    
    
    
    
    (712
    )
    
    
    Selling,
general and administrative expenses
    
    
    7,786
    
    
    
    399
    
    
    
    33
    
    
    
    
    
    
    
    8,218Equity in
net income of consolidated subsidiaries
    
    
    (2,354
    )
    
    
    
    
    
    
    
    
    
    
    2,354
    
    
    
    Interest expense
    
    
    4,039
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,039101,648
    
    
    
    13,846
    
    
    
    33
    
    
    
    1,642
    
    
    
    117,169Earnings before income taxes
    
    
    4,541
    
    
    
    3,950
    
    
    
    (27
    )
    
    
    (2,354
    )
    
    
    6,110Income tax expense
    
    
    875
    
    
    
    1,580
    
    
    
    (11
    )
    
    
    
    
    
    
    2,444Net earnings
    
    $
    3,666
    
    
    $
    2,370
    
    
    $
    (16
    )
    
    $
    (2,354
    )
    
    $
    3,666
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 17




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)
(Unaudited)
 For the six months ended June 30, 2010ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues, net
    
    $
    227,492
    
    
    $
    33,714
    
    
    $
    
    
    
    $
    261,206Management fees
    
    
    1,349
    
    
    
    
    
    
    
    (1,349
    )
    
    
    Gain on dispositions of assets, net
    
    
    123
    
    
    
    
    
    
    
    
    
    
    
    123Other, principally interest income
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36229,000
    
    
    
    33,714
    
    
    
    (1,349
    )
    
    
    261,365Expenses:Direct expenses
    
    
    193,534
    
    
    
    26,774
    
    
    
    
    
    
    
    220,308Management fees
    
    
    
    
    
    
    1,349
    
    
    
    (1,349
    )
    
    
    Selling, general and administrative
expenses
    
    
    13,637
    
    
    
    766
    
    
    
    
    
    
    
    14,403Equity in net income of consolidated
subsidiaries
    
    
    (2,895
    )
    
    
    
    
    
    
    2,895
    
    
    
    Interest expense
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    8,179212,455
    
    
    
    28,889
    
    
    
    1,546
    
    
    
    242,890Earnings before income taxes
    
    
    16,545
    
    
    
    4,825
    
    
    
    (2,895
    )
    
    
    18,475Income tax expense
    
    
    5,460
    
    
    
    1,930
    
    
    
    
    
    
    
    7,390Net earnings
    
    $
    11,085
    
    
    $
    2,895
    
    
    $
    (2,895
    )
    
    $
    11,085
 For the six months ended June 30, 2009ParentCompany
    
    
    Guarantor
    
    
    Non-GuarantorOnly
    
    
    Subsidiaries (1)
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues, net
    
    $
    205,733
    
    
    $
    34,514
    
    
    $
    26
    
    
    $
    
    
    
    $
    240,273Management fees
    
    
    1,382
    
    
    
    
    
    
    
    
    
    
    
    (1,382
    )
    
    
    Gain on dispositions of assets, net
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165Other, principally interest income
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128207,408
    
    
    
    34,514
    
    
    
    26
    
    
    
    (1,382
    )
    
    
    240,566Expenses:Direct expenses
    
    
    179,756
    
    
    
    27,283
    
    
    
    
    
    
    
    
    
    
    
    207,039Management fees
    
    
    
    
    
    
    1,381
    
    
    
    1
    
    
    
    (1,382
    )
    
    
    Selling,
general and administrative expenses
    
    
    14,997
    
    
    
    984
    
    
    
    61
    
    
    
    
    
    
    
    16,042Equity in
net income of consolidated subsidiaries
    
    
    (2,898
    )
    
    
    
    
    
    
    
    
    
    
    2,898
    
    
    
    Interest expense
    
    
    7,918
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,918199,773
    
    
    
    29,648
    
    
    
    62
    
    
    
    1,516
    
    
    
    230,999Earnings before income taxes
    
    
    7,635
    
    
    
    4,866
    
    
    
    (36
    )
    
    
    (2,898
    )
    
    
    9,567Income tax expense
    
    
    1,894
    
    
    
    1,946
    
    
    
    (14
    )
    
    
    
    
    
    
    3,826Net earnings
    
    $
    5,741
    
    
    $
    2,920
    
    
    $
    (22
    )
    
    $
    (2,898
    )
    
    $
    5,741
 
 (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 CASH FLOWS

(Thousands of dollars)
(Unaudited)
 For the six months ended June 30, 2010ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    25,786
    
    
    $
    1,687
    
    
    $
    
    
    
    $
    27,473Investing activities:Purchase of property and equipment
    
    
    (32,388
    )
    
    
    (1,544
    )
    
    
    
    
    
    
    (33,932
    )Proceeds from asset dispositions
    
    
    1,164
    
    
    
    
    
    
    
    
    
    
    
    1,164Purchase of short-term investments, net
    
    
    (1,004
    )
    
    
    
    
    
    
    
    
    
    
    (1,004
    )Net cash used in investing activities
    
    
    (32,228
    )
    
    
    (1,544
    )
    
    
    
    
    
    
    (33,772
    )Financing activities:Proceeds from line of credit, net
    
    
    6,482
    
    
    
    
    
    
    
    
    
    
    
    6,482Net cash provided by financing activities
    
    
    6,482
    
    
    
    
    
    
    
    
    
    
    
    6,482Increase in cash and cash equivalents
    
    
    40
    
    
    
    143
    
    
    
    
    
    
    
    183Cash and cash equivalents, beginning of
period
    
    
    1,678
    
    
    
    823
    
    
    
    
    
    
    
    2,501Cash and cash equivalents, end of period
    
    $
    1,718
    
    
    $
    966
    
    
    $
    
    
    
    $
    2,684
 For the six months ended June 30, 2009ParentCompany
    
    
    Guarantor
    
    
    Non-GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    15,992
    
    
    $
    1,673
    
    
    $
    2,403
    
    
    $
    
    
    
    $
    20,068Investing activities:Purchase of property and equipment
    
    
    (26,047
    )
    
    
    (1,646
    )
    
    
    
    
    
    
    
    
    
    
    (27,693
    )Proceeds from asset dispositions
    
    
    8,897
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,897Purchase of short-term investments, net
    
    
    (16,952
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,952
    )Deposits on aircraft
    
    
    7,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,600Net cash used in investing activities
    
    
    (26,502
    )
    
    
    (1,646
    )
    
    
    
    
    
    
    
    
    
    
    (28,148
    )Financing activities:Proceeds from line of credit
    
    
    10,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,350Net cash provided by financing activities
    
    
    10,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,350(Decrease) increase in cash and cash
equivalents
    
    
    (160
    )
    
    
    27
    
    
    
    2,403
    
    
    
    
    
    
    
    2,270Cash and cash equivalents, beginning of
period
    
    
    559
    
    
    
    406
    
    
    
    194
    
    
    
    
    
    
    
    1,159Cash and cash equivalents, end of period
    
    $
    399
    
    
    $
    433
    
    
    $
    2,597
    
    
    $
    
    
    
    $
    3,429
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the
guarantors subsidiaries amounts. 19




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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
   20




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21




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22




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Operating Statistics
  Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Flight hours:Oil and Gas
    
    
    31,142
    
    
    
    30,241
    
    
    
    58,178
    
    
    
    56,721Air Medical (1)
    
    
    9,116
    
    
    
    9,005
    
    
    
    16,207
    
    
    
    17,211Technical Services
    
    
    
    
    
    
    
    
    
    
    485
    
    
    
    378Total
    
    
    40,258
    
    
    
    39,246
    
    
    
    74,870
    
    
    
    74,310Air Medical Transports(2)
    
    
    5,002
    
    
    
    5,345
    
    
    
    8,975
    
    
    
    10,303
 June 30,2010
    
    
    2009Aircraft operated at period end:Oil and Gas (3)
    
    
    164
    
    
    
    158Air Medical (4)
    
    
    85
    
    
    
    89Technical Services
    
    
    4
    
    
    
    4Total (3) (4)
    
    
    253
    
    
    
    251
 
 (1)
    
    Flight hours include 2,273 flight hours associated with hospital-based contracts, compared
to 2,362 flight hours in the prior year quarter, and 4,073 flight hours year-to-date, compared
to 4,233 in the prior year-to-date.(2)
    
    Represents individual patient transports for the period.(3)
    
    Includes nine aircraft as of June 30, 2010 and 2009 that are customer owned.(4)
    
    Includes seven aircraft as of June 30, 2010 and 2009 that are customer owned. Results of Operations
 Quarter Ended June 30, 2010 compared with Quarter Ended June 30, 2009
 Combined Operations
 Revenues
 23




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##### Table of Contents



Other Income and Gains
  Direct Expenses
 Selling, General, and Administrative Expenses
 Interest Expense
 Income Taxes
 Net Earnings
 24




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##### Table of Contents



Segment Discussion
 Oil and Gas
    Air Medical
 25




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##### Table of Contents



Technical Services
 Six Months Ended June 30, 2010 compared with Six Months Ended June 30, 2009
 Combined Operations
 Revenues
 26




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##### Table of Contents



Other Income and Gains
  Direct Expenses
 Selling, General, and Administrative Expenses
 Interest Expense
 Income Taxes
 27




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##### Table of Contents



Net Earnings
 Segment Discussion
 Oil and Gas
    28




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##### Table of Contents



Air Medical
    Technical Services
  29




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Liquidity and Capital Resources
 General
   Cash Flow
     Long Term Debt
  30




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##### Table of Contents



Contractual Obligations
  Payment Due by YearBeyondTotal
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2014(Thousands of dollars)Aircraft lease
obligations
    
    $
    198,004
    
    
    $
    14,612
    
    
    $
    30,290
    
    
    $
    30,957
    
    
    $
    31,322
    
    
    $
    31,322
    
    
    $
    59,501Other lease
obligations
    
    
    16,949
    
    
    
    1,742
    
    
    
    2,998
    
    
    
    2,040
    
    
    
    1,498
    
    
    
    1,313
    
    
    
    7,358Long-term debt
    
    
    224,787
    
    
    
    
    
    
    
    24,787
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    $
    439,740
    
    
    $
    16,354
    
    
    $
    58,075
    
    
    $
    32,997
    
    
    $
    232,820
    
    
    $
    32,635
    
    
    $
    66,859
  New Accounting Pronouncements
  31




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##### Table of Contents



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 Item 4. CONTROLS AND PROCEDURES
   32




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##### Table of Contents



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.
    33




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##### Table of Contents



New and proposed health care legislation and regulation could have a material impact on our
business.
  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 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).
 34




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##### Table of Contents



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
    
    Indenture dated April 12, 2006 among PHI, Inc., the Subsidiary Guarantors named
therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2
to PHIs Report on Form 8-K filed on April 13, 2006).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.August 4, 2010
    By:
    /s/ Al A. GonsoulinAl A. GonsoulinChairman and Chief Executive OfficerAugust 4, 2010
    By:
    /s/ Michael J. McCannMichael J. McCannChief Financial Officer 35