##### 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: March 31, 2011
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from to
 Commission file number: 0-9827
 PHI, Inc.
  Louisiana
    
    72-0395707(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 2001 SE Evangeline ThruwayLafayette, Louisiana
    
    70508(Address of principal executive offices)
    
    (Zip Code)
 (337) 235-2452
 þ o
 o o
  Large accelerated filer: o
    

Accelerated
filer: þ
    
    Non-accelerated filer: o
    
    Smaller reporting company: o(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding at April 29, 2011Voting Common Stock
    
    2,852,616 sharesNon-Voting Common Stock
    
    12,458,992 shares




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##### 



PHI, INC.
 Index  Form 10-Q
 Part I  Financial InformationItem 1. Financial Statements  UnauditedCondensed Consolidated Balance Sheets  March 31, 2011
and December 31, 2010
    
    
    3Condensed Consolidated Statements of Operations  Quarter
ended March 31, 2011 and 2010
    
    
    4Condensed Consolidated Statements of Shareholders Equity 
Quarter ended March 31, 2011 and 2010
    
    
    5Condensed Consolidated Statements of Cash Flows  Quarter
ended March 31, 2011 and 2010
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30Part II  Other InformationItem 1. Legal Proceedings
    
    
    31Item 1.A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. (Removed and Reserved)
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    33EX-10.1EX-10.2EX-10.3EX-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)
 March 31,
    
    
    December 31,2011
    
    
    2010ASSETSCurrent Assets:Cash
    
    $
    10,644
    
    
    $
    3,628Short-term investments
    
    
    120,851
    
    
    
    150,072Accounts receivable  netTrade
    
    
    85,003
    
    
    
    84,768Other
    
    
    3,105
    
    
    
    4,891Inventories of spare parts  net
    
    
    59,632
    
    
    
    59,336Other current assets
    
    
    16,344
    
    
    
    16,233Income taxes receivable
    
    
    553
    
    
    
    558Total current assets
    
    
    296,132
    
    
    
    319,486Other
    
    
    27,876
    
    
    
    29,120Property and equipment  net
    
    
    593,707
    
    
    
    596,533Total assets
    
    $
    917,715
    
    
    $
    945,139LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    20,033
    
    
    $
    22,404Accrued liabilities
    
    
    39,049
    
    
    
    28,319Total current liabilities
    
    
    59,082
    
    
    
    50,723Long-term debt
    
    
    300,000
    
    
    
    331,074Deferred income taxes
    
    
    80,254
    
    
    
    81,988Other long-term liabilities
    
    
    8,563
    
    
    
    8,938Total liabilities
    
    
    447,899
    
    
    
    472,723Commitments and contingencies (Note 3)Shareholders Equity:Voting common stock  par value of $0.10: 12,500,000
shares authorized, 2,852,616 issued and outstanding
    
    
    285
    
    
    
    285Non-voting
common stock  par value of $0.10: 25,000,000 shares authorized, 12,458,992
issued and outstanding
    
    
    1,246
    
    
    
    1,246Additional paid-in capital
    
    
    291,403
    
    
    
    291,403Accumulated other comprehensive loss
    
    
    (91
    )
    
    
    (162
    )Retained earnings
    
    
    176,973
    
    
    
    179,644Total shareholders equity
    
    
    469,816
    
    
    
    472,416Total liabilities and equity
    
    $
    917,715
    
    
    $
    945,139
  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 EndedMarch 31,2011
    
    
    2010Operating revenues, net
    
    $
    119,640
    
    
    $
    121,609Gain on disposition of assets, net
    
    
    146
    
    
    
    Other, principally interest income
    
    
    543
    
    
    
    37120,329
    
    
    
    121,646Expenses:Direct expenses
    
    
    108,206
    
    
    
    104,207Selling,
general and
administrative expenses
    
    
    9,543
    
    
    
    6,725Interest expense
    
    
    7,032
    
    
    
    3,996124,781
    
    
    
    114,928(Loss) earnings before income taxes
    
    
    (4,452
    )
    
    
    6,718Income tax (benefit) expense
    
    
    (1,781
    )
    
    
    2,687Net (loss) earnings
    
    $
    (2,671
    )
    
    $
    4,031Weighted average shares
outstanding:Basic
    
    
    15,312
    
    
    
    15,312Diluted
    
    
    15,312
    
    
    
    15,312Net (loss) earnings per share:Basic
    
    $
    (0.17
    )
    
    $
    0.26Diluted
    
    $
    (0.17
    )
    
    $
    0.26
  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, 2010
    
    
    2,853
    
    
    $
    285
    
    
    
    12,459
    
    
    $
    1,246
    
    
    $
    291,403
    
    
    $
    (162
    )
    
    $
    179,644
    
    
    $
    472,416Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,671
    )
    
    
    (2,671
    )Unrealized gain on short-term
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    71Total comprehensive loss,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,600
    )Balance at March 31, 2011
    
    
    2,853
    
    
    $
    285
    
    
    
    12,459
    
    
    $
    1,246
    
    
    $
    291,403
    
    
    $
    (91
    )
    
    $
    176,973
    
    
    $
    469,816
 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,031
    
    
    
    4,031Changes in pension plan assets and
benefit obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Total comprehensive income
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,023Balance at March 31, 2010
    
    
    2,853
    
    
    $
    285
    
    
    
    12,459
    
    
    $
    1,246
    
    
    $
    291,403
    
    
    $
    (21
    )
    
    $
    176,558
    
    
    $
    469,471
  5




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
 Quarter EndedMarch 31,2011
    
    
    2010Operating activities:Net (loss) earnings
    
    $
    (2,671
    )
    
    $
    4,031Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities:Depreciation
    
    
    7,498
    
    
    
    6,689Deferred income taxes
    
    
    (1,734
    )
    
    
    2,680Gain on asset dispositions
    
    
    (146
    )
    
    
    Other
    
    
    223
    
    
    
    233Changes in operating assets and liabilities
    
    
    11,248
    
    
    
    8,383Net cash provided by operating activities
    
    
    14,418
    
    
    
    22,016Investing activities:Purchase of property and equipment
    
    
    (5,380
    )
    
    
    (5,963
    )Proceeds from asset dispositions
    
    
    449
    
    
    
    Purchase of short-term investments
    
    
    (49,493
    )
    
    
    (1,001
    )Proceeds from sale of short-term investments
    
    
    78,096
    
    
    
    Net cash provided by (used in) investing activities
    
    
    23,672
    
    
    
    (6,964
    )Financing activities:Proceeds from line of credit
    
    
    2,376
    
    
    
    Payments on line of credit
    
    
    (33,450
    )
    
    
    (10,200
    )Net cash used in financing activities
    
    
    (31,074
    )
    
    
    (10,200
    )Increase in cash
    
    
    7,016
    
    
    
    4,852Cash, beginning of period
    
    
    3,628
    
    
    
    2,501Cash, end of period
    
    $
    10,644
    
    
    $
    7,353Supplemental Disclosures Cash Flow InformationCash paid during the period for:Interest
    
    $
    257
    
    
    $
    243Income taxes
    
    $
    12
    
    
    $
    5Noncash investing activities:Accrued payables related to purchase of property and
equipment
    
    $
    144
    
    
    $
    376
  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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RevenueQuarter EndedMarch 31,2011
    
    
    2010Gross billings
    
    
    100
    %
    
    
    100
    %Provision for contractual discounts
    
    
    55
    %
    
    
    55
    %Provision for uncompensated care
    
    
    9
    %
    
    
    8
    %
   Quarter EndedMarch 31,2011
    
    
    2010Medicaid
    
    
    15
    %
    
    
    17
    %Medicare
    
    
    25
    %
    
    
    21
    %Insurance
    
    
    59
    %
    
    
    61
    %Self-Pay
    
    
    1
    %
    
    
    1
    %
  8




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Technical Services Segment.
   Quarter EndedMarch 31,2011
    
    
    2010(Thousands of dollars)Segment operating revenuesOil and Gas
    
    $
    77,481
    
    
    $
    84,940Air Medical
    
    
    38,382
    
    
    
    33,569Technical Services
    
    
    3,777
    
    
    
    3,100Total operating revenues
    
    
    119,640
    
    
    
    121,609Segment direct expenses (1)Oil and Gas
    
    
    69,598
    
    
    
    70,253Air Medical
    
    
    36,627
    
    
    
    31,626Technical Services
    
    
    1,981
    
    
    
    2,328Total direct expenses
    
    
    108,206
    
    
    
    104,207Segment selling, general and administrative expensesOil and Gas
    
    
    882
    
    
    
    267Air Medical
    
    
    931
    
    
    
    1,295Technical Services
    
    
    13
    
    
    
    7Total selling, general and administrative expenses
    
    
    1,826
    
    
    
    1,569Total direct and selling, general and administrative expenses
    
    
    110,032
    
    
    
    105,776Net segment profitOil and Gas
    
    
    7,001
    
    
    
    14,420Air Medical
    
    
    824
    
    
    
    648Technical Services
    
    
    1,783
    
    
    
    765Total net segment profit
    
    
    9,608
    
    
    
    15,833Other, net (2)
    
    
    689
    
    
    
    37Unallocated selling, general and administrative costs (1)
    
    
    (7,717
    )
    
    
    (5,156
    )Interest expense
    
    
    (7,032
    )
    
    
    (3,996
    )(Loss) earnings before income taxes
    
    $
    (4,452
    )
    
    $
    6,718
 
 (1)
    
    Included in direct expenses and unallocated selling, general, and administrative costs
are the depreciation expense amounts below: Quarter EndedMarch 31,2011
    
    
    2010Oil and Gas
    
    $
    4,940
    
    
    $
    4,240Air Medical
    
    
    2,127
    
    
    
    1,989Technical Services
    
    
    97
    
    
    
    127Total
    
    $
    7,164
    
    
    $
    6,356Unallocated SG&A
    
    $
    334
    
    
    $
    333
 
 (2)
    
    Consists of gains on disposition of property and equipment, and other income. 9




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3. Commitments and Contingencies
 Commitments 
 Environmental Matters 
 Legal Matters 
   10




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Operating Leases
   11




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##### Table of Contents



4. Long-term Debt
         12




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##### Table of Contents



5. Valuation Accounts
    March 31,
    
    
    December 31,2011
    
    
    2010Gross Accounts Receivable
    
    
    100
    %
    
    
    100
    %Allowance for Contractual Discounts
    
    
    34
    %
    
    
    33
    %Allowance for Uncompensated Care
    
    
    36
    %
    
    
    37
    %
  6. Employee Compensation
 Employee Incentive Compensation 
  13




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7. Fair Value Measurements
      March 31, 2011Total
    
    
    (Level 1)
    
    
    (Level 2)Short-term investments:Money Market Mutual Funds
    
    $
    26,735
    
    
    $
    26,735
    
    
    $
    Commercial Paper
    
    
    17,483
    
    
    
    
    
    
    
    17,483U.S. Government Agencies
    
    
    9,026
    
    
    
    
    
    
    
    9,026Corporate bonds and notes
    
    
    67,607
    
    
    
    
    
    
    
    67,607120,851
    
    
    
    26,735
    
    
    
    94,116Investments in other assets
    
    
    2,808
    
    
    
    2,808
    
    
    
    Total
    
    $
    123,659
    
    
    $
    29,543
    
    
    $
    94,116
 December 31, 2010Total
    
    
    (Level 1)
    
    
    (Level 2)Short-term investments:Money Market Mutual Funds
    
    $
    33,968
    
    
    $
    33,968
    
    
    $
    Commercial Paper
    
    
    42,455
    
    
    
    
    
    
    
    42,455U.S. Government Agencies
    
    
    8,013
    
    
    
    
    
    
    
    8,013Corporate bonds and notes
    
    
    65,636
    
    
    
    
    
    
    
    65,636150,072
    
    
    
    33,968
    
    
    
    116,104Investments in other assets
    
    
    3,547
    
    
    
    3,547
    
    
    
    Total
    
    $
    153,619
    
    
    $
    37,515
    
    
    $
    116,104
   14




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8. Investments
   Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Thousands of dollars)Short-term investments:Money Market Mutual Funds
    
    $
    26,735
    
    
    $
    
    
    
    $
    
    
    
    $
    26,735Commercial Paper
    
    
    17,487
    
    
    
    
    
    
    
    (4
    )
    
    
    17,483U.S. Government Agencies
    
    
    9,033
    
    
    
    1
    
    
    
    (8
    )
    
    
    9,026Corporate bonds and notes
    
    
    67,714
    
    
    
    8
    
    
    
    (115
    )
    
    
    67,607Subtotal
    
    
    120,969
    
    
    
    9
    
    
    
    (127
    )
    
    
    120,851Investments in other assets
    
    
    2,808
    
    
    
    
    
    
    
    
    
    
    
    2,808Total
    
    $
    123,777
    
    
    $
    9
    
    
    $
    (127
    )
    
    $
    123,659
  Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Thousands of dollars)Short-term investments:Money Market Mutual Funds
    
    $
    33,968
    
    
    $
    
    
    
    $
    
    
    
    $
    33,968Commercial Paper
    
    
    42,471
    
    
    
    
    
    
    
    (16
    )
    
    
    42,455U.S. Government Agencies
    
    
    8,022
    
    
    
    
    
    
    
    (10
    )
    
    
    8,012Corporate bonds and notes
    
    
    65,847
    
    
    
    4
    
    
    
    (214
    )
    
    
    65,637Subtotal
    
    
    150,308
    
    
    
    4
    
    
    
    (240
    )
    
    
    150,072Investments in other assets
    
    
    3,547
    
    
    
    
    
    
    
    
    
    
    
    3,547Total
    
    $
    153,855
    
    
    $
    4
    
    
    $
    (240
    )
    
    $
    153,619
  Amortized
    
    
    FairCost
    
    
    Value(Thousands of dollars)Due in one year or less
    
    $
    57,790
    
    
    $
    57,785Due within two years
    
    
    36,444
    
    
    
    36,331Total
    
    $
    94,234
    
    
    $
    94,116
 15




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Amortized
    
    
    FairCost
    
    
    Value(Thousands of dollars)Due in one year or less
    
    $
    58,740
    
    
    $
    58,704Due within two years
    
    
    57,600
    
    
    
    57,400Total
    
    $
    116,340
    
    
    $
    116,104
  Average
    
    
    AverageCoupon
    
    
    Days ToRate%
    
    
    MaturityCommercial Paper
    
    
    0.243
    
    
    
    108U.S. Government Agencies
    
    
    0.919
    
    
    
    490Corporate bonds and notes
    
    
    5.078
    
    
    
    368
  UnrealizedFair Value
    
    
    Losses(Thousands of dollars)Commercial Paper
    
    $
    17,487
    
    
    $
    (4
    )U.S. Government Agencies
    
    
    4,001
    
    
    
    (8
    )Corporate bonds and notes
    
    
    52,258
    
    
    
    (115
    )$
    73,746
    
    
    $
    (127
    )
  UnrealizedFair Value
    
    
    Losses(Thousands of dollars)Commercial Paper
    
    $
    42,471
    
    
    $
    (16
    )U.S. Government Agencies
    
    
    3,993
    
    
    
    (10
    )Corporate bonds and notes
    
    
    60,501
    
    
    
    (214
    )$
    106,965
    
    
    $
    (240
    )
   16




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9. Shareholders Equity
   March 31,
    
    
    December 31,2011
    
    
    2010Unrealized loss on short-term investments
    
    $
    (71
    )
    
    $
    (142
    )Changes in pension plan assets and benefit obligations
    
    
    (20
    )
    
    
    (20
    )$
    (91
    )
    
    $
    (162
    )
 10. Condensed Consolidating Financial Information
   17




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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)(Unaudited)
 March 31, 2011ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash
    
    $
    10,018
    
    
    $
    626
    
    
    $
    
    
    
    $
    10,644Short-term investments
    
    
    120,851
    
    
    
    
    
    
    
    
    
    
    
    120,851Accounts receivable  net
    
    
    77,583
    
    
    
    10,525
    
    
    
    
    
    
    
    88,108Intercompany receivable
    
    
    
    
    
    
    78,898
    
    
    
    (78,898
    )
    
    
    Inventories of spare parts  net
    
    
    59,632
    
    
    
    
    
    
    
    
    
    
    
    59,632Other current assets
    
    
    16,326
    
    
    
    18
    
    
    
    
    
    
    
    16,344Income taxes receivable
    
    
    553
    
    
    
    
    
    
    
    
    
    
    
    553Total current assets
    
    
    284,963
    
    
    
    90,067
    
    
    
    (78,898
    )
    
    
    296,132Investment in subsidiaries and other
    
    
    76,947
    
    
    
    
    
    
    
    (76,947
    )
    
    
    Other assets
    
    
    27,854
    
    
    
    22
    
    
    
    
    
    
    
    27,876Property and equipment  net
    
    
    580,755
    
    
    
    12,952
    
    
    
    
    
    
    
    593,707Total assets
    
    $
    970,519
    
    
    $
    103,041
    
    
    $
    (155,845
    )
    
    $
    917,715LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    19,726
    
    
    $
    307
    
    
    $
    
    
    
    $
    20,033Accrued liabilities
    
    
    34,151
    
    
    
    4,898
    
    
    
    
    
    
    
    39,049Intercompany payable
    
    
    78,898
    
    
    
    
    
    
    
    (78,898
    )
    
    
    Total current liabilities
    
    
    132,775
    
    
    
    5,205
    
    
    
    (78,898
    )
    
    
    59,082Long-term debt
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000Deferred income taxes and other long-term
liabilities
    
    
    67,928
    
    
    
    20,889
    
    
    
    
    
    
    
    88,817Shareholders Equity:Common stock and paid-in capital
    
    
    292,934
    
    
    
    2,674
    
    
    
    (2,674
    )
    
    
    292,934Accumulated other comprehensive loss
    
    
    (91
    )
    
    
    
    
    
    
    
    
    
    
    (91
    )Retained earnings
    
    
    176,973
    
    
    
    74,273
    
    
    
    (74,273
    )
    
    
    176,973Total shareholders equity
    
    
    469,816
    
    
    
    76,947
    
    
    
    (76,947
    )
    
    
    469,816Total liabilities and
shareholders equity
    
    $
    970,519
    
    
    $
    103,041
    
    
    $
    (155,845
    )
    
    $
    917,715
 
 (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 BALANCE SHEETS
(Thousands of dollars)
 December 31, 2010ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash
    
    $
    2,957
    
    
    $
    671
    
    
    $
    
    
    
    $
    3,628Short-term investments
    
    
    150,072
    
    
    
    
    
    
    
    
    
    
    
    150,072Accounts receivable  net
    
    
    81,393
    
    
    
    8,266
    
    
    
    
    
    
    
    89,659Intercompany receivable
    
    
    
    
    
    
    79,810
    
    
    
    (79,810
    )
    
    
    Inventories of spare parts  net
    
    
    59,336
    
    
    
    
    
    
    
    
    
    
    
    59,336Other current assets
    
    
    16,224
    
    
    
    9
    
    
    
    
    
    
    
    16,233Income taxes receivable
    
    
    558
    
    
    
    
    
    
    
    
    
    
    
    558Total current assets
    
    
    310,540
    
    
    
    88,756
    
    
    
    (79,810
    )
    
    
    319,486Investment in subsidiaries and others
    
    
    75,114
    
    
    
    
    
    
    
    (75,114
    )
    
    
    Other assets
    
    
    29,099
    
    
    
    21
    
    
    
    
    
    
    
    29,120Property and equipment, net
    
    
    583,091
    
    
    
    13,442
    
    
    
    
    
    
    
    596,533Total assets
    
    $
    997,844
    
    
    $
    102,219
    
    
    $
    (154,924
    )
    
    $
    945,139LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    22,191
    
    
    $
    213
    
    
    $
    
    
    
    $
    22,404Accrued liabilities
    
    
    23,482
    
    
    
    4,837
    
    
    
    
    
    
    
    28,319Intercompany payable
    
    
    79,810
    
    
    
    
    
    
    
    (79,810
    )
    
    
    Total current liabilities
    
    
    125,483
    
    
    
    5,050
    
    
    
    (79,810
    )
    
    
    50,723Long-term debt
    
    
    331,074
    
    
    
    
    
    
    
    
    
    
    
    331,074Deferred income taxes and other long-term
liabilities
    
    
    68,871
    
    
    
    22,055
    
    
    
    
    
    
    
    90,926Shareholders Equity:Common stock and paid-in capital
    
    
    292,934
    
    
    
    2,674
    
    
    
    (2,674
    )
    
    
    292,934Accumulated other comprehensive
loss
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    
    (162
    )Retained earnings
    
    
    179,644
    
    
    
    72,440
    
    
    
    (72,440
    )
    
    
    179,644Total shareholders equity
    
    
    472,416
    
    
    
    75,114
    
    
    
    (75,114
    )
    
    
    472,416Total liabilities and
shareholders equity
    
    $
    997,844
    
    
    $
    102,219
    
    
    $
    (154,924
    )
    
    $
    945,139
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. 19




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
(Unaudited)
 For the quarter ended March 31, 2011ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues, net
    
    $
    104,401
    
    
    $
    15,239
    
    
    $
    
    
    
    $
    119,640Management fees
    
    
    610
    
    
    
    
    
    
    
    (610
    )
    
    
    Other, principally interest income
    
    
    689
    
    
    
    
    
    
    
    
    
    
    
    689105,700
    
    
    
    15,239
    
    
    
    (610
    )
    
    
    120,329Expenses:Direct expenses
    
    
    96,923
    
    
    
    11,283
    
    
    
    
    
    
    
    108,206Management fees
    
    
    
    
    
    
    610
    
    
    
    (610
    )
    
    
    Selling, general, and administrative
    
    
    9,251
    
    
    
    292
    
    
    
    
    
    
    
    9,543Equity in net income of consolidated
subsidiaries
    
    
    (1,833
    )
    
    
    
    
    
    
    1,833
    
    
    
    Interest expense
    
    
    7,032
    
    
    
    
    
    
    
    
    
    
    
    7,032111,373
    
    
    
    12,185
    
    
    
    1,223
    
    
    
    124,781(Loss) earnings before income taxes
    
    
    (5,673
    )
    
    
    3,054
    
    
    
    (1,833
    )
    
    
    (4,452
    )Income tax (benefit) expense
    
    
    (3,002
    )
    
    
    1,221
    
    
    
    
    
    
    
    (1,781
    )Net (loss) earnings
    
    $
    (2,671
    )
    
    $
    1,833
    
    
    $
    (1,833
    )
    
    $
    (2,671
    )
 For the quarter ended March 31, 2010ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues, net
    
    $
    104,050
    
    
    $
    17,559
    
    
    $
    
    
    
    $
    121,609Management fees
    
    
    702
    
    
    
    
    
    
    
    (702
    )
    
    
    Other, principally interest income
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    37104,789
    
    
    
    17,559
    
    
    
    (702
    )
    
    
    121,646Expenses:Direct expenses
    
    
    91,112
    
    
    
    13,095
    
    
    
    
    
    
    
    104,207Management fees
    
    
    
    
    
    
    702
    
    
    
    (702
    )
    
    
    Selling, general, and administrative
    
    
    6,280
    
    
    
    445
    
    
    
    
    
    
    
    6,725Equity in net income of consolidated
subsidiaries
    
    
    (1,990
    )
    
    
    
    
    
    
    1,990
    
    
    
    Interest expense
    
    
    3,996
    
    
    
    
    
    
    
    
    
    
    
    3,99699,398
    
    
    
    14,242
    
    
    
    1,288
    
    
    
    114,928Earnings before income taxes
    
    
    5,391
    
    
    
    3,317
    
    
    
    (1,990
    )
    
    
    6,718Income tax expense
    
    
    1,360
    
    
    
    1,327
    
    
    
    
    
    
    
    2,687Net earnings
    
    $
    4,031
    
    
    $
    1,990
    
    
    $
    (1,990
    )
    
    $
    4,031
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. 20




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
 For the quarter ended March 31, 2011ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    14,454
    
    
    $
    (36
    )
    
    $
    
    
    
    $
    14,418Investing activities:Purchase of property and equipment
    
    
    (5,371
    )
    
    
    (9
    )
    
    
    
    
    
    
    (5,380
    )Purchase of short-term investments
    
    
    (49,493
    )
    
    
    
    
    
    
    
    
    
    
    (49,493
    )Proceeds from asset dispositions
    
    
    449
    
    
    
    
    
    
    
    
    
    
    
    449Proceeds from sale of short-term
investments
    
    
    78,096
    
    
    
    
    
    
    
    
    
    
    
    78,096Net cash provided by (used in) investing
activities
    
    
    23,681
    
    
    
    (9
    )
    
    
    
    
    
    
    23,672Financing activities:Payments on line of credit  net
    
    
    (31,074
    )
    
    
    
    
    
    
    
    
    
    
    (31,074
    )Net cash used in financing activities
    
    
    (31,074
    )
    
    
    
    
    
    
    
    
    
    
    (31,074
    )Increase in cash
    
    
    7,061
    
    
    
    (45
    )
    
    
    
    
    
    
    7,016Cash, beginning of period
    
    
    2,957
    
    
    
    671
    
    
    
    
    
    
    
    3,628Cash, end of period
    
    $
    10,018
    
    
    $
    626
    
    
    $
    
    
    
    $
    10,644
 For the quarter ended March 31, 2010ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    21,849
    
    
    $
    167
    
    
    $
    
    
    
    $
    22,016Investing activities:Purchase of property and equipment
    
    
    (5,693
    )
    
    
    (270
    )
    
    
    
    
    
    
    (5,963
    )Purchase of short-term investments
    
    
    (1,001
    )
    
    
    
    
    
    
    
    
    
    
    (1,001
    )Net cash used in investing activities
    
    
    (6,694
    )
    
    
    (270
    )
    
    
    
    
    
    
    (6,964
    )Financing activities:Payments on line of credit
    
    
    (10,200
    )
    
    
    
    
    
    
    
    
    
    
    (10,200
    )Net cash used in financing activities
    
    
    (10,200
    )
    
    
    
    
    
    
    
    
    
    
    (10,200
    )Increase in cash
    
    
    4,955
    
    
    
    (103
    )
    
    
    
    
    
    
    4,852Cash, beginning of period
    
    
    1,678
    
    
    
    823
    
    
    
    
    
    
    
    2,501Cash, end of period
    
    $
    6,633
    
    
    $
    720
    
    
    $
    
    
    
    $
    7,353
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors subsidiaries amounts. 21




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##### Table of Contents



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
  Overview
   22




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##### Table of Contents



Quarter EndedMarch 31,2011
    
    
    2010Flight hours:Oil and Gas
    
    
    24,253
    
    
    
    27,036Air Medical (1)
    
    
    7,623
    
    
    
    7,091Technical Services
    
    
    562
    
    
    
    485Total
    
    
    32,438
    
    
    
    34,612Air Medical Transports(2)
    
    
    4,035
    
    
    
    3,973Aircraft operated at period end:Oil and Gas (3)
    
    
    161
    
    
    
    163Air Medical (4)
    
    
    88
    
    
    
    86Technical Services
    
    
    6
    
    
    
    6Total (3) (4)
    
    
    255
    
    
    
    255
 
 (1)
    
    Flight hours include 2,127 flight hours associated with hospital-based contracts, compared
to 1,801 flight hours in the prior year quarter.(2)
    
    Represents individual patient transports for the period.(3)
    
    Includes nine aircraft as of March 31, 2011 and 2010 that are customer owned.(4)
    
    Includes seven aircraft as of March 31, 2011 and 2010 that are customer owned. 23




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##### Table of Contents



Results of Operations
 Quarter Ended March 31, 2011 compared with Quarter Ended March 31, 2010
 Combined Operations
 Revenues
  Other Income and Gains
  Direct Expenses
 Selling, General, and Administrative Expenses
 24




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##### Table of Contents



Interest Expense
 Income Taxes
 Net Earnings
 Segment Discussion
 Oil and Gas
    25




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##### Table of Contents



Air Medical
     Technical Services
 26




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Liquidity and Capital Resources
 General
    Cash Flow
     27




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##### Table of Contents



Long Term Debt
      28




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##### Table of Contents



Contractual Obligations
  Payment Due by YearBeyondTotal
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    2015(Thousands of dollars)Aircraft purchase
commitments (1)
    
    $
    97,628
    
    
    $
    35,937
    
    
    $
    61,691
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Aircraft lease
obligations (2)
    
    
    161,492
    
    
    
    20,523
    
    
    
    27,824
    
    
    
    28,190
    
    
    
    28,190
    
    
    
    27,912
    
    
    
    28,853Other lease
obligations
    
    
    15,737
    
    
    
    2,468
    
    
    
    2,330
    
    
    
    1,740
    
    
    
    1,557
    
    
    
    1,469
    
    
    
    6,173Long-term debt (3)
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000$
    574,857
    
    
    $
    58,928
    
    
    $
    91,845
    
    
    $
    29,930
    
    
    $
    29,747
    
    
    $
    29,381
    
    
    $
    335,026
 
 (1)
    
    In 2010, we executed a contract to acquire 10 new AW139 medium aircraft related to our
new contract with Shell Offshore, Inc., a subsidiary of Shell, which purchases commenced in
late 2010, with the remaining purchases scheduled for delivery through late 2012. The
aircraft have an aggregate acquisition cost of approximately $127.0 million. We have traded
in two aircraft in exchange for a credit of approximately $20.3 million towards these
acquisition costs. As of March 31, 2011, eight aircraft remained to be delivered in 2011
through late 2012, with an aggregate acquisition cost of approximately $97.6 million,
against which a credit of $17.6 million remained on deposit. We may finance some of these
acquisition costs with net proceeds from our 8.625% Senior Notes, and expect to finance the
balance through some combination of cash on hand or generated from operations, operating
leases and borrowings under our revolving credit facility.(2)
    
    On April 4, 2011, we purchased two heavy aircraft pursuant to a purchase option in the
lease contract. The total purchase price was $26.6 million for both aircraft and was
funded with proceeds from the 8.625% Senior Notes offering. The future lease obligation
amount included in the table above related to these two aircraft was $17.4 million.(3)
    
    Long-term debt consists of the principal amount of our 8.625% Senior Notes. Estimated
interest costs on the long-term debt obligations set forth above, assuming the amounts
outstanding at March 31, 2011 stayed constant, are $25.9 million annually for the 8.625%
Senior Notes. This amount is not included in the table above.  29




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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     
 Item 4. CONTROLS AND PROCEDURES
   30




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1. A. RISK FACTORS
  
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3. DEFAULTS UPON SENIOR SECURITIES
  
 Item 4. (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).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).
 31




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##### Table of Contents



4.2
    
    First Amendment dated as of August 5, 2009 to Amended and Restated Loan
Agreement dated as of March 31, 2008 by and among PHI, Inc., Air Evac Services, Inc.,
PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), and International
Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to
Exhibit 4.2 to PHIs Report on Form 10-Q filed on August 10, 2009).4.3
    
    Second Amendment dated September 13, 2010 to Amended and Restated Loan
Agreement dated March 31, 2008 by and among PHI, Inc., Air Evac Services, Inc., PHI
Tech Services, Inc. and International Helicopter Transport, Inc., and Whitney National
Bank (incorporated by reference to Exhibit 4.3 to PHIs Report on Form 10-Q filed on
November 8, 2010).4.4
    
    Indenture dated as of September 23, 2010 by and among PHI, Inc., the subsidiary
guarantors and The Bank of New York Mellon Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to PHIs Report on Form 8-K filed on
September 23, 2010).4.5
    
    Form of 8.625% Senior Note due 2018 (incorporated by reference to Exhibit 4.2
to PHIs Report on Form 8-K filed on September 23, 2010).10.1
    
    Agreement, Release and Waiver by and between PHI, Inc. and William Pete
Sorenson executed on March 23, 2010.10.2
    
    Addendum to Separation Agreement, Release and Waiver by and between PHI, Inc.
and William Pete Sorenson dated as of November 2, 2010.10.3
    
    Senior Management Incentive Bonus Plan adopted May 5, 2011.31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chairman and Chief Executive Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chairman and Chief Executive Officer.32.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer.
 32




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SIGNATURES
  PHI, Inc.May 9, 2011
    By:
    /s/ Al A. GonsoulinAl A. GonsoulinChairman and Chief Executive OfficerMay 9, 2011
    By:
    /s/ Michael J. McCannMichael J. McCannChief Financial Officer 33